Big John, B.V. v. Indian Head Grain Co.

• Decision Date: 28 October 1983
• Docket Number: No. 83-1176,83-1176
• Citation: 718 F.2d 143
• Parties: 14 Fed. R. Evid. Serv. 1078 BIG JOHN, B.V., Plaintiff-Appellee, v. INDIAN HEAD GRAIN COMPANY, Defendant-Appellant. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 143

718 F.2d 143

14 Fed. R. Evid. Serv. 1078

BIG JOHN, B.V., Plaintiff-Appellee, v. INDIAN HEAD GRAIN COMPANY, Defendant-Appellant.

No. 83-1176

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Oct. 28, 1983.

James H. Milam, Cecil C. Kuhne, Lubbock, Tex., for defendant-appellant.

Donald M. Hunt, Lubbock, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before REAVLEY, RANDALL and WILLIAMS, Circuit Judges.

PER CURIAM:

In this diversity case, appellant Indian Head Grain Company ("Indian Head") appeals an adverse judgment holding it liable for the loss by fire of sunflower seed stored with it by Big John, B.V. ("Big John"), a Netherlands corporation. Indian Head contends that the jury's findings were based on insufficient evidence, and that the trial court erred in its exclusion of certain evidence. Thus, Indian Head urges that the judgment against it be reversed. After reviewing the record and the applicable law, we conclude that there is no error, and accordingly affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND.

Beginning in 1976, Big John purchased sunflower seed in the United States with the help of John F. Herzer & Associates. Herzer bought the sunflower seed for Big John and arranged for storage with Indian Head until shipped to its final destination.

When setting the terms of the bailment, Indian Head offered Big John a cheaper storage rate if Big John would provide for insurance on the seed. Big John agreed to this proposal and Indian Head eliminated the cost of insurance which it would have otherwise included in its storage rate charge. In subsequent years, including the year of the fire, Big John continued to carry insurance on the seed and Indian Head made no charge for insurance. Big John's insurance policy, however, specifically stated that the benefit of the insurance would not inure to any carrier or bailee. The policy also stated that it was the duty of Big John, as the assured, to take any necessary steps to ensure that recovery actions against carriers or bailees were properly preserved and exercised. ¹

In early 1980 the sunflower seed was damaged by fire in Indian Head's grain storage tanks # 6 and # 9. Big John claimed that Indian Head's failure to inspect regularly and monitor the seed produced biological activity causing a spontaneous combustion fire in the seed. Big John brought suit against Indian Head for damage to the seed and for fire fighting expenses paid by Big John. While both parties disputed the cause of the fire, the amount of damage caused by the fire went unchallenged.

Prior to impanelment of the jury, Big John made a motion in limine to exclude any evidence of the agreement whereby Big John agreed to carry casualty insurance on the seed being stored with Indian Head in return for a lower storage rate. Big John argued that to permit such evidence would be highly prejudicial, because the jury would be less likely to find against Indian Head if the jury learned that Big John was insured. During a pre-trial hearing on the motion, both parties testified as to the existence and terms of the alleged agreement. The district court found that there was insufficient evidence of a clear and unambiguous agreement between the parties to the effect that Big John would carry insurance that would protect Indian Head from losses resulting from Indian Head's own negligence. Thus, the court granted Big John's motion in limine and excluded any evidence of the alleged agreement from the jury's consideration.

The jury found that Indian Head's failure properly to inspect and monitor the temperature of the sunflower seed was negligence proximately causing the fire and subsequent damage. Although the jury found the damage to the seed to be $1,989,906.05 (the value of the undamaged seed), the district court granted a remittitur and rendered judgment in favor of Big John for $1,405,381.28 ($1,191,067.76 for the value of the damaged seed, plus $214,313.52 for fire expenses paid by Big John to Indian Head).

II. EXCLUSION OF EVIDENCE CONCERNING INSURANCE.

Indian Head's first basis of appeal is that the district court committed prejudicial error in excluding evidence of the alleged agreement between the parties under which Big John would carry insurance on the bailed seeds in return for a lower storage rate. The admission or exclusion of evidence at trial is a matter within the discretion of the trial judge, and such evidentiary rulings will be upheld unless they constitute an abuse of discretion. See United States v. Barron, 707 F.2d 125 (5th Cir.1983); United States v. Shaw, 701 F.2d 367 (5th Cir.1983); United States v. Cochran, 697 F.2d 600 (5th Cir.1983). We find no such abuse here. The court found that there was no clear and unambiguous agreement between the parties that Big John would carry insurance for Indian Head and, accordingly, as a matter of law Indian Head could not limit its liability. Indian Head maintains that there was specific testimony that the parties understood and intended that such insurance was to be for the benefit of both the bailor and bailee and that such an agreement precludes any action by Big John (or its subrogated insurer) against Indian Head for damage to the bailed property on the ground of negligence.

A bailee may by special contract limit his liability to a bailor and, so long as not contrary to public policy, the contract will be observed and enforced according to its terms. Anchor Casualty Co. v. Robertson Transport Co., 389 S.W.2d 135 (Tex.Civ.App.--Corpus Christi 1965, writ ref'd n.r.e.). An arrangement whereby a bailee contracts with a bailor to procure insurance covering the bailed property is valid and not contrary to public policy. Either the bailor or the bailee may insure, or by special contract require one of the parties to insure the bailed property for the joint benefit of both parties. Ordinarily a bailee is not liable for damage to bailed goods in his possession except for acts caused by his negligence. Houston Aviation Products Co. v. Gulf Ports Crating Co., 422 S.W.2d 844 (Tex.Civ.App.--Houston 1968, writ ref'd n.r.e.). Thus, the bailee's interest in requiring the bailor to secure insurance for the bailee's benefit would be to protect the bailee from liability arising from such negligence.

While a bailee may contractually enlarge or restrict his liability, he may not do so by words of doubtful meaning. The intent to shift the liability must be clear. Sanchez v. Blumberg, 176 S.W. 904 (Tex.Civ.App.--San Antonio 1915, no writ). A provision purporting to exonerate the bailee from his negligence will be strictly construed. In determining whether such a provision operates to exempt the bailee from liability for his own negligence, "the provision must be clear and unambiguous, with a strict construction against such an intendment if any other meaning may reasonably be ascribed to the language employed." Fowler v. One Seguin Art Center, 617 S.W.2d 763, 765 (Tex.Civ.App.--Houston [14th District] 1981, writ ref'd n.r.e.). See also Wichita City Lines, Inc. v. Puckett, 156 Tex. 456, 295 S.W.2d 894 (1956). Although Indian Head did charge Big John a lower storage fee because Big John carried insurance on the seed, it is by no means clear and unambiguous from the evidence presented whether the insurance was to cover only Big John or both Big John and Indian Head.

Indian Head claims that the testimony of the parties established that the insurance was to be for the benefit of both parties. The record shows otherwise. The testimonial evidence indicates that the parties agreed to nothing more than that Big John would carry insurance against losses on its sunflower seed stored in Indian Head's facilities. Furthermore, as the district court noted in granting Big John's motion in limine, Robert Johnson, manager and principal operating officer of Indian Head, testified that "if a loss was [Indian Head's] fault, I did not expect [Big John] to cover it." This testimony clearly indicates that Indian Head did not contemplate or intend that the insurance taken out by Big John would protect Indian Head from losses caused by its negligence. We agree with the district court that the mere agreement Big John would procure insurance rather than pay for it through Indian Head fails adequately to advise the bailor of the risk the bailee is attempting to shift and is inadequate as a matter of law to limit the bailee's liability for his own negligence. Thus, the court properly exercised its discretion and excluded this evidence from the jury.

Indian Head also contends that evidence of the agreement was admissible to establish that Big John's casualty insurers were the real parties in interest. Under Fed.R.Civ.P. 17(a), if the insurer has paid the entire claim of the insured, it is the real party in interest and must sue in its own name. United States v. Aetna Casualty & Surety Co., 338 U.S. 366, 70 S.Ct. 207, 94 L.Ed. 171 (1949); City Stores Co. v. Lerner Shops of District of Columbia, Inc., 410 F.2d 1010 (D.C.Cir.1969). Rule 17(a), however, also provides that formal joinder or substitution of the real party in interest will not be necessary when he ratifies commencement of the action. Urrutia Aviation Enterprises, Inc. v. B.B. Burson & Assoc., Inc., 406 F.2d 769 (5th Cir.1969). In this case Big John's insurers ratified the action which their counsel took in the name of Big John and Indian Head was aware that Big John's insurers were suing in the insured's name.

III. CHALLENGES TO JURY FINDINGS AND AWARD.

A. Sufficiency of the Evidence.

At the conclusion of all the evidence, the district court submitted the case to the jury on two issues of negligence: (1) whether Indian Head failed to inspect regularly and monitor the temperature of the sunflower seed in its grain storage tanks # 6 and # 9; and (2) whether Indian Head failed to take corrective actions to prevent the fire in question....