Summary
holding that an insurer may not avoid liability when a change in partners of an insured partnership did not increase the underlying risk
Summary of this case from Pilkington N. Am. v. TravelersOpinion
No. 31884
Decided May 17, 1950.
Insurance — Contract construed favorably to insured — Action on indemnity policy — Policy issued in fictitious name of partnership — Insurer relied solely on managing partner in issuing policy — No change in character of business and no increase in risk — Loss and investigation thereof by insurer — Termination at future date by insurer — No return of premium — Directed verdict for insurer, prejudicial.
1. A contract of insurance prepared by the insurer will, in the event of a controversy over an ambiguity in its meaning, be given, if it can reasonably be done, an interpretation favorable to the insured to afford the protection for which a premium has been paid.
2. In an action on a policy of indemnity insurance to recover for a loss, it is reversible error on the part of the trial court to direct a verdict for the defendant insurer where it appears that the policy was issued by the insurer, upon the payment of a premium, in the fictitious or assumed named of a partnership as the insured, instead of in the names of the persons comprising such firm; that in issuing such policy the insurer relied solely on the managing partner who owned a one-half interest in the partnership and acted as manager thereof at all times concerned; that no change in the character of the business conducted and no increase in the risk assumed by the insurer occurred; that, following the loss and after an investigation thereof whereby the insurer knew or in the exercise of due diligence should have known of a change of members of the partnership occurring prior to such loss, the insurer notified the designated insured in writing that it was terminating its liability under the policy at a future date; and that at no time did the insurer return any portion of the premium covering the period from the issuance of the policy to the date of such termination.
APPEAL from the Court of Appeals for Hamilton county.
This action was brought in the Court of Common Pleas of Hamilton County by Gilbert Kitt and two others, partners, doing business as "Empire Coin Machine Exchange, and/or Gilbert Distributing Company," against The Home Indemnity Company, a New York insurance corporation authorized to do business in the state of Ohio, to recover a specified sum of money on account of claimed embezzlements and misappropriations of certain property by an alleged employee of the partnership.
The action was predicated on a policy of indemnity insurance issued by the defendant, upon the payment of a premium, to "Empire Coin Machine Exchange and/or Gilbert Distributing Co.," in which the defendant agreed to indemnify the designated insured against any loss of money or other property belonging to the insured or in which it had a pecuniary interest. caused by the dishonesty of any employee.
There were no provisions in the policy against alienation, transfer or conveyance of property insured, nor did such policy contain express language making it inoperative or invalid upon a change in the ownership of the named insured.
On the trial of the action it appeared that at the time the policy was issued the partnership, doing business under the name and style set forth above, was composed of Gilbert Kitt and one Esther Gisser as equal partners. Thereafter, on March 30, 1946, Esther Gisser sold her one-half interest, and two new partners were admitted as of April 1, 1946, each with a one-fourth interest. However, the business continued uninterruptedly under the same firm name and its character remained unchanged.
It appeared further that Kitt, at all times concerned, was the manager of the partnership business, with a one-half interest therein, and that the policy of indemnity insurance was solicited and issued in sole reliance on him. No regard or concern was displayed by the soliciting broker or the insurer as to any other person or persons who might be connected with the enterprise.
In July 1946, an individual named Elliott was engaged to work in the Cincinnati office of the partnership. From July through September of that year, Elliott converted to his own use property belonging to the partnership. These misappropriations were discovered in the latter part of September.
Statements of loss were transmitted to the insurer and on May 5, 1947, the insurer denied liability. During the same month the present action was instituted. The answer, filed September 24, 1947, contained many denials of the allegations of the petition and alleged that "defendant's liability on said bond to Empire Coin Machine Exchange and/or Gilbert Distributing Company ceased on said date of March 30, 1946."
A cancellation notice dated June 13, 1947, was sent by defendant to "Empire Coin Machine Exchange and/or Gilbert Distributing Co." terminating liability under the policy as of July 18, 1947. No return of any portion of the premium covering the period from February 14, 1946, to July 18, 1947, has ever been made by the defendant.
At the close of all the evidence the trial court directed a verdict for the defendant for the stated reason "that there is no bond or indemnity contract existing upon the partnership created April 1, 1946."
Later, final judgment was rendered against plaintiffs, which judgment was affirmed by the Court of Appeals without written opinion.
Certification of the record, upon the allowance of a motion therefor, places the case before this court for decision and judgment.
Messrs. Ginocchio Ginocchio, for appellants.
Messrs. Gallagher, Dorr Manley, for appellee.
Was a directed verdict for the defendant proper under the evidence presented?
Claims of nonliability under insurance contracts are not favored by the courts; and this court on several occasions has refused to declare policies of insurance avoided because of a change in status of the insured property or the insured.
Thus, in West v. Citizens' Ins. Co., 27 Ohio St. 1, 22 Am.Rep., 294, the holding was that a policy of insurance issued to a mercantile partnership on a stock of goods owned by the firm, which contained no provision limiting or restricting alienation of the property, was not avoided by a sale by one partner of his interest to his copartners, who continued the partnership business.
And in Blackwell v. Ins. Co., 48 Ohio St. 533, 29 N.E. 278, 14 L.R.A., 431, 29 Am. St. Rep., 574, it was held that a policy of insurance on property issued to an individual, which contained a provision to the effect that a sale or transfer of the property insured shall forfeit the policy, was not rendered inoperative and unenforceable by the formation of a partnership composed of the individual policyholder and another, which partnership took over the insured property.
By its terms, the contract of insurance in the instant case was between The Home Indemnity Company and Empire Coin Machine Exchange and/or Gilbert Distributing Company. The use of the fictitious or assumed name, Empire Coin Machine Exchange, etc., in the policy, instead of the names of the individuals composing such concern evidenced an intent on the part of the insurer to insure the unincorporated body known by the given designation, no matter how constituted, rather than the individuals who at the time of the issuance of the contract comprised such body.
Moreover, Kitt alone was the person on whom the defendant relied in issuing the policy and he was half-owner and manager of the business of the named insured at all times involved. After the policy was issued, no change in the character of the business conducted by the insured occurred and, so far as appears from the evidence, there was no increase in the risk assumed by the defendant.
Under these circumstances it is difficult to discover any sufficient reason why those comprising the organization insured could not, when a loss occurred during the life of the policy, claim the benefits conferred thereby. See 45 Corpus Juris Secundum, 384, Insurance, Section 586, and Southern Underwriters v. Lookadoo (Tex.Civ.App.), 125 S.W.2d 1090. Compare, also, for its reasoning, the dissenting opinion of McArthur, J., in Germano v. Gresham Fire Accident Ins. Soc., Ltd. (1924), Vict. L.R., 592, 13 British Ruling Cases, 157, in which the old English case of Barclay v. Lucas (1783), 1 T.R., 291, note a, 99 English Reprint, 1100, note, 12 English Ruling Cases, 470, is interestingly discussed.
The case of Barclay v. Lucas, supra, was an action of debt on a bond. The bond was given to secure the fidelity of an employee of a partnership. After the delivery of the bond a new partner entered the firm and thereafter the bonded employee received certain moneys for which he failed to account. Defendant contended in effect that when the new partner entered the firm the bonded employee ceased to be in the service of plaintiffs and was from then onward in the service of the new partnership, and hence the moneys he received and failed to account for were not received by him while in the service of the plaintiffs within the meaning of those words in the bond. For the plaintiffs it was argued that "that circumstance cannot vary the obligation, because this bond was given to secure the fidelity of the clerk to the plaintiffs' banking-house, rather than to the plaintiffs in their individual capacity." The court agreed with such latter contention and rendered judgment for the plaintiffs. In reaching such conclusion, Lord Mansfield, C.J., expressed the opinion that "this is a security to the house of the plaintiffs, and no change of partners will discharge the obligor." And Buller, J., remarked: "His bond appears on the face of it to be a security to the house, and not to the persons of the plaintiffs."
In the case of Hagan v. Scottish Ins. Co., 186 U.S. 423, 46 L. Ed., 1229, 22 S. Ct., 862, the Supreme Court of the United States held, in substance, that where by the wording employed the apparent intent of an insurance contract is to protect the interests of those who may be concerned when a loss occurs, the contract will be so construed and enforced upon the happening of a loss covered by the contract.
It is firmly established that a contract of insurance prepared by the insurer will, in the event of a controversy over an ambiguity in its meaning, be given, if it can reasonably be done, an interpretation favorable to the insured to afford the protection for which a premium has been paid. See 22 Ohio Jurisprudence, 340, Section 185, and Home Indemnity Co., New York, v. Village of Plymouth, 146 Ohio St. 96, 101, 64 N.E.2d 248, 250.
We are cognizant of the case of Black v. Alberry, 89 Ohio St. 240, 106 N.E. 38, and consider it distinguishable from the instant one in that there a contract was made with reference to named individuals as partners and not with respect to the partnership in its fictitious or assumed name.
In the writer's opinion another reason exists why a directed verdict for the defendant was unauthorized.
After the defendant received a statement of loss it caused an investigation of such loss to be made and later under date of June 13, 1947, in a written communication addressed to "Empire Coin Machine Exchange and/or Gilbert Distributing Co.," said:
"In accordance with the privilege granted the underwriter, we hereby notify you of our intention to terminate our liability under this bond, such termination to take effect July 18, 1947."
Surely, this notification sent after investigation of the loss can be reasonably interpreted as an admission on the part of defendant that it recognized the efficacy of the policy as to Empire Coin Machine Exchange, etc., from the date of issuance and delivery to July 18, 1947, especially since it then knew or in the exercise of due diligence should have known of a cause or causes which might have relieved it from liability and since it did not return any portion of the premium covering such period.
It should be noted that it has always been a principle of the law of insurance that forfeitures are not looked upon with favor, and courts have ever been prompt to seize upon any circumstance that indicates an election to waive the forfeiture of a contract of insurance. 16 Appleman on Insurance Law and Practice, 600, Section 9082.
If upon another trial of this action it develops that other questions are important or controlling, such as whether there were material misrepresentations in the application for the policy inducing its issuance; whether the alleged dishonest employee responsible for the claimed loss was in truth an employee of the named insured within the meaning of the terms of the policy when the loss took place; the amount of the loss for which defendant might be liable; and whether the designated insured was engaged in an unlawful business which might have the effect of vitiating the policy (see 44 Corpus Juris Secundum, 1007, Insurance, Section 242); such questions would be ones of fact to be submitted to a jury under appropriate instructions.
The judgment of the Court of Appeals is accordingly reversed and the cause remanded to the Court of Common Pleas for further proceedings.
Judgment reversed.
MATTHIAS, HART, STEWART, TURNER and TAFT, JJ., concur.