Mercantile Trust Co. v. New York Underwriters Ins. Co.
| Decision Date | 04 May 1967 |
| Docket Number | No. 15925.,15925. |
| Citation | 376 F.2d 502 |
| Parties | MERCANTILE TRUST COMPANY, a Corporation, as Trustee, Plaintiff-Appellee, v. NEW YORK UNDERWRITERS INSURANCE COMPANY, a Corporation, and Edward D. Luer, Defendants, New York Underwriters Insurance Company, Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
J. Fred Schlafly, Alton, Ill., John H. Cunningham, Jr., St. Louis, Mo., for appellant.
Robert B. Maucker, James K. Almeter, Alton, Ill., for appellee.
Before CASTLE, KILEY and CUMMINGS, Circuit Judges.
In this diversity action, the Mercantile Trust Company ("Mercantile") of St. Louis, Missouri, has sued to recover $20,000 insurance for the loss of a dwelling house, whose title was held by Mercantile in trust for the benefit of Edward D. Luer. After a bench trial, the District Court held for Mercantile, and the New York Underwriters Insurance Company ("Underwriters") has appealed.
In 1928, Herman F. Luer and his wife established a trust consisting of two lots and a dwelling house and other structures near Alton, Illinois. The residence was to be held for Mrs. Luer's use during her life and then for the benefit of their son Edward D. Luer. Upon his death, the trust estate was to go to Edward Luer's descendants. At the same time, Herman Luer created an income trust of which Edward Luer is the present beneficiary. The income trust was not introduced in evidence.
In 1962, Edward Luer purchased a homeowner's type insurance policy, with $20,000 insurance on the house and $8,000 insurance on the contents. On the face of the policy, the insured were shown as "Mercantile Trust Company, trustee, under indenture of trust, dated September 25, 1928, and Edward D. Luer". The previous insurance policy, expiring on July 9, 1963, listed the Mercantile (as trustee) as the only insured, and the amount of insurance on the dwelling house was $10,000. This policy was cancelled in 1962 when the homeowner's policy was issued.
Without an appropriate endorsement, according to the trial testimony a non-occupant's interest cannot be insured under a homeowner's policy. Therefore, an endorsement was added to this 1962 homeowner's policy listing Mercantile as the "additional insured". The endorsement stated that the word "insured" used in the policy "also includes the person or organization named above", namely, Mercantile, but only with respect to insurance on the dwelling and appurtenant private structures. This endorsement clearly shows that Mercantile's insurance extended only to the dwelling house and appurtenances. Edward Luer (or his wife) purchased the homeowner's policy and paid the premiums thereon. Mercantile has never paid any of the insurance costs.
In February 1963, the Edward Luers moved 75% of the contents of this residence to a storage company in Alton, Illinois. They drove to Golden, Colorado, on March 18, 1963. Early in the morning of March 20, there was a loud explosion in the residence, and it burned to the ground.
Mercantile presented a claim to Underwriters for $20,000 with respect to the destroyed residence. Through his attorneys in Alton, Illinois, Luer presented an $8,000 claim to Underwriters, enclosing a detailed, handwritten household inventory showing the total contents of the house as worth $32,105.35. During the course of investigation of the origin of the fire, Edward Luer told Underwriters' arson investigator that the only object moved out of the residence before the fire was his son Frank D. Luer's bed. In an ensuing deposition in California, where Edward Luer now resides, he repeated the statement that only his son's bed had been moved out of the residence. His deposition was signed and sworn to before a notary public.
Asserting Edward Luer's fraudulent statements about not having moved out any of the contents of the residence (except his son's bed) prior to the fire and claiming their insured value, Underwriters contends that the District Court erroneously entered judgment for Mercantile in the amount of the $20,000 policy coverage on the dwelling house. On the other hand, Mercantile asserts that this policy was divisible, so that Edward Luer's fraud with respect to the furnishings does not vitiate its claim to be paid the insured value of the dwelling.
To avoid liability, Underwriters relies on the following provision in the insurance policy:
"This entire policy shall be void if, whether before or after a loss, * * in case of any fraud or false swearing by the insured relating thereto."1
As noted, the policy names both Mercantile and Edward Luer as the insured. The pertinent liabilities of Underwriters are $20,000 for the dwelling and $8,000 for the contents of the dwelling. The endorsement which was attached in order to give Mercantile coverage for the dwelling (and the appurtenant private structures) states:
"The unqualified word `insured\' wherever used in this policy also includes the person or organization named above Mercantile * * *".
The policy was purchased by Edward Luer. This accorded with the trust instrument, which made it his duty to pay for the insurance on the property and exonerated Mercantile from keeping it insured.
Underwriters argues that it is not liable for the damage to the dwelling house because there was fraud by the insured within the meaning of the above clause. The District Court found that Underwriters failed to establish fraud by Edward Luer. Underwriters assails this finding as clearly erroneous within the meaning of Rule 52(a) of the Federal Rules of Civil Procedure. We agree that the finding cannot be sustained but nevertheless affirm.
As to Edward Luer's fraud, the uncontradicted evidence reveals that he was interviewed after the fire by Lamont Heidinger, Underwriters' arson investigator, and told Heidinger that "his son's Frank D. Luer's bed * * * was the only thing he had moved out" of the residence prior to the fire.2 Actually, three-fourths of the Luers' belongings had been placed in storage one month prior to the fire. However, after the fire, through Alton, Illinois, lawyers, Edward Luer presented a claim to Underwriters for $8,000 covering the contents of the house. This claim was supported by an extensive handwritten household inventory, concluding:
"Total Contents Value $32,105.35
Contents Insurance 8,000.00
Difference 24,105.35"
For the defense of fraud to apply, it is unnecessary that the statements of the insured be under oath. Gipps Brewing Corp. v. Central Manufacturers' Mutual Insurance Co., 147 F.2d 6, 9-11 (7th Cir. 1945); Appa v. Pennsylvania Fire Insurance Co., 307 Ill.App. 85, 94, 30 N.E.2d 100, 103 (1st Dist. 1940). Since there was no evidence to show that except for Frank Luer's bed all the furnishings of the Edward Luers were still in the dwelling at the time of the fire, the finding of no fraud must be set aside as clearly erroneous. Moreover, Edward Luer's false statements were with regard to a material matter, namely, the whereabouts of the furnishings of the dwelling when the fire occurred. His statements could easily have misled Underwriters' arson investigators. While it is true that Underwriters did not pay out any money with respect to the furnishings and thus was not deceived by Edward Luer's claims, it is well settled that unsuccessful fraud is also a defense to a fire insurance claim. Tenore v. American and Foreign Insurance Co. of N. Y., 256 F.2d 791, 793-794 (7th Cir. 1958), certiorari denied, 358 U.S. 880, 79 S.Ct. 119, 3 L.Ed.2d 110.
This insurance policy was issued in Illinois, and both the real estate and personalty were located there. Being a diversity case, we must therefore look to Illinois law to determine whether this policy insuring the dwelling for $20,000 and the contents for $8,000 is to be regarded as entire or severable. Although there is a sharp conflict of authorities in the various states, in Illinois Capps v. National Union Fire Insurance Co., 318 Ill. 350, 355, 149 N.E. 247, 249 (1925), follows the rule that "where the property is so situated that the risk on one item cannot be affected without affecting the risk on the other items, the policy should be regarded as entire and indivisible * * *". Under the Capps case, it is clear that this insurance contract is indivisible as to risk. The plaintiff there was not permitted to prevail because the coverage of his interest in the home and his interest in the furniture was indivisible....
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