Kingsley v. Spofford

• Decision Date: 30 November 1937
• Citation: 11 N.E.2d 487,298 Mass. 469
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: WILLIAM M. KINGSLEY, trustee, v. ETTA F. SPOFFORD, trustee, & others.

298 Mass. 469

11 N.E.2d 487

WILLIAM M. KINGSLEY, trustee, v. ETTA F. SPOFFORD, trustee, & others.

Supreme Judicial Court of Massachusetts, Essex.

November 30, 1937

December 8, 1936.

Present: RUGG, C.

J., FIELD, DONAHUE & QUA, JJ.

Trust, Upkeep of real estate. Insurance, Fire: amount of recovery for loss. Value. Devise and Legacy, Capital and income. Probate Court Appeal, Requests and rulings. Words, "Actual value."

In the circumstances a trustee under a will exercised a sound discretion in paying premiums for fire insurance upon buildings based on replacement cost less depreciation as valuation although such valuation was at least twice the market value of the buildings.

The limitation of recovery under a fire insurance policy to the "actual value" of the insured property by G.L. (Ter. Ed.) c 175, Section 96, does not limit recovery to the "market value."

The provision in Section 95 of G.L. (Ter. Ed.) c. 175, prohibiting a fire insurance company issuing a policy in excess of "the fair value of the property" was not a limitation upon the amount recoverable under a policy although it was issued in violation thereof.

Where it was the primary purpose of a testator in establishing a trust to preserve certain real estate for his family, remaindermen, the trustee was justified in carrying reasonable and not excessive fire insurance on the property even though the premiums thereon, paid from income, were so heavy that the life beneficiaries did not receive as much income as a trust not founded with such a primary purpose normally would produce.

The failure of a probate judge to give correct requested rulings of law at the hearing and allowance of a trustee's account was not ground for reversal on appeal from a decree allowing the account.

PETITION for the allowance of a trustee's account in the Probate Court for the county of Essex.

The petition was heard by Dow, J. From a decree allowing it, certain respondents appealed.

M. Rosenthal, for the appellants. W. A. Rollins, for the petitioner.

FIELD, J. This is an appeal from a decree of the Probate Court for the county of Essex allowing the substituted final account for the period from September 8, 1928, to July 6, 1935, of the sole surviving trustee under the fifth clause of the will of Paul Nelson Spofford, late of Portchester, New York -- filed and recorded in said court as a foreign will -- for the benefit of Joseph Eugene Spofford and Paul Cecil Spofford, life beneficiaries, and others. The appellants are these life beneficiaries and the succeeding trustee. There is a report of material facts, but the evidence is not reported. The judge also filed a document entitled Rulings."

The appellants object only to items in the account for premiums paid for fire insurance on buildings on the premises held in trust under said fifth clause of the will, ^[*] and an item for premiums paid for rent insurance amounting to $168. The aggregate amount paid for fire insurance premiums -- including premiums for fire insurance on furniture, obviously a small amount and not now objected to - was $5,940, of which $240 was charged against principal. The appellants rightly do not contend that this was not a proper case for insurance of the buildings against fire for a reasonable amount at the expense of the trust. See Am. Law Inst. Restatement: Trusts, Section 176, Comment (b). Ordinarily the cost of such insurance, like other current expenses of maintaining the real estate, is chargeable to income. Mahoney v. Kearins, 282 Mass. 130 , 138. The appellants, however, do not contend that any of the premiums paid for fire insurance were improperly charged in the account either to income or to principal if the premiums were not excessive in amount. The only contention on this branch of the case is that the amount of premiums paid was excessive.

The decree allowing the account imports a finding that the payment of premiums for fire insurance as shown therein was not improper because excessive in amount. The question presented for decision on appeal is whether this finding is consistent with and supported by the facts appearing in the report of material facts. Topor v. Topor, 287 Mass. 473 , 476. Goldston v. Randolph, 293 Mass. 253 , 255. The facts so appearing include among others the following: The "property disposed of by said fifth clause of the testator's will consisted of The Bald Pate Inn, a well known and at times popular country hotel situated on the border line between the town of Georgetown and Boxford in said County of Essex together with several cottages and outbuildings used with the inn. There was also a large amount of unimproved land . . . . There was no personal property in the trust except some furniture used in the inn. The entire income of the trust came as rent of the inn and the buildings used with it. [The gross income of the trust for the period covered by the account as shown thereby was $10,864.23.] If the inn should be destroyed by fire the income of the trust would not be sufficient to pay the taxes, interest on mortgage and other carrying charges upon the property, and consequently the property would be lost. During the period covered by the account the life beneficiaries have received $1264.43 each from the trust. They have received nothing since September 10, 1930."

With respect to the fire insurance on the buildings the following facts appear: The "policies of fire insurance procured to be written upon the trust property by the accountant conformed to the Massachusetts standard form of fire insurance policy." "In determining the amount of fire insurance that should be carried upon the property the accountant tried to ascertain the insurable value of the buildings." (The judge defined "insurable value," as here used, as "the cost of replacing the buildings less any depreciation that should be allowed because of their age or condition of repair.") "The amount so determined varied at different times as the cost of construction varied . . . . The accountant placed the fire insurance with the purpose of carrying a sufficient amount to replace the property in case it was destroyed by fire. He made inquiries of the tenant who had leased the inn for many years. He requested the insurance agent to have the buildings examined to ascertain their insurable value and he employed two contractors and builders to give him estimates of the cost of replacing the buildings . . . . The estimates of said contractors strictly do not show replacement costs. The buildings were very old and built with heavy beams and frame and the cost of duplicating them would be great. The estimates of the contractors were upon the cost of erecting buildings of the same size and form using modern materials and methods of construction." The judge found that if "it be held that it was proper for the trustees to use the replacement value of the buildings as the test of the amount of insurance to be carried . . . the items in the account showing payments for fire insurance are reasonable and proper . . . [but that] the market or fair value of the buildings to be used with the land upon which they stand during the period covered by the account was as follows: [Here follow valuations of separate buildings aggregating $15,400 in amount.]" From the report of material facts it appears that the buildings were insured for at least twice this amount, and for a part of the period for much more than twice this amount. The judge in his "Rulings" stated that he ruled that "it was the duty of the trustee to insure the buildings in such sums as would suffice to replace the buildings if destroyed by fire," and declined to make the rulings requested by the appellants.

No part of the premiums paid for fire insurance on buildings as shown in the account is to be disallowed on the ground that the amounts paid were excessive if, according to the standard of conduct applicable generally to the management of the affairs of the trust, the payments were made in good faith and in the exercise of sound discretion, that is, in the exercise of reasonable skill, prudence and judgment. The trustees cannot be held for the consequences of an error in judgment unless the error is such as to show either that they acted in bad faith or that they failed to exercise sound discretion. Pine v. White, 175 Mass. 585 , 590. Taft v. Smith, 186 Mass. 31 , 32. Kimball v. Whitney, 233 Mass. 321 , 331. State Street Trust Co. v. Walker, 259 Mass. 578 , 583. The specific facts reported support the conclusion that the payments were made in good faith and in the exercise of sound discretion.

That the facts reported support the conclusion that the trustees acted in good faith requires no discussion. The principal contention of the appellants is that the premiums paid for fire insurance were excessive because the buildings were insured for a greater amount than could be recovered if they were destroyed by fire. Obviously the trustees were not required, in the exercise of sound discretion, to determine at their peril the precise amount which could be recovered on the policies in the event of total destruction of the buildings or which would be the basis for recovery in the event of partial destruction thereof. Nor is it essential to a decision of this case to determine that amount. This contention of the appellants is met if the amount for which the buildings were insured did not exceed the amount which might reasonably be anticipated as the amount of recovery in the event of total destruction of the buildings or the basis for recovery in the event of partial destruction thereof.

Each policy -- which was in the standard form prescribed by G.L. (Ter. Ed.) c. 175, Section 99 -- provided that the company "shall not be liable beyond the actual...