National Surety Corporation v. BRUNSWICK CORPORATION

• Decision Date: 15 March 1968
• Docket Number: No. 22732.,22732.
• Citation: 391 F.2d 26
• Parties: NATIONAL SURETY CORPORATION, Appellant, v. The BRUNSWICK CORPORATION et al., Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

391 F.2d 26 (1968)

NATIONAL SURETY CORPORATION, Appellant, v. The BRUNSWICK CORPORATION et al., Appellee.

No. 22732.

United States Court of Appeals Fifth Circuit.

January 10, 1968.

Rehearing Denied March 15, 1968.

W. F. Goodman, Jr., Elizabeth W. Grayson, Jackson, Miss., for appellant.

William J. Threadgill, John H. Holloman, William G. Burgin, Jr., Columbus, Miss., Guy Mitchell, Tupelo, Miss., for appellee.

Before RIVES, GEWIN and GODBOLD, Circuit Judges.

GODBOLD, Circuit Judge.^**

This is a dispute, primarily between two insurance companies, National Surety Corporation and National Indemnity Company, each contending that the other had insurance coverage in force on bowling equipment of Columbus Bowling Lanes, Inc., at the time of a fire loss on June 6, 1962. Alternatively Surety contends that if it is liable to Columbus it is entitled to recover over against National Indemnity.

Surety sued for a declaratory judgment, naming as defendants Indemnity, Columbus, and The Brunswick Corporation, which had sold the equipment to Columbus under a conditional sales contract.¹ In a trial without a jury the District Court found Surety liable to Brunswick and Columbus on the policy which it had issued. It held Indemnity was not liable as insurer of Columbus and not liable to Surety. Surety appeals.

The judgment of the lower court is affirmed. All members of the court agree that the court correctly found Surety was liable to Brunswick and Columbus, and Indemnity not liable as insurer of Columbus. As to those issues this opinion is the opinion of the court. We are not in agreement on whether the district court was correct in holding Indemnity not liable to Surety — a majority of the court are of the opinion that the district court was correct, but it is my view that Indemnity is liable to Surety and that the district court erred in finding otherwise. As to that issue alone, this opinion is a dissent, and the majority will file a separate opinion thereon.

I

The dispute arose from a tangled series of dealings in which Surety had in mind getting off the Columbus risk, Indemnity had in mind issuing to Columbus coverage as a replacement for the Surety policy, and Puckett (acting for both insurers with the knowledge of both) had in mind accomplishing these same purposes. Columbus, while objecting to the desire of Surety to terminate its policy, negotiated with Puckett for proposed coverages with Indemnity. Brunswick, the loss payee under the Surety policy and in possession of the original thereof, was not informed of anything by anyone concerned.

There were many actors: local agent Puckett, Dupuy (the Mississippi state agent for Indemnity), the home office of Indemnity, various agents for Surety, the Atlanta office of Surety, two officers of Columbus, the Mississippi Rating Bureau, and others. There were meetings, correspondence, telephone calls, memoranda, proposals and counter-proposals and amendments. When the property burned Surety, Indemnity and Puckett all believed that Surety had no further exposure on the risk and that Indemnity had taken over the coverage. All were mistaken. It is without dispute that Puckett had no authority from Surety to cancel its policy and that Surety did not elect to cancel under the cancellation provisions of its policy requiring it to give ten days written notice to the insured. It had not marked the policy as cancelled on its books, had not cancelled the re-insurance in effect on the policy, never tendered any return of premiums and had notified Puckett it would not cancel until it received the original policy for cancellation or exercised its ten-day cancellation right, neither of which had occurred. Proposed policies in Indemnity had never been delivered to Columbus, never signed, and had not been sent to Brunswick since never acceptable to Columbus (and at least one proposed Indemnity policy had been marked "void" and a proposed substitute, also unsigned, was in the mails to Puckett). No binder, oral or written, was issued by Indemnity. The proposed Indemnity policies, which Columbus had not even seen, were at a deviated rate and on a standard Mississippi fire form, which differed in material respects from Surety's Inland Marine form that had been issued to Columbus.

The court found that Columbus did not agree or consent that the Surety policy could be replaced by any Indemnity policy or consent for Puckett to waive the ten-day cancellation notice. It found that Columbus did not accept Indemnity policies as a substitute, and that no understanding was reached between Columbus and Puckett as to either details or amount or effective date of proposed coverage with Indemnity. These are factual matters and the findings of the trial court are not plainly erroneous. F.R.Civ.Proc. 52(a). There having been no cancellation of its policy by Surety and neither completion nor delivery of Indemnity policies and no acceptance by Columbus of Indemnity policies as substitutes for the Surety policy, we affirm the holdings that Surety is liable to Columbus and to Brunswick under its policy and that Indemnity is not liable to Columbus as its insurer.²

II

This brings us to the question whether there is any liability of Indemnity to Surety. The trial court found Indemnity not liable. I disagree, and dissent from the separate opinion of the majority on this single issue.

There is no dispute that all parties intended Indemnity was to take over the Columbus risk, and that the parties concerned in this appeal, except for Columbus and Brunswick, understood that at the time of loss Indemnity in fact had taken over the risk. On April 13 Surety wrote Puckett it was terminating his agency contract. As to the Columbus policy the letter read in part:

"We prefer that you cancel the captioned policy, as we do not care to run this one to expiration * * *. We certainly hope that you will be able to replace the captioned policy in one of your other companies within the next ten days."

Surety's position that the policy must be replaced or cancelled never changed. Surety could have exercised its ten-day cancellation right by giving notice to Columbus. The alternative of withholding notice of cancellation and allowing the agent to place the risk in another company was for the agent's benefit, protecting his relation with his customer and the hope of renewal of the business, and for the benefit of the insured, saving it the risk of being caught without coverage.

Puckett began seeking to place the risk in another company, negotiating with several, but he experienced difficulty because bowling alleys are hazardous risks. On April 18 he wrote Dupuy, state agent for Indemnity who was authorized to bind that company, describing the need for coverage, suggesting use of a standard fire policy form, and asking Dupuy to be of assistance.³

On April 25 Surety's agent visited Puckett and picked up records and papers. At this visit the Surety agent again talked with Puckett about having its policy cancelled or replaced. The trial judge found, and correctly so, that Puckett continued thereafter as Surety's agent for the limited purpose of replacement of the Surety policy. The Surety agent reported to his company that Puckett promised to "cancel" promptly (since Puckett had no authority to cancel this could only be by replacement of the Surety policy with another. See footnote 5, infra), and recommended if this was not done by Puckett in 10 days a direct cancellation notice should be sent. No such notice was ever sent.

On May 3, after another inquiry from Puckett, Dupuy wrote Puckett with a copy to Indemnity's home office, "We will be pleased to handle" the coverage (describing it) * * *. "This policy can be written on (describing it) plan * * *. Before binding coverage, please wire or call in order that we can place our reinsurance."

At a date in May not specified Surety's state agent visited Dupuy's office in Jackson. Dupuy wanted to know why Surety would not stay on the policy until expiration. Dupuy told the Surety agent that Indemnity could write the risk in July and "intimated" to him that Indemnity was "going to pick up the liability." On May 21 Surety wrote Puckett, requesting return of its original policy for cancellation and stating "We will not be in a position to continue this policy to expiration."

Under practice of the industry the company taking over the risk (Indemnity) might do so by leaving the existent (Surety) policy in force and reinsuring Surety from loss thereon during the unexpired term, or Indemnity could write new policies with resultant cancellation of the old policy by operation of law. (See footnote 5, infra.) On or before May 28 Puckett discussed with Dupuy whether it would be better for Indemnity to reinsure Surety's policy or issue new Indemnity policies. Indemnity made the choice to take over the coverage by issuance of its own policies, and Dupuy notified Puckett to that effect. Dupuy suggested the effective date of June 1 for the Indemnity policies, as that would give Indemnity time to arrange for its reinsurance.

May 28 is an important date. On that date Puckett wrote Surety,

"Please cancel the above policy effective June 1, as this coverage is being placed with another company effective that date.

"Please advise the Transit Casualty Company to cancel re-insurance effective the same date and we would appreciate your forwarding prorata return premium of $292.87, which is 14 percent of $2091.97.

"We are forwarding the new policies to the Brunswick Corporation and the Brunswick Automatic Pinsetter Corporation, asking that they return the original policies in order that we might forward them to you."

The same day Puckett typed up two proposed Indemnity policies, dating them June 1, and made a ledger entry charging Columbus for the premiums thereon as of June 1. (Under Puckett's procedures Columbus would not be billed until July 1, and was billed at such time.)

The next day, May 29, the...