Insurance And Oral Contract

Here’s something a lot of insurance attorneys may not realize.

An oral contract to insure is valid and enforceable.  This is confirmed in the 1949, Texas Supreme Court opinion styled, Pacific Fire Insurance Company v. Donald.  The oral agreement “is presumed to be made in contemplation of a policy containing the terms and conditions in customary use, and impliedly to adopt the same, and it is on this ground that such agreements are sustained as complete and binding contracts.”

Donald brought this suit against four insurance companies, one of which is Pacific to recover for the loss of 5500 bales of hay which were destroyed by fire while stored in a building.  Donald based his action on an alleged oral contract between himself and Henry Moore, agent of Pacific. Donald prevailed at trial and this appeal followed.

The controlling question presented here is whether there was any evidence to sustain the trial court’s finding that Pacific and Donald entered into a valid parol contract to insure respondent’s hay.

Donald testified that during the summer of 1935 he bought some hay which he planned to store.  He first contemplated placing it in a barn owned by Gilmer & Coker, and in July he telephoned Henry Moore and requested the rate on about 5,000 bales of hay if stored therein.  Moore called back and informed Donald of the rate, and also told him, “you know there are a lot of companies won’t take this hay business and I have one that will, and you have some policies with it, and it is an easier matter for a company to take a policy where there is a previous coverage with a man,” and told Donald that the company was the Pacific.  Donald told Moore to hold up the matter, as he was changing the storage to the lumber yard owned by Donald and his brother, and that once the hay was stored away he would tell Moore the number of bales to be insured, and Moore agreed to this.  When the hay had been stored away in the lumber yard, Donald on or about September 1st went by to check it and shut the gate, and before leaving he stopped by Henry Moore’s office and asked Moore to write the insurance on 5500 bales of hay at 20¢ per bale, to which Moore agreed.  No rate or premium was ever mentioned in regard to storage in the lumber yard building, and as to the duration of the insurance, Donald testified that there was “no definite understanding but I told him it wouldn’t be any two or three year program.”  And Donald also testified: “I told him I would have it out of there before the winter was over.”

Nothing further was said or done in regard to the insurance.  The lumber yard and the hay stored therein were completely destroyed by fire.  The next time the insurance of the hay was discussed by Donald and Moore was several days after the fire, when Donald stopped by Moore’s office to report the loss; and Moore denied any liability, asserting that Donald had not requested insurance to be written on the hay.

The record discloses that Moore had written insurance before for the Donald brothers on other things than hay, and it appears that Moore would send them a bill for the premium some time later after the property was insured.  Donald introduced in evidence a former policy on the law library of Donald & Donald, issued by Pacific through its agent Henry Moore, dated February 15, 1934, for a term of one year.  Donald also introduced the statement that Henry Moore rendered for two policies on that library, both in Pacific, and one of which was the policy introduced in evidence.  The statement shows policies dated February 15, 1934, total premiums of $71.89, with a cash payment of $40 on the premium, made on March 2, 1934, and balance due of $31.89.

The testimony of agent Moore corroborated that of Donald to the effect that in the summer of 1935 he had had a conversation with Donald concerning insurance on some hay to be stored in the barn, and that he quoted Donald a rate on hay if stored in that building.  He denied having agreed to insure the hay in the lumber yard where it burned.  On cross examination Henry Moore testified to the effect that when customers requested insurance, his usual procedure was to send them a bill for the premium the following month, and that on occasions he would carry over the bill another month.

The laws of Texas do not prohibit parol agreements of fire insurance.

The trial court found that a valid oral contract of insurance was made by Moore as the agent of Pacific.  In reaching this conclusion the trial court was justified in construing the conversations between Moore and Donald in connection with the surrounding circumstances and previous dealings between the parties.