Michigan Idaho Lumber Co. v. Northern Fire & Marine Insurance

Bruce, J. (after stating the facts as above). The plaintiff maintains that the action is primarily broxight upon the draft and upon the contract of settlement and adjustment which it represented rather than upon the insurance policy, and that what is said in the complaint in regard to the insurance policy is merely surplusage, or at the most merely relates to the consideration. ~ ' — 270 — In this contention we believe that the plaintiff is correct, and that the action is based upon the allegation of the complaint which alleges “that on'or about the 28th day of April, 1914, the loss under the policy hereinbefore described was compromised and adjusted between the plaintiff and defendant on the basis of the sum of $10,000, and the amount agreed upon at said time as being due and payable from the defendant to the plaintiff under the policy aforesaid was (he sum of ($2,857.14) two thousand eight hundred and fifty-seven and 14/100 dollars, which amount defendant promised and agreed to pay to the plaintiff, and thereafter for the purpose of paying the loss so agreed upon the draft hereinbefore described was given,” Although, therefore, the record in this case is quite voluminous and numerous matters are discussed in the briefs of counsel, the question at issue is a comparatively simple one, and, unless we can say that there was evidence which should have been submitted to the jury which tended to show that the settlement with the adjuster and the subsequent issuance of the draft in question were brought about by the fraud of the plaintiff or were the result of a mistake of fact such as would furnish a ground for a rescission of the contract, the verdict was properly directed, and we have no option but to affirm the judgment. Ostrander, Fire Ins. § 372; Godchaux v. Merchants’ Mut. Ins. Co. 34 La. Ann. 235; Phœnix Ins. Co. v. Van Allen, 29 Ill. App. 149. There can be no question that the adjuster had authority to adjust the loss, and that he compromised and settled it, and agreed on hehalf of the defendant company to pay the amount sued upon. There can be no question that the settlement was approved by the company, that a draft was sent to their general agents, Douglas & Rice, in payment thereof, and with directions to deliver to the plaintiff. There can be no question as to the general agency of Douglas & Rice, and there can be no contention that the plaintiffs, at the time of the delivery of the draft, and their acceptance of it, and of the settlement of the controversy out of which it arose, and in payment of which it was given, had any knowledge that the authority of the agents to deliver the same had in any manner been withdrawn. We have a case, therefore, where the general agents of an insurance company, who have throughout been intrusted by that company with the almost unlimited control of their business, are given a draft with which — 271 — to pay for a settlement which they have made under the authority of that company, and' where, though before such delivery they are told to hold up the draft, they deliver it without any knowledge on the part of the payee of the secret instructions which they have received. It is well established that a general agent of an insurance company who has had given to him a draft payable to an insurer has implied authority to deliver the same. It is also well established that “what third persons are interested in is not the secret processes of the principal’s mind, but the visible result of those processes- — the character in which the agent is held out by the principal to those who may have occasion or opportunity to deal with him. This character is a tangible, discernible thing, and, so far as third persons are concerned, must be held to be authorized, as it is the only expression and evidence from which the principal intends that they shall determine his purposes and objects. . . . Instructions or limitations which are not disclosed cannot be permitted to affect apparent powers. . . . Although the agent violates his instructions or exceeds the limits set to his authority, he will yet bind his principal to such third persons, if his acts are within the scope of the authority, which the principal has caused or permitted him to appear to possess.” Mechem, Agency, §§ 278, 279; Taylor v. Craig, 2 J. J. Marsh. 449; Dixon v. Dixon, 31 Vt. 450, 76 Am. Dec. 128; Merriam v. Rockwood, 47 N. II. 81; Passumpsic Bank v. Goss, 31. Vt. 318. But was the defendant.insurance company led to make the contract of settlement and adjustment in question and to issue the draft in question through a mistake of fact, or through fraud on the part of the plaintiff, and if so can it repudiate the settlement and disallow the draft upon these grounds ? We think not. The only reason for ordering the holding up of the draft which was stated by the secretary of the company at the time of the repudiation was that “the business was shut down and not running at the time of the loss;” and this objection was made merely because the agent of some other insurance company, which was also interested, had claimed that such was the fact, and that “we (the defendant) like to have our reinsurance companies perfectly satisfied in the matter.” The only reason for the refusal of. its payment after it had been delivered was that it should have been made payable to Prestel, and J. I. and J. S. Crosby, — 272 — as their interests might appear instead, of to the plaintiff, the Idaho Michigan Lumber Company. “We see no reason,” defendants’ secretary wrote, “why we should make the check payable to the Idaho-Michigan Lumber Company when the policy reads to a different party. We also notice by the commercial reports that these people turned it into the Idaho-Michigan Lumber Company in 1913, consequently we see no reason why this was written in the name first mentioned therein.” There is positive and undisputed testimony, however, that all of these facts were known to the general agents at the time of the adjustment and at the time of the delivery of the draft. There is also evidence that the fact of the transfer of the property to the plaintiff was communicated to the agents, Douglas & Rice, by the insured with a request to attach riders to the policy to that effect, and that the agents had only failed to report this fact to the company through inadvertence, and that this fact was called to the attention of the secrelary of the defendant company itself in the adjuster’s letter which was sent to it on July IS, 191J, and in response to which the draft was mailed. There is also evidence to the effect that, after the request for the riders, the general agents assured the plaintiff that its property was “covered.” Defendant, it is true, claims that the word “covered” does not mean what it naturally implies, but merely that they would malee a notation and at a later date issue a new policy which was then being considered. This contention, however, hardly sounds plausible, and we are 'sure that no business man would give that meaning to the word. Douglas & Rice, indeed, wrote that “they were holding the risk covered,” and not that at a subsequent date they would cover it. The letter of the adjuster, also to which we have before referred, absolutely refutes this contention. Surely the knowledge of these agents must be imputed to their principal, arid it must be held as a matter of law that 'the defendant company, at the time of the acceptance of the settlement and of the signing and transmitting the draft, knew what its agents knew. The adjuster’s letter too informs it of these very facts, and Hand (the secretary of the defendant company) himself testified: “We issued the draft after, the receipt of the report of the adjusters with proof of loss and the notice of loss and the letter from Rice dated May 11th, and with full Icnowledge of all facts disclosed therein.” Nor is there any merit in the contention that the adjuster did not — 273 — actually visit the premises and know of the vacancy and change of title. He at any rate reported to the general agents, and the general agents had knowledge of these facts.” It is also undisputed that the general agents had almost unlimited authority in these matters. Otherwise why the statement of the secretary of the defendant in his letter of August 20th, when he wrote: “Now Mr. Rice, this office has been very negligent in the checks they have paid out for losses under policies, written at your office. We have left this entirely with you, but under the circumstances above named you will see there is no reason why this loss should be paid.” The general agents in short had actual authority to write the insurance and to adjust the loss, and implied authority, even after the secret withdrawal or suspension of that which was actually given, to deliver the same. Relying upon this implied authority, and upon the adjustment which was made under authority which was actual, and which was ratified and approved by the company with full knowledge of the facts, and by the very act of drawing the draft and transmitting it for delivery, the plaintiff consented to a compromise of its claim and accepted the draft. After this acceptance it could not later have insisted upon repudiating the agreement and receiving a larger sum, unless with the consent of the defendant. Surely now the defendant cannot, in the absence of fraud or mistake, and we find none to have existed, insist upon that repudiation. Mills v. Lee, 6 T. B. Mon. 91, 17 Am. Dec. 118; McCabe Bros. v. Ætna Ins. Co. 9 N. D. 19, 47 L.R.A. 641, 81 N. W. 426. “The settlement and contract to pay a specified sum,” says the supreme court of New York, in the ease of Smith v. Glen’s Balls Ins. Co. 62 N. Y. 85, “operates as a waiver of any warranty in the policy, unless the settlement and contract were procured by the fraud of the assured; and this is not found, and scarcely claimed. It is said that the company did not know of the breach of the warranty at the time of the settlement. The answer is that when the claim was made for the loss the company was required to ascertain the facts as to any breach of warranty. If they saw fit to pay the claim, or compromise it, or to make a new contract, without such examination, it must be deemed to have waived it; and, in the absence of fraud, it cannot afterwards avail itself of such breach. It cannot urge payment or settlement by mistake on account of a want of knowledge of such breach. The time for investiga — 274 — tion as to breaches of warranty is when a claim is made for payment, and, if the company elects to pay the claim, or, what is equivalent, to adjust it by an independent contract, it cannot afterward, in the absence of fraud, retract or fall back upon an alleged breach of warranty.” See also Ostrander, Fire Ins. §§ 213, 214, 372; Commercial Bank v. Firemen’s Ins. Co. 87 Wis. 297, 58 N. W. 391; Phœnix Ins. Co. v. Van Allen, 29 Ill. App. 149; Godchaux v. Merchants’ Mut. Ins. Co. 34 La. Ann. 235. These being the facts of the case, and the action being based on the settlement, and not on the policy, not only is there no need of a i*eformation in equity of such policy, but no right of repudiation can be claimed on account of any breaches thereof, if breaches there be. We are satisfied, indeed, that even if at the time of the issuance of the original policy the general agent of the defendant company was not informed of all of the facts of which it now complains, both it and its general agent had knowledge of these facts not only when the riders were attached (or were conceded to be attached, by their promise that they would keep the property “covered”), but that all of these things were known to both the company and its general agent at the time of the settlement and at the time of sending the draft. Such being the case, the breaches, if any, were waived, and the settlement cannot now be repudiated. 19 Cyc. 780, 784; McCabe Bros v. Ætna Ins. Co. 9 N. D. 19, 47 L.R.A. 641, 81 N. W. 426; Leisen v. St. Paul F. & M. Ins. Co. 20 N. D. 316, 30 L.R.A.(N.S.) 539, 127 N. W. 837; Johnson v. Farmers’ Ins. Co. 126 Iowa, 565, 102 N. W. 502; Georgia Home Ins. Co. v. Holmes, 75 Miss. 390, 65 Am. St. Rep. 611, 23 So. 183; Morotock Ins. Co. v. Rodefer Bros. 92 Va. 747, 53 Am. St. Rep. 848, 24 S. E. 393; Crittenden v. Springfield F. & M. Ins. Co. 85 Iowa, 652, 39 Am. St. Rep. 321, 52 N. W. 548. The judgment of the District Court is affirmed.