United States v. Farmers Mut. Ins. Ass'n of Kiron, Iowa

• Decision Date: 17 June 1960
• Docket Number: Civ. No. 1166.
• Citation: 184 F. Supp. 708
• Parties: UNITED STATES of America, Plaintiff, v. FARMERS MUTUAL INSURANCE ASSOCIATION OF KIRON, IOWA, Defendant.
• Court: U.S. District Court — Northern District of Iowa

184 F. Supp. 708

UNITED STATES of America, Plaintiff, v. FARMERS MUTUAL INSURANCE ASSOCIATION OF KIRON, IOWA, Defendant.

Civ. No. 1166.

United States District Court N. D. Iowa, W. D.

June 17, 1960.

F. E. Van Alstine, U. S. Atty., by William R. Crary, Asst. U. S. Atty., Sioux City, Iowa, for the Government.

S. F. Wadden, Harry H. Miller, Frank Jacobs and Dewie J. Gaul, Sioux City, Iowa, and Sterling Alexander, Des Moines, Iowa, for defendant.

BECK, District Judge.

The defendant's motion to dismiss in this case, is predicated on the theory that the insured's giving of a chattel mortgage on the insured property, without the insurer's consent, constituted a violation of the policy terms which specified: "If any change * * * take place in the interest, title, possession or use of the subject matter of insurance", and that such a breach bars recovery under the insurance contract.

The facts are not in dispute and there is no genuine issue as to any material facts having bearing on the question arising on the motion which has not been settled under the pleadings, the written briefs or on the oral argument.

North, the insured, got the fire insurance policy in question from the defendant on June 24, 1958 and he gave the chattel mortgage, which also is in question, later, to secure payment of money he then borrowed from the Commodity Credit Corporation. That policy to the extent of $1,750, covered corn, which became encumbered as he gave that mortgage and to the extent of $1,250, other portions of his corn not subject to any mortgage. The defendant paid the $1,250 to the insured after a fire on February 7, 1956, had destroyed 6,184 bushels of his corn, but refused the loan agency's demand for the $1,750.

The Government's demand for judgment herein, is grounded on that refusal and on the insurance rights North had after he had been paid and when he assigned those rights to the Commodity Credit Corporation.

Under this record it is admitted that the total fire loss exceeded the insurance coverage of $3,000, that the defendant, Farmers Mutual Insurance Association of Kiron, Iowa, is a corporation doing business within the jurisdiction of this court and that this is an action brought by the United States of America based on a claim of Commodity Credit Corporation, its agency and instrumentality, over which jurisdiction is conferred on the court by § 4(c) of the Commodity Credit Corporation Charter Act (62 Stat. 1070), as amended, (63 Stat. 154 and 64 Stat. 261), 15 U.S.C.A. § 714b(c).

The Government in its resistance to the defendant's motion contends: (1) That the by-law provisions in the policy, voiding it, "If any change * * * takes place in the interest, title, possession or use of the subject matter of insurance", are not among those permitted or prescribed by the Code of Iowa and therefor against its public policies and void; (2) that Iowa case law compels rejection of the defendant's viewpoint, on this motion, that a chattel mortgage on the subject matter of the insurance, without the insurer's consent, constitutes a breach of the insurance contract which bars recovery and (3) that the defendant's payment of the fire loss to the extent of $1,250, operated as a waiver of any defense it may have had under that provision of the insurance contract.

The provisions in the new Iowa Code aside from specific negatives as to (1) contain compelling affirmatives also of a legislative intent not to exclude, as void, from a mutual insurance association policy, provisions or terms, other than those against public policy of the state or in conflict with those which have been prescribed for the Form Standard Fire Insurance Policy. Such intent is clearly reflected in the following excerpts from Chapters 515, 518, Code of Iowa for 1958, I.C.A. Chapter 515 of the present Iowa Code is entitled "insurance other than life" and governs both mutual and stock companies' policies, including the provisions and conditions of their policies.

Section 518.1: "1. Any number of persons may by incorporating under chapter 491 (corporations for pecuniary profit) enter into contracts with each other for the following kinds of insurance from loss or damage by:

"a. any peril or perils resulting in physical loss of or damage to property.

"b. * * *

"c. * * *

"d. * * *

"2. For the purpose of this protection these contracts of insurance shall be subject only to such provisions as are contained in this chapter and shall consist of:

"a. An application on blanks furnished by the association and signed by the insured or his representative, which may contain in addition to other provisions; * * *, an agreement to be governed by the articles of incorporation and by laws in force at the time the policy is issued * * *"

Section 518.2: "Any association incorporated under the laws of this state for the purpose of furnishing insurance as provided for in this chapter, doing business only within the county in which is situated the town or city named in its articles of incorporation as its principal place of business, or the counties contiguous thereto, shall, for the purpose of this chapter, be deemed a county mutual assessment association; * * * the words `mutual' and `association' shall be incorporated in and become a part of their name."

Section 518.5: "When such articles of incorporation and by laws are printed on the policy they become a part thereof and are binding upon the association and the insured alike."

Section 515.87: "If, upon such examination, it shall appear to the commissioner of insurance that the assets of any company organized or operating upon the plan of mutual insurance under this chapter are insufficient to justify the continuance of such company in business, he shall proceed in relation to such company in the same manner as herein required in regard to stock companies; * * *"

Section 515.138: "Second Standard policy, additions, riders and clauses. It shall be unlawful for any insurance company to issue any policy of fire insurance upon any property in this state * * * other or different from the standard form of fire insurance policy herein set forth.

"There shall be printed at the head of said policy the name of the insurer or insurers issuing the policy; * * *; a statement whether said insurer or insurers are stock or mutual corporations or are reciprocal insurers; * * *."

Section 515.21: "Such mutual company may insert in any form of policy prescribed by the law of this State any additional provisions or conditions required by its plan of insurance if not inconsistent or in conflict with any law of this state."

Section 515.138: "Sixth. The form of the standard policy * * * policy * * * shall be as follows:

* * * * * *

"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

* * * * * *

"Added provisions. The extent of the application of insurance under this policy and of the contribution to be made by this Company in case of loss, and any other provision or agreement not inconsistent with the provisions of this policy may be provided for in writing added hereto."

Those provisions, rather than being indicative of a legislative policy, as the Government contends, to restrict permissible terms in an insurance policy to those prescribed by the standard form and forfeiture conditions to those within the statutory "increased hazard" category, are expressive of insurance standards which permit apt write-ins — not inconsistent with specific statutory mandates or public policies — broad enough to cover the insurance arrangement that the contracting parties intend.

The rule which obtains under facts such as those which are before the court on this motion provides:

"Conditions of a fire insurance policy forbidding any alienation of the property insured, or any change in the title, interest, or possession thereof, are valid and enforceable, and a violation thereof renders the policy void, or is ground for avoiding it, as against the insured or parties claiming through him." 45 C.J. S. Insurance § 562, page 318.

Earlier cases, holding otherwise¹ and those in conflict² therewith and the history of the rule which now prevails, are discussed in the text statement by the author at page 318, as follows:

"Under the earlier fire policies, a stipulation therein that the policy should become void on `alienation' of the property insured, or on `transfer' or `sale' thereof was held to refer only to an absolute transfer of insured's entire interest, unless the words `in whole or in part' were added, in which case the retention of a partial interest did not keep the policy alive as to such interest. In later policies the term `change of title' has been added to the former words, and under the clause now usually found in fire insurance policies the policy may be avoided, or is void, for any change in the title, interest, or possession of the property insured, even though a partial interest is retained, unless, as discussed infra § 563, insurer consents to the change. According to some authorities, a breach of the condition against alienation or change of title or interest has the effect of rendering the policy void ipso facto; but according to other authorities it merely

...