Underwood v. Greenwich Insurance

54 A.D. 386

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: July 1, 1900
• Status: Published

Opinions

Hatch, J.:

This action is brought to recover a sum of money secured to be paid under a claimed contract of insurance for loss against fire. The loss by fire has been sustained, and the only question arises upon the sufficiency of the contract to create a liability upon the part of the defendant to pay therefor to the extent of the insurance.

The case finds itself in this court for the fourth time, and it has twice been considered by the Court of Appeals. The facts have been several times stated, and it is not, therefore, necessary that we again set them out in detail. The instrument- sued upon is claimed to be a binding contract of' insurance, and in technical ianguage is called a “ binder.” It is set out in full in Van Tassel v. Greenwich Ins. Co. (72 Hun, 143). The evidence shows that Beecher & Benedict-, a firm of insurance brokers, was employed by the plaintiff to obtain for him $30,000 of insurance upon the building which was destroyed by fire. These brokers applied to the defendant for $10,000 of this insurance, and it issued the binder slip in question upon such application. Prior to this time oné Cutter had acted for the plaintiffs and had procured to be issued by this defendant a policy of insurance for $10,000 upon the same building. This policy having expired, the defendant sent to Cutter a renewal of such policy, but upon the application being made -by Beecher & Benedict for the fresh policy, this renewal-was called in from Cutter and canceled by the defendant. After issuing the binder the defendant caused to be made a survey of the premises, and thereafter, on January seventh, wrote the plaintiffs’ testator a letter, declining to issue this policy for $10,000, and adding that it would renew for $5,000 if wanted, but would not hold the risk binding for more than that sum. This letter is set out in full in the case heretofore cited. Upon .receipt of this notice, Gossman, a clerk in the employ of Beecher & Benedict, .construed the notice as reducing the obligation of the defendant upon the binder slip to the amount of $5,000. This construction is claimed by Beecher & Benedict to have been without authority from them or from any other source. On January thirteenth, six days after the insurance represented by the binder slip had been declined, the fire occurred. Thereupon the plaintiffs made claim upon the defendant for a liability of $5,000, and filed proofs of loss in that amount. Plaintiffs also tendered to the defendant the premium on $5,000 of insurance. The defendant refused to receive the tender and repudiated liability for insurance in any sum. The plaintiffs thereupon brought an action, claiming to recover upon the terms of the notice declining the $10,000 insurance as constituting a contract of insurance in the sum of $5,000. The plaintiffs had a recovery in that action for the amount claimed, and from the judgment entered thereon the defendant appealed. Upon this appeal the court held that the letter did not constitute a contract of insurance, but was a mere proposal offering to insure, and, as it had never been accepted by the plaintiffs or.their agents, no liability was created thereby, and that an action could not be maintained thereon. (72 Hun, 141.) In the course of the discussion had upon the rendering of that decision, it was stated that the binder slip constituted a contract continuing in force the policy of insurance in the sum of $10,000, and that, if an action had been brought upon that contract, liability could have been enforced, but that both the pleading and the evidence indicated an intent upon the part of the plaintiffs to waive and abandon any claimed liability thereon.

Upon the new trial which was ordered the complaint was dismissed, and upon an appeal to the court the judgment was affirmed upon the opinion previously delivered. (83 Hun, 612.) From that judgment an appeal was taken to the Court of Appeals, where it was held that the letter of rescission did not have the effect of creating a new contract, agreeing with the General Term respecting such question. The court, however, disagreed with the General Term as to the effect of the action which had been taken, holding that if the legal effect of the binder was to operate as a renewal of the insurance existing prior thereto, it might be enforced notwithstanding the action which had been taken; but the liability was to be determined upon the legal relations of the parties at the time of the tire, and not by the plaintiffs’ subsequent actions or claims. A new trial was ordered. After this decision the plaintiffs were permitted to amend their complaint by averring a cause of action upon the binder as constituting the contract and claiming to recover thereon the full amount of $10,000. An amended answer was also interposed alleging that the binder did not constitute a contract either of renewal or of original insurance for any particular period of time ; that it was a temporary arrangement which was only operative until notice was given by the company declining to he bound thereby, when it ceased to have any legal effect, and that such was the general usage and custom in the insurance business in the city of New York. Upon "a trial had under the amended pleadings, all testimony offered by the defendant to prove custom and usage respecting such contracts was excluded, and the court directed a verdict in favor of the plaintiffs for the full amount. Upon appeal to this court' from the judgment the same was affirmed, the court holding that the binder, whether it was treated as a renewal of an existing policy or as an independent contract of insurance, was binding and valid as containing every element of a good contract. (28 App. Div. 163.)

Upon an appeal to the Court of Appeals from this judgment it was reversed, the court holding that the binder could not be construed as a contract for the renewal of an existing policy of insurance; that the language “ renewal * * * not in force,” excluded such construction ; that the binder upon its face was ambiguous, imperfect and uncertain, if treated as a contract of insurance, and was,, therefore, subject to be explained by parol testimony as to custom and usage in order to determine the intention of the parties and the binding force of the contract. (161 N. Y. 413.) The opinion in the Court of Appeals states that the real question in issue “is whether the facts stated in the answer * * * constituted any defense to 'an action based Upon the binding slip.” And further, “ we think that the answer contained a defense and that the proof offered was competent.” In speaking of the case of Lipman v. Niagara Fire Ins. Co. (121 N. Y. 454) the court said: “ In the case cited the binding slip is said to be evidence of present insurance. The defendant admits that this paper is evidence of present temporary insurance pending an inquiry as to the risk and terminating .eo instcmti upon notice, as was held in that case. So in that case it appeared that parol testimony was given to explain the pur-,, pose for which the paper was delivered, and this court said that the evident design of the writing as disclosed Toy the testimony was to provide temporary insurance pending an inquiry by the company as to the character of the risk.

“ An informal paper of this character generally denotes whatever the purpose intended by the parties at the time of its delivery was, and its legal effect as an agreement must, in the nature of things, be effected by known and established custom.”

After discussing the incomplete character of the binder considered as a contract, the court adds, “ All this shows that the binding slip did not embody the mutual stipulations of the parties, and, hence, standing alone, was not a complete and perfect contract, but was open to explanation by parol proof as to the intention of the parties and the established custom of the business.”

It is perfectly clear*, therefore, that this authoritative and last announcement by the Court of Appeals in this case authorized parol proof to be given in explanation of the binder, the custom and usage in respect to the same and the intention of the parties respecting the character of the contract. Obviously this permitted proof to be given- showing custom and usage as to the temporary or permanent character of the contract, and, if temporary, the method of terminating liability under it.

As bearing upon these questions, the acts of the parties in their treatment of the contract is competent and pertinent proof. While the legal status of the parties is to be determined by .the relation existing at the time of the fire (151 N. Y. 130), yet acts which indicate what the parties understood to be their rights under the contract may be resorted to for the purpose of determining their legal status at the time of the fire. This does not affect the legal right flowing from the status, it is simply an aid in determining what that status was.

Upon this state of the law a fourth trial was had. The defend-* ant, in order to establish its defense that the contract was temporary and that recognized methods existed by which liability thereunder might be terminated, offered proof by persons engaged in the insurance business tending to show that the notice contained in the letter which was written declining to insure the premises, as stated in the binder, was such notice as, according to recognized custom and usage, ended the contract and terminated liability thereunder. Some of the proof was received, but subsequently the court held that usage and custom respecting such contracts could not operate to end the contract eo instanti, for the reason that it would violate the statutes governing insurance.

Á reference to the court’s charge shows that this ruling proceeded upon the ground that every contract for insurance is deemed to'have incorporated therein the provisions of the statutes regulating insurance policies; that thereunder a notice of five days is required to terminate liability. This undoubtedly is the ruje if it be assumed that a permanent contract for insurance was effected. But the ruling begs the very question which, under the last decision of the Court of Appeals, became the question to be determined upon the proof. That question is, was the contract permanent, and was it, eo instanti, a contract of insurance under the terms of a standard policy ; or was it a temporary arrangement under which the defendant agreed to insure and did insure the property for a time, sufficient for it to examine the property and determine whether it desired to issue a policy upon the terms expressed in the binder or not ? Did it. retain the right to terminate liability under a special arrangement,, or was its liability permanently fixed the moment it delivered the binder ? If the latter is the rule, then, undoubtedly, a five days’ notice was required, to terminate liability. If the former, then the cháracter of the contract and the custom and usage by which liability should be determined became questions to be decided upon the proof respecting it. Upon the proof offered in this respect the defendant presented a question of fact for solution by the jury, and under the proof they could find that the binder was a temporary arrangement, and that the notice served terminated liability thereunder. The ruling which disregarded this testimony and the refusal to submit such question to the jury was error within the rule of law governing this , case. Aside from this consideration, however, was the action of the plaintiffs and their agents respecting the notice, and culminating in the action which was brought to enforce k liability for $5,000. All of such acts bore directly upon the intent of the parties in making the arrangement, and the understanding of the parties respecting the obligation created thereby.

Upon this proof the jury would have been authorized to find that"the parties understood that the binder slip was intended only to represent a temporary arrangement, and that the notice declining to be bound thereby terminated liability thereunder. Of course this proof taken separately or collectively may not conclusively establish such result, but it is proof which the defendant became entitled to have submitted to the jury and from which they might' find that liability terminated upon service of the notice. As we have before observed, proof of the acts of the plaintiffs after the loss while not available to change the legal status of the parties is, nevertheless, available to show what were the existing legal relations. The defendant, therefore, became entitled not alone to have ■ the question of whether Beecher & Benedict accepted the notice as terminating liability under the binder slip, but also the other questions in the case. As this was not done, it follows that the judgment should be reversed and a new trial granted, costs of this appeal to the appellant to abide the event.

Van Brunt, P. J., and McLaughlin, J., concurred; Rumsey and Ingraham, JJ., dissented.