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March 22, 1951


The opinion of the court was delivered by: John E. Miller, District Judge.

  This is a suit for a declaratory judgment, wherein the plaintiff prays that the court declare its rights and liabilities under a certain contract of insurance.

There is also before the court a motion to dismiss or in lieu thereof to quash service as to defendant Langman. Inasmuch as a hearing on the factual question raised by the motion would have meant a duplication in the presentation of evidence, disposition of this motion was postponed until the trial of the case on its merits.

The case came on for trial to the court on February 12, 1951, and at the conclusion of the presentation of evidence, the case was submitted subject to the taking and filing of certain depositions and the filing of briefs. Such depositions and briefs have now been filed, and the court, having considered the pleadings, evidence adduced at the trial, depositions and briefs, makes and files herein its findings of fact and conclusions of law, separately stated.

Findings of Fact



Sometime prior to March 6, 1951, Richard S. Langman, d/b/a C.H. Langman & Son, entered into a contract with J.J. Newberry Company, Inc., for the remodeling and repair of the J.J. Newberry Co., Inc., store located at 604-614 Central Avenue, Hot Springs, Arkansas. The consideration named in the contract was $64,849.00. Shortly after entering into the contract, defendant, Langman, placed orders for certain items upon which there might be a delayed delivery, such as steel, and made arrangements to commence work under the contract on the Hot Springs Store. D.G. McCulloh was placed in charge of the work. A building permit was secured from the City of Hot Springs on March 6, 1950, and work was started shortly thereafter. This permit was later assigned to Harrison or a new permit was issued to him without additional fee.

Almost immediately after work was started, Langman was forced to cease operations by State authorities because he had not secured the necessary contractor's license required under the laws of Arkansas. Langman made application for a license on March 15, 1950, but the same was not immediately forthcoming.

Langman had done a considerable amount of work for the Newberry Co. in the past under other contracts amounting to $536,000.00, and did not want to impose any more trouble and expense upon said Company than was necessary, or delay the work on the Hot Springs building, so he approached Gilford A. Harrison, a contractor licensed under Arkansas law, in an effort to make some arrangements satisfactory to all interested parties. The subsequent dealings between Langman, Harrison and Newberry resulted in the following:

The contract between Langman and Newberry was cancelled and letter of April 13, 1950, Exhibit 1 to testimony of Langman, confirmed cancellation and advised him of acceptance of Harrison by Newberry; Harrison and Newberry entered into contract for remodeling and repair of Newberry store in Hot Springs, for same consideration as in contract between Langman and Newberry; Langman and Harrison entered into contract concerning the work called for in the contract, the terms of which are set forth in finding number 4.


The contract between Harrison and Newberry was entered into on April 13, 1950, by the terms of which Harrison agreed to do the work called for by the plans and specifications on the Newberry store at 604-614 Central Avenue, Hot Springs, Arkansas, for a consideration of $64,849.00 Said sum was to be paid in monthly installments of eighty-five percent of the value of the work completed, and the balance of fifteen percent thirty days after final completion of the entire work. The contract also contained the following provisions:

"The contractor agrees, during construction, to protect from damage and injury not only the building and other property of the owner but also to protect from damage and injury the buildings, foundations and other property of adjacent owners and their employees, licensees and guests and further agrees, at his own cost and expense, to defend any and all suit or suits in relation thereto, whether brought against the owner or contractor, or both, and at all times to indemnify and hold harmless the owner from all loss, damage and liability, including claims for personal injuries, if any, caused by any act, neglect or omission of the contractor.

"The contractor shall carry public liability insurance in amounts of $50,000/100,000 insuring the contractor and the owner against any loss or damage by reason of personal injuries during construction, as stated in specifications."


Harrison and Langman entered into their contract on April 19, 1950, the terms of which are as follows:

"1. Langman will furnish all labor and materials and guarantee the performance of all the work to be done for J.J. Newberry Company, Inc., at 604-614 Central Avenue, Hot Springs, Arkansas, under the General Contract entered into the 13 day of April, 1950, between J.J. Newberry Company, Inc., and Harrison. This General Contract shall hereinafter be called The General Contract. Langman will do the foregoing in accordance with The General Contract Conditions and in accordance with the drawings and specifications, all of which General Conditions, Drawings and Specifications hereby become a part of this Contract.

"2. Langman will complete all the work under The General Contract on the dates specified in that Contract.

"3. Langman will bear all costs under The General Contract and will pay all labor, material and other bills. It is understood that this will be done as follows:

"Harrison will pay all labor, material and all other bills as such bills become due by Harrison's check. Langman will simultaneously pay Harrison the same amounts Harrison pays out under this arrangement.

"4. Harrison will cause a separate set of books to be maintained for this job and will furnish Langman a complete record of all transactions and all time sheets.

"5. Harrison will hire D.G. McCulloh as foreman for the work to be done under The General Contract. D.G. McCulloh shall have complete charge of and responsibility for the performance of all the work to be done under The General Contract, Drawings and Specifications.

"6. The Surety Bond required by the General Contract will be furnished by Langman.

"7. Harrison will carry the insurance required by the General Contract but will be reimbursed by Langman for the premiums paid in the manner set forth in Paragraph 3 above.

"8. Langman will receive the Sixty-four Thousand Eight Hundred Forty-nine Dollars ($64,849) which will be paid by J.J. Newberry Company, Inc., for the work to be done on the J.J. Newberry building. Payments will be made to Nathan L. Shoenfeld, Trustee, for the use and benefit of Langman.

"9. Harrison will receive one Thousand Dollars ($1,000.00) from Langman. Five Hundred Dollars ($500.00) is to be paid Harrison at the time work under this Contract is commenced and the remaining Five Hundred ($500.00) is to be paid Harrison upon completion of the work to be done under The General Contract.

"It is expressly emphasized that Langman will bear all costs whether or not the work done under The General Contract is done at a profit. If there is any loss, it shall be borne entirely by Langman."


The Kimball-Disheroon Agency, an agent of the plaintiff in Hot Springs, Arkansas, has handled the insurance of Harrison for a number of years. As a contractor, Harrison, carried a general policy that covered all of his operations. The preliminary premium was fixed by estimate at the time of issuance of the policy, and the final or total premium was determined at a later date in accordance with a pay roll audit conducted by a representative of the insurance company. Harrison's policy expired and was renewed April 5, 1950. Shortly thereafter Harrison and McCulloh went to see Mr. Disheroon and advised him of the Newberry job and of the contract requirement that public liability be carried in the sum of fifty and a hundred thousand. The policy then in existence called for ten and twenty thousand. Harrison brought with him the plans and specifications on the Newberry job and they were turned over to Mr. Disheroon, for his examination. Disheroon called Mr. John R. Wiest, underwriter for the plaintiff, in the Arkansas office at that time, advised him of the Newberry remodeling job, and requested that a new policy be sent with the increased coverage for personal injuries. This was done. A few days thereafter, around April 29, 1950, Harrison or McCulloh advised Disheroon that Newberry required that the then amended policy coverage of one thousand, ten thousand aggregate, for property damage be raised to ten thousand, twenty-five thousand aggregate. Disheroon called Wiest and advised him of this fact, whereupon an endorsement was forwarded covering the same. Also, there appears on the policy an endorsement, dated June 10, 1950, adding the name of J.J. Newberry & Company of New York as a party insured. Langman was not listed as a party insured in the policy or endorsement.

Harrison asked for and thought he had received full coverage for the Newberry job. Both Messrs. Disheroon and Kimball intended to and thought they were giving him full coverage for public liability and property damage within the policy limitations as to amount. In addition to Mr. Disheroon's examination of the specifications, Mr. Kimball made almost daily visits to the scene of the remodeling which was across the street from his office, and he observed the nature of and progress of the work being done.

Kimball and Disheroon were soliciting agents only and were not the general agents of the plaintiff and did not countersign the policy or endorsements. As to whether Wiest was a general agent of the plaintiff was not fully developed at the trial, but the testimony and circumstances justify an inference that it was within Wiest's apparent authority to issue policies and make oral contracts binding upon the plaintiff. When the increased coverage was requested, Wiest, upon request, issued a new policy and subsequently issued a requested endorsement, which action on his part was known to and relied upon by Harrison. However, while Disheroon advised Wiest of the Newberry remodeling job, it does not appear that Wiest was advised of any shoring or other extra-hazardous work necessary to be done in accomplishing the work. The plans and specifications, a copy of which was given to Disheroon, were not furnished Wiest, and Disheroon did not advise him of any operations called for therein which would fall within the exclusionary clause G(2)(c) of the policy.

This policy of insurance continued in full force and effect until it was cancelled by the plaintiff, by notice given September 9, effective September 16. A payroll audit was made on the operations of Harrison, covering the period from April 5, 1950, to September 21, 1950, and as the result thereof Harrison was billed and paid an additional premium on this policy.


Pertinent policy provisions are as follows:

"1. Coverage B — Property Damage Liability. To pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damages because of injury to or destruction of property, including the loss of use ...

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