American Eagle Fire Ins. Co. v. Peoples Compress Co.

• Decision Date: 10 July 1946
• Docket Number: No. 3169.,3169.
• Citation: 156 F.2d 663
• Parties: AMERICAN EAGLE FIRE INS. CO. OF NEW YORK v. PEOPLES COMPRESS CO. et al.
• Court: U.S. Court of Appeals — Tenth Circuit

156 F.2d 663 (1946)

AMERICAN EAGLE FIRE INS. CO. OF NEW YORK v. PEOPLES COMPRESS CO. et al.

No. 3169.

Circuit Court of Appeals, Tenth Circuit.

July 10, 1946.

COPYRIGHT MATERIAL OMITTED

H. L. Smith, of Tulsa, Okl., and C. M. Smithdeal, of Dallas, Tex., for appellant.

Brown Moore, of Stillwater, Okl., for appellees, Peoples Compress Company and J. H. Bellis Cotton Company.

Before, PHILLIPS and MURRAH, Circuit Judges, and KENNAMER, District Judge.

MURRAH, Circuit Judge.

This appeal involves coverage under a "blanket or floating" insurance policy issued by American Eagle Fire Insurance Company insuring the People's Compress Company against any loss or damage by fire to cotton stored in its warehouse, for which "insured receipts" had been issued. The premium for such policy was adjusted and paid each month on the basis of the number of insured compress receipts issued and outstanding, and the policy required the insured to make weekly reports to the insurer showing the total number of bales of cotton for which receipts were outstanding.

On or about June 28, 1943, a fire destroyed the People's Compress and either destroyed or damaged most of the cotton stored therein. The Compress Company filed a proof of loss showing the number of bales of cotton in the warehouse at the time of the fire and made claim on the insurer for payment of 1302 bales, on which insured warehouse receipts were outstanding. When the insurance company denied liability under the policy, the holders of outstanding warehouse receipts brought this suit in the state court against the Compress Company, as warehouseman, the Insurance Company, as insurer, and the Bellis Cotton Company, as pledgor of the receipts, to recover the value of cotton alleged to have been destroyed by the fire. The Insurance Company, as the only non-resident defendant, duly removed the case to Federal court on the grounds of diversity of citizenship and requisite amount in controversy, both of which are shown on the record.

The issues as finally cast at the time of trial aligned the Pawnee National Bank, as the holder of outstanding warehouse receipts, against the Bellis Cotton Company, as pledgor, the Compress Company, as warehouseman, and the Insurance Company, as insurer; the Compress Company cross-claimed against the Insurance Company as its insurer; the Bellis Company cross-claimed against the Compress Company, its bailee, and the Insurance Company. The Insurance Company, as insurer and subrogee of some of the original plaintiffs, defended and cross-claimed on the grounds that when its policy was issued the Compress Company and the Bellis Company, both of which were owned and controlled by the same stockholders, had entered into a "secret agreement" whereby Bellis was permitted to withdraw and ship cotton from the Compress without first surrendering the insured warehouse receipts issued thereon; that such arrangement was a violation of the laws of the United States and the State of Oklahoma pertaining to public warehouses; that the insurer would not have issued its policy had it known of such unlawful agreement, and that the concealment of this material fact prevented the policy of insurance from becoming a valid contract. Alternatively, it is averred that if the policy ever became a valid contract, it was voided by the failure of the insured to make and preserve adequate weekly reports, as required by the policy, from which the insurer could determine the amount of cotton in the compress, for which insured receipts were outstanding. That in any event, the insurer is not liable to Bellis as the holder of insured warehouse receipts because the alleged collusive and fraudulent practices under the so-called "secret agreement" vitiated the contract between the insured and insurer, and Bellis as the collusive holder of warehouse receipts.

The trial court found that the policy of insurance was in full force and effect at the time of the fire; that the Compress Company had done everything reasonably required of it by the terms of the policy, and that through no fault of it the fire had totally destroyed 1,096 bales of cotton represented by outstanding insured warehouse receipts; and, that the allegations of fraud, collusion, failure to keep proper records and give required information to the Insurance Company was unsupported by the evidence. It accordingly gave a general judgment against the Insurance Company in favor of the Compress Company, and a judgment in favor of the respective holders of outstanding warehouse receipts against the Compress Company for the value of the cotton represented by the receipts.

The Insurance Company appeals only from the judgments in favor of the Compress Company and the Bellis Company. Eleven specifications of error are assigned, but in sum they present the same contentions urged to the trial court. The question presented here is whether the trial court's findings are reasonably supported by the evidence; and whether the court applied the correct legal standards in the construction and interpretation of the insurance contract.

The trial court's findings and judgment are based upon the following facts, fairly established by the evidence. Mr. Forrest Hazaleus, who had been with the Compress Company for thirty-one years, was the manager when the fire occurred. The Bellis Company was operated by Price King, President, and Maude Groom, Vice-President. The heirs of J. H. Bellis owned stock in both the Compress Company and the Bellis Company, and Maude Groom was the dominating personality in both companies. The Bellis Company owned several gins throughout Oklahoma and for many years had stored its cotton in the compress. At the beginning of each cotton season Bellis would by letter agree to indemnify the Compress Company against any loss whatsoever it might sustain in shipping cotton belonging to Bellis without the surrender of warehouse receipts which had been issued thereon.

The policy by its terms is void and in-operative if the insured conceals or misrepresents in writing or otherwise, any material fact or circumstance concerning the insurance or subject matter thereof. To emphasize the vice of the alleged "secret agreement", the appellant points to the laws of Oklahoma relating to cotton and broom-corn warehouses, which make it a criminal offense for such public warehouses, under any circumstances or upon any order or guaranty whatsoever, to deliver the property for which receipts have been issued until the receipts have been surrendered and cancelled. Failure to strictly comply with the provisions of the law renders the warehouseman liable to the legal holder of the receipts for the full value of the property represented thereby, and for other penalties provided. 81 O.S.A. § 145, 150. Attention is also called to the Oklahoma Statutes making it a criminal offense for a manager or other employee of a warehouse operated under the state warehouse system (see 81 O.S.A. § 171, 172) to issue or aid in issuing a receipt for any agricultural product without knowing that such product has actually been placed in the warehouse and under control of the manager, or to deliver any agricultural product from the warehouse without the surrender for cancellation of the receipt therefor. 81 O.S.A. § 180, 181. See also 81 O.S.A. § 375. The Federal law also imposes upon a licensed...