Grant Lumber Co. v. North River Ins. Co. of New York

• Decision Date: 11 July 1918
• Citation: 253 F. 83
• Parties: GRANT LUMBER CO. v. NORTH RIVER INS. CO. OF NEW YORK.
• Court: U.S. District Court — District of Idaho

253 F. 83

GRANT LUMBER CO. v. NORTH RIVER INS. CO. OF NEW YORK.

United States District Court, D. Idaho, Northern Division.

July 11, 1918

C. H Potts, of Coeur d'Alene, Idaho, for plaintiff.

J. F Ailshie, of Coeur d'Alene, Idaho, and E. Eugene Davis, of Spokane, Wash., for defendant.

DIETRICH District Judge.

On April 1, 1917, through the agency of the Rossi Insurance &amp Investment Company of Wallace, Idaho, the defendant issued its fire insurance policy for $8,000, covering the plaintiff's lumber manufacturing plant at Harrison Idaho. A few days later, on April 27th, there was a loss by fire, which, after adjustment, was settled by the payment of $3,572.13, on or soon after May 31st. On July 27th the insured property was entirely destroyed by fire whereupon adjusters, representing the defendant as well as other insurance companies, adjusted the loss; but defendant refused to make settlement, upon the ground that its policy had been canceled in connection with the settlement of the first loss; hence this suit. The amount of the loss being admitted, the controlling, and indeed the only, question is whether or not the policy in suit was in force at the time of the second fire, or had been canceled. Trial by jury has been waived.

In support of its claim of cancellation the defendant relies upon a draft accepted by plaintiff in settlement of the first loss, and a receipt signed by it at the same time. The contention is that the instruments constituted notice, under a clause of the policy (a New York standard form) authorizing cancellation upon five days' notice, and also that they amounted to a mutual agreement of cancellation. When the first loss was adjusted, there was no suggestion that the policy would be canceled, and so far as appears such a consideration in no wise entered into the question of the amount for which settlement was to be made; nor, indeed, was there any reason why such a matter should have been considered, for admittedly either party had the right upon its own motion and without the consent of the other to cancel the policy at any time. Defendant consummated the settlement through its agent, the Rossi Company, and had no direct communication with the plaintiff. This agency also represented other companies carrying insurance upon the plant, the total amount of which was $50,000, and handled their settlements, as well as that of the defendant. Accordingly, of date June 7, 1917, it wrote the following letter to the plaintiff, inclosing therewith, among other papers, the draft and receipt in question:

'Wallace, Idaho, June 7, 1917.

'Grant Lumber Company, Harrison, Idaho-- Gentlemen: We inclose herewith drafts in payment of your recent loss, as follows:

Norwich Union Fire Ins. Society . . . $1,116.29

Western Assurance Co. . . . 669.78

British America Assurance Co. . . . 669.77

North River Ins. Co. . . . 3,572.13

Northern Ins. Co. . . . 1,116.29

Northwestern F. & M. Ins. Co. . . . 1,339.55

'We will forward the balance to you as soon as received. The Northwestern Fire & Marine Insurance Company have asked that we cancel their policy, which was issued just a day or two prior to the fire, and will therefore ask that the same be returned to us, and we will endeavor to place the insurance with another company. if desired.

'Very truly yours,

Rossi Insurance & Investment Company, 'By R. S. Clough.'

The item 'North River Ins. Co. $3,572.13' refers to the loss under the policy in suit. It will be observed that the writer of the letter expressly calls the attention of the plaintiff to the decision of one of the companies to cancel its policy, but makes no suggestion that such was the desire of the defendant here. Manifestly, any one reading the letter would naturally draw the inference that all the companies named, other than the Northwestern, desired or were willing that their policies should continue in force. Presumably it was with such an impression that the manager of the plaintiff company turned to the inclosed draft and receipt covering the settlement, the amount of which had already been agreed upon. The draft is as follows:

'To the North River Insurance Company,

'374 Pine St., San Francisco, Cal.

'Claim, $3,572.13.

Claim No. 2102

'Discount, $ . . . .

May 31, 1917.

'Draft, $3,572.13.

'Pay to the order of Grant Lumber Company the sum of three thousand five hundred seventy-two and 13/100 dollars, in full satisfaction, compromise, and discharge of all claims against the North River Insurance Company for loss and damage by fire which occurred on the 20th day of April, 1917, to property covered under policy No. 2031749 issued at Wallace, Idaho, agency, and in consideration of said payment the said policy is hereby canceled and surrendered.

W. W. Alverson, Manager Pacific Department.

'E. W. Williams, Counter Signature.

'Examined E. W. W.'

It bore the following printed indorsement, which the plaintiff signed:

'Payee must sign this discharge with pen and ink.

'All claims and demands whatsoever against the North River Insurance Company connected with the within-mentioned loss, are released and discharged.'

The receipt is as follows:

'Receipt.

'The North River Insurance Company

'374 Pine St., San Francisco, Cal.

'Claim, $3,572.13.

Claim No. 2102.

'Discount, $ . . . .

'Draft, $3,572.13.

May 31, 191 . . . .

'Grant Lumber Company hereby acknowledges the receipt of three thousand five hundred and seventy-two and 13/100 dollars, in full satisfaction, compromise, and discharge of all claims against the North River Insurance Company for loss and damage by fire which occurred on the 27th day of April, 191 . . ., to property covered under policy No. 2031749 issued at Wallace, Idaho, agency, and in consideration of the said payment the said policy is hereby canceled and surrendered.

Grant Lumber Co., by E. Grant, Prest. 'JAP'

The plaintiff's manager, who signed the instruments, testified that he did not read the draft or the receipt, at least did not read them carefully or in full, and did not know that they contained any provision relating to the cancellation of the policy, and no doubt is entertained that such is the fact. It is further true, I think, that if the plaintiff had known that defendant desired to cancel the policy it would have procured other insurance. Except such notice as is imported by the draft and receipt, no intimation was given to the plaintiff, until after the plant was destroyed by the second fire and an adjustment of the loss had been made upon behalf of the defendant as well as the other companies, that cancellation was desired or claimed. No request had ever been made that plaintiff deliver up the policy, nor had there ever been any offer to return any part of the unearned premium. True, the defendant now contends that it was under no obligation to make any demand or tender; but it is to be noted that, after the loss had occurred and it began to claim cancellation, it made a tender (of an insufficient amount) and requested return of the policy.

Was the policy canceled pursuant to the provision authorizing cancellation upon five days' notice? That provision is as follows:

'This policy shall be canceled at any time at the request of the insured, or by the company by giving five days' notice of such cancellation. If this policy shall be canceled as hereinbefore provided, or become void or cease, the premium having been actually paid, the unearned portion shall be returned on surrender of this policy, or last renewal, this company retaining the customary short rate, except that, when this policy is canceled by this company by giving notice, it shall retain only the pro rata premium.' I find as a fact that the full premium upon the policy was paid to the defendant. True, the payment was actually made by the Rossi Company, and by it credit extended to the plaintiff; but in extending the credit the Rossi Company did not act as the defendant's agent. In effect the plaintiff borrowed the money from the Rossi Company, and then paid it to the Rossi Company as agent, and it in turn paid it over to its principal, the defendant, the result being that plaintiff's debt to the defendant was extinguished, and it became the debtor of the Rossi Company.

With much earnestness the defendant argues that notice of cancellation, if given, is not to be held ineffective because there was no return or tender of the unearned portion of the premium. The question has frequently been the subject of consideration in the courts, and further discussion would be profitless. Admittedly there is a sharp conflict in the decided cases; the preponderance being, as I think, with the plaintiff. Such was the conclusion reached by the New York Court of Appeals in Tisdell v. New Hampshire Fire Ins Co., 155 N.Y. 163, 49 N.E. 664, 40 L.R.A. 765. Based largely upon a critical analysis of the language of the policy provision, the contrary view is presented in a dissenting opinion; but I am better content with the conclusion of the majority. When we consider the harshness of the view that a party whose contract obligations are unperformed can at will terminate the contract without making restitution to the party who has fully performed, the intent so to stipulate ought not to be found, unless it is clearly expressed in language which leaves no room for doubt. If defendant's construction of the policy be adopted, it could at any time terminate the responsibility it had been fully paid to assume, retain the unearned premium until demanded, and then draw the insured into a controversy touching a matter which might very well be too small to warrant the expense of litigation. In the present case defendant, having held the unearned premium...