Aetna Ins. Co. v. Rhodes

• Decision Date: 30 September 1948
• Docket Number: No. 3638.,3638.
• Parties: ÆTNA INS. CO. v. RHODES.
• Court: U.S. Court of Appeals — Tenth Circuit

170 F.2d 111 (1948)

ÆTNA INS. CO. v. RHODES.

No. 3638.

United States Court of Appeals Tenth Circuit.

September 30, 1948.

COPYRIGHT MATERIAL OMITTED

Waldo Rogers, of Albuquerque, N. M., for appellant.

Wm. A. Sloan, of Albuquerque, N. M. (Don L. Dickason, of Alburquerque, N. M., and C. C. Royall, Sr., of Silver City, N. M., on the brief), for appellee.

Before BRATTON and HUXMAN, Circuit Judges, and BROADDUS, District Judge.

BROADDUS, District Judge.

The Aetna Insurance Company on August 15, 1946, issued to B. O. Rhodes a fire insurance policy upon merchandise of that type or class usual to tire repair shops, including customers' goods, in a given location in Silver City, New Mexico, and insuring Rhodes against loss by fire in the provisional amount of $33,750.00, the limit for liability for all contributing insurance being $45,000.00. When the policy was issued, Rhodes was conducting a tire service business and he continued to do so, with the merchandise reasonably required for that business, until January 17, 1947, when the merchandise and customers' goods in the possession of Rhodes were destroyed by fire.

As the merchandise and supplies would fluctuate in the usual course of the conduct of the business, the policy carried a value reporting clause, the pertinent portion of which required as a condition that the insured should report to Aetna, not later than thirty days after the last day of each month, the total value of the property insured. The clause further provided that, should the plaintiff fail to file with Aetna any monthly report, the policy, subject to all its terms and conditions, covered only the amounts of the values included in the last monthly report.

Aetna refused to pay upon proper demand and suit was filed to recover the value of the merchandise destroyed. Upon trial, there were submitted to the jury three interrogatories, — the first on whether Rhodes rendered the monthly reports to Aetna of the value of the property covered by the policy, the second seeking the time of such reports and the month for which each was rendered in the event the jury should find that any reports had been filed, and the third as to the loss suffered on the property insured. The jury replied to the first interrogatory that no monthly reports had been filed from the issuance of the policy to the time of the fire, thereby making an answer to the second unnecessary. In answer to the third interrogatory, the value of the property destroyed was fixed at $31,353.69. Judgment was entered by the Court in the amount found.

It is urged by Aetna that failure to file the monthly valuation reports during the life of the policy is a breach of the condition requiring reports monthly and hence the policy was forfeited by its terms and not in force at the time of the destruction of the property by fire.

No authority has been cited and none has been found presenting the construction of a sufficiently similar clause for monthly valuation reports, or the effect of such a clause, when applied to like facts, to be either controlling or persuasive. We must rely then on the rules of construction ordinarily applied to insurance contracts generally. Under the New Mexico law, an insurance policy should be construed liberally in favor of the insured. Harris v. Pacific Mutual Life Insurance Co., 10 Cir., 137 F.2d 272; Nikolich v. Slovenska Narodna Podporna Jednota, 33 N.M. 64, 260 P. 849, 851; Collier v. Union Indemnity Co., 38 N.M. 271, 31 P.2d 697, 700; National Mutual Savings & Loan Ass'n v. Hanover Fire Ins. Co., 40 N.M. 44, 53 P.2d 641, 643; Sneddon v. Massachusetts Protective Ass'n, 39 N.M. 74, 39 P.2d 1023, 1024. Conditions for forfeiture are within the rule as forfeitures are not favored, and where doubt arises as to the proper construction of an insurance contract that view will be adopted which will prevent an annulment of the policy. McMaster v. New York Life Ins. Co., 183 U.S. 25, 22 S.Ct. 10, 46 L.Ed. 64; Railway Mail Ass'n v. Moore, 4 Cir., 15 F.2d 547; New York Underwriters' Fire Ins. Co. v. Malham & Co., 8 Cir., 25 F.2d 415; Travelers Protective Ass'n of America v. Jones, 5 Cir., 91 F.2d 377. An insurance policy that may reasonably be construed in more than one way will be given the meaning beneficial to the insured. Aschenbrenner v. U. S. Fidelity & Guaranty Co., 292 U.S. 80, 85, 54 S.Ct. 590, 78 L.Ed. 1137; American Surety Co. v. Pauly, 170 U.S. 133, 144, 18 S.Ct. 552, 42 L.Ed. 977; Stipcich v. Metropolitan Life Ins. Co., 277 U.S. 311, 322, 48 S.Ct. 512, 72 L.Ed. 895; Sentinel Life Insurance Co. v. Blackmer, 10 Cir., 77 F.2d 347, certiorari denied 296 U.S. 602, 56 S.Ct. 119, 80 L.Ed. 427; Fireman's Fund Ins. Co. v. Globe Nav. Co., 9 Cir., 236 F. 618.

Numerous stipulations and clauses of the policy were designated as conditions by its terms but it is significant in this respect that there was no express declaration of forfeiture or of the voiding of the policy except where the insured should willfully conceal or misrepresent the material facts or circumstances concerning the insured, the subject thereof or the interest of the insured, or for any fraud or false swearing by the insured relating to the policy. The monthly valuation report clause to the effect that should the plaintiff fail to make any monthly report then the policy covered only the values included in the last report, in the light of the parties' express intent to permit cancellation only in the event of actual fraud, is strongly indicative that no forfeiture was intended for failure to furnish the monthly valuation reports; and that the penalty for such failure was to limit the recovery to the valuation fixed by the last report furnished. It should be borne in mind that the value of the merchandise was fixed in the policy on the day of its issuance and that such valuation was controlling until the next monthly report was due. Any valuation fixed by the insured under the provisions of the policy, including the valuation named when the policy was issued, or endorsed thereon, limits the recovery to the value of the stock on hand last reported; and excludes effectively all subsequent increase in the stock on hand not reported.

That no forfeiture of the benefits of the policy for failure to make the monthly reports was intended is shown by the other provisions of the policy. The policy carries a full reporting clause, known generally as the "honesty clause," which under the facts in this case would limit the liability to that portion of any loss which the last reported value bears to the actual value at the time of the report. The formula for determining the liability then would be:

Reported Value --------------- X Loss = Liability Actual Value

Illustrating the working of the formula, if the reported value in a given case is $30,000.00, the actual value $40,000.00 and the actual loss $30,000.00, the figures in the formula would be as follows:

Reported Value $30,000 ---------------------- X Loss $30,000 = Liability Actual Value 40,000 $22,500

The loss is reduced in the proportion shown by the formula but the formula is not intended to be applied when the reported value exceeds the actual value as illustrated by the following:

Reported Value $40,000 ---------------------- X Loss $30,000 = Liability...