Clapp, Smalley and Schettino. The opinion of the court was delivered by Smalley, J.A.D. (temporarily assigned).
This is an appeal from a judgment of the Law Division rendered in favor of the defendants in an action commenced by plaintiff to recover on identical policies of fire insurance issued by defendants to the plaintiff.
The plaintiff is a family corporation carrying on the business of merchandising building materials, feed and grain, hardware, and milling, and in addition, engages in the salvaging of property damaged in marine and fire losses.
Plaintiff insured its property with various companies, and in April of 1948, at the suggestion of one Wigdortz, an insurance agent, who undertook to secure a single policy covering all the buildings, placed its fire risk with defendants' predecessor, Continental Insurance Company. In order that a single policy for all the risks be obtained, Wigdortz called in a special agent of Continental, one Carling, to inspect the risks and secure a re-rating. After recommendations for correction of certain "housekeeping" conditions had been made, and evidently complied with, a revision was made by the Fire Insurance Rating Organization. It is noted that this entire process was commenced so that the lowest possible rate could be obtained for the risks involved. In furtherance of this general desire on the part of the plaintiff, the policy finally issued by Continental contained the following warranty:
"In consideration of the reduced rate at which this policy is written it is hereby warranted by the insured that the dryer located in Building 6A will not be used. This warranty supersedes any other privilege in conflict therewith contained in the policy."
Thus, the making of this warranty by the plaintiff was a condition precedent to the effectuation of a lower rate.
However, there appears to have been a further agreement concerning the use of the dryer made between one Hochberg, secretary of the plaintiff corporation, Wigdortz and Carling to the effect that the dryer would not be used unless the company were first notified. This arrangement was not part of the policy issued, but plaintiff claims it was its understanding concerning the dryer's use, and on each occasion that the dryer was used plaintiff notified Wigdortz. Also, plaintiff's secretary admitted that he had never read the provisions of the policy, and therefore was unaware of the warranty contained therein, but rather assumed that the extrinsic agreement with Wigdortz and Carling was the existent and controlling factor as to the dryer's use.
In November of 1949 Continental decided to surrender part of plaintiff's risk, and Wigdortz, who also represented the
defendant companies, negotiated for each of them to assume one-sixth of the coverage. The warranty contained in the original policy was included in the policies that defendants issued, and it is uncontroverted that Wigdortz did not advise either defendant of the extraneous arrangement between plaintiff's secretary, Hochberg, Carling, and himself concerning the use of the dryer. Wigdortz did, however, tell Hochberg that the conditions would remain the same, although three companies were now carrying the risk instead of one.
On June 9, 1950, after 18 continuous hours of operation of the dryer in building 6 A, a fire occurred and caused in excess of $100,000 damage.
Although it is agreed that neither defendant had notice of the private agreement either before or after becoming insurers for the plaintiff, further that neither had notice of any use of the dryer, plaintiff, nevertheless, sued on the policies for the damage caused by the fire. Defendants answered by pleading breach of the express warranty on the part of the plaintiff; plaintiff replied that defendants waived the breach by ratification of Wigdortz's agreement by acceptance of premiums, and further, that the policy should be reformed in accordance with the alleged agreement on the ground of unilateral mistake and inequitable conduct on the part of defendants.
The trial court found that no notice of use of the dryer was sent to Wigdortz subsequent to the effective date of defendants' policies, and therefore, there could not be an effective waiver by the defendants, and further, that plaintiff's proof was not of the quality to be considered clear and convincing, and therefore would not warrant the remedy of reformation, and dismissed the suit. It is from this disposition that plaintiff appeals.
The crux of appellant's argument centers on the proposition that an agent of defendants, Wigdortz, had complete knowledge of both the ancillary agreement concerning the use of the dryer and notice of the exact instances when it would be used. From this hypothesis appellant reasons that
knowledge and notice to an agent is effective knowledge and notice to his principals, the defendants. Therefore, appellant concludes that defendants had knowledge of the arrangement coupled with notice of use, accepted the premiums, did not cancel the policy, and hence waived any breach of warranty, if one, in fact, existed.
Superficially this line of reasoning may seem convincing. However, a short excursion beneath the congeries of facts reveals its hollowness.
The original policy with Continental was issued in March of 1949, retroactive to November 1948 for one year. It was the culmination of much negotiation, the prime purpose of which was to secure as low a rate as possible.
In January of 1949 Carling, the special agent of Continental, wrote a letter to plaintiff's secretary, a pertinent part of which stated:
"In order that this building can be included in the Lumber Yard schedule it will be necessary for you to write the Fire Insurance Rating Organization at 31 Clinton Street, Newark 2, N.J. for the attention of Mr. R. Wesmer informing them that you will accept a policy in which ...