Ætna Ins. Co. v. Willys-Overland, Inc. , 288 F. 912 ( 1922 )

WESTENHAVER, District Judge

(after stating the facts as above). This cause has been heard and submitted on a general demurrer to each of the two causes of action stated in the amended petition. After submission, the parties, at the suggestion of the court, Hied a stipulation that the open policy of marine insurance and the certificates of reinsurance issued by the defendant might for the purposes of this demurrer be considered as a part of the amended petition as fully as if all' the pertinent provisions thereof had been properly pleaded in the amended petition. True copies of the documents referred to are attached to the stipulation.

Eater I communicated to counsel, in chambers, quite fully my views respecting the ultimate question of law and fact arising upon the demurrer, and accorded them an opportunity to restudy these questions and to submit further briefs. This has been done. These conferences dispense with the necessity of any statement of the facts or any extended statement of the reasons upon which my conclusion is based. It will be sufficient to state my conclusion briefly, and so much only of my reasoning as will inform counsel of the grounds upon which I have based my conclusions. One question only of law has been argued,' and it resolves itself finally into a question of' fact. That question is the right of a holder of one of the certificates of insurance. The holder’s rights depend upon the extent to which the terms and conditions of the original insurance' policy are to be regarded as a part of or control and limit the terms and conditions of the insurance certificate.

These insurance certificates are issued by the defendant and countersigned by plaintiff’s representative, under authority of the provisions contained in paragraphs 19 and 20 of the original policy. When properly issued pursuant to that authority, they become, in my opinion, an original and independent contract between the plaintiff and a holder thereof. Neither the form nor the specific terms of the certificates is set forth in the insurance policy. The form of the certificates, it may be assumed, was prepared by the insurance company and, according to the usual rule, is to be construed most strongly against it. The certificate provides methods of adjustment, notice and proof of loss, place and manner of payment, different from and independent of the terms of the original policy pertaining to the same subject-matter. It is not necessary to hold that none of the terms and conditions of the original policy is incorporated in the certificate and may not be looked to in order to ascertain the entire contract between the insurance company and a certificate holder. It may be conceded that the certificate and the insurance policy are to be taken together in order to ascertain the entire contract between insurance company and the certificate holder. It is none the less true, however, that a certificate issued and countersigned pursuant to the authority conferred by said paragraphs 19 and 20 becomes a new and independent contract between the insurance company and the certificate holder, and a new contract is thereby engendered which controls the rights as between them. The certificate holder does not become an assignee of the original policy of insurance nor a mere appointee under that policy to collect the insurance in case of loss. He is not a person claiming title through the defendant as the original insured under the original policy. His contract is none the less an independent one with the insurance company, although it may be necessary to examine both the certificate and the original policy in order to ascertain the terms of that independent contract.

In this case, plaintiff contends that a certificate holder can recover against the insurance company after loss, notwithstanding' the original insured, the Willys-Overland, Inc., had been guilty of a breach of duty imposed on it by the terms of the original policy, and that, this being so, a payment made to the certificate holder of a loss covered by the certificate is not a voluntary payment, and that such a payment is not a waiver of the defenses the insurance company might have to an action brought by the insured on a loss accruing to it. Defendant, on the other hand, contends that the breaches of duty or of the terms of the original insurance policy complained of in the amended petition were available to the insurance company equally as a defense against a loss asserted by a certificate holder, and hence that payment of the loss by the insurance company to the certificate holder was a voluntary payment, or at most a payment made under a mistake of law, and hence cannot be recovered back. This, as I understand the situation, is the exact point in dispute.

My} conclusion is in accordance with plaintiff’s contention. The duty imposed upon the insured under the original policy, the Willys-Overland, Inc., by the provisions of paragraph 19, is imposed upon and is a part of the authority conferred to issue certificates of insurance. The authority thus conferred' is in the nature of an agency duty rather than a condition precedent or a subsequent warranty imposed upon the insured. It may be conceded that if the Willys-Over-land, Inc., had exceeded the authority conferred by paragraph 19, or had issued a certificate in violation thereof, the holder of that certificate would be bound to take notice of the limitations imposed by the policy on that authority. The certificate holder might properly be regarded as dealing with an agent with limited power and required to inquire as to the limits of that power. It does not follow, however, that the holder of a certificate properly issued in conformity to that power is to be held responsible for a failure to perform some duty imposed in connection with the exercise of that power and authority, particularly when that duty relates to some act to he performed after-the certificate is issued, and in its nature essentially an act pertaining to an agent’s duty to his principal. If it be true, as alleged, that the custom and method of business between the insurance company and the insured was to give the name of the ship, it does not follow that the failure so to do can be regarded as a breach of duty by the certificate holder, nor as a breach of warranty contained in the contract between the insurance company and the certificate holder. The contrary seems to me to be the case.

Otherwise stated, I am of opinion that the true intent of the parties to the original insurance policy was that the insurance company constituted the insured, the Willys-Overland, Inc., its agent, with power to issue certificates of insurance; that it authorized the insured so to do within certain limits subject to the same being countersigned by its designated representative; that the certificate, when thus issued and countersigned, became an original and independent contract between the insurance company and the holder thereof; and that the certificate does not expressly or by necessary implication incorporate a condition or warranty on which defendant relies, but is, on the other hand, to be regarded as so far complete in its terms that a holder’s rights to recover do not depend on the performance by the insured, the Willys-Overland, Inc., of other duties imposed by paragraph 19 and the custom pleaded in the matter of forwarding certain notices and conveying certain information to the insurance company, particularly the custom requiring the name or names of ships to be furnished within a certain time. The failure of the insured so to do is not the failure of the certificate holder. The duty so to do was imposed upon the original insured and not upon the certificate holder. The latter’s right of action in the event of a loss is not dependent upon the performance by the original insured of that duty.

Counsel have produced no authority dealing with this exact situation. The cases cited most nearly analogous are those arising under a uniform mortgage clause, or other similar clauses used to define the mortgagee’s interest and rights under a policy issued to the mortgagor. For cases arising under the uniform mortgage clause, see Hastings v. Westchester, 73 N. Y. 141; Insurance Co. v. Bohn (8 C. C. A.) 65 Fed. 165, 12 C. C. A. 531, 27 L. R. A. 614. For cases arising under another form of clause more nearly like the certificate now involved, see Welch v. British American Assur. Co., 148 Cal. 223, 82 Pac. 964, 113 Am. St. Rep. 223, 7 Ann. Cas. 396; Christenson v. Insurance Co., 117 Iowa, 77, 90 N. W. 495, 94 Am. St. Rep. 286; Insurance Co. v. Building Ass’n, 175 Ill. 115, 51 N. E. 717; Insurance Co. v. Bank, 47 Neb. 717, 66 N. W. 646, 36 L. R. A. 673, 58 Am. St. Rep. 663; Boyd v. Insurance Co., 25 Wash. 447, 65 Pac. 785, 55 L. R. A. 165; note 18 L. R. A. (N. S.) 197. Ohio is in accord with this last line of cases. See Bank v. Insurance Co., 83 Ohio St. 309, 336, 94 N. E. 834. The reasoning of this last line of cases permitting a mortgagee to recover notwithstanding violations by the insured mortgagor of covenants of the insurance policy apply in principle to the present situation.' Indeed, it ’ seems to me that much stronger reasons exist, requiring a like conclusion in the present situation.

The demurrer is overruled. An exception may be noted.