
    The Northwestern National Ins. Co. v. Ferstman.
    (Decided March 21, 1932.)
    
      Mr. John H. McNeal, for plaintiff in error.
    
      Mr. James T. Cassidy, for defendant in error.
   Levine, P. J.

The parties appear in this court in reverse order. Plaintiff below, J. Ferstman, obtained a judgment in the common pleas .court against the Northwestern National Insurance Company, and error proceedings are prosecuted here seeking a reversal of said judgment.

Suit was instituted by J. Ferstman against the Northwestern National Insurance Company in the common pleas court by the filing of a petition wherein it was in substance alleged that on December 13, 1928, the insurance company issued and delivered a certain policy of fire insurance to one Betty Meltzer on certain personal property belonging to her; that on January 20, 1930, a fire occurred and the property covered by the policy was destroyed by fire; that on February 7, 1930, Betty Meltzer, who was the daughter of J. Ferstman, assigned her interest in the proceeds of the policy to her father, who thereupon filed the petition setting forth the allegations referred to, and also alleging that both he and Betty Meltzer had duly performed all of the conditions under the policy on their part to be performed.

The insurance company filed an amended answer wherein it admitted the issuance and delivery of the policy of insurance, and for a second defense pleaded the breach of certain conditions contained in the policy, as follows:

“In consideration of the stipulations herein named # * #
“This Policy is made and accepted subject to the foregoing stipulations and conditions, and to the following stipulations and conditions printed on back hereof, which are hereby specially referred to and made a part of this Policy, together with such other provisions, agreements, or conditions as may be endorsed hereon or added hereto; and no officer, agent or other representative of this Company shall have power to waive any provision or condition of this Policy except such as by the terms of this Policy may be the subject of agreement endorsed hereon or added hereto; and as to snch provisions and conditions no officer, agent or representative shall have snch power or be deemed or held to have waived snch provisions or conditions unless such waiver, if any, shall be written upon or attached hereto, nor shall any privilege or permission affecting the insurance under this Policy exist or be claimed by the insured unless só written or attached. * * *
“This entire policy shall be void if the insured has concealed or misrepresented, in writing or otherwise, any material fact or circumstance concerning this insurance or the subject thereof; or if the interest of the insured in the property be not truly stated herein; or in case of any fraud or false swearing by the insured touching any matter relating to this insurance or the subject thereof, whether before or after a loss.
“This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void * * * or if the interest of the insured be other than unconditional and sole ownership; * * * or if the subject of insurance be personal property and be or become encumbered by a chattel mortgage # # #

It will be seen that the above “restrictive provisions”- refer (a) to character of title of the assured in the chattels so insured, and (b) to the nonwaiver or voidance provision which limits the power of the agent to bind the insurance company.

Defendant averred that no agreement was ever, at any time, written upon or attached to said policy of insurance which in any manner waived or altered any of the above-quoted conditions or provisions of said policy of insurance.

It is further alleged that on July 3, 1928, the named assured, Betty Meltzer, in said policy, duly executed, signed and delivered a certain chattel mortgage in the sum of $2,000 to the plaintiff, J. Ferstman, on said personal property referred to in said policy of insurance; and that said J. Ferstman executed an affidavit on the back of said chattel mortgage to the effect that said mortgagor, Betty Meltzer, was indebted to him in said sum of $2,000, and that said mortgage was executed to him in good faith and to secure the payment of said sum of money; that said mortgage was filed of record on July 12, 1928, in the office of the county recorder for Cuyahoga county, Ohio, and that said mortgage was in full force and effect, unsatisfied and undischarged of record on December 13, 1928, in the office of the county recorder for Cuyahoga county, Ohio, at which latter time said policy of insurance was issued and delivered to said Betty Meltzer; all of which latter was well known to said Betty Meltzer and said plaintiff, J. Ferstman, before said date of December 13,1928, when said policy of insurance was issued and delivered to said Betty Meltzer; also defendant alleged that it had no knowledge of the existence of said chattel mortgage until after the occurrence of said fire on January 20,1930, and that they would not have issued and delivered said policy of insurance had they known of the existence of said mortgage on said property; and that the existence of said mortgage greatly increased the hazard of said risk under said policy; and defendant also averred that by reason of said breach of said conditions of said policy the same was of no force and effect and at all times null and void ab initio.

The reply filed by defendant in error to the insurance company’s amended answer contained a denial of the execution, delivery and filing of a valid mortgage and the execution of a valid affidavit on said mortgage. There was also a denial that a valid mortgage was duly executed by Betty Meltzer to her father, who is the defendant in error, in good faith, to secure the payment of any sum of money or that the mortgage was filed of record in the office of the county recorder of Cuyahoga county, Ohio. The reply also denies that Betty Meltzer, the assured named in the policy, in any way misrepresented her interest in the property covered by the policy, and it also denied that the household goods and personal property covered by the policy were incumbered by a valid chattel mortgage on the date when the policy was issued and delivered.

It appears from the record that Betty Meltzer, the assured named in the policy, and who assigned the same to her father, J. Ferstman, transacted her business with reference to the policy through one J. D. Levin, who was an insurance solicitor; that he took the application of Betty Meltzer, delivered the policy, and received a premium; that she told this soliciting agent at the time she placed her application with him that she had given a mortgage to her father, for which there was no consideration, and for which she received no money, which mortgage was given, signed, and filed solely for the purpose of preventing her husband, from whom she had become estranged, from removing her household goods and personal effects in her absence.

The defendant in error relies upon Section 9586, General Code, which provides as follows: “A person who solicits insurance and procures the application therefor, shall be held to be the agent of the party, company or association, thereafter issuing a policy upon such ápplication or a renewal thereof, anything in the application or policy to the contrary notwithstanding.”

It is contended-on the strength of said Section 9586, General Code, that such knowledge as the soliciting agent obtained about the title of the property insured at the time or before the issuance of the policy is, as a matter of law, imputed to the insurance company. The trial court sustained this contention.

Our attention is directed by plaintiff in error to the latest pronouncement of the United States Supreme Court in the case of Sun Insurance Office v. Scott, 284 U. S., 177, 52 S. Ct., 72, 76 L. Ed., 55, wherein it was held that a provision in a fire insurance policy covering personal property, avoiding the policy should it he or become incumbered by a chattel mortgage without the consent of the insurer indorsed on the policy, was a valid stipulation, the violation of which constituted a complete defense to an action on the policy. The court further held that knowledge of insurer’s local agent of an incumbrance on the insured property was not imputable to the insurer so as to constitute the consent to an incumbrance required by the policy as a condition of the insurance remaining in force, by virtue of a statute which makes a person who solicits or takes an application for insurance the agent of the company, anything in the application or the policy to the contrary notwithstanding, where the policy provides that as to conditions therein which may be waived no officer, agent, or representative of the insurer shall have power to waive, or be deemed or held to have waived, such provisions or conditions, unless such waiver, if any, shall be written upon or attached to the policy.

In the opinion the court comments upon Section 9586, General Code of Ohio, and also on the assertion of counsel that decisions of the Ohio courts interpreting the statute are to the effect that the agency thus imputed to the solicitor extends to all matters of contract with respect to the policy, including consent to the alteration of its terms, as follows: •

“On its face the statute does not go so far. We have examined the authorities cited and fail to find that they give it any such force or effect. They do not, as respondent claims, define the scope of the agency created by the statute, but leave it to be defined by applicable principles of common law. In the present cases the policy limits its scope, and we think the written contract must control.
“For the reasons given it is clear that the petitioners did not waive the condition against incumbrance nor consent to the giving of the chattel mortgage, and that there was nothing in the situation which deprived them of their defense based upon that condition.”

The effect of this holding is that a policy of insurance is a contract in writing of such a nature as to be within the general rule of law that a contract in writing cannot be varied or altered by parol testimony.

This holding of the United States Supreme Court is in conformity with the previous decisions of the same court, principally in Northern Assurance Co. of London v. Grand View Building Assn., 183 U. S., 308, 22 S. Ct., 133, 46 L. Ed., 213.

Contrasting the syllabus of Sun Insurance Office v. Scott, supra, we quote paragraph 1 of the syllabus in the case of Foster v. Scottish Union & National Ins. Co. of Edinburgh, 101 Ohio St., 180, 127 N. E., 865, as follows: “The knowledge of the agent of a fire insurance company as to the title by which property is held, with respect to which property the agent acting within the scope of his apparent authority procures the issuance of a policy of fire insurance, is imputed to his principal, and is in law the knowledge of such principal.”

It seems to us that there is a direct conflict between the holding of the United States Supreme Court and the consistent holding of the Supreme Court of Ohio on the question of whether the knowledge of an agent of a fire insurance company with respect to the title by which property is held is imputed to his principal, the insurance company.

A study of the Foster case discloses that the court had before it various citations announcing a contrary rule by the United States Supreme Court. We quote from page 188 of the Foster case, supra [127 N. E., 867], as follows:

‘ ‘ That parol evidence cannot be received to vary or modify the terms of a written policy is the substantial ground of the decision in Northern Assurance Co. v. Grand View Bldg. Assn., supra. At page 361 Justice SMras says: ‘Contracts in -writing, if in unambiguous terms, must be permitted to speak for themselves, and cannot by the courts, at the instance of one of the parties, be altered or contradicted by parol evidence, * * * this- principle is applicable to cases of insurance contracts as fully as to contracts on other subjects.’ Two further steps in the process of reasoning led the court to a final judgment for the insurance company. They are, first, ‘The insured is presumed, as matter of law, to be aware of such limitations’ — the voidance and nonwaiver clauses — and, second, ‘there is no finding that the agent communicated to the company * * * the fact that there was existing insurance on the property, and that he had undertaken to waive the applicable conditions. ’
“It is impossible to accept this reasoning. It is indeed true that the insured cannot by parol vary a written obligation by which he has undertaken to be bound, or one which he has accepted as the measure of his rights, either knowing its contents or having had a reasonable opportunity to know them. In either case he is held.to the terms of the writing because he has made it his own. This is quite another thing from presuming him to know what in fact he does not know. If in such case he is held to the terms of a writing which he has not read, it is because his neglect to read after opportunity to do so is his deliberate acceptance of the writing, or, rather, his election to be bound thereby, whatever its contents. If, again, in such case, the insured is deprived of his fancied security by the express terms of the written policy, he cannot plead his own neglect to circumvent the consequence of a written contract, which, so far as is known by the other contracting party, is in all respects open and fair.”

It is quite clear to us that the doctrine of estoppel is the underlying ground for the holding in Ohio that the knowledge of the soliciting agent must be imputed to his principal.

We thus have before us two conflicting precedents, and this court is called upon to choose whether it will follow the supreme authority of the United States Supreme Court, or the highest authority of our own state which pronounced a contrary view on the same subject. The general rule seems to be that where only state statutes and policies are involved, a state court of jurisdiction inferior to that of the state’s highest tribunal is bound to follow the decisions of the highest tribunals of the state, as against the decision of the federal court, including the decision of the United States Supreme Court. In such matters the decision of the Supreme Court of the United States is of course entitled to the highest respect; but, however high may be the consideration due to the decisions of that august tribunal, they cannot be above the reach of respectful examination and inquiry into the reasons and authority upon which they rest, when brought under review in the determination of a matter in a state court.

It seems clear that the essential difference between the United States Supreme Court and the Supreme Court of our own state lies in the application of the parol evidence rule. The rule pronounced by the Ohio Supreme Court in the Foster case does not attempt to set aside or infringe upon the parol evidence rule, but states that the doctrine of estoppel applies to this situation; that by the chancery power of the court the insurer will be enjoined, or estopped from setting up the restrictive terms of the policy as a defense to a suit at law by the assured based upon the policy, on the ground that to permit such defense at law would be to work inequity or fraud upon the insured. See Foster v. Insurance Co., supra, page 190 [127 N. E., 865]. On page 191 [127 N. E., 868], the opinion states: “In many jurisdictions the conclusion indicated is reached on the theory of estoppel.”

Independent of the provisions of Section 9586, General Code of Ohio, or even in the absence of them, the doctrine of estoppel, which has become imbedded in our substantive law, when applied to a situation such as exists in the case at bar, would, under Ohio decisions, bind the principal to such knowledge as the agent possessed prior to the issuance of the policy.

In this apparent conflict between the United States Supreme Court decisions and the decision of our own state Supreme Court, this court places a great .deal of reliance on the clear statement found in Wells on Res Adjudicata and Stare Decisis, 583, as follows: “In matters of the construction of United States laws, treaties or constitutional provisions, the authority of the United States courts is, of necessity, paramount; while e converso in the construction of state constitutions and state laws, the decisions of the courts of the particular state are paramount, and each is to follow the other in these respective spheres. The Mississippi court says of this relationship, in part: ‘While we entertain a proper respect for the opinions of the Supreme Court [of the United States] and are willing to yield to it the deference which is due to so distinguished a tribunal, yet when its decisions come in conflict with those of this court in relation to questions over which the jurisdiction of this court is ample, and its decisions final, we feel bound to adhere to our own decisions. Any other rule would subject the opinions of this court to a degree of fluctuation and change greatly to be deplored. Retrospective legislation has always been deemed unjust and oppressive. Whenever courts of justice alter or change the rules of law they have once established, and on the faith of which contracts have been made, or rights acquired, many of the most injurious effects of retrospective legislation will result from such action.’ ” Shelton v. Hamilton, 23 Miss., 498, 57 Am. Dec., 149.

We are content to rest our conclusion on the basis of the Foster case and to hold that the insurance company in the case at bar is estopped from asserting the restrictive provisions of the policy as a defense to the action by the assured or her assignee, on the ground that the record shows that the assured fully disclosed the true condition of the title to the property to the agent of the company before the policy was issued, and therefore to permit the defense,of the restrictive clauses of the policy on the part of the insurance company under the circumstances would be to work inequity, if not fraud, upon the assured.

It is contended by the plaintiff in error that the defendant in error did not plead a waiver on the part of the defendant, nor did he plead fraud or mistake in the execution of the policy, nor did he seek a reformation of the policy; that upon the face of the policy, the restrictive clauses appearing therein, and under the admitted facts of the case, no recovery could be had unless the policy was first reformed to conform to the representations made by the assured to the agent before the policy was issued.

We do not agree with this contention of plaintiff in error. The petition of the plaintiff contains the necessary allegations showing the issuance of the policy, the payment of the premium and the compliance with all conditions contained in said policy, the sustaining of the loss by fire, and the prayer for judgment therefor. To defeat the cause of action set forth in the petition the insurance company points to restrictive clauses in the policy, which were denied in the reply. We hold, by the application of the doctrine of estoppel, that the insurance company is enjoined or estopped from asserting these restrictive clauses by way of defense, because the soliciting agent had knowledge of the true conditions as to the title before the policy was issued. The denial in the reply of the existence of these restrictive clauses is in our opinion sufficient to invoke the doctrine of estoppel, in view of the evidence which discloses rather clearly that the agent of the company had full knowledge of the true conditions, and in view of the principle of law enunciated by the Ohio Supreme Court in the Foster case to the effect that such knowledge is imputable to the insurance company.

We do not deem it necessary to discuss other minor questions, as the matters discussed are decisive of the case before us.

For the reasons given the judgment of the common pleas court will be affirmed.

Judgment affirmed.

Weygandt, J., concurs.

Vickery, J., not participating.  