North British & Mercantile Ins. Co., Ltd. v. San Francisco Securities Corp.

• Decision Date: 05 October 1926
• Docket Number: Civil 2484
• Citation: 249 P. 761,30 Ariz. 599
• Court: Arizona Supreme Court
• Parties: NORTH BRITISH & MERCANTILE INSURANCE COMPANY, LIMITED, Appellant, v. SAN FRANCISCO SECURITIES CORPORATION, Appellee

249 P. 761

30 Ariz. 599

NORTH BRITISH & MERCANTILE INSURANCE COMPANY, LIMITED, Appellant, v. SAN FRANCISCO SECURITIES CORPORATION, Appellee

Civil No. 2484

Supreme Court of Arizona

October 5, 1926

APPEAL from a judgment of the Superior Court of the County of Yuma. Fred L. Ingraham, Judge.

Judgment modified and affirmed.

Messrs Robertson & Campbell and Mr. W. W. Hindman, for Appellant.

Mr. A J. Eddy, for Appellee.

Lockwood J. McAlister, C. J., and Ross, J., concur.

OPINION

Lockwood, J.

On or about March 10th, 1922, one A. H. McClure sold to Harmon Temple a certain Chalmers automobile, under a conditional sales contract. McClure on the same date sold the contract to the San Francisco Securities Company, a corporation, hereinafter called plaintiff. The latter immediately secured from the North British & Mercantile Insurance Company, Limited, hereinafter called defendant, an insurance policy, insuring plaintiff against loss by fire, theft, or pilferage of the car, in the sum of eight hundred dollars. April 6th, 1922, the automobile was destroyed by fire, and on June 5th plaintiff mailed to defendant proofs of loss, which were received by the latter on June 6th. On April 6th, 1923, plaintiff brought suit against defendant on the policy, and on May 19th, 1925, the case having been heard by the court without a jury, judgment was entered against defendant for eight hundred dollars with interest at six per cent per annum from the fifth day of August, 1922, and for the further sum of one hundred twenty dollars as damages and three hundred fifty dollars as attorney's fees, under the provisions of paragraph 3441, Civil Code, Revised Statutes of Arizona of 1913. After motion for new trial was made and overruled, defendant appealed to this court.

There are three questions of law raised by the appeal, the first being that the insurance policy was void because of a breach of warranty, it being alleged that the policy described the car in question as a 1918 year model, while in truth and in fact it was a 1915 or 1916 year model; second, that the proof of loss was not served on or delivered to defendant within sixty days after the fire, as provided by the policy of insurance; and, third, that, if plaintiff was entitled to recover anything, it was not entitled to either penalty or attorney's fees under paragraph 3441, supra.

It is the contention of defendant that, where an insurance policy contains certain statements of fact which are express warranties, these warranties are agreements in the nature of conditions precedent and must be strictly complied with, and, if they be not so complied with, the policy is void. Taken as a general statement of law, this is correct. McKenzie v. Scottish Union & Nat. Ins. Co., 112 Cal. 548, 44 Pac. 922; Aetna Life Ins. Co. v. France, 91 U.S. 510, 23 L.Ed. 401 (see, also, Rose's U.S. Notes); Kenney v. Franklin Fire Ins. Co. (Mo. App.), 247 S.W. 249; Felakos v. Aetna Ins. Co. (N. J. Sup.), 119 A. 277.

The rule, however, is a harsh one, and especially so in contracts of insurance. These are always prepared by the insurer, are carefully framed in its interests, and seldom fully understood or even read in the entirety by the insured. In the vast majority of cases even the statements of fact made therein are suggested by the agent of the insurer. It is of course true that ignorance of the law excuses no man, and a party is presumed to read and understand the contract he signs, but because of the facts and conditions to which we have referred above, it is practically a universal rule of construction that an insurance contract is construed most strongly against the insurer. 32 C. J. 1152. It is also the rule of law that a forfeiture of a policy will never be declared if under any reasonable theory of construction it can be avoided. 32 C. J. 1296.

There are two clauses in the insurance contract in the case at bar which bear on this question. We quote them as follows:

"The following are statements of fact known to and warranted by the assured to be true, and this policy is issued by the company relying upon the truth thereof. . . . The following is the description of the automobile: Model year 1918. . . .

"This policy is made and accepted subject to the provisions, exclusions, conditions, and warranties set forth herein or indorsed hereon. . . . The assured's occupation or business where the subject of this insurance is used in connection therewith, the description of the automobile insured . . . as set forth and contained in this policy, are statements of facts known to and warranted by the assured to be true, and this policy is issued by the company relying upon the truth thereof. . . . This entire policy shall be void if the assured has concealed or misrepresented any material fact or circumstances concerning this insurance or the subject thereof. . . ."

It will be seen by these quotations that, while the statement of the year model of the automobile is expressly made a warranty, and defendant issued the policy relying upon the truth thereof, it does not expressly state that the policy shall be void for the failure of any warranties. On the contrary, it says that it shall be void if there has been a concealment or misrepresentation of any material fact or circumstances concerning the insurance. We think that with policies of this nature the law is well stated in the case of Phoenix Assur. Co. of London v. Munger Imp. Cotton M. M. Co., 92 Tex. 297, 49 S.W. 222. We quote therefrom:

"A warranty in an insurance contract is a statement made therein by the assured which is susceptible of no construction other than that the parties mutually intended that the policy should not be binding unless such statement be literally true. . . . We come then to look to the instrument to determine whether its terms are such as to demand the finding of such intent therefrom. In the first part of this contract, . . . we find numerous statements by the assured. . . . Without so deciding, we may here assume that from the mere reference to them as the assured's warranties the legal conclusion would ordinarily follow that, the parties having used a technical term and being presumed to have understood its legal meaning, intended to make the binding force of the policy dependent upon the absolute truth of each statement. This would have been a severe contract upon the assured, for it would have left him without insurance if any statement, however unimportant, were not literally true. . . . Assuming that the company wished to deal fairly, that the assured really desired insurance, and that they both understood the technical meaning of the word 'warranty,' it is but rational to suppose that they would not wish to take the chance of the court's holding that they, by the use of that term, intended to leave the property uninsured in case either of such statements were or should turn out to be not exactly as represented. The next and most natural thing would have been to insert some such stipulation as that above quoted, avoiding the policy if the assured had misrepresented any 'material fact or circumstance,' thus showing that they did not wish to be understood as having previously used the word 'warranty' in its technical sense; i. e., did not intend to be understood as having agreed that the policy should be of no effect if any of the preceding statements should be untrue in some immaterial particular. . . ."

The policy in the case from which we have just quoted contains the provision:

"This entire policy shall be void if the insured has concealed or misrepresented, . . ....