Angle v. United States Fidelity & Guaranty Co.

This is an action to collect upon contracts of fire insurance in which there is a dispute between the two defendant companies as to which of the defendant companies is liable or, if both are liable, in what proportions. Defendant Safeguard Insurance Company appeals from a judgment apportioning the loss more favorably to defendant United States Fidelity and Guaranty Company.

On August 1, 1958, at the request of the Southern California Building and Loan Association, which company held a first deed of trust on property owned by plaintiff, appellant Safeguard Insurance Company, hereinafter referred to as Safeguard, for a valuable consideration, issued a California Standard Form fire insurance policy on said property naming plaintiff as insured with loss payable to Southern California Building and Loan Association and Frank Leight, the holder of a second deed of trust on said property. This policy recited a term commencing on September 10, 1958, and ending on September 10, 1961, and provided $10,000 coverage on the dwelling house on the property and $1,890 coverage for loss of rental income.

Neither plaintiff nor United States Fidelity and Guaranty Company, hereinafter referred to as United, had any knowledge of the existence of the Safeguard policy until after September 25, 1958 (the date of the hereinafter referred to fire).

Between September 1, 1958, and September 10, 1958, plain

United attempted to reduce its pro rata liability by foisting upon the insured a new policy providing for only $7,000 coverage on the dwelling and only $700 coverage for the rental loss. This was done after the fire had occurred! Plaintiff accepted this new policy upon the representation by United that she would suffer no loss by reason of her acceptance. The trial court erroneously concluded that this new policy was, in effect, a rescission and erroneously gave it retroactive application. It apportioned the loss on the basis that the whole insurance was $17,000 as to the dwelling but, oddly enough, the trial court apparently apportioned the loss of rental as though no rescission had taken place.

The United binder was a valid existing contract of insurance having full force and effect at the time of the fire. In Law v. Northern Assur. Co. of London (1913), 165 Cal. 394 [ 132 P. 590 ], it was pointed out (p. 402) that: “ [t]he contract was one of present insurance. By it the defendant does not merely promise to insure, but by its very terms it ‘hereby,’ in the present ‘secures’ the plaintiffs from loss by fire. It has long been established that such a ‘covering note’ is itself a contract of present insurance.”

It is therefore clear that the United binder, which the court specifically found to have been in full force and effect at the time of the fire, was part of the “whole insurance” covering plaintiff’s dwelling within the meaning of the “Pro rata liability” clause of the Safeguard policy, and that the $17,000 dwelling coverage and $1,000 loss of rental coverage of said binder should have been included by the court in the apportionment.

In Employers' Liability Assur. Corp. v. Industrial Acc. Com., 179 Cal. 432 [ 177 P. 273 ], the court stated at page 442: “It is true that the parties to this contract of insurance could not amend the policy, after an accident, to defeat rights of compensation that had accrued before the amendment, and if the addition to the contract was in fact an amendment of the policy of insurance by mutual consent, the rights of . . . [a third party] could not be affected thereby.”

However, there can be no rescission where the rights of third parties would be prejudiced. In Beckwith v. Sheldon, 165 Cal. 319 [ 131 P. 1049 ], the court stated (p. 324) : “It is, of course, fundamental that where the rights of others have intervened and circumstances have so far changed that rescission may not be decreed without injury to those parties and their rights, rescission will be denied and the complaining party left to his other remedies. [Citation.]”

In the instant ease, the right of Safeguard to have its liability prorated on the basis of the “whole” insurance, as it existed at the time of the fire, intervened. A rescission of the United binder, if given retroactive effect, would cause substantial injury to Safeguard by increasing its proportionate share of the total coverage.

Further, it is the general rule that an insurer, acting on its own initiative after a loss, cannot reduce its liability for the loss by issuing a policy different from the binder which was in effect at the time of the loss. In American Surety Co. of New York v. Williford, 243 F.2d 494 , the court stated (p. 498) : “Appellant can not, by the mere act of issuing a-policy subsequent to the accrual of a claim under a pre-existing oral contract and dating its coverage to a period subsequent to the time of the accrual of the claim, escape liability upon such claim if a valid oral contract of insurance protecting against such claim has been established.”

The retroactive effect given the United policy by the trial court could be defensible only if the new policy were in the nature of a reformation rather than a rescission. (See Ferrar v. Western Assur. Co., 30 Cal.App. 489 [ 159 P. 609 , 611]; Browne v. Commercial Union Assur. Co., 30 Cal.App. 547 [ 158 P. 765 ].) But in this case, there can be no reformation since the contract recited the exact intention of the parties. There is no underlying agreement to which the court could look. “But where, as here, the parties agree in writing upon specific terms of the coverage, the Company cannot avoid liability by issuing a policy which does not cover the

The argument of respondent that the retention of the draft sent to plaintiff amounted to an accord and satisfaction has no validity whatsoever. In Grayhill Drilling Co. v. Superior Oil Co., 39 Cal.2d 751 [ 249 P.2d 21 ], the court stated at page 754 that in order to have an accord and satisfaction “the debtor must make it clear that acceptance of what he tenders is subject to the condition that it shall be in full saisfaction. ” In the present ease, United not only did not make it clear that the draft was to be in full satisfaction but impliedly represented that it was not. This implication follows logically from the express representation made by United that plaintiff would suffer no reduction in the amount due her by reason of her acceptance of the United policy. The draft was delivered under the terms of the policy and not the binder. United should therefore be estopped to set up the defense of accord and satisfaction.

Furthermore, “ [t]he general rule is well settled with respect to the circumstances giving rise to an accord and satisfaction of a disputed claim by the acceptance of a check for an amount smaller than that claimed by the creditor . . . and such disputed claim is not discharged by the retention of a cheek for a smaller amount unless the cheek is tendered with an explicit statement or pursuant to an explicit understanding that it is offered as full payment. ... In other words, it must unequivocally appear that the check is offered only upon condition that it be accepted, if accepted at all, as full satisfaction of the disputed claim.” (Messer v. Tait's, Inc., 121 Cal.App. 698 , 700-701 [ 9 P.2d 536 ].)

The trial court should have apportioned the liability for the dwelling on the basis that the whole insurance amounted to $27,000. The apportionment, however, was correct as to the rental loss.

Neither interest nor costs should be awarded in any judgment against Safeguard since Safeguard, on July 2, 1959, delivered to plaintiff its draft in the sum of $2,913.62 (which