Strauss v. Insurance Co. of North America

• Decision Date: 05 January 1925
• Docket Number: 25808
• Citation: 102 So. 861,157 La. 661
• Court: Louisiana Supreme Court
• Parties: STRAUSS v. INSURANCE CO. OF NORTH AMERICA et al

102 So. 861

157 La. 661

STRAUSS v. INSURANCE CO. OF NORTH AMERICA et al

No. 25808

Supreme Court of Louisiana

January 5, 1925

Appeal from the Twenty-Second Judicial District Court, Parish of East Baton Rouge; H. F. Brunot, Judge.

Action by Henry Strauss against the Insurance Company of North America and another. Judgment for plaintiff, and defendants appeal.

Affirmed.

St Clair Adams, of New Orleans, for appellants.

Laycock Borron & Laycock, and Charles A. Holcombe, all of Baton Rouge, for appellee.

OPINION

THOMPSON, J.

This suit is upon a contract of fire insurance, and is for $ 2,000 with legal interest and 12 per cent. penalty, and for $ 200 attorney fees. The defense is that of fraud and false swearing alleged to have been committed by the plaintiff in violation of certain provisions of the policy.

The fraud is founded on the allegation that the plaintiff submitted false and fraudulent proof of loss, which proof of loss was predicated upon the books of account and an inventory made or caused to be made by said plaintiff of his goods, wares, and merchandise, and which said inventory was a false and fraudulent account and schedule of the property of the plaintiff; that said false and fraudulent inventory was part of a systematic scheme to conceal and misrepresent the true and correct condition of plaintiff's business and property; the said scheme was carried out by plaintiff by means of divers false and fraudulent entries on his books of account and on the said inventory; the result being that said plaintiff has submitted to defendants a proof of loss and a statement of his loss that is based on books, papers, and an inventory that are untrue and fraudulent.

The false swearing is predicated on the following alleged facts: That in course of examination under oath plaintiff falsely swore to divers matters relating to said insurance and the subject-matter thereof; thatplaintiff swore falsely with respect to his books of account, papers, and inventory, as to erasures in said books and inventory, as to his knowledge and part in making of said erasures, as to substitutions of new figures for the figures erased, in regard to the erasures, additions, and forced totals in said inventory, and otherwise swore falsely respecting his said insurance and the subject-matter thereof.

The stipulation of the policy under which forfeiture of all right to recover is claimed by reason of the alleged fraud and false swearing is as follows:

"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 in case of any fraud or false swearing by the insured touching any matter relating to this insurance or the subject thereof, whether before or after a loss."

The trial in the court below resulted in a judgment in favor of the plaintiff for the amount of the policy, with interest, and 12 per cent. penalty. The demand for a attorney fees was rejected as in case of nonsuit.

The plaintiff was a merchant in the city of Baton Rouge, and his stock consisted of dry goods, ready-made clothing, and such other merchandise as is usually kept for sale in such a business. On September 27, 1919, the plaintiff's store with its entire contents was destroyed by fire -- the fire having been communicated to the plaintiff's store from an adjoining building where it originated.

At the time of the fire the stock of merchandise which plaintiff had on hand amounted to a sum in excess of $ 50,000, and the total insurance, including the policy with the defendants, amounted to $ 28,700.

In due course the plaintiff furnished proofs of loss and submitted his books for examination.

An extra or quasi judicial examination and investigation of the plaintiff's books and papers was conducted by insurance adjusters, assisted by counsel representing the defendant companies, at which investigation the plaintiff and his bookkeeper were examined at great length and their testimony reduced to writing.

It was the information -- largely, if not wholly -- obtained from the stated investigation that prompted the defendants to decline payment of the insurance and to make the charge of fraud and false swearing against the plaintiff.

It may be well to state that there is no charge in the defendants' answer nor any intimation or suggestion in the evidence that the plaintiff was in any manner responsible for the fire or that he contributed in the slightest degree to his loss. It is a fact undisputed that the actual loss was far in excess of the aggregate amount of insurance carried with all the companies.

It is not pretended that the changes, erasures, and substitutions claimed to have been made in the books and inventory represented an increase of the stock of merchandise on hand, or that such changes were made with that purpose in view.

On the contrary, it is an admitted fact that the changes were intended to show and did in fact show a reduction of the amount of the stock of merchandise as represented by the books and the inventory before the changes were made.

It would appear from this fact that there was an entire absence of any motive or intent on the part of the plaintiff to deceive or to defraud the insurance companies, and this, we understand, is now conceded by the companies.

It is contended, however, that, although the change of entries in the books and on the inventory had not the effect of inflating the amount of stock on hand, and notwithstanding the fact that there was no intent to defraud the insurance companies, the said changes were yet dishonest and fraudulent, and were made for the purpose of decreasing the amount of income tax due or that would be due the United States government.

There can be no doubt that changes which reflected different results were made by erasures and substitutions in the accounts as exhibited on the plaintiff's books and on the inventory. Indeed, this fact is admitted by the plaintiff. Whether such changes, erasures, and substitutions were mere corrections of errors, honestly made for the purpose of showing the true condition of plaintiff's business, and to show the exact amount of stock on hand at the time of taking the inventory, or were dishonest and fraudulent, and made to reduce the income tax, and thus defraud the government, is one of the issues to be decided.

A review of the evidence shows that the inventory which has occasioned this controversy was made at the beginning of the year 1919, some eight months before the fire. It was taken in accordance with the usual and customary manner of taking stock; that is to say, the clerks of the various departments listed upon uniform slips prepared for the purpose the goods in their respective departments, entering the class and character of goods and the quantity and cost price. These slips or memorandums were passed to the office, were checked over, and entered upon the inventory book. Having served their purpose, the slips were thereafter destroyed.

On going over the inventory the plaintiff detected quite a number of errors in the quantity and price of goods listed, of which errors he made note, and to which he called the attention of his bookkeeper and instructed him to make the corrections on the ledger and on, the inventory. The errors amounted to $ 4,909. If the corrections had been properly made by the bookkeeper, as the plaintiff, who had the utmost confidence in his honesty and competency, had the right to assume they would be made, the inventory and the books would have disclosed the purpose of the changes, and would have clearly presented a correct statement of the amount of the inventory and a true condition of plaintiff's business, and there would have been no room for even a suspicion of fraud or wrongdoing.

The bookkeeper, however, in a clumsy and negligent manner, not in keeping with the practice of an experienced and competent bookkeeper, erased and changed the total of the inventory, and substituted figures which showed an arbitrary deduction of $ 5,000. This fixed and arbitrary amount was carried into the several accounts on the ledger by erasing figures with a penknife and substituting other necessary figures to accomplish the deduction of the arbitrary amount. The bookkeeper did not concern himself with the truth of the errors he was attempting to correct, and he made no effort to verify the correctness of his work.

He made out the plaintiff's income tax return, and he made the proofs of loss presented to the insurance companies after the fire, all from the books as he had kept them and as he himself had corrected them. And he testified that he never thought and had no reason to think that the corrections which he had been directed to make were dishonest and were to accomplish a fraudulent design.

As an evidence of his method of making the corrections we refer specially to the closing page of the inventory. There he erased the second figure from the left, which was a 7, and substituted therefor the figure 2, thereby making an enforced total of $ 42,325.73 instead of the original total of $ 47,325.73.

He made no entry explaining the change, and did not add up the column to verify the correctness of the total he placed there. There were no other deductions or changes made in the last two pages of the inventory which contained the recapitulations of the stock described on the preceding pages, from which it necessarily follows that the actual total remained the same as originally made, and the substituted arbitrary total was consequently false and untrue.

Then again, there appears to have been an erasure at the bottom of page 72 of the inventory book where the total of the recapitulations...