Republic Insurance Co. v. Silverton Elevators, Inc. , 16 Tex. Sup. Ct. J. 266 ( 1973 )

DANIEL, Justice.

This suit was brought by Respondents, Silverton Elevators, Inc. and Carl L. Tid-well, against Petitioner, Republic Insurance Company, to recover under a Texas Standard Fire Policy issued to Silverton Elevators by Republic covering a residential dwelling and household goods contained therein. In a non-jury trial, Silverton was awarded $3,000 “for the use and benefit” of Carl L. Tidwell for the loss of the household goods. The Court of Civil Appeals affirmed. 477 S.W.2d 336. We affirm.

Carl L. Tidwell was at all times material to this controversy, an officer, director and the general manager of Silverton Elevators, Inc. Silverton owned and furnished to Tidwell a house near its elevators, together with the insurance on the house and on Tidwell’s household goods, as part of his compensation as general manager. Since 1964, Republic’s local agent had issued and renewed insurance policies in the name of Silverton covering the dwelling and its household goods. It is undisputed that the local agent, who had authority to issue the policies and receive the premiums, knew that the household goods belonged to Tidwell and that Silverton was carrying the insurance for the benefit of Tidwell. On April 17, 1970, a tornado destroyed the house and the household goods.

On the date of the tornado there was in effect a Texas Standard Fire Policy with Extended Coverage on DWELLING & HOUSEHOLD GOODS in the sum of $10,000 issued by Republic to Silverton for the period of April 20, 1969 to April 20, 1972, insuring against loss from windstorm the specifically described “occupied dwelling” for $7,000 and “household goods while in the described building” for $3,000.00. It is undisputed that Silver-ton paid the $227.00 premium, and the local agent admitted that at the time he issued the policy he knew the facts heretofore mentioned with respect to actual ownership of the insured property. He testified that he wrote the policy to cover Tidwell’s household goods located in the dwelling which Tidwell and his family occupied; that he knew Silverton was carrying the policy on the household goods for the benefit of Tidwell; that when he issued the policy he did not think it made any difference that it was in the name of Silverton because “they were paying the premium”; and that he told Tidwell that the policy covered his household goods both before and after the tornado.

Republic acknowledged coverage on the house and paid Silverton $7,000 for its damage, but it denied any liability to Sil-verton or Tidwell on the household goods. Thereupon, Silverton and Tidwell- brought this suit against Republic claiming coverage to the limit of the policy ($3,000) on the household goods owned by Tidwell. Republic defended on the grounds that Sil-verton had no ownership and therefore no insurable interest in the household goods and that the policy as written was limited by its terms to household goods owned by Silverton Elevators, Inc., the named insured.

Silverton and Tidwell’s pleadings asserted that they both had insurable interests; that the insurance was purchased by Sil-verton and extended to Tidwell as part of his compensation as manager and as “a legal representative of Silverton Elevators, Inc.”; and that when Republic issued its policy and accepted premiums with full knowledge of the true ownership and relations between Silverton and Tidwell, it waived the right to complain about any lack of ownership or insurable interest of the named insured and was estopped from denying coverage on behalf of Tidwell. As heretofore indicated, the trial court awarded Silverton Elevators $3,000 “for the use and benefit of Carl L. Tidwell.”

Since the policy refers to and clearly purports to cover the household goods located in the specifically described dwelling, we agree with the Court of Civil Appeals that the knowledge of Tidwell’s ownership of the household goods by Republic’s local agent and his actions with respect thereto were imputed to and binding upon Republic. Issuance of the policy and collection of the premiums with such knowledge operates as a waiver of any requirement that the named insured own or possess a beneficial interest in the insured property. National Fire Ins. Co. of Hartford v. Carter, 257 S.W. 531 (Tex.Comm’n App.1924, jdgmt adopted); Continental Ins. Co. v. Cummings, 98 Tex. 115, 81 S.W. 705 (1904); Wagner v. Westchester Fire Ins. Co., 92 Tex. 549, 50 S.W. 569 (1899) ; Liverpool and London and Globe Insurance Company v. Ende, 65 Tex. 118 (1885) ; Old Colony Insurance Company v. S. D. Messer, 328 S.W.2d 335 (Tex.Civ. App.1959, writ ref., n. r. e.); Germania Mutual Aid Association v. Trotti, 318 S.W.2d 918 (Tex.Civ.App.1958, no writ).

In the above cases, the named insureds were not the owners or sole owners of the insured properties. In each case, the true owner was known to the insurance agent and was allowed direct recovery, or recovery for his benefit, on the grounds that the insurance company had waived warranties of sole ownership or lack of insurable interest. There is no conflict between the above cases and those which hold that waiver and estoppel cannot operate to bring within the terms of a policy liabilities or benefits which were expressly excepted therefrom, such as liability from injuries due to gunshot wounds in Washington Nat. Ins. Co. v. Craddock, 130 Tex. 251, 109 S.W.2d 165 (1937); loss for injuries while in military service in time of war, as in Ruddock v. Detroit Life Ins. Co., 209 Mich. 638, 177 N.W. 242 (1920); or payment of benefits beyond a specified termination date at age 65, as in Great American Reserve Ins. Co. v. Mitchell, 335 S.W.2d 707 (Tex.Civ.App.1960, writ ref.). The latter cases recognize that waiver and estoppel may operate to avoid forfeiture of coverage and benefits stated in the policy, but not to add specifically excluded risks or to enlarge the benefits or risks therein set forth. In the present case, plaintiffs seek to recover only on the risk assumed by Republic under the terms of the written policy. Republic’s policy insured against the destruction of precisely the same household goods identified in its policy and for which it collected its premiums. There is no evidence that its risk was enlarged because the household goods were owned by Tidwell rather than Silverton.

Although it is undisputed that Tidwell rather than Silverton owned the household goods in the dwelling when the policy was issued and when the property was destroyed and that they were the household goods intended to be insured, Republic contends that the description, and thus the coverage, was limited by the written policy to household goods owned by Silverton. The effect is to say that the policy covered only non-existent household goods; that even though Republic wrote a $3,000.00 policy on household goods located in the described dwelling, there was never in fact any coverage on anybody’s household goods. This is inconsistent not only with the undisputed intention of its own agent but with the provisions of the policy as written. The household goods were referred to on the face of the policy as being located in the dwelling specifically described in the policy. There was no misde-scription of the location of the property by the agent as in Aetna Ins. Co. v. Brannon, 99 Tex. 391, 89 S.W. 1057 (1905). Their location and identity were definitely and correctly stated. Page 1 bears a typed designation of the insured property as “DWELLING & HOUSEHOLD GOODS.”¹ Other relevant portions read as follows:

“REPUBLIC INSURANCE COMPANY ... In Consideration of the stipulations and conditions herein or added hereto which are made a part of this policy, and of the premiums provided DOES INSURE SILVERTON ELEVATORS, INC. and legal representatives . . . against direct loss resulting from any of the Perils (listed below) WHICH HAVE A PREMIUM INSERTED OPPOSITE THERETO (Column 6) and only on the property described and located as provided hereon.”

Next, under “Coverage” is listed in Column 4, TOTAL INSURANCE, the sum of $10,000.00, and in Column 6 the separate premiums for Fire and Lightning and Extended Coverage, totaling $227.00. Thereafter, under DESCRIPTION OF PROPERTY is “Item 1, $7000.00-0n the ONE story, COMPOSITION type of roof, ASBESTOS SIDING, building, LOCATION . . . SILVERTON, Texas 79257, Lot 7, 8 & 9, Block 143 — OCCUPIED DWELLING,” and “Item 2, $30000.00-HOUSEHOLD GOODS . . . Unless otherwise provided, Insurance on personal property shall cover only while in the described building.” Under the above DESCRIPTION OF PROPERTY heading, in small type are the words: “See definitions of Building, Household Goods, Stock, Furniture, Fixtures, and, or Machinery, and Contents.”

None of the typed or printed words on the face of the policy limit or restrict the coverage or description of household goods to those owned by Silverton Elevators, Inc., unless, as contended by Republic, the reference to and terms of the small-type printed definition on page 2 have that effect. It reads : “Household Goods : Insurance on household goods shall include all personal property, usual to a residence, of the insured and his family.” ²

In an early case involving a dispute about the meaning of this definition, the court said “there is ample room for such divergent views,” but concluded that the words were used “by way of explanation” in a manner which broadened the ordinary meaning of the term “household goods.” Dixie Fire Ins. Co. v. McAdams, 235 S.W.2d 207 (Tex.Civ.App., 1950, writ dism.). Being preceded by the words “shall include,” there is no hint of limitation or restriction in the definition. It does not purport to change the descriptive location of the property or to require that it be owned by the named insured. Neither does it purport to limit or restrict the description or the extent of coverage as set forth on page 1 of the policy. See Alexander v. Firemen’s Ins. Co., 317 S.W.2d 752, 755 (Tex.Civ.App., 1958, no writ).

Republic’s argument to the contrary ignores the purpose served by definitions in a Texas Standard Fire Policy, the terms of which were promulgated by the State Board of Insurance under Articles 5.35 and 5.36 Texas Insurance Code, V.A.T.S. Insurance companies are prohibited from departing from the provisions of these approved terms. Commercial Union Assur. Co. v. Preston, 115 Tex. 351, 282 S.W. 563 (1926). Descriptive words of coverage, including location and description of the property, terms of coverage, and amount of premium for each coverage, are to be typed in on the face of the policy (page 1) as was done. by Republic’s agent on the policy before us. Definitions, Special Conditions, Specific Coverage Conditions, and Basic Conditions are printed on pages 2 and 3 of the standard policy. The principal function of the standard “definitions” is to explain what the terms used on page 1 include in addition to their ordinary meaning. The first phrase in the definition of every term referred to on page 1 and defined on page 2 of this standard policy contains the words “shall include” and in some manner enlarges rather than limits the ordinary meaning of the term. By means of these standard definitions, the Board has required insurance companies to clearly explain that the terms used on page 1 include within the general classification and coverage certain types of property about which a contest or uncertainty might otherwise arise. We have found no instance in which a Texas court has held that a definition in the Texas Standard Fire Policy limits or restricts either the coverage or the description of the property as contained on the face of the policy. Perhaps this is due to the well settled rule that the words “include,” “including,” and “shall include” are generally employed as terms of enlargement rather than limitation or restriction. Peerless Carbon Black Co. v. Sheppard, 113 S.W.2d 996, 997 (Tex.Civ.App.1970, writ ref.); Houston Bank & Trust Co. v. Lansdowne, 201 S.W.2d 834, 838 (Tex.Civ.App.1947, writ ref. n. r. e.); El Paso Electric Co. v. Safeway Stores, 257 S.W.2d 502, 506 (Tex.Civ.App. 1953, writ ref. n. r. e.); Alexander v. Firemen’s Ins. Co., 317 S.W.2d 752, 755 (Tex.Civ.App.1958, no writ). We hold that the words “shall include” as used in this definition are terms of enlargement rather than limitation, and the definition does not have the effect of restricting the coverage or description of the property as set forth on the face of the policy.

Republic would have the definition interpreted as though it contained the following additional italicized words: “Insurance on household goods shall include and mean only all personal property, usual to a residence, owned by the named insured [Sil-verton Elevators, Inc.] and his family.” The effect of such construction would be to add the requirement of sole and unconditional ownership by the named insured to the description and coverage, which would be contrary to the policy as written and as promulgated by the Board of Insurance. This required warranty of ownership by the named insured was once carried in the Texas Standard Fire Policy, but it has long since been discarded by the Board. Dean v. Pioneer Co-Operative Fire Ins. Co., 231 F.2d 18 (5th Cir. 1956); 24 S.W. L.J. 373. It is true that the last phrase of the standard printed definition, “of the insured or his family,” is not appropriate to Silverton Elevators, Inc., since it never owned any household goods within the dwelling described on page 1; it has no residence in the sense of a home; and it has no family. The same discrepancy exists to some extent each time this standard policy is issued to a corporation. Since the phrase is inapplicable and meaningless sur-plusage in the policy issued to Silverton, it should be disregarded instead of applied in a manner so inconsistent with the rest of the policy as to defeat all coverage of household goods for which Republic collected premiums. London & Provincial Marine & General Ins. Co. v. Sykes, 66 S.W.2d 382 (Tex.Civ.App.1933, writ dism.); Trinity Portland Cement Co. v. Lion Bonding & Surety Co., 229 S.W. 483 (Tex.Comm’n App.1921, jdgmt adopted).

It has been suggested, but not by Republic, that the building item provision contained in the “Mortgage or Trustee” clause at the bottom of the face of the policy, and particularly the last sentence thereof, limits liability for compensation to the “interest of the insured,” and that this applies to personal property.³ Even though the provision does not speak of “named insured,” and for all practical purposes Tidwell was the “insured” because the policy as to household goods was written for his benefit, there are other more compelling reasons why this provision is inapplicable to the personal property involved in this case. Clearly, the entire clause refers to loss on “building items,” their value at the time of loss less depreciation, repair, replacement and reconstruction, etc. None of the language refers to personal property. Furthermore, the last sentence begins with the words, “Subject to Article 6.13 of the Texas Insurance Code,” and this Article contains the specific provision that: “The provisions of this article shall not apply to personal property.”

The above clause has been a part of the Texas Standard Fire Policy form prescribed by the Insurance Commission since 1943. Since then we have found no case involving a claim of an actual owner for whose benefit a policy was taken out with full knowledge by the insurance company of the true ownership, in which this clause has been applied to deny recovery by or on behalf of the true owner. See Dean v. Pioneer Co-Operative Fire Ins. Co., 231 F.2d 18 (5th Cir. 1956); Farmers Ins. Exchange v. Nelson, 479 S.W.2d 717 (Tex.Civ.App.1972, writ ref. n. r. e.); and Old Colony Insurance Co. v. Messer, 328 S.W.2d 335 (Tex.Civ.App.-1959, writ ref. n. r. e.). In the later case the clause was specifically raised as a defense and overruled on the grounds (1) that the company was estopped by its knowledge that the named insured was not the true owner and (2) that one for whose benefit a policy is issued under such circumstances is entitled to recover thereon. The latter reason was based on a well-established rule of contract law which is applicable to insurance contracts. See discussion of the rule in Cumis Ins. Soc. Inc. v. Republic Nat. Bank, 480 S.W.2d 762 at page 767, (Tex.Civ.App. 1972, writ ref. n. r. e.); Annotation, 61 A. L.R. 720 ; 4 Corbin on Contracts 211 § 807.

Whether applicable to personal property or not, we hold that the portion of the clause relating to limitation of liability to “the interest of the insured” falls within the category of ownership provisions which may be waived; the insurer may be estopped from denying liability to the true owner on policies issued in the names of third parties covering the risks on identified property with full knowledge by the company that the property is actually owned by the one for whose benefit the policy was written or -maintained. National Fire Ins. Co. of Hartford v. Carter et al., 257 S.W. 531 (Tex.Comm’n App.1924, jdgmt. adopted) ; Scott et al v. Law Union & Rock Ins. Co., 12 S.W.2d 147 (Tex.Comm’n App.1929, jdgmt adopted); Old Colony Insurance Co. v. Messer, supra; New York Underwriters Ins. Co. v. Brittain, 62 S.W.2d 168 (Tex.Civ.App.1933, writ dism.); Mecca Fire Ins. Co. v. Smith, 135 S.W. 688 (Tex.Civ.App.1911, no writ hist). See Maryland Casualty Co. et al v. Palestine Fashions, Inc. et al., 402 S.W.2d 883 (Tex.1966), and cases heretofore cited in paragraph 6 this opinion.

Republic insists that reformation of the policy is the only proper remedy, if any, for recovery by Silverton on behalf of Tidwell, because of failure of the written policy to identify the household goods as belonging to Tidwell. We disagree. As heretofore indicated, under the undisputed facts, the household goods described in the policy belonged to Tidwell and were insured by Silverton for his benefit in a policy drawn by Republic’s agent for such purpose, with assurances from the agent that it would cover Tidwell’s furniture. If this was a mistake, it was made by Republic’s agent, and it was mutual, because Tidwell and Silverton took the agent’s word that it expressed the true agreement. With this evidence being fully developed in the present record, there is no reason to require another trial for reformation of the written policy. It has been held that even without a plea for reformation, when the facts show the true agreement intended and a mutual mistake, or mistake of the agent, in preparing the written policy, the agreement intended will be enforced without going through the formal proceedings of reformation. Aetna Ins. Co. v. Brannon, 99 Tex. 391, 89 S.W. 1057; Aetna Ins. Co. v. Brannon, 53 Tex.Civ.App. 242, 116 S.W. 116 (Tex.Civ.App.1904, no writ). See also 25 A.L.R.3d 589 § 3; 25 A.L.R.3d 1239 § 3; and 32 A.L.R.3d 677 § 3.

Silverton and Tidwell made every proof in this case that would entitle recovery on the policy as written. Under the above cited authorities, the trial court and Court of Civil Appeals have properly held that Sil-verton is entitled to recover for the benefit of Tidwell on the written policy without seeking a reformation thereof.

Accordingly, the judgments of the lower courts are affirmed.

Dissenting Opinion by WALKER, J., joined by GREENHILL, C. J., and POPE and REAVLEY, JJ.

1 . These and other typewritten words on the face of the policy are italicized to distinguish them from printed words.

2 . Emphasis added here and throughout the remainder of this opinion.

3 . The clause reads:

“Loss on building items shall be payable to ASSURED ONLY

“Address as Mortgagee or Trustee, as their interest may appear at time of loss, subject to Mortgage Clause (without contribution) printed elsewhere in this policy. Subject to Article 6.13 of the Texas Insurance Code, 1951, liability hereunder shall not exceed the actual cash value of the property at the time of loss, ascertained with proper deduction for depreciation; nor shall it exceed the amount it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss, without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair, and without compensation for loss resulting from interruption of business or manufacture; nor shall it exceed the interest of the insured, or the specific amounts shown under ‘Amount of Insurance.’ ”