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June 26, 1979

The MARTHA COMPANY, d/b/a the Hilton Inn, et al., Plaintiffs,

The opinion of the court was delivered by: MUIR

I. Introduction.

The Plaintiffs in the above-captioned case, the Martha Company, Inc., Robert Quinlan, Trustee in Bankruptcy, Fidelco Growth Investors, and the Mutual Fire Marine & Inland Insurance Co., filed this action against Nationwide Mutual Insurance Co. seeking recovery of the proceeds of a fire policy issued by Nationwide on the Hilton Inn in Scranton, Pennsylvania which was destroyed by fire. Nationwide alleges that it cancelled the policy prior to the fire. The matter was tried to the Court from April 24 to April 30, 1979. The following represent the Court's findings of fact, discussion, and conclusions of law.

 II. Findings of Fact.

 1. The Martha Company, Inc., is a Pennsylvania corporation with its principal place of business located at 225-231 Washington Avenue, Scranton, Pennsylvania. (Undisputed), hereafter (U)

 2. At all pertinent times the Martha Company was the owner of the building and contents thereof forming a portion of the aforesaid premises wherein it conducted a hotel and restaurant business under the name "Hilton Inn." (U)

 3. The owner of the real estate forming a portion of such premises was, at all pertinent times, Fidelco Growth Investors (Fidelco). (U)

 4. Fidelco is a business trust existing under the laws of the Commonwealth of Pennsylvania with offices located at 1200 East Lancaster Avenue, Rosemont, Pennsylvania. (U)

 5. The first mortgage to such premises (both building and land) was held by Jefferson Standard Life Insurance Company (Jefferson Standard). (U)

 7. Fidelco handled the collection of mortgage payments both for itself and for Jefferson Standard. (U)

 8. Nationwide Mutual Fire Insurance Company (Nationwide) is an Ohio corporation with its principal place of business located at 246 North High Street, Columbus, Ohio. (U)

 9. On or about August 21, 1974, Nationwide issued to the Martha Company a policy of insurance bearing No. 58SM-12600 (Ex. P-1).

 10. The term of the Nationwide policy period was from August 10, 1974 to August 10, 1977.

 11. The Nationwide policy was a special multi-peril policy (SMP) providing coverage Inter alia, for damages resulting from accidental fire.

 12. Coverage for workmen's compensation was issued at the same time under the identifying policy Number 58WC-12600 by Nationwide Mutual Insurance Company and for billing purposes the policies were treated as a unit and referred to as "the Nationwide policy."

 13. The Nationwide policy provided, Inter alia, the following coverages or limits of liability with respect to fire loss:

(a) Building $ 3,000,000.00
(b) Personal Property $ 600,000.00
(c) Loss of Gross Earnings $ 300,000.00
(d) Loss of rentals $ 115,000.00.

 14. The interests of Fidelco and Jefferson Standard were recognized under the Nationwide policy as named mortgagees. (U)

 15. The annual premium for coverage under the Nationwide policies (both SMP and WC) was to be paid by the Martha Company on an installment basis, commonly referred to as a "ten-pay" plan.

 16. Under this ten-pay plan an initial deposit was made at the inception date of the policy and on each anniversary date, with nine additional premium payments in the ensuing months. (U)

 17. As the Nationwide policy had an inception date of August 10, 1974, under the "ten-pay" plan premium installments were not ordinarily due by the Martha Company during the months of June and July of each year, the premium having been fully paid with the May premium installment. (U)

 18. The terms, conditions and limits of coverage under the Nationwide SMP policy are as set forth in Exhibit P-1. (U)

 19. The Nationwide policy was placed by the Martha Company through Gwilym Maddock. (U)

 20. At all pertinent times Mr. Maddock was an authorized agent of Nationwide. (U)

 21. Pursuant to the Agent's Agreement entered between Mr. Maddock and Nationwide on or about August 1, 1975, Mr. Maddock agreed exclusively to represent Nationwide in the sales and service of insurance policies, with the sole exception of the placement of insurance under the Pennsylvania Fair Plan, Assigned Risk Pool, and other state or federal insurance plans. (P-3) (U)

 22. Pursuant to the Agent's Agreement entered between Mr. Maddock and Nationwide, Mr. Maddock was authorized to bind policies of insurance.

 23. Pursuant to the Agent's Agreement entered between Mr. Maddock and Nationwide, Mr. Maddock was authorized to accept premiums from insureds. (U)

 24. Pursuant to the aforesaid Agent's Agreement, Mr. Maddock had the right to "exercise independent judgment as to time, place and manner of soliciting insurance, servicing policyholders, and otherwise carrying out the provisions of this agreement." (U)

 25. As an agent of Nationwide, Mr. Maddock was encouraged to "conserve" policies by maintaining contacts with insureds and advising them of overdue premiums which he was authorized to receive.

 26. Mr. Maddock's compensation as an agent for Nationwide was dependent, in part, upon the continuation of coverage under policies of insurance solicited by Mr. Maddock. (U)

 27. On or about January 28, 1975, Nationwide sent a letter to the Martha Company advising the latter that Martha Company's check had been returned by its bank because of insufficient funds and further advising of the cancellation of the subject policy if a premium installment in the amount of $ 977.00 were not received by Nationwide within 10 days of the receipt by Martha Company of such letter as to the Nationwide Mutual Fire Insurance Coverage and that the workmen's compensation coverage would be cancelled effective February 12, 1975. (Ex. P-4)

 28. On or about February 18, 1975, approximately six days after the purported cancellation date established by Nationwide pursuant to its letter of January 28, 1975, Martha Company's draft in the amount of $ 977.00 was cleared by the Administrative Accounting Office of Nationwide which had responsibility with respect to insufficient funds, checks and the coverage was continued.

 29. On May 9, 1975 Nationwide sent to Martha Company a letter advising it that Martha's check for $ 1117.00 had been returned by Martha's bank because of insufficient funds and that cancellation would be effective May 24, 1975 unless the premium was paid. (P-6)

 30. Prior to May 24, 1975, Nationwide officials in the regional office at Harrisburg received a telephone call reporting that payment by certified check had been delivered to Maddock, Nationwide's agent. Cancellation was not processed on that occasion, payment having been made prior to the cancellation date.

 31. On or shortly after September 30, 1975, Nationwide issued a premium notice to Martha Company indicating a payment due October 10, 1975 in the amount of $ 2,624, representing installments for September and October, 1975.

 32. On November 4, 1975, Martha Company issued two checks in the amount of $ 1,312 each, payable to Nationwide and tendered them to agent Maddock in payment of the premium notice referred to in the foregoing paragraph.

 33. Mr. Maddock on November 5, 1975 transmitted the checks totalling $ 2,624 to Nationwide.

 34. The said checks from Martha Company dated November 4, 1975 were returned for insufficient funds.

 35. No premium notice was sent by Nationwide to Martha Company in November or December, 1975, because of the pending "bad checks."

 36. On December 11, 1975, agent Maddock received and transmitted to Nationwide a check in the amount of $ 2626, in payment of the checks referred to in paragraphs 32 and 34 above, which had been returned for insufficient funds plus $ 1.00 for each bad check.

 37. On or about January 2, 1976, Nationwide sent its premium notice to Martha Company in the amount of $ 3,936, due January 10, 1976, for installments for November, December, 1975 and January, 1976.

 38. On January 12, 1976, Nationwide sent to Martha Company an audit premium billing, in the amount of $ 2,841. This billing, which was due to be paid within 25 days, was not part of the normal installment billing under the 10-pay plan, but represented an adjustment for workmen's compensation purposes in the premium for the first policy year, based on audit of the insured's business operations.

 39. Within a few days after January 10, 1976, Nationwide sent notice of cancellation to Martha Company, advising it that coverage would be cancelled on the 22nd day following the due date of the premium referred to in paragraph 37 above, the installment premium billing due January 10, 1976.

 40. On January 27, 1976, the Martha Company delivered payment in the amount of $ 1,312 to agent Maddock who transmitted the same on that date to Nationwide.

 42. Nationwide did not advise Mr. Maddock that he had acted beyond his authority as an agent in accepting and tendering to Nationwide the partial payment of $ 1,312.00.

 43. On February 9, 1976, Nationwide sent a notice to Martha Company that the audit premium of $ 2,841 was past due and that the coverages would be cancelled. A cancellation as of 12:01 A.M. on February 24, 1976 was specifically identified with respect to the Nationwide workmen's compensation policy and a ...

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