Great American Ins. Co. v. Johnson

• Decision Date: 10 April 1928
• Docket Number: No. 2677.,2677.
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: GREAT AMERICAN INS. CO. v. JOHNSON et al.

25 F.2d 847 (1928)

GREAT AMERICAN INS. CO. v. JOHNSON et al.

No. 2677.

Circuit Court of Appeals, Fourth Circuit.

April 10, 1928.

James M. Guiher, of Clarksburg, W. Va. (Steptoe, Maxwell & Johnson, of Clarksburg, W. Va., on the brief), for plaintiff in error.

W. T. George, of Philippi, W. Va., for defendants in error.

Before PARKER and NORTHCOTT, Circuit Judges, and WEBB, District Judge.

PARKER, Circuit Judge.

This suit was instituted by Raymond W. Johnson and Noah S. Parks against the Great American Insurance Company to recover on a policy of fire insurance in the sum of $3,500. There was a verdict and judgment in their favor, and the insurance company brings this writ of error. We shall refer to the parties in accordance with the positions occupied by them in the court below.

The facts are very simple. Johnson and Parks were the owners of a garage building in Philippi, W. Va. They were also the owners of practically all of the stock of the Home Auto Company, a corporation which occupied the building. On May 27, 1926, Johnson applied to Miss Lena Switzer, the agent at Philippi of the defendant company, to issue a policy on the building in favor of himself and Parks for $3,500, to take the place of a policy which had been canceled. Miss Switzer said that she would consider the matter, and would let Johnson know in the afternoon or deliver the policy to him. That afternoon she decided to write the policy, and called the Home Auto Company over the telephone to ask how it should be written. Johnson was absent, and an employee, Simons, answered the telephone. Knowing that insurance had been carried on automobiles in the name of the Home Auto Company, he told her that he thought it should be issued in the name of the company. Miss Switzer thereupon issued it in the name of the company, and delivered it to Simons, who placed it on Johnson's desk. It remained there unnoticed by Johnson until after the building insured was destroyed by fire on May 29th. Simons did not tell Johnson of his conversation with Miss Switzer, and Johnson did not learn that the policy had been issued in the name of the company until after the fire.

Plaintiffs instituted in their own names an action at law to recover on the policy, alleging that the contract was made with plaintiffs, and that through mistake the agent had issued the policy in the name of the Home Auto Company. Defendant demurred to the declaration on the ground that it did not state a cause of action, and that the remedy of plaintiffs, if they had remedy, was in equity. The demurrer was overruled, and defendant pleaded non assumpsit and the general issue. It also filed specifications of defense, pleading breach of the warranties as to unconditional and sole ownership, and as to the building being on land belonging to insured. On the trial defendant excepted to the refusal to exclude the evidence and direct a verdict in its behalf, and also to the admission of parol testimony as to mistake, and to certain instructions to the jury covering this phase of the case.

We think that the learned District Judge erred in trying the case as an action at law. A copy of the policy was attached to the declaration; and, when the provisions of the policy and the statements in the declaration are considered together, it appears that plaintiffs are not named as the parties insured by the policy, and that the corporation named as insured was not the owner of the property. It is true that an action at law may be maintained by one to whom a policy has been issued, where there has been a mere error in his name which is apparent in the light of extrinsic facts, as where the insured was named as I. J. Harvey, instead of S. J. Harvey. Harvey v. Parkersburg Ins. Co., 37 W. Va. 272, 16 S. E. 580. But this rule applies only where such person appears as the person intended by the policy to be insured, where same is properly interpreted in the light of extrinsic facts, and not where reformation is necessary to conform it to the true intent of the parties. 26 C. J. 107.

The mistake in the policy here was not a mere error in the name of insured. It was a mistake as to who was to be protected by it, and until it should be reformed no action at law could be maintained upon it by plaintiffs; for the rule is well settled that an action at law cannot be maintained upon a fire policy by one not named as insured thereunder. 26 C. J. 107; Stanley v. Fireman's Ins. Co., 34 R. I. 491, 84 A. 601, 42 L. R. A. (N. S.) 79; McIntosh v. North State Fire Ins. Co., 152 N. C. 50, 67 S. E. 45, 136 Am. St. Rep. 818. Furthermore until the policy should be reformed there could be no recovery under it, for it appeared from the face of the complaint that there was a breach of the warranty as to unconditional and sole ownership on the part of the insured. This could not be met by parol proof of knowledge of the true ownership on the part of the agent, for it is well settled, in the federal courts, that where, as in this case, the policy provides that no officer or agent of the company shall have power to waive any of its terms, except by written indorsement, such knowledge on the part of the agent will not be held to constitute a waiver of the breach of warranty. Northern Assurance Co. Limited v. Case (C. C. A. 4th) 12 F.(2d) 551; Fidelity-Phenix Fire Ins. Co. v. Queen City Bus Co. (C. C. A. 4th) 3 F.(2d) 784; Lumber Underwriters of New York v. Rife, 237 U. S. 605, 35 S. Ct. 717, 59 L. Ed. 1140; Northern Assurance Co. v. Grand View Building Ass'n, 183 U. S. 308, 22 S. Ct. 133, 46 L. Ed. 213. It was apparent upon the face of the complaint, therefore, that plaintiffs could not, without reforming the policy, recover upon it in an action at law.

We think it is equally clear, however, that in equity plaintiffs were entitled to a reformation of the policy and to a decree enforcing it as reformed against the defendant. There can be no question that the naming of the Home Auto Company as insured in the policy, instead of plaintiffs, was the result of mutual mistake which occurred through the fault of the agent of defendant who wrote the policy. Johnson intended that the policy should be issued to himself and Parks. He applied for such a policy. Miss Switzer promised that, if she did not issue the policy, she would notify him in the afternoon, and it is clear that he thought that the policy had been issued as applied for. Miss Switzer decided to issue the policy, and the evidence clearly shows that she intended to issue it properly in the name of the owner or owners of the property. She called Johnson's place of business to see how this should be done, and received erroneous information from an employee of the corporation, who had no authority with respect to the insurance. As a result of the information thus obtained she issued the policy to a corporation which owned no interest in the property, instead of to plaintiffs, who owned it.

There is no reason on the evidence to believe that she would not have issued it to the plaintiffs, had she not been mistaken as to the ownership, just as readily as she issued it to the corporation the stock in which was owned by them. She thought that the policy protected against fire the owner of the property. Johnson thought that the owners were protected by it. The minds of the parties met on the proposition that the defendant was to insure the owners of the property against loss by fire. That the policy as issued and delivered insured a corporation which had no interest in it was unquestionably the result of mutual mistake, due on the part of the agent of the company to the fact that she received erroneous information, on the part of Johnson to his understanding that the policy was to be issued to him and Parks, and that he was to be notified if it was not so issued. To allow the company to take advantage of such a mistake would be unconscionable, and there is no doubt that equity can and should grant relief under such circumstances. Thompson v. Phenix Ins. Co., 136 U. S. 287, 296, 10 S. Ct. 1019, 34 L. Ed. 408; Snell v. Insurance...