RILEY, District Judge.
In this proceeding, commenced here by reason of diversity of citizenship of the parties, four insurers combine their actions against defendant Scherfe Insurance Agency, a corporation, and its president, Paul C. Baughman, for damages related to plaintiffs' insurance coverage on the property of Nabeeha Rashid, Fort Madison, Iowa.
The insured property was wholly destroyed by fire November 25, 1950. Plaintiffs made payment of losses under their several policies and subsequently commenced this action, claiming damages for the amount of the losses paid because of false and fraudulent representations alleged to have been made to the plaintiffs by the defendants to procure the insurance, and claimed by plaintiffs to have been believed and relied upon to their damage in the issuance and delivery of the separate policies.
The case was tried to a jury. At the close of all the evidence plaintiffs presented a motion for directed verdict in their favor as to both defendants. The motion to direct was denied. On his motion a verdict was directed for the defendant Baughman. A like motion by
It is without dispute in the record that plaintiffs issued policies of insurance against loss by fire on a building of Nabeeha Rashid, which was located on the highway four miles west of Fort Madison, Iowa, was used as a restaurant and had been completed about three months.
Paul C. Baughman, president of the defendant Scherfe Insurance Agency, a corporation (hereafter called Scherfe), conducted the correspondence separately with Chicago insurance brokers George F. Brown & Sons (hereafter called Brown) and Stewart, Smith, Inc. (hereafter called Smith). These two latter, by a general mail solicitation which included Scherfe, were answered by the latter's letter of August 16, 1949, to Brown, saying among other things, "We have a risk upon which we are having difficulty securing sufficient fire and extended coverage," and described the location, use, amount of coverage, rate and needs, and asked Brown "whether or not you will be able to place the desired amount with your London underwriters." Brown answered on August 18, 1949, that "before we can tell you what we can do for you on this risk, there are several things we would like to know," which included total insurable value of buildings, contents, co-insurance and rates on existing coverage, and also "the assured's previous loss experience." To this Scherfe replied, August 19, 1949, stating among other things:
In answer to the Smith letter, Scherfe wrote June 2, 1949, also saying, "We have a risk upon which we are having difficulty securing sufficient fire and extended coverage," and stating ownership, location, use for a "restaurant," recent completion, insurance needs, existing coverage and rates. Smith answered June 7, 1949, that "It is very likely that we can handle this risk for you. Please let us have the following information." Six items were listed, including "b. His past record as respects bankruptcies, failures and fires." On June 8, 1949, Scherfe answered:
Brown and Smith, in reliance, it is alleged, upon the representations of the defendants, effected insurance with the plaintiffs on the Nabeeha Rashid property. On expiration, it is alleged, the policies were renewed in reliance on the same representations. On November 25, 1950, a fire of unknown origin totally destroyed the premises and the plaintiffs were required to make payment under their policies to the insured. The amounts paid are not in dispute.
This action followed, brought by the plaintiffs to recover from the defendants the damages claimed to have been suffered by the plaintiffs as the result of the
In its separate answer defendant Scherfe admitted writing the letter of August 19, 1949, to Brown as to the one fire loss in February, 1945, and also admitted that:
Likewise, defendant Scherfe admitted the writing of the letter to Smith on June 8, 1949, as to the one fire loss in February, 1945, and restates and realleges the portion last above quoted as to "three fire losses in addition to the one reported." The defendant Scherfe denied the statements as to the fire losses "were known by defendants to be false and untrue when they were made," as alleged in paragraph 12 of the complaint; denied the alternative statement that if the defendants "did not know of the falsity of the statements when made, that they knew that they had no knowledge of the truth of the statements and were negligent in making such statements," as alleged in paragraph 13 of the complaint; and denied, as is alleged in paragraph 14 of the complaint, that had plaintiffs or their representatives "been informed by defendants of the true facts in answer to the inquiries and had the true nature and name of the premises been revealed to them and not concealed, the risk would have been rejected and no policy of insurance would have been issued."
Defendant Baughman in a separate answer adopted the answer of the defendant Scherfe, "and further states that this Defendant, as an individual or in his individual capacity, did not participate in any of the transactions and things complained of by the Plaintiffs in their Complaint and that at all times and places that this Defendant participated in the matters alleged in this Answer he was acting as an officer of the Defendant, Scherfe Insurance Agency."
Despite defendants' denial in the pleadings, the evidence of the plaintiffs stands without contradiction that plaintiffs did not know of the previous fire record of Nabeeha Rashid, that their policies of insurance were issued in complete reliance upon the representation of defendants with respect to such fire record, and that the policies were issued following such representations and would not have been issued had plaintiffs known the truth as to the history of the insured's previous fires. Defendants' admissions in answer, as quoted above, admit the falsity of the representations contained in the correspondence. The testimony is uncontradicted that the representations were material factors in the issuance of the policies. Plaintiffs made no separate investigation as to the truth of defendants' representations concerning the history of insured's previous fires, nor were required to do so. There is no dispute as to the amount of the plaintiffs' damage, if plaintiffs are entitled to recover.
As to Motion for Judgment Notwithstanding the Verdict
The law of Iowa controls. After a review of the pleadings and proof as disclosed by the record the court is of the opinion that plaintiffs were entitled by the law of Iowa to have their motion for a directed verdict, made at the close of all the evidence, sustained, and that their motion for judgment notwithstanding the verdict accordingly should be sustained.
The principal case upon which plaintiffs rely is that of Riley v. Bell, 1903, 120 Iowa 618, 95 N.W. 170, where a purchaser of realty brought an action against a broker for damages resulting from the broker's alleged fraud, misrepresentation
120 Iowa at page 629, 95 N.W. at page 173:
As to the matter of scienter the opinion contains this statement, 120 Iowa at page 624, 95 N.W. at page 172:
Speaking of scienter in Baker v. Bockelman, 208 Iowa 254, at page 258, 225 N.W. 411, at page 412, the court said:
See also Dimond v. Peace River Land & Development Co., 182 Iowa 400, at page 408, 165 N.W. 1032, at page 1035, where the Iowa court says:
Here, defendants' denials are to that effect.
The correspondence between defendants and Brown and Smith discloses that Scherfe had been, and was, handling her insurance for Nabeeha Rashid. In each letter Scherfe said, "We have a risk upon which we are having difficulty securing sufficient fire and extended coverage." Brown was then asked "whether or not you will be able to place the desired amount with your London underwriters," and Smith was asked "if you can furnish coverage on this risk will you issue policy and let us have it by early mail?" Both Brown and Smith, before accepting the risk for the plaintiffs, sought the information as to the past record of fires and received like answers as to the single fire in 1945. The special situation disclosed by the interchange of letters between the defendants and Brown and Smith was such that defendants' relationship and means of knowledge as to previous fires was of a character to make it his duty to know the truth or falsity of the representations upon which plaintiffs relied.
It is the law of Iowa that in situations such as this, recovery may be had for negligent representations in an action for fraudulent representations. Scienter, or a knowledge of the falsity of the representations relied upon, "under proper circumstances, * * * may be implied." Gray v. Shell Petroleum Corp., 212 Iowa 825, 237 N.W. 460, 463. See also Baker v. Bockelman, supra, and Davis v. Central Land Co., 162 Iowa 269, 143 N.W. 1073, 49 L.R.A.,N.S., 1219. Of the Davis case it is said in Tott v. Duggan, 199 Iowa 238, 242, 200 N.W. 411, 413, where some of the cases, including Riley v. Bell, supra, are reviewed:
Here, the falsity is admitted and the circumstances are such that scienter is implied.
At the close of plaintiffs' evidence the defendants made an extended motion to direct a verdict in their favor, which was renewed at the close of all of the evidence. Plaintiffs at that time made motion for directed verdict in their favor. It is that latter motion upon which plaintiffs now rely, under Rule 50(b), for their right to have the verdict and any judgment entered thereon set aside and to have judgment entered in accordance with their motion for a directed verdict.
The rule in Iowa as to verdict on motion is tersely stated in Kern v. Kiefer, 204 Iowa 490, at page 491, 215 N.W. 607, at page 608, in these words:
In the last case cited, First Nat. Bank of Montour v. Brown, the writer of the opinion was De Graff, J., who wrote the opinion in the Kern case, from which the quotation is taken. In the First Nat. Bank case, which involved the holdership in due course of a negotiable instrument, the same writer said [197 Iowa 1376, 199 N.W. 273]:
This language was quoted with approval by our Court of Appeals in Colthurst
Giving the defendants the benefit of the most favorable view of the evidence, there is but one reasonable conclusion to be drawn from the proof if we are to follow the rule laid down in the case of Riley v. Bell, supra, and others. It is recognized that it is the rule that in considering the question of the sufficiency of the evidence we must view the evidence in the light most favorable to the prevailing party (in this case, the defendants). If, when so considered, it can be said there is substantial evidence that should have been submitted to the jury, the verdict should stand. A mere scintilla of evidence, however, is not sufficient. Terry v. Muller, 8 Cir., 190 F.2d 170. In reaching this conclusion the court is not required to weigh the credibility of any witnesses. If that were so, then the question would be for the jury and not for the court. Johnson v. Dierks Lumber & Coal Co., 8 Cir., 130 F.2d 115. The court has considered the rules laid down in Mattson v. Central Electric & Gas Co., 8 Cir., 174 F.2d 215, Watkins v. Oaklawn Jockey Club, 8 Cir., 183 F.2d 440, Danaher v. United States, 8 Cir., 184 F.2d 673, and Simpson Feed Co. v. Continental Grain Co., 8 Cir., 199 F.2d 284, and yet reaches the same conclusion.
In all the circumstances, therefore, the court finds that the motion for judgment notwithstanding the verdict should be sustained and that plaintiffs' motion for directed verdict at the close of all the testimony should be sustained and plaintiffs should have judgment as prayed.
As to Plaintiffs' Motion for New Trial
Plaintiffs coupled with their motion for judgment notwithstanding the verdict their alternative motion for new trial based, among other things, on the court's alleged error in sustaining the motion of the defendant Paul C. Baughman for dismissal as to him, the refusal to give certain instructions, and the giving of certain instructions, as set forth in the motion for new trial. Both motions were presented. It has been held by the United States Supreme Court that the grant of the motion for judgment notwithstanding the verdict under Rule 50(b) does not effect an automatic denial of the alternative motion for new trial. To the contrary, Mr. Justice Roberts, the writer of the opinion so holding. Montgomery Ward & Co. v. Duncan, 311 U.S. 243, at page 251, 61 S.Ct. 189, at page 194, 85 L.Ed. 147 said:
The writer said, 311 U.S. at page 253, 61 S.Ct. at page 195:
And further, 311 U.S. at page 254, 61 S. Ct. at page 196:
Following the Ward case, the Fifth Circuit, in Atkins v. Halliburton, etc., Co., 196 F.2d 876, 878, speaking of the filing of a motion for judgment n. o. v. and in the alternative a motion for new trial, said:
In the same Circuit, Foreman v. Texas & N. O. R. Co., 205 F.2d 79, again recognized the duty of the trial court, where such alternative motions are filed, to rule upon both motions.
In the instant case plaintiffs' motion for new trial is based upon several grounds which the court finds unnecessary to discuss because of its ruling on three of the grounds stated. It is believed that Instruction No. 3 given to the jury placed an undue burden upon the plaintiffs by requiring them to prove the falsity of the representations alleged to have been made by Baughman and that they were known by Baughman to be false. Likewise, the burden placed upon the plaintiffs by Instruction No. 6 placed an undue burden upon the plaintiffs in the light of the record.
The court believes itself to have been in error in directing a verdict in favor of the defendant Baughman. The evidence disclosed him to have been the principal stockholder, as well as the president and manager of the defendant Scherfe. He conducted all of the correspondence relating to the representations as to the fire record of the insured, Nabeeha Rashid, and handled all of the transactions between Brown and Smith, which resulted in the issuance of the several policies by the plaintiffs. The general rule as to personal liability of an officer for torts in such a situation is thus stated in 19 C.J.S., Corporations, § 845, p. 271:
The rule in Iowa is found in Luther v. National Inv. Co., 222 Iowa 305, 268 N. W. 589. It was an action brought against the president of a corporation for a conversion while acting in its behalf. The Supreme Court of Iowa held that the tort for which the corporation was held responsible was one for which its agent or officer would be so held. The court announced its ruling in the following language, 222 Iowa at page 308, 268 N.W. at page 590:
The court finds that the motion for new trial should be sustained and a new trial will be granted in the event that this court's ruling on plaintiffs' motion for judgment notwithstanding the verdict is reversed on appeal.