National Reserve Ins. Co. v. Scudder

• Citation: 71 F.2d 884
• Decision Date: 15 June 1934
• Docket Number: No. 7298.,7298.
• Parties: NATIONAL RESERVE INS. CO. OF ILLINOIS v. SCUDDER et al.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

71 F.2d 884 (1934)

NATIONAL RESERVE INS. CO. OF ILLINOIS v. SCUDDER et al.^*

No. 7298.

Circuit Court of Appeals, Ninth Circuit.

June 15, 1934.

Redman, Alexander & Bacon and R. P. Wisecarver, all of San Francisco, Cal., for appellant.

Butler, Van Dyke & Harris and Hugh J. Strachan, all of Sacramento, Cal., for appellees.

Before WILBUR and SAWTELLE, Circuit Judges, and NORCROSS, District Judge.

SAWTELLE, Circuit Judge.

This was a suit to reform a policy of fire insurance issued by appellant, defendant below, and to recover thereon the sum of $5,000. The complaint alleges that on November 23, 1927, the plaintiffs, W. C. Scudder and S. C. Blanchard, copartners operating a fruit packing establishment at Fair Oaks, Cal., applied to G. C. Hubbell, local agent of the defendant insurance company, for a policy of fire insurance, in the amount of $5,000, on a fruit packing building owned by the plaintiffs at Fair Oaks. Insurance of $4,000 was to be placed upon the building and $1,000 on the machinery and equipment therein. It is alleged that the application for insurance was made verbally to said Hubbell, with the request that the insurance be written in the names of the plaintiffs, and that thereafter the policy was issued by the defendant company, but it was by mistake written in the name of Mrs. S. C. Blanchard, the wife of one of the plaintiffs. Plaintiffs then allege that they did not examine the policy and did not know that it was written in the name of Mrs. Blanchard, but believed that it had been issued in their names, as requested, and did not learn that it had not been so issued until November, 1930, when the property was destroyed by fire.

The insurance company refused to pay the loss, claiming that the negligence of plaintiffs in failing to examine the policy had caused it to accept reinsurance of the same risk from another company, to its prejudice and damage. This defense was also set up in the answer in opposition to the prayer for reformation. Defendant also alleged that the policy was issued in the name of Mrs. Blanchard in accordance with the application therefor. The answer also set up as an affirmative defense that the policy was void (1) because the insured property was located upon leased ground, and (2) because the property was incumbered by a chattel mortgage, contrary to provisions of the policy.

The court found generally in favor of the plaintiffs and decreed that the policy be reformed, as follows: "(a) To show that W. C. Scudder and S. C. Blanchard were the sole and unconditional owners of the property insured, and were and are the insured under the policy, in the place and stead of the defendant, Mrs. S. C. Blanchard, and (b) To show that the buildings and property insured were on leased ground, and that the defendant had waived the provisions of said policy reading as follows: `This entire policy shall be void * * * (c) if the subject of insurance be a building on ground not owned by the insured in fee simple * * *'."

It was stipulated "that if plaintiff is entitled to recover, the total amount recoverable is $3319.39."

Appellant contends that the court erred in allowing a reformation of the policy, "because there was no clear and satisfactory evidence of a mutual mistake justifying a revision; that the mistake, if any, was not a mutual mistake and was caused by the negligence of the plaintiffs themselves; that the plaintiffs were guilty of laches and negligence in not discovering it and calling it to the attention of appellant, and further that the appellant has been damaged and prejudiced by the negligence and laches of the plaintiffs."

The trial court found that "through an error of Hubbell appellant's agent, the policy, instead of being issued in the names of the copartners, the plaintiffs, was issued in the name of Mrs. Blanchard, the wife of S. C. Blanchard, one of the partners." The evidence amply sustains this finding. The partners testified that they asked Hubbell to procure a policy of insurance on the property payable to themselves, and Hubbell admitted in his testimony that "there may have been a change of their telling me to write it up in the firm's name, Blanchard and Scudder, but evidently at the time I thought differently and put it in her Mrs. Blanchard's name." There is also testimony that Hubbell was given the expiring policy on the property, which was in Mrs. Blanchard's name, and was asked to renew it, without being told to change the name of the assured from Mrs. Blanchard to the partnership. The application for the new policy contains the notation, "This is a copy of the old policy that has expired." Hubbell testified that he had "a faint idea" that the property may have been owned by Mrs. Blanchard. On the other hand, Scudder, one of the partners, testified that, prior to October, 1927, Blanchard, his copartner and uncle, "had introduced me to Mr. Hubbell as his nephew and told him I was buying a half interest in the packing house and the packing business," and Hubbell testified that he knew the appellees "were doing business in the fruit company as partners." Hubbell was the president of the local bank with which the partners did business, and he testified that "the bank account and all their business was in the name of Blanchard and Scudder," and that he could not segregate the business from the ownership of the property. The partners also testified that Mrs. Blanchard had no interest or ownership in the property or the business.

It is true, as contended by appellant, that the evidence to support a decree for reformation must be clear and satisfactory; that a mere preponderance of the evidence is insufficient; and that relief will not be granted on evidence which is confusing and contradictory. 53 C. J. 1030, § 199, and 1037, § 202.

"But this does not mean that there should be no contrariety in the proof or that the evidence must be undisputed; and where the mistake appears clearly and positively in spite of the conflict and justice requires correction, it will be decreed." Id., § 202.

The case at bar clearly falls within the rule last stated. Despite the conflict in the testimony — if indeed it can be said that there is any substantial conflict — the mistake appears clearly and positively, and reformation should be decreed.

It is also true that where mistake alone is relied on as a ground for reformation, the mistake must be mutual; that is, shared by both parties. 53 C. J. 945, § 60. We are of opinion that the mistake in this case was mutual. The mistake on the part of Hubbell seems quite clear. He admitted as much in his testimony, when he said that the partners may have told him to write the policy in their names, "but evidently I thought differently and put it in her name." The partners were acting under a mistaken belief that the policy had been issued in their names, as requested, which mistake they did not learn of until after the loss occurred.

As was aptly said in Mancini v. Yorkshire Ins. Co., Limited, of York, England (R. I.) 170 A. 82, 83: "The law applicable to a situation of mutual mistake is clearly stated in Allen v. Brown, 6 R. I. at page 396, wherein this court, in an opinion by Ames, C. J., says: `The power and duty of a court of equity to reform an instrument drawn by mistake, so as to make it express what both parties originally intended, is unquestionable,' and quotes with approval from 1 Story, Equity Jurisprudence, § 155, the statement that a court without such power would `be of little value if it could suppress only positive frauds, and leave mutual mistakes, innocently made, to work intolerable mischiefs, contrary to the intention of the parties. It would be to allow an act, originating in innocence, to operate ultimately as a fraud, by enabling the party who receives the benefit of the mistake, to resist the claims of justice, under the shelter of a rule framed to promote it.' See, also, Dwyer v. Curria, 52 R. I. 264, 160 A. 206."

It must be conceded that mere failure to examine a policy does not constitute such negligence or laches as will bar reformation. See 26 C. J. 106, 107, § 105; Home Ins. Co. v. Sullivan Machinery Co. (C. C. A. 10) 64 F.(2d) 765, 767. But it is contended that the negligence of appellees in this respect resulted in prejudice and damage to appellant, and that reformation should therefore be denied. As stated in the brief, appellant's position is as follows: "Appellant has been damaged in the sum of $1,000 by the neglect of plaintiffs to read their policy — to at least look at their policy and see to whom it is issued — and to call the mistake (if there was a mistake) to the attention of appellant so that the policy could be correctly written and to have thereby prevented appellant from innocently and unknowingly accepting reinsurance from another company upon the identical risk after it had taken the precaution to reinsure its direct line of insurance from $5,000 down to a net of $1,500. When the fire occurred your appellant was damaged to the extent of $1,000 by having the pyramided insurance upon the same exposure."

We fail to see how appellant can complain of the negligence of appellees in failing to...