Modica v. Hartford Acc. & Indem. Co.

• Decision Date: 17 August 1965
• Citation: 236 Cal.App.2d 588,46 Cal.Rptr. 158
• Court: California Court of Appeals Court of Appeals
• Parties: Larry Anthony MODICA, Plaintiff and Respondent. v. HARTFORD ACCIDENT AND INDEMNITY COMPANY et al., Defendants and Appellants. Civ. 7370.

Page 158

46 Cal.Rptr. 158

236 Cal.App.2d 588

Larry Anthony MODICA, Plaintiff and Respondent. v. HARTFORD ACCIDENT AND INDEMNITY COMPANY et al., Defendants and Appellants.

Civ. 7370.

District Court of Appeal, Fourth District, California.

Aug. 17, 1965.

Rehearing Denied Sept. 10, 1965.

Jacobs, Jacobs, Nelson & Witmer and M. Lyle Nelson, Santa Ana, for defendants and appellants.

Harwood, Heffernan, Soden & Corfman and Mark A. Soden, Newport Beach, for plaintiff and respondent.

WHELAN, Justice.

On September 17, 1958, plaintiff was the owner of two shoe repair shops located in leased premises, one of which was on Lido Isle in the City of Newport Beach, and the larger of which was at Corona Del Mar. A fire broke out on the premises of the Corona Del Mar shop on September 17 and, after a certain amount of damage, was extinguished or considered to be extinguished. Another outbreak of fire occurred on September 18 and did extensive damage not only to the premises of the shoe repair shop of the plaintiff, his equipment and property of customers in the shop, but also to the remainder of the building in which the shop was situated and to personal property of other tenants of the building. As a result of the claimed negligence of the plaintiff, either in the starting or spreading of the fire, he was named defendant in three separate actions, one of which was brought by the landlord for damage to the building including the portion thereof occupied by the plaintiff, the others by two other tenants of the building for damage to their personal property.

At the time of the fires plaintiff held two policies of insurance, one of which was the kind known as 'owners', landlords' and tenants" (OTS) issued on July 20, 1958 by defendant Hartford Accident and Indemnity Company, the other of which was a fire insurance policy (fire policy) issued by defendant Hartford Fire Insurance Company on June 20, 1955. Both policies had been written by the defendant John E. Sadleir, as the agent of both insurers. As their agent, Sadleir had authority to bind the insurers orally. The defendant Hartford Fire Insurance Company Group is a corporation under which the two insurers and other affiliated insurance companies have carried on all or part of their business since a date later than 1958.

The OTS policy, as written, agreed to indemnify plaintiff against legal liability for personal injuries in connection with the operation of the business and the business premises at both locations. The fire policy insured plaintiff against damage from loss by fire to his fixtures, equipment and property of customers in his possession at both business locations.

After having been served with process in the lawsuits brought against him, plaintiff demanded that the defendant insurers defend the actions on his behalf, which the insurers refused to do, saying that the claimed bases of liability in the three actions were the result of hazards not insured against. A type of insurance which would have protected plaintiff against liability to the landlord was 'fire-legal liability'; the type of insurance which would have protected him against liability for damage to the property of the other tenants was 'property damage' coverage.

Because of the insurers' refusal to furnish representation to the plaintiff and their denial of coverage, plaintiff has brought the present action to effect a reformation of one or both of the policies upon the grounds of mutual mistake, unilateral mistake on his part known or suspected by the defendants, negligence on the part of the insurers, and fraud. The trial court, sitting without a jury, found that the policies issued to plaintiff were intended by him and believed by him to cover the risks not expressed in the policies as written; that this mistake on the part of plaintiff was known to or suspected by the defendant insurers and their agent Sadleir; that there was not any fraud on the part of the defendants or their agent; that the affirmative defenses asserted of negligence on the part of the plaintiff and of laches and estoppel are not available to the defendants; that the premium rate for property damage insurance for $10,000 each accident and $20,000 aggregate is the sum of $7.50 per year; and the premium rate for fire-legal liability insurance in the amount of $20,000 coverage is $25 per year.

The court concluded and the judgment provided that the contract be reformed to include coverages for property damage liability of $10,000 for each accident and $20,000 aggregate; and for fire-legal liability in the amount of $20,000; that the insurers are obligated to defend plaintiff in the three actions brought against him; and that defendant insurers should pay any judgment to the extent of the coverage of the policies as reformed.

In arriving at the amount of coverage, the trial court, in denying a motion for new trial, indicated that it intended to take the amount of insurance for which the premium in the case of property damage was $7.50 per year, and for which, in the case of firelegal liability, the premium was $25 per year.

The printed form of the OTS policy contained language affording property damage coverage if indicated by filling in blanks in another part, which in fact were not filled in. In addition to such coverage, the OTS policy might have been written also to cover fire-legal liability insurance. The fire insurance policy likewise might have been written to cover fire-legal liability. The fire policy could not have been written to cover the property damage insurance. The court, in making its findings, treated the two policies as one and did not attempt to say in which of the two the fire-legal liability should have been included.

Plaintiff first started out in the shoe repair business in 1948 in Corona Del Mar, working by himself. Thereafter his business expanded so that the shop in Corona Del Mar had been moved from its first location and he had the one-man second shop on Lido Isle and employed as many as eight or nine persons. He had not attended school beyond the fourth grade and his prior business experience was working in his father's shoe repair shop. He had also been in the Navy and had had some National Service Life Insurance, which was the only insurance with which he had become acquainted before he went into business. The defendant Sadleir wrote the first insurance affecting plaintiff's business and over the intervening period also wrote insurance covering plaintiff's automobiles, his home and workmen's compensation. Sadleir chose the companies in which the different types of insurance were written and had shifted some of the business from one company to another without consultation with plaintiff, who did not pay any heed to the companies with which his insurance was written and did not read the policies. He believed that he would not have understood their meaning and significance if he had read them. From the beginning of their business relations, Sadleir had covered plaintiff's business operation against loss by fire to plaintiff's own property and the property of his customers, and against liability for personal injuries to others, although plaintiff, when he ordered the first policy, told Sadleir 'to cover me for business' and from time to time instructed Sadleir to keep plaintiff fully covered.

In February 1957 a competing insurance broker solicited plaintiff's insurance business and asked Sadleir to furnish a list of plaintiff's policies, which Sadleir did by a letter dated February 21, 1957 to plaintiff in which defendant Sadleir wrote in part as follows:

'I have kept close check on your insurance needs and feel that you have good coverage and in the very best insurance companies. The above policies together with the Personal Comprehensive Liability you carry through another company, through another insurance agency, should complete your insurance picture.'

Upon receipt of the list the competing broker pointed out that plaintiff had only $5,000 fire insurance and no property damage insurance. Plaintiff passed that information on to Sadleir, who told plaintiff to go back to his shop and figure out how much insurance he would need and Sadleir would see that he was covered. The plaintiff then prepared an estimate on all his equipment and approximately how much customers' goods he had on hand and took this back to Sadleir. Defendant stated that he guessed the plaintiff would take away his insurance business and the plaintiff stated: 'No, Jack, as long as you are keeping me covered, we are still friends.' The defendant then said, 'I will see that you are covered,' that as to property damage he would have to talk to another man from Hartford and would get the figures together and call plaintiff and for the plaintiff not to worry about it, 'You are covered.' Shortly thereafter, plaintiff received a bill for an increase in premium on his insurance from Sadleir.

Later in 1957 a fire occurred at the plaintiff's Lido Isle shop which caused mostly smoke damage, although the ceiling, walls and floor were scorched and one of the windows was broken by the firemen. The cost of the repair to the...