Lewis Food Co. v. Fireman's Fund Insurance

The defendant insurance company issued to the plaintiff a policy of insurance in the amount of $150,000 which was in part as follows (the typewritten portion thereof being indicated by the use of italics): “1. The conditions of this policy are that if the building(s) or structure (s) or machinery or equipment and/or raw stock excluding packaged sheet steel ... on premises situated No. 801 and 817 East 18th Street Los Angeles, California and occupied as food manufacturing plant be destroyed or damaged by the perils insured against occurring during the term of this policy so as to necessitate a total or partial suspension of business, this Company shall be liable under this policy, subject to the following conditions and limitations, for the actual loss sustained by reason of such suspension, consisting of: Item I. The net profits of the business which is thereby prevented; Item II. Fixed charges and expenses, only to the extent to which

The provision of the policy which was entitled “Appraisal” was in the following language: “In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon such umpire, then, on request of the insured or this company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally.”

The complaint filed by the plaintiff, in addition to pleading the contents of the policy, alleged that on December 20, 1954, a portion of the described property “was greatly damaged and business interruption ensued,” that the loss of profits was in the amount of $102,577.37, that notice of the loss and proof of the loss were given as required by the terms of the policy, that the parties were unable to agree as to the amount of the loss, and that that question was submitted to appraisers and an umpire for decision. It was further alleged that the appraiser chosen by the defendant and the umpire “estimated and appraised the cash value and amount of said loss in violation of the terms of the Agreement for Submission to Appraisers and the terms of said policy of insurance, by including properties not covered by the terms

In the Feinbloom case cited in the preceding quotation, the court said (149 A.2d at p. 620): “The appraisal provided for in the policy does not contemplate the submission to the appraisers of questions of law. [Citations.] They are permitted only to 'appraise the loss, stating separately actual cash value and loss to each item.’ ” (See also Hawkinson Tread Tire Service Co. v. Indiana Lumbermens Mut. Ins. Co., 362 Mo. 823 [ 245 S.W.2d 24 , 28]; Mork v. Eureka-Security Fire & Marine Ins. Co., 230 Minn. 382 [ 42 N.W.2d 33 , 35, 28 A.L.R.2d 987 ]; Munn v. National Fire Ins. Co. of Hartford, 237 Miss. 641 [ 115 So.2d 54 , 56].)

Under the applicable law the plaintiff’s cause of action was on the policy and not on the award. (Cf. Lewis

In support of its contention that the policy covered only loss due to the interruption of its bakery business and that the provision of the policy as to contribution was applicable only to the net profits and the charges and expenses of that part of the plaintiff’s operations, the plaintiff offered the testimony of Mr. Lewis, the president of the plaintiff corporation. He testified at some length as to the nature of the plaintiff’s business and the manner in which it was conducted on the premises on 18th Street. Primarily, the plaintiff was engaged in the manufacturing of food for dogs and cats. Before 1953, the products were marketed in cans. The building at 801 Bast 18th Street was erected in 1953 to house a bakery for the production of “dry” pet food. It was thereafter used exclusively for that purpose and the utility meters were separate from those for the utilities pertaining to the canning operations. The policy which was before the court was obtained at approximately the time the operation of the bakery began. The agent of the defendant suggested that the plaintiff obtain business interruption insurance on all the business, but Mr. Lewis told him that he did not believe that he needed that coverage. He “merely wanted to cover a new venture, a new program, a new product, since [the plaintiff was] . . . expending a considerable introduction cost in producing this plant as well as building the plant.” Mr. Lewis told the agent that he did not believe that in the rest of the plant a hazard existed of the nature of that in the bakery building arising from the presence of a “long oven with gas fired from end to end, which was one hundred twenty or thirty feet long.” Mr. Lewis discussed with the agent the amount of the plaintiff’s current canned food sales and took a percentage thereof as representative of what he anticipated the sales of baked pet food would be and, consequently, what the amount of necessary coverage appeared to be. After the fire occurred, there was no further production and there were no sales in the bakery department until the plant therefor was rebuilt and reequipped.

In the course of the cross-examination of Mr. Lewis, the

Since the language of the policy lent itself to the construction for which the plaintiff contended, extrinsic evidence bearing upon the meaning of the contract was admissible. The applicable law is succinctly expressed in Reid v. Overland Machined Products, 55 Cal.2d 203 [ 10 Cal.Rptr. 819 , 359 P.2d 251 ], at page 210, as follows: “When the language used in the contract is fairly susceptible to the construction claimed by one of the parties, extrinsic evidence may be considered, not to vary or modify the terms of the agreement, but to aid the court in ascertaining its true meaning.” But the record affords no assurance that the trial court gave consideration to the evidence of Mr. Lewis relating to that subject. When his testimony as to the facts and circumstances attending the issuance of the policy was offered, the court stated: “. . . the court isn’t saying right now there is an ambiguity but only admitting it ... if there be an ambiguity.” However, in expressing his views at the end of the trial, the trial judge apparently limited his consideration to the face of the contract. He stated in part as follows: “What was the business ? The business is as stated in the policy and occupied as ‘Food manufacturing plant. ’ And that is all that they [the appraisers] could decide. ... It is the opinion of this court that that is exactly what was done in this case. . . . Now, what was the business that was either partially or totally suspended? It was ‘food manufacturing plant,’ not limited to dry or not limited to canned, but the business of ‘food manufacturing plant’ was partially suspended by virtue of a fire in one of the two buildings covered, and that was the matter that the appraisers and umpire had before them, and that is all, to a limit of $150,000. That is exactly what was done. If there was any intent to limit it, they would have said ‘limited to the dry goods’ or ‘limited to dry dog food’ or ‘package goods’ or

If, as appears to have been the ease, the trial judge, although he did not refuse to receive extrinsic evidence, considered the policy to be of such a nature that it could and must be construed by a consideration of its terms alone, prejudicial error occurred. (See Nuland v. Pruyn, 99 Cal.App.2d 603 , 615-616 [ 222 P.2d 261 ]; Pedersen v. Fiksdal, 185 Cal.App.2d 30 , 36 [ 7 Cal.Rptr. 874 ].) As stated in Smith v. Fetterhoff, 1 40 Cal.App.2d 471 [ 295 P.2d 474 ], at page 473: “While it is ordinarily true, as argued by respondent, that an appellate court need not concern itself with the reasons which impelled a trial court to act, as it is the judicial action as shown in the findings and judgment and not the judicial reasoning or argument which is the subject of review (DeCou v. Howell, 190 Cal. 741 [ 214 P. 444 ]), yet where as in the instant case the trial court refused to consider and weigh evidence upon the erroneous theory that it could not be considered, an appellate court is not justified in affirming the judgment upon the ground that the evidence supports the judgment.” (See also People v. Gorshen, 51 Cal.2d 716 , 734-735 [ 336 P.2d 492 ].)

Moreover, even if the trial court considered all of the pertinent extrinsic evidence, there was no finding of fact as to what the meaning of the contract of business interruption insurance was with respect to the matter of coverage. Such a finding was not implicit in the finding that “the premises situated at 801 and 817 East 18th Street, Los Angeles, California, and occupied as a food manufacturing plant, was a single integrated business operated as a whole,” because a part of an integrated business, such as the operations of a department thereof, could conceivably be the exclusive subject of a policy of business interruption insurance. Such a contract could logically be sought where the conduct of a particular part of a business involved a greater hazard than was present with respect to the rest of the business. Moreover, the language that “the aforesaid policy insured said business as a whole” did not embody a finding of fact but constituted a conclusion of law which was not supported by the facts found and must be disregarded. (See Hunter v. Sparling, 87 Cal.App.2d 711 , 721 [ 197 P.2d 807 ]; Wayt v. Patee, 205 Cal. 46 , 53-54 [ 269 P. 660 ].)

The question as to the intent of the parties to an

Since there has been no judicial determination of the basic issue in the controversy between the parties in accordance with the applicable law, the judgment cannot be sustained.

The judgment is reversed.

Shinn, P. J., and Files, J., concurred.

A petition for a rehearing was denied October 3, 1962, and respondent’s petition for a hearing by the Supreme Court was denied October 31, 1962.