Case Name: Mr. and Mrs. Herman McCOY v. PACIFIC COAST FIRE INSURANCE CO. et al.
Court: Louisiana Supreme Court
Jurisdiction: Louisiana
Decision Date: 1965-01-18
Citations: 178 So. 2d 761
Docket Number: No. 47369
Parties: Mr. and Mrs. Herman McCOY v. PACIFIC COAST FIRE INSURANCE CO. et al.
Judges: HAMITER, J., concurs in reinstating the original judgment; he dissents as to the remand.
Reporter: Southern Reporter, Second Series
Volume: 178
Pages: 761–769

Head Matter:
248 La. 389
Mr. and Mrs. Herman McCOY v. PACIFIC COAST FIRE INSURANCE CO. et al.
No. 47369.
Supreme Court of Louisiana.
Jan. 18, 1965.
Rehearing Granted Feb. 23, 1965.
On Rehearing July 2, 1965.
Concurring and Dissenting Opinion Filed July 29, 1965.
Rehearing Denied Sept. 30, 1965.
Clay, Coleman, Dutrey & Thomson, Jack W. Thomson, Jr., New Orleans, for applicants.
Bienvenu & Culver, P. A. Bienvenu, for defendant and third-party plaintiff.
Breard Snellings, Sessions, Fishman, Rosenson & Snellings, New Orleans, for defendant-respondent.

Opinion:
SANDERS, Justice.
The plaintiffs, Mr. and Mrs. Herman McCoy, sued for $19,484.00 on a fire insurance policy, with an alternative demand against the insurance agency that sold the policy. Made defendants were the Pacific Coast Fire Insurance Company, the insurer, The American Employers' Insurance Company, the surety on Pacific's state qualifying bond, and the Montaldo Insurance Agency, Inc., the seller of the policy.
The policy insured the plaintiffs' building, described as "Apartments," in the amount of $20,000.00. The Pacific Coast Fire Insurance Company resisted payment on the ground that the plaintiffs had breached a representation or warranty by using a portion of the building as a restaurant, greatly increasing the risk of loss.
Pacific also- filed a third party petition seeking to recover from Montaldo Insurance Agency, Inc. any sum for which it became liable, on the'ground that the agency negligently failed to describe the use and occupancy of the insured building.
The district court rejected the plaintiffs' demands as to all defendants and dismissed the suit. The plaintiffs appealed. The Court of Appeal affirmed. 164 So.2d 386. Upon application of the plaintiffs, we granted certiorari to review the judgment. 246 La. 604, 165 So.2d 488.
The facts are these: In 1955 Mr. and Mrs. Herman McCoy purchased a commercial building at 2912-2914 Thalia Street in the City of New Orleans. The building contained rooms, apartments, and space for a restaurant. When purchased, the restaurant space was not in use. The McCoys insured the building against fire through Montaldo Insurance Agency, Inc. for $15,-000.00. The policy described the premises as "apartments."
In 1956 the plaintiffs began to operate the restaurant in the building.
In March, 1958, the McCoys requested the Montaldo Agency to increase its fire insurance coverage to $20,000.00. Because Montaldo no longer represented the insurer that issued the 1955 policy, it secured a separate policy for $5,000.00 from Pacific Coast Fire Insurance Company, defendant in this suit. When the original $15,000.00 policy expired in April, 1958, Pacific increased its policy to $20,000.00. This policy described the insured property as "apartments," although the 1956 Rate Card of the Louisiana Rating and Fire Prevention Bureau, in the files of the Montaldo Agency, classified the property as "Tenements."
Based upon the apartment classification, the McCoys paid $253.00 for three years insurance coverage. Admittedly the premium would have been $680.00 if the property had been correctly described as containing a restaurant.
On May 29, 1959, the Louisiana Rating and Fire Prevention Bureau sent new rate cards to Montaldo Agency for Rerate Zone No. 6 of Orleans Parish. The letter of transmittal advised that the rates were effective May 29, 1959, though a revised rate was not to be endorsed on existing policies except on the anniversary date. The rate card for 2912 Thalia Street reflected that the insured property at 2912-14 Thalia Street was being used as a restaurant, rooms, and apartments.
A fire damaged the insured property on November 6, 1960. After the lapse of sixty days from proof of loss and demand, the McCoys brought the present suit to recover the fire damage, penalties, and attorney fees.
LSA-R.S. 22:692 provides:
"No policy of fire insurance issued by any insurer on property in this state shall hereafter be declared void by the insurer for the breach of any representation, warranty or condition contained in the said policy or in the application therefor. Such breach shall not avail the insurer to avoid liability unless such breach (1) shall exist at the time of the loss, and be either such a breach as would increase either the moral or physical hazard under the policy, or (2) shall be such a breach as would be a violation of a warranty or condition requiring the insurer to take and keep inventories and books showing a record of his business. Notwithstanding the above provisions of this Section, such a breach shall not afford a defense to a suit on the policy if the fact or facts constituting such a breach existing at the time of the issuance of the policy and were, at such time, known to the insurer or to any of his or its officers or agents, or if the fact or facts constituting such a breach existed at the time of the loss and were, at such time, known to the insurer or' to any of his or its officers or agents, except in case of fraud on the part of such officer or agent or the insured, or collusion between such officer or agent and the insured."
Under the statute, the breach of a policy representation is no defense if the facts constituting the breach existed at the time of the loss and were known by the insurer or its agent, in the absence of fraud or collusion.
The plaintiffs concede that the property was actually being used as a restaurant at the time of the fire loss. They strongly contend, however, that the personnel of Montaldo Insurance Agency, Inc. had either actual or constructive notice of the use of the property as a restaurant. Hence, they assert the policy is enforceable under the statute.
The main issue is whether the insurance agency had knowledge of the restaurant-use before the fire loss within the intendment of LSA-R.S. 22:692.
The plaintiffs produced testimony that at the expiration of the original $15,000.00 policy in April, 1958, Maurice Pailet, plaintiffs' representative, delivered to Montaldo Insurance Agency a memorandum noting the presence of a restaurant and ordering a new policy for $20,000.00. The testimony, however, is contradicted by an agency official. We find it unnecessary to resolve this conflict in the testimony.
The evidence clearly reflects that information of the restaurant occupancy was on an official Louisiana Rating and Fire Prevention Bureau rate card in the files of Montaldo Insurance Agency, Inc. for seventeen months before the fire.
The Court of Appeal declined to charge the agency with knowledge of the restaurant, stating:
"We decline to charge either Mon-taldo Insurance Agency, Inc., or the insurer with knowledge merely because the rate cards were delivered to them. The record shows that the cards were delivered in large quantities, and each card listed several properties. The cards are used when a policy is issued, to obtain rate information; but we find no obligation even implied in the statute to use the cards for other purposes."
We do not agree with this holding.
The Louisiana Rating and Fire Prevention Bureau is authorized by law to furnish information as to both rates and risks from inspection of the premises. The risks shown on its rate cards are those found to exist prior to the issuance of the cards and reflect the current use of the insured buildings.
The Montaldo Agency, it is true, made no effort before the fire loss to match the rate cards with existing insurance policies. It defended this failure on the grounds that a large number of cards were received on this occasion and that its policy file was set up by the names of the insured, rather than street addresses, as were the rate cards. Under the agency practice, the rate card was matched with the insurance policy only when the policy was renewed. We do not think, however, that filing methods should prevent an insurance agency from being charged with knowledge of information on a Louisiana Rating and Fire Prevention Bureau rate card delivered to the agency and retained in its files. A person cannot disclaim knowledge by closing his eyes to an express notice of facts. We conclude that the policy breach was known to Montaldo Insurance Agency, Inc., the agent of the insurer, within the intendment of LSA-R.S. 22:692. Hence, the breach affords no defense to the suit on the policy.
We fix the amount of the fire loss at $16,002.00. The plaintiffs are entitled to judgment in this sum against Pacific Coast Fire Insurance Company on its fire insurance policy. American Employers' Insurance Company, the surety on Pacific's state qualifying bond, is not liable in this proceeding.
The plaintiffs have sought penalties and attorney fees under the provisions of LSA-R.S. 22:658. Under the statute, the penalties may be assessed only when the refusal to pay is arbitrary, capricious, or without probable cause. Our review of this case has convinced us that the insurer had reasonable grounds upon which to resist payment and seek court adjudication. Hence, we reject the demand for penalties and attorney fees.
In its third party petition, the Pacific Coast Fire Insurance Company seeks judgment against Montaldo Insurance Agency, Inc. for the amount of its liability based upon that agency's negligent failure to describe the use of the insured building as including a restaurant. Montaldo asserts that the third party demand is not before this Court. The Montaldo contention is well founded. The plaintiffs alone appealed to the Court of Appeal. Pacific did not appeal from the district court judgment. The Court of Appeal could not have rendered judgment against Montaldo on the third party demand. A judgment may be rendered or revised as between appellees only through an appeal by the appellee who seeks appellate action. We granted a writ to review the Court of Appeal judgment. Hence, we cannot consider the relief sought in the third party demand of Pacific against the Montaldo Insurance Agency, Inc.
For the reasons assigned, the judgment of the Court of Appeal is reversed, and judgment is rendered in favor of plaintiffs, Mr. and Mrs. Herman McCoy, against Pacific Coast Fire Insurance Company in the sum of $16,002.00, together with legal interest thereon from judicial demand until paid and all costs of this suit; and in all other respects the demands of plaintiffs are rejected.
. LSA-R.S. 22:1405.
. 39 Am.Jur., Notice and Notices, § 12, pp. 238-241; 66 O.J.S. Notice § 3 and 4, p. 637-638.
.LSA-R.S. 22:1021-22:1023.
. LSA-C.C.P. Art 2087; Coleman v. Cousin, 128 La. 1094, 55 So. 686; Howard v. Insurance Company of North America, La.App., 159 So.2d 560, and the authorities therein cited.