Biggs, McLaughlin and Forman, Circuit Judges.
Consolidated Sun Ray, Inc. (Consolidated), Sun Ray Drug Co. (Sun Ray), a division of Consolidated, and Bargain City U.S.A., Inc. (Bargain City) have sued Harry R. Lea and Roslyn T. Lea (Lea), insurance brokers, alleging breaches of duty by Lea to the plaintiffs in failing to procure insurance. The suit at bar is concerned with losses incurred by the plaintiffs because of a fire at Bargain City which occurred on December 24, 1959. The court had before it stipulations of counsel and documentary evidence as set out in the footnote.*fn1 Both parties moved for judgment on the record. The court below granted the plaintiffs' motion and denied that of the defendants. Lea has appealed. The facts which can be garnered from the stipulation and the record follow.*fn2
Consolidated was created by the merger on February 2, 1959 of Consolidated Retail Stores (Retail Stores) and Sun Ray. Bargain City was created as a joint venture by Consolidated and another company with which we are not concerned. Ninety percent of Bargain City's stock is owned by the public and five percent is owned by Consolidated.*fn3 Bargain City operates shopping centers, leasing space, furniture and equipment and providing services to concessionaires in return for a percentage of sales. Prior to the merger Lea had procured insurance policies from Eagle Fire Insurance Company (Eagle) and Eastern Fire & Casualty Company (Eastern) insuring Retail Stores by name against loss by fire and loss occasioned by business interruption due to fire damage. Insurance against business interruption is generally referred to as "U & O", "Use and Occupancy" insurance. Within a short time after the merger*fn4 Lea procured amendments to the policies from Eagle and Eastern naming "Consolidated Sun Ray, Inc. &/or any affiliated or subsidiary companies or corporations, A.I.M.A.,"*fn5 effective on February 2, 1959 and specifically naming Bargain City as an insured as of February 10, 1959. The Eagle and Eastern policies were cancelled as of July 1, 1959.
Upon being notified of the cancellations, plaintiffs requested that Lea replace the policies. Consequently, Lea contacted the Anka Agency, Inc. (Anka) and Anka in turn got in touch with The Steel Insurance Company of America (Steel), whose principal office appears to have been in Chicago, Illinois. There can be no doubt whatsoever from the record that Lea undertook to provide U & O coverage as provided for by the Eagle and Eastern policies except that payroll insurance, not here relevant, was to be excluded.*fn6 See the account of pertinent events as set out hereinafter.
At some point Anka had furnished Lea a brochure*fn7 respecting the nature of Steel's business. The first paragraph of this brochure states that Steel is chartered by Illinois as a "Capital Stock Fire Insurance Company.", and that "All business written is produced by qualified agents or brokers." The second paragraph states: "In addition to being an admitted company in Illinois . . . Steel . . . is also admitted in Ohio.", and that "The Company is a non-admitted or 'Surplus Line' insurer in all other States." and that "All surplus line business is handled on a brokerage basis through agents or brokers licensed in their own States." The quoted portions of the brochure put Lea on notice that any insurance issued by Steel outside of Illinois and Ohio, and in particular in Pennsylvania, was not written by Steel direct but through brokers and agents.
Anka is an insurance agent. On July 7, 1959, unknown to Lea until after the fire loss referred to had occurred, Luber, vice-president of Steel, wrote a letter to Kabat of Anka. The letter stated in pertinent part: "In line with our meeting of today this is to confirm our agreement along the following lines: 1. The Steel Insurance Company of America will recognize the Anka Agency, Inc. and Lindquist-Burns as our full and exclusive representatives in the Eastern states. However, it is understood that in the state of Pennsylvania we reserve the right to restrict your sole activities to the Philadelphia metropolitan area and in the state of New York your sole authorization does not encumber the Buffalo metropolitan. 2. In regard to Binding Authority you are hereby authorized to be able to bind for our Company risks to the extent of 10% of the total line. However, you shall not assume risk for the Company in excess of $150,000. 3. These lines are to be submitted to the Steel Insurance Company of America on a facultative basis with it clearly understood that all underwriting data should be in the hands of the Company within ten days from the assumption of liability." It is contended by the plaintiffs that the foregoing shows that Anka was without power to bind Steel in respect to the fire loss.
From early in 1959 a series of communications took place between plaintiffs, Seligman of Lea, Jenchel and Kabat of Anka, and Steel. Jenchel was secretary-treasurer and Kabat was president of Anka. Kabat attended meetings with Seligman and discussed the replacement of the insurance cancelled by Eagle and Eastern. Kabat received from Lea a memorandum indicating the coverage of the Eagle and Eastern policies, the equivalent of which was to be provided for by Steel if Steel were to issue policies, and that the U & O coverage would be provided for with the exception of ordinary payroll insurance and that Bargain City should specifically be named as an assured.*fn8 It was further stipulated by the parties that Jenchel "presented this memoranda and notations to Mr. Morton Luber, Vice President of Steel . . . in July and discussed the same with him" and that "as a result of that meeting . . . the [binders were] issued by Steel . . . covering Consolidated . . ., et al., and binders were issued covering . . . other . . . assureds."*fn9 Kabat's first contact with Steel had been in June, 1959. The binder insured "Consolidated Sun Ray, Inc., &/or any affiliated or subsidiary companies or corporations, as interest may appear" as of June 30, 1959 at 11:59 P.M. The original amount of the insurance was $500,000, subsequently raised to $750,000",*fn10 but the date the binder was signed does not appear from Lea's appendix.*fn11 The fact that coverage for loss of use and occupancy, "U & O", was not included is instantly apparent from an examination of the binder. It is also clear that Bargain City was not specifically included in the binder, albeit it is asserted by the appellants that the phrase "any affiliated or subsidiary companies" was sufficient to include Bargain City. The printed form of the binder provided that it expired on the thirty-first day following the effective date of the binder or upon the delivery of a policy, "whichever shall first occur."
On July 23, 1959 Lea wrote McGeer of Bargain City stating: "Please be advised that as of July 1, 1959 we have replaced the above policies with [Steel]." The "above policies" referred to as replaced were the Eagle and Eastern policies. Paragraph 5 of Lea's letter stated: "Use & Occupancy coverage which is included in the form without additional charge is to exclude ordinary payroll." In fact, the terms of the policy which was eventually issued specifically excluded all U & O coverage and did not include protection for Bargain City by name.*fn12 McGeer wrote to Lea on July 31, 1959 and stated, among other things: "We assume that the coverage and rates afforded Consolidated . . . is also applicable to Bargain City . . . and that we will receive a policy shortly with our name included." McGeer added in a separate paragraph: "If there is any question in this connection, please advise the writer immediately."*fn13 On August 6, 1959 Seligman, as we have said, Lea's employee, wrote McGeer stating: "You are correct in that the rates afforded Consolidated . . . are also applicable to Bargain City. . . . You will be receiving a policy with your name included just as soon as it is issued."*fn14 Also on August 6, 1959, DeLucia, apparently an employee of Lea, wrote to Jenchel the following: "Please make certain that wherever Bargain City appears in the above policy it reads: Bargain City U.S.A., Inc."*fn15 On September 18, 1959 Seligman wrote King of the "Sun Ray Drug Division" enclosing invoices and "your copy of the captioned policy."*fn16 Invoices were included which it is asserted by Lea showed that U & O coverage was included, and this fact seems not to be disputed by the plaintiffs-appellees. The letter states: "There are a number of endorsements which were inadvertently omitted from the policy, but they will follow as soon as received from the Company and in the meantime you are covered by binder for these endorsements."*fn17 Seligman on September 24, 1959 issued a memo to Jacobson, an employee of Lea, enclosing a copy of the letter of September 18 to Sun Ray and stated that the new Steel policy was to be checked against the Eastern policy and to send a binder "to company for all the things that are missing." In capital letters there follows the admonition, "Especially watch Use & Occupancy portion." "Go over these items with me but send binder over first."
The following appears from the second stipulation of counsel: "On November 16, 1959, Mr. Seligman not having received written confirmation of the U & O coverage inclusion and of fur and jewelry coverage in a number of the Steel policies went to Mr. Jenchel's office at Anka Agency and insisted that Mr. Jenchel call Steel Insurance Company to confirm that U & O coverage was as agreed. Mr. Jenchel placed a call to a Mr. Luber of Steel Insurance Co. and had a conversation with him in the presence of Mr. Seligman. Immediately after the telephone conversation, Mr. Jenchel dictated and then signed the document dated November 16, 1959 which document speaks for itself and is Exhibit 3."*fn18 The letter referred to is D's Exhibit 3 and is as follows: "Effective November 16, 1959, we hereby agree to extend the above captioned Steel policies to cover Jewelry & Fur, subject to a minimum deductible of $250.00. Other deductibles to apply where policy deductibles are greater. No coverage will apply in show windows. This additional cover is subject to full information being supplied no later than Wednesday, November 18. On Consolidated Sun-Ray it is understood that the policy is extended to cover U & O as per previous coverage in the Eagle Fire Insurance Co. "Anka Agency, Inc., Arthur S. Jenchel."*fn19
It will be observed that it is stated that U & O coverage is extended "as per previous coverage in the Eagle Fire Insurance Co." but that Bargain City is not mentioned. Bargain City, as we have said was specifically covered by name in the Eagle policy by an endorsement dated "2-10-59" and was also so covered by the Eastern policy by an endorsement dated "2-10-59". The letter of November 16, 1959 did not put any time limit on coverage but the prior printed binder issued by Steel to the plaintiffs, as we have stated, was limited to thirty-one days.*fn20 Lea points out that other binders, for example, one that issued on November 16, 1959 had no time limitation*fn21 but this binder actually was issued by Anka and not by Steel. It is contended by Lea that the binder of November 16, 1959 was to have a longer tenure than thirty-one days, a tenure continuing until a more formal document than the letter had issued covering Bargain City. Lea asserts that because Steel Policy No. 563, the policy sued on in the court below and, presently before us, was issued seventy-five days after the issuance of the original binder this makes plain the fact that the thirty-one day waiver was not considered to be effective by the parties.*fn22
On November 23, 1959 Luber of Steel wired Jenchel of Anka: "Please cancel immediately binder covering jewelry, appliances and furs on all outstanding lines." It is contended by Lea that the wire demonstrates that Anka "did in fact have the right and authority to bind Steel."*fn23 It will be observed, of course, that Steel did not cancel the U & O coverage, a fact which, according to Lea, ...