Modern Grinder Manufacturing Co. v. Globe & Rutgers Fire Insurance

Rosenberry, J.

On behalf of the defendant it is urged that there can be no reformation of a written contract unless an oral contract complete in all its parts was entered into between the parties which by mistake was not properly reduced to writing. Second, that the agreement of the agents of the defendant with the plaintiff was merely an agreement to cause insurance to be written, not an agreement to insure. Third, if there was an agreement by the agents to insure, it did not become binding on the defendant because the particular insurance company was not designated to write a straight fire policy. Fourth, the only agent who represented the defendant in the transaction was the stenographer, who designated the company and wrote the use and occupancy policy. Fifth, that plaintiff was bound to ascertain what kind of a policy of insurance was delivered; and sixth, that defendant’s loss of the right to reinsure prevents reformation.

It is conceded that there is no indication of fraud or overreaching on either side and that the evidence is practically uncontradicted. Both the agent of the insurer and the insured intended that a policy of fire insurance should be issued. Both supposed that such a policy had been issued, and it was only through the error of the agent’s clerk that the mistake occurred. The trial court was certainly fully warranted in making the inferences which it did upon the uncontradicted testimony. If nothing be taken into consideration except the language used by the parties in the course of the transaction, these inferences would not so clearly appear. The ordinary method and course of dealing by which parties procure insurance upon their property is a matter of common knowledge, and the language and conduct of the parties must be interpreted in the light of the surrounding circumstances. While insurance in legal theory and in fact rests upon contract, in common practice it is dealt with more as if it were a commodity kept for sale. This attitude of mind which obtains in the business world is due no doubt in large part to the standardization of insurance policies by legislative enactment and by long continued practice. The customer specifies the amount and kind of insurance he wishes to purchase, the representative of the insuring company undertakes to comply with the request. The terms of the contract are largely statutory. The details fall into certain categories. All parties to the transaction understand what is intended, and evidence relating to the transaction cannot therefore be tested by the rules that would apply to a negotiation respecting a fresh transaction, the details of which were to be worked out and agreed upon in the course of the negotiation and set forth in a writing between the parties.

Here, as the court found, the plaintiffs intended to purchase fire insurance. The defendant’s agents intended to sell fire insurance. The failure to deliver a contract of fire insurance was due to a clerical mistake. Under such circumstances plaintiff is entitled to reformation. There was no misunderstanding on either side as to what was intended. A failure to specify fully the terms and conditions might in some instances result in misunderstanding and a mistake on one side and not on the other, but that is not the case here. It appears in this case that the policy was indorsed in the same manner that a policy of fire insurance would have been indorsed; that the rate indorsed on the policy, $1.12, was the rate for fire insurance, ninety per cent, co-insurance, and not the rate for use and occupancy, and everything on the exterior portion of the policy placed there by the insurer led the insured to believe that the kind of insurance policy which he had requested the insurance agent to issue had been issued and delivered to him.

The doctrine of Bostwick v. Mutual Life Ins. Co. 116 Wis. 392, 89 N. W. 538, 92 N. W. 246, has no application to a case such as this. There the agent had sought to sell one kind of insurance, the insured had sought to purchase another; there had been considerable negotiations between the parties, and when the policy was delivered the insured made no effort to ascertain what kind of a policy was in fact' delivered although the nature of the policy was plainly indicated. This case falls in the same class as Journal Co. v. General Acc., F. & L. Assur. Corp. 188 Wis. 140, 205 N. W. 800, and we need not repeat here what was said there.

As to the contention that the only agent who represented the defendant in the transaction was the stenographer who made the mistake, we can only say that it is upon its face unsound. The stenographer was not employed by and did not represent the defendant. The stenographer was employed by and took her directions from the agent, Cohen. Cohen testified:

“Miss Hoegel [the stenographer] made out the policy at my direction. I ordered her to. She had the expiration card calling for $8,000 worth of fire insurance on the contents of the Modern Grinder Manufacturing Company, expired September 12, 1924. I told her to go ahead and issue the policy under those terms.”

The stenographer was at best a mere scrivener operating under the express direction of her employer.

It is further contended that the insurer had a contract under and by virtue of which it might have, and it is claimed would have, reinsured a part of this risk had the mistake not been made and had it known that there wás outstanding a policy of fire insurance in the sum of $8,000; that such reinsurance cannot now be effected, that the position of the insurer is changed, that the insurer cannot be placed in statu quo, and that therefore the claim of the plaintiff to right of reformation should be denied. There is no claim that the insured had any knowledge of this arrangement of the insurer or that under any given circumstances it is the custom or habit of the insurer to reinsure, or that he had any knowledge or information in regard to the matter of reinsurance whatever. While as a general rule reformation may be denied where parties cannot be placed in statu quo or great hardship or inequity will result, that rule does not apply to the situation disclosed by the evidence in this case. If the subject matter of the contract be property and the property has been disposed of, improved, or otherwise dealt with so as to prevent restoration, reformation may be denied. The claim here is not that the insurer changed its position but that it failed to change it. The relationship of the parties at the time of the fire was exactly the same as it was at the time the contract was entered into. We are cited to no cases and we find none where it has been held that right of reformation has been defeated because one of the parties has failed to do something with respect to the subject matter of the contract — in this case the agreement to indemnify — which he otherwise would have done. In any event the insured had no knowledge of the practice followed by the defendant, was in no way responsible for the mistake made, and under the facts in this case the equities of the insured are clearly superior to those of the insurer. Even if it was its common practice to reinsure, the insurer was not bound to do so, and certainly after liability has attached it cannot claim the benefit of an option so as to defeat the rights of the other party to the transaction.

By the Court. — Judgment affirmed.