Fred Meyer, Inc. v. Central Mutual Insurance Company

• Decision Date: 06 October 1964
• Docket Number: Civ. No. 63-318.
• Citation: 235 F. Supp. 540
• Parties: FRED MEYER, INC., Plaintiff, v. CENTRAL MUTUAL INSURANCE COMPANY, Sun Insurance Office Ltd., Westchester Fire Insurance Company, American Home Insurance Company, Indiana Lumbermen's Mutual Insurance Company, Defendants.
• Court: U.S. District Court — District of Oregon

235 F. Supp. 540

FRED MEYER, INC., Plaintiff, v.CENTRAL MUTUAL INSURANCE COMPANY, Sun Insurance Office Ltd., Westchester Fire Insurance Company, American Home Insurance Company, Indiana Lumbermen's Mutual Insurance Company, Defendants.

Civ. No. 63-318.

United States District Court D. Oregon.

October 6, 1964.

George W. Mead, Portland, Or., for plaintiff.

Kenneth E. Roberts, of Mautz, Souther, Spaulding, Kinsey & Williamson, Portland, Or., Long & Levit, Victor B. Levit, San Francisco, for defendantCentral Mut. Ins. Co.

R. R. Bullivant, of Pendergrass, Spackman, Bullivant & Wright, Portland, Or., for remaining defendants.

KILKENNY, District Judge.

This diversity action is before the court on plaintiff's claims that defendant insurance companies are liable under certain insurance policies issued by them to plaintiff.The claims grow out of a loss of perishable food on October 12, 1962.The food spoiled at sprinklered locations in plaintiff's stores when a windstorm of hurricane force, destroyed electric power lines supplying the power to plaintiff's refrigeration facilities.The facts are practically undisputed.The wind, although damaging some of plaintiff's property, did not touch the foodstuffs.

Central Mutual (Central), issued to plaintiff a fire insurance policy, with extended coverage, insuring non-sprinklered store locations.It has paid plaintiff for loss of foodstuffs at those locations.Central also covers plaintiff's stores, both sprinklered and non-sprinklered, with a special all risk policy.

Defendants Sun Insurance, Westchester Fire, American Home and Indiana Lumbermen's (all referred to collectively as the Direct Damage Insurers), each issued a fire policy with extended coverage, insuring plaintiff's sprinklered store locations, including direct loss by windstorm.¹

Plaintiff submitted proof of its loss to each of the defendants and all have denied liability.Plaintiff argues that either the Direct Damage Insurers are liable under their extended coverage policies at sprinklered locations or that Central is liable under its special risk policy, which covers both sprinklered and non-sprinklered locations.This action, however, is concerned with sprinklered locations only.The Direct Damage Insurers contend that the language in their special endorsement "Direct Loss by Windstorm," does not encompass a loss where the wind did not physically strike the foodstuffs.Central takes the opposite view and also claims that its special risk policy was never intended to include fire and extended coverage perils at sprinklered locations.On the last point, it seeks reformation.

I.The threshold question is whether plaintiff's loss is a "direct loss by windstorm," within the meaning of the fire and extended coverage policies issued by the Direct Damage Insurers.This being a diversity case, it is the court's duty to determine and apply the law of the state of Oregon.Erie Ry. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188(1938);Tierney v. Safeco Ins. Co. of America, 216 F.Supp. 590(D.Or.1963);Gilkey v. Andrew Weir Ins. Co., 291 F.2d 132(9th Cir.1961).The Supreme Court of the state of Oregon has not passed on the precise question, nor is there a published opinion of Oregon's other courts of general jurisdiction on this subject.However, the exact question has twice² been presented to the circuit court of the state of Oregon for Multnomah County, a court of general jurisdiction.Those decisions were announced by informal letter to counsel, followed by formal findings, conclusions and judgments in each case.The authority of Fidelity Union Trust Co. v. Field, 311 U.S. 169, 61 S.Ct. 176, 85 L.Ed. 109(1940), holding that federal courts are bound by decisions of an intermediate court until the state's highest court has passed on the issue, is modified, to some extent, by King v. Order of United Commercial Travelers, 333 U.S. 153, 68 S.Ct. 488, 92 L.Ed. 608(1948).There, as here, the court was considering the decision of a court whose opinions were not published.In the King casethe court of appeals did not follow the unreported decision of the court of common pleas of the state of South Carolina and the United States Supreme Court held that the court of appeals was justified in holding that the action of the intermediate court was not controlling.A distinction of considerable significance exists between the court of common pleas of the state of South Carolina and the circuit court of the state of Oregon, in that the decisions of the former are not binding in the same court.³The recent Ninth Circuit case of Leh v. General Petroleum Corp., 330 F.2d 288(9th Cir.1964) adds little to the previous discussion.There, the Ninth Circuit, in passing on a decision of the Superior Court of California, reviewed the California cases, and held that the decision was of little precedential value.Since the two Oregon Circuit Court decisions are rather recent they cannot be afforded the value which would normally be attached to Circuit Court rulings which have been uniform for a long period of time.State v. Stevenson, 98 Or. 285, 304, 193 P. 1030(1920).It is my belief that decisions of the Oregon circuit courts, passing on the exact point, are of some importance, and although they are not controlling,⁴they have some persuasion in forecasting what the Oregon Supreme Court would say on the subject.It appears, from the record before me, that the causes before the circuit court of Multnomah County were ably argued, well briefed and decided after due deliberation.

Aside from the Oregon circuit court decisions, the only case precisely in point is Lipschultz v. General Ins. Co. of America, 256 Minn. 7, 96 N.W.2d 880(1959).It was the progenitor of the result in the Oregon cases.The rationalization of the subject by Justice Nelson in Lipschultz, is in my opinion, on solid ground.The Minnesota court adopted the view that the words "proximate,""immediate" and "direct" are frequently used synonymously.Oregon takes the same view.Kuniholm v. Portland Elec. Power Co., 133 Or. 246, 289 P. 1055(1930).

Although less apposite, the recent case of Travelers Indemnity Co. v. Jarrett, 369 S.W.2d 653(Tex.1963), involves the same legal principle.There a bolt of lightning struck certain power lines leading to plaintiff's home, thus cutting the power to plaintiff's refrigerator.The food in the refrigerator spoiled with resulting damage to the unit.There the policy insured against "loss by lightning."In arriving at its conclusion, the court read the policy so as to include the word "direct" in the above quotation, and held that lightning was the immediate or proximate cause of the damage.Other authorities holding that "direct loss" means "immediate" or "proximate," as distinguished from "remote" or "incidental," and that the insured need only prove that the loss was proximately caused by the peril are Board of Commr's. v. Norwich Union Fire Ins. Soc., 51 F.Supp. 245(E.D.La.1943);Lynn Gas & Electric Co. v. Meridan Fire Ins. Co., 158 Mass. 570, 33 N.E. 690(1893);5 Appleman, Insurance Law & Practice§§ 3083 and 3142, andMarshall Produce Co. v. St. Paul Fire & Marine Ins. Co., 256 Minn. 404, 98 N.W.2d 280(1959).

Counsel for Direct Damage Insurers are of the belief that the decision in Lipschultz was not well considered and that the rationale of Williams v. Liberty Mutual Fire Ins. Co., 334 Mass. 499, 135 N.E.2d 910(1956)andAbady v. Hanover Fire Ins. Co., 266 F.2d 362(4th Cir.1959) should control.Williams and Abady reveal factual arenas in which windstorms had removed coverings from openings leading to the inside of buildings.Several days after the windstorms, water and water pipes froze with resulting damage.Recovery was denied in each of the cases on the theory that "direct loss from wind," meant immediate physical damage resulting from the "effect of the wind" in one case and "damage due to the strength or force of the wind," in the other.Without approving the logic in either one of these decisions, I will proceed to distinguish each from the case at bar.In each, a logical argument could be made that it was the cold weather, rather than the windstorm, that caused the damage.In those cases the cold spell occurred days after the wind, and, therefore, the damage was a remote, rather than a direct and proximate result of the storm.Here, it is conceded that the loss of power was the direct result of the storm.The food thus spoiled and the damage resulted as a direct and natural consequence of the loss of the power.True enough, as argued by the Direct Damage Insurers, Justice Cardozo refused to recognize the proximate cause rule in Bird v. St. Paul Fire & Marine Ins. Co., 224 N.Y. 47, 120 N.E. 86, 13 A.L.R. 875(1918).The great weight of respectable authority has declined to follow the thinking of that eminent Justice and abandon the "proximate cause" theory.The decisions consider, as suggested by the Justice, the expectation and purpose of the ordinary businessman when making an ordinary business contract.For that matter, I could with all grace and sincerity apply the Cardozo reasoning to the contracts in question.The ordinary businessman when making an ordinary insurance contract would in all probability believe that the language in question would cover this type of loss.In all likelihood, there would be no controversy between plaintiff and the Direct Damage Insurers, if Central's policy was not in existence.Direct Damage Insurers contention that the food spoilage was a remote and not a direct loss by windstorm is without merit.

Even if Williams, Abady and Bird were not distinguishable, I would follow what I believe to be the common sense logic, and the resulting conclusions reached in Lipschultz.The Supreme Court of Oregon, if the precise problem was presented, would, I believe, arrive at the same conclusion as the Minnesota court.We must keep in mind that the policies insured...