Wisconsin Screw Co. v. FIREMAN'S FUND INSURANCE CO.

• Decision Date: 19 January 1961
• Docket Number: No. 58-C-11.,58-C-11.
• Parties: WISCONSIN SCREW COMPANY, Plaintiff, v. FIREMAN'S FUND INSURANCE COMPANY, Chris. Schroeder & Son, Inc., and Civic Finance Corp. of Wisconsin, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

193 F. Supp. 96

WISCONSIN SCREW COMPANY, Plaintiff, v. FIREMAN'S FUND INSURANCE COMPANY, Chris. Schroeder & Son, Inc., and Civic Finance Corp. of Wisconsin, Defendants.

No. 58-C-11.

United States District Court E. D. Wisconsin.

October 19, 1960.

Opinion with Respect to Interest January 19, 1961.

Jacob Weisman, Racine, Wis., Norman Skogstad, Martin J. Torphy, Milwaukee, Wis., for plaintiff.

John P. Gorman, Clausen, Hirsh, Miller & Gorman, Chicago, Ill., Reginald W. Nelson, Whyte, Hirschboeck, Minahan, Harding & Harland, Milwaukee, Wis., for defendants.

TEHAN, Chief Judge.

This is an action by the Wisconsin Screw Company, a Wisconsin corporation, engaged in the business of manufacturing screw machine products, with its principal place of business in the Town of Mount Pleasant, Racine County, Wisconsin, against Fireman's Fund Insurance Company, a California corporation, on three policies of fire insurance. Chris. Schroeder & Son, Inc., insured under a standard mortgage clause which is a part of each policy, and Civic Finance Corp. of Wisconsin, insured under a loss payable clause attached to each policy, are also named as parties defendant.

This action, originally commenced in the Circuit Court of Racine County, Wisconsin, was removed to this court and on motion of the plaintiff, the case was advanced for trial. The trial consumed 26 days, and following completion of the transcripts and filing of briefs, final arguments were heard. The court has reviewed the transcript of testimony, the exhibits admitted into evidence and the pleadings, and has considered the briefs presented and the arguments of counsel, and is now prepared to render its decision.

The three policies of fire insurance issued to the plaintiff by the defendant insurer and involved in this case are Policy No. 467868 issued August 22, 1954 in the amount of $176,067, Policy No. 559823 issued August 22, 1955 in the amount of $276,067, and Policy No. 859831 issued August 22, 1956 in the amount of $326,066. All three policies insured the plaintiff against loss or damage by fire to Buildings Nos. 1, 2, 3 and 4,¹ situated on the east side of the Chicago & Northwestern Railroad between Twenty-first and Twenty-second Streets, Racine, Wisconsin, and to the property of the plaintiff located therein for a period of three years, and all three policies contained a 90% co-insurance clause.

The policies were obtained by the plaintiff through Chris. Schroeder & Son, Inc., agent for Factory Insurance Association, an association of capital stock insurance companies handling large lines of insurance, primarily industrial properties. The defendant insurer is a member of that association. In February, 1957, and for some time prior thereto, Anthony Walish, Manager in charge of Chris. Schroeder's Fire Insurance Department, pursuant to regular procedure in his office, had been suggesting to Calman S. Pruscha and Robert L. Susnar, sole stockholders of the plaintiff corporation, that a review of their insurance program would be in order. These suggestions culminated in a meeting between said stockholders and representatives of Chris. Schroeder being held on February 25, 1957. On that date on the basis of figures submitted by Mr. Pruscha and Mr. Susnar, and as a result of that meeting, Policy No. 467868 was increased to $350,000, Policy No. 559823 was increased to $450,000, and Policy No. 859831 was increased to $500,000, a total increase in coverage of $521,800, from $778,200 to $1,300,000. * * *

On Sunday evening, April 28, 1957, before the expiration date of the policies and slightly more than two months after the amount of coverage afforded thereby had been substantially increased, the insured premises were struck by fire. Considerable damage was done to both the building and its contents. The contents of the building consisted principally of machinery and tooling.²

Most of the plaintiff's records were burned, and little information was adduced during the trial concerning the background of the machinery and tooling. Its cost to the plaintiff was not revealed, nor were the manner in which the plaintiff acquired the property or the dates of acquisition ascertained. It appears, however, that the plaintiff acquired most of its machinery on the used machinery market. The age of the machinery was, in many cases, not known, but the instances in which the age could be estimated (Exhibit 143) reveal that the machinery fell into two main categories. The first of these categories is machinery manufactured before 1930. The second is machinery manufactured between 1940 and 1944.³

On or about October 16, 1957, the plaintiff submitted its proofs of loss to the defendant insurer (Exhibits 157, 158 and 159 accompanied by detailed schedules of the insured property. These schedules, prepared by Strauss-Zahn Company, a firm of insurance counsellors and adjusters, listed property completely destroyed by the fire, property partially destroyed, and property which was undamaged, and set forth the appraisers' opinion of the replacement value and sound value immediately before the fire of each item and the amount of loss of sound value sustained by those items which were wholly or partially destroyed.

The proofs of loss were rejected by the defendant insurer on December 10, 1957 (Exhibit 160) on the grounds that the plaintiff had overstated the value of the property and the amount of its loss. Shortly thereafter, this action, in which the plaintiff seeks to recover $1,284,646.27, was commenced.

In its amended answer the defendant insurer has denied that the plaintiff sustained a loss in the amount set forth in the complaint and as affirmative defenses alleges (1) that at the time of the fire, coverage under the policies was suspended because of an increase in hazard, and (2) that the policies are void because the plaintiff submitted fraudulent proofs of loss. The defendant has also alleged that the plaintiff has assigned all of its right, title and interest in and to the proceeds of the policies to Martin J. Torphy and Daniel W. Howard, who, it claims, are necessary and indispensable parties to this action, (Exhibit 177) but has not pressed this defense.

As heretofore stated this trial lasted 26 days. The transcript of the proceedings was over 3,000 pages long. A substantial number of exhibits were admitted into evidence. Under these circumstances we believe it would be helpful to set out the evidence, including extracts from the testimony at more length than ordinarily would be the case.

Affirmative Defense of Increase of Hazard

All three of the policies here involved contained the following provision respecting suspension of coverage due to increase of hazard:

"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; * * *."

As we have stated, the policies were obtained by the plaintiff through the Factory Insurance Association, an association of which the defendant insurer is a member. Before the plaintiff could qualify as a "superior form" or "highly protected" risk so as to enable it to obtain insurance through F. I. A., it was required to comply with certain basic requirements, one of which was that it be properly protected by well-maintained sprinkler equipment. This requirement obtained when the policies in suit were issued.

The defendant insurer contends that at the time the policies in suit were issued, the insured property was protected against loss by fire by two dry pipe sprinkler systems, that the north sprinkler system, protecting that section of the plaintiff's main building housing the major portion of the machinery and tooling damaged by the fire of Sunday night, April 28, 1957, was shut off and not operating at the time of the fire, that by reason of the failure of the north sprinkler system to be in operating condition, the hazard to the premises of the insured was increased, that the increase of hazard was caused by means within the control of the insured, and that, because of the increase of hazard existing at the time of the fire, the insurance was suspended at that time and the plaintiff is not entitled to recover under any of the policies.

* * * * *

The evidence presented on the increase of hazard issue reveals that the north sprinkler system was in proper operating condition and the north post indicator valve controlling the flow of water to that system was open after the broken sprinkler head was repaired on Thursday, April 25, 1957. The evidence further establishes that the north post indicator valve was closed when it was checked by Mr. Zenner, Mr. Christianson and Mr. Zahn between 1:00 and 2:00 A. M. on April 29, 1957, immediately after the fire. No evidence was presented, however, to show when the valve was closed.

The defendant insurer wishes us to infer that the valve was closed when the fire started from the testimony of Mr. Schirott, Mr. Nelson, Mr. Blanton and Mr. Jahn, all of whom testified to facts which could be said to establish that no water flowed through the system at the time of the fire. The evidence revealed, however, that water pressure in the main feeding the sprinkler systems was low, and in fact failed completely at about 10:30 P.M. The inference that the north sprinkler system failed to operate due to lack of water pressure is to us at least as reasonable as the inference that it failed to operate because the north post indicator valve was closed, particularly since it appeared that the north system was served only after water had passed the yard hydrant and through the south system.

We recognize that the failure of water pressure alone would not account for the fact that the north post indicator valve was found in a closed position after the fire. However, in a situation where there is no direct evidence that the post indicator valve...