Phoenix Ins. Co. v. Heath

• Decision Date: 10 October 1936
• Docket Number: 5709
• Citation: 90 Utah 187,61 P.2d 308
• Court: Utah Supreme Court
• Parties: PHOENIX INS. CO. v. HEATH et al

61 P.2d 308

90 Utah 187

PHOENIX INS. CO. v. HEATH et al

No. 5709

Supreme Court of Utah

October 10, 1936

Appeal from District Court, Third District, Salt Lake County; O. W McConkie, Judge.

Action by the Phoenix Insurance Company against Fred J. Heath and another. Judgment for defendants, and plaintiff appeals.

REVERSED AND REMANDED, with directions.

Gustin & Richards, of Salt Lake City, for appellant.

Henry D. Moyle, of Salt Lake City, for respondents.

FOLLAND Justice. ELIAS HANSEN, C. J., and EPHRAIM HANSON, MOFFAT, and WOLFE, JJ., concur.

OPINION

FOLLAND, Justice.

Defendants, as agents for the plaintiff, issued a policy of fire insurance on the Roseland Dance Hall in Salt Lake City for $ 5,000. Plaintiff thereupon requested the defendants to reduce the policy to $ 2,500. Defendants wrote plaintiff requesting reconsideration of plaintiff's demand. Before any reduction in the policy was made, the dance hall burned down. Plaintiff paid the insured the full amount of the policy and brought this action to recover from defendants the sum of $ 2,500 because of their negligent failure to reduce the risk as requested. From a judgment in favor of defendants, plaintiff appeals.

The material facts are not in dispute. In plaintiff's instructions to agents is found the following provision:

"Cancel promptly when so requested, remembering that if agents fail to carry out instructions or act in excess of the authority given them, they render themselves personally liable to the company for any loss sustained."

The policy of insurance issued contains a provision that the policy may be canceled at any time "by the company by giving five days notice of such cancellation." Upon being advised of the issuance of the policy in question, plaintiff addressed to defendants a letter dated November 5, 1932, containing the following:

"While this is a renewal of Protector policy No. 795490 we find that our reinsurance facilities this year are somewhat limited due to the fact that this classification has had such an unfavorable loss record and consequently reinsuring companies are not writing the class. Therefore, while we regret to disturb any of this liability we find it necessary to ask you to reduce the Protector's liability under the above policy to $ 2,500.00. We made a strenuous effort to take care of this liability here, but, as stated above, found this impossible.

"Thanking you for your good attention to this matter, we are."

The record does not disclose when this letter was received by the defendants at Salt Lake City, but after receipt thereof, and under date of November 13, 1932, defendants wrote to plaintiff the following:

"Regarding your letter of Nov. 5th. Re: Policy No. 797184. We are disappointed that you feel unable to keep the whole risk. Our business is small, so far, and we very much dislike starting to spread it about. We have taken every precaution to take good risks, and note with some little pride that fire losses paid us or any of our clients have been practically nil. The dance hall in question is a very high class place, with all fire precautions suggested for the safety of the building promptly taken; also a caretaker is on the place every hour of the day and night.

"We write you to ask you to reconsider your action and again see if you cannot place the whole amount as has been done the past several years."

Plaintiff replied to this letter under date of November 16, 1932, as follows:

"We have for acknowledgment your letter of the 13th concerning the reduction in the amount covered by the above policy. Before writing you previously requesting that this policy be reduced to $ 2,500.00 we used every effort here to secure the necessary reinsurance to avoid disturbing the policy, however, we were unable to do so owing to the fact that risks of this class have been practically prohibited by most companies. The reinsurance which we had last year on the previous policy is not now available to us and, consequently, we are carrying a net line greatly in excess of the amount prescribed by the company. In addition to this policy we also have $ 1,750.00 under two other policies giving us a total of $ 6,750.00.

"We surely regret the necessity of asking your assistance in this matter but under the circumstances there is nothing for us to do. I would suggest that you give this other $ 2,500.00 to some company in Salt Lake. One of your friends, no doubt, will be glad to write it for you as most companies will accommodate their agent for a reasonable amount and this probably will be a solution of this awkward situation.

"Thanking you to give your early attention to this matter and with kindest personal regards, I am."

This last letter was received on the morning of November 19, 1932, but the Roseland Dance Hall had been totally destroyed by fire a few hours before, the fire commencing about 3:30 a. m. on November 19th.

It is undoubtedly the law that, where an insurance company under the terms of the policy of insurance is entitled to cancel the policy or reduce its amount, it may direct its agent to cancel or reduce and it is the duty of such agent forthwith to do so, and, if he negligently delays in obeying his instructions and loss occurs thereby, he is liable to the insurer for the amount it is required to pay in settlement of the loss. National Union Fire Insurance Company v. Dickinson, 92 Wash. 230, 159 P. 125, Am. Cas. 1918C, 1042, see also note at page 1043; Washington Fire & Marine Ins. Co. v. Chesebro (C. C.) 35 F. 477; London Assurance Corporation v. Russell, 1 Pa.Super. 320; 2 Couch Ency. Ins. Law 1424; 32 C. J. 1073; 14 R. C. L. 874. The instructions of plaintiff to its agents, as quoted above, is in harmony with the rule of law above stated. Such instructions contained no provision covering any request to the company by the agent for a reconsideration of its order to cancel or reduce. Had notice of cancellation or reduction been given promptly by defendants upon receipt of the first notice, plaintiff would not have been required to pay a loss in excess of $ 2,500, as the fire occurred approximately ten or eleven days after such notice was received. The date when such notice was received is not fixed by the evidence, but it appears from the other correspondence that the time consumed in transportation of mail between Salt Lake City and San Francisco is not to exceed three days.

Defendants do not question the rule of law above stated, but attempt to relieve themselves from liability for the delay by saying they had a right to ask the company for a reconsideration of its demand and that the letter of the 16th from the company to the agents in reply to the agents' letter of November 13th is a recognition of the right to ask for a reconsideration and is a waiver of the delay up to that time and that they had a reasonable time, that is, three to five days, in which to comply with the request for reduction after the receipt of the second letter. The loss having already occurred before receipt of the letter, the question of reasonable time is immaterial and that they are not liable for the delay.

It may be conceded that defendants had a right to ask for reconsideration of the peremptory order to reduce the amount of insurance, but, where such request is made under the circumstances as shown by this record, the question still remains whether the delay thereby occasioned was at the risk of the agents or at the risk of the principal. In 2 Couch, Encyc. of Ins. Laws, 1425, it is said:

"And liability for resulting damage arises in the case of failure to carry out peremptory instructions to cancel, even though the agent delayed from a mistaken view as to the safety of the risk and the wisdom of canceling the same, or from a belief that his company was misinformed * * * On the other hand, it has been held that an agent is not liable for failure to cancel within the required time, if he has requested his company to reconsider the order, and, in accordance therewith, it has taken the matter under consideration."

The cases cited in support of the above quotation are the same cases cited by the parties hereto, which we shall now...