Connecticut Fire Insurance v. Wigginton

HUMPHREYS, J. Appellees instituted suit in the Poinsett Chancery Court to reform a policy of insurance issued by appellant to J. E. Wigginton on the 4th day of February, 1913, securing him and his mortgagee, the Marked Tree Bank & Trust Company, against loss which might be occasioned by fire to a two-story frame dwelling situated on lot 1, block 3, Fitter’s Third Addition to the town of Marked Tree, Arkansas; ánd to recover the amount of the policy. It was alleged that through mistake a loss payable clause, in favor of the Marked Tree Bank & Trust Company, was attached to the policy as a part thereof, instead of a standard mortgage clause; that the loss payable clause was subject to the conditions in the policy, and one condition was that no recovery could be had in case foreclosure proceedings were instituted, whereas the standard mortgage clause contained an exemption from that condition in the policy.. Appellant answered, denying that it agreed to attach a standard mortgage clause to the policy and that its failure to attach said clause was a mistake, and set up as a defense that foreclosure proceedings were commenced on the 6th of March by the Marked Tree Bank & Trust Company against J. E. Wigginton before the building was destroyed by fire, which suit, under the contract, voided the policy. The court heard the cause upon the pleadings and evidence, reformed the policy and rendered judgment for $2,000 and interest in favor of appellee against appellant. From that decree an appeal has been prosecuted to this court. (1) It is contended by appellant that the evidence is not sufficient to establish the fact that it was the intention of the parties to the contract to make the-standard mortgage clause a part of the policy. Courts will not reform instruments of writing for mistake unless the mistake is mutual and established by evidence which is “clear, unequivocal and decisive.” Parker v. Carter, 91 Ark. 162; Hoffman v. Rice Stix D. G. Co., 111 Ark. 205; Eureka Stone Co. v. Roach, 120 Ark. 326. As to whether the court was correct in reforming the policy must depend on whether the evidence clearly shows a mutual mistake was made in attaching a loss payable clause to the policy instead of a mortgage clause. The policy sued on was issued by appellant to appellee Wigginton on the 4th day of February, 1913, and provided that appellant would pay not to exceed $2,000 to appellee Wigginton in case his dwelling situated on lot 1, block 3, Ritter’s Third Addition to the town of Marked Tree, Arkansas, should be destroyed by fire within three years after the date of the policy. The loss payable clause contained in the policy was set out in the proof of loss. M. W. Hazel, the vice president of the bank, testified that upon authority obtained from Wigginton he .applied to Paul Leatherwood, appellant’s local agent, for the policy, paid him the premium of $50 and requested him to attach a mortgage clause in favor of the bank; that the agent delivered the policy to the bank; that he never read it; that it remained in the possession of the bank until after the fire; that he passed upon loans, and the cashier and loan board looked over the papers securing loans; that Mr. Leatherwood had his office in the bank and wrote all the policies for the bank which protected its loans; that after the fire he got the policy and directed the cashier to attend to making the proof and collecting the insurance; that he was not present at the time the proof of loss was made and knew nothing about its contents; that he first learned of the kind of protection the bank had from his attorney after the policy was delivered to the attorney for collection. J. C. Hawthorne testified that he prepared the proof of loss, but did not know .a mistake had been made in attaching the loss payable clause instead of the mortgage clause until after lie had a talk with Mr: Hazel subsequent to March 6,1916. Mr. J. A. Watkins, attorney for appellant, wrote to Hawthorne & Hawthorne, attorneys for appellees, on February 12, 1916, denying liability and calling their attention to an authority which he contended sustained his position and that firm replied on March 6 to the effect that they would test the matter in the courts unless a compromise could be effected. The mistake contended for was not called to the attention of Mr. Watkins by Hawthorne & Hawthorne in their letter to him of date Margh 6,1916. Paul Leatherwood testified on two different occasions. The first time, the substance of his evidence was as follows: That he was in the insurance business.and wrote the policy in question but did not remember at whose instance; that he did not remember whether any one told him how to write the policy but that he wrote it according to custom; that he did not know why he placed the loss payable clause instead of the mortgage clause on the policy; that all he remembered was that the bank had a mortgage from Wigginton on the property'and paid the premium; that his idea was to protect the bank; that he did not particularly know the difference between the clauses at that time; that he kept a daily report in triplicate, pasted one on the policy, one on daily record book and sent one to the company; that the daily record of this transaction contained the loss payable clause; that he had no recollection of ever placing a mortgage clause on any policy; that his records would show; that Mr. Du-Hard succeeded him in business and had the records; that he had both kinds of clauses. The second time his evidence was in substance as follows: That he solicited the insurance from Wigginton, and, while he did not remember about the loss payable clause and mortgage clause, still, if he knew about the mortgage, it was evidently his intention at the time to place a mortgage clause on the policy. J. R. Wigginton testified in substance that tbe officers of tbe bank wanted to make tbe collateral as strong as possible; that be went to Paul Leatberwood and told bim that be wanted to give tbe bank a mortgage on tbe policy and asked bim what be should do in order, to effect that purpose; that be was informed tbe company furnished blanks and tbe agent agreed to fill out and attach it to tbe policy; that in speaking of placing a mortgage on tbe policy be bad reference to a mortgage clause; at tbe time be did not know tbe difference between tbe two clauses. J. D. DuBard testified, in substance, that be.was cashier of tbe bank and received tbe policy; that Wigginton owed tbe bank $2,600 in notes, with W. M. Hazel as endorser on some of them; when tbe policy was secured Hazel was relieved as endorser on the notes; that be never read tbe policy; that tbe stockholders met annually and tbe directors monthly and examined tbe affairs and securities of tbe bank; that be presumed none of tbe directors - read tbe policy in question; that at tbe time be received tbe policy be bad every reason to believe that be' knew it bad a loss payable clause but was not positive about it; that be remembered some policies held by tbe bank as security bad tbe loss payable clause on them and that be bad no recollection of any that contained tbe mortgage clause; that, at tbe time, be regarded tbe loss payable clause tbe character of protection tbe bank desired, or that tbe insurance should be made payable to tbe bank in case of loss during tbe life of tbe mortgage; that be was not sure be knew at the time a foreclosure of tbe mortgage would void tbe policy, and, if be bad known it and tbe matter bad been left to bim, perhaps be would not have accepted tbe policy with tbe loss payable clause attached. Tbe following admission was made by appellant in tbe course of tbe trial: “It is admitted that T. J. Sharum, N. J: Hazel, M. W. Hazel, C. A. Dawson, C. M. Lutterlob, and tbe other directors of tbe bank, if present, would testify that they did not examine or read the insurance policy sued on. and did not know that it had a loss payable clause on it instead of a mortgage clause. ’ ’ (2) It is conceded by learned counsel for appellant in his splendid brief, that recovery may be had on the policy in case it was the intention of all parties to the contract at the time the policy was written to make a part of it a standard mortgage clause. At the time of making the contract, the insurance- company was represented by Paul Leatherwood, and Wigginton and the Marked Tree Bank by'M. W. Hazel. The testimony of M. W. Hazel and J. R. Wigginton is certain and unequivocal to the effect that the agent was told to place a mortgage clause on the policy and that he agreed to do so. Paul Leatherwood, the agent, said in his first testimony that he did not remember who ordered the policy, nor what was said to him, but his idea was to protect the. bank. In his second testimony, he said if he knew about the mortgage, “it was evidently his intention at the time to place a mortgage clause on the policy.” The company had furnished him both kinds of blanks and the evidence is conclusive that he knew of the existence of the mortgage, so, in view of this latter statement, there is no escape from the conclusion that he intended to place a mortgage clause upon the policy. These three parties are the only three who participated in the procurement and execution of the policy, so it may be said with certainty from the evidence that there was a meeting of the minds of all the parties to the contract for a mortgage clause to be attached to the policy. The failure to attach a mortgage clause and the substitution of a loss payable clause constituted a draft of contract contrary to the intention of all the parties. Not only is this conclusion ■sustained by the positive evidence of the parties, but the subsequent conduct of the bank officers points unerringly to the same conclusion. The bank would not have foreclosed its mortgage without first attempting to have the policy changed had it known that a foreclosure proceeding'with the knowledge of the assured w;ould avoid the policy. The bank evidently intended to procure a policy of insurance which would not conflict with its right to foreclose and thought it had done so, else it would not have instituted foreclosure proceedings. It seems to us the evidence and conduct of the parties under the contract is clear and convincing to the effect that a mutual mistake was"made in the draft of the contract, and that, as written, the contract failed to express the intention of the parties. (3-4) We do not understand that the rule announced in Remmel v. Griffin, 81 Ark. 269, and later cases, to the effect that, ‘ ‘ one who takes out a policy of life insurance is required to examine it within a reasonable time after he receives it, or he will be deemed to have accepted it. * * *” has any application in suits for reformation of contracts on account of mutual mistake. When it appears by clear, satisfactory and convincing evidence that the parties to a contract intended to express a different .thing from that expressed, ,a court of equity will reform the contract so as to express the real intention of the parties irrespective of whether one, both or all the parties thereto availed themselves of the opportunity to read it before signing or receiving it. So in the case at bar, the fact that the cashier received the policy and the bank retained it for a long period of time without reading it can not avail appellant as a defense, because it is established by clear, satisfactory and convincing proof that the intention of all the parties to the contract was to place a mortgage clause and not a loss payable clause,' on the policy. This conclusion renders it unnecessary to discuss other questions presented by able counsel in their briefs. No error appearing, the decree is affirmed.