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.
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
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
"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
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 ...