On appeal from the Supreme Court.
For the plaintiff-appellant, N. Thomas Smaldore (Samuel P. Orlando, of counsel).
For the defendant-respondent, Arthur T. Vanderbilt (G. Dixon Speakman, on the brief).
The opinion of the court was delivered by
BROGAN, CHIEF JUSTICE. The trial court directed a verdict in favor of the defendant and the plaintiff appeals from
the judgment entered thereon. The suit was brought upon a policy of insurance for $4,000, insuring the plaintiff against loss of or damage to her property by fire. The contract insured a frame building owned by plaintiff "while occupied as a store and dwelling." The policy was issued on October 10th, 1934. On August 25th, 1935, the fire occurred and the plaintiff alleges she suffered a loss amounting to about $2,900.
The motion for directed verdict, which the trial court granted, was advanced on the ground that the plaintiff had violated a warranty of the policy, namely, that the insured premises would be occupied as "a store and dwelling," and on the further ground that a still had been installed in the premises. The court, granting the motion, said there had been "a violation of the warranty on the part of the insured as to the use of the building other than a store and dwelling, namely, by the use of the premises for the operation of a still for some period after the policy became effective."
If, therefore, the premises were occupied and used for a purpose alien to the promised use, at the time of the fire, or there was a failure at that time to devote the premises to the uses stipulated in the agreement (e.g., by non-user when specific user was particularized) and this misuser or non-user constituted a breach of warranty, then the contract is avoided. The question then turns upon the meaning of the term "warranty" in the policy of insurance.
The proofs in the case disclose that on April 1st, 1935, the plaintiff leased the insured premises to a tenant who installed and operated a still therein. About twelve days later the police authorities discovered the still, dismantled and removed it, and arrested the tenant. Four months after that event the fire occurred. It was not proved, nor is it argued by the respondent, that the owner of the premises had any knowledge that the hazard had been increased by the introduction and operation of a still in the premises. To defeat the policy on this score, even assuming the breach caused by installing the still was effective after it was dismantled, it would have been necessary to prove that the insured had control or knowledge
of the increased hazard, or that the circumstances were such that by the exercise of ordinary care and diligence, knowledge on the part of the insured would result. Krieg v. Phoenix Insurance Co., 116 N.J.L. 467, 474; Richards on the Law of Insurance (4 th ed.) 403, § 253; 26 C.J. 221, § 268; Patriotic Insurance Co. v. Franciscus, 55 Fed. Rep. (2 d) 844, 847, and cases cited therein; Knight v. Boston Insurance Co., 113 N.J.L. 132; 172 A. 594.
We take it therefore that the policy was not invalidated in any event by the increase in hazard, due to the operation of a still, when the record is innocent of proof that the owner had knowledge of this condition that increased the hazard, or, by the exercise of ordinary care and diligence, was chargeable with such knowledge. Krieg v. Phoenix Insurance Co., supra. As to whether in such case the diversion from stated use would avoid the policy or merely ...