El Dia Ins. Co. v. Sinclair

• Decision Date: 14 December 1915
• Docket Number: 36.
• Citation: 228 F. 833
• Parties: EL DIA INS. CO. v. SINCLAIR.
• Court: U.S. Court of Appeals — Second Circuit

228 F. 833

EL DIA INS. CO. v. SINCLAIR.

No. 36.

United States Court of Appeals, Second Circuit.

December 14, 1915

Van Iderstine, Duncan & Barker, of New York City (Wendell P Barker, of New York City, of counsel), for plaintiff in error.

William Otis Badger, Jr., of New York City (Louis J. Wolff, of Brooklyn, N.Y., of counsel), for defendant in error.

Before LACOMBE, COXE, and ROGERS, Circuit Judges.

ROGERS Circuit Judge.

This action is brought to recover under a contract or policy of insurance. The complaint alleges that the Duluth Log Company hereinafter referred to as the insured, applied to the El Dia Insurance Company, hereinafter referred to as defendant, for insurance against loss or damage by fire upon certain of its property consisting of lumber and timber products located in the state of Minnesota; that on April 28, 1913, the defendant insured the said property for the term of one year from said April 28, 1913, at noon to April 28, 1914, at noon, in the sum of $15,000; that pursuant to this agreement the defendant issued its policy on May 10, 1913; that on April 29, 1913, a fire occurred which damaged the insured's property to the extent of $33,183.04; that thereafter the defendant, through its adjuster, adjusted the loss and fixed the amount at $33,183.04; that the proportionate share of the loss chargeable to the defendants under the policy was $11,483.33.

The answer admits that a contract of insurance was entered into on April 28, 1913, and that defendant agreed to issue a policy expressing the terms and conditions agreed upon in the contract of April 28th. It admits that it issued its policy on May 10, 1913. It admits that it insured the property to an amount not exceeding $15,000, and that it designated and appointed an adjuster for the purpose of adjusting the loss. That the fire occurred is not denied. It alleges that the insured misrepresented to its adjuster the amount and value of the property with the intent to deceive and defraud it and create a liability on the part of the defendant greater than was warranted by the facts. It also alleges that its contract of insurance of April 28th was made upon the following terms and conditions: (1) That the maximum liability of the defendant during the term of the contract of insurance should not exceed $15,000. (2) That the defendant's liability for loss resulting from any one fire should not exceed 30 per cent. of such maximum liability. (3) That the said insurance should be subject in case of loss to what is commonly known as the 80 per cent. coinsurance clause. The policy as issued does not contain any coinsurance clause. It provides insurance to an amount not exceeding $15,000. It does not contain any clause limiting the defendant's liability for loss so that it should not exceed 30 per cent. of the maximum liability, thus increasing the defendant's apparent maximum liability by reason of one fire from $4,500 to $15,000. The answer also avers that by reason of fraud and deceit practiced upon defendant the contract of insurance entered into on April 28, 1913, has become and is void.

At the trial the counsel for defendant undertook to show that the policy as issued on May 10th did not conform to the contract of insurance as agreed upon on April 28th. This the trial judge refused to allow, and his refusal is assigned as error and this alleged error we shall first consider.

The historical sequence of events is this:

On April 21, 1913, the Duluth brokers, acting for the insured, telegraphed the agent of the defendant in New York and asked the latter to place $50,000 insurance (a floater policy) on behalf of the Duluth Log Company and the Bradley Timber & Railway Supply Company on their timber products in Northern Minnesota; rate 'not to exceed two fifty net. ' To this came by telegraph the reply on April 22d:

'Message twenty-first received forward immediately copy of forms to be used showing limit by reason any one fire also coinsurance conditions.'

The same day the broker at New York addressed a letter to the Minnesota brokers which reads as follows:

'Replying to your message of April 21st, and confirming our reply of even date, would state that it is impossible for us to advise definitely whether we can handle this proposition or not until we have before us a copy of the form. The company will require a coinsurance clause equal to at least 90 per cent. They will also require a limit by reason of any one fire. As soon as we have full information before us, we will promptly advise you.'

On the same day the brokers for the insured telegraphed a night letter to the defendant's agent in New York which reads:

'Limit any one fire thirty per cent. of face of policy will use eighty per cent. clause as soon as the assured are able to check up value of their property sending forms by mail to-day.'

On April 23d, the insured's brokers wrote and mailed a long letter to the defendant's agent in which the telegram of April 21st was confirmed. It said:

'We hope you may be able to cover this order or a part of it at the rate indicated, gross rate of 3 per cent., and as soon as the owners are able to arrive at the exact value of their property they will use the 80 per cent. coinsurance clause.'

On April 28th the defendant's agent telegraphed:

'Binding fifteen thousand each lumber Bradley, Duluth Log. Send forms.'

On April 29th the fire took place at about 4 p.m. and the president of the Duluth Log Company was informed of the fact by telegraph about 9:30 p.m. of the same day. Prior to the fire he had been informed of the telegram of April 28th. He did not inform his brokers of the fact of the fire. On April 29th the insured's brokers wrote the defendant's agent a letter as follows:

'Following your telegram of the 28th instant in which you state you have bound $15,000 under each schedule, the Duluth Log Company and the Bradley Timber & Railway Company, at a rate of 3 per cent., we are inclosing you herewith forms, and trust you will let policies come forward as soon as possible. If you succeed in placing any additional, kindly wire us.'

The letter was written without knowledge of the fire, and perhaps before the fire had occurred, as the fire broke out late in the afternoon of the same day. It is certain the letter did not reach the defendant's broker until after the loss had been incurred. The record does not disclose close what the 'forms' were which were forwarded. They were not so far as the record discloses put in evidence.

The next day, April 30th, the agent of the insured telegraphed the agent of the defendant: 'Do not use forms sent you yesterday new forms sent you to-day. ' At that time the insured's broker was still without knowledge of the fire. We do not find these 'new forms' in the record. But on May 1st the insured's agent wrote the defendant's agent saying the 'amended forms were sent yesterday,' adding: The forms should have stated the gross amount liable in any one fire, instead of the percentage. That is the only change.'

The reason the broker gave at the trial for this change of 'forms' was as follows:

'Because in my conversation with Mr. Bradley (the officer of the Duluth Log Company who applied for the insurance) there was nothing said about percentages. In going over the placing of the order with me, the question arose as to what the liability should be under the insurance, taking into account that he was getting $50,000, the amount that might be sustained by the various companies, on their knowing one location. He fixed the amount at $15,000. There was nothing said about percentages. That was not the conversation. So that how I discovered this I cannot tell you; but, when I did discover it, I meant to fill out the contract as entered into between Mr. Bradley and myself.'

On May 10th the policy was issued. On May 26th the agent of the insured wrote and mailed a letter to defendant's agent, informing the latter of the fire and asking to have an adjuster sent out to spur No. 318 on the Soo Line, where the fire occurred, and adjust the loss. The letter also stated:

'The Duluth Log Company were unable to report the loss any sooner because of the fact that their woodsman was away and the loss was reported as soon as they were able to ascertain the facts.'

At the trial the agent of the insured testified that the first he heard of the fire was a few days prior to the time when the Duluth Log Company notified him; and the testimony was that that notification was given about May 20th.

The policy issued was accepted and retained by the insured as conforming to the contract. On July 7, 1913, long after defendant had notice of the loss, it accepted and retained the premium, amounting to $405. The testimony shows that, if there had been a coinsurance clause in the policy, the premium would have been less. For weeks after the defendant received information of the loss no objection was raised by it that the policy in any way failed to express the contract between the parties. On August 23, 1913, the representative of the company in the United States, with whom all the negotiations leading up to the issuance of the policy were had, wrote the agent of the insured as follows:

'The form under which the insurance was written was drafted with the intention of carrying $50,000 insurance and an order was placed for $50,000. The $50,000 insurance was not secured before the loss occurred, and it then developed that only $15,000 insurance had been secured and all in one company. While we are frank to admit that under a strict application of the conditions of the policy which the assured holds, in my opinion, the company would have little or no grounds on which to contest (and we do not think it is their intention to

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