Westchester Fire Ins. Co. of N. Y. v. Gray

• Decision Date: 19 June 1951
• Citation: 33 A.L.R.2d 608,240 S.W.2d 825
• Parties: WESTCHESTER FIRE INS. CO. OF NEW YORK et al. v. GRAY.
• Court: United States State Supreme Court — District of Kentucky

Page 825

240 S.W.2d 825

33 A.L.R.2d 608

WESTCHESTER FIRE INS. CO. OF NEW YORK et al. v. GRAY.

Court of Appeals of Kentucky.

June 19, 1951.

Stoll, Keenon & Park, Lexington, Ogden, Galphin & Abell, Louisville, for appellants.

C. W. Fulton, Flemingsburg, Andrew V. Fox, Maysville, for appellee.

STEWART, Justice.

On February 3, 1948, appellee, James E. Gray, procured two policies of fire insurance on his stock of merchandise in a country store at Sherbourne, Fleming County, Kentucky, each in the amount of $1,500, one from Westchester Fire Insurance Company of New York and the other from Springfield Fire and Marine Insurance Company, both appellants herein. On the night of May 6, 1948, the entire stock of goods in appellee's store was destroyed by fire. Failing to secure adjustment of his loss, actions were filed by appellee on January 5, 1949, against appellants to recover the face sum of each policy. By agreement both cases were tried together before a jury, resulting in a verdict against each appellant for $1,500. From the judgment entered in the lower court, appellants appeal, insisting upon two errors for a reversal:

First, appellee, over the objection of appellants, was permitted by the lower court to prove the extent of his loss by parol evidence, despite the fact that the so-called 'iron safe clause' is a part of each of the herein policies.

Second, appellee failed to comply with the iron safe clause in each of his policies requiring him to take an inventory of the stock insured and to keep a complete record of all business transacted, including all cash and credit purchases and sales.

Both policies under consideration contained what is known as the iron safe clause, which is identical in each as follows: 'Inventory and Iron Safe Clause: (Requirement to keep books and inventory). It is made a condition of this insurance: (1) That the Insured under this policy shall take an inventory of the stock and other personal property hereby insured at least once every twelve months during the term of this policy, and unless such inventory has been taken within one year prior to the date of this policy, one shall be taken in detail within thirty (30) days thereafter; (2) That the Insured shall keep a set of books showing a complete record of business transacted, including all purchases and sales both for cash and credit; (3) That the Insured shall keep such books and inventory securely locked in a fireproof safe at night, and at all times when the store mentioned in the within policy is not actually open for business, or in some secure place not exposed to a fire which would destroy the building where such business is carried on; (4) That in case of loss the Insured shall produce such books and last inventory.'

Appellee produced and submitted to the insurers his inventory and ledger book after the fire loss, the originals of which are before the Court on this appeal. The inventory, dated February 1, 1948, prepared three days before the policies were issued, is in long hand on thirteen pages of pencil tablet paper, two columns to each page, and is made up of some 500 items. For the most part, the articles of merchandise are enumerated with a unit price, but the size, brand and grade of none of the items are specified. Many entries were bunched together without itemization, for example: 'assortment of ties, $30.00;' 'paints, $118.80;' 'fertilizer, $114.00'; et cetera. The total amount of the inventory aggregates $4,218.50, based upon the cost price of the goods.

Appellee's records since the inventory were kept by him in the ledger book. The day by day cash sales are entered in gross, unaccompanied by any descriptive details. The major portion of the ledger is devoted to charge accounts, some dating back to 1946. Regular credit customers, under this heading, are listed by name and with the date of the beginning of each account at the top of a page. Other items charged thereafter under each name are not dated. Appellee testified that, if one desired to charge a small purchase and pay for it within a short time, he would make a memorandum of the sale and hang it upon a certain nail in the store. These tickets were destroyed by the fire. Appellee also took things out of the store for his own use without making any record of the articles.

As to the purchases made by appellee for the store, only the names of 12 persons or firms who had sold him goods on credit, together with the lump sum amount owed by him to each, are set down in the ledger. Further questioning of appellee revealed that these entries represent only a part of the merchandise he had bought from these particular presons or firms, and some of the purchases date as far back as January, 1948. There was also a period of 18 days, just prior to the fire, when his wife and daughter operated the store while appellee was in a hospital in Louisville. All entries of purchases for this period of time, made by his wife or daughter, were set down in a day book that became lost or misplaced before the items could be transferred from it to the ledger. Appellee also bought goods from traveling salesmen for cash, from time to time, which transactions he also kept in the lost or misplaced day book. He and a fellow merchant by the name of Cliff Stephens exchanged merchandise back and forth when one or the other ran out of certain goods. No record of these dealings appears in the ledger.

The Court, after reversing a long line of decisions holding the iron safe clause unenforceable in Kentucky, first recognized the clause as a valid controlling stipulation in the case of World Fire & Marine Insurance Co. v. Tapp, 279 Ky. 432, 130 S.W.2d 848, 852, but we placed this limitation upon its application: 'The provision is subject, however, to a fair and reasonable interpretation and to the demand that a fair and substantial compliance therewith shall be sufficient.' The Tapp case is followed and cited with approval in the later opinion of Watkins v. California Insurance Co., 296 Ky. 434, 177 S.W.2d 566, 567, wherein it was said: 'The purpose of the iron safe clause is to enable the insurance company to ascertain with substantial certainty the value of the merchandise destroyed by fire and to protect it against possible misrepresentation as to the quantity and value of the goods.'

Appellants first contend it was error for the circuit court, over their objection, to permit appellee in a suit on fire insurance policies containing the standard iron safe clause to prove the extent of his loss solely by parol evidence.

At the trial appellee made no effort to prove the amount of his claim from his books and other records, but he was permitted by the lower court to establish his case solely by parol testimony. He testified...