National Am. Ins. Co. v. Jamison Agency, Inc.

• Decision Date: 30 July 1974
• Docket Number: No. 74-1178,74-1178
• Citation: 501 F.2d 1125
• Parties: NATIONAL AMERICAN INSURANCE COMPANY, a Nebraska corporation, Appellee, v. JAMISON AGENCY, INC., Gerald Bollinger, Appellee; Capital Systems Corporation, Appellant. NATIONAL AMERICAN INSURANCE COMPANY, a Nebraska corporation, Third Party Appellee, v. JAMISON AGENCY, INC., and Gerald Bollinger, Third Party Appellees. CAPITAL SYSTEMS CORPORATION, Third Party Appellant, v. A.J.R., INC., formerly Pinkerton Madden Burford, Inc., Third Party Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1125

501 F.2d 1125

NATIONAL AMERICAN INSURANCE COMPANY, a Nebraska corporation, Appellee, v. JAMISON AGENCY, INC., Gerald Bollinger, Appellee; Capital

Systems Corporation, Appellant.

NATIONAL AMERICAN INSURANCE COMPANY, a Nebraska corporation, Third Party Appellee, v. JAMISON AGENCY, INC., and Gerald Bollinger, Third Party Appellees.

CAPITAL SYSTEMS CORPORATION, Third Party Appellant, v. A.J.R., INC., formerly Pinkerton Madden Burford, Inc., Third

Party Appellee.

No. 74-1178.

United States Court of Appeals, Eighth Circuit.

Submitted June 13, 1974.

Decided July 30, 1974.

George J. Danforth, Jr., Sioux Falls, S.D., for Capital Systems Corp.

William E. Gast, Omaha, Neb., for A.J.R.

Joseph H. Barnett, Aberdeen, S.D., for Jamison.

William J. Brennan, Jr., Omaha, Neb., for Natl. American Ins. Co.

Before LAY, HEANEY and ROSS, Circuit Judges.

ROSS, Circuit Judge.

On October 13, 1971, certain real property in Woonsocket, South Dakota, owned by Capital Systems Corporation (Capital Systems) was damaged by fire. A dispute developed as to whether or not a fire insurance policy issued by National American Insurance Company (National American) was in force at the time of the loss; and National American, basing jurisdiction on diversityb of citizenship, brought a declaratory judgment action in the federal district court seeking a declaration that the policy was not in force. In the alternative, National American sought a declaration against Jamison Agency, Inc., and Gerald Bollinger, that agency's president, (Jamison/Bollinger) to the effect that they were responsible for any award adjudicated against National American. Capital Systems counterclaimed against the insurance company, cross-claimed against Jamison/Bollinger and brought a third party complaint against A.J.R., Inc., formerly Pinkerton Madden Burford, Inc., an Omaha, Nebraska, insurance agency.

The dispute was submitted tothe court on stipulated facts; and the court held that the insurance policy was not in force at the time of the fire. It further held that Capital Systems could not recover on its cross-claim and third party complaint against the insurance agents. Since no award was adjudicated against National American, the court did not deal with National American's claim against Jamison/Bollinger. Capital Systems appealed to this Court.

We conclude that it was error to hold that the insurance policy was not in force. We reverse the decision of the district court in that regard and remand the case so that the court can adjudicate the claim made by National American against Jamison/Bollinger.

The facts pertinent to our decision are as follows: On March 13, 1969, National American, a Nebraska corporation, issued the subject fire insurance policy to L. J. Van Dyke and Van Dyke La Arc, Inc., of Woonsocket, South Dakota, a company which made structural components for buildings and other products out of wood. The policy, which covered certain structures belonging to the company, was to be in effect for a three-year period, and the premium was to be paid in three annual installments due on March 13 of each year. Van Dyke paid the first annual installment immediately. The policy contained the standard provision that no assignment of it would be valid without the consent of the insurance company.

Jamison Agency, Inc., of Woonsocket, whose president and controlling shareholder was Gerald Bollinger, was the agency through which Van Dyke purchased the policy. Jamison/Bollinger brokered the policy through the Sioux Agency of Sioux Falls, South Dakota.

In early May, 1969, Capital Systems, which was an Illinois corporation, purchased all the stock of Van Dyke La Arc, Inc., from L. J. Van Dyke and his wife. The insurance policy was thereupon amended so that the named insured was simply Van Dyke La Arc, Inc. Mr. Jack Moores, president of Capital Systems, became president of Van Dyke La Arc, Inc., and moved to South Dakota to take over management of the company, which was Capital Systems' only asset.

Capital Systems, the new sole shareholder of Van Dyke La Arc, Inc., wanted to increase the amount of insurance on the premises in Woonsocket; and, starting in June, 1969, switched Van Dyke La Arc's insurance business from Jamison Agency to Pinkerton Madden Burford, Inc., of Omaha, whose successor, A.J.R., Inc., is a third party defendant in this litigation.

In December, 1969, Van Dyke La Arc, Inc., was legally dissolved under the provisions of the South Dakota Business Corporations Act. All the assets of Van Dyke La Arc, Inc., were distributed to its sole shareholder, Capital Systems. Among these assets was the National American insurance policy. Neither the agencies involved nor National American were informed of, and they had no independent knowledge of, this dissolution and assignment of assets. National American never, therefore, consented to the assignment of the policy from Van Dyke La Arc, Inc., to its sole shareholder, Capital Systems.

The March 13, 1970, due date for the annual installment payment on the policy passed without any bill being sent by National American, Sioux Agency or Jamison Agency. On July 16, 1970, Jamison Agency did receive a bill from Sioux Agency, which supposedly represented the installment amount due. Jamison Agency, without notifying anyone at the Van Dyke La Arc plant, replied the next day to this bill, telling Sioux Agency that it had 'noticed this for cancellation last October.' Sioux Agency then sent a lost policy cancellation release form to Jamison Agency, telling Jamison to secure the signature of Van Dyke La Arc, Inc., for purposes of cancelling the policy.

Without consulting Van Dyke La Arc, Bollinger's secretary signed 'Van Dyke La Arc Co., Inc.' to that portion of the release form calling for the insured's signature. She signed 'Jamison Agency, Inc.' where the agent's signature was required. The release was then returned to Sioux Agency, which forwarded it to National American. The company thereupon cancelled the policy on its books. It is clear that no one in the Van Dyke La Arc operation of Capital Systems had authorized Jamison Agency to cancel the National American policy.

On October 13, 1971, fire destroyed much of the insured premises, and a claim in the amount of $35,000 was made under the disputed policy. This litigation followed in due course.

I.

The district court based its decision that the policy was not in force on the fact that National American had never been informed nor consented to the assignment of the policy from Van Dyke La Arc, Inc., to its sole shareholder, Capital Systems. We disagree with this conclusion by the district court and do not believe that this policy provision is applicable to the facts of this case.

We recognize that as a general rule:

(A) provision in a fire insurance policy making the policy void if assigned without the consent of the insurer, evidenced in the manner stipulated in the policy, is a reasonable one and binding on the insured.

If the insurer's consent is essential to the validity of an assignment, an assignee acquires no right in the absence of such consent.

16 Couch on Insurance 2d 63:159 (1966). See, e.g., Davis v. Oregon Mutual Insurance Co., 71 Wash.2d 579, 429 P.2d 886, 887 (1967); McHugh v. Manhattan Fire & Marine Insurance Co., 363 Mich. 324, 109 N.W.2d 842, 844 (1961). Even without a provision in the policy 'policies of fire insurance are considered personal contracts and are not assignable before loss without the consent of the insurer.' 16 Couch on Insurance 2d 63:155 (1966). See, e.g., Central Union Bank v. New York Underwriters' Insurance Co., 52 F.2d 823, 824 (4th Cir. 1931); Stephenson v. Germania Fire Insurance Co., 100 Neb. 456, 160 N.W. 962, 963 (1916).

However, we are not persuaded that these general rules should be applied indiscriminately in factual settings such as the one at hand, in which they work an unexpected forfeiture of insurance coverage, and when the assignment involves no increase in risk to the insurer.

The object of policy provisions and legal rules which require consent of the insurer to any assignment of a fire insurance policy is 'to prevent an increase of risk and hazard of loss by change of ownership without the knowledge of the insurer.' 16 Couch on Insurance 2d 63:31 (1966). In this case that rationale is totally inapposite. The assignment of the policy to Capital Systems did not increase the risk and hazard of loss, since Capital Systems did not, in reality, obtain any additional interest in the policy and insured premises above what it already had as sole shareholder in Van Dyke La Arc, Inc. Had there been no dissolution and therefore no assignment, Capital Systems, as sole shareholder of Van Dyke La Arc, would still have controlled the proceeds from the insurance policy paid to Van Dyke La Arc, Inc. As a practical matter, whatever increase in risk there was occurred when the ownership of the stock, together with control of the corporation changed hands, and no allegation is made that this event required the consent of National American. In short, there was no more risk and hazard of loss after the dissolution and assignment than there was before Van Dyke La Arc, Inc., was dissolved.

Once it is seen that there is no reason to apply the rule in the instant case it becomes clear that to do so would place form over substance and would conflict with the oft-expressed doctrine that forfeitures of insurance policies are not favored in the law and are to be avoided whenever possible. See, e.g., Von Uhl v. Trempealeau County Mutual Insurance Co., 33 Wis.2d 32, 146 N.W.2d 516, 520 (1966); Beister v. John Hancock Mutual Life Insurance Co., 356 F.2d 634, 642 (8th Cir. 1966); Christensen v. Royal Insurance Co., 65 S.D. 246, 272 N.W. 820, 822 (1937). Directly on point, the California Supreme Court has said that 'forfeitures on technical grounds which bear no substantial relationship to an insurer's risk are disfavored ....