American Eagle Fire Ins. Co. v. Burdine

• Decision Date: 10 November 1952
• Docket Number: No. 4490.,4490.
• Citation: 200 F.2d 26
• Parties: AMERICAN EAGLE FIRE INS. CO. v. BURDINE.
• Court: U.S. Court of Appeals — Tenth Circuit

200 F.2d 26 (1952)

AMERICAN EAGLE FIRE INS. CO. v. BURDINE.

No. 4490.

United States Court of Appeals, Tenth Circuit.

November 10, 1952.

Walter D. Hanson, Oklahoma City, Okl. (Stephen G. Evans, Oklahoma City, Okl., on the brief), for appellant.

Hal Welch, Hugo, Okl., for appellee.

Before BRATTON, HUXMAN and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

American Eagle Fire Insurance Company (herein called the insurer) through its agent, Horace M. Pardue, issued to R. E. Burdine (herein called insured) a provisional or monthly reporting type fire insurance policy covering his stock of merchandise, machinery, furniture and fixtures. On January 9, 1951, insured suffered property loss by fire, and shortly thereafter submitted proof of loss which was rejected by the insurer because it was considered to be false, fraudulent and excessive. On May 10, 1951, insured brought this declaratory judgment action to determine its liability under the policy and appeals from an adverse judgment.

The specific questions involved are whether the insurer is liable at all because of the alleged fraud of the insured in submitting his proof of loss, and if so, the extent of its liability under the provisional or reporting terms of the policy.

According to the findings of the trial court, fairly supported by the evidence, the insured owned a retail business in Hugo, Oklahoma. For more than five years he insured his stock of merchandise, machinery, furniture and fixtures through the insurer under a reporting form policy procured from and issued by the insurer's policy writing agent, Horace M. Pardue, the policy being renewable annually on June 7. On the expiration date the agent would each year issue an exact renewal policy, thus maintaining continuous insurance for the insured. However, on June 7, 1950, the agent, without the knowledge of the insured, neglected to issue a renewal policy, and the insurance expired.

Insured's property was not again covered by insurance until September 23, 1950 when the agent wrote a binder letter to his company renewing the policy which expired June 7, 1950. Without the knowledge of the insured that his policy had expired and had been renewed by a binder letter, the agent went to insured's place of business on September 23 or 24 to determine the value of the insured's property for coverage purposes, and was advised by the insured that the value of his stock and fixtures, including electrical appliances and farm implements, was in excess of $30,000.00. Two or three days later, the agent again wrote his company extending the coverage of the policy to include electrical appliances and farm implements, the insured having expanded his feed and seed business to a farm implement and electrical appliance business. It was stipulated by the parties that these letters bound the insurer to an insurance policy under the same terms and conditions and the same limits as the previous insurance policy.

After the fire, on advice of counsel, the insured submitted his proof of loss in the amount of $55,013.66, representing the total amount of his inventory without taking into consideration salvage values, property not damaged, property in which insured had only a partial interest held under "floor plan" with certain companies and specific insurance.

It was finally stipulated at pre-trial that the total loss sustained by the insured was $30,590.48, and the insurer, relying upon Bockser v. Dorchester Mut. Fire Ins. Co., 327 Mass. 473, 24 A.L.R.2d 1215, 99 N.E.2d 640, takes the position that the submission of the excessive proof of loss fraudulently voided all liability under the policy.

The evidence shows without dispute that after this suit was filed, the insured obtained other counsel under whose advice he submitted a corrected proof of loss reflecting the actual value of the property destroyed, and he also submitted himself to questioning touching matters pertaining to the loss. It was stipulated that the insured had himself acted in good faith in making the proof of loss and without any intent to defraud, but it is insisted that his attorney-agent was not free from fraudulent intent in the preparation and submission of the grossly excessive report and insured is bound by his acts.

The trial court concluded that in the light of the stipulation, the forfeiture provisions of the policy should not be enforced. Even under Bockser v. Dorchester Mut. Fire Ins. Co., supra, an intent to defraud would not be presumed, and the facts here concerning the preparation and submission of the report under advice of counsel are just as susceptible to an inference of honest mistake of judgment as of fraudulent intent. In these circumstances, the trial court's conclusions are certainly not clearly erroneous, and they must stand.

The monthly reporting provisions of the policy contain a Value Reporting Clause, the pertinent portions of which require the insured to report to the insurer not later than thirty days after the last day of each month the total value of the property insured and all specific insurance in force. It is further provided that upon the failure of the insured to so report, in the event of loss, the last report of values, filed prior to the loss, will prevail. And it is further provided that if the delinquent report should be the first report of values, then the policy will cover not exceeding 75% of the applicable limit of liability named in the policy, in this instance 75% of $30,000.00.

The policy also contains a Full Reporting Clause prescribing a formula for computing the liability of the insurer. Under this formula, liability is limited to that proportion of any loss which the last reported value bears to the actual value at the time of the report, less the value of any specific insurance.

This type of policy is designed to afford an owner of a business with a fluctuating inventory the privilege of adjusting his insurance coverage to the value of his monthly inventory, subject only to a maximum. The last monthly report of values determines the amount of the insurance in force and the premium thereon. Camilla Feed Mills v. St. Paul Fire & Marine Ins. Co., 5 Cir., 177 F.2d 746, 13 A.L.R.2d 713; Aetna Ins. Co. v. Rhodes, 10 Cir., 170 F.2d 111; Columbia Fire Ins. Co. v. Boykin & Tayloe, Inc., 4 Cir., 185 F.2d 771.

Value reports under the provisions of the policy were made to the insurer from June, 1945 until January, 1950, more or less regularly, by Pardue the agent. No reports were submitted to the insurer for the period from January, 1950 through May, 1950 under the policy expiring June 7, 1950, until shortly after the binder letter was written on September 23, 1950. On September 27, 1950 the insurer received five reports from the agent, the last dated May 30, 1950, reporting a valuation of the insured property of $12,114.00. No reports were filed with the insurer bearing dates subsequent to May 30, 1950.

Construing and applying the formula set out in the policy, and taking the last report actually received by the insurer in the amount of $12,114.00, the insurer takes the position that its liability under the policy is limited to $12,114.00/$41,406.59 (insured's interest at the time of the loss, less $3,000.00 specific insurance) X $27,568.82 (alleged amount of stipulated loss, less $3,000.00 specific insurance) or $8,065.59.

In the alternative, it is suggested that if the last value report of $12,114.00 dated May 30, 1950 made under the policy expiring June 7, 1950 is not taken as the last report under the binder policy, there is no report under the latter policy, and the liability of the insurer is based upon 75% of the limit of liability in the policy, or $22,500.00, and the formula would be $22,500.00/$41,406.59 X $27,568.82, equaling a liability of...