Aetna Insurance Company v. Paddock

• Citation: 301 F.2d 807
• Decision Date: 02 May 1962
• Docket Number: No. 18891.,18891.
• Parties: AETNA INSURANCE COMPANY, Appellant, v. Burton B. PADDOCK, Trustee in Bankruptcy for Travis B. Stanford, Individually, a Bankrupt and Stanford Construction Company, Inc., a Bankrupt, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

301 F.2d 807 (1962)

AETNA INSURANCE COMPANY, Appellant, v. Burton B. PADDOCK, Trustee in Bankruptcy for Travis B. Stanford, Individually, a Bankrupt and Stanford Construction Company, Inc., a Bankrupt, Appellee.

No. 18891.

United States Court of Appeals Fifth Circuit.

March 9, 1962.

Rehearing Denied May 2, 1962.

Robert Lee Guthrie, Johnson, Guthrie & Stanfield, Dallas, Tex., for appellant.

L. W. Anderson, Dallas, Tex., John G. Street, Jr., Fort Worth, Tex., William B. Henley, Jr., Dallas, Tex., for appellee.

Before BROWN, WISDOM and BELL, Circuit Judges.

GRIFFIN B. BELL, Circuit Judge.

This is an equitable proceeding originally instituted by Travis B. Stanford, individually and doing business as Stanford Construction Company, and Stanford Construction Company, Inc., a corporation, seeking reformation of an insurance policy issued by appellant, Aetna Insurance Company, on the ground of mutual mistake. The District Court entered judgment on the verdict of an advisory jury in favor of plaintiffs which judgment was reversed and remanded by this court, Aetna Insurance Company v. Stanford, 5 Cir., 1959, 273 F.2d 150, for the failure of the District Court in an equity matter to make the requisite findings of fact and conclusions of law under Rule 52(a), Fed.R.Civ.P., 28 U.S. C.A., and because of error in the charge regarding the type of insurance policy involved to the extent that the jury made a finding, which constituted the basis of the judgment, that was not dispositive of the issue.

Subsequent to the remand both Stanford, individually and the corporation were adjudicated bankrupt, and the trustee in bankruptcy by amendment succeeded as party plaintiff in the suit. The case was again tried before a jury, regular as to the question of damages but advisory only as to the equitable issue of reformation and the following verdict was rendered for the trustee:

"We, the jury, on the issue of mutual mistake as to the wording of the policy, find there was a mutual mistake.

"As to the issue of damages, we find that plaintiff sustained a damage in the amount of $75,000.00."

The trial court this time made findings of fact and conclusions of law as to the equitable cause of action, and entered up judgment for appellee in the sum of $68,250.00, being the result of reducing the jury verdict by nine percent due to a co-insurance provision, plus six percent interest from June 10, 1957, the date appellant refused to pay the loss.

Appellant contends that the court erred in overruling its motion for a directed verdict, and its motion for judgment because of an insufficiency of clear and convincing evidence, and that it is entitled to reversal because the findings of fact cannot form the basis of a proper review in that they are conflicting, and unsupported, with material facts omitted. Appellant asserts that the trial court improperly charged the jury as to the types of insurance policies involved, and as to the measure of damages. Also assigned as error is the exclusion from evidence of testimony to the effect that Stanford loaned witness Williams money to set up his insurance agency, and the allowance of interest by the court from June 10, 1957 to November 23, 1960 in view of the fact that the jury was instructed to find damages to fairly compensate plaintiffs if paid in cash as of the date of the verdict.

We reverse on the equitable issue of reformation only because of the exclusion of the testimony regarding the loan by Stanford to Williams. We reverse as to damages only because of the improper measure given in charge.

Stanford Construction Company, Inc., entered into a contract with the City of Arlington, Texas for the construction of a sewage treatment plant for a total contract price of $616,816 on April 27, 1956. It was to be constructed on the banks of the Trinity River. Appellant wrote the Bid Bond and the Performance Bond for Stanford in connection with this project through Williams, Manager of its Dallas local recording agent,¹ Lewis Grinnan Company, at the request of Biggins, an employee of a Fort Worth insurance agency from whom Stanford ordinarily purchased his insurance.

Williams, on behalf of appellant, and after writing the bonds, solicited the insurance business on the construction job. Biggins, on behalf of Stanford, had already made tentative arrangements to secure an "all risk installation floater policy" for a premium of $400 from the Marine Office of America which policy would have covered the losses from flood damage which underlie this controversy. Biggins told Williams, who solicited the business on the basis of having accommodated Stanford by writing the bonds, that appellant could have the business on the basis of the same coverage and premium as the Marine Office of America policy, and showed him a copy of the Marine Office of America all risk form which did not exclude the coverage here in dispute.

Williams, then took the matter up with Stephens, an employee of appellant, whose duty it was to assist its agents in the production of this type business, and advised Stephens that he could place the coverage provided it was the same coverage and the same rate as that offered by Marine Office of America. Stephens according to Williams agreed to the terms, but Stephens disputed this. He remembered the incident, the discussion as to the premium, admitted it was the first installation floater ever issued at the request of Williams, and that he discussed the Marine Office of America form with Williams. He testified that he was transferred before the policy was issued. Williams testified that it was his intention that flood damage be covered. Appellant wrote the "all risk" policy with the flood exclusion which was forwarded to Williams, who did not read it but was "certain" that he advised Biggins that the coverage had been placed. The policy was forwarded to Biggins who did not read it, and he in turn forwarded it to Stanford who did not read it. Later the coverage was increased from $150,000 to $500,000 and still the policy was not read by Williams, Biggins or Stanford. Appellant produced no file relating to the issuance of the policy, the terms of which were negotiated, nor the person who issued it.

The policy as written contained the following printed exclusion, among others:

"Loss or damage caused by flood meaning inundation, waves, tide or tidal waves, high water or over flow of streams or bodies of water whether driven by wind or not. This exclusion does not apply in respect to property while in due course of transit."

After the policy had been in effect for some eight months and after the sewage disposal plant was ninety three percent completed the plant was seriously damaged by the flooding of the Trinity River. Stanford then claimed that the policy should have covered all flood damage and not solely flood damage to property in transit. Stanford contended that the policy was issued containing the flood exclusion as a result of mutual mistake and appellant contended the policy as written represented the agreement between the parties.

The evidence was that no standard form of builders' installation all risk floater policy exists in the insurance industry but that each company designed its own, with exclusions ranging from none to many.

Appellant makes much of a memorandum written to Williams by Biggins asking for the coverage and premium involved here which memorandum concluded by asking Williams to "talk to the boys at Aetna and see if they agree." Appellant uses this as a vehicle to show that there was no firm agreement between Biggins and Williams and that whatever coverage was to be extended would be what "the boys at Aetna" wrote, ignoring the role of Stephens. The terms of the coverage were anchored to the Marine Office of America form as submitted by Biggins to Williams and from Williams, agent for appellant, to Stephens, employee of appellant. The only dispute as to the terms of coverage purchased is between the agent, Williams and employee, Stephens of appellant, and Williams substantiates the position of appellee.

As this court pointed out on the previous appeal, the oral contract alleged by appellee must be established by clear and convincing evidence, and not by a mere preponderance. The mistake must be in the drafting of the instrument, i. e., the policy, and not in making of the contract which it evidences. St. Paul Fire & Marine Ins. Co. v. Jones, 5 Cir., 1938, 98 F.2d 448. The rule is a salutary one operating to prevent the substitution of parol for written contracts upon loose and unsupported claims that the agreement was other than as written, but as this court noted in Day v. Fireman's Fund, 5 Cir., 1933, 67 F.2d 257, "Its wise and salutary purpose to keep down unfounded claims is not advanced by giving it such stringent application as to prevent proof of well founded ones."

Appellant confounds the appeal by failing to give proper recognition to the role of an advisory jury in an equity case, the rules obtaining to the use that may be made of the jury verdict by the court, and the manner in which exception may be taken to the verdict. Rule 39(c), Fed.R.Civ.P., provides that in actions not triable of right by a jury the court may try any issue with an advisory jury. In an equity matter the court may submit to the advisory jury such issues of fact as it sees fit and may adopt the findings, Reliance Life Ins. Company of Pittsburgh v. Everglades Discount Company, 5 Cir., 1953, 204 F.2d 937, or disregard its findings, all in the discretion of the court. Hargrove v. American Cent. Ins. Company, 10 Cir., 1942, 125 F.2d 225. Some of the findings of the jury may be adopted and others rejected but all findings of the jury must be treated merely as advisory. Burkhard v. Burkhard, 10 Cir., 1948, 175 F.2d 593. The remedy where the court has adopted the...