McElroy v. British America Assur. Co. of Toronto, Canada, 94 F. 990 (9th Cir. 1899)

MORROW, Circuit Judge,

after stating the facts as above, delivered the opinion of the court.

There is but one assignment of error, namely, that the court below erred in granting the motion of the defendant company to give a peremptory instruction to the jury to find a verdict for the defendant, and in giving such peremptory instruction,- and the single question presented is whether or not the plaintiff in error had the right to have his case submitted to the jury. It is contended on the part of the defendant, as matter of law, that the policy is void, for the reason that it in express terms provides that, if a chattel mortgage exists on the property, or if insurance shall be obtained to any greater extent than $6,500 in all, concurrent with the amount covered by the policy, it shall be void, and both of such forbidden acts are established by the evidence on the part of the plaintiff to have been done. The plaintiff asserts, on the other hand, that defendant had notice and knowledge of the existence of the mortgage and of the intention of the insured to apply for insurance to the amount of $10,000 in all, through Calhoun & Co., its agents. To this the defendant replies that Calhoun & Co. were not its agents, but rather the agents of the insured, and therefore any notice or knowledge that Calhoun & Co. may have had was not the knowledge of the defendant. Several witnesses testify as to the notice given to Calhoun & Co. of the existence of the mortgage. Barrington was asked, with regard to his conversation with Ewing, of the firm of Calhoun & Co., if anything was said in relation to the chattel mortgage upon the steamer, and replied:

“I told him that I had to have $3,500 of it written up to Captain MacFarland, of Everett: that X could not promise him that insurance; that I did not know whether he wanted me to insure with Seattle firms or not; likely he might want the same men that insured the year before in Everett; and $6,500 for my mother. Q. Yfhat reason, if any, did you give him for Ihe necessity of having insurance written in favor of or payable to Captain MacFarland? A. That he held the mortgage on the steamer for that amount.”

And in an interview with Mr. Calhoun a few days later he stated the following language was used:

Calhoun testifies:

Ewing, of (a.ilufuin & Co., testifies that during the negotiations Capt. Barrington «yoke about an insurance of $3,500 for the protection of Capt. arland, and that he at one time told him he contemplated phit-iug more than $6,500 insurance on the steamer.

With regard to concurrent insurance, McCormick, the agent placing the insurance in favor of the mortgagee, testified that he was present in the drag ¡dore of Yorke A. Barrington on the 24th day of January, 1896, when Capt. Barrington had a conversation over the telephone wall • me person regarding insurance on the steamer Cricket, and hc;i?,"d Mm say to this party, “I have concluded to have Mr. McCoim,irk write $3,500 of this insurance,” and request the person at the 0' iter e nd of the telephone to deliver the policies for the other insurance; that at the close of this conversation Capt. Barrington placed sin order with the witness for $3,500 insurance, and said he had given orders to Mr. Calhoun for $6,500, — making a total insurance of Kl'jpoO.

Yorke A. Barrington, a brother of Capt. Barrington, testified;, with relation to the same conversation by telephone:

From tbis testimony it appears that there was evidence sufficient to go to the jury tending to establish the fact that at the time the policy of insurance was .issued and delivered to Barrington, the agent of the insured, Calhoun & Co., the insurance agents, had notice and knowledge of the existence of the mortgage and of the additional concurrent insurance. There was also evidence tending to establish the fact that McKenzie, the agent of the defendant, had notice of the mortgage, and that the name of the mortgagee was to be inserted in the policy afterwards.

Under the weight of authority, the defendant is estopped from asserting the invalidity of its policy for violation of the conditions of the policy, if such alleged violation was known by the defendant at the time of its issue. Mesterman v. Insurance Co., 5 Wash. 524, *32* Pac. 458. “If the agent knew of the other insurance when the contract was entered into, it is not only a waiver of notice, but also of a forfeiture on that ground.” Wood, Ins. § 406. In Beebe v. Insurance Co., 93 Mich. 514, 53 N. W. 818, it was held that where the agent of the insurance company, with knowledge as to the amount of incumbrance upon property insured, misstated such amount in an application for insurance made out. by him, and which plaintiff, without reading, signed, and the agent assured plaintiff that the application was all right, and that she was fully protected, the defendant company could not deny its liability under a provision of the policy that the application was a warranty as to the material facts, and that a misstatement would void it;x-the company being presumed to have the knowledge of its agent. The same doctrine is-upheld in Wood v. Insurance Co., 149 N. Y. 382, 44 N. E. 80, where, the court of appeals say:

In Robbins v. Insurance Co., 149 N. Y. 477, 44 N. E. 159, the policy of insurance upon certain personal property contained a condition that the entire policy, unless otherwise provided by agreement indorsed thereon, or added thereto, should be void if 'th\e subject of insurance be personal property, and be or become ineunibered by a.chattel mortgage. It also contained the other provisions usually contained in the standard fire insurance policy, among which \vas a

provision making the policy subject to the stipulations and conditions contained in it, and also a provision to the effect that no officer, agent, or other' representative of the company should have power to waive any condition or provision of the policy, except such as might, by the terms of the policy, be subject to the terms indorsed thereon or added thereto, and that as to those provisions and conditions no officer, agent, or representative should be deemed or held to have waived auy of them, unless the waiver was written upon the policy. When the policy was issued there was a chattel mortgage upon the property insured, but there was no indorsement upon the policy with respect to it. The soliciting agent who procured the insurance was, however, informed as to the mortgage. When the testimony was closed, the defendant’s counsel asked the court to direct the jury to return a verdict for the defendant, on the ground that at the time of the issuing of the policy the property insured thereby was incumbered by a chattel mortgage, and that there was no agreement indorsed upon the policy, or added thereto, in reference to such chattel mortgage. The motion was denied, and a verdict and judgment entered in favor of the plaintiff. On appeal to the court of appeals that court determined that it would he presumed, if anything had been omitted which it was necessary to do to maleo the policy valid, it was by mistake, or that the condition was waived, or that the defendant company held itself estopped from setting it up. It was accordingly held that the company was barred from claiming that the policy was invalid because of the existence of the chattel mortgage.

Notwithstanding an insurance policy contains a, proviso against additional insurance except upon “the consent of this company written hereon,” and provides also that “the use of general terms, or anything less than a distinct specific agreement, clearly expressed, and indorsed upon this policy, shall not be construed as a waiver of any printed or written conditions or restriction therein,” yet where an agent with whom all the dealings were had, and whose authority is not shown to have been restricted in any way, has so acted as to have bound himself by way of estoppel not to dispute the validity of certain additional insurance on the point of consent, the company will be likewise bound. Insurance Co. v. Earle, 33 Mich. 144. Insurance Co. v. Spiers, 8 S. W. 453, was a case where additional insurance had been procured without the assent of the original insurer being indorsed upon the back of the policy, as provided by the terms of the policy. The court of appeals of Kentucky, in passing upon the points involved, say:

Bush, 242. * It may now he regarded as settled law that insurance companies may, by conduct or parol agreement, waive it [condition of forfeiture], and become estopped from enforcing what is but a conventional condition of forfeiture. Insurance Co. v. Shea, 6 Bush, 174; Von Bories v. Insurance Co., 8 Bush, 133; Insurance Co. v. McCrea, 8 Lea, 613.”

In tbe case of Insurance Co. v. Warttemberg, 48 U. S. App. 344, 24 C. C. A. 547, and 79 Fed. 245, in this court, a portion of the property insured was incumbered by a mortgage for $1,000 at the time of the insurance. The insured testified that he stated the facts concerning the incumbrance to the insurance agent, but an answer different from that which he gave was written in the application for the insurance by the agent, and assented to by the insured. This answer did not disclose the mortgage. The application contained the .following condition:

The policy also contained the following:

The property insured was farm property. It appeared from the testimony of the agent that he had authority to write commercial risks for the company, but no authority to write insurance on farm risks. On the submission of the case to the jury the defendant requested the court to instruct the jury to return a verdict for the defendant. The request was denied, and the jury returned a verdict for the plaintiff. The case was brought here on a writ of error, and it was contended by the plaintiff in error that the court erred in not instructing the jury upon the evidence to find a verdict for the defendant. It was held that, as there was nothing to show that the insurance company would have declined the risk if it had been aware of the fact that a portion of the property insured was under a temporary incumbrance, and nothing to show that either the insured or the agent perpetrated any fraud upon the insurance company, the latter could not avoid the policy by the defense that the insured, in his written application, had falsely warranted that the property-insured was not incumbered. The doctrine of this case necessarily .includes the rule that the information obtained by the agent concerning the risk will be imputed to the company accepting the services and representations of the agent in securing the insurance contract; but, aside from this principle, applicable to both cases, the two cases are to be distinguished in matters favorable to the validity of the ■policy under consideration. In the case at bar there is not a particle of -evidence tending to show that the insured, either by state

ment or assent, was guilty of any fraud or deception in representing the condition of the property or the concurrent insurance. On the contrary, ¡.here is evidence tending to show that the agent of the company at Beattie was notified by the agent who effected the insurance that the property was incumbered by a mortgage; and there was also evidence tending to show that tlie agent who effected the insurance had knowledge of the concurrent insurance on the mortgagee’s interest.

Defendant; also raises the question whether a policy of insurance may be varied by parol, despite any provision to the contrary contained in the instrument. A leading case upon this point is Insurance Co. v. Norwood, 16 C. C. A. 136, 69 Fed. 71. Caldwell, circuit judge, therein declares the early doctrine on this subject, as maintained in the case of Carpenter v. Insurance Co., 16 Pet. 495, has been so generally denied and repudiated by the courts of the country that it has come to be regarded as obsolete. He says:

In Insurance Co. v. Wilkinson, 13 Wall. 222, Mr. Justice Miller re-ferís to the great value of the rule of evidence tliat a written contract cannot be varied by parol testimony, but farther says:

To the same effect is Association v. Wickham, 141 U. S. 564, 12 Sup. Ct. 84, where the court say:

qualifications, as well established as the general principle itself, among which are that such testimony is admissible to show the circumstances under which the instrument was executed.” Insurance Co. v. Gray, 43 Kan. 497, 23 Pac. 637; Haas v. Insurance Co. (Sup.) 1 N. Y. Supp. 895; Insurance Co. v. Earle, supra; Insurance Co. v. Wilkinson, supra.

Parol evidence is admissible to show that the statements given by the insured to the agent of an insurance company were different from those he transcribed in the application he sent to the company. Insurance Co. v. Pearce, 39 Kan. 396, 18 Pac. 291.

The case of Pechner v. Insurance Co., 65 N. Y. 195, was somewhat, similar to the case at bar. The main question was whether the policy was void because there was other insurance upon the property without the written consent of the defendant. The jury found a verdict for the plaintiff, under an instruction from the court upon parol evidence. Defendant assigned the ruling as error, claiming that parol evidence could have no influence upon the contract. The court of appeals affirmed the ruling of the lower court in these words:

Defendant, however, contends that any knowledge Calhoun & Co. may have had cannot-be imputed to the defendant, for the reason that Calhoun & Co. were not its agents in effecting the insurance in this case. The policy in question provides: “In any matter relating to this insurance, no person, unless duly authorized in .writing, shall' be deemed an agent of this company.” This provision was not carried out literally with regard to Calhoun & Co.., but it is a well-settled rule in the law of agency that the acceptance and approval by the company of the acts of another in behalf of the company constitute a recognized agency. No communication, either written or verbal, passed between the defendant and the insured, touching the issuance of the policy, but the company issued the policy upon the representations of Calhoun & Co., and in pursuance of business methods customary between them; thus ratifying the action of Calhoun & Co. in its behalf, and justifying the conclusion that they were the agents of the defendant in error.

liis company by way o£ waiver of a forfeiture on account of additional insurance, in the absence of knowledge upon the part of the assured that his powers in this respect have been restricted. This being so, it follows that the knowledge of the agent, under such circumstances, is to be imputed to the company.” Insurance Co. v. Spiers, supra.

Iii Insurance Co. v. Pearce, supra, the question involved the power of an insurance solicitor to bind the company. Beals was canvassing for business for the insurance company, and induced Pearce to insure with it. When the application was taken, the solicitor wrote down all of the answers, and read over a part of them to Pearce, who signed them, without knowing all the answers that were ,in the application. Some of the statements written were false, and, upon a loss occurring, the insurance company denied its liability, claiming the policy to be void, in conformity with the following provision of the policy:

The company also disclaimed liability for the acts of Beals, stating that he was merely a solicitor, with power only to take and forward applications. In the lower court the jury rendered a verdict for the insured, and the supreme court affirmed the judgment of that court, saying:

It is a well-known custom now for insurance companies to accept applications for insurance through the medium and agency of insurance agents or solicitors, who procure the applications, and place the insurance with such companies as they may determine. These solicitors are furnished by the insurance company with printed arguments in favor of the special advantages offered, and stimulating the solicitors or agents to activity by the payment of large commissions on premiums obtained. The party who is thus induced to take out a policy knows little or nothing about the company or its officers, but relies upon the agent who has persuaded hm to effect the insurance as the representative of the company

for all purposes of tbe contract, and certainly has the right to so regard him. The companies have endeavored to establish the doctrine that they can limit the responsibility for the acts of these agents to the receipt of the premium and delivery of the policy, and as to all other acts of the agent he is the agent of the assured. Some of the earlier decisions have supported this doctrine, but the tendency of modem decisions is steadily against it. The testimony shows that both Calhoun & Go. and McKenzie were engaged in business in the city of Seattle as insurance agents; that it was customary among the various insurance agents of Seattle to place business with each other at times; that in accordance with that custom Calhoun & Co. dictated and made the terms of the contract in controversy; that upon receipt of the order for insurance from Barrington, Calhoun & Co. placed $3,000 thereof with McKenzie, who at once issued the policy of the defendant for that amount in favor of plaintiffs assignor, and returned the policy to. Calhoun & Co.; that Calhoun & Go. then pasted on the back of the policy a printed slip containing their business card, and delivered the policy, together with that of the Palatine Company, to Barrington, collecting a portion of the premium at that time. Such acts tended to establish the fact that Calhoun & Co. were the agents of the defendant in this transaction, and the evidence should have been submitted to the jury under proper instructions. Fidelity & Casualty Co. v. Egbert, 55 U. S. App. 200, 28 C. C. A. 281, and 84 Fed. 644; Insurance Co. v. Wilkinson, supra; Pitney v. Insurance Co., 65 N. Y. 6; Giddings v. Insurance Co., 90 Mo. 272, 2 S. W. 139. It may be said that the insured should have ascertained the correctness of the policy upon receiving it. Barrington, who acted for the insured in the matter, testified that he did open the policy, and note the company insuring, and the amount of insurance, but nothing more. It would certainly have been an act of prudence on his part to read the entire policy, but his neglect to do so cannot excuse the company for the default of the agent in not writing the contract in accordance with the representations made by the insured. The insured had a 'right to rely upon the agent’s performing his duty of making the contract in conformity with the information given; and the agent’s failure to do so, whether the result of a mistake or of a deliberate fraud, cannot operate to the prejudice of the insured. The contract of insurance is pre-emi-nently one that should be characterized by the utmost good faith , on both sides. Insurance Co. v. Norwood, supra. In Kister v. Insurance Co., 128 Pa. St. 553, 18 Atl. 447, a policy was issued upon an application in which the agent had written down answers other than those given him by the applicant, and the insured signed the application in ignorance of this fact. The supreme court said:

ever: the company cannot repudiate the fraud of its agent, and thus escape the obligations of a contract consummated thereby, merely because Kister accepted in good faith the act of the agent without examination.”

Upon the law as stated, and a review of the evidence, it is clear that questions of fact were presented which should have been submitted to the jury. The judgment of the circuit court is therefore reversed, and the cause remanded, with instructions to grant a new trial.