Mann v. Charter Oak Fire Insurance Company

• Decision Date: 16 August 1961
• Docket Number: No. LR-60-C-155.,LR-60-C-155.
• Citation: 196 F. Supp. 604
• Parties: Henry MANN and Joyce Mann, His Wife, Plaintiffs, v. CHARTER OAK FIRE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

196 F. Supp. 604

Henry MANN and Joyce Mann, His Wife, Plaintiffs, v. CHARTER OAK FIRE INSURANCE COMPANY, Defendant.

No. LR-60-C-155.

United States District Court E. D. Arkansas, W. D.

August 16, 1961.

COPYRIGHT MATERIAL OMITTED

Cooper Jacoway, Little Rock, Ark., for plaintiffs.

Robert S. Lindsey, Wright, Lindsey, Jennings, Lester & Shults, Little Rock, Ark., for defendant.

HENLEY, Chief Judge.

This is a suit on a fire insurance policy covering a certain residence in Little Rock, Arkansas, which residence was totally destroyed by fire on March 21, 1960. The insureds named in the policy are the plaintiffs, Henry Mann and Joyce Mann, and the policy which was issued by defendant, Charter Oak Fire Insurance Company (Charter Oak), contained a standard mortgage clause in favor of First Federal Savings & Loan Association of Little Rock (First Federal) to which plaintiffs were indebted at the time the policy was issued.

The cause has been tried to the Court and briefed. This memorandum incorporates the Court's findings of fact and conclusions of law.

The facts, most of which have been stipulated, are substantially undisputed and may be summarized as follows:

Plaintiffs are citizens of Arkansas. Defendant is a Connecticut corporation authorized to do business and doing business in Arkansas. The amount in controversy, exclusive of interest and costs, but including plaintiffs' demand for a statutory penalty and attorney's fee,¹ is in excess of $10,000

In October 1959 plaintiffs became indebted to First Federal in the amount of $8,000, which indebtedness was secured by a mortgage on the property on which their home was located. The mortgage contained standard provisions requiring the mortgagors to carry sufficient insurance to protect the mortgage debt, and authorized the mortgagee to procure insurance should the mortgagors fail to do so. The mortgagee also had the right to physical possession of the insurance policy should mortgagors obtain their own insurance.

When the mortgage was executed, plaintiffs in fact had adequate insurance coverage with Trinity Universal Insurance Co. (Trinity), a fact which was known to First Federal. First Federal called on plaintiffs on several occasions to deliver the Trinity policy to it, as required by the mortgage, but for some reason plaintiffs failed to do so.

At all times here pertinent First Federal was managed by Howard C. Johnston, its executive vice-president, and by H. Charles Johnston, its secretary-treasurer. The Johnstons were also in the insurance business operating as Johnston Insurance Agency. The agency occupied the same building as did First Federal. Johnston Insurance Agency was an agent for Charter Oak, and the general agent for Charter Oak at Little Rock was Shepherd & Co. The agent of Trinity who sold plaintiffs their policy with that company was Tillo Bill Jackson of Little Rock.

In the latter part of February 1960, First Federal, having been unable to obtain possession of the Mann policy, decided to secure independent insurance, and directed the Johnston agency to write such insurance in the amount of $8,000, the principal amount of the loan. The Johnston agency procured the issuance of the policy in suit by Shepherd & Co. The policy was countersigned by the Johnston agency and delivered to First Federal. Said policy contained no prohibition against other insurance. No premium was demanded or paid when the policy was delivered to First Federal, and in fact no premium has ever been paid, although by amendment to their complaint plaintiffs recognize that the first premium installment of $96 should be deducted from their recovery, if any.

On February 25, 1960, H. Charles Johnston, acting for First Federal, wrote Mr. Mann as follows:

"Since we have not received an insurance policy on your home * * I am this date writing a policy to cover you on same. If you do have a policy on the house, please forward it to me immediately so that our policy can be cancelled. If you would like for us to continue writing the policy, you may submit your policy for cancellation.

"Please see that your two payments that are now delinquent on the house are sent to us as soon as possible."

The Trinity policy held by the Manns, unlike the policy issued by Charter Oak, contained an absolute prohibition against other insurance on the premises. Whether or not Mann knew of this prohibition at the time, it appears that he did not want two policies on the house, and he requested his agent, Jackson, to get the matter straightened out. Jackson contacted Douglas Wright, an employee of First Federal, by telephone and indicated to him that the Charter Oak policy should be cancelled since the Manns were covered by the Trinity policy. On February 29, 1960, Jackson followed up his telephone conversation with a letter addressed to Wright, which letter, insofar as here pertinent, is as follows:

"Enclosed please find copy of Mr. Mann's Homeowner policy which I have certified, as the original policy was delivered to Henry back in August, and evidently he has lost same.

"Since Mr. Mann has this policy in force, with mortgage clause to First Federal, he has no need for the policy that Mr. Johnston has written, so it should be cancelled.

"Also, you show a return premium due Henry under a builder's risk policy that should be returned to Henry also."

The parties have stipulated that Mr. Wright has no recollection of receiving that letter, and the existence of the letter and its contents were not made known to the Johnston agency or to Shepherd & Co. until on or after March 24, 1960, by which time the insured premises had been destroyed. The policy was finally surrendered by First Federal and was cancelled sometime in April 1960.

The loss which occurred on March 21, 1960, was adjusted by John Baird, of the General Adjustment Bureau of Little Rock, acting for Trinity and not for Charter Oak, although Charter Oak was aware of the loss and of the investigation.

Baird knew that the Trinity policy prohibited other insurance, and he raised with Mann the question of whether the existence of the Charter Oak policy absolved Trinity from liability on its own policy. It should be observed at this point that the Trinity policy was in the sum of $15,000, almost twice the amount of the Charter Oak policy.

Mann informed Baird that he had nothing to do with ordering the Charter Oak policy, that when he learned of its existence, he saw no need for it and instructed his own agent to procure its cancellation, and that he intended to make no claim under it. In connection with his claim under the Trinity policy Mann executed a sworn proof of loss reciting that he had no other insurance.

It was stipulated that if the Trinity agent, Jackson, were called as a witness he would testify in accordance with a written statement executed by him on April 20, 1960, a copy of which statement is attached to the stipulation as an exhibit. That statement is, in part, as follows:

"* * * After the fire on the 21st of March, Henry Mann said that he might have another policy on the house with 1st Federal. I told him that I had instructed them to cancel their policy, but even if they had not done so, the policies would simply pro-rate on the loss. Henry in no way indicated that he was going to try to collect the face amount of each policy. However, about 10 days ago he told me that he had been contacted by a lawyer and was told he could collect the full amount of both policies. * * * I told him he certainly wouldn't want to do this, and he replied that he was not going to do it, but that he just wanted to tell me some of the things he found out. Nothing more has come of this as far as I know. * * *"²

Trinity paid Mr. and Mrs. Mann the full $15,000 called for by the Trinity policy, and the obligation to First Federal was discharged in full either out of the proceeds of the policy or by means of other funds available to plaintiffs. Thereafter, Mann made demand on Charter Oak under the policy in suit, and when payment was refused, this action was instituted. The suit was filed originally by Mann alone, but later Mrs. Mann was made a party plaintiff. The defendant denies all liability under the policy.

The case having come to issue, a pretrial conference was held, and in the course of the conference it was agreed that the issues in the case are as follows:

"a. Whether the policy of insurance issued by the defendant ever was a contract of insurance.

"b. Whether there was an effective cancellation of the policy before the fire.

"c. Whether the prohibition of other insurance contained in the policy issued plaintiff by Trinity Universal Insurance Company prevents plaintiff from recovering in this action."

With regard to those issues it is the position of the plaintiffs that the Charter Oak policy was a valid and binding contract of insurance at the time of the fire, that the policy was never cancelled effectively prior to the fire, and that the prohibition of other insurance contained in the Trinity policy and the receipt by plaintiffs of the proceeds of that policy have nothing to do with their right to recover against Charter Oak.

Defendant contends, on the other hand, that the policy in suit was never a contract of insurance, but that if it was it was cancelled prior to the fire, and, further, that the conduct of Mann after the loss in connection with the Trinity policy and his receipt of the proceeds of that policy estop plaintiffs from proceeding against Charter Oak.

Since this is a diversity case, Arkansas law governs.

I.

Under Arkansas law, a contract of insurance is formed when the parties have agreed upon the following essential elements:

1. The subject matter of the insurance.

2. The risk insured against.

3. The amount of insurance.

4. The duration of the risk.

5. The premium to be paid.

New Hampshire Fire Insurance Co. v. Walker, 178 Ark. 319, 11 S.W.2d 772; Carolina Casualty Insurance Co. v. Helms, 8 Cir., 248 F.2d 268,...