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Gladstone v. Fireman's Fund Insurance Co.

decided: May 17, 1976.


Appeal from an order of the United States District Court for the Southern District of New York, Henry F. Werker, Judge, granting defendant's motion for summary judgement and dismissing plaintiff's action on the merits in a diversity action on an insurance contract.

Moore, Oakes and Meskill, Circuit Judges.

Author: Meskill

MESKILL, Circuit Judge:

Plaintiff Murray Gladstone appeals from an order of the United States District Court for the Southern District of New York, Henry F. Werker, Judge, which granted the defendant Fireman's Fund Insurance Company's ("Fireman's Fund") motion for summary judgment in an action based upon a contract of insurance; federal jurisdiction rests on the parties' diversity of citizenship. Because there is still an unsettled dispute with respect to material issues of fact, we find the grant of summary judgment here to have been inappropriate and consequently reverse and remand the case to the district court for further proceedings.

The underlying dispute between the parties arises from a theft loss incurred by Gladstone on May 21, 1971 at his recently leased jewelry store in Westwood, New Jersey. Fireman's Fund had, on May 7, 1971 issued to Gladstone a binder for a Jewelers' Block Policy to cover such losses. In denying liability for the loss, Fireman's Fund maintains that the policy was void because Gladstone had falsely answered material questions on his April 27, 1971 application or "proposal" for insurance. It is Fireman's Fund's position that, according to the terms of the policy and New Jersey law, which both parties agree must be applied to the instant case, the "proposal" is a part of the contract and that the applicant warranted the truthfulness of his answers to the proposal's questions. Fireman's Fund further argues that Gladstone also breached several conditions precedent to insurance under the policy by failing to accord the company proper written notice of loss and sworn proof of loss.

Based upon Gladstone's responses to Fireman's Fund's interrogatories, the district court, finding that "[some] of those 'answers' [in the proposal] now appear to be false," held that the "false" answers were breaches of material warranties, thus voiding the policy, and granted summary judgment in favor of Fireman's Fund. Gladstone asserts, and we agree, that in reaching its conclusion the district court overlooked disputed questions of fact that will determine the truthfulness of his answers to the proposal's questions.

The proposal's questions were prefaced by the following instruction:

"The answers to questions 2, 11a, 11c, 11d, 17c and 17d must be based on the 12 months [sic] period immediately preceding the date of this proposal."

It is this instruction that has engendered the dispute on appeal. Gladstone claims that the instruction is ambiguous when applied to the facts and, when considered in the light of the advice given him by the Fireman's Fund agent, his answers were not only true but also the only sensible answers he could give.

For fifteen years prior to October, 1970, Gladstone was the president, general manager and fifty percent owner of Modern Casting Corporation ("Modern Casting") of New York City, a manufacturer of gold castings for sale to other manufacturers and jobbers. In October of 1970 he sold his entire interest in Modern Casting to his partner. He then started a small wholesale jewelry business, operating out of his house and using as inventory the goods he had received as consideration for the sale of his interest in Modern Casting.

Subsequently, however, he decided to open a wholesale-retail jewelry business called "Jewelry by Gladstone." In furtherance of that goal he began having pieces of jewelry manufactured for him, and he purchased various precious and semi-precious stones which he added to others he had accumulated over the years. This stock was kept in Modern Casting's safe in New York and was insured for $25,000 under another Fireman's Fund policy not involved directly in this case. Gladstone also entered into a lease, to become effective on May 1, 1971, for premises located at 263 Center Avenue, Westwood, New Jersey. The lease covered office space on the second floor of the premises, which office space Gladstone was converting into his retail store.

On April 27, 1971, Robert J. Forrester, a special agent and underwriter employed by Fireman's Fund met with Gladstone at the store for the purpose of obtaining the proposal for the insurance involved herein. Gladstone claims that he gave Forrester a complete history of his background in the jewelry trade. He further asserts that Forrester read the "proposal" questions to him and also entered the answers to the questions on that form. According to Gladstone, Forrester supplied answers, in terms of future inventory, to many of the questions which related to the extent of Gladstone's inventory. Further, Gladstone alleges that Forrester supplied the term "new business" in several answers, with an explanation that Fireman's Fund was interested only in the new retail business and not Gladstone's past wholesale operation.*fn1 Forrester disputes Gladstone's version of the April 27, 1971 meeting. According to Forrester, he asked Gladstone the questions on the form and merely transcribed Gladstone's answers. He denies that Gladstone ever informed him of any past jewelry business.*fn2

The upshot of the April 27 meeting was that the proposal contained representations by Gladstone that do not necessarily correspond with his answers to pretrial interrogatories. The response to question #2 of the proposal, which sought to determine the "nature of our business based on sales," indicated that the business was 90 percent retail and 10 percent wholesale. Similarly, responses to questions concerning the extent of property kept outside of the 263 Center Avenue premises during the past 12 months were variously, "None -- New business" (for such property in Gladstone's custody) and "$2,500. estimated -- New business" (referring to such property in the control or custody of others). Another question, #17, sought the date of the last inventory taken and the exact value of it. The answers filled in on the form were "5-1-71" and "$35,000. approx." The district court found that these answers were "undeniably false" since there was no question that during the twelve months prior to the signing of the proposal Gladstone had been "in the jewelry business, that some portion of his inventory was not in his possession and that [he] had not taken an inventory on May 1, 1971."*fn3 The district court also pointed out that Gladstone admitted that his jewelry business had been all wholesale prior to the signing of the proposal. Applying the substantive contract law of New Jersey,*fn4 the district court concluded that Gladstone was bound by the answers in the proposal even though the mistakes may have been honestly made, citing Parker Precision Products Co. v. Metropolitan Life Ins. Co., 407 F.2d 1070 (3d Cir. 1969), that the answers were directly related to the policy's premium rate, citing New Jersey Statutes Annotated ยงยง 17:29A-6 and A-15 (1970), that since the answers were expressly made part of the policy by reference they were warranties, citing Procacci v. United States Fire Ins. Co., 118 N.J.L. 423, 193 A. 180, 182 (1937), and that since the answers were warranties falsely made they voided the insurance policy, citing primarily Brynildsen v. Ambassador Ins. Co., 113 N.J. Super. 514, 274 A.2d 327 (1971); Guarraia v. Metropolitan Life Ins. Co., 90 N.J.L. 682, 101 A. 298 (1917).

On appeal Gladstone attacks the district court's first conclusion, that his answers were "undeniably false," by reasoning that it was based upon an erroneously broad interpretation of the proposal's instructions and a disregard of both the oral "instructions" allegedly given to him by Forrester and the alleged fact that his retail jewelry store was a new business. His essential contention is that the district court erred in granting summary judgment in favor of Fireman's Fund since the instructions were ambiguous and since a resolution of the factual dispute ...

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