Case Name: W. L. Diamond v. Eugene Duncan
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1915-06-26
Citations: 107 Tex. 256
Docket Number: No. 2324
Parties: W. L. Diamond v. Eugene Duncan.
Judges: 
Reporter: Texas Reports
Volume: 107
Pages: 256–263

Head Matter:
W. L. Diamond v. Eugene Duncan.
No. 2324.
Decided January 27, June 26, 1915.
1. —Agency—Insurance Broker—Failure to Reinsure.
An insurance broker who has undertaken to keep the property of another insured for the latter’s protection is liable for loss incurred through his failure to reinsure when it becomes unprotected by reason either of expiration of the term of the policy or of the insolvency of the company insuring, in case the fact of expiration or insolvency was known to him and unknown to his principal who relied on him to keep it insured. (Pp. 259, 260.)
2. —Same—Damages—Cost of Reinsurance—Pleading.
An insurance broker held liable for damages from his failure to perform his undertaking to keep insurance in force upon the property of another destroyed by fire, must plead as offset to such claim the cost of effecting such insurance in order to be entitled to credit therefor. (Mr. Justice Hawkins dissenting.) (P. 260-263.)
3. —Same—Burden of Proof.
Even if the insurance broker was entitled, without pleading such defense, to offset the cost of reinsurance against the damages recoverable against him for failure to effect it, the burden was upon him to prove such cost, especially as it was peculiarly within his knowledge, he issuing the policies as agent of the insurance companies. (Mr. Justice Hawkins dissenting.) (Pp. 261-263.)
Error to the Court of Civil Appeals, Fifth District, in an appeal from Dallas County,
Duncan sued Diamond and obtained judgment, from which the latter prosecuted appeal and on affirmance obtained writ of error from the Supreme Court.
Alex. F. Weisburg, and Spence, Knight, Baker & Kaifis, for plaintiff in error.
—Where an insurance broker has been in the habit of renewing certain insurance upon its expiration from year to year of his own motion, and voluntarily delivering the policies to the owner of the property, and where the owner of the property, for the reason aforesaid, relied upon the broker to continue renewing his insurance in the future upon the expiration thereof, and relied upon him to notify him in the event that the insurance company in which his policies were written became insolvent after the procurement of the policies, but where the broker never expressly promised to do the things aforesaid, the broker, as a matter of law, is not charged with the affirmative duty of notifying the owner of the property of the insolvency of the insurance company, or of voluntarily getting new or substitute insurance in the absence of an express undertaking to do so. American F. Ins. Co. v. Brooks, 83 Md., 22; Giddings v. Scudder, 71 Ill., 86; Hermann v. Niagara F. Ins. Co., 100 N. Y., 411; Ostrander, Law of Fire Ins., par. 47; Mechem on Agency, sec. 931; Bennett v. City. Ins. Co., 115, Mass., 241; Van Valkenburgh v. Lennox Fire Ins. Co., 51 N. Y., 465; White v. Connecticut Fire Ins. Co., 120 Mass., 330.
The charge to the jury upon the measure of damages having been erroneous in not allowing the defendant a credit with the amount of the premium to have been paid upon the policies that plaintiff claims were ordered to be written for him, and the evidence being insufficient ,to show the amount of the premium to which the defendant would thus be- entitled and the sum paid thereon, the cause must be reversed and remanded for the reason that the evidence is insufficient to determine what remittitur would cure the error. Mechem on Agency, p. 320, sec. 475; Storer v. Eaton, 79 Am. Dec., 611, 50 Me., 219; De Tastett v. Crousillat, 2nd Wash., 2 (U. S. C. C.), 132; Gray v. Murray, 3 Johns Ch., 167; Manny v. Dunlap, Fed. Cases, No. 9047, Woolworth, 372; Morris v. Summerl, 2 Wash. (C. C.), 203, case No. 9837. The rule is well stated in the case of Storer v. Eaton, 79 Am. Dec., 611.
The issue is not controlled by a rule of pleading, but is controlled by the law of compensation. There is nothing in the facts found by the jury which would or should authorize Duncan to receive more than compensation and if he receives the full value of the policy, without deduct-ting the premium, this honorable court does allow him more than compensation.
Harry P. Lawther. for defendant in error.
—Insolvency of the insurer and appointment of a receiver cancels all outstanding policies and terminates all contracts of insurance. Gluck & Decker’s Receivers of Corporations, sec. 70, p. 350, sec. 89, pp. 465-6; High on Receivers, secs. 247-464; Taylor v. North Star Mut. Ins. Co., 46 Minn., 198, 48 N. W., 772; Commonwealth v. Insurance Co., 119 Mass., 45; People v. Insurance Co., 78 N. Y., 175; Com’r v. Insurance Co., 33 Mo. App., 291; Mayor v. Attorney General, 32 N. J. Eq., 815-829; in re Minneapolis Mut. Fire Ins. Co. (Minn.), 49 Minn., 291, 51 N. W., 921; American Casualty Company’s Case, 82 Md., 535.
An insurance contract may rest in parol. The agreement testified to by Duncan, under the decisions, contains all the essential elements of an insurance contract, i. e., the preliminary contract to insure. McIntyre v. Fed. Life Ins. Co., 126 S. W., 227; Pacific Mut. Ins. Co. v. Shaffer, 30 Texas Civ. App., 313, 70 S. W., 566; Cohen v. Insurance Co., 67 Texas, 328; May on Insurance, sec. 18; Franklin Ins. Co. v. Colt, 20 Wal. (U S.), 567; Relief Fund Ins. Co. v. Shaw, 94 U. S., 574; Com’l Mut. Marine Ins. Co. v. Union Mut. Ins. Co., 19 How. (U. S.), 318; Austin Fire Ins. Co. v. Brown, 160 S. W., 974; Potter v. Phoenix Ins. Co., 63 Fed., 382; Campbell v. American Fire Ins. Co., 73 Wis., 100, 40 N. W., 661; King v. Insurance Co., 58 Wis., 508, 17 N. W, 297; Strohn v. Hartford Fire Ins. Co., 33 Wis., 650; Stehlick v. Milwaukee Mechanics Ins. Co., 87 Wis., 322, 58 N. W., 379; Mich. Pipe Co. v. North British Mer. Co., 97 Mich., 493, 56 N. W., 849; Westchester Fire Ins. Co. v. Earle, 33 Mich., 143; Fish v. Liverpool, London & Globe Ins. Co., 44 N. Y., 538; First Baptist Church Trustees v. Brooklyn Fire Ins. Co., 19 N. Y., 305; Ruggles v. Am. Cent. Ins. Co., 114 N. Y., 415; Baile v. St. Joseph F. & M. Ins. Co., 73 Mo., 371; Lingen- felter v. Phoenix Ins. Co. of Hartford, 19 Mo. App., 292; Insurance Co. v. Ireland, 9 Kan. App.; 644, 58 Pac., 1024; Western Mass. Ins. Co. v. Duffey, 2 Kan., 347; Firemen’s Fund Ins. Co. v. Kuessner, 59 Ill. App., 432, 45 N. E., 540; Insurance Co. of N. America v. Bond, 175 Ill., 42; Hartford Fire Ins. Co. v. Wilcox, 57 Ill., 180; People’s Ins. Co. v. Padden, 8 Ill. App., 447; National Fire Ins. Co. v. Rawe (Ky.), 49 S. W., 422; Fidelity & Casualty Co. v. Ballard, 105 Ky., 253, 48 S. W., 1074; Commercial Union Ins. Co. v. Urbansky, 113 Ky., 624, 68 S. W., 653; Palm v. Medicine County Mut. Fire Ins. Co., 20 Ohio, 529; Home Ins. Co. v. Adler, 77 Ala., 163; Mobile Marine, Dock & Mut. Ins. Co. v. McMillan, 31 Ala., 711; Stickley v. Mobile Ins. Co., 37 S. C., 56; Hamilton v. Lycoming Mut. Ins. Co., 5 Pa., 339; Salisburg v. Heckla Fire Ins. Co. of Madison, 37 Minn., 460; Walker v. Metropolitan Ins. Co., 56 Me., 371; American Home Ins. Co. v. Patterson, 28 Ind., 17; New England Fire & Marine Ins. Co, v. Robinson, 25 Ind., 536.
Where an agent receives the premium for which he agrees to secure insurance on a building which was afterwards burned, and he failed to secure the same, he is personally liable. Lindsay v. Pettigrew, 5 S. D., 500, 59 N. W., 726; Ostrander, Fire Insurance, sec. 52; Heddin v. Griffin (Mass.), 49 Am. Bep., 25.
Where an agent is instructed to procure specific insurance and fails to do so, he is liable in damages to his principal for the loss suffered by reason of the want of such insurance. Criswell v. Riley. 5 Ind. App., 496, 30 N. E., 1101; Barton v. Anthony, 2 Fed. Cases, No. 1084, 1 Wash., 317; Maury v. Dunlap, 16 Fed. Cases, No. 9047.
A general undertaking to keep the property insured will render an agent liable for a failure -td take out insurance, or renew the same. Thomas v. Funkhouser, 91 Ga., 478, 18 S. E., 312; Backus v. Ames, 79 Minn., 145, 81 N. W., 766.
A broker is liable to one who applies to him for insurance and which he agrees to secure, although no consideration moved to him. Kaw Brick Co. v. Hogsett, 73 Mo. App., 432.
A broker who is applied to for insurance by procuring it to be issued by a company which is insolvent or not authorized to do business in the State is liable to his client for the damage resulting. Shepherd v. Davis, 42 Hun’s App., 462; Morton v. Hart, 88 Tenn., 427, 12 S. W., 1026, 47 Am. Rep., 718; Binger v. Jackson, 18 Hun’s App., 296; Hartman v. Hallowell, 102 N. W., 624; Webster v. Ferguson, 102 N. W., 213; Landusky v. Beirne, 80 N. Y. Supp., 238.

Opinion:
Mr. Chief Justice BBOWN
delivered the opinion of the court.
From the opinion and the briefs and argument of parties, we make the following statement of facts as they were presented to the jury on behalf of the plaintiff, Duncan.
The Court of Civil Appeals said that the evidence was conflicting and, it being conflicting, we must adopt that statement which is most favorable to Duncan, in whose favor the jury found on the issues presented. We therefore make the following brief statement of what we understand to be substantially the facts proved by plaintiff below. Diamond and Duncan were old friends and had been closely associated for many years. Diamond was in the brokerage business in connection with other business transactions, and for a number of years had superintended the procuring of insurance for Duncan on his property, taking charge of that business entirely and placing the insurance wherever he saw fit to do so, and secured for Duncan two policies of insurance in the Traders Insurance Company, one for the sum of $1500 on Duncan's residence, and on the l-6th of October, 1904, he obtained for Duncan a policy of insurance for $300 on the same property. Both of the policies were to run for three years from date thereof, and both expired before the fire occurred. Before the expiration of the time for which the insurance was issued, the Traders Insurance Company became wholly insolvent, which fact was unknown to Duncan, but was known to Diamond, who failed and neglected to apprise Duncan of the insolvency, or to obtain any substitute insurance for him. The result was the loss by a subsequent fire of the property which had been insured. The evidence justifies the conclusion that Diamond undertook, as insurance broker, to keep the property of Duncan insured without any action oh the part of Duncan, and that Duncan, relying on that undertaking and agreement paid no attention to the issuance of the policies or when they expired or anything connected with them. After the policies had expired, something like a year's time, the houses upon which the two policies were issued, burned and no other insurance had been procured by Diamond for the protection of Duncan. Duncan had inquired about his insurance prior to the fire and was assured that the policies were in effect and all right. Duncan had no notice of the failure of the company, and did not know that the policies were worthless or had expired until after the houses burned, and he went to Diamond for the purpose of making proof and instituting proceedings for the collection of his claim. It was then that he heard for the first time that the company in which he was insured was insolvent and the policies had expired. Evidence on the part of Diamond controverts these facts and disputes the truth of almost everything proven on the' part of the plaintiff.
The facts were submitted to the jury, and the jury found in favor of Duncan. Therefore, we must act upon this case on the assumption that the facts were as Duncan claimed and as the jury found, and must apply the law to them as if there were no controversy, because the questions of fact being settled, this court can not affect the credibility of the witnesses or anything of that character.
We restate the proposition which is before us and which contains the only issue that is presented to us in this case, thus: Diamond, an insurance broker, undertook to keep the property of Duncan insured, and having it insured in a company that failed, and of which failure he had knowledge, did not give notice to Duncan of such failure or take steps to procure substitute insurance.
The evidence upon the issue of Diamond's undertaking to keep Duncan's property insured is conflicting, but plaintiff's evidence is sufficient to sustain the finding in his favor. We have no authority to enquire into the propriety of the verdict or the correctness of the conclusions of fact. Therefore, we will dispose of the case upon the finding that the plaintiff in error was an insurance broker, and had for years procured insurance for defendant in error on his property and undertook to procure and furnish fire insurance on Duncan's property, which he had done many years. Duncan had the right to rely upon Diamond's performance of the agreement, and having failed, and the property being destroyed by fire with no insurance, Diamond is liable for the loss. Mechem on Agency, sec. 476; Kaw Brick Co. v. Hogsett & Woodward, 73 Mo. App., 432; Thorne v. Deas, 4 Johnson, N. Y., 84; Backus v. Ames, 79 Minn., 145, 81 N. W., 766.
We find on our application docket an entry to the effect that Diamond was not liable for the $200. We have examined the matter carefully, and find no ground for difference in liability for the $1500 and his liability for the $200. The duty to reinsure each was the same, and upon failure, the liability must be the same. In fact, the failure, of the insurance company is of no importance in this case, for if it had continued to be solvent and the policies had expired, the failure to reinsure would have imposed the same liability upon Diamond as attaches under the facts before us.
If Diamond had pleaded his right to a credit for the amount that it would have cost Duncan to reinsure the property, he might have been entitled to have that sum deducted, but the question is not before us properly. It was not presented in the trial court; in fact, it appears first in the application for writ of error.
We find nothing to justify this court in reversing the judgment of the District Court. It is ordered that the judgments of the District Court and the Court of Civil Appeals be and they are affirmed.