Betty v. Liverpool and London and Globe Insurance Co.

• Decision Date: 03 October 1962
• Docket Number: No. 8559.,8559.
• Parties: L. Tyson BETTY, Appellant, v. The LIVERPOOL AND LONDON AND GLOBE INSURANCE COMPANY, Limited, and The North British and Mercantile Insurance Company, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

310 F.2d 308 (1962)

L. Tyson BETTY, Appellant, v. The LIVERPOOL AND LONDON AND GLOBE INSURANCE COMPANY, Limited, and The North British and Mercantile Insurance Company, Appellees.

No. 8559.

United States Court of Appeals Fourth Circuit.

Argued May 29, 1962.

Decided October 3, 1962.

Joel B. Adams, Asheville, N. C. (Adams & Adams, and Francis J. Heazel, Asheville, N. C., on brief), for appellant.

William C. Morris, Jr., Asheville, N. C. (Williams, Williams & Morris, Asheville, N. C., on brief), for appellees.

Before BOREMAN and BELL, Circuit Judges, and BARKSDALE, District Judge.

J. SPENCER BELL, Circuit Judge.

The plaintiff, Betty, brought suit in the State Court against defendants, co-insurers on policies insuring against "all risks of direct physical loss". Contained in the policy was the following provision with respect to Exclusions from its coverage:

"C. (Peril) — This policy does not insure against any loss caused by or resulting from: * * *

"4. Unexplained loss or mysterious disappearance of property (except property in the custody of carriers or bailees for hire); or loss or shortage of property disclosed on taking inventory;"

The case was removed for diversity and tried by the Court without a jury. At the conclusion of the plaintiff's evidence, the Court rendered judgment for the defendants under Fed.R.Civ.P. rule 41(b), 28 U.S.C.A. The Court's findings of fact which are relevant to this appeal are summarized as follows: Policies of insurance with both defendants were in full force and effect during the period of time involved when the losses took place for which recovery is sought by this action. The outstanding policies were for $16,500.00 and $43,000.00 respectively, but the defendants had contracted between themselves to share losses equally.

The plaintiff, as assignee of insured, sought to recover for the loss of 1,024 recapped tires of the value of $11,376.64 which were owned at the time of loss by the insured, Biltmore Tire and Recapping Company, Inc., the plaintiff's assignor.

The joint answer set up among other defenses: the invalidity of plaintiff's assignment; failure of insured to give notice; a twelve months limitation on commencement of suit contained in the policy, and finally the exceptions to coverage set forth in Section III C.4 quoted above.

The insured suffered a property loss during the period between April 1, 1960, and September 6, 1960, of approximately 1,024 recapped tires of the value of $11,376.64 at its place of business on McDowell Street in Asheville, North Carolina.

The insured took quarterly physical inventories of his stock of merchandise. An operating statement based on the inventory of March 31, 1960, showed an operating profit for the quarter; but a similar statement based upon the physical inventory for the second quarter of that year showed an unexplained loss in spite of increased sales; whereupon the insured sought outside expert help to determine the cause of the loss.

The plaintiff, who was president and sole stockholder of the insured corporation, together with experts sent by B. F. Goodrich Company, made a physical inventory of the stock on hand on September 6, 1960. An apparent loss of 1,024 tires was determined by adding to the stock of tires shown to be on hand by the physical inventory of March 31, 1960, all tires processed during the interval and subtracting from this total all sales made. The shortage was revealed by comparing this figure with the stock on hand as shown by their physical inventory of September 6, 1960. The Court referred to this shortage as having occurred "through some unexplained loss or from some mysterious disappearance".

The Court made no findings of fact with respect thereto but did refer in its findings to the testimony of one James Love, who testified for the plaintiff that he (Love) had pleaded guilty in the police court to stealing seven tires from outside the fence surrounding the insured's property just prior to September 6, 1960.

The Court further found as fact that the insured was unaware of its losses until it had caused the inventory of September 6th to be made, and that insured had not known of Love's theft until reported to it by the Asheville Police Department.

From these findings of fact the Court drew the single conclusion:

"* * * that plaintiff could not recover for that all of the evidence indicates that the claimed loss of property was not known prior to and only became known and was disclosed on the taking of the inventory on September 6, 1960."

The Court thereupon dismissed the action.

Contracts of insurance are to be construed reasonably and the words used are to be given their ordinary and reasonable meaning. Standard Accident Ins. Co. of Detroit, Mich., v. Winget, 197 F.2d 97, 104 (9 Cir., 1952). The principle was cogently stated by Judge Learned Hand,

"It is quite true that contracts depend upon the meaning which the law imputes to the utterances, not upon what the parties actually intended; but, in ascertaining what meaning to impute, the circumstances in which the words are used is always relevant and usually indispensable. The standard is what a normally constituted person would have understood them to mean, when used in their actual setting." (Emphasis added). New York Trust Co. v. Island Oil & Transport Corp., 34 F.2d 655, 656 (2 Cir., 1929).

In order to affirm the judgment below it is necessary to construe the exceptive clause of the policy to mean that no loss is covered if it is first discovered upon taking inventory, no matter what proof may be subsequently brought to light showing the loss to be clearly within the risks for which the policy was written. We feel that such a construction would be unrealistic. It does not seem reasonable to us that business men would enter into an agreement to insure against a loss discovered in one way and not insure against the same loss if it should be discovered in another way. We are, therefore, unable to accept this interpretation of the words under the circumstances of this case.

On the other hand, it would be both reasonable and fair for an insurer to except...