Hartford Fire Ins. Co. v. Nance

• Decision Date: 09 April 1926
• Docket Number: No. 4513.,4513.
• Citation: 12 F.2d 575
• Parties: HARTFORD FIRE INS. CO. v. NANCE et al.
• Court: U.S. Court of Appeals — Sixth Circuit

12 F.2d 575 (1926)

HARTFORD FIRE INS. CO. v. NANCE et al.

No. 4513.

Circuit Court of Appeals, Sixth Circuit.

April 9, 1926.

C. G. Myers, of Chicago, Ill. (Myers & Snerly, of Chicago, Ill., and Carlyle & George, of Youngstown, Ohio, on the brief), for plaintiff in error.

W. A. O'Grady, of Wellsville, Ohio, for defendant in error.

Before DENISON, DONAHUE, and MOORMAN, Circuit Judges.

MOORMAN, Circuit Judge.

This is an action on a fire insurance policy issued to Thomas and Lucy Nance. There was a recovery in the court below. Defendant relied, among other defenses, upon the breach of a stipulation of unconditional and sole ownership of the property. This was based on a provision in the policy, vitiating it "if the interest of the insured be other than unconditional and sole ownership, or if the subject of the insurance be a building on ground not owned by the insured in fee simple." The policy also provided that none of its terms or conditions could be waived, except in writing indorsed on the policy. Plaintiffs alleged that they were the "owners and seized in fee" of the property. This the defendant denied, setting up the first provision referred to as a defense. The proof showed that Thomas Nance owned an undivided half interest in the property, but that Lucy Nance owned only a life estate in the other half, the remainder being in her infant children. There was evidence to the effect that the soliciting agent was informed of the condition of the title and the interests of the children.

A statute of Ohio makes the one who solicits insurance or procures the application therefor the agent of the insurance company. Section 9586, Gen. Code. The trial court treated the stipulation as to unconditional ownership as having no binding effect. It is contended in support of the judgment, although there is no pleading to that effect, that the provision — conceded ordinarily to be valid — was waived by the company when it issued the policy because of its knowledge of the interests of the insured, or, if not waived, the company is estopped, because of that knowledge, from asserting incomplete ownership as a defense.

The question is argued here as if pleaded against the defense. We take it into account because it was treated at issue in receiving the evidence below and is vital to the case, assuming, as the evidence tends to show, that the agent of the company who wrote the policy knew that Lucy Nance did not own the fee to any part of the property. We also assume — but do not decide, in view of Insurance Co. v. Hilton-Green, 241 U. S. 613, 36 S. Ct. 676, 60 L. Ed. 1202 — that the effect of the Ohio statute was to charge the responsible officers of the insurance company with the information possessed by its soliciting agent.

Undoubtedly the parties to a contract of insurance may stipulate that its terms cannot be waived or changed, except in writing. Penman v. St. Paul Insurance Co., 216 U. S. 311, 30 S. Ct. 312, 54 L. Ed. 493. They may also make the liability of the insurer depend upon the observance or accuracy of reasonable stipulations inserted in the contract, such as sole ownership. Insurance Co. v. Coos, 151 U. S. 452, 14 S. Ct. 379, 38 L. Ed. 231. The question, then, is not one of waiver, but of estoppel — whether in a suit at law to collect the insurance the company is estopped from setting up the provision in question as a defense against liability. Plaintiffs contend that in this case estoppel would be available under the state law, and that the contract, not only as respects its validity but also respecting permissible methods of reformation and enforcement, is controlled by that law.

The validity of a contract, of course, depends upon the applicable statutes and decisions of the state where the contract is made or to be performed. Pritchard v. Norton, 106 U. S. 124, 1 S. Ct. 102, 27 L. Ed. 104; Union Trust Co. v. Grosman, 245 U. S. 412, 38 S. Ct. 147, 62 L. Ed. 368. It is also true that the federal courts, in construing contracts, will follow the state courts, where a statute or local rule of property is involved. If the case turned on either of these principles, we would be bound to follow the Ohio law. It is upon the premise that it does that plaintiffs insist on the application of Foster v. Insurance Co., 101 Ohio St. 180, 127 N. E. 865, where it was held that the insurer was estopped, by its knowledge of the breach of a provision similar to this, from setting up the breach as a defense against liability. We think the state law does not control, because neither the validity of the contract nor any statute of the state or local rule of property is involved. The contract was valid under the Ohio law. What we must finally determine is not a matter of validity or interpretation; it is whether the terms of a written contract — where the contract itself prohibits modification except in writing — may be varied by parol evidence for the purpose of asserting estoppel. This, we think, is a matter of general jurisprudence. Carpenter v. Insurance Co., 16 Pet. 495, 10 L. Ed. 1044; Liverpool Steam Co. v. Phenix Insurance Co., 129 U. S. 443, 9 S. Ct. 469, 32 L. Ed. 788; Insurance Co. v. Moore, 231 U. S. 543, 34 S. Ct. 186, 58 L. Ed. 356.

The availability of a provision of this character as a defense was considered in Assurance Co. v. Building Ass'n, 183 U. S. 308, 22 S. Ct. 133, 46 L. Ed. 213. That case was taken by the court on certiorari because of the conflict in the different circuits, it having been decided below (101 F. 77, 41 C. C. A. 207) under the rule of Nebraska, where the case originated, that estoppel was an available defense. This was in accord with the later New York cases and the Ohio rule and was seemingly supported by Insurance Co. v. Wilkinson, 13 Wall. (80 U. S.) 222, 20 L. Ed. 617. Those decisions rested on the ground that, if the company had full knowledge of the facts at the time the policy was issued, it would be a fraud on the insured to permit it to plead a breach of one of the conditions. In repudiating that doctrine the court said: "This mode of reasoning over-looks both the general principle that a written contract cannot be varied or defeated by parol evidence and the express provision that no waiver shall be made by the agent, except in writing indorsed on the policy" — holding that it was indifferent whether the condition turned on facts existing when or before the contract was made or on facts subsequently occurring. The opinion proceeds on the idea that to permit the insured to show in an action of this kind that the company issued the policy, knowing that one of its conditions had not been and would not be observed by the insured, would be a subterfuge for permitting the introduction of parol evidence to contradict the written instrument; and the insured was relegated to his right to an action in equity to reform the contract on the ground of fraud or mutual mistake in its execution. This course was later pursued. 203 U. S. 106, 27 S. Ct. 27, 51 L. Ed. 109.

The principle was again announced in Lumber Underwriters v. Rife, 237 U. S. 605, 35 S. Ct. 717, 59 L. Ed. 1140. That case cannot be distinguished by the absence of a statute making the soliciting agent the agent of the insurance company, nor upon the ground that the critical condition of the premises was of a temporary character, easily remedied. The fuller statement of facts in the Circuit Court of Appeals opinion, 204 F. 32, 122 C. C. A. 346, shows that such a statute would not have charged the company with any knowledge that it did not already have in the report of its inspector, which was at the home office when the policy was issued, and showed both the existence and permanency of a forbidden condition of the premises. These authorities, we think, are controlling.

Judgment reversed.

DONAHUE, Circuit Judge.

I concur in the judgment of reversal, because the pleadings present no question of estoppel and the evidence upon which estoppel is now claimed is somewhat vague and indefinite, and apparently was not offered, received, or considered for the purpose of raising that issue. I do not concur in the reasons stated in the majority opinion upon which this reversal is based.

The Hartford Fire Insurance Company is a Connecticut corporation. As a condition of its doing business in Ohio it must comply with the laws of that state. National Ins. Co. v. Wanberg, 260 U. S. 71, 75, 43 S. Ct. 32, 67 L. Ed. 136; Hooper v. California, 155 U. S. 648, 652, 15 S. Ct. 207, 39 L. Ed. 297, and cases there cited. The business of insurance companies is not interstate commerce, but purely an intrastate transaction, governed by the local law; Hooper v. California, supra; Insurance Co. v. Wanberg, supra; Miller v. Maryland Casualty Co., 193 F. 343, 113 C. C. A. 267; Hancock Mutual Life Ins. Co. v. Warren, 181 U. S. 73, 75, 21 S. Ct. 535, 45 L. Ed. 755; New York Life Ins. Co. v. Deer Lodge County, 231 U. S. 495, 34 S. Ct. 167, 58 L. Ed. 332; Orient Ins. Co. v. Daggs, 172 U. S. 557, 19 S. Ct. 281, 43 L. Ed. 552; New York Life Ins. Co. v. Cravens, 178 U. S. 389, 20 S. Ct. 962, 44 L. Ed. 1116. The validity and construction of a contract depends upon the applicable statutes and decisions of a state in which the contract is made or to be performed. Union Trust Co. v. Grosman, 245 U. S. 412, 38 S. Ct. 147, 62 L. Ed. 368; Pritchard v. Norton, 106 U. S. 124, 1 S. Ct. 102, 27 L. Ed. 104.

The insurance business is affected with a public interest, and the state in which insurance contracts are written and to be performed has the right to regulate and control that business, whether it be conducted by a foreign or domestic corporation. National Ins. Co. v. Wanberg, supra; German Alliance Ins. Co. v. Lewis, 233 U. S. 389, 34 S. Ct. 612, 58 L. Ed. 1011, L. R. A. 1915C, 1189; Waters-Pierce Oil Co. v. Texas, 177 U. S. 28, 20 S. Ct. 518, 44 L. Ed. 657. The laws of Ohio apply to all companies engaged in the insurance business. There is no discrimination, and...