Folger Coffee Co. v. Great American Insurance Co.

• Decision Date: 12 August 1971
• Docket Number: Civ. A. No. 18466-3.
• Citation: 333 F. Supp. 1272
• Parties: The FOLGER COFFEE COMPANY, Inc., Plaintiff, v. The GREAT AMERICAN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Missouri

333 F. Supp. 1272

The FOLGER COFFEE COMPANY, Inc., Plaintiff, v. The GREAT AMERICAN INSURANCE COMPANY, Defendant.

Civ. A. No. 18466-3.

United States District Court, W. D. Missouri, W. D.

August 12, 1971.

William H. Sanders, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., for plaintiff.

Paul H. Niewald, Gordon, Adams, Niewald & Risjord, Kansas City, Mo., for defendant.

JUDGMENT FOR PLAINTIFF ON ISSUE OF LIABILITY

WILLIAM H. BECKER, Chief Judge.

This is an action on a contract of insurance under the diversity statute, § 1332, Title 28, United States Code.¹ Plaintiff's complaint is in two counts. In the first count, it is alleged that $120,448.97 worth of plaintiff's property which was in the possession of defendant's insured Ar-Ka-Mo Sporting Goods, Inc., was, on or about the 26th day of June 1969, while insured's policy with defendant was in force "was totally destroyed or damaged by risks insured against by said policy, and said destruction or damage did not happen from any of the causes excepted in said policy"; that plaintiff "performed all the conditions of said insurance on its part, and on the 7th day of January, 1970, made and delivered to the defendant a claim and demand under said policy which was then and still is due and payable, however, defendant refused and still refuses to consider or pay said claim." Count two alleges destruction of property possessed by the insured on July 7, 1969. A sum of $117,498.56 is demanded in that count. A third count demands damages for vexatious refusal to pay.

At a pretrial conference held herein on February 5, 1971, it was agreed by the parties that certain issues relating to the construction of the contract of insurance would be submitted to the Court prior to any determination of whether any trial on the potential issue of negligence of defendant's insured was necessary. A "pretrial order" filed herein on February 24, 1971, reports the agreement made by the parties on February 5, 1971. That order reads as follows:

"On February 5, 1971, a pre-trial conference was held in this cause. The parties announced that discovery was complete and that there was no request for leave to amend any pleadings.

"The parties have complied with the Court's pre-trial deadlines and they have filed their respective lists of witnesses and exhibits. The parties have met and agreed upon a Standard Pre-Trial Order No. 2 which has been filed and approved by this Court. At the pre-trial conference, leave was granted the plaintiff to file an Amended Standard Pre-Trial Order No. 2 and it was filed on that date. At the pre-trial conference the parties announced to the Court that this action, which is a Complaint on an insurance policy, involves principally a question of law. That question involves the construction of the insurance policy upon which this action is based. The parties announced to the Court that a preliminary ruling of law on this question would undoubtedly facilitate a resolution of the controversy.

"It was agreed that the parties would file written Offers of Proof on this question in the form of briefs and that the briefs would contain what the respective parties contend with case authority supporting their positions. It was agreed that this issue is accurately framed and set out in paragraph 5 of VII of the parties Standard Pre-Trial Order No. 2 as Amended.

That paragraph reads: "Whether defendant's named insured must be negligent in order for plaintiff to recover from defendant under policy number X-XX-XX-XX."

"It was ordered by the Court that the written Offers of Proof filed by the parties be constructed in simple factual sentences containing no legal conclusions * * *."

The following facts, pertinent to the issue under consideration, have been admitted by the parties:

"On or about September 14, 1966, defendant made and delivered its policy of insurance, number X-XX-XX-XX to Ar-Ka-Mo Sporting Goods, Inc., a Missouri corporation.

"Defendant in consideration of the payment of Ar-Ka-Mo Sporting Goods, Inc. to defendant to a stated consideration insured property at the location of 1531 Vernon, North Kansas City, Missouri, against all risk of direct physical loss.

"Defendant received payment of the premium on that policy up to and including the dates of the two losses referred to in plaintiff's Complaint.

"The insurance policy attached to plaintiff's Complaint is a true copy of policy number X-XX-XX-XX made and delivered by the defendant to Ar-Ka-Mo Sporting Goods, Inc.

"Policy number X-XX-XX-XX was in full force and effect in June and July, 1969.

"Ar-Ka-Mo Sporting Goods, Inc., defendant's insured under policy X-XX-XX-XX, was a warehouseman at 1531 Vernon, North Kansas City, Missouri, in June and July, 1969.

"In June and July, 1969, Ar-Ka-Mo Sporting Goods, Inc., was a warehouseman of property owned by the plaintiff and others.

"On or about the date set out in plaintiff's Complaint, the plaintiff did sustain damage to certain of its property which was warehoused and bailed with Ar-Ka-Mo Sporting Goods, Inc., however, the extent of that loss is not admitted.

"The loss sustained by the plaintiff as set out in its complaint resulted from one of the type of risks insured against by policy number X-XX-XX-XX, however, it is not admitted by defendant that either loss to this plaintiff was insured against under the terms and conditions of this policy."

According to the true copy of the insurance policy attached to the complaint herein, the following is the clause which is relied upon by plaintiff as bringing its losses within the coverage of the policy:

"III. Property covered

The policy covers:

A. Personal property usual to the conduct of the Insured's business, consisting principally of Premiums for Prizes, the property of the Insured, or similar property of others held by the insured for which the insured is liable, except as provided elsewhere in this policy." (Emphasis added.)

Defendant relies on the emphasized language, contending that the word "liable" in the provision means "legally liable" and that plaintiff must therefore show the negligence of the bailee Ar-Ka-Mo Sporting Goods, Inc., before it can recover under the policy.

In cases like that at bar, however, the courts have almost uniformly held that if, from the contract construed in its entirety, the fair interpretation and construction of the insurance contract is that it was intended primarily to cover the property held by the insured, then "liable," as used within the policy, does not refer to any fixed legal liability of the insured to respond in damages, but should be construed more broadly to mean "responsible." This view is well developed in the leading cases of Penn v. Commercial Union Fire Ins. Co., 233 Miss. 178, 101 So.2d 535, 67 A.L.R.2d 1238, and United States v. Globe & Rutgers Fire Ins. Co. (N.D.Tex.) 104 F. Supp. 632, affirmed (C.A.5) 202 F.2d 696. See also Michigan Fire & Marine Ins. Co. v. National Sur. Corp. (C.A.8) 156 F.2d 329.² Penn v. Commercial Union Fire Ins. Co., supra, expresses the prevailing rule precisely that the insurance covers property in possession of the bailee for which he is responsible, and does not cover the legal liability of the bailee to respond in damages. See also Anno., 67 A.L.R.2d 1241 at pages 1254 and 1255, subparagraph (c); 4 Appleman, Insurance Law and Practice, § 2345, p. 341, note 53.75. Missouri law is applicable in this case. From all materials available, including Homan v. Employers Reinsurance Corporation, 345 Mo. 650, 136 S.W.2d 289, it is concluded that the Missouri courts would follow the prevailing view and construe the word "liable" in the policy in the case at bar to be synonymous with "responsible." See definitions in 136 S.W. 2d at page 298.

In the Globe & Rutgers case, supra, the Government sued the defendant insurance companies for the loss of certain cotton seed which was destroyed by fire at the premises of the McCoy Gin Company, Inc., on November 18, 1949. The policies sued upon all contained the following provision, concerning the property insured:

"On cotton, ginned and unginned, baled and unbaled, seed cotton, cotton seed, supplies of sacks and other packaging material containing or to contain cotton seed, and bagging and ties, their own, and provided the insured is legally liable therefor, this policy shall also cover such property sold but not delivered, held in trust, or on consignment or for storage."

The Government sued for the loss of cotton seed which it had contracted to buy under price support programs and which was destroyed by fire. In holding that the Government could recover without any showing of negligence on the part of the McCoy Gin Company, Inc., the Court stated as follows:

"The contention of the defendants is that the plaintiff cannot recover under the present policies without showing that the insured is legally liable for the fire loss of the cotton seed. That view is quite arguable. The pertinent provision of the policies has been quoted in full above and the central phrase thereof reads `provided the insured is legally liable therefor'. The words `liability' and `liable' have manifold meanings in law and that nuance makes `liable' fit as well in respect to one bound to respond in duty as to one bound to respond in damages. The gin company under its caretaker duty as bailee for hire certainly was responsible for the cotton seed and obligated to keep and deliver same safely, subject to exoneration only if performance be prevented without negligence on its part. That was a present and positive liability, and in fact no other liability ever supervened. In other words that liability in being was complete, and adequately answers the terms of the policy provision. Nothing novel is being stated. In the typical instance of bailment relationship a proper delivery of the property thereupon satisfies the right of the bailor and discharges the liability of the bailee, but that does not gainsay the fact

...