Hanover Insurance Company v. McLoney

• Decision Date: 23 April 1962
• Docket Number: No. 962.,962.
• Citation: 205 F. Supp. 49
• Parties: The HANOVER INSURANCE COMPANY, Plaintiff, v. Nelson McLONEY, d/b/a McLoney & Sons, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

205 F. Supp. 49

The HANOVER INSURANCE COMPANY, Plaintiff, v. Nelson McLONEY, d/b/a McLoney & Sons, Defendant.

No. 962.

United States District Court E. D. Kentucky, Covington Division.

March 6, 1962.

Supplemental Memorandum April 23, 1962.

Buckley & Hunkins, Lexington, Ky., for plaintiff.

Clay & Edwards, Mount Sterling, Ky., for defendant.

SWINFORD, District Judge.

This is an action, properly brought, for a declaratory judgment under the provisions of 28 U.S.C.A. § 2201. It involves the construction and application of terms of two fire insurance policies. The plaintiff, The Hanover Insurance Company, is engaged in the business of selling fire insurance. The defendant, Nelson McLoney, operated two separate businesses, a hardware and appliance store and an agricultural and construction equipment dealership. They were, however, operated as one business and will be so referred to hereafter. This business was located at Cynthiana, Kentucky.

The firm of Cummins, Renaker, Whalen & Smith, an independent insurance agency in Cynthiana, was the local agent for the plaintiff, a New York corporation. Mr. Gerald Whalen, who testified as a witness in the trial of this case, was the member of the insurance agency who personally wrote the two policies of insurance which are the basis of this action. Policy No. 607, identified in the record as the hardware policy, is dated November 1, 1957 with certain endorsements dated March 29, 1960. Policy No. PF G2 6864 (referred to hereafter as 6864), identified in the record as the equipment policy, was written on November 1, 1959 with an endorsement of February 2, 1960.

At the time these policies were written, the local agent, Mr. Whalen, and two other agents of the plaintiff corporation from the Louisville and Lexington, Kentucky offices were present at the location of the property. They discussed the coverage with Mr. McLoney, observed the kind of business and the conditions under which it was being conducted. At the time of the inception of the policies, when both the local agent and the representatives of the plaintiff from Lexington and Louisville were present on the defendant's property, the defendant explained to them the nature of his business and that there was throughout the year a radical fluctuation of equipment he held for retail sale. The property covered was displayed both in a building, where the store and warehouse were located, and a storage lot. The items were moved from time to time from the store and warehouse to the storage lot and back again.

These conditions, which were somewhat peculiar to Mr. McLoney's situation, were explained in detail to the three agents of the plaintiff, with the added emphasis from Mr. McLoney that he was in debt and had to have full coverage for any eventuality. It was because of these somewhat unusual circumstances that two policies were issued by the company. This fact was brought out in an avowal at the time of trial of the case by the witness, Mr. Whalen. The court at the time excluded the evidence as incompetent but now reverses that decision and holds that this portion of the evidence by the witness, Mr. Whalen, is competent.

The hardware policy, No. 607, provides insurance on stock, materials and supplies, consisting principally of hardware, equipment and appliances of the insured to a liability limit of $54,000. The policy also covers furniture, fixtures and machinery. Its coverage is one hundred per cent of any loss within the liability limit and on condition that the insured observe the monthly reporting of inventory values as required by condition (11) of the "Multiple Location Reporting Form" of the policy. That section and condition (12), "Full Reporting Clause", provide as follows:

"11. Value Reporting Clause — It is a condition of this policy that the Insured shall report in writing to this Company not later than thirty (30) days after the last day of each calendar month, the exact location of all property covered hereunder, the total actual cash value of such property at each location and all specific insurance in force at each of such locations on the last day of each calendar month. At the time of any loss, if the Insured has failed to file with this Company reports of values as above required, this policy, subject otherwise to all its terms and conditions, shall cover only at the location and for not more than the amounts included in the last report of values less the amount of specific insurance reported, if any, filed prior to the loss, and further, if such delinquent report is the first report of values herein required to be filed, this policy shall cover only at the respective locations specifically named herein and for not exceeding 75% of the applicable limit of liability of this Company specified in the Limit of Liability Clause.

"12. Full Reporting Clause — Liability under this policy shall not in any case exceed that proportion of any loss hereunder, (meaning the loss at the location involved after deducting the liability of specific insurance, if any), which the last reported value filed prior to the loss, less the amount of specific insurance reported, if any, at the location where any loss occurs bears to the total actual cash value less the amount of specific insurance, if any, at that location on the date for which report is made. Liability for loss hereunder, occurring at any location acquired since filing the last report, (except as provided by the Value Reporting Clause) shall be apportioned in a like manner except that the proportion used shall be the relation that values reported at all locations less the amount of reported specific insurance, if any, bear to the total actual cash values less the amount of specific insurance, if any, at all locations on the date for which report is made."

The pertinent provisions of the equipment policy, No. 6864, are conditions (8) (a) and (d):

"The Assured shall keep an accurate record of all property insured hereunder and the values thereof (including the property of others covered by this policy), and report to this Company on or before the fifteenth day of each month the total of all such values at risk hereunder at each location specified in Clause 6(b), segregated as to values inside and outside building together with the total values under Clause 6(c), as of the last day of the preceding month and pay premiums at the monthly rates of * * *.

"In the event of loss or damage to the property insured hereunder, this Company shall be liable for no greater proportion of such loss or damage than the total values last reported by the Assured prior to the loss or damage bear to the actual total values at risk hereunder as of the date for which such report was made."

The inventory value reports specified by the policies were last filed on March 31, 1960 and went into the company on April 14, 1960. Copies of these reports were kept in the office of the local agent, Cummins, Renaker, Whalen & Smith.

On July 10, 1960, the building in which the store and warehouse were located was completely destroyed by fire. It is stipulated that the property loss covered by the hardware policy, No. 607, amounted to $49,716.03. The property loss under the equipment policy, No. 6864, was stipulated to be $34,599.62.

Under the hardware policy monthly reports of value had been regularly made from the period November 30, 1957 through March 31, 1961. Under the equipment policy monthly declarations of value had been made from the period January 15, 1959 through April 14, 1960.

The insured seeks to explain his failure to make these monthly valuation reports for April, May and June by stating absences in his office of the bookkeeper and himself because of illness and the dependence upon inexperienced office help. On two or three different occasions, from the time of the last report in April and before the fire, the local insurance agency, Cummins, Renaker, Whalen & Smith, called the office of the insured and made inquiry about why the reports had not been sent. In the words of the bookkeeper: "They were calling me to aware me of the fact that my reports were delinquent and, in no other words, get them in as quick as I could, and I explained to them that my records weren't sufficient to get my reports in, that just as soon as they were sufficient, I would get my reports to them." It is also in the record that on former occasions reports had been filed late but were accepted by the plaintiff without complaint and without questioning their accuracy.

Value-reporting fire insurance policies are not written for the purpose of insuring any particular piece of property but are designed to cover situations such as are presented in the instant case of stocks of goods or merchandise which are held by the insured for either wholesale or retail sale. They might be better denominated "stock of goods" policies insuring the owner against loss by payment for whatever property may happen to be present in his stock or location, up to the amount of a liability limit stated in the policy. The insurer and insured recognize that the amount of property may vary from time to time. At the beginning of the policy period the insured pays what is called a "provisional premium". The method of determining the amount of the premium is based on an approximation of what will be the average amount of goods on hand throughout the period of coverage.

In order to preserve the integrity of the understanding between the contracting parties, and in the interest of arriving ultimately at an equitable premium, the insured is required to periodically (in this case, monthly) report the stock of goods on hand. At the end of the policy period the premium is computed, based on the amount of values at risk throughout the policy period as reflected in the periodic value reports. The insured either pays additional premiums or is given a refund according to how the provisional premium compared to the actual premium. In order...