Before DUFFY, Chief Judge, and FINNEGAN and PARKINSON, Circuit Judges.
This is an action for a declaratory judgment wherein plaintiff prayed for judgment construing the rights, obligations and liabilities of the parties to the suit.
Plaintiff is a Pennsylvania corporation engaged in the fire insurance business. Defendant Northwestern Mutual Fire Association, hereinafter called "Northwestern", is a Washington corporation, and is also engaged in the fire insurance business. Defendant Lengacher was engaged in the building construction business in and about Fort Wayne, Indiana. Defendants William J. Kappel and Lorena A. Kappel, husband and wife, were the owners of real estate in Fort Wayne, Indiana, upon which they planned to erect a dwelling house.
For a period of several months prior to May 19, 1954, defendants Kappel and defendant Lengacher had conferred together and had reached certain understandings as to the dwelling house which Lengacher was to build for the Kappels at 1505 Archer Avenue, Fort Wayne, Indiana. The formal construction contract was not entered into until May 19, 1954 wherein Lengacher agreed to construct a dwelling house for the Kappels for a certain specified sum. Paragraph 3 of the agreement contained the following: "The Owner agrees to procure and maintain in full force and effect a Fire and Extended Coverage insurance policy in an amount sufficient to fully protect these improvements at all times during construction."
Lengacher commenced the actual construction work at approximately the same date the formal contract was signed. However, prior to the date of the contract, and in anticipation thereof, Lengacher obtained a builder's risk insurance policy from the plaintiff whereby plaintiff insured Lengacher's interest in the dwelling house to be constructed upon the Kappel premises against loss by fire during the time the building was under construction.
Defendant Dime Trust & Savings Bank had agreed to lend defendants Kappel the sum of $10,000.00, and to take a mortgage upon the premises upon which the dwelling was to be erected. On May 21, 1954, defendants Kappel purchased from defendant Northwestern, a policy of fire insurance which provided for the coverage of the dwelling house then under construction against damage by fire to the extent of $5,000.00. This policy contained a mortgage clause in favor of Dime Trust & Savings Bank. On July 21, 1954, as the construction work proceeded, Northwestern issued a new policy to the Kappels for the sum of $10,000.00 for a three-year period commencing July 31, 1954. This policy also contained a mortgage clause similar to that hereinbefore described. The earlier policy of $5,000.00 was cancelled.
By payments made on June 2, June 30 and July 15, 1954, the Kappels paid Lengacher a total of $9,116.50 for work done and materials furnished in the construction of the dwelling.The total price the Kappels had agreed to pay Lengacher was $11,850.00.
Defendants Kappel had no knowledge of the policy of insurance obtained by defendant Lengacher until some time after July 18, 1954, the date upon which the dwelling was damaged by fire. Likewise, defendant Lengacher had no knowledge of the policy obtained by the Kappels until after the date when the fire occurred. The fire damage to the Kappel house was $6,325.89.
After the fire, Lengacher proceeded to repair, at his own expense, the damage to the dwelling which was caused by the fire. Lengacher then completed the building and delivered possession to the Kappels who then paid Lengacher the balance due under their contract. Lengacher then presented to plaintiff a claim for $6,325.89, but plaintiff denied liability.
The District Court adjudged that plaintiff is liable on its policy issued to defendant Lengacher, and decreed that Lengacher recover from plaintiff the sum of $6,325.89. The Court also decided that Northwestern was not liable to defendants Kappel or to defendant Lengacher, and that Northwestern was not liable to plaintiff in any amount.
Plaintiff's principal point on this appeal is that defendant Lengacher did not have an insurable interest in the Kappel property on May 13, 1954, the date when plaintiff issued its insurance policy to Lengacher. Plaintiff points out that the policy was issued about six days before actual construction work commenced. We think plaintiff's position is untenable.
Lengacher and the Kappels had been negotiating for several months prior to the date of the insurance policy. Possibly all of the details had not been completed by May 13th, but it is a reasonable inference the agreement had crystallized sufficiently by that date that the parties had agreed Lengacher was to build a dwelling house for the Kappels on the lot owned by them.
Plaintiff was in no way misled. The insurance policy provided that Lengacher would be protected against loss by fire during the time said building was in course of construction. The policy did not insure Lengacher for any period prior to the date when the construction work ...