State Mutual Fire Insurance v. Arthur , 30 Pa. 315 ( 1858 )

The opinion of the court was delivered by

Strong, J.

— This case was tried with very little regard to the issues which had been formed between the parties. The plaintiff below declared upon a policy of insurance. To this declaration the defendants pleaded a breach of the plaintiff’s warranty, made in the application, which by the terms of the policy was made a part thereof, and the representations of which were agreed to be warranties on the part of the assured. By the conditions of insurance, also made a part of the policy, applications were required to state “by whom the property (was) is occupied, whether as private dwellings or how otherwise,” and the application in this case stated in answer to the question “ for what purpose used and by whom?” “dwellings by tenants.” The pleas charged that the plaintiff had warranted that the buildings insured were at the time the policy was made, used as dwellings by tenants and not otherwise, and the breaches assigned were, that at the time of making the policy, and long afterwards, they were used as boarding-houses for disorderly persons, not tenants, and that one of them, at the time of making the policy and long afterwards, was used in part as a store, candy or cake shop, and in part as a boarding-house for the accommodation of disorderly persons, not tenants. To these pleas, the first and second, the plaintiff replied, not by denying the breaches charged, nor by traversing the warranty directly, but by averring as inducement, that at the time the policy was issued, the defendants knew that the buildings insured were occupied as boarding-houses, for the accommodation of those not tenants, and that they knew that one was occupied, in part, as a store, cake or candy shop, and in part as a boardinghouse, without this, that the policy was made upon the warranty of the plaintiff, as averred in the pleas. The defendants rejoined by reasserting the warranty, and put themselves upon the country, and the plaintiff did the like. Thus the first and second issues were formed.

It is plain that the breaches of the warranty pleaded, were not put in issue. They were admitted. Nor was the existence of the warranty itself traversed, except so far as the inducement of the plaintiff’s replication amounted to a denial of it. What were then the facts in issue? Nothing more than knowledge by the defendants of the manner in which the buildings insured were used at the time when the policy was made. The single question was, whether the defendants knew of the occupancy of the buildings as boarding-houses for disorderly persons, not tenants, and as a store, candy or cake shop, when they subscribed the policy. Yet under this simple issue, the assertion and denial of a single fact, the court admitted evidence of the manner in which the property was occupied; and, also, evidence that the mode of occupation, unlike that stated in the warranty, was known to the agents of the defendants, constituted only to receive applications and make surveys, but with no power to make contracts. Under the same issues the jury were instructed, that knowledge by such agents was knowledge by the defendants; that if the agents knew the facts, filled up the application, and procured the plaintiff’s signature, it was the same thing as if a true full description had been inserted in the application, as it ought to have been; and that the description was a mutual mistake of the parties which equity would reform. These things were not in issue, and we think the court was in error in permitting their introduction. Nor did the error terminate with the irrelevancy of the evidence and instruction to the jury. The issue tendered by the plaintiff, in his replication to the pleas, was no answer to them. Knowledge by the underwriters of the breach of a warranty, at the time it is made, does not relieve the assured from the consequences of the breach, or convert the engagement into a different warranty. It may relieve against a false or imperfect representation, but not against a warranty. The purpose in requiring a warranty is to dispense with inquiry, and cast entirely upon the assured the obligation that the facts shall be as represented. Compliance with his warranty is a condition precedent to any recovery upon the contract. It is therefore that the materiality of the thing warranted to the risk is of no consequence. The assured, by his warranty, engages that, whatever may be the condition of things when he makes his application, the facts shall be as warranted when the policy attaches. The building may be occupied .as a powder magazine to-day, but when the risk commences, it must be what he has warranted. Knowledge by the underwriter, or by him and the assured, is no basis for reforming the policy, though it is conceded that equity will reform it, in the case of mutual mistake of facts. The error of the court below, in this case, seems to have been in treating the pleas as averring a representation, when they alleged a warranty. It is not true that the rule which prevails in sales of personal property, namely, that a warranty does not embrace defects known to the purchaser, is also extended to warranties contained in policies of insurance. In Jennings v. The Chenango Insurance Company, 2 Denio 79, it is declared that no parol evidence is admissible to contradict, restrain, control, or extend a policy, clear and explicit upon its face. In Kennedy v. The St. Lawrence Mutual Insurance Co., 10 Barbour 289, a case in which a breach of warranty was pleaded, the plaintiff replied in avoidance, that the defendants’ agent had full knowledge of the facts which constituted the breach, and with such knowledge drew up the application containing the warranty in such manner as he chose. The evidence offered to prove the replication, was rejected as immaterial, and the court above held the rejection right. They remark, with great force, as follows: “It was not denied that the application was signed by the plaintiff, nor that the warranty was broken, but the effect of such breach was sought to be obviated by showing that the defendants’ agent drew up the application, and knew of the existence of the buildings, the omission to state which, constituted the breach of the warranty. It is not perceived how this can affect the case. If the matter stated in the application was to be treated as a representation, and was shown to 'be false, it would affect the validity of the policy, merely on the ground of fraud, and not on account of a breach of a condition precedent. Treating it as a mere fraudulent representation, there would be force in the averment that the defendants’ agent knew of the existence of the fact, the concealment of which was made the subject of complaint. But a representation and a warranty are essentially different things, and call for the application of different rules of law. Here was a warranty, and all the cases show that it must be complied with by the assured, as a condition precedent to a recovery. It matters not whether the omission to describe all the buildings was by accident, or from fraudulent design; in either case the insurer is not liable, unless the condition be performed.” All this is undoubted law, and is directly applicable to the case now before us.

The decision in The Howard Fire Insurance Company v. Bruner, 11 Harris 50, is erroneously supposed to assert a different doctrine. Far otherwise. It was made upon the basis that the assured had made no warranty. There the defendants’ agents had authority to take risks. Hot, as in this case, merely to receive applications and make surveys. True, the assured had put his name to what was an application in form, but which, under the circumstances, was held to be no application; nothing but the act of the insurer. The case was not intended to obliterate the distinction between a representation and a warranty.

The same disregard of the real issue joined between the parties under the third plea, is apparent both in the admission of evidence and in the charge of the court. The declaration averred that the application and survey were a part of the policy, and that it was agreed by the parties thereto that in case the insured buildings should, at any time after the making and during the continuance of the insurance, be appropriated, applied, or used, to or for the purpose of carrying on or exercising therein any trade, business, or vocation, which would in any way increase the risk as described in the application and survey (unless such appropriation should be agreed to by the insurers in writing, and added to or endorsed upon the policy), then and thenceforth the policy should cease and be of no effect. The defendants’ third plea averred that after the policy was made, one of the buildings insured was, with the consent of the assured, appropriated to carrying on the business of >, varnishing, finishing, and vending cabinet furniture and wares, without the consent of the defendants in writing added to or endorsed upon the policy, whereas the risk described in the application and survey was upon buildings used as dwellings by tenants and not otherwise. And the plea charged that such new appropriation increased the risk beyond that described in the application and survey. To this plea the plaintiff replied, not denying the new appropriation, nor the neglect to have it endorsed upon the policy, but traversing the fact that the risk was thereby increased, and issue was joined upon that traverse. It was a plain and simple issue. It put to the jury to try whether the use of the buildings as a varnishing, finishing, and sales room for cabinet furniture was more hazardous than their use as mere dwelling-houses for tenants. It put nothing else to the jury. Yet, on the trial of this issue, the plaintiff was permitted to introduce evidence to show that this new use of the property was not a greater risk than occupation of it as boarding-houses for disorderly Irishmen, who were drinking, smoking, and loitering around. That was not the standard with which, under the pleadings, the comparison was to be made. The plaintiff in his replication did not appeal to any other standard than the written application and survey; he set up no mistake in that; he insisted upon no reformation of it, and with that as the rule he went to the jury.

Nor did the court err alone in admitting such evidence. The same mistake was made in the instruction given to the jury. With an issue thus formed, so precise, so single, upon which the parties went to trial, we are unable to see why the jury should have been told that they were to determine what the risk described in the written application and survey was, and that, in determining, they might inquire whether there had been a misdescription by the agents of the company — a mutual mistake; whether, therefore, the application should be reformed, and whether the risk which was actually assured was increased by the change. In other words, the jury were instructed that they might apply a different standard from that which the parties had agreed to accept. All this was erroneous.

It is freely admitted that in a proper case, and on sufficient evidence, equity will decree the reform of a policy; but, in this case, the plaintiff, by tendering the issue which he did, asked for no reform, and, if he had asked it, there was no evidence to warrant it. Mere mutual knowledge by the assured and the agents of the insurer of the falsity of a fact warranted, is entirely inadequate to induce a reformation of the policy so as to make it conform with the truth. It is rather evidence of guilty collusion between the agents and the assured, from which the latter can derive no advantage. This was held in Smith v. Insurance Company, 12 Harris 320. Nor is it easy to see that there is any difference between suggestio falsi and suppressio veri, if the fact suppressed be material to the risk. In both cases the underwriter is equally wronged, and the assured is, in both, equally a party to the wrong.

We think, also, that the court erred in sustaining the plaintiff’s demurrer to the rejoinder of the defendants to the replication to the fifth plea. If the defendants had rejoined in any other way,it would have been a departure. The plaintiff did not confess and avoid the plea. His replication was a traverse in effect, and therefore compelled such a rejoinder as was put in, unless the defendants had chosen to demur specially. The first fault in the pleadings, if any, was in the replication.

We have not thought it necessary to examine separately all the very numerous assignments of error which appear upon this record. They are thirty-four in number. What has been said sufficiently disposes of them all, except the fourth, eleventh, and fourteenth; and, in the view we take of the case, those become entirely immaterial.

We add only that the conclusion to which we have come is, that the jury ought to have been instructed that, upon the whole evidence in the cause, the verdict should be for the defendants.

Judgment reversed and venire de novo awarded.