Case Name: CANAL INSURANCE COMPANY, Appellant, v. James C. DOUGHERTY, d/b/a East Coast Hatching Egg Express, Appellee
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 1957-08-13
Citations: 247 F.2d 508
Docket Number: No. 16230
Parties: CANAL INSURANCE COMPANY, Appellant, v. James C. DOUGHERTY, d/b/a East Coast Hatching Egg Express, Appellee.
Judges: Before TUTTLE, JONES and BROWN, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 247
Pages: 508–517

Head Matter:
CANAL INSURANCE COMPANY, Appellant, v. James C. DOUGHERTY, d/b/a East Coast Hatching Egg Express, Appellee.
No. 16230.
United States Court of Appeals Fifth Circuit.
Aug. 13, 1957.
Blackwell, Walker, & Gray, W. L. Blackwell, Jr., W. L. Gray, Jr., Miami, Fla., for appellant.
Richard F. Ralph, Walter Humkey, Miami, Fla., Fowler, White, Gillen Yancey & Humkey, Miami, Fla., of counsel, for respondent.
Before TUTTLE, JONES and BROWN, Circuit Judges.

Opinion:
JOHN R. BROWN, Circuit Judge.
On this appeal from a jury trial judgment awarding recovery under a Motor Truck Cargo Liability Policy, the Insurer, by defenses, partial or complete, contends that the substitution of vehicles was not reported as required and that, in any event, ultimate payment of a prior claim long after the loss in suit, retrospectively reduced the amount of insurance since application for reinstatement was not made immediately after the first loss.
The Assured, operating under the indigenous name of East Coast Hatching Egg Express, was engaged in the regular activity of an exempt, 49 U.S.C.A. § 303 (b) (6); Frozen Food Express v. United States, 351 U.S. 40, 76 S.Ct. 569, 100 L.Ed. 910; East Texas Motor Freight Lines v. Frozen Food Express, 351 U.S. 49, 76 S.Ct. 574, 100 L.Ed. 917, common or contract interstate carrier of hatching eggs southbound from New England to. the Georgia-Florida poultry area. To avoid a dead haul northbound, Egg Express frequently transported fruits and vegetables, likewise exempt. While exempt from regulation by the Interstate Commerce Commission, Egg Express had the traditional and extensive liabilities of a carrier to shippers whose eggs, southbound, and produce, northbound, it undertook to transport. To insure this legal liability as a carrier for loss of or damage to shippers' goods, the Insurer issued for a flat single premium its term policy for the period November 14, 1952 to November 14, 1953, in the face amount, after two additions, of $10,000.
Since the subject of the insurance was the legal liability of the Assured as carrier-bailee, and not the vehicles themselves by which transportation was effected, the policy gave the Assured the unlimited privilege of substituting vehicles for the scheduled ones provided only that report of the substitution be made within 72 hours.
The policy also provided that liability for any loss would be reduced by the amoúnt paid or payable by the Insured on prior claims unless the policy were reinstated, and additional pro rata premium paid.
- •Two losses figure in this case though only the later one- is directly involved. On August'5, '1953 while the Egg Express Tractor 1-Trailer 1 Unit was hauling vegetables, the vehicles and cargo became virtually a total loss. To enable the carrier to discharge its obligations to the cargo shippers, Egg Express made a claim almost immediately for that loss for approximately $4300. Three weeks later, on August 27, 1953, the carrier's Unit- Tractor 7-Trailer 7, near Wrights-ville, Georgia and 60 hours on its southbound journey from New England, was in a casualty causing fire and a total loss of its cargo of unhatched hatching eggs in what some called the "omelet" accident. Egg Express' promptly made claim and the jury verdict fixed the value of the cargo of eggs for which carrier was liable to shippers at $9,942.90:
While the evidence was sufficient for .the jury to infer that from the dealings with the Insurer's agents in the immediate investigation of the first, August 5, loss, Egg Express did notify it that a substituted unit was being employed, it is uncontradicted that for subsequent Units 2 to 6' (approximated for convenience), no subsequent notice of substitution at all was given to the Insurer.
This brings us right to the nub of the Assured's case and without which all — eggs, truck, trailers, and insurance — is lost: Egg Express asserts that as .the loss occurred approximately sixty hours after Unit 7 was first obtained by Egg Express, it still had twelve hours of grace before the 72-hour notification-period, note -2, supra, expired. The Insurer counters, seemingly because the word "warrants"-(note 2, supra) is used, that once the first substitute (Unit 2) was-withdrawn and no successive notices of substitution were given to bring Units 3, 4, 5 and 6 under the policy, there was somehow a "breach" of the policy by the Assured, so that the 72-hour grace period provision did not apply. The inherent weakness of this position was revealed when, on the argument here, Insurer's counsel had to concede that had the Assured given written or telegraphic notice to the Insurer the moment Unit 7 first came undér the control of Egg Express, there would be no doubt that the coverage existed.
Solution of this problem is in no way aided by an attempt to read the word "warrants" in the common insurance sense which treats falsity of a "warranty" as absolutely material, but requires proof of materiality for a mere misrepresentation, Selph v. Hanover Fire Insurance Co. of New York, 154 Fla. 287, 17 So.2d 220; Providence Washington Insurance Co. v. Rabinowitz, 5 Cir., 227 F.2d 300; Madden v. Metropolitan Life Ins. Co., 5 Cir., 138 F.2d 708, 151 A.L.R. 984, certiorari denied, 322 U.S. 730, 64 S.Ct. 945, 88 L.Ed. 1565, or as an absolute and binding obligation to do some act, continue a condition or refrain from specified action. Cf. Fidelity-Phenix Fire Insurance Co. of New York v. Pilot Freight Carriers, Inc., 4 Cir., 193 F.2d 812, 31 A.L.R.2d 839; Henjes v. Aetna Insurance Co., 2 Cir., 132 F.2d 715, 1943 A.M.C. 27, certiorari denied 319 U.S. 760, 63 S.Ct. 1316, 87 L.Ed. 1711; Saskatchewan Govt. Ins. Office v. Spot Pack, Inc., 5 Cir., 242 F.2d 385. This is so because the clause itself is stated in terms of a privilege of the Assured. He need not substitute. He need not, he may not wish to, include replacement vehicles under the policy. Obviously, if for some reason the original scheduled vehicle is destroyed, sold or totally withdrawn from use, the Assured commits no breach in not procuring a replacement or putting it under the policy. Indeed, the Insurer gains, not loses, from such action for its premium is single and earned (until cancelled) whether operations do or do not go on.
What the clause does require if coverage is to exist is that within 72 hours written notice must be given. Such a requirement, and which we may assume arguendo, is absolute and commands literal, not merely substantial, compliance, would have been as well expressed had the clause used words such as: the Assured "shall," "must," or "promises to," report in writing the substitution.
But however expressed, it means that the option is up to the Assured. He can substitute or not as he alone wishes. But if he does, he must give written notice within the grace period. That being so, the privilege • 'is a continuing one throughout the term of the policy period. It can be exercised as often as the Assured replaces the vehicles. Each substitution is a separate one, and lack of coverage for want of notice as to any one or more replacement vehicles does not affect a later one in which grace period notice is timely given.
The rights, of course, became fixed as of the moment of the loss, August 27, and occurring, as it did, within the period fixed for notification of automatic coverage for newly acquired or substituted vehicles, it is within the policy coverage. Hoffman v. Illinois National Casualty Co., 7 Cir., 159 F.2d 564, 566; Birch v. Harbor Insurance Co., Cal.App. 1954, 272 P.2d 784; Western Casualty 6 Surety Co. v. Lund, D.C.Okl., 132 F. Supp. 867, 870; General Ins. Co. of America et al. v. Western Fire & Casualty Co., 5 Cir., 241 F.2d 289.
The contention that because Trailer 7 was owned by Holdeman and Tractor 7 by Cooper and driven by Fan-non whose pay came from Cooper, Unit 7 was not, as required (notes 1 and 2, supra) "operated by" the Assured is quickly disposed of. The evidence overwhelmingly demonstrated that as a common carrier Egg Express, typical of operations as exempt carrier of agricultural products, see Ex Parte No. MC-43, Lease and Interchange of vehicles by Motor Carriers, 52 MCC 675; American Trucking Ass'n v. United States, 344 U.S. 298, 73 S.Ct. 307, 97 L.Ed. 337, used both owned and leased equipment. Under the arrangement between Egg Express and the egg shippers by which they looked to it as the carrier issuing the bills of lading, making the contract of afreightment, and the person responsible for the safe custody and delivery of the goods, the carriage of the goods which gave rise to the liability insured against by this policy, was clearly the operation of Egg Express whatever might have been the liability of the tractor owner or driver in other situations. United States v. N. E. Rosenblum Truck Lines, 315 U.S. 50, 62 S.Ct. 445, 86 L.Ed. 671; Thomson v. United States, 321 U.S. 19, 64 S.Ct. 392, 88 L.Ed. 513; Gulf Coast Towing Co. v. United States, 5 Cir., 196 F.2d 944; United States v. Silk (Harrison v. Greyvan Lines), 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757.
The question then becomes: is the Insurer liable for the full amount (fixed by the jury at $9942.90) of the second loss or only up to the balance remaining after deducting from the $10,000 policy limit the amount of the first (August 5) .loss, approximately $4300. Up to this question we are all of one mind. As to .it, the Court is divided and Judge BROWN'S contrary and minority views on this point are set forth in his dissent.
For the reasons we indicate the Court is of the opinion that the reinstatement clause, note 3, supra, required some character of action by the Assured after the 'first loss and since none was taken prior to the occurrence of the second one, the face amount of insurance available was reduced to that specified in the endorsement of October 22, note 6, supra.
We start with the proposition that our function is not to write insurance contracts. We are not underwriters. We must apply them as written by the parties, C. E: Carnes & Co. v. Employers' Liability Assurance Corp., 5 Cir., 101 F.2d 739; Maryland Casualty Co. v. Southern Farm Bureau Casualty Insurance Co., 5 Cir., 235 F.2d 679, even though the result compelled by the plain words used may appear or be thought to appear to be unreasonable, unduly harsh, or stringent. We cannot ignore them. We cannot substitute others for them. So at the start we must ascertain whether the words used really leave a doubt or create uncertainty which needs ' construction. If not, the words control.
With this approach the clause announces in simple terms that the insurance will be reduced by the sums paid or payable unless application for reinstatement is made and an added pro rata premium paid. This contemplates two actions by the Assured: (1) application, i. e., a request, and (2) payment or an obligation to pay more premiums. Only the Assured can determine whether he desires the added insurance or wishes to assume a liability for its cost. Under the scheme of this insurance, the Assured should not have the protection unless it is equally clear that the Insurer will receive the added compensation. This may be quite a different matter from the time when the •added compensation is ascertainable or even payable. And yet that may occur if the Assured need take no action until his first claim is actually paid or liability therefor is authoritatively acknowledged by the Insurer. For the Assured, confident in the knowledge that he need take action only when decisive payment (or acknowledgment of liability) is made, could perhaps for the remainder of the policy term have the protection of the full face amount without any cost to him. If a subsequent loss were to occur, he would then quite obviously be willing to pay the added premium. On the other hand, if no subsequent losses were to occur or did not exceed in total the reduced amount of insurance, no added premium would be due. At least it would hardly, be collectible since the obligation would depend on the secret undisclosed desire of the Assured to have (and pay for) it if needed, otherwise not.
This exposes the Assured to no real difficulty. For he will know of the first claim, both from the physical occurrence producing the cargo loss or damage and, more significantly, from the submission of it to the Insurer by proof of loss or other formal request for payment. The Assured may perhaps not be able to forecast accurately its future legal life from claim to ultimate payment, and what he thought was a claim may turn out, or by some judges be turned out, to be none at all. But he will at least know what it is he asserts is payable. And when he knows that, and asserts it as well, it is not unreasonable for him then to determine and announce in some unequivocal fashion his desire to obtain the added insurance and his willingness to pay the added cost when and as, if ever, any is ascertained and becomes due.
Nor do we think this does any violence to legal concepts. For a claim is "payable" if it is due under the policy. Whether it is due, i. e., owing under the policy, is an ultimate legal question quite apart from the matter of when that determination is made. It may be years and courts later, but if the final decision is one of liability under the policy, the claim was, in a legal sense, payable, from the outset, that is, from the time submitted for payment.
Illustrating that such a construction of the policy terms is a reasonable one, the facts of this particular case afford no basis for any apprehension that fine-print technicalities misled the uninformed. The Assured happened also to be a lawyer professionally capable of interpreting insurance contracts and his insurance was handled by an experienced broker whose acts of this kind in Florida are normally the assured's Centennial Insurance Co. v. Parnell, Fla., 83 So.2d 688. The broker knew of the first loss and his client's earlier expressed desire to maintain the full level of insurance but purposefully refrained from advising the Insurer that the Assured desired to reintate the policy. He freely acknowledged that it could have been done and his only excuse was that he didn't see how the premium could be calculated until the first loss was reduced to tangible terms.
The Assured did not comply with the reinstatement clause. It was operative and valid and by its terms reduced the coverage accordingly.
The judgment as to the issue of reinstatement is therefore reversed and remanded for further and not inconsistent proceedings. Otherwise it is affirmed.
Affirmed in Part and Reversed and Remanded in Part.
. The principal insuring clause provided: "This policy covers the legal liability of the Assured as a carrier and/or bailee and/or warehouseman under tariff and/or bill of lading and/or shipping receipt issued by the Assured, for loss or damage caused directly by perils hereinafter enumerated on shipments of lawful goods and/or merchandise received for transportation consisting principally of eggs but only while loaded for shipment on and/or in transit in or on the following described motor truck (s) and trailer (s) operated by the Assured [This was followed immediately by a scheduled listing of tractors and trailers by identifying serial numbers.]
"This policy covers the Assured's liability from the time the merchandise leaves the premises, factory, store or warehouse, in the custody of the Assured, at point of shipment on board the herein specified truck (s) or trailer (s) in due course of transit, until unloaded at destination
. "Privilege is hereby granted the Assured to substitute at any time during the currency of this policy, other trucks or trailers than those described herein, provided such substituted trucks or trailers are operated by the Assured. The Assured hereby warrants to report within seventy-two (72) hours to this Company, in writing, all such substitutions and to pay additional premium, if required."
Obviously, depending on the age, characteristic, and state of mechanical fitness, a substitute vehicle, unknown and unsurveyed by the Insurer, would, or might, substantially increase exposure of the Underwriter to risk. But this underwriting factor was evaluated retrospectively by the payment of an added premium if required. The Insurer's needs were thus satisfied if it received notice within 72 hours so it could determine whether added premium should be assessed.
. "Reinstatement. Unless this policy is written on a gross receipts reporting basis, every claim payable hereunder reduces the amount for which this Company may be liable as to the truck in respect to which the disaster occurred, by the sum actually paid, or payable, unless the same be reinstated by the Assured and accepted by this Company by endorsement hereon, in consideration of payment of additional premium at pro rata rates."
. These identifying numbers are arbitrarily added by us for convenient reference to emphasize that, after total loss of Unit 1 in the August 5, 1953 accident, approximately 6 other units had been substituted for successive trips and the unit in use August 27, 1953 was approximately the seventh substitution.
. Unit 7 was under oral lease to Egg Express effective approximately 6:00 to 7:00 p. m. Monday, August 24, when the Unit was placed at disposal of Egg Express to load southbound eggs. Charter hire, $350 for the trip, was split 80/20% between tractor (Cooper) and trailer (Holdeman) owner respectively. The driver, Fannon, for his compensation received 20% of the tractor's 80%. See Ex Parte No. MC-43, Lease and Interchange of Vehicles by Motor Carriers, 52 MCC 675.
. The - endorsement, dated October 22,' 1953, on the usual form stated:
"It is understood and agreed that under the reinstatement clause contained in the conditions of the policy contract, the coverage limits of this policy are reduced to the extent of the amount of claim paid; namely the coverage limits are reduced to $6,569.14."
The reduction was therefore fixed by the Insurer at $6,569.14 and not, as might be supposed, approximately $5,700 ($10,000 minus $4,300).
. Of course, under the policy, the Insurer, perhaps for verification, further investigation, etc., is given 60 days after acceptance of proofs of loss in which to make the actual payment:
"Payment of Loss. All adjusted claims under this policy shall be due and payable sixty (60) days after the presentation and acceptance of proofs of interest and loss at the office of this company (the amount of any indebtedness due this company being first deducted)."
Specific reference to "adjusted" claims and "acceptance" of proofs of loss indicates that this clause relates to the time of payment of an admitted claim once liability has been accepted for it. For the purpose of reinstatement, however, a claim could be legally owing and due in the sense of the Insurer being liable for it even though by the terms of the contract, the time of such payment might be deferred.