Swygert, Chief Judge, and Major*fn* and Hastings, Senior Circuit Judges.
HASTINGS, Senior Circuit Judge.
Randy Paynter, son of Beverly C. Paynter, drove his mother's 1965 Ford Mustang automobile on July 20, 1967, and had with him as passenger guests Joella Bunch, daughter of Florence Bunch, and Teraca Brookshire. While being so driven, the car collided with a tree in Monroe County, Indiana, as a result of which Joella Bunch was killed and Teraca Brookshire was seriously injured.
Thereafter, Florence Bunch as plaintiff recovered judgment against Randy Paynter in the amount of $20,000 in cause No. 567-C-366 in the Monroe Superior Court of Indiana for the death of her daughter in an action predicated on the acts or omissions of Randy in the operation of said automobile on July 20, 1967. Teraca Brookshire and Robert S. Brookshire instituted litigation for damages against Randy in the Monroe Circuit Court of Indiana, on the same grounds.
Federated Mutual Implement & Hardware Insurance Company (Federated), some time prior to July 20, 1967 had issued an automobile liability insurance policy from its home office in Owatonna, Minnesota, to Beverly C. Paynter, insuring her against loss as the owner of such Mustang car and, inter alia, extending coverage to include the use of such car by her son Randy. Subsequently, Federated declared that such policy of insurance was not in effect at the time of such accident and refused representation of the Paynters in the ensuing litigation, declined payment of the judgment Bunch had recovered and denied liability to all claimants.
On February 26, 1968, Federated filed a diversity declaratory judgment action in the United States District Court for the Southern District of Indiana*fn1 against Florence Bunch (Bunch), and others. Pursuant to Title 28, U.S.C.A. § 2201, Federated sought a judgment declaring in substance that the subject policy of insurance was not in effect on July 20, 1967 and that it had no legal liability to any defendant, including Bunch for the payment of her judgment against Randy Paynter. Following a bench trial, the district court entered its findings of fact, stated its conclusions of law and entered judgment in favor of Federated and adverse to all defendants. Florence Bunch alone has appealed.
The facts as found by the trial court and as otherwise appearing in the record are generally undisputed. The conclusions reached by Judge Dillin were determined as a question of law. It is agreed that the substantive law of Indiana applies. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938); Farber v. Great American Insurance Company, 7 Cir., 406 F.2d 1228, 1230 (1969). Our review on appeal necessarily requires a rather full statement of the relevant facts, as well as consideration of applicable Indiana law.
On April 8, 1967, defendant Beverly C. Paynter applied for a policy of automobile liability insurance covering her 1965 Ford Mustang automobile from Federated through its local agent at Bloomington, Indiana, Robert Livingston, who had authority to bind Federated to risks and to extend credit for the payment of initial premiums. At that time Mrs. Paynter was employed in the office of King Motor Sales in Bloomington where Livingston regularly called, King Motor Sales being one of Federated's principal accounts. Mrs. Paynter was then purchasing the Mustang from her employer as a second car and for the use of her son Randy. Her other car was already insured by another company. This led her to discuss the additional insurance coverage with Livingston when he called at King's. Livingston described an economy "Special Package Auto" policy, designed to cover two automobiles with a saving of money to her.
Livingston quoted Mrs. Paynter a premium of somewhat less than $181.00, accepted a down payment of $10.00 from her and stated the balance would be due upon delivery of the policy, which was to extend for a period of six months from that date. She signed the application for the policy as prepared by Livingston, who then said to her, "You will be insured when I walk out the door." To repeat, this occurred on April 8, 1967.
For some unexplained reason, Livingston delayed forwarding the application for the policy and the initial binder premium payment and it did not reach Federated at its home office in Owatonna, Minnesota, until May 24, 1967, a period of 46 days. The $10.00 payment was credited on May 25, 1967. Federated executed the policy and, pursuant to instructions from its agent, mailed the policy to Livingston for delivery to the insured in Bloomington, Indiana. The mailing at Minnesota was on either June 1 or June 2, 1967. It was received by Livingston.
Following another unexplained delay of almost 20 days, on June 20, 1967, Livingston mailed the policy, along with the bill for the balance due, to the insured in Bloomington, which she received on June 22, 1967. The bill stated that if payment was not received within ten days from the billing date of June 19, 1967, it would be necessary to send a cancellation. Further, it was never explained why Livingston elected to mail the policy and bill for payment to the insured when he called regularly at her place of employment and had had the policy since early June. Thus, it appears that a total of 75 days elapsed between the execution of the application for the policy and its final receipt by the insured on June 22, 1967. It is also apparent that the unnecessary delay was due to the procrastination of Federated's agent Livingston.
The bill for final payment was for $171.00, making a total of $181.00. This was more than the "somewhat less than $181" originally quoted by Livingston to the applicant. In fact, originally Livingston had suggested a figure of $145.00 to her. Mrs. Paynter did not understand why she was being charged a higher premium. Further, she did not understand and wanted an explanation of one of the policy provisions, called "FAMILY EXCLUSION REMOVED."
On June 29, 1967, Federated mailed out a computerized notice of cancellation of the policy to Mrs. Paynter, which stated that if the balance due was not received by July 14, 1967, the contract would be canceled as of that date. Copies of such notice were also mailed to Livingston and to defendant Associates Discount Corporation. Associates advised Mrs. Paynter that action would be taken on her car loan if evidence of replacement insurance was not received by it in the event of cancellation. Mrs. Paynter received such notice from Associates on or about July 5, 1967.
On July 12 or 13, Livingston called on Mrs. Paynter, who advised him she had not paid the premium because it was higher than he had quoted to her in April and because she did not understand the removal of the so-called "family exclusion" clause. Livingston obviously did not know how to answer either question and, knowing the cancellation date was July 14, 1967, took the policy with him in order to check the premium and to determine the meaning of the particular clause. Again, without ...