Maryland Cas. Co. v. Palestine Fashions, Inc., A--11078

• Decision Date: 04 May 1966
• Docket Number: No. A--11078,A--11078
• Citation: 402 S.W.2d 883
• Parties: MARYLAND CASUALTY COMPANY et al., Petitioners, v. PALESTINE FASHIONS, INC., et al., Respondents.
• Court: Texas Supreme Court

Page 883

402 S.W.2d 883

MARYLAND CASUALTY COMPANY et al., Petitioners, v. PALESTINE FASHIONS, INC., et al., Respondents.

No. A--11078.

Supreme Court of Texas.

May 4, 1966.

Rehearing Denied June 1, 1966.

Ramey, Brelsford, Flock & Devereux, Michael A. Hatchell, with above firm, Tyler, for petitioners.

John L. Bates, Waco, for respondents.

SMITH, Justice.

This suit was filed by Palestine Fashions, Inc., Kay's Ladies and Children's Shop, Inc., R. H. Johnson, E. W. Hickman, Individually and d/b/a The Bootery and John L. Bates against Maryland Casualty Company and Pan American Insurance Company and B. B. Campbell, Individually and d/b/a Campbell Insurance Agency, to recover on two fire insurance policies insuring Edward W. Hickman d/b/a The Bootery against direct loss resulting from the destruction by fire of the contents of a shoe store in Palestine, Texas. Based upon a jury verdict, the trial court entered a judgment against each of the defendant insurance companies in the amount of $10,000.00 in favor of John L. Bates, Trustee, as majority stockholder of plaintiff, Kay's Ladies and Children's Shop, Inc., (a defunct corporation), and the plaintiff, Palestine Fashions, Inc. The judgment of the trial court granted R. H. Johnson an equitable lien on the proceeds of the two policies. All other parties, including the plaintiff, E. W. Hickman, Individually and d/b/a The Bootery, and the defendant B. B. Campbell, were dismissed and all issues not expressly disposed of by the judgment were found against the party or parties seeking such relief. There is no question as to the finality of the trial court judgment.

On appeal the Court of Civil Appeals reduced the rate of interest on the judgment from 10 per cent to 6 per cent; otherwise the judgment of the trial court was affirmed. 393 S.W.2d 664. We reverse the judgments of the trial court and the Court of Civil Appeals insofar as those judgments allow a recovery of any sum of money against the two insurance companies.

The two insurance policies, identical in all material particulars, were issued by B. B. Campbell, a local agent for both insurance companies to Edward W. Hickman d/b/a The Bootery for a term of one year from August 11, 1962, to August 11, 1963. The policies contained a provision that no assignment would be valid without the written consent of the insurance company and, further, that '(u)nless otherwise provided in writing added hereto, this Company shall not be liable for loss occurring * * * (d) following a change in ownership of the insured property * * *.'

It has been the position of the companies throughout that the facts giving rise to this controversy established as a matter of law that the companies, as insurers, are not liable to the plaintiffs because of the failure of the plaintiffs to obtain an endorsement on the policies at the time Hickman transferred the property. The plaintiffs, to the contrary, have consistently maintained that both companies, through their agent, B. B. Campbell, waived the change of ownership provision of the policies. The issue of waiver was submitted to the jury, and the jury found that each company waived the provision of its policy providing termination of liability thereunder following a change in ownership of the insured property. The facts, briefly stated, upon which plaintiffs rely to support the issue of waiver, are these:

It is undisputed that the insured, E. W. Hickman, on April 1, 1963, called B. B. Campbell, the agent for both insurance companies, and advised him that 'The Bootery' had been sold to R. H. Johnson and requested Campbell to prepare endorsements to be attached to the policies in favor of Johnson. However, about 30 minutes later Hickman called again and advised Campbell that the property was being sold but that Johnson would not be the new owner, that when the name of the new owner was determined, Campbell would be advised. The last conversation between Hickman and Campbell was about one week after April 1, 1963, when Campbell called Hickman 'to try to determine who the new owners were.' Upon being advised that the name of the new owner had not been determined, Campbell told Hickman that without information as to the new owner, he 'could not issue an endorsement.' Campbell did not warn or remind Hickman of the policy provision requiring notice to the company and a written endorsement upon transfer of title to the insured property to another. The fact that Hickman initially called Campbell requesting an endorsement to Johnson is indicative that he was aware of the necessity for such endorsement before a contract of insurance would be effected between the new owner of the property and the insurers. After the withdrawal of Hickman's request to note by endorsement on the policies that Johnson was the new owner, Campbell received no further information as to the change of ownership of The Bootery. Campbell was never told to cancel the policies, nor was he ever told definitely that the insurance would be kept in force by the new owner or owners.

Unknown to Campbell, the following had taken place regarding the ownership of the store: About March 25, 1963, with Hickman's consent, Johnson foreclosed a chattel mortgage he held against The Bootery, and he took a Quit-Claim Bill of Sale as to any other interest Hickman might have in the store. Thereafter about April 1, 1963, Johnson transferred the store to Kay's Ladies and Children's Shop, a corporation chartered in 1957, as Trustee for a proposed corporation which was being formed. This proposed corporation was merely awaiting approval of a name before receiving its charter. On April 15, 1963, the day after the fire, Kay's Ladies and Children's Shop sold the store to Palestine Fashions, the new corporation. Palestine Fashions had been chartered on April 9, 1963, but no notice of the new corporation's name or stockholders had been given to Campbell, the insurance agent, between the time the corporation was chartered and the fire on April 14, 1963. The record is undisputed that at all pertinent times prior to the fire, Campbell and the insurance compaines were completely without knowledge of the ownership of the property by any of the plaintiffs, including Kay's Ladies and Children's Shop, Inc., Palestine Fashions, Inc., and John L. Bates, either individually or as Trustee for Kay's and Palestine. It is equally clear that Hickman did not own the insured property at the time of the fire.

The Court of Civil Appeals relied upon the following cases in affirming the trial court judgment against the insurance companies. Scott v. Law Union & Rock Ins. Co., 12 S.W.2d 147 (Tex.Com.App.1929); British America Assurance Co. v. Francisco, 58 Tex.Civ.App. 75, 123 S.W. 1144 (1910, refused); New York Underwriters Ins. Co. v. Brittain, 62 S.W.2d 168 (Tex.Civ.App.1933, dism.).

In the Scott case, Scott sold his insured building to Riddle for $200 cash and vendor's lien notes for the balance of $1,800. Riddle, on the same day, sold to Fuquay. Scott then, to protect himself, notified the local agent of the insurance company and requested a transfer of the policy to Fuquay, but the agent, since the policy was to expire in about two months, said he would make the transfer when Fuquay sold the property again, if he did, or when the policy expired, if he did not sell it. Scott told the agent that if that was 'all right that is all I want.' Within the two months left on the term of the policy the building burned. The Commission of Appeals held that, since Scott had requested a transfer and the agent had told him it was 'all right the way it stands now,' Scott was still protected, the provision had been waived, and the company was liable to Scott for the full amount of the policy.

In the Francisco case, Dixon, the owner of a lot and building burdened with a lien secured by a deed of trust in...