Case Name: FIREMAN'S FUND INS. CO. et al. v. NORWOOD et al.
Court: United States Court of Appeals for the Eighth Circuit
Jurisdiction: United States
Decision Date: 1895-06-17
Citations: 69 F. 71
Docket Number: No. 501
Parties: FIREMAN’S FUND INS. CO. et al. v. NORWOOD et al.
Judges: Before CALDWELL, SANBORN, and THAYER, Circuit Judges.
Reporter: Federal Reporter
Volume: 69
Pages: 71–84

Head Matter:
FIREMAN’S FUND INS. CO. et al. v. NORWOOD et al.
(Circuit Court of Appeals, Eighth Circuit.
June 17, 1895.)
No. 501.
Insurance—Waiver of Conditions—Estoppel.
One S., tiie general agent of certain insurance companies, called upon plaintiff and asked to toe allowed to place s6me of the insurance on plaintiff’s stock. He inquired how much insurance plaintiff intended to carry, and plaintiff lold him §40,000, and subsequently authorized him to place §10,000 of such insurance. S. afterwards delivered to plaintiff policies, including two of §2,500 each, to which were attached riders allowing oilier insurance to tlie amount of $27,500, and which both contained the condition that if the assured should have or afterwards effect oilier insurance, without the written consent of the company, the policy should be void, anil which also provided that only certain specified officials should have authority to waive or modify the conditions of the policy.. When plaintiff received' the policies, he examined them to see that the amounts were correct, but, relying on his conversation with the agent, did not examine them further, and placed them in his safe. Held, that by delivering the policies with knowledge, through their agent, of the amount of insurance intended to be taken, the companies waived the condition, as to other insurance, and were estopped to set the same up. after a loss; plaintiff having a right to rely on such knowledge of the agent. Ber Caldwell and Thayer, Circuit Judges. Sanborn, Circuit Judge, dissenting.
In Error to the Circuit Court of the United States for the District of Kansas.
Separate suits were brought by O. F. Norwood and E. R. Norwood, the defendants -in error, against the Fireman’s Fund Insurance Company and the Norwich Union Fire Insurance Society, the plaintiffs in error, to recover alleged losses on policies of fire insurance on a stock of merchandise issued by these companies, respectively, to the defendants in error. By agreement of the liarties, the suits were consolidated and tried as one cause. The policy issued by the Fireman’s Fund Insurance Company bore date November 5, 1891, and contained the following conditions: “If the assured shall have or shall hereafter make any other insurance, whether valid or not, on the property hereby insured, or any part thereof, without the consent of the company written hereon, this policy shall be void. * * * All fraud or attempt at fraud, by false swearing or otherwise, shall cause a forfeiture of all claims under this policy. * * * And it is hereby understood and agreed by and between Uiis company and the assured that this policy is made and accepted in reference to the foregoing terms and conditions, which are hereby declared to be a part of tins contract, and are to be used and resorted to in order to determine the rights and obligations of the parties hereto in all cases not herein otherwise, specially provided for in. writing. It is further understood and made a part of this contract that only the manager of this company at Chicago has authority to -waive, modify, or strike from this policy any of its pirated conditions, nor is the consent of an agent to an increase of risk binding upon the company until the same is indorsed in writing upon the policy and the increased payment paid; and, in ease this policy shall become void by reason of the violation of any of the conditions thereof, it is understood that only the said manager has power to revive the same, and that a new policy intended to replace any policy so made void shall be of no effect until the actual issue and delivery thereof to the assured, any contract by parol or understanding -wiih the agent to the contrary notwithstanding.” The policy issued by the Norwich Union Fire Insurance Society bore date November 5, 1891, and contained the following conditions: “This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void, if the insured new has, or shall hereafter make or procure, any other contract of insurance, whether valid or not, on property covered in -whole or iir part by this policy. ::: * * This entire policy shall be void in case of any fraud or false swearing by the insured touching any matter relating to this insurance or the subject thereof, whether before or after loss. * * * This policy is made and accepted subject to the foregoing stipulations and conditions, together with such other provisions, agreements, or conditions as may be indorsed hereon or added hercio, and no officer or agent or other representative of this company shall have power to waive any provision or condition of this policy, except such as by the terms of this policy may be the subject of agreement indorsed hereon or added hereto; and, as to such provision and conditions, no officer, agent, or representative shall have such power, or be deemed or hold to have waived such provisions or conditions, unless such waiver, if any. shall be written upon or attached hereto, nor shall any privilege or permission affecting the insurance under this policy exist or be claimed by the insured unless so written or .attached.” To each policy was attached a slip or rider allowing $27,300 ad ditional insurance. The total insurance <m ilia stock ai The time of ilie iiro was Sh8,:5<)0. AV. B. Smith was the general agent of tile defendants ai, Lamed. San., where the plaintiffs were carrying on a mercantile business. A witness testifies thai: “Mr. AY. B. Smith came ro me and wanted me to sen Mr. Nor-wood and pee if he would not let him Lave a pari, of rhe insurance. Ho said ho was placing a large amount of insurance, and came to me and insisted that l should go and seo Mr. .Norwood and have him give Min some of the insurance. He said to mo that those people were carrying a largo amount of insurance, and that he presumed that they would carry about the mine amount as last year. 1 says. ‘You are well acquainted with him, and you can go and have a talk with him'; and I says, ‘I presume likely that if 3io is not bound up lie, will let, you have some of it.’” One of the. plaintiffs testifies as follows: “Air. Smith came into the store and asked me if lie could take out some insurance on the stock. 1 told him i had made arrangements with Mr. Ormandy to look after the insurance for me, and then he says he'wanted to know how much insurance we wore going to cany, and I told him forty thousand dolíais. After a little while longer, 1 says: ‘l will tell you what I will do, Mr. Smith. I will go and see Mr. Ormaiuiy, and if it is caiisfaetor.v to him 1 will let you have a poi tion of the insurance.’ I went, right from Mr. Onnandy’s office to Air. Smith’s office, and saw him there, and told him that, 1. had seen Mr. Ormandy, and that it was satisfactory to him, and I would let him carry ten thousand dollars on my stock.” Policies in four different companies for $2.500 each, amounting to (lie $10,000, were soon thereafter delivered by Smith, the agent, to the insured, who, after looking at their face to see that the amount was correct, put them in their safe, and did not know until after the fire that the policies limited concurrent, insurance to $27,500, instead of $ 10,000, as tlie insured had stated to the agent. Smith. No exception was taken to the charge of the court. Exception was (Inly saved to the refusal of the court to give tlie following instructions asked by the defendants: “JC you find that, after said policy was issued, plaintiffs procured other insurance, which made tlie aggregate amount of insurance on said policy exceed thirty thousand dollars, and that, provision therefor was not indorsed on tlie policy, then plaintiffs are not entitled to recover, although they may have informed ¡.lie agent, before the policy was issued, that they desired or expected to cany forty thousand dollars of insurance on said stock, and the agent orally assented Hiendo, and your verdict, must be for the defendant company.” “You are instructed that it is admitted by the pleadings that at the time of tlie fire plaintiffs had insurance on said stock amounting to thirty-eight thousand three hundred dollars. Now you are instructed that mere parol notice to defendant s’ agent, ¡«Smith, before said policy was issued, that plaintiffs desired or expected to carry on said stock of goods more than thirty thousand dollars, and the statement from ¡Smith dial the same would be all right, ivas not of itself sufficient to comply with the requirement of said policy, but it was necessary, in case plaintiffs procured more than thirty thousand dollars insurance on said ptnperly. dint the same should not only lxi notified to defendants, but should be mentioned in or indorsed upon the policy, otherwise the policy was void and of no effect,” Among other defenses, the answer set up ¡líese two: (1) Oilier insurance for which written consent had not been indorsed oil the policy: and (2) a fraudulent, overvaluation of tlie goods in the proofs of loss. In the circuit court the first defense seems to have been the one chiefly relied on. The jury found the property was worth all the plaintiffs claimed it ivas, and the evidence ahuudanily supports the finding; and tile second defense need not be further noticed.
M. A. Fyke (ííd. E. Yutes and (1 V. Fyke, on the brief), for plaintiffs in error.
O. N. Í3terry (W. II. Vernon, cm tlie brief), for defendants in error.
Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

Opinion:
CALDWELL, Circuit Judge,
after stating the case as above, delivered the opinion of tlie court.
Upon the evidence and tbe authorities, it cannot be controverted that Smith was tbe general agent of tbe defendants, and that whatever be said and did in soliciting, issuing, and delivering tbie policies in suit, and collecting tbe premiums, bas the same legal effect as if done by tbe company itself. Tbe material question in tbe case is whether'the instructions asked by tbe defendants, and which we have set out in tbe statement, should have been given. Tbe contention of tbe plaintiff in error is that tbe condition in tbe policy that "if without written consent berepn there is any prior or subsequent insurance, valid or invalid, on said property, this policy shall be void," cannot be waived by. parol, and that nothing that the defendants' agent may have said or known or verbally agreed to in relation to prior or subsequent insurance can operate to effect or avoid this condition, either by way of waiver or estoppel or as a new contract; but that there must be a written consent indorsed on the policy, as provided in tbe condition, or other insurance avoids tbe policy. In tbe early case of Carpenter v. Insurance Co., 16 Pet. 495, which is tbe first case cited in tbe brief of tbe plaintiffs in error, it is held by tbe supreme court of tbe United States that tbe requirement of written consent cannot be waived by parol, but must be indorsed in writing on tbe policy; and in some early cases in the state courts tbe same doctrine was maintained, and is probably still maintained in Massachusetts and Rhode Island, although tbe supreme court of tbe latter state in a recent case concedes that it is against the weight of authority. In Reed v. Insurance Co. (R. I.) 24 Atl. 833, tbe court said:
"The first question is whether the defendant company is estopped from setting up the clause in question by notice to itself of the prior insurance at the time the policy was issued. The same question was decided in Greene v. Insurance Co., 11 R. I. 434, where it was held that a mistake in a policy, limiting the amount of insurance, after due notice to the company of a larger amount, might be shown in evidence by way of estoppel. The ground of the decision was that it would be a kind of fraud for the insurers to insist upon a forfeiture for which they were more blamable than the insured. It would be taking advantage of one's own wrong. We see no reason to question that 'decision, and, following it, we must hold the first replication to be good. The fourth replication.raises the question, of greater difficulty, whether the fact that the plaintiff informed the agent of the defendant company, who procured the insurance, of the existence of other insurance, is a sufficient answer to the plea setting up the clause of the policy as to other insurance, and alleging the breach of it. Upon this point we think the tendency and weight of modern decisions are in favor of the plaintiff. There is much room for doubt, therefore, whether public policy requires the adoption of a rule which treats a contract of insurance differently from any other contract in writing. But, however this may be, we recognize the tendency of decision in favor of the insured, and, if this were a new question in this state, we might feel compelled to yield to the weight of authority."
Tbe early doctrine on this subject bas been so generally denied and repudiated by tbe courts of tbe country, state and federal, that it bas come to be regarded as overruled and obsolete. Among tbe decisions of tbe supreme court of tbe United States wbicb effectually dissipate tbe doctrine of Carpenter v. Insurance Co., supra, attention may be called to tbe cases of Insurance Co. v. Wilkinson, 13 Wall. 222; Insurance Co. v. Norton, 96 U. S. 234; Eames v. Insurance Co., 94 U. S. 621. In the case last cited the supreme court say:
"According to the views expressed by this court in Insurance Oo. v. Wilkinson, 13 Wall. 222, and other more recent cases, the defendant was concluded by the act of its agent. The reference to collateral insurance in other companies is subject to the same consideration. The insurance was being applied for through this very agent who. wrote the answers, and who knew the whole facts, and between whom and the general agent they had been referred to in their correspondence. The defense on this ground is utterly destitute of equitable consideration."
The cases in this court to the same effect are Insurance Co. v. Snowden, 7 C. C. A. 267, 58 Fed. 342; Insurance Co. v. Robison, 7 C. C. A. 444, 58 Fed. 723; Assurance Soc. v. Winning, 58 Fed. 541, 7 C. C. A. 359, 19 U. S. App. 173.
The rule deducible from the great weight of modern authority is that if, before or after the policy is issued, the agent has notice of the amount of insurance which the insured is carrying or intends to carry on the property insured, and makes no objection thereto, the company will be estopped from claiming a forfeiture, after there is a loss, upon the ground that such prior or subsequent insurance, of which its ageut had notice in fact, was not indorsed in writing on the policy. When notified that other insurance has been or will be obtained, it is open to the agent, if the policy has not been issued, to .decline the risk, or, if it has been issued, to cancel the policy. The company cannot after such notice accept and retain the premium, and when a loss occurs avoid the policy because its agent had not indorsed thereon the company's consent; to the prior or subsequent insurance of which he had notice. It is contended that consent to other insurance cannot be proved by oral evidence— First, because the policy provides that it shall be in writing indorsed on the policy; and, second, because it would violate the rule against the reception of oral evidence to contradict or vary a written instrument. But; it has been authoritatively decided that a contract of insurance is not within the statute of frauds, and may be by parol. Commercial Ins. Co. v. Union Mutual Ins. Co., 19 How. 318; Insurance Co. v. Shaw, 94 U. S. 574; Henning v. Insurance Co., 2 Dill. 26, Fed Cas. No. 6,366. And if it can be made by parol, it may be varied by parol. Parties to contracts cannot disable themselves from making any contract allowed by law in any mode the law allows contracts to be made. A written contract may be changed by parol, and a parol one changed by a writing, despite any provision in the contract to the eon trary.
"A written bargain is of no higher legal degree than a parol one. Either may vary or discharge the other, and there can he no more force in an agreement in writing not to agree by parol than in a parol .agreement not; to agree in writing. Every such agreement is ended by the new one which contradicts it. Insurance Co. v. Earle, 33 Mich. 153. Set', to the same effect, Insurance Co. v. McCrea, 8 Lea, 513; Insurance Co. v. Norton, 96 U. S. 234; Pechner v. Insurance Co., 65 N. Y. 195; Insurance Co. v. Wilkinson, 13 Wall. 222."
In Insurance Co. v. Norton, supra, the policy contained a condition that, unless otherwise expressly agreed in writing, it should be null and void if the premiums were not paid on the days mentioned in the policy, and also the further condition that "agents of the company are not.authorized to make, alter, or abrogate contracts, or waive forfeitures." The insured in that case made an application to the company's agent for an extension of time to pay the premium note, and the agent answered "All right." Parol evidence was offered to prove this fact, and the further fact that it was the practice of the defendant's agent to1 extend the time of payment of premium notes, and that the company had knowledge of this practice. The defendant moved to strike out this testimony because it Avas "in conflict with the terms of the policy, and as showing nc authority in Frary [the agent] to give the alleged consent." Answering this objection, the supreme court said:
"But a party always has tlie option to waive a condition or stipulation in his own favor. And whether it did exercise such option or not-AA'as a fact provable by parol evidence as Avell as by writing, for the obvious reason that it could be done ,without writing."
Nor can parties by their contracts debar themselves of the right to prove their cause of action or defense by any species of evidence which the law declares to be competent and legal. The application of this doctrine is not always invoked in the interest of the insured. It is applied for the protection of the insurer as well. In Emerigon on Insurance (Meredith's translation, pp. 607, 608) it is said:
"The agreement that the insurer shall abide by the affirmation of the assured on the subject of the disaster is unlawful, for no one may be a AVitness, and still less the sole witness, in his oaatdl case. But agreement to abide by the attestation of the captain is valid, saving the right to produce proof to the contrary."
Parol evidence that the company had knowledge of and consented to other insurance is not introduced to contradict or A'ary the written conditions.
It is every day practice to receive parol evidence to establish or overthrow written instruments, or to show that some claim based thereon has been waived by the party claiming under it, or that he has so acted towards the other party that he is estopped from setting up the claim. In all such cases the existence of the contract is neither denied nor its terms sought to be varied by parol. The condition in this policy is admitted, but the insured says the insurance company, by delivering the policy and receiAdng the premium thereon with notice of the other insurance then existing or thereafter to be obtained, thereby gave its consent to such other insurance, and asserted the'validity of the policy, and it cannot be heard after the loss to say that the policy is Aroid. "This act," says the New York court of appeals, "may be called a waiver, or may be treated as an estoppel." Pitney v. Insurance Co., 65 N. Y. 6.
The company cannot play fast and loose. It cannot issue a policy which is valid for the purpose of receiving the premiums, but invalid when it comes to pay a loss. In May on Insurance (section 497) the rule is stated thus:
"To deliver a policy with full knowledge of facts upon which its validity may be disputed, and then to insist upon these facts as ground of avoidance, is to attempt a fraud. This the courts will neither aid nor presume; and, when (he alternative is to find this, or to find that, in accordance with honesty and fair dealing, there was an intent to waive the known ground of avoidance, they will choose the latter."
In the case of Carrugi y. Insurance Co., 40 Ga. 135, a policy contained a condition similar to those in the policies in suit. The lower court charged the jury:
"That, if Carrugi had the agent's verbal consent to insure his property in other companies, that subsequent insurance did not work a forfeiture, although no notice of this additional insurance was given to the agent after it was made."
The supreme court affirmed the soundness of this instruction, saying:
"Consent to prior or subsequent insurance is within that scope [of the agent's authority], as the every-day practice of the country proves; and if an agent does in fact so consent, and the insured in good faith acts upon it, we think it is fraud upon the insured for the company to set up that they had stipulated the consent to be in writing."
The injunction of the law is upon every man not to perpetrate fraud. If, notwithstanding this injunction of the law, he seeks to use any stipulation in a contract in a manner that will absolve him from an honest obligation, and enable him to perpetrate a fraud upon an innocent party whom he has misled by his fraudulent conduct, a court of justice will not lend its assistance to effectuate the fraud, but will hold him estopped to make such an unconscionable usecof the contract. It is not in the power of an insurance company to abolish the law of estoppel or of waiver, or exempt itself from its operation, by any provision or condition that it can insert in its policies. The chief office of estoppel or of waiver is to prevent the consummation of fraud, and, when the facts bring the case within the well-settled rules on this subject, no stipulation of the contract can be used to stay its operation. Public policy and sound morality forbid that any stipulation in a contract shall, either in terms or by construction, have the effect to preclude a party who has been deceived and defrauded by the other party to the contract from setting up such fraud by way of estoppel or waiver, or as a defense, as may be indicated by the rules of law applicable to the case. Bridger v. Goldsmith (N. Y. App.) 38 N. E. 458; Fashion Co. v. Skinner, 64 Hun, 293, 19 N. Y. Supp. 62; Hofflin v. Moss (at the present term), 14 C. C. A. 459, 67 Fed. 440.
It is next said that it was the duty of the insured to examine the policies at the time the agent delivered them, and see that he had made the required indorsement in relation to other insurance, and that, not having done so, they are conclusively bound by the condition. The law imposed no absolute duty on the insured to see what indorsement the agent had put on the policy in relation to other insurance. The insured had done their duty in the premises. They had imparted to the agent the requisite information to enable him io make the proper indorsement It was his duty to make it in conformity to the information given him, and the insured had a right to rely upon Ms performing that duty, and his failure to do so, whether the result of a mistake or of a deliberate fraud, cannot operate to the prejudice of the insured. The contract of insurance is pre-eminently one that should be characterized by the utmost good faith on both sides. There is no rule of law requiring the business world to deal with insurance agents ujion the assumption that they are cheats and frauds. The presumption is that they are reasonably intelligent and honest men, who know and perform their duty both to the insurer and to the insured, and the company cannot escape pajunent of the loss merely because the insured acted upon this presumption. In answer to a similar contention, the supreme court of Pennsylvania said:
"We cannot say that the law, in anticipation of a fraud upon the part of a company, imposed any absolute duty upon Kister to read his policy when he received it, although it would certainly have been an act of prudence on his part to do so. Insurance Oo. v. Bruner, 23 Pa. St. 50; Insurance Co. v. Wilkinson, 13 Wall. 222. One thing is certain, however, the company cannot repudiate the fraud of its agent, and thus escape the obligations of a contract consummated therebj'', merely because Kister accepted in good faith the act of the agent without examination."
In the case of Insurance Co. v. Steiger, 26 Ill. App. 228, the same question arose, and the court said:
"Plaintiff's testimony that defendants' agent called on him, and solicited a renewal, and asked how much insurance he already had; that he said he did not know, but referred the agent to two other agencies in the city for information; that a few days later he found on his desk the policy in, suit, and that, supposing it to be properly drawn, he placed it in his safe without examination,—supports a finding for the plaintiff on the defense of other insurance not allowed by the policy."
It would serve no useful purpose, and protract this opinion to an unjustifiable length, to cite all the cases pro and con on the question of waiver of such conditions. The cases are collected in May, Ins. § 369, 370; Brown, Par. Ev. § 48; Carpenter v. Insurance Co., 2 Am. Lead. Cas. p. 911. Of the very many cases supporting the conclusions reached we content ourselves with referring to the following: Insurance Co. v. Mathews, 8 Lea, 499; Pechner v. Insurance Co., 65 N. Y. 195; Short v. Insurance Co., 90 N. Y. 16; Havens v. Insurance Co., 111 Ind. 90, 12 N. E. 137; Insurance Co. v. Lyons, 38 Tex. 253; Morrison v. Insurance Co., 69 Tex. 353, 6 S. W. 605; Bennett v. Insurance Co., 70 Iowa, 600, 31 N. W. 948; Fishbeck v. Insurance Co., 54 Cal. 422; West Coast Lumber Co. v. State Inv. & Ins. Co. (Gal.) 33 Pac. 260; Insurance Go. v. Earle, 33 Mich. 143; Insurance Co. v. Luttrell, 89 Ill. 314; Viele v. Insurance Co., 26 Iowa, 9, and note.
A statement and examination of the exceptions to the ruling of the court in admitting and rejecting evidence is not necessary, as none of them is of any general importance. They have all been carefully considered, and we are satisfied they are without merit. The judgment of the circuit court is affirmed.