Respondent, the insurance company, issued to petitioner a $30,000 fire policy covering certain personalty in Puerto Rico, distributed thus: $15,000 on stock of merchandise, unembroidered, embroidered and in the process of being embroidered, or for repairs, and on cost of labor performed thereon, including, etc.; $12,000 on machinery of every description, etc.; $3,000 on furniture, fixtures, etc.
After a fire petitioner presented sworn proof of loss exceeding $35,000 and demanded payment of the full amount of the policy. This was refused. It then brought this action in the District Court of the United States for Puerto Rico to recover the sum demanded with interest. Claiming that the assured had acted fraudulently and had failed to comply with specified conditions, the company denied any liability. There was a verdict for $17,000 plus interest; an appropriate judgment followed. A bill of exceptions also ten assignments of error were filed, and the cause went to the Circuit Court of Appeals, First Circuit. 81 F.(2d) 385.
That court, having heard the matter, affirmed the challenged judgment, May 25, 1935 (77 F.(2d) 891, 892). The supporting opinion of that date states: 'The defenses now relied upon rest upon breaches of what are commonly referred to as 'conditions subsequent'; the real defense being that the plaintiff's claim was essentially fraudulent. The provisions of the policy relied on in defense are the so-called 'Iron Safe' clause and condition 12.'
The 'Iron Safe' clause requires the assured to keep 'a complete itemized inventory of stock on hand,' and 'a set of books, which shall clearly and plainly present a complete record of business transacted, including all purchases, sales and shipments'; also that these shall be 'securely locked in a fireproof safe at night,' etc.
Condition 12 provides: 'If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this policy; * * * all benefit under this policy shall be forfeited.'
The first seven assignments, relating to the failure of the trial judge to direct a verdict, also Nos. 8 and 9, were overruled.
The eighth assignment assailed the refusal to instruct that no evidence tended to support the $2,524.50 item for cost of labor found in the proof of loss; the ninth challenged the failure to instruct that there was nothing from which the jury could determine the market value of certain merchandise said to have been sold to the assured by its president.
Concerning the tenth assignment the court said: 'The value of the destroyed property as claimed by the plaintiff was about $34,000. The jury's verdict was for $17,000. The defendant contends that the verdict, fixing the value of the property at only about one half of what was claimed in the proof of loss, established as a matter of law that there was fraudulent overvaluation by the plaintiff in the proof of loss. Obviously, this question could not arise until after the verdict; it amounts to a contention that the verdict in favor of the plaintiff was inconsistent and contradictory to the finding on damages. Questions of this character should be presented in the first instance to the trial judge. He has never passed upon this point. No ruling of his upon it was excepted to; no exception relating to it appears in the record. We cannot consider it.'
A rehearing was granted. A second judgment followed (January 7, 1936, 81 F. (2d) 385, 388) which vacated the earlier one and remanded the cause to the trial court 'with directions to enter an order in arrest of judgment, with costs to the appellant in both courts.' An opinion from which the judge who wrote the original one dissented, pointed out the reasons for the action taken. This considered only the tenth assignment of error and the one based upon failure to direct a verdict because no evidence tended to support the $2,524.50 item for 'Labor on goods in process.' Assignments based upon alleged violations of the 'Iron Safe' clause were not discussed.