Hutchings v. Caledonian Ins. Co. of Scotland

• Decision Date: 26 September 1931
• Citation: 52 F.2d 744
• Parties: HUTCHINGS et al. v. CALEDONIAN INS. CO. OF SCOTLAND.
• Court: U.S. District Court — District of South Carolina

52 F.2d 744 (1931)

HUTCHINGS et al. v. CALEDONIAN INS. CO. OF SCOTLAND.

District Court, E. D. South Carolina.

September 26, 1931.

Henry E. Davis, of Florence, S. C., and Davis D. Moise, of Sumter, S. C., for plaintiffs.

J. L. Nettles and R. E. Whiting, both of Columbia, S. C., for defendant.

GLENN, District Judge.

This is a suit on a policy of insurance, use and occupancy type, covering a tobacco warehouse located in the city of Sumter, S. C. The warehouse and contents were completely destroyed by fire on the morning of August 24, 1927. The term covered by the policy was from August 9, 1927, to October 9, 1927.

History of This Case.

The history of this case is necessary to the understanding of this decision.

The plaintiffs in this suit originally brought suit against the defendant and styled the case as it appears above. This was done, although the policy was written in the name of Hutchings alone. The case came on for trial before this District Court and a jury. At the time of the trial, there was some suggestion of the court transferring the case to the equity side for the reformation of the insurance policy. The court did not transfer the case, and granted a directed verdict in favor of the defendant insurance company. Appeal was taken to the Circuit Court of Appeals, and that court, in an opinion reported in 35 F.(2d) p. 309, directed that the case be sent back to the District Court and transferred to the equity side for the purpose of trying the question of reformation. This court then, carrying out the mandate of the Circuit Court of Appeals, transferred the case to the equity side of the court. The trial was then had on the equity side, with the necessary reformation of the pleadings. This court, once having transferred the case to the equity side, and having, as hereinafter set out in full, decided that it was not necessary to retransfer the case or any phase of it to the law side, but that complete relief could and should be afforded on the equity side of the court, it then became necessary for the court to take testimony and decide on the supplementary question of the amount which the plaintiffs were entitled to recover on the reformed contract. Due to unavoidable delays, hearings were had from time to time, and the matter was finally terminated by argument of counsel and the case submitted to this court for decision.

In keeping with equity rule 70½ (28 USCA § 723), we are filing separately our independent findings of fact which naturally fall under two main heads, as follows: (1) Findings of fact which relate to the question of reformation of the insurance policy; (2) findings of fact which deal with the question of amount of recovery to be allowed the plaintiff.

Manifestly, discussion of the legal phases of the case must fall into the same divisions.

Reformation of the Insurance Contract.

The decision of the Circuit Court of Appeals in this case was a mandate to transfer the case to the equity side of the court. There is therefore no need for a discussion of the reasons for which this court transferred this case to the equity side and heard testimony on the question of reformation. In the consideration of the evidence, we have constantly had in mind that cardinal rule so well established as the rule which should cover the court of equity in dealing with the reformation of instruments. The rule is that the evidence on which reformation is based must be "clear, satisfactory, and convincing." If this court is correct in its findings of fact as set out in the independent findings herewith filed, then there is no escape from the conclusion that the testimony measures up to this high standard, and that the plaintiffs are entitled to have their contract reformed. Of course, the substantial feature of the reform in the contract is to name as the insured parties Hutchings and Pratt, trading and doing business as the Banner Warehouse, instead of P. L. Hutchings, individually. The court allowed very free and thorough cross-examination of the plaintiff Hutchings, and the attorneys for the insurance company developed matters which introduced some question about the accuracy of all Mr. Hutchings' testimony. But on the material facts involved, namely, whether or not there was ever a clear intention on the part of Hutchings and Pratt to have the policy changed by indorsement from Hutchings, individually, to Hutchings and Pratt, we have very satisfactory evidence from leading business men of Sumter. There is also the positive statement on the part of the agent of the defendant, insurance company, as to how the transaction was handled.

Without going elaborately into the testimony, we point out that Pratt, a high-type business man, testified positively that he so understood the transaction. While he and Hutchings were partners, yet the evidence shows that, due to Hutchings' difficulties, Pratt, with a stronger financial standing, was responsible for the business going on at all. He had arranged to put the new money into the business, and it was this new money which kept the warehouse going after Hutchings had found himself in financial straits. The testimony is in the record, and we feel sure that the clear and convincing proof justifies the court in concluding that a case of "Mutual mistake" is made out.

Retention of the Case on the Equity Side of the Court for the Purpose of Awarding Judgment and Determining the Amount Thereof.

The insurance company has never set up any serious attack on the bona fides of the fire. This court, in ruling that the contract should be reformed, disposes of the major question involved in the case. There was presented to the court for further determination the question of whether the case should then be retransferred to the law side of the court for suit at law on the reformed policy.

This matter was fully and ably argued by the attorneys on both sides, and the spirit of the argument was that of helping the court rather than of relentlessly insisting upon a point of view. This court has come to the conclusion that it should in this case follow the well-recognized rule that, where equity has assumed jurisdiction for the purpose of determining the question involved in a case, it will retain jurisdiction and award a recovery without putting the parties to the expense and trouble of a separate suit at law. While there are confessedly some strong opinions by courts ruling otherwise, in our humble judgment the weight of authority sustains the course of this court. This was the course approved by the Circuit Court of Appeals of the Fourth Circuit in the case of Colleton Mercantile & Mfg. Co. v. Savannah River Lumber Company, 280 F. p. 358. Of course, this all involves an application of federal equity rule 23 (28 USCA § 723). Typical applications of this rule are found in the following cases: Electric Boat Co. v. Lake Torpedo Boat Co. (D. C.) 215 F. page 377; Goldschmidt Thermit Co. v. Primos Chemical Co. (D. C.) 216 F. page 382; American Car & Foundry Co. v. Merchants' Despatch Transp. Co. (D. C.) 216 F. 904, page 911; Goldschmidt Thermit Co. v. Primos Chemical Co. (D. C.) 225 F. page 769; Chanslor-Canfield Midway Oil Co. v. United States, 266 F. page 145, 147 (C. C. A. 9). See, also, recent opinion 4th Circuit Court of Appeals, General Finance Co. v. Keystone Credit Corporation, 50 F.(2d) 872.

Amount of Recovery.

Having disposed, therefore, of the major proposition to be decided, namely, the right of the plaintiffs to have the contract of insurance reformed so as to name as the insured "Hutchings and Pratt, trading and doing business as The Banner Warehouse," we then pass to the question of the amount of recovery under the reformed instrument. The policy is a use and occupancy policy, and sets as a limit of recovery $200 a day. The time covered by the policy is sixty days from the 9th of August to the 9th of October, 1927. As the fire happened on the morning of August 24th, the maximum recovery which could in any event be allowed would be $200 per day for forty business days, or a total of $8,000, but the policy does not stop here. It says that

"This company shall be liable under this policy for the actual loss sustained consisting of:

"1. Net profits on the business which is thereby prevented;

"11. Such fixed charges and expenses as must necessarily continue during a total or partial suspension of business, to the extent only that such fixed charges and expenses would have been earned had no fire occurred;

"111. Such expenses as are necessarily incurred for the purpose of reducing the loss under this policy; for not exceeding such length of time, commencing with the date of the fire and not limited by the date of expiration of this policy, as shall be required with the exercise of due diligence and dispatch to rebuild, repair or replace such part of said building(s) and machinery...