Mulrooney v. Royal Ins.

REED, District Judge (after stating the facts as above). The plaintiff as trustee in bankruptcy of Oliver O. Kendall, bankrupt, sues the defendant for $3,000 upon its policy of insurance against loss or damage by fire issued to said Kendall. The defendant admits that it made the policy, and that the property insured was afterwards destroyed by fire as alleged by plaintiff, but denies its liability upon the policy, for the reason, among others, that, after the making of the same, the assured made a bill of sale of the insured property, which was intended as, and in fact was, a chattel mortgage to secure the payment of certain indebtedness owing by him; that defendant never consented to the making of such mortgage, or to the transfer of the property in any other manner or for any other purpose than as indorsed upon said policy; that the making of the mortgage, without its written consent thereto, indorsed upon or attached to the policy, was a violation of the conditions, which conditions defendant has never waived; and because thereof the policy became void before the property was destroyed. The incumbrance of insured property by mortgage or- otherwise undoubtedly increases the moral hazard of the risk, and a provision in the policy rendering it void in case of such incumbrance, not consented to in writing by the insurer, is reasonable. The policy in suit contains such a provision, and the property insured was subsequently incumbered by chattel mortgage to an amount nearly equal to its value, which incumbrance, when made, was reported to the local agents of the company who issued the policy, but who did not report the same to the company or to its Western managers, or by writing indorsed upon or added thereto, or otherwise, consent in writing to such incumbrance, or waive any of the conditions of the policy rendering it void because thereof, though they did verbally consent to such incumbrance. The question is: Does such knowledge of the agents, or their verbal consent to the incumbrance, save the policy from lapsing? The policy in plain and unambiguous terms provides that: “No officer, agent, or representative of this company shall have power to waive any provision or condition of this policy, except such as by its terms may be the subject of agreement indorsed hereon, or added hereto, and as to such conditions and provisions no officer, agent or representative shall have such power or be deemed or held to have waived such condition unless such waiver, if any, shall he written upon or attached hereto, nor shall any provision or condition affecting the insurance under this policy exist or be claimed by the insured unless so written or attached.” — 604 — That the incumbrance of insured property may be the subject of agreement between the assured and the company is not doubted; but the manner of such agreement is plainly provided for in this policy. Tike, or similar provisions in policies of insurance have been the subject of recent consideration by the Supreme Court of the United States and the Court of Appeals of this circuit in Northern Assurance Co. v. Grand View Bldg. Ass’n, 183 U. S. 308, 22 Sup. Ct. 133, 46 L. E.d. 213, Delaware Insurance Co. v. Greer, 120 Fed. 916, 57 C. C. A. 188, 61 L. R. A. 137, Atlas Reduction Co. v. New Zealand Ins. Co., 138 Fed. 497, 71 C. C. A. 21, 9 L. R. A. (N. S.) 433, and Connecticut Fire Ins. Co. v. Buchanan, 141. Fed. 877, 73 C. C. A. 111, 4 L. R. A. (N. S.) 758. In all of these cases the provisions of the policies involved, in respect of their conditions as to other insurance, incumbrances, non-occupancy of buildings, and the manner of consenting thereto or waiver of conditions, are identical with those of the policy in question. In Northern Assurance Co. v. Grand View Bldg. Ass’n other insurance existed upon the property at the time the policy was issued, which was known to the agent when he issued the policy, but no written indorsement was made upon or added to the policy consenting to the same or waiving the conditions of the policy in regard thereto when it was written, or at any time afterwards. Two questions were considered by the Supreme Court: (1) Could the knowledge of the agent of the existing insurance be shown by oral testimony in an action at law upon the policy, in the absence of fraud or mutual mistake in making it, for the purpose of avoiding, upon the principle of estoppel, the stipulation against other insurance? (2) Could the agent consent to the other insurance, or waive the condition of the policy rendering it void because thereof, except in the manner provided by the policy? Both of these questions upon an exhaustive review of the authorities English and American are answered in the negative. In Atlas Reduction Co. v. New Zealand Ins. Co. the assured, after the policy was issued, made a mortgage upon the property to Dodge & Stevenson to secure to them the payment of a debt it was owing them. On the same day that the mortgage' was made the agents of the company who had negotiated and issued the policy indorsed thereon the following: “Subject to all the conditions of this policy, loss, if any, payable to Dodge & Stevenson as their interest may appear.” It was held that this indorsement was not a consent to the incumbrance of the property within the terms of the policy, nor a waiver of its condition that it should become void if the property was after-wards incumbered. In Connecticut Fire Ins. Co. v. Buchanan the policy contained the following stipulation: “This entire policy unless otherwise provided by agreement Indorsed hereon ■Or added hereto shall be void * * * if the building herein described * * * be or become vacant or unoccupied.” The building was vacant at the time the policy was issued, and was so known to be by the agent who wrote it. No written indorsement was 'fnade upon or added to the policy when it was made, or after605 wards, consenting to the vacancy or waiving the condition of the policy in regard thereto. It was held that oral testimony showing the knowledge of the agent that the property was vacant when the policy was issued was not admissible to avoid the stipulations of the policy that it should be void if the property insured then was, or afterwards became, unoccupied. In Delaware Ins. Co. v. Greer the policy contained a provision that: “This entire policy unless otherwise provided by agreement indorsed hereon or added hereto shall be void * * * if with the knowledge of the insured, foreclosure proceedings be commenced * * * by virtue of any mortgage or trust deed of any property covered by this policy.” There was a mortgage upon the insured property, and the company before foreclosure proceedings were commenced at the request of the mortgagees attached to the policy a loss clause as follows: “Loss, if any, payable to James H. Truskett, mortgagee, as his interest may appear.” Afterwards foreclosure proceedings were commenced which was known to the insured, but no notice thereof was given to the company or the conditions of the policy in regard thereto waived, as provided by the policy. Held that the policy ceased upon commencement of the foreclosure proceedings. These authorities are, of course, controlling, and must rule the decision of this case, unless its facts are such as to distinguish it from them. It is contended by counsel for the plaintiff that it is to be so distinguished mainly because of section 1750 of the Code of Iowa of 1897. That section is as follows: “Sec. 1750. * * * Any officer, agent or representative of an insurance company doing business in this state who may solicit insurance, procure applications, issue policies, adjust losses or transact the business generally of such companies shall be held to be the agent of such insurance companies, with authority to transact all business within the scope of his employment, anything in the application, policy, contract, by-laws or articles of incorporation of such company to the contrary notwithstanding.” The meaning of this section and the purpose of its enactment are declared by the Supreme Court of Iowa in Liquid Acid Co. v. Phœnix Insurance Co., 126 Iowa, 225, 101 N. W. 749. As there stated, the purpose of the statute was to prohibit the limitations of the power of the agents by provisions in the contract of insurance. Most of the cases cited refer to waivers of conditions respecting proofs of loss, which conditions rest upon principles different from those upon which the contract of insurance is first to become effective, or afterwards to continue in force. Washburn-Halligan Co. v. Insurance Co., 110 Iowa, 423, 81 N. W. 707, 80 Am. St. Rep. 311. But the power of an agent and the manner in which he shall exercise that power are quite distinct. Mechem on Agency, §§ 407-409. In section 409 it is said: “The act of the agent, whether he be general or special, within the limits of his authority is binding upon the principal. His act beyond those limits binds himself only, or no one. Hence arises the fundamental necessity that not only the extent but the manner of the execution be such as the authority conferred will warrant, and no other. AVhere precise and exact limits have been fixed, the performance of the agent should be kept scrupulously within them. — 606 — When those limits have not so been fixed, it is still imperative that the reasonable and usual limits in such cases be determined, and .that the manner and extent of the execution be made to conform to them.” Contracts between the company and the assured that they shall be bound by the agreements of agents only when made in writing are reasonable, and for the benefit of both parties, and necessary to protect them against the mischiefs and uncertainties of oral testimony, which cannot otherwise be guarded against. Northern Assurance Company v. Grand View Building Association, 183 U. S. 308, 318; 347, 364, 22 Sup. Ct. 133, 46 L. Ed. 213; Ruthven v. Insurance Co., 92 Iowa, 316, 60 N. W. 663; Taylor v. Insurance Co., 98 Iowa, 521, 67 N. W. 577, 60 Am. St. Rep. 210; Kyte v. Assurance Co., 144 Mass. 43, 10. N. E. 518. Assuming, without deciding, that the Legislature may rightly forbid the company and the assured from contracting th,at the agent shall bind the company only by agreements in writing, the statute does not attempt to, and does not, in fact, forbid their doing so. It only provides that persons acting in the capacity there specified for an insurance company shall be held to be the agents of such company with authority to transact all business within the scope of their employment. The phrase “scope of the employment” has a more restricted meaning than “scope of the agency,” which might include any acts reasonably necessary to effect the objects of the agency; but the scope of the employment is necessarily limited by the terms of the employment. Mechem on Agency, § 308; Baring v. Peirce, 5 Watts & S. (Pa.) 548, 40 Am. Dec. 537: Snow v. Warner, 10 Metc. (Mass.) 132, 43 Am. Dec. 417; Craighead v. Peterson, 72 N. Y. 279, 28 Am. Rep. 150; Graves v. Horton, 38 Minn. 66, 35 N. W. 568; Hodge v. Combs, 1 Black, 192, 17 L. Ed. 157. In section 308, Mechem on Agency, it is said: “So a formal instrument conferring authority will be strictly construed, and can be held to include only those powers which are expressly given, and those which are necessary, essential, and proper to carry out those expressly given”— citing many authorities. In Snow v. Warner, 10 Metc. (Mass.) 132, 43 Am. Dec. 417, it is said: “An agent, appointed by a writing which defines and limits his authority, is subject to its terms; and acts done by him, not within the scope of the.authority, cannot bind his principal; and a person who trades with, such agent must examine for himself whether the agent is acting under written instructions, and the principal will not be bound because such person was ignorant of their existence.” When, therefore, an agent is employed to make contracts for his principal only in writing, then verbal contracts by him are beyond the scope or range of his employment. This statute only prohibits the company from denying that persons acting for it as specified therein are its agents authorized to transact its business within the scope of their employment, and leaves the company and the assured free to provide in their contract that the company shall be bound by the agreements of its agents .only when made in writing indorsed upon or added to the policy, which then--becomes the sole repository and memorial — 607 — of their final agreements. That this section was not intended to prohibit such agreements is obvious from the provisions of section 1743 of the Code as amended, which is as follows (Code Supp. 1902): “Sec. 1743. Any condition or stipulation in an application, policy or contract of insurance making the policy void before the loss occurs shall not prevent recovery thereon by the insured, if it shall be shown by the plaintiff that the failure to observe such provision or the violation thereof did not contribute to the loss; provided, however, that any condition or stipulation referring to any other insurance, valid or invalid, or to the vacancy of the insured premises or the title or the ownership of the property insured or to liens or incumbrances thereon created by voluntary act of the insured andi within his control, * * * or to the assignment or transfer of such policy of insurance before loss without the consent of the insurance company, * * * shall not be changed or affected by this provision.” Section 1750 was first enacted in 1880 and amended in 1897 as it now appears, and it has never been suggested until since the decision in Liquid Acid Co. v. Insurance Co. that it prohibited insurance companies from providing in their policies that they should be bound by the agreements or waivers of their agents only when in writing and made part thereof. In the absence of a direct holding of the Supreme Court of the state that it does prohibit them from so doing, this court will not first so hold. A. E. Buck was the soliciting agent of the company for the policy in question, and Miller & Collmann issued and countersigned the same. The authority of each to consent to the subsequent incumbrance of the property insured is in plain terms limited to their doing so in writing “indorsed upon or added to the policy.” It would not be contended that either of these agents could bind the company by a verbal contract of insurance in the first instance. The verbal consent to the incumbrance of the property insured is equally beyond their authority. Garretson v. Insurance Co., 81 Iowa, 727-729-730, 45 N. W. 1047. The policy involved in Liquid Acid Co. v. Phoenix Ins. Co. is different from the one here involved, or those involved in the cases above cited. It contained a clause that: “No officer, agent or other representative of the company, except the general manager in Chicago, shall have the power to waive, change or modify any of its provisions or conditions, etc., and he only in writing endorsed upon or added to the policy.” This denied all authority of the local agent who solicited the insurance and issued the policy, in direct violation of section 1750 of the Code, which the Supreme Court of Iowa says was the evil intended to be remedied by that section. The policy did not contain any provision that the local agent should agree to incumbrances, other insurance, or the like, or waive any of its conditions, only in writing indorsed upon or added thereto; and, as under the statute he must be deemed the agent of the company, it therefore resulted in that case that the verbal consent and waiver by the local agent were binding upon the company. In Connecticut Ins. Co. v. Buchanan, above, in referring to this case, a distinction is suggested between conditions upon which the contract of insurance is to become effective in its inception, and those which relate to the waiver by the agent of conditions subsequently arising. But there seems to be no valid reason for distinguish — 608 — ing between agreements or conditions upon which the contract is to become effective in the first instance and those upon which it is to continue in force, when, because of changed conditions, it would become void if they were not consented to. Both are of the essence of a live contract of insurance. Carpenter v. Insurance Co., 16 Pet. (U. S.) 495, 10 L. Ed. 1044; Worcester Bank v. Hartford Ins. Co., 11 Cush. (Mass.) 265, 59 Am. Dec. 145. There are' reasons for a distinction between such conditions and those which relate to performance after a loss has occurred, or are conditions precedent to the maintenance of an action to recover for the loss. In Washburn-Halligan Co. v. Insurance Co., 110 Iowa, 423, 81 N. W. 707, 80 Am. St. Rep. 311, such distinction is made; and in speaking of provisions like those in question, the court says: “This stipulation relates to the conditions and provisions of the policy, and not to their performance; or, as put in numerous authorities, it ‘applies only to those conditions and provisions in the policy which relate to the formation and continuance of the contract of insurance, and are essential to the binding force of the contract while it is running, and does not apply to those conditions which are to be performed after the loss has occurred, in order to enable the assured to sue on his contract, such as giving notice and furnishing preliminary proofs.’ We believe it to have been uniformly so held when attention has been directed to this particular point. * * * The conditions contemplated are of the essence of and form a part of the contract of insurance, upon which Its continuing force depends. Under a . valid policy, liability attaches on the happening of the loss, and evidently the requirement of proofs of loss pertains not to the provisions of' the policy, but to the performance of them.” It is clear that A. E. Buck was the agent of the defendant and authorized to consent in writing to the incumbrance of this property, and .the continuance of the insurance thereon, unless his interest as stockholder of the bank for whose benefit the bill of sale was made would prevent him from so doing (Arispe Mercantile Co. v. Capital Ins. Co., 110 N. W. 593, 9 L. R. A. [N. S.] 1084); but he did not do so, and referred the matter to Miller & Collmann, under whom it seems he was acting, and informed them of the purpose of the bill of sale. They also were authorized to consent in writing to such incumbrance, and so waive the conditions, of the policy, but, instead of doing so upon being informed of the purpose, of the bill of sale, they made the following indorsement upon the policy; “Consent by Company of Assignment of Interest. “The Boyal Insurance Company hereby consents that the interest of O. O. Kendall, as owner of the property covered by this policy be assigned to H. H. Buck. [Signed] Miller & Collmann, Agent.” This is not a consent to the incumbrance (Atlas Reduction Co. v. New Zealand Ins. Co., 138 Fed. 497, 71 C. C. A. 21, 9 L. R. A. [N. S.] 433; Delaware Ins. Co. v. Greer, 120 Fed. 916, 57 C. C. A. 188, 61 L. R. A. 137), but a consent to the transfer of ¡the title of Kendall as owner of the property to H. H. Buck, and, at most, to the continuance of the insurance to him as such owner.; The company might be content to continue the insurance in favor of the absolute owner of the property when it would not do so upon the. property becoming incumbered. The distinction is plain, and the difference in.- the hazards of the risk obvious.. But the indorsement made by the agents is the only — 609 — competent evidence of what they agreed to, and cannot be varied by oral testimony. Northern Assurance Co. v. Grand View Bldg. Association, supra; Elliott v. Farmers’ Ins. Co., 114 Iowa, 153, 86 N. W. 224. If Gurnett v. Atlas Insurance Co., 124 Iowa, 547, 100 N. W. 542, can be construed as supporting plaintiff’s contention, then it-conflicts with Northern Assurance Co. v. Grand View Bldg. Association above, and in this jurisdiction it must yield to that case. If the bill of sale was in fact, as it is in form, an absolute transfer of the property to H. H. Buck, then he became the absolute owner of this property, and after this indorsement the insured, and Kendall thereafter had no interest in the property, or in the insurance thereon, and none passed upon his subsequent bankruptcy to the plaintiff as his trustee. If it is in fact a mortgage, as it is shown to be, then the interest of H. H. Buck in the property was “other than the unconditional and sole ownership,” and the insurance as to him might cease under that condition of the policy — a question, however, that it is not necessary to now determine. In any view that can be taken of the matter, the policy as to Kendall had terminated before the destruction of the property. The plaintiff further contends that defendant is estopped from disputing the validity of the policy because of the acts of its adjusting agent in examining Kendall and H. H. Buck with reference to the bill of sale and the loss after the fire. But the policy expressly provides that such an examination shall not'be a waiver of the conditions of the insurance. Aside from that, however, the testimony fails to show that the company is estopped because of any act of its adjuster. The plaintiff is not therefore entitled to recover, and the judgment must be for defendant for costs. It is so ordered.