Palmer v. Hartford Fire Insurance

9 A. 248, 54 Conn. 488, 1887 Conn. LEXIS 5

• Court: Supreme Court of Connecticut
• Decided: February 11, 1887
• Status: Published

Opinion

Pardee, J.

The complaint in this case is in effect as follows: Prior to May 15tli, 1884, the defendant had issued to the plaintiffs a policy of insurance against loss by fire upon merchandise ; on that day it expired ; on that day the defendant proposed to them to renew the insurance upon the terms and conditions of the expiring policy, the plaintiffs accepted the proposition; the defendant wrote a policy, delivered it to, and received the premium from the plaintiffs ; they, relying upon the fidelity of the defendant to its promise, and supposing the last Avritten policy to contain the same stipulations and conditions as were in the first, omitted to read it. The merchandise was damaged by fire on August 17th, 1884; subsequently the plaintiffs for the first time discovered that the last policy contained this condition, which was not in the first: “ Co-insurance clause. If the value of the property at the time of any fire shall be greater than 'the amount of the insurance thereon, the insurer shall be considered as co-insurer for such excess, and all losses shall be adjusted accordingly.” In this respect the last policy materially differs from the first. The plaintiffs would not have accepted the policy and paid the premium if they had known that it contained this clause; and if the defendant had notified them of its refusal to perform its agreement, they could and would have obtained elsewhere, at the same price, the desired insurance upon the stipulated terms. The defendant refuses either to correct the policy or perform the agreement. The plaintiffs ask that the policy may be reformed so as to express the agreement, and that the defendant be compelled to perform the agreement and pay the indemnity promised by it. The defendant answers by demurrer, assigning therefor the folloAving reasons:—“that upon the facts stated the plaintiffs are not entitled to the relief sought; that the complaint does not aver that there was a mutual mistake between the parties as to the terms of the policy or as to the agreement for one; and that the plaintiffs were guilty of gross laches in not reading the policy, and in not notifying the defendant of them claim, so that it might have exercised its right of rescission before loss.

The Superior Court held the complaint to be insufficient. The plaintiffs appeal, assigning the following reasons:—

1. The court erred and mistook the law in rendering judgment in favor of the defendant to recover costs.

2. In not holding that the plaintiffs were entitled to recover at least the amount of loss covered by the policy, as delivered to the plaintiffs by the defendant.

8. In holding that upon the facts stated in the complaint the plaintiffs were not entitled to the relief sought.

4. In holding that the plaintiffs should have averred in their complaint that there was a mutual mistake between the plaintiffs and defendant as to the terms of said policy.

5. In holding that there was no allegation in the plaintiffs’ complaint of an agreement between the parties as to the specific terms of the new policy that was to be issued.

6. In not holding that, as the defendant had agreed to renew said insurance on the same terms and conditions as stated in the old policy, for the same premium, and issue a policy therefor, it was immaterial under the circumstances in this case whether the failure to perform said agreement on the part of the defendant was by mistake or design.

7. In holding that the plaintiffs were guilty of such gross laches in not examining the new policy that they are not entitled to relief, and in holding that the defendant was excused in the performance of its contract because the plaintiffs did not detect its omission to deliver such a policy to the plaintiffs as it agreed to, till after the fire.

8. In holding that it was the duty of the plaintiffs to detect, and notify the defendant of, an alteration which the defendant made, and in the very nature of the case must have had knowledge of, to wit, the changes in the terms and conditions of the new policy from those in the old.

9. In not holding that the plaintiffs were entitled to a correction of said last named policy in the manner sought, and to specific performance of the agreement stated in paragraph ten, and to judgment for the amount that would be due by said policy, when corrected, by reason of said loss by said fire.

For the purpose of testing the sufficiency of the pleadings we are to assume that the defendant admits that an agreement between it and the plaintiffs for indemnity against loss by fire, containing every stipulation and condition which should enter into or affect it, was reduced to writing, and that the defendant agreed to make and sign a copy thereof, except as to the dates of commencement and termination of risk, and deliver the same to the plaintiffs; that it wrote and signed a policy of insurance, and delivered it to the plaintiffs as and for a performance of its promise, and received the stipulated premium, without notice to them that an important and variant condition had been added to those contained in the first written agreement; and that the plaintiffs, trusting to the defendant’s fidelity to its undertaking, omitted to examine the policy for the purpose of discovering variances from the written draft, and did not in fact discover the variance until after damage to the property for which indemnity had been sought.

The presence of the variant clause in the delivered instrument is of necessity due either to intention or mistake upon the part of the defendant. To attribute it to the former is to charge constructive fraud at least; and inasmuch as the plaintiffs have not charged this specifically, if we accede to the rule of law invoked by the defendant, that unless fraud is so charged it is excluded from the case, there remains the other and only possibility, namely, mistake; and upon a fair interpretation of the allegation, this, the only possible legal meaning, is to be attributed to it, namely, that the writing, which by the agreement of the parties should have been a copy of a previously written draft, did in fact contain a variant and material clause, which neither of them desired or intended that it should contain, and which neither party would knowingly have permitted to be in it. This meaning the defendant should have found therein, and to it made answer.

That it is a most frequent and useful office of a court of equity to reform written contracts, and make them conform to the verbal agreement or written draft which of necessity precedes them, is in the knowledge of all, and it is suffieiently accurate to say that no writing is beyond, its reach if the prayer for relief is presented in due season and supported by convincing evidence. Of course the presumption in favor of the written over the spoken agreement is almost resistless; and the court has wearied itself in declaring that such prayers must be supported by overwhelming evidence or be denied. But in the case at bar the defendant volunteers to lift this burden from the plaintiffs, and upon the pleadings admits that the delivered policy is materially variant from the precedent written draft agreed upon.

There are many precedents for the reformation of policies of insurance in cases where the insured has held the policy until after a loss in silence and in ignorance of the necessity for such reformation,—ignorance because of the omission to read the policy or of a careless reading. A few are cited.

In Andrews v. Essex Ins. Co., 8 Mason, 10, Story, J., said:—“ There cannot at the present day be any serious doubt that a court of equity has .authority to reform a contract where there has been an omission of a material stipulation by mistake. And a policy of insurance is just as much within the reach of the principle as any other written contract. But a court of equity ought to be extremely cautious in the exercise of such an authority, seeing that it trendies upon one of the most salutary rules of evidence, that parol evidence ought not to be admitted to vary a written instrument. It ought therefore in all cases to withhold its aid where the mistake is not made out by the clearest evidence according to the understanding of both parties, and upon testimony entirely exact and satisfactory. There is less danger where the instrument is to be reformed by reference to a preliminary written contract which it was designed to execute. But even here there is abundant room for caution, since the parties may have varied their intentions, or the clause may not have been originally understood by either party to go to the extent now required. And these considerations acquire additional force where circumstances have occurred in the intermediate time which give an increased importance tó the asserted mistake. Under these limitations' the doctrine of courts of equity on this subject does not seem at variance with general convenience or justice.”

In 1 Story’s Equity Jurisprudence, § 159, it is said as follows:—“ The relief granted by courts of equity in cases of this character is not confined to mere executory contracts, by altering and conforming them to the real intent of the parties; but it is extended to solemn instruments winch are made by the parties in pursuance of such executory or preliminary contracts, and indeed, if the court acted otherwise, there would be a great defect of justice, and the main evils of the mistake would remain irremediable. Hence, in preliminary contracts for conveyances, settlements, and other solemn instruments, the court acts efficiently by reforming the preliminary contract itself, and decreeing a due execution of it as reformed, if no conveyance or other solemn instrument in pursuance of it has been executed. And if such conveyance or instrument has been executed, it reforms the latter also by making it such as the parties originally intended.”

In Oliver v. Mut. Commercial Ins. Co., 2 Curtis, 277, the marginal note is as follows :—“ If a policy when drawn and received does not correctly express a previously concluded agreement for insurance which it was designed by both parties to execute, equity will reform it. If underwriters conclude an agreement for insurance with one known to them to be merely an agent and nothing is said as to whose account the insurance is to be made upon, the agent has a right to a policy insuring him as agent, or for whom it concerns. If the agent makes a mistake in declaring the interest, equity requires it to be corrected and the policy reformed. There is a distinction between the 'correction of a mistake in a written contract and in the execution of a power. In the latter case courts interpose more willingly. But if the agent did not declare the interest in the wrong person by mistake, but through a fraudulent design, equity will not relieve the principal. If a party fails through mistake to obtain such a policy as he is entitled to by an existing valid contract, equity will relieve, though, the mistake arose from ignorance of law.”

In N. Amer. Ins. Co. v. Whipple, 2 Bissell, 419, the court says:—“ It is easy to see how, in the filling up of printed blanks, a mistake like that alleged by the complainant might happen; and the policy clerk says that it occurred from the fact that he was accustomed in the majority of instances to fill up yearly policies. All the other policies were made out for two months; that is, they expired on the 22d of December, 1864, instead of the 22d of December, 1865. This is not contradicted by the defendant. The defendant himself, who personally procured this insurance, has no recollection, or does not testify to any, in regard to what transpired at the time he applied for the insurance. He admits that he obtained the insurance at the time mentioned,, but does not profess to remember the time the policies were to run, from anything he can now recall of the transaction. It is shown in the proofs, and I presume it would be taken notice of without proof, that fourteen months is an unusual time for the life of an insurance policy. The usual time is two, three, four, six and twelve months, and if for any reason the defendant had had occasion to apply for a policy so much out of the usual course of business, it would have made some impression upon his memory and that of the clerks and agents of the insurance • company who participated in the transaction. So also the fact that only so small an amount was paid for a policy having so long a time to run, would seem to be a circumstance calculated to excite attention and impress itself upon the memory. It is true that the defendant testifies that he afterwards sent his policies to the insurance agents to have them looked over and mistakes corrected ; but both the agents deny that they ever saw this policy and assert positively that they supposed the same had expired on the 22d of December, 1864, and had so entered the same on their books, and so informed the complainant, and had no knowledge that the policy in questidn was claimed to be in force until after the fire. Under the evidence in this case I can but conclude that the substantial allegations in the bill are made out by the proofs, and that the complainant is entitled to the relief prayed for.”

In Phœnix Fire Ins. Co. v. Gurnee, 1 Paige, 278, the marginal note is as follows:—“ A court of chancery has jurisdiction to correct mistakes in policies of insurance as well as in all other written instruments. The evidence of the mistakes in all cases should be clear and satisfactory.” Chancellor Walworth said in this case:—“ It is well settled that a court of equity has jurisdiction to correct mistakes in policies of insurance as well as in all other written instruments. Phill. on Ins., 14. But the evidence of such mistake, and that both parties understood the contract in the manner in which it is sought to be reformed, should be clear and satisfactory. In policies of insurance the label or written memorandum from which the policy was filled up is always considered of great importance in determining the nature of the risk and the intention of the parties. Thus, in Motteaux v. London Insurance Company, (1 Atk., 347), Lord Hardwicks held that a policy ought to be rectified agreeably to the label; and in the issues which he directed in that case the label was treated as the real contract between the parties. In this case there is a substantial difference between the policy and the written memorandum on which it is founded.”

In Wood on Fire Insurance, § 484, it is said as follows:— “When an application for insurance is made and accepted, and a policy is issued which, either by mistake or fraud on the part of the insurer, essentially varies from the contract made, and the policy is not seen or examined by the assured until after the loss thereunder occurs, he is not estopped from seeking a reformation of the contract upon the ground that he accepted the policy. Thus, where the plaintiffs entered into a contract for insurance Avith the defendant’s agent and paid him the premium and took from him a receipt stating that the insurance was for $10,000 upon “merchandise, generally contained in their three story brick building, metal roof, and occupied by them as a commission house,” and a policy was issued containing all the provisions of the contract except the words “ as a commission house” and the policy was received by a clerk of the plaintiffs, and its terms were not known to the assured until the loss, it was held that, “inasmuch as the insured refused to pay the loss upon goods held by commission, the assured were entitled to have the policy made to conform to the agreement, and could not be said to have accepted the change in the contract as indicated by the policy. The fact that proceedings are not instituted for its reformation until after a loss does not of itself bar the remedy. It is a circumstance to be taken into consideration in connection with other circumstances in determining whether the plaintiffs waived the variance, but, if the delay is excused, the remedy remains.”

In Van Tuyl v. Westchester Fire Ins. Co., 55 N. York, 657, the plaintiffs procured insurance upon their stock and materials in their manufactory. One of the printed conditions declared it void in the case of the establishment running, in whole or in part, over or extra time, or running at night, without special agreement. The plaintiffs gave evidence to show that they previously insured with the defendant, but had the policy canceled because of the condition above mentioned being in it; that the plaintiffs’ agent informed the defendant that the United States Insurance Company of Baltimore was writing on the property, and that their policy did not contain that clause; that the defendant thereupon agreed to write as the other companies did and to follow the form of the United States policy, which the plaintiffs were to and did furnish for the defendant to copy. The plaintiffs thereupon produced a blank form, which the witness testified was a blank policy of the latter company. This was offered in evidence and was objected to upon the ground that the copy shown the defendant should be produced, and that a blank form not filled up was not proper evidence. The objection was overruled, and the defendant excepted. The plaintiffs also gave evidence tending to show that they did not discover that the permission required was not in the policy until after the fire. The evidence as to the agreement was denied by the defendant’s agent who effected the insurance. It was held that the plaintiffs were entitled to have the policy reformed. See also N. Y. Ice Co. v. N. Western Ins. Co., 23 N. York, 357; National Fire Ins. Co. v. Crane, 16 Md., 260; Harris v. Columbia Ins. Co., 18 Ohio, 116; Weed v. Schenectady Ins. Co., 7 Lans., 452; Bidwell v. Astor Ins. Co., 16 N. York, 268; Brioso v. Pacific Mut. Ins. Co., 4 Daly, 246; Bunten v. Orient Ins. Co., 2 Keys, 667; Malleable Iron Works v. Phœnix Ins. Co., 25 Conn., 465; Bennett v. City Ins. Co., 115 Mass., 241; Moliere v. Penn. Fire Ins. Co., 5 Rawle, 342; National Traders’ Bank v. Ocean Ins. Co., 62 Maine, 519; Lippincott v. Ins. Co., 3 La., 546; Franklin Ins. Co. v. Hewitt, 3 B. Monr., 202; Law v. Warren, 6 Irish. Eq., 299.

In Nat. Traders’ Bank v. Ocean Ins. Co., 62 Maine, 519, it is said as follows:—“ This is a bill in equity asking the court to reform an insurance - policy. The authority of the court to grant the relief prayed for is conceded. The only question is whether the evidence of mistake is such as to justify the court in exercising its authority. . . . As there can be no recovery upon the policy as it is now written, for the reason that between the voyage insured and the one actually made by the vessel there would be apparently a fatal deviation, the plaintiffs ask to have the policy reformed so that it will describe the voyage correctly. We think the relief prayed for should be granted. Where, as in this case, an insurance company undertakes to insure the charter of a vessel after being informed that no copy of the charter has been received, and it is not known how many ports she will be required to use, and through mistake the policy is so written as to limit the vessel to the use of one port when in fact her charter requires her to use two, we think a court of equity should order the policy reformed so as to make it describe the voyage correctly. The mistake in this case seems to be established beyond the possibility of doubt. The policy and the charter are both written instruments. A comparison of the two demonstrates that the voyage described in the charter is misdescribed in the policy. Can there be any doubt that the misdescription was the result of mistake ? We think not. It is impossible to believe that the applicant for insurance knowingly paid the premium for a void policy. Nor would it be just to the officers of the insurance company to suppose that they took a premium for a policy known to them to be of no value. The conclusion is therefore inevitable, that the misdescription was the result of a mistake—a mutual mistake—a mistake in which both parties participated; and we think equity and good conscience require that it should be corrected.”

In Buckland v. Adams Express Co., 97 Mass., 132, the court said:—“ On a consideration of the facts stated, it does not appear to us that the plaintiffs ever did agree that the merchandise in question should be transported on the terms set forth in the receipt which was delivered to the workman at the manufactory when the package was delivered to the defendants’ agent. It is not stated that the plaintiffs or either of them ever read the paper containing the alleged regulations or one similar to it. It is agreed that the defendants received and carried like packages of merchandise for the plaintiffs at or about the time the one in controversy was delivered for carriage without giving the plaintiffs any receipt whatever therefor, and that this was the course of dealing between the parties in a large majority of the instances in which the defendants had been employed by the plaintiffs. From this it would appear that the ordinary course of business was for the defendants to receive merchandise from the plaintiffs without attempting to limit their liability as carriers in any manner whatever. Under these circumstances we cannot fairly infer that the plaintiffs understood that by the delivery of a receipt for the merchandise the defendants intended to limit the liability which they ordinarily assumed in their dealings with the plaintiffs, or that the latter understood and assented to the contents of such receipt as fixing the terms on which the defendants were to transport the merchandise.”

In National Fire Ins. Co. v. Crane, 16 Maryland, 295, the court said: “ Whatever effect the want of such an indorsement may have at law in an action on the policy, we think it cannot be urged in a court of equity, in a cause otherwise free from objection. The judge below has correctly stated the law on the subject. The indorsement could have been made only by the company. If it be omitted, who is to blame ? Certainly not the assured. These policies contain many stipulations, some of them operating as conditions precedent for the benefit of the company, and few for that of the assured. It is too common for applications to be met and adjustment refused on frivolous and unjust pretences, in order to defeat fair claims on contracts of which good faith is the very essence, and we think it would promote the interest of insurance companies, and tend to a higher state of morals in business transactions, if they would exhibit more readiness to settle demands upon them, than, as we discover from the numerous reported cases on the subject, appears to be usual with them. In this case the president of the company dictated the application himself; the prior insurance was made known to him ; the parties relied upon him; they never went to the office of the company, he came to the counting-house of the complainant, seeking the risk, and after hearing all they had to say on the subject he departed, and soon after sent the policy and received the premium, his clerk saying that it was all right, the only defect, however, being that the company had omitted part of its own duty in not indorsing the former insurance. In such a case we are called upon to say that the party is without remedy. On the contrary, we think it would be a reproach to the jurisprudence of the state if this company were discharged from their contract on any such grounds. There is a distinction in cases where the preparation of an instrument belongs to the party to .become liable under it; he ought in that case to be dealt with more strictly. 19 Ves., 257. Insurance contracts are within this principle, and equity will interpose not only in cases of fraud, but also of mistake, where a policy is drawn up in a form different from the application, or anything is omitted which it is the duty of the company to insert or indorse on the instrument. Collett v. Morrison, 32 Eng. Law & Eq. R., 171.”

In Bidwell v. Astor Ins. Co., 16 N. York, 266, it is said: “ That the contract of insurance agreed to be made by the defendants was such in its character as the plaintiffs have alleged in their complaint, has been found by the judge and is conclusive upon us. The fact on which the appellants rely, that the policy actually made out was in the plaintiff’s hands for a considerable time and until the loss had occurred, was a circumstance to be weighed by the judge as bearing upon the truth of the plaintiff’s allegation that the policy did not pursue the contract. It has undoubtedly been considered by the judge, and his judgment has been given, notwithstanding that circumstance, in favor of the plaintiff. There is no rule of law which fixes the period within which a man may discover that a writing does not express the contract which he supposed it to contain, and which bars him of relief for delay in asserting his rights, short of the period fixed by the statute of limitations. Phœnix Fire Ins. Co. v. Gurnee, 1 Paige, 278.”

It is a matter of common knowledge that a policy of insurance against fire, at the present day, is a lengthy contract, which, after specifying the main things, namely, the subject, its location, the owner, the amount, the time and the price, embodies very many stipulations and conditions for the protection of the underwriter. If a person desiring indemnity against loss applies to the underwriter and states the main things above enumerated, and says no more, he has knowledge that he has asked for and will receive a contract which, in addition to those, will contain many limiting conditions in behalf of the party executing it; and when he receives the policy he cannot avoid seeing and knowing that there are many more stipulations in it than were covered by his verbal request. It may well be that a due regard for the rights of others requires Mm to examine those stipulations, and express a timely dissent, or be held to an acceptance thereof. Nothing which has previously transpired between him and the underwriter furnishes justification for omission to read them. The underwriter has not invited his confidence by any promise as to what the writing shall contain or omit.

But if the underwriter solicits a person to purchase of him indemnity against loss by fire, and if they unite in making a written draft of all the terms, conditions and stipulations which are to become a part of or in any way affect the contract, and if the underwriter promises to make and sign a copy thereof, and deliver it as the evidence of the terms of his undertaking, and if a material and variant condition is by mistake inserted, and the variant contract is delivered, and the stipulated premium is received and retained, the court will not hear the claim that he is entitled to the benefit of the variant condition, where the other party had neither actual nor imputed knowledge of the change. In his promise to make and deliver an accurate copy, there is justification before the law for the omission of the other party to examine the paper delivered, and for his assumption that there is no designed variance. A man is not for his pecuniary advantage to impute it to another as gross negligence, that the other trusted to his fidelity to a promise of that character.

The rule of law that no person shall be permitted to deliver himself from contract obligations by saying that he did not read what he signed or accepted, is subject to this limitation, namely, that it is not to be applied in behalf of any person who by word or act has induced the omission to read. The defendant has brought to our notice a few of the many cases in which the rule has been plainly declared; but we think that in few or none of these did the party seeking to enforce it subject himself to this limitation.

There was in the first written draft agreed upon by the plaintiffs and defendant the contract between them; in all its terms and conditions it became, and has hitherto continued to be operative. The draft of another and variant one has not annulled or affected it, because the last has not in the eye of the law been accepted by or become obligatory upon the plaintiffs. That contract the defendant had the right to rescind,—a right which it has possessed in its fullest measure because it was not affected by the delivery of the variant one, not accepted by the plaintiffs; and if, because of its own negligence in omitting to execute and deliver a true copy of the original agreement, it resulted that it was induced to refrain from exercising its right of rescission, it must accept the consequences rather than cast the burden upon the plaintiffs.

There is error in the judgment complained of, and it is reversed.

In this opinion the other judges concurred.