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ST.LOUIS FIRE & MARINE INS. CO. v. WITNEY

March 9, 1951

ST. LOUIS FIRE & MARINE INS. CO.
v.
WITNEY et al.



The opinion of the court was delivered by: MURPHY

Plaintiff, a Missouri corporation authorized to do business in Pennsylvania, through its duly authorized agent, Elwood Jones, Issued, countersigned and delivered on April 4, 1948, to defendants, Edwin H. Witney, et ux, as owners, and to defendant bank as mortgagee, a one year term policy of fire insurance in the sum of $ 18,000.00 covering a dwelling house located in Hazelton, Pennsylvania, in this district. November 1, 1948, the owners leased a part of the premises for use as a bakery. Thereafter, such use continued to March 13, 1949, when the building was totally destroyed by fire.

The insurer refused the demands of the owners and mortgagee, respectively, for payment under the policy, insisting the change of occupancy and increase of risk occurred within the knowledge and control of the owners and with the knowledge and consent of the mortgagee; that plaintiff had never been notified thereof by either owners or mortgagee, an alleged prerequisite to recovery by either of them.

 Plaintiff moved for a declaratory judgment of non-liability. *fn1" Defendants' answers denied several material allegations essential to plaintiff's cause. The owners insist there are questions of fact that can only be decided by a jury; defendants owners and mortgagee, respectively, prayed for judgment in their favor. Depositions were taken on behalf of plaintiff and defendants. Plaintiff then moved for summary judgment. *fn2"

 Jurisdiction is based on diversity only. All the operative facts occurred in this district. We look therefore to Pennsylvania law to determine the substantive rights of the parties. *fn3"

 The pertinent policy provisions are:

 As to the owners. 'Conditions suspending or restricting insurance. Unless otherwise provided in writing added hereto * * * this company shall not be liable for loss occurring (a) while the hazard is increased by any means within the control or knowledge of the insured.'

 As to the mortgagee. '* * * the interest of the mortgagee * * * shall not be invalidated by any act or neglect of the * * * owner * * * nor by the occupation of the premises for purposes more hazardous than are permitted by this policy; provided, that in case the * * * owner shall neglect to pay any premium due under this policy, the mortgagee * * * shall on demand pay the same.

 When Witneys purchased and mortgaged the property, Jones, a lawyer, acted as their counsel. At the time he represented six fire insurance companies, including the plaintiff, as agent. At Jones' request Witney gave him the insurance and told him to go ahead and protect his interest as to the property in question. Although he knew Jones represented several companies he did not know the name of any of them. No particular insurance company name was mentioned. Jones placed the insurance with the plaintiff. A Standard Mortgage Clause was added, and, in accordance with customary local banking practice, the policy was turned by Jones over to defendant bank. Witney never saw the policy; did not know the name of the insurer. Later, upon receipt of a bill from Jones, he paid the insurance premium.

 When on April 4, 1948, the original policy, dated August 23, 1947, expired, Jones, without consulting Witney, 'automatically' renewed the policy with plaintiff company. Later he billed Witney and received payment of the insurance premium.

 November 1, 1948, Jones, as Witney's attorney and at his request, drew a lease dated the same date for a three year term from November 1, 1948, to November 1, 1951, naming Iwanowski as lessor of the first floor, the premises to be used as a bakery. At the time Jones knew that Iwanowski was engaged in the bakery business. Witney testified he did not know the new occupancy would make a material change in the risk; that Jones knew of the prelease negotiations and of the lease transaction itself; that on November 1 Jones advised him the change in occupancy would involve an increased rate of insurance; he told him he did not care what it was, to bill him for it and he would pay it. Jones said the Rating Bureau would first have to inspect the premises and determine the amount of the increased rate. Said Witney, Jones had been doing this business right along and Witney just took it for granted that Jones would take care of the new insurance situation and bill him at the increased rate. Witney did not receive any such bill up to the time of the fire.

 After the Witneys made substantial renovations to accommodate the premises for bakery purposes, Iwanowski, with Witney's knowledge, control, consent and approval, commenced bakery operations the end of November and continued same to the date of the fire. *fn4"

 Other than the foregoing, the Witneys of themselves did nothing to notify either Jones or the plaintiff of the change in use and occupancy.

 Jones' testimony is in many respects to the contrary; that he did not know of the pre-lease negotiations; the lease was not executed in his presence, nor did he know of the actual execution thereof. Witney was still dickering; negotiating as to the possibility of using the property as a factory, knitting mill, and as an apartment house. Witney was not certain November 1 Iwanowski would actually become the tenant and use the premises for bakery purposes; nor did either Witney or Iwanowski notify Jones to that effect. At the time Jones therefore had no definite knowledge as to the future use of the property. He understood the renovations were being made for apartment purposes.

 Jones believes Witney indicated that when the renovations were completed and he knew the amount of money involved he would obtain additional insurance. He might have discussed with Witney that after the change in occupancy and use an additional insurance rate would be required. He does not recall any specific instruction from Witney to make any change as to the policy, or any mention by Witney on the matter of change of occupancy with relation to insurance coverage. Jones did not inspect the premises after November 1, 1948.

 The first knowledge he had that the premises were actually being used as a bakery was on February 24, 1949, when Iwanowski came to his office to have some legal work done in connection with his bakery business. As an insurance agent he then asked his secretary in charge of insurance files to see whether or not any change of occupancy had been noted. Finding none, he immediately instructed her to write to the Rating Bureau to secure a rate. The letter written and mailed the same day, *fn5" was received by the bureau February 26, 1949; given to an inspector to visit the risk and determine the rate under the changed occupancy. The practice and custom being to wait until a number of inspections were to be made, the inspector did not visit the risk until March 28, 1949, when he learned of the fire.

 G. D. Casser, District Manager of the Middle Department Association of Fire Underwriters- known as the Rating Bureau- testified plaintiff was a member of the association; that fire insurance rates for members in the area are fixed by the bureau. He said that a change from a dwelling house to a manufacturing enterprise would undoubtedly involve an increase of rate; that the customary practice in case of a change of occupancy or increase of risk, when the risk required a specific rating, was for the agent to send a request to the ...


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