Carva Food Corp. v. Equitable Fire & Marine Ins. Co.

• Decision Date: 12 November 1958
• Docket Number: No. 7690.,7690.
• Citation: 261 F.2d 254
• Parties: CARVA FOOD CORPORATION, Appellant, v. EQUITABLE FIRE AND MARINE INSURANCE COMPANY OF PROVIDENCE, RHODE ISLAND, Defendant and Third-Party Plaintiff, and William B. Dawley, Third-Party Defendant, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

261 F.2d 254 (1958)

CARVA FOOD CORPORATION, Appellant, v. EQUITABLE FIRE AND MARINE INSURANCE COMPANY OF PROVIDENCE, RHODE ISLAND, Defendant and Third-Party Plaintiff, and William B. Dawley, Third-Party Defendant, Appellees.

No. 7690.

United States Court of Appeals Fourth Circuit.

Argued October 15, 1958.

Decided November 12, 1958.

Henry E. Howell, Jr., Norfolk, Va. (Jett, Sykes & Howell, and Bernard Glasser, Norfolk, Va., on brief), for appellant.

Edward L. Breeden, Jr., and Berryman Green, IV, Norfolk, Va. (Breeden, Howard & MacMillan, Norfolk, Va., on brief), for appellees.

Before SOBELOFF, Chief Judge, HAYNSWORTH, Circuit Judge, and BRYAN, District Judge.

HAYNSWORTH, Circuit Judge.

On October 15, 1954 Hurricane Hazel unroofed a building in Norfolk, Virginia, in which Carva Food Corporation had a stock of goods. As the wind tore off the roof the pipes of a sprinkler system attached to the roof were ruptured, and the escaping water from the broken pipes damaged the stock of goods. Evidently Carva had no hurricane or extended coverage insurance upon the stock of goods, but it did have a sprinkler leakage policy containing a clear and unequivocal provision that loss by sprinkler leakage caused directly, or indirectly, by windstorm was not among the insured perils. Carva does not contend that the insurance policy can be construed to cover the loss sustained, but it sought reformation of the insurance policy to broaden the coverage to include the loss.

The District Judge empaneled an advisory jury, which heard the evidence and, by answers to special interrogatories, found that W. B. Dawley, as Agent for Fireman's Insurance Company, sold a sprinkler leakage policy to Carva in 1942, representing at that time that it would cover any accidental discharge of water from the sprinkler system, except water discharged as a result of fire, that Carva relied upon the representation, that Dawley had the representation in mind when in 1948 he first issued similar coverage as agent for the defendant, Equitable Fire and Marine Insurance Company, and that at the time of subsequent renewals of the coverage in 1948, 1951 and 1954, neither Carva nor Dawley understood that the policy provided no protection for sprinkler leakage damage occasioned by windstorm. The jury also found that all of the loss was caused by the hurricane, and that the facts and circumstances were not sufficient to justify the failure of Carva's officers to read the policies issued in 1942, 1945, 1948, 1951 and 1954 and to inform themselves of the actual coverage.

The District Judge "disagreeing with the conclusions of the jury, but ever mindful of the weight to be attached to such findings," entered judgment for the defendant upon the ground, among others, that the testimony was insufficient to show such a mutual mistake as would warrant a reformation of the policy.

In an affidavit executed after the loss, Mr. Clyde F. Hill, one of Carva's officers, stated:

"About the year 1942 Mr. W. B. Dawley discussed with me the advisability of purchasing a sprinkler leakage policy as Carva Food Corporation had recently moved into a building designated as 1107 Louisa Street, Norfolk, Virginia. As we were storing and have ever since stored perishable goods in said building, I told Mr. Dawley we would be interested in purchasing a policy which would cover the stock from damage by reason of water coming from within the sprinkler system. Of course, I did not expect the policy to cover water that came out of the system by reason of a fire, but I did intend to be covered under all other circumstances."

* * * * * *

"I relied upon the representation of Mr. Dawley that the sprinkler leakage policy which he sold to Carva Food Corporation would fully cover all damages to our stock by reason of water coming from the sprinkler system, except in case of fire, and purchased no other insurance to cover water damage loss to our stock by reason of water coming from the sprinkler system."

Mr. Hill died before the trial and the District Court excluded his affidavit, so what was done and said in 1942 was dependent upon the testimony of the insurance agent, Dawley, who had been joined as a third-party defendant. In a discovery deposition taken before he was brought in as a third-party defendant, Dawley had testified:

"Q. Now, Mr. Dawley, there were no conditions placed upon the type of sprinkler leakage policy that Mr. Hill wanted or that you suggested that he buy and which he did buy? A. Of course, we have to sell the standard form.

"Q. But you suggested that he should be covered for damage from water coming within the sprinkler system other than when it is used for putting out a fire? A. I think that is a fair statement, yes.

"Q. And Mr. Hill, on behalf of Carva Food, purchased such policy? A. Right.

* * * * * *

"Q. Is there any substantial question in your mind that whomever you dealt with at Carva Food, you suggested that they buy a sprinkler leakage policy and they bought one? A. No, there is no doubt about that.

* * * * * *

"Q. Now, Mr. Dawley, when the loss occurred on October 15, 1954, at Carva Food; that is, the water damage to the stock of goods stored in the Carva Food warehouse; when that damage occurred, were you not of the opinion that Carva Food Corporation was covered for any damage to the goods resulting from water coming from within the sprinkler leakage system so long as there had not been a fire? A. I was.

"Q. And did you not so inform Carva Food that they were covered for the loss that occurred on October 15, 1954? A. I did.

* * * * * *

"Q. You would explain to him why he needed it. Is it not true, Sir, that you have testified that what you would explain to him is that he needed coverage for any discharge of water from the sprinkler leakage system that was caused by an accident, any accidental cause? A. Accidental discharge.

"Q. And you made that representation to Mr. Hill? A. That is my memory on it.

* * * * * *

"Q. But you suggested that he should be covered for damage from water coming within the sprinkler system other than when it is used for putting out a fire? A. I think that is a fair statement, yes.

"Q. And Mr. Hill, on behalf of Carva Food, purchased such policy? A. Right."

At the time of the trial, Mr. Dawley's testimony was taken, during the course of which the following answers were elicited:

"A. Well, the chances are I suggested it to him; but you are asking me to recall something about ten or twelve years ago and I can\'t be that specific.

"Q. Now, Mr. Dawley, there were no conditions placed upon the type of sprinkler leakage policy that Mr. Hill wanted or that you suggested that he buy and which he did buy? A. Of course, we have to sell the standard form.

* * * * * *

"Q. And there is no doubt in your mind that there were no conditions placed upon the sprinkler leakage policy at the time you sold it? A. Except those that are printed in the policy, which we have no control over.

* * * * * *

"Q. And when you went around to his office in 1942, you suggested to him that the company ought to have this sprinkler leakage coverage, didn\'t you? A. Mr. Howell, I have previously testified that all of the testimony that I have given today and in previous days on this case has been based upon my memory and over a period of fifteen years, you are asking too much. I just can\'t do it.

"Q. I understand that, Mr. Dawley, but we have been over this before and each time I ask it we have to go back and refresh your recollection. But is there any question in your mind that you represented to Carva that they ought to have a sprinkler leakage policy that would cover them for all accidental discharge of water and that that statement of an offer to sell a contract of insurance for that type of coverage was made to Mr. Clyde Hill, Sr., when he was alive? A. I will only have to state again, I have testified in this case today and in other days on the basis of my memory and I just can\'t recall.

* * * * * *

"Q. Let me ask you that: There is no doubt in your mind that you sold them a contract of insurance for the purpose of covering them for all accidental discharge from water sprinkler? No question in your mind about having made that sale of contract of insurance? A. I sold a sprinkler leakage policy subject to the standard conditions. I can\'t sell a policy any differently."

Before considering the sufficiency of the evidence to justify a reformation of the insurance policy, it is appropriate to advert to the essential purpose of sprinkler leakage insurance.

When automatic sprinkler systems were developed and their use was encouraged by the extension of more favorable fire insurance rates, a new peril was created. The installation of such a system substantially diminished the risk of loss from fire, but it created a new water hazard, for freezing water in the systems, heat short of fire, corrosion and other occurrences could cause a discharge of water within a building and upon its contents. This entirely new risk occasioned the need for a new type of insurance, which the sprinkler leakage coverage was designed to meet. Carva had, in fact, sprinkler leakage caused by such occurrences, and it received payment from the insurer of claims for the resulting losses.

One would not suppose that insurers or the public ever conceived of sprinkler leakage insurance as being in substitution for the traditional forms of insurance against natural perils with which mankind has always contended. It is elementary that windstorm and extended coverage insurance cover all loss resulting proximately...