General Insurance Company of America, and Interveners, Sherman L. Jones et al., Appellants, v. Western Fire & Casualty Company, Appellee, 241 F.2d 289 (5th Cir. 1957)

Here, as now elsewhere so common, e. g., Continental Casualty Co. v. Suttenfield, 5 Cir., 236 F.2d 433, 435; United Services Automobile Ass'n v. Russom, 5 Cir., 241 F.2d 296, the traffic accident has become a mere incident to the vigorous battle between insurers, each of whom by a full use of fluid inconsistent defenses reminiscent of common law pleading disclaim all liability but then assert that another, not it, is liable. Maryland Casualty Co. v. Southern Farm Bureau Casualty Ins. Co., 5 Cir., 235 F.2d 679.

In that struggle, substituted for the forgotten circumstances of the occurrence are the collateral controversies, removed in time and distance, relating to the issuance of the policies, conduct and action of the assureds, underwriters, agents, application and construction of abstruse policy clauses, and the like.

So, it is here:¹  if Western's²  policy was in force on the Jones Ford, it is liable for all. If not, then General,³  under the drive-other-car extension of its policy bears the whole loss.

The District Court, in a non-jury trial, held that (a) Western's policy was void because of misrepresentations by Mrs. Jones and her son Sherman concerning ownership of the 1950 Plymouth; and (b) the 1951 Ford was not a "newly acquired automobile" under Clause IV of the policy, note 2, supra.

Unlike Didlake v. Standard Insurance Co., 10 Cir., 195 F.2d 247, 33 A.L.R.2d 941, so much relied on by Western, where a willful, purposeful scheme was used to deceive both agent and company into believing that the named adult, rather than the minor for whom no insurance could be procured at all, was the sole owner and expected user of the car, this record compels the conclusion and reflects an underlying approach that if there were misrepresentation, it is so merely because of what the law attaches to conduct. For nowhere is there a suggestion that mother or son were knowingly misstating, or attempting to conceal, facts, or that Agent Hutson was misled by these long-time acquaintances or was consciously doing wrong. The mother, a widow running a farm with all of its chores, taking in washing, doing cleaning and other odd jobs for support of her family, and Sherman, the twenty-year-old son just returned from Korea with a 100% total disability rating for war-inflicted wounds, were each ignorant of insurance and business matters. What they were trying to do — What the policy of the Texas Motor Vehicle Safety Responsibility Law, Art. 6701h, Vernon's Texas Civil Statutes, encourages its citizens to do, is to procure liability insurance protecting them and members of the public for the operation of the 1950 Plymouth car in the affairs of mother and son. In that process, they were attempting fully to state all of the facts, furnish all of the information and answer all of the questions. If it was not adequate, or if not fully understood by Agent Hutson, or correctly reported by him to the company, it was not because of anything which these two inexperienced people consciously did.

Title to the 1950 Plymouth was in the name of both mother and son. It was the third of a succession of used Plymouths purchased since the boy's return from war and needed by him in his frequent trips to Veterans Hospitals for treatment. The first, a 1941 model, was paid for entirely by the mother. Traded in as a substantial payment for a second 1941 model, the balance on it was paid one-third by the mother and two-thirds by the son. With her consent, this was traded for the 1950 Plymouth. While the mother was liable as a co-signer on the Conditional Sales Contract, it was intended that Sherman would make all of the payments from his Government disability benefits.

Western's position, sustained below, was that while title was in (or partly in) Mrs. Jones, the car "really" belonged to the boy so that there was a breach of the representation⁴  of ownership.

In the discussion with Agent Hutson, mother or son, or both, stated the facts about the title and the co-signed notes. The mother, apparently because another agent had declined to issue a policy for the stated reason that the boy was a minor, asked if the insurance couldn't be put in Sherman's name. Hutson replied that he could not issue a policy to a minor, so it would have to be in Mrs. Jones' name. While it was done in this fashion, Agent Hutson manifested his full understanding that Sherman was the one principally concerned as the premium for liability coverage, paid by Sherman's check for the precise amount (the mother paid for medical reimbursement coverage), was calculated under the Texas Manual Rate for drivers under age 25. And with the policy, he delivered to each of them in their respective names, an identification card showing that the 1950 Plymouth was issued by Western.

The Trial Court's findings of misrepresentation,⁵  if a finding of fact as distinguished from the possible legal effect of conduct, lack requisite foundation and are thus clearly erroneous under Fed.Rules Civ.Proc. rule 52(a), 28 U.S.C.A. The testimony of mother and son was clear that they gave Agent Hutson the full facts concerning the nature of Sherman's ownership and interest in the car.⁶  Conceding that, as interested parties, the Court had wide latitude in rejecting it altogether, there is an entire want of evidence then to support the contrary fact — i.e., misrepresentation of sole ownership in the mother. This is so because Agent Hutson, as a witness, would neither admit nor deny that the Joneses had given the information testified to by them.⁷ 

On this analysis the findings, we think, were, in reality a conclusion that Western was deceived because what Hutson knew was not imputable to it. This rests, in turn, on the assumption that Agent Hutson had no authority whatever to write insurance to cover liabilities of a minor owner. But there is no substantial foundation for this. By ingenious cross examination skillfully executed, mother and son, repeated extensively in the various shades presented by permissible leading questions, the idea that Hutson had told them he could not write a policy for minors and if he did, the company would send it back. The scope of agency can, however, hardly be established by such declarations of the agent, 2 Tex.Jur., Agency, § 125; Foote v. De Bogory, Tex.Civ.App., 179 S.W.2d 983, error refused, WM; McCormick on Evidence, § 244, p. 519 (1954).

Hutson's own testimony, had it stood alone, might possibly have permitted such a finding. But considered with the testimony offered by Western from a Special Agent having supervision over Hutson, it is clear that there was no prohibition making the issuance of a policy unauthorized, but that, at most, the company had certain underwriting policies and instructions⁸  which the agents were to follow. But for manual laborers, truck drivers or insurance agents, failure to follow instructions in carrying out the principal's business entrusted to the agent, or mistakes made in an effort to apply them, is not equated with lack of authority, 2 C.J.S., Agency, § 95, p. 1203; Niagara Ins. Co. v. Lee, 73 Tex. 641, 11 S.W. 1024; Manhattan Life Ins. Co. v. Stubbs, Tex.Com.App., 234 S.W. 1099; Dewey T. Ross Engineering Corporation v. Sonneman, Tex. Civ.App., 159 S.W.2d 200; German Ins. Co. of Freeport, Ill. v. Gibbs, Wilson & Co., 42 Tex.Civ.App. 407, 92 S.W. 1068; Id., 42 Tex.Civ.App. 407, 96 S.W. 760, error refused.

Assuming that declarations made by Hutson would charge mother and son with knowledge that he could not issue a policy in the minor's name, there was yet no evidence that it was contrary to instructions to effectuate family coverage by issuance of the policy in the parent-owner's name. Indeed, by the issuance of the policy in that form, collection of the premiums, issuance of identification cards, Agent Hutson thought he was doing what he was permitted to do. If he thought so, surely the mother and son, untutored in business or insurance affairs, were entitled to believe as much.

Western knew what Hutson knew. Hutson knew what the situation was. Committed to his judgment and discretion under the wide authority reposing in him as Local Recording Agent, Art. 21.09, Texas Insurance Code, was the proper underwriting evaluation of this risk as it was known and presented to Hutson. If his judgment, either in writing it or in devising the form of the policy, was faulty, the remedy is not a post event cancellation of the policy for his acts were Western's acts. Traders & General Insurance Co. v. Lucas,⁹  Tex. Civ.App., 281 S.W.2d 188, 192, error refused, NRE.

There was thus no fatal misrepresentation of ownership. At most, the words typed in the declaration by Agent Hutson were an incorrect description of the state of legal title — a thing immaterial, under these circumstances, to the attachment of the risk and in no way contributing to the contingency or event — the accident — on which the policy obligations became due. It was a binding contract, Kuntz v. Spence, Tex.Civ. App., 48 S.W.2d 413, reversed on other grounds, Tex.Com.App., 67 S.W.2d 254; Government Personnel Automobile Association v. Haag, Tex.Civ.App., 131 S.W.2d 978, error refused; and see, Mid-States Insurance Co. v. Brandon, 340 Ill. App. 470, 92 N.E.2d 540; Commonwealth Casualty Co. v. Arrigo, 160 Md. 595, 154 A. 136, 77 A.L.R. 1250; Churchman v. Ingram, La.App., 56 So. 2d 297; Pauli v. St. Paul Mercury Indemnity Co., 167 Misc. 417, 4 N.Y.S.2d 41, affirmed 255 App.Div. 935, 8 N.Y.S.2d 691, application denied 280 N.Y. 853, 19 N.E.2d 685; Annotation, 33 A.L.R.2d 948.

The policy was validly issued, and if ownership is incorrectly described, it should be deemed reformed accordingly, Traders & General Insurance Co. v. Lucas, supra; Providence Washington Insurance Co. v. Rabinowitz, 5 Cir., 227 F.2d 300.

Once that is done, the 1951 Ford meets all of the requirements of a "newly acquired vehicle" under Clause IV, note 2, supra. Notice of its acquisition was given to Hutson within thirty days, and the transfer of the policy was actually made by Hutson, although in the mother's name to be consistent with the original issuance. The insurance automatically attaches on acquisition of a new vehicle subject only to being defeated by failure to give notice within thirty days. The intervention of the accident after acquisition but before reporting does not vitiate the insurance. See note 34 A.L.R. 2d at page 944. The clause is a sensible one to meet the definite needs of the automobile age in which vehicles are routinely and frequently traded for the newer, brighter, longer, lower models.

With Western's policy effective, it is conceded that it was available to Lola Jones Cutshall as an additional assured. This automatically brought into play the provision in General's policy (note 3, supra) which prescribed that the drive-other-car extension agreement V (note 3, supra) "shall be excess insurance over any other valid and collectible insurance available to the insured, either as an insured under a policy applicable with respect to said automobiles or otherwise." The effect of this is that Mrs. Cutshall did not have insurance with respect to other vehicles driven by her until she had reasonably exhausted coverage available to her elsewhere. And, when Western seeks to assert a contribution under the "Other Insurance" clause of its policy (identical with that of General's, see note 3, supra), it is met with the same proposition in different form since Mrs. Cutshall does not have "valid and collectible insurance against such loss." It is only when Western's policy has been exhausted that General becomes liable for the excess, and until that point is reached, Mrs. Cutshall, as named or additional assured, has no claim which she can assert. See Appleman, Insurance Law and Practice, Vol. 8, § 4914, p. 333, followed in Continental Casualty Co. v. Curtis Publishing Co., 3 Cir., 94 F.2d 710; Aetna Casualty & Surety Co. v. De Maison, D. C.E.D. Pa., 114 F. Supp. 106, reversed other grounds, 3 Cir., 213 F.2d 826; McFarland v. Chicago Exp., Inc., 7 Cir., 200 F.2d 5; and see, Continental Casualty Co. v. Suttenfield, 5 Cir., 236 F.2d 433, at page 438.

This leaves then only the contention by Western that Mrs. Jones voluntarily cancelled the policy June 4, 1953, and accepted a return of all premiums paid. It is sufficient here, we think, to say that, based as it was upon the express premise that there had been a misrepresentation as to ownership — a contention now held by us to be groundless — legal consideration is doubtful; and, in any case, liabilities with respect to the accident of April 23 had already attached, especially since this was an effort to destroy, without her participation or consent, valuable rights which Mrs. Lola Jones Cutshall (and General claiming through her) then had for defense and indemnity. Of course, holding as we do that the policy was valid, the premiums must be restored under Mrs. Cutshall's tender to do equity.

The cause is therefore reversed and here rendered to declare that Western is liable to the full extent of the limits of its policy and General is liable only for the excess, if any.

Reversed and rendered.