Detroit Fire & Marine Insurance v. Gagliardi

Mr. Chief Justice Adams delivered the opinion of the court. Antokio Gagliardi and Mike Gagliardi, copartners doing business under the firm name of Gagliardi Brothers, brought action on a fire insurance policy against Detroit Fire and Marine Insurance Company. The cause was tried to a jury and verdict and judgment resulted in favor of plaintiffs. The insurance company prosecutes error. The partners conducted a general merchandise business in the city of Trinidad, Colorado. Their property, covered by a policy issued by the Detroit company and by other policies in other companies, was destroyed by fire. The policy in question contains the following’ clause: “This entire policy shall be void if the insured has concealed or misrepresented, in writing or otherwise, any material fact or circumstance concerning this insurance or the subject thereof; or if the interest of the insured in the property be not truly stated herein; or in case of any fraud or false swearing by the insured touching any matter relating to this insurance or the subject thereof, whether before or after a loss.” — 455 — The insurer claims that after the fire occurred, the insured fraudulently misrepresented the extent of the loss, and that by reason thereof the entire policy is void. The actual loss at first seemed to be difficult of ascertainment, due to the fact that important' firm records were then supposed to have been lost in the fire. The parties therefore adopted the best method they could to ascertain the extent of the property loss as nearly as possible. One plan followed was to procure duplicate invoices from wholesale houses, and deduct therefrom the amount of goods sold as shown by such records as were available. The result, with due allowances for ordinary profits and losses, or as otherwise agreed upon, was considered to approximately represent the actual value of the goods injured or destroyed by the fire. The ascertainment of the. volume of sales was greatly aided by the eventual discovery of pads containing sales slips, being duplicates of originals given to customers, such as are commonly used over the counter in ordinary business transactions. The parties proceeded harmoniously in an effort to adjust the loss until events hereinafter related brought a sudden end to the negotiations and the insurer refused to pay anything whatever. The maelstrom of the dispute centers around Exhibit A, known as “the big red book.” Counsel for the insurer, both by brief and oral argument, denounce it unsparingly as a palpable fraud. Many pages of their briefs are devoted to arguments why its delivery by Mike G-agliardi, one of the partners, to the insurance adjusters, renders the policy of insurance void. Exhibit A is a battered and thumbworn book, printed as a ledger, but used generally as a combined ledger and journal. It contains entries extending back for many years prior to the fire. Exhibits 5 and B are also ancient documents; Exhibit 5 is known as “the little red book,” and Exhibit B as “the big black book”; both contain ledger and journal entries. The last two named books contribute — 456 — to the disagreement of the parties on the merits of the cause, hut not to the extent of Exhibit A. The evidence shows that Exhibit A was an individual record belonging to Antonio and that Mike did not know its contents; that Exhibit 5 was an individual record belonging to Mike, and Exhibit B a record of the firm. The adjusters testified that all of the books were delivered to them on their first visit, but the evidence is conflicting as to when they first saw Exhibit B. In Exhibit A, “the big red book,” Antonio’s individual record, the sales are materially exaggerated; this was done before the fire for a purpose foreign to the present inquiry. The record of sales as shown in Exhibit B is more conservative and is claimed by the insured to be in accordance with the facts. Antonio was the bookkeeper of the firm, and Mike, unaware, as he says, of the contents of any book except Exhibit 5 (his own individual record), delivered Exhibit A to the adjusters. Thereafter the adjusters submitted an offer in compromise, but when Mike examined it, it showed what seemed to him to be an excessive amount of sales; he discovered that the sales items were obtained from Exhibit A, refused to be bound by it and declined the offer of compromise. This provoked a controversy whereby Exhibit A became objectionable, not only to the insurer, but also to the insured, which resulted in the withdrawal by the insurer of its offer of compromise, on the ground of alleged fraud. The insurer raises this issue in its answer, wherein it alleges, inter alia, that the insured submitted to the insurer a false and fraudulent sales record, showing a larger amount of daily and monthly sales than the real amount thereof, for the purpose of obtaining more money on the insurance policy than the insured were entitled to recover. We quote in full (omitting reference to folio numbers) the assignments of error as abbreviated and stated in the abstract by counsel for the insurer: “These as — 457 — signments in substance are that the trial court erred as follows: 1. In denying’ the motion for directed verdict made at the conclusion of the evidence in chief; 2. In refusing to permit witness Hugh L. Morris to testify as to the reasons why a major portion of the records submitted by Gagliardi Bros, were insufficient or improper as a basis of the alleged claim; 3. In refusing to permit witness Fred L. Henkel to testify as to his opinion of the probable value of the merchandise destroyed by fire; 4. In denying motion for directed verdict made at the conclusion of the evidence; 5. In denying motion for new trial; 6. In giving judgment.” Disregarding technical objections that might be raised to the assignments, we shall treat the first, fourth, fifth and sixth thereof as one, with particular reference to alleged fraud, and follow with mention of the second and third assignments. Distorted though the entries in Exhibit A are, we see little merit in the objection to this book from the standpoint of the insurer. Its counsel refer to the volume as a sales record, and we treat it as such, but the evidence is clear that it was rescued from the debris and delivered to the adjusters inadvertently, by one of the partners without knowledge of its contents, before more accurate records were discovered. The partners took the initiative in seeking to withdraw it from consideration in the computation of the fire loss. Even if this were not so, the book itself in essential particulars seems to be wholly innocuous as far as the rights of the insurer are concerned. Indeed, it would have been decidedly more to the advantage of the insurance company than to the partners to have accepted Exhibit A as a true sales record, for the more the sales account was exaggerated, the greater would be the reduction of goods on hand at the time of the fire. It would not magnify the loss, but would minimize it. From the above it is manifest that Exhibit A favored — 458 — the company; that the partners did not defraud nor attempt to defraud the insurer, either expressly or impliedly, but that at first they came close to injuring themselves by unintentionally representing larger sales and consequently a far less loss than they actually suffered. This cannot defeat their recovery in an action on the policy. It would be a red letter day for insurance companies if more people would underestimate their losses. If a mistake occurs, it is subject to correction and the correction was made. Western Assurance Company v. Bronstein, 77 Colo. 408, 236 Pac. 1013, is in point. There, the insurance company charged the insured with fraud, the basis of which was that the latter had exaggerated the value of the goods that were saved. On page 410 of the above opinion, Mr. Justice Campbell points out that such exaggeration would redound to the benefit of the insurer and it was there held that such representation does not constitute a fraud. On page 411 of the same opinion it is also held that in order to release the insurer, the false swearing must be as to some material matter, made with the intention of deceiving the insurer and inducing it to pay more insurance than the amount of the loss sustained. Of course there could be no such inducement when the statement of the insured, if false, goes to show that Ms loss was less than it actually was. Some of the sales figures in Exhibit A, apparently exaggerated, were transcribed for some purpose or other into Exhibit B, and what is said of A in this respect applies as well to B. It is naively suggested that the unwarranted exaggeration of sales by the firm, as shown in the “big red book,” was made for the purpose of misleading an Assyrian, another merchant and prospective purchaser of the store, to impress the latter with the belief that the partners were enjoying a large and prosperous trade. The swollen record of sales, if credence had been given to it and if acted upon, would have been meat to the insurance company but poison to the Assyrian. The latter did not — 459 — buy tbe business, nor do we know tbat he ever saw Exhibit A, and even if he did, this is not the insurer’s responsibility. The third party is not before the court, his interests are not involved, and we need not speculate over his rights. All that this defense amounts to is that a third party had a narrow escape from Antonio’s designs in another transaction which was never put into execution. This is wholly remote from the issues and does not absolve the insurer from its liability to the insured. The court did not refuse to allow the witness Hugh L. Morris to testify, as might be supposed from a casual reading of the second assignment. Morris was an accountant of experience; the insurer claims that he was an expert, which the insured denies. He was examined and cross-examined at length, and was given wide latitude. He was permitted to testify as to alterations in records when the alterations were obvious and not disputed. Speaking of some of them, the court finally said: “Well, as far as his examination is concerned, it doesn’t show he is any better qualified than the jury is, as far as that is concerned.” We cannot tell from the assignments of error what is meant by a “major portion of the exhibits” without counting them and could not tell then which exhibits are meant. If it relates to seven invoices contained in Exhibit Gr, the witness was asked this question: “In your judgment, are they acceptable as evidence of purchases during the period in question?” The court properly sustained an objection to this question. It was the exclusive province of the court to determine whether the documents were acceptable or admissible in evidence. Furthermore, the exhibits spoke for themselves, they were admitted in evidence and the court told counsel that they could call the attention of the jury to any part of them. We question if the witness was at all familiar with the “major portion of the exhibits. ’ ’ They did not consist of the purchase invoices, concerning which the witness was interrogated, but of — 460 — numerous pads containing the sales slips above mentioned. What the testimony of the witness might have been with respect to them is not apparent from the record. For this reason and the other reasons as above stated, the second assignment of error is not well taken. As to the third assignment. Henkel was state agent of the Underwriters Salvage Company of New York. He and Mike estimated the salvage and it was agreed upon by the insurer and insured. It was covered by a salvage inventory admitted in evidence. The insured asked that the witness be allowed to make comparisons from “a careful personal inspection of the debris, and the property that was left from the fire” with the stock of merchandise on hand at the time of the fire, and to give his opinion of the loss from his deductions. The court declined to permit him to testify as to such matters on the ground that it was “pure guess work,” which was right. It does not appear that the witness knew or could have known what stock was on hand at the time of the fire and “the debris” if it had any value was covered by the salvage about which there was no question. Such testimony was properly excluded. The insurer charges the partners with other fraudulent manipulations and alterations of books and records with intention to deceive, all of which the partners deny. Every question of fact argued in this court was found adversely to the contentions of the insurer on conflicting evidence. The instructions were so eminently fair that no error is assigned thereon; if faulty in any respect, they favored the insurer; they were unnecessarily repetitious on the question of fraud; they were in part worded from the langnage of the insurance policy and in part from what the parties seem to agree is the law on the subject. The well known rule applies; we shall not disturb the verdict. This case has had more than ordinary attention at our hands; all points presented in able and exhaustive briefs — 461 — of counsel have been fully considered; the case was argued to this court twice, first in department and after-wards en banc. It is not successfully contended that the verdict of the jury is disproportionate to the actual loss sustained, and we find no error in the record. Judgment affirmed. Mr. Justice Bouck and Mr. Justice Holland dissent.