Rice Oil Co. v. Atlas Assur. Co.

• Decision Date: 13 March 1939
• Docket Number: No. 8853.,8853.
• Citation: 102 F.2d 561
• Parties: RICE OIL CO. et al. v. ATLAS ASSUR. CO., Limited.
• Court: U.S. Court of Appeals — Ninth Circuit

102 F.2d 561 (1939)

RICE OIL CO. et al. v. ATLAS ASSUR. CO., Limited.

No. 8853.

Circuit Court of Appeals, Ninth Circuit.

March 13, 1939.

COPYRIGHT MATERIAL OMITTED

R. H. Glover, S. B. Chase, Jr., and John D. Stephenson, all of Great Falls, Mont., for appellants.

I. W. Church and Art Jardine, both of Great Falls, Mont., for appellee.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

GARRECHT, Circuit Judge.

In 1926, appellants Rice Oil Company and Fulton Oil Company, who were extensively engaged in gas and oil production in the State of Montana under operating agreements with and leases from various persons, sold certain leases and buildings, structures, tanks and equipment thereon, to Marine Corporation for $1,000,000.00 in cash and $2,000,000.00 to be paid out of net oil.

It was provided in said contract that there was expressly reserved to Fulton Oil Company and Rice Oil Company "the first net oil which may be produced and saved from all or any of the above described property, until there shall have been received by said corporations, jointly, the sum of two million dollars ($2,000,000.00)."

The physical possession of all the property also was reserved to Fulton Oil Company and Rice Oil Company jointly for operating purposes. From the oil produced it was provided that the land owners who had leased the lands to W. E. Rice, Fulton Oil Company and Rice Oil Company should first receive the royalties reserved in the respective leases and also that "operating expenses" should be paid; these were defined by the contract as being "the cost of producing the oil from the property including salaries and wages of men actually employed on leases, other than administrative and/or executive salaries of Fulton Oil Company and/or Rice Oil Company * * *, supplies other than permanent improvements, insurance and other Federal, State or County taxes and/or assessments, which would or may be a charge against Marine Corporation by reason of its ownership of such property." The proceeds derived from the sale of all net oil was to be applied by these companies upon the purchase price remaining due them from the Marine Corporation. The reservation of the oil and the possessory rights to the properties in question were to remain in the Rice Oil Company and Fulton Oil Company until such time as the balance of the purchase price was fully paid, or until such time as these companies should in their judgment determine that the properties could not be made to produce oil in paying quantities, whereupon all reservations and possessory rights of the Rice Oil Company and the Fulton Oil Company in the properties ceased.

In 1931, appellee, Atlas Assurance Company, Ltd., issued and delivered a policy of insurance in which W. E. Rice was the named insured. The circumstances which led up to the issuance of this policy, as narrated by the witness, Ray A. Klugh, the manager for appellants, and which are not contradicted, are as follows: "In 1931 insurance was taken out by Rice Oil Company and Fulton Oil Company through the Moon Agency to protect the interests of Rice Oil Company and Fulton Oil Company in the property of which they had possession under the contract with Marine Corporation. In 1931 I called Moon Agency on the phone and told them of our intention to cover the interests of our various companies. In a day or so the representative of Moon Agency called at the office and I advised him of the property to be covered. The agent suggested that the insurance be a blanket policy issued in the name of W. E. Rice. I advised him that Rice Oil Company and Fulton Oil Company had an interest in this property and had possession of the property and that we wanted insurance to protect their interest. Beyond this, no formal application was made for insurance in 1931, and no inquiry was made by Moon Agency as to the title or ownership of this property, nor did I make any representation or statement as to how the property was held or owned."

It appears that the insurance agent was also informed that the property insured was located on leased premises. In that regard the witness Klugh testified: "I believe I told him that it was the Fulton property on the Fulton-Byrne lease, Rice Stannard, State lease, the Rice lease and Rice Securities, and W. E. Rice-Bluhm lease. That is the way we always designated the leases as I stated to that answer."

Subsequently, a renewal policy, dated March 25, 1933, was issued which was delivered on April 12, 1933. Prior to the issuance and delivery of this second policy, the property described in the first policy was checked over by the agent for appellee and the agent for appellants to determine if the amount of insurance they had been carrying was sufficient. At that time the property which is alleged in the complaint herein as having been destroyed by fire was examined and it was intended that it should be covered by the policy of insurance thereafter to be issued.

This second policy of fire insurance which was issued on March 25, 1933 was again issued in the name of plaintiff, W. E. Rice, alone. In the first policy the property later destroyed by fire was specifically described. It was the intention of the agents, both of appellants and appellee, that the same property should be insured in the second policy and the items had been specifically checked and valued by the agent of appellee. In the second policy none of the property insured was listed or described as in the first policy for the reason that the agents in the insurance office representing appellee had worked out what they called a "rider" to cover this class of property a copy of which is attached to the face of the body of the policy marked "Oil Lease Property Form," and which reads as follows:

"$33,100.00 (except as hereinafter excluded) on all Buildings, Structures, Tanks, Equipment and Contents therein, including all property on which liability is required to be specifically assumed by the condition of this policy, all while upon the premises, at locations as specified above, all comprising and/or appertaining to the operation of oil and gas well properties and situate on land owned and/or leased and/or occupied by the insured.

"The terms `Buildings, Structures, Tanks, Equipment and Contents therein' shall include all property (excepting as hereinafter excluded) subject to loss or damage by fire or lightning, and, provided the insured is legally liable therefor, property described in this policy held by them in trust, or on commission, or sold but not removed, all while anywhere upon the premises described or within 100 feet thereof."

The evidence shows that this form was gotten up by the agents for appellee as stated by witness Silvernale, who was the agent of appellee who checked over the property with Mr. Klugh, appellants' agent, at the time the property was reinsured, and who, in relation to this rider, testified as follows:

"Q. Now, with regard to this portion attached here, marked `Oil Lease Property Form,' can you tell us how that came to be attached? A. Yes; through our experience in the oilfield business, in writing leased properties, we discussed it many times in the office, we used this form because we figured it would give our assured very broad coverage, and if anything ever came up on a loss there would be no dispute over it, over such loss, regardless of who owned the property or whose property it was."

As to what the policy would cover the witness further stated: "The only statement I made to Mr. Klugh as to what the insurance policy would cover was that it would cover all of his leases blanket, that all of his property, or the W. E. Rice Company would be covered, or W. E. Rice."

Under these representations and with such understanding, the new policy was issued in the name of W. E. Rice. The policy was delivered on April 12, 1933, and on the next day certain property and certain oil in storage was destroyed by fire. The property destroyed, for which recovery is here sought, was in the possession of Rice Oil Company and Fulton Oil Company by virtue of the leases and of the contract with the Marine Corporation heretofore outlined.

Proof of loss in due form was made to appellee by W. E. Rice, Rice Oil Company and Fulton Oil Company upon the basis that the policy issued in the name of W. E. Rice was likewise intended to insure the interests of the other two plaintiff corporations. Thereupon it was agreed between the parties here that the total loss for which appellee could be liable amounted to $7,329.63, allocated as follows: $1,284.52, for all the oil destroyed; $6,045.11, for all of the other property destroyed. After these figures were agreed upon appellee denied liability under the policy. A suit in equity was brought by appellants in the State Court to reform the insurance policy so as to name as the insured therein Rice Oil Company and Fulton Oil Company as their respective interests shall appear, and a judgment was prayed for the full amount, $7,329.63, to indemnify for loss on the property destroyed by the fire. The case having been removed by appellee from the State Court to the Federal Court for the District of Montana, appellants filed a complaint at law setting up the same facts. Appellee made answer in both cases denying any liability whatever under the policy. The cases were consolidated and tried before the District Judge sitting without a jury pursuant to a written stipulation. At the trial appellee admitted liability for all the oil destroyed but denied any liability as to the other property.

The court adopted and filed findings of fact and conclusions of law and awarded judgment against appellee for the oil destroyed in the amount of $1,284.52, with interest at 6% per annum from August 9, 1933, and costs. The court refused to allow recovery for the additional sum of $6,045.11 claimed for the property destroyed in addition to the oil, which property was held and in possession of appellants under and...