Atlantic Mutual Insurance Company, a Corporation v. Robert J. Cooney, Doing Business Under the Firm Name and Style of Allied Enterprises, and National Union Fire Insurance Company of Pittsburgh, Pa., a Corporation, National Union Fire Insurance Company of Pittsburgh, Pa., a Corporation v. Robert J. Cooney, Doing Business Under the Firm Name and Style of Allied Enterprises, Robert J. Cooney, Doing Business Under the Firm Name and Style of Allied Enterprises v. National Union Fire Insurance Company of Pittsburgh, Pa., a Corporation

George H. Hauerken, Cyril Viadro, Hauerken, St. Clair, Zappettini & Hines, San Francisco, Cal., for appellant Atlantic Mut. Ins. Co.

Bert W. Levit, John B. Hook, Long & Levit, San Francisco, Cal., for appellant, National Union Fire Ins. Co. of Pittsburgh, Pa.

Before POPE and HAMLEY, Circuit Judges, and JAMESON, District Judge.

JAMESON, District Judge.

This action was instituted against Robert J. Cooney, a citizen of California, doing business as Allied Enterprises, by Atlantic Mutual Insurance Company, a New York corporation, as assignee and subrogee of Army and Air Force Exchange Service, a government instrumentality. National Union Fire Insurance Company, a Pennsylvania corporation, intervened pursuant to leave of court.

Cooney is an export packer, who packages goods for export. Exchange was one of his customers. On August 15, 1952, Cooney and Exchange entered into an export packing agreement whereby Cooney agreed, 'pursuant to purchase orders to be issued' by Exchange, 'to receive merchandise from delivering carriers or vendors and to pack and perform all other necessary work * * *'. Purchase orders were thereafter issued by Exchange to Cooney, and Cooney began doing a substantial amount of export packing for Exchange.

The contract of August 15, 1952, provided in paragraph 7:

'7. Export Packer (Cooney) agrees to accept full liability as an insurer of the property of Exchange Service and the property of others for which Exchange Service may be liable while said property of Exchange Service and property of others is in the care, custody, or control of said Export Packer; and Export Packer further agrees to reimburse the Exchange Service in full for any physical loss or damage to the aforementioned property, arising from any cause whatsoever occurring while such property is in the care, custody, or control of Export Packer.'

On October 16, 1953, a fire (which started on adjoining premises and did not involve any negligence on his part) occurred at Cooney's warehouse and destroyed over $350,000 worth of Exchange merchandise, which Cooney had in his possession for packing.

On Octover 1, 1950, Atlantic had issued an open policy of insurance to Exchange which covered all of the Exchange's export shipments against loss by fire, and liability for loss at the Coonery warehouse being limited to $100,000.1 This policy contained the following provisions:

'25. Warranted that this insurance shall not inure, directly or indirectly, to the benefit of any carrier or bailee.

'30. (C) Warranted by the Assured free from liability for loss or damage to goods in the possession of any carrier or other bailee who may be liable therefor. However, this Company agrees to pay to the Assured the difference between the amount which would be a claim under this policy if it did not contain this warranty and the amount recoverable by the Assured from such carrier or bailee, plus the costs and expenses of prosecuting the claim against such carrier or bailee. Pending collection from such carrier or bailee this Company agrees to advance as a loan such amount which would be a claim under this policy if it did not contain this warranty, repayable only to the extent of any net recovery from such carrier or bailee.'

The rates of premium were based on the value of export shipments and were affected by Exchange's loss experience, as well as by recoveries which Exchange might make from others, such as carriers or bailees.

On October 30, 1953, Cooney signed another agreement with Exchange, acknowledging full liability as an insurer for the loss resulting from the fire to the property of Exchange, and agreeing to make payment on the loss.

After the fire Atlantic did not rely on the $100,000 limitation, but paid Exchange the total loss, less some $25,000 which had been paid by Cooney. On Atlantic's first payment of $200,000, it took an assignment from Exchange, and on the second and third payments totaling approximately $126,000 (made after suit was started), Atlantic took subrogation receipts from Exchange. Atlantic also paid $28,142.07 on account of salvage and other expenses.

On February 1, 1953, National had issued to Cooney a $50,000 policy of insurance covering Cooney for his liability to customers for loss or damage to their property from specified perils, including fire. The amount of the policy was increased to $100,000 on May 1, 1953. On June 25, 1953, National issued two certificates of insurance to Cooney at his request, but Exchange did not receive any certificate until after the fire. The agent who wrote the National policy for Cooney had on August 15, 1952, as agent for another company, sent a certificate of insurance of that company to Exchange. Exchange had no knowledge until after the fire of the change in policies.

National received oral notice of the fire on October 16, 1953, and written notice on October 26, 1953. Cooney filed proof of loss, which was received by National on November 27, 1953, and supplemental proof of loss, received on April 7, 1954.

On February 18, 1954, Cooney was served with process in the action instituted by Altlantic and tendered the defense to National. Cooney refused to execute a non-waiver agreement, and National rejected the defense. Thereafter National was permitted to intervene to assert nonliability under its policy. In asserting nonliability, National relies primarily upon three provisions of its policy:

1. '* * * This Company is not liable for any loss or damage, which without its consent, has been settled or compromised by the Assured.'

2. 'This policy shall be void if the Assured has concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof * * *'

3. 'Other Insurance. It is expressly agreed that this insurance shall not cover to the extent of any other insurance whether prior or subsequent hereto in date, and by whomsoever effected, directly or indirectly, covering the same property and this Company shall be liable for loss or damage only for the excess value beyond the amount of such other insurance.'

The case was tried in two phases. Phase I was upon the issues raised by the intervention pleadings, to resolve the question of whether or not (assuming there was liability on the part of Cooney) National was liable to Cooney under its policy. Phase I was tried in June, 1956, before Judge Hamlin and resulted in judgment is favor of Cooney.

Phase II was tried before Judge Goodman in November, 1959, on the issues raised by the pleadings in Atlantic v. Cooney, to resolve the question of whether Cooney was liable to Atlantic as assignee and subrogee of Exchange. Judge Goodman found in favor of Cooney.

National has appealed from the judgment entered on phase I. Atlantic has appealed from the judgment entered on phase II. Cooney has adopted the briefs of Atlantic on the appeal of the first phase and the briefs of National on the second phase of the case.

It appears more logical in this opinion to consider first the primany question of whether Cooney is liable to Atlantic. While the question of whether National was liable to Cooney was tried first,2 when this phase of the case was determined adversely to National the principal action was then defended by National on behalf of both Cooney and National.

Atlantic contends that the trial court (on the second phase) erred: (1) in holding that Cooney would be liable only for loss or damage resulting from his own fault or negligence; (2) in finding that Exchange did not intend to assign its rights against Cooney to Atlantic and Atlantic did not intend to take an assignment of those rights, but that the intention of the parties was to preserve to Atlantic any rights it might have as subrogee; and (3) in holding that Atlantic is not entitled to recover from Cooney by way of subrogation. In addition to relying on the findings of the trial court on these issues, National contends that the agreement between Cooney and Exchange is invalid because (a) it is too uncertain to be enforceable and is without consideration, and (b) is lacking in mutuality of remedy.

Clause 7 of the Cooney-Exchange agreement, quoted supra, specifically provides that Cooney accepted 'full liability as an insurer' of the Exchange property in his care, custody, or control and that he would reimburse Exchange in full for any physical loss or damage to that property 'arising from any cause whatsoever occurring while such property' is in his care, custody, or control. In our opinion this provision is clear and unambiguous. No extrinsic evidence was needed for its construction. Under its provisions Cooney agreed to assume liability for loss or damage to the Exchange property in his possession irrespective of fault on his part.

In support of its contention that the agreement is not valid or enforceable, National argues first that there is no mutuality of obligations, in that the contract is too uncertain to be enforced and is without sufficient consideration. It is true, as National contends, that most of the contract provisions specify obligations on the part of Cooney. The only obligation assumed by Exchange was set forth in the first sentence of paragraph 4, which reads: 'For the work and services performed by Export Packer (Cooney), Exchange Service agrees to pay the rates and charges as shown on individual purchase orders or as otherwise agreed to.' Under paragraph 2, Cooney agreed, 'Pursuant to purchase orders to be issued by Exchange Service * * * to receive merchandise * * * and to pack and perform all other necessary work * * *.'

There is nothing in the contract which would require Exchange to deliver or Cooney to accept any ascertainable quantity of merchandise. If this were an action by Exchange to Compel Cooney to pack its merchandise or by Cooney to compel Exchange to give him any merchandise to pack, National's point would be well taken. The merchandise which was destroyed in the fire, however, had in fact been delivered by Exchange to Cooney pursuant to a purchase order. To that extent the contract had been performed and executed. Although the contract was not enforceable at its inception, it became valid and binding to the extent that it was executed and performed.

The rule here applicable was well stated by the District Court of Appeal of California, First District, in Mason v. Rolando Lumber Co., 1952, 111 Cal.App.2d 79, 243 P.2d 814, 815: 'Appellant further argues that the contract lacked mutuality and was too uncertain to be enforced. Though an executory contract may be unenforceable because of lack of mutuality or uncertainty that defense is no longer available where the contract has been executed, as here by the delivery of the lumber pursuant to its terms, (citing cases) * * *.'3

In Willard, Sutherland & Co. v. United States, 1923, 262 U.S. 489, 43 S.Ct. 592, 67 L.Ed. 1086, it was held that a contract for the purchase of coal by the Government which did not require the Government to take, or limit its demand, to any ascertainable quantity, was unenforceable for lack of consideration and mutuality, but to the extent to which the contract was performed through the delivery of coal, the contract became valid and binding.4

With respect to mutuality of remedy, National argues that Exchange as an instrumentality of the United States Government is immune from suit; that Cooney could not have enforced the agreement against Exchange; and that accordingly Atlantic is barred from recovery since the action is 'brought by Atlantic in the right of Exchange'.

We cannot agree with National that the 'nature of the action is not for specific performance rather than for damages'. Here Atlantic, as subrogee of Exchange, seeks damages for breach of Cooney's contract to indemnify Exchange for the merchandise destroyed. Had the merchandise not been destroyed, Cooney would have been entitled to payment for his services.

It is well settled that the Government has the right to make contracts and hold and dispose of property, and, for the protection of its contract and property rights, it may resort to the same remedies as a private person.5 We find no merit in National's contention that Exchange could not have recovered from Cooney by reason of lack of mutuality of remedy.

We come now to the question of whether Atlantic, by way of subrogation, may recover from Cooney. More specifically, may the insurer of a bailor recover from a bailee who has expressly agreed to be absolutely liable for the merchandise entrusted to him?

Ordinarily a fire insurance company which pays an insured loss for which a third person is primarily responsible is subrogated to the claim of the insured against the third person. This 'right of subrogation is not limited to cases where the liability of the third person is founded in tort; but any right of insured to indemnity, including a right based on contract, will pass to insurer on payment of the loss'. 46 C.J.S. Insurance 1211(a)(1), pp. 176, 178.

In Chicago, St. L. & N.O.R. Co. v. Pullman Southern Car Co., 1891, 139 U.S. 79, 83, 11 S.Ct. 490, 493, 35 L.Ed. 97, 101, the defendant reilroad company had agreed to repair all damages of every kind occasioned by accident or negligence to cars hired by it while the cars were in actual transit or in the yards and sheds of the railroad company for the purpose of being cleaned and resupplied for another trip. The owner of the cars carried policies of insurance, had made settlement with the insurance companies, and had agreed with the insurance companies to institute the action against the railroad company for their joint benefit. With respect to the right of recovery by way of subrogation, the court said in part: 'Upon payment of the loss, or to the extent of any payment by them on account of such, loss, the insurance companies were subrogated to the rights of the insured, and could, in the name of the insured, or in their joint names, maintain an action against the railroad company for indemnity, if that company was liable to the insured for the loss of the cars.'

The agreement in the Pullman case would seem to have created a bailment of the sleeping cars; if not, a relationship existed which was very close to that of bailor and bailee. '(Bailment) may be comprehensively defined as a delivery of personalty for some particular purpose, or on mere deposit, upon a contract, express or implied, that after the purpose has been fulfilled it shall be redelivered to the person who delivered it, or otherwise dealt with according to his directions, or kept until he reclaims it, as the case may be. * * * The object of bailment may be as various as the transactions of men.' 8 C.J.S. Bailments 1, pp. 222, 225.

F. H. Vahlsing, Inc. v. Hartford Fire Ins. Co., Tex.Civ.App.1937, 108 S.W.2d 947, is analogous to Pullman. The lessee of premises leased from a railroad had agreed to be responsible for loss by fire to cars placed upon a siding adjoining the leased premises by the railroad for the use and benefit of the lessee. Some cars were destroyed by fire, and an insurance company paid the railroad for its loss. The court held that the insurer was entitled to be subrogated to the rights of the lessor railroad against the lessee on the latter's agreement to be responsible for the loss.6

A similar result was reached in a case involving subrogation to a statutory rather than a contractual right of the insured. In United States v. American Tobacco Co., 1897, 166 U.S. 468, 17 S.Ct. 619, 41 L.Ed. 1081, the owner of tobacco tax stamps destroyed by fire was allowed to recover the value thereof from the Commissioner of Internal Revenue under a statute giving it that right, notwithstanding that the owner had been paid the loss by insurance companies and the action was brought for the use and benefit of the insurers.

The relationship created between the lessor and lessee of real property is closely analogous to that created by the bailment of personal property. 'The word 'lease,' when applied to personal property, has been held properly to result in the relation of bailor and bailee * * *' 8 C.J.S. Bailments 2, p. 226. Upon payment of a loss to a lessor, insurers of leased property are ordinarily subrogated to the lessor's rights against a lessee who has contracted to keep the property in good repair or to indemnify the lessor for loss or damage.⁷

Cases involving a vendor-vendee relationship are distinguishable. These cases with respect to both real and personal property were reviewed in In Re Future Manufacturing Cooperative, N.D.Cal.1958, 165 F.Supp. 111, 114,8 the court concluding that a substantial majority of the jurisdictions give the vendee the benefit of the vendor's insurance rather than subrogate the insurer to the vendor's right to recover the purchase price from the vendee. Judge Goodman, who wrote the opinion in the Future case, relied upon that case in support of his denial of the right of subrogation to Atlantic. National relies on that case here. Judge Goodman recognized in Future, however, that with respect to other types of collateral rights, 'the courts have generally favored giving the insurer a right of subrogation.' On this point he said:

'Thus the prevailing rule is that an insurer upon indemnifying an insured mortgagee for the loss of his interest in destroyed mortgaged property is entitled to be subrogated to the mortgagee's right to enforce payment of the morgagor's debt. Shippers' insurers, upon payment for goods lost or damaged in transit, have usually been subrogated to the shippers' contractual rights against the carrier. Insurers of leased property, upon paying the lessor for loss or damage to the property, are ordinarily subrogated to his rights against a lessee who has contracted to keep the property in good repair or to indemnify the lessor for loss or damage.' 165 F.Supp. at 113.9

Cooney's agreement to accept full liability as an insurer for the Exchange property entrusted to its care and custody brings the instant case within the ambit of the rules permitting subrogation.

National also relies upon cases holding that an insurer under a bond indemnifying an employer against defalcations of an employee may not recover by way of subrogation from the employer's bank for a loss sustained by the employer and paid by the bank, arising from the bank's payment of checks forged by the employee.10 However, in one of these cases, American Surety Co. v. Bank of California, 9 Cir., 1943, 133 F.2d 160, 164, this court recognized that this rule has no application where the third party has accepted primary liability by agreement. In distinguishing Chicago, St. Louis, etc. R. Co. v. Pullman, supra, the court said in part:

'In the case at bar there was no express contract on the part of Bank in favor of Interior as there was on the part of the railroad in the Pullman case. Furthermore, there was no primary liability on the part of a third person, the bank, for the loss; the primary liability rested on the employee Crowe. Therefore, the Pullman case is not authority in favor of Insurers herein.'

Here Cooney accepted primary liability by written agreement, bringing this case within the rule of Pullman rather than the suretyship rule followed in American Surety Co. v. Bank of California.

National contends further that as between Atlantic and Cooney, the equities preponderate in favor of Cooney. The trial court so found. It is true that subrogation is an equitable doctrine, and in the suretyship and vendor-vendee cases the courts have relied upon equitable considerations in denying subrogation.11

This is not a transaction, however, where liability would be imposed upon Cooney by operation of law, as in the bank-surety and vendor-vendee cases. Cooney expressly contracted to indemnify Exchange against loss. Nor was this gratuitous. Cooney anticipated and realized a large amount of business from Exchange. The premium paid Atlantic by Exchange was based upon the loss experience, so that the assumption of liability by Cooney as bailee (in the event of recovery) would affect the amount of premium to be paid by Exchange. Under these circumstances the liability is determined by Cooney's express contract to assume primary responsibility for the loss of goods of Exchange.

Moreover, Cooney insured his liability with National. If the trial court is affirmed on phase I, National will bear Cooney's loss to the amount of National's policy, and to that extent the equities asserted would be those of National rather than Cooney. No contention has been made that in such a case the equities favor National.

National contends that in any event Atlantic is not entitled to subrogation because in paying the loss it was a volunteer. Under paragraph 30(c) of the Atlantic policy, Exchange warranted that Atlantic would be free from liability 'for loss or damage to goods in the possession of any carrier or other bailee who may be liable therefor'. Nevertheless, Atlantic agreed to pay 'the difference between the amount which would be a claim under this policy if it did not contain this warranty and the amount recoverable' by Exchange 'from such carrier or bailee'. Pending collection from the bailee, the amount would be advanced as a loan, repayable only to the extent of any recovery from the bailee.

While the amount of Atlantic's liability for loss at the Cooney warehouse was limited to $100,000, at other locations the limitation under the same policy was in excess of $3,000,000, and there was evidence that Atlantic, upon request, would have increased the limits at the Cooney warehouse.

With respect to the first $100,000, National's contention that Atlantic was a volunteer clearly is without merit. There is more question regarding the payments in excess of $100,000, but even as to the these payments it is our conclusion that under the circumstances Atlantic was not a volunteer.

Cooney was liable to Exchange for the full amount of the loss. Whether Atlantic paid the loss to Exchange outright or as a loan would not concern Cooney. His liability under his contract was not in any way increased. It may well be, as National contends, that in making the payment Atlantic was promoting its own business interests with a valuable and substantial insurance client. But it was not a mere officious volunteer. It could properly take the position that it had at least a moral obligation to Exchange to pay the loss.

Under these circumstances it is our conclusion that under the California law Atlantic may not be deemed a 'volunteer' and lose its right to subrogation. In the case of Employers Mut. Liability Ins. Co. of Wisconsin v. Pacific Ind. Co., 1959, 167 Cal.App.2d 369, 334 P.2d 658, plaintiff insurance company participated in a compromise settlement with an injured employee although its policy did not cover the accident and hence it was not required to contribute to the settlement. Notwithstanding this fact it was held that the plaintiff could claim subrogation to the insured's rights against the defendant insurer under the latter's policy which covered the accident. The court said:

'Additionally, plaintiff (motor vehicle insurer) was under a moral obligation to protect Atkinson (the insured) since Atkinson in getting insurance from both companies (plaintiff and defendant) had attempted to get, and thought it had, sufficient coverage to be fully protected. If plaintiff had followed defendant's course of conduct, Atkinson would have been thrown on its own resources although it had paid premiums for protection. Moreover, plaintiff in making the payment acted on the invitation and at the request of Atkinson. To leave Atkinson unprotected would have injured the very valuable business relationship between Atkinson and plaintiff and likewise would have injured the insurance business generally.' 334 P.2d at 662, 663.

The court continued: 'Payment of the debt of another under a moral obligation will support equitable subrogation; and the remedy will be applied in all cases where demanded by the dictates of equity, good conscience, and public policy.' Id. at 664. This rule was followed in a different context by the Supreme Court of California, sitting in bank, in the recent case of Continental Casualty Company, et al. v. Zurich Insurance Company, et al., decided November 27, 1961, where the court quoted with approval from Employers, etc. Ins. Co. v. Pacific Ind. Co.

Having determined that Cooney is liable to Atlantic, we turn now to phase I of the case to consider whether, as found by the trial court, National is also liable to Atlantic under the policy National wrote for Cooney.

While 12 specifications of error are urged by National, they relate to four contentions: (1) the alleged breach by Cooney of the policy provision relating to settlement and compromise; (2) the alleged breach of the policy provision relating to concealment; (3) that the Atlantic policy constituted 'other insurance' within the meaning of the National policy; and (4) that the provision of the judgment is ambiguous and probably erroneous with respect to 'interest.'

In considering all of National's contentions with respect to the construction of its policy provisions, we have in mind the well established rules of construction that a 'contract of insurance (is to be) most strongly construed against the insurer if such construction is fairly reasonable' and should be 'given such construction as will fairly carry out its object by securing indemnity to the insured for the losses to which the insurance relates * * *'.12

In its first contention National relies upon the concluding sentence of clause 14 of its policy reading, 'This Company is not liable for any loss or damage, which, without its consent, has been settled or compromised by the Assured'.13 National contends that the execution of the agreement of October 30, 1953, between Cooney and Exchange was a breach of this policy provision.

The agreement of October 30, 1953, executed two weeks after the fire, provides in pertinent part:

'1. (COONEY) acknowledges full liability as an insurer for the loss or damage resulting from the fire on the premises of (COONEY) on or about October 16, 1953, to the property of (EXCHANGE) * * * which was in the care, custody, or control of (COONEY) and agrees to reimburse (EXCHANGE) in full for such loss or damage as set forth hereinafter.'14

It will be noted that the title of clause 14 of the National policy is 'Impairment of Carrier's Liability'. Viewing this clause in its entirety (see footnote 13), it cannot be said that any rights of the assured (Cooney) to 'recover against any carrier, bailee or other party' was 'released, impaired or lost'. It would appear from a reading of the entire clause that the loss or damage referred to in the concluding sentence would be the assured's loss or damage against some other party which could not be settled or compromised. Assuming, however, that the sentence in question may be isolated from the remainder of the paragraph, did the October 30, 1953, agreement between Cooney and Exchange constitute a settlement or compromise in breach of this policy provision?

The trial court concluded that, 'The agreement of October 30, 1953, did not impose any new or additional obligation on Cooney and did not settle and compromise the loss and damage suffered by Exchange in the fire.' The court also found that, 'National did not suffer any prejudice by reason of the execution of the agreement * * *.'

It is apparent from a comparison of paragraph 7 of the agreement of August 15, 1952 (quoted supra) and paragraph 1 of the agreement of October 30, 1953, that the trial court was justified in concluding that the latter agreement did not impose any new or additional obligation on Cooney. The terms of the two agreements were practically identical, and the recital in the agreement of October 30, 1953, specifically referred to the provisions of paragraph 7 of the earlier agreement.

The trial court was also correct in finding that National did not suffer any prejudice by reason of the execution of the October 30, 1953, agreement. The liability of Cooney was determined solely by the agreement of August 15, 1952. The agreement of October 30, 1953, in no way increased that liability. Likewise, the liability of National was in no way increased or affected by the second agreement.

Is it necessary to show prejudice to defeat recovery by reason of Cooney's execution of the October 30, 1953, agreement? Neither party has cited any cases precisely in point. National relies upon cases where the assured voluntarily admitted liability which had not been established, in violation of policy provisions that the assured may not voluntarily admit liability or settle a claim.15 Even in cases of this nature, it is ordinarily a question for the trier of facts to determine whether the insured did in fact 'voluntarily, or at all, assume any liability'.16 Moreover, the California law is clear that before policy provisions relating to 'Notice to the Company' and 'Assistance and Cooperation' preclude 'a recovery under the policy by the insured, it must appear that the insurer has suffered prejudice'. Reed v. Pacific Indemnity Co., 1950, 101 Cal.App.2d 151, 225 P.2d 255, 261. While it is true, as National contends, that in most of the California cases holding that prejudice must be shown, the action was instituted by an injured party, the Reed case was a declaratory judgment action instituted by the insured.17

Since Cooney, in executing the October 30, 1953, agreement, did not assume any new or additional liability, falsely or otherwise, and National did not suffer any prejudice by reason of the execution of the agreement, the trial court correctly concluded that there was no breach of the policy provision relating to compromise and settlement.

National contends next that Cooney breached the concealment clause of the National policy by failing to disclose the terms of his agreement with Exchange. This clause provides: 'This policy shall be void if the Assured has concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof * * *'. Findings of the trial court bearing upon this contention may be summarized as follows:

(1) Cooney believed in good faith that even in the absence of any special agreement he had complete responsibility for all damage to the property of his customers, regardless of negligence, and was unaware that paragraph 7 of the August 15, 1952, agreement imposed any greater liability than would have been his without such agreement;

(2) Prior to the fire, Cooney never had any agreement with other customers whereby he agreed to assume special liability for loss or damage to goods;

(3) At no time prior to the fire did Cooney disclose to National that his liability to Exchange was greater than to other customers; but

(4) The agent of National who had handled Cooney's insurance for years and who wrote the policy in question knew that Cooney had entered into a contract for export packing with Exchange on August 15, 1952; and

(5) No inquiry was made by National prior to the fire with respect to the nature of Cooney's liability to Exchange under this agreement;

(6) Paragraph 7 of the August 15, 1952, agreement was material to the risk assumed by National;

(7) In failing to disclose the terms of his agreement with Exchange Cooney did not do so with the intent to defraud National;

(8) 'Cooney did not conceal from and/or misrepresent to National his contractual obligations to any of his customers, including Exchange, and Cooney was not guilty of any fraud';

(9) The liability assumed by Cooney in his agreement with Exchange was not an extraordinary or unusual liability and was not excluded from the coverage under the National policy.18

There is evidence to support all of these findings. Under this state of facts did Cooney's failure to disclose the terms of his agreement with Exchange constitute a 'concealment' under California law?19

National argues that the trial court, having made explicit findings that paragraph 7 of the Exchange agreement was material to the risk and that Cooney failed to disclose this provision of the agreement to National, the 'conclusion that it was a breach of the concealment clause of the policy under California laws inevitably follows'. If National's conclusion is correct, then there is a basic conflict between the findings upon which National relies and the equally explicit findings that Cooney did not conceal his contractual obligation to Exchange and was not guilty of any fraud, and that the contractual liability assumed by Cooney was not excluded from coverage under National's policy. The findings must be construed as a whole in the light of the evidence and applicable law in determining whether there was a breach of the concealment clause of the policy.

It is true that this court held in Merchants Fire Assurance Corporation v. Lattimore, 9 Cir., 1959, 263 F.2d 232, that under Section 332 of the Insurance Code of California the insured has a duty to communicate to the insurer facts which are material to the contract.20 Factually the Lattimore case is clearly distinguishable. A personal property floater provision of the policy afforded all risk coverage on unscheduled personal property. The assured had declared values under 5 of 15 categories of property listed in the declaration form in the total sum of $9,950. It was stipulated that the actual value of the property was $36,500. There was testimony that it was customary for insurers writing this type of coverage to require insurance in the amount of at least 80 per cent of the total value; that had Miss Lattimore declared the actual value the insurer would have required coverage of at least $29,500; and that there would have been an increase in the premium. In other words, there was an actual concealment by the insured and proof that the policy would not have been issued on the same terms had the material facts been disclosed.

More important, the insurer in the Lattimore case had no 'means of ascertaining' the material facts which were concealed. The insurer had made a specific request for a declaration of values, listing some 15 categories of property in the form submitted to the insured. Here the agent of the company knew of Cooney's contract with Exchange, but neither the agent nor any representative of the company made any inquiry concerning the terms of the agreement.21 Nor was there any written application for the policy or declaration form w