Mutual Creamery Ins. Co. v. Iowa National Mutual Ins. Co.

• Decision Date: 06 January 1969
• Docket Number: No. 4-67 Civil 15.,4-67 Civil 15.
• Citation: 294 F. Supp. 337
• Parties: MUTUAL CREAMERY INSURANCE COMPANY, a corporation, Plaintiff, v. IOWA NATIONAL MUTUAL INSURANCE COMPANY, a corporation, Defendant.
• Court: U.S. District Court — District of Minnesota

294 F. Supp. 337

MUTUAL CREAMERY INSURANCE COMPANY, a corporation, Plaintiff, v. IOWA NATIONAL MUTUAL INSURANCE COMPANY, a corporation, Defendant.

No. 4-67 Civil 15.

United States District Court D. Minnesota, Fourth Division.

January 6, 1969.

Craig H. Anderson, Minneapolis, Minn., for plaintiff.

John Lommen, Minneapolis, Minn., for defendant.

MEMORANDUM OPINION

MILES W. LORD, Judge.

FINDINGS OF FACT:

This diversity case arises out of a dispute between two insurance companies, Mutual Creamery Insurance Company, a domiciliary of Minnesota, and Iowa National Mutual Insurance Company, a domiciliary of Iowa. On May 6, 1965, a windstorm loss occurred to certain business premises owned jointly by Jamison Bros., Inc. and Spring Lake Park Investment Co. (S.L.P.) with a mortgage outstanding in favor of Minneapolis Federal Savings and Loan Association (Minneapolis Federal). A policy had been written by Mutual which covered the premises, and under this policy Mutual paid the loss in full. Mutual admits its liability; it is Mutual's contention here that an Iowa National policy also covered the loss, and that Mutual is thereby entitled to contribution from Iowa National.

Iowa National had issued a Minnesota Standard Fire Insurance policy for a period of five years, effective from April 6, 1963 through April 6, 1968. On March 28, 1965, Duane Jamison, the officer of Jamison Bros. and S.L.P. responsible for insurance coverage, presented a claim to Iowa National following a boiler malfunction on the premises which caused damage. Upon being informed by an adjustor from Iowa National that this loss was not covered under the policy, Jamison called his Iowa National agent, Jack Hollister. In this conversation, Jamison stated that if the boiler loss was not covered, he would not renew his policy with Iowa National.

Shortly after his conversation with Hollister and on or about April 1, 1965, Jamison contacted V. S. Peterson. Peterson was an agent for Mutual and other companies and it was Jamison's intent to replace all of his Iowa National policies with other insurance obtained through Peterson. In particular, Jamison relied solely upon Peterson to obtain new insurance to cover the business premises and to cancel the Iowa National policy. Peterson did obtain a binder of coverage upon the premises from Mutual effective April 6, 1965, which coincided with the "anniversary date" of the Iowa National policy at which time the premium for the following year became due. The Mutual policy insured against the same hazards for the same amount as the Iowa National policy except for certain additional features, among them coverage for boiler malfunction. Peterson was able to tell Jamison that he was "fully covered" under Mutual, with the exact premium to be charged contingent upon inspection of the boiler.

Upon proof of loss submitted by Jamison after the May 6 windstorm, Mutual paid $25,341.89 for the damage sustained by the premises. Of this amount, it is not disputed that $23,443.17 would have been payable under the Iowa National policy if it were in effect at the date of the loss. Mutual, therefore, seeks contribution in the amount of $11,721.58.

Hollister testified that he did not interpret his conversation with Jamison to mean that Jamison would discontinue coverage on the premises with Iowa National before the policy expiration date on April 6, 1968. However, after receiving a letter from Peterson dated April 5, 1965, Hollister considered the Iowa National policy cancelled effective April 6, 1965. The letter reads in part:

Enclosed are two (2) policies as written for the above captioned insureds.

Effective at 12:01 AM on April 6, 1965 those policies have been replaced by this agency. The mortgage company has been instructed to return your original fire policy to you.

Possibly the only genuine factual dispute at trial involved the question as to what were the "two policies" inclosed with the letter. Hollister testified that he was 100 per cent sure that a memorandum¹ of the Iowa National policy covering the premises was one of the "two policies" enclosed. Peterson, though his recollection was uncertain, felt that this memorandum was not enclosed, and that the "two policies" referred to were actually an Owners, Landlords & Tenants policy and a separate endorsement form. He could not specify the exact type of endorsement form which had been enclosed, or the particular Iowa National policy to which it attached. Peterson did admit that he intended by this letter to give notice of replacement of the Iowa National policy covering the business premises, and the Court considers it more likely than not, upon all the evidence, that the memorandum was enclosed.

The insured never tendered payment of the premium on the Iowa National policy due April 6, 1965. The Iowa National agent never billed the insured for this premium because he had received Peterson's letter. Iowa National did debit the account of its agent for the amount of this premium and as a matter of insurance practice would continue to do so until Iowa National received the original policy from the agent for cancellation. Because of this practice, Hollister attempted to obtain the original which was held by the mortgagee, Minneapolis Federal.

Mr. Paul O'Malley, who was at the time of the loss manager of the insurance department for Minneapolis Federal, testified that the mortgage agreement required the mortgagor to keep the premises insured for the benefit of the mortgagee. Pursuant to this agreement Minneapolis Federal was named a loss payable mortgagee on the face of both the original Iowa National policy and the memorandum, and was entitled by the mortgage agreement to hold the original. Hollister was apprised of the interest of Minneapolis Federal by examining the memorandum enclosed with Peterson's letter, and contacted them once or twice before May 6 in an attempt to obtain the original. He was refused because of the business practice of Minneapolis Federal not to release an original until it received a new policy in replacement. Further, Minneapolis Federal was unaware of the fact that the Mutual policy had been issued. Hollister had not been given the name of the new company by Peterson, and could not supply this information. Peterson, despite the language of his letter, testified that he never contacted Minneapolis Federal at any time before the loss. In fact, he alleged that he was never aware of the interest held by Minneapolis Federal before the loss, and thought instead that S.L.P. might have held a mortgage interest in the premises. Peterson explained that he deposited the original of the Mutual policy with S.L.P., which policy did not mention any interest of any mortgagee at the time of the loss. Hollister was finally able to obtain the original of the Iowa National policy on June 30, 1965, at or about which time Minneapolis Federal received the original of the policy issued by Mutual. There is no evidence, however, that Iowa National or its agent gave written notice of cancellation of the Iowa National policy to Minneapolis Federal, or made any demand for payment of the premium which was due April 6.

Although Minneapolis Federal was not mentioned on its policy, Mutual included Minneapolis Federal as a payee in the draft executed in payment of the claim. Mutual did not become aware of the interest held by Minneapolis Federal until June 7, 1965, when it received an investigation report from its adjustor. Mutual then concluded that Minneapolis Federal had a "legal interest" in the proceeds, and named Minneapolis Federal in the draft in order to "protect itself." The Mutual policy was subsequently amended to include Minneapolis Federal as a loss payable mortgagee. O'Malley testified that the interest of Minneapolis Federal was satisfied by payment from Mutual. He further stated that as the draft came in his employees "would have held the funds and perhaps they probably disbursed them in this case, making sure that lien waivers were had for all of the necessary work that had to be done." Jamison testified that he fully intended to protect the interest of Mineapolis Federal in any policy obtained to replace his coverage under Iowa National, and he did not contest payment of the proceeds from the Mutual insurance to Minneapolis Federal.

At no time prior to the instant suit have either Jamison Bros. and S.L.P. or Minneapolis Federal presented a claim arising out of the May 6, 1965 loss to Iowa National. On July 13, 1967, Minneapolis Federal executed an assignment to Mutual of any interest it might have had in the Iowa National policy at the time of the loss. Iowa National has at no time acknowledged liability for the loss.

CONCLUSIONS OF LAW

I. CANCELLATION

Iowa National contends that its policy was cancelled both as to the insured, Jamison Bros. and S.L.P., and as to the mortgagee Minneapolis Federal. Iowa National urges that the procurement of the Mutual policy by the insured acted, under the doctrine of cancellation by substitution and replacement, so as to cancel the interests of the insured and the mortgagee in the Iowa National insurance. Iowa National further argues that the letter sent by the agent of the insured was a clear and unequivocal request for cancellation which effectively cancelled the policy as to the insured and mortgagee. The Court, then, must determine whether at the time of the loss, Iowa National's policy was cancelled either as to the insured, or the mortgagee, or both.

Cancellation by substitution and replacement.

In argument before the Court defendant has relied heavily upon the doctrine of cancellation by substitution and replacement. For reasons to be expressed, the Court feels constrained not to follow that doctrine.

The doctrine states in essence that when the insured procures a second policy which covers the same risk as a present policy with an intent to cancel the present policy, this act ipso facto will effectively...