Ben-Hur Mfg. Co. v. Firemen's Ins. Co. of N.J.

• Decision Date: 27 November 1962
• Docket Number: BEN-HUR
• Citation: 118 N.W.2d 159,18 Wis.2d 259
• Parties: MANUFACTURING COMPANY, a Wisconsin corporation, Plaintiff-Respondent, v. FIREMEN'S INSURANCE COMPANY OF NEW JERSEY, a New Jersey corporation, Defendant-Respondent, American Church & Home Mutual Insurance Company, a Wisconsin corporation, Defendant-Appellant.
• Court: Wisconsin Supreme Court

Page 159

118 N.W.2d 159

18 Wis.2d 259

BEN-HUR MANUFACTURING COMPANY, a Wisconsin corporation Plaintiff-Respondent, v. FIREMEN'S INSURANCE COMPANY OF NEW JERSEY, a New Jersey corporation, Defendant-Respondent American Church & Home Mutual Insurance Company, a Wisconsin corporation, Defendant-Appellant.

Supreme Court of Wisconsin.

Nov. 27, 1962.

Willink & Thompson, Madison, for appellant.

Whyte, Hirschboeck, Minahan, Harding & Harland, Reginald W. Nelson, Milwaukee (Clausen, Hirsh, Miller & Gorman, Chicago, Ill., of counsel), for defendant-respondent.

Quarles, Herriott & Clemons, L. C. Hammond, Jr., Milwaukee, for plaintiff-respondent.

HALLOWS, Justice.

The initial question is whether either Ben-Hur or Midwest, or both, had an insurable interest in the property. Public policy requires an insurable interest in property insured. A gambling or wagering agreement is void, sec. 331.055, Stats.; but that section provides a contract of insurance made in good faith for the security or indemnity of the party insured shall be lawful and valid. A fire insurance policy is an agreement to indemnify one for a loss caused by the specific peril insured against; but to constitute a loss for which indemnity can be made, one must have in the property an interest which is recognized as insurable. Such interest must consist of such valuable relationships as the law will recognize and enforce and must be susceptible of pecuniary value. Vance on Insurance, 2d ed., sec. 48, p. 118. A person has an insurable interest in property when the relationship between him and the property is such that he has a reasonable expectation, based upon a real or legal right, of benefit to be derived from the continued existence of the property and of loss or liability from its destruction. Riggs v. Commercial Mut. Ins. Co. (1890), 125 N.Y. 7, 25 N.E. 1058, 10 L.R.A. 684; 3 Couch on Insurance, 2d ed., p. 86, sec. 24.13.

This court defined the nature of insurable interest in somewhat broader terms. A person need not have an absolute insurable right of property in the thing insured or even a special limited interest. It is sufficient if a person's relationship to the property is such he would reasonably be expected to suffer a loss by the destruction of the property or to derive a benefit from its continued existence. Neither a legal nor an equitable interest nor any property interest as such in the subject matter is necessary. Horsch v. Dwelling House Ins. Co. (1890), 77 Wis. 4, 45 N.W. 945, 8 L.R.A. 806; Tischendorf v. Lynn Mut. Fire Ins. Co. (1926), 190 Wis. 33, 38, 208 N.W. 917, 45 A.L.R. 856. See also 29 Am.Jur., Insurance, p. 781, sec. 438.

The appellant contends Ben-Hur had no insurable interest at the time of the fire because it had sold the property to Midwest and was an unsecured creditor. Firemen's contends Ben-Hur had title, custody and possession of the goods and Midwest had no insurable interest. There is no distributor's contract as such in evidence defining the relationship of Ben-Hur and Midwest, nor is the relationship spelled out very clearly from their transactions and documents. The fact both Ben-Hur and Midwest took out insurance is immaterial on the question of the existence of an insurable interest. The existence of an insurance policy does not prove an insurable interest.

The pertinent facts are that in 1955 Midwest, a wholesale dealer in electrical appliances, became a distributor of Ben-Hur products and Ben-Hur and Midwest entered into a warehouse contract (Lawrence agreement). Goods were shipped by Ben-Hur to Midwest in care of the Lawrence Warehouse Company and held under the agreement. The goods remained in the warehouse until sold by Midwest to retail dealers. The transaction appeared on the books of both companies as a sale at the time to goods were shipped. The Lawrence agreement provided Ben-Hur should have a pledgee's interest in the goods shipped to be represented by nonnegotiable warehouse receipts. The agreement stated Ben-Hur was unwilling to sell to Midwest except on the basis it was guaranteed and secured with respect to the purchase price of the goods. Delivery instructions were agreed upon whereby Lawrence was authorized to deliver to Midwest goods up to a value of $5,000 and to report such delivery seekly to Ben-Hur. Each report was accompanied by a check from Midwest for the amount of the goods so withdrawn. Later the amount was increased to $12,000.

While the Lawrence agreement was in effect the goods manufactured by Ben-Hur were kept separate in a wire fence enclosure under lock and key from the other goods in the warehouse. Clyde Wicks, an employee of Midwest, was designated an agent of Lawrence and put on its payroll but his salary plus a service fee were paid to Lawrence by Midwest. Wicks, besides his duties in reference to the goods manufactured by Ben-Hur, continued to perform warehousing services for Widwest. Ben-Hur exercised no control over the price and terms of the sales by Midwest nor was any accounting of such sales required.

Under this arrangement, the appellant contends the sale was made by Ben-Hur to Midwest with a pledge back. Firemen's argues Midwest acquired no rights in the goods until it removed them from the warehouse upon actual sale. The Lawrence agreement was terminated at the request of Midwest in May of 1957 in order to avoid the expense of warehousing. Thereafter Wicks went back on Midwest's payroll. The goods were stored in the same location in the warehouse but not under lock and key and Midwest remitted for the goods removed as it did under the Lawrence agreement. A dishonesty bond was given to Ben-Hur insuring it against the acts of the president of Midwest who was designated a sales agent of Ben-Hur and the bond referred to the transaction as a consignor-consignee relationship. The invoices for the goods did not refer to Lawrence but provided 'wkly, whse, withdral.' Warehouse receipts were no longer given. The removal of the goods and method of payment remained the same. No liability for payment of the goods by Midwest arose until the goods were removed from the warehouse although the invoices were sent to Midwest at the time the goods were shipped.

The appellant contends after the termination of the Lawrence agreement Ben-Hur became simply an unsecured creditor. We do not agree. While it may be difficult or well nigh impossible to categorize the relationship of the parties, it does not follow that Ben-Hur had no insurable interest. The accounting procedure while indicating an open account sale at the time of shipment did not reflect the true relationship between the parties. However inaptly and inconsistently the relationship was spelled out, it is clear Ben-Hur was not an unsecured creditor on open account. We find no liability on Midwest to pay for the goods in all events. The limitations on possession or custody by Midwest and the bond cannot be overlooked. True, the bond did not necessarily establish a consignor-consignee relationship but its intent was to provide some security for what Ben-Hur regarded as an interest in the goods and without which Ben-Hur would not sell to Midwest. The parties regarded the president of Midwest as personally responsible should Midwest remove goods from the warehouse without paying for them. The arrangement might be said to be somewhat analogous to a bailment for sale. But whatever label we put on the relationship, Ben-Hur had an interest in the existence of the property and a reasonable expectation of loss by its destruction. Title, possession or special lien is not necessary to support an insurable interest.

Likewise Midwest had an insurable interest. Assuming Ben-Hur had title as contended by Firemen's, Midwest at least had possession with a right to sell the property for profit. True, there may have been limitations on the time of payment and on the amount of goods that could be withdrawn without paying therefor, nevertheless Midwest had control of the goods and the right to sell them. The dishonesty bond given by the president of Midwest, although designating him as a sales agent of Ben-Hur, recognized possession in Midwest for which the president agreed to be responsible. The arrangement on warehousing of the goods in St. Louis was of a mutual benefit to both parties. While we cannot recommend this arrangement for its clarity or as a sure means of obtaining all the objects the parties had in mind, it does result at least in establishing an insurable interest in both Ben-Hur and Midwest sufficient to sustain the validity of their respective fire insurance policies. This does not mean, of course, that both could have collected the full damage to the goods nor are they attempting to do so. After the fire, Midwest assigned its cause of action to Ben-Hur. There can be but one recovery. The assignment had no effect on the question of insurable interest. The trial court's finding was not against the great weight and preponderance of the evidence and must be affirmed.

The next question is the liability of American Church and Firemen's under their respective policies. Both agree this question is governed by the pro rata clause contained in the printed part of the policies. Both argue the multiple location reporting form A endorsement provides permission for other insurance and by the terms of this form we are necessarily drawn to the pro rata clause. We have some difficulty with this argument because it would seem such form contemplates permission granted to the insured named in the policy, but here the other insurance was not taken out by that insured. This is an unusual case in that Ben-Hur and Midwest each insured itself in respect to the same property in different companies. The broad language of the pro rata clause independently of the reporting form would cover these facts as it does insurance issued to the same insured covering the same property against the same peril involved.

Before construing the pro...