Atlas Reduction Co. v. New Zealand Ins. Co.

• Decision Date: 24 April 1905
• Docket Number: 1,934.
• Citation: 138 F. 497
• Parties: ATLAS REDUCTION CO. et al. v. NEW ZEALAND INS. CO. OF NEW ZEALAND.
• Court: U.S. Court of Appeals — Eighth Circuit

138 F. 497

ATLAS REDUCTION CO. et al. v. NEW ZEALAND INS. CO. OF NEW ZEALAND.

No. 1,934.

United States Court of Appeals, Eighth Circuit.

April 24, 1905

This was an action at law by the Atlas Reduction Company, a Colorado corporation, George B. Dodge, and Archie M Stevenson, upon a policy of fire insurance issued by the New Zealand Insurance Company, a New Zealand corporation, to the reduction company, upon certain property, real and personal-- principally personal-- belonging to the latter company, and connected with what was known as the 'Delano Chlorination Mill.' The policy contained these provisions:

'This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void * * * if the interest of the insured be other than unconditional and sole ownership; * * * or if the subject of insurance be personal property and be or become incumbered by a chattel mortgage: * * * or if any change, other than by the death of an insured, take place in the interest, title or possession of the subject of insurance (except change of occupants without increase of hazard), whether by legal process or judgment or by voluntary act of the insured or otherwise; or if this policy be assigned before loss. * * * If this policy shall * * * become void or cease, the premium having been actually paid, the unearned portion shall be returned on surrender of this policy or last renewal, this company retaining the customary short rate. * * * This policy is made and accepted subject to the foregoing stipulations and conditions, together with such other provisions, agreements, or conditions as may be indorsed hereon or added hereto, and as to such provisions and conditions, no officer, agent or representative shall have such power or be deemed or held to have waived such provisions or conditions unless such waiver, if any, shall be written upon or attached hereto, nor shall any privilege or permission affecting the insurance under this policy exist or be claimed by the insured unless so written or attached.'

After the issuance of the policy the property insured was incumbered by two mortgages, one of the realty and the other of the chattels, executed to Dodge and Stevenson to secure the payment of an indebtedness owing to them by the reduction company. On the same day the insurance company's agents at Denver, Colo., who had negotiated and issued the policy, made the following indorsement thereon: 'Subject to all the conditions of this policy, loss, if any, payable to G. B. Dodge and A. M. Stevenson, as their interest may appear. ' Subsequently, during the term for which the policy was issued, and during the continuance of the indebtedness secured by the mortgages, the property was destroyed by fire. To the complaint, which set forth these facts, a demurrer was sustained (C.C.) 121 F. 929), and, the plaintiffs declining to amend, judgment was given for the defendant.

Daniel Prescott, for plaintiffs in error.

Sylvester G. Williams, for defendant in error.

Before SANBORN, VAN DEVANTER, and HOOK, Circuit Judges.

VAN DEVANTER, Circuit Judge, after stating the case as above, .

In approaching the decision of any controversy arising out of a policy of insurance it is well to have in mind the cardinal rule that the policy is a contract by which must be measured the right of the insured and the obligation of the insurer. As was said by Mr. Justice Jackson in speaking for the court in Imperial Fire Insurance Company v. Coos County, 151 U.S. 452, 462, 14 Sup.Ct. 379, 38 L.Ed. 231:

'Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy or policies embodying the agreement of the parties. For a comparatively small consideration the insurer undertakes to guaranty the insured against loss or damage upon the terms and conditions agreed upon, and upon no other; and when called upon to pay, in case of loss, the insurer, therefore, may justly insist upon the fulfilment of these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled to recover for the loss. The terms of the policy constitute the measure of the insurer's liability, and, in order to recover, the assured must show himself within those terms; and if it appears that the contract has been terminated by the violation on the part of the assured of its conditions then there can be no right of recovery. The compliance of the assured with the terms of the contract is a condition precedent to the right of recovery. If the assured has violated or failed to perform the conditions of the contract, and such violation or want of performance has not been waived by the insurer, then the assured cannot recover. It is immaterial to consider the reasons for the conditions or provisions on which the contract is made to terminate or any other provision of the policy which has been accepted and agreed upon. It is enough that the parties have made certain terms, conditions on which their contract shall continue or terminate. The courts may not make a contract for the parties. Their function and duty consist simply in enforcing and carrying out the one actually made.'

See, also, Jeffries v. Life Insurance Co., 22 Wall. 47, 54, 22 L.Ed. 833; AEtna Life Insurance Co. v. France, 91 U.S. 510, 512, 23 L.Ed. 401; Phoenix Life Insurance Co. v. Raddin, 120 U.S. 183, 189, 7 Sup.Ct. 500, 30 L.Ed. 644; National Surety Co. v. Long, 60 C.C.A. 623, 627, 125 F. 887.

Stipulations such as are contained in this policy have frequently been subjected to consideration in the courts, and their validity is not open to question. Carpenter v. Providence Washington Insurance Co., 16 Pet. 495, 512, 10 L.Ed. 1044; Imperial Fire Insurance Co. v. Coos County, 151 U.S. 452, 463, 14 Sup.Ct. 379, 38 L.Ed. 231; Northern Assurance Co. v. Grand View Building Association, 183 U.S. 308, 361, 364, 22 Sup.Ct. 133, 46 L.Ed. 213; Hunt v. Springfield Fire & Marine Insurance Co., 196 U.S. 47, 25 Sup.Ct. 179, 49 L.Ed. 381; Forbes v. Agawam Mutual Fire Insurance Co., 9 Cush. 470; Worcester Bank v. Hartford Fire Insurance Co., 11 Cush. 265, 59 Am.Dec. 145; Walsh v. Hartford Fire Insurance Co., 73 N.Y. 5; Smith v. Insurance Co., 60 Vt. 682, 691, 15 A. 353, 1 L.R.A. 215, 6 Am.St.Rep. 144; Cleaver v. Traders' Insurance Co., 71 Mich. 414, 39 N.W. 571, 15 Am.St.Rep. 275; Winehill v. Germania Insurance Co., 27 La.Ann. 63; Girard Fire & Marine Insurance Co. v. Hebard, 95 Pa. 45; Hutchinson v. Western Insurance Co., 21 Mo. 97, 64 Am.Dec. 218.

One claim of the plaintiffs if that the allegations of the complaint are to the effect that the giving of the chattel mortgage was consented to be the insurance company, acting through those in superior authority, such as the board of directors, and not through subordinate agents, whose power was restricted by the terms of the policy, and that it was not necessary that consent so given be indorsed upon or added to the policy. But, whatever might have been the effect of consent so given, but not indorsed upon or added to the policy, we think the allegations of the complaint are not reasonably susceptible of the interpretation suggested, and that they mean nothing more than that consent to the chattel mortgage was given at the time and place when and where the loss payable indorsement was made upon the policy and by the agents who made that indorsement.

The real and controlling question is: What, in view of the plain and unambiguous stipulations in the policy, is the meaning and interpretation of this loss payable indorsement? Obviously, the words used therein must be read in the light of the purpose which actuated the parties in stipulating that the policy could be modified, or any provision or condition thereof waived, only by a writing of equal dignity and credit with the policy itself. Of the purpose of such stipulations it is said in Northern Assurance Company v. Grand View Building Association, supra:

'It should not escape observation that preserving written contracts from change to alteration by verbal testimony of what took place prior to and at the time the parties put their agreements into that form is for the benefit of both parties. In the present case, if the witnesses on whom the plaintiff relied to prove notice to the agent had died, or had forgotten the circumstances, he would thus, if he had depended to prove his contract by evidence extrinsic to the written instrument, have found himself unable to do so. So, on the other side, if the agent had died, or his memory had failed, the defendant company might have been at the mercy of unscrupulous and interested witnesses. It is not an answer to say that such difficulties attend other transactions and negotiations, for it is the knowledge of the inconveniences that attend oral evidence that has led to the custom of putting important agreements in writing, and to the legal doctrine that protects them when so expressed, and when no fraud or mutual mistake exists, from being changed or modified by the testimony of witnesses as to conversations and negotiations that may never have taken place, or the real nature and meaning of which may have faded from recollection. Besides the importance of such considerations to the parties immediately concerned in business transactions, the community at large have a deep interest in the welfare and prosperity of such beneficial institutions as fire insurance companies. It would be very unfortunate if prudent men should be deterred from investing capital in such companies by having reason to fear that conditions which have been found reasonable and necessary to put into policies to protect the companies from faithless agents and from dishonest insurers are liable to be nullified by verdicts based on verbal

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