Petitioners Brief — Nieschlag & Co. v. Atlantic Mutual Insurance

Supreme Court of the United States

Octoser Term, 1941.

Niescutac & Co., Ino.,

Petitioner,

AGAINST

Artantic Mutua. InsurRANCE

Company,

Respondent.

Brief in Support of Petition for Certiorari.

Reference has been made in the petition to jurisdic-

tional provisions, the proceedings and opinions below,

the questions and conflicts presented, and the grounds

for review.

Summary of Conflicting Evidence as to Surrounding Cir-

cumstances, Facts and Intent; Defendant’s Suppres-

sions of Evidence Thereof and of Witnesses; and the

Admissions and Issues Made But Ignored by the Court.

After previously moving without success (see Opinion

of Knox, D. J., R., pp. 155-157) to eliminate much of the

significant surrounding facts and circumstances by strik-

ing certain allegations (pars. 23, 24, 25, 40, 45, 49 and

parts of paragraphs 46 and 47) from plaintiff’s verified

complaint, defendant filed an unverified amended answer,

and moved simultaneously for summary judgment.

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In support of its summary judgment motion, defend-

ant submitted affidavits of Bogardus, Craig and Smith,

who were Vice-Presidents, and Bedell and Leyshon, em-

ployees of defendant; all accordingly interested witnesses.

Defendant did not submit any affidavits of its underwrit-

ers Brust and Thurnall (cf. Equitable Life Ins. Co. v.

Halsey Stuart & Co., 312 U. S. 410, 426; Runkle v. Burn-

ham, 153 U. S. 216, 225; Interstate Circuit v. U. S., 306

U. 8. 208, 226, and cases cited); and the motion evinced

a continued tactical purpose of defendant to suppress

surrounding facts and circumstances, and witnesses, and

to induce rendition of judgment without consideration

thereof.

Bogardus’ affidavit (ff. 285-287) related only to the

Seventh Defense (f. 262) of Garcia’s alleged premium

default, withdrawn as noted in the Petition (p. 3).*

Craig’s affidavit (ff. 290-293) merely repleads by refer-

ence the omnibus reclamation proceedings order. And no

independent proof on its defenses as to the alleged reason

for the non-delivery or the alleged lack of insurable in-

terest was offered.

Bedell and Leyshon were inspectors, whose affidavits

(ff. 317-321, 323-327) purport only to cover ‘‘the only

inspections which IT made’’ (ff. 321, 327), which were in

March and April, 1939 (ff. 318-320, 324-325), with none

at the time of or subsequent to the bankruptcy.

Smith’s affidavit (ff. 296-315) alone purports to cover

any of the negotiations between defendant and Garcia

Sugars Corporation or its brokers for the insurances. It

purports to cover negotiations in which Smith took part

and is ‘competent to testify to’’ (ff. 296, et seq.; ef. Rule

56[e])—presenting, in absence of any affidavits then

or later by Brust and Thurnall, serious ground for hold-

*Defendant withdrew this defense on oral argument in District Court as

not affecting plaintiff’s rights and has agreed this withdrawal applies, and

will be conceded, throughout appellate proceedings.

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ing Smith’s affidavit was ‘‘presented in bad faith’’ (Rule

56(g¢]; ef. Equitable Life Ins. Co. v. Halsey Stuart € Co.,

supra; Runkle v. Burnham, 153 U. S. 216, 225; Interstate

Circuit v. U. S., 306 U. S. 208, 226 and cases cited).

Plaintiff submitted affidavits by its president, Nie-

schlag (ff. 341-354); its treasurer, Kocher (ff. 356-365) ;

two of the Garcia Company’s brokers, Benfield (ff. 368-

390) and Skillman (ff. 392-410); the former secretary

and treasurer of the warehouse corporation, MeMackin

(ff. 413-417); and the secretary of the New York Cocoa

Exchange, Cross (ff. 419-426). Those of Nieschlag,

Kocher and Cross make clear plaintiff’s genuine risks,

the latter showing that in addition to the $216,200 ad-

vances made, petitioner as an Exchange member was

bound for specific performance of delivery (f. 422) under

the Exchange contracts for September delivery sales

shown by Nieschlag (ff. 349-352). Nieschlag and Kocher

make clear plaintiff’s insistence to the Garcia Company

throughout on insurance of non-delivery risk or ‘‘non-

performance by the warehouseman of the delivery obliga-

tion’? (f. 358), and on ‘‘plaintiff’s being fully insured

against all conceivable warehouse risks’’ ‘f. 346); and

their understanding that by the final form of negotiable

insurances tendered and accepted ‘‘plaintiff was insured

specifically by the defendant of the future delivery by

Harbor Stores Corporation, on demand, of the quantities

of cocoa specified’? (f. 347). MeMackin established that

the warehouse receipts were duly signed by proper officers

and issued by the warehouse company (ff. 414-415).

For any details of the negotiations between Garcia’s

brokers and defendant, in which plaintiff was not repre-

sented and had no part, plaintiff had perforce to rely

on affidavits of Garcia’s brokers, Skillman and Benfield.

In Winter on Marine Insurance (2d. Ed.) p. 375, defend-

ant’s president shows how closely such brokers’ interest

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is with defendant. Their affidavits here for plaintiff, who

was not even their customer, are despite adverse interest.

Comparing the pictures shown, Vice-President Smith,

who Benfield discloses was defendant’s senior under-

writer (f. 377), insinuates that he handled all the in-

surances. He recites issuances of the first lot of six

March 20, 1939 certificates, and the first supplementing

‘“‘endorsements to the above certificates’? on March 24,

1939 (ff. 298-300), insinuating but not asserting he took

part therein. Actually, beth were handled by junior

underwriter Brust with Skillman. Most significantly,

prior negotiable insurances describing the same quantities

of beans were still secretly outstanding pledged together

(as defendant admits was Garcia’s custom) with ware-

house receipts, to others of Garcia’s creditors; and

Brust realized those being issued constituted but were

not marked as duplicating insurances, and he obtained

‘lost policy’? release indemnities from Garcia (Skillman,

ff. 395-397). Smith mentions neither Brust, Skillman,

duplicating insurances nor ‘‘lost policy’? releases, and

the Court ignores all such suppressed facts.

Smith then recites ‘‘a representative of the broker

again called at the office of defendant and requested a

further extension of the ecoverage’’ and what allegedly

“The broker advised deponent’’ and Smith told ‘‘the

broker’? in this and another conference next day (ff.

300-304). He does not mention that first Skillman con-

ferred again with Brust and with Thurnall (Skillman,

ff. 399-400), nor Smith’s own conference with Skillman

and Thurnall (Skillman, f. 402). Actually, as with the

prior insurances, Skillman applied for the non-delivery

insurances to Brust—who refused to underwrite it (f.

399); then Skillman applied to Brust’s superior Manager

Thurnall, who refused to underwrite it (ff. 400-401); then

Skillman and Thurnall talked to Smith, who refused to

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sign the insurances, which Skillman on return to the

broker’s office told his superior Benfield (ff. 402-403).

Then Benfield ‘‘decided to take the matter up, myself,

direct’? with Smith, and interviewed him on that and

the next day (ff. 377-380). These ‘facts Smith sup-

pressed; and the Court ignored.

Smith states ‘‘I then advised the broker that we would

make a physical inspection of the beans and if their condi-

tion was sound, the company would grant the extended

coverage at an additional premium’’ (f. 304). He does

not mention, but plaintiff’s proof establishes that at first

to both Skillman and Benfield in turn Smith demanded

a ‘‘complete inspection’’ to ‘‘be made by independent in-

spectors, to be paid for by Garcia Sugars Corporation”’

(Benfield, f. 383; Skillman, ff. 402-403); that subsequently

he voluntarily waived this; that he was more concerned

with the fear of losing Garcia’s insurance business than

with taking the ‘‘complete inspection’’ precautions he

realized were advisable; that he did not consent to under-

write the ‘‘non-delivery’’ risk until after Benfield told

him that plaintiff’s insistence was such that he feared

that if defendant did not underwrite it for Garcia it must

be procured elsewhere and defendant and the broker

‘would both lose the business’’ (ff. 378-379); that the

duplicating insurances for which the ‘‘lost poliey’’ re-

lease indemnities had been required were still outstand-

ing, evincing a prior title claim of other creditor-pledgees

thereof; that from this defendant well knew but sup-

pressed from plaintiff that the ‘‘non-delivery’’ risk in-

sured thus constituted at outset peculiar'y a duty or

obligation liability risk, to which as such defendant must

have intended the special ‘‘non-delivery’’ insurances to

attach; and that the premium charged accordingly was

5*per cent. per month (Skillman, f. 403; Benfield, f. 380).

These facts Smith suppressed and the Court ignored.

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Smith further states that ‘‘In connection with the

issuance of the subsequent certificates sued upon herein,

which contained the same broad coverage * * * I in-

sisted’? upon a physical inspection (f. 306). Actually

these subsequent insurances were handled by Skillman

with Brust and Thurnall (Skillman, ff. 405, 407) who

give no affidavits; and they also involved duplicating in-

surances still outstanding, and defendant’s taking ‘‘lost

policy’’ release indemnities from Garcia (Skillman, ff.

406, 408-409) ; all of which Smith suppresses. The Court

ignores such suppressed facts.

Smith’s really sly statement that defendant at no

time was ‘‘advised that warehouse receipts had been

issued’? and ‘‘No mention was ever made of warehouse

receipts and no warehouse receipts were ever submitted

to defendant”’ (ff. 307-308) thus insinuates but does not

state that they were not contemplated by defendant.

There is no affidavit from Brust or Thurnall as to this,

nor as to whether they knew of or discussed or consid-

ered or saw warehouse receipts. And Smith’s insinua-

tion is belied both by the explanation in President

Winter’s book that descriptions in negotiable certificates

are designed to ‘‘fit the description’’ in ‘‘corresponding”’

bills of lading—or here, warehouse receipts—which to-

gether form part of ‘‘a commercial set’? of documents

(Winter, Marine Insurance, 2d Ed., pp. 133, 48), and by

the admissions in the Amended Answer that the descrip-

tions were identical, and that defendant knew the Garcia

Company borrowed on companion warehouse receipts and

insurance certificates (Comp., par. 41, f. 62, undenied).

Moreover, since the ‘‘non-delivery’’ insurances were by

dated special provisions effective forthwith, and in view

of the ‘‘lost policy’’ release indemnities covering out-

standing prior insurances; unless defendant contem-

plated warehouse receipts it must have contemplated an

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even less formal medium of delivery claim, such as any

form of delivery order whatever, with the risk as insured

consequently intended as one still more broadly under-

writing the warehouseman’s or Garcia Company’s obli-

gation, credit or liability.

Skillman states that after the risk ultimately was first

approved ‘‘Mr. Brust told me he would make up new

coverage endorsements’’ (f. 404)—directly contrary to

Smith’s insinuation (f. 301) and the Court’s. holding

(f. 450), without any affidavit from Brust, that defend-

ant was not their author (ef. contra, Bushey & Sons v.

American Ins. Co., 237 N. Y. 24, 29).

Defendant at first was unwilling to insure any other

risks than the perils of fire, lightning and sprinkler leak-

age only; and the first set of six certificates, dated

March 20, 1939 (R., p. 61), covered only these perils,

certified as having been made by endorsement to an

open policy, No. CP37396 and effective March 17, 1939.

Plaintiff rejected these certificates (Comp., par. 23, f.

37: Amended Answ., par. 8, f. 231). The Garcia Com-

pany then procured the March 24th forms of ‘‘endorse-

ment’? instruments to be attached to the certificates, by

which defendant agreed ‘‘to also insure’’ from date cer-

tain additional risks (Comp., par. 24, f. 38; undenied).

On retender of the certificates, together with these supple-

mental ‘‘endorsements’”’ thereof, plaintiff rejected these

(Comp., par. 25, f. 39; Amended Answ., par. 8, f. 231)

upon the specific ground, among other things, that the

risk of ‘‘non-delivery’’ default by the warehouseman was

not insured against. Thereupon, the Garcia Company,

through its brokers, again approached defendant for a

third time and after negotiations with three successive

underwriters, Brust, Thurnall and Smith (noted supra,

pp. 27-28), procured the issuance by defendant (Comp.,

par. 26, f. 40; undenied) of the six March 30 instru-

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ments of ‘‘endorsement’’ which recited they were to be

attached to ‘‘special policy No. C. P. 37396/NW9764’’

(and the other numbers corresponding to those of the

other certificates of March 20, 1939); and these by spe-

cially added clauses provided (R., p. 65):

“ce * * it is hereby agreed that effective March

30, 1939, this insurance is extended * * * also to

insure, notwithstanding any exclusion in said en-

dorsement, damage by * * * non-delivery, * * *.’’

(Italics ours.)

Of the remaining ten certificates, issued later, eight

dated April 5, 1939 and two dated April 14, 1939, certified

first endorsements of insurance made on the policy on

April 4, and April 11, 1939 covering risks of fire, light-

ning and sprinkler leakage, and then set forth by spe-

cially added clause, as of April 5 and April 14, 1939, that

(R., pp. 69, 73):

‘‘This insurance is extended * * * also to insure

notwithstanding any exclusion in said endorsement,

damage by * * * non-delivery;’’ (Italics ours.)

The Garcia Company’s policy No. 37396 contains a

printed clause which ‘‘excludes’’ the risk of non-delivery

unless ‘‘otherwise’’ and ‘‘specially’’ provided for ‘‘here-

in’’ (R., p. 47), 7. e., unless ‘‘specially’’ provided in the

policy. ‘‘Exelude’’ means ‘‘To shut out; to hinder from

entrance or admission * * * to keep out what is already

outside ;’’ (Webster’s New International Dictionary).

This clause obviously was designed by Winter, not to fix

the meaning of ‘‘non-delivery’’ as being already con-

trolled by the policy, as held below (f. 443), but to pre-

vent its ever being underwritten except after special

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attention and by independent special clause, with or

without limitation as specially provided in each case.

Defendant expressly admits that it had been informed

and knew and understood that the insurances sued on

‘‘had been demanded by plaintiff as a condition’’ to

financing the Garcia Company (Amended Answ., par. 14,

ff. 237-238); that defendant issued them ‘‘voluntarily

and without any inducement from plaintiff’? (par. 16,

f. 239), that ‘‘it did not rely on any representations

made by the plaintiff or any agent or representative of

the plaintiff’? (par. 13, f. 237), and that the descriptions

in the insurance contracts herein were the same as those

in the warehouse receipts (par. 19, ff. 240-241).

There is no denial that on March 18, 1939, April 4,

1939, April 12, 1939 and May 16, 1939, respectively, plain-

tiff both made advances to Garcia Sugars Corporation,

totalling $216,200, and executed for its account contracts

with other third parties binding plaintiff for sale for

September delivery, under the Rules of the New York

Cocoa Exchange, of cocoa beans equal in tonnage to

47,480 bags (Comp., par. 11, f. 20, undenied) ; that Garcia

Sugars Corporation, on such dates duly endorsed and

delivered to plaintiff for value the ten negotiable or

‘order’? warehouse receipts of Harbor Stores Corpora-

tion, certifying its receipt and covenanting to make de-

livery to order of 47,480 bags of cocoa beans (Comp.,

par. 16, f. 24, undenied; Exhs. B-1 to B-10, R:, pp. 35-

45); and on March 30, 1939, April 5, 1939, April 14, 1939

and May 16, 1939, respectively, duly endorsed and de-

livered to plaintiff for value the sixteen negotiable or

‘<order’’ insurance contracts in suit issued by defendant

(Comp., pars. 28, 32, 37, ff. 42, 46, 54, undenied; Exhs.

D-1 to D-6, E-1 to E-6 and F-1 to F-10, R., pp. 61-75) ; that

on May 24, 1939, plaintiff was and is owner and _ holder

for value of the contracts of insurance in suit (Comp.,

par. 7, f. 14; Amended Answ., par. 3, f. 227); that on

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May 24, 1939, plaintiff duly demanded delivery of said

47,480 bags of cocoa beans from Harbor Stores Corpo-

ration, which failed and refused to make delivery, is

unable to make delivery, has been adjudged bankrupt,

and is unable to pay plaintiff its damages, and that Garcia

Sugars Corporation has been adjudged bankrupt (Comp.,

pars. 50, 51, 52, ff. 72, 73 undenied).

POINT I.

The court erred in the construction and effect given to

the bankruptcy reclamation proceedings order.

The court held the reclamation proceeding order ‘‘ad-

judicated that plaintiff did not own the beans and was

not entitled to possession of them’’ and that ‘‘it must be

held plaintiff did not have any insurable interest therein”’

(f. 440). It treated the question thereafter as whether

the insurances gave ‘‘protection against non-delivery of

goods in which it did not have any insurable interest”?

(ff. 441-442).

Actually, the order merely adjudged as to reclamation

rights broadly respecting such residue of beans as re-

mained in the warehouse ‘‘on the 29th day of May, 1939,

the date when the above named bankrupt was duly ad-

judicated as such, or at any time thereafter’? (f. 277).

In Little, et al. v. General Ins. Co., decided May 7, 1942,

Hulbert, D. J., S. D. N. Y., quoted and disapproved the

above ruling of Judge Bondy and held: ‘‘I do not so

interpret the determination of the Referee in Bankruptcy

** *.? He held the corresponding order dismissing the

Little reclamation claim related only to sugar ‘‘now in

the possession, custody or control of the trustees in

bankruptey’’, ete.

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An adjudication thus pleaded collaterally which did

not purport to decide the questions raised in the suit

in which pleaded is neither decisive of nor pertinent to

such questions, and cannot be given an effect beyond the

points actually adjudicated (Ocean Accident & Guarantee

Corp. v. Old Nat. Bk., C. C. A. 6, 4 F. [2d] 753, 755;

Schreiner v. High Court of I. C. C. of F., 35 Ill. App. 576;

Donohue v. Vosper, 243 U. S. 59, 65; Russell v. Place, 94

U. S. 606, 608, 610).

Application of descriptive provisions of written instru-

ments ‘‘to external objects described therein is the pe-

culiar province of the jury’’ (Richardson v. City of Bos-

ton, 19 How. [60 U. S.] 263, 270; McNamee v. Hunt, C.

C. A. 4, 87 F. 298, 301). If, therefore, the ‘‘non-delivery”’

insurances could properly be held to be insurances of

‘‘external objects’’, i. e., beans, as such, and if defendant

had offered any evidence purporting to associate the in-

surances with beans still in the warehouse on May 29,

1939, and affected by the reclamation order, there still

would have been a question of fact as to this being the

proper application of the descriptive provisions of both

the insurances and the warehouse receipts. But as no

such evidence was offered, there was no basis, even on

defendant’s theory of the insurances, to treat the reclama-

tion order as in any way relevant, beyond merely further

confirming as absolute the ‘‘non-delivery’’ which had oc-

eurred May 24th.

Claims in reclamation proceedings and orders made

therein are different, arising under different sections of

the Bankruptcy Laws, from proofs of claims for debts,

liabilities or damage (such as this plaintiff’s claim for

‘‘non-delivery’’ damage), and neither adjudicate nor bar

nor affect the latter nor the claimant’s indemnity rights

against third parties (Thomas v. Taggart, 209 U. S. 385;

In re Ross, D. C. S. D. Tex., 39 F. [2d] 242; In re Kaplan

PERT LA TL : PEE IOS

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v. Myers, C. C. A. 3, 241 Fed. 459; Karns v. Thomson &

McKinnon, D. C. D. Minn., 3rd Div., 22 F. Supp. 442, app.

Dism’d C. C. A. 8, 102 F. [2d] 993; Rankin v. Tygard,

C. C. A. 8, 198 F. 795; Poswick v. Cutten, 258 N. Y. App.

Div. 218, aff’d 283 N. Y. 660).

Armour Vv. Michigan Central R. R. Co., 65 N. Y. 111,

and Aetna Casualty & Surety Co. v. National Bank of

Tacoma, C. C. A. 9, 59 F. (2d) 493, are closely in point as

refuting the defense fundamentally. In the Armour case

a judgment of replevin obtained by a third party was held

to constitute no defense to an action against a carrier for

‘‘non-delivery’’ damage. The National Bank of Tacoma

case held that ‘‘lack of delivery’’ indemnity insurance,

issued under circumstances closely analogous to what

defendant claims here, protected a bank against lack of

delivery even after proof that the materials described

and even the ‘‘order’’ recited as pledged in fact never

had existed.

POINT II.

Contrary to Rules 56, 38, 39 and the Seventh Amend-

ment, the court substituted itself for the jury, determined

issues depending on credibility of witnesses, effect and

weight of evidence and contractual intent, ignored defend-

ant’s suppression of facts and witnesses, and ignored and

failed to treat petitioner’s opposing papers as proving the

facts, circumstances and intent shown therein.

Petitioner’s cross-motion did not waive its opposition

to defendant’s motion, nor its right to jury trial; and the

evidence either entitles petitioner to judgment as matter

of law or requires trial by jury.

The Court obviously treated the case as having been

submitted to it for final determination ‘‘on the pleadings

and affidavits’’ (f. 437), with any right waived to have a

36

jury determine disputed or conflicting facts, the credibil-

ity of witnesses, and the intent of the parties. This is

contrary to Aetna Ins. Co. v. Kennedy, 301 U. S. 389;

and to Rules 56, 38 and 39, and the Seventh Amendment,

and constitutes both a grave injustice to plaintiff and a

dangerous precedent.

Smith was a doubly interested witness whose state-

ments, before being adopted, ‘‘should have been submitted

to the jury’’ (Brooks v. People’s Bank, 233 N. Y. 87, 94).

The picture he painted was completely refuted and, with

respect to defendant’s motion, petitioner was entitled, be-

fore any judgment could be rendered for defendant, to

have a jury determine the issues of fact as to the sur-

rounding circumstances and intent.

Petitioner, as the ‘‘opposing party’’, was entitled to

have all its evidence treated as proving all that it rea-

sonably may be found sufficient to establish, to have

drawn in its favor all inferences fairly deducible from

its own evidence, to have all countervailing evidence of

defendant disregarded by the Court, and to have all is-

sues that depend on the credibility of witnesses and the

effect or weight of evidence decided by a jury (Gunning

v. Cooley, 281 U. S. 90, 94; BE. K. Wood Lumber Co. v.

Andersen, C. C. A. 9, 81 F. [2d] 161, 166, cert. denied;

297 U. S. 723).

Defendant does not contend that petitioner had no in-

surable interest in the risk of non-delivery, which it was

fully entitled to protect by indemnity insurance (Aetna

Casualty & Surety Co. v. National Bank of Tacoma, ©. C.

A. 9, 59 F. [2d] 493), with this defendant (Great Lakes

Transit Corp. v. Interstate Steamship Co., 301 U. S. 646,

652, 653). Defendant contends only it did not insure, nor

intend to insure, such risk of ‘‘non-delivery’’.

This contention, the first cornerstone of defense, is

one as to intent and meaning, and under the rule ap-

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‘é

plicable ‘‘particularly to insurance cases’’ (Union Trust

Co. v. Whiton, 97 N. Y. 172, 173), petitioner was entitled

to have the questions of intent, purpose and meaning of

the particular words used treated as questions of fact

for the jury (Wood v. Guarantee Trust & Safe Deposits

Co., 128 U. S. 416, 424; Pitney v. Glens Falls Ins. Co., 65

N. Y. 6,17; U. S. Rubber Co. v. Silverstein, 229 N. Y. 168,

171; Utica City Nat. Bank v. Gunn, 222 N. Y. 204, 208;

Kavanaugh v. Kavanaugh Knitting Mills, 226 N. Y. 185,

198; Piedmont Hotel v. Nettleton Co., 263 N. Y. 25, re-

versing a summary judgment; Rosenkranz v. Schreiber

Brewing Co., 287 N. Y. 3822, 325; Rey v. Simpson, 22 How.

[63 U. S.] 341, 347).

The Court had no right to substitute itself for the

jury, pass upon the effect of the evidence, find (or elimi-

nate by ignoring) the facts involved in the issue and ren-

der judgment thereon; but ‘‘That is what was done in the

present case’? (‘Baylis v. Travellers Ins. Co., 113 U. 8S.

316, 320-321).

The peculiar aptness of the foregoing authorities is

shown by the fact that the decision below is assertedly

based on ‘‘surrounding cireumstances’’, and undertakes

to assign to the ‘‘non-delivery’’ insurances a meaning pe-

culiar to the case, as according to ‘‘cireumstances’’ which

the court selects to recite. But the Court selected and

recited as the only facts considered by it the matters as-

serted or denied in defendant’s moving papers. Repeat-

edly, a specific intent is assertedly deduced, or rejected

as not following, from some assertion or denial by defend-

ant (ff. 441, 444, 445, 446, 447, 448, 449, 450).

As well shown by Compania de Navegacion v. Fire-

men’s Fund Ins. Co., 277 U. S. 66, 68-81, and Aetna Casu-

alty & Surety Co. v. National Bank of Tacoma, C. C. A. 9,

09 F. (2d) 493, the special circumstances here of principal

significance are those shown in plaintiff’s opposing papers,

which defendant’s papers had suppressed and the Courts

below have ignored.

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Five such facts in particular either establish with the

other evidence, petitioner’s right to judgment or constitute

strongest evidence requiring jury trial. These are (1)

That defendant, after three of its underwriters had sue-

cessively refused to underwrite ‘‘non-delivery’’, recon-

sidered and agreed to underwrite it to enable the Garcia

Company to endorse it over to petitioner for the latter’s

reliance, after being told by Garcia’s brokers that peti-

tioner was so insistent on such protection that if defend-

ant did not write it, it would be obtained elsewhere and

defendant and the brokers ‘‘would both lose the busi-

ness’’ (ff. 378-379). (2) Defendant then knew but did

not advise petitioner that prior negotiable insurances of

defendant describing the same quantities of beans were

still outstanding pledged, as was the custom of the Garcia

Company, together with warehouse receipts. (3) Defend-

ant secretly obtained from the Garcia Company, and is-

sued the insurances in return for ‘‘lost policy’’ release

indemnities against duplicating prior insurances. (4)

Defendant affirmatively demanded of the Garcia Company

a ‘‘complete inspection’’, to be made by outside inspec-

tors and paid for by Garcia, as a condition to under-

writing the ‘‘non-delivery’’ risk;—and (5) Defendant then

voluntarily waived this to the Garcia Company’s brokers.

The first fact shows that the ‘‘end and aim of the

transaction’’ (Glanzer v. Shepard, 233 N. Y. 236, 238, 239)

was, not insurance of the Garcia Company, but the con-

templated endorsement over of the insurances to peti-

tioner, as a bona fide holder, for its reliance, in lieu of

and to prevent petitioner insisting on or obtaining insur-

ance of ‘‘non-delivery’’ risk by any other insurers. In

view of this and the other facts, either defendant in-

tended to insure the ‘‘non-delivery”’’ risk, consistent there-

with (Compania de Navegacion v. Firemen’s Fund Ins.

Co., supra, 277 U. 8. 78, 80-81) as fully as it might be in-

sured by any indemnity insurer (e. g., Aetna Casually &

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Surety Co. v. National Bank of Tacoma, C. C. A. 9, 59 F.

|2d] 493), and broadly as a risk of what Winter on

Marine Insurance, 2d Ed., 170-171, calls ‘‘liability loss’’

and affording protection to the endorsee additional to and

dependent on the warehouseman’s or Garcia Company’s

delivery obligation (Great Lakes Transit Corp. v. Inter-

state Steamship Co., supra, 301 U.S. 646, 652, 653); or it

is guilty of having knowingly issued insurances designed

to entrap, beguile and mislead petitioner (National Bank

v. Ins. Co., 95 U. S. 673, 678; Voorhis v. Olmstead, 66 N.

Y. 113, 117, 118; Conrow v. Little, 115 N. Y. 387; Skinner

v. Norman, 165 N. Y. 565, 571; Reynolds v. Commerce Fire

Ins. Co., 47 N. Y. 597, 604; Nellis v. Western Life Indem-

nity Co., 207 N. Y. 320, 334; Wolfe v. Security Fire Ins.

Co., 39 N. Y. 49, 51; Pratt v. N. Y. Central Ins. Co., 55

N. Y. 505, 512; Rice Oil Co. vy. Atlas Assur. Co., C. C. A,

9, 102 Fed. [2d] 561, 576).

Other facts ignored by the Court, though undenied by

defendant, emphasize this. These are (6) That defendant

had long been the insurer, in large amounts, for the

Garcia companies, including the Insular and Harbor

warehouse companies, and was familiar with their make-

up. (7) It admits it knew Insular, which operated the

warehouse until organization of Harbor a few months be-

fore the transactions in suit, was controlled by Garcia

Sugars Corporation, but evades any positive statement

as to what it knew of Harbor’s similar control (ff. 235,

309). (8) It admits the Garcia Company had been in

financial difficulties for several years, and that defendant

knew the Garcia Company during this time had made and

was continuing to make large borrowings on the security

of negotiable warehouse receipts of Insular and Harbor,

together with defendant’s negotiable certificates of insur-

ance (Comp., par. 41, ff. 62-63, undenied). (9) By the

policy it issued to the Garcia Company, defendant ‘‘ap-

proved’’ Insular, despite the conflict of interest, for such

OWE I SBE BE A EVE CET BLT A ALOR AMEND LOI SRN PON

40

insurances to an amount of $1,925,000 (R., p. 58, par. G),

and never troubled to change this formally to Harbor,

Novel to this Court is the question whether a semi-

public institution such as a large and powerful insurance

company, emitting at call of a favored customer which

it admits was in financial difficulties and controls the ware-

house, negotiable certificates of insurance designed for

pledge with warehouse receipts thereof habitually used

together, and this repeatedly when its securing of ‘‘lost

policy’? release indemnities against already pledged cer-

tificates gave it knowledge of probable duplicating pledges,

can thus assist in bolstering as good the name and credit

of its customer and the latter’s controlled warehouses, to

the extent of specially writing negotiable ‘‘non-delivery”

insurances to prevent their being sought elsewhere, inci-

dentally participating by the cumulative premiums, and

then defend against a bona fide holder by asserting that

it was not ‘‘advised’’ by its customer that the warehouse

receipts were issued and intended as matter of law to

leave the holder burdened with all ‘‘non-delivery’’ con-

tract-liability risk.

Defendant was chargeable with knowledge of what-

ever full inquiry and the ‘‘complete inspection’? it first

demanded would have disclosed (Supreme Lodge K. P. v.

Kalinski, 163 U. S. 289, 298; Fidelity & Deposit Co. v.

Queens Co. Trust Co., 226 N. Y. 225, 933; Columbian Nat.

Life Ins. Co. v. Rogers, ©. C. A. 10, 116 Fed. [2d] 705,

707, cert. denied 313 U. S. 561). This rule charges it

with knowledge of the very facts which the Court states

it denies actually knowing. And knowledge thus charged

is the same as actual knowledge. With the knowledge it

had, ‘‘in a commercial sense it acted in bad faith’? (Soma

v. Handrulis, 277 N. Y. 223, 234; Rochester d& C. T. R.

Co. v. Paviour, 164 N. Y. 281, 284-285).

If, despite such rule and the foregoing facts, it could

fairly be said defendant did not know of the issuance or

ee ee eT t. 5 Vikan we . " LAE ne EE RN CLEAN IIE AEN

41

negotiation to plaintiff of the warehouse receipts, this

and the lack of specific enumeration of them in the in-

surances, would be ground under the evidence for giving

the coverage a broader rather than a more narrow mean-

ing (Guaranty Co. v. Pressed Brick Co., 191 U. S. 461;

Western N. Y, Life Ins. Co. v. ‘Clinton, 66 N. Y. 326;

Keyes vy. Anderson, C. C. A. 8, 262 F. 748; and O’Brien vy,

North River Ins. Co., C. C. A. 4, 212 F. 102, 105).

If, despite the foregoing facts, defendant can be con-

sidered an innocent insurer, the rule is applicable that of

two innocent parties he who induced reliance is liable to

him who relied (General Interest Ins. Co. v. Ruggles, 12

Wheat. [25 U. S.] 408, 410-414; Ryan v. U. S., 19 Wall.

[86 U. S.] 514; Comptoir Nationale d’Escompte de Paris

v. The Law Car & General, reported in Macegillivray on

Insurance Law, 2d Ed., 504; Aetna Casualty & Surety Co.

v. National Bank of Tacoma, C. C. A. 9, 59 Fed. [2d] 493;

Western N. Y. Life Ins. Co. v. Clinton, 66 N. Y. 326;

McWilliams v. Mason, 31 N. Y. 294; and Rothschild v.

Frank, 14 N. Y. App. Div. 399).

Neither the Court nor defendant attempts any ex-

planation of the foregoing facts. The Court ignores

them. Defendant ‘‘seems sedulously to avoid’’ (Runkle

v. Burnham, 153 U.S. 216, 225) disclosing them. Smith’s

calculatedly misleading statement of half-truths consti-

tuted ‘‘as much a misrepresentation as if the facts stated

were untrue’? (Equitable Life Ins. Co. v. Halsey Stuart

é Co., 312 U. S. 410, 426). By this, and Smith’s failure

to file any further affidavit, and the failure of Brust and

Thurnall to submit any affidavits whatever, defendant’s

‘Silence then becomes evidence of the most convincing

character’? (Interstate Circuit v. U. S., 306 U.S. 208, 226,

and cases cited). To turn plaintiff out of Court on this

record, without a jury trial, is contrary to Rules 56, 38,

39 and the Seventh Amendment.

b arena

42

POINT III.

The meaning of ‘‘non-delivery’’ under warehouse re.

ceipts, other commercial contracts and applicable law and

trade usage is either a conclusive or an admissible mean.

ing; and either entitles petitioner to judgment as matter

of law, or requires trial by jury under Rules 56, 38, 39

and the Seventh Amendment.

In determining the meaning of a risk insured against

the meaning, understood by and favorable to a bona fide

endorsee of negotiable insurances, which a word has

under warehouse receipts and similar commercial con-

tracts, and the law and trade usage applicable thereto

and under other forms of indemnity insurances, is an

admissible meaning to which the innocent insured is en-

titled (The G. R. Booth, 171 U. 8. 450, 459-460; Hancox

v. Fishing Ins. Co., 3 Sumn. 132, 137); with a broader

rather than a more narrow meaning in every case to be

given the word in insurances than under warehousing or

carrier relationships (Aschenbrenner v. U. S. F. & G. Co.,

292 U. S. 80), and particularly so when special circum-

stances are shown such as to charge the insurer with

knowledge of extraordinary risk (Compania de Navega-

cion v. Fireman’s Fund Ins. Co., 277 U. 8. 78, 80-81).

Thus defined, ‘‘non-delivery’’ is definitely and solely

a contract-liability risk under bills of lading (Georgia,

Fla. d Ala. Ry. Co. v. Blish Milling Co., 241 U. S. 190,

195; Davis v. Roper Lumber Co., 269 U.S. 158, 161; M. &

T. Trust Co. v. Export S.S. Corp., 262 N. Y. 92, 98 cert.

den. 290 U. S. 650; The Falcon, 3 Blachf. 64; Roberts v.

Chittenden, 88 N. Y. 33).

In Georgia, Fla. & Ala, Ry. v. Blish Co., this Court

defined ‘failure to make delivery”’ as follows:

Str 2 ae ee ee SN RO ai RF TY aN NORRIE 1 REE ORT A IEA TALS RAP FED

43

“The clause * * * specifically covers ‘failure to

make delivery’ * * *. But ‘delivery’ must mean

delivery as required by the contract, and the terms

of the stipulation are comprehensive,—fully ade-

quate in their literal and natural meaning to cover

all cases where the delivery has not been made as

required’? (241 U.S. 195).

Insurance is interpreted according to ‘‘what consti-

tutes’? a given risk or subject ‘‘at the place where’’ it is

assumed (Hazard’s Adm. v. New England Marine Ins.

Co., 8 Pet. [83 U. S.J] 567, 582). And assuming even

the reclamation proceedings order established what the

lower Court held, it is clear that under applicable New

York law petitioner at all times bona fide ran ‘‘non-

delivery’? risk and sustained ‘‘non-delivery’’ damage for

which the warehouseman is liable in an action for ‘‘non-

delivery’? damage (Armours v. Michigan Central R. R.

Co., 65 N. Y. 111; Hanover National Bk. v. American

Dock & Trust Co., 148 N. Y. 612; Rosenberg v. P. Viane,

Inc., 109 Mise. 215 on ‘‘non-delivery’’ interpleader, and

double judgment rendered therein, sub nom. Joseph v.

P. Viane, Inc., 118 Mise. 344, affd. 206 App. Div. 698).

Even under the facts which defendant concedes or

asserts a bonded warehouseman and his bondsman alike

would be liable to petitioner for ‘‘non-delivery’’? damage

(Maryland Casualty Co. v. Washington Loan & Banking

Co., 167 Ga. 354). So would a surety on a ‘‘delivery’’

bond (Ryan v. U. S., 19 Wall. [86 U. S.] 514) and Aetna

Casualty & Surety Co. v. National Bank of Tacoma, C. C.

A. 9, 59 F. (2d) 493, establishes that an indemnity in-

surer would be liable therefor under a contract indemni-

fying against damage by ‘‘lack of delivery’’.

The Courts below chose to disregard completely these

points and this established meaning thereby establishing

9

$4

a precedent in conflict therewith. Unless such decision be

reviewed and reversed it must operate either to overrule

the foregoing authorities directly or indirectly, or to

create the very confusion which The G. R. Booth holds

should not be permitted.

Contrary to the view taken below of Aetna Casualty

€& Surety Co. v. National Bank of Tacoma, the Ninth

Circuit expressly held such was not a case of guaranty or

suretyship, but of indemnity insurance, with the amount

of recovery reduced for this reason to the advances the

bank had made. Other decisions further establish the

difference, and show the error of the lower Court treat-

ing the issue here as one between property insurance of

beans, or guaranty or suretyship, with indemnity against

risk ignored (Great Lakes Transit Corp. v. Interstate

Steamship Co., supra, 301 U. S. 646, 652; National Bank

of Tacoma vy. Aetna Casualty & Surety Co., 161 Wash.

239, 244; First National Bank v. National Surety Co., 228

N. Y. 469; Assets Realization Co. v. Roth, 226 N. Y. 370;

Maine Lumber Co. v. Maryland Casualty Co., 216 N. Y.

App. Div. 35, affd. 244 N. Y. 537; Moore v. Capital Nat.

Bank of Lansing, 274 Mich. 56).

The insurance being against ‘‘non-delivery’’, and ‘‘non-

delivery’’ being shown which caused plaintiff’s damage,

any antecedent cause or ‘‘reason’’ (f. 261) such as al-

leged (but unproved) below, is immaterial (Jns. Co. v.

Transportation Co., 12 Wall. [79 U. S.] 194, 199; Bird v.

St. Paul F. & M. Ins. Co., 224 N. Y. 47, 53, 55).

The decisions cited in the petition establish that with

the ‘‘non-delivery’’? insurances properly interpreted as

above, there is nothing in the principles as to wagering

or ‘‘insurable interest,’’? and no legal obstacle, preventing

their enforcement.

Moreover, on any theory whatever, the warehouse re-

ceipts and petitioner’s conceded bona fide status, coupled

will the further representations as to credit represented

in defendant’s own acts and covenauts, constitute prima

facie proof preventing disposition of the case in defend-

ant’s favor as matter of law (Brooks v. Peoples Bank, 233

N. Y. 87, 95).

POINT IV.

The court committed error in treating the broad mean-

ing of the specially added clauses of the negotiable cer-

tificates as being qualified and cut down by recourse to

clauses of the open policy having to do with insurances

such as fire.

The English House of Lords and Court of Appeal

have held in Phoenia Ins. Co. y. De Monchy (H. L.), 45

T. L. R. 543 (C. of A.), 44 T. L. R. 364, 366, 368, 369,

that where negotiable certificates are issued which con-

tain express terms of insurance, these in the hands of

bona fide endorsees are themselves to be treated as self-

contained independent contracts and that the terms of

an open policy are not to be taken into account except

to the extent that either the terms of the certificate or

necessity may require. This Court has recognized the

importance, especially in insurance, of conformity between

the English law and our own (The Eliza Lines, 199 U. S.

119, 128; Queen Ins. Co. v. Globe & Rutgers Fire Ins. Co.,

263 U. S. 487, 493). The same principle, moreover, was

applied in Aetna Ins. Co. v. Willys Overland, Inc., N. D.

Ohio, 288 Fed. 912 and Imperial Shale Brick Co. v. Jew-

ett, 169 N. Y. 143. It is especially applicable here where

the ‘‘*non-delivery’’ insurances were never provided by

the policy, but specifically excluded therefrom, to be writ-

ten only specially; and were then specially written, not

by the policy, but by present-tense covenants added to

each certificate.

46

POINT V.

The court erred in holding inapplicable the principle

that the form used should be construed most strongly

against the insurer.

Bushey & Sons v. American Ins. Co., 237 N. Y,

24, 29.

Conclusion.

Questions of first importance in the insurance and

commercial world, and as to practice in the Federal

Courts, the effect when collaterally pleaded in insurance

cases of reclamation proceedings orders in bankruptey,

and the right under Rules 56, 38, 39 and the Seventh

Amendment to jury trial of issues, are presented, which

are novel, and on which the Circuit Court and District

Court have in effect overruled decisions of this Court and

of the highest State Courts and English Courts, and ruled

contrary to the Seventh Amendment and Rules 56, 38

and 39. The serious errors committed necessitate a re

view by this Court; and review by certiorari should,

therefore, be allowed.

Respectfully submitted,

Harotp T. Epwarps,

Cuarues A. E.us,

Counsel for Petitioner.

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