Merchants' & Mfrs' Lloyd's Ins. Exch. v. Southern T. Co.

• Decision Date: 16 March 1921
• Docket Number: (No. 194-3249.)
• Parties: MERCHANTS' & MANUFACTURERS' LLOYD'S INS. EXCH. et al. v. SOUTHERN TRADING CO. OF TEXAS.
• Court: Texas Supreme Court

229 S.W. 312

MERCHANTS' & MANUFACTURERS' LLOYD'S INS. EXCH. et al. v. SOUTHERN TRADING CO. OF TEXAS.

(No. 194-3249.)

Commission of Appeals of Texas, Section B.

March 16, 1921.

Error to Court of Civil Appeals of Second Supreme Judicial District.

Suit by the Southern Trading Company of Texas against the Merchants' & Manufacturers' Lloyd's Insurance Exchange and others. From a judgment of the Court of Civil Appeals (205 S. W. 352), affirming a decree for plaintiff, defendants bring error. Judgments of district court and Court of Civil Appeals reversed, and cause remanded to former, with instructions to render judgment in favor of plaintiff.

E. H. Ratcliff and Bryan, Stone & Wade, all of Fort Worth, for plaintiffs in error.

Thos. H. Ball, of Houston, and Lockett & Rowe, of Fort Worth, for defendant in error.

McCLENDON, P. J.

The Southern Trading Company of Texas recovered a joint and several judgment for $5,000 upon two policies of fire insurance against the "Merchants' & Manufacturers' Lloyd's Insurance Exchange" and I. H. Kempner and J. B. Cunningham as its attorneys in fact, and said Kempner and Cunningham as guarantors, and said Kempner and Cunningham and a large number of other persons and firms individually. This judgment was affirmed by the Court of Civil Appeals, one of the judges dissenting in part. 205 S. W. 352.

The errors assigned in the Supreme Court question the following holdings of the Court of Civil Appeals: First, that the act of April 2, 1913, known as the "Antitechnicality Law," is applicable to the record warranty clause of a fire insurance policy; second, that the evidence was sufficient to sustain a finding that plaintiff had substantially complied with that provision of the record warranty clause requiring the keeping of a set of books; third, that the defendants were under the policies sued upon liable jointly, or for a greater amount than their respective proportions as limited in the policies; and, fourth, that the defendants Kempner and Cunningham were liable for the full amount of the judgment, as guarantors, by reason of having executed a bond as a condition precedent to the modification of a temporary injunction.

The facts material to the questions presented are: The policies were both issued on the same day, one being for $1,500, apportioned $500 on a certain one-story building, and $1,000 on merchandise located therein, which consisted principally of steam and gasoline engines, pumps, and similar merchandise. The other policy was for $3,500, and on a similar stock of merchandise, contained in a two-story building about 15 feet distant from the one-story building. The policies were signed by Kempner and Cunningham as joint attorneys for each underwriter, the latter being 76 individuals and firms, who had subscribed to the association in various amounts from $1,000 to $21,000, in percentages ranging from 1/2 to 10½. The policies provide:

"That each of the individual underwriters hereto, as separate underwriters, each acting separately and not jointly, nor one for the other, nor for any of the others, each represented by and acting through" said Cunningham, "does hereby separately insure the Southern Trading Company of Texas" for the period named against all direct loss or damage by fire, except as otherwise provided, "to an amount not exceeding for each underwriter his pro rata portion of percentage as indicated by the rider attached, of the sum hereby insured."

The policies also provide that they are made and accepted subject, among other things, to powers of attorney to the undersigned attorneys by the underwriter, which powers of attorney are referred to and made a part of the policies. The policies also contained the standard record warranty clause, the portion of which pertinent to the issues in this case reads:

"The assured will make and prepare, in the regular course of business, from and after the date of this policy, a set of books, which shall clearly and plainly present a complete record of business transacted, including all purchases, sales and shipments, both for cash and on credit, or this entire policy shall be null and void.

"The term `complete record of business transacted,' as used above, is meant to include in said set of books a complete record of all the property which shall go into the premises and be added to the stock and of all property taken from the stock, whether by the assured or by others, even though not technical purchases or technical sales."

Under the powers of attorney referred to, Kempner and Cunningham were designated as attorneys in fact for the several underwriters, with authority to execute policies of insurance, issue, change, modify, reinsure, or cancel contracts therefor, with such terms, warranties, and agreements as they might deem best, to collect premiums, adjust and settle losses, accept and waive proofs of losses, appear for the underwriters in suits or other proceedings, and bring, defend, prosecute, compromise, settle, or adjust same, and generally to represent the underwriters in all matters in connection with the contracts of insurance. The agreement was to become effective when the total subscriptions aggregated not less than 100 nor more than 1,000 units, and the required pro rata cash deposit of each unit had been made. Those units consisted of $1,000, to be represented by a cash deposit of $200 paid in, and to be maintained unimpaired at all times by each underwriter, and $800 in the form of a noninterest-bearing reserve note payable to a committee, provided for in the instrument, as trustee. Each underwriter was required to pay to the attorneys and committee for his individual account the $200 on each $1,000, and deposit his $800 note.

"The said cash and notes shall not be released or paid over to the underwriter in whole or in part so long as any insurance policy or claim of any character under the terms of this contract, remains an obligation outstanding against any such underwriter."

The attorneys were to make monthly statements to the committee, showing all business transacted, and a statement of the account of each individual underwriter, deducting from the premiums received the losses and expenses of each underwriter, and pay the balance to the committee for the account of such underwriter, less 10 per cent. of the gross premiums to be deducted as compensation to the attorneys for managing the business and guaranteeing the solvency of such underwriter and all parties at interest. On December 31st annually the committee and attorneys were to value the assets, deducting the necessary sum to cover losses and expenses known to have occurred and to pay outstanding liabilities of every kind, and pay the balance over to each underwriter after deducting attorneys' contingent compensation of 20 per cent. of the net profits. There were to be no joint funds, but a separate account was to be kept with each underwriter. Provision was made for an advisory committee to perform the services aforesaid. It was also provided as follows:

"In case any suit shall be brought against one or more of the underwriters on any policy thereunder, the citation shall be immediately delivered to the attorneys, and the attorneys shall have the power, and it shall be their duty to conduct the litigation, and they shall have power to settle or compromise any suit; when final judgment shall have been rendered against any one or more underwriters in any such suit, the committee and attorneys, or either of them shall pay, settle or compromise the liability of the remaining underwriters on any such policy without further litigation, according to the judgment obtained in any such suit as conclusive and as determining his liability whether he be a party to such suit or not."

With regard to the record warranty clause, it was shown by the testimony of the president and bookkeeper of the plaintiff that, while a complete set of books was kept, there was no separation of the business in the two buildings in which the merchandise covered by the two policies of insurance was kept, and it was impossible from the books to determine the articles placed in or taken from either of these buildings, the total only which went into both...