Midland Motor Co. v. Norwich Union Fire Insurance Society, Ltd.

Cause originally decided January 5, 1925, the judgment in favor of plaintiff being reversed on the ground that the contract insuring the automobile in question against confiscation

3. Knowledge by insurer of existing facts as waiver of condition in policy, see notes in 2 Ann. Cas. 280; 18 Ann. Cas. 686. Failure of insurer to inquire into existing facts as waiver of conditions of policy, see notes in 2 Ann. Cas. 285; 9 Ann. Cas. 994; Ann. Cas. 1917B, 500. for a violation of the National Prohibition Act was void as against public policy. Respondent's motion for rehearing was granted and rehearing had February 21. Judgment affirmed on rehearing. On November 25, 1920, Charles R. Ross purchased from the plaintiff one Cole Aero Eight seven-passenger touring car for the sum of $3,650, under a conditional sale contract by which the title to the automobile remained in the vendor as security for an unpaid balance of the purchase price, amounting to $2,433.30. On the same day the defendants, in consideration of a premium of $36.30, issued to the purchaser, Ross, their policy No. 25044 for $3,300, insuring said automobile against loss from fire, theft or robbery, or damages sustained in transportation. In this policy the automobile is described as a new 1920 model, seven-passenger touring car. For an additional premium of $5, by an indorsement on the policy, defendants insured the plaintiff against all direct loss or damage which it might sustain by reason of the fraudulent concealment or disposal of the automobile by the vendee, Ross, and in consideration of a further premium of $2 attached to said policy a confiscation clause, by which it further insured the plaintiff against all direct loss or damage which it might sustain "caused by the confiscation of said automobile by reason of the violation (otherwise than by the said vendor) of the provisions of the `National Prohibition Act,' or other laws of the United States relating to the transportation of intoxicating liquors or other articles subject to restricted sale, not exceeding the amount named in the said policy, nor the actual cash value of the said automobile at the time of the said confiscation, nor exceeding two-thirds (2/3) of the contract purchase price thereof, and in no event to exceed the amount of the unpaid installments of the purchase price of said automobile, exclusive of any interest thereon."

Claiming that after the issuance of this policy, and while it was in full force, the automobile described therein was taken from the possession of the vendee, Ross, confiscated and ordered sold for a violation of the laws of the United States of America relating to transportation of liquors, and that thereby the defendants had become liable to it for the sum of $2,433.30, which they had refused to pay, the plaintiff brought this action to recover judgment against them for that amount. A copy of the insurance policy with the indorsements is attached to and made a part of the complaint.

After a general demurrer to the complaint had been overruled, the defendants filed their answer, in which they admitted the purchase of the automobile by Ross in the manner and under the conditions above recited, and also the issuance of the policy of insurance together with the above-mentioned indorsements. They also admitted that after the issuance of the policy the automobile was taken from the possession of Ross, and in due time, in the manner provided by law, by order of the district court of the United States for the district of Montana, confiscated and ordered sold.

In addition to the general admissions and denials contained in their answer, the defendants set up several separate and affirmative defenses. In the second affirmative defense the following clause of the policy is set out: "Misrepresentationand Fraud. — This entire policy shall be void if the assured or his agent has concealed or misrepresented in writing or otherwise any material fact or circumstance concerning this insurance or the subject thereof, or if the assured or his agent shall make any attempt to defraud this company whether before or after loss." It is then alleged that plaintiff's rights as vendor under the conditional sale contract arises under the conditional sale contract indorsement upon the policy of insurance, and subject thereto; that when the policy was issued Ross informed the agent of the defendants that the automobile described in the policy was a 1920 model, when as a matter of fact it was a 1919 model; that defendants relied upon this statement and were deceived thereby; that such misrepresentation was of a material character, and by reason thereof the claim of plaintiff is null and void.

The third affirmative defense is similar to the second, except that it is therein alleged that the insured, Ross, represented to the defendants that said automobile was new at the time of the issuance of the policy, while as a matter of fact it was second-hand, and that by reason of that fact the policy is null and void.

The fourth, sixth and seventh affirmative defenses are based upon the alleged failure of the plaintiff to give notice of the confiscation of the automobile and to furnish proof of loss as required by the policy. In the fifth and eighth affirmative defenses it is alleged that the automobile was not confiscated under the laws of the United States relative to the illegal transportation of intoxicating liquors, but was in fact confiscated under the laws relative to internal revenue, being, specifically section 3450, United States Revised Statutes (U.S. Comp. Stats. sec. 6352); that the plaintiff having voluntarily placed Ross in charge of said automobile, under that section the automobile itself became an actor in the violation of the law; and "that if said policy is construed to extend protection to the plaintiff for a confiscation of the automobile after violation of the provisions of section 3450 of the Revised Statutes of the United States," said policy and confiscation clause are void and unenforceable as being against public policy.

Issue was joined upon the affirmative defenses by plaintiff's reply. The cause was tried to a jury. At the close of all of the evidence, plaintiff and defendants each made a motion for a directed verdict. The ruling of the court upon these motions was as follows: "By the Court: Let the record show in this case that the motion of the defendants is denied, and the motion of the plaintiff is granted except as to the value of the car. Upon the return of the verdict by the jury, the court will grant plaintiff's motion in its entirety, except that it will insert in lieu of the value of the car at $2,433.30, the amount so found by the jury, and will render judgment accordingly." Thereupon the court instructed the jury as follows: "Gentlemen of the jury, the court instructs you that the only issue for you to determine in this case is the value of the automobile in question," which was followed by other instructions for the guidance of the jury in determining the value.

The jury returned a verdict in effect finding that the value of the automobile was $2,433.30, and on January 16, 1924, the court entered judgment in favor of the plaintiff and against the defendants for the value of the car as found by the jury, together with interest thereon from August 7, 1922, amounting in all to $2,715. Defendants made a motion for a new trial, which was denied, and they have appealed from the judgment.

Attention will first be directed to the contention of counsel[1] that the plaintiff is not entitled to recover for the reason that the policy of insurance and the confiscation clause attached thereto are void and unenforceable for the reason that they are against public policy.

Basing their argument upon the statement that section 3450, United States Revised Statutes (Comp. Stats., sec. 6352), which had been on the statute books since the year 1866, and which provides: "Whenever any * * * commodities for or in respect whereof any tax is or shall be imposed, * * * are removed * * * with intent to defraud the United States of such tax, * * * all such goods and commodities, * * * carriage, or * * * conveyance * * * shall be forfeited," was in force and applicable to the facts in this case, and the decision of the supreme court in Goldsmith v. United States,254 U.S. 505, 65 L. Ed. 376, 41 Sup. Ct. Rep. 189 [see, also, Rose's U.S. Notes Supp.], in which it was held that an automobile used in aid of the violation of the provisions of section 3450 itself becomes the offender without regard to the criminal connection of the individual owning it, counsel contend that the effect of the confiscation clause is to insure against the effect of a criminal offense by the offender itself, and so militates against the public welfare, contravenes the established interests of society, and is void. A primary obstacle in the way of accepting counsel's conclusion it that the major premise upon which it is based is erroneous.

It was shown in the evidence that the automobile in question was seized by the sheriff of Liberty county on January 4, 1921, while being used in transporting a load of whisky, and on January 8, 1921, was turned over to the federal authorities and thereafter confiscated and sold under an order of the United States district court for the district of Montana. The judgment of the federal court confiscating the car was not produced in evidence, probably for the reason that the defendants, in paragraph VI of their answer, admitted the confiscation and order of sale.

The National Prohibition Act (41 Stat. 305 [U.S. Comp. Stats. Ann. Supp. 1923, sec. 10138 1/4 et seq.]) became effective on October 28, 1919, and title 2, section 35 (sec. 10138 1/2v) thereof provides: "All provisions of law that are inconsistent with this Act are repealed only to the extent of such inconsistency." In the cases of United States v. One HaynesAutomobile (C.C.A.), 274 Fed. 926, Lewis v. United States (C.C.A.), 280 Fed. 5, United States v. One Packard Truck (D.C.), 284 Fed. 394, and McDowell v. United States (C.C.A.), 286 Fed. 521, it was expressly declared that in so far as it provided for the confiscation and forfeiture of automobiles used in the illegal transportation of intoxicating liquors, the provisions of section 3450 were repealed by the National Prohibition Act. To the same effect is the case of United States v.Yuginovich, 256 U.S. 450, 65 L. Ed. 1043, 41 Sup. Ct. Rep. 551 [see also, Rose's U.S. Notes Supp.].

By the supplementary Prohibition Act of November 23, 1921, Chapter 134, section 5, 42 Stat. 223 (Comp. Stats. Ann. Supp. 1923, sec. 10138 4/5c), the Congress re-enacted "all laws in regard to the manufacture and taxation of and traffic in intoxicating liquor, and all penalties for violations of such laws that were in force when the National Prohibition Act was enacted." (See United States v. Stafoff, 260 U.S. 477,67 L. Ed. 358, 43 Sup. Ct. Rep. 197.

From this it follows that the automobile in question could not have been confiscated in January, 1921, under section 3450, since no authority for such a confiscation then existed under that section, and therefore, upon the record before us, we must hold that the confiscation was under title 2, section 26, of the National Prohibition Act (Comp. Stats. Ann. Supp. 1923, sec. 10138 1/2mm).

It is not questioned in this case but that it is competent and legal to insure the vendor of an automobile against the confiscation thereof for a violation of the National Prohibition Act by a person other than the vendor. Since this in effect is all that the policy and confiscation clause in question did, we must hold that the same are not void and unenforceable as against public policy.

The question whether a policy of insurance against confiscation under the provisions of section 3450 as re-enacted, would be void as against public policy, is not presented in this case and no opinion is expressed thereon.

Numerous assignments of error are predicated upon the ruling[2] of the court in allowing testimony to be admitted tending to show a waiver of notice of the confiscation of the automobile in the absence of any pleading of such waiver. These contentions are without merit.

The testimony disclosed, without contradiction, that on January 6, 1921, two days after the automobile was seized by the sheriff of Liberty county, the defendant's agent at Billings, on behalf of the plaintiff, notified the defendants of the seizure by telegram addressed to their manager at San Francisco; that from then on for about eighteen months, the defendants were from time to time investigating the circumstances surrounding the seizure and subsequent confiscation. In paragraph XIII of the complaint it is alleged "that the said defendants up and to August 7, 1922, admitted liability on said policy." This allegation is expressly admitted by paragraph XI of the answer.

The rule sustained by an almost unbroken line of authorities which will be found collected in 14 R.C.L. 1349, and in 4 Cooley's Briefs on the Law of Insurance section 3522F, is that a distinct recognition of liability by a company, made under such circumstances as reasonably to show that it is satisfied as to the loss, will amount to a waiver of formal notice and proofs, or of defects therein. It would be difficult to imagine a case to which that rule is more readily applicable than to this. Having been engaged in investigating the facts surrounding the seizure and confiscation of the automobile for a year and a half, during all of which time, by their own admission, the defendants had admitted their liability on the policy, it must be held that they waived the right to raise any question as to the sufficiency of the plaintiff's notice of confiscation or proofs of loss.

In reference to the second and third separate defenses,[3, 4] wherein it is claimed that the insured, Ross, at the time the policy was issued, represented that the automobile was a 1920 model and that it was a new car, which representations were alleged to be false in that it was a 1919 model and was secondhand: The testimony disclosed that no inquiries whatever were made of Ross concerning these matters. Wilds, manager of the plaintiff company, acting for the insured, Ross, furnished the agent of the defendants all the information which they required before issuing the policy. No written application was made for it. The evidence also disclosed that the automobile was manufactured and delivered to the plaintiff in the late fall of 1919, and defendants' agent testified in effect that an automobile built after about August of 1919 would be designated as a 1920 model. It was likewise shown that this particular automobile had been sold in the spring of 1920 to a man named Mowre, who used it for a few months and drove it 450 miles, when it was turned back to the plaintiff and the purchase price applied toward payment of a different model car, which Mowre bought from the plaintiff.

When Ross bought the automobile both he and the plaintiff considered it new, and in fact Ross paid the full list price of a new car for it, which was $50 more than Mowre had paid, because the price of new automobiles of that class had advanced.

The witness Wilds testified that when defendants' agent was obtaining the information on which to write the policy, he told the agent that it was the Mowre car and advised him of all the facts concerning it. The agent denied such information was imparted to him by Wilds.

If, as contended by defendants, these representations were made, were in fact false and material, and known to be such by the insured, it cannot be doubted that they rendered the policy void ab initio, unless there was a waiver of these conditions by the defendants.

There is no question but that, in writing the policy of insurance and indorsing thereon the confiscation clause, the defendant's agent was acting within the scope of his authority. The information concerning the subject of the insurance which he acquired in connection therewith was imputable to his principals. (Wells-Dickey Co. v. American Alliance Ins. Co., 69 Mont. 586,223 P. 489; 14 R.C.L. 1159, sec. 340.)

The general rule is that when the insurer at the time of the issuance of the policy had knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of the conditions in the policy inconsistent with the known facts, and the insurer is estopped from asserting the breach of such conditions. (14 R.C.L. 1166, sec. 345.) This rule was recognized and applied by this court in Johnston v. Rocky Mountain Fire Ins. Co.,70 Mont. 411, 226 P. 516, and Wright v. Fire Ins. Co.,12 Mont. 474, 19 L.R.A. 211, 31 P. 87. Whether this information was imparted to the agent of the defendants on the issuance of the policy was a disputed question of fact.

The following excerpts from 38 Cyc. 1582, is quoted with[5] approval by this court in Fifty Associates Co. v.Quigley, 56 Mont. 348, 353, 185 P. 155, 156: "The general rule is that a request by both parties for a directed verdict amounts to a submission of the whole case to the court, and its decision upon the facts has the same effect as the verdict of a jury, and will not be disturbed when supported by any substantial evidence."

In sustaining the plaintiff's motion for a directed verdict, the court necessarily must have held that the information relative to the year model of the automobile and the fact that it had previously been sold to Mowre were communicated to the defendants' agent when the policy was issued, and that despite this knowledge the defendants elected to consider it as a new automobile of the 1920 model and to insure it as such. It cannot be said that the evidence preponderates against the finding, and under the circumstances we hold that the defendants are estopped from urging these alleged false representations as a defense to their liability on the policy.

All of the other specifications of error have been considered and found to be without merit.

The opinion filed in this case on January 5, 1925, is withdrawn and this one substituted in its place.

The judgment is affirmed.

Affirmed.

MR. CHIEF JUSTICE CALLAWAY, ASSOCIATE JUSTICES HOLLOWAY and MATTHEWS and HONORABLE C.W. POMEROY, District Judge, sitting in place of MR. JUSTICE GALEN, absent on account of illness, concur.