Peters v. Great American Ins. Co.

• Decision Date: 08 November 1949
• Docket Number: No. 5948.,5948.
• Parties: PETERS v. GREAT AMERICAN INS. CO., NEW YORK.
• Court: U.S. Court of Appeals — Fourth Circuit

177 F.2d 773 (1949)

PETERS v. GREAT AMERICAN INS. CO., NEW YORK.

No. 5948.

United States Court of Appeals Fourth Circuit.

Argued October 6, 1949.

Decided November 8, 1949.

David W. Robinson and John E. Edens, Columbia, S. C. (Robinson & Robinson, Columbia, S. C., on brief), for appellant and cross-appellee.

Joseph L. Nettles, Columbia, S. C., and Bert Cotton, New York City (Rein, Mound & Cotton, New York City, on brief), for appellee and cross-appellant.

Before SOPER and DOBIE, Circuit Judges, and BARKSDALE, District Judge.

SOPER, Circuit Judge.

This suit was brought by the insured upon a monthly reporting policy of fire insurance on the stock of goods in a manufacturing plant in Johnston, South Carolina, which was destroyed by fire on July 23, 1947. The net loss, after deducting salvage of $200, was $76,161.73. The limit of liability for all contributing insurance set out in the policy was $75,000. The company admitted a liability of $31,663.45 and paid this sum without prejudice to the rights of the parties. The proceedings in the District Court resulted in a judgment against the company for the additional sum of $7,000 in favor of the receiver of the insured who had been appointed by the state court and substituted for the policyholder as plaintiff pendente lite. Both parties appealed and the controversy turns on the interpretation of the policy and upon the bearing of monthly reports made by the insured to the company under the terms of the policy in respect to the value of stock on hand and the amount of specific insurance that is, in this case, insurance in a specified amount, carried thereon.

Monthly reporting insurance is a device whereby the amount of insurance under the policy fluctuates with the value of the changing stock of merchandise in a going business. It is designed to afford complete coverage and at the same time to avoid the maintenance of insurance in excess of the value of the property insured, so that the amount of the insurance, and the amount of the premium to be paid, are in direct proportion to the value of the goods on hand. Such a policy is obviously more favorable to the insured than a policy for a specified amount where the premium is calculated on the amount of insurance named in the policy although the amount of the risk may be materially less from time to time during the life of the contract. See the opinion of Judge Chesnut in Federal Intermediate Credit Bank of Baltimore v. Globe & Rutgers Fire Ins. Co., D.C.Md., 7 F.Supp. 56.

This end was achieved in the case at bar by condition 9 of the policy which required the insured to report to the company not later than 30 days after the last day of each month the location and value of the property covered by the policy and all specific insurance in force on the last day of each month. Condition 9 also provided that if at the time of any loss the insured had failed to file the required reports the policy should cover not more than the amounts included in the last report of value filed prior to the loss. The liability of the company was governed by these reports since condition 10 of the policy provided that liability thereunder should not in any case exceed that proportion of any loss which the last reported value, less the amount of specific insurance reported, bears to the actual value less the amount of specific insurance at the time of the report. The premium was fixed by condition 11 of the policy which provided that the premium named therein was provisional only and that the actual premium should be calculated at the expiration of the policy by deducting the amount of the specific insurance and determining the average of the remaining values reported by the insured. These conditions of the policy are set out in full in the margin.¹

It will be perceived that, within the maximum set by the policy, the amount of the insurance carried, the amount of the premium to be paid and the extent of the liability of the company under a policy of this kind are controlled by the policy holder. It is true that the policy provides that the insured shall report monthly the actual value of the property covered and the actual amount of the specific insurance thereon. Nevertheless, if he fails to do so, the policy is not void, but the amount of the insurance and of the premium are adjusted to the amounts he has chosen to report. Hence he may reduce the premium and the liability of the company, and carry a portion of the risk himself, if he sees fit to do so. The District Judge expressed this thought in his opinion as follows:

"* * * The undoubted purpose of the policy was to give the insured complete coverage up to the limit of liability, if it desired it. Whether or not the insured got complete coverage depended upon the insured's monthly reports of actual values. If the insured reported its actual values at the end of each month, it would have complete coverage. But, if it reported less than its actual values, it would have proportionately less coverage and a proportionately smaller premium. By its reports the insured could not extend the insurer's liability beyond the agreed limit of liability, but it could reduce both its premium and its coverage by reporting a less amount of value than it actually had."

The liability of the insurance company under a policy of this kind was considered by the court in Wallace v. World Fire & Marine Ins. Co., D.C.S.D.Cal., 70 F.Supp. 193, affirmed 9 Cir., 166 F.2d 571. The actual value of the stock of the policyholder at the time of his last report was $28,140 and his loss in a fire which occurred soon afterwards was $27,253.17, but the value shown by the report was $2,000. It was held that he was entitled to recover only on the basis of his report.

This interpretation of the policy is not controverted by the policyholder who agrees that the sum of $31,633.45 paid by the company correctly states the measure of its liability, if it is determined on the basis of the insured's monthly reports. The last monthly report dated May 1, 1947, which purported to state the value of the stock as of April 30, 1947, was incorrect in that it stated the total actual value to be $41,000 whereas the true value was $82,672.67. The report correctly stated the amount of the specific insurance to be $12,500, but this insurance expired before the fire. The contention of the policyholder is that this understatement of the value of the stock on hand April 30, 1947 was induced by the conduct of the company's agent, and therefore the company waived compliance with the conditions of the policy and is estopped to insist upon their observance; and in addition, the policyholder contends that the company had actual notice through its agent that the specific insurance of $12,500 had expired before the fire; and because of these facts, the company is liable in the sum of $75,000, the full limit of its liability named in the policy.

These contentions were raised in the course of the proceedings in the District Court. The original complaint stated a case of breach of contract and claimed the sum of $75,000, and the company in its answer rested its defense upon the restriction of its liability under the terms of the policy to the situation disclosed in the last monthly report of the insured, and averred that the policyholder was entitled only to the sum of $31,633.45 which it offered to pay and subsequently did pay. In reply the insured relied upon waiver and estoppel with respect to the mistake of value in its report, alleged that the company had knowledge of the expiration of the specific insurance, and prayed that its monthly reports be reformed to reflect the true value of the insured goods. The District Judge separated the trial of the legal from the equitable question, and, reserving the issue of reformation, first received the evidence as to the questions of waiver and estoppel in a trial with a jury. Upon the completion of the plaintiff's evidence at this trial he directed a verdict for the defendant. Subsequently he heard additional evidence on the equitable phase of the case and denied the insured's right to reform the reports but held that the company was liable for the additional sum of $7,000 as aforesaid.²

We first consider the ruling that the company was not estopped to apply the terms of the policy to the facts shown in the last monthly report. To establish its contention in this respect the policyholder offered evidence to the following effect. The insured, who had been accustomed to carry specific insurance on its merchandise, was advised to secure a monthly reporting policy of fire insurance and in consequence took out the policy of January 8, 1947 in suit from J. M. Edwards who conducted a local insurance agency and was also cashier of the insured's bank of deposit at Johnston, South Carolina. The insured desired full insurance on his stock of goods and this fact was known to Edwards. Although the policy called for monthly reports, as we have seen, none was filed by the insured until May 19, 1947 when reports for January, February, March and April were filed simultaneously. No reports were made subsequently. The reports filed were made on printed forms furnished by the company which plainly requested the insured to be careful to include all values insured under the caption "total actual value" in order to comply with the reporting clause of the policy. Notwithstanding this warning, the total actual value of merchandise stated in each of these successive reports as on hand at the end of the month was computed by merely subtracting the amount of the month's sales from the value of merchandise on hand at the end of the preceding month as indicated in the report of that month, using even thousands of dollars instead of exact figures and without taking any account of the purchases during the month. Thus the report of February showed actual values of $60,000 computed by deducting sales of $15,000 during January; the...