Shain v. Washington National Insurance Company

• Decision Date: 09 October 1962
• Docket Number: No. 16959.,16959.
• Citation: 308 F.2d 611
• Parties: Elwin K. SHAIN, Appellant, v. WASHINGTON NATIONAL INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

308 F.2d 611 (1962)

Elwin K. SHAIN, Appellant, v.WASHINGTON NATIONAL INSURANCE COMPANY, Appellee.

No. 16959.

United States Court of Appeals Eighth Circuit.

October 9, 1962.

William L. Meardon and D. C. Nolan, Iowa City, Iowa, for appellant; Ansel Chapman, Iowa City, Iowa, with them on the brief.

Robert Osmundson, Iowa City, Iowa, for appellee.

Before SANBORN and BLACKMUN, Circuit Judges, and REGISTER, District Judge.

BLACKMUN, Circuit Judge.

By this diversity action Elwin K. Shain seeks an accounting and damages from Washington National Insurance Company for wrongful termination in 1957 of Shain's contracts as general agent for the defendant at Iowa City, Iowa.The case was tried to the court and resulted in a dismissal at the close of the plaintiff's evidence and in a consequent judgment for the defendant.

In 1943 Shain left the employ of another insurance company.For a small sum he then purchased the defendant's defunct Iowa City agency.Over the years successive written contracts of general agency were executed by Shain and the defendant.Each of these was on a form prepared by the company.Each provided:

"Termination hereof may be further had by either party hereto upon thirty days\' notice in writing by U. S. mail to the last known address of the other party".

For fourteen years Shain fulfilled his duties as defendant's general agent at Iowa City.He developed the agency business to a point where it apparently had a substantial value.However, on April 30, 1957, the defendant mailed Shain a letter reading in part as follows:

"We hereby give you notice of the termination of any and all contracts and agreements supplemental thereto which you hold with * * * this Company, effective thirty days from the date of this letter".

This was received by Shain on May 1.

Termination of the agency contracts thus would be effected, according to the literal language of the letter, on May 30, 1957.By the provisions of the contracts themselves, however, a proper notice received by Shain on May 1 could effect termination only on May 31.

Although the present controversy centers on the foregoing facts, the following additional details are also given some emphasis by the plaintiff:

1.When Shain's first contract was signed in 1943, the defendant's agency supervisor shook the plaintiff's hand and said, "Elwin, this is for life".

2.Until 1946 each of Shain's contracts contained a provision that it automatically terminated when he became 65 years of age.The problem of agent security was discussed at a company convention in March 1946.After that meeting this particular provision was stricken from the contract then in force.It was not contained in the later contracts.Shain was under 65 in 1957.

3.At the 1946 convention the defendant's president stated in substance that the company's agents had no need to worry about any pension or security plan and that they already had lifetime security from their renewals in accordance with their contracts so long as they continued to perform those contracts.

4.On May 15, 1957, the defendant mailed a letter to each policyholder being serviced by Shain.This asserted that Shain "has resigned as General Agent for our Company as of May 31, 1957".It went on to advise the policyholder of the consolidation of the Iowa City agency with the general agency in Cedar Rapids and to instruct him to make all future premium payments to the defendant's home office.

5.Shain had not resigned as general agent for the defendant.

6.On November 26, 1958, the defendant's Policyowners Service Section advised one teachers' group insurance certificate holder that Shain was the company's representative in Iowa City.After 1957 Shain continued to service that group contract.He wrote one life policy in the defendant after June 1, 1957.The defendant paid for Shain's Iowa agent's license for the year 1958-59.

The plaintiff's basic argument is that the notice of termination, being the mailed letter of April 30, 1957, purported to terminate the agency sooner than the agency contracts themselves permitted and thus was not in accord with those contracts and was wholly ineffective.The plaintiff further argues that the defendant, by its actions in 1943 and 1946 and thereafter modified and waived the termination provisions of the contracts and, in any event, is now estopped from availing itself of those provisions.The defendant's position is that the agency contracts were effectively terminated in due course by the letter of April 30, 1957; that the termination provisions of the contracts were not modified or waived; and that it is in no way estopped from claiming the benefit of those provisions.

The parties raise no question as to the applicability of Iowa law and we accept it as controlling.

The defendant insurance company has the burden of establishing the cancellation of the contracts.Artificial Ice Co. v. Reciprocal Exchange, 1921, 192 Iowa 1133, 184 N.W. 756, 759;Selken v. Northland Ins. Co., 1958, 249 Iowa 1046, 90 N.W.2d 29, 32-33;Spann v. Commercial Standard Ins. Co., 8 Cir.1936, 82 F.2d 593, 596.But a provision in an otherwise valid contract that either party may terminate the agreement upon specified days' notice is itself valid.Myers Motors v. Kaiser-Frazer Sales Corp., 8 Cir.1949, 178 F.2d 291;17 C.J.S.Contracts§§ 396, 399;12 Am. Jur., Contracts, § 434;35 A.L.R. 895.And it is the general rule that where a contract, whether it be one for employment or for insurance or of a different kind, requires written notice of cancellation upon a stated time, a notice failing to meet the time requirement, but otherwise appropriate, is nonetheless effective upon the lapse of the time required by the contract.Lyon v. Pollard, 1874, 87 U.S. (20 Wall.) 403, 407, 22 L.Ed. 361;All States Service Station v. Standard Oil Co., 1941, 73 App.D.C. 342, 120 F.2d 714;E. I. Du Pont De Nemours & Co. v. Lyles & Lang Const. Co., 4 Cir.1955, 219 F.2d 328, 340-341, cert. den.349 U.S. 956, 75 S.Ct. 882, 99 L.Ed. 1280;Sharpe v. Great Lakes Steel Corp., S.D.N.Y.1950, 9 F.R.D. 691, 693-694.Other cases are collected in the annotations in 35 A.L.R. 893and126 A.L.R. 1110.

The Iowa case on which this litigation obviously pivots is Oldfield v. Chevrolet Motor Co., 1924, 198 Iowa 20, 199 N.W. 161, 35 A.L.R. 889.There the plaintiff possessed an automobile agency contract under which he was entitled to an additional rebate on purchases by him during the fiscal year ended July 31, provided the contract remained in force on that date and other conditions were met.The agreement also provided that either party could cancel it "by five days' written notice to the other".On July 13the defendant's sales manager wrote the plaintiff a letter of termination stating, "* * * the cancellation becomes effective within five days from the date of this letter".It did not reach the plaintiff on the 13th so as to provide him with five days' written notice from that date.The plaintiff brought suit for the additional rebate.The Iowa Supreme Court said, pp. 162-163 of 199 N.W.:

"It is clear that under the contract the appellee had no right to cancel it by a notice for a less time than five days, and that a notice declaring the cancellation effective within five days from a date one day prior to that on which it could, by any possibility, have been received by the appellant did not, under any method of computation, give five days\' notice.* * The inquiry, of course, is not at what particular date the contract was canceled, but whether a notice that, by its terms, did not conform to the requirement of the contract, was effectual to cancel it at all.

"We perceive no theory upon which it can be held that the contract was canceled, unless it must be said that, notwithstanding the declaration in the notice that the cancellation would be effective within five days from its date, it nevertheless operated to work a cancellation at the expiration of five days from its receipt by the appellant.* * * The attempted cancellation was less than two weeks prior to the date on which the appellant would be entitled, if the contract were then in force, to nearly $3,000 of additional discount on purchases made under it during the year preceding.This situation presents no persuasive reasons for relaxing established rules of construction as to either the contract or notice in aid of so harsh a proceeding. * * *

"It is imposing no undue hardship upon appellee to hold it to a strict compliance with the terms of a contract dictated by it, when it undertakes to enforce a provision for the cancellation of the contract under circumstances so advantageous to its interest."

The court thus flatly held that the notice declaring a cancellation at a time prior to that specified by the contract did not serve in that case to effect a cancellation at the expiration of the contract's stated period.

The Oldfield case at first glance appears to be pertinent Iowa authority in support of the plaintiff's position in the case now before us.Oldfield, however, has been limited.Two and a half years later the Iowa court decided Harrington v. Bremer County Farmers' Mut. Fire Ins. Ass'n, 1926, 203 Iowa 282, 211 N.W. 383.This was a fire insurance case.The company's defense was cancellation of the policy prior to the fire.On November 26 the company mailed the insureds a notice of cancellation as of that date.The notice was received in the mail the following day.The governing state statute required five days' notice of cancellation.The Iowa Supreme Court decided the case in favor of the insureds on the ground that the company's failure to accompany its notice with a tender of the unearned pro rata assessment rendered the cancellation ineffective.It did not specifically pass upon the insureds' additional suggestion that the notice was ineffective for lack of timeliness but it observed, p. 384 of 211 N.W.:

"We take occasion to say, however, that the case

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