Dallas Glass of Hendersonville, Inc. v. Bituminous Fire & Marine Insurance Co.

544 S.W.2d 351, 1976 Tenn. LEXIS 514

• Court: Tennessee Supreme Court
• Decided: October 11, 1976
• Status: Published

Opinions

OPINION

HARBISON, Justice.

This ease involves a question of coverage under the provisions of a cargo insurance policy issued to the petitioners by respondent.

Petitioner Trans-Units, Inc. manufactures aluminum and glass prefabricated motel fronts. Petitioner Dallas Glass of Hendersonville, Inc. supplies trailers used to transport the cargoes shipped by Trans-Units, Inc. Petitioners purchased cargo insurance from respondent insurance company through an insurance agency in Hender-sonville, Tennessee, known as Newman, Hayes and Hogin, Inc.

Among other policies of insurance purchased through this agency, petitioners were issued a multi-peril insurance policy from respondent. By endorsement, this policy provided:

“This policy covers on lawful goods and merchandise consisting of . the property of the Insured or sold by them and in course of delivery . . . within a radius of 500 miles of Hendersonville, Tennessee.” (Emphasis supplied).

While the policy was in effect, a tractor-trailer unit, transporting cargo consigned to a Holiday Inn in Bangor, Maine, was involved in an accident at the site of an overpass in the vicinity of Wells, Maine, some twelve hundred miles from Hender-sonville. Respondent denied liability under the policy, contending that there was contact only between the cargo and the structure of the overpass, with no part of the tractor-trailer unit being involved. This presented a question of coverage, since the policy indemnified for loss “caused by collision of the vehicle”. In addition, respondent relied upon the mileage limitation contained in the endorsement quoted above.

The trial court allowed recovery for the cargo loss, in the amount of $9,900.00. The Court of Appeals reversed and dismissed the suit. That court pretermitted the question of whether there was a loss caused by “collision” within the meaning of the policy. It held that the mileage limitation “is a part of the insuring portion of the insurance policy,” and that the coverage of the policy could not be changed through application of principles of waiver or estoppel.

Petitioners have insisted throughout the litigation that they desired to purchase complete coverage on their cargoes while in transit and that the mileage limitation had never been called to their attention. The insured had for a period of some four years made monthly reports to the insurance carrier, through the agency, showing the destination and value of each cargo shipped. Over ninety percent of the shipments exceeded the five hundred mile policy limitation. Representatives of the insured testified that full cargo coverage had been requested, and that in order to obtain it the insured went on a “monthly reporting” basis, with respect to its cargo coverage. Under this procedure, the insured paid an initial estimated premium, but submitted monthly reports concerning its shipments, these reports usually being filled out by a member of the insurance agency itself. The insured was subject to annual audit and adjustment of its premium. A representative of the petitioners testified as follows:

“Q. What do you mean by liability exposure and cargo coverage?

“A. Cargo coverage on a reporting basis is based on your exposure by amount of dollars, by amount of miles you travel.

“Q. Is that your understanding?

“A. Yes, sir, that was my understanding, because our exposure was much greater from here to New York than it would be from here to Nashville.

“THE COURT: On liability?

“THE WITNESS: On liability, and the exposure of the cargo insurance. This is why it went to a reporting type basis.

“Q. Is this the reason an audit was made every year?

“A. Yes, sir.

“Q. Did you pay additional premium or did you receive reduced premiums?

“A. We received additional premiums or received credit, depending on the exposure for that period of time.”

Two representatives of the insurance agency were called as witnesses by the insurer. They testified that they had full knowledge of the fact that the insured’s shipments were exceeding the five hundred mile limitation. Both of them testified, under examination by counsel for the insurance carrier, that they did not agree with the respondent’s reliance on the policy limitation in this case. They based their conclusions, in part at least, upon the monthly reporting system which had been instituted, showing the value and destination of each cargo which was insured.

The representatives of the insurance agency testified that they felt that the insurance carrier had full knowledge of the operations of the insured from these monthly reports and also from inspections made of the insured’s premises and vehicles by engineering personnel of the insurance carrier. One of them testified that the company required monthly reports in order that it might set the premiums. In addition, he stated that this information enabled the company to determine whether “they don’t want the coverage any more . . . .”

There is no testimony indicating that any representative of the insurance carrier had called to the attention of the insured the mileage limitation over the period of years during which monthly reports had been filed. An underwriter from the Nashville office of the insurance carrier testified that the company only charged the insured premiums based upon the five hundred mile limitation. She testified that the company did write coverage for distances up to fifteen hundred miles, but at substantially increased rates.

The Court of Appeals held that while principles of waiver or estoppel might be invoked by an insured to prevent an insurance carrier from relying upon exclusionary provisions of an insurance policy, those principles were not available to prevent reliance by the carrier upon the actual insuring clauses of the insurance contract. The Court cited and relied principally upon the cases of E. K. Hardison Seed Co. v. Continental Cas. Co., 56 Tenn.App. 644, 410 S.W.2d 729 (1966), and Bituminous Fire & Marine Ins. Co. v. Izzy Rosen’s Inc., 493 F.2d 257 (6th Cir. 1974).

It is indeed a recognized principle of insurance law that a contract of insurance cannot be created by waiver or estoppel. However, this general statement, although well supported by case law, should be considered in light of the facts to which it has been applied.

In the case of E. K. Hardison Seed Co. v. Continental Cas. Co., 56 Tenn.App. 644, 410 S.W.2d 729 (1966), the insured had a policy of insurance against liability for damages “caused by accident”. The insured was sued for breach of warranty based upon a claim of defective merchandise. There was testimony that the insurance agent had told the insured that it had “full coverage” for its business operations, but all parties agreed that there had never been any discussion between the insured and the agent with respect to contractual coverage, or any kind of liability insurance other than that arising from accident. The Court of Appeals affirmed the Chancellor in declining to reform the contract to afford such coverage, because the subject had never been discussed by the parties. Also upon these facts the court held that warranty coverage could not be created or supplied by waiver or estoppel.

The principle that a new contract, or coverage of a different kind of risk, cannot be created by waiver or estoppel has reference to the nature of the coverage afforded, not merely to limitations or conditions pertaining to a risk already covered by the policy. In the course of its opinion in the Hardison Seed Co. case, supra, the Court quoted with approval of the following statement from 45 C.J.S. Insurance, § 674:

“As a general rule, the doctrines of waiver or estoppel can have a field of operation only when the subject matter is within the terms of the contract, and they cannot operate radically to change the terms of the policy so as to cover additional subject matter.”

It was this same principle which was applied by the Court of Appeals for the Sixth Circuit in the case of Bituminous Fire & Marine Ins. Co. v. Izzy Rosen’s, Inc., 493 F.2d 257 (6th Cir. 1974). In that case the insured had a policy covering liability for bodily injuries to persons. It sought, by estoppel, to create coverage for slander, false arrest and similar intentional torts.

This is not the situation in the present case. Here the insured clearly had cargo collision coverage. The record shows that the insured and the agent of the insurer intended that the insured would be furnished full coverage upon its cargoes while in transit. The policy which was issued and delivered contained a five hundred mile limitation upon coverage, but, for a period literally of years prior to the incident in question, the insured reported monthly to the insurer both the values of its cargoes and the destination of each shipment. These shipments were to points in many different states of the United States, and nearly all of them were to destinations well beyond the five hundred mile radius. There is no question but that the agent knew of these shipments, and, for that matter, no question but that the insurance company also knew of them. It received the monthly reports and made annual premium adjustments. Its safety engineers inspected the vehicles upon which the cargoes were transported. It seems implausible that the company could consider that the insured intended to procure coverage upon its cargoes within a five hundred mile radius, but that it expected to be self-insured beyond that point. The testimony of both the insured and the agents is clear that the insured desired full coverage upon its cargoes, and that it changed to a monthly reporting system, with an annual premium audit and adjustment, upon the advice and recommendation of the insurance agents.

Under these circumstances, we do not conceive that any new contract of insurance is being “created” by application of principles of waiver or estoppel. Indeed, the ease seems to us to turn upon the principle of waiver, which has long been defined in the Tennessee cases as the voluntary relinquishment of a known right.¹ There is no question but that the agents considered the cargoes covered beyond the five hundred mile radius and that the insured expected such coverage. The agency conferred regularly with the insured and continually attempted to furnish insurance coverage suited to the needs of a changing and expanding business operation.

Had the insured brought this action for reformation of the policy, by a suit in equity, rather than as an action at law upon the contract, a chancery court in all probability would have reformed the policy to conform to the clear intentions of the parties, permitting coverage up to fifteen hundred miles (the maximum written by the insurance carrier) and requiring the insured to pay an additional premium accordingly.

Since reformation of the policy was not sought below, it would be inappropriate for us to decree that relief here. In our opinion, however, there was a waiver of the limitation upon coverage by the insurer, both through the actions of its agents and through the knowledge which it itself received and acted upon. Under these circumstances, we hold that the insured is entitled to recover the amount of its loss, insofar as the mileage limitation is concerned.

• Support can be found for the judgment of the trial court in the case of Miller v. Monticello Ins. Co., 50 Tenn.App. 363, 361 S.W.2d 496 (1961). In that case certain welding equipment was insured while located on premises described in the policy. The equipment was used at different locations from the insured premises, with the knowledge of the agent, and was destroyed several miles therefrom. The Court of Appeals affirmed a recovery against the insurance carrier upon principles of waiver.

To the same effect is the case of Shelby Mutual Ins. Co. v. Wilson, 53 Tenn.App. 428, 383 S.W.2d 791 (1964). In that case the insured had a homeowner’s policy, covering unscheduled personal property to its full value while on the premises described in the policy. The policy also covered unscheduled personal property while away from the premises, subject, however, to a limitation of ten percent of the “on premises” coverage.

In that case the insured moved from Greeneville, Tennessee to Rogersville, Tennessee in September, 1962, and, in December, 1962 the insured again moved from within the corporate limits of Rogersville to another location just outside the city limits. These changes in location were known to the insurance agent. The personal property of the insured was destroyed by fire while at the last location. The Court of Appeals affirmed a judgment against the insurance carrier for the full value of the property, finding evidence to support the judgment of the trial court that the agent had knowledge of the location of the property, that this knowledge was imputed to the insurance carrier, and that there was a waiver of the limitation on the location of the property-

Reference also should be made to the case of Smith v. Continental Ins. Co., 63 Tenn.App. 48, 469 S.W.2d 138 (1971), where the insurer was held liable for the full loss claimed despite incomplete data reported by the insured and the agent on monthly forms as to inventory values. The agent was held to be the insurer’s agent under T.C.A. § 56-705, and it was bound by her actions and agreements.

We do not find that these cases conflict with the Hardison Seed Co. case and other cases holding that insurance coverage cannot be created by waiver or estoppel. If the insured in the present case had cargo insurance limited to some particular peril, it is doubtful that the insurance could be changed through principles of waiver or estoppel to protect against some entirely different risk. We do not have in this case, however, a question of a change in the nature of the coverage, but simply a condition or limitation upon a risk which was actually underwritten, and such conditions and limitations are subject to waiver by authorized representatives of an insurance carrier.

In the case of Bailey v. Life & Casualty Ins. Co. of Tenn., 35 Tenn.App. 574, 250 S.W.2d 99 (1951), it was said:

“Any contractual provision in a policy of insurance, made for the benefit of the insurer, not mandatory under a statute, may be waived by an officer or agent of insurer who has actual or apparent authority so to do. Furthermore, the insurer by express words or by acts or by a course of conduct may ratify the acts of its unauthorized agents relating to such provisions, or be estopped to rely upon them. . . .”35 Tenn.App. at 582-583, 250 S.W.2d at 102.

As previously indicated, the insurance carrier did contend in the trial court that there was no coverage in the present case because of the facts surrounding the accident and the policy terms as to “collision”. This contention has been properly preserved for appellate review. It was upon this basis that the company initially and primarily denied payment of the loss. The mileage limitation was merely an additional reason for the denial. The opinion letter of trial counsel to the company, on the basis of which liability for the statutory penalty was denied, did not even refer to the mileage provision.

We reverse the decision of the Court of Appeals that the mileage limitation precludes recovery under the circumstances shown in this case. The cause is remanded to that court for consideration of the assignments of error made by the insurance carrier which were pretermitted, as to whether there was in fact coverage for this particular occurrence.

Costs in this Court are taxed to respondent. All other costs will be assessed by the Court of Appeals upon its disposition of the case.

COOPER, C. J., and BROCK, J., concur. HENRY and FONES, JJ., dissent.

1 . Baird v. Fidelity-Phenix Fire Ins. Co., 178 Tenn. 653, 162 S.W.2d 384 (1942).