Bishop v. Clay Fire & Marine Insurance

Carpenter, J.

This is an application to reform a fire insurance policy by correcting an alleged mistake therein. The bill sets out the first mortgage of the New Haven, Middletown & Willimantic Railroad Company, dated May 1st, 1869; also the second or “ convertible mortgage ” as it is called, dated July 1st, 1871. It then alleges that the company made default under both mortgages May 1st, 1873; that the trustees named in the second mortgage resigned February 21st, 1874, and the petitioners, George H. Bishop and John N. Camp, were duly appointed and qualified as their successors; that they took possession of all the mortgaged property, including the freight depot building in Middletown, which is the subject of this controversy; that they made large pecuniary advances as trustees, incurred large pecuniary obligations, and were entitled to a large sum as compensation for their services, exceeding the sum of $2,000. It then alleges that Bishop and Camp applied to the respondents to insure said depot building, that they did insure it, that it was destroyed by fire during the lifetime of the policy, that due notice was given and proofs of loss furnished, that a suit was brought on the policy, and that the defendants, the present respondents, appeared and pleaded in defence that prior to the fire the depot, building was sold or transferred, and the title and possession thereto and thereof changed, and the interest of the' assured therein as such trustees terminated; and that after a trial resulting in a verdict for the assured, a new trial has recently been ordered on the ground that the defence is a sufficient answer at law finder the terms of the policy.

It further alleges that on the 23d day of October, 1876, the Boston & New York Air Line Railroad Company paid to Bishop and Camp the full sum due to them in consequence of their doings and advances under the trust, and received from them a written assignment of their claim under the policy of insurance, with authority to prosecute and maintain all necessary suits.

The bill then refers to the ground on which the new trial was ordered—the foreclosure of the first mortgage and a subsequent sale of the property to the Boston & New York Air Line Railroad Company—and then proceeds as follows:“But the petitioners say that' it is contrary to equity and good conscience for the defendant to insist on saiddefences, because they say it was their intention and that of the defendant, at the time both of the negotiation and of the execution of said policy, that said policy should insure, and should be so expressed as to insure, the said George H. Bishop and John N. Camp and their executors, administrators and assigns upon their interest in said depot building to the extent of two thousand dollars, against loss by fire, for the purpose of securing them in case of fire to the extent of two thousand dollars for and upon their said pecuniary advances and claims for services and obligations assumed while in possession of said mortgaged property as trustees under said convertible mortgage; and that their said interest in and lien upon said building of the character aforesaid v as not lessened or impaired, but on the contrary preserved find strengthened by said decree of foreclosure, and remained in full force and effect down to and at the time of said fire and of bringing said action at law.”

The hill then quotes at length the material parts of said decree relating to the interest of Bishop and Camp, and concludes as follows:—“And your petitioners further show that the description of the said Camp and Bishop, and of the interest insured, contained in said policy, was inserted by said Fowler,” [the agent of the respondents,] “ inadvertently and by mistake, and does not express the true intention of said parties to said insurance; ” and prays for an injunction, reformation of the policy, &c.

It is claimed in behalf of the respondents that the bill does not allege with sufficient definiteness the contract of insurance which the petitioners claim was made by the parties. The bill may be open to some criticism, inasmuch as it does not clearly allege that any contract of insurance was in fact made by the parties prior to the issuing of the policy. No parol agreement or “meeting of minds” is in terms alleged, and it may be claimed with some force that the parties did not contemplate any contract except such as should be expressed in the policy, and therefore that the policy contains the only contract that was ever in fact made. If that is so it is manifest that the parties cannot substitute for it another contract which the parties did not make; in other words, the court cannot make”a. contract for the parties. Thompsonville Scale Manufacturing Co. v. Osgood, 26 Conn., 16.

It is doubtless true that an insurance company cannot ordinarily insure by parol; and in that sense it is true that no contract is made until the policy issues. We suppose however that the parties may agree by parol as to the terms of the policy, and that if a mistake occurs in respect to anything material a court of equity may correct it.

Carefully considered, the substance of the more material allegations in the bill may be stated thus:—Bishop and Camp applied to Fowler, the respondents’ agent, to insure their interest in the building, and he agreed to do so. He thereupon issued a policy running to “ the trustees of the convertible mortgage of the New Haven, Middletown & Willimantic Railroad Company,” and not to Bishop and Camp as individuals; that the parties intended that their individual interest should be insured, and that the description of the party insured was so made by inadvertence and mistake.

Assuming that to be the'true meaning, and that all the allegations are sufficiently explicit, we will pass to the finding of the court.

The finding so far as it relates to the disputed facts, is as follows:—

“ The defendant company was a corporation of Kentucky, authorized to make contracts of fire insurance in this state, and A. F. Fowler was on the 17th day of December, 1874, its authorized agent for that purpose at Middletown, to whom Bishop and Camp, on the 17th day of December, 1874, applied to insure their individual interests, (the same being a lien, claimed by them for individual advances,) on said depot building. Said Camp who made the application informed Fowler that Bishop and himself had made large personal advances for said railroad to an amount largely exceeding $>2,000, and desired to insure their individual-interest in said depot building. Fowler assented to this proposal and issued the policy in question.”

To warrant the reformation of this contract there must have been a mutual mistake—a mistake by both parties. A mistake by one or a misunderstanding would not be sufficient.

In order to entitle the party to this relief, the policy must materially vary from the real contract of the parties, and the variance must be fully made out by the clearest evidence. Wood on Fire Insurance, § 479.

The party alleging the mistake must show exactly in what it consists, and the correction that should be made. ‘ The evidence must be such as to leave no reasonable doubt upon the mind of the court as to either of these points. Hearne v. Marine Ins. Co., 20 Wall., 490.

The power of courts of equity to reform written instruments is one in the exercise of which great caution should be observed. To justify the court in changing the language of the instrument sought to be reformed, in the absence of fraud, it must he established that both parties agreed to something different from what is expressed in the writing, and the proof upon this point should be so clear and convincing as to leave no room for doubt. Mead v. Westchester Fire Ins. Co., 64 N. York, 455. The mistake should he proved as much to the satisfaction of the court as if admitted. Ford v. Joyce, 78 N. York, 618.

In the light of these principles let us examine this case. In the first place the alleged mistake has reference to the party insured. The policy issued to the trustees. It is alleged that it was intended that it should issue to Bishop and Camp, not as trustees but as individuals. The finding does not show, as it should, that both parties so understood it and so intended. The finding at least is ambiguous. It simply states the evidence—or rather a small part of the evidence—that they asked to have this individual interest insured and that Fowler assented to it. It is not found that he understood that he was asked to insure an interest so thin and shadowy as their individual interest in property which they held only as trustees. If he did not so understand it, and we cannot assume that he did, there is no foundation for the claim that he agreed to insure such an interest. We cannot infer such an understanding, for in a case like this nothing should be left to inference, especially from weak and uncertain evidence, but the' fact itself should be explicitly found.

But weak as this evidence is in itself, it is very much weaker when considered in connection with the undisputed facts and circumstances attending it. On the same day that this conversation occurred between the parties the agent issued the policy to the trustees. That one fact, unless we are 'to attribute to the agent an intentional fraud, is of more weight in determining how he understood the arrangement than the conversation between the parties as reported by the court. But this is not all, for on the same day Bishop and Camp received the policy without objection. Now if they exercised ordinary diligence and caution in caring for their own interests we may assume that they examined the policy when received and were satisfied that it was right. That also, occuring as it did at the time, was potent evidence that the policy was as the parties understood that it should be. Nor is this all; for, after the loss, Bishop and Camp as trustees gave notice to the respondent, made out two sets of proof of loss, brought a suit, obtained a verdict, and tried the case- in the Supreme Court of Errors; during all that time claiming that they were insured as trustees. One of the documents referred to as proofs of loss was signed by both Bishop and Camp as trustees and the other was signed by Camp as trustee, and both were under oath and both alleged in substance that they were insured as trustees. Now there is absolutely nothing to break the force of these significant facts except the words which passed between the parties as recollected by witnesses after a period of more than six years, and after a controversy had arisen, accompanied with protracted litigation, based upon a theory consistent with the facts and inconsistent to some extent with the inference which it is claimed should be drawn from the conversation as reported.

On the whole it seems to us that the evidence (for the court has really reported to us the evidence only) decidedly preponderates in favor of the proposition that the policy conformed strictly to the agreement of the parties as understood by Fowler.

In the second place, the alleged mistake is not limited to the party, but extends to and materially affects the subject matter—the thing insured.

The policy that issued insured an interest which was created by deed and which appeared of record—an equity of redemption arising from the first mortgage, which was legally vested in the trustees. It was a certain and definite interest and was clearly insurable. But the policy, if reformed as requested, will, on its face, insure something entirely different, a vague, indefinite and uncertain interest—an interest in real estate neither created by deed nor appearing of record. Nor is it an incident of the deed under which the trustees hold or of the office itself. The interest such as it is arises from and exists wholly in extrinsic facts and circumstances. When the trustees made advances and incurred expenses for the benefit of the trust estate their right to bp reimbursed or indemnified at once arqse; but that gave them no title to or lien on the real estate or any portion of it. Assuming that the expenses incurred were necessary, the trustees clearly had a right to reimburse themselves from the trust funds as received. If that source, failed, as it apparently did, they had an equity that might properly be regarded as superior in point of right to that of a prior incumbranper. That preference was granted by consent, although it may he doubtful whether the prior mortgagee could have been compelled to submit to it. However that may be, it was a sort of equity that might yell be regarded and protected under some circumstances, hut it was not such an equity as gave them an insurable interest in the property before it was ascertained and defined by the decree of court. Until then the interest was to,o uncertain.

Such an interest is closely apalogous to the interest of an executor or administrator, who has a qlaim op the estate for his services and expenses, but who has never been regarded as haying a personal interest in the estate.

We pre inclined to think also that the personal interest of the trustees does not essentially differ from the interest of any other creditor of the trust estate. Will it he contended that every creditor may insure his interest in any or all the property ? Every creditor of an estate held by an executor or trustee has an interest in the preservation of that property, hut it by no. means follows that he has an insurable interest in his own name. The executor or trustee represents the creditor, and his interest may and should he protected hy an insurance in the name of such exeputor or trustee.

But if we concede that a policy insuring such an interest would he valid, there is another consideration which ought not to, be overlooked in the discussion of this question. U it not obvious that no well managed responsible company would want to insure such an interest ? The insured would hold a policy on property in which he has no interest— certainly none in its preservation. Its destruction would occasion him no loss; on the contrary might, and probably would be in a majority of instances, of some pecuniary advantage to him. In view of the moral risks incident to such policies a court of equity in the exercise of its power to reform written instruments should be exceedingly cautious not to bring into existence such a policy, unless it appears clearly and with almost absolute certainty that the parties intended it. Does such a. certainty exist in the present case? On the other hand is it not reasonably certain that the parties did not intend to make such a contract ?

For these reasons we advise the Superior Court to dismiss the bill.

In this opinion Park, C. J., and Loomis, J., concurred.