Travelers Fire Ins. Co. v. Bank of New Albany

• Citation: 146 So.2d 351,244 Miss. 788
• Decision Date: 05 November 1962
• Docket Number: No. 42438,42438
• Parties: TRAVELERS FIRE INSURANCE CO. et al. v. The BANK OF NEW ALBANY et al.
• Court: Mississippi Supreme Court

Page 351

146 So.2d 351

244 Miss. 788

TRAVELERS FIRE INSURANCE CO. et al. v. The BANK OF NEW ALBANY et al.

No. 42438.

Supreme Court of Mississippi.

Nov. 5, 1962.

Watkins & Eager, Jackson, Lumpkin, Holland & Ray, Tupelo, for appellants.

B. N. Knox, Jr., Hugh N. Clayton, New Albany, for appellees.

ETHRIDGE, Justice.

The principal question in this case pertains to a waiver by an insurance agent for his principals of a vacancy or unoccupancy clause in fire insurance policies on commercial property. Mrs. Merita Johnson, administratrix of the estate of B. W. Johnson, deceased, and the Bank of New Albany, mortgagee, brought this action as an attachment in chancery (Union County) against the Standard Fire Insurance Company of Hartford, Conn., four other insurance companies, and Wilbanks Insurance Co., their general agent. They sought recovery on fire insurance policies covering a dimension mill in New Albany. Defendants pleaded violation by insured of the vacancy or unoccupancy clause of the policies. Finding waiver and mutual mistake, the chancery court entered a decree for complainants.

The insurance policies contained these provisions: 'Conditions suspending or restricting insurance. Unless otherwise provided in writing added hereto this Company shall not be liable for loss occurring

(a) while the hazard is increased by any means within the control or knowledge of the insured; or

(b) while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of sixty consecutive days; * * *'

B. W. Johnson died intestate in 1956. His widow, Mrs. Merita Johnson, was appointed administratrix. Before his death they lived in Memphis. In April 1960, his widow moved to Huntsville, Alabama. At Johnson's death there was an outstanding debt on the property, and in 1958 and 1961 the chancery court permitted Mrs. Johnson to refinance it by a loan from the Bank of New Albany. She was authorized to lease the dimension mill, part of Johnson's estate, to Benefield for the last four months of 1956, and for the year 1957, but Benefield stopped operation of the mill on September 1, 1957. After that he moved lumber and other items, and gave up possession at the end of 1957. The mill was used to produce from hardwood handles, golf clubs, and related items.

Fire insurance on the property was written by Wilbanks Insurance Agency, operated by W. C. Wilbanks, of New Albany, the admitted general agent of the five insurance companies. Mrs. Johnson, as administratrix, placed the original policies in the amount of $10,000 through Wilbanks in August and September 1956. The clerical staff at the agency each year would automatically prepare renewals and obtain Wilbanks' signature on them. Shortly after her husband's death, Mrs. Johnson went to Wilbanks to place the insurance. She and her husband had always done business with Wilbanks, and copies of the renewals were either mailed or handed to her by Wilbanks. Renewals were issued to Mrs. Johnson in August and September 1957, and again in 1958.

The mill was never operated after September 1957. Wilbanks, who drove by the property and saw it frequently, was well aware of this at the time he issued annual renewals on all of the defendant's policies in August and September 1958. The property was destroyed by fire during the night of June 19, 1959.

During the years 1958 and 1959 Mrs. Johnson found it necessary to come to New Albany frequently. On most of these occasions she went to the office at the mill to get business papers. She did not have a watchman at the mill, and it was not under a complete fence. She did not know there had been two sawdust fires outside the building in February 1959, nor did she know that on at least two occasions trespassers or hoboes had been ordered to leave the property.

Wilbanks testified as to the method of renewal of the policies. The premiums, aggregating $963.28, (which appellants tendered in their cross-bill to cancel), were paid by Mrs. Johnson. When Wilbanks delivered policies in August and September 1958, and received the premiums, he knew the plant was not operating, and was aware of its general situation. Wilbanks said he considered the policies in force and effect; that he did not consider it unoccupied so as to suspend coverage.

The chancery court found that Wilbanks was the general agent of the companies. The mill was not in operation from September 1957 until the fire on June 16, 1959, but it and all of its equipment was kept in place to the time of the fire. Wilbanks knew the mill was not in operation, and knew this when the renewals were written and premiums paid on them. He intended to cover fully the mill and its equipment, although it was not in operation. Insured did everything she could do to keep the property covered by insurance, and Wilbanks did the same and intended to cover the mill. Mrs. Johnson relied on that fact, so the court held that defendants had waived the vacancy or unoccupancy clause; and, because of this mutual mistake, complainants were entitled to have the policies reformed to reflect the true intention of the parties. The evidence failed to show any increased hazard within the control or knowledge of insured. Hence the final decree awarded complainants judgment against the defendants for the principal amount of the five insurance policies, aggregating $10,000 plus accrued interest, and reformed them by striking the vacancy or unoccupancy and increased hazard clauses. Defendants' cross bill, seeking cancellation and redelivery of the policies, was dismissed.

It is undisputed that the insurance companies through their agent had knowledge of the vacancy and unoccupancy of the mill property when the contracts of insurance were effected in August and September 1958. The question is whether this knowledge when the contracts were issued constituted a waiver by them of the vacancy or unoccupancy clause. We think it did. The general rule is summarized in 29A Am.Jur. Insurance Sec. 917: 'As to the effect of the insurance company's knowledge of an existing vacancy on the question of waiver, the weight of authority supports the view that if an insurance company has knowledge through its agent, when a contract of insurance is effected, that the premises are vacant or unoccupied, the issuance of the policy waives any provision as to vacancy or unoccupancy, at least so far as the existing vacancy is concerned.'

Some cases hold that mere knowledge on the part of the insurer's agent that the insured premises are vacant at the time the policy is written will not waive the vacancy clause, but this is qualified by saying this rule applies at least where there is no agreement or proof of expectation that the premises are to remain vacant beyond the period permitted by the vacancy clause. Ibid., Sec. 917. Conley v. Queen Ins. Co., 256 Ky. 602, 76 S.W.2d 906, 96 A.L.R. 1255 (1934), cited by appellants, applied that limited rule, which is consistent with what we hold here.

In Home Ins. Co. of N. Y. v. Scales, 71 Miss. 975, 15 So. 134 (1894), the house was occupied when the insurance policy was issued, and subsequently became vacant. The Court held the policy was ineffective, but observed that if the agent 'had done anything in his capacity as agent, after the house was unoccupied, to mislead the insured, the case would be...