Insurance Co. of NA v. Detroit & Security Trust Co.

• Decision Date: 03 August 1931
• Docket Number: No. 6300.,6300.
• Citation: 51 F.2d 155
• Parties: INSURANCE CO. OF NORTH AMERICA v. DETROIT & SECURITY TRUST CO.
• Court: U.S. Court of Appeals — Ninth Circuit

51 F.2d 155 (1931)

INSURANCE CO. OF NORTH AMERICA v. DETROIT & SECURITY TRUST CO.

No. 6300.

Circuit Court of Appeals, Ninth Circuit.

June 15, 1931.

As Amended on Denial of Rehearing August 3, 1931.

Charles A. Strong, Redman, Alexander & Bacon, and A. B. Weiler, all of San Francisco, Cal., for appellant.

Chickering & Gregory, Evan Williams, and M. L. Crimmins, Jr., all of San Francisco, Cal., for appellee.

Before RUDKIN, WILBUR, and SAWTELLE, Circuit Judges.

WILBUR, Circuit Judge.

This is an appeal from a judgment in favor of appellee rendered in an action upon a fire insurance policy, which was in the form known as the California standard form, issued by appellant August 16, 1927, to the Feather River Pine Mills, Incorporated, a Nevada corporation, hereinafter referred to as the Feather River Company, to recover for a loss by a fire which occurred October 6, 1927.

Appellant claimed that the evidence was insufficient to support the judgment, and that its motion for judgment in its favor should have been granted by the trial court. The claim of the appellant is that its fire insurance policy, although duly and regularly issued before the fire, was not accepted by the Feather River Company, or, if accepted, had been repudiated and canceled by the Feather River Company. The policy was procured by Marsh & McLennan, insurance brokers, purporting to act on behalf of the Feather River Company. It cannot be seriously contended under the evidence that Marsh & McLennan were not authorized to apply for the policy in question, and the principal contentions of the appellant are based upon occurrences subsequent to the receipt of the policy by Marsh & McLellan, nevertheless we will indicate in a general way the evidence with reference to the authority of the brokers to procure the insurance in question.

The Feather River Company owned and operated a lumber mill and yard at Oroville, Cal. The property was incumbered by a trust deed to secure a bond issue which contained a proviso that the Feather River Company should keep the property insured against loss by fire to the extent of not less than 80 per cent. of the insurable value thereof, and each policy should be payable to the trustee as his interest might appear. A trust deed had been executed by the Hutchinson Lumber Company, predecessor to the Feather River Company, and the property purchased by the Feather River Company under a foreclosure proceeding of a second mortgage, a receiver having been appointed. The receiver, Mr. Fentress Hill, became the general manager of the Feather River Company, in pursuance of an agreement between the officials of that company and the creditors and bondholders. Marsh & McLennan had handled all the insurance upon the lumber plant for the Hutchinson Company and for the receiver, and, after the termination of the receivership, for the Feather River Company, for several years.

By the course of dealing between the Feather River Company and Marsh & McLennan, it had been assumed that these agents would keep the property insured in conformity with the obligation of the insured under the trust deed. Some months before the policy in question was procured, the insurance companies were demanding a higher rate due to a change in conditions at the plant caused by the construction of new buildings which reduced the space between the various units making up the plant, from 200 feet to about 30 feet. It was contended by the board of fire underwriters which establishes insurance rates that the premium should be increased from $1.39 per $100 to $3.14 per $100. This claim for increased premium resulted in several interviews between Marsh & McLennan and the officers of the Feather River Company regarding the increased rates and the establishment of an automatic fire-protection system to reduce the fire hazard, and thus to procure reduced rates. The sprinkling system was not established, and therefore the new rate of $3.14 per $100 made in April, 1927, remained in effect. During the period of negotiations with the board of fire underwriters with reference to the new rate and its possible reduction, Marsh & McLennan had procured policies which carried the insurance for sixty days, and when they could not get a definite reduction of the insurance rate they arranged for carrying the insurance on "cover notes" which fixed no definite rate. It was, however, arranged that the rate should be lower than the amount fixed by the board of fire underwriters. Finally the companies insisted upon the surrender of the covering notes and the writing up of the policies at the higher rate. During this period Marsh & McLennan were insisting upon the installation of a sprinkling plant, or at least making a contract therefor, which it was assumed would have the effect of an immediate reduction in rates. This was not done before the issuance of the policy in question. Thereafter, Marsh & McLennan procured insurance in the sum of $348,750 in which was included the appellant's policy for $75,000 with a premium of $2,355, for the term of one year from July 15th. Marsh & McLennan were not only insurance brokers, but also agents for a number of insurance companies in which they issued policies covering a part of the $348,750 insurance. About September 1, 1927, all of these policies were forwarded by Marsh & McLennan to the Feather River Company and received by it at Oroville about September 1, 1927. The policy issued by appellant had been in effect nearly a month and a half at the time it was sent to the Feather River Company, if the application therefor was authorized. It was retained by the Feather River Company until September 15th, at which time the policy had been in effect for two months, and one-sixth of the premium had been earned. At the time these policies were returned, a letter was written by the Feather River Company to Marsh & McLennan directing them to cancel the policies and get new insurance, and stating that the Feather River Company would not pay premiums on these policies at the new rate. This letter, however, was written in pursuance of an agreement between the Feather River Company and Marsh & McLennan that such a letter should be written with a view to forcing the insurance companies to reconsider the rates established, and perhaps of getting better terms. In view of the fact that this letter from the officers of the company to its insurance brokers was not communicated by them to the appellant until after the fire, it is immaterial, except that it tends to show the view of the Feather River Company and its agents as to the authority of the agents with reference to the procurement of insurance.

It should perhaps be here stated that a different situation exists with reference to those insurance companies for which Marsh & McLennan was acting agent. The letter of September 15th from appellant to Marsh & McLennan directed them, in pursuance of the conversation of the day previous, to "cancel without charge to us for either the so-called earned premiums or otherwise, the following policies," including the policy issued by the appellant. The letter proceeds:

"The above policies were handed to you by the writer on yesterday with the...