Hyland v. Millers Nat. Ins. Co.

• Decision Date: 09 August 1937
• Docket Number: No. 7937.,7937.
• Citation: 91 F.2d 735
• Parties: HYLAND v. MILLERS NAT. INS. CO.
• Court: U.S. Court of Appeals — Ninth Circuit

91 F.2d 735 (1937)

HYLAND v. MILLERS NAT. INS. CO.^*

No. 7937.

Circuit Court of Appeals, Ninth Circuit.

August 9, 1937.

Morgan V. Spicer, William S. Graham, W. W. Sanderson, and J. W. McCaughey, all of San Francisco, Cal., Robert W. Jennings, of Sacramento, Cal., and W. H. Metson, of San Francisco, Cal., for appellant.

H. A. Thornton, Thornton & Watt, and Thornton & Taylor, all of San Francisco, Cal., for appellees Millers Nat. Ins. Co. and Western Ins. Co. of America.

Redman, Alexander & Bacon, Jewel Alexander, Wm. C. Bacon, and R. P. Wisecarver, all of San Francisco, Cal., for appellees Dubuque Fire & Marine Ins. Co., National Reserve Ins. Co., Minnesota Fire Ins. Co., and Merchants Fire Ins. Co.

Orrick, Palmer & Dahlquist, of San Francisco, Cal., for appellee National Liberty Ins. Co.

Long & Levit, Percy V. Long, Bert W. Levit, and R. P. Wisecarver, all of San Francisco, Cal., for appellee Firemen's Ins. Co. of Newark, N. J.

Before WILBUR, DENMAN, and HANEY, Circuit Judges.

DENMAN, Circuit Judge.

Appellant Hyland brought this suit in equity against the Millers National Insurance Company and seven other insurance companies to recover from and apportion between them the amount of loss sustained by him in fire, admitted to be incendiary, in his bag factory, in Sacramento street, San Francisco, on October 19, 1929. Appellant carried fire insurance with the defendant companies totaling $185,000 on his stock of bags and burlap.

All but two of the eight defendants pleaded failure to settle the loss by arbitration, and that such failure was due to the conduct of the plaintiff and the arbitrator appointed by him. This, if true, defeats recovery. Appellant's bill seeks equity for the apportionment of the liabilities of each of the insurers, for, under the terms of all the policies, the liability of each is affected by the liability of the others. His unclean hands as to the six infects his claim of equitable jurisdiction over the others. All the defendants pleaded that in his proofs of loss Hyland was guilty of fraud and false swearing. If true, this, by the terms of the policies, also defeats any recovery.

There are other issues and cross-issues relative to the amount and effect of certain of the insurance policies as between the defendants. If either of the above defenses is sustained, these other issues need not be considered.

At the conclusion of the trial, the District Judge made his findings of fact and conclusions of law in an opinion which he adopted for that purpose. He found that the proofs of loss were deliberately overstated, with plaintiff's knowledge, in an effort to deceive the insurance companies. He found that this false swearing consisted both of wilful overstatement of out of sight loss, and fraudulent statement of the amount of damage to goods remaining after the fire. He found that the failure to arbitrated the loss was due to the conduct of the plaintiff. He concluded as a matter of law that plaintiff was entitled to take nothing, and dismissed the bill. Appellant Hyland on this appeal claims that the evidence does not support these findings.

The statement of evidence in this case covers over 3,300 pages and takes up 6 large volumes of printed record. The witnesses were heard orally by the District Judge. There was much conflict in their testimony. Some were impeached or attempted to be impeached. It is a case particularly calling for the rule that the findings of the chancellor will be taken as correct unless clearly against the weight of the evidence. National Reserve Ins. Co. v. Scudder (C.C.A.9) 71 F.(2d) 884; U. S. v. McGowan (C.C.A.9) 62 F.(2d) 955, 957; Arkansas Natural Gas Corp. v. Pierson (C.C.A.8) 84 F.(2d) 468, 470; Ditto v. Dufur (C.C.A.8) 88 F.(2d) 266, 269.

A. The Appellant made no "fair effort" at an arbitration to adjust his claims, but fraudulently frustrated the arbitration provided by the statute.

The principle of adjustment of claims arising under the insurance policies by arbitration, in which each of the parties chooses an arbitrator or appraiser, and a third, an umpire, is, in turn, chosen by them, was very early established in the great enterprise of fire insurance. Such a beneficent substitute for the complicated and time-consuming processes of common law has been recognized by all the courts. Nowhere has its obvious requirement of integrity on the part of the parties in this quasi judicial process of arbitration been more clearly recognized than in the courts of the State of California, under whose laws the policies before us must be construed.

In the early case of Old Saucelito L. & D. D. Co. v. Commercial Union Assur. Co., 66 Cal. 253, 258, 5 P. 232, 236, the court said: "We think the language of the stipulations in the policy brings this case within the principle laid down in the English case above referred to; that it is the clear meaning of the contract that if the amount of loss cannot otherwise be adjusted to the satisfaction of the parties it shall be adjusted by the mode of arbitration therein prescribed; and that until such adjustment, or a fair effort on the part of the insured to obtain it, no cause of action arose." (Italics supplied.) The agreement for arbitration in the Saucelito Case provided as follows (66 Cal. 253, 255, 5 P. 232, 233): "10. That in case of difference of opinion as to the amount of loss or damage, such difference shall be submitted to the judgment of two disinterested and competent men, mutually chosen (who, in case of disagreement, shall select a third), whose award shall be conclusive and binding on both parties."

The California Supreme Court holds that without any express provision making the arbitration "or a fair effort on the part of the insured to obtain it" a condition precedent to litigation, nevertheless on a showing of the absence of such a fair effort on the part of the insured, the insured could not recover.

In 1909 the California Legislature adopted the process established in the policies of the insurance companies and required of both the insured and the insurer that arbitration of the amount of a fire loss by a tribunal of three arbitrators should be a condition precedent to recovery. Cal.Stat.1909, pp. 404-408; now St.1935, p. 596, Gen.Laws, 1935 Supp., Act 3748, § 2071, p. 932. Each party is to choose a member of this quasi judicial tribunal; they in turn choose an umpire. The character of the two members of the tribunal chosen by the parties is described by the statute in the words providing that the insurer and the insured are each "to appoint a competent and disinterested appraiser * * * and the two so chosen shall before commencing the appraisement select a competent and disinterested umpire."

The two appraisers appointed by the parties "together shall estimate and appraise the loss or part of loss as to which there is disagreement, stating separately the sound value and the damage." If these two fail to agree "they shall submit their differences to the umpire." The tribunal then becomes a three-party tribunal. There shall be an "award in writing." This award becomes effective when "duly verified" by any two of the three. The award "shall determine the amount or amounts of such loss."

Under the decision of the Saucelito Case a recovery cannot be had on the policy unless there is "a fair effort on the part of the insured to obtain" such a quasi judicial determination of the amount of the loss.

The California statute next provides for the contingency where there has been such a fair effort on the part of the insured and the arbitration has failed. It recognizes the decision of the Saucelito Case in the following language of the statutory requirement for fire policies (Cal.Stat.1909, p. 408; now St.1935, p. 596, Gen.Laws, 1935 Supp. § 2071, p. 932): "If for any reason not attributable to the insured, or to the appraiser appointed by him, an appraisement is not had and completed within ninety days after said preliminary proof of loss is received by this company, the insured is not to be prejudiced by the failure to make an appraisement, and may prove the amount of his loss in an action brought without such appraisement."

All but two of the appellee insurance companies here contend that this quasi judicial tribunal was attempted to be created, but that its adjudicating integrity was destroyed ab initio by the insured Hyland, since his member of the tribunal was already corrupted by him and was a corrupt person not only not having the character of disinterestedness essential to a proper participancy in an award in which he with one other would adjudicate the amount, but was a man for years bound to Hyland by a secret course of corrupt conduct, most reprehensible from the standpoint of business ethics, if not criminal in character.

The evidence amply sustains the contention of these appellees.

The witnesses showing the character of the arbitrator chosen by Hyland were all heard by the court below and its findings of the dishonesty of both Hyland and his appointee is supported by the usual presumption in equity appeals, where the evidence is heard in open court by the lower tribunal.

Not only did appellant Hyland make "no fair effort" to have his loss determined by the body prescribed by the policies and the statute, but he made a most vicious and fraudulent effort to deceive the appellee insurance companies into believing that he had appointed a "competent and disinterested appraiser," whereas in fact he destroyed the possibility of creating the kind of tribunal prescribed by the statute and policies by injecting into that tribunal a corrupt member tied to him by fraud, if not by crime; who had previously assisted him in fabricating evidence of a loss in this same fire; who was bound to him by secret commissions paid to him in dealings with his appointee's employer; and who was secretly on the payroll of Hyland, for the purpose of defrauding and cheating the appointee's employer. We further...