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Muslin v. Frelinghuysen Livestock Managers Inc.

decided: November 21, 1985.

STEVEN B. MUSLIN AND LYNN G. MUSLIN, PLAINTIFFS-APPELLANTS, CROSS-APPELLEES,
v.
FRELINGHUYSEN LIVESTOCK MANAGERS, INC., MONARCH INSURANCE COMPANY OF OHIO AND HOWARD KLOHR, D/B/A HOWARD KLOHR AGENCY, DEFENDANTS-APPELLANTS, CROSS-APPELLANTS



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 79 C 1983--Paul E. Plunkett, Judge.

Eschbach, Easterbrook, and Ripple, Circuit Judges.

Author: Ripple

RIPPLE, Circuit Judge.

Plaintiffs Steven and Lynn Muslin (Muslin) brought this diversity action*fn1 against defendants Frelinghuysen Livestock Managers, Inc., Monarch Insurance Company of Ohio and Howard Klohr (collectively Frelinghuysen) to recover the proceeds of a $50,000 mortality insurance policy on the racehorse, Gymnast. Plaintiffs allege that ownership of both the horse and the insurance policy on the horse's life had been transferred to them by Selma and Edward Levy (Lynn Muslin's parents). Edward Levy was, at the time of the alleged transfer, an agent of the insurer, Frelinghuysen. The district court decided that Levy was without apparent authority to bind Frelinghuysen and that Muslin could not have relied to his detriment on any such representations of authority.

The plaintiffs' appeal is based on two distinct estoppel theories. First, Muslin asserts that, since the transfer of ownership of the horse did not increase the risk of loss, the company should be estopped from enforcing the forfeiture provisions of the policy. Additionally, Muslin claims that he relied to his detriment on Levy's apparent authority to effect transfer of the livestock mortality policy to him. Frelinghuysen cross-appeals the district court's denial of attorneys' fees and costs. For the reasons set forth below, we affirm the decision of the district court on the questions of estoppel, apparent authority and attorneys' fees, and we reverse on the question of costs.

FACTS

This case involves the untimely demise of the racehorse, Gymnast. Originally, Gymnast was one of many horses owned by Edward Levy. Shortly after purchasing Gymnast at auction, Edward Levy gave the horse to his wife, Selma. Mr. Levy was also president of LAC Industries, Inc., an insurance brokerage, and an agent of Frelinghuysen. Levy's agency agreement with Frelinghuysen authorized him to receive proposals on new insurance and to issue temporary binders for horses bought at public auction. However, section III of the agency agreement stated that issuance of insurance was the sole province of the insurer and that the agent was prohibited from exercising rights or powers reserved to the company under the terms of the policies issued by the company. The agreement also prohibited the agent from holding himself out as authorized to act on behalf of the company except as provided by the agreement. Trial Ex. 23.

According to the district court, in February 1978, Mrs. Levy informed Lynn and Steven Muslin -- her daughter and son-in-law -- that she was giving them the horse. No formal transfer was effected; the transfer was oral. The only tangible evidence of the transfer, the certificate of registration issued by the United States Trotting Association, was dated April 24, 1978. Even the "Assignment of Insurable Interest," indicating that ownership had been transferred, was admittedly back-dated by the notary to February 14 although, in fact, it was not executed until after the horse's death on May 15. Appellants' Br. 6-7.

Selma Levy held a mortality insurance policy on Gymnast, which was paid-in-full through November 1978 and which had been written through Frelinghuysen. General Condition No. 12 of the policy provided that the coverage of the horse would be voided if the policy were assigned or transferred without the company's written consent. Specific Condition No. 2 provided that transfer of any interest in the animal would result in the voiding of the policy.

Despite these provisions, written consent to the assignment was never obtained from Frelinghuysen by Muslin or by Edward Levy. The district court found that Levy did not tell Muslin that he would take care of the assignment of the policy until early May (not February as Muslin claims). Trial Tr. 216. As the district judge noted, the only tangible evidence of action by Levy to notify Frelinghuysen of the change of ownership is the correspondence between Levy and defendant Klohr in mid-May. Trial Tr. 216. On May 7, 1978, Levy contacted Howard Klohr and asked him, as a favor, to notify Frelinghuysen of the change in ownership. Klohr, like Levy, was only an agent and was, therefore, not empowered to authorize the assignment of the policy in violation of its terms. When the horse died of natural causes on May 15, 1978, Frelinghuysen refused to pay on Muslin's claim, maintaining that the policy was voided upon transfer of ownership and that the attempted assignment of the policy failed for lack of written consent by the insurer.

Plaintiffs then commenced suit against Frelinghuysen in the district court. In April 1981, the district court granted summary judgment for Frelinghuysen based on the facts that Selma Levy -- the policy holder -- did not own the horse at the time of its death and Muslin -- the purported owner -- did not own the insurance policy at the time of the horse's death. On March 30, 1982, by unpublished order, we affirmed the grant of summary judgment with respect to Levy's actual authority and reversed and remanded to the district court to decide whether Levy had apparent authority to waive the insurance policy provision requiring written consent to an assignment and, if so, whether Muslin reasonably relied on this apparent authority to his detriment. Muslin v. Frelinghuysen Livestock Managers, Inc., 679 F.2d 894, unpublished order at 4-5. If so, Frelinghuysen would be estopped from denying the validity of the policy.

On September 20, 1984, following a bench trial, the district judge announced a verdict for the defendants. However, he ordered Frelinghuysen to refund to Selma Levy $1200 -- the pro-rated amount of the premiums paid on the policy from the date that the policy became null and void. After trial, Muslin filed a motion for a new trial; Frelinghuysen asked for attorneys' fees and costs. Both motions were denied. It is from the September 1984 verdict and attendant denials of motions that these appeals were taken.

I

Muslin contends that Frelinghuysen should be estopped from enforcing the policy's forfeiture provisions because the transfer of ownership did not increase the risk of loss. This claim was not raised in the original or first amended complaint and was not addressed in our order regarding the grant of summary judgment. Muslin claims that paragraph 11 of the second amended complaint*fn2 raises the forfeiture issue. That paragraph states: "Plaintiffs are informed and therefore believe that assignments of such insurance policies are ...


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