Rochester German Ins. Co. v. Schmidt

• Decision Date: 26 February 1907
• Citation: 151 F. 681
• Parties: ROCHESTER GERMAN INS. CO. OF ROCHESTER, N.Y., v. SCHMIDT et al.
• Court: U.S. Court of Appeals — Fourth Circuit

151 F. 681

ROCHESTER GERMAN INS. CO. OF ROCHESTER, N.Y., v. SCHMIDT et al.

United States Circuit Court, D. South Carolina.

February 26, 1907

John T Seibels and John P. Thomas, Jr., for complainant.

W. Boyd Evans, L. D. Melton, and D. W. Robinson, for defendants.

BRAWLEY District Judge.

The opinion overruling the demurrer, 126 F. 998, states the case which now comes up on the report of the testimony taken by the special master.

Frederick Schmidt, an aged and unlettered German, was in 1902 the owner of the eastern half of the square bounded by Main, Green Sumter, and Divine streets in the city of Columbia, on which were several stores and other buildings, including his residence and a laundry. The lot adjoining the laundry and his residence, containing about a half acre, belonged to his wife who had died intestate several years before leaving him and his five daughters her heirs at law. The ice plant was erected on this lot, and four policies of insurance against fire, all of like tenor, were issued by the companies named to Frederick Schmidt May 14, 1902, covering pro rata the items stated in each policy, to wit:

On a brick building	$1,350 00
On machinery and implements	5,850 00
On boilers and engines ..........	750 00
On stock of ammonia ..............	75 00
On stock of salt .................	75 00

The fire occurred December 30, 1902. The policies of insurance were assigned March 12, 1903, to Nora Martin Schmidt, a young woman whom Schmidt had married in the previous September. Suits having been commenced on these policies, the plaintiff filed this bill alleging that the policies were void on several grounds: (1) That Schmidt represented himself as sole owner of the property, when in fact he was owner only of an undivided one-third interest therein; (2) that he represented the property insured to be worth $8,100, whereas in fact it was not worth more than one-half that amount; (3) that the property insured was a manufacturing establishment which had ceased to be operated for 10 consecutive days; (4) that Schmidt filed his proofs of loss which were informal, inaccurate, and false; (5) false swearing, in stating that the origin of the fire was unknown to him and did not originate by any act, design, or procurement on his part, and concealment and misrepresentation of material facts in regard thereto. These will be considered in the order stated.

1. The policies in question contain the following clauses:

'This entire policy shall be void if the insured has concealed or misrepresented, in writing or otherwise, any material fact or circumstance concerning this insurance or the subject thereof, or if the interest of the insured be not truly stated herein. This entire policy shall be void if the interest of the assured be other than unconditional and sole ownership, or if the subject of insurance be a building on ground not owned by the assured in fee simple.'

It is not disputed that the title to the lot was in the name of his late wife, and under the law of South Carolina he was entitled to one-third interest therein, the remaining two-thirds belonging to his children. He testified that he had originally bought and paid for it, and always paid the taxes on it, and built houses thereon, and collected the rents and controlled them; and it is not disputed that he built and paid for the erection of the ice plant building and machinery, and that none of his children during his lifetime claimed any interest or ownership therein. The proposition of law relied on by the insurance companies is this:

'A contract of insurance is one of indemnity, requiring insurable interest on the part of the insured, and therefore the extent and nature of such interest are very material to the contract and the risk; since an absolute, unconditional owner has a far stronger motive to care for and protect the property than one who is not the absolute, unconditional owner.'

As a general proposition this is sound law, and the reason for it is stated by Chief Justice Marshall in Columbian Insurance Company v. Lawrence, 2 Pet. 48 (7 L.Ed. 335):

'Insurances against fire are made in the confidence that the assured will use all the precautions to avoid the calamity insured against which would be suggested by his interest. The extent of this interest must always influence the underwriter in taking or rejecting the risk and in estimating the premium. So far as it may influence him in this respect it ought to be communicated to him.'

There is not the slightest ground for suspicion that Schmidt had any interest or intention to misrepresent the nature of his interest in this property. He had always used the land as his own, had put up other buildings on it and collected the rents, had paid the taxes, and the building and machinery insured was erected and paid for exclusively by him; and any loss by fire or otherwise would have fallen entirely upon him. There was no written application for the insurance, and no representation as to the nature or extent of his interest in the property insured. He simply asked the agents to insure the ice plant for him, and that they get up a form covering the machinery and buildings. He evidently considered them to be his property, and no question was asked as to the title to the land on which the buildings stood.

By the law of South Carolina a co-tenant who makes improvements under the belief that he is sole owner is entitled to have allotted to him the improved part, not taking into consideration the value of the improvements, or in case of sale by allotting to him the increased purchase price. McGee v. Hall, 28 S.C. 564, 6 S.E. 566; Johnson v. Pelot, 24 S.C. 255, 58 Am.Rep. 253; Hall v. Boatwright, 58 S.C. 548, 36 S.E. 1001, 79 Am.St.Rep. 864. Undoubtedly Schmidt had an insurable interest. He was entitled to the ownership in fee of one- third of the lot, and had an equitable interest certainly in the buildings and machinery placed thereon and paid for with his own money. The loss of the buildings and machinery would have been entirely his. Mr. Justice Story, in the case of the Columbian Insurance Company v. Lawrence, supra, says:

'One of the tests, and certainly a decisive test, whether a misrepresentation or concealment is material to the risk is to ascertain whether if the true state of the property or title had been known it would have enhanced the premium.'

There is not the slightest ground for believing that such would have been the case. The ground for avoiding a policy where the ownership is only partial is that the insured will be more watchful of its preservation if he is the absolute owner of the whole than if he had had the partial interest. In this case there is not the slightest ground to doubt that Schmidt would feel the same solicitude in protecting and preserving the property insured as he would have felt if he had had the legal fee in the land; for any loss would have fallen entirely upon him, and would not have been shared by those who shared with him in the legal title. The extent of the ownership of the buildings and machinery insured is the important element of inquiry, and there is no doubt that Schmidt was the owner of this property who would have suffered by its destruction. There is not a particle of proof of any intentional misrepresentation or concealment; no ground to believe that the insurance company would have refused to insure had they known the true state of the title, or that the premium or risk was enhanced.

Chief Justice McIver, in Pelzer Company v. Sun Fire Insurance Company, 36 S.C. 269, 15 S.E. 583, says:

'Insurance companies or their agents are, of course, assumed to know what facts and circumstances are material to the risk offered, much better than the persons who are applying for the insurance, and if they choose to accept the risk without inquiry, and when a loss occurs it appears that some fact which the insurance companies may regard as material to the risk was not communicated by the insured, common honesty and fair dealing forbid that this shall operate as a forfeiture of the policy unless it also appears that the insured either knew at the time, or ought to have known, that such fact was material. Inasmuch as insurance companies when applied to for insurance have the right to make, and as a matter of fact do make, the fullest and most minute inquiries when the application is in writing, the insured has a right to assume when no such inquiry is made, either that the insurance companies or their agents are fully acquainted with all the facts material to the risk, or that they do not regard such facts as are not stated as material. As was said in Clark v. Manufacturing Company, 8 How. 249 (12 L.Ed. 1061): 'If the insurer asks for information and the insured makes no representation it must be assumed that the insurer has in person or by agents in such a case obtained all the information desired as to the insured premises, or ventures to take the risk without it. He must in point of law be deemed to do it at his peril.''

Citing with approval remarks of Lord Mansfield to the same effect in the leading case of Carter v. Boehm, 3 Burr. 1905.

Where the assured has paid ample consideration for the protection sought, has been guilty of no intentional misrepresentation or concealment, and the circumstances show, as they clearly do...