Charles Stores, Inc. v. Aetna Insurance Company

Decision Date20 February 1974
Docket NumberNo. 72-1787.,72-1787.
Citation490 F.2d 64
PartiesThe CHARLES STORES, INC., Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, Defendant-Appellant. The CHARLES STORES, INC., Plaintiff-Appellee, v. HARTFORD FIRE INSURANCE COMPANY, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Fred C. DeLong, Jr., Greenville, Miss., Thomas H. Watkins, Jackson, Miss., for defendants-appellants.

Joseph S. Mead, Birmingham, Ala., Philip Mansour, Greenville, Miss., for plaintiff-appellee.

Before GEWIN, BELL and GODBOLD, Circuit Judges.

GODBOLD, Circuit Judge:

On the first appeal in this suit over the proceeds of fire insurance policies on a Mississippi building we reversed a jury verdict for the insurers because evidence that the insurers had waived policy defenses was erroneously excluded. 428 F.2d 989 (CA5, 1970). Following a second jury trial the court entered judgment for the insured in the amount of $199,572.82 based on the jury's answers to special interrogatories. The insurers appealed.

I

The insurers were not entitled to a directed verdict on the ground that as a matter of law the insured had failed to comply with the protective safeguard provision of the policies:

PROTECTIVE SAFEGUARDS: It is a condition of this insurance that the Insured shall maintain so far as is within his control such protective safeguards as were stipulated in the application for this insurance or for which credit in rate has been granted. Failure to maintain such protective safeguards shall suspend this insurance only as respects the location or situation affected for the time of such discontinuance.

A credit in the rate was granted because of the existence of interconnected sprinkler and alarm systems. When firemen arrived at the fire the water valve for the sprinkler system was turned off, which also disconnected the alarm system. Additionally, a screw connection in the alarm system was found unfastened the next day. The insurers claimed that the fact that the sprinkler system was off was a breach of warranty which terminated the coverage. Accepting arguendo that a breach of the above-quoted provision would terminate coverage, there was evidence that the sprinkler system was repaired and found to be in working order two days before the fire. The jury could infer that the fire, which, without dispute, was of incendiary origin, was set by persons whose acts were not chargeable to the insured and that whoever set the fire disengaged operative safeguard devices, and that, therefore, the insured complied with its duty to maintain the system "so far as is within his control." Neither the language of the policy nor the cases cited1 support an interpretation of the policy so sweeping as that urged by appellants — that the insured is a guarantor of the continuing effectiveness of safeguard devices so long as it is in control of the premises and that such guarantee is breached and coverage suspended if the cause for the inoperative condition of safeguards is the act of persons other than the insured done concurrently with the fire itself. An insured's overall control of the premises does not give it control in the sense that it can prevent the act of an arsonist who cuts off the sprinkler system while setting a fire. To assure itself, under appellants' construction, of the benefits of a safeguards clause the insured would have to keep a watchman on the premises. Presumably if the fire itself rendered the safeguards inoperative the insurers would not claim coverage was suspended. We perceive no difference if, as the jury could find, the safeguards were disengaged by the person who started this incendiary fire.

II

The insurers say that the trial court did not submit to the jury the protective safeguard defense, or if submitted the submission was not correct. Interrogatories Nos. 7 and 10 read as follows:

Interrogatory Number 7: Do you find from a preponderance of the evidence that the sprinkler system in the Charles Store was cut off, the electric alarm system in said store was disconnected and an incendiary device, consisting of a sun lamp attached to an electrical plug was embedded in a stack of towels, by an agent or officer of plaintiff corporation while acting within the performance of his duties as such officer or agent, in the furtherance of the business of plaintiff corporation and in its interest, and with the knowledge, authorization, consent or ratification of Charles D. Saunders?
Answer: No.
* * * * * *
Interrogatory Number 10: Do you find from a preponderance of the evidence that at the time of and before the fire the sprinkler system and electric alarm device in the store were not in good working order and that such condition increased the hazard of fire in the Charles Store building? Answer "Yes" or "No".
Answer: No.

There was no objection to either interrogatory. Nevertheless appellants say on appeal that interrogatory 10 was not a proper submission to the jury because: (a) it is undisputed that before the fire the sprinkler system was not in working order, and (b) the protective safeguard provision of the policy has no relationship to increase in hazard because the mere fact of inoperative safety devices terminates coverage without regard to hazard. The second clause of the interrogatory is, as appellants say in (b), probably not relevant to the protective safeguards clause. The linchpin of appellant's argument is not, however, the giving of the irrelevant second clause of the interrogatory but the theory that the undisputed evidence required an affirmative answer to the first clause, and, since no one would disagree that safety devices not in working order would increase the hazard, the only permissible answer to interrogatory 10 was "Yes," and the jury having answered "No" the answer must be set aside as unsupported by the evidence. This argument collapses because the linchpin fails. There was evidence that two days before the fire the sprinkler system was repaired and put in good working order. The jury was free to conclude that the devices were operative up to the time of the fire.

The District Judge pointed out in his order denying appellant's post-trial motions that he considered the evidence conclusively to show that whoever set fire to the store disconnected the safety devices (and at several places in the charge he referred to this as a fact), and he considered (as do the appellants) that no one could disagree that this increased the hazard, thus what interrogatory 10 was designed to do, and did do, was submit the question of whether before the safety mechanisms were disconnected they were in good order. The trial judge went on to say:

Defendants\' objection and criticism of the interrogatory on this ground have been raised for the first time after the verdict. It is evident that defendants\' counsel, at the trial stage, interpreted the interrogatory as does the court; otherwise counsel would have made the objection known to the court at the trial and before the case was submitted to the jury.
The court does not believe the jury was mislead sic by the interrogatory. The jury\'s response establishes the fact that the systems were in good working order at the time of and before the fire, that is to say, before the systems were tampered with by the person or persons who caused the fire.

Interrogatory 7 established that the setting of the fire and the concurrent cutting off of the sprinkler system were not done with the knowledge, consent (etc.) of the insured. In summary, the trial judge pointed out in his statement of reasons that Interrogatory 10 established that before the fire the safeguards systems were in proper working order; that the evidence conclusively showed that at the time of the fire they were turned off by whoever set the fire; and that Interrogatory 7 established that plaintiff neither knew of nor consented to the setting of the fire and the concurrent cutting off of the sprinkler system. We think that the absence of objections to the form of interrogatories 10 and 7 and the application of the answers by the trial court, as authorized by F.R.Civ.P. 49(a)2 and as explained in the post-trial order, dispose of appellants' contention.

III

The appellants offered and the trial court excluded statistical data tending to show that in its fiscal year ending two months before the fire the insured's financial position had deteriorated and, as of the end of the fiscal year, was poor. This evidence was offered on the theory that it was evidence of an increase in "moral hazard" to be considered by the jury in connection with the policy provisions saying:

THIS COMPANY SHALL NOT BE LIABLE FOR LOSS OCCURRING
(a) while the hazard is increased by any means within the control or knowledge of the insured.

We cannot say that the exclusion was error. The Aetna policy was issued two days before the fire, the Hartford policy approximately six months before the fire. There is no showing to us that the financial data in question tended to establish any increase of hazard after the date of issuance of either policy. The excluded evidence consists of a certified public accountants' report covering Charles Stores' fiscal year beginning September 1, 1963 and ending August 31, 1964. Obviously this data relates not at all to any period subsequent to issuance of the Aetna policy on November 16, 1964. Except for gross sales figures,3 the data was not broken down by months or quarters but rather was computed for the entire fiscal year. Consequently the most that appellants could have demonstrated by its use would have been that the Hartford policy, issued on June 5, 1964, was issued during the last quarter of a fiscal year during which the financial picture of the...

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