Kentucky Vermillion Min. & Concentrating Co. v. Norwich Union Fire Ins. Soc.

• Decision Date: 19 June 1906
• Docket Number: 1,291.
• Citation: 146 F. 695
• Parties: KENTUCKY VERMILLION MINING & CONCENTRATING CO. v. NORWICH UNION FIRE SOC.
• Court: U.S. Court of Appeals — Ninth Circuit

146 F. 695

KENTUCKY VERMILLION MINING & CONCENTRATING CO. v. NORWICH UNION FIRE SOC.

No. 1,291.

United States Court of Appeals, Ninth Circuit.

June 19, 1906

Graves & Graves and E. H. Belden, for plaintiff in error.

Goodfellow & Eells and Happy & Hindman, for defendant in error.

This is an action upon a fire insurance policy to recover for a loss alleged to have been sustained thereunder. The amended complaint, upon which the case was tried, shows that plaintiff, a corporation of the state of Washington, owned certain buildings and machinery situated therein (a concentrating plant) within the state of Montana; that upon May 1, 1902, defendant issued a policy of insurance in the sum of $5,000 against loss by fire thereon, which policy it is alleged was renewed by the issuance of an identical policy, except as to date of commencement and termination of insurance, upon May 1, 1903; that on August 15, 1903, during the life of the latter policy, the buildings and machinery insured were destroyed by fire, causing a loss within the terms of the policy in the full amount covered thereby. A copy of the policy sued upon was attached to the complaint as an exhibit. Attached to and made a part of the policy was a typewritten slip, which contained the following material provisions: 'Privileged to make alteration, additions and repairs incidental to the business, to remain idle subject to the conditions of the watchman's clause, and to use coal oil and electricity for lights. Warranted by assured that the plant will not be operated during the life of this policy except upon notice to this company and the payment of additional premium. Warranted at all times when the property herein described shall be idle or inoperative, a constant day and night watchman shall be kept on duty; and provided that if such property be idle or shut down for more than thirty days at any one time, notice must be given this company and permission to remain idle for such time must be indorsed hereon or this policy shall immediately cease and determine.'

In the complaint if is alleged that: 'On the 1st day of May 1902, the property insured by the policy in suit was idle and not in operation, and so continued during all of the time from May 1, 1902, to May 1, 1903, with the knowledge and consent of the defendant, but plaintiff kept a constant day and night watchman on duty in the premises with the knowledge and consent of the defendant. At the time of the issuance of the policy sued upon, and at all time, until the destruction of the property by fire, the property continued idle and inoperative, with the knowledge and consent of the defendant but plaintiff kept a constant night and day watchman on duty in said premises. It was understood and agreed between plaintiff and defendant, at the time of issuing the policy, that the property might remain idle and inoperative, but in charge of a constant night and day watchman, and that the policy should continue in force and effect notwithstanding. Both parties to the contract understood, at the time of the issuance of said policy, that to be the true intent and meaning of the policy. Both parties had that understanding throughout the life of the policy, and after the destruction of the property by fire, and until this suit was brought. The provisions of the policy in suit means in insurance circles and amongst insurance men, and is understood to mean, that the insured property may remain idle and inoperative during the life of the policy, if a constant night and day watchman be kept on duty by the insured. ' The defendant admitted the issuance of the policy, the loss, and that it was notified thereof; that proper proofs of loss were made out and forwarded it; that the property insured was idle and inoperative when the policy sued on was issued and remained so until the time of the loss. All other allegations save those merely formal were denied. It set up as an affirmative defense that the property insured was, at the time of the fire which caused the loss, and continuously for more than 90 days prior thereto had been, idle and inoperative, and that no notice thereof was given defendant, and no permission to remain idle indorsed upon the policy; that the policy was therefore void, and on May 4, 1904, it had tendered back the premium paid. With the exception of the making of the tender on May 4, 1904, and the remaining idle, the allegations of the affirmative defense were denied by plaintiff's reply. The cause was at issue upon: (1) The meaning in insurance circles and among insurance men of the term 'watchman's clause,' as used in the policy sued upon; and (2) if its meaning was other than plaintiff contended, the waiver of that clause by the defendant.

In order to sustain the issue upon its part the plaintiff offered to read in evidence the deposition of John W. Luke, defendant's agent who issued the policies of 1902 and 1903. A question relating to the negotiations regarding the policy of 1902 was objected to, upon the ground that anything connected with the issuance of the policy of 1902 was immaterial in the present action, a suit upon the policy issued in 1903. The objection presented the questions whether evidence was receivable to show the trade meaning of the clause in the policy above quoted, and whether a waiver of the clause could be shown by parol. The objection was sustained. The plaintiff then made sundry offers of proof, which are set out in the assignments of error, which were rejected. The plaintiff then introduced evidence tending to prove that it had kept a constant day and night watchman upon the premises insured during the life of the policy, and that defendant had not kept its tender good to return the premium, and rested. The defendant declined to offer any evidence, whereupon the plaintiff moved that the jury be instructed to render a verdict in its favor, on the ground that defendant had not kept its tender good. The motion was denied, and the court then directed the jury to return a verdict in favor of the defendant.

Before GILBERT and ROSS, Circuit Judges, and HAWLEY, District Judge.

HAWLEY District Judge, after making the foregoing statement, .

Did the court err in refusing to allow parol evidence to be admitted to explain the meaning of the term 'watchman's clause'?

Plaintiff in error does not claim that evidence of a usage or custom may be received to control or vary the positive stipulations of a written contract, or to contradict them, but its contention is that the phrase 'watchman's clause' is a trade term, which has a well-defined and understood meaning by custom and usage in the insurance business, and that the courts in construing the policy must ascertain the meaning of that term in the insurance business in order to arrive at the intention of the contracting parties. It is further claimed by the plaintiff in error, independent of the 'question of trade, custom and usage ' that the court erred in rejecting plaintiff's offer to prove by parol that the clause 'warranted at all times' and concluding with the words 'this policy shall immediately cease and determine' is a stock clause placed on all insurance policies issued on the Pacific Coast, while the permission 'to remain idle,' subject to the conditions of the 'watchman's clause,' was one peculiar to this risk, and only intended to be applied to manufacturing plants which were in operation at the time the policy was issued, and provided for a contingency that might thereafter arise. It further claims that the policy was ambiguous, not only from the language used in the policy, but also from the condition of the parties.

We are of opinion that the court did not err in excluding parol testimony as to the meaning of the term 'watchman's clause.' There were no words or phrases used therein which required any parol evidence in order to explain their meaning. The contract was in writing, and was, in its entirety, susceptible of a reasonable construction by the court. The rule is well settled that:

'Where a written contract is susceptible on its face of a plain and unequivocal interpretation, resort cannot be had to evidence of custom or usage to explain its language or qualify its meaning. ' Hunt v. Fidelity & C. Co., 99 F. 242, 245, 39 C.C.A. 496.

Having 'satisfied ourselves that the policy is susceptible of a reasonable construction of its face, without the necessity of resorting to extrinsic aid, we have at the same time established that usage or custom cannot be resorted to for that purpose. ' The Insurance Companies v. Wright, 1 Wall. 456, 470, 17 L.Ed. 505.

The decisions of the courts upon the questions in dispute between the respective parties have not been entirely uniform. In Barnard v. Kellogg, 10 Wall. 383, 390, 393, 19 L.Ed 987, the court said that, while it would be hard to reconcile all the cases, 'it may be safely said they do not differ so much in principle, as in the application of the rules of law. The proper office of a custom or usage in trade is to ascertain and explain the meaning and intention of the parties to a contract, whether written or in parol, which could not be done without the aid of this extrinsic evidence. It does not go beyond this, and is used as a mode of interpretation on the theory that the parties knew of its existence, and contracted with reference to it. It is often employed to explain words or phrases in a contract of doubtful signification, or which may be understood in different senses, according to the subject-matter to which they are applied. But if it be inconsistent with the contract, or expressly or by necessary implication contradicts it, it cannot be received in evidence to affect it. ' In the course of the opinion several cases were cited, and it was directly held...