NEW YORK UNDERWRITERS'FIRE INS. CO. v. Malham & Co.

Decision Date30 March 1928
Docket NumberNo. 7982,7983.,7982
Citation25 F.2d 415
PartiesNEW YORK UNDERWRITERS' FIRE INS. CO. v. MALHAM & CO. STERLING FIRE INS. CO. v. SAME.
CourtU.S. Court of Appeals — Eighth Circuit

COPYRIGHT MATERIAL OMITTED

R. Lee Bartels, of Memphis, Tenn., for plaintiff in error New York Underwriters' Fire Ins. Co.

Thomas Clark Trimble, of Lonoke, Ark., for plaintiff in error Sterling Fire Ins. Co.

W. Wilson Sharp, of Brinkley, Ark. (G. Otis Bogle, of Brinkley, Ark., on the brief), for defendant in error.

Before LEWIS and KENYON, Circuit Judges, and KENNEDY, District Judge.

KENYON, Circuit Judge.

The stock of merchandise of defendants in error, a partnership composed of Raymond Malham, Joe Malham, and R. Mahfouz (hereinafter designated the insured), engaged in the mercantile business at Brinkley, Ark., was partially destroyed by fire on the 12th day of December, 1926. The New York Fire Insurance Company, plaintiff in error in case No. 7982 (hereinafter designated the New York Company) had issued a policy which was in effect at the time of the fire covering insured's stock to the extent of $4,000. The Sterling Fire Insurance Company (hereinafter called the Sterling Company), plaintiff in error in case No. 7983, had a similar policy covering said stock. Two other companies had policies thereon. Suits were brought against the New York Company and the Sterling Company to recover on the policies in the state court of Arkansas, and duly removed to the federal court. The cases were there consolidated and tried together. A jury was waived by written stipulation, and the trial court found in favor of the insured on both policies and entered judgments thereon. Certain questions involved in the writs of error are common to both companies. We consider both writs in this opinion.

The contract of the New York Company contains the following provision:

"This company shall not be liable beyond the actual cash value of the property at the time any loss or damage occurs, and the loss or damage shall be ascertained, or estimated, according to such actual cash value, with proper deduction for depreciation, however caused, and shall in no event exceed what it would then cost the insured to repair or replace the same with material of like kind and quality; said ascertainment, or estimate, shall be made by the insured and this company, or, if they differ, then by appraisers as hereinafter provided; and the amount of loss, or damage, having thus been determined, the sum for which this company is liable pursuant to this policy shall be payable sixty days after due notice, ascertainment, estimate, and satisfactory proof of the loss have been received by this company, in accordance with the terms of this policy. It shall be optional, however, with this company to take all, or any part, of the articles at such ascertained or appraised value, and also to repair, rebuild, or replace the property lost or damaged with other of like kind and quality, within a reasonable time on giving notice within thirty days after receipt of the proof herein required, of its intention so to do. * * *"

The contract provided for giving the insurance company notice in writing of loss in case of fire, the protection of the property by separation of damaged from undamaged goods, the making of a complete inventory, etc., and within sixty days after fire making proof of loss, the loss not to be payable until sixty days after such notice; also "no suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity until after full compliance, by the insured, with all the foregoing requirements."

Similar provisions exist in the Sterling Company policy.

Proofs of loss were sent by insured to the companies February 2, 1927. About January 7, 1927, the insured inaugurated a fire sale to dispose of the damaged merchandise. A few days after the fire, a Mr. Cress, who was special agent of the Underwriters' Salvage Company of New York, went to Brinkley to assist in taking an inventory of the remaining and damaged stock, at the request of Coates & Raines, who were the general agents in Arkansas of the insurance companies holding policies on the stock, with the exception of the New York Company. Later a Mr. Overstreet, adjuster for the general agency of Coates & Raines, went to Brinkley for the purpose of adjusting the loss. He testified that he represented all the companies interested, except the New York Company. He offered insured $5,500 in full settlement of all the insurance policies. There was evidence that he told John Malham, one of the partners, with reference to the $5,500, that that was all he would get, and, when asked by Malham as to what he was going to do with the stock, he said, "That's yours." Out of the fire sale the insured realized $1,623.25. A Mr. Watkins, conceded to be a representative of the New York Company, went to Brinkley February 2, 1927, to investigate and adjust the loss on behalf of his company. He found the salvaged stock had been sold, and testified that was the first he or his company knew of said sale. The New York Company claims that it never consented to the sale of the salvaged stock. After this sale the local agent of the New York Company at Brinkley, at the request of Mr. Malham, called up L. B. Leigh & Co., general agents of the New York Company, at Little Rock, who had charge of adjusting losses in Arkansas, and talked with them concerning a settlement of his loss. To this we advert later.

Both insurance companies contend that the sale of the salvaged stock deprived them of their rights under the policy to examine the same and to have an appraisal, and, if they desired, to take it at its appraised value, or to replace the property lost or damaged with other of like character; that therefore the insured has violated the contracts, and cannot recover thereon. It is without question that the proofs of loss were not served until February, 1927. The sale of the salvaged merchandise was in the fore part of January. It would seem, therefore, that the provision of the contracts hereinbefore set out was violated, and that the insurance companies were deprived of a substantial right thereunder. If the salvaged property was sold without the consent of the insurance companies, the insured forfeited the right to claim indemnity, and, unless there was a waiver of such provision, the insured cannot recover on these policies. The doctrine is stated in 26 C. J. 366: "Under the provision which requires the insured to protect the property and separate the damaged from the undamaged property, etc., the insured cannot recover on the policy, in the absence of waiver, where he sells the property before the insurer has a reasonable opportunity to inspect it or appraise the damage." Astrich v. German-American Ins. Co. of New York (C. C. A.) 131 F. 13; Farmers' Merc. Co. v. Ins. Co., 161 Iowa, 5, 141 N. W. 447; Lancashire Ins. Co. v. Barnard (C. C. A.) 111 F. 702; Hamilton v. Liverpool, etc., Ins. Co., 136 U. S. 242, 10 S. Ct. 945, 34 L. Ed. 419; Thornton v. Security Ins. Co. (C. C. A.) 117 F. 773; Oshkosh Match Works v. Manchester Fire Assur. Co., 92 Wis. 510, 66 N. W. 525.

That forfeitures are not favored in law is axiomatic. Knickerbocker Life Insurance Co. v. Norton, 96 U. S. 234, 24 L. Ed. 689. In May on Insurance, 272, it is said: "The courts will proceed with caution in determining the question of the liability of the insurer; but, when this liability is fixed by the capital fact of a loss within the range of their responsibility, they will be very reluctant to deprive the insured of the benefit of that liability, by any failure or neglect to comply with the mere formal requisitions of the contract, by which his right is to be made available for his indemnification." From the syllabus in German Insurance Co. v. Gibson, 53 Ark. 494, 14 S. W. 672, we quote: "Forfeitures are not favored in law; and any agreement, declaration, or course of action on the part of an insurance company, which leads a party insured honestly to believe that by conforming thereto a forfeiture of his policy will not be incurred, followed by conformity on his part, will estop the company from insisting upon the forfeiture."

Waiver and estoppel may be inferred from the conduct of the insurance company. American Ins. Co. v. Dannehower, 89 Ark. 111, 115 S. W. 950; Pacific Mutual Life Ins. Co. v. Carter, 92 Ark. 378, 123 S. W. 384, 124 S. W. 764; Queen of Ark. Ins. Co. v. Forlines, 94 Ark. 227, 126 S. W. 719; Lord v. Des Moines Fire Ins. Co., 99 Ark. 476, 138 S. W. 1008; Inter-State Bus. Men's Acc. Ass'n v. Greene, 132 Ark. 546, 201 S. W. 799; Knickerbocker Life Ins. Co. v. Pendleton et al., 112 U. S. 696, 5 S. Ct. 314, 28 L. Ed. 866; Iowa Life Ins. Co. v. Lewis, 187 U. S. 335, 23 S. Ct. 126, 47 L. Ed. 204. The question of waiver or estoppel is of controlling importance in these cases.

If there was any waiver of the provision of the policies giving insurers the right to take the property at the appraised value or to replace same, it was through the acts of Overstreet in telling the assured to sell the salvaged goods, and standing pat on the offer of the $5,500 settlement, and stating assured would receive no more on all the policies. That Overstreet represented the Sterling Company is admitted. It is claimed he did not represent the New York Company in any way. Of course, if this is so, what he did or said was not binding on it unless subsequently ratified. The question therefore of whether Overstreet represented the New York Company at the time he went to Brinkley after the fire and before the salvage sale and made the offer of settlement on behalf of all the insurance companies, or whether his acts in that respect were thereafter ratified, is a vital one in the New York Company Case. This is a fact question. It must be borne in mind that a jury was waived in writing and the case tried to the court. The rule under these circumstances is...

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