Firemen's Fund Ins. Co. v. Flint Hosiery Mills

• Decision Date: 08 January 1935
• Docket Number: No. 3716,3717.,3716
• Citation: 74 F.2d 533
• Parties: FIREMEN'S FUND INS. CO. v. FLINT HOSIERY MILLS, Inc. HOMELAND INS. CO. v. SAME.
• Court: U.S. Court of Appeals — Fourth Circuit

74 F.2d 533 (1935)

FIREMEN'S FUND INS. CO. v. FLINT HOSIERY MILLS, Inc.

HOMELAND INS. CO. v. SAME.

Nos. 3716, 3717.

Circuit Court of Appeals, Fourth Circuit.

January 8, 1935.

Julius C. Smith, of Greensboro, N. C., and Alex. W. Smith, Jr., of Atlanta, Ga. (Smith, Wharton & Hudgins, of Greensboro, N. C., on the brief), for appellants.

G. C. Hampton, Jr., of Greensboro, N. C. (Cooper A. Hall, of Burlington, N. C., Clifford Frazier, C. L. Shuping, Frazier & Frazier, and Shuping & Hampton, all of Greensboro, N. C., on the brief), for appellee.

Before PARKER and SOPER, Circuit Judges, and WATKINS, District Judge.

SOPER, Circuit Judge.

These cases were originally brought in the superior court of Alamance county, N. C., by Flint Hosiery Mills, Incorporated, a North Carolina corporation, to recover under contracts of fire insurance issued by the respective defendants, for loss and damage by fire to the contents of the plaintiff's mill in the city of Burlington, N. C. Upon motion of the defendants, the cases were removed to the District Court on the ground of diversity of citizenship, and answers were filed, wherein slight damage by fire to the property was admitted and the following defense was alleged: The parties were unable to agree on the amount of the damage, and, pursuant to provisions in the policies, E. T. Carr was first named as appraiser by the plaintiff, and later E. H. Selden as appraiser by the insurance companies, and an appraisal agreement was entered into between the plaintiff and all the insurance companies carrying insurance upon the property. These appraisers, being unable to agree upon an umpire, the judge of the Tenth judicial district of North Carolina appointed J. W. Lindsay as umpire. After an investigation, the appraisers being unable to agree on the amount of the loss, the umpire arrived at the figure of $5,640; and an award was signed by Lindsay and Selden for that sum, and it was determined that the amount of the liability of the Firemen's Fund Insurance Company was $2,596.82 and of the Homeland Insurance Company $811.52. Carr refused to sign the award. The companies offered to pay the amounts indicated, but the plaintiff refused to accept them. The defendants then paid the money into court, and prayed in each case that the plaintiff have judgment therefor, and no more.

In response to this defense, the plaintiff replied that the award was a fraud upon its rights, for the reason that Selden, the appraiser selected by the insurance companies, was incompetent and interested, and had for a long time been a regular appraiser in the employ of the defendants and other insurance companies, and had been selected on this occasion for the purpose of reducing the loss to the very lowest possible figure, regardless of the actual loss and damage, of which facts the plaintiff was ignorant, until after the award was made. Hence it was claimed that the appraisal and award was a fraud upon the plaintiff's rights, as well for the reasons stated as for the further reason that the amount arrived at was grossly inadequate and unjust. By way of rejoinder, the defendants denied that Selden was an interested and partial appraiser, and alleged that Carr, the appraiser appointed by the plaintiff, was biased in its interest, and had been previously employed and paid by the plaintiff to make an investigation into the very loss and damage that was the subject-matter of the suit.

Upon motion of the defendants, the cases were consolidated for the purposes of trial, and were transferred to the equity docket, and the parties stipulated that the court might not only pass on the questions of equity that might arise, but, in the event that any questions of law should remain, the court might determine them without a jury, so that the cases could be disposed of in one suit.

The evidence in the case showed that the plaintiff in its original proof of loss claimed the sum of $48,153.71 for damages to 80 machines and certain merchandise, while the estimate of the adjuster for the insurance companies was $2,005. Estimates of the loss offered by witnesses on behalf of the plaintiff at the trial were all in excess of $40,000, and one offered by officials of the company ran as high as $47,855.85. The appraiser Carr furnished figures to the umpire of a loss of approximately $47,000, and at the hearing testified to a figure of $43,894.53, giving itemized estimates for the damages to the machines. On behalf of the defendants, it was proved that Selden, who died before the trial, had offered an estimate to the umpire of $1,630.78, and witnesses experienced in the business gave testimony tending to show that the extent of the fire was small and that the damages to the machines did not exceed $2,000. The umpire, Lindsay, who, as we have seen, made an award of $5,640, gave evidence in substantiation of this amount.

There was also evidence tending to show that neither of the appraisers, Selden and Carr, was disinterested and free from bias. It was stipulated that Selden had acted as appraiser in similar proceedings in approximately 200 cases in seven years, in 85 per cent. of which he acted as appraiser for the insurance companies and in 15 per cent. as appraiser for the insured, and that his total fees for services as appraiser during this period amounted to $18,655. It was also testified that he had had no experience with machinery; that he neglected to submit any of his figures of appraisal to appraiser Carr; that he endeavored to secure the appointment as umpire of a number of persons partial to the insurance companies, and to secure expert testimony unfavorable to the insured upon promise of payment of a substantial fee. On the other hand, there was ample evidence to show that appraiser Carr was acting in effect as an advocate of the insured. He was originally employed by the insured to appraise the property, estimate the loss, and furnish the proofs for the insured, and was paid for these services; and he was in close touch with the officials of the insured throughout the entire controversy. The evidence was conflicting as to whether Selden's partiality was discovered by the plaintiff before the award. There was no evidence of intent to conceal his prior experience as appraiser.

Upon this evidence, the District Judge found that Selden was not a competent and disinterested appraiser, but was prejudiced against the plaintiff and biased in favor of the defendants; that the plaintiff had no knowledge of his partiality prior to the award, and that the award made by him was so grossly inadequate as to shock the conscience of the court; that the appraiser Carr had made up a proof of loss for the insured, but that, as his name appeared thereon, the defendants had knowledge of this fact. It was also found that the actual value of the property insured was less than $69,500, the amount of the total insurance; that the actual loss caused by the fire was $22,024.55, and that the Homeland Insurance Company was indebted to the insured in the sum of $3069 and the Firemen's Fund in the sum of $10,140, both with interest from August 9, 1932. The District Judge reached the conclusion of law that the conduct of the plaintiff in selecting as its appraiser one who had made out the proof of loss, with the knowledge of the insurance companies, did not justify the latter in selecting an incompetent and interested appraiser, and did not preclude the plaintiff from invoking the aid of a court of equity to set aside the award, especially as the plaintiff had no knowledge of this incompetency and interest, and did not waive its right in respect thereto. Consequently it was held that the award, being grossly inadequate, should be set aside, and judgment given for the plaintiff in the amounts above set forth.

In reaching these conclusions, the District Judge relied largely on the decision of the Supreme Court of North Carolina in Hill v. Insurance Co., 200 N. C. 502, 157 S. E. 599. In that case there was evidence that the award was signed by an inexperienced appraiser appointed by the insured, by virtue of fraudulent...