Third Nat. Co. v. Thompson

• Decision Date: 25 August 1945
• Citation: 191 S.W.2d 190,28 Tenn.App. 436
• Parties: THIRD NAT. CO. et al. v. THOMPSON et al.
• Court: Tennessee Court of Appeals

191 S.W.2d 190

28 Tenn.App. 436

THIRD NAT. CO. et al. v. THOMPSON et al.

Court of Appeals of Tennessee, Middle Section.

August 25, 1945

Certiorari Denied by Supreme Court December 8, 1945.

Appeal from Chancery Court, Davidson County; William J. Wade Chancellor.

Suit by the Third National Company and another against John F Thompson, the Pacific National Insurance Company, two other insurance companies, and another to recover on fire policies. From a decree, the insurance companies appeal.

Modified and as modified affirmed, and cause remanded.

Maddin, Bailey & Powell, Albert Williams, and Joe Brown Cummings, all of Nashville, for appellants.

Norman & Keefe, of Nashville, for appellee Thompson.

W. P. Cooper, of Nashville, for appellee Third National Co.

Manier & Crouch, of Nashville, for appellees Dr. Wilkerson and wife.

FELTS Judge.

The Third National Company, holder of a note secured by a mortgage trust deed on real estate, and W. L. Haynes, the trustee, brought this suit on three policies of insurance to recover for loss by fire of a house on the premises. The balance due on the note was $3,200 and some interest. The policies totaled $7,000.

The mortgagors, Dr. W. W. Wilkerson, Jr., and wife, had sold the land to John F. Thompson, who had assumed the mortgage. The policies had been issued to Thompson, each with a standard mortgage clause to the Third National Company as mortgagee, some ten months before the fire, which totally destroyed the house. The mortgagors and Thompson were joined as defendants with the three insurance companies.

The insurers defended upon the ground of a misrepresentation or breach of warranty as to the use of the property. They sought to avoid the policies as to both the mortgagee and Thompson and, if liable to the mortgagee, to be subrogated to its rights against the mortgagors and Thompson. The mortgagors asked to be exonerated and to have the debt satisfied by the insurers, Thompson, and the land. Thompson sought to recover the balance on the policies after payment of the debt.

The property was on Stones River several miles from Nashville and outside the area in which the Tennessee Inspection Bureau inspected buildings for fixing fire insurance rates. Dr. Wilkerson had built the house and used it as a summer residence, and had had it insured as 'a seasonal dwelling.' Thompson bought it in July 1939 and continued the insurance in the same way, the policies being delivered by the insurance agent, Stutson Smith, to Haynes, the trustee.

In November 1940, shortly before the policies were to expire, the trustee notified Thompson to renew them, as required by the mortgage. Thompson saw another insurance agent, John J. Brady, at the Elks Club and stated that he wanted to insure his 'Camp on Stones River,' that he wanted $7,000 insurance and no more, that the expiring policies were held by the Third National Company, and that Brady could get from them the description of the property and the information needed. Brady went to the trustee, was shown the policies, took the data from them, and issued new policies insuring the house as 'a seasonal dwelling'; one being the policy of the Pacific National Fire Insurance Company for $2,500, dated November 26, 1940, for three years; another being the policy of the National Fire & Marine Insurance Company for $2,000, dated November 18, 1940, for three years; the third being brokered by Brady to Feigenbaum & Stern, who issued a policy of the American Home Fire Assurance Company for $2,500, dated December 26, 1940, for three years. Brady delivered all of these policies to the trustee, with a standard mortgage clause attached to each, and Thompson never saw any of them.

Sometime before asking Brady to insure the property, Thompson had rented it to the American Legion Band as place of entertainment of Legionnaires, their families and guests by concerts, Bingo games, fish fries, etc. Later he rented it to the '40 & 8' Club of the Legion as a clubhouse for members of the Legion, and they employed a man to stay there and operate the club. The house was being so used at the time of the fire, September 22, 1941.

The chancellor found that while each of the policies stipulated the house was occupied and was to be occupied 'only as a seasonal dwelling,' it was in fact occupied as a clubhouse by the American Legion Band and later by the '40 & 8' Club; that this was a more hazardous use, required a higher premium, and was a constructive misrepresentation by Thompson; but that later Brady, the agent, himself a Legionnaire, attended two of the entertainments, and acquired knowledge of the use of the premises as a clubhouse; and that this knowledge of the agent was imputed to his principals, the Pacific National Fire Insurance Company and the National Fire & Marine Insurance Company, but not to the other company, the American Home Fire Assurance Company.

And the chancellor decreed that each of the three companies was liable to the mortgagee under the standard mortgage clause for its pro rata part of the mortgage debt, with interest, and an attorney's fee of $417.67 as penalty for bad faith refusal to pay; that the Pacific National Fire Insurance Company and the National Fire & Marine Insurance Company were also liable to Thompson; that the former pay to the Clerk and Master $2,500, with interest from January 8, 1942, plus $149.60, or five-fourteenths of the attorney's fee; that the latter pay $2,000, with interest from January 8, 1942, plus $119.70, or four-fourteenths of such fee; that the American Home Fire Assurance Company pay $149.60, or five-fourteenths of the fee; and that from these sums the Clerk and Master pay the mortgage debt and attorney's fee and pay the balance to Thompson. The costs were adjudged against the three insurance companies.

All these companies appealed. Their first insistence is that upon his finding of a misrepresentation or breach of warranty, the chancellor should have held that the policies were void ab initio, never took effect, and that no liability could arise or attach under the standard mortgage clause. Counsel quote these provisions, the same in each of the policies:

'This Policy is made and accepted subject to the foregoing stipulations and conditions, and to the following stipulations and conditions printed on back hereof, which are hereby specially referred to and made a part of this Policy, together with such other provisions, agreements or conditions as may be endorsed hereon or added hereto; and no officer, agent or other representative of this Company shall have power to waive any provision or condition of this Policy except such as by the terms of this Policy may be the subject of agreement endorsed hereon or added hereto; * * *'

'This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void if * * * the hazard be increased by any means within the control or knowledge of the insured. * * *'

It is argued that by the first of these provisions the attached rider insuring the house as 'occupied and to be occupied only as a seasonal dwelling,' was a material part of the contract and the determining factor in fixing the amount of the premium; that the use of the premises as a clubhouse was an increase of the hazard by means within the control and knowledge of the insured; that by the second provision above quoted and because of this misrepresentation increasing the risk, the policies were 'void' and the mortgage clause never went into effect; and that this result is emphasized by this provision in each of the policies:

'If, with the consent of this company, an interest under this policy shall exist in favor of a mortgagee or of any person or corporation having an interest in the subject of insurance other than the interest of the insured as described herein, the conditions hereinbefore contained shall apply in the manner expressed in such provisions and conditions of insurance relating to such interest as shall be written upon, attached or appended hereto.'

We cannot follow this argument. It is not claimed the mortgagee knew of the use of the house; the proof is that it did not; nor is it claimed, nor could it be, that Thompson was guilty of any bad faith. He told Brady to insure his 'Camp on Stones River,' neither stating nor being asked to state for what the camp was being used. He did say Brady could get the information as to the property from the policies held by the mortgagee; but it does not appear that he ever actually saw or read those policies or knew they described the premises as 'occupied and to be occupied only as a seasonal dwelling.' And if he had known this, it would hardly have occurred to him as an ordinary man that this made any difference in the hazard or in the premiums. It is only by construction of law that he is chargeable with this as a representation in the policies. Cooley v. East & West Ins. Co., 166 Tenn. 405, 410, 419, 61 S.W.2d 656, 658, 661; Alfred v. Bankers' & Shippers' Ins. Co., 167 Tenn. 278, 68 S.W.2d 941. Compare: Dickens v. Fire & Marine Ins. Co., 170 Tenn. 403, 95 S.W.2d 910; Norvell v. Mutual Benefit Health & Accident Association, 14 Tenn.App. 396.

But treated as a misrepresentation and a breach of the above stipulation against an increase of the hazard, it did not make the policies 'void' or prevent their taking effect. They were merely voidable if the insurers chose to avoid them. But the insurers could waive the matter and leave the contracts as binding upon themselves as they were upon the insured. Dickens v. Fire & Marine Ins. Co., 170 Tenn. 403, 415, 95 S.W.2d 910, 914; Baird v Fidelity-Phenix Fire Ins. Co., 178 Tenn. 653, 663, 162 S.W.2d 384, 388, 140 A.L.R. 1226, 1231; Cooley v. East & West Ins. Co., 166...