SMALL, V. WESTClIESTER FlBE W. CO.
789
straining the use of intoxicating drinks,those against betting on gUUles of chance, and those forbidding dealing in options, are instances oflegis. ]ation of a paternal character, and are aimed to restrain the popular hah· its of improvidence and speculation. In my opinion the second para· graph states a good cause of action, and the demurrer thereto is overruled.
SMAU, .". WESTCHESTER FIRE INS. (Circuit Court, D. Indiana.
Co.
August 6. 1892.)
No. 8,203. 1. FIRE bSPRANCE-TITLE TO
A policy of insurance on personai property was conditioned to become void'if 'the title or possession of the properW should "be now, or hereafj;er become, involved in litigation," unless consent in writing was indorsed thereon by the company. The policy and the property were to a bank, and the company gave its consent in writing to the transfer of the policy. A judgment creditors' bill was brought against the insured, and the bank was made party thereto, and was ,adjudged to hold the property in trust for the plaintiffs in the bill, but, becoming insolvent pendente Ute, a receiver was appointed. The insured property.was dllstroyed by fire after the suit, aud before final decree. Held that, byconseuting to the transfer of the policy, the company impliedly consented to the transfer,of the property insured thereby; and that the creditors' suit did not involv,e, either title or possession, within the meaning of the condition. , When the fire occurred the company became liable to the bank, and the subsequently appointed receiver could recover on the policy, as, after the fire, it became a chose in action, and assignable without the company's consent. . The decree appointing the receiver did not operate by relation so as to vest the title in him as of the date of the commencement of the suit, and before the fire and hence could not be considered a violation of a condition against any change of title without the company's consent. ,
AGAINST LITIGATION.
,
'2.
SAME-TRANSFER OF POLICy-RECEIVERSHIP.
3.
SAME.
,4,. SAME-VALIDITY OF CoNDITION-PuBLIC POLICY.
A condition in an insurance policy that it shall become void if the title or possession of the property is, or shall become, involved in litigation, is not against public policy, butIs intended to protect the insurer from carrying insurance on property where the title or possession is so doubtful as to become involved in litigation; but such conditiOu does not apply to litigation involving no question of title or possessionadve\-seto that of the assured. In an action in a federal court on a fire policy issued within the state, and on property'there situated, by a foreign insurance company, it will be presumed, nothing apvearing to the coutrary, that the company has complied with the statutes the conditions upon which foreign insurance compllnies may do business within the state; and the validity of conditions containetl in the policy must therefore be determined by the state law. , ,
,5.
SAME-FOREIGN COMPANIES-PRESUMPTIO-SS.
6.
SAME-CoNDITIONS LIMITING TIME OF SUIT.
Where the statute of a state tRev. St. Ind. § 3770) relating to foreign insurance companies provides that no condition in a fire policy shall be valid which pro'hibits the bringing of a suit thereon after the expiration of any period less tllan three years, a,condition in a policy in viOlation thereof will be held void by the federal courts. " An agreeD;l,ent in such case tllat, if suit shall be brought afj;er the expiration of one year, the,lapse of time shall be deemed conclusive evidence against the validity of the claim,is equally invalid, 88 it attempts to ',accomplish by indirection what is expressly ior'E!idden by statute. '.' " ,
"1.
FE:DERAril REPORTER, vol., 51.
;':': Action by Sniall ,ltei reCeiver: oNhe :City National Banli of Lawrenoeburgh, agltlnstthe Westchester Fire Insurance Company btl 'I8i:policy of'insnrartMJ :. Heard on derl1urrer to certain paragraphs ()fthe answer. DeI)1liClrrer surshiined. Hartiia"& 'Oalkin8, for plaititiff. Mnch « Mnch, for defendant. BAKER, District Judge. The complaint is npon It policy of fire insurance. On the 4th day of December, 1882, the defendant executed. to Henry Fitch, of Lawrenceburgh, Ind., a policy for one year, which is copied in the complaillt,insuring against loss or damage by fire, to the alllount of $2,000, certain piles and stacks of lumber owned by Fitch, and situated in his yards at Lawrenceburgh. The policy was ason the 2d day of August, 1883, by Fitch to the City National Bank 01 Luwrenceburgh, to which the defendant gave its consent by written indorsement on the policy. ,. On the 14th day of November, 1883, being of'tl:Je value of $20,000, was destroyed by fire, and d1,1eproof of loss WIlS marle. The defendant answered in five paragra cpneisting of a· general denial and four special paragraphs. The plaintiff demurred to the 2t1, 3d, and 5th paragraphs of answer. 1. The sec:;ond paragrap.h,of answer alleges, in substance, that it is providedby,thepolicy in suit that "it shall be void if the title or pos,property "be now or herealterbecome involved session". in litigation;" ·that alter the of said policy,.8ud··before the loss herein sued for, the title arid possession of the property insured became involved in as.&Wted; 'tliatuurillg the year 1883, and after AuguslQd of that year,the'Firat,'National Bank of Indianapolis, Ind., and many others, recovered judgment in the Dearborn circuit court io this district against HenryFHchfol' Iarge sums of money, and took out writs of whichori ;....-.....- day of 1883, came to the hands or'the sheriff of said county j that thereupon suid First National Bank and others filed a creditors'bill in said Dearborn circuit Fitch and the City National Bank of .LawrenceCourt burgh, showing that Fitch, at and about the 2d day of August, 1883, had all of l;1iapr(wel'tytp City ..Bank fraudulentiy,without consideration, and with intf'nt to cheat, hin&r, and delay his creditors, of which intent t,hesaid bank had full notice and knowledgE'; that. such procl3ediugs were had that said City National Bank and said' Fitch Rndtheother defendants to saUl action appeared and and the cause came on for trial at the next ensuing term of the Ripley circuit court, into which the cause had been removed" and the court found the facts in said bill to be true"irid hel<J that the, prppertyshould be held by the bank in trust for theci'editors ofaaid The sec6M'paragraplf on the exceptional clauseio tho policy, to wit: "This poU¢rabal1 ,cpnsent in writtng liUndorsed by tho COlllpany ,i:lereullin eacb.,pf,lhe, Il>UowJog instances, wiz·.: (1) If * * * the title or possession be now, or hereafter become, hiVolvE!tHn litigation."
SMA.LL
v.
WESTCHESTER FIRE INS. CO.
791
The policy., and the property insured thereby,:wEll'e transferred by Fitch to the bank on the 2d day of August, 1883, and the company gave its consent in writing to the transfer,of the policy:. 'rhe transfer of the policy was notice to the company of the transfer of the property. By its consent to the transfer of the policy, it impliedly consented to the transfer of the property. The transfer, though fraudulent as to creditors, was good as between Fitchllnd the bank. Fitch's creditors, having recovered judgments at law ',vhich they could notco11ect, filed a creditors' bill against him and the bank, which was sustained, and the bank was decreed to hold the property in ttUBt for the creditors. The transfer ofthe property was not Bet aside Mvoid, but the bank was adjudged to hold itin trust for the plaintiffs in the bill. 'And as, pendente lite; the banlt had become insolvent, and had passed by order of the coniptroller into the hands of a receiver, and had thus become incapable of actiug as trustee, the plaintiff was appointed, by order of the court,recei ver of the property. The fire occurred alter the bringing of the hill, and before the final decree. The defendant, by virtue of its consent .to the ai3signment of the policy, and its implied consent to the. change of the pOSllession of the property, cannot question its liability on account of the transfer of the property by Fitch to the bank. Hence, when the fire occurred, it became liable, to the batik, and, if the bank could have recovered, the plaintiff,as receiver, can recover, as the policy, after the fire, became a chose in action, and assignable without the cotripany's consent. The precise question, then; is, did the suit by the creditors, to have it decreed that the bank should hold property in trust for them, render the policy void by virtue of the foregoing condition? It is argued that the condition is void 8S against public policy. Properly construed, I do not think the provision in question can be held in contravention of public policy. Such a condition is a reasonable one to secure the insurance company against the danger incident to a doubtful and litigated title or possession. The manifest purpose of the condition is to protect the insurer from the risk of carrying insurance on the property when the title or possession of the assured is so doubtful as to be or become involved in litigation. Such being the object of the condition, the litigation must be such .as to involve a claim of title or possession adverse to the title or possession of the assured. A condition thus guarding the insurer againflt the increased risk incident to a litigated title or possession cannot be said to violate any rule of sound public policy. The question still renlains, how ought such a condition to be construed? Unquestionably, the condition must be strictly construed as against the insurer, so that effect may be given to the policy, if it can be done without a disregard of the plain letter of the contract. BUnt interpretationes. propter aimplicitatem laicorum ut res magis valeatquann pereat. A condition "crouched unseen in the jungle of printed matter with which a modern policy is overgrown" is strictly construed, to avoid a forfeiture. Van Schoickv.lnsurance Co., 68 N. Y. 434. In Insurance Co. v. Norton, 96 U. S. 234, on page 242, it is said: "Forfeitures are not favored in the law. They are often the means of great oppression and injustice."
792
,FEDERAL REPORTER,
vol. 51.
In Iniurance Co.v.Vanlue, 12B Ind. 410, 415, 2B N:. Eo Rep. 119, 121,itis said: "Provisionsintendooto create a forfeiture, wherever found, are strictly construed, in: order to avert a bllt such provisions are restricted, with 811d:strictness, incolltracts of insurance,the courts. with an ,almost uD\tnimolls voice, rteciding that such contracts,because of tbeir peculiar character, shaU be strictly and. ,rigidly construed against the insurance company, 'wherever astrict construction is necessary toprevel1t the forfeiture of the PQliey. II · · , ' Such a, manifestly . The conditions eplbodied in modem policies are carefully prepared ror the insurance companies by counsel in the ,law, and it is plainly right doubt should be :resolved against those who have caused the doubt. First lfp,rtford Fire Ins. 00., 95 ,U. S. 673; Moulor V4 Insurance Co.,lp, U., 4 Sup+ Ct. Rep. 4,66. .These forfeiture, ar.e ordinarily construed to relate only to of al3sured which fall plainly within their tenns· will.not construe, them as em bracing acts of third parties, C!"tproceec,1ings ininvitU'Tn,unless, the language of the condition is so plain anf! explicit that be adopted. It would prove asource()f great injustlqe and oppressio,n to, hold that the acts of third parties, in invitum, should defeat a pO,licy, 11nless it was ,so nomina,tedin the conditjon in unambiguous terms. Hence .it, pas ,been held that a c0ndition againspncumbrances is not brC!ken by ,a tax lien,created by of law, Hosford v. Insurance, Co., 127 U. S. Ct. In this case Mr. Justice GRAY said: "lam in$tlwcted by mlijority oitha cO\lrt to announce the opinion that the, warranty incuIrlbranCesincludes only incumbrances created by the act or the of .the assured, and not those created br law." So when' the policy contained a condition exempting the company froni liability, "If, withou t written consent hereon, the property shall -hereafter become incumbered in any way," it was held to refer to a voluntary incumbrance, and not to a mechanic's lien. Green v. Insurance Co., 82 N.Y. 517. On page 519 itis said "that the condition applied only. to incumbrances cremedby or with the assent of the assured, and to the creation of which he might apply for the consent of the company, and that the true meaning of the condition was that the assured should not incumber the property without first obtaining the written consent of the company. " The same condition received the same consti'uctioll in -the earlier caSe of Baley v.Insurance Do., 80 N. Y. 21, where it was held not to embrace "incumbrances by judgment or otherwise, in inritnm, created by operation of law." In' this case it was said, if an involuntary lien avoided the policy, the impositi0nof a tax oli the insured property be that would create a forfeiture of the insiirance, and the result each year when:'the tax became a lien the polioywould become void, unless the company should consent to reinstate it by' waiving the forfeiture. In Insurance Co. v. Pickel, 119 Inel. 155,21 N. E.Rep. 546, the was:, "If the property shall mortgaged or
793
incumbered, * * * this policy shall be null and void." The court said that this condition had no reference to such liens as were created by law, but that it had reference to such liens only as the assured should voluntarily place upon the insured property. In Keeney v. Insurance Co., 71 N. Y. 396, the policy contained the usual condition concerning change of title or possession; and it was held that the appointment of a receiver pendente lite, on a bill between copartners, who were the insured, was a change neither of title nor possession, although the receiver, who was a member of the firm, took actual possession of the property. If the bringing' of a suit involving the title or possession of the property against the assured ipso facto avoids the insurance, then every policy holder, when sued, loses, eo instanti, his insurance. The assured can no more prevent the institution of a suit involving the title or possession of the insured property than he can the accruing of a tax lien, a judgment or a mechanic's lien. The bringing of a suit is a proceedipg in invitum. It is usually brought without consulting the defendant, and it would ordinarily be impossible to apply to the company for the consent necessary to save a forfeiture. It would seem that the condition in qnestion ought to be construed as applying only to voluntary litigation involving the title or possession of the property insured. Again, as has already been stated, the suit, to work a forfeiture, must be one directly involving a claim to the title or possession of the property adverse to the title or possession of the assured. The lis pendens of a creditors' bill is an equitable levy, and secures priority of lien tq the complainants. Tilford v. Burnham, 7 Dana, 109; .l-liller v. Sherry, 2 Wall. 237; Edgell v. Haywood, 3 Atk. 357; Coming v. White, 2 Paige, 567. :A. suit by creditors' bill does not ordinarily or necessarily involve the title or possession of property any more than does the levy of an ordinary execution at law. The purpose of the suit was to secure and enforce an equitable levy and execution. Hence neither the title nor possession of Fitch or of the bank was involved in litigation, within the true construction of the condition. The suit was not one in which the issue directly involved either title or possession. If the title or possession were to be affected, the effect was consequential, and not the direct result of the litigation. The bill had the same object in view as anexecution at law, to fasten a specific lien on the property, with the ulterior purpose of exposing it to sale. For these reasons this paragraph must be held bad. 2. rr.he third paragraph of the answer alleges, in substance, that it is provided by said policy that"No suit or action against this company for the recovery or any claim by virtue of this policy shall be sustainable in any court of law or l'quity unless such suit or action shall be commenced within twelve months next after the fire shall have occurred. Should any suit be commenced against this comoany after the expiration of the aforesaid twelve months, the lapse of time Eiliallbe ,taken and, deemed as conclusive evidence against the validity of such claim." That the property insured, and for loss of which this action is brought, was destroyed by fire on the 14th day of November, 1883, ,and
FEDERAL'REPORTER·;"vol.51.'
i
'until tlIe 20th Pll-Y df;INmnfbe\', fi886. . inslIwnce Was ,executed ·in dt#Ii:ibsbI'Ml'::againstlQ8s1ol' 'damage ,by fire' property :sitp'll.ted: ,:therein. t"e"defendarit is.sAoreign.immmnce company; in the absence ·thecontraryappearingj'it will be thatit had 'with:thel!nvg,(jf this state relatinp; to insurance corpprescti,l!>ing,the conditions on whichtbeymay carryon the bUsineBs"of insurance therein. The validity of the condition contained in the policy must therefore be d,ete:rminedby the 10. wofthis state. SeC7 tiori8770 df ofIndiana was in force at the time of the the;pblicy in suit. That section provides thatinsert any condition, in any 'issued; i"I'llj'uiring the assured. to give a notice forthwith, or policy withill thle'p'eriOdOftime'lessthim five days, of the loss of theinSlll'ed property; nor slullhlnyconditioU! 'b.e inserted in any such policyrequil'ing the inltotMiloo: proedie justice peace, mayor, jutlge,':clllrgyman" Qroth61'; ,Qtllcial or pf such loss, the 8lIlonnt of -and ally provisltmor to the provisions of this 91' any condition.in av01d the provisions of thIS sectIon, shall be void; and no conqlt1On6r agreerp.ent not to sue for a period of les8, three years shall be valid."' . . .Tbe>agl'eement to bring no .suitor action on this _policy, unless it should! be hrought within'one year, isw:ithintheexpress language of the statute, and must be held invalid; Insurance Co. v; [13rim, 111 Ind. 281,12'N·.E. Rep. 315; PU:kel v. In8Urance 00.,119 Ind. 291, 21 N. 898; State v.1118'1irance .Co. of l\orth America, 115 Ind. 257, 17 N/E.!Rep.574. ." . . 'the\agreement that, should any suit· be commenced againllt the company afterthe expiratioriof one year, the lapse of time shall be taken and deemed '·conclusive. e\tidence against. the validity of such claim, is equally invalid. It attempts to accomplish by indirection what is forbidden to be done A court ought not to permit .a salutary provision l:>tthe statute ,to be defeated by a mere artful.evasion. This paragraph 'of answer is bad. . 3; The fifth 'paragraph of the answeraUeges ill substance that it is .provided ,policy ,that, if Illly ,change sltall take place in the title or,poSBeS!lionof property; 'whether by ,sale, tlialls{er"or conveyance, in whole or in part, or by legal process or judicial decree, then said policy shall be void; that before the loss herein sued for, during year 1883, the following action was taken regarding the property insured by shid policy,towit, the ,First National Bank of Indianapolis, and many others, recovered judgments in. the Doo.r:born circuit court against Hemy FHbhfor largesuh1sof money, and took out writs of execution., which _91l,tl1e ." .·. . "day ofSeptember, 188?', ,Came totbehands oithe sheriff Bank of Indianapolis and others filed a creditors'bill ill the Dearborn circuit court against Fitcnand: 'fhe Oity National Bank of Lawrenceburgh, showing that Fitch, at-a.ndaboutthe 2d day of August, 1883, had transferred all of his
SMALL.
V .WES'l.'CliESTER ·
FIRE ·IN.Sl 00.
795
and with intene to cheat, hinder, and d'elay his in;' tent the said bank had full notfce and knowledge; that· FitcH,the City National Bank, and the other defendants appeared to said suit and filed answers, putting said questions in issile; that a trial was had in the Ripley circuit court, to wpich the caUse had been remeved,and the court found the facts in said bill to be true, and adjudgfjd: 'that the prop.: erty so transferred to said bank was held by it in t1'l18t for the benefit ofthe creditors of said Fitch,and appointed plaintiff receiver of the prppei-tyof Fitch in the hands of saidbnnk; that by said action and: judgment the title and possession of said property were transferred and conveyed to the plaintiff, 111) of the dateOf-''--,1883; when said ao-: tion to subject the propel'ty'of Fitch to the payment of his debts was begun; that the defendant never consented to anything that occurred at said never consented to the transfer of said property to the plaintiff.' .. . This paragraph of answer is bad. The institution and pendency of the suit by the creditors of Fitch against him and the City National Bank of Lawrenceburgh wrought no change in the title or of the property insured. This proposition seems too plain to require argument or authority. No receiver was appointed in that suit until after the loss by fire had occurred, and a right of action therefor had accrued. The answer is pleaded on the theory that the judgment thereafter rendered by which a receiver for the insured property was appointed and authorized to take possession operated by relation as an appointment and possession from the time the suit was brought. Provisions intended to create a forfeiture arestricUy construed to avert a forfeiture. Such provisions are not favorites of the law. They are construed with special care and strictness against the insurance company, whenever a strict construction is necessary to avoid a forfeiture of the policy. Unless the act claimed to work a forfeiture is forbidden, either in express terms or by fair and necessary implication, no forfeiture is created. Here no forfeiture can be claimed, unless a retroactive force is given to the appointment and possession of the receiver, even if it be conceded that the appointment and possession of a receiver would work a change in tiile or possession. Whether the appointment and possession of a receiver would work a change in title or possession, it is not necessary now to decide. See Keeney v. Insurance Co., 71 N. Y. 396; Thompson v. Insurance Co., 136 U.8. 297, 10 Sup. Ct. Rep. 1019. The doctrine of relation is a fiction onaw. It is that doctrine by which an act is made to produce the same effect as if it had occurred at an antecedent period. This prinbe allowed operation where it would work an injury to ciple will third parties. Fite v. Doe, 1 Blackf. 127; Jackson v. Bard, 4 Johns. 230. It is never iqvoked except in furtherance of justice. See cases supra; Jack,sonv. Bull, 1 Johns. Cas. 81; Jackson v. Raymond, 1 Johns. Cas. 86; Jackson v. McCaU, 3 Cow. 75; Ashley v. Eberts, 22 Ind.55j Lynch v. De 1{er1!-aJ,9 Wall. '315; Gibson v.Chouteau, 13 Wall. 92. In the case last cited 'the court says: .
property to the Cify N aliomll Bank, fraudulently, withoutcomideliation,
· Jim)DAL BEPOBTJll&,
voL 51.
dOctrine of refatloptaa fiction of law adopted bytM courts solely for the pnrpoaesot justtce,an.d Is only applied tor the security and protection of p8!'80DS who stand tn some privity with the party that instituted the pro-
See\, alllQ, Heath v. 12 Johns. 140. ,The insurance in no relation of privity with the parinstituted the,proceedings in the appointment ora reo.eh':er.,lt that no court has}wer held that a forfeiture may an application of the dQQtrine would deibM I .thar, than ()f justice. The property had and.a right of action ,for its loss hl;1d arisen, before the WtUl appointed. No rule ,of and po pl'inciple of justice will permit the'defendant to escape liability tqerefor on the grounds set forth i,n this1paragraph ofapswer" ',l'he property having been destroyed, the 0c.tQ8: as to it w8:S ineffective. 'As to the property insured, 'no change of title or possession had occurred before' the fire. after unles!! the decree could change the title property Which had already ceased to That the no seems too plain for serious debate.
(C-trcuu' Cowrt,N. D. New York. 00 proteot only 80 muoh . ,,'IDOD, ed by", pall!llmg,er ,88, is,.ne,',Qe,',ssar,Y: and app,ropria,tadP view of, ,.his dr,' , ,iA life, tor his wauts and comforts during his contem'pla'teli'j6urnlly and ia 'not liable if a sum of money OQrriedfor anothEirpurpose : IB atolellftom himthl'Qugp. tAll negligenoerOf its servants, no special ciron it duty with referEl,i1oe to such money.
against Pullman's Palace for certain moneys l.ost while on a sleeper. Car .QOXPPli'1;ly, to ,,' Verdict for defendant directed. ()f this before WALLACE, Circuit Judge, and ajury, it by testimony offered for the plaintiff, that while plaintiff wa.s occupyipg a berth one of the ,sleeping coaches of the defendant, asa passenger upon the Delaware & Lackawanna Railroad Company on Hoboken to Binghamton, in the state of New York, the sum pf $4,114, belonging to him, was stolen from the berth. The evidence tended to show that bll, had procured this money at Hoboken for the purpose of buying ca,ttle in the vicinity of Owego, where he resided, where it was impracticable to obtain currency except in small sums; tllat he inclosed the money in: an envelope which he carried in an inside pocket of his vest: a4ap'ted for the purpose; that he and acornpanion occupied together a lower bertli intbe coach, the sleeping at th&