American Ins. Co. v. Kelley

• Decision Date: 15 April 1959
• Docket Number: No. A-7042,A-7042
• Citation: 160 Tex. 71,325 S.W.2d 370
• Parties: AMERICAN INSURANCE COMPANY, Petitioner, v. A. J. KELLEY, Respondent.
• Court: Texas Supreme Court

Page 370

325 S.W.2d 370

160 Tex. 71

AMERICAN INSURANCE COMPANY, Petitioner, v. A. J. KELLEY, Respondent.

No. A-7042.

Supreme Court of Texas.

April 15, 1959.

On Motion for Rehearing June 24, 1959.

Rehearing Denied July 22, 1959.

Johnson, Guthrie & Stanfield, Dallas, for petitioner.

Howard S. Smith, Sulphur Springs, Woodrow H. Edwards, Mount Vernon, for respondent.

CULVER, Justice

Respondent A. J. Kelley, brought suit against the petitioner, The American Insurance Company, on a policy of fire insurance issued to him covering his dwelling that had been totally destroyed as a result of fire. The trial court's judgment for petitioner was on appeal reversed and rendered, and full recovery awarded to respondent. 316 S.W.2d 452. We affirm the decision of the Court of Civil Appeals.

The defense asserted by petitioner is an alleged violation by respondent of the total concurrent insurance clause of the Texas standard form of fire insurance policy by having obtained thereafter fire insurance in another company in excess of the amount permitted by petitioner's policy, the one sued on here.

American wrote its policy on August 18, 1956, insuring respondents' dwelling in the sum of $3,000 and his household goods in the sum of $500. About one month later, on Kelley's application, Home Insurance Company issued a fire policy covering the same property, insuring the dwelling for $1,500 and the household goods for $1,000. The trial court found that Kelley acted under a mistake of fact in taking out the additional coverage, having received information that caused him to believe his American policy was worthless, and further found that there was no such fraud, concealment or misrepresentation on Kelley's part in procuring the second policy of insurance as to evidence bad faith. However, the trial court concluded that the taking out of the second policy served, as a matter of law, to invalidate the first policy.

The American policy contained the following provisions:

'If the co-insurance clause is not applied, no other fire insurance is permitted unless the total amount, including this policy, on each item is inserted in the blanks which follow; Item No. 1, $3,000.00; Item 2, $500.00.' And:

'Unless otherwise provided in writing added hereto, this company shall not be liable for loss accruing * * * (a) while the hazard is increased by any means within the knowledge or control of the insured, provided such increase in hazard is not usual and incidental to the occupancy as hereon described * * * (e) While any other stipulation or condition of this policy is being violated.'

Since both policies were drawn according to the Texas standard form, identical provisions are to be found in the Home policy.

Formerly the Texas standard fire insurance policy form included the following provision:

'This entire policy unless otherwise provided by an agreement endorsed hereon or added hereto shall be void if the insured now has or shall hereafter make or procure any other contract of insurance, whether valid or not, on property convered in whole or in part by this policy.'

It is conceded that the violation of this stipulation rendered each of these policies void and barred recovery by the assured. British-American Assurance Co. v. Mid-Continent Life Insurance Co., Tex.Com.App., 37 S.W.2d 743, 744. At some time prior to the effective date of the two policies here under consideration, the Texas standard form was amended to eliminate the foregoing provision and particularly the phrase 'whether valid or not' and the concurrent insurance clause now reads as set forth in these policies. No decision of our appellate courts discussing this presently effective clause has been cited nor has our search revealed any.

The Court of Civil Appeals in allowing recovery in this case predicated its holding upon the theory that the insured did not obligate himself nor contract not to apply for or obtain an invalid unenforceable policy. That no valid enforceable additional insurance was obtained by the respondent and since the policy provision does not now expressly preclude additional insurance 'whether valid or not' the Texas decision such as British American Assurance Co. v. Mid-Continent Life Insurance Co., supra, does not control and the rule therein announced does not apply.

There can be no doubt but that under the facts here the Home policy was unenforceable at the time of the fire. It had never acquired any validity. A valid prior policy was in existence on the property when the Home policy was issued. Home received no notice of this policy and acquired no knowledge of its existence until subsequent to the fire and naturally there was no claim of waiver plead or proved. Appleman states the rule as follows:

'Where two concurrent policies on the same property, issued at different dates, both contain clauses making them void in case other insurance is taken out on the property, the first policy makes the second void.' ¹

Petitioner argues that the elimination of the 'whether valid or not' provision does not operate to change the rule. It relies on the following cases: Mechanics & Traders Ins. Co. v. Dalton, Tex.Civ.App. 1916, 189 S.W. 771; Home Ins. Co. v. Collins, Tex.Civ.App.1932, 55 S.W.2d 898; Occidental Fire Ins. Co. v. Fort Worth Grain & Elevator Co., Tex.Civ.App.1927, 294 S.W. 953. In quoting the policy provisions, those decisions make no mention of the 'valid or not' provision but they do set forth the rule as stated in Mechanics & Traders Ins. Co. v. Dalton (189 S.W. 772) that 'a clause in an insurance policy forbidding concurrent insurance in excess of the amount allowed is a promissory warranty, a breach of which in the absence of a waiver or estoppel, will avoid the policy.' However, a review of the authorities relied upon by these decisions, as well as those cited in British-American Assurance Co. v. Mid-Continent Life Ins. Co., supra, indicates rather clearly that the 'valid or not' provision has been continuously incorporated in Texas fire insurance policies for many years, and was so incorporated in these cases relied on by petitioner. Those decisions must be considered in that right.

In some, but by no means in all, jurisdictions the inclusion of the phrase 'whether valid or not' is to make an important distinction in testing the liability of the first insurer. While the decision in this case by the Court of Civil Appeals may be novel in Texas, as claimed by petitioner, it is not so as far as decided cases are concerned . Authorities assert the majority rule to be that in order to avoid a prior policy, the subsequent and additional insurance must be complete, valid, and enforceable. ² The distinction is clearly drawn in Wilson v. Aetna Insurance Co., 1896, 12 Tex.Civ.App. 512, 33 S.W. 1085, 1087 where the court, after quoting that rule and noting the cited decisions, expressed the opinion: 'These authorities all sustain the proposition announced in the text, and no fault can be found with it. It is certainly the law; but it does not apply to the facts of this case. It applies to 'other insurance,' not 'other insurance, valid or not.' The condition in the policy before us was, doubtless, intended to meet the very principle held in the foregoing authorities.' Among the decisions in other states adhering to the rule that to avoid a prior policy the additional insurance must be valid and enforceable are: Kossmehl v. Miller National Insurance Co., 238 Mo.App. 671, 185 S.W.2d 293; Cox v. Home Insurance Co., 231 Mo. 10, 52 S.W.2d 872; Cornett v. Farmers Mutual Fire Insurance Ass'n, 208 Iowa 450, 224 N.W. 524; Hubbard & Spencer v. Hartford Fire Insurance Co., 33 Iowa 330, 11 Am.Rep. 125; De Shields v. Insurance Company of North America, 1923, 125 S.C. 457, 118 S.E. 817.

There are well-recognized authorities holding to the contrary, and in this category are to be found the following: Hunter v. United States F. & G. Co., Fla.1956, 86 So.2d 421; Oates v. Continental Insurance Co., 1952, 137 W.Va. 501, 72 S.E.2d 886; Aetna Insurance Co. v. Jeremiah, 10 Cir., 187 F.2d 95, 97.

We do not understand, however, that those decisions making the first policy void, irrespective of whether the second policy is enforceable or not, hold that additional insurance applied for and issued ipso facto renders the first insurer not liable. In Aetna Insurance Co. v. Jeremiah, supra, the court expressly refused to so rule, noting that Jeremiah did not deny having full knowledge of the existence of both policies and that it could not be said that at the time of his loss he did not know that he had the two policies on the same property. Again, in Hunter v. United States F. & G. Co., supra, the insured was equally aware of the existence of both policies and testified that he thought fire insurance was similar to life insurance, that the more he had the easier it would be to collect. In Oates v. Continental, plaintiff prosecuted suit against both insurers to a verdict in the trial court.

All authorities agree generally that the holding of non-liability in such a case is based on the recognition of the right of the insurer to guard against the increase of hazard from overinsurance that would tend to diminish normal vigilance in the protection of property and afford, in some cases, the incentive to financial gain by its destruction. Under the facts in our case, as found by the trial court, the issuance of the second policy did not increase the risk hazard assumed by the petitioner. The trial court believed respondent's testimony that he had overheard a conversation to the effect that 'American insurance was no good,' and that in good faith, relying on this information and thinking it to be true, he sought to protect his property by taking out the second policy in the Home Company though he was able to obtain only half as much insurance on his dwelling as was provided in the first policy. It is a reasonable deduction from the facts so found that Kelley...