Farmers Butter and Dairy Co-op. v. Farm Bureau Mut. Ins. Co.

Decision Date13 April 1972
Docket NumberNo. 54938,54938
Citation196 N.W.2d 533
PartiesFARMERS BUTTER AND DAIRY COOPERATIVE, Appellant, v. FARM BUREAU MUTUAL INSURANCE COMPANY, Appellee.
CourtIowa Supreme Court

Elwood & Anderson, Cresco, and Miller, Pearson & Gloe, Decorah, for appellant.

O'Donohoe & O'Connor, New Hampton, for appellee.

RAWLINGS, Justice.

Law action by plaintiff Farmers Butter and Dairy Cooperative (bailee) seeking recovery under auto collision provisions of fleet insurance policy issued by defendant Farm Bureau Mutual Insurance Company (insurer). Trial to court resulted in judgment adverse to plaintiff-bailee and it appeals. We reverse.

The case was submitted and adjudicated on an agreed stipulation of facts which, to the extent here relevant, discloses:

Bailee is the operator of numerous tank trucks used in effecting farm milk collections. At all times concerned it held an insurer issued fleet collision and liability insurance policy.

September 30, 1964, bailee obtained possession of a used milk tank truck from Maquoketa Valley Cooperative Creamery (bailor) under an arrangement whereby bailee was granted a trial period purchase option if the vehicle proved suitable. During that period title remained in bailor.

While the vehicle was being so tested an employee used it in the regular course of bailee's business, and October 10th its firm name was painted on the truck.

October 15th bailee notified insurer regarding 'acquisition' of the truck and thereafter received a policy endorsement dated December 2, 1964, effective 12:01 A.M., October 26th, extending coverage to that vehicle. About 6:15 A.M., October 26th, it was damaged as the result of an accident. Bailee caused repairs to be made and December 6, 1964, paid $3,259.29 prepair costs, this being the agreed damage.

December 26th bailee paid bailor $9500, purchase price for the truck, and received title thereto.

Trial court held, in effect, plaintiffbailee's right of recovery from defendant- insurer was precluded by The Code 1966, Section 321.45(2). It states, in material part:

'2. No person shall acquire any right, title, claim or interest in or to any vehicle subject to registration under this chapter from the owner thereof except by virtue of a certificate of title issued or assigned to him for such vehicle or by virtue of a manufacturer's or importer's certificate delivered to him for such vehicle; nor shall any waiver or estoppel operate in favor of any person claiming title to or interest in any vehicle against a person having possession of the certificate of title or manufacturer's or importer's certificate for such vehicle for a valuable consideration except in case of

'* * *

'd. except for the purposes of section 321.493. Except in the above enumerated cases, no court in any case at law or equity shal recognize the right, title, claim or interest of any person in or to any vehicle subject to registration sold or disposed of, or mortgaged or encumbered, unless evidenced by a certificate of title or manufacturer's or importer's certificate duly issued or assigned in accordance with the provisions of this chapter.'

And Code § 321.493, dealing with liability in connection with negligent operation of a motor vehicle says, to the extent here relevant:

'In all cases where damage is done by any motor vehicle by reason of negligence of the driver, and driven with the consent of the owner, the owner of the motor vehicle shall be liable for such damage.'

The sole question instantly posed is whether that portion of Code § 321.45, quoted above, precludes recovery by insured-bailee from defendant-insurer.

I. Our review is not de novo. And as this court said in Johnson v. Johnson, 174 N.W.2d 444, 445 (Iowa):

'Findings of fact by trial court have the effect of a jury verdict. Furthermore the record will be viewed in that light most favorable to the judgment, and if supported by substantial evidence it will not be disturbed on appeal. This does not, however, exclude inquiry as to whether trial court erred in the admission of evidence or application of erroneous rules of law which materially affected the decision. Rule 344(a)(3), R.C.P.; Christensen v. Miller, Iowa, 160 N.W.2d 509, 511; Hamilton v. Wosepka, Iowa, 154 N.W.2d 164, 166; Morris Plan Leasing Co. v. Bingham Feed and Grain Co., 259 Iowa 404, 413, 143 N.W.2d 404; and McCune v. Muenich, 255 Iowa 755, 757, 124 N.W.2d 130.' See Iowa R.Civ.P. 334.

II. The issue presented, Supra, inceptionally necessitates a consideration of some underlying principles.

It is evident we are here concerned with automobile collision as opposed to liability insurance.

In that regard liability coverage ordinarily protects an insured against loss and injury to others resulting from use of a vehicle designated in the policy, for which the insured may be liable. On the other hand collision insurance ordinarily provides protection to an insured against loss or injury to a vehicle described in the policy as a result of contact with another object. See Code § 515.48(5)(e)(f); Zieman v. United States Fidelity & Guaranty Co., 214 Iowa 468, 472--473, 238 N.W. 100; Ohio Farmers Insurance Company v. Lantz, 246 F.2d 182, 185 (7th Cir.); Ohio Casualty Ins. Co. v. Beckwith, 74 F.2d 75, 77 (5th Cir.); Western Casualty and Surety Company v. Herman, 209 F.Supp. 94, 97 (E.D.Mo.E.D.); 7 Am.Jur.2d, Automobile Insurance, §§ 59, 80; 44 C.J.S. Insurance §§ 7, 24.

III. Mindful of the foregoing we turn now to the matter of insurable rights.

Unquestionably an insurable interest is essential to the validity of a policy regardless of its subject matter. In the absence of such interest, legal, equitable or real, in the thing or right insured the policy of coverage is nothing more than a mere wager, therefore void Ab initio. This rule is particularly applicable with regard to property insurance. See McWilliams v. Farm and City Mutual Insurance Ass'n, 248 Iowa 233, 235--236, 80 N.W.2d 320; Zieman v. United States Fidelity & Guaranty Co., 214 Iowa 468, 472--473, 238 N.W. 100; Hessen v. Iowa Auto. Mut. Ins. Co., 195 Iowa 141, 142--143, 190 N.W. 150; 7 Blashfield, Automobile Law and Practice, §§ 291.3, 291.4 (3rd ed.); 4 Appleman, Insurance Law and Practice, §§ 2121--2125 (rev. Vol. 4); Vance, Treatise on Insurance, § 28 (3rd ed.); 7 Am.Jur.2d, Automobile Insurance, §§ 11--12; 43 Am.Jur.2d, Insurance, §§ 460, 466; 44 C.J.S. Insurance § 175; Annot. 1 A.L.R.3d 1193. But see Annot. 33 A.L.R.3d 1417.

IV. Regarding liability coverage under a motor vehicle policy it is generally understood the right by an insured to recover thereunder does not depend upon his or its being the holder of an equitable, legal or real interest in the property covered. This is because the risk or hazard insured against is loss and injury to others resulting from use of the covered vehicle. Thus, in the area of liability insurance a person or other legal entity has an unlimited insurable interest in his or its individual liability. See Ohio Farmers Insurance Company v. Lantz, 246 F.2d 182, 185 (7th Cir.); Western Casualty and Surety Company v. Herman, 209 F.Supp. 94, 97 (E.D.Mo.E.D.); Truck Ins. Exchange v. Hanson, 42 Wash.2d 256, 254 P.2d 494, 495--496; 7 Blashfield, Automobile Law and Practice, § 291.4 (3rd ed.); 7 Am.Jur.2d, Automobile Insurance, §§ 13, 80; 43 Am.Jur.2d, Insurance, § 529; 44 C.J.S. Insurance § 198; Annot. 1 A.L.R.3d 1193, 1195.

V. Distinguishably, it is generally essential to the validity of a policy insuring against damage to a motor vehicle by collision or other casualty that the person or entity to which it is issued have some interest in the Res. See 7 Blashfield, Automobile Law and Practice, § 291.3 (3rd ed.); 7 Am.Jur.2d, Automobile Insurance, § 57; 44 C.J.S. Insurance § 177. See also Annot. 33 A.L.R.3d 1417.

VI. Without question delivery of the subject truck by bailor to bailee, on a trial basis with privilege of purchase, created a bailment for mutual benefit. See McGinness v. Gossman, 64 Wash.2d 363 391 P.2d 967, 969 (Wash.); Elliott on Bail ments, § 23 (2d ed.); 8 Am.Jur.2d, Bailments, §§ 6, 10, 33; 8 C.J.S. Bailments §§ 3(4), 8a; accord, Maxwell Motor Sales Corp. v. Bankers Mortgage and Securities Co., 195 Iowa 384, 386--387, 192 N.W. 19.

This in turn means, absent a special contract, bailee was obligated to exercise ordinary care in use of the truck and stood liable to bailor for loss of or injury to the vehicle due to negligence of bailee, or its servants while acting in the regular course of their employment. See Naxera v. Wathan, 159 N.W.2d 513, 520 (Iowa), and citations; Hunter v. Ricke Bros., 127 Iowa 108, 110--111, 102 N.W. 526; Elliott on Bailments, § 16 (2d ed.); 8 Am.Jur.2d, Bailments, § 206; 8 C.J.S. Bailments § 27; cf. Hawkeye Specialty Co. v. Bendix Corp., 160 N.W.2d 341, 343 (Iowa); Buckey v. Indianhead Truck Line, Inc., 234 Minn. 379, 48 N.W.2d 534.

VII. The issue now to be resolved is whether bailee had a collision coverage insurable interest in the bailed vehicle. Iowa 108, 110--111, 102 N.W. 826; Elliott § 29, page 161 (3rd ed.):

'A person has an insurable interest in property when he sustains such relations with respect to it that he has a reasonable expectation, resting upon a basis of legal right, of benefit to be derived from its continued existence, or of loss or liability from its destruction. More specifically, an insurable interest exists in the following cases:

'* * *

'(c) When he possesses a qualified property or possessory right in the subject of the insurance, such as that of a bailee.'

Then id, at pages 168--169, is this apt comment:

'A person having a 'qualified property' in chattels, entitling him to possession and the right of using or dealing with them in accordance with the terms of the bailment, has such an interest in the chattels as may be the subject of a valid contract of insurance. Such bailee may insure merely his interest in the chattels to protect himself against loss of the benefits to which he is entitled,...

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