Orenstein v. Star Ins. Co., 10 F.2d 754 (4th Cir. 1926)

*755 *756 D. W. Robinson, of Columbia, S. C. (Robert Moorman, of Columbia, S. C., on the brief), for plaintiffs in error.

Augustine T. Smythe, of Charleston, S. C. and Christie Benet, of Columbia, S. C., (Benet, Shand & McGowan, of Columbia, S. C., on the brief), for defendants in error.

Before WADDILL, ROSE, and PARKER, Circuit Judges.

PARKER, Circuit Judge (after stating the facts as above).

There are twenty-four assignments of error to the action of the court below, many of which it is unnecessary to discuss. A careful analysis of the case shows that three major questions are presented for our determination: (1) Was there sufficient evidence of a breach of the condition against increased hazard? (2) Was there sufficient evidence of the breach of condition against false swearing? and (3), if there was a breach of such conditions, were the rights of plaintiff bank under the policies of insurance forfeited thereby?

As to the first question, we think that there was ample evidence to sustain a finding that there was a breach of the condition against increase of hazard. The fact that insured was in the warehouse practically alone all of the day prior to the fire; that he left with the key of the warehouse in his pocket at 6 o'clock in the evening; that the building was so constructed and closed that it was impracticable for it to be soaked with kerosene or gasoline from without; that the goods and the interior of the building were found soaked with one or the other of these inflammable liquids; that all of the property of insured was mortgaged; and that the goods in the warehouse were overinsured all of these facts and circumstances together made a case where it was proper that the jury pass on the question whether there was not an increase of hazard within the knowledge and control of the insured. Orenstein v. New Jersey Ins. Co., 127 S.E. 570, 131 S. C. 498, a decision by the Supreme Court of South Carolina in a case growing out of the same fire and involving the same facts. Contention is made by plaintiffs, however, that defendants waived this defense of increase of hazard by not denying liability on this ground, when they rejected the proofs of loss *757 tendered by insured. Without questioning for a moment the rule laid down in the case cited by plaintiffs (Ohio & Miss. Ry. Co. v. McCarthy, 96 U.S. 267, 24 L. Ed. 693), to the effect that, where a party has given a reason for his conduct and decision touching anything involved in a controversy, he cannot, after litigation has begun, change his ground and put his decision upon another and a different consideration, we think that that rule has no application here. Defendants did not deny liability on the policy when rejecting the proofs of loss upon a different ground from that set up in the answer. They did not deny liability at all. They simply rejected the proofs submitted, on the ground that they did not correctly state the loss. This could not amount to a waiver, because the rejection of the proofs of loss was an "action taken" under the terms of the nonwaiver agreement quoted above, which expressly preserved defendants' rights and defenses. We think, therefore, that the learned trial judge correctly submitted to the jury the defense growing out of the increase of hazard alleged, and, from an examination of the entire charge, we are of opinion that he correctly stated the law applicable thereto.

Plaintiffs contend that there was error in submitting the defense of false swearing to the jury, (1) because the false statements contained in the proofs of loss were mere matters of opinion, (2) because denial of liability under the policies waived proofs of loss, and (3) because the intention to contest the policy for increased hazard at the time of taking the nonwaiver agreement estops the defendants from setting up causes of forfeiture growing out of proofs of loss submitted under the agreement. None of these propositions can be maintained. As to the first, the oath as to values in the proofs of loss was not a mere matter of opinion. It was a sworn estimate of value by one having special knowledge of the property made, with the intent that the other party, ignorant on the subject, and with unequal means of information, should rely upon it to his injury. Ruberg v. Brown, 27 S.E. 873, 50 S. C. 397. It appeared that this estimate of value was grossly excessive, and the circumstances surrounding the fire were such as to warrant the conclusion that it was willfully false and fraudulent. The rule applicable is well stated in Ruling Case Law as follows:

"An estimate of the value of insured property by the insured in his proofs of loss will not constitute fraud, if he places the amount too high through inadvertence or mistake, but a willfully false and fraudulent valuation of the property destroyed will of course avoid the policy." 14 R. C. L. 1344; Hiller v. Ins. Co. of North America, 52 So. 104, 125 La. 938, 32 L. R. A. (N. S.) 453, and note; Orenstein v. N. J. Ins. Co., 127 S.E. 570, 131 S. C. 498.

As to the second proposition, it is unquestionably true that denial of liability waives proofs of loss, but it does not waive the breach of condition involved in false swearing, if proofs of loss are in fact offered, and that is the proposition with which we are dealing here. Furthermore, in this case there had been no denial of liability at the time insured made the alleged false oath and filed the proofs of loss. No authority has been cited which supports the third proposition, and it is obviously unsound. The execution of the nonwaiver agreement was in itself notice that the defendants might assert defenses against the policies. The fact that the defendants did intend to assert such defenses could not possibly preclude them from insisting that any action taken under the nonwaiver agreement be taken in accordance with the terms and provisions of the policies or from insisting on a forfeiture in case of a breach of its conditions. We think, therefore, that the defense based upon false swearing was properly submitted to the jury.

This brings us to the third question, which is the real question of the case: Was the District Judge correct in holding that the plaintiff bank would be precluded from recovering on the policies by breaches on the part of the insured of the conditions against increase of hazard and false swearing? We think that he was. The mortgage clause attached to the policies was not the union or standard mortgage clause, which operates as a separate and independent insurance of the mortgagee's interest, and which "in express terms, excepts the insurance of the mortgagees from many or all of the deeds and delinquencies of the mortgagor." Delaware Ins. Co. v. Greer (C. C. A. 8th Ct.) 120 F. 916, 57 C. C. A. 188, 61 L. R. A. 137; Syndicate Ins. Co. v. Bohn (C. C. A. 8th Ct.) 65 F. 165, 12 C. C. A. 531, 27 L. R. A. 614; 14 R. C. L. 1085. It was a mere open loss payable clause, the effect of which was to make the mortgagee the simple appointee of the insured to receive the proceeds of the policy to the extent of his interest, and "to place his indemnity at the risk of every act and omission of the mortgagor that would avoid, terminate, or affect the insurance of the latter's interest under the terms of the policy." Del. *758 Ins. Co. v. Greer, supra, Brecht v. Law, Union & Crown Ins. Co. (C. C. A. 9th Ct.) 160 F. 399, 87 C. C. A. 351, 18 L. R. A. (N. S.) 197; Orenstein v. New Jersey Ins. Co., 127 S.E. 570, 131 S. C. 498; Collinsville Savings Society v. Boston Ins. Co., 60 A. 647, 77 Conn. 676, 69 L. R. A. 924; Hill v. International Indemnity Co., 225 P. 1056, 116 Kan. 109, 38 A. L. R. 362; Hanson v. National Liberty Fire Ins. Co. (N. J. Sup.) 126 A. 453; 14 R. C. L. 1084; note of Judge Freeman, 58 Am. St. Rep. 671 et seq. The rule is tersely stated by the New Jersey Supreme Court, in the Hanson Case, supra: "The law is settled * * * that a mortgagee cannot recover if the owner could not."

As the owner Orenstein could not recover in case of breach of the conditions against increase of hazard or false swearing, neither could the mortgagee bank, which had no rights except under the open loss payable clause, and the District Judge correctly instructed the jury to that effect. It made no difference that the breach of condition as to false swearing occurred after the loss, for the rights of the mortgagee as we have seen were dependent upon the rights of the insured, and the policy provided for forfeiture for false swearing "whether before or after loss."

Plaintiff bank contends however that, because of the provision in the policy under the heading "Mortgage Interest," quoted above, it is not affected by the conditions against increase of hazard and false swearing, as these conditions are not repeated in the rider containing the loss payable clause. This argument is based upon the decision in Queen Ins. Co. v. Dearborn, 51 N.E. 717, 175 Ill. 115, and a list of cases cited in the note to 18 L. R. A. (N. S.) at page 203, which interpret a clause in the policies involved in those cases reading as follows:

"If, with the consent of this company, * * * an interest under the policy shall exist in favor of a mortgagee, or of any person or corporation having an interest in the subject of insurance other than the interest of the insured as described herein, the conditions hereinbefore contained * * * shall apply in manner expressed in such provisions and conditions of insurance relating to such interest as shall be written upon, attached, or appended hereto."

The cases relied upon by plaintiff are in direct conflict with the rule as established by the Circuit Courts of Appeals of the Eighth and Ninth Circuits. Brecht v. Law Insurance Co., supra; Delaware Ins. Co. v. Greer, supra. But it is not necessary for us to decide which of these authorities we shall follow; for a comparison of the language of the foregoing provision with the language of the policies before us shows clearly that the cases relied on by plaintiffs are not remotely in point. The language just quoted relates to the conditions in the policies of insurance. The provision in the policies in suit sets forth certain agreements with respect to mortgagees which it binds the company to observe, such as notice to mortgagee of cancellation, right of mortgagee to file proofs of loss, etc., and concludes, "Except as stated in this paragraph, the agreement between a mortgagee and this company shall be only as stated by rider added hereto." The effect of this language was not to exclude conditions unless included in the rider, but to exclude any contract whatever with the mortgagee other than stated in the paragraph unless included in the rider. Instead of eliminating the conditions as against the mortgagee, its plain purpose was to preserve the conditions and to preclude the assertion of any special rights on his part unless secured to him by a rider embodying same.

Much was said in the briefs with regard to the appraisal made under the provisions of the policy. As the jury have found that there was no liability whatever on the part of defendants, it is not necessary to discuss the exceptions relating to this phase of the case which deals with the extent of liability. There were exceptions also directed to the refusal of the court to give certain requests for instructions, some of which presented plaintiffs' contentions as to the matters which we have decided adversely to plaintiffs, and the others of which were substantially covered in the careful and able charge of the learned judge who tried the case.

After carefully reviewing the entire record and considering all of the assignments of error in the light of the very able brief of plaintiffs' counsel, we find no prejudicial error, and the judgment of the District Court is accordingly affirmed.