St. Paul Fire & Marine Insurance Company, Plaintiff-appellant, v. Mayor's Jewelers of Fort Lauderdale, Inc., and Mayor'sjewelers of Dadeland, Inc., Deefndants-appellees, 465 F.2d 317 (5th Cir. 1969)

In another of those Erie cases where Federal Judges are called upon to conjure up a Florida solution under principles of Florida law to a Florida insurance dispute,¹  we are here asked to unravel the cabalic meaning of a Florida statute cryptogrammically denominated F.S. Sec. 627.01081, F.S.A. and apply its recondite intent to Clause 2(A) of Jeweler's Block Policy No. 366 HA 6590 and Clause 2(B) (3) of Jeweler's Block Policy Nos. 366 HA 6584 and 366 HA 6585.²  In weaving through this maze of arithmetic appellations, the District Court, perhaps understandably, made some clearly erroneous findings. Accordingly, we reverse in part and affirm in part the District Court's declaratory order granting full recovery to the assureds.

I. The Facts-Line Security That Wasn't There

The facts, as they emerge from what turns out to be a virtually undisputed though less than luminous record, indicate the following occurrences. In July, 1968, Mayor's Jewelry Stores, through its president (Getz) and its vice president (Shore) obtained Jeweler's Block Insurance policies from St. Paul Insurance Company (St. Paul) for six of its wholly owned stores, including Mayor's Jewelers of Ft. Lauderdale (Ft. Lauderdale), Mayor's Jewelers of Dadeland, Dadeland Mall (Dadeland Mall) and Mayor's Jewelers of Dadeland, Sunset Drive (Sunset). The policies carried primary insurance in the amount of $300,000 each, so far as the pertinent provision-Clause 2(A)³ -is concerned.

In early 1969, Shore contacted St. Paul's general agent (Schuh) seeking to increase this coverage by $200,000 on the Ft. Lauderdale policy. Schuh told Shore that he would have to check with insurer's head underwriter (Washick), whom he called immediately. Washick told Schuh that he would not increase the coverage to a total of $500,000, but that he would increase coverage $100,000 to $400,000 if the assured had an antiburglary device known as "ADT line security."⁴  Schuh relayed this information to Shore who replied that he did not know whether or not this particular system had been installed in the Ft. Lauderdale location, and that he would have to call ADT to find out.⁵ 

Shore called ADT and was told that the Ft. Lauderdale store did have line security and had had it since its inception. Shore then called Schuh and told him that ADT had told him that Ft. Lauderdale had the system. Upon receipt of this information Schuh told Shore on February 3, 1969, that Ft. Lauderdale had the $100,000 increase on 2(A) coverage. Schuh then called and wrote Washick that on Washick's advice he had bound the additional coverage.⁶  The binder was confirmed by St. Paul by Endorsement No. 9, issued February 6, 1969, with an effective date of February 3, 1969.

Sometime during the weekend of March 30, 1969, the Ft. Lauderdale store was burglarized with a loss of nearly $700,000 worth of merchandise.

Unhappily, the Ft. Lauderdale store did not have protection of an ADT line security system after all, as had been thought.

St. Paul's first contention is that it is entitled to cancel the increase in 2(A) coverage and avoid the additional liability ($100,000) because Shore's statements about the ADT line security system amounted to a material misrepresentation of fact, substantially affecting the risk of the insurer, on which the insurer had reasonably relied in extending coverage.

The argument can be readily disposed of. Shore simply did not misrepresent anything. All Shore told Schuh was that he did not know whether or not Ft. Lauderdale had this particular protection and that he would have to find out from ADT.⁷ 

Thereafter, Shore called ADT and then reported back to Schuh that ADT had told him that Ft. Lauderdale was protected with line security. This was the statement on which the insurer relied. It was the inquiry which the insurer called for, and the answer as to what ADT advised was faithfully reported to St. Paul. There was no misrepresentation here.

Therefore, since there was actually no misrepresentation of fact, F.S. 627.01081⁸  F.S.A., is not even involved even though it is conceded that the critical fact was material to the risk.

St. Paul's argument that Getz' February 3 letter to St. Paul, which was not received until days after the extended coverage had been bound, materially misled the insurer is likewise without merit. Statements made after coverage has been afforded are immaterial. World Insurance Company v. Posey, Fla.App., 1969, 227 So. 2d 67; Aetna Insurance Company v. Kacharos, Ala.Sup. Ct., 1933, 226 Ala. 504, 147 So. 438. Coverage had been bound days before the Getz letter could have been received. This obvious fact renders unnecessary any discussion of whether reliance on the letter could have been reasonable, in light of Washick's admitted knowledge that some of the information conveyed to him was erroneous,⁹  since coverage had already been bound and Washick could not, therefore, have been relying on statements subsequently made. This also makes superfluous the District Court's further finding on the basis of expert testimony that the error should have put a reasonably prudent underwriter on notice that he should obtain further verification or make some further inquiry.¹⁰ 

We therefore accept the District Court's conclusion that coverage was not induced by any misrepresentation which Florida would regard as defeating coverage. The increased coverage under 2(A) was valid.

The second part of the case relates to off-premises coverage under 2(B) (3), note 2, supra, which provided $250,000 coverage for loss:

"in respect of property which is * * * in the custody of a dealer in property of the kind insured hereunder not employed by or associated with the Insured * * *." (Emphasis added).

Dadeland Mall and Sunset also sustained substantial losses as a result of the burglary at Ft. Lauderdale, since these stores had sent to Ft. Lauderdale approximately $200,000 worth of merchandise which Dadeland Mall and Sunset had received under "all risk memos" from the manufacturers and wholesalers. Sunset and Dadeland Mall claimed coverage under Clause 2(B) (3)¹¹  of their policies (366 HA 6584 and 655 HA 6585 respectively).

The controversy turns on whether or not Sunset and Dadeland Mall were "associated with" Ft. Lauderdale.

The District Court's finding that the stores were not associated was based on the fact that each of the six Mayor's Jewelry Stores are operated as separate entities for tax purposes. On the other hand, all six corporations are owned and controlled by the same interests (primarily President Getz) and it is undisputed that negotiations for all six insurance policies were carried on by Shore and Getz for all six stores at the same time. That included the three policies at issue. The central office, located at the Sunset premises, performed centralized accounting, purchasing, hiring, property leasing, master inventory, insurance and advertising functions for all stores. Only Getz, Shore and Getz' mother were authorized to draw checks on the bank accounts of any of the stores. The stores customarily exchanged and transferred large volumes of merchandise between each other on informal terms. Regardless of the tax setup, it is evident that, as a practical matter, the stores were operated like one enterprise with several branch outlets.

In sum, we think that the record compels a finding of a community of interest, a confluence of activity, a cooperation of efforts and a concentration of control-both financial and managerial. There can be no doubt that such evidence establishes that the stores are undeniably closely connected and therefore "associated," within the meaning of the insurance policy. The District Court's finding to the contrary is thus "clearly erroneous." F.R.Civ.P. 52(a).

Nor will estoppel carry the day for the assured. The District Court further found that, "since obtaining its Jeweler's Block Policies from [St. Paul], the [jewelry stores] have conducted their business relying on the fact that they were not 'employed by or associated with' each other within the meaning of Clause 2(B) (3); such reliance was and always has been known to [St. Paul]; and [St. Paul] is now estopped to claim or contend the contrary." This holding simply cannot be supported by the record. The experts testified that the purpose of the "associated with" exclusion is to enable the insurer to limit his risk exposure at any one location. Mayor's knew that St. Paul was unwilling to insure the Ft. Lauderdale location for more than $400,000. This limitation was made very clear to Mayor's and was acceptable to it. In a setting of six related branches each of which was covered under a separate policy the interpretation underlying the District Court's hypothesis would have meant that the Mayor enterprise would be covered up to $1,500,000 at each store on inter-store transfers, while paying premiums based on maximum risk exposure of $300,000 at each store. There is no basis to estop St. Paul from asserting that its precise limitation of risk was effective.

The result is that granting 2(B) (3) coverage for the goods of Dadeland Mall and Sunset was erroneous.

St. Paul also complains that the $68,000 award for attorney fees is excessive. In view of our substantial reversal, adjustment is required. Accordingly, on remand the District Court is directed to redetermine the allowance of attorney fees for the recovery allowed by this opinion.¹² 

Affirmed in part;

Reversed in part;

Remanded with instructions.

AINSWORTH, Circuit Judge (concurring in part and dissenting in part):

I concur in the opinion of the Court except as to subdivision II, "No Misrepresentation," and the conclusion reached in that regard. I, therefore, dissent from the Court's holding that increased coverage under 2(A) of appellant's policy of insurance was valid in this case.

St. Paul's representatives made it clear to the insured that the additional $100,000 of coverage would only be bound "providing we had line security." (This, of course, referred to ADT Line Security at Fort Lauderdale and the quoted clause is excerpted from the testimony of Mr. Shore, the insured's representative. See App. 192.)

Whether Shore informed Schuh that ADT told him there was line security is not controlling when the Getz letter of February 3 is considered. The additional risk was orally bound on February 3 and the Getz letter was not received until February 4. However, the record shows that the Getz letter was required by the insurer as verification and confirmation of the fact of ADT Line Security at Fort Lauderdale. The letter unequivocally states that such security has "definitely" been installed at Fort Lauderdale. Thereafter, on February 9, St. Paul's endorsement No. 9 increasing coverage by $100,000 was issued on the strength of the representations in Getz' letter of February 3.

The Court's opinion erroneously concludes that the Getz letter of February 3 is of no consequence and must be disregarded in deciding this case since coverage had been orally committed prior to receipt of the letter. But the opinion ignores the fact that the letter was sent because it was required as verification and confirmation of the fact that line security had been installed in the Fort Lauderdale store and that oral binding of the risk was conditional on the insured furnishing such a letter with definite assurance that ADT was there.

It is clear that the insured misrepresented a material fact that there was line security at Fort Lauderdale. Whether this was unintentional is of no moment since fraudulent misrepresentation is not required under Florida law to vitiate the contract. See Life Insurance Company of Virginia v. Shifflet, Fla. 1967, 201 So. 2d 715.