Knowles v. Dixie Fire Ins. Co. of Greensboro, N. C

• Decision Date: 07 July 1933
• Docket Number: 31829
• Citation: 149 So. 528,177 La. 941
• Court: Louisiana Supreme Court
• Parties: KNOWLES v. DIXIE FIRE INS. CO. OF GREENSBORO, N. C

149 So. 528

177 La. 941

KNOWLES v. DIXIE FIRE INS. CO. OF GREENSBORO, N. C

No. 31829

Supreme Court of Louisiana

July 7, 1933

Appeal from Fifth Judicial District Court, Parish of West Carroll C. J. Ellis, Jr., Judge.

Action by Irene Knowles against the Dixie Fire Insurance Company of Greensboro, N. C. From a judgment for plaintiff, defendant appealed, and plaintiff answered the appeal.

Amended and affirmed.

St Clair Adams and St. Clair Adams, Jr., both of New Orleans for appellant.

McIntosh & Sims and R. V. Reeves, all of Oak Grove, for appellee.

OPINION

ODOM, Justice.

This is an action to recover on a fire insurance policy amounting to $ 2,000, $ 500.00 on stock of goods consisting principally of groceries and stock pertaining to a restaurant, and $ 1,500 on restaurant and office furniture and fixtures, including counters, shelving, chairs, cash register, frigidaire, water cooler, stove, hot pan, two ice boxes, hot water tank, two ceiling fans, one coffee urn, sink, cooking vessels, and stools. The policy was issued on March 24, 1930, and the property was destroyed by fire on January 9, 1931.

It is alleged that the stock of groceries destroyed was worth $ 700 and the other property had a value of more than $ 3,800; that the loss was total, and that the property was insured for less than three fourths of its value.

Defendant was notified of the fire and sent its adjuster, to whom proofs of loss were submitted. The company tendered, and plaintiff accepted, $ 377.12 in part payment of the loss. The suit is for $ 2,000, the amount of the policy, less the amount paid. Plaintiff also claims 12 per cent. statutory damages for failure to pay the loss within 60 days, and attorneys' fees amounting to $ 350. The defense is that plaintiff violated the iron safe and chattel mortgage clauses in the policy. Defendant also disputed the amount of the loss.

The lower court found that the loss on the restaurant fixtures was $ 1,508.06, and gave judgment against defendant for $ 822.50, its proportion of the loss, there being a policy in another company covering the same property. There was judgment also for $ 35 damage to household furniture, plus 12 per cent. statutory damages and $ 100 attorneys' fees.

Plaintiff's demands for loss on the stock of goods was rejected.

Defendant appealed. Plaintiff answered the appeal, praying that the amount of the judgment be increased from $ 822.58, plus $ 35, or $ 877.58, to $ 2,000, the amount of the policy, less $ 377.12 paid, or a net sum of $ 1,622.88, plus 12 per cent. damages, and that the amount allowed for attorneys' fees be increased from $ 100 to $ 350. She also asks that the judgment be so amended as to allow interest from judicial demand.

1. The judgment rejecting plaintiff's demand for loss on the stock of groceries in the restaurant is correct. The policy contains the usual iron safe clause which was unquestionably violated by the insured. In fact, it is admitted that no inventory of the stock on hand was ever made, that no books or other records were kept showing the amount of business transacted "including all purchases, sales and shipments both for cash and credit." Mr. Knowles, who testified for his wife on this point, did not know what amount of goods was on hand on the date of the fire. There was no way of checking the amount of the loss. No bills or invoices were kept; in fact, no records at all.

He testified that he thought the loss on the stock was between six and seven hundred dollars. But his testimony shows that he did not know. His testimony amounted to no more than a guess.

In the case of Sam Gershon v. North River Insurance Company, published in 177 La. 148, 148 So. 10, 11, which is the latest expression of this court with reference to the iron safe clause in fire insurance policies, we said:

"The iron-safe clause must be complied with substantially to entitle the insured to recover. Such is the contract between the parties. The reasonableness of the clause and its binding effect have been recognized by this and other courts repeatedly. It is a necessary clause in a fire insurance policy on stock in trade, to the end that a just settlement of the loss may be made, should the merchandise insured be destroyed by fire during the term of the policy. Davis v. National Fire Insurance Co., 169 La. 63, 124 So. 147; Stovall v. Sterling Fire Insurance Co., 163 La. 284, 111 So. 707; Lucille Ladies' Ready-To-Wear, Inc., v. Glens Falls Insurance Co., 168 La. 696, 123 So. 295; Thompson v. State Assurance Co., Ltd., 160 La. 683, 107 So. 489; Manuel v. Stuyvesant Ins. Co., 156 La. 813, 101 So. 152. * * *"

Some effort was made by plaintiff to show that the insurer had knowledge that no inventory of the stock had been made and agreed that none need be made, and therefore had waived the covenant set out in the iron safe clause. The District Judge found, and correctly, that this effort failed for lack of proof.

It is also contended by counsel for plaintiff that, inasmuch as the stock of groceries was used only in connection with the restaurant, it was not necessary that an inventory or other records be kept. The testimony shows that the stock consisted of groceries, some to be cooked and served in the restaurant, some to be served without cooking, and some, such as tobacco, cigars, cigarettes, and gum, was to be sold over the counters.

We find no merit in this contention, because it makes no difference whether the groceries were to be sold and carried away or were to be consumed as food on the premises. In either event, it was necessary to keep some record of the amount on hand in order that the loss in case of fire might be determined with at least some degree of accuracy, "to the end that a just settlement of the loss may be made." That is the very purpose of the iron safe clause. Otherwise the insurer would be wholly at the mercy of the insured in making settlements.

2. This policy contained what is usually referred to as the "chattel mortgage clause," which reads as follows:

"This entire policy, unless otherwise provided by agreement endorsed hereon or added hereto, shall be void * * * if the subject of insurance be personal property and be or become encumbered by a chattel mortgage." (Italics ours.)

The subject of insurance in this case was all personal property and some of it was incumbered with chattel mortgages at the time of the loss, and it is contended that this fact alone rendered the policy null and void.

Several authorities, including two leading cases decided by the United States Supreme Court, Sun Ins. Office v. Scott, 284 U.S. 177, 52 S.Ct. 72, 73, 76 L.Ed. 229, decided November 23, 1931, and Hunt v. Springfield Fire & Marine Ins. Co., 196 U.S. 47, 25 S.Ct. 179, 49 L.Ed. 381, decided in December, 1904, are cited in support of this contention.

In the first of these cited cases, it was held that the provisions in a fire insurance policy prohibiting chattel mortgages without consent indorsed on policy are valid stipulations, breach of which constitutes complete defense.

In the course of its opinion the court said:

"The provision in the policies prohibiting chattel mortgages without consent indorsed on the policy is intended to reduce the moral hazard, and is a valid stipulation, the violation of which constitutes a complete defense" -- citing Hunt v. Springfield Fire & Marine Ins. Co., supra.

These cases and others cited by defendant hold without qualification that the mere fact that the personal property, the subject of the insurance, at the time of the issuance of the policy or thereafter during the term thereof, becomes incumbered with a chattel mortgage without the consent of the insurer indorsed on the policy, renders it null and void.

If it were not for Act No. 222 of 1928, p. 291, which was the law of this state when the policy here involved was written, we should hold unhesitatingly that the policy was void at the time of the loss. But under that act, when the insurer sets up a breach of any warranty, representation, or condition contained in the policy as a defense, the burden is upon it to show that such breach was such as would increase either the moral or physical hazard under the policy.

The act, in so far as it need be quoted, reads as follows:

"That no policy of fire insurance issued by any insurance company, corporation, association, firm or individual, on property in this State, shall hereafter be declared void by the insurer for the breach of any representation, warranty or condition contained in the said policy, or in the application...