State Distributing Corp. v. Travelers Indemnity Co., 224 N.C. 370 (1944)

June 2, 1944 · Supreme Court of North Carolina
224 N.C. 370


(Filed 2 June, 1944.)

1. Insurance §12—

In the field of insurance a “binder,” or a “binding slip,” is merely a written memorandum 'of tbe most important terms of a preliminary contract of insurance, intended to give temporary protection pending tbe investigation of tbe risk of tbe insurer, or until tbe issuance of a formal policy.

2. ■ Same—

When tbe contract of insurance is finally complete, it is customarily embodied in a formal written instrument, termed a “policy.” Tbis instrument merges all prior agreements toucbing tbe transaction and upon accepting it the insured is conclusively presumed, in tbe absence of fraud, ^o have given bis assent to all of its terms.

3. Same—

It is incumbent upon an applicant for insurance, who receives a policy which does not conform, as to terms, to tbe agent’s representations, to notify tbe company, within a reasonable time, of bis refusal to accept tbe policy. And if an applicant receives and retains, without objection, policies made and sent to him, it is regarded as an acceptance.

*3714. Same—

Reasonable time begins to run on receipt of tbe policy. Wbat is a reasonable time seems to depend upon tbe circumstances of tbe case. A delay of four and a balf to five months bas been beld unreasonable.

Barnhill, J., dissenting.

Devin and Seawell, JX, join in dissenting opinion.

Appeal by defendant from Harris, Resident Judge, in Chambers, by consent, upon agreed statement of facts in case duly pending and at issue, 12 February, 1944, in Vahe.

Civil action on alleged contract of robbery and burglary insurance, and for recovery of loss sustained.

In the trial court counsel for plaintiff and for defendant filed with the court an agreed statement of facts substantially as follows:

1. Plaintiff is a corporation with its principal office and place of business located at 108 S. Blount Street, in the city of Raleigh, North Carolina.

2. Defendant, a foreign corporation, with its principal office and place of business in the city of Hartford, Connecticutt, was authorized to engage, and did engage in the indemnity insurance business in the State of North Carolina on the dates hereinafter stated, and I. J. Dowdy, Jr., of the city of Rocky Mount, N. C., was a duly licensed agent and representative of it, with power and authority to enter into contracts of insurance for, and on behalf of it.

3. On 21 December, 1939, plaintiff through its manager applied to Dowdy, agent of defendant, for a policy of robbery insurance by letter reading as follows: “Please put a binder effective immediately covering robbery insurance for State Distributing Company, for $1,000 on the outside, and $1,300 on the inside,” and “a day or two thereafter by telephone conversation the plaintiff amplified said application to said I. J. Dowdy by applying for a policy of burglary insurance in addition to the policy of robbery insurance above mentioned.”

4. Dowdy, defendant’s agent, bound plaintiff in accordance with said letter of 21 December, 1939, and the telephone request above mentioned, and on 27 December, 1939, wrote a letter to plaintiff advising that said binder for robbery insurance had been put into effect — the letter reading in essential part as follows : “Thank you for your letter of December 21, 1939, requesting that we cover you in the amount of $1,300 for burglary and robbery insurance inside your premises and $1,000 robbery and hold-up insurance away from your premises. We have put this coverage in effect immediately. I am requesting .one of the Company representatives to call on you the next time they are in Raleigh, as we will need additional information to enable us to issue the policy itself, however, *372in the meantime, you may be sure you are covered as requested.” And at tbe same time Dowdy wrote defendant at Charlotte, N. C., requesting it “to handle in the manner suggested,” and forwarded to it a copy of his said letter to plaintiff.

5. The “letter of 27 December, 1939, from I. J". Dowdy, agent of defendant, to plaintiff constituted a binder or contract of insurance for a period of one year in accordance with the terms of said letter.”

6. Under date of 29 February, 1940, defendant issued to plaintiff a policy of robbery insurance for a period of one year from 21 December, 1939, to 21 December, 1940, which policy was entitled a “robbery policy,” and contained these provisions: (a) In item 4 an exception to the protection of one outside custodian which exception provided that there were covered by the policy protection for three outside custodians in the amount of $1,000 each; (b) in item 9 a declaration that “the assured has no other burglary, robbery or theft insurance except as stated herein: No ExoeptioNs’ ”; (c) agreement that “as respects moneys or securities, or both, . . . stated to be insured hereunder: I. To indemnify the assured for all loss . . . occasioned by Eobbery Or Attempt Thereat committed . . . from a custodian outside the assured’s premises . . and “II. To indemnify the assured for all loss . . . occasioned by Eob-bery Or Attempt Thereat committed . . . within the assured’s premises . . (d) definition of robbery as used in the policy to mean “a felonious and forcible taking of property (1) by violence inflicted upon a custodian; (2) by putting him in fear of violence; (3) by any other overt felonious act committed in the presence of a custodian and of which he was actually cognizant provided such other act is not committed by an officer or employee of the assured; (4) from the person or direct care or custody of a custodian, who, while having custody of property covered hereby, has been killed or rendered unconscious by injuries inflicted maliciously or sustained accidentally”; (e) declaration that “the statements in items numbered 1 to 16 inclusive in the declarations are declared by the assured to be true. This policy is issued in consideration of such statements and the payment of total premium in the declarations expressed”; and (f) statement on riders attached relating to amount of policy and to change of address that “nothing herein contained shall vary, alter, extend or otherwise change the condition of the policy other than as above stated.”

7. Plaintiff accepted and retained said policy and on the date of loss, 5 August, 1940, still retained said policy.

8. And “on the night of August 5, 1940; and while said policy was in full force and effect, the place of business of plaintiff was broken into or otherwise entered and the cash register of plaintiff was robbed and/or burglarized of the amount of $546.78 in cash,” for which loss plaintiff *373made claim, and defendant denied liability tberefor, and plaintiff instituted tbis action within the statutory period.

Upon tbe foregoing facts the plaintiff contends “that at the time of the said robbery and/or burglary it was covered therefor by virtue of the binder issued therefor by the defendant, and that it is, therefore, entitled to recover the amount lost by reason of said robbery and/or burglary”; and “the defendant admits the issuance of the binder for both the robbery and burglary insurance on December 27, 1939, but contends that the issuance of the robbery policy on February 29, 1940, was in substitution of the binder theretofore issued and that thereafter the binders were of no effect and that, therefore, on the date of the loss the plaintiff was not covered for the loss sustained.”

Ey consent of counsel the cause came on for hearing upon the foregoing agreed statement of facts and the court being of opinion that plaintiff is entitled to recover of defendant for the loss sustained, entered judgment that plaintiff recover for the amount thereof, with interest and costs. '

Defendant appeals therefrom to the Supreme Court and assigns error.

Bailey, Holding, Lassiter <& Wyatt for plaintiff, appellee.

Joyner & Yarborough for defendant, appellant.


The question for decision is this: Was the binder or contract of insurance against loss by burglary and robbery, as represented by the letter of 27 December, 1939, superseded by or merged into the formal policy covering robbery only, subsequently delivered, accepted and retained by the assured ? In the light of well recognized principles adopted and applied in decisions of this Court an affirmative answer is dictated.

These principles of law are:

1. In the field of insurance a “binder” or a “binding slip” “is merely a written memorandum of the most important terms of a preliminary contract of insurance intended to give temporary protection pending the investigation of the risk of the insurer, or until the issuance of a formal policy. Ey intendment it is subject to all the conditions in the policy to be issued.” Vance on Insurance, Hornbook Series, 2nd Ed., section 66, page 194, quoted and applied in Gardner v. Ins. Co., 163 N. C., 367, 79 S. E., 806, and Lea v. Ins. Co., 168 N. C., 478, 84 S. E., 813. See also 29 Amer. Jur., 158, Insurance, sec. 143, and 32 C. J., 1099, Insurance, sec. 183.

2. “When the contract of insurance is finally complete, it is customarily embodied in a formal written instrument, termed a ‘policy/ This instrument merges all prior or contemporaneous parol agreements touch*374ing the transaction and upon accepting it the insured is conclusively presumed, in the absence of fraud, to have given his assent to all of its terms.” Vance on Insurance, Hornbook Series, section 68, page 199. Floars v. Ins. Co., 144 N. C., 232, 56 S. E., 915; Clements v. Ins. Co., 155 N. C., 57, 70 S. E., 1076; Wilson v. Ins. Co., 155 N. C., 173, 71 S. E., 79; McNeal v. Ins. Co., 192 N. C., 450, 135 S. E., 300. See also 32 C. J., 1129, Insurance, sec. 233.

In the Floars case, supra, Hoke, J., speaking to the subject, declared that “It is also accepted doctrine that when the parties have bargained together touching a contract of insurance, and reached an agreement, and in carrying it out, or in the effort to carry out the agreement, a formal written policy is delivered and accepted, the written policy while it remains unaltered will constitute the contract between parties, and all prior oral agreements will be merged in the written instrument . . .” And, continuing by quoting from Yance on Insurance, he says: “The rule that all prior agreements are merged in a subsequent written contract touching the same subject matter is now too well established to need support of cited authority. Therefore, when a policy of insurance, properly executed, is offered by the insurer and accepted by the insured as the evidence of their contract, it must be conclusively presumed to contain all the terms of the agreement for insurance by which the parties intend to be bound. If any previous agreement of the parties shall be omitted from the policy, or any term not theretofore considered added to it, the parties are necessarily presumed to have adopted the contract as the final form of their binding agreement.”

3. It is the duty of the applicant tó communicate acceptance or rejection of the policy. In Couch’s Enc. of Insurance Law, Vol. 1, page 172, sec. 94, the author states that: “There is apparently some conflict of authority as to the duty of- an applicant for insurance to discover that the policy delivered to him does not conform to the proposal or agreement, and to notify the company of his rejection or acceptance of the policy as written. The weight of authority seemingly supports the rule that it is incumbent upon an applicant who receives a policy which does not conform,-as to terms, to the agent’s representations, to notify the company of his refusal to accept the policy. And to this end he must examine the policy within a reasonable time after it comes to hand, and promptly, upon discovering obvious departures from the agreement, rescind the transaction and give the company due notice thereof, since, if an applicant receives and retains, without objection, policies made and sent to him, it is regarded as an acceptance.” The decisions of this Court are consonant with the weight of authority as above stated. Floars v. Ins. Co., supra; Graham v. Ins. Co., 176 N. C., 313, 97 S. E., 6; *375 Arndt v. Ins. Co., 176 N. C., 652, 97 S. E., 631. See also Rice v. Ins. Co., 177 N. C., 128, 98 S. E., 283.

4. Reasonable time begins to run wben the applicant receives the policy. Couch’s Enc. of Insurance Law, Vol. 1, sec. 94, page 173.

5. As to what is reasonable time within which to discover that the policy received differs from the one applied for, or agreed upon, these cases indicate periods of retention without objection which have been held unreasonable: Carrigan v. Nichols, 148 Ark., 336, 230 S. W., 9, three months; Goldstone v. Columbia Life and Trust Co., 33 Cal. App., 119, 164 P., 416, four months; Empire State Life Ins. Co. v. Beckwith, 5 Hun (N. Y.), 122, four months; Bostwick v. Ins. Co., 116 Wis., 392, 67 L. R. A., 705, 89 N. W., 538, 92 N. W., 246, four and one-half months. And this Court, while sustaining judgment of nonsuit on another ground in the Floars case, supra, had this to say: “There is also strong authority fo,r the position that on the facts of this case the relief sought would not be open to plaintiff, even if there had been a mutual mistake in the preliminary bargain and with persons with full power to contract, for the reason that plaintiff accepted the policy with the alleged stipulation omitted without having read same, and held it without protest for three months . . .,” and refers to Bostwick v. Ins. Co., supra, as “a well considered case.” This headnote epitomizes the decision of the Supreme Court of Wisconsin in this respect: “If a person contracts with another for an article to be delivered or gives an order therefor, and thereafter a thing is delivered to him ostensibly in compliance with the order or fulfillment of the contract, unless, at the time thereof or within a reasonable time thereafter, he notifies such other that such article will not be accepted as satisfying the contract or order, he will be conclusively presumed to have waived all departures therein from the thing bargained for which are obvious to the senses by ordinary exercise thereof.”

Applying the above principles to the case in hand: It is manifest from the complaint and the agreed facts that at the time the “binder” was given the parties contemplated the subsequent issuance of a policy of insurance covering burglary and robbery on the inside of plaintiff’s premises to the extent of $1,300.

At the outset in the complaint it is alleged that “on the 21st day of December, 1939, plaintiff applied to the said I. J. Dowdy, Jr., agent of the defendant, for a policy of insurance to cover the plaintiff against burglary and robbery on premises of the plaintiff,” and that “on December 27, 1939, the said I. J. Dowdy, Jr., accepted the said application of insurance and entered into a contract of insurance with the plaintiff . . .” The agreed facts indicate that the original application was for robbery insurance for $1,300 on the inside,” and that plaintiff “amplified *376said application ... by applying for a policy of burglary insurance in addition to the policy of robbery insurance above mentioned.” Nevertheless, the letter of 27 December, 1939, which constitutes the binding acceptance of the application, and is the temporary contract, refers to the coverage requested as “$1,300 for burglary and robbery inside your premises . . .” and says “we will need additional information to enable us to issue the policy itself, however, in the meantime, you may be sure you are covered as requested.” This language of the binder, in reference to issuance of policy is in the singular. Thus it is clear that the parties had in mind a single policy of insurance covering both burglary and robbery on the inside of plaintiff’s premises. The policy delivered was ostensibly pursuant to the order therefor. Moreover, the policy as delivered plainly stated that “The assured has no other burglary, robbery or theft insurance, . . .,” and that “the declarations are declared by the assured to be true.”

Therefore, conceding that the policy as delivered, does not cover burglary, as counsel for plaintiff concedes, and that there was a departure from the application in that respect, it was the duty of the plaintiff to examine the policy within a reasonable time after it came to hand, and promptly upon discovering the obvious departures from the agreement, to rescind the transaction and give the company due notice thereof. And having received and retained the policy, without objection, so far as the record shows, for more than five months, and until nearly two-thirds of the life of the insurance had expired, it will be conclusively presumed that plaintiff accepted the policy as written with the obvious departure from the binder or preliminary agreement.

Such being our opinion, the judgment below will be


BaRNhill, J.,

dissenting: We are met at the very threshold of this case by a fatal defect of jurisdiction. This case was pending on the civil issue docket of Wake County. The resident judge rendered judgment in chambers, adjudicating the merits of the controversy. It was not an “in chambers” or “vacation” matter, and the parties could not make it so, or confer jurisdiction, by consent. Reaves v. Mill Co., 216 N. C., 462, 5 S. E. (2d), 305; High v. Pearce, 220 N. C., 266, 17 S. E. (2d), 108; Dependents of Thompson v. Funeral Home, 205 N. C., 801.

Gr. S., 7-65, relates only to “vacation” or “in chambers” jurisdiction. It confers concurrent jurisdiction on the resident judge only in those matters in which the Superior Court has jurisdiction “out of term.” Actions pending on the civil issue docket are not included. Hence, the resident judge has no jurisdiction, and the judgment is without force in law. Ward v. Agrillo, 194 N. C., 321, 139 S. E., 451; Greene v. Stadiem, *377197 N. C., 472, 149 S. E., 685; Drug Co. v. Lenoir, 160 N. C., 571, 76 S. E., 480; Howard v. Coach Co., 211 N. C., 329, 190 S. E., 478; Shepard v. Leonard, 223 N. C., 110. “It is tbe same as if there were no court.” Hill v. Stansbury, ante, 356; Monroe v. Niven, 221 N. C., 362, 20 S. E. (2d), 311.

An agreed statement of facts “is equivalent to a special verdict, and the judge may render judgment at term, or out of term by consent of the parties.” McIntosh P. & P., sec. 518. But “it may be generally stated that the judge holding the courts of the district in regular succession is the only proper judge, and he has sole jurisdiction in civil actions in such district during the six months of his assignment. The resident judge has no more authority than any other judge, except when holding the courts of his district, unless specially authorized by statute.” Ibid., sec. 49; Moore v. Moore, 131 N. C., 371.

It is suggested that Hervey v. Edmunds, 68 N. C., 243, cited by McIntosh (sec. 518), sustains the authority of the resident judge to sign the judgment herein. An examination of the original record discloses that the judgment under attack in that case was signed by the judge of the district shortly after the adjournment of the court in which the cause was pending. At that time rotation of judges was not required. The question of concurrent jurisdiction or jurisdiction of a resident judge could not arise. In each of the other cases cited by Mr. McIntosh the judgment was signed by the judge presiding out of term by consent. Those cases are not in point.

In such matters (civil actions) jurisdiction is acquired at term. Being so acquired, any cause not requiring the intervention of a jury may be heard out of term by consent. Assignment to hold the court is what confers jurisdiction. The consent merely waives the right to have the hearing in court at term. Edmundson v. Edmundson, 222 N. C., 181.

Only the judge who would have had jurisdiction had the cause been submitted to a jury has authority to hear it at term or, by consent, out of term. G. S., 1-250 (C. S., 626) ; Greene v. Stadiem, supra; Drug Co. v. Lenoir, supra; Moore v. Moore, supra.

Our jurisdiction is derivative. If the court below had no jurisdiction we have none. It is the policy of the Oourt to decline to assume jurisdiction when none exists. We take notice of want of jurisdiction ex mero motu, Shepard v. Leonard, supra, even when the only defect is the failure of the record to show the organization of the court below. Sanders v. Sanders, 201 N. C., 350, 160 S. E., 289.

We have recently, at this term, vacated an order allowing reputable counsel compensation for services rendered on the grounds that the resident judge had no jurisdiction to sign an order in a civil action pending on the civil issue docket and, although not before us for review, we *378seriously questioned bis right to sign a consent judgment. Hill v. Stansbury, supra. In my opinion that case is controlling.

It may be suggested that there was no consent of counsel in the Hill case, supra, as here. But we cannot make that fact decisive without holding that consent confers jurisdiction.

No doubt legislation giving the resident judge concurrent jurisdiction in all matters not requiring intervention of a jury or in which trial by jury has been waived would promote the prompt administration of justice and would be welcomed by the profession. So far, however, the General Assembly has failed to take that course. We must, therefore, abide by the law as it is now written.

Passing the question of jurisdiction, we come to the merits of the appeal.

It is significant that the judgment under review contains no finding of fact, but merely states a single conclusion of law, i.e., the defendant is indebted to the plaintiff in a specified sum.

The findings and judgment of the Superior Court are prima facie correct. S. v. Jackson, 183 N. C., 695, 110 S. E., 593. The presumption is against error, and the judgment must be sustained unless the appellant shows error as a matter of law. Mason v. Andrews, 193 N. C., 854, 138 S. E., 341; Mewborn v. Kinston, 199 N. C., 72, 154 S. E., 76; Bell v. Smith, 171 N. C., 116, 87 S. E., 987; Poindexter v. Call, 208 N. C., 62, 179 S. E., 335. If error is not shown this Court will presume that the ruling of the lower court was correct and that it found facts and inferences of fact sufficient to support its judgment. Baggett v. Lanier, 178 N. C., 129, 100 S. E., 254; Jones v. Fowler, 161 N. C., 354, 77 S. E., 415; Holcomb v. Holcomb, 192 N. C., 504, 135 S. E., 287; Mewborn v. Kinston, supra.

Here, then, we, must assume that the court below inferred from the stipulated facts that the parties contemplated two separate policies and concluded that the issuance of a policy of insurance against robbery did not merge, or discharge defendant’s obligation under, the binder for insurance against burglary. Under uniform decisions of this Court, if the facts agreed permit or support this inference and the resulting conclusion, the judgment should be affirmed.

But the majority reverses the court below upon the conclusion that “it is manifest” there was only one binder and the parties contemplated the issuance of only one policy. In my opinion the record fails to support this premise upon which the majority opinion is bottomed. For that reason I am unable to concur.

If we consider only paragraphs 5, 6, and 7 of the agreed facts, without reference to other facts appearing of record, this conclusion may be *379sustained, although there are indications to the contrary even in these stipulations.

But in determining whether the facts agreed fail to support the judgment and, as a matter of law, require the inference that the parties contemplated one and only one policy, we should relate the facts agreed to the pleadings and construe them in the light of what is there alleged.

In so doing, facts wholly inconsistent with the conclusion of the majority are made to appear.

(1) Plaintiff applied for two policies: one for robbery (by letter), and later one for burglary (by telephone).

(2) Defendant admits a binder for robbery insurance and one for burglary.

(3) It advised plaintiff it was “covered” as requested — and the request was for two policies. (Stip. 4.)

(4) It admits, that the coverage for robbery insurance was effective 21 December, 1939, six days before the letter of acknowledgment was written and prior to the time application for burglary insurance was received. (The policy issued is effective as of 21 December.)

(5) It did not issue burglary insurance for the reason it was under the impression that application therefor had been withdrawn — so it alleges in defense.

(6) The policy issued is on a form adapted for robbery insurance only.

So I construe the record.

Likewise, it is'noted in the majority opinion that the letter of 27 December, 1939, uses “policy” in the singular. In this connection it .must be noted also that it refers to the applications, one for robbery and another for burglary, and “binders” is used in the plural; and the letter advises “You are covered as requested.”

These facts, in my opinion, justify inferences sufficient to sustain the judgment.

The policy issued is exclusively for robbery. There is no provision, space, or blank therein which may be used to include burglary coverage. There is no allegation or stipulation that any such combination policy exists. Still it is conclusively presumed that the parties contemplated issuance of that form of policy.

It is agreed that plaintiff applied for a policy of insurance against burglary in addition to the policy of insurance against loss by robbery theretofore applied for. But the Court concludes, as a matter of law, that only one policy was contemplated.

Defendant agreed to issue policies in accord with the applications and asserts it did not issue a policy insuring against loss by burglary for *380the reason that its representative “was informed by an employee of plaintiff” that plaintiff did not desire or require burglary insurance. The Court says: “It is manifest only one policy was contemplated.”

Defendant says it failed to issue burglary insurance because it was ander the impression application therefor had been withdrawn. The Court says its contract so to do was merged in the robbery policy.

A policy was delivered in fulfillment of the contract for robbery insurance. Plaintiff retained the policy for five months without objection, and therefore “it will be conclusively presumed that plaintiff accepted the policy as written with the obvious departure from the binder.”

Thus the plaintiff is charged with negligence. Yet he did all that he could. It was the duty of the defendant to act. It advised plaintiff there would be a delay due to the necessity of making an investigation. It issued one policy in fulfillment of the first agreement. It delayed delivery of the second policy. Plaintiff is charged with the resulting loss upon the theory that when he accepted the robbery policy he accepted it “with the obvious departure from the binder” and is now estopped to assert the contract for burglary insurance.

The agreed facts are somewhat ambiguous. It is unfortunate they were not made more definite, particularly in respect to the intent of the parties, which is material here. Certainly, in my opinion, they are not such as to warrant the conclusion, as a matter of law, that only one reasonable inference — an inference contra the judgment — can be drawn therefrom.

It is admitted that an agent, with full power to bind defendant in insurance contracts,- received two separate applications for insurance and issued binder coverage immediately as requested. He wrote plaintiff, in response to the applications : “We have put this coverage in effect immediately,” and “You are covered as requested.” The defendant, acting under a misapprehension, did not issue the policy insuring against loss by burglary. Thereafter, during the effective period of the binder insurance (admittedly twelve months), plaintiff’s place of business was burglarized of $546.78, which defendant has refused to pay.

It is difficult to conceive of a more elementary cause of action or to state one more clearly. Here is shown: a contract to indemnify against loss, a loss within the terms of the contract, and a refusal to discharge the terms of the contract. The defendant, having admitted issuance of the binders, both for robbery and burglary insurance, the trial judge gave judgment for plaintiff. In my opinion the inferences necessary to support such judgment are fully supported by the record. Merger is not pleaded, and the doctrine of merger is not applicable.

*381It is not amiss to say that in all probability tbe divergence of opinion arises out of a misconception of a “binder” as used in actual practice in tbe insurance field. Tbis also is perhaps what led plaintiff into stipulating that tbe letter of 27 December constitutes a contract of insurance. Tbe insured seldom, if ever, receives any preliminary receipt or memorandum. When insurance is applied for tbe agent makes a memorandum of tbe name, amount, and type of insurance applied for, and tbe location of tbe property. Tbis is tbe binder. Tbe insurance is effective immediately. Tbis is wbat tbe agent meant when be advised plaintiff that be put tbe insurance in effect immediately. But tbis memorandum is not delivered to tbe insured. Instead, it is placed on tbe desk of tbe policy clerk for guidance in issuing tbe policy. Proper consideration of tbis practice will make clear apparent inconsistencies in tbe letter of acknowledgment and in tbe stipulations.

I vote to dismiss for want of jurisdiction. Failing in that, I vote to affirm.

DeviN and Sea well, JJ., join in dissenting opinion.