Canal Insurance Company v. Dougherty

• Decision Date: 13 August 1957
• Docket Number: No. 16230.,16230.
• Citation: 247 F.2d 508
• Parties: CANAL INSURANCE COMPANY, Appellant, v. James C. DOUGHERTY, d/b/a East Coast Hatching Egg Express, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

247 F.2d 508 (1957)

CANAL INSURANCE COMPANY, Appellant, v. James C. DOUGHERTY, d/b/a East Coast Hatching Egg Express, Appellee.

No. 16230.

United States Court of Appeals Fifth Circuit.

August 13, 1957.

Blackwell, Walker, & Gray, W. L. Blackwell, Jr., W. L. Gray, Jr., Miami, Fla., for appellant.

Richard F. Ralph, Walter Humkey, Miami, Fla., Fowler, White, Gillen Yancey & Humkey, Miami, Fla., of counsel, for respondent.

Before TUTTLE, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

On this appeal from a jury trial judgment awarding recovery under a Motor Truck Cargo Liability Policy, the Insurer, by defenses, partial or complete, contends that the substitution of vehicles was not reported as required and that, in any event, ultimate payment of a prior claim long after the loss in suit, retrospectively reduced the amount of insurance since application for reinstatement was not made immediately after the first loss.

The Assured, operating under the indigenous name of East Coast Hatching Egg Express, was engaged in the regular activity of an exempt, 49 U.S.C.A. § 303 (b) (6); Frozen Food Express v. United States, 351 U.S. 40, 76 S.Ct. 569, 100 L.Ed. 910; East Texas Motor Freight Lines v. Frozen Food Express, 351 U.S. 49, 76 S.Ct. 574, 100 L.Ed. 917, common or contract interstate carrier of hatching eggs southbound from New England to the Georgia-Florida poultry area. To avoid a dead haul northbound, Egg Express frequently transported fruits and vegetables, likewise exempt. While exempt from regulation by the Interstate Commerce Commission, Egg Express had the traditional and extensive liabilities of a carrier to shippers whose eggs, southbound, and produce, northbound, it undertook to transport. To insure this legal liability¹ as a carrier for loss of or damage to shippers' goods, the Insurer issued for a flat single premium its term policy for the period November 14, 1952 to November 14, 1953, in the face amount, after two additions, of $10,000.

Since the subject of the insurance was the legal liability of the Assured as carrier-bailee, and not the vehicles themselves by which transportation was effected, the policy gave the Assured the unlimited privilege of substituting² vehicles for the scheduled ones provided only that report of the substitution be made within 72 hours.

The policy also provided that liability for any loss would be reduced³ by the amount paid or payable by the Insured on prior claims unless the policy were reinstated and additional pro rata premium paid.

Two losses figure in this case though only the later one is directly involved. On August 5, 1953 while the Egg Express Tractor 1-Trailer 1 Unit⁴ was hauling vegetables, the vehicles and cargo became virtually a total loss. To enable the carrier to discharge its obligations to the cargo shippers, Egg Express made a claim almost immediately for that loss for approximately $4300. Three weeks later, on August 27, 1953, the carrier's Unit⁴ Tractor 7-Trailer 7, near Wrightsville, Georgia and 60 hours on its southbound journey from New England, was in a casualty causing fire and a total loss of its cargo of unhatched hatching eggs in what some called the "omelet" accident. Egg Express promptly made claim and the jury verdict fixed the value of the cargo of eggs for which carrier was liable to shippers at $9,942.90.

While the evidence was sufficient for the jury to infer that from the dealings with the Insurer's agents in the immediate investigation of the first, August 5, loss, Egg Express did notify it that a substituted unit was being employed, it is uncontradicted that for subsequent Units 2 to 6 (approximated for convenience), no subsequent notice of substitution at all was given to the Insurer.

This brings us right to the nub of the Assured's case and without which all — eggs, truck, trailers, and insurance — is lost: Egg Express asserts that as the loss occurred approximately sixty hours after Unit 7 was first obtained by Egg Express, it still had twelve hours of grace before the 72-hour notification period, note 2, supra, expired. The Insurer counters, seemingly because the word "warrants" (note 2, supra) is used, that once the first substitute (Unit 2) was withdrawn and no successive notices of substitution were given to bring Units 3, 4, 5 and 6 under the policy, there was somehow a "breach" of the policy by the Assured, so that the 72-hour grace period provision did not apply. The inherent weakness of this position was revealed when, on the argument here, Insurer's counsel had to concede that had the Assured given written or telegraphic notice to the Insurer the moment Unit 7 first came under the control of Egg Express, there would be no doubt that the coverage existed.

Solution of this problem is in no way aided by an attempt to read the word "warrants" in the common insurance sense which treats falsity of a "warranty" as absolutely material, but requires proof of materiality for a mere misrepresentation, Selph v. Hanover Fire Insurance Co. of New York, 154 Fla. 287, 17 So.2d 220; Providence Washington Insurance Co. v. Rabinowitz, 5 Cir., 227 F.2d 300; Madden v. Metropolitan Life Ins. Co., 5 Cir., 138 F.2d 708, 151 A.L.R. 984, certiorari denied, 322 U.S. 730, 64 S.Ct. 945, 88 L.Ed. 1565, or as an absolute and binding obligation to do some act, continue a condition or refrain from specified action. Cf. Fidelity-Phenix Fire Insurance Co. of New York v. Pilot Freight Carriers, Inc., 4 Cir., 193 F.2d 812, 31 A.L.R.2d 839; Henjes v. Aetna Insurance Co., 2 Cir., 132 F.2d 715, 1943 A.M.C. 27, certiorari denied 319 U.S. 760, 63 S.Ct. 1316, 87 L.Ed. 1711; Saskatchewan Govt. Ins. Office v. Spot Pack, Inc., 5 Cir., 242 F.2d 385. This is so because the clause itself is stated in terms of a privilege of the Assured. He need not substitute. He need not, he may not wish to, include replacement vehicles under the policy. Obviously, if for some reason the original scheduled vehicle is destroyed, sold or totally withdrawn from use, the Assured commits no breach in not procuring a replacement or putting it under the policy. Indeed, the Insurer gains, not loses, from such action for its premium is single and earned (until cancelled) whether operations do or do not go on.

What the clause does require if coverage is to exist is that within 72 hours written notice must be given. Such a requirement, and which we may assume arguendo, is absolute and commands literal, not merely substantial, compliance, would have been as well expressed had the clause used words such as: the Assured "shall," "must," or "promises to," report in writing the substitution.

But however expressed, it means that the option is up to the Assured. He can substitute or not as he alone wishes. But if he does, he must give written notice within the grace period. That being so, the privilege is a continuing one throughout the term of the policy period. It can be exercised as often as the Assured replaces the vehicles. Each substitution is a separate one, and lack of coverage for want of notice as to any one or more replacement vehicles does not affect a later one in which grace period notice is timely given.

The rights, of course, became fixed as of the moment of the loss, August 27, and occurring, as it did, within the period fixed for notification of automatic coverage for newly acquired or substituted vehicles, it is within the policy coverage. Hoffman v. Illinois National Casualty Co., 7 Cir., 159 F.2d 564, 566; Birch v. Harbor Insurance Co., Cal.App. 1954, 272 P.2d 784; Western Casualty & Surety Co. v. Lund, D.C.Okl., 132 F. Supp. 867, 870; General Ins. Co. of America et al. v. Western Fire & Casualty Co., 5 Cir., 241 F.2d 289.

The contention that because Trailer 7 was owned by Holdeman and Tractor 7 by Cooper and driven by Fannon whose pay came from Cooper,⁵ Unit 7 was not, as required (notes 1 and 2, supra) "operated by" the Assured is quickly disposed of. The evidence overwhelmingly demonstrated that as a common carrier Egg Express, typical of operations as exempt carrier of agricultural products, see Ex Parte No. MC-43, Lease and Interchange of vehicles by Motor Carriers, 52 MCC 675; American Trucking Ass'n v. United States, 344 U.S. 298, 73 S.Ct. 307, 97 L.Ed. 337, used both owned and leased equipment. Under the arrangement between Egg Express and the egg shippers by which they looked to it as the carrier issuing the bills of lading, making the contract of afreightment, and the person responsible for the safe custody and delivery of the goods, the carriage of the goods which gave rise to the liability insured against by this policy, was clearly the operation of Egg Express whatever might have been the liability of the tractor owner or driver in other situations. United States v. N. E. Rosenblum Truck Lines, 315 U.S. 50, 62 S.Ct. 445, 86 L.Ed. 671; Thomson v. United States, 321 U.S. 19, 64 S.Ct. 392, 88 L.Ed. 513; Gulf Coast Towing Co. v. United States, 5 Cir., 196 F.2d 944; United States v. Silk (Harrison v. Greyvan Lines), 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757.

The question then becomes: is the Insurer liable for the full amount (fixed by the jury at $9942.90) of the second loss or only up to the balance⁶ remaining after deducting from the $10,000 policy limit the amount of the first (August 5) loss, approximately $4300. Up to this question we are all of one mind. As to it, the Court is divided and Judge BROWN'S contrary and minority views on this point are set forth in his dissent.

For the reasons we indicate the Court is of the opinion that the reinstatement clause, note 3, supra, required some character of action by the Assured after the first loss and since none was taken prior to the occurrence of the second one, the face amount of insurance available was reduced to that specified in the endorsement of October 22, note 6, supra.

We start with the proposition that our function is not to write insurance contracts. We are not...