Pearl Assur. Co. v. School Dist. No. 1

Decision Date28 April 1954
Docket Number4790.,No. 4789,4789
Citation212 F.2d 778
PartiesPEARL ASSUR. CO., Limited, et al. v. SCHOOL DIST. NO. 1 IN SAN MIGUEL COUNTY, COLO., et al. SCHOOL DIST. NO. 1 IN SAN MIGUEL COUNTY, COLO., et al. v. PEARL ASSUR. CO., Limited.
CourtU.S. Court of Appeals — Tenth Circuit

Richard D. Hall, Denver, Colo. (Ronald V. Yegge, Denver, Colo., on the briefs), for appellants and cross-appellees.

Harrison Loesch, Montrose, Colo. (Strang, Loesch & Kreidler, Montrose, Colo., on the briefs), for appellee and cross-appellant.

Before PHILLIPS, Chief Judge, and HUXMAN and PICKETT, Circuit Judges.

PHILLIPS, Chief Judge.

School District No. 1, hereinafter referred to as the District, brought this action against the Pearl Assurance Company, Ltd., and eight other insurance companies, hereinafter referred to collectively as the Insurance Companies, to recover for a fire loss under twelve policies issued by the Insurance Companies to the District. The case, originally brought in the state court, was duly removed to the United States District Court for the District of Colorado. The case was tried before the court without a jury. The underlying facts are not in dispute.

In 1895 and 1896 the District constructed a two-story brick school building. In 1902 it constructed a two-story brick addition thereto. The original building and the addition had a tin and shingle roof. They were located on Lots 14 to 17, and Lots 24 to 27 and the alley between Lots 14 and 17 and Lots 24 to 27, in Block 3, West Telluride, Colorado. In December, 1948, the District completed the construction of a quonset-type building, to be used as a gymnasium and for other educational purposes. It will hereinafter be referred to as the Gymnasium. It was constructed of steel, except portions of the west side and the front which were brick, cinder block and glass brick. Any portion of the Gymnasium which might be regarded as a roof was steel, and it was a one-story building. It was located on Lots 18 to 23, inclusive, in Block 3 and the alley lying between Lots 18, 19 and 20 and Lots 21, 22 and 23. The main portion of the Gymnasium was 141 feet long and 41 feet, 6 inches wide and it had an 81-foot by 17-foot extension on its west side. After its completion it was used for the athletic program, band instruction and band classes, physical education classes and dramatics, functions which were carried on prior to its construction in a recreation hall situated at another location and in the two-story building. The basement of the two-story brick building had been used by the lower grades for physical education and for band instruction. The Gymnasium was located 23 feet, 6 inches westerly from the two-story brick building. It was connected with the two-story brick building by a steam line, a hot water line, an electric power line and a common sewer which served both buildings. It was also connected by a wooden passageway between the Gymnasium and the two-story brick building, which was bolted to the Gymnasium building and nailed at the other end to the two-story brick building. The passageway had a concrete floor. Its superstructure was wooden and it was covered with roofing paper.

One of the insurance policies was issued July 1, 1948, in the amount of $3500 and was in force when the Gymnasium was under construction and at the time of its completion. The other eleven insurance policies were issued between July 1, 1949, and November 1, 1950, after the completion of the Gymnasium in December, 1948. The policies, under the heading "Name of Building," either described the building as "Telluride Public School," "Telluride Public Schools" or "Telluride High School"; under the heading "Height, Construction and Roof," as "Two-story shingle and tin roof brick building," "Two-story brick shingle" or "Two-story brick shingle roof"; and under the heading "Location," seven of the policies described the property insured as located on "Lots 13-20, inc., Blk. 3, West Telluride, Colo." and the other five policies described the property as located on "Lots 13-28, inc., Blk. 3, W. Telluride Addition to Telluride, Colo."

Each of the policies contained the following Alterations and Repairs Permit provision:

"Alterations and Repairs Permit: Permission granted to make alterations, improvements and repairs to any building herein described, and to construct additions or sheds which attach to and communicate with such building, and the insurance, if any hereunder, on such building, is hereby made to cover such alterations, improvements, repairs, attached and communicating additions and sheds, also building materials and supplies therefore, while contained therein or on the premises immediately adjacent thereto; and the insurance, if any hereunder, on contents of any building herein described is hereby made to cover in such attached and communicating additions and sheds to said building; * * *."

From the year 1939 the insurance business of the District was handled by Marguerite G. Ballard and Nan Leino, who were resident agents of the Insurance Companies, with authority to countersign and issue policies.

About July 1, 1950, Mrs. Ballard delivered two policies to Donald A. O'Rourke, secretary of the Board of Education of the District, and asked him if the District would be interested in purchasing additional insurance. O'Rourke told Mrs. Ballard that the District was in bad financial condition; that he did not think it was able to buy additional insurance, but that he did not know how the other members of the Board felt. Neither Mrs. Ballard nor O'Rourke said anything about coverage under the then existing insurance policies.

There had been no changes in the total face amount of the policies or in the provisions thereof from 1946 to February 1, 1951, when a fire broke out in the Gymnasium building, resulting in almost complete destruction to both building and contents, but only minor damage to the two-story brick building.

Prior to the construction of the Gymnasium building the District never carried insurance on only a part of the school property. Both agents lived in proximity to Block 3, and knew of the construction of the Gymnasium building. From as far back as 1939, the insurance agents had handled the insurance business with a free hand, preparing the policies and choosing the companies with which they should be written. Each of the policies was for a three-year term and carried the notation "Renewal of Former Policy," designated by number, and if the new policy was issued by a different company, the name of the company issuing the preceding policy was stated.

At the pre-trial conference it was stipulated that at the trial the question of liability would first be adjudicated, and that in the event the court found the Insurance Companies liable, the parties would undertake to agree upon the amount of recovery. The trial court found that the policies covered the Gymnasium. The amount of the loss was stipulated. The policies provided that where the amount of loss was ascertained by the agreement of the parties, the Insurance Companies should have 60 days thereafter within which to make payment. That period expired August 16, 1953. The court entered a judgment for specified amounts against the several Insurance Companies, with interest from August 16, 1953. The Insurance Companies appealed from that judgment and the District has cross-appealed from that part of the judgment which awarded interest from August 16, 1953. The District contends that it should have been allowed interest from April 3, 1951, the date it filed proofs of loss with the Insurance Companies.

When the surrounding circumstances disclose a latent ambiguity in a contract of insurance, extrinsic evidence is admissible to determine the real intent of the parties thereto, with respect to coverage.1

When an ambiguity has been established, the policy will be construed most strongly against the insurer who prepared it.2

The policies described the name of the building insured as the "Telluride Public School," "Telluride Public Schools" or "Telluride High School." The Gymnasium was an integral part of the high school physical plant and might well be regarded as within...

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