Niagara Fire Ins. Co. v. Bryan & Hewgley, Inc.

• Decision Date: 14 March 1952
• Docket Number: No. 11343.,11343.
• Citation: 195 F.2d 154
• Parties: NIAGARA FIRE INS. CO. v. BRYAN & HEWGLEY, Inc.
• Court: U.S. Court of Appeals — Sixth Circuit

195 F.2d 154 (1952)

NIAGARA FIRE INS. CO. v. BRYAN & HEWGLEY, Inc.

No. 11343.

United States Court of Appeals Sixth Circuit.

March 14, 1952.

T. M. Galphin, Jr., Louisville, Ky. (T. M. Galphin, Jr., and Ogden, Galphin & Abell, all of Louisville, Ky., Pride Tomlinson, Jr., Columbia, Tenn., on the brief) for appellant.

Cecil Sims, Nashville, Tenn. (J. L. Jones, Pulaski, Tenn., Cecil Sims, and Bass, Berry & Sims, all of Nashville, Tenn., on the brief), for appellee.

Before HICKS, Chief Judge, and SIMONS and McALLISTER, Circuit Judges.

SIMONS, Circuit Judge.

The appellant complains of a judgment against it on a policy issued by it to the appellee and covering damages by windstorm. Its defenses in the court below were that the terms of the policy had been violated by the insured in respect to inventories, the keeping of books and records by which a loss could be verified, the lack of evidence to support the judgment, the finding by the jury of bad faith in failure to timely pay the loss under Tennessee law and so subjecting it to a penalty, and errors in the admission of evidence.

The policy was not the usual contract of insurance, providing for a fixed liability for total loss and a predetermined annual premium. It provided that the insured should pay a premium based on the average of the total monthly values of its merchandise with a minimum of $100 per year and limited maximum recovery for loss to $30,000. The insured obligated itself to report to the insurer, not later than thirty days after the last day of each month, the total value of its merchandise and to permit the insurer, at all reasonable times during the term of the policy, to examine its books and records. The policy also provided that in case of loss, if the insured's last reported total value was less than the actual total value in its warehouse for the reported period, it could only recover, in the event of loss, that proportion which the reported value bore to the actual total value of the loss, but not exceeding $30,000.

The insured, though its owner Lewis Hewgley and its superintendent Felker, took inventory at the end of every month and for each month submitted a report of the total value of goods in its warehouse. Its last report before the windstorm was made on March 31, 1949 and showed a valuation of merchandise of $7,600. Shortly before the windstorm on May 1st, it again took an inventory of its merchandise. This inventory was not reported because the report was not then due and showed an inventory in excess of $50,000. After the windstorm, the insured reported its loss immediately to the insurer and turned over to it all the books and records it had. Some of its records were destroyed during the storm and the inventory of March 31, 1949 was thought lost or destroyed. It was later found after suit had been commenced but before the trial in June or July, 1950. It was never submitted to the insurer though produced at the trial. Its accuracy became one of the important issues in the cause and the subject matter of a special verdict of the jury which found that the amount of merchandise on hand on March 29th was the reported amount of $7,600. The insurer sent its adjuster Hatchett to investigate the loss. He arrived a day or two after the storm and reported that the loss exceeded the maximum recovery provided by the policy and that he had found no violations of policy provisions. The amount of the loss was also made the subject matter of a special verdict by the jury, which found the loss to be in excess of the maximum liability provided in the contract. The insured submitted its formal proof of loss to the insurer on September 9, 1949. The insurer refused to pay and suit was commenced March 22, 1950. The verdict was for $30,000 for the loss upon which the court directed a computation of interest from July 1, 1949. By a third special verdict the jury found bad faith on the part of the appellant in refusing to pay and assessed a penalty of $7,500.

There was substantial evidence, if indeed it was not admitted, that the total loss, after deducting salvage, was far in excess of the maximum contract liability. The insurer contested the claim principally upon the failure of the insured to keep adequate books and records, and by a challenge to the accuracy of the March 31st inventory. This challenge was to bring into operation the provision in the policy which required that in the event the last reported total value was less than actual total value for the reported period, recovery should be limited to such percentage as the reported value bore to the actual loss. The contract, however, did not require the insured to keep books and records in any specific or designated form. The court held, and we agree, that if from such books or records as the insured did keep it was possible to verify reported values, the policy requirements were met. American Eagle Fire Insurance Company v. People's Compress Company, 10 Cir., 156 F.2d 663. The insured had preserved a record of every transaction, its purchases, sales and bank deposits, which, notwithstanding losses suffered in the windstorm, were sufficient to verify the amounts of all inventories reported to the insurer, and they were made available to it. While the insured thought that its inventory of March 31, 1949 was lost or destroyed, it was subsequently found. This was, however, after suit was brought though before trial. When there submitted, the insurer challenged its admissibility, largely upon the authority...