Hall's Aero Spraying v. Underwriters at Lloyd's, London

• Decision Date: 09 March 1960
• Docket Number: No. 17792.,17792.
• Parties: HALL'S AERO SPRAYING, INC., Appellant, v. UNDERWRITERS AT LLOYD'S, LONDON, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

274 F.2d 527 (1960)

HALL'S AERO SPRAYING, INC., Appellant, v. UNDERWRITERS AT LLOYD'S, LONDON, Appellee.

No. 17792.

United States Court of Appeals Fifth Circuit.

February 4, 1960.

Rehearing Denied March 9, 1960.

Howard Barker, John H. McBryde, Fort Worth, Tex., P. H. Hardin, Fort Smith, Ark., for appellant.

L. W. Anderson, William B. Henley, Jr., Dallas, Tex., for appellee, Underwriters at Lloyd's, London. Harris, Anderson, Henley & Rhodes, Dallas, Tex., of counsel.

Before HUTCHESON, JONES and WISDOM, Circuit Judges.

JONES, Circuit Judge.

Underwriters at Lloyd's, London, herein called Underwriters, brought an action for a declaratory judgment against its assured, Hall's Aero Spraying, Inc., herein referred to as Hall, and a number of landowners who were asserting claims against Hall for crop damage allegedly arising out of crop dusting operations conducted by Hall near Sulphur Bluff, Texas, in May and June of 1958. Hall, an Arkansas corporation, prior to these operations, had secured a policy of aircraft liability insurance written by Underwriters. Under "Exclusions" the policy provided that coverage was not provided for liability arising out of the operation of the aircraft for an unlawful purpose. The policy contained a "Crop Dusting Operations Endorsement," in which was a group of clauses under the caption "Warranties" and one of these provided:

"The Assured warrants that:

"1. All regulations of the Civil Aeronautics Authority, the Civil Aeronautics Board and State and Local Authorities applicable to crop dusting, spraying, seeding, fertilization or baiting operations shall be strictly complied with."

Hall failed to comply with Texas Department of Agriculture Regulations pertaining to crop dusting in failing to obtain a permit before undertaking spraying operations, and in failing to obtain prescribed equipment licenses. In the district court Underwriters sought a declaration that it was not obligated to defend the crop damage claims, discharge any liability or pay any judgments rendered against Hall as a result of such claims. In support of its position, Underwriters relied on two grounds; first, the admitted breach by Hall of the terms of paragraph 1 of the so-called warranties in the crop dusting endorsement, and second, the claim that conducting spraying operations without a permit and equipment license from the state was the operation of the aircraft for an "unlawful purpose" and as such excluded from the coverage of the policy. Both parties moved for a directed verdict. Underwriters rested upon the construction of the policy terms. Hall asserted that the provisions which had been breached were not warranties, even though called such in the policy, and therefore, since it had not been shown that the breach contributed to the loss, he was entitled to judgment. The district court rejected Underwriters' claim that the aircraft was being used for an "unlawful purpose" within the policy exclusions. The court assumed however, that the so-called warranties were promissory warranties and, citing 24B Tex. Jur. 429-430, Insurance § 196, stated it to be "the settled law in Texas that a promissory warranty contained in a policy of insurance (other than fire insurance) must be literally complied with and that the failure to literally comply with a promissory warrant will render the policy ineffective or unenforceable, and this is true," said the district court, "regardless of whether or not the failure to comply with the warranty prejudiced the Insurance Company." Judgment was entered for Underwriters and Hall, on appeal, asserts that the district court incorrectly construed the so-called warranties clause. Underwriters defends the court's decision and says that even though the ground for the decision be erroneous, the judgment must nevertheless be affirmed because of the "unlawful purpose" provision of the policy.

Hall contends, inter alia, that in holding that the clause relating to compliance with state and other regulations applicable to spraying operations is promissory warranty, the district court erred. With this contention we agree. It is the general rule that,

"The use of the ward `warranty\' does not necessarily render a statement made in an application or policy a warranty. * * * Also, although all of the statements in the application are called warranties if the policy contains an express condition for forfeiture in case certain designated statements were untrue, the other statements will be construed as having the legal effect of representations only. Where the policy contains several representations and it is specifically provided as to certain of such representations that the contract shall be avoided if they are not complied with, the representations as to which such provision is not made will not be construed as warranties." 45 C.J.S. Insurance § 473(4) (b), p. 163.

The law does not prevent parties from providing by contract that the validity of an insurance policy depends upon the strict compliance with a policy provision. "But, unless clearly demanded by the established rules governing the construction of written agreements, such an interpretation ought to be avoided." Moulor v. American Life Insurance Co., 111 U.S. 335, 4 S.Ct. 466, 469, 28 L.Ed. 447.

The Texas authorities reflect the general rule. The Supreme Court of Texas has said,

"The use of the word `warranty,\' in the clause relied upon, is not to be taken as necessarily creating a warranty in law. M\'Clain v. Provident S. L. A. Soc. 3 Cir., 110 F. 85, 49 C.C.A. 31.

"In Phoenix Assur. Company of London v. Munger, 92 Tex. 297, 49 S.W. 222, Judge Denman defines warranty in insurance policies in the following clear and explicit language: `A warranty in an insurance contract is a statement made therein by the assured which is susceptible of no construction other than that the parties mutually intended that the policy should not be binding unless such statement be literally true.\'" Reppond v. National Life Insurance Co., 100 Tex. 519, 101 S. W. 786, 788, 11 L.R.A.,N.S., 981.

The rule was also applied by the Supreme Court of Texas in its decision in Phoenix Assur. Co. of London v. Munger Improved Cotton-Mach. Mfg. Co., 92 Tex. 297, 49 S.W. 222, where the assured "warranted," among other things that he would not run his gin at night, and would have specified amounts of water always available. In holding the clause in question not to be a warranty, in a technical sense, breach of which would result in forfeiture, the court stated,

"A further evidence that they did not so intend to contract is found in the fact that they, immediately after said clause, proceeded to state various contingencies upon which the policy should be void. If they intended, by the use of the former language, to provide that the policy should be of no effect in case any of the statements there made were untrue, even as to immaterial matters, then they would most probably have used similar language with reference to the latter statements or rather, would not have separated them from the first." 49 S.W. 222, 225.

In the policy before us, immediately preceding the clause designated "warranties," is a clause headed, "Exclusions," which reads, "The Underwriters shall not be liable for claims under this endorsement in respect of:" followed by eleven specific instances where Underwriters' liability would not attach. There is another set of exclusions in the insuring clause of the policy. There is also a clause in the insuring clause which provides: "This entire certificate shall be void (6) If the Assured has concealed or misrepresented, in writing or otherwise, any material fact or circumstance concerning this insurance or the subject thereof; or (7) In the case of fraud. * * *" Since the forfeiture provisions are absent from the...