Before FINNEGAN, PARKINSON and KNOCH, Circuit Judges.
Plaintiff-appellant, (hereinafter referred to as "North America"), as subrogee, brought this suit in two counts against defendant, (hereinafter called "Morgan") to recover $38,457.19 for damage to yarn of plaintiff's insured, Straus Knitting Mills, (hereinafter called "Straus"), from water escaping through a dry line sprinkler system in Morgan's warehouse on November 4, 1951.
Count I is based on the theory that Morgan breached its bailment agreement in failing to exercise due care. Count II is based on the theory that North America is entitled to the benefit of insurance carried by Morgan. It was stipulated by the parties that at the time of the occurrence in question, Morgan had three policies with Aetna Insurance Company, (hereinafter called "Aetna"), which were staggered as to expiration dates and identical as to provisions; that the total amount of the three policies was $850,000, and that for the purpose of passing upon the questions here presented, only one policy was offered and admitted in evidence.
This cause, together with a suit involving similar issues, was tried by the District Court without a jury.*fn1 In this cause the District Court found against North America who appeals on the ground that the District Court entered erroneous findings of fact and improper conclusions of law.
Morgan maintained a yarn processing plant in connection with which it stored yarn awaiting processing. Morgan's warehouse was equipped with what is commonly called a dry line sprinkler system. Such a system is operated on the principle that no water is contained in the airtight sprinkler pipes, but when a rupture in the line occurs, as when fire melts a sprinkler head, or where otherwise air is allowed to escape from the pipes, water then flows into the system for the purpose of extinguishing fire.
The yarn was packed in marked bags or cartons and stored in tiers on the floor.
For a number of years, Morgan had issued yarn receipts to its customers reading:
"Morgan Dyeing & Bleaching Company Incorporated
Case Grade Lot From Pounds
"We agree to indemnify you for loss or damage to your property caused by the perils of fire, extended coverage, and sprinkler leakage, as described in, and to the extent of, our insurance policies. Morgan Dyeing & Bleaching Co."
Henry Kaminski, Morgan's office manager and assistant treasurer, testified that after discussion of insurance with Straus, the following exchange of correspondence took place.
"Attention: Mr. Harry ...