Case Name: NEIL BROS. GRAIN CO. et al. v. HARTFORD FIRE INS. CO. et al.
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1924-10-13
Citations: 1 F.2d 904
Docket Number: No. 4219
Parties: NEIL BROS. GRAIN CO. et al. v. HARTFORD FIRE INS. CO. et al.
Judges: Before GILBERT, MORROW, and RUD-KIN, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 1
Pages: 904–911

Head Matter:
NEIL BROS. GRAIN CO. et al. v. HARTFORD FIRE INS. CO. et al.
(Circuit Court of Appeals, Ninth Circuit.
October 13, 1924.)
No. 4219.
1. Trial <§=180 — Federal court without power to withdraw case from jury'and enter judgment for defendant on the merits.
A federal court is without power to withdraw a case from the jury and enter judgment for the defendant on the merits.
2. Judgment <§=286 — Plaintiff held estopped to question foi;m of judgment.
Where, under the statutory state practice, which governs in the federal courts under the conformity statute, on failure of plaintiff’s proof, the court is authorized to discuss the action or enter nonsuit, plaintiff’s counsel in such case, by approving the form of an order for judgment for defendant, instead of one of dismissal or nonsuit, and permitting such judgment to be entered without objection, were estopped to thereafter question the form of judgment.
3. Insurance <§=328(6, 14) — Provisions of policy for protection of Insurer against the extra hazard created by mortgage of the property or foreclosure proceedings are valid.
To lessen the interest of insured in the subject of insurance is to increase the hazard, and tbe hazard is increased by a mortgage of tbe property, and still further increased by proceedings to foreclose the mortgage, and provisions of tbe policy for the protection of insurer against such increase of hazard are valid parts of the contract.
4. Insurance <§=377(2), 390 — Knowledge by insurer of grounds of forfeiture held not to prevent the forfeiture.
That insurers had notice from the records of a mortgage on the property when the policy was issued, and actual knowledge that because of default the mortgage was subject to foreclosure proceedings, which under its terms avoided the policy, at the time riders were attached in which the foreclosure provision was waived as to the mortgagee, held not to preclude them from setting up such provision as a defense to an action by the insured mortgagor after a loss.
5. Insurance <@=387 — Waiver ■ of provision of policy in favor of mortgagee does not affect the contract with the mortgagor.
A rider attached to a policy, in which a provision therein for forfeiture in case of foreclosure proceedings against the property was waived in favor of the mortgagee, does not inure to the benefit of the mortgagor insurer, or create an estoppel to enforce such provision as to him.
6. Insurance <@=397 — Stipulation that investigation of loss should be without prejudice held valid and enforceable.
An agreement between insured and insurer after a loss that there should be no waiver of the rights of either party, by reason of investigation of tbe loss or appraisal of damages, held valid and binding.
7. Insurance <@=328(14) — Provision avoiding policy In case of foreclosure proceedings against the property held valid.
A provision of a policy, making foreclosure proceedings against tbe property, with the knowledge of the insured, ground of forfeiture, is not invalid as against public policy.
Morrow, Circuit Judge, dissenting.
In Error to tbe District Court of tbe United States for tbe Northern Division of the -Eastern District of Washington; J: Stanley Webster, Judge.
Action at law by tbe Neil Bros. Grain Company and others against the Hartford Fire Insurance Company and others. Judgment for defendants, and plaintiffs bring error.
Modified and affirmed.
These several writs of error present no questions of importance, aside from the construction and validity of familiar provisions of tbe standard form of insurance policy in common use, and the regularity of the proceedings leading up to the entry of the judgments complained of. The facts are substantially as follows:
On the 19th day of May, 1921, three insurance companies, defendants in error here, issued three policies of insurance in favor of the plaintiffs in error, other than the plaintiff in error Hudson, who is assignee for the benefit of the creditors of Neil Bros. Grain Company. The policies covered the same property, consisting of. a flour mill, grain elevator, and warehouse buildings, together with furniture, grain, and other merchandise used or stored in the buildings, and were in the form prescribed by the laws of the state. 2 Bern. Comp. Sfcat. of Wash. 1922, § 7152. Each policy contained the following provisions:
“This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void iE 5 * * with the knowledge of tho insured, foreclosure proceedings be commenced or notice given of sale of any property covered by this policy by virtue of any mortgage or trust deed. » * *
“This policy is made and accepted subject to the foregoing stipulations and conditions, and to the following stipulations and conditions printed on the back hereof, which are hereby specially referred to and made a part of this policy, together with such other provisions, agreements, or conditions as may be indorsed hereon or added hereto; and no officer, 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 provisions and conditions no officer, agent, or representative shall have such power or be deemed or held 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.
“This company shall not be held to have waived any provision or condition of this policy or any forfeiture thereof by any requirement, act, or proceeding on its part relating to the appraisal or to any examination herein provided for. * '* * ”
A.t the time of the issuance of tho policies, the insured property was incumbered by a mortgage in favor of one Coolidge, to secure the payment of six promissory notes, aggregating the sum of $22,583.98, dated April 25, 1921, executed by the plaintiffs in error, other than Neil Bros. Grain Cdmpany and its assignee. On August 23, 1921, riders or mortgage clauses were attached to the several policies, containing the following provisions:
“Loss or damage, if any, under this policy, on buildings only, shall be payable to Dolph Coolidge, trustee for mortgagees, or assigns, mortgagee (or trustee), as interest may appear. Subject to all the terms and conditions hereinafter set forth in this rider, this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy.”
It was further provided that if the insurance company should pay the mortgagee or trustee auy sum for loss or damage under the policy, and claim that, as to tho mortgagor or owner, no liability therefor existed, the insurance company should be subrogated to all the rights of the party to whom such payment was made. At the date of the issuance of the policios and tho execution of the riders or mortgage clauses, one of the notes secured by the mortgage, and interest on the remaining notes, were overdue, and the mortgage was subject to foreclosure. On November 22, 1921, proceedings were commenced in a state court to foreclose tho mortgage, and the insured had notice thereof. The defendants in the foreclosure proceeding interposed the defense that there was an absence and failure of consideration for the notes and mortgage, and that issue has not been determined. On the 25th day of April, 3922, the insured property was damaged .and destroyed by fire. On the first day of June, 1922, the insurance companies and the insured entered into an agreement, wherein it was stipulated that any action taken by the insurance companies in investigating the cause of the fire, or in investigating or ascertaining tho amount of loss and damage to the property caused by the fire, should not waive or invalidate any of the conditions of the policies, or waive or invalidate any rights of either of the parties thereto. After proofs of loss were furnished, the president of Neil Bros. Grain Company was examined under oath by an adjuster of the insurance companies in reference to the loss, and the insured employed an attorney to represent them on such examination. It further ap pears that the policies were issued by the R. J. Martin Company, and that Martin, the president of the company, had knowledge of the foreclosure proceedings. But when such knowledge was gained does not appear, nor does it appear that it was communicated to any other officer or agent of the insurance companies.
The three actions were consolidated for the purposes, of trial, and the foregoing facts appearing at the close of the ease made by the plaintiffs in error, the defendants in error moved the court to discharge the jury and enter judgments in their favor, or, in the alternative, for judgments of non-suit. The court discharged the jury and directed counsel for the defendants in error to prepare orders, submit them to opposing counsel, and present them for signature, without indicating in any manner which part or branch of the motion had been granted. The orders prepared and approved as to form by counsel for the plaintiffs in error were judgments on the merits, adjudging that the plaintiffs take nothing by their action, and that the defendant recover costs. By motion for new trial the plaintiffs in error challenged the power of the court to enter the judgments complained of, but the motion was denied. The several judgments are now before us upon writs of error.
O. C. Moore, of Spokane, Wash., for plaintiffs in error.
E. Eugene Davis, of Spokane, Wash., for defendants in error.
Before GILBERT, MORROW, and RUD-KIN, Circuit Judges.

Opinion:
RUDKIN, Circuit Judge
(after stating the facts as above). The power of the court below to withdraw the ease'from the jury and enter judgments on the merits in favor of the defendants in error is the first question discussed by counsel. That no such power exists in a federal court is, we think, settled by the decision of the Supreme Court in Slocum v. New York Life Ins. Co., 228 U. S. 364, 33 Sup. Ct. 523, 57 L. Ed. 879, Ann. Cas. 1914D, 1029. But it does not follow from this- that the judgments should be reversed.
Section 408, 1 Rem. Comp. Stat. of Wash. 1922, provides:
"An action may be dismissed, or a judgment of nonsuit entered, in the following cases:
" 8. By the court, upon motion of the defendant, when, upon the trial, the plaintiff fails to prove a sufficient cause for the jury."
This section establishes a practice or mode of procedure which the federal courts are required to follow under the Conformity Act' (Comp. St. § 1537). Central Transp. Co. v. Pullman's Palace Car Co., 139 U. S. 24-38, 11 Sup. Ct. 478, 35 L. Ed. 55; Coughran v. Bigelow, 164 U. S. 301, 17 Sup. Ct. 117, 41 L. Ed. 442. It was therefore the duty of the court below to dismiss the actions or enter judgments of nonsuit, if, upon the trial, the plaintiffs in error failed to prove a cause sufficient for the jury) and if proper orders were not prepared or submitted , to the court it was the plain duty of the plaintiffs in error to raise the objection at that time, instead of approving the judgments or orders as to form. Furthermore, no motion to modify the judgments was made in the court below, the plaintiffs in error insisting at all times that the ease should have gone to the jury upon the facts. For these reasons we are of opinion that the plaintiffs in error are now estopped to question the form of the judgments, but no harm can result from their modification to conform to the- correct practice in such cases. What, if any, benefit the plaintiffs in error can derive from the modification we need not inquire.
It is next contended that the defendants in error are estopped to'claim a forfeiture because of the foreclosure proceedings. This contention is based upon several grounds:
(1) Because the defendants in error had knowledge of the execution of the mortgage, and that it was subject to foreclosure, at the time of the issuance of the policies, and also had knowledge of the commencement of the foreclosure proceedings, after the same were commenced.
(2) That the plaintiffs in error had no such knowledge at or before the foreclosure proceedings were commenced.
(3) That the mortgage clauses or riders authorized the foreclosure, and the defendants in error are therefore estopped to claim a forfeiture by reason thereof.
(4) That the plaintiffs in error made proofs of loss and incurred expenses by reason of the examination held and conducted by the adjuster.
We will consider these several contentions in the order named. But, before considering them, it might be well to state that there is nothing new or peculiar about a contract of insurance. As said by the Supreme Court in Imperial Fire Ins. Co. v. Coos County, 151 U. S. 452, 14 Sup. Ct. 379, 38 L. Ed. 231:
"The terms of the policy constitute the measure of the insurer's liability, and, in order to recover, the assured must show himself within those terms, and if it appears that the contract has been terminated by the violation on the part of the assured of its conditions, then there caá he no right of recovery. The compliance of the assured with the terms of the contract is a condition precedent to the right of recovery. If the assured has violated or failed, to perform the conditions of the contract, and such violation or want of performance has not been waived by the insurer, then the assured cannot recover. It is immaterial to consider the reasons for the conditions or provisions on which the contract in made to terminate, or any other provision of the policy which has been accepted and agreed upon. It is enough that the parties have made certain terms, conditions on which their contract shall continue or terminate. The courts may not make a contract for the parties. Their function and duty consist simply in enforcing and carrying out the one actually made.
"It is entirely competent for the parties to stipulate, as they did in this case, 'that this policy should be void and of no effect, if, without notice to the company, and permission therefor indorsed hereon, the premises shall be used or occupied so as to increase the risk, or cease to he used or occupied for the purposes stated herein, or the risk be increased by any means within the knowledge or control of the assured. ' These provisions are not unreasonable. These terms and conditions of the policy present no ambiguity whatever. The several conditions are separate and distinct, and wholly independent of each other."
It is universally recognized in insurance law that to lessen the interest of the insured in the subject of the insurance is to increase the hazard; that the hazard is increased by a mortgage of the property insured, and still further increased by the commencement of proceedings to f'oi'eclose. The right of insurance companies to protect themselves against any of those contingencies by contract is everywhere recognized, and it is the plain duty of the courts to enforce the contract as made.
The fact that the defendants in error had notice of the existence of the mortgage, or that it was subject to foreclosure, or that foreclosure proceedings had actually been commenced, constituted no defense to the actions. Thus, in Kentucky Vermillion M. & C. Co. v. Norwich U. F. Ins. Soc., 146 Fed. 695, 77 C. C. A. 121, the policy provided that it should become void, if the property insured remained idle for more than 30 days at any one time, unless the insured gave notice to the company and obtained permission to leave it idle for a longer period, by having the extension indorsed on the policy. The plaintiff offered to prove at the trial that the company had notice and knowledge that the property was idle during the life of the policy, hut this court held that such proof was of no avail; that a waiver could not be inferred from mere silence or inaction on the part of the insured; and that it might wait until a claim was made under the policy and then claim a forfeiture by way of defense. See, also, Moller v. Niagara Fire Ins. Co., 54 Wash. 439, 103 Pac. 449, 24 L. R. A. (N. S.) 807, 132 Am. St. Rep. 1115. The plaintiffs in error had notice of the foreclosure proceedings long before the property was damaged or destroyed, and it was not incumbent upon the defendants in error to prove that they had such notice at or before the time the foreclosure proceedings were actually commenced. Delaware Ins. Co. v. Greer, 120 Fed. 916, 57 C. C. A. 188, 61 L. R. A. 137.
The riders or mortgage clauses created new and independent contracts between the insurance companies and the mortgagee. By such contracts the companies waived the stipulation against foreclosure in favor of the mortgagee only. There was no change or modification of the contracts as to the mortgagors, and no waiver, and we are at a loss to know why the waiver in favor of the mortgagee should now inure to the benefit of the mortgagors, or create an estoppel in their 'favor. As said by the court in Syndicate Ins. Co. v. Bohn, 65 Fed. 165, 178, 12 C. C. A. 531, 546 (27 L. R. A. 614):
"Our conclusion is that the effect of the union mortgage clause, when attached to a policy of insurance running to the mortgagor, is to make a new and separate contract between the mortgagee and the insurance company, and to effect a separate insurance of the interest of the mortgagee, dependent for its validity solely upon the course of action of the insurance company and the mortgagee, and unaffected by any act or neglect of the mortgagor, of which the mortgagee is ignorant, whether such act or neglect was done or permitted prior or subsequent to the issue of the mortgage clause."
In that case actions on the policy were brought by both the mortgagor and the mortgagee. The judgment in favor of the mortgagee was affirmed, but the judgment in favor of the mortgagor was reversed. See, also, Hastings v. Westchester Fire Ins. Co., 73 N. Y. 141; Reed v. Firemen's Ins. Co., 81 N. J. Law, 523, 80 Atl. 462, 35 L. R. A. (N. S.) 343; Glen Falls Ins. Co. v. Porter, 44 Fla. 568, 33 South. 473; Bacot v. Phenix Ins. Co., 96 Miss. 223, 50 South. 729, 25 L. R. A. (N. S.) 1226, Ann. Cas. 1912B, 262; and Allen v. Watertown Ins. Co., 132 Mass. 480.
The claim that defendants in error are estopped because the plaintiffs in error furnished proofs of loss and incurred expense in attending the examination conducted by the adjuster is without merit. The proofs of loss were furnished voluntarily, and the parties expressly stipulated in the policies and by later agreement that there should be no waiver or forfeiture by any requirement, act, or proceeding on the part of the insurance companies relating to the appraisal, or any examination provided for in the contract. That this agreement was valid, see Manheim v. Standard Fire Ins. Co., 84 Wash. 16, 145 Pac. 992.
It is lastly contended that the clause maldng the commencement of foreclosure proceedings ground for forfeiture is against public poEey and void, because the plaintiffs in error thereby bargained away in advance the right to resort to the courts for the protection of their rights. There is no merit in this contention. The foreclosure proceeding was one of the contingencies upon which the policies should terminate and become void, and the right of the companies to so stipulate is not only recognized, but is expressly authorized by law. Such a stipulation does not offend against any rule of public poEey.
Upon full consideration we find no error in the record, except in the form of the judgments rendered. These will be so modified as to dismiss the actions without prejudice. As thus modified, the judgments are affirmed.