Ahnapee & W. Ry. Co. v. Challoner

• Court: Wisconsin Supreme Court
• Writing for the Court: HALLOWS
• Citation: Ahnapee & W. Ry. Co. v. Challoner, 148 N.W.2d 646, 34 Wis.2d 134 (Wis. 1967)
• Decision Date: 28 February 1967
• Parties: , 32 A.L.R.3d 653 AHNAPEE & WESTERN RAILWAY COMPANY, Plaintiff-Appellant, v. Reynolds R. CHALLONER and Employers Mutual Liability Insurance Company, Defendants-Respondents.

Page 646

148 N.W.2d 646

34 Wis.2d 134, 32 A.L.R.3d 653

AHNAPEE & WESTERN RAILWAY COMPANY, Plaintiff-Appellant, v. Reynolds R. CHALLONER and Employers Mutual Liability Insurance Company, Defendants-Respondents.

Supreme Court of Wisconsin.

Feb. 28, 1967.

Davis, Soquet & Cherney, Green Bay, for appellant.

Everson, Whitney, O'Melia, Everson & Brehm, Green Bay, for respondents.

HALLOWS, Justice.

The railroad contends there is sufficient evidence upon which the trial court should have reformed the contract and in addition the court erred in not applying the doctrine of estoppel in pais or the doctrine of promissory estoppel. We do not agree and we think the trial court was right in its finding.

An insurance policy like any other contract may be reformed because of mutual mistake when the policy does not contain the provisions intended by the parties to be included. But, the contract must be reformed to conform to some oral agreement or understanding which the written document was intended to express. Center Street Fuel Co. v. Hanover Fire Ins. Co. (1956), 272 Wis. 370, 75 N.W.2d 462. The quantum of proof necessary to show that through inadvertence, accident, or mutual mistake the contract of insurance does not fully or correctly set forth the intention of the parties is the so-called middle burden of proof--clear, satisfactory and convincing evidence. Jewell v. United Fire & Casualty Co. (1964), 25 Wis.2d 509, 131 N.W.2d 276; Pouwels v. Cheese Makers Mut. Casualty Co. (1949), 255 Wis. 101, 37 N.W.2d 869. We must therefore examine the facts to see if the trial court's finding of no mutual mistake relating to coverage as provided in the policy is against the great weight and clear preponderance of the evidence, keeping in mind 'the clear and convincing' burden the railroad has. State ex rel. Isham v. Mullally (1961), 15 Wis.2d 249, 112 N.W.2d 701.

The railroad operates a 34-mile freight system between Casco Junction and Sturgeon Bay. Vernon Bushman acquired control of this railroad in 1947 and became its principal officer and stockholder. At that time he talked to defendant Challoner regarding insurance and as a result Employers issued a general liability policy and a special policy covering the railroad's liability under the Federal Employers Liability Act. The general liability policy provided property damage coverage up to $10,000 per accident. Inadvertently there was added to the policy a provision limiting the aggregate coverage for property damage in any one year to $25,000. This policy expressly excluded coverage for losses resulting from damage to property belonging to others but in the care, custody and control of the railroad, and also excluded losses arising out of the railroad's contractual liabilities.

Sometime after acquiring this policy the railroad became a member of the American Short Line Railroad Association and through it purchased a Lloyds of London policy covering all risks in excess of $10,000 up to $250,000. The Lloyds policy expressly covered losses to property belonging to others and the railroad's contractual liability but did not cover any loss below $10,000 or any loss on which there was other valid and collectible insurance. Bushman thought his railroad had overlapping insurance coverage between $10,000 and $25,000 and wrote a letter to Challoner on March 26, 1958, attaching a copy of the Lloyds policy. The letter read, in part:

'We direct your attention to exclusions which state that the Lloyds policy does not cover any amounts that would be payable by some other insurance coverage. Your policy, we note, covers an aggregate amount of $25,000 for property damage. We would like to have you look this thing over, so that the two policies coincide for full coverage from zero to $250,000.

After you have reviewed this, please let me have your comments.'

This letter was sent on to the home office by Challoner. The record does not show what thereafter happened to this letter or whether the home office wrote to Challoner.

However, on April 7, 1958, Challoner wrote to Bushman stating there was an error in the Employers policy in that there was no $25,000 limit on property damage in any one year and a correcting endorsement would be issued. Thus at this time while the Employers and Lloyds policies meshed as to limits, their coverage was not indentical because under the Employers policy there was no coverage for losses resulting from damage to property of others in its care or for losses arising out of contractual liabilities and such losses did not come under the coverage of the Lloyds policy until they exceeded $10,000.

As is sometimes the case in insurance, risks which are covered never happen and those which are not covered do. A derailment occurred in January of 1959 with resultant losses which fell directly within the gap in the railroad's coverage under the policies. Damages of $5,131.14 resulted to property of others in the railroad's care and custody and to rolling stock belonging to other railroads which, under the terms of its agreement with the American Short Line Railroad Association, the railroad was obligated to repair.

Bushman testified that when he discussed insurance with Challoner they talked about coverage for all risks but no memorandum was made of the discussions. He also testified he felt the railroad was covered for all risks by Employers policy although he never carefully read it. The railroad relied on the letter of March 26, 1958, in which it claims it sought to acquire full coverage from zero to $250,000, and contends Challoner's letter of April 7th was in answer thereto and meant the policies coincided not only as to dollar-amount limits but also as to the risks covered.

Challoner testified his letter of April 7th was not intended to be an answer to the letter of March 26th but merely to correct a typographical error and at the most it related only to limits and not to coverage of the risks undertaken. He testified he did not discuss with Bushman coverage for property in the care, custody and control of the railroad or for cargo insurance and he did not intend to provide such coverage. He further testified his company might issue blanket coverage for a contractual liability but this was done on an individual-contract basis by the home office.

This evidence, as the trial court held, fell far short of establishing a mutual mistake; in fact, it is conflicting. Although circumstances, the nature of the transaction and the conduct of the parties may be considered in determining whether a mutual mistake has been made in the written contract and to establish the oral agreement, Kadow v. Aluminum Specialty Co. (1948), 253 Wis. 76, 33 N.W.2d 236, the circumstances and conduct here do not give rise to a reasonable inference of mistake or that the parties intended insurance coverage greater in scope than that provided by the written policy. The findings of the trial judge were not against the great weight and clear preponderance of the evidence and on this point must be affirmed.

It is argued the trial court failed to apply the doctrine of estoppel in pais and promissory estoppel and since Bushman believed he had coverage for all risks, which was reasonable and induced by the defendants, they should be estopped from claiming the insurance policy excluded losses resulting from damage to property of others in the railroad's care and those arising out of its contractual obligations, the difficulty with this argument is that while estoppel may be used to prevent an insurer from insisting upon conditions which result in forfeiture, estoppel has not been used in this state or in the majority of states as a means whereby the scope of coverage of an insurance policy can be expanded to include coverage which was not provided for or was excluded in the contract. The railroad contends the language in Jeske v. General Acc. F. & L. Assur. Corp. (1957) 1 Wis.2d 70, 83 N.W.2d 167, stands for the proposition that equitable estoppel may enlarge coverage of a written insurance policy. We think not.

The rule that estoppel may...