T
THE LIBRARY
OF
THE UNIVERSITY
OF CALIFORNIA
LOS ANGELES
SCHOOL OF LAW
HORNBOOK CASE SERIES
ILLUSTRATIVE CASES
ON
INSURANCE
By ROGER W. COOLEY
Professor of Law, University of North Dakota
Author of "Briefs on the Law of Insurance;" "Illustrative Cases on
Damages;" " Illustrative Cases on Persons and Domestic Relations '
A COMPANION BOOK TO VANCE ON INSURANCE
St. Paul, Minn.
WEST PUBLISHING CO.
1912
Copyright, 1912
BY
WEST PUBLISHING COMPANY
(CooLEY Ins.)
T
THE HORNBOOK CASE SERIES
It is the purpose of the publishers to supply a set of Illustrative
Casebooks to accompany the various volumes of the Hornbook Series,
to be used in connection with the Hornbooks for instruction in the
classroom. The object of these Casebooks is* to illustrate the prin-
ciples of law as set forth and discussed in the volumes of the Horn-
book Series. The text-book sets forth in a clear and concise manner
the principles of the subject; the Casebook shows how these princi-
ples have been applied by the courts, and embodied in the case law.
With instruction and study along these lines, the student should se-
cure a fundamental knowledge and grasp of the subject. The cases
on a particular subject are sufficiently numerous and varied to cover
the main underlying principles and essentials. Unlike casebooks
prepared for the "Case Method" of instruction, no attempt has been
made to supply a comprehensive knowledge of the subject from the
cases alone. It should be remembered that the basis of the instruc-
tion is the text-book, and that the purpose of these Casebooks is to
illustrate the practical application of the principles of the law.
West Publishing Company.
(iii)*
729227
TABLE OF CONTENTS
THE NATURE AND REQUISITES OF THE CONTRACT
Page
I. The Nature of the Insurance Contract In General 1
II. A Personal Contract Uberrimge Fidei 10
1. In General 10
2. Contracts of Fire Insurance Not Ordinarily Assignable 15
III. A Contract Essentially of Indemnity 1'^
IV. The Nature of the Contract of Life Insurance 19
V. The Nature of Mutual Benefit Insurance --
VI. The Contract of Reinsurance 2.5
VII. When the Contract is Divisible 36
PARTIES
I. Contracts Made by Insurers Not Complying with Statutory Re-
quirements ^4
II. Infants as Parties Insured 60
INSURABLE INTEREST
I. General Theory of Insurable Interest CS
II. Insurable Interest in Property — What Constitutes 71
III. Duration of Interest "7
IV. Insurable Interest in Lives 78
V. Interest of Creditor in Life of Debtor 01
VI. Interest of Assignee of a Life Policy 95
THE MAKING OF THE CONTRACT
I. In General — Offer and Acceptance 90
II. The Form Required — Oral Contracts 101
III. Delivery 112
IV. Payment of First Premium 115
V. What Papers Form the Written Contract 127
VI. Same — Mutual Benefit Insurance 130
THE CONSIDERATION— PREMIUMS AND ASSESSMENTS
I. In General — Nature of the Obligation 13S
II. When the Premium is a Debt 115
III. Payment of Premiums US
1. To Whom Paid 148
2. Time and Mode of Payment 151
IV. Forfeiture 1G3
V. Excuses for Nonpayment 16G
VI. Notice of Premiums Due 172
VII. Paid-up Policies and Extended Insurance 17S
VIII. Dues and Assessments in Mutual Benefit Societies 181
CooLEY Ins. (v)
vi TABLE OF CONTENTS
THE CONSENT OF THE PARTIES— CONCEALMENT
Page
I. Wbat Must be Disclosed 190
II. When Facts Concealed are to be Deemed Material 197
THE CONSENT OF THE PARTIES— REPRESENTATIONS AND
WARRANTIES
I. The Nature and Effect of Representations 199
II. Promissory Representations 202
III. Construction of Representations 205
IV. Warranties— In General 214
"V. Affirmative and Promissory Warranties 218
VI. Warranties Distinguished from Representations 223
INSURANCE AGENTS AND THEIR POWERS
I. The Doctrine of Agency in Insurance Law 232
1. In General 232
2. Apparent Powers 234
II. Classes of Agents and Their Powers 237
III. Limitations upon the Powers of Ag:ents 243
1. Improper Limitations in General 243
2. Stipulation that Agent Taking Application is Agent of In-
sured 246
3. Stipulation that Insurer Shall Not be Charged with Knowl-
edge of Agent 248
WAIVER AND ESTOPPEL
I. General Principles 254
II. Prior Parol Waivers 257
III. Subsequent Parol Waivers 261
IV. Contemporaneous Parol Waivers 272
V. What Constitutes a Waiver 279
RIGHTS UNDER THE POLICY
I. Vested Rights of the Beneficiary 282
1. In General 282
2. Effect of Murder of Insured by Beneficiary 284
II. Beneficiaries in Mutual Benefit Associations 286
1. In General 28G
2. Change of Beneficiary 288
HI. Policy Payable to a Third Person 293
IV. The Rights of the Assignee 301
V. Rights of Mortgagor and Mortgagee 303
VI. Subrogation 306
r THE STANDARD FIRE POLICY
I. The General Rule of Construction 314
II. Effect of Temporary Breach of Condition 321
III. The Subject of Insurance — Location 325
TABLE OF CONTENTS Vll
Page
IV. The Interest of the Insured 327
V. Change of Interest, Title, or Possession 337
VI. Other Insurance 343
VII. Increase of Risli 3^0
VIII. Assignments 3u4
IX. Explosive and Inflammable Substances 356
X. Vacant or Unoccupied Buildings 358
XI. Collapse of Building 361
XII. Liability of the Insurer 3G1
XIII. Measure of Insurer's Liability 3G9
XIV. Cancellation of Policy 373
XV. Notice and Proofs of Loss 379
TERMS OF THE LIFE POLICY
I. Designation of Beneficiary 384
II, Suicide — When Not Excepted in the Policy 387
III. Suicide — When Excepted in the Policy 391
IV. Death in Violation of Law 394
V. Incontestable Clause 401
MARINE INSURANCE
I, Implied Exceptions 408
1. Seaworthiness 408
2. Deviation 409
11. Perils of the Sea 413
III. Particular and General Average Losses 420
1. In General 420
2. General Average 422
3. Particular Average 426
IV. The Insurer's Liability — Total Loss 432
V. Abandonment 442
ACCIDENT INSURANCE
I. Accidental Injuries — External, Violent, and Accidental Causes... 443
II. External and Visible Signs of Injury 450
III. Poison or Contact with Poisonous Substances 453
IV. Inhaling Gas 454
V. A^oluntary and Unnecessary Exposure to Injury 458
VI. Occupation and Employment 462
VII. Liability of the Insurer— Total Disability 466
GUARANTY, CREDIT, AND LIABILITY INSURANCE
I. Fidelity and Guaranty Insurance 470
II. Credit Insurance 474
III. Employer's Liability Insurance 47&
IV. Rights of Injured Person in Insurance Fund 482
TABLE OF CASES
Page
Alabama State Mut. Assur. Co. v.
Long Clothing & Shoe Co 255
American Employers' Liability
Ins. Co. V. Barr 239
American Fire Ins. Co. v. Brooks 148
Anderson v. Life Ins. Co. of Vir-
ginia 284
Bain v. Atkins 482
Baldwin v. Connecticut Mut. Life
Ins. Co 232
Bassett v. Farmers' & Merchants'
Ins. Co 72
Bigelow V. Berkshire Life Ins. Co. 391
Breeyear v. Rockingham Farm-
ers' Mut. Fire Ins. Co 354
Calmenson v. Equitable Mut. Fire
Ins. Co 257
Cannon v. Phoenix Ins. Co. of
Hartford, Conn 361
Carpenter v. German-American
Ins. Co 71
Central Nat. Bank v. Hume 293
Chamberlain v. Butler 95
Chambers v. Northwestern ^lut.
Life Ins. Co 216
Champion Ice Mfg. & Cold Stor-
age Co. V. American Bonding &
Trust Co 470
Chickasaw County Farmers' Mut.
Fire Ins. Co. v. Weller IS, 307
Clark V. Schromyer 145
Clay V. Phoenix Ins. Co 314
Clinton v. Norfolk Mut. Fire Ins.
Co 68
Coleman v. New Orleans Ins. Co. 39
Collins V. Metropolitan Life Ins.
Co 394
Commercial Fire Ins. Co. v. IMor-
ris 109
Connecticut Mut. Life Ins. Co. v.
Luchs 87
Coster V. Phoenix Ins. Co 420
Cronin v. Vermont Life Ins. Co . . 85
Daniher v. Grand Lodge A. O. U.
W 22
CooLEY Ins. (ix)
Page
Davis & Co. V. Insurance Co. of
North America 315, 361
Dibble v. Northern Assur. Co. of
London 112
Dickerman v. Vermont Mut. Fire
Ins. Co 77
Diddle v. Continental Casualty
Co. 458
Dilling V. Draemel 306
Dodge V. Boston Marine Ins. Co.. 408
Eddy V. London Assur. Corp 345
Farmers' Feed Co. of New Jersey
V. Scottish Union & Nat. Ins.
Co. of Edinburgh 369
Farnum v. Phenix Ins. Co 121
First Congregational Church of
Rockland v. Holyoke Mut. Fire
Ins. Co 350
Forward v. Continental Ins. Co.. 274
Freedman v. Fire Ass'n of Phila-
delphia 199
Fuller V. Metropolitan Life Ins.
Co 138
Gaines v. Fidelity & Casualty Co.
of New York 214
German-American Ins. Co. v.
Humphrey 261
Germania Ins. Co. v. Bromwell. . 258
Goodrich, Appeal of 25
Grubbs r. North Carolina Home
Ins. Co 264
Guilfoyle v. National Life Ass'n.. 155
Gurnett v. Atlas Mut. Ins. Co. . . 272
Haider v. St. Paul Fire & Marine
Ins. Co 334
Hayes v, ]Milford Mut. Fire Ins.
Co 349
Hearn v. New England Mut. Ma-
rine Ins. Co 409
Hicks V, British American Assur.
Co 101
Hinckley v. Germania Fire Ins.
Co 321
TABLE OF CASES
Page
Hoeft V. Supreme Lodge Knights
of Honor 286
Ilogan, In re 1
Home Fire Ins. Co. v. Peyson . . . 358
Home Ins. Co. v, Marshall 303
Horton v. Home Ins. Co 316
Johannes v. Phoenix Ins. Co. of
Brooklyn, N. Y 28
Johannes v. Standard Fire Office
of London 331
John Davis & Co. v. Insurance
Co. of North America 315, 361
Johnson v. Northwestern Mut.
Life Ins. Co 60
Jones V. Western Assur. Co 432
Kausel v. Minnesota Farmers'
Mut. Fire Ins. Ass'n 246
Kase V. Hartford Fire Ins. Co. . . 17
Kenyon v. Knights Templar &
Masonic Mut. Aid Ass'n 151
Kimball v. 2Etna Ins. Co 202
Knapp V. Homoeopathic Mut. Life
Ins. Co 178
Kneeht v. Mutual Life Ins. Co.
of New York 218
Lamberton v. Connecticut Fire
Ins. Co 243
Lane v. Parsons, Rich & Co 327
Life Ins. Clearing Co. v. O'Neill.. 81
Lobdill V. Laboring Men's Mut.
Aid Ass'n of Chatfield, Minn. . . 466
Loudon Assur. Corp. v. Thomp-
son 32
Lynch v. Prudential Ins. Co. of
America 226
Lyons v. Yerex 384
McGowan v. Supreme Court I. O.
O. F 290
Maryland Casualty Co. v. Hud-
gins 443. 453
Mascott V. First Nat. Fire Ins.
Co 197
Mason v. St. Paul Fire & Ma-
rine Ins. Co 380
Massachusetts ]\Iut. Ben. Life
Ass'n V. Robinson 401
Menneilley v. Employers' Liabili-
ty Assur. Corp 454
Metcalf V. Phenix Ins. Co 254
Pago
Michigan Mut. Life Ins. Co. v.
Bowes 161
Miller v. California Ins. Co 417
Morris v. Georgia Loan, Savings
& Banking Co 301
Moulor V, American Life Ins.
Co 205
Murray v. Great Western Ins.
Co 436, 442
Mutual Life Ins. Co. v. Cohen... 172
Mutual Life Ins. Co. of New
York V. Blodgett 90
Mutual Life Ins. Co. of New York
V. Mullen 211
Mutual Safety Ins. Co. v. Cargo
of the George 422
New V. German Ins. Co. of Free-
port 15
New York Life Ins. Co. v. Stat-
ham 140
Norwich Union Fire Ins. Soc. v.
Standard Oil Co 310
Nye V. Grand Lodge A. O. U. W., . 19
O'Brien v. New Zealand Ins. Co. 241
O'Connor v. Queen Ins. Co. of
America 364
Penn Mut. Life Ins. Co. v. Me-
chanics' Sav. Bank & Trust
Co 190
Pennypacker v. Capital Ins. Co. . . 54
Perry v. Bankers' Life Ins. Co. . . 163
Perry v. Cobb 413
Phoenix Ins. Co. of Hartford,
Conn., V. Ireland 106
Port Blakely Mill Co. v. Spring-
field Fire & Marine Ins. Co 220
Quarles v. Clayton 10
Reynolds v. Atlas Ace. Ins. Co.
of Boston 127
Reynolds v. Supreme Council of
Royal Arcanum 132
Ricker v. Charter Oak Life Ins.
Co 282
Riggs V. Commercial Mut. Ins.
Co 74
Rittler V. Smith 91
Ruggles V. American Cent. Ins.
Co. of St. Louis 234
Rnpp V. Western Life Indemnity
Co 78
TABLE OF CASES
Page
Salisbury v. Hekla Fire Ins. Co.
of Madison, Wis Ill
Sanborn v. Black 28S
Seal V. Farmers' & Merchants'
Ins. Co 200
Seamans v. Christian Bros. Mill
Co 57
Seller v. Economic Life Ass'n of
Clinton 387
Sergent v. London & Liverpool &
Globe Ins. Co 379
Shakman v. United States Credit
System Co 474
Shimp V. Cedar Rapids Ins. Co.. . 279
Simpson v. Prudential Ins. Co. of
America 66
Southern Fire Ins. Co. v. Knight.. 36
Stage V. Home Ins. Co. of City
of New York 343
State V. Beardsley 5
State V. Towle ^
Stephens v. Pennsylvania Casual-
ty Co 479
Sternaman v. Metropolitan Life
Ins. Co 248
Stinchcombe v. New York Life
Ins. Co 157
Supreme Lodge Knights of Pythi-
as V. Withers 181
Supreme Lodge of Sons & 'Daugh-
ters of Protection v. Under-
wood 130
Taylor v. Anchor Mut. Fire Ins.
Co 49
Taylor v. Insurance Co. of North
America 373
Page
Thompson v. Knickerbocker Life
Ins. Co 166
Tomsecek v. Travelers' Ins. Co. . . 116
Trabue v. Dwelling House Ins.
Co 44
Union Casualty & Surety Co. v.
Mondy 450
Union Cent. Life Ins. Co. v. Tag-
gart 115
Union Mut. Ace. Ass'n v. Fro-
hard 462
Village of L'Anse v. Fire Ass'n
of Philadelphia 325
Yivar v. Supreme Lodge Knights
of Pythias 223
Washburn & Moen ^Ifg. Co. v.
Reliance Marine Ins. Co 426
Western Commercial Travelers'
Ass'n V. Smith 446
Western Home Ins. Co. v. Hogue. . 237
Wiebeler v. Milwaukee Mechan-
ics' Mut. Ins. Co 108
Wild Rice Lumber Co. v. Royal
Ins. Co. of Liverpool 317
Williams v. Maine State Relief
Ass'n 267
Wolf V. Theresa Village Mut.
Fire Ins. Co 337
Wood V. American Fire Ins. Co.
of Philadelphia, Pa 339
Yoch V. Home Mut. Ins. Co.
356
Zimmermann v. Dwelling House
Ins. Co. of Boston 99
1
HORNBOOK CASES
ON THE
LAW OF INSURANCE
THE NATURE AND REQUISITES OF THE CONTRACT
I. The Nature of the Insurance Contract In General ^
In re HOGAN.
(Supreme Court of North Dakota, 1S99. 8 N. D. 301, 78 N. W. 1051, 45 L.
R. A. 166, 73 Am. St. Rep. 759.)
Bartholomew, C. J.^ One C. N. Hogan presented to this court
his petition for a writ of habeas corpus, alleging that he was un-
lawfully restrained of his liberty by the sheriff of Foster county^
in this state. His petition sets forth that he was arrested upon a
warrant issued by a justice of the peace of said county, which said
warrant was based upon a complaint duly laid before said justice
by one Ferguson, wherein said petitioner was accused of having
acted as agent for an insurance company without having procured
the certificate required by section 3124, Rev. Codes of this state,
that a preHminary hearing was duly had before said justice, and that
upon such hearing said justice adjudged that the petitioner be held
to answer to said charge before the district court of said county, and
fixed his appearance bond at the sum of $500, which the petitioner
failed to give, whereupon he was duly committed to the custody of
said sheriff, and was by him restrained. * * *
No point is made by petitioner as to the regularity of any of
the proceedings that led up to his incarceration. They are concededly
regular. It is admitted, also, that petitioner was soliciting business
as agent for a corporation known as the Realty Revenue Guaranty
1 For discussion of principles, see Vance on Insurance, §§ 22, 23. See,
also, Cooley, Briefs on the Law of Insurance, vol. 1, pp. 2-38.
2 Part of the opinion is omitted.
Cooley Ins. — 1
i THE NATURE AND REQUISITES OF THE CONTRACT
Company, of Minneapolis, Minn. It is admitted that petitioner never
procured the certificate of authority specified in said section 3124,
and that he took an application from the complaining witness in
form as set forth in the evidence, and procured for said witness
the contract of said company as set out in the evidence, and took
the promissory note of the witness, secured by chattel mortgage, for
the consideration mentioned in said contract. These admissions leave
but one question for our determination: Is or is not the Realty
Revenue Guaranty Company, in fact or in efifect, an insurance com-
pany? If it be, then clearly the petitioner was properly held; other-
wise, he should be discharged. While the attorneys representing
l.he state claim that the oral evidence in the record strengthens their
claim that said corporation is in fact an insurance company, yet we
shall rest our conclusions on this point upon the documentary evi-
dence.
Our statute (section 4441, Rev. Cod°s) defines insurance as fol-
lows: "Insurance is a contract whereby one undertakes to indemnify
another against loss, damage or liability arising from an unknown
or contingent event." Necessarily, in defining insurance in a single
sentence, only the most general terms can be used, and any general
definition must be extended to cover the ever-changing phases in
which the subject is presented to the public. Fifty years ago it was
thought that a single chapter in any work on contracts could exhaust
the law of insurance. Now Mr. Joyce presents the subject in four
elaborate volumes, showing the immense development of that branch
of the law. Mr. Joyce expressly defines one line of insurance as
guaranty insurance. See 1 Joyce, Ins. §§ 12, 13. True, guaranty
insurance, as there defined, relates more particularly to guaranty
against loss by reason of breaches of contract, such as "fidelity
guaranty" and "credit guaranty." But we have real estate title
guaranty insurance; and, while perhaps this is the first instance
where an attempt has been made to guaranty a realty revenue, yet
as the revenue arising from that class of realty here involved, i. e.
farming lands, is affected by so many contingencies, such as winds,
hail, frost, drought, ravages of insects, etc. — contingencies which,
while not likely to happen, yet such as may occur — it would seem
that inherently it would be a proper subject for insurance, perhaps
even an inviting field. In this record we find a copy of the articles
of incorporation of the Realty Revenue Guaranty Company. The
second article sets forth the general business of the corporation,
naming a number of things that it is organized for the purpose of
doing, and, among others, "to guaranty certain rental and produce
income from lands and tenements."
The petitioner, as agent for said company, took from Peter Fergu-
son an application for a contract. The application was upon a
printed form, headed, in bold type, "Realty Revenue Guaranty Com-
pany, of Minneapolis, Minn. Capital stock, $100,000." Then fol-
THE NATURE OF THE INSURANCE CONTRACT IN GENERAL 3
lows the printed portion, which reads : "I, , of P. O.,
county of , state of , do hereby apply to the Reahy
Revenue Guaranty Company for an option-sale contract of $
per acre, which is hereby referred to and made a part hereof, sub-
ject to all conditions therein contained upon all crops raised on the
following described lands." Then follows a description of the land,
and various questions to be answered by the applicant as to whether
he is owner or tenant of the land, and what interest he has in the
crop, what the land yielded per acre the year before, nature of the
soil, etc. — all to be signed by the applicant.
Upon this application, Ferguson received a contract, w'hich we
copy in full : "This agreement, made by and between the Realty
Revenue Guaranty Company, of Minneapolis, Minnesota, and Peter
Ferguson, of Carrington P. O., county of Foster, and state of North
Dakota, party of the second part, witnesseth that, in consideration
of an application for this contract, which is hereby referred to and
made a part hereof, and the payment of the sum of $55, according
to the conditions of a certain promissory note for said amount, by
said party of the second part, the above-named Realty Revenue
Guaranty Company agrees to purchase the entire crop of small
grain, consisting of wheat, oats, flax, barley, corn, or rye, from said
party of the second part, at the rate of $5.00 per acre, grown during
the season of 1899 ; all of said crops being on the following described
lands, to wit, 160 acres southeast quarter Sec. 20, T. 146, R. 65 ;
60 acres northwest quarter Sec. 26, T, 146, R. 65. It is further
agreed that said party of the second part is in no manner bound
to sell said crops to the said Realty Revenue Guaranty Company,
except at his own option. It is further agreed that said party of
the second part shall cultivate said crops in a husbandlike manner,
sow, plant, garner, gather, harvest, thresh, and otherwise care for
said crops in due season and in an economical manner. Said party
of the second part agrees to notify said Realty Revenue Guaranty
Company in case of any damage to said crops within five days
thereafter, and of his intention to avail himself of his option to sell
before said crops are harvested, and shall, within five days after
threshing the same, give notice to the company of his election to
sell under this contract. After said election to sell, said party of
the second part agrees to deliver said crops at the nearest market,
if directed so to do by said Realty Revenue Guaranty Company.
Should the party of the second part fail to perform any of the con-
ditions herein by him to be performed, time being the essence hereof,
or if any of the warranties or statements made by him are untrue,
the said option shall terminate. Nor shall said guaranty company
be liable under this contract should any damage or loss accrue to
said crops after September 15 of this year, or after said crops are
harvested, nor in any manner, except as herein stipulated. This
contract shall terminate December 1st following date hereof. In
4 THE NATURE AND REQUISITES OF THE CONTRACT
witness whereof, the said Realty Revenue Guaranty Company has
caused these presents to be executed and signed by its president and
secretary, and caused its corporate seal to be hereto attached, this
seventh day of April, 1899. Realty Revenue Guaranty Co., by L. E.
Utley, President. A. L. Brice, Secretary. [Corporate Seal.]"
What was the object of this contract and what was its legal effect?
The petitioner says it was an option contract of sale of a crop. We
cannot conceive that the farmer's primary object was to sell his crop.
Ordinarily a man does not pay a premium for the privilege of sell-
ing his produce. Nor was it the primary purpose of the company
to purchase the crop. From the very terms of the contract, it is cer-
tain that it must lose money upon all the grain it buys under the con-
tract. Moreover, grain is bought and sold by the bushel, and not by
the acre. We think the contract was the identical contract which
the articles of incorporation authorize the company to enter into. It
was a contract by which the guarantor undertook to guaranty or as-
sure to the farmer a certain revenue from his land. How did the
parties proceed to execute such a contract? It was well known to
both parties that an acre of land in this state, farmed as the farmer
contracts to farm it in this case, will produce a crop of a value far in
excess of five dollars, and the value can be reduced to or below that
figure only by the happening of one or more of the contingencies
hereinbefore mentioned. But such contingencies may happen, and to
be absolutely assured that his land will yield him at least five dollars
per acre the farmer is willing to pay something; and the corporation,
expecting to do business over a wide scope of country, believes that
it can with profit to itself assure the farmer a crop worth five dol-
lars per acre for the compensation which the farmer is willing to pay
therefor. But what is this in substance except a contract to indem-
nify the farmer against loss arising from the happening of a con-
tingent event, and that is our statutory definition of insurance. The
farmer was seeking and paying for protection, and the corporation
was seeking to make a profit by extending this protection for the
consideration paid by the farmer. True, it is not all loss that is in-
sured against. The contingencies named may reduce the value of
a crop from twenty dollars per acre until, in the judgment of the
owner, it barely exceeds five dollars per acre, and there is no liability
under the contract. It is the loss below five dollars per acre that is
insured against. The effect of the contract is very like that of a val-
ued policy of insurance. When the contingency happens that creates
a liability under the policy, then the full amount of the policy must
be paid, but the insured is entitled to all the salvage.
In Claflin v. System Co., 165 Mass. 501, 43 N. E. 293, 52 Am. St.
Rep. 528, the defendant was held to be an insurance company. The
contract is thus stated by the court: 'Tt was made on April 6, 1891,
and purports to bind the defendant, in consideration of a sum paid,
to purchase at a fixed price the accounts which during one year a
THE NATURE OF THE INSURANCE CONTRACT IN GENERAL 5
certain business firm should have against ascertained insolvent debt-
ors, or judgment debtors against whom execution should be returned
unsatisfied." A contract to purchase bad accounts and judgments at
a fixed price, irrespective of value, cannot be distinguished in princi-
ple from a contract to purchase damaged crops at a fixed price, ir-
respective of value. That same company was held to be an insurance
company in Shakman v. Same, 92 Wis. 366, 66 N. W. 528, 32 L.
R. A. 383, 53 x\m. St. Rep. 920, and the reasoning of the court is
very pertinent to this case.
It is doubtless true that there has been a studied effort to keep
this corporation outside the operation of our insurance laws ; but the
purpose and effects of its contracts are too clear to admit of doubt.
They exactly meet the requirements of an insurance contract, and
the corporation for which petitioner acted as agent is an insurance
company. The act charged in the complaint is a crime under our
statutes, and there is reasonable and probable cause to believe the
petitioner guilty of committing the act. He is therefore properly
held.
The writ issued in this case is discharged, and petitioner remanded
to the custody of the sheriff of Foster county. All concur.
STATE V. BEARDSLEY.
(Supreme Court of Minnesota, 1902. 88 Minn. 20, 92 N. W. 472.)
Earl D. Beardsley was convicted of acting as an insurance agent
without having complied with the requirements of the insurance act
of 1895 (Gen. Laws 1895, c. 175), and appeals.
Collins, J.^ The defendant was indicted and convicted under sec-
tion 101, c. 175, Gen. Laws 1895, of the offense of assuming to act
as the agent of an insurance company without first having procured
a license or certificate of authority to so act. That he solicited! and
secured the person named in the indictment to enter into a contract,
a copy of which was made a part thereof, and that, as agent, he de-
livered it to the same person, is not disputed, so the principal ques-
tion at issue is whether this contract was one for insurance, within
the meaning of the insurance code, above mentioned. Upon this
question it is contended by defendant's counsel that this particular
instrument is not a contract of insurance, as such a contract is de-
fined by either section 3 or section 63 of chapter 175, or within any
of the provisions of chapter 175. * * *
It appears from the contract that the Home Co-operative Company,
for which defendant was acting, and whose contract he delivered as
its agent, is a copartnership organized in the state of Kansas. It
consists of a number of citizens of that state, and under that name
8 Part of tlie opinion is omitted.
6 THE NATURE AND REQUISITES OF THE CONTRACT
enters into its contracts as party of the first part; the party of the
second part being the holders of the contracts. The latter are not
in any sense members of the copartnership or company. The com-
pany is entitled to all profits which may arise in carrying out its con-
tracts, and must bear all losses, if there be any. A stipulated amount
is paid monthly by each contract holder as a premium, and there is
no provision for levying assessments upon such holders to cover losses
or shortages. The company assumes the only obligation there is in
the contract, aside from the holder's promise to pay his monthly pre-
mium, and therefore it is not co-operative; nor is it a benevolent as-
sociation, except as it may, through its plan of operations, be ben-
eficial to a contract holder or to his family, precisely as is a life
insurance company to a beneficiary in case of the death of the as-
sured. Contract holders co-operate v^^ith each other to the same and
to no greater extent than do policy holders in ordinary life insurance
companies. Each holder of a contract — all contracts being numbered
in consecutive order — promises to pay a membership fee of $3, and
the sum of $1.35 each month, up to and prior to what is designated
as the maturity day of his contract. Of this $1.35, $1 is credited to
the account of the contract holder, and is to be applied to the pur-
chase of a home for him, according to a somewhat mystifying plan
previously formulated. Ten cents of the payment is kept as a reserve
fund to meet "contingent liabilities" of the company when perform-
ing its contracts, and the balance, 25 cents, is taken to defray the
company expenses, including compensation for services. What is
done with the membership fee, does not appear.
The monthly payments of $1.35 are made by a contract holder un-
til $50 have been accumulated from payments upon his contract, and
from payments upon like, but subsequently made and numbered, con-
tracts with other persons ; and then this particular contract is deemed
to have matured, and its holder entitled to receive installments of $50
per month, to be applied on the payment for his home until the full
sum of $1,000 is paid; and, when this sum is paid in monthly install-
ments, the contract is fully performed by the company. If the holder
of a matured contract avails himself of his installment privilege, and
prepares to build a house, on which the company is to have security,
he must then and thereafter pay to the company $5.35 each month,
instead of $1.35. Five dollars of this amount is placed to his credit,
and the balance, 35 cents, is disposed of precisely as it had been be-
fore his contract matured. When the monthly payments, of $5 each,
aggregate the sum of $1,000, less the amount the holder had to his
credit on account of $1 payments per month before his contract ma-
tured, the lien of the company for the money advanced expires, the
debt is discharged, and a clear title to the property is vested in the
contract holder. This is the plan of operations through which the
latter is supposed to finally secure his home, fully paid for, and free
of all liens.
I
THE NATURE OF THE INSURANCE CONTRACT IN GENERAL 7
It seems to be admitted that, were it not for subsequent provisions,
this contract would not be one for insurance, but the state relies upon
another clause; the disability referred to being that of the contract
holder, which is as follows: "Should his disability be total, perma-
nent, and determined by satisfactory evidence, the unpaid balance of
one thousand dollars provided for in this contract shall be paid to
clear the home of the party of the second part, and his indebtedness
to the parties of the first part shall be discharged, and the title to
the property, if held by the parties of the first part, shall be conveyed
as he may direct. In the event of his death before all advance pay-
ments to him shall have been returned to the first parties, the par-
ties of the first part shall pay the balance, if any, of the one thousand
dollars contracted for, and shall cancel his indebtedness to the first
parties, and, if the title to the property purchased is in the first par-
ties, they shall convey the same to his wife, if any; if there shall be
no wife, then to his heirs. If the second party is over fifty years of
age at the signing of this contract, the provisions to give his wife or
heirs a clear title in case of his death, unless accidental, do not ap-
ply. In case of his death, unless accidental, his wife or heirs must
continue the payments according to the obligations of the second
party."
It is contended in behalf of the state that this provision constitutes
the contract one for insurance, and subjects the defendant to the li-
cense clause of chapter 175. By this provision, if the contract holder's
disability becomes total and permanent, the company agrees to pay
the unpaid balance of the $1,000 which the holder has obligated him-
self to pay to it in $5 installments, and for which payment the com-
pany has a lien upon the property, for the purpose of clearing and
discharging the lien; and, if this agreement is performed, the en-
tire indebtedness is canceled, and the title to the property vested as
the holder may direct. In the event of the holder's death before all
monthly payments have been made by him, and his obligation to the
company discharged in full, the latter agrees to pay the balance of
his indebtedness, and to cancel the amount remaining unpaid, and, if
it holds title to the property, to convey the same to his wife, if there
be one, and, if not, to his heirs. The precaution is taken by the com-
pany to exclude from the operation of this last provision contract
holders over the age of 50 years, unless death shall be accidental.
This promise becomes effective only in the case of disability or death,
and, if either occur, the company is obliged to release its claim for
further payments, and to remit the remaining debt.
This is a valuable promise made to the contract holder for a con-
sideration, namely, his monthly payments. If he becomes disabled,
the company promises to do an act of value to him. If he dies, the
promise is to do an act of value to his widow or to his heirs ; that is,
an act equivalent to, and actually involving, the payment of money,
conditioned upon the cessation of human life. The real character of
8 THE NATURE AND REQUISITES OF THE CONTRACT
this promise, or of the act to be performed, cannot be concealed or
changed by the use or absence of words in the contract itself; and
it is wholly immaterial that on its face this contract does not ex-
pressly purport to be one of insurance, and that this word nowhere
appears in it. Its nature is to be determined by an examination of
its contents, and not by the terms used. The performance of the con-
tract may be enforced by the holder in case of disability, or by his
widow or heirs in case of his decease. If it does not come within
the definition of an insurance contract, as found in section 3 (that is,
if it is not an agreement by which one party, for a consideration,
promises to pay money or its equivalent, or to do some act of value to
the assured, upon the destruction or injury of something in which the
other party has an interest), it involves the payment of money or
something else of value to the family or representatives of the holder,
conditioned upon the continuance or cessation of human life, and is
covered by the definition found in section 63. It is an agreement in-
volving and providing, in effect, for the indirect payment of money
by the relinquishment of a debt; and there is no substantial distinc-
tion between such an agreement or obligation and the ordinary life
insurance policy. The obligation in each case is conditioned upon the
cessation of human life. * * * Judgment affirmed.*
STATE v. TOWLE.
(Supreme Judicial Court of Maine, 1S88. SO Me. 287, 14 Atl. 195.)
Peters, C. J. The state sues to recover a penalty of the defendant
for acting as a soliciting agent for the Single Men's Endowment As-
sociation, a company having its home in the state of Minnesota, and
doing business in this state without a license from the insurance com-
missioner. The question is whether or not this association in an in-
surance company, under the provisions of Rev. St. c. 49, § 73.
The contract between the company and its patrons declares the du-
ties which must be assumed by the single man who becomes privileged
to an endowment in the association. He pays $10 as an initiation fee;
$2 as annual dues each year for nine years, and as much longer as
he remains single; $1.25 on the marriage of any associate; and he
promises, on the pain of forfeiture of all rights accruing to him, that
4 Compare Trust Co. v. Krumseig, 77 Fed. 41, 23 C. C. A. 1 (1896).
As illustrating the discordant views taken by the courts of one and
the same kind of contract, compare Physicians' Defense Co. v. O'Brien, 100
Minn. 490, 111 N. W. 396 (1907), and State ex rel. Physicians' Defense Co.
V. Laylin, 73 Ohio St. 90, 76 N. E. 567 (1905). The corporation involved in
these cases issued a contract by which, in consideration of a stipulated
amount, it agreed to defend physicians against all suits for damages for mal-
practice at its own expense, not exceeding a certain amount, but did not
assume or agree to assume or pay any judgment rendered. The supreme
court of Minnesota held this to be an insurance contract, while the supreme
court of Ohio regarded it as a contract for services only.
THE NATURE OF THE INSURANCE CONTRACT IN GENERAL, 9
he will not himself marry within two years from the date of his admis-
sion to the association. For the performance by him of these imder-
takings, the company promises to pay to his wife, if married to him
after the expiration of the two years, the sum of as many dollars as
there are associates in the order, not exceeding- $1,000, provided that
there be that amount of money in the treasury at the time, or it can
be collected by an assessment upon the associates. No word is spoken
of insurance. That it is a wagering or gambling contract, and void
upon grounds of public policy, because in restraint of marriage, there
is no room for doubt. The same or similar contract has been held to
be void in White v. Benefit Union, 76 Ala. 251, 52 Am. Rep. 325, and
in Chalfant v. Payton, 91 Ind. 202, 46 Am. Rep. 586.
The counsel for both parties agree that the contract, for one reason
or another, is illegal, but the counsel for the state contends that,
whether the contract be legal or illegal, it is a contract of insurance,
and that, as such, it falls under the supervision of the commissioner.
It is not to be conceded, we think, that this contract, in the sense
of any modern use of the term, is an insurance policy. No loss or
casualty or peril is named for which any indemnity is promised. It
is more of a betting contract on a future event. It is true that there
was formerly a class of betting contracts styled "insurances," and
that a narrow line once existed between gambling and betting con-
tracts and those then denominated contracts of insurance; and the
case of Paterson v. Powell, 9 Bing. 320, relied on by the state, shows
how far a court was induced to go to determine that a contract sim-
ilar in principle to the present was an insurance policy, in order to
declare it void. The statute (4 Geo. III. c. 48) rendered speculative
insurance contracts void, and, strange to say, allowed all contracts
founded on mere bettings and gamblings to be valid. At this day, the
contract in that case, with all its imitations of the thing, would hardly
receive the appellation of an insurance policy.
It does not seem probable that the Legislature intended to commit to
the care of the commissioner the business of illegal or illegitimate in-
surance companies. It would be tolerating, instead of condemning,
them. He has the power to issue and suspend licenses. But there
must be cause for either act. Rev. St. c. 49, •§§ 7Z, 75. His business
is to deal with such companies as can, when licensed, issue legal pol-
icies. His act cannot confer legality upon companies doing illegal busi-
ness. The state seeks to recover a penalty of $50, because the defendant
acted without an official license, while the policy, if to be called such.
issued by him, would be unlawful and void, whether he was acting
with or without a license. It would be inconsistent to collect a penalty
of an agent for not doing business under a void license. Plaintiff non-
suit.^
5 A contract to furnish burial expenses construed as an insurance con-
tract, see State v. Willett, 171 lud. 296, 86 N. E. 68, 23 L. R. A. (N. S.) 197
(1908).
10 THE NATURE AND REQUISITES OF THE CONTRACT
II. A Personal Contract Uberrimae Fidei •
1. In Generai,
QUARLES V. CLAYTON.
(Supreme Court of Tennessee, 1SS9. 87 Tenn. 308, 10 S. W. 505, 3 L.
R. A. 170.)
Agreed case between Nancy M. Quarles and J. A. Clayton, adminis-
trator of her deceased husband's estate, to determine the rights of
the parties to the proceeds of a poHcy of fire insurance issued to the
deceased. Decree for the administrator, and Mrs. Quarles appeals.
LuRTON, J. The deceased husband of appellant took out a policy of
fire insurance upon his dwelling; loss payable to the assured, his exe-
cutors or administrators. Before the expiration of the policy by time,
but after the death of the assured, the house was accidentally burned.
The insurance company, by consent of the claimants, paid the loss
into tlie hands of the defendant, under an agreement that the fund
should be held subject to the legal rights of complainant, if any she
had, to be thereafter determined by the courts. An agreed case was
made up, and submitted to the chancery court, and from the decree
of the chancellor Mrs. Quarles has appealed.
Appellant is the widow of the assured, and claims a life estate in
the fund, upon the following state of facts:
Before her marriage to the assured, a marriage contract was entered
into, and duly executed, and registered in the county of their residence,
by which, among other things not material to be here mentioned, it
was agreed "that all the property and estate, both real and personal,
now owned or hereafter acquired by said John W. Quarles, shall con-
tinue to be his, and shall remain wholly unaffected by said contem-
plated marriage with said Mrs. Nancy M. Kirk, in favor of whom
no marital or other rights on his said property and estate shall attach
or inure by reason of said contemplated marriage relation, further, or
otherwise, than is expressed and provided in this instrument; and
he hereby reserves the right and privilege of making such suitable pro-
vision for her out of his estate as he may at any time desire, either
by deed of gift, last will and testament, or otherwise. If he die with-
out making any such provision for her, then she shall out of his real
estate, if she survive him, have a comfortable home, to consist of, say,
about one hundred and forty acres of his land's, in which will be in-
cluded his dwelling and outhouses; the same to be surveyed and laid
6 For discussion of principles, see Vance on Insurance. §§ 26, 27. See, also,
Cooley, Briefs on the Law of Insurance, vol. I, pp. 78-85.
A PERSONAL CONTRACT UBERRIMCE FIDEl 11
off to her by proper metes and bounds, and in such manner as will
be most useful and convenient to her, and with least injury to his es-
tate. This home, so laid off to her, to be and remain to her own
proper use, support, and benefit for and during the term of her natural
life, and, after her death, to take such directions as he may give to
it by his last will and testament, or other proper mode of disposing of
real estate ; and if he die without any will, and without disposing of
the remainder interest in said 'Home,' as above provided for and de-
scribed, then the same shall descend to his proper heirs and distributees
according to the laws of the state of Tennessee."
After the marriage, the dwelling house above described, which was
then and after the residence of Mr. Ouarles and his wife, was insured
under a contract, as before stated, that the loss should be paid to the
assured, the husband of appellant, his executors or administrators.
Mr. Quarles died intestate, and without having, by deed or other-
wise, made any provision for his widow other than that contained in
the marriage contract. The widow continued to occupy the dwelling
as her residence until it was destroyed by fire. The portion of the
farm of the decedent which was to be assigned to her under the mar-
riage agreement had not, at the time of the fire, been laid off by metes
and bounds ; but it was subsequently done to the satisfaction of all
concerned. This estate was so laid off, as required by the contract,
as to include the outhouses of the assured, and likewise the site of the
burned mansion house. The insurance policy was not taken out upon
any agreement or contract, express or implied, with appellant, that
she was to have any interest whatever therein.
Under this state of facts, has appellant any equitable or legal inter-
est in the proceeds of this fire policy? That the precise boundaries of
the 140 acres to be laid off to her had not been ascertained by survey
at the time of the fire can cut no figure, because it was to be laid oft',
in all events, so as to include the mansion house and the outhouses.
It seems equally clear that she cannot hold the estate of her husband
responsible for the value of the house, because, at his death, her con-
tingent right to the house for her life ripened, and became a vested
interest for her life ; and at the moment her husband died intestate,
and without having made any other provision for her, the house was
standing, and her right to the use and possession at once accrued. Her
interest became at once an insurable interest; and the destruction of
the house by any means after her husband's death was not an injury
for which his estate or his heirs would be responsible.
Whatever right she has to any interest in this fund must arise from
the contract of insurance. The person assured against loss in the
policy issued upon the premises of Mr. Ouarles was the owner him-
self. By all the authorities, a contract of fire insurance is a personal
contract, and assures the interest alone of the assured! in the property,
in the absence of some agreement or trust to the contrary.
The policy taken out by ]\Ir. Ouarles contained the usual provision
12 THE NATURE AND REQUISITES OF THE CONTRACT
prohibiting any assignment of the policy without the consent of the
insurer. It also contained the further stipulation that the policy should
become void "in case any change shall take place in title or possession,
except by succession by reason of the death of the assured." These
provisions have been upheld by the courts as reasonable conditions,
limiting and restricting the liability of the insured. That they are
reasonable is obvious, when we consider that the contract is one for
the personal indemnity of the assured against a loss affecting his in-
terest in the property covered by the policy. The insurer contracts
with reference to the character of the assured for integrity and pru-
dence. He might be very willing to agree to make good the loss of
one, by the destruction of property owned by him, while he would
be altogether unwilling to insure the same property if owned by an-
other. Again, the contract undertakes to make good any loss which
the assured may sustain ; and from this it follows that, if the assured
has parted with his interest before the loss, he cannot ask to be indem-
nified, because he has sustained no loss. The provision against the
change of title is therefore in precise harmony with the personal char-
acter of the contract. In some fire insurance contracts the stipula-
tion against change of title extends so far as to make the policy void
should such change of title be brought about by the death of the assured.
The title, in such case, is no longer in the assured, but has by law
passed! to his heirs, or by will to his devisees ; and a change of title
so occurring has been held to defeat an action for a loss occurring
after the death of the assured. Sherwood v. Insurance Co., 73 N. Y.
447, 29 Am. Rep. 180; Hine v. Woolworth, 93 N. Y. 75, 45 Am. Rep.
176.
The contract is not, therefore, one which attaches to or follows the
property, being one for the personal indemnity of the assured; and,
where the insurer does not assent to the assignment of the policy to
a grantee of the property, neither the assured nor his assignee of the
property can recover upon the policy. Hobbs v. Insurance Co., 1
Sneed, 444.
But this policy was not avoided by the death of the assured. It ex-
pressly provides that a change of title shall defeat the policy, except
when it occurs "by succession by reason of the death of the assured."
The legal effect of this exception is to continue and extend the policy
notwithstanding the change of title by death of the assured. In whose
favor is this continuance? It has been ably argued that the effect of
this continuance is in favor of those who by "succession" take the
property covered by the risk, and that, though it may be payable to
the executor or administrator of the assured, yet he will, in case the
risk was upon real estate, take and hold in trust for those who by
"succession" have taken the property, and who are therefore the per-
sons damnified by the loss. This word "succession," in the connection
in which it appears, is a word of technical meaning, and refers to
A PERSONAL CONTRACT UBERRIMCE FIDBI 13
those who by descent or will take the property of a decedent. It is
a word which clearly excludes those who take by deed, grant, gift, or
any form of purchase or contract. This meaning is made most obvious
when we consider that the contract provided against any change of
title except by "succession ;" and, to more directly affix a limited and
technical meaning, the explanatory words are added, "by reason of
the death of the assured."
There is much plausibility in the argument that, inasmuch as the
policy is continued notwithstanding a change of title has occurred, in
case the risk is upon real estate, the extension is by intendment of the
contract, to operate as an indemnity to those who by "succession"
have become the owners of the property. In such a case, neither the
administrator nor the distributee would have any interest to be insured,
while the heir or devisee upon whom the title has been cast would be
the legal and ecjuitable owner, and the person to suffer by the loss.
The root principle of insurance, that the loss is payable only to
the extent that the assured has an insurable interest, W'ould seem to
preclude the administrator in such a case from any recovery, or make
him a trustee for the heir of what he should recover when the loss
occurred after the property had passed by "succession" to the heir.
This seems to be the holding of the courts, when the question has aris-
en, although the text-book writers seem not to have seized upon the
distinction. Wyman v. Wyman, 26 N. Y. 253 ; Culbertson v. Cox,
29 Minn. 309, 13 N. W. 177, 43 Am. Rep. 204. But does the appellant
take any interest in the insured property by succession? If she had
taken as devisee or under the homestead law, she would be within
the principle just discussed, and would be within the express holding
of the two cases last cited. Unfortunately for her, appellant takes
whatever interest she has in the property under the fire policy by virtue
of her marriage contract. She is not entitled to homestead or dower,
for she expressly agreed to take, in lieu of all right which the law-
would have given her, the provision wdiich she covenanted for by mar-
riage contract. This interest was a contingent one. It depended upon
two events : First, that she should survive her husband ; and, second,
that he should not by deed or will make any other provision for her.
Both of these events occurred ; and, instantly upon the death of hei
husband, she became seised of an estate for her life in the insured
premises. She therefore took this mansion-house as the grantee of her
husband, and did not take it by "succession."
But it is insisted that, however she acquired the estate, she has an
equitable interest in a life estate in this fund, because it represents
the premises which she had a right to occupy and enjoy during her
life. This presents a strong case in morals, but her legal rights are
not so clear. The rule is well settled that no equity attaches upon
the proceeds of a fire policy in favor of third persons who, in the
character of grantee, mortgagee, or creditor, may have sustained loss,
in the absence of some trust or contract to that effect. May, Ins. §
14 THE NATURE AND REQUISITES OF THE CONTRACT
456; 3 Kent, Comm. (10th Ed.) 499. This rule appHes as well to
vendors and Henors of every class as to mortgagees who may have
had their security impaired by a loss by fire. This court, in a well-
considered case, held that the holder of a mechanic's lien upon a build-
ing had no equitable lien in a fire policy effected) by the owner, and
assigned to a mortgagee. Galyon v. Ketchen, 85 Tenn. 55, 1 S. W.
508.
An equity will attach when the vendee or mortgagor was, by cove-
nant or otherwise, bound to insure the property, for the better security
of the creditor or vendor. In such a case the latter would have, to the
extent of their interest in the property destroyed, an equitable lien
upon the money due on a policy taken by the mortgagor or vendee
or other debtor who had given a security upon the insured property ;
and this would be so, even though the policy stand in the name of the
debtor, vendee, or mortgagor. But, in the absence of some such agree-
ment, the mortgagor or vendee or grantor, having an insurable interest,
might insure such interest for his own benefit ; and no lien would at-
tach thereto in favor of his creditor, secured by lien or mortgage or
otherwise upon the insured property. Carter v. Rockett, 8 Paige ( N.
Y.) 437; Wheeler v. Insurance Co., 101 U. S. 439, 25 L. Ed. 1055;
Nordyke v. Gery, 112 Ind. 535, 13 N. E. 683, 2 Am. St. Rep. 219;
Sheld. Subr. §•§ 233, 235.
The agreed state of facts upon which this case is submitted fails
to show any covenant, contract, agreement, or understanding that Mr.
Quarles should insure this property for the benefit of appellant. The
interest of appellant, after the death of her husband, was an insurable
one ; so was the remainder interest of the heirs. The decedent hav-
ing left no debts, and the distributees being the same persons who take
the real estate as heirs, no controversy arises as between the admin-
istrator and the remainder-men.
That the insurance company had the option to rebuild is urged as
a reason why the insurer's election to pay, instead of rebuilding, ought
not to operate to the disadvantage of complainant. This option is one
common to all contracts of fire insurance ; and the argument, if good
in this case, would operate to overturn the well-settled rule that no
equity attaches to the proceeds of a fire policy in favor of third per-
sons who have suffered loss, in the absence of some agreement to that
effect. If this option to pay or rebuild should be regarded as sufficient
to found an equity upon in favor of third persons disappointed by the
election of the insurer, the law of insurance would have to be rewrit-
ten. There is no privity between appellant and the insurer, and no ac-
tion of his can be ground to give her an interest which she would not
otherwise have.
The decree of the chancellor will be affirmed.
a personal contract uberrima fidei 15
2. Contracts of Fire Insurance Not Ordinarily Assignable
NEW V. GERMAN INS. CO. OF FREEPORT.
(Appellate Court of Indiana, 1S92. 5 Ind. App. 82, 31 N. E. 375.)
Action by John W. New against the German Insurance Company
of Freeport, 111. Judgment for defendant. Plaintiff appeals.
Crumpacker, J. This action was brought by New against the in-
surance company upon a policy of fire insurance issued by the de-
fendant to one Pierson, covering certain buildings in the state of Mis-
souri. The policy contained the following provision respecting the as-
signment thereof, and the change of title to the property insured: "If
the property, or any part thereof, shall be sold, conveyed, incumbered
by mortgage or otherwise, or any change takes place in the title, use,
occupation, or possession thereof, whatever, or if foreclosure proceed-
ings shall be commenced, or if the interest of the insured in said
property, or any part thereof, now is or shall become any other than
a perfect legal and equitable title and ownership, free from all liens
whatever, except as stated in writing hereon, * * * or if the pol-
icy shall be assigned without written consent hereon, then, and in
every such case, this policy shall be absolutely void."
It is alleged in the complaint that plaintiff" became the owner of
the property after the execution of the policy, by purchase, and the
title was transferred to him by said Pierson by deed ; that said Pier-
son transferred the policy to plaintiff by an assignment in due form
indorsed thereon, and plaintiff then sent it to an agent of the defend-
ant at Hopkins, Mo., to procure the defendant's consent to such as-
signment, but such agent returned the policy with notice that he had
no authority to give the necessary consent, and suggested that plain-
tiff send it to the defendant's general agents, then residents of Mary-
ville, Mo., who would, without any trouble, consent to said transfer
in writing; that thereupon the plaintiff caused said policy to be for-
warded to the said agents, who issued the said policy or caused the
same to be issued, and who received the same by due course of mail;
that they retained it some considerable time, and then returned it to
the plaintiff by mail without any word of explanation, without any
disapproval thereof, without any expression or word in regard to the
same, and without returning or offering to return to him or the said
Pierson any part of the unearned premium received on "said policy" ;
that plaintiff', on receiving said policy from said agents, supposed, and
in good faith believed, that the necessary written consent had been
indorsed thereon, and, so believing, omitted to examine the same, but
laid it away in his safe until after the loss occurred, something over
a year thereafter; that he was led to believe that consent had been
16 THE NATURE AND REQUISITES OF THE CONTRACT
indorsed upon the policy by the representations of the defendant's
agent at Hopkins, Mo., that the general agents would undoubtedly do
so. It was also alleged that proof of loss had been made, and all
conditions complied with, on the part of plaintiff.
A demurrer was sustained to the complaint, and the plaintiff de-
clined to amend, whereupon judgment was rendered against him.
The question for decision arises upon the ruling of the court upon
the demurrer. Appellant's counsel insist that the assignment of the
policy without the company's consent did not ipso facto operate a for-
feiture, but, having received notice of the assignment, some act or
declaration upon the part of the company was necessary to produce
that result; and, having remained silent, the breach of condition was
waived. It is argued that the word "void" should be construed as
"voidable." In many instances after an insurance company has notice
of the breach of a condition which, according to the terms of the
policy, would result in a forfeiture, it must in some affirmative man-
ner manifest its avoidance of the policy, or the condition will be taken
as waived. Association v. Beck, 77 Ind. 206, 40 Am. Rep. 295 ; Ha-
vens V. Insurance Co., Ill Ind. 90, 12 N. E. 137, 60 Am. Rep. 689;
Insurance Co. v. Marple, 1 Ind. App. 411, 27 N. E. 633.
A void contract is incapable of being inspired with legal vitality
except by some act equivalent in effect to a new execution. Hence it
follows that the breach of any condition that can be waived renders
the contract voidable only. But a different principle applies to the
question involved in this appeal. Insurance policies are contracts of
indemnity, and are essentially personal in their nature. They relate
to the insured, rather than the subject-matter of insurance, and at
common law were nonassignable. There is no statutory provision
changing the common-law rule, but after a loss has occurred the pol-
icy becomes a chose in action, and is assignable as other choses in ac-
tion are. Courts know, as a matter of general knowledge, that the
character of the insured is taken into account, as affecting the moral
hazard of a risk; and this is an additional reason why a change of
indemnitee should not occur without consent of the indemnitor. An
insured must have an interest in the subject of insurance, or the pol-
icy will be held a wager contract, and void as against public pol-
icy. Having obtained valid insurance, if the interest of the policy
holder ceases in the property covered, the policy at once becomes in-
operative. There is, then, no possibility of a loss; consequently, no
basis for indemnity. The contract being one of indemnity, and per-
sonal to the insured, it follows that any assignment by him, with a
transfer of the title to the property, transfers no right in the insur-
ance to the assignee, without the consent of the insurer. Such con-
sent is equivalent to the creation of a new contract between the as-
signee and the insurer, according to the terms of the policy assigned.
It is not strictly an assignment, but the making of a new contract.
Insurance Co. v. Munns, 120 Ind. 30, 22 N. E. 78, 5 L. R. A. 430.
A PERSONAL CONTRACT UBERRIMCE FIDEI 17
This being the case, there never was any contract between the ap-
pellant and appellee, and consequently no conditions that could be
waived. After the transfer of title, Pierson had no insurance, be-
cause he had nothing to insure. Hence, no right passed by the as-
signment of the policy. Appellant had no right to rely upon the sug-
gestion of the first agent to whom he sent the policy that the gen-
eral agents would indorse the company's consent to the transfer.
Conditions may be waived by silence, under some circumstances, but
it is rare that entirely new indemnity contracts may be created in that
manner. Judgment affirmed.
KASE v. HARTFORD FIRE INS. CO.
(Supreme Court of New Jersey, 1895. 58 N. J. Law, 34, 32 Atl. 1057.)
Action by John H. Kase, for the use of Albert O. Headley, against
the Hartford Fire Insurance Company. Judgment for defendant, and
plaintiff brings error.
GuMMERE, J. This is an action brought by the plaintiff, for the
benefit of Albert O. Headley, upon a policy of insurance issued by
the defendant corporation. The principal facts in the case are undis-
puted, and briefly these: The Hartford Fire Insurance Company on
the 8th day of May, 1890, issued to G. Schwab & Bros, a policy of
insurance upon certain property in the city of Newark, which was
covered by a mortgage held by John H. Kase, the plaintiff in this
suit. The policy contained this clause : "Loss, if any, payable to John
H. Kase, mortgagee, as interest may appear." It also contained the
ordinary provision that the interest of the mortgagee should not be
invalidated by any act or neglect of the mortgagor, nor by any change
in the ownership of the property. On the 10th day of November,
1891, Kase assigned to Headley the mortgage which covered the in-
sured property, together with the bond which it was given to secure,
but did not assign to him the policy of insurance, or his interest in
it. Nor did the insurance company consent to the transfer to Head-
ley, or agree that he should stand in the place of Kase, so far as the
payment of any loss was concerned. A short time after the mort-
gage was assigned, and on the 28th of November of the same year,
the mortgaged premises were partially destroyed by fire. Before this
occurred, however, the policy of insurance had become invalidated, as
against the owners of the premises, by reason of their violation of
certain of its conditions, and had ceased to be an obligation of the
company, so far as they were concerned. After the fire occurred,
Kase delivered the policy of insurance to Headley, and then brought
this suit, in his own name, for the use of Headley.
The question to be determined is whether such a suit can be main-
CooLET Ins. — 2
18 THE NATURE AND REQUISITES OF THE CONTRACT
tained, and damages recovered from the company, by reason of the
partial destruction by fire of the mortgaged premises, notwithstand-
ing that at the time of the fire the poHcy had become invalidated, as
against the owners of the premises, and that Kase, although he had
assigned his mortgage to Headley before the fire occurred, failed to
transfer to him his interest, as mortgagee, in the policy of insurance.
It seems clear that, in the condition of affairs above narrated, this
action cannot be maintained. So far as Kase is concerned, he has not
suffered any loss by reason of the injury to the mortgaged premises,,
for he had no interest in them when the fire occurred. So far as
Headley, the assignee of the mortgage, is concerned, although it is
true that the fire depreciated his mortgage security, and thereby in-
flicted pecuniary loss upon him, yet, as he had no interest in the pol-
icy of insurance at the time of the fire, he has no right to call upon
the defendant company to make good the loss which he has sustained.
A policy of insurance is a contract of indemnity, personal to the party
to whom it is issued, or for whose interest the insurer undertakes to
be responsible in case of loss, and cannot be transferred to a third
person, so as to be valid in his hands against the insurer, without
the insurer's consent. Wilson v. Hill, 3 Mete. (Mass.) 69; Flanagan
V. Insurance Co., 25 N. J. Law, 506; Rayner v. Preston, 18 Ch.
Div. 1.
Not only was no such consent given in this case, but no attempt
was made by the mortgagee to transfer to his assignee his interest in
the policy of insurance until after the risk which it insured had de-
termined. The judgment of the court below should be affirmed.
III. A Contract Essentially of Indemnity '
CHICKASAW COUNTY FARMERS' MUT. FIRE INS.
CO. v. WELLER.
(Supreme Court of Iowa, 1896. 98 Iowa, 731, 68 N. W. 443.)
See post, p. 307, for a report of the case.
7 For a discussion of principles, see Vance on Insurance, § 28.
THE NATURE OF THE CONTRACT OF LIFE INSURANCE 19
IV. The Nature of the Contract of Life Insurance '
NYE V. GRAND LODGE A. O. U. W.
(Appellate Court of Indiana, 1S94. 9 Ind. App. 131, 36 N. E. 429.)
Action by Nancy J. Nye against the Grand Lodge Ancient Order
of United Workmen and Joseph H. Clark and others. Plaintiff's
husband held a certificate of membership in the order for $2,000. This
he sold and assigned to Clark for $300. Clark surrendered the cer-
tificate and procured the issuance of a new certificate naming himself
as beneficiary. Before the death of plaintiff's husband Clark paid in
dues and assessments to keep the certificate alive $135. This action
was brought by the widow of the insured to recover the amount due
on the certificate. The defendant association interpleaded and paid
the sum due into court. From a judgment awarding the fund to the
defendant Clark, plaintiff appeals.
LoTz, j,9 * * * There is a marked conflict between the adjudi-
cated cases bearing upon some of the propositions here involved.
Owing' to this conflict, the questions here presented are not free from
difficulty. In considering them we may be materially aided by a brief
recurrence to the origin and growth of the business of insurance and
of the principles which underlie it. Nearly every kind of property is
exposed to injury or destruction. Of those causes which produce
disaster, the most common are fire, shipwreck, and premature death.
A person in good health, in the full possession of all his faculties,
has the power to earn and accumulate property. These future earn-
ings may be of great value to those dependent upon him, or to his
creditors. These earnings may be destroyed by his premature death.
Life insurance has for its object the protection of these future earn-
ings.
In the complexity of modern society, property may also be exposed
to certain artificial losses, such as insolvencies, failure of title, and the
like. The exposure of property to these various hazards may be
very common, but loss actually occurs in comparatively few instances.
It is difficult or impossible to predict or prevent the happening of the
events which produce the loss, but it is frequently of the greatest mo-
ment to those most deeply concerned to guard against the loss which
their occurrence entails. This end may be accomplished by means of
a general fund obtained by imposing a small contribution upon the
many who are exposed to the common peril, from which the few
8 For discussion of principles, see Vance on Insurance, § 29. See, also,
Cooley, Briefs on the Iawv of Insurance, vol. 1, pp. 85-97.
9 Part of the opinion is omitted and the statement of facts is rewritten.
20 THE NATURE AND REQUISITES OF THE CONTRACT
who actually suffer may be made whole. To secure this indemnity
against loss gave rise to, and lies at the foundation of, the business
of insurance.
As a business, it is the system of distributing losses upon the many
who are exposed to the common hazard. Its importance has grown
with the extension of trade and commerce and the necessities of civil-
ized life. Marine underwriting lays claim to high antiquity. Traces
of its existence are found under the early Roman emperors. It came
into prominence among the Lombards of northern Italy during the
revival of commerce in the twelfth and thirteenth centuries. The
principles and methods of marine insurance were easily and readily
extended to the hazards which surrounded like property upon land.
The controlling principle in a contract of fire or marine insurance has
ever been that of indemnity. The insurer contracts to indemnify the
assured for what he may actually lose by the happening of the events
upon which that insurer's liability is to arise. Under no circumstance
is the assured, in theory, permitted to make a profit of his loss. If
this were not so, the two parties to the contract would not have a
common interest in the preservation of the thing insured, and the
contract would create a desire for the happening of the event insured
against. When the insured can only receive compensation for the
loss which he may actually sustain, the temptation to defraud, and
carelessness in exposing the property, are removed.
Life insurance, according to the authorities, is of later origin than
fire and marine insurance, but the same general principles which un-
derlie them govern life insurance. The indemnity feature in life in-
surance is not always apparent. Indeed, the great weight of au-
thority is to the effect that the element of indemnity is not neces-
sary to support a contract of life insurance. Dalby v. Assurance Co.,
15 C. B. 365; Insurance Co. v. Bailey, 13 Wall. 616, 20 L. Ed. 501 ;
Loomis V. Insurance Co., 6 Gray (Mass.) 396 ; Lord v. Dall, 12 Mass.
118, 7 Am. Dec. 38; Insurance Co. v. Johnson, 24 N. J. Law, 576.
In Biddle on Insurance (section 185) it is said that "it may be laid
down as nearly the universal rule that at the present time, either by
statute or judicial decision, an interest is necessary to support a life
policy ; and it may be asserted with the same universality that the
courts have decided that a life policy is not a contract of indemnity."
The interest which one has in his own life, or in the life of another,
(unless it be a debtor,) is difficult to estimate in dollars and cents ;
hence it is said that strict indemnity finds no place in life insurance.
Mr. May, in his excellent work on Insurance (section 7), takes issue
with the current authorities, and logically shows that there is no
difference between valued policies in fire and marine insurance and a
policy of life insurance. In each case the value of the interest is
agreed upon in advance, and the purpose of the contract is to indem-
nify the insured to the extent of the agreed value. Life insurance
has been defined to be a contract in which one party agrees to pay a
THE NATURE OF THE CONTRACT OF LIFE INSURANCE 21
given sum upon the happening of a particular event contingent upon
the duration of human life, in consideration of the immediate pay-
ment of a smaller sum, or certain equivalent periodical payments, by
another. Buny. Ins. 1 ; Dalby v. Assurance Co., supra.
Life insurance and fire and marine insurance have much in com-
mon, and yet there are essential differences between it and them. In
the latter, the loss may or may not occur, and, should it occur, it
may be total or partial ; while in the ordinary life insurance the event
insured against is certain to occur, and the time of the happening is
the only contingent element. The person for whose benefit the insur-
ance is written, his heirs or assigns, is certain to realize the sum
named in the contract. As the expectancy of life decreases, the value
of the policy increases.
The reverse of this is true in fire and marine insurance. As the
time for which the policy was written grows shorter, its value de-
creases. Insurance is sometimes spoken of as an aleatory contract, or
one involving risk or speculation ; and it certainly is a contract of
mutual risk, wherein the premium is risked against the chance of loss.
But it is not ordinarily a wagering or gambling contract. Although
risk is of the essence of the contract, it exists before the contract is
executed, and the assured is moved to effect the contract by reason
of the existence of the risk, while in a purely wagering contract the
risk is created by the contract itself. If the assured have no interest
whatever in the thing or life insured, he sustains no risk. The thing
or the life which may be the subject of insurance, it is true, is ex-
posed to the hazard of loss; still the person who has no interest
therein does not bear the risk. If one take out a policy of insurance
upon the life of a person in whom he has no interest whatever, his
risk is created by the contract itself, and it falls within the category
of wagering or gambling contracts.
It has become a fixed rule in life insurance that the assured must
have an interest of some kind in the life of the person insured in or-
der to take the policy out of the category of wagering contracts. An-
other reason sometimes given for this rule is that it is against public
policy, and has a demoralizing influence for one person to be inter-
ested in the death, rather than the life, of another. This latter rea-
son is based upon the supposition that the temptation on the part of
the assured to destroy the life of the insured must be counterbalanced
by the existence of an insurable interest in the life of the insured.
This doctrine that the assured must have an interest in the life of
the person insured is expressly condemned by Mr. Cook on Life In-
surance (section 58). He characterizes it as a false, artificial, and
confusing restriction as to the class of persons who may obtain the
benefit ; and concerning the last reason he says : "But the theory
that it is contrary to public policy that one person should have an
expectation of a benefit conditioned on the happening of the death of
another finds little, if any, support from the rules applied to analogous
22 THE NATURE AND REQUISITES OF THE CONTRACT
cases, for it is just this expectation that exists in case of a devise or
legacy, or in case of dower or other life tenancies ; yet it never seems
to have been seriously suggested that, on that ground, devises, leg-
acies, or life tenancies are invalid or contrary to public policy."
The view maintained by Mr. Cook is supported by the adjudication
of Ireland, New Jersey, Rhode Island, and perhaps some other states.
The rule adopted by the courts of England and of the United States
generally, and by the supreme court of this state, is that the assured
must have an insurable interest in the life of the person insured. In-
surance Co. v. Hazzard, 41 Ind. 116, 13 Am. Rep. 313; Insurance
Co. v. Sefton, 53 Ind. 380 ; Insurance Co. v. Volger, 89 Ind. 572, 46
Am. Rep. 185. * * * Judgment affirmed/"
V. The Nature of Mutual Benefit Insurance**
DANIHER v. GRAND LODGE A. O. U. W.
(Supreme Court of Utah, 1894. 10 Utah, 110, 37 Pac. 245.)
Action by Dennis Daniher against the Grand Lodge Ancient Order
of United Workmen, Jurisdiction of Nevada, and all individual mem-
bers of all lodges within said jurisdiction subordinate to and under
the control of said Grand Lodge A. O. U. W. of Nevada.
Bartch, J.^^ The plaintiff brought this action to recover $2,000,
the amount of a beneficiary certificate issued by the defendants to
Jerry T. Daniher, who designated the plaintiff, his father, as his ben-
eficiary, to whom payment should be made after his death. Jerry T.
Daniher died November 18, 1888, and thereafter demand was made
and payment refused. Upon the trial of the cause the court entered
judgment in favor of the plaintiff, and thereupon the defendants ap-
pealed.
The first material question to be determined is whether there ex-
isted, between the deceased and the appellants, a contract of insur-
ance, which includes the question whether the Ancient Order of
United Workmen is in any sense to be classed as a mutual life in-
10 The court held that the assigument was valid, and not a mere wagering
contract, and affirmed the judgment awarding the fund to the assignee.
For a discussion of the nature of life insurance contracts as contracts
of indemnity when issued to secure a creditor, see Exchange Bank v. Loh,
104 Ga. 44G.' 31 S. E. 450. 44 L. R. A. 372 (1898).
Assigimient of life policies, see post, p. 301.
11 For discussion of principles, see Vance on Insurance, § 30. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, pp. 25-38.
12 Part of the opinion is omitted.
THE NATURE OF MUTUAL BENEFIT INSURANCE 23
surance company. It is shown by the record that the association is
a voluntary, unincorporated, beneficial and benevolent society. Under
its constitution and by-laws, it is designed to promote the welfare of
its members, and protect those dependent upon them. One, if not its
principal, object, is to provide for the payment of a stipulated sum
to the beneficiaries of its deceased members. Its governing bodies
consist of a supreme lodge, of grand lodges, and of subordinate
lodges. It is the province of the supreme lodge to prescribe and de-
termine the rights, privileges, and duties of the members of the so-
ciety and of the beneficiaries of deceased members. Grand lodges are
organized and exist under its authority, and subject to the constitu-
tion and general laws of the order, in such countries, states, terri-
tories, and districts as the supreme lodge may determine. A grand
lodge has original jurisdiction, within its territory, over all matters
pertaining to the welfare of the order, and, for the government of
itself and its subordinate lodges, may adopt constitutions, by-laws,
rules, and regulations, and may alter and amend the same. It exer-
cises control and supervision over the subordinate lodges within its
jurisdiction. The defendant grand lodge, jurisdiction of Nevada, has
control over and supervision of all the subordinate lodges in the states
of Nevada, Idaho, Wyoming, Montana, and in the territory of Utah.
Under the constitution and by-laws of the order, there is estab-
lished a beneficiary fund for the benefit of all members in good stand-
ing, and each member who complies with the rules and regulations of
the order is entitled to a benefit certificate in the sum of $2,000, pay-
able, at the death of the member, to the person designated by him as
his beneficiary. These certificates are issued by virtue of the power
vested in the grand lodge, in the nature of mutual benefit insurance,
of which the members of the order may avail themselves. The ben-
eficiary fund is maintained by assessments upon the individual mem-
bers. Under the rules and by-laws of the lodge, all assessments are
dated on the 1st day of the month, and the sum of one dollar is levied
upon each member for each death which occurred during the preced-
ing month. Notice of assessments must be served personally or by
mail, on or before the 8th day of the month in which the assessments
were made. Then it is incumbent upon each member to pay the same
on or before the 28th day of the month, and, if he fails to do so, he
shall stand suspended from all the rights, benefits, and privileges of
the order. Any member thus suspended may be reinstated at any
time within 30 days from the date of suspension by paying all as-
sessments then remaining unpaid, and, after 30 days, but within 3
months, by paying all assessments in arrear and pending, and furnish-
ing a certificate of good health. Any suspended member, after the ex-
piration of three months from the date of his suspension, can only
be reinstated upon examination and recommendation of the medical
examiner, as in the original instance, and at the expiration of six
24 THE NATURE AND REQUISITES OF THE CONTRACT
months from the date of his suspension his beneficiary certificate shall
be annulled. * * *
Thus, from an examination of the record, it is clear that the or-
der has assumed the characteristics of a fraternal organization, but it
is also equally clear that it has embodied within its constitution and
by-laws many of the incidents of a mutual life insurance company,
and these apparently predominate. The controlling object of the or-
der seems to be the providing a beneficiary fund, out of which a
certain stipulated sum is to be paid to the beneficiary of each member
in good standing, upon the happening of a contingency. Good health
is a requisite to become a member, and every application for member-
ship must be accompanied by a physician's certificate to that effect.
That an applicant is insurable is one of the qualifications for admis-
sion, and when he is admitted into full membership a certificate in the
nature of an insurance policy is issued to him, and he cannot main-
tain his membership without keeping such certificate in force by the
payment of his assessments and dues. The assessments are, in their
nature, premiums, the nonpayment of which works a forfeiture of the
insurance.
Very ample and exacting provisions are contained in the constitu-
tion and by-laws in relation to the beneficiary fund, to enforce pay-
ment of assessments upon the death of a member, while the other
declared objects of the association seem to be almost without provi-
sion for enforcement. It is evident from these provisions and re-
quirements that the main object of the order is protection to the ben-
eficiaries of its deceased members by insurance, and that its fraternal
charter is merely incidental. The contract made between this associ-
ation and each of its members by issuing a beneficiary certificate, as
shown by the record in this case, does not essentially differ from an
ordinary contract of mutual life insurance. The life of the member
is the subject insured, and the risk is death. The sum to be paid is
certain, and so also are the assessments to be paid during the continu-
ance of the risk. There is an absolute undertaking to pay the ben-
eficiary designated, upon the happening of the contingency, unless
forfeiture has resulted by nonpayment of dues or assessments. The
conclusion is inevitable that it is an insurance contract, and that
the association is, in effect, a mutual life insurance company. The
rights of the parties to this suit must therefore be determined by the
law applicable to mutual life insurance corporations. Bac. Ben. Soc.
§ 52 ; State v. Miller, 66 Iowa, 26, 23 N. W. 241 ; Comm.onwealth
V. Wetherbee, 105 Mass. 149; State v. Bankers' & M. Mut. Ben.
Ass'n, 23 Kan. 499 ; McCorkle v. Association, 71 Tex. 149, 8 S. W.
516. * * * Judgment affirmed.
THE CONTRACT OF REINSURANCE 25
VI. The Contract of Reinsurance
13
Appeal of GOODRICH.
(Supreme Court of Pennsylvania, 1885. 109 Pa. 523, 2 Atl. 200.)
On January 31, 1876, a petition was presented by the insurance com-
missioner to wind up the Penn Fire Insurance Company, for being
fraudulently conducted and insolvent. Proceedings were suspended
to allow it to execute a contract with La Caisse Generale des Assur-
ances Agricole et des Assurances contre I'lncendie, whereby it was
agreed that in consideration of $10,000, the receipt of which was ac-
knowledged, "a policy of insurance is to be issued by La Caisse Gen-
erale," etc., "reinsuring the outstanding risks of the said Penn Fire
Insurance Co. ;" the amount over and above $10,000 necessary to
reinsure its outstanding risks to be paid on or before 60 days. In a
more formal contract made a day or two later, it was also agreed
that "the policy of reinsurance to be issued to the Penn Fire Insurance
Company shall be on the following conditions, viz. :" That the rein-
surance should extend to 40 days; and if then a certain portion of
the balance of the premiums should not be paid, the Hability of the
Caisse Generale should cease ; that the Penn Company will turn over
all books, reports, registers, etc.; and that the Caisse Generale will
assume the care of the adjustment of all losses which may occur un-
der the policies of the said Penn Company, which are thereby to be
reinsured. Within the 40 days the steamer Mary Bell, owned by Ralph
Hicks, Richard Sinnot, and Alfred Grissom, Jr., and property be-
longing to Henry C. Goodrich and William B. Nevins, trading as Good-
rich & Nevins, was totally destroyed by fire. The Caisse Generale
paid the amount of the losses which occurred during the 40 days on
suit by receiver of the Penn Company. This fund is claimed by the
owners above, the appellants, and also by the general creditors of the
Penn Company. The auditor reported in favor of the general cred-
itors. Complainants excepted to the report, but it was confirmed by
the court, whereupon this appeal was taken.
Clark, J.^* The only question raised by the several assignments of
error in this case is whether or not, in the distribution of the assets of
the Penn Fire Insurance Company of Philadelphia in the hands of an
assignee, the appellants are entitled to any preference over the general
creditors of the company. * * *
13 For discussion of principles, see Vance on Insurance, § 31. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, p. 3932 et seq.
i*Part of the opinion is omitted.
26 THE NATURE AND REQUISITES OF THE CONTRACT
"Reinsurance" is properly applied to an insurance effected by one
underwriter with another, the latter wholly or partially indemnifying
the former against the risks which he has assumed ; that is to say,
after an insurance has been effected the insurer may have the subject
of insurance reinsured to him by some other. There is in such case,
however, no privity between the original insured and the reinsurer ; the
latter is in no respect liable to the former as a surety or otherwise ;
the contract of insurance and of reinsurance being totally distinct and
disconnected. But while the contract is one of indemnity simply, in
which the insurer is to be protected to the extent of his loss, when
the loss is incurred and ascertained, the reinsurer must pay the amount.
The insurer may at once, without payment to the original assured, re-
sort to his action. Fame Ins. Co.'s Appeal, 83 Pa. 396. Even if the
insurer fail, or become insolvent, so that his insured receives only a
dividend, however small, the reinsurer can gain nothing by this, but
must pay the amount of the loss to the first insurer. Hastie v. De
Peyster, 3 Caines (N. Y.) 190; Hone v. Mutual Safety Ins. Co., 1
Sandf. (N. Y.) 137, affirmed in court of appeals sub nom. Mutual
Safety Co. v. Hone, 2 N. Y. 235 ; 3 Kent, Comm. 279 ; Marsh. Ins.
143. So, in Herckenrath v. American Ins. Co., 3 Barb. Ch. (N. Y.)
63, Chancellor Walworth decided that "where an insurance company
has underwritten a policy, and afterwards causes itself to be reinsured,
and after the loss of the property insured such company becomes in-
solvent, the person originally insured has no equitable lien upon the
sum of money due on the contract of reinsurance ; but that fund be-
longs to all the creditors of the insolvent company ratably."
These are familiar principles of insurance law, and are not now
anywhere doubted. If, therefore, the contract between La Caisse Gen-
erale, etc., and the Penn Fire Insurance Company was for a policy
of reinsurance, properly so called, the appellants could have no pref-
erable claim or lien upon the fund in question although the Penn
Company was admittedly and hopelessly insolvent.
It is contended, however, by the appellants that the contract in ques-
tion, when read in the light of the facts attending its execution, can-
not, in any strict sense, be considered a contract for reinsurance ; that
it was not intended to provide indemnity to the company, but to the
individual policy holders, and that the policy holders can claim the
advantage of this so-called reinsurance for themselves directly and
exclusively ; that the term "reinsurance" was not used in its legal or
technical sense, but in a different sense, defined by the particular facts
which induced the creation of the contract, and that the reinsurance
by the Caisse Generale, etc., was in fact, although not so expressed,
a conditional assumption of the business of the Penn Company.
It was competent, we think, for the Penn Company, acting in the
interest of its general policy holders, with or without authority, in view
of insolvency, and without fraud, to effect an indemnity for their in-
dividual protection in case of loss (Glen v. Hope Mut. Ins. Co., 56 N.
THE CONTRACT OF REINSURANCE 27
Y. 379; Fischer v. Same, 69 N. Y. 161), which, even after loss, they
might ratify and approve (Flemming v. Marine Ins. Co., 4 Whart. 59,
33 Am. Dec. 33 ; Stillwell v. Staples, 19 N. Y. 405 ; 1 Am. Lead.
Cas. 344) ; and if the insurance was in their interest, directly for their
benefit, and free from any additional burden or obligation on their
part, ratification might be presumed. But we fail to find anything
in the words of the contract, in the special circumstances attending
its creation, in the nature of the transaction itself, or in any rule of
public policy, that would justify us in saying that the contract was
any other than a contract of reinsurance, in the proper sense of that
term. The contract was written by and between persons on both sides
actually engaged in the business of insurance — persons conversant,
doubtless, with the meaning of terms employed in the practice of in-
surance — and the presumption is a fair and reasonable one that words
of technical or special import were by them properly applied. The
words "reinsure" and "reinsurance" would therefore seem, in the first
instance at least, to characterize the contract, and to point out the ob-
ject and purpose of the parties. The proper signification of these terms
would, of course, vary with the clearly manifested intention of the par-
ties. But the contract is with the Penn Company, for a consideration
moving from it, providing for a policy to the Penn Company to rein-
sure its risks. There is no provision whatever expressed in the con-
tract for the individual indemnity of the policy holders, nor for the
insurance of their property for them. The reinsurance is expressly
upon the "outstanding risks" of the company. The contract of rein-
surance, in some sense, perhaps, operates upon the property itself rath-
er than the risk, but the fact that the policy was to be upon the "risks"
indicates that it was the company's insurable interests in the property
which formed the basis of the insurance.
It is true that, except for the appellants' losses by fire, the fund of
$6,000 would not have been realized, but this is incident to all cases" of
reinsurance. It is true, also, that the reinsurance was of all the out-
standing risks of the company, and not, as is usually the case, of any
particular part of them; but whether a company shall reinsure the
whole, or only a part, of its risks is a question of policy for the com-
pany, dependent upon its purposes for the future or its circumstances.
If the underwriter wishes to change his business, or to quit the country,
or to avert insolvency, he may choose to reinsure the whole. Under
different circumstances he may choose to indemnify himself as to part
only. The provision that the Penn Company "will turn over to the
Caisse Generale its original registers, books, reports, and other papers
in any way relating to the policies thereby insured," and "that the
Caisse Generale will assume the care and expense of the adjustment
of all losses which may occur under the policies of the said Penn
Fire Insurance Company, which are thereby to be reinsured," are con-
sistent, we think, with either theory of the case— as consistent with one
as with the other— and they, therefore, prove nothing either way. Such
28 THE NATURE AND REQUISITES OF THE CONTRACT
a course of proceeding may be rare, but cases are rare, perhaps, when
the reinsurance is upon the whole list of the underwriter's risks, and
where this is the case there can certainly be nothing unreasonable in
the provision. We think there is nothing on the face of the contract
itself to give it the effect claimed for it, and we can discover nothing
in the facts which led up to its execution which would evidence any
intention of the parties different from what is plainly expressed.
* >|: *
The case of Glen v. Hope Mut. Ins. Co., supra, is greatly relied on
by the appellants, but that case is materially different from this. By
a contract duly executed, the Hope agreed to reinsure the Craftsman
Company on all risks for which its policies were outstanding, and also
to assume all such policies, and to pay the holders thereof all such
sums as the Craftsman might, by force of such policies, become liable
to pay. The engagement to the policy holders was direct and express,
and the liability was therefore direct and exclusive. This case was
followed by Fischer v. Hope Mut. Ins. Co., supra, which was another
action on the same contract, and the rulings in the former case were
in the latter recognized and approved.
The decree of the court of common pleas is affirmed, and the appeal
is dismissed at the costs of the appellant.^ ^
JOHANNES V. PHCENIX INS. CO. OF BROOKLYN, N. Y.
(Supreme Court of Wisconsin, 1886. 66 Wis. 50, 27 N. W. 414, 57 Am.
St. Rep. 249.)
This is an appeal from an order overruling a demurrer to the com-
plaint for insufficiency, as against the appellant. The complaint alleges
that July 1, 1883, the defendant the Standard Fire Office of London,
Limited, insured the plaintiff's property against loss or damage by fire
to the amount of $1,650 from July 1, 1883, to July 1, 1886. And the
plaintiff further alleges that subsequent to the making and issuing of
said policy the defendant the Phoenix Insurance Company being desir-
ous of acquiring and purchasing the business and good will of its co-
defendant herein, and the defendant the Standard Fire Office of Lon-
don, Limited, aforesaid, being desirous of reinsuring its risks upon
property in the United States, and having withdrawn from business
in the United States, the said defendant corporation, on or about the
2d day of January, 1884, made and entered into an agreement in
writing, whereby the Phoenix Insurance Company, aforesaid, reinsured
all the risks of the Standard Fire Office upon property situated in the
L^nited States from 12 o'clock noon, in New York, on the 1st day of
January, A. D. 1884, and agreed that all losses arising under the policies
15 Compare Barnes v. Helda Fire Ins. Co., 56 Minn. 38, 57 N. W. 314, 45
Am. St. Kep. 438 (1893).
THE CONTRACT OF REINSURANCE 29
of the Standard Fire Office upon property situated in the United States
should, after that time, be borne by the said Phoenix Insurance Com-
pany, and should be paid, satisfied, and discharged by it, and thereby
reinsured the risk upon the property mentioned in the policy herein-
before described, and agreed that the loss of this plaintifif arising there-
under should be borne, paid, satisfied, and discharged by said Phoenix
Insurance Company, which thereupon became owner of the good will,
original documents, and books of its codefendant herein, relating to
the risks aforesaid, and assumed control of the same, and of the busi-
ness pertaining to said risks, policies, and losses. The complaint fur-
ther alleges, in effect, that July 4, 1884, and while said policy was still
in force, the assured property was destroyed and lost by fire, etc.
* * *
Cassoday, J.^® a policy of fire insurance is a contract of indemnity.
Darrell v. Tibbitts, 5 Q. B. Div. 560. By such contract the insurer
agrees to compensate the assured for loss by fire of certain property,
for a given time. The existence of such contract gives the insurer
an insurable interest in the property insured, coextensive with its lia-
bility. Delaware Ins. Co. v. Quaker City Ins. Co., 3 Grant, Cas. (Pa.)
71 ; New York Bowery Fire Ins. Co. v. New York Fire Ins. Co., 17
Wend. (N. Y.) 359. Here the Standard Fire Office of London in-
sured the plaintifl:''s property for three years from July 1, 1883. After
doing so it became desirous of reinsuring its risks upon property in
the United States, and withdrawing from business in the United States.
The Phoenix Insurance Company of Brooklyn was at the same time
desirous of acquiring and purchasing the business and good will of
the Standard Company. Accordingly the two companies made the
agreement set forth in the statement of facts, on January 2, 1884. At
that time the plaintiff's policy had two years and a half more to run.
Of course the Standard Company had an insurable interest in the
plaintiff's property commensurate with its liability. The agreement
between the two companies, as alleged, was based upon a sufficient
consideration. Its validity is not assailed. The contention is that
the contract between the two companies is confined strictly to them,
and that the plaintifif under his policy issued by the Standard has no
privity in the contract made by the Phoenix, and can maintain no action
thereon against the Phoenix. In other words, that it was strictly a
contract of reinsurance by the Standard Company, solely for its own
benefit, and not for the benefit of any of its then existing policy holders
in the United States.
In support of such contention the learned counsel for the appellant
cites several cases. * * * Some of the cases cited were upon con-
tracts of strict reinsurance, as above defined, and clearly sustain the
position of counsel, if the contract here is to be so restricted. Hastie
v. De Peyster, 3 Caines (N. Y.) 190; Herckenrath v. American M.
16 Part of the opinion is omitted and the statement of facts is rewritten.
30 THE NATURE AND REQUISITES OF THE CONTRACT
Ins. Co., 3 Barb. Ch. (N. Y.) 63; New York Bowery Fire Ins. Co.
V. New York Fire Ins. Co., supra ; Hone v. Mutual Safety Ins. Co., 1
Sandf. (N. Y.) 137; s. c, 2 N. Y. 235; Carrington v. Commercial F.
& M. Ins. Co., 1 Bosw. (N. Y.) 152; Blackstone v. Alemannia Fire
Ins. Co., 56 N. Y. 104; Strong v. Phoenix Ins. Co., 62 Mo. 289, 21
Am. Rep. 417; Gantt v. American Cent. Ins. Co., 68 Mo. 503; Dela-
ware Ins. Co. V. Quaker City Ins. Co., supra.
Thus, in Hone v. Mutual Safety Ins. Co., supra, the defendant, by
the policy of reinsurance, "promised and agreed to make good to the
American Mutual Insurance Company all such loss or damage," etc.
So, in the case cited in Bosworth the agreement was to "reinsure the
American Mutual Insurance Company of Amsterdam upon the fol-
lowing policies issued by them, loss, if any, payable to the assured upon
the same terms and conditions, and at the same time, as are contained
in the original policies." A description of the several policies is then
given. The court, at general term, said: "If the word 'assured,' as
used in this contract, means the party reassured, the present plaintiffs
have no interest in the contract, and no right to maintain an action
upon it ; * * * " but "if the word 'assured' does not mean the
party 'reinsured,' and that party only, then it includes and embraces,
not only the plaintiffs, but also nineteen other individuals and firms.
By the contract of reinsurance the defendants took upon themselves the
risks which the corporation reinsured had incurred by insuring twenty
separate and distinct policies." The court then determined that the
word "assured," as used, meant the company issuing the original pol-
icies and obtaining the reinsurance, and not any of such policy holders.
In Blackstone v. Insurance Co., supra, the agreement was simply to
reinsure the company, and the principal contention was whether the
insurance was double under the peculiar wording of the policy. The
same is true of Owens v. Sturges, 67 111. 366, and Insurance Co. v. In-
surance Co., 38 Ohio St. 11, 43 Am. Rep. 413, cited.
But in the case before us the contract between the defendant com-
panies was, as it seems to us, something more than a mere reinsurance.
By that contract the Standard Company sold and turned over to the
Phoenix its entire business, and the good will of that business, in the
United States, together with a large amount of bonds and other prop-
erty, in consideration of which the Phoenix thereby "reinsured all the
risks" of the Standard Company "upon property situated in the United
States, * * * and agreed that all losses arising under the policies
of the said defendant the Standard Fire Office, Limited, upon property
situated in the United States of America, should after that time (Jan-
uary 1, 1884) be borne by the said Phoenix Insurance Company, andl
should be paid, satisfied, and discharged by it, * * * and agreed
that the loss of this plaintiff arising thereunder should be borne, paid,
satisfied, and discharged by said Phoenix Insurance Company; which
thereupon became owner of the good will, original documents, and
books of its codefendant herein [the Standard Company] relating to
THE CONTRACT OF REINSURANCE 31
the risks aforesaid, and assumed control of the same, and of the busi-
ness pertaining to said risks, policies, and losses."
Such are the alleged terms of the contract we are required to con-
strue. The losses thus arising under the policies could only "be borne,
paid, satisfied, andl discharged" by the Phoenix in a direct transaction
with the policy holders. Even a payment by it of the amount of the
loss to the Standard Company would not satisfy or discharge the plain-
tiff's claim for such loss on his policy. That could only be done on
payment to the plaintiff. It seems to us that by the terms of the con-
tract, as alleged, the Phoenix, in effect, thereby assumed the risk cov-
ered by each policy, and agreed to pay any loss arising under each
policy. The mere fact that the plaintiff was not named in the contract
does not preclude him from maintaining an action upon the contract.
* * * In Glen v. Hope Mut. Life Ins. Co., 1 Thomp. & C. (N. Y.)
463, afifirmedl 56 N. Y. 379, the defendant had agreed with the
Craftsmen's Assurance Company to reinsure the latter company on
all its risks "for which policies o^f the said party of the second part
[Craftsmen's Assurance Company] are outstanding at this date, and
hereby agree to assure all such policies, and to pay the holders thereof
all such sums as the party of the second part may, by force of such
policies, become liable to pay, * * * the liability for death losses
to be limited to such deaths as may occur on and after this date ;" and
it was held that the defendant was liable on the contract of reinsur-
ance directly to the several holders of policies for the whole amount
insured thereby. The same doctrine, upon the same reinsurance con-
tract, was reaffirmed in Fischer v. Hope Mut. Life Ins. Co., 40 N. Y.
Super. Ct. 291, affirmed 69 N. Y. 161. It seems to us that the con-
tract of reinsurance in those two cases was substantially like the one
at bar. Those actions in favor of such policy holders, upon such con-
tract of reinsurance, were sustained upon the authority of Lawrence
V. Fox, 20 N. Y. 268, and similar cases. That case has been expressly
followed by this court. Gray v. McDonald, 19 Wis. 217. The same
principle has frequently been reiterated by this court. Putney v.
Farnham, 27 Wis. 187, 9 Am. Rep. 459 ; McDowell v. Laev, 35 Wis.
171; Bassett v. Hughes, 43 Wis. 319; Kollock v. Parcher, 52 Wis.
399, 9 N. W. 67; Hoile v. Bailey, 58 Wis. 450-452, 17 N. W. Z22;
Town of Platteville v. Plooper, 63 Wis. 383, 23 N. W. 581.
The principle thus sanctioned in these cases is to the effect that
if, on the receipt of a good and sufficient consideration, A. agrees with
B. to assume and pay a debt of the latter to C, then C. may maintain
an action directly upon such contract against A., notwithstanding C.
is not privy to the consideration received by A. We think the case at
bar comes within the principle.
The order of the circuit court is affirmed. ^^
17 For a collection of authorities respectine; the right of a third person
for whose benefit a contract is made to maintain action thereon, see Win-
ninghoff v. Wittig, 64 Wis. ISO, 24 N. W. 912 (1SS5).
32 THE NATURE AND REQUISITES OF THE CONTRACT
LONDON ASSUR. CORP. v. THOMPSON.
(Court of Appeals of New York, 1902. 170 N. Y. 94, 62 N. E. 1066.)
Action by the London Assurance Corporation against Joseph W.
Thompson. From a judgment of the appellate division (54 App. Div.
637, 67 N. Y. Supp. 1138) affirming a judgment for defendant on
report of a referee, plaintiff appeals.
Vann, J.^* This is a controversy between insurers, which turns
upon the construction of a policy of reinsurance. The plaintiff is a
foreign insurance corporation, and the defendant is one of several
individual underwriters, who issue what are known as "Lloyd's pol-
icies," and do business under the name of the New Jersey State Fire
Association. The policy of the plaintiff, issued to Patterson, Down-
ing & Co., covered "all risks by railroads a°Vor other inland convey-
ances, and in warehouses, yards, or elsewhere, from the time bills of
lading are signed for the goods until the same shall have been laden
on board vessels or lighter at such ports for shipment ; on rosin, tur-
pentine, and other goods commonly known as 'naval stores.' * * *
This policy also to cover goods as herein described, the property of
the Downing Co., or in which said company may be interested as owner
or agent." There was also a marine risk, which is not here important.
The policy of the defendant was of the New York standard form,
whereby the underwriters agreed to "reinsure the London Assurance
Corporation * * * against all direct loss or damage by fire * * *
to the following described property while located and contained as
described herein and not elsewhere, to wit, on the fire risk on naval
stores, i. e., rosin, turpentine, etc., in barrels, while waiting shipment,
in or on the warehouses, ^^'^/or sheds of Dozening & Co. at Brwns-
ziHck, Georgia, and insured under policies issued by the London As-
surance Corporation, marine branch. The same being naval stores of
other parties intended for foreign or domestic shipment for which the
London Assurance Corporation is liable under the terms of its marine
policies issued to shippers. It is the true intent and meaning of this
policy to fully indemnify the London Assurance Corporation for each
and every loss by fire, within the limits above named, to the full ex-
tent of its interests as herein described, * * * j^ consideration
of which, and the indemnity hereby guarantied, the Londbn Assur-
ance Corporation hereby covenants and agrees to report to this associa-
tion at the end of each month the total amount of insurance on naval
stores that has been written by said corporation in the ahove-descrihed
-warehouses, &c., and to pay to this association its proportionate part
of a premium at and after the rate of five cents for every one hundred
dollars so insured. This policy is subject to the same fire risks, con-
is Part of this opinion and all of the dissenting opinion of Haight, J., are
omitted.
THE CONTRACT OF KEINSURANCK 33
ditions, interpretations, valuations, indorsements, and assignments as
are or may be assumed or adopted by the London Assurance Corpora-
tion, and loss, if any, payable at the same time and in the same man-
ner as they pay. * * * This policy shall continue to protect all
merchandise already accepted by the London Assurance Corporation,
or for which they may be liable, until the same has passed beyond the
limits of this policy."
Of the part thus quoted from the policy the words in italics are in
manuscript, and, with this exception, all before the words "to wit"
is part of the printed form, and all after is typewritten. The italicized
words, " in the above-described warehouse, &c.," are interlined in man-
uscript in the typewritten part.
After a loss had occurred, the plaintiff paid Patterson, Downing &
Co. the amount called for by their policy, and then brought this action
to recover from the defendant his proportion thereof, according to the
contract of reinsurance, without making any effort to reform it. The
defendant, however, by a counterclaim, sought to reform it in his in-
terest, but was defeated, and the attempt is now immaterial.
The referee adopted the short form of decision, but found specific-
ally that "a typewritten paper purporting to set forth the terms upon
which said reinsurance was made was prepared by the plaintiff, and
furnished to the said New Jersey State Fire Association, and is at-
tached to and forms part of the said policy of reinsurance ; that said
reinsurance is thereby declared to be" (quoting the part above set
forth, describing the risk.) The referee further found that "a fire
occurred at said yards of Downing & Co., in Brunswick, by which a
large quantity of turpentine and rosin covered by the policy issued by
the plaintiff to said Patterson, Downing & Co. was destroyed. * * *
None of the rosin which was destroyed or damaged by said fire was
in or on the warehouses, ^'^'^/or sheds of Downing & Co., at Bruns-
wick, but the whole thereof was deposited or stored, while waiting
shipment, in the open yard of Downing & Co." He held that the
rosin was not covered by the policy of reinsurance, and gave judgment
for the loss on the turpentine only.
It appeared from the evidence that the yard of Downing & Co. was
540 feet long by 190 feet wide, and was bounded on the east by the
tracks of a railroad, and on the west by navigable water connected with
the Atlantic Ocean. In the center of the yard was a shed 300 feet long
by 50 feet wide, and contiguous thereto a storehouse of the same width,
and 100 feet in length. The plaintiff claims that, as the contract was
one of reinsurance, it was an insurance of the plaintiff's identical risk,
and not an independent insurance of specific property in a defined lo-
cality ; that the intention was that the reinsurance should cover the
plaintiff's terminal risk, whatever it was, and that the words "in or
on the warehouses ^"Vor sheds" should yield to an intention spring-
ing conclusively from the fact that the plaintiff's undertaking was to
reinsure.
CooLEY Ins. — 3
34 THE NATURE AND REQUISITES OF THE CONTRACT
While the insurable interest of the plaintiff depended upon the pol-
icy issued by it to Patterson, Downing, & Co., it does not follow that
the contract of reinsurance covered all the risks thus assumed, for
the policy was valid if it covered only a part thereof. Thus, while the
policy issued by the plaintiff covered three general risks,— inland, ter-
minal, and marine, — the policy issued to it related to only one risk,
which was the terminal. It was not essential that the contract of rein-
surance should cover even the entire terminal risk assumed by the
plaintiff, for it was within the power of the parties to agree that it
should cover a part of that risk only, and to limit it to the property
in question while it was in a certain place at the terminal port. "When
the insurer for some reason finds it convenient that another shall bear,
either in whole or in part, the liability to the insured which he has
assumed, and agrees with another insurer to assume the whole or a
part of his liability as regards the insured, it is termed a 'contract of
reinsurance.' " 1 Bid. Ins. § 378 ; Insurance Co. of North America
V. Hibernia Ins. Co., 140 U. S. 565, 11 Sup. Ct. 909, 35 h. Ed. 517.
While a contract of reinsurance implies the same subject-matter of
insurance as the original policy, and runs against perils of the same
kind, it need not be for the identical hazard insured against in the
first policy, but may be for a less, though not for a greater, risk. Phil-
adelphia Ins. Co. V. Washington Ins. Co., 23 Pa. 250, 253; 1 May,
Ins. §§ 9, 11. In a case relied upon by the plaintiff, one company rein-
sured another company on "their interest as insured under their policy"
issued to the owner of the property, and hence both policies necessarily
covered the same risk by express description. Jackson v. Insurance
Co., 99 N. Y. 124, 1 N. E. 539. Reinsurance, like any other contract,
depends upon the intention of the parties, to be gathered from the
words used, taking into account, when the meaning is doubtful, the
surrounding circumstances. * * *
The general rule is that, as insurance policies are unilateral contracts
prepared by the insurers, they are responsible for any ambiguity aris-
ing out of the language used by them, and hence, in construing that
language, all doubt is resolved against them, because they created it.
Kratzenstein v. Assurance Co., 116 N. Y. 54, 22 N. E. 221, 5 L. R. A.
799. Ordinarily an ambiguity in the policy as to whether the rosin was
covered, although it was not in the sheds or warehouses, but in the yard
adjacent thereto, would be determined against the insurer, by apply-
ing the rule already referred to. This case, however, is peculiar, in
that the words of the policy describing the risk were those of the in-
sured, and not of the insurer; for, as the referee found, the former
presented a typewritten slip to the latter, and asked for reinsurance
according to the terms therein stated, and the defendant, without see-
ing the policies issued by the plaintiff, issued the policy in suit to the
plaintiff, using the exact language which it had itself prepared.^
During the negotiations which led to the policy under considera-
tion there was no discussion as to the nature or extent of the risk.
THE CONTRACT OF REINSURANCE 35
which was treated by both parties as accurately described in the type-
written slip subsequently attached to the policy as a part thereof.
There was discussion in relation to the premium to be charged and
other matters, but none as to the risk to be assumed ; and the defend-
ant had no means of knowing, if such was the fact, that the plaintiff
wished to have any risk covered, other than that described in the slip.
The risk thus described by the plaintiff was against loss or damage by
fire to naval stores "while located and contained as described herein,
and not elsewhere." The next clause is definite and specific, for it
limits the risk to "rosin, turpentine, etc., in barrels, while waiting ship-
ment, in or on the warehouses ^°'^/or sheds of Downing & Co.," and
insured under policies issued by the plaintiff. "Within the limits above
named," reinsurance was made "to the full extent of" the interests
of the plaintiff, "as herein described." Finally a monthly report was
required from the plaintiff of the total amount of insurance written by
it on naval stores "in the above-described warehouses, &c." ; the latter
part, as if to avoid all possible doubt, having been interlined by the
plaintiff with a pen.
The risk did not cover all rosin belonging to Patterson, Downing &
Co., nor all insured by the plaintiff, but was confined to rosin while
stored in a certain manner and in a certain place. No rosin was cov-
ered unless it was "in or on the warehouses ^^^/ot sheds of Downing
& Co." These words in an application for insurance would ordinarily
constitute a warranty that the property insured was thus situated, and
would prevent a recovery for the loss of any situated elsewhere. Bryce
V. Insurance Co., 55 N. Y. 240, 14 Am. Rep. 249. While the original
policy embraced "all risks by railroads ^^<^/or other inland convey-
ances, and in warehouses, yards or elsewhere," the policy of reinsur-
ance makes no mention of property in yards, or in any place except
warehouses and sheds. Therefore, unless the rosin destroyed was in
or on the warehouses or sheds, it was not covered. The referee found
that it was not so located, but he also found that it was deposited
in the open yard, so that the unanimous affirmance does not make the
former finding conclusive, because the latter presents a question of
law as to the meaning of the policy. Clearly the property was in
neither of the places named in the policy of reinsurance, for it was
in a large, uncovered inclosure surrounding the warehouses and sheds,
and known as the "yards."
While the meaning of the word "in," as used in the reinsurance
contract, is free from doubt, that of the word "on" is not clear. The
function which the parties intended it to perform is uncertain. It does
not appear in the sentence requiring a monthly report of insurance
written by the plaintiff, for that is limited to the naval stores "in the
above-described warehouses, &c." This is significant, for both pol-
icies were open, on a fluctuating stock, and the quantity on hand, not
exceeding $80,000 in value, was the measure of the defendant's liabil-
ity. Why should the report be limited to stock in the warehouses,
36 THE NATURE AND REQUISITES OF THE CONTRACT
if the defendant was also liable for stock in the yards? The parties
may have meant that the barrels of rosin were to be on the inside floors
or the outside platforms of the buildings, or that they were to be near
or about the buildings. * * * The plaintiff may have understood
it in one way, and the defendant in another, without doing violence
to reason. In other words, an ambiguity has arisen as to the mean-
ing of the policy, which the courts must settle.
As the terms of insurance, including the description of the risk,
were wholly prepared by the plaintiff, an insurer of wide experience —
for it has done business since 1720— and the defendant had no in-
formation upon the subject, except the typewritten slip furnished by
the plaintiff, we think that the responsibility for the ambiguity should
be borne by the party who caused it. Janneck v. Insurance Co., 162
N. Y. 574, 57 N. E. 182 ; Herrman v. Insurance Co., 81 N. Y. 184,
37 Am. Rep. 488; Kratzenstein v. Assurance Co., supra. While the
defendant adopted the plaintiff's words when he pasted the slip in the
policy, he could not do otherwise if he made any contract whatever.
They were still the words of the plaintiff, the doubt caused thereby
was caused by the plaintiff, and the defendant should not be required
to father its offspring. The principle of resolving doubts in a uni-
lateral contract by throwing the burden upon the one who caused them
applies with the same force to this case, under its peculiar circum-
stances, as to the cases cited, and, as we think, furnishes the proper
solution of the controversy.
The judgment should be affirmed, with costs.
VII. When the Contract Is Divisible^'
SOUTHERN FIRE INS. CO. v. KNIGHT.
(Supreme Court of Georgia, 1900. Ill Ga. 622. 36 S. E. 821, 52 L. R. A.
70, 78 Am. St. Rep. 216.)
CoBB, J.-*^ M. A. & L. L. Knight brought suit against the South-
ern Fire Insurance Company upon a policy of fire insurance. The
case came on for trial, and at the conclusion of the testimony for the
plaintiffs the defendant made a motion for a nonsuit, which the court
overruled. The case proceeded to trial, and resulted in a verdict for
the plaintiffs. The defendant brings the case here upon a bill of ex-
19 For discussion of principles, see Vance on Insurance, § 32. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, p. 1894 et seq.
20 Part of the opinion is omitted.
WHEN THE CONTRACT IS DIVISIBLE 37
ceptions assigning error upon the refusal of the court to grant a non-
suit. * * *
The poHcy sued on in the present case insured both the stock of
goods and the building in which it was contained. The premium due
upon the policy was a gross sum. The question arises, therefore,
whether the breach of a warranty relating solely to the goods, and
which precludes a recovery for this loss, would also bar a recovery
for the loss of the building. The stipulation prescribing that the in-
sured must take an inventory of his stock provides that in case of
failure so to do "this policy shall be null and void." What was the
intention of the parties with respect to the question just above stated?
If this intention is to be derived from the language used, and it must
be, it would seem to be clear that the contract was entire and indivisi-
ble, and that the breach of a condition which would work a forfeiture
would avoid the entire policy, and not simply a portion thereof. The
parties contracted that "the policy" should be void in case of failure
to comply with the iron-safe clause. The policy embraces insurance
upon both the building and its contents, and the premium is payable
in a gross sum. "If the consideration to be paid is single and entire,
the contract must be held to be entire, although the subject of the
contract may consist of several distinct and wholly independent items."
2 Pars. Cont. *519. It was competent for the parties to make two
separate and distinct contracts, one covering the goods, and the other
the building, but they did not see proper to do this. They combined
the two, and made the consideration moving towards the insurer a
gross sum. They further provided that the contract, not a part of
it, should be void under certain conditions. It may perhaps seein to
be unreasonable that, simply for a failure to take an inventory of the
stock of goods, the plaintiff's should be precluded from recovering the
value of the building. But this does not affect the question. The
question is, what have they agreed upon? If there was any room to
doubt as to the intention of the parties, that construction which is most
reasonable and most consonant with justice would be applied. But
there is none. The parties have deliberately chosen to enter into an
agreement whereby the policy shall be forfeited if the insured fails
to do certain things, and he has failed to comply with his agreement.
In such a case there is but one thing for the courts to do, and that
is to enforce the agreement as made.
The question as to whether a policy of insurance such as is involved
in the present case constitutes a separable or an entire contract is no
new question. It has been the subject of numerous decisions by the
courts in this country, and they are in hopeless and irreconcilable
conflict. The weight of authority is to the effect that the contract
is entire, and that the breach of a warranty which relates solely to
one class of property will avoid the entire policy, if the contract so
provides. Text writers of great learning and ability have, after re-
38 THE NATURE AND REQUISITES OP THE CONTRACT
viewing the decisions on both sides of this question, reached the con-
clusion that the contract is indivisible. We quote the following from
1 Wood, Fire Ins. p. 384: "It is difficuh to understand how it can
be held that these contracts are several, when a gross premium is paid
for the entire insurance. The court cannot say, as a matter of law,
neither can the fact be shown, that the insurer would have been sat-
isfied to take the risk separately at the same premium. By consent-
ing to pay a gross premium for the insurance, the assured has signi-
fied his willingness to let the policy stand as an entire contract, sub-
ject in all its parts to the conditions imposed by the insurer; and there
is neither reason nor equity in permitting the assured, after he has
violated one of the conditions of the policy as to a part of the risk,
to turn around and say that this condition only affected that portion
of the risk to which the breach related." Mr. Ostrander, after an
elaborate review of the decisions, reaches the conclusion that those
which hold the contract to be entire announce the sounder and bet-
ter rule. Ostr. Fire Ins. § 23 et seq. See, also, 2 Joyce, Ins. § 1931 ;
1 May, Ins. § 277.
In support of the views herein announced, we find the courts of
last resort of Maine, Wisconsin, Maryland, Minnesota, Virginia, New
Hampshire, Massachusetts, Vermont, Pennsylvania, New Jersey,
Michigan, Indiana, Arkansas, Iowa, Alabama, and Connecticut. It
would not be profitable here to do more than cite the decisions of
these courts. Reduced to their last analysis, they simply hold that the
premium being for a gross sum evidences an intention on the part
of the parties that the contract should be treated as entire, and that
the intention of the parties, when ascertained, must be enforced. See
Richardson v. Insurance Co., 46 Me. 394, 74 Am. Dec. 459; Barnes
V. Insurance Co., 51 Me. 110, 81 Am. Dec. 562; Hinman v. Insur-
ance Co., 36 Wis. 159 (Syl., point 7); Burr v. Insurance Co., 84 Wis.
76, 54 N. W. 22, 36 Am. St. Rep. 905 ; Insurance Co. v. Assum, 5
Md. 165; Bowman v. Insurance Co., 40 Md. 620; Plath v. Insurance
Co., 23 Minn. 479, 23 Am. Rep. 697; Moore v. Insurance Co., 69
Va. 508, 26 Am. Rep. 373 ; Baldwin v. Insurance Co., 60 N. H. 422,
49 Am. Rep. 324; Friesmuth v. Insurance Co., 10 Cush. (Mass.) 587;
Lee V. Insurance Co., 3 Gray (Mass.) 583 ; Kimball v. Insurance Co.,
8 Gray (Mass.) 33; McGowan v. Insurance Co., 54 Vt. 211, 41 Am.
Rep. 843; Gottsman v. Insurance Co., 56 Pa. 210, 94 Am. Dec. 55;
Trustees of Fire Ass'n v. Williamson, 26 Pa. 196; Martin v. Insur-
ance Co., 57 N. J. Law, 623, 31 Atl. 213; Insurance Co. v. Resh,
44 Mich 55, 6 N. W. 114, 38 Am. Rep. 228; McQueeny v. Insur-
ance Co., 52 Ark. 257, 12 S. W. 498, 5 L. R. A. 744, 20 Am. St. Rep.
179;Garver v. Insurance Co., 69 Iowa. 202, 28 N. W. 555; Assur-
ance Co. V. Stoddard, 88 Ala. 606, 7 South. 379 (Syl., point 5) ; Es-
sex Sav. Bank v. Meriden Fire Ins. Co., 57 Conn. 335, 17 Atl. 930,
18 Atl. 324, 4 L. R. A. 759.
WHEN THE CONTRACT IS DIVISIBLE 39
It is true that none of the cases above cited dealt with a breach of the
iron-safe clause, but in many of them the condition in the policy
which was violated had no more connection with the property for
which a recovery was souj^ht than does the iron-safe clause to the
building insured by the policy herein involved. In principle the cases
are exactly in point. Opposed to this view are decisions of the court
of last resort of Nebraska, Colorado, Kansas, and Missouri. See In-
surance Co. V. Schreck, 27 Neb. 527, 43 N. W. 340, 6 L. R. A. 524,
20 Am. St. Rep. 696; Insurance Co. v. Fairbank, 32 Neb. 750, 49
N. W. 711, 29 Am. St. Rep. 459; Insurance Co. v. Barker, 6 Colo.
App. 535, 41 Pac. 513; Insurance Co. v. York, 48 Kan. 488, 29 Pac.
586 ; Insurance Co. v. Saindon, 53 Kan. 623, 36 Pac. 983 ; Loehner
V. Insurance Co., 17 Mo. 247; Trabue v. Insurance Co., 121 Mo. 75,
25 S. W. 848, 23 h. R. A. 719, 42 Am. St. Rep. 523. The courts
of New York and Indiana seem to have been at different times on
both sides of the question now under consideration. Smith v. In-
surance Co., 25 Barb. (N. Y.) 497; Kiernan v. Insurance Co., 81
Hun, 373, 30 N. Y. Supp. 892; Merrill v. Insurance Co., 73 N. Y.
452, 29 Am. Rep. 184; Pratt v. Insurance Co., 130 N. Y. 206, 29
N. E. 117; Havens v. Insurance Co., Ill Ind. 90, 12 N. E. 137, 60
Am. Rep. 689; Insurance Co. v. Pickel, 119 Ind. 155, 21 N. E. 546,
12 Am. St. Rep. 393.
Our conclusion is that where an insurance policy is issued in con-
sideration of a gross premium, and provides that the policy shall be
void in the event of a breach of a certain condition therein named,
and this condition is broken, no recovery can be had on the policy,
though separate classes of property are therein insured, and though
the stipulation violated relates solely to a matter which could have
connection with but one of these classes, * * * Judgment re-
versed.
COLEMAN v. NEW ORLEANS INS. CO.
(Supreme Court of Ohio. 1892. 49 Ohio St. 310, ?,1 N. E. 279, 16 L. R. A.
174, 34 Am. St. Rep. 565.)
The New Orleans Insurance Company, on the 17th day of Novem-
ber, 1882, issued to H. Coleman & Co. a policy of fire insurance,
whereby the company insured Coleman & Co. against loss or damage
by fire for the period of one year from the date of the policy, to the
amount of four thousand dollars, as follows : "$200, on their one-
story frame shingle-roof storehouse; $3,800 on the general stock of
merchandise, consisting principally of dry goods, groceries, clothing,
boots and shoes, hats and caps, queensware, glassware, cutlery, and
such other articles as are usually kept for sale in a country store ; all
contained in their one-story frame shingle-roof storehouse, situated
in Pike county, Kentucky." On the 11th day of April, 1883, the prop-
40 THE NATURE AND REQUISITES OF THE CONTRACT
erty was totally destroyed by fire; and thereafter proof of the loss
was made out and forwarded to the company. The loss not having
been paid, Coleman & Co. commenced an action against the insurance
company in the court of common pleas of Scioto county, to recover
the amount of the policy; the loss exceeding that sum. From a judg-
ment for defendant, plaintiffs bring error.
Williams, J.^^ The policy of insurance contains the provisions
that, "if the assured is not the sole and unconditional owner of the
property, or if any building intended to be insured stands on ground
not owned in fee simple by the assured," the policy "shall become
void, unless consent in writing by the company be indorsed thereon."
* * * The principal ground of contention is that the contract of
insurance evidenced by the policy is so far severable as to entitle the
plaintiffs to recover for the loss of the goods, though they may not
be entitled to recover for the loss of the building, by reason of the
state of the title to the land on which it stood.
Whether such a contract is so severable is a question upon which
the adjudications of courts of the highest respectability are in direct
conflict. The following are some of the cases which hold the con-
tract to be entire: Barnes v. Insurance Co., 51 Me. 110, 81 Am. Dec.
562; Havens v. Insurance Co., Ill Ind. 90, 12 N. E. 137, 60 Am. Rep.
689 ; Cuthbertson v. Insurance Co., 96 N. C. 480. 2 S. E. 258 ; Essex
Sav. Bank v. Meriden Fire Ins. Co., 57 Conn. 335, 17 Atl. 930, and
18 Atl. 324, 4 E. R. A. 759.
On the other hand, such contracts are held severable in the follow-
ing, and other cases : Insurance Co. v. Spankneble, 52 111. 53, 4 Am.
Rep. 582; Insurance Co. v. Walsh, 54 111. 164, 5 Am. Rep. 115; Loeli-
ner v. Insurance Co., 17 Mo. 247; Koontz v. Insurance Co., 42 Mo.
126, 97 Am. Dec. 325; Insurance Co. v. Lawrence, 4 Mete. (Ky.) 9,
81 Am. Dec. 521 ; Merrill v. Insurance Co., 72> N. Y. 452. 29 Am. Rep.
184; Schuster v. Insurance Co., 102 N. Y. 260, 6 N. E. 406. And such
we understand to be the effect of the decision in Clark v. Insurance
Co., 6 Cush. (Mass.) 342, 53 Am. Dec. 44. There the policy, for a
gross premium, insured the plaintiff's "tavern house," to the amount
of $2,200, and his shop, valued at $300. The act of incorporation
of the defendant provided "that, when any property insured by this
company shall in any way be alienated, the policy shall thereupon be
void, and should be surrendered to the directors, to be canceled." The
shop was alienated by the assured, and the "tavern house" was after-
wards destroyed by fire. It was held that the alienation of the shop
did not prevent a recovery for the loss of the tavern. The court say :
"The next ground taken by the defendants is that the shop, which
was insured in the same policy, had been alienated by the plaintiff,
and that this is such an alienation as will avoid the policy. But the
shop was valued separately, and was insured separately, as a separate,
21 Part of the opinion is omitted and the statement of facts is rewritten.
WHEN THE CONTRACT IS DIVISIBLE 41
distinct, independent subject of insurance, though insured in the same
policy. The alienation of the shop would no doubt avoid the policy
pro tanto, and only pro tanto. The tavern house and the shop being-
insured separately, the alienation of one would no more affect the in-
surance on the other than if they had been insured in separate policies."
In the case of Insurance Co. v. Walsh, cited above, two houses were
embraced in the same policy, and insured for different sums for a
gross premium paid, the policy providing that, if the insured premises
should remain vacant for a certain time without notice to the com-
pany, the policy should become void ; and it was held that the fact
that one of the buildings remained thus vacant without notice to the
insurer would not invalidate the policy as to the other.
The action in Loehner v. Insurance Co., 17 Mo. 247, was upon a fire
policy covering a dwelling house and furniture therein. It was held :
"A policy may be void in part and valid in part, if the subject-matter
is capable of being separated ; and, although a failure to disclose an
incumbrance would avoid the policy as to the house insured, it would
not avoid it as to furniture insured in the same policy, but separately
appraised, unless the fact concealed was material to the risk."
Koontz V. Insurance Co., 42 Mo. 126. 97 Am. Dec. 325, was a case
where a policy of insurance upon a certain livery stable was made to
cover both personal and real property, and the application of the as-
sured contained a false warranty touching incumbrances upon the real
estate ; and where it further appeared that the personal property was
separately appraised, and nothing showed that the representations as
to the incumbrances upon the stable formed any inducement to the
execution of the policy covering the personal property. The court held
that the assured might recover the value of the latter, although the
policy was rendered void as to the real estate by reason of such false
warranty.
The case of Insurance Co. v. Lawrence, 4 Mete. (Ky.) 9, 81 Am.
Dec. 521, is much like the one before us. There, the appellant, (com-
pany,) for a premium of $14, insured J. B. Lawrence & Co. against
loss by fire from the 25th of May, 1858, to the 25th of May, 1859, "to
the amount of $200 on their frame storehouse, situated on the Ohio
river, in Gallatin county, Kentucky, known as 'Jackson's Landing,' and
$1,200 on the stock of goods in said storehouse." The premises and
goods were destroyed by fire on the 5th of April 1859, and suit was
brought on the policy for the value of the goods, but not for the loss
of the building. One defense was that Lawrence & Co., when they
obtained the insurance, represented themselves to be the owners of
the house, when in fact they were not, which, by the terms of the
policy, rendered it void. But the court held, "in the absence of proof
that the plaintiffs procured the insurance upon the house for a fraudu-
lent purpose, or that their supposed interest in the house induced the
defendant to insure the goods, that this does not vitiate the insurance
on the goods;" and the plaintiffs had judgment.
42 THE NATURE AND REQUISITES OF THE CONTRACT
In the case of Merrill v. Insurance Co., 73 N. Y. 452, 29 Am. Rep.
184, the policy, for one premium, insured the plaintiff against loss or
damage by fire to the amount of $6,000, as follows: "$1,000 on dwell-
ing house and wood house, if attached ; $300 on household furniture
therein; $200 on provisions, etc., therein," and various other items
of property described in the policy, each having a sepecific valuation
therein set forth. The policy contained a condition that, if the prop-
erty insured was incumbered by mortgage or otherwise, unless so rep-
resented in the application, the policy should be void ; also, that if it
should become incumbered by mortgage, judgment, or otherwise, policy
should be void until the written consent of the company was obtained.
The real estate was incumbered, and that fact was set up in defense of
the action on the policy ; and it was claimed by the defendant that it
not only avoided the policy as to the building insured, but also as to the
chattel property ; and whether it did or not it was conceded depended
upon whether the contract was entire or severable. In a well-consid-
ered opinion Judge Folger, after commenting upon various decisions
on the subject, discusses the question on principle, and in the course
of the discussion says :
"It is plain from the fact of a separate valuation having been put
by the parties upon the different subjects of the insurance that they
looked upon them as distinct matters of contract. The eft'ect of a sep-
arate valuation was to make them so. No matter how much value
there might have been in any one of those subjects, even to the whole
amount of the policy, had it been totally destroyed, the defendants
could not have been made liable to an amount greater than that named
in the poHcy as the valuation of it. Thus it was, at the inception of
the contract, distinguished from the other subjects of insurance, and
the contracts so made as to be capable of application to it alone. So,
too, if but one of the subjects of insurance had been burned, the de-
fendants (ceteris paribus) could not have avoided liability to pay
for that up to the value put upon it ; and, if not wholly destroyed, but
so far damaged as to reach in deterioration the value put upon it in the
policy, the defendants would have to pay that damage ; and that sub-
ject would no longer form a part of the general matter insured), and
hence not a part of the continuing contract. Thus there would of
necessity be a severance of the contract worked out by the operation
of its own terms. Again, the principle, in the case of a contract about
several things, but with a single consideration in gross, is this : that
we are not able to say that the party would have agreed for one, or
for more than one, yet less than all of them, without he could at the
same time acquire a right to have them all. But our daily experience
and observation shows that an insurance company is as ready to in-
sure buildings without insuring the contents, and the contents without
insuring the buildings, as to insure them together; so that the prin-
ciple does not press so hard in considering such a contract as that be-
fore us. Besides, it is the rule that an agreement embracing several
WHEN THE CONTRACT IS DIVISIBLE 43
particulars, though made at one time, and about one affair, may yet
have the nature and operation of several different contracts; as, when
they admit of being- separately executed and closed, as we have in-
stanced just above, where the contract may be taken distributively,
each subject being considered as forming the matter of a separate
agreement after it is so closed. Per Washington, J., Perkins v. Hart,
11 Wheat. 237-251 (6 L. Ed. 463), Rodemer v. Hazlehurst, 9 Gill
(Md.) 294. In our judgment, this rule applies fitly to the contract
in hand. It admits of being separately executed and closed as to
each of the separate subjects of insurance. When one species of the
property insured is burned, a contract to insure as to that may be
performed as to that alone. The insured has paid the premium. A
lire doing damage to that subject, the damage may be paid for by
the insurer, and that subject be thus put out of the contract, while
it remains in fieri as to all the other subjects named in it. When
there are several subjects of insurance (as there are fourteen here)
separately valued, on which a gross sum is insured not exceeding
the aggregate of that valuation, for the insurance of which a premium
in gross is paid, it is easy to see what is the rate of premium on
the whole valuation, and what is the amount of premium on each
subject insured. This being so, it seems fanciful to say that, if the
facts thus easily reached were stated in detail in the contract, it
would be severable, while, not being specifically spread out, it is
entire. If there were anything in the terms or nature of the particular
contract, or in the circumstances of the case, or in the nature of the
different subjects of the insurance, from which it was to be inferred
that the insurer would not have been likely to have assumed the
risk on one of several of them, unless induced by the advantage and
profit of having a risk on all, that would be a rational cause for
deeming the contract entire. But when, for aught that appears, it
is indeed as likely that the insurer would have taken a risk upon
any one or any few of the subjects insured, at the sanie rate of
premium as upon the whole, and has in the policy so separated the
subjects, and so singled them out by a specific valuation, as that
there is no difficulty in distinguishing the subject from the rest, and
closing the contract as to that separately, and carrying forward the
contract as to the rest, it does result that the contract is separable
in practical operation, and hence, in law. And so, also, that, though
there may have been some conduct of the insured as to some of the
property, not evil in itself, but working a breach of a condition in
its letter, the effect of that breach may be confined to the insurance
upon that property, the contract as to that be held avoided, and as
to the other subjects be held valid."
Forfeitures do not readily find favor in the law, and courts are
reluctant to declare and enforce them, if by reasonable interpretation
it can be avoided. It is not likely that in this case the small amount
of insurance on the storehouse constituted anv inducement for the
44 THE NATURE AND REQUISITES OF THE CONTRACT
insurance placed upon the stock of goods ; and it does not appear
that the rates upon these classes of property were different, nor how
it could make any difference if they were, since the only effect, in
this respect, of holding the contract severable, is that the insurance
company is enabled to retain the whole of the premium, which it ac-
cepted as the consideration for the insurance of all of the property,
for the lesser risk on part of the property only; and it is not to be
presumed that the premium for the insurance of part only of the
property would exceed that accepted for the risk on all of it. It was
not shown at the trial that the plaintiffs were guilty of any misrepre-
sentation or intentional concealment concerning the title to the land
on which the storehouse stood. No inquiry was made of them about
it. The subject was not a matter of negotiation between the parties
in effecting the insurance, and the plaintiffs were ignorant of the
condition, for the breach of which the company claims the right to
forfeit the whole policy. If the position taken by the company be
correct, the condition was broken when the policy issued, and there
was, therefore, no consideration for the premium that was paid, for
no risk attached; and yet the company, while asserting the invalidity
of the contract, holds onto its fruits. This is not a very consistent
position, nor a very just one. A just result is reached, and, as we
think, the lawful one, by holding, as we do, that the contract of in-
surance in this case is severable, and the breach of the condition as
to the title of the land does not defeat the plaintiff''s right to recover
for the loss of the stock of goods insured by the policy in suit. It
follows that, in our view of the case, the court erred in the instructions
we have referred to, for which error the judgment is reversed.
TRABUE V. DWELLING HOUSE INS. CO.
(Supreme Court of Missouri, 1894. 121 Mo. 75, 25 S. W. 848, 23 L. R. A.
719, 42 Am. St. Rep. 523.)
Gantt, p. J." * * * flig defendant company, by the policy of
insurance on which this suit is based, insured Anthony E. Trabue
against loss by fire or lightning for a" term of five years, beginning at
noon on the 20th day of April, 1888, in the sum of $800, on the dwell-
ing house occupied at the time by said Trabue, and the sum of $250
on the contents of said dwelling house, and also $200 on other prop-
erty which escaped the fire. The insured was the owner of the in-
sured property. On the 1st day of February, 1889, said insured died
at his place of residence. * * * f j^g insured left a will, by which
he devised to his wife, Christiana Trabue, one-third of his estate dur-
ing her widowhood, and the residue and remainder he devised to his
22 Part of the opinion is omitted.
WHEN THE CONTRACT IS DIVISIBLB 45
lour children, his only descendants, plaintiffs herein, in equal parts.
* * * The property was destroyed by fire October 16, 1890. At
the time of the loss the plaintiff Christiana Trabue was occupying the
house as a dwelling house. Three of her children — the plaintiffs Tay-
lor J. Trabue, Kitty R. Trabue, and INIary G. Trabue— were living
with her as a part of her family.
Prior to said loss the plaintiffs, in an ex parte proceeding in the
Ralls circuit court, had the real estate devised to them by said Trabue
partitioned among them, and that portion on which said dwelling house
stood, including said house, was set oft' to said Christiana Trabue dur-
ing her natural life or widowhood. Notice and proof of loss were
given, and the property was worth the amount claimed. The per-
sonal property insured was in said house in the possession of Chris-
tiana Trabue at the time of the loss. * * * The policy contained
this clause: "This entire policy shall be void if any change (other
than by death of the insured) takes place in the interest, title, or pos-
session of the subject of insurance, whether by legal possession or
judgment or by voluntary act of the insured or otherwise."
The circuit court gave judgment for plaintiffs for the whole amount
of the policy, and defendant appealed to the St. Louis court of ap-
peals, where the judgment was reversed without remanding, but, the
decision being in conflict with the decision of the Kansas City court
of appeals in Crook v. Insurance Co., 38 j\Io. App. 582, the cause was
certified to this court under the mandate of section 6 of the constitu-
tional amendment of 1884.
The St. Louis court of appeals held the policy was avoided as to
the dwelling house by the transfer of the title thereto by the partition
proceedings and judgment therein between the devisees of Anthony
E. Trabue, the loss having occurred after that decree. * * *
As this judgment, on its face, only affected the real estate covered
by said policy, the plaintiffs insist they are entitled to recover the in-
surance on the personal property, as to which there was no breach
of any condition in the policy; but the defendant insists that by the
use of the terms "entire policy" in said clause the whole policy is
avoided for a breach in any respect. If defendant's contention be
correct, it is a most appropriate subject for legislative correction at
the earliest opportunity. But is this clause properly construed by the
court of appeals?
As early as the case of Loehner v. Insurance Co., 17 Mo. 247, it
was held by this court that where a firm obtained insurance upon a
storehouse and a stock of goods therein in separate amounts, and the
insurance on the house was avoided because the interest in the house
was incorrectly described in the application, the policy was not vitiated
as to the goods ; in other words, this court then held that such a con-
tract was divisible. Afterwards, in Koontz v. Insurance Co., 42 Mo.
126, 97 Am. Dec. 325, the action was on a policy by defendant on
a livery stable, the live stock, and personal property, each separately
46 THE NATURE AND REQUISITES OF THE CONTRACT
Stated and appraised. In that case Judge Wagner reviewed the cases,
and admitted there was a conflict between the decisions, but held that
Loehner v. Insurance Co., 17 ^lo. 247. was a binding authority, and
"cheerfully followed it, because this court regarded it as in consonance
with justice." These two cases have never been overruled, or their
authority questioned, until the decision of Insurance Co. v. Barnett,
1Z Mo. 364, 39 Am. Rep. 517.
The very able and learned judge of the St. Louis court of appeals
who prepared the opinion in Hollo way v. Insurance Co., 48 Wo. App.
1, considered Insurance Co. v. Barnett as the controlling decision, and
followed it, as recjuired by the constitution of his court; and in this
case Thompson, J., treated the point as decided by the HoUoway Case,
and as clear of all difficulty. Since then the Kansas City court of
appeals, in Shoup v. Insurance Co., 51 Mo. App. 286, has followed
Judge Rombauer's decision in the Holloway Case ; so that it becomes
very important to determine the effect of the Barnett Case.
An examination of that case will show that the remarks of the
learned judge who delivered that opinion were entirely "obiter dicta"
as to this question of the divisibility of the contract. He says, "if
such a stipulation was in fact in the policy," the plaintiff would be en-
titled to the full relief prayed; so that it is clear no such clause
was before the court; and, while his opinion is entitled to respect
on the supposed case, it is equally clear that the court did not over-
rule the decision in Loehner's Case or Koontz's Case, but, on the
contrary, on the only point that was in fact before the court, those
cases were treated as binding authority. Our conclusion is that so
much of Judge Norton's opinion as referred to the entirety of the
policy in the Barnett Case was obiter, and did not overrule the
Koontz and Loehner Cases.
But, independent of the binding authority of those cases, we think
they were correctly decided. In both of those cases "the policy"
was to be void upon certain conditions. Here it is said "the entire
policy" shall be avoided. "The policy" includes all and every part
of it, and the insertion of the word "entire" cannot add anything
more to it, so that this mere verbal addition has not, in our opinion,
changed the law of the case. The cases cited by Judge Norton from
Pennsylvania, Maine, Maryland, and other states are based upon the
case of Friesmuth v. Insurance Co., 10 Cush. (Mass.) 587. By the
laws of Massachusetts the policy in that case was a lien on the in-
terest of the assured in both the building and personal property in-
sured. In holding that such a policy was an indivisible contract,
Judge Bigelow put it upon the ground "that the consideration was
regarded as an entirety, for which the deposit note was given, and
the liability of the assured to assessments on that amount in case
of losses." He said: "They [the company] had a right to look to
their lien on each and all of different kinds of property insured by
them for the security of the whole amount of the note;" and so
WHEN THE CONTRACT IS DIVISIBLE 47
that policy said on its face. Upon the facts of that case no ques-
tion can be made of its correctness. The lien was given on all the
property. A false representation afifected all of the lien. On the
same principle stand the subsequent cases of Brown v. Insurance Co.,
11 Cush. (Mass.) 281; Gould v. Insurance Co., 47 Me. 403, 74 Am.
Dec. 494. In Gottsman v. Insurance Co., 56 Pa. 210, 94 Am. Dec. 55,
Judge Thompson cites the Friesmuth Case, and those based on that
case, without, however, adverting to the statutory lien.
That other courts have adopted this construction of the entirety
of the contract is not questioned, but, entertaining for them, as we
do, all due respect, we see no reason for departing from our own de-
cisions when they are based upon what appears to us the soundest
reason. When one applies for distinct and separate insurance, a part
on real estate, a part on personal property, he can require two separate
policies. The accidental circumstance that for convenience merely
they are included in one policy does not merge them into one. If
the goods alone were destroyed, the terms of the policy applying to
them alone could be made the basis of recovery. The supposed
danger of making a contract for the parties is not in the case. The
question is whether, according to legal principles, the contract made
is severable or entire. There is nothing to indicate the company
would not have assumed the risk on the house without taking one
also on the goods, nor vice versa. The contract as to each admitted
of being separately executed as to the separate subjects of insurance.
The application is for separate insurance, and it is kept distinct in
the policy.
Nor are the Cases of Koontz and Loehner, supra, unsupported by
authorities in other states. In Insurance Co. v. Lawrence, 4 Mete.
(Ky.) 9, 81 Am. Dec. 521, the supreme court of Kentucky held that
when insurance was obtained upon a storehouse and stock of goods,
in an action for loss on the goods the fact that the insurance on the
house was void because the interest on the insured was incorrectly
stated did not vitiate the policy on the goods, but it would be treated
as a separate policy; citing Loehner v. Insurance Co., 17 Mo. 247,
with approval. In Clark v. Insurance Co., 6 Cush. (Mass.) 342, 53
Am. Dec. 44, a policy made separate insurance on two buildings, with
a clause declaring it void if the insured should alienate the property.
It was held that alienation of one building did not avoid it as to the
other. In Merrill v. Insurance Co., 7Z N. Y. 452, 29 Am. Rep. 184,
the policy was upon several separate and distinct classes and species
of property, each, as in the case at bar, separately valued ; the sum
total of the valuation was insured for a premium in gross ; the con-
tract was held severable. Judge Folger reviewed all the cases, in-
cluding the two cases of Loehner and Koontz, supra, decided by this
court, and in a most satisfactory manner sustained the reasoning of
those cases upon the analogies of the law and the proper construction
of the contract. Johnson v. Johnson, 3 Bos. & P. 162; Mayfield v.
48 THE NATURE AND REQUISITES OF THE CONTRACT
Wadsley, 3 Barn. & C. 327; Goring v. Insurance Co., 10 Ont. 236;
Insurance Co. v. Walsh, 54 111. 164, 5 Am. Rep. 115; Date v. In-
surance Co., 14 U. C. C. P. 548; Deidericks v. Insurance Co., 10
Johns. (N. Y.) 234; Trench v. Insurance Co., 7 Hill (N. Y.) 122;
Phillips V. Insurance Co., 46 U. C. Q. B. 334; Heacock v. Insurance
Co. (unreported), referred to in Merrill v. Insurance Co., 73 N. Y.
462, 29 Am. Rep. 184; Moore v. Insurance Co., 69 Va. 508, 26 Am.
Rep. 373.
The Merrill Case came under review in 1886 in Schuster v. In-
surance Co., 102 N. Y. 260, 6 N. E. 406, and was unanimously sus-
tained. In 1891, in Pratt v. Insurance Co., 130 N. Y. 206, 29 N.
E. 117, the question again recurring, the court of appeals says:
"Whatever may be the rule elsewhere, it is settled in this state that
where insurance is made on different kinds of property, each sep-
arately valued, the contract is severable, even if but one premium is
paid, and the amount insured- is the sum total of the valuations."
See, also. Smith v. Insurance Co., 47 Hun (N. Y.) 30; Woodward
V. Insurance Co.. 32 Hun (N. Y.) 365; Insurance Co. v. Fairbank,
32 Neb. 750, 49 N. W. 711, 29 Am. St. Rep. 459.
In the very recent case of Coleman v. Insurance Co., 49 Ohio St.
310, 31 N. E. 279, 16 L. R. A. 174, 34 Am. St. Rep. 565, the supreme
court of Ohio aligns itself in this conflict of authority on the side taken
by this court in Loehner v. Insurance Co., 17 Mo. 247, and Koontz v.
Insurance Co., 42 Mo. 126, 97 Am. Dec. 325, holding such contracts as
this severable. Vide, also, Rogers v. Insurance Co., 121 Ind. 570,
23 N. E. 498; Insurance Co. v. Spankneble, 52 111. 53, 4 Am. Rep.
582; Quarrier v. Insurance Co., 10 W. Va. 530, 27 Am. Rep. 582;
Insurance Co. v. Schreck, 27 Neb. 527, 43 N. W. 340, 6 L. R. A. 524,
20 Am. St. Rep. 696.
When this contract was made, then, it was the settled rule of
decision in this state that such a contract as this was divisible or
severable, although the policy had a clause which would avoid the
whole contract. The addition of the word "entire," given its utmost
latitude, could not avoid any more than the whole policy; hence it
added nothing to the policy. Forfeitures are not favored in the law,
and will not be enforced if any reasonable interpretation can be made
which will prevent one. No reason is given here why a forfeiture
should be enforced, except the insertion of the word "entire" into
the policy. The risk was not increased. The premiums were taken,
kept, and enjoyed for insurance on the personal property. The policy
as to the house was avoided, doubtless, through the ignorance of the
insured ; but they have violated no condition as to this personal prop-
erty. Holding, then, as we do, that this was a divisible contract, it
results that the legal effect is the same as if two distinct and separate
policies were issued, and, so reading the contract, we do not reject
the word "entire" at all, but apply it to that policy, or portion of
this policy, which the insured has forfeited by the change of title
WHEN THE CONTRACT IS DIVISIBLK 49
to which alone this clause refers; and it avoids that "entire" policy,
and not the policy in which no condition or warranty has been broken.
This construction logically follows from the divisibility of the con-
tract, and best accords with fair dealing and the presumed intention
of the parties.
Our conclusion is that neither the law nor common honesty will
permit the defendant to avoid paying the loss as to this personal
property. The judgment of the St. Louis court of appeals is af-
firmed in so far as it adjudged the policy on the dwelling house
avoided, and reversed in so far as it avoids the insurance on the per-
sonal property, and the cause is remanded to that court with directions
to affirm the judgment of the circuit court to the amount of $250,
the amount of insurance on personal property and piano, and reverse
it as to the remainder of said judgment. The costs of the appeal to
this court are adjudged to plaintiffs, and the costs of the appeal to
the St. Louis court of appeals are adjudged to defendant, as also
the costs in the circuit court, after the offer of judgment was made;
the other costs to plaintiffs. All concur.
TAYLOR v. ANCHOR MUT. FIRE INS. CO.
(Supreme Court of Iowa, 1902. 116 Iowa, 625, 88 N. W. 807, 57 L. R. A.
328, 93 Am. St. Rep. 261.)
Action to recover for a loss within the terms of a policy of fire
insurance. There was a judgment on a verdict for plaintiff, from
which defendant appeals.
McClain, J.^^ The application on which the policy was issued
represented that insured owned 93 acres of land, "on which the prop-
erty to be insured is located," of the value of $35 per acre; that
there was $900 incumbrance thereon; that he had a fee-simple title
to the land "on which the above-described property to be insured is
situated" ; and that his title was undisputed to the property proposed
for insurance ; and these representations were, in the policy, war-
ranted to be correct. The policy specifies the risk assumed as fol-
lows : "$250 on frame dwelling house ; $250 on household furniture,
beds, and bedding while therein; $50 on family wearing apparel
therein; $25 on sewing machines while therein; $50 on silver and
plated ware while therein, and family jewelry, books, pictures, picture
frames; $100 on work horses, mules, and colts on premises, and
against loss by lightning, at large or in use, not to exceed $75 on
each; $100 on cattle on premises; $100 on grain in building; $25
on wagons, carriages, and harness." It is provided in the policy
not only that it shall be void in case of false representations in the
23 Part of the opinion is omitted and the statement of facts is rewritten.
CooLET Ins. — 4
50 THE NATURE AND REQUISITES OF THE CONTRACT
application, or in case of change in title or possession, but also that
it shall be void after any sale, conveyance, or incumbrance of the
property insured, without the consent of the company. * * =^
Subsequently to the issuance of the policy the insured gave a
chattel mortgage on some of the cows and horses covered by the
policy, and this is relied on by defendant as a breach of condition,
avoiding the entire policy, and therefore preventing recovery for the
loss, which was of the dwelling house and furniture therein. We
may concede that the giving of the chattel mortgage was a breach of
the condition of the policy as to the property covered by the mort-
gage, and we are therefore at once confronted with the question
whether a breach of condition as to a part of the property covered
by the policy will avoid the policy as to other property enumerated,
and covered by a separate stipulation thereof, as to the amount of
the risk assumed on such piK^perty. It will be seen at once that if
the house and furniture had been included in one policy, and the
animals in another, a breach of the condition of the policy covering
the animals would not prevent recovery under the policy covering
the dwelling house and furniture; but it is contended that, where
an insurance on different classes of property is effected by a policy
which states a gross premium, the contract is entire, although the
risks assumed on the different classes of property are distinct and
separate.
On this question the authorities are in hopeless confusion, and
there are cases holding, without qualification, to the rule that the
entirety of the premium is conclusive as to the entirety of the con-
tract, so that a breach of condition as to one class of property will
avoid the policy as to all, notwithstanding the two classes are in-
cluded in separate clauses, as to the amount of loss to be paid. On
the other hand, there are cases in which it is held that if the risks
are separately enumerated the policy is divisible, notwithstanding the
entirety of the premium. We think, however, the great weight of
authority at the present time is to the effect that the question is one
of the intention of the parties, and that, if the condition of the
property is such that the risk as to one class of property would be
affected by the destruction of the other, then it must be presumed
that the breach of condition as to one class is a violation of the con-
tract, also, as to the other class, because the company would not
have insured the one except upon the condition imposed as to the
other, while, if the loss of the one class of property could not affect
the risk as to the other, then it must be presumed that there was no
intention that the conditions as to one should apply to the risk as
to the other.
In support of this construction we find the following pertinent lan-
guage used by the supreme court of New York in the case of Merrill
V. Insurance Co., 73 N. Y. 452, 29 Am. Rep. 184: "When there
are several subjects of insurance (as there are fourteen here), sep-
WHEN THE CONTRACT IS DIVISIBLE 61
arately valued, on which a gross sum is insured, not exceeding the
aggregate of that valuation, for the insurance of which a premium in
gross is paid, it is easy to see what is the rate of premium on the
whole valuation, and what is the amount of premium on each subject
insured. This being so, it seems fanciful to say that, if the facts
thus easily reached were stated in detail in the contract, it would
be severable, while, not being specifically spread out, it is entire. If
there were anything in the terms or nature of the particular contract,
or in the circumstances of the case, or in the nature of the dilTerent
subjects of insurance, from which it was to be inferred that the in-
surer w^ould not have been likely to have assumed the risk on one
or several of them unless induced by the advantage and profit of
having a risk on all, that would be a rational cause for deeming
the contract entire. But when, for aught that appears — when, in-
deed, it is as likely that — the insurer would have taken a risk upon
any one or any few of the subjects insured at the same rate of pre-
mium as upon the whole, and has in the policy so separated the sub-
jects, and so singled them out by a specific valuation, as that there is
no difficulty in distinguishing one of the subjects from the rest, and
closing the contract as to that separately, and carrying forward the
contract as to the rest, it does result that the contract is severable
in practical operation, and hence in law. And so. also, that, though
there may have been some conduct of the insured as to some of the
property, not evil in itself, but working a breach of a condition in
its letter, the efifect of that breach may be confined to the insurance
upon that property, the contract as to that may be held avoided, and
as to the other subjects held valid. There is another rule — that in con-
struing the consideration, as entire or distributed, the law will be
guided by a respect to general convenience and equity, and by the
good sense and reasonableness of the particular case ; for it must be
supposed that it was the intention of the parties that such a con-
struction should take place, in the occurrence of contingencies not
contemplated and provided for at the making of the contract."
In Insurance Co. v. Pickel, 119 Ind. 155, 21 N. E. 546. 12 Am.
St. Rep. 393, the court uses this language : "In this case we are
unable to see how the risk on the house named in the second and
third paragraphs of the answer could affect the risk on the barn or
the personal property, for the destruction of which the suit was pros-
ecuted. The risks on the different items of property named in this
policy are many of them separate and distinct. It is true that the
risk on the household goods in the house would be affected by what-
ever w^ould affect the risk on the house; so the risk on the grain in
the barn would be affected by whatever would affect the risk on the
barn ; but we think it impossible to conceive how the risk on the
barn could affect the risk on the house, or vice versa." And it was
accordingly held in another action between the same parties (Pickel v.
Insurance Co., 119 Ind. 291, 21 N. E. 898) that while, under the
52 THE NATURE AND REQUISITES OF THE CONIRACT
former case, the policy should be treated as several with reference
to the different buildings, it was indivisible with reference to the
risk on the house, and personal property contained therein, although
they were enumerated under separate clauses in describing the loss
to be paid ; and the doctrine of these cases is reiterated by the same
court in Geiss v. Insurance Co., 123 Ind. 172, 24 N. E. 99, 18 Am.
St. Rep. 324, where it was held that although different classes of
personal property, involving the same risk, were separately enumer-
ated, a breach of condition as to one would be a breach as to all.
To the same effect, it was held in Loomis v. Insurance Co., 17
Wis. 87, 45 N. W. 813, 8 L. R. A. 834, 20 Am. St. Rep. 96, that,
"although the insurance is distributed to the different items of insured
property, the contract is indivisible if the breach of contract as to an
item of the property affects, or may reasonably be supposed to affect,
the other items by increasing the risk thereon." In support of the
same general proposition, see Loehner v. Insurance Co., 17 Mo. 247;
Koontz V. Insurance Co., 42 Mo. 126, 97 Am. Dec. 325; Insurance
Co. V. Lawrence, 4 Aletc. (Ky.) 9, 81 Am. Dec. 521 ; Insurance Co.
V. Crawford, 121 Ala. 258, 25 South. 912, 17 Am. St. Rep. 55; As-
surance Co. V. Glenn, 13 Ind. App. 365, 40 N. E. 926, 41 N. E. 847,
55 x\m. St. Rep. 225. A recent case strongly supporting the proposi-
tion that the contract is indivisible, and a breach of condition as to
one class of property will avoid it as to all the property covered, is
Insurance Co. v. Knight, 111 Ga. 622, 36 S. E. 821, 52 L. R. A.
70, 78 Am. St. Rep. 216.
But it is unnecessary to elaborate by quotations from or citations
of the many cases in which this question has been considered. The
citations found in several of the recent cases above referred to cover
the whole ground. It may be said, further, that several cases in
which the courts have announced the unqualified rule that a breach
of condition as to one class or item of property covered by the policy
will constitute a breach of the contract as to all the property covered
are cases where the dift'erent classes or items of property were so
situated with reference to each other that the risk as to one con-
stituted a risk as to all, and in these cases the same result might
have been reached by adopting the rule which we have above an-
nounced as supported by the weight of authority. See, as illustra-
tions, Lee V. Insurance Co., 3 Gray (^lass.) 583; Association v.
Williamson, 26 Pa. 196; Insurance Co. v. Hamilton, 82 Md. 88, 33
Atl. 429. 30 L. R. A. 633, 51 Am. St. Rep. 457; Cuthbertson v. In-
surance Co., 96 N. C. 480, 2 S. E. 258. It may be noticed, also, that
the North Carolina court, in a later case than that last cited, although
not involving the same question, has held that where the policy
classifies and specifies numerous items of property, and the sums of
money for which they are severally insured, the contract is not single,
but severable. Pioneer Mfg. Co. v. Phoenix Assur. Co., 110 N. C.
176, 14 S. E. 731, 28 Am. St. Rep. 673.
WHEN THE CONTRACT IS DIVISIBLE 53
The question has not been fully discussed in any cases which have
been decided by this court. In Garver v. Insurance Co., 69 Iowa, 202,
28 N. W. 555, the proposition is broadly laid down that where the
premium is in gross the contract is not divisible, and a breach of
warranty as to a part of the property will vitiate the policy as to the
whole. But it is to be noticed that there the policy covered a barn
and certain horses, and the court might well have held that the risk,
so far as the horses were concerned, was involved in any risk affecting
the barn; and the conclusion was therefore in accordance with the
rule which we think to be the proper one, although we do not regard
the reason given as satisfactory. In Kahler v. Insurance Co., 106
Iowa, 380, 76 N. W. 734, the view expressed in the Garver Case was
qualified so as to leave the way open for adopting the position which
we now take. We therefore hold on this question, as involved in
the case before us, that entirety of premium does not necessarily
prove that the contract is indivisible, and that where it appears from
the terms of the policy that distinct items or classes of property
were separately insured the policy may be valid as to one item or
class, although it is invalid as to another item or class by reason
of breach of conditions of the policy with reference thereto, provided
it appears, also, that the risk which it was intended to exclude by
the condition which is broken does not apply to the other items or
classes of property. In this case a chattel mortgage on the cows
and horses could not in any way affect the nature of the risk as to
the dwelling house and contents, and therefore we find that a breach
of a condition in the policy as to the one class of property did not
invalidate the insurance as to the other. * * * Affirmed.^* ■
2 4 As to entirety or divisibility of rislv. see, also. Havens v. Home Ins.
Co.. Ill Tnd. 90, 12 N. B. 137. 60 Am. Rep. 689 (1887); Plicenix Ins. Co. v.
Pickel, 119 ind. 155. 21 N. E. 546, 12 Am. St. Rep. 393 (1889). Compare,
Clinton v. Norfolk Mutual Fire Ins. Co., post, p. 68.
54 PARTIES
PARTIES
I. Contracts Made by Insurers Not Complying with Statutory
Requirements ^
PENNYPACKER v. CAPITAL INS. CO.
(Supreme Court of Iowa, 1890. 80 Iowa, 56, 45 N. W. 408, 8 L. R. A. 236,
20 Am. St. Rep. 395.)
Action on a policy of fire insurance on property situated in Penn-
sylvania. The defendant answered alleging that the policy was void
because the company, an Iowa corporation, had not complied with
the laws of Pennsylvania in relation to foreign insurance companies.
The requirements of the laws of Pennsylvania are "that, before any
insurance company not of that state shall be permitted to transact
any insurance business within the state of Pennsylvania, or to issue
any policies of insurance upon property within said state, either by
itself or agents, a certificate must be obtained of the insurance com-
missioner of said state certifying that it has so complied with the
laws of Pennsylvania, and is authorized to transact such business
within the state ; that any company, not of said state, that shall do an
insurance business within said state without having first qualified
itself as provided, and without first receiving the certificate required,
shall pay a fine and penalty for such offense to said state."
The plaintiff demurred to the answer on the following grounds :
(1) The defendant is estopped from alleging its want of authority to
do business in the state of Pennsylvania; (2) the statute of Pennsyl-
vania does not render the contract of insurance referred to void ; (3)
the said count shows that the defendant is liable to a penalty for doing
an unauthorized business in the state of Pennsylvania, but shows no
defense to the claim of the plaintiff herein ; (4) it does not appear that
the alleged contract of insurance was made in the state of Pennsyl-
vania, and therefore the laws of Pennsylvania regarding insurance
would have no effect ; (5) the defendant having issued to the plaintiff
its policy of insurance, cannot now allege a violation of law on its
part to avoid its liability under said policy.
This demurrer was sustained, and defendant excepted. There
was a judgment for plaintiff and defendant appeals.
Given, J.^ The questions raised and argued on the demurrer may
be resolved into the single inquiry, is the contract of insurance sued
1 For disaission of principles, see Vance on r,]surance, § 39. See, also.
Cooley. Briefs on the Law of Insurance, vol. 1, pp. 5S1-594.
2 Part of the opinion is omitted and the statement of facts is rewritten.
CONTRACTS NOT COMPLYING WITH STATUTES 55
Upon void? It is alleged that it is void because the defendant had
not and was not entitled to qualify, under the laws of Pennsylvania,
to contract insurance upon property in that state at the time this
policy was issued, and because the plaintiff received it knowing that
fact. For the purposes of the demurrer these allegations are to be
taken as true, and we are to say whether, being true, they render the
policy void. Appellant's contention is that the contract was made,
and policy issued and accepted, in violation of the laws of Penn-
sylvania, as set out in the answer, and that, the plaintiff having re-
ceived the policy knowing that fact, the parties are in pari delicto,
and the law will not enforce the contract at the suit of either. Ap-
pellee contends that the policy was issued and is payable in Iowa, and
its validity is therefore to be determined by the laws of Iowa, and
that the statute set out did not forbid the issuing the policy in suit,
nor make the same void, but simply declares the company liable to
a fine for issuing it.
It does not appear from the answer, nor from it and the petition,
where the contract was made, premium paid, or policy delivered, nor
where it is payable. From the facts that the company is of Iowa,
and the insured property in Pennsylvania, we may infer the contract
to have been made in either state as readily as the other. Such
being the state of the pleadings, we are not called upon to deter-
mine v/hat effect the law of Pennsylvania would have upon this policy
as an Iowa contract.
The principle that contracts made in violation of law are void is
too well established to require citations. "The well-settled general
rule is that, when a statute prohibits or attaches a penalty to the
doing of an act, the act is void, and will not be enforced, nor will
the law assist one to recover money or property which he has ex-
pended in the unlawful execution of it. Or, in other words, a penalty
implies a prohibition though there are no prohibitory words in the
statute, and the prohibition makes the act illegal and void. * * *
But, notwithstanding this general rule, it must be apparent to every
legal mind that, when a statute annexes a penalty for the doing of
an act, it does not always imply such a prohibition as will render the
act void." Pangborn v. Westlake, 36 Iowa, 548. The law of Penn-
sylvania, as set out, provides that no insurance company not of that
state shall insure property therein unless it has a certain amount of
capital stock, has complied with certain requirements, and has ob-
tained a certificate from the insurance commissioner that it is qualified
to do business in that state, and that any such company that shall
do business in that state without having first qualified itself, and
without first having received a certificate, as prescribed, from the
insurance commissioner, "shall pay a fine and penalty for such of-
fense." The evident purpose of such a law is the protection of those
paying for insurance upon property in that state. The prohibition
and penalty is against the company only. No duty is required of
56 PARTIES
the insured, and no act upon his part expressly prohibited. There
is nothing in the law declaring what effect it shall have upon policies
issued and accepted as this is alleged to have been.
A number of cases are cited by appellant where, in actions brought
by the insurance company to enforce rights under the contract of
insurance, it was held that statutes similar to that set out were pro-
hibitory and the contracts void; but in none of those cases is it
held that they are void as to the assured. The Manistee, 5 Biss. 382,
Fed. Cas. No. 9,027, is a case wherein the statute of Illinois was under
consideration. That statute required foreign insurance companies to
produce certain statements, and to procure authority from the auditor
of state to transact business within the state, and declare it unlawful
for any agent to do business without having first complied wuth those
laws. It was provided that, upon conviction for violating these re-
quirements, punishment by fine or imprisonment, or both, may be
imposed. The court says: "Those statute laws do not declare void
policies issued by foreign companies, through a local agent, in dis-
regard or violation of them. The object of these statutes was for
the security of citizens doing business with such companies, by
bringing them as near as possible to local corporations, and also as
a provision for revenue. Where a statute prohibits or annexes a
penalty to its commission, the act is made unlawful; but it does
not follow that the unlawfulness of the act was meant by the leg-
islature to avoid a contract made in contravention of it. Where a
statute is silent, and contains nothing from which the contrary can
properly be inferred, a contract in contravention of it is void. But
the whole statute must be examined in order to decide whether or
not it does contain anything from which the contrary can be prop-
erly inferred. There is no penalty pronounced against a person for
obtaining a policy from, or doing business with, the company that
has not complied with the requirements of those statutes."
Insurance Co. v. Mc^Millen, 24 Ohio St. 67, is somewhat in point.
That was an action upon a policy of life insurance issued by the plain-
tiff in error. The company claimed that its failure to comply with a
statute similar to that under consideration rendered the policy void.
The court says: "Whether the statute was meant to invalidate poli-
cies issued by companies in contravention of its provisions is to be
determined from a consideration of the statute as a whole. The object
of the act is not to make the business of life insurance unlawful.
The statute is designed for the protection of policy-holders and
others dealing with insurance companies. To this end, it is made
unlawful for persons to act on behalf of such companies until the
provisions of the statute have been complied with. But we do not
think it was intended to devolve on persons dealing with the com-
panies the duty and risk of ascertaining whether they had complied
with the statute. On the contrary, it seems to have been the in-
CONTRACTS NOT COMPLYING WITH STATUTES 57
tention of the legislature to rely on the penalties imposed as suffi-
cient to insure such compliance."
In Pangborn v. Westlake, supra, the question was whether a
contract for the sale of a lot in a plat that had not been recorded
was void because of the statute providing that any person who shall
dispose of, or offer for sale, any lot in any town or addition until
the plat, was acknowledged and recorded, shall forfeit $50 for each
lot sold or disposed of. This statute is similar in several respects
to that in question. It is quite as prohibitory. It is addressed to
the seller alone. It is for the protection of the purchasers, and im-
poses no duty upon or prohibition against them. In passing upon the
question, this court said: "We are, therefore, brought to the true
test, which is that while, as a general rule, a penalty implies a pro-
hibition, yet the courts will always look to the language of the
statute, the subject-matter of it, the wrong or evil which it seeks to
remedy or prevent, and the purpose sought to be accomplished in its
enactment; and if, from all these, it is manifest that it was not in-
tended to imply a prohibition, or to render the prohibited act void,
the courts will so hold, and construe the statute accordingly." See,
also, Hill V. Smith, Morris, 70; Tootle v. Taylor, 64 Iowa, 629. 21
N. W. 115.
It is argued that to hold this contract not prohibited is to defeat
the purposes of the law" ; that it will admit foreign companies to do
business subject only to such fines as may be assessed. In view
of the language of the law as stated, the absence of express pro-
hibition, and the evident purpose to protect the insured, we are clearly
of the opinion that it was not intended to render contracts such as
that in suit void. To so hold does not necessarily admit foreign
companies to do business in that state in disregard of its laws. The
power of the courts is ample to compel, by fine and otherwise, com-
pliance with the law of the state. The contract being valid, the mat-
ter demurred to is no defense, and the question of estoppel does not
arise. We think the demurrer was properly sustained. * * *
Affirmed.^
SEAMANS V. CHRISTIAN BROS. MILL CO
(Supreme Court of Minnesota, 1896. 66 Minn. 205, 68 N. W. 1065.)
Action by S. H. Seamans, receiver of the Wisconsin Mutual Fire
Insurance Company, against the Christian Bros. Mill Company, for
an insurance premium. From a judgment for defendant, plaintiff ap-
peals.
3 See, also. Ganser v. Fireman's Fund Ins. Co., 34 Minn. 372. 25 N. W.
943 (1885), wherein it is said tliat plaintiff need not allege in his complaint
that the company has complied with the laws of the state regulating foreign
insurance companies.
58 PARTIES
Canty, J.* The Wisconsin Mutual Life Insurance Company is,
as its name indicates, a corporation organized under the laws of the
state of Wisconsin to carry on a mutual life insurance business.
It became insolvent, and plaintiff was appointed receiver for it by the
courts of that state. Defendant, a corporation organized under the
laws of this state and doing business therein, procured from said in-
surance company a policy of insurance on its property situated in
Minneapolis, in this state. This suit is brought to recover a balance
of unpaid premium claimed to be due on the policy. One of the de-
fenses alleged by defendant, and sustained by the court below, is
that said insurance company never complied in any respect with the
statutes of this state. Judgment was ordered for defendant, and
from the judgment entered accordingly, plaintiff appeals.
The contract of insurance was made by correspondence between
the two corporations. The trial court found as a fact that this con-
tract was made in this state. Appellant assails this finding as not
supported by the evidence, but, from the view we take of it, the
point is not material; and we are of the opinion that even if the
contract was made in Wisconsin, as contended by appellant, we would
still refuse to enforce it, as being contrary to the policy of our laws,
and an attempt to evade those laws. Among the statutory pro-
visions material here are the following sections of the General Stat-
utes of 1894:
"Sec. 3157. It shall be unlawful for insurers or their agents to
make, negotiate or solicit within this state any contract of insurance
except as authorized by this act. * * * "
* * * Section 3167 provides that on complying with certain
conditions the insurance commissioner may issue a license or certifi-
cate to foreign companies, authorizing them to transact business in
this state; and section 3199 provides that no foreign mutual fire
insurance company shall do business in this state unless it has an
actual cash surplus of $200,000 over all liabilities, which the court
found this insurance company did not have. Many other restrictions
on such companies may be found in the sections immediately preced-
ing and those following the ones above mentioned.
These statutory provisions are police regulations intended to pro-
tect people and property in this state against spurious and irresponsible
insurance companies. It is plainly the intent of these statutory pro-
visions to compel all such insurers doing business in, or taking risks
on property in, this state to comply with our local laws and submit
to our local courts. Neither can there be any doubt about the au-
thority of the legislature to pass such laws. Paul v. Virginia, 8
Wall. 168, 19 L. Ed. 357; Hooper v. California, 155 U. S. 648, 15
Sup. Ct. 207, 39 L. Ed. 297. It is a general rule that a contract
made in one state will be enforced in another state, though contrary
4 Part of the opinion is omitted.
CONTRACTS NOT COMPLYING WITH STATUTES 59
to the laws or public policy of the latter state. 3 Am. & Eng. Enc.
Law, 543. This rule is more especially applicable when no particular
Iilace of performance is contemplated by the contract, but the place
of performance may be anywhere. It is also a general rule that
where a contract is entered into in one state, to be performed in a
certain other state, the validity of the contract will be determined
by the law of the latter state. Id. 542, 544; Whart. Confl. Laws, §§
398, 486. We will not attempt to discuss the many and complex
distinctions that have arisen where these two rules came in conflict.
Usually, in such a case of conflict of laws, it is little more than a
question of determining the intention of the parties to the contract, —
whether they intended to be governed by the one law or the other.
But cases arise where the parties are not thus at liberty to select
which law they choose. See Whart. Confl. Laws, §§ 490-494.
The laws or public policy of a state may prohibit the making of
a certain contract, but it does not follow that if the contract is made
elsewhere such state may not, within its borders, enforce the same
by extending to it the comity which exists between states. But.
again, the laws and public policy of the state may be such as to
completely stamp out this comity, and prohibit within the jurisdic-
tion of the state the enforcement of the contract. Especially is this
so if, though the contract was made elsewhere, it was to be per-
formed within the state. There are many cases extending this doc-
trine of comity to contracts of insurance made elsewhere, and in-
suring property in the state in which the contract was enforced. See
Whart. Confl. Laws, §§ 465-467. But, as before stated, it depends
on the laws and public policy of such state whether or not it will
thus enforce the contract. The laws and public policy may be such
as to destroy this comity and prohibit such enforcement of the con-
tract.
We are of the opinion that the laws and public policy of this
state in reference to the insuring of property are of this character.
The restrictions in our statutes are so many, and the repressive char-
acter of the legislation such, that we must hold this to be the public
policy of this state. This seems also to be the character of the in-
surance legislation in Iowa and Michigan, as appears by the cases
of Seamans v. Zimmerman, 91 Iowa, 363, 59 N. W. 290, and Sea-
mans V. Temple Co., 105 Mich. 400, 63 N. W. 408, 28 L. R. A. 430,
55 Am. St. Rep. 457, where this same receiver was defeated in at-
tempts to collect unpaid premiums from citizens of those states. Nei-
ther does it make any difference that the insurer is a mutual company
or that it is, as appellant claims, unincorporated. Neither is this de-
cision in conflict with Ganser v. Insurance Co., 34 Minn. 372, 25 N.
W. 943, where it was held that the insured can recover the loss even
though the insurer has not complied with the statutory requirements
so as to be authorized to do business in this state. The very object
of these statutory provisions is the protection of the insured, and the
no PARTIES
parties are not in pari delicto. This disposes of the case, and renders
it unnecessary to consider the other questions raised. Judgment af-
firmed.
II. Infants as Parties Insured^
JOHNSON V. NORTHWESTERN MUT. LIFE INS. CO.
(Supreme Court of Minnesota, 1£94. 56 Minn. 365. 57 N. W. 934, 59 N. W.
992, 26 L. R. A. 187, 45 Am. St. Rep. 473.)
Action by Martin C. Johnson against the Northwestern Mutual Life
Insurance Company to rescind a policy of insurance and recover the
amount paid as premiums. From an order overruling a demurrer to
the complaint, defendant appeals.
Buck, J. On the 25th day of October, 1888, the plaintiff, Johnson,
who was then a minor, 17 years old, obtained a policy of insurance
on his own life in the Northwestern Mutual Life Insurance Company,
this defendant, for the sum of $1,000, in consideration of the payment
by him of the premium of $23.29, and the semiannual payment of a
like sum to defendant on or before noon of the 25th days of October
and April thereafter in each and every year during the continuance
of the policy, viz. for 20 years. He made eight semiannual payments
amounting to the total sum of $186.32, and immediately thereafter
plaintiff attained his majority, or full age of 21 years; and thereupon,
on the 21st day of December, 1892, he duly served upon said defend-
ant his notice in writing that he had arrived at his majority, and that
he elected to avoid the contract of insurance between the defendant
and himself, and offered to return said policy to the defendant, and
demanded of the defendant that it return to him the moneys which
he had paid to said company, amounting to the sum above named,
which the defendant refused to do, whereupon he brought this ac-
tion to recover of the defendant the amount so paid, upon the ground
that he was an infant at the time of the execution of the said con-
tract and during the times when he made the semiannual payments,
as herein stated.
The defendant interposed a demurrer to the plaintiff's complaint
upon the ground that the complaint did not state facts sufficient to
constitute a cause of action. The court below overruled the demur-
rer, and the defendant appealed to this court.
In its memorandum the court below gave as its reason for over-
ruling the demurrer that "this contract of insurance was not bene-
ficial to the insured; it was for the benefit of third persons." We
B For discussion of principles, see Vance on Insurance, § 41. See, also,.
Cooley, Briefs on the Law of Insurance, vol. 1. pp. 72-77.
INFANTS AS PARTIES INSURED 61
do not see how the court fell into such an error, for the plain pro-
visions of the policy show clearly that it was for the benefit of the
plaintiff, for it expressly provides that at the end of 20 years the
policy is payable to himself if living, and after 10 years he could share
in the company's surplus, according to usage, at each distribution, un-
til all contributions to the surplus funds, found in the course of mak-
ing such contributions to have arisen from the policy, should have
been returned. After three or more annual premiums were paid in
cash, if he made default in the payment of any premium on the day
it became due, he was entitled to a paid-up nonparticipating policy for
as many twentieth parts of the original sum insured as there were
complete annual premiums so paid. There were also other benefits
which he would receive, which we need not further specify particu-
larly. But, notwithstanding the wrong reason given by the trial court
for its decision, if the decision was correct, it must stand.
The question of the proper construction of contracts between an
infant and an adult is frequently one of great difficulty. The power
which exists upon the part of an infant to insist upon the perform-
ance of a contract which is for his benefit and to repudiate one which
is against his interest necessarily results in this condition of affairs,
and the only method for courts to deal with such questions is to ap-
ply so far as possible the legal or equitable rules to each case as it
may present itself for judicial determination. The infirmities which
are always attendant upon infancy are so many, and present them-
selves in so many different phases, that the law must necessarily throw
its protection around them, and allow them to avoid acts which are
obviously injurious, and which are brought about by their own im-
prudent conduct, or by the evil designs of others. But there are con-
tracts made by infants which are valid and binding upon them, such
as contracts for necessaries. It is conceded, however, that this con-
tract is not one coming within the term "necessaries," and it must
also be conceded that there was no fraud on the part of the defend-
ant whereby the plaintiff was induced to enter into this contract of
insurance. Nor does the question of delay on the part of plaintiff"
in disaffirming this contract enter into the case for discussion or for
determination. If he had a right to disaffirm the contract at all, it
was done promptly, and without delay, after he attained his majority.
Was this contract void or voidable? We are of the opinion that
it was not void. It was for the benefit of the infant. That is to say,
construing it in accordance with the well-understood business princi-
ples and practical experience of the age, it should be deemed one
beneficial to him. Like all business ventures, even among adults, it
might prove disastrous or it might be of benefit to the plaintiff". It
was the ordinary policy of insurance upon the usual terms, and in a
solvent company. At least no suggestion is made to the contrary.
Was the policy voidable, and, if so, was it of that character which
would not only permit the plaintiff" to defend against the collection of
62 PARTIES
anything further on the policy, but, by reason of his infancy, enti-
tle him, when arrivng at his majority, to collect back whatever he
had paid while an infant? We are of the opinion that the contract
was voidable. Even if the contract was beneficial to him while he
was an infant, in the sense that if he retained it there might be cer-
tain contingencies which would arise whereby he would be entitled to
receive the actual benefits mentioned in the policy, yet he does not
seek to retain the policy, or claim any actual benefits under its terms,
either at present or in the future. All that he could return or surren-
der up he offered to do at the very earliest opportunity after arriv-
ing at full age. He has secured no money or property under it or by
virtue of its terms, and no consideration other than the contingent one
which we have mentioned. He has not squandered anything which
he has received from defendant. He retains nothing either of actual
value or any right. In no way has he appropriated any of the fruits
of the contract to his own advantage, nor does he seek to do so.
The defendant has had the use of the money paid it for several years.
As between the two parties, the defendant so far has profited by the
contract, li the plaintiff succeeds in this action, the defendant suf-
fers no loss or damage except to return to plaintiff just what it got
of him while an infant.
It did not obtain the money of the plantiff, it is true, through de-
ceit, fraud, or concealment of any fact, nor in any way impose upon
the infant, but it did obtain and receive a fund belonging to him
which it was not necessary for him to part with. This was done at
a time when the law adjudges him incapable of determining whether
it was for his benefit or not. To leave this question of making con-
tracts to the immature judgment of infants who are easily influenced
or misled, and frequently to their great injury, and then have the
courts continually called upon to decide whether the contract was of
such a beneficial nature to the infant that it might be enforced against
him, would lead to an endless variety of decisions. The interest of
the infant will be best subserved by holding such contracts voidable.
It is a rule which can be appropriately applied in this case, for the
plaintiff has performed all that can be reasonably asked of him to
do. We have examined many of the authorities cited by the counsel
for the appellant in their brief, but we are of the opinion that the
rule heretofore laid down in this court is the correct one to follow,
and is applicable to this case. Miller v. Smith, 26 Minn. 248, 2 N.
W. 942, 37 Am. Rep. 407 ; Conrad v. Lane, 26 Minn. 389, 4 N. W.
696, 37 Am. Rep. 412. The order appealed from is affirmed.
On Rehearing.
AliTCHELL, J.° This case was argued and decided at the last term
of this court. 56 Minn. 365, 57 N. W. 934, 26 L. R. A. 187, 45 Am.
6 Part of the opinion of Mitchell, J., on rehearing, is omitted.
INFANTS AS PARTIES INSURED C3
St. Rep. 473. A reargument was granted for the reasons that al-
though the amount was small the legal principles involved were very
important; the time permitted for argument under our rules was
brief; the case was decided near the end of the term, without, per-
haps, the degree of consideration that its importance demanded ; and,
on further reflection, we are not satisfied that our decision was correct.
The former opinion laid down the following propositions, to which
we still adhere: (1) That the contract of insurance was of benefit
to the infant himself, and was not a contract for the benefit of third
parties. (2) The contract, so far as appears on its face, was the
usual and ordinary one for life insurance, on the customary terms, and
was a fair and reasonable one, and free from any fraud, unfairness,
or undue influence on part of the defendant, unless the contrary is
to be presumed from the fact that it was made with the infant.
It is not correct, however, to say that the plaintiff has received no
benefit from the contract, or that the defendant has parted with noth-
ing of value under it. True, the plaintiff has received no money, and
the defendant has paid none to the plaintiff ; but the life of the former
was insured for four years, and if he died during that time the de-
fendant would have had to pay the amount of the policy to his estate.
The defendant carried the risk all that time, and this is the essence
of the contract of insurance. Neither does it follow that the risk has
cost the defendant nothing in money because plaintiff himself was
not one of those insured who died. The case is therefore one of a
voidable or rescindable contract of an infant, partly performed on
both sides, the benefits of which the infant has enjoyed, but which
he cannot return, and where there is no charge of fraud, unfairness,
or undue influence on the part of the other party, unless, as already
suggested, it is to be presumed from the fact that the contract was
made with an infant.
The question is, can the plaintiff recover back what he has paid,
assuming that the contract was in all respects fair and reasonable?
The opinion heretofore filed held that he can. Without taking time
to cite or discuss any of our former decisions, it is sufficient to say that
none of them commit this court to such a doctrine. That such a
rule goes further than is necessary for the protection of the infant,
and would often work gross injustice to those dealing with him, is, to
our minds, clear. Suppose a minor engaged in agriculture should hire
a man to work on his farm, and pay him reasonable wages for his
services. According to this rule the minor might recover back what he
paid, although retaining and enjoying the fruits of the other man's
labor. Or, again, suppose a man engaged in mercantile business, with
a capital of $5,000, should, from time to time, buy and pay for $100,-
000 worth of goods, in the aggregate, which he had sold, and got his
pay. According to this doctrine, he could recover back the $100,000
which he had paid to the various parties from whom he had bought
the goods. Not only would such a rule work great injustice to others.
64 PARTIES
but it would be positively injurious to the infant himself. The policy
of the law is to shield or protect the infant, and not to debar him
from the privilege of contracting-.
But, if the rule suggested is to obtain, there is no footing on which
an adult can deal with him, except for necessaries. Nobody could
or would do any business with him. He could not get his life insured.
He could not insure his property against fire. He could not hire
servants to till his farm. He could not improve or keep up his land
or buildings. In short, however advantageous other contracts might
be to him, or however much capital he might have, he could do ab-
solutely nothing, except to buy necessaries, because nobody would dare
to contract with him for anything else. It cannot be that this is the
law. Certainly, it ought not to be.
The following propositions are well settled, everywhere, as to the
rescindable contracts of an infant, and in that category we include
all contracts except for necessaries :
First. That, in so far as a contract is executory on part of an in-
fant, he may always interpose his infancy as a defense to an action
for its enforcement. He can always use his infancy as a shield.
Second. If the contract has been wholly or partly performed on
his part, but is wholly executory on part of the other party, the minor
therefore having received no benefits from it, he may recover back
what he has paid or parted with.
Third. Where the contract has been wholly or partly performed on
both sides, the infant may always rescind, and recover back what he
has paid, upon restoring what he has received.
Fourth. A minor, on arriving at full age, may avoid a conveyance
of his real estate without being required to place the grantee in statu
quo, although a dififerent rule has sometimes been adopted by courts
of equity when the former infant has applied to them for aid in avoid-
ing his deeds. Whether this distinction between conveyances of real
property and personal contracts is founded on a technical rule, or upon
considerations of policy growing out of the difiference between real
and personal property, it is not necessary here to consider.
Fifth. Where the contract has been wholly or partly performed on
both sides, the infant, if he sues to recover back what he has paid,
must always restore what he has received, in so far as he still re-
tains it in specie.
Sixth. The courts will always grant an infant relief where the other
party has been guilty of fraud or undue influence. As to what would
constitute a sufficient ground for relief under this head, and what
relief the courts would grant in such cases, we will refer to hereafter.
But suppose that the contract is free from all elements of fraud,
unfairness, or overreaching, and the infant has enjoyed the benefits
of it, but has spent or disposed of what he has received, or the bene-
fits received are, as in this case, of such a nature that they cannot
INFANTS AS PARTIES INSURED G5
be restored. Can he recover back what he has paid ? It is well settled
in England that he cannot. * * *
At least a respectable minority of the American decisions are in
full accord with what we have termed the "English rule." See, among
others, Rilev v. Mallory, 33 Conn. 206 ; Adams v. Beall, 67 Md. 53,
8 Atl. 664, 1 Am. St. Rep. 379; Breed v. Judd, 1 Gray (Mass.) 455.
But many — perhaps a majority — of the American decisions, appar-
ently thinking that the English rule does not sufificiently protect the
infant, have moditied it; and some of them seem to have wholly re-
pudiated it, and to hold that although the contract was in all respects
fair and reasonable, and the infant had enjoyed the benefits of it,
yet if the infant had spent or parted with what he had received, or
if the benefits of it were of such a nature that they could not be re-
stored, still he might recover back what he had paid. The problem
with the courts seems to have been, on the one hand, to protect the
infant from the improvidence incident to his youth and inexperience,
and how, on the other hand, to compel him to conform to the prin-
ciples of common honesty. The result is that the American authorities
— at least the later ones — have fallen into such a condition of con-
flict and confusion that it is difficult to draw from them any definite
or uniform rule. * * *
Our conclusion is that where the personal contract of an infant,
beneficial to himself, has been wholly or partly executed on both sides,
but the infant has disposed of what he has received, or the bene-
fits recovered by him are such that they cannot be restored, he can-
not recover back what he has paid, if the contract was a fair and
reasonable one, and free from any fraud or bad faith on part of the
other party, but that the burden is on the other party to prove that
such was the character of the contract ; that, if the contract involved
the element of actual fraud or bad faith, the infant may recover all
he paid or parted with, but if the contract involved no such elements,
and was otherwise reasonable and fair, except that what the infant
paid was in excess of the value of what he received, his recovery
should be limited to such excess. It seems to us that this will suffi-
ciently protect the infant, and at the same time do justice to the other
party. Of course, in speaking, of contracts beneficial to the infant,
we refer to those that are deemed such in contemplation of law.
Applying these rules to the case in hand, we add that life insurance
in a solvent company, at the ordinary and usual rates, for an amount
reasonably commensurate with the infant's estate, or his financial
ability to carry it. is a provident, fair, and reasonable contract, and
one which it is entirely proper for an insurance company to make with
him, assuming that it practices no fraud or other unlawful means to
secure it; and if such should appear to be the character of this con-
tract the plaintiff could not recover the premiums which he has paid
in, so far as they were intended to cover the current annual risk
assumed by the company under its policy.
CooLEY Ins. — 5
66 PARTIES
But it appears from the face of the policy that these premiums
covered something more than this. The pohcy provides that after
payment of three or more annual premiums the insured will be en-
titled to a paid-up, nonparticipating policy for as many twentieths of
the original sum insured ($1,000) as there have been annual premiums
so paid. The complaint alleges the payment of four annual premiums.
Hence, the plaintiff was entitled, upon surrender of the original policy,
to a paid-up, nonparticipating policy for $200 ; and it therefore seems
to us that, having elected to rescind, he was entitled to recover back,
in any event, the present cash "surrender" value of such a policy. For
this reason, as well as that the burden was on the defendant to prove
the fair and honest character of the contract, the demurrer to the
complaint was properly overruled. The result arrived at in the former
opinion was therefore correct, and is adhered to, although on some-
what different grounds. Order affirmed^
SIMPSON v. PRUDENTIAL INS. CO. OF AMERICA.
(Supreme Judicial Court of Massachusetts, 1903. 184 Mass. 348, 68 N. E.
673, 63 L. R. A. 741, 100 Am. St. Rep. 560.)
Action by one Simpson, by her next friend, against the Prudential
Insurance Company of America. From a judgment for defendant,
plaintiff appeals.
Morton, J.* The plaintiff in this case is a minor, and brings this
action, by her next friend, to recover the premiums paid by her on
a life insurance policy issued to her by the defendant. The case was
heard upon agreed facts, and judgment was ordered for the defend-
ant, and the plaintiff appealed.
The policy was what is termed a 20-year endowment policy, for
$500; and the agreed facts state that there was no fraud or undue
influence practiced upon the plaintiff by the defendant or its agents,
and that the contract was a reasonable and prudent one for a person
in the plaintiff's situation and condition in life. Before the action
was brought, the plaintiff, through her attorney, had notified the de-
fendant that she repudiated the policy and the contract contained in
it, and demanded a return of the sums she had paid as premiums. The
premiums paid amounted to $54, and it is agreed that the expense to
the defendant of keeping the policy in force was $28.72. The defend-
ant contends that this should be deducted from, or set off against, the
premiums, if the plaintiff is allowed to recover for them.
It is manifest, we think, that, however reasonable and prudent it
7 The proper measure of recovery is the reserve value of the policy —
not the "surrender" value. The surrender value is usually fixed by the in-
surer at an amount less than the real value of the policy.
8 Part of the opinion is omitted.
INFANTS AS PARTIES INSURED
G7
may be for an infant to take out a policy of life insurance, it does
not come within the class of necessaries, or within the class of con-
tracts which have been held, as matter of law, to be beneficial to. and
therefore binding upon, an infant. It is only when the contract
comes within the class of contracts which, as matter of law, are bind-
ing upon an infant, that the question of its reasonableness and pru-
dence is material. Tupper v. Cadwell, 12 Mete. 559, 46 Am. Dec. 704.
The defendant contends that this contract having been executed,
in part, at least, the plaintiff cannot recover without making the de-
fendant whole for the expense to which it has been subjected. But
that would be compelling the plaintiff to carry out, to that extent, a
contract which is not binding on her. and which she may avoid.
IMorse v. Ely, 154 Mass. 458, 28 N. E. 'z^77 , 26 Am. St. Rep. 263.
It is well settled in this commonwealth, whatever may be the law
elsewhere, that, in order to avoid a contract, an infant is not obliged
to put the other party in statu quo. Gillis v. Goodwin, 180 Mass. 140,
61 N. E. 813, 91 Am. St. Rep. 265, and cases cited; White v. New
Bedford Cot. Waste Corp., 178 Mass. 20, 59 N. E. 642. * * *
Judgment reversed, and judgment for the plaintiff.® ,
9 That a contract of fire insurance is not a contract for necessaries, see
New Hampshire Mut. Fire Ins. Co. v. Xoyes, 32 N. H. 345 (1S55). Compare
Monaghan v. Insurance Co., 53 Mich. 238, IS N. W. 797 (1884). See. also,
O'Kourke v. John Hancock Mut. Life Ins. Co., 23 K. I. 457. 50 Atl. 834, 57
L. R. A. 496, 91 Am. St. Rep. 643 (1902). wherein it is held that a breach of
warranty is no defense to an action on a policy of insurance granted to an
infant.
08 INSURABLE INTEREST
INSURABLE INTEREST
I. General Theory of Insurable Interest*
CLINTON V. NORFOLK MUT. FIRE INS. CO.
(Supreme Judicial Court of Massachusetts, 1900. 176 Mass. 486, 57 N. E. 995.
50 L. R. A. 833, 79 Am. St. Rep. 325.)
Action by one Clinton against the Norfolk Mutual Fire Insurance
Company on a poHcy of insurance. There was a judgment for de-
fendant on agreed facts, and plaintiff appeals.
Hammond, J.^ By his deed to Forbes the plaintiff conveyed all his
interest in the buildings insured, except an estate for his life in the
house. This life estate was carved out of the fee previously owned
by him, and was held by the same title as before the conveyance. He
sold his entire interest in the barn, but only part of his interest in
the house. The only question is whether the policy was thereby
avoided as to his remaining interest in the house.
The defendant contends that the policy is thus avoided, and relies
upon the clauses which provide that it shall be void if, without the
consent of the defendant, "the situation or circumstances affecting
the risk shall, by or with the knowledge, advice, agency, or consent
of the insured, be so altered as to cause an increase of such risks,"
or "the said property shall be sold."
So far as respects the change of circumstances or situation nothing
appears except the deed to Forbes. The burden of proof to show a
breach of condition of a policy which has once attached is on the
defendant (Orrell v. Insurance Co., 13 Gray, 431); and, even if the
clause has reference to what are sometimes called the moral elements
of the risk, we cannot say, upon the facts appearing before us, that
the risk was increased by the sale, or that the clause was intended
to embrace the changes made by a sale, especially when there is an
express provision in the policy relating to that subject. Powers v.
Insurance Co., 136 Mass. 108, 49 Am. Rep. 20. Compare, also, Oakes
v. Insurance Co., 131 Mass. 164.
The defense must, therefore, rest upon the clause as to alienation.
Many of the earlier policies of fire insurance contained no condition
against alienation. Inasmuch, however, as the contract of insurance
is one of indemnity, and not a wager, it is manifest that where, be-
1 For discussion 'of principles, see Vance on Insurance, § 46. See, also,
Gooley, Briefs on the Law of Insurance, vol. 1, pp. 132-243.
2 Part of the opinion is omitted.
GENERAL THEORY OF INSURABLE INTEREST 69
fore the fire, the insured had parted with his entire interest in the
property insured, he suffered no loss by its destruction, and needed
no indemnity. A total transfer of his interest, therefore, defeated the
policy. But any change short of a complete transfer of his entire in-
terest did not have that effect. The general rule was and is that,
in the absence of any provision to the contrary in the policy, any
change in the insurable interest of the insured, whether by a com-
plete sale of only a part of the property or a change in the title to
a part or the whole of the property, does not avoid the policy which
has once attached, provided that at the time of the loss the insured
has an insurable interest. It is necessary that there should be an
insurable interest at the time of the contract and at the time of the
loss ; but if, at the time of the loss, the insured has parted with only
a part of his interest, the policy is valid as to the part retained. Laz-
arus V. Insurance Co., 5 Pick. 76; Scanlon v. Insurance Co., 4 Biss.
511, Fed. Cas. No. 12,436; Cowan v. Insurance Co., 40 Iowa, 551,
20 Am. Rep. 583; Stetson v. Insurance Co., 4 Alass. 330, 3 Am.
Dec. 217; Ayers v. Insurance Co., \7 Iowa, 176, 85 Am. Dec. 553;
Hitchcock V. Insurance Co., 26 N. Y. 68. And see, further, the cases
cited in 13 Am. & Eng. Enc. Law (2d Ed.) p. 240, and notes. And
even a total alienation does not avoid, but only suspends, the policy;
so that, if the insured regains his interest, or any part of it, and holds
it at the time of the loss, he may recover. May, Ins, 101 ; Worth-
ington V. Bearse, 12 Allen, 382, 90 Am. Dec. 152.
In this state of the law, insurers began to insert in the policies
clauses relating to alienation. These clauses vary in language, and
in the examination of the cases on this subject considerable care
must be exercised in order to discriminate properly between those
cases applicable and those not applicable to the clause which may be
under consideration.
The clause in this policy is, "if the said property be sold." Con-
ditions of this kind are strictly construed against the insured, and
the general rule is that such a condition refers only to an absolute
transfer of the entire interest of the insured, completely devesting
him of his insurable interest. Any sale or transfer short of this is
not within the scope of the condition. See, in addition to the cases
above cited, Bryan v. Insurance Co., 145 IMass. 389, 14 N. E. 454;
Holbrook v. Insurance Co., 1 Curt. 193, Fed. Cas. No. 6,589; Power
V. Insurance Co., 19 La, 28, 36 Am. Dec. 665 ; and the cases collected
in 13 Am. & Eng. Enc. Law (2d Ed.) p. 241, and notes.
If it be the intention of the insurers that the contract should be
avoided by any partial sale, or by any change short of an absolute
sale, of the entire interest, there is no difficulty in expressing that in-
tent in plain and explicit language ; and in many policies such an in-
tention is thus expressed. See Oakes v. Insurance Co., ubi supra,
where the condition was that the policy should be void if the property
insured should be sold or conveyed in whole or in part.
70 INSURABLE INTEREST
As an illustration of the dififerent results arising from the differ-
ence in the language of the clauses as to alienation, compare the case
of Foote V. Insurance Co., 119 Mass. 259, and Bryan v. Insurance
Co., ubi supra. In the former case, where the condition was that the
policy should be void if any change should take place in the title or
possession of the property insured, whether by sale, transfer, or con-
veyance, legal process, or judicial decree, it was held that a mortgage
by way of an absolute deed, and an unrecorded instrument of de-
feasance back, was a violation of the condition ; while in the latter
case it was held that such a mortgage did not avoid the policy where
the condition was that the policy should be avoided "if the property
should be sold."
If, therefore, the house had been the only building named in the
policy, or if the policy can be regarded as containing two separate
and independent contracts, one applicable to the house alone and one
applicable to the barn alone, there was no breach of the condition of
alienation so far as respects the house, and the policy was valid as
to the Hfe estate of the plaintiff therein at the time of the loss. Clark
V. Insurance Co., 6 Cush. 342, 53 Am. Dec. 44.
But it is contended by the defendant that the contract was entire,
and that, being void as to the barn, it is void as to the house. And
the counsel for the defendant argues that, in so far as the case of
Clark V. Insurance Co., ubi supra, seems to support the doctrine that,
where the different articles are separately valued in a policy, it is to
be regarded as containing a separate, distinct, and independent con-
tract as to each such article, as though each was insured in a separate
policy, it is inconsistent with Brown v. Insurance Co., 11 Cush. 280,
and Thomas v. Assurance Co., 162 Mass. 29, Z7 N. E. 672, 44 Am.
St. Rep. 323, and other similar cases decided here and elsewhere.
We have not found it necessary, however, to consider whether or not
the contract in this case is an entire contract, since we are of the
opinion that, even if it be entire, there has been no breach of the
condition. If the contract was entire, then the house and barn were
insured as one entire risk, and the same considerations which lead
to the conclusion that, where the house is the only building insured,
there is no sale, within the condition named in the policy, when the
insured retains an insurable interest in the house, leads also to the
conclusion that, where the house and barn are insured as one entire
risk, there is no sale of the property within the condition when the
insured retains an insurable interest in either building. In either case
there has not been an absolute sale of the entire interest in the whole
property, and consequently no breach of the condition. And the rea-
son the plaintiff cannot recover for the destruction of the barn is
not because there has been a breach of the condition as to alienation,
and the policy has, therefore, become void, but because he had no in-
surable interest in the barn when it was burned, and has. therefore,
suffered no loss by its destruction. The result would be the same
INSURABLE INTEREST IN PROPERTY — WHAT CONSTITUTES 71
even if there was no condition whatever as to ahenation, or if the
plaintiff had lost his interest in some other way not covered by the
condition. * * * Judgment for plaintiff.*
II. Insurable Interest in Property — What Constitutes *
CARPENTER v. GERMAN-AMERICAN INS. CO.
(Court of Appeals of New York, 1892. 135 N. Y. 298, 31 N. E. 1015.)
Action by George C. Carpenter and another against the German-
American Insurance Company. A judgment for plaintiff's was affirmed
by the General Term (61 Hun, 624, 17 N. Y. Supp. 603, mem.), and
defendant appeals.
Andrews, j.s * * * fhe remaining question relates to the
claim that the plaintiff, at the time of the insurance and of the fire,
had no insurable interest in the building wdiich was in part the sub-
ject of the insurance. It is doubtless true that the State Bank of
Elizabeth, the vendor in the contract of sale to the plaintiffs, had no
legal title to the property embraced therein. It was, however, the ben-
eficial owner. The bank owned the mortgage and bid off the property
on the foreclosure in 1877, but its agent at the sale, under advice of
its attorney, directed the conveyance to be made to 'Sir. Kean, the
president of the bank, because of the statute of Pennsylvania which
prohibited any foreign corporation from acquiring and holding any
real estate within the commonwealth, "directly in the corporate name,
or by or through any trustee or other devise whatever, unless specially
authorized to hold such property by the laws of the commonwealth."
Purd. Dig. (Pa.) § 56, p. 292. Mr. Kean paid nothing for the prop-
erty, and acknowledged that it belonged to the bank, and never made
any claim to it w'hatever. He knew of the negotiation between the
bank and Carpenter for the sale and purchase of the property, and
advised and consented to the contract by the bank, and was fully ac-
quainted with the fact that Carpenter was paying the purchase money
of the land, in reliance, upon the ownership of the property by the
bank. The bank. Carpenter, and Kean acted in good faith, suppos-
ing that the bank held the legal title to the land. The officers of the
bank had forgotten that the title had been taken in Kean's name, and
3 Duratiou of interest, see post, p. 77. As to divisibility of contract, see
ante, p. 3(5.
* For discussion of pviiK iples, see Vance on Insurance, § 47.
6 Part of the opinion is omitted.
72 INSURABLE INTEREST
for this reason the contract with Carpenter was made in the name of
the corporation.
We deem it unnecessary to go into the abstruse questions which
have been argued at the bar as to the legal and equitable right to
the land, as between the bank and Kean, growing out of the convey-
ance to the latter of the legal title on the foreclosure sale. Assuming
(but without deciding) that the bank could not, in view of the Penn-
sylvania statute, have established a trust in its favor, enforceable
against Kean, or compelled him to convey the legal title to the cor-
poration, yet it is, we think, very plain that, as between Carpenter on
the one side, and the bank and Kean on the other, Carpenter, on the
performance of his contract, could have maintained a suit in equity
to compel the bank and Kean to convey the land. Kean would be
bound by the plainest principles of equity and justice to make the
contract good, which was entered into with his advice, and upon which
Carpenter had advanced his money. It would be no answer that
Kean did not act mala fide, but supposed that the legal title was in
the bank. He stood by and encouraged the sale, and knew of the
payment of the purchase money by Carpenter in reliance upon the
right of the bank to sell the property. Storrs v. Barker, 6 Johns. Ch.
166, 10 Am. Dec. 316; Continental Nat. Bank v. National Bank of
Commonwealth, 50 N. Y. 576; Thompson v. Simpson, 128 N. Y.
270, 28 N. E. 627. His mistake prejudiced no real right or equity in
the land. He asserted none therein, and now acknowledges that the
bank is entitled to the benefit of the policy. The principle of equitable
estoppel applies with persuasive force against Kean, preventing him
from asserting, as against Carpenter, any right in the land; and a
court of equity would require him to convey, so that the just expecta-
tions of Carpenter should not be disappointed. Carpenter had, there-
fore, an insurable interest in the property.
The questions decided dispose of all the material points in the ap-
peal. The result is that the judgment should be affirmed, with costs.
All concur.
BASSETT V. FARMERS' & MERCHANTS' INS. CO.
(Supreme Court of Nebraska, 1909. 85 Neb. 85. 122 N. W. 703.)
Action by John W. Bassett against the Farmers' & Merchants' In-
surance Company. Judgment for plaintiff, and defendant appeals.
Root, J.« In 1902 John W. Bassett, plaintiff herein, purchased a
farm in Otoe county, and procured the conveyance therefor to be made
to his wife. In 1904 defendant insured plaintiff for five years against
loss by fire of the dwelling house on said farm. In 1906 the house
was totally destroyed by fire. Defendant denied liability upon its
policy, and returned the premium received by it from plaintiff, which
6 Part of the opinion is omitted.
INSURABLE INTEREST IN PROPERTY — WHAT CONSTITUTES 73
he retained some months, and then sent back to defendant. Defend-
ant tenders plaintiff the amount of said premium.
The most important question raised by the defense is that under the
facts plaintiff did not have an insurable interest in the property de-
.stroyed, and for that reason cannot recover. Without an insurable
interest, plaintiff ought not to prevail. Stanisics v. Hartford Fire
Ins. Co., 83 Xeb. 768, 120 N. W. 435. At the time the policy was
issued excepting only her homestead, a married woman in Nebraska
could dispose of her real estate without her husband's assent, and by
her sole deed convey title thereto freed from his interest inchoate or
otherwise therein. The farm under consideration was not a home-
stead. Not only may the wife thus convey her real estate, but dur-
ing, her lifetime the husband has no right to its possession or control
nor to any part of the rents and profits issuing therefrom. Cases may
be cited to sustain the proposition that the husband's estate by the
curtesy initiate is an insurable interest ; but an examination of those
cases will disclose that they are based upon laws giving the husband
more than a mere expectancy in the wife's land. In jurisdictions
where the lawmaking power has completely emancipated a married
woman's property from the control of her husband, the possibility
that he will receive a benefit from the real estate of which she may
die seised is not considered an insurable interest during her lifetime.
Clark V. Insurance Co., 81 Me. 373, 17 Atl. 303 ; Traders' Insurance
Co. V. Newman, 120 Ind. 554, 22 N. E. 428; Planters' Ins. Co. v.
Loyd, 71 Ark. 292, 75 S. W. 725.
Plaintiff argues that, if the holder of the property insured will
suffer a loss by its destruction, he has an insurable interest therein.
An examination of the cases cited upon that point will disclose that the
assured in each instance had some substantial interest in the sub-
ject insured, an interest that would be recognized and protected by
the courts. If plaintiff were enjoying the possession of a house rent
free without any contract with the owner and under such circumstanc-
es that the latter might dispossess the former any time, it would hardly
be contended that he had an insurable interest in the dwelling. So
far as the proof goes, plaintiff holds possession of the farm by suf-
ferance of his wife, and not by force of any lawful or equitable right.
Counsel argue that Mrs. Bassett has only a dry, naked, legal title to
the farm, and that the beneficial one is in plaintiff, but tlie difficulty
is that the proof does not sustain that assumption. Mrs. Bassett did
not testify, nor has plaintiff stated, that there was any arrangement
between himself and wife, oral or otherwise, by which he was to have
a life estate in the farm. Nor is there any proof that the deed to
Mrs. Bassett does not convey the title in just such form as plaintiff
desired.
In Redfield v. Holland Purchase Ins. Co., 56 N. Y. 354, 15 Am.
Rep. 424, cited as in point, the wife had agreed orally that her hus-
band should have the use during his natural life of the property con-
74 INSURABLE INTEREST
veyed to her at his instance. He was in possession of the land, and
the court held that there had been complete performance by the hus-
band of the oral agreement so as to take it out of the statute of frauds,
and that he had an equitable title to the real estate. But in the case
at bar the proof merely discloses that plaintiff purchased the land and
directed the vendor to convey direct to his wife, and, in conformity
with his instructions, she received a warranty deed therefor. He tes-
tified that he desired her to have the land without administration if
she survived him, and, should she predecease him, he would inherit
from her. It may be that the facts will justify a court finding that
there was an arrangement between the husband and wife entered into
before the deed was made to her that he could have the use of the
land during his lifetime, but there is no evidence in the record of those
facts. Upon the proof plaintiff is in the same situation as though he
had taken possession of his wife's separate property and leased it for
his own benefit. The wife could oust him any time she saw fit. In
the state of the record there is a failure of proof upon a vital fact in
issue. Pope v. Glenns Falls Ins. Co., 136 Ala. 670, 34 South. 29.
* * * Judement reversed.
RIGGS V. CO:\IMERCIAL MUT. INS. CO.
(Court of Appeals of New York, 1890. 125 N. Y. 7, 25 N. E. 1058, 10 L. R.
A. 684, 21 Am. St. Rep. 716.)
Action by John S. Riggs against the Commercial Mutual Insurance
Company. Plaintiff sues as assignee of a policy of insurance issued
by the defendant to J. L. Tobias on the steamer Falcon. Tobias was
at the time of issuance of the policy a stockholder in the Merchants'
Steamship Company, a corporation which owned the vessel insured.
A judgment for plaintiff being affirmed by the superior court of New
York City, general term (5 N. Y. Supp. 183), the defendant appeals.
Andrews, J.^ * * * The question whether a stockholder in a
corporation, as such, has an insurable interest in the corporate prop-
erty, which he may protect by an insurance of specific, tangible prop-
erty of the corporation, is the question now presented. The policy
does not disclose the nature of the interest of Tobias in the vessel
insured; but this was not necessary, unless required by some condi-
tion in the policy. Lawrence v. Van Home, 1 Caines, 276 ; Tyler v.
Insurance Co., 12 Wend. 507. The policy, if otherwise valid, attached
to whatever insurable interest he had, whether as owner or otherwise.
What constitutes an insurable interest has been the subject of much
discussion in the cases, and is often a question of great difficulty. It
is quite apparent that the tendency of decisions in recent times is in
the direction of a more liberal doctrine upon this subject than formerly
prevailed. May, Ins. § 76.
7 Part of the opinion is omitted and the statement of facts is rewritten.
INSURABLE INTEREST IN PROPERTY — WHAT CONSTITUTES 75
Contracts of insurance where the insured had no interest were per-
mitted at common law (Craufurd v. Hunter, 8 Term R. 13) ; but the
manifest evils attending such contracts, and the temptation which they
afforded for fraud and crime, led to the enactment in England of the
statute 19 Geo. II. c. ZT , prohibiting wager policies, and this was fol-
lowed by the enactment in this state of a similar statute ( 1 Rev. St.
[1st Ed.] p. 662) prohibiting wagers. But to prevent the application
of the statute to cases of insurance by way of security and indemnity
it was provided that it should "not be extended so as to prohibit or
in any way affect any insurances made in good faith for the security
or indemnity of the party insured, and which are not otherwise pro-
hibited by law." Section 10. It w'ould seem, therefore, that whenever
there is a real interest to protect, and a person is so situated with re-
spect to the subject of insurance that its destruction would or might
reasonably be expected to impair the value of that interest, an in-
surance on such interest would not be a wager within the statute,
w'hether the interest was an ownership in or a right to the possession
of the property, or simply an advantage of a pecuniary character,
having a legal basis, but dependent upon the continued existence of
the subject. It is well settled that a mere hope or expectation, which
may be frustrated by the happening of some event, is not an insurable
interest.
The stockholder in a corporation has no legal title to the corporate
assets or property, nor any equitable title which he can convert into
a legal title. The corporation itself is the legal owner, and can deal
with corporate property as owner, subject only to the restrictions of
the charter. Plimpton v. Bigelow, 93 N. Y. 593 ; Van Allen v. As-
sessors, 3 Wall, zilli, 18 L. Ed. 229. But stockholders in a corpora-
tion have equitable rights of a pecuniary nature, growing out of their
situation as stockholders, which may be prejudiced by the destruction of
the corporate property. The object of business corporations is to make
profits through the exercise of the corporate franchises, and gains so
made are distributable among the stockholders according to their respec-
tive interests, although the time of the division is ordinarily in the dis-
cretion of the managing body. It is this right to share in the profits
which constitutes the inducement to become stockholders. So, also,
on the winding up of the corporation, the assets, after payment of
debts, are divisible among the stockholders. It is very plain that both
these rights of stockholders — viz., the right to dividends and the right
to share in' the final distribution of the corporate property — may be
prejudiced by its destruction. In this case the ships were the means
by which profits were to be earned, and their loss would) naturally,
in the ordinary course of things, diminish the capacity of the corpora-
tion to pay dividends, and consequently impair the value of the stock.
The same would be true in other cases which might be mentioned ; as.
for example, where buildings producing rent, owned by a corporation,
should be burned. It is not necessary, to constitute an insurable in-
76 INSURABLE INTEREST
terest, that the interest is such that the event insured against would
necessarily subject the insured to loss. It is sufificient that it might
do so, and that pecuniary injury would be the natural consequence.
Cone V. Insurance Co., 60 N. Y. 619.
The question now before us was considered by the supreme court
of Iowa in the case of Warren v. Insurance Co., 31 Iowa, 464, 7 Am.
Rep. 160. The court, in a careful opinion, reached the conclusion that
a stockholder in a corporation had an insurable interest in the corpo-
rate property. In Philips v. Insurance Co., 20 Ohio, 174, there is an
adverse dictum, but the decision went on another ground. In Wilson
V. Jones, L. R. 2 Exch. 139, the action was upon a policy in favor
of the plaintiff, a shareholder in the Atlantic Telegraph Company, a
company organized to lay the Atlantic cable. The court construed
the contract as an insurance of the plaintiff in respect to the adventure
undertaken by the company to lay the cable, and it was held that his
interest as shareholder was an insurable interest, and likened it to
an insurance on profits. See, also, Paterson v. Harres, 1 Best & S.
336. It is difficult to perceive any good reason why, if a stockholder
could be insured on his shares in a corporation against a loss happen-
ing in the prosecution of a corporate enterprise, he could not insure
specifically the corporate property itself embraced in the adventure,,
and prove his interest by showing that he was a shareholder.
The question here is, did the plaintiff have an insurable interest
covered by the policy? The amount of damages is not in question.
Except that the parties have taken that question out of the contro-
versy, the extent of the loss would be a question of fact to be ascer-
tained by proof, and the recovery up to the amount insured would be
measured by the actual loss. We are of opinion that the view that
a stockholder in a corporation may insure specific corporate property
by reason of his situation as stockholder, stands upon the better rea-
son, and also that it is in consonance with the current of authority
defining insurable interests in our courts. The cases of Herkimer v.
Rice, 27 N. Y. 163, Rohrback v. Insurance Co., 62 N. Y. 47, 20 Am.
Rep. 451, and National Filtering Oil Co. v. Citizens' Ins. Co., 106
N. Y. 535, 13 N. E. 2)Z7, 60 Am. Rep. 473, sustained policies upon
interests quite as remote as the interest now in question. It would
be useless reiteration to restate the particular facts and grounds of
the decisions in these cases. It is sufficient to refer to them, and to
say in conclusion that it seems to us, both upon authority and reason,
that the insurance now in question is not a wager policy, but is a fair
and reasonable contract of indemnity, founded upon a real interest,
though not amounting to an estate, legal or equitable, in the property
insured.
The judgment should therefore be affirmed. All concur.^
s Accord: Warren v. Davenport Fire Ins. Co., 31 Iowa, 464, 7 Am. Rep.
160 (ISTl); Blake Opera House Co. v. Home Ins. Co., 73 ^Yls. 667, 41 N. W..
968 (1889) ; ^Etna Ins. Co. v. Kennedy, 161 Ala. 600, 50 South. 73, 135 Am..
St. Rep. 160 (1909).
DURATION OF INTEREST 77
III. Duration of Interest*
DICKERMAN v. VERMONT MUT. EIRE INS. CO.
(Supreme Court of Vermont, 1894. 67 Vt. 99, 30 Atl. 808.)
Assumpsit by Lewis Dickerman and another against the Vermont
Mutual Fire Insurance Company and against the Union Mutual Fire
Insurance Company to recover on a policy of fire insurance. Defend-
ants demurred to plaintiffs' declarations. Demurrers overruled, and
defendants except.
RowELL, J. The questions in these cases being the same, they were
heard together. The statement in the counts demurred! to, that the
policies and applications are referred to and made a part thereof, does
not, as is conceded, make those instruments a part of the counts. It
is essential to the sufficiency of the counts that they should allege an
insurable interest in the plaintiffs at the time the policies were issued,
and also at the time of loss.
In respect to the time of issuing, the policies, it is alleged that the
defendants promised the plaintiffs to pay them certain sums of money
named if their buildings, situate, etc., were destroyed by fire between
certain dates. It is doubtful whether this is a sufficiently definite and
positive allegation of insurable interest. The authorities differ about
it, and it is not necessary to decide the question ; for the counts are
bad for not alleging such interest at the time of loss, concerning which
they contain no allegation whatever.
It is also doubtful, to say the least, whether it appears from either
count that the money was due and payable when the suits were com-
menced. It is true that the promises as laid are to pay if the build-
ings were destroyed, but it is not alleged that payment was to be made
on the happening of that event, nor on notice of its happening, nor
within a reasonable or other time thereafter, and one of the counts
alleges no notices. But it is unnecessary to consider this point further,
as the pleader can easily obviate this objection when he repleads.
Judgment reversed, demurrers sustained, the counts adjudged in-
sufficient, and causes remanded.^''
« For discussion of principles, see Vance on Insurance, § 48.
10 As to effect of change or termination of interest, see, also, Quarles v.
Clayton, ante, p. 10, New v. German Ins. Co., ante, p. 15, and Clinton v. Nor-
folk Mutual Fire Ins. Co., ante, p. 68.
78 INSURABLE INTEREST
IV. Insurable Interest in Lives **
RUPP V. WESTERN LIFE INDEMNITY CO.
(Court of Appeals of Kentucky, 1910. 138 Ky. IS. 127 S. W. 490, 29 "L. R. A.
[N. S.] 675.)
NuNN, J. Appellant, Clarence Rupp, brought this suit against ap-
pellee, Western Life Indemnity Company, on two policies of insur-
ance alleged to have been issued upon the life of his uncle, Geo. Mc-
Cormack, appellant being named in both policies as the beneficiary.
The petition is in two paragraphs, in each of which it is sought to
recover $1,000, the amount of each of the policies, and is in the form
usually employed in bringing such actions, except it is alleged that,
"by the directions and under the instructions of the assured, Geo.
McCormack, the defendant issued the policies payable to this plain-
tiff, and this without this plaintiff's instance, request or knowledge."
Appellee's answer was composed of five paragraphs ; to some of
\vhich a demurrer was filed, but never acted upon as to the answer,
but was carried back to and sustained as to the petition. Plaintiff
declined to amend his petition, and the court dismissed it upon the
ground that appellant, a nephew of McCormack, had no insurable in-
terest in his uncle's life; that such a contract partook of the nature
of a wager, and was void as being against public policy. And this
is the only question necessary or proper to be considered upon this ap-
peal.
This court has held in several cases that a person could not take
out an insurance policy on the life of another, pay the premiums, and
become himself the beneficiary, unless he had an insurable interest in
the life of the person insured, for the reason that such would be a
wagering contract, and violative of public policy. The court did not
hold such contract of insurance void, but only held that the person
who had no insurable interest and obtained the policy, and paid the
premiums thereon, could not collect it. This, however, is not the
question before us. The point is : Has a person a right to obtain a
policy, pay the premiums, and name any person he wishes as benefi-
ciary? This is the first time this question has been brought directly
before this court. Appellee's counsel contend that such a policy can-
not be enforced, even though the beneficiary named in the policy had
nothing to do w^ith procuring it, and was ignorant of its issual, and
cite the following Kentucky cases, which they claim support their po-
sition : Caudell v. Woodward, 96 Ky. 646, 29'S. W. 614, Leaf v. Leaf,
11 For discussion of principles, see Vance on Insurance, §§ 49-52. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, pp. 244-329.
INSURABLE INTEREST IN LIVES 79
92 Ky. 166, 17 S. W. 354, 854, 13 Ky. Law Rep. 486. Embry's Adm'r
V. Harris, 107 Ky. 65, 52 S. W. 958, 21 Ky. Law Rep. 714, Griffin's
Adm'r v. Equitable Assurance Society, 119 Ky. 856, 84 S. W. 1164,
27 Ky. Law Rep. 313, and Schlamp v. Berner's Adm'r, 51 S. W. 312,
21 Ky. Law Rep. 324.
The question before us was not in issue in any of the cases cited,
and was not considered, except by a slight reference in the first-styled
case. The opinions in the first two cases referred to construe con-
tracts of insurance issued by what are known as "assessment or be-
nevolent associations," and the court decided them upon the construc-
tion of the organic law governing these associations. In the case of
Embry's Adm'r v. Harris, supra, Harris as the surety of Embry to
a bank for nearly $4,000, obtained a policy on the life of Embry, pay-
able to his (Embry's) estate for the sum of $5,000, and the policy
was placed in the hands of Harris to indemnify him against loss as
such surety. The court upheld that contract. In the case of Schlamp.
etc., V. Berner's Adm'r, supra, ]\Iary Berner took out a policy on her
life which was made payable to her administrator. She afterwards as-
signed the policy to her cousin. Barbara Schlamp. The court held
that Barbara Schlamp had no insurable interest in the life of Mary
Berner. and took no interest in the policy by reason of the assign-
ment of the policy to her. It will be observed that these opinions do
not touch the question before us. except the Caudell Case, which we
will refer to hereafter.
The exact question before us was thoroughly considered in the case
of Hess' Adm'r v. Segenfelter, etc.. 127 Ky. 348. 105 S. W. 476, 32
Ky. Law Rep. 225, 14 L. R. A. (N. S.) 1172, 128 Am. St. Rep. 343.
The policy in that case was issued by a benevolent association, and
the opinion was based upon and controlled by sections 678 and 680
of the Kentucky Statutes (Russell's St. §§ 4399, 4401) ; but the ques-
tion at bar was thoroughly considered, and the following conclusion
announced: "All the courts of last resort, with possibly one excep-
tion, and the text-writers on insurance generally, are agreed that a
person may take out insurance on his own life and designate whom
he pleases as the beneficiary. This doctrine is based upon the sound
and sensible theory that it is not reasonable to suppose that a person
will insure his own life for the purposes of speculation, or be tempted
to take his own life, in order to secure the payment of money to an-
other, or designate as the beneficiary a person interested in the de-
struction and not in the continuance of his own life. \'ance on In-
surance, § 49 ; Heinlein v. Imperial Insurance Co., 101 Mich. 250, 59
N. W. 615, 25 L. R. A. 627, 45 Am. St. Rep. 409: Morrell v. Trenton
Mutual Life Ins. Co., 10 Cush. (Mass.) 282, 57 Am. Dec. 92 ; Connect-
icut ^lutual Life Insurance Co. v. Schaefer, 94 U. S. 457, 24 L. Ed.
251; May on Insurance, § 112: Bliss on Insurance, § 76; Bacon on
Insurance, § 729; Beach on Insurance, § 861; Joyce on Insurance, §
729; Bloomington Mutual Benefit Association v. Blue, 120 111. 121, 11
80 INSURABLE INTEREST
N. E. 331, 60 Am. Rep. 558; Union Fraternal League v. Walton, 109
Ga. 1, 34 S. E. 317, 46 L. R. A. 424, 77 Am. St. Rep. 350; Prudential
Ins. Co. V. Hunn, 21 Ind. App. 525, 52 N. E. 772, 69 Am. St. Rep. 380;
N. W. Masonic Aid Ass'n v. Jones, 154 Pa. 99, 26 Atl. 253. 35 Am. St.
Rep. 810; Albert v. Mutual Life Ins. Co., 122 N. C. 92, 30 S. E. 127.
65 x^m. St. Rep. 693. On the other hand, what is known as 'wagering
or gambling insurance' is universally condemned, and our court, in
harmony with the doctrine generally prevailing, is strongly committed
to the principle that a person cannot himself procure insurance upon
a life in which he has no insurable interest, growing out of kinship,
dependency, or the relation of debtor and creditor, nor obtain an as-
signment of such insurance; nor will a person be permitted to insure
his own life for the benefit of another, if that other induces him to
procure the insurance and pays the premiums thereon, or there is any
evidence tending to show that the insurance was obtained with a view
to avoid or evade the law against speculative insurance."
This is a sound and reasonable rule, and if it were otherwise it
would be in conflict with the universal doctrine that a person who is
compos mentis can give away his property to any person he pleases;
it would operate to render invalid all devises to persons not closely
enough related to have an insurable interest in the life of the testa-
tor. What reason can be given warranting the declaring of an in-
surance policy void when a friend, a stranger in blood, is made the
beneficiary by the assured, that would not apply with the same force
to a testator devising property to a person not having an insurable
interest in the life of the testator? Yet such devises have been uni-
versally upheld. Is it possible that a beneficiary in an insurance pol-
icy, such as is alleged in the case at bar, would have a greater desire
for the premature death of the assured and take steps to produce it,
than a creditor would, especially Harris, who was only the surety of
Embry in the case, supra, and in which case the policy was upheld
and declared not to be a wagering contract? In the cases of Hill v.
United Life Ins. Association, 154 Pa. 29, 25 Atl. 771, 35 Am. St. Rep.
807, and N. W. Masonic Aid Association v. Jones, 154 Pa. 99, 26
Atl. 253, 35 Am. St. Rep. 810, the Supreme Court of Pennsylvania
said : "A man may insure his own life, paying the premium himself,
for the benefit of another, who has no insurable interest, and that
such a transaction is not a wagering policy. This results from the
right which a man has to dispose of his own property." The follow-
ing cases also sustain this principle: Prudential Ins. Co. v. Hunn, 21
Ind. App. 525, 52 N. E. 772, 69 Am. St. Rep. 380, and Scott v. Dick-
son, 108 Pa. 6, 56 Am. Rep. 192. In the last-named case the identical
question involved in this case was considered, and the court said :
"Policies of this nature are in no sense wagering. It would be deny-
ing a man's right to do what he will with his own to say that he
could not in any form insure his life for the benefit of an indigent
relative, or a friend to whom he felt under obligations. And the fact
INSURABLE INTEREST IN LIVES 81
that he continues to pay the premium himself, and retains the con-
trol of the policy up to the time of his death, leaves no room for spec-
ulation or the improper practice which a few years ago brought such
a scandal upon the life insurance business in this state."
It is claimed that the case of Caudell v. Woodward, supra, estab-
lishes a different principle. That case was decided upon the organic
law of a fraternal order, but language is used in the opinion which,
seemingly, sustains appellee's contention. However, the conclusion
reached in the case at bar is also announced in that opinion ; that is,
one who obtains a policy of insurance on the life of another must
have an insurable interest in the life of that other. The opinion in
that case also announced the doctrine that one is prohibited from in-
ducing another to take out insurance, or become the owner of such
insurance by assignment, unless he has an insurable interest in the
life of that other; and that Mrs. Woodward, a stranger, could not
recover on the policy, because it is well settled that one obtaining a
policy of insurance on the life of another, or who induced another
to take out a policy for his benefit, must have an insurable interest.
All these propositions are fundamental- and sound in law. There is
nowhere, however, any reason given in the Caudell Case why a person
cannot take out insurance on his own life, pay the premiums, and
make a person who is not related to him the beneficiary; nor could
there have been presented any reason against it that would not have
applied with equal force to a gift of the same amount by will as well.
For these reasons, the judgment of the lower court is reversed and
remanded for further proceedings consistent herewith.
LIFE INS. CLEARING CO. v. O'NEILL.
(Circuit Court of Appeals of United States, Third Circuit, 1901. 106 Fed.
800, 45 C. C. A. 641, 54 L. R. A. 225.)
In Error to the Circuit Court of the United States for the Western
District of Pennsylvania.
Before Dallas and Gray, Circuit Judges, and McPherson, Dis-
trict Judge.
J. B. ]\IcPnERSON, District Judge. ^- This is an action on a policy
of insurance taken out and maintained by an adult son for his own
benefit upon the life of his father, and the question for decision is
whether, under the facts in evidence, the son had an insurable inter-
est sufficient to support the policy. * * *
The uncontradicted evidence established the facts that the son was
an adult, married, and having a home and family of his own apart
from his father ; that he was not supported by, and did not support,
his father, but that each maintained himself by his own exertions.
12 Part of tbe opinion is omitted.
CooLEY Ins. — 6
82 INSURABLE INTEREST
There is nothing, to show that the relation of debtor and! creditor ex-
isted between them. It will be observed, therefore, that the precise
question is * * * whether the bare fact of relationship is suffi-
cient to give an adult son an insurable interest in his father's life.
Upon this point, all the decisions, so far as we have been able to
discover, declare that no such interest exists, although dicta to the
opposite effect are no doubt to be found, and, in our opinion, this
declaration is not only supported by the weight of authority, but is
also in harmony with the principles upon which the doctrine of insur-
able interest rests.
The sum of the decisions and of text-book discussion upon the sub-
ject of insurable interest may, we think, be fairly stated thus: No
person has an insurable interest in the life of another unless he would
in reasonable probability suffer a pecuniary loss, or fail to make a
pecuniary gain, by the other's death; or (in some jurisdictions) un-
less, in the discharge of some undertaking, he has spent money, or
is about to spend money, for the other's support or advantage. The
extent of the insurable interest — the amount for which a policy may
be taken out, or for which recovery may be had — is not now under
consideration. What is often called "relationship insurance" must
be governed by this rule. It must rest upon the foundation of a
pecuniary interest, although the interest may be contingent, and
need not be capable of exact estimation in dollars and cents. Senti-
ment or aft'ection is not sufficient of itself, although it may often be
influential in persuading a court or jury to reach the conclusion that
a beneficiary had a reasonable expectation of pecuniary advantage
from the continued life of the insured. In one relation only — the re-
lation of husband and wife — is the actual existence of such a pecuniary
interest unimportant ; the reason being that a real pecuniary inter-
est is found in so great a majority of cases that the courts conclusive-
ly presume it to exist in every case, whatever the fact may be, and
therefore will not inquire into the true state of a few exceptional in-
stances. This, we think, is essentially what is meant by the declaration
of courts and text-book writers that the mere relationship of husband
and wife is sufficient to give an insurable interest. The supreme court
of Vermont — alone, we think, among judicial tribunals — seems dis-
posed to hold the presumption to be rebuttable. * * *
In all other relationships there is no presumption of interest, and
no insurable interest exists, unless the reasonable likelihood of pe-
cuniary loss or gain is present in actual fact. No doubt, judicial
language is to be found supporting the view that the mere relation-
ship of parent and child is sufficient to give an insurable interest.
The dictum in Warnock v. Davis, 104 U. S. 775, 26 L. Ed. 924, is
perhaps more often referred to than any other similar declaration.
* * *
We think it cannot be doubted that the tendency of the recent de-
cisions is to insist upon an actual or presumed pecuniary interest in
INSURABLE INTEREST IN LIVES 83
every case (although such interest may no dovibt be contingent, and to
some extent undefined), and to give relationship its proper place by
regarding it merely as an important factor in the inquiry, whether
such an interest does in reality exist. If, then, the test of pecuniary
interest is to be applied to the facts of the present case, it is clear that
the son had no insurable interest in his father's life. Again laying
aside the effect of the poor law of Pennsylvania, it is plain that the
son would lose nothing by his father's death, and would gain noth-
ing by his father's continuance in life. His father did not support
him, and he himself had not spent, nor was he about to spend, any
money in his father's behalf or support. Upon principle, therefore,
we think that the policy cannot be supported.
If we turn to the decided cases, the weight of authority leads to
the same conclusion. We have not been referred to any case in
which it is held that the mere fact of relationship between a father
and his adult son is sufficient. As already stated, dicta to this eft'ect
are certainly to be found, notably in Loomis v. Insurance Co., 6 Gray
(Mass.) 396; Warnock v. Davis, supra; and Corson's Appeal, 113 Pa.
446, 6 Atl. 213, 57 Am. Rep. 479. But, while these expressions of
opinion are entitled to much respect because of the sources from which
they come, it is also true that the point was not presented for deci-
sion in these cases, and was therefore, presumably, neither argued
nor specially considered. For this reason, we cannot give to such ex-
pressions the same weight that is properly given to a decision upon
the very question.
The following cases deal with the insurable interest growing out
of the relation of parent and child. Other citations may be found
in the note to 57 Am. Dec. 96, and in May, Ins. (4th Ed.) §§ 10+-107.
In Illinois, the case of Insurance Co. v. Hogan, 80 111. 35, 22 Am.
Rep. 180, decides that the mere relation of father and son does not
give to the son an insurable interest in the life of the father, the court
saying that the son must also have a well-founded or visible expecta-
tion of some pecuniary advantage to be derived from the continuance of
his father's life ; and the recent case of Society v. Dyon, 79 111. App.
100, repeats the ruling, that the mere relationship of father and adult
son is not sufficient to give the son an insurable interest in the fa-
ther's life. The point decided in Mitchell v. Insurance Co., 45 Me.
105, 71 Am. Dec. 529, was that a father has an insurable interest in the
life of his minor son, but the court added the dictum — which may be
cited in connection with opposing expressions of opinion — that "a
father, as such, has no insurable interest, resulting merely from that
relation, in the life of a child of full age." The supreme court of
Indiana in Insurance Co. v. Volger, 89 Ind. 572, 46 Am. Rep. 185,
held that a daughter has no insurable interest in the life of her mother,
saying that the insurable interest in the life of another must be a
pecuniary interest, and adding: "Some of the authorities tend in the
direction that mere relationship, as between parent and child, is a suf-
84 INSURABLE INTEREST
ficient foundation upon which to rest an insurable interest, but this
view is not substantiated by the weight of authority." Wakeman v.
Insurance Co., 30 Ont. 705, decided that a parent has a vaHd insur-
able interest in the life of a minor child. Insurance Co. v. Brant, 47
Mo. 419, 4 Am. Rep. 328, which was an action on a policy in favor
of a wife upon the death of her husband, contains a dictum that "at
common law the insurable interest in the life of another person must
be a direct and definite pecuniary interest, and a person has not such
an interest in the life of his wife or child merely in the character of
husband or parent." In Association v. Teewalt, 79 Va. 423, decided
in 1884, it does not appear whether the son was a minor or an adult,
nor whether the son had taken out the policy on his father's life, or
was merely the beneficiary in a policy taken out and maintained by the
father himself. But, assuming, the facts to have been as they are in
the case now being considered, we cannot agree with the assertion of
the supreme court of appeals of Virginia that "it is now well settled
that a father has an insurable interest in the life of his child, whether
a minor or of full age, and the child in the life of his father." Two
cases are cited in support of this assertion, the first being Warnock
v. Davis, 104 U. S. 7T:>, 26 L. Ed. 924, in which the validity of an
assignment of a life policy, made to a person having no insurable in-
terest, was the point at issue, — the declaration concerning the interest
between parent and child being merely a dictum, — and the second case
being Insurance Co. v. Luchs, 108 U. S. 498, 2 Sup. Ct. 949, 27 L.
Ed. 800. in which the point decided was that one partner had an in-
surable interest in the life of his co-partner. We think, therefore, it
may be safely said that the Virginia court was perhaps overconfident
in declaring the proposition just quoted to be well settled. In the
English courts it has been distinctly decided that a father has no pe-
cuniary interest in the life even of his minor son (Halfordi v. Kymer,
10 Barn. & C. 725) ; and in Worthington v. Curtis, 1 Ch. Div. 419,
the court assumed, as a proposition that did not need discussion, that
a father has no insurable interest in the life of his adult son.
The cases thus cited and referred to are, with few exceptions, the
only cases in which the question now before us has been passed upon,
and they certainly justify the conclusion that there is a conflict of
opinion, if not of decision, upon the question now before the court.
But, while this is true, the weight of authority is, in our opinion,
against the position that an adult son has an insurable interest in the
life of his father merely by virtue of kinship. The current of the
recent decisions shows a clear tendency to insist upon the existence
of a pecuniary interest, actual or contingent, upon the part of the son
before he can take out a valid policy upon his father's life. * * *
Reversed. ^^
13 See, also, New York Life Ins. Co. v. Greenlee, 42 Intl. App. 82, 84 N. E.
1101 (1908).
INSURABLE INTEREST IN LIVES 85
CRONIN V. VERMONT LIFE INS. CO.
(Supreme Court of Rhode Island, 1S98. 20 R. I. 570, 40 Atl. 497.)
Action by Catherine Cronin against the Vermont Life Insurance
Company. On demurrer to the declaration.
StinESS, J. This action is brought to recover insurance on the life
of the plaintiff's niece, and the main question raised by the demurrer
to the declaration is whether the plaintiff had an insurable interest in
the life of her niece. The English act of 1774 (14 Geo. III. c. 48,
§ 1) prohibited insurance on the life of a person in which the bene-
ficiary shall have no interest, or by way of gaming or wagering. Al-
though the statute has never been taken as a part of our law, its rule
was generally followed in this country, as declaratory of the common
law.
But, in defining the term "interest," the tendency of the decisions
both in England and in this country has been inclusive, rather than ex-
clusive. There has even been some question whether insurance with-
out interest should be held to be void on the ground of public policy ;
but, in this state, we think it has been understood! to be settled, since
Mowry v. Insurance Co., 9 R. I. 346, that some insurable interest
must exist. This, too, is the generally accepted rule.
In Clark v. Allen, 1 1 R. I. 439, 23 Am. Rep. 496, it was held that
a policy valid in its inception could be transferred to a bona fide pur-
chaser, even though he had no interest in the life ; and some of the
objections to such insurance, on the ground of public policy, were con-
sidered, and shown to be fanciful, and not applied to other branches
of law. For example, the element of chance enters into annuities ;
and the temptation to shorten life, in order to hasten the possession
of a remainder-man after a life estate in real property, is as strong
as in the case of a beneficiary under a life policy.
But these things have never been considered to be contrary to public
policy. Still, upon principle, a purely speculative contract on the life
of another is as objectionable on the grounds of public policy as a
like contract in regard to grain or stocks. In fact, it is more so, and
such a contract may properly be held to be void.
But the case is quite different when one, by his own contract, or
even in the name of another, upon the ground of debt, affection, or
mutual interest, procures insurance for the benefit of another, which
is really to stand in the place of a testamentary gift. And so kinship
and debt have come to be recognized as sufficient grounds of interest.
BHss, Ins. (2d Ed.) •§§ 12, 13; 1 May, Ins. (3d Ed.) § 102a.
Recent decisions have gone further, looking more to the situation
of the parties than to these relations alone.
In Warnock v. Davis, 104 U. S. 77':>, 26 L. Ed. 924, Field, J., said :
"It is not easy to define with precision what will constitute an insur-
able interest, so as to take the contract out of the class of wager
86 INSURABLE INTEREST
policies. It may be stated generally, however, to be such an interest,
arising from the relations of the party obtaining the insurance, either
as creditor of or surety for the assured, or from the ties of blood
or marriage to him, as will justify a reasonable expectation of ad-
vantage or benefit from the continuance of his life." We think that
this states a reasonable rule, and that it is now substantially the ac-
cepted rule. The demurrer in this case being to the whole declaration,
we need not examine the counts in detail. The important facts are
that the niece lived with the aunt from early childhood at different
times, amounting to years ; that their relations were as those of mother
and daughter ; that the plaintiff supported her niece, the insured ; and
that a debt, both of affection and of money, was due to the plaintiff",
for which she expected, and had a right to expect, return from the
insured. Does this set out an insurable interest? We do not under-
stand the word "debt," as here used, to mean a debt recoverable at
law, but a moral obligation, from which the plaintiff had the right to
expect care and kindness from the niece in case of need. Taken in
this view, we think it shows an insurable interest, under the principles
above laid down.
In Lord v. Dall, 12 Mass. 115, 7 Am. Dec. 38, it was held that
a sister had an insurable interest in the life of a brother, who stood
to her in loco parentis. The court said, "In common understanding,
no one would hesitate to say that in the life of such a brother the sis-
ter had an interest." The later case of Loomis v. Insurance Co., 6
Gray (Mass.) 396, involved the question of the interest of a father
in the life of a minor son; but Shaw, C. J., said that, upon broader
and larger grounds, independently of the fact that the son was a
minor, and that the assured had a pecuniary interest in his earnings,
the court was of opinion that the father had an insurable interest.
These broader grounds appeared further on to be "consideration of
strong: morals, and the force of natural affection between near kin-
dred, operating often more efficaciously than those of positive law."
In Insurance Co. v. France, 94 U. S. 561, 24 L. Ed. 287, a case be-
tween brother and a married sister, not dependent, Bradley, J., goes
so far as to say: "Any person has a right to procure insurance on
his own life, and to assign it to another, provided it be not done by
way of cover for a wager policy ; and where the relationship between
the parties, as in this case, is such as to constitute a good and valid
consideration in law for any gift or grant, the transaction is entirely
free from such imputation. The direction of payment in the policy it-
self is equivalent to such an assignment." In Elkhart Mut. Aid B.
& R. Ass'n V. Houghton, 103 Ind. 286, 2 N. E. 763, 53 Am. Rep. 514,
the insurable interest of a grandson in the life of a grandfather, with
whom he lived, was upheld. It has also been sustained where there was
no kinship, as in the case of a woman who was engaged to be married
to a man (Chisholm v. Insurance Co., 52 Mo. 213, 14 Am. Rep. 414),
and in the case of a widow and her son-in-law, who lived together
INSURABLE INTEREST IN LIVES 87
(Adams V. Reed, 38 S. W. 420, 18 Ky. Law Rep. 858, 35 L. R. A.
692).
The principle of these and other Hke cases is that the interest does
not depend upon any HabiHty for support, nor upon any pecuniary
consideration, nor even upon kinship. It may be for the benefit of the
old or the young, where the relation between the parties is such as
to show a mutual interest, and to rebut the presumption of a mere
wager. The contract is complete and legal in itself, and, when con-
siderations of public policy do not prohibit its enforcement, there is
no reason why it should not be carried out.
The declaration in this case shows that the plaintiff's claim is not
objectionable on the grounds of public policy. It shows that the re-
lation of the plaintiff and her niece had been of such a character
that each had reason to rely upon the other in case of need. Should
the younger die first, the help and care which might have been expect-
ed from her in the declining years of the aunt could only be supplied
by insurance on her life. This is no more speculation than a hus-
band's provision for his wife in the same way. It is natural and rea-
sonable, and in accordance with modern business methods. In short,
it is security for an insurable interest.
We therefore think that the contract set out in the declaration is
valid, since it falls within the proper line of distinction between valid
contracts, where there is mutual interest, and invalid contracts, which
are evidently mere speculation. The demurrer to the declaration is
overruled.^*
CONNECTICUT MUT. LIFE INS. CO. v. LUCHS.
(Supreme Court of United States, 1883. 108 U. S. 498, 2 Sup. Ct. 919, 27
L. Ed. 800.)
In Error to the Supreme Court of the District of Columbia.
Field, J.^^ This was an action by Leopold Luchs on a policy of
insurance upon the life of Levi Dillenberg, issued by the Connecticut
Life Insurance Company in June, 1869. Luchs and Dillenberg were
partners at the time in the business of buying and selling tobacco in
the city of Washington. Their partnership was formed in October,
1866, each agreeing to contribute his services and one-half of the
capital. It was understood that the money of Dillenberg was then
invested in mining stocks, and could not at once be obtained. Luchs
accordingly furnished the entire capital, which was over $10,000. Dil-
lenberg never contributed his portion, and, about two years after the
partnership was formed, his failure in this respect caused dissatisfac-
tion and complaint. It was thereupon suggested by one Myers, who
14 For a discussion of insurable interest based ou relationship, see Cooley,
Briefs on the Law of Insurance, vol. 1, p. 281.
13 Part of the opinion is omitted.
88 INSURABLE INTEREST
was employed by an agent of the insurance company, and who had
been called in as an accountant to examine the books of the concern,
that, as a means of "adjusting the dispute or misunderstanding be-
tween the partners," a policy of insurance should be obtained upon
the life of Dillenberg for the benefit of Luchs, and that Dillenberg
should retire from the firm within a year afterwards. Nothing, how-
ever, was then done upon this suggestion, but in the following year
the policy in suit was procured. * * *
The second question presented for our determination is whether
Luchs had an insurable interest in the life of Dillenberg. Upon this
we have no doubt. Dillenberg was his partner and had not paid his
promised proportion of the capital of the concern, x^t the time the pol-
icy was applied for he was still in default, and although it might have
turned out that the actual amount due, upon a settlement of accounts,
was less than the promised proportion, it was not a matter definitely
ascertained at the time. Besides what was thus due to him, Luchs was
interested in having Dillenberg continue in the partnership. He had
such an interest, therefore, as took from the policy anything of a
wagering character.
As this court said in Warnock v. Davis, recently decided: "It is
not easy to define with precision what will, in all cases, constitute an
insurable interest, so as to take the contract out of the class of wager
policies. It may be stated generally, however, to be such an interest
arising from the relations of the party obtaining the insurance, either
as creditor of or surety for the assured, or from the ties of blood or
marriage to him, as will justify a reasonable expectation of advantage
or benefit from the continuance of his life. It is not necessary that
the expectation of advantage or benefit should be always capable of
pecuniary estimation. * * * But in all cases there must be a rea-
sonable ground, founded upon the relations of the parties to each oth-
er, either pecuniary or of blood or affinity, to expect some benefit or
advantage from the continuance of the life of the assured." 104 U.
S. 779, 26 L. Ed. 924.
Certainly Lvichs had a pecuniary interest in the life of Dillenberg
on two grounds : because he was his creditor and because he was his
partner. The continuance of the partnership, and, of course, a con-
tinuance of Dillenberg's life, furnished a reasonable expectation of
advantage to himself. It was in the expectation of such advantage
that the partnership was formed, and, of course, for the life expecta-
tion, was continued.
In Morrell v. Trenton Mut. Life & Fire Ins. Co., 10 Cush. (Mass.)
282, 57 Am. Dec. 92, a policy was taken out by the plaintiff upon
the life of his brother, who was about going to California, on an
agreement that the latter should pay to him one-fourth of his earn-
ings for the following year. In an action on the policy it was con-
tended that the plaintiff had no insurable interest upon the life of
the insured, but the court, after deciding that he had such an interest
INSURABLE INTEREST IN LIVES 89
from the fact that he held a promissory note signed by the firm of
which the insured was a partner, also said that it was strongly in-
clined to the opinion that the plaintiff had another interest in the life
of the person insured. "He had," said the court, "a subsisting con-
tract with that person, made on a valuable consideration, by which
he was to receive one-quarter part of his earnings in the mines of
California for one year. Such an interest cannot, from its nature, be
valued or apportioned. It was an interest upon which the policy at-
tached. By the loss of his life within the year, the person whose
life was insured lost the means of earning anything more, and the
plaintiff was deprived of receiving his share of such earnings to an
uncertain and indefinite amount."
In Trenton Mutual Life & Fire Ins. Co. v. Johnson, 24 N. J. Law,
576, a policy was taken out by the plaintiff on the life of one A^an
Aliddlesworth for $1,000. one-half payable to the plaintiff and the
other half to Van Middlesworth. They belonged to an association
called the New Brunswick & California Mining & Trading Company,
the capital stock of which consisted of 45 shares of $600 each. The
company consisted partly of shareholding members and partly of ac-
tive members, the shareholders being each required to furnish a sub-
stitute to proceed to the mines of the company. The plaintiff owned
one share, advanced $600 of capital, and procured Van Middlesworth
to go out as his substitute, which he did, and acted as his agent and
substitute; and the assets of the company having been divided in
California, he received the plaintiff's share, and afterwards died, not
having paid it over. By one of the articles of the association all treas-
ures and all the proceeds of the labor of each member, and all profits,
were to go into a general fund for the benefit of the association. To
the action brought on the policy it was objected that the plaintiff had
no insurable interest in the life of the deceased. On this question the
court said: "In the present case Johnson had a direct interest in the
life of his substitute, whose earnings were to constitute a part of
the joint funds, of which he was entitled to his share, an interest fully
equivalent to the interests of a wife in the life of her husband, of
a child in that of a parent, or a sister in that of a brother. And at
Van Middlesworth's death, although prior to that time the company
had been virtually dissolved, he had an interest in him as his creditor
to the extent of his share of the assets in his hands."
In Bevin v. Conn. Mut, Life Ins. Co., 23 Conn. 244, the plaintiff'
had obtained a policy of insurance for $1,000 on the life of one Bar-
stow, to whom he had advanced $350, besides articles of personal
property, to enable him to go to California and there labor for one
year, on an agreement that he would account to the plaintiff for one-
half of his gains. The court said that Barstow was the plaintiff's
debtor and partner, giving to the plaintiff an interest in the continu-
ance of his life, as by that means, through his skill and efforts, the
plaintiff might expect, not only to get back what he had advanced, but
90 INSURABLE INTEREST
to acquire great gains and profits in the enterprise. "All the books,"
the court added, ''hold this to be a sufficient interest to sustain a pol-
icy of insurance. As to the value of this interest, we think it must
be held to be what the parties agreed to consider it in the policy.
This was the sum asked for by the plaintiff, and which the defendants
agreed to pay in case of death, and for which they were paid in the
premiums given by the insured. The policy must, we think, be held
to be a valued policy." And, after referring to a policy of insurance
obtained by a sister on her brother's life, where no question seemed
to have been made as to the amount, but only whether it was an in-
terest which the law would recognize, the court said: "So, in every
case, where a person on his own account insures the life of a rela-
tive, if the sum named in the policy is not to be the rule of damages,
we inquire what is? The impossibility of satisfactorily going into the
question in most cases, and especially where there is nothing to guide
the inquiry, and everything is uncertain, would lead us to hold that a
policy like this is a valued policy as most consistent with the under-
standing of the parties and the principles of law." * * * is
MUTUAL LIFE INS. CO. OF NEW YORK v. BLODGETT.
(Court of Civil Appeals of Texas, 18&4. 8 Tex. Civ. App. 45, 27 S. W. 286.)
FiNLEY, J.^'' This is a suit upon a life insurance policy, showing
upon its face to have been taken out by Airs. Lucinda J. Downey,
upon her life, in favor of her grandson, J. A. Blodgett, the plaintiff
in the court below. The defendant answered * * * setting up a
want of insurable interest in plaintiff. * * * 'j^j^g ^j-j^j resulted in
a verdict and judgment for plaintiff for amount of policy, attorney's
fees, and 12 per cent, damages. From this judgment the insurance
company appealed, and assigned errors. * * *
It is urged by appellant that the policy is void, for the reason that
the beneficiary named in the policy had no insurable interest in the
life of the insured, and the policy was speculative and wagering on
the part of plaintiff. The policy recited that it was issued upon the
application of Mrs. Lucinda J. Downey. J. A. Blodgett was named
as the beneficiary, and his relation as grandson to the assured was
therein disclosed. It is not shown that any fraud or deception was
practiced upon the insurance company by which it was deceived as
to the real party to the contract of insurance. It was proven that
the beneficiary was to pay the premiums. This was known to the
company. Indeed, his note was taken for the first premium, and the
policy was issued by the company with full knowledge of the facts
as to the relation of the parties, and of their respective interests and
16 For further discussion, reference may be made to Cooley, Briefs on the
Law of Insurance, vol. 1, p. 296.
1" Part of the opinion is omitted.
INTEREST OF CREDITOR IN LIFE OF DEBTOR 01
undertakings under the contract. Under this state of fact, the com-
pany should not be permitted to deny that the poHcy speaks the truth
as to the party who made the appHcation and with whom the con-
tract of insurance was made.
Mrs. Downey had an insurable interest in her own life, and had
the right, as between herself and the company, when a policy was
issued on her application, to name the person to whom the policy
should be paid, regardless of insurable interest in her life being pos-
sessed by such person. The fact that the premium was paid by the
beneficiary does not give to the contract the character of a wagering
contract; nor does the fact that the beneficiary has no insurable in-
terest in the life of the assured render the policy void as against pub-
lic policy. The courts will treat the person named as beneficiary, hav-
ing no insurable interest, as a trustee appointed to collect the policy
for the benefit of those legally entitled, thereby enforcing the contract
by which the company has solemnly bound itself, and at the same time
conserving public policy, by preventing the stranger from gambling
in the life of his fellow or profiting by his death. Insurance Co. v.
Williams, 79 Tex. 633, 15 S. W. 478; Insurance Co. v. Hazlewood.
75 Tex. 351, 12 S. W. 621, 7 L. R. A. 217, 16 Am. St. Rep. 893;
Investment Co. v. Baum, 29 Ind. 236; Langdon v. Insurance Co. (C.
C.) 14 Fed. 272; Curtiss v. Insurance Co., 90 Cal. 245, 27 Pac. 211,
25 Am. St. Rep. 114; Mayher v. Insurance Co. (decided by this court
at present term) 87 Tex. 169, 27 S. W. 124.
Under this view, the question whether the beneficiary had an in-
surable interest in the life of his grandmother becomes abstract and
its consideration unnecessary. So far as the insurance company's lia-
bility is concerned, it cannot avoid the payment of the policy upon
this ground. * * * is
V. Interest of Creditor in Life of Debtor ^*
RITTLER V. SMITH.
<Court of Appeals of Maryland. ISSO. 70 Md. 261, 16 Atl. 890, 2 L. R. A. S44.)
Bill by Emeline Smith, administratrix of Victor Smith, against Wil-
liam H. Rittler. Decree for complainant, and defendant appeals.
18 The judgment of the trial court was reversed for error in refusing to
:admit certain evidence on other issues.
For a discussion of question based on the extent of interest, see Cooley.
Briefs on the Law of Insurance, vol. 1, p. 298 et seq. See Equitable Life
Ins. Co. V. Hazlewood, 75 Tex. 33S, 12 S. W. 621, 7 L. R. A. 217, 16 Am. St.
Rep. S93 (1889). for a discussion of the Texas rule.
19 For discussion of principles, see Vance on Insurance. § 53. See, also.
€ooley. Briefs on the Law of Insurance, vol. 1, pp. 291-301.
92 INSURABLE INTEREST
MiLi^ER, J.^" In June, 1886, Victor Smith was indebted to William
H. Rittler in the sum of about $1,000, and, Smith being insolvent,
Rittler took out certificates of insurance on Smith's life in four sev-
eral mutual aid associations, aggregating on their face the sum of
$6,500. These certificates were all in favor of Rittler, and he paid
all the premiums or assessments thereunder. Smith died in March,
1887, and Ritter collected from these insurances the sum of $2,124.82,
which appears to have been all that could have been collected accord-
ing to the terms of the certificates and the financial condition of the
associations. Deducting from this sum the debt and interest due Rit-
tler, the premiums he had paid, and the costs and expenses of effect-
ing the insurances, there remained a balance of $474.53 as of the 1st
of June, 1887. On the 3d of October following, letters of adminis-
tration on Smith's estate were granted to an administratrix, who
thereupon filed her bill, claiming this balance as belonging to the es-
tate of the decedent. In his answer Rittler denied this claim, and in-
sisted that the money belonged to him. The case was heard on bill
and answer, and the court below decreed in favor of the complainant..
From this decree Rittler has appealed.
The question as thus presented is an interesting one, is of first im-
pression in this state, and has been very ably argued. On the part
of the appellant it is contended that where a creditor, with his own
money, and for his own account, effects and keeps up an insurance on
the life of his debtor, the whole of the proceeds belong to him unless
it appears that he has gone into it for the mere purpose of specula-
tion, which, in this case, is expressly negatived by the answer, the
averments of which must be taken as true, the case having been heard
on bill and answer. On the other hand, counsel for the appellee con-
tend that where the creditor receives more than enough to reimburse
him for his debt and outlay, with interest, he will, as to the balance,
be regarded as a trustee for the personal representative of the debtor.
There have been numerous decisions upon this subject, some of
which are conflicting. On many points, however, bearing upon the
question, there is a general concurrence of judicial opinion and au-
thority. For instance, it is generally held by the courts in this coun-
try that one who has no insurable interest in the life of another can-
not insure that life. Such insurances are considered gambling con-
tracts, and for that reason void at common law, apart from any stat-
ute forbidding them. In England they were held valid at common law.
but were prohibited as introducing a "mischievous kind of gaming"
by the first section of the statute (14 Geo. Ill, c. 48). The effect of
this section, as construed by the English courts, is to make the law
of England, by act of parliament, the same as it has been held to be
by the courts in this country without such an act. In some cases they
2 rart of the opinion is omitted.
INTEREST OF CREDITOR IN LIFE OF DEBTOR 93
have been denounced as void, not simply because they tend to pro-
mote gambling, but because they are incentives to crime. The force
of this latter suggestion has been, and may well be doubted. It means
that one not related or connected by consanguinity or marriage, who
may have a direct pecuniary interest in the speedy death of another,
will thereby be tempted to murder him, though he knows that hang-
ing is the penalty for such a crime. This doctrine, carried to its logi-
cal result, has a far reaching effect. It strikes down every legacy to
a stranger which may become known to the legatee, as is frequently
the case, before the death of the testator. It makes void every sim-
ilar limitation in remainder after the death of a life-tenant. Every
like conveyance of property, in consideration that the grantee shall
support the grantor during his life, falls under the same condemna-
tion. Yet we know of no case in which a court has declared such
testamentary dispositions or conveyances to be void on this ground.
Other instances, in which the same result would follow from the ap-
plication of this doctrine, could be readily suggested, but we need not
pursue the subject further. All the authorities also concur in holding
that a creditor has an insurable interest in the life of his debtor.
In support of the view taken by the appellee's counsel, cases have
been cited in which it has been held that the assignee of a life pol-
icy, who has no insurable interest in the life, stands in the same posi-
tion as if he had originally taken out the policy for his own benefit.
In other words, the contention is that the assured himself can make
no valid, absolute assignment of his policy to one who has no insura-
ble interest in his life. But our own decisions are opposed to this.
It is settled law in this state that a life insurance policy is but a chose
in action for the payment of money, and may be assigned as such un-
der our act of 1829, c. 51. Insurance Co. v. Flack, 3 Md. 341, 56
Am. Dec. 742; Whitridge v. Barry, 42 Md. 150. It is quite a com-
mon thing for the bond or promissory note of a private individual to
be sold through a broker to a bona fide purchaser for less than its
face value, and when the latter takes an assignment of it without re-
course, he becomes its absolute owner, and is not bound to refund
to the vendor anything he may recover upon it over and above what
he paid for it. So a life policy, being a similar chose in action, may
be disposed of and assigned in the same way, provided the assent of
the insurer is obtained where it is so stipulated in the instrument. In
such case, the assignee must, of course, keep the policy alive by the
due payment of premiums if he wishes to realize anything from it.
Such an assignment is valid in this state if it be a bona fide business
transaction, and not a mere device to cover a gaming contract. Such
is also the English rule. Ashley v. Ashley, 3 Sim. 149.
These considerations prevent us from adopting some of the reason-
ing of the supreme court in Warnock v. Davis, 104 U. S. 775, 26 L.
Ed. 924. It seems to us, with great deference, that from the facts in
94 INSURABLE INTEREST
that case the association, which was the assignee, could well be regard-
ed as standing in the same position as if it had taken out the policy
in its own name, and, having no insurable interest in the life, it clearly
became a wager policy. The assignment was made the day after the
policy was issued, in pursuance of an agreement to that efTect made
the day of its issuance. The assignment was evidently a mere device
to cover up a gaming transaction. In the preceding case of Cam-
mack V. Lewis, 15 Wall. 643, 21 L. Ed. 244, the debt due the creditor
was only $70, and the policy was for $3,000. It was taken out by
the debtor, who was in bad health, at the suggestion of the creditor,
and was assigned to him immediatelv after it was made out, he, at
the same time, taking a note from his debtor for $3,000, confessedly
without consideration. In view of these facts, the court well said :
'Tt was a sheer wagering policy, and probably a fraud on the in-
surance company. To procure a policy for $3,000 to cover a debt of
$70 is of itself a mere wager. The disproportion between the real
interest of the creditor and the amount to be received by him deprives
it of all pretense to be a bona fide effort to secure the debt, and the
strength of this proposition is not diminished by the fact that Cam-
mack was only to get $2,000 out of the $3,000, nor is it weakened by
the fact that the policy was taken out in the name of Lewis, and as-
signed by him to Cammack." It was "under these circumstances"
that the court held that Cammack could hold the policy only as secu-
rity for the debt due him when it was assigned, and such advances as
he might afterwards make on account of it. If such, then, be the
nature of a life insurance contract, and if a bona fide assignee for
value, though a stranger, may recover and hold the whole amount for
his own use, why may not a creditor, who, in pursuance of a bona
fide effort to secure payment of his debt, insures the life of his debtor,
and takes the policy in his own name, or for his own benefit, be enti-
tled to hold all he can recover? He is in fact the owner of the pol-
icy, takes the risk of the continued solvency of the insurance com-
pany, and is obliged to keep the policy alive by paying the annual
premiums during the life of the debtor, and the latter is under no ob-
ligation to do anything, and in fact does nothing in this respect. If
he pays the debt to his creditor, he has only discharged his duty, and
what interest has he in the policy, or in what his creditor may re-
cover upon it? * * *
We agree that there may be such a gross disproportion between the
debt and the amount of the policy as to stamp the transaction as in-
dicating upon its face want of good faith, and as a mere speculation
or wager. The case of Cammack v. Lewis affords an instance of such
gross disparity, but no general rule on this subject has as yet been
laid down by the courts, and it is probably better to leave each case to
depend on its own circumstances. The disparity between the debt of
$1,000 and $6,500, the aggregate of the sums named in the certificates,
is certainly great, but upon examination it is more apparent than real
INTEREST OF ASSIGNEE OF A LIFE POLICY 95
The answer, which we must take as true, shows bona fides on the
part of the creditor. The poHcies were all in mutual aid associations,
where mortuary dues are paid by assessments and where, of course,
the sum to be realized depends upon the number and solvency of the
members. One of the certificates for $2,000 contained a condition that
only one-half should be paid if the assured should die within one year
from its date, an event which actually occurred. Another expressly
provided that he should receive an amount not exceeding $2,000, but
according to the numbers liable to assessment on this certificate, and
from that he received, according to its terms, only $250. Another of
the associations was in financial difficulties, and he compromised his
claim on a certificate for $1,000 and received only $132.82. By taking
out these certificates he became liable to be assessed as a member, and
during the short time they were running (from June to the following
March) he paid, in this shape and in premiums, the sum of $351.75.
In view of the character of these certificates, and of the associations
by which they were issued, we cannot say the disproportion between
the debt and the real amount and value of the insurances is so great
in this case as to warrant a sentence of condemnation against the
transaction as being a mere speculation or wager on the life of the
debtor. * * *
On the whole, we are of opinion the weight of reason as well as of
authority sustains the appellant's claim. We shall therefore reverse
the decree appealed from, and dismiss the appellee's bill.
VI. Interest of Assignee of a Life Policy ^^
CHAMBERLAIN v. BUTLER.
(Supreme Court of Nebraska, 1901. 61 Xeb. 730. 86 N. W. 481, 54 L. R. A.
338, 87 Am. St. Rep. 478.)
Action by Florence M. Butler, administratrix of the estate of Rob-
ert L. Butler, deceased, against Charles AI. Chamberlain and others,
to recover the proceeds of a policy of life insurance issued by the Home
Life Insurance Company on the life of the said Robert L. Butler.
This policy Butler assigned to Chamberlain, and by Chamberlain it
was subsequently assigned to one Crandall. It appeared that after
the assignment to Chamberlain he paid several of the annual pre-
miums due on the policy. From a judgment for plaintiff, the defend-
ant Chamberlain brings error.
21 For discussion of principles, see Vance on Insurance. § 54. See, also,.
Coolej-, Briefs on the Law of Insurance, vol. 1, pp. 262-278.
96 INSURABLE INTEREST
NoRVAL, C. J.'^ * * * Several interesting questions are pre-
sented in the briefs of counsel, but we think it unnecessary to decide
more than one, owing to the position we shall take on it. While the
petition alleges that the policy was merely pledged, it is agreed by
the stipulation quoted that it was in fact sold and assigned) absolute-
ly by Butler to Chamberlain. If such assignment was valid, then the
latter was the owner of it, and had the right to dispose of it as he saw
fit. We think the law is that under the facts it was lawful for But-
ler to dispose of the policy. We are aware that there is a sharp con-
flict of authorities in the several American courts relative to the va-
Hdity of a sale of life insurance policy by one having an insurable in-
terest to one not having such interest. In all the states, perhaps, it is
held against public policy for one not having an insurable interest to
procure insurance upon the life of another, even though it be with
the consent of such person. In some of the states it is held against
public policy for one who has taken out insurance upon his own life
to transfer it to one having no insurable interest. In some of the
states such a transaction is prohibited by express legislative enact-
ment.
But the question to be decided here is, assuming that Chamberlain
had no such interest in the life of Butler, could he legally buy the
policy in question, such policy in its inception having been valid, and
taken out in good faith by Butler, with no intention or design on his
part of assigning it subsequently to Chamberlain. Those courts which
hold such a transaction void proceed on the ground of public policy.
Originally, at common law, choses in action that were assignable were
exceedingly few, but the tendency is now reversed, and those not as-
signable are the exception, rather than the rule. The modern policy
being, then, as above stated, the reason for a rule contrary to such
tendency should be exceedingly strong before a court, where the ques-
tion is yet unsettled, should adopt a contrary rule in any given case.
While public policy is a salutary thing, it has its limitations and dan-
gers. Among them is the fact that it is an exceedingly indefinite term,
has no lines of distinct demarkation, and may readily lend its aid to
a court anxious to make a good case, rather than a safe precedent.
For that reason, before a case is decided upon that ground solely,
courts should be very sure that the reasons for so doing are clear,
strong, and admit of no doubt concerning their reasonableness or ap-
plicability.
Now, the principal reason for branding assignments of this nature
as inimical to sound public policy is that the interest of a stranger in
the death of the insured is so strong as to tempt to murder of the
latter, the earlier to participate in the avails of the policy. Such in-
terest doubtless tends to such a desire. But the same desire would
exist on the part of a creditor, who has an insurable interest, or of one
22 Part of the opiuion is omitted and the statement of facts is rewritter.
INTEREST OF ASSIGNEE OF A LIFE POLICY ,97
who advanced money on the policy, where his only hope of reimburs-
ing himself for the loan might be the policy. It is exceedingly doubt-
ful if strangers are any more apt to either desire or seek to accomplish
the death of others than are those nearly related to them. The
strength of this desire, where it exists, depends not so much upon the
consanguinity of the parties as upon the moral stamina of him who
holds the expectancy, be that expectancy an insurance policy, a devise,
a remainder, or other acquisition which may not be had until the death
of another.
Another reason sometimes assigned for holding such assignments
illegal is that an assignee having no insurable interest is in the position
of one who, in the first instance, takes out a wager policy. But we
think not. If an insurable interest exists in the beneficiary at the
time the policy is issued, and it is taken out in good faith, the object
and purpose of the rule against wager policies would seem to have
been sufficiently attained (16 Am. & Eng. Enc. Law [2d Ed.] 846),
and there is no more reason to apply the rule to policies taken out in
good faith, and afterwards assigned in good faith, than there would
be were the assured to retain it in his own hands.
Counsel rely upon Warnock v. Davis, 104 U. S. 775, 26 L. Ed. 924,
as an authority to uphold the judgment of the lower court. That
case and this present two very different questions. In that case the
msured took out the policy in pursuance of an agreement that a third
party, having no insurable interest in his life, should, in consideration
of certain payments to be made by it, receive at his death nine-tenths
of the insurance money. In the opinion Justice Field says : "The as-
signment of a policy to a party not having an insurable interest is as
objectionable as the taking out of a policy in his name." Under the
facts involved in that case the language was appropriate, for there was
collusion between the insured and the party to be benefited by his death
by a receipt of the amount above mentioned. But the language is
not applicable to this case, for there was no agreement between Butler
and Chamberlain, at the time the policy was procured, that the latter
should participate in its avails. The transaction with him was wholly
independent of and subsequent to the original one between Butler and
the insurance company. If their agreement had existed prior to the
issuance of the policy, or contemporaneous therewith, then the words
quoted would be applicable; otherwise not.
That this is the meaning of the words is clear when we read Insur-
ance Co. V. France, 94 U. S. 567, 24 L. Ed. 287. and Insurance Co.
V. Schaefer, 94 U. S. 457, 24 L. Ed. 251. In the France Case that
court lays down the rule applicable to the facts in this case, viz. that
any person has a right to procure insurance on his own life, and to
assign it to another, provided it be not done by way of cover for a
wager policy. The intention and good faith of the parties are the
governing principles. In the Schaefer Case the court held that a life
CooLEY Ins. — 7
98 INSURABLE INTEREST
insurance policy originally valid does not cease to be so upon the in-
termission of the assured party's interest in the life insured. It was
certainly not intended in the Warnock Case to overrule or modify ei-
ther of them. They are not in conflict with that case when the facts
are remembered. The language of the court in the Warnock Case is
unfortunately somewhat misleading in several instances, although the
ultimate conclusion reached is right. The comments therein on the
New York cases (Valton v. Assurance Co., 20 N. Y. 32, and St. John
V. Insurance Co., 13 N. Y. 31, 64 Am. Dec. 529) are uncalled for, and
not involved in the issues, for the questions of law decided in those
rases are very different from, and not necessarily conflicting with, the
law involved in the Warnock Case.
We are aware that several eminent American courts disagree with
the New York cases cited, and with other courts of this country which
agree with the latter. It seems that to hold contrary to that rule
would have the effect mentioned in St. John v. Insurance Co. — "with-
out the right to assign, insurances on hves lose half their usefulness" ;
a fact that should not be lost sight of in this day, when almost every
person carries life insurance of some character, the commercial value
and usefulness of which should be fostered, rather than crippled or
minified. If such choses in action may be legally sold absohitely, it
is plain that more can be realized from them in the day of need than
if valuable only as security for loans. And until it shall be made to
appear that in those jurisdictions where such policies are assignable
absolutely crimes committed by such assignees are more frequent than
in those where assignments of the nature of the one here involved are
illegal, we are of opinion that the reasons for holding such transactions
void are insufficient.
Chamberlain, then, being, under the facts agreed on, the absolute
owner of the policy, had the right to transfer it to Crandall, and such
act was not a conversion of the policy or insurance, for he was en-
titled to the whole of the proceeds thereof, free from all claims of the
plaintiff or the estate of the deceased. The judgment is therefore re-
versed. ^^
2 3 See. also, Hardy v. JEhm Life Ins. Co., 152 N. C. 286, 67 S. E. 767
(1910). For a collection of authorities, see Gordon v. AVare Nat. Bank, 132
Fed. 444, 65 C. C. A. 580. 67 L. R. A. 550 (1904). The decisions of Connecti-
cut, Georgia, Illinois, Indiana, Maryland (see Rittlei- v. Smith, ante, p.
;ti), Massachusetts, New Hampshire, New York, Rhode Island, and Wis-
consin are in accord with the principal case. Alaliania. Michigan, Virginia,
Kansas, Texas, and Pennsylvania hold that an Insurable Interest is neces-
sary. The question is unsettled in Missouri and Louisiana.
I
IN GENERAL — OFFER AND ACCEPTANCE 99
THE MAKING OF THE CONTRACT
I. In General — Offer and Acceptance ^
ZIMMERMANN v. DWELLING HOUSE INS. CO. OF
BOSTON.
(Supreme Court of Michigan, 1S06. 110 Mich. 399, 68 N. W. 215, 33 L.
K. A. 698.)
Action by Frederick C. Zimmermann against the Dwelling House In-
surance Company of Boston. Judgment for defendant, and plaintiff
appeals.
Moore, J.^ The plaintiff was a local agent of the defendant at Sag-
inaw, and had been for several years prior to the date of the policy
sued upon in this case ; and, at the time the policy was issued, there
was another local agent representing the defendant in the city. On
May 15, 1893, plaintiff wrote a policy in the defendant company, in-
suring himself in the sum of $1,5(X) on his household goods, $250 on
his barn, $100 on his horse, and $150 on his vehicles, robes, feed, etc.
Without notifying the company of this risk, he retained the policy
and the daily report which is usually sent to the company until ]\Iay
20, 1893, claiming that his barn was not completed and ready for oc-
cupancy before that date. On that date he sent the policy and daily
report, by mail, to the home office of the defendant, at Boston, Mass.
These papers w^ere received by the company on May 21), 1893. Be-
fore sending the policy, the plaintiff had indorsed upon it the words,
"Kindly approve and return." The property covered by this policy
was totally destroyed by a large fire on May 20, 1893, about 6:30
o'clock in the evening. The fire started at about 4:30 p. m. The
plaintiff notified the company of the loss May 24th, when the general
agent, W. J. Nichols, arrived in the city to look after the losses sus-
tained by the company in this large fire. No premium w^as ever paid
or tendered by the plaintiff. The policy was never accepted by the
company, and was never delivered or returned to the plaintiff. The
company declined to pay the loss. The plaintiff sued the defendant,
and the judge directed a verdict in favor of defendant.
It is claimed by the appellant that he was authorized to write this
policy by W\ J. Nichols, the general agent of the defendant, during
1 For discussion of principles, see Vance on Insurance. § 56. See, also,
Cooley. Briefs on the Law of Insurance, vol. 1, pp. 407-435.
2 Part of the opinion is ouiitted.
100 THE MAKING OF THE CONTRACT
a conversation between them in the city of Saginaw, in February,
1893. The conversation is described by the plaintiff as follows: "I
told him that I wanted to write a policy upon my own goods, and he
said : 'Write it in the usual way.' That is the answer he gave me.
* * Hi "
The property which plaintiff proposed to write was not pointed out
to Nichols, but the plaintiff told Nichols it would! be his household
goods and barn then building. * * *
It is claimed that this conversation between the general agent of
the company, in which the general agent of the company used the
expression, "Write it in the usual way," supplemented by the writing
of the policy and evidence "that it is the custom of insurance agents
in Saginaw valley to insure their own property in the companies for
which they are agents, in the same manner that they insure property
of other persons — i. e. "that the custom and usual way in the city of
Saginaw and valley of writing policies upon an agent's own property
at that time was to make a memorandum of the risk; then he would
make a daily report of the risk, and then a policy conforming to that,
and spread it upon his insurance register" — made a contract upon
which the company would be liable, whether the policy was accepted
at the home office or not. We cannot sustain that contention. When
this conversation was held, the barn was not built. It was not finished
until about the 15th of May. No statement was made as to the value
of the property to be insured, or for how much it was to be insured,
or what rate of premium was to be paid. No date had been fixed
for the commencement or termination of the risk. Giving the most
liberal construction possible to the language used, and what was done,
it did not constitute a mutual and valid contract, binding upon both
parties. Michigan Pipe Co. v. Michigan Fire & Marine Ins. Co., 92
Mich. 482, 52 N. W. 1070, 20 h. R. A. 277.
In its logical order, the next question for consideration is : Did the
writing out of the daily report and the policy, and its entry on the
policy register, constitute a contract before the policy was approved by
the company? It is elementary law that an agent must not be per-
sonally interested adversely to his principal. Green v. Knoch, 92
Mich. 26, 52 N. W. 80; Iron Co. v. Kirkpatrick, 92 Mich. 252, 52
N. W. 628. An agent for receiving applications ceases to be an agent
so long as he acts in a matter in which his personal interest is con-
cerned. If he applies for insurance on his own property, as to that
property he is no agent of the company. He cannot, by the familiar
rule of law, as agent, represent antagonistic interests. May, Ins. §
125, and cases cited. It follows reasonably, I think, that, if the agent
cr.nnot act for the company so as to bind it where he himself is an ap-
plicant for insurance, the company would not be bound until his act
in writing the policy was approved by it. The record shows that,
while the policy was written May 15th, for some reason it was not
posted for mailing until May 20th, and was not received until May 23d,
THE FORM REQUIRED— ORAL CONTRACTS 101
three days after the loss occurred. The policy never was approved by
the company, and no contract creating liability was made.
The judgment is affirmed. The other justices concurred.
II. The Form Required — Oral Contracts
HICKS V. BRITISH AMERICAN ASSUR. CO.
(Court of Apixials of New York, 1900. 162 N. Y. 284, 56 N. E. 743, 48 L
R. A. 424.)
Action by Georgiana Hicks against the British America Assurance
Company on a contract. From a judgment in plaintiff's favor (13
App. Div. 444, 43 N. Y. Supp. 623), defendant appeals.
Parker, C. J.* We are agreed that the verdict of the jury estab-
lishes that on the 30th day of December, 1893, defendant's agent
Hobart had a conversation with Col. Hicks, plaintiff's assignor, the
legal effect of which was to create a contract of present insurance
in the sum of $2,500 upon property of Col. Hicks, which was con-
sumed by fire two days later. The agreement that the contract was
one of present insurance accords with the allegations of the com-
plaint, the theory of the counsel as shown by their method of trial,
and the charge of the court. That position cannot be attacked from
any source, for either that which was said operated to create a
contract of present insurance, or else no contract was ever made
binding upon the defendant. The evidence tended to show a con-
tract to insure, and nothing else. It is not pretended that a con-
tract of any kind between these parties was made after the con-
versation of December 30th. The jury have found that the defend-
ant's agent said to Hicks, after a general discussion on the subject
of insuring the property, "You are insured from noon on the 30th
day of December, 1893, to noon of December 30, 1894." The legal
effect of this answer to the application for insurance made by Col.
Hicks was to create a complete, binding agreement for insurance
for the period named, upon which he was entitled to recover for
the damages sustained by the fire, had he made performance on his
part. Ruggles v. Insurance Co., 114 N. Y. 415, 21 N. E. 1000, 11
Am. St. Rep. 674.
This contract of insurance, although verbal, embraced within it
the provisions of the standard policy of fire insurance, which the
3 For discnssion of principles, see A'^ance on Insurance, §§ 57-59. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, pp. 391-406.
* Part of the opinion is omitted.
102 THE MAKING OF THE CONTRACT
legislature in its wisdom formulated for the protection of both in-
sured and insurer. It is usual for the company to issue a policy
of insurance evidencing- the contract between the parties ; but the
policy accomplishes nothing more than that, for, when the contract
is entered into between the agent and the owner, whether the binder
be verbal or in writing, it includes within it the standard form of
policy, and the contract is a completed one. Ruggles' Case, supra;
Lipman v. Insurance Co., 121 N. Y. 454, 24 N. E. 699, 8 L. R. A.
719; Karelsen v. Sun Fire Office, 122 N. Y. 545, 25 N. E. 921;
Underwood v. Insurance Co., 161 N. Y. 413, 55 N. E. 936. In the
three cases last cited the binder had been reduced to writing, but
there is no distinction whatever in principle between those cases
and the one at bar, for in each there is a binding contract to in-
sure, and necessarily according to the only form of insurance con-
tract authorized by the laws of this state.
The law reads into the contract the standard policy, whether it
be referred to in terms or not. In Lipman's Case, supra, Judge
Andrews, in speaking of the construction to be put upon the binding
slip, issued in that case, said : "The construction is, we think, the
same as though it had expressed that the present insurance was under
the terms of the usual policy of the company to be thereafter de-
livered." And in Karelsen's Case the court said : "While the binding
slip contained none of the conditions usually found in insurance
policies, the contract evidenced by it was the ordinary policy of in-
surance issued by the company. So that, in any construction of the
contract, it must be regarded as though it had expressed that the
present insurance was under the terms of the usual policy of the
company to be thereafter delivered."
So that all this plaintiff had to do, in order to recover in this
action, aside from showing a loss by fire, and compliance on her
part with the conditions of the contract, was to prove the making
of the contract. This was accomplished by proving the conversation
between her assignor and the agent, for the conversation disclosed
the sum for which the property was to be insured, the amount of
premiums, and the period of insurance, and the statute provided
for all of the other conditions of the contract of insurance. Neither
party to it had the right to add to or take from the requirements
of the legislature in that regard. The making of the contract the
plaintiff proved to the satisfaction of the jury, and she did not at-
tempt to prove anything more. This the trial court, as well as the
counsel, understood, and the case was tried upon that theory It
has been discovered in this court, however, that the judgment against
the defendant cannot be sustained if this action be now treated in
accordance with the theory that induced its commencement, and upon
which it was tried, namely, that the plaintiff's assignor made a valid
contract of insurance with the defendant, by virtue of which this
plaintiff, as assignee, is entitled to recover to the extent provided
THE FORM REQUIRED — ORAL CONTRACTS 103
for by the policy for the damages sustained by her through the
destruction by fire of the building insured.
The error which calls for a reversal of the judgment, if this be
treated as an action on the contract, lies in the trial court's charge
to the jury, in effect, that, as matter of law, it was not necessary
for the insured to present to the defendant proofs of loss in accord-
ance with the requirements of the standard policy. To avoid this
result, it is proposed in the dissenting opinion not only to set at
naught the many decisions of this court holding that on an appeal
a case must be disposed of upon the theory upon which it was tried
(Snider v. Snider, 160 N. Y. 151, 54 N. E. 676; Stephens v. Meriden
Britannia Co., 160 N. Y. 178, 54 N. E. 781, 73 Am. St. Rep. 678;
People V. Dalton, 159 N. Y. 235, 53 N. E. 1113; Drucker v. Rail-
way Co., 106 N. Y. 157, 12 N. E. 568, 60 Am. Rep. 437; Baird v.
Mayor, etc., 96 N. Y. 567), but also to decide that, growing out of
this contract, the plaintiff had another cause of action, the main-
tenance of which did not require the service of proofs of loss. Hence
it is claimed that, by treating the case as having been tried upon
that theory, the court may avoid reversing the judgment, for in
such a case it would have been unnecessary to charge that the serv-
ice of proofs of loss was essential to recovery. This newly-discovered
cause of action is said to spring out of the promise, made at the
time the contract was entered into, that the defendant would deliver
to the insured evidence of the contract in the shape of a policy of
insurance. The contract was completed at the moment the agent
said, "You are insured from noon on the 30th day of December,
1893, to noon on the 30th day of December, 1894" (Ruggles v. In-
surance Co., supra) ; and it is agreed by every member of this
court that the defendant is liable to the plaintiff on the contract
thus made in the full amount of the policy, if the damage was sus-
tained in the manner referred to in the policy, and plaintiff performed
the conditions imposed upon him by it.
But it is said that he may recover either on the contract, or in-
stead, if he elects, on the ground that the defendant failed to de-
liver to him written evidence of the contract; i. e. a policy of in-
surance. If the case were one where the written evidence of the
contract had to come into the possession of the plaintiff before re-
covery could be had thereon, then it is true that an action in equity
might be brought, praying for a delivery of the policy that the de-
fendant withheld, and further demanding that, upon the policy de-
livered in pursuance of the decree, the plaintiff should have judg-
ment in the amount specified in the policy for her damages by fire ;
and even then the plaintiff would have to abide by the terms of the
policy, delivery of which the judgment should decree. But that is not
this case at all. To enable her to recover, it was not necessary for
this plaintiff to have physical possession of the policy which the
agent promised to give her assignor. Ruggles Case, supra. Her
104 THE MAKING OF THE CONTRACT
action was not founded upon a policy, but upon the contract of in-
surance made upon the 30th day of December, which, as both parties
agreed, was to begin at noon on that day, no matter when the policy,
which the parties intended should furnish evidence of the contract,
should be delivered. The action was brought, tried, and decided upon
that theory; and no one disputes that the judgment could in this
court stand upon that theory, had the trial court charged the jury
correctly in relation to the necessity of serving proofs of loss. It
is apparent, therefore, that the plaintiff sustained no damage by
reason of the defendant's failure to furnish her assignor with written
evidence of the contract. Had the promise been kept, the plaintiff
might not have been obliged to call her assignor to prove the con-
tract, thus subjecting him, as it turned out, to be confronted with
impeaching testimony ; but neither the plaintiff nor her assignor was
otherwise damaged, for he found no difficulty in proving a con-
tract to the satisfaction of the jury. The possession of the promised
policy, therefore, would have been a convenience possibly, but nothing
more.
Plainly, therefore, it is not true that the plaintiff suffered dam-
age in the amount of the contract of insurance by reason of the
failure of the defendant to deliver a policy reciting the terms of
the contract entered into, and hence the judgment cannot be affirmed
on the ground that the plaintiff sustained damages in the sum of
$2,500, because the defendant omitted to deliver a policy. Nor do
I think that a sound public policy would sanction the creation of
such a precedent even if a legal principle could be found upon which
to rest it.
The legislature of the state of New York has prescribed a standard
form of policy for the protection of both insurer and insured. It
contains provisions specially protecting the insured from harsh meth-
ods by insurance companies. On the other hand, it provides that
which experience has shown to be necessary in order to protect in-
surance companies from being victimized through fraud ; and among
the conditions which the legislature, in its wisdom, has caused to
be incorporated into the standard policy is one making it necessary
that the insurer shall have immediate notice of the facts and cir-
cumstances of the fire ; another, that within 60 days the owner shall
present proofs of loss, duly verified, in which shall be stated the
circumstances of the fire, and the value of the property destroyed,
and various other things which it is deemed important that insur-
ance companies should know before being called upon to adjust a
loss ; still another provides that no local agent shall have the power
to waive any of these written conditions, except by a writing.
It is unnecessary to present the reasons which induced the legis-
lature to require these conditions precedent to a recovery upon a
policy of insurance. It is sufficient for our purpose that the legis-
lature declared that it should be so, and we should see to it that
THE FORM REQUIRED — ORAL CONTRACTS 105
the g-eneral trend of our decisions is towards the enforcement of the
legislative command, instead of its nullification. This plaintiff had
the right, as it is conceded on all hands, to recover on the contract
of insurance which her assignor made with the defendant's agent,
whether a policy was subsequently delivered to him or not; but, as
the standard policy was necessarily a part of the contract, he should
be required to comply with the conditions of that policy, and give
notice of the facts and circumstances of the fire, and present proofs
of loss duly verified.
The view taken by some of my Brethren, however, is that it was
unnecessary to give notice of the fire and present proofs of loss
within 60 days, or at any other time, because, it is said, such an
action need not be treated as on a contract of insurance, but on a
contract to give a policy, which has not been carried out, and, there-
fore, prior to beginning suit, which may be done at any time within
six years instead of one year, as provided in the standard policy,
the insured has nothing whatever to do when he sustains a loss by
fire but lie by until, as in this case, several months have passed, or,
in some other case, until years have gone by, without giving the
company notice of the fire or any proofs of loss whatever. He
may then bring a suit, claiming that two days, or less, or more,
before the fire, the defendant's local agent, without receiving any
premium, agreed to, but did not, issue a policy, for which defendant
is liable to plaintiff in the amount of the sum for which it was
agreed that the policy should issue. If such a procedure should be
sanctioned by this court, then might an insurance company be mulcte'l
in damages without having had an opportunity to investigate promptly
the origin of the fire and the value of the thing destroyed, and thus
would the door be opened wide for the perpetration of fraud.
It is said that, if the foregoing argument seems not to be de-
fective upon its mere reading, it is, nevertheless, so, because it leaves
out of consideration the decisions of this court in Ellis v. Insurance
Co., 50 N. Y. 403, 10 Am. Rep. 495; Angell v. Insurance Co., 59
N. Y. 171, 17 Am. Rep. 322: Van Loan v. Insurance Co., 90 N. Y.
280. But the situation which those cases were designed to meet no
longer exists. During the period of time in which they and others
were decided, and down to the year 1886, each insurance company
was at liberty to insert such provisions in the policy of insurance
issued by it as it deemed best. The result was that there was no
uniformity in policies of insurance, and, when loss by fire occurred
prior to a delivery of the policy, it became necessary for the assured
to secure possession of the policy, either by its voluntary delivery
to him by the officers of the company, or in pursuance of a decree
in a suit in equity for specific performance. Thereon he could found
a judgment for the damages sustained by the fire, or he was allowed
to recover the damages sustained for a breach of the contract,
which was treated as a contract for the delivery of a policy. The
106 THE MAKING OF THE CONTRACT
last one of the cases cited was decided in 1882. Four years later
the legislature, by chapter 488 of the Laws of 1886, enacted and
provided for a uniform policy of fire insurance, to be made and
issued in this state by all insurance companies taking fire risks on
property within this state, to be known and designated as the "stand-
ard fire insurance policy of the state of New York."
Upon the passage of this important legislation the policy of in-
surance was no longer of special moment, except as evidence that
a contract to insure had been made ; for it was no longer competent
for the parties to incorporate into the policy any provisions whatever
outside of those embraced within the terms of the standard policy,
and thereafter the contract to insure was, by common consent of
the profession and the courts, scientifically treated as a contract of
insurance, and not, as formerly, a contract to issue a policy, as an
examination of the authorities in this court from the Ruggles Case
down will show. * * * Reversed.^
PHCENIX INS. CO. OF HARTFORD. CONN., v. IRELAND.
(Court of Appeals of Kansas, 1899. 9 Kan. App. 644, 58 Pac. 1024.)
SCHOONOVER, J.*^ This is an action by C. F. Ireland & Co. against
the Phoenix Insurance Company, of Hartford, to recover damages
for a breach of an oral contract to insure the defendants in error's
stock of goods, alleged to have been made by defendants in error
with plaintifif in error through its agent, I. E. Perley. The case
was tried to a jury. Verdict and judgment for C. F. Ireland & Co.,
plaintiffs below. The insurance company brings the case here for
review.
The admissions of the parties eliminated from this case all minor
matters. The main question submitted to the jury was whether or
not the oral contract, as claimed by plaintiff's below, was entered into.
Upon this question the jury found for the plaintiffs. The facts,
briefly stated, are: The defendants in error took out an insurance
policy, which was renewed from year to year; the local agent some
times issuing new policies, and sometimes issuing renewal receipts.
After the insurance had been in force for several years, the rate
was increased from $9 to $11. A new policy was issued in de-
fendant company, and the insured told the local agent to take care
of the insurance, — keep it up, — the same as he had hitherto done.
At the expiration of the year the agent forgot to issue a renewal
5 Conditions in parol contracts of insurance, see, also, Salisbury v. Hekla
Fire Ins. Co., post. p. 111.
6 Part of tlie opinion is omitted.
THE FORM REQUIRED— ORAL CONTRACTS 107
receipt, and a short time thereafter the property was totally destroyed
by fire. The contract was terminable by either party at any time.
^ ^ ^
The only question to be determined is: Was the oral agreement
made with the agent binding upon the company? Defendant in error
cites the case of Trustees of First Baptist Church v. Brooklyn Fire
Ins. Co., 19 N. Y. 305, as being decisive of the case. Justice Com-
ptock, in delivering the opinion, says :
"The alleged agreement on which the suit was founded was to
renew a policy of insurance from year to year in consideration of
a premium to be annually paid, either party being at liberty to
give notice at any time that the arrangement would not be con-
tinued. Such an agreement, though not in writing, is not void by
the statute of frauds, on the ground that 'by its terms it is not to
be performed within one year from the making thereof.' 2 Rev.
St. [1st Ed.] p. 135, § 2. It is not the meaning of the statute
that the contract must be performed within a year. If it can be
so performed consistently with the language in which the parties
have expressed themselves, — in other words, if the obligation of the
contract is not, by its very terms or necessary construction, to endure
for a longer period than one year, — it is a valid agreement, although
it may be capable of an indefinite continuance. An agreement which
either party can terminate at any time by a notice to the other
may be binding so long as the notice is not given, but it is not
within the language or the policy of the statute. Plimpton v. Cur-
tiss, 15 Wend. 336; Moore v. Fox, 10 Johns. 244 [6 Am. Dec. 338] :
Fenton v. Emblers, 3 Burrows, 1278; 2 Pars. Cont. 316, and note.
"Aside from the objection just considered, contracts of insur-
ance, whether executory or importing a present risk, are not re-
quired by any statute to be in writing; and we are therefore next
to inquire whether, if made by parol, they are valid upon general
principles of law. A policy of insurance is a mercantile contract,
having its origin in, and deriving its incidents from, the usage and
the laws of commercial nations. In many of the countries of
Europe the contract is required to be in writing by positive ordi-
nances, which set forth minutely the circumstances, and the stipu-
lations, which it ought to express. 1 Duer, Ins. 61. The same is
true of marine insurances in Great Britain, a written policy being
required by the stamp act (35 Geo. III. c. 63). Such is, also, un-
doubtedly, the usage in this country; and, indeed, the very term
'policy' imports that the party insured holds a written instrument
to which that name has been given. It seems, however, that even
in the continental countries of Europe, where formal policies are
required by the codes of public law. unwritten agreements to insure
will in some circumstances be executed by the courts of justice.
3 Boulay Du Paty, 246; 2 \'alin, 20; Pothier, Traite du Contrat
d'Assurance, note, 96, 97.
108 THE MAKING OF THE CONTRACT
"In this state we have no positive law on the subject. The con-
tract, as I have said, had its origin in mercantile law and usage.
It has, however, become so thoroughly incorporated into our mu-
nicipal system that a distinction which denies the power and capacity
of entering into agreements in the nature of insurance, except in
particular modes and forms, rests upon no foundation. The common
law, with certain exceptions, having regard to age, mental sound-
ness, etc., concedes to every person the general capacity of entering
into contracts. This capacity relates to all subjects alike concerning
which contracts may be lawfully made ; and it exists under no
restraints in the mode of contracting, except those which are im-
posed by legislative authority. There is nothing in the nature of
insurance which requires written evidence of the contract. To deny,
therefore, that parol agreements to insure are valid, would be simply
to affirm the incapacity of parties to contract where no such incapacity
exists, according to any known rule of reason or of law. The su-
preme court of the United States, in a recent case in which the
question directly arose, has determined that a parol agreement to
make and deliver a policy of insurance need not be in writing.
Commercial Mut. Marine Ins. Co. v. Union Mut. Ins. Co., 19 How.
318 [15 L. Ed. 636]. We do not hesitate to adopt that conclusion,
and it follows that the objection made at the trial to the agreement
offered to be proved, so far as interests upon this ground, cannot
be maintained."
A rehearing was granted in this case, and the last decision is-
reported in 28 N. Y. 153, where the law applicable to the facts in
this case is approved. As bearing upon the validity of this con-
tract, the following authorities are cited: Insurance Co. v. Shaw, 94
U. S. 574, 24 L. Ed. 291 ; Campbell v. Insurance Co., 11 Wis. 100,
40 N. W. 661; Insurance Co. v. Duffey, 2 Kan. 347; King v. In-
surance Co., 58 Wis. 508, 17 N. W. 297. * * * The judgment
of the district court is affirmed.
WIEBELER V. AIILWAUKEE MECHANICS' MUT. INS. CO.
(Supreme Court of Minnesota, 1SS3. 30 Minn. 464, 16 X. W. 363.)
GiLFiLLAN, C. J. Action on a contract to insure. From the ad-
missions in the pleadings and on the trial, and from the evidence,
the referee was justified in finding, as he did find, that plaintiff
held defendant's policy (about to expire) insuring his dwelling for
three years for the sum of $250, and that before it expired the
agent of defendant, on its behalf, agreed orally with plaintiff to
renew it, increasing the amount on the dwelling to $400, and extend-
ing it so as to cover the furniture in the amount of $250, and the_
barn to the amount of $100. Nothing being said to the contrary.
THE FORM REQUIRED — ORAL CONTRACTS 109
the presumption would be that the renewal was to be for the same
length of time and the same rate of premium as in the original
policy, and the referee found the fact accordingly. This makes a
good contract to insure for the term of three years.
Defendant claims that the contract was within the statute of frauds
and void. There is included in the statute "every agreement that by
its terms is not to be performed within one year from the making
thereof." This, of course, does not include an agreement that
may, in accordance with its terms, be fully performed and ended
within the year ; as where the thing to be done depends on a con-
tingency that may happen within the time. This is the case with
a contract to insure where the insurance is to commence within the
year. Judgment affirmed.
COMMERCIAL FIRE INS. CO. v. MORRIS.
(Supreme Court of Alabama, 3S94. 105 Ala. 498, 18 South. 34.)
Coleman, J.'^ The plaintiiTs, Morris & Co., sued the defendant up-
on an insurance contract to recover damages sustained in the loss of
drugs, merchandise, etc., destroyed by fire. There are several counts
in the complaint, one or more counting upon an agreement to insure,
another upon a contract of insurance, and another upon an agreement
to renew, and one upon an agreement of renewal of an existing policy
of insurance alleged to have been made a few days before the period
of its expiration. As this case must be reversed for reasons which
will appear in the opinion, we deem it proper to state general rules
which seem to us to govern the case, without considering specifically
and in detail each of the several assignments of error.
First, we hold that neither an agreement to issue a policy of insur-
ance, nor an agreement to renew an existing policy, nor a contract of
insurance are within the statute of frauds, and such contracts or
agreements need not be in writing.
Second, that a count which seeks a recovery upon a mere agreement
to issue a policy or to procure a policy, or an agreement to renew an
existing policy, which does not aver a breach of the agreement, is de-
fective. A mere allegation that the defendant agreed to insure, or
to renew a policy, followed by an averment of the loss and destruction
of the property intended to be covered, does not show a breach of the
agreement. We are aware that a similar count was held good in the
case of Insurance Co. v. McMillan, 31 Ala. 711, but an examination
of the case shows that the grounds of the demurrer assigned did not
specifically raise the objection we are considering, and it was not pass-
ed upon by the court. In the later case of Insurance Co. v. Adler, 71
T Part of the opinion is omitted.
110 THE MAKING OF THE CONTRACT
Ala. 516, the character of the complaint is not stated, but the prin-
ciple is declared that an action at law may be maintained upon a parol
agreement to insure, "if all the terms of the contract were agreed up-
on, so as to cover the time of the loss, and the breach consisted in the
failure to issue the policy as agreed on." Courts of equity entertain
bills filed to enforce specific performance of parol agreements to in-
sure, which would be wholly unnecessary if an agreement to insure
was in legal effect, the same as a contract of insurance. Having ju-
risdiction to enforce specific performance, upon proper prayer, courts
of equity administer full relief. Insurance Co. v. Mayes, 61 Ala. 163 ;
Tayloe v. Insurance Co., 9 How. 390, 13 L. Ed. 187; Commercial
Mut. Ins. Co. V. Union Mut. Ins. Co., 19 How. 318-321, 15 L. Ed. 636.
In the case of Lancaster Mills v. Merchants' Cotton-Press Co., 89
Tenn. 1, 14 S. W. 317, 24 Am. St. Rep. 586,— the court uses this lan-
guage : "A contract to carry insurance or to cover with insurance, as
a representation to a depositor that his deposit is insured, is very dif-
ferent in its legal efifect from the absolute liability of an insurer. In
the latter case the action is upon the risk or policy for the value of the
property destroyed, if within the amount of the risk. In the other
case the action would be for such damages as resulted from the breach
of the obligation to carry insurance. The measure of damages may
be the same." The demurrer to the second coimt raised this question
directly, and probably the objection was applicable to other counts.
The reasoning of the court in Tayloe v. Insurance Co., 9 How. 405,
13 L. Ed. 187, is in direct line with our conclusion.
The authorities agree that before a contract of insurance, or to in-
sure, is binding, all the essential elements and terms of the contract
must be understood and mutually assented to. A mere expression of
a desire by one intending to procure insurance, or a proposition made
to an insurance agent to insure property, and an assent or acceptance
by the agent to insure, without more, would not amount to a contract
of insurance or an agreement to insure. The subject-matter, period,
rate to be paid, and amount of insurance, and perhaps other elements,
must be agreed upon expressly or by implication before there can be
an absolute, binding agreement between the parties, nor would the
mere fact that there had been previous dealings of insurance between
the parties, alone, without some reference to such previous dealings,
be sufficient to show a completed and binding contract that the parties
intended to and did adopt the provisions of the former dealings.
Where, however, there exists a contract of insurance, not expired,
and there is an agreement between the parties to renew the policy,
and no change is suggested or agreed upon, it will be implied that the
renewal contract includes and adopts all the provisions of the existing
contract of insurance. Such a contract is complete in all respects, and
upon failure to comply with the agreement the party oflFending may
be compelled, by bill in equity, specifically to perform the agreement,
or held liable in a court of law for damages resulting from a breach of
THE FORM REQUIRED — ORAL CONTRACTS 111
the agreement. 31 Ala. 711; 71 Ala. 516; 61 Ala. 163; 9 How. 405.
13 L. Ed. 187; 89 Tenn. 1, 14 S. W. 317, 24 Am. St. Rep. 586.
Where the evidence shows that the parties contracted with reference
to provisions of previous dealings, it is competent to show the terms
of such previous dealings, in order to arrive at the intention of the
parties, and to ascertain all the terms of the contract made ; and,
where the agreement was to renew an existing contract of insurance,
it was proper and necessary to admit in evidence such existing con-
tract of insurance. Whether or not there was a parol contract to in-
sure, or a parol contract to renew or of renewal, was a question of
fact to be determined by the jury. * * * Reversed.
SALISBURY V. HEKLA FIRE INS. CO. OF MADISON, WIS.
(Supreme Court of Minuesota, 1884. 32 Minn. 458, 21 N. W. 552.)
GiLFiLLAN, C. J. Defendant, by its agent at Minneapolis, made or-
ally a contract with plaintiffs, acting by their agent, insuring plaintiffs'
building used as a manufactory in the sum of $150, and the stock and
machinery therein in the sum of $350, against loss by fire, for a premi-
um at the rate of 6 per cent, on the amount of insurance for one year,
the risk to commence at once, to-wit, February 17, 1883 ; a written
policy to be made and delivered as soon as could be done. The premi-
um was not then paid, and nothing was said as to when it should be.
On the night of February 18th, the manufactory then running, the
property insured was destroyed by fire. On the morning of the 19th,
after the fire, defendant's agent delivered to plaintiffs' agent a policy
of insurance. February 23d, plaintiffs paid the premium. In the oral
agreement nothing was said about any conditions or restrictions of
insurance. In the policy delivered there was a condition that it should
be void if the manufactory should run at night or overtime, or cease
to be operated, without the consent of defendant indorsed on the
policy.
The controversy is as to whether that condition attached to the
contract of insurance under which the loss occurred. Was that con-
dition a part of the contract existing at the time of the fire? Unless
it was, it has no influence on the rights of the parties. Whether it
was or not must be determined by what was said between them or
agents when the insurance was effected. The written policy made out
by the defendant after the fire, of course, cannot be conclusive. In-
deed, having been made after the liability accrued, it would be no evi-
dence of the contract at all, were it not for its delivery to and reten-
tion by plaintift"s. Such delivery and retention may be taken as an
admission by plaintiffs that it set forth the terms of the contract as
agreed on, which might be rebutted by proof of what the contract ac-
tually was. And in view of the fact indicated by the evidence, that
112 THE MAKING OF THE CONTRACT
the plaintiffs did not read it, it would not be very strong evidence, as
an admission. It stands on an entirely different footing from a policy
delivered and accepted before the loss. For in that case, if there be
no fraud or mistake, the policy is the contract, (from the time of its
delivery, at any rate,) no matter what may have been the negotiations
which led! to it, and proof of such negotiations is not admissible to con-
tradict its terms.
This policy did not exist and was not the contract at the time of the
fire, when defendant's liability accrued. The only contract then in
force was oral, and the rights of the parties must be measured by it.
Upon an oral contract of insurance, where nothing is said about con-
ditions, if a policy is to be issued the parties are presumed to intend
that it shall contain the conditions usually inserted in policies of in-
surance in like cases, or as have been before used by the parties. That
a particular condition is usual must be shown by the party who in-
sists upon it, who has the affirmative. There was no evidence that
such a condition as this is usual. Order affirmed.^
III. Delivery
DIBBLE V. NORTHERN ASSUR. CO. OE LONDON.
(Supreme Court of Michigan, 1888. 70 Mich. 1, 37 N. W. 704, 14 Am. St.
Rep. 470.)
Action upon a policy of fire insurance, brought by James R. Dib-
ble, the assured, against the Northern Assurance Company of London.
Verdict and judgment for plaintiff, and defendant brings error.
Sherwood, C. J.^° The defendant is a corporation organized under
the laws of England, doing business in this state, in the county of Al-
legan, at which place Hollister F. Marsh was, in December, 1885 and
1886, its local agent. He was also such agent for the Sun Fire Insur-
ance Company. The plaintiff lived at Salem, in Allegan county, where
he owned a store building in which was a stock of goods, both of
which were insured in the defendant company. He also owned the
two dwelling-houses described in the policy in this suit. The agent,
Mr. Marsh, lived at Allegan village, some 14 miles distant from the
plaintiff and his property, and was assisted in his insurance business
by his son, Arthur Marsh. The plaintiff had for several years previ-
8 Conditions to which an oral contract is subject, see Hicks v. British
American Assur. Co., ante, p. 101.
9 For discussion of principles, see Vance on Insurance. § 66. See, also,
€ooley. Briefs on the Law of Insurance, vol. 1, pp. 442-461.
10 Part of the opinion is omitted.
DELIVERY 113
ous to the time of issuing- the poHcy in this suit placed his insurance
with Marsh, and had given Marsh, the agent, authority to keep his
property insured in such companies as Marsh might select, and to re-
new his policies whenever necessary for that purpose.
On December 19, 1885, Arthur Marsh was at Salem ; saw Dibble,
who applied to him specifically for the insurance on the dwelling-
houses described in the policy in this suit. The application was ver-
bal, and the selection of the company in which to place the insurance
was left to the agent, Mr. Marsh. On the return of Arthur to Alle-
gan, he reported the application to the agent, who, on the 21st day of
December, in pursuance of such application, placed the insurance in
the Sun Company, entered the same on his books of that company, and
sent the policy to the plaintiflt. He also reported the policy to the
company, and advanced the premium given him by Marsh. This pol-
icy contained the following clause : "The insurance may also be ter-
minated at any time, at the option of the society, on giving notice to
that effect, and refunding a ratable proportion of the premium for
the unexpired term of the policy."
January 1, 1886, the Sun Company notified Marsh, the agent, to
cancel the policy, which he did in the usual way, and notified the plain-
tiff of the fact the same day by letter, which reached Salem the next
day, which was Saturday ; and in the same letter Marsh notified the
plaintiff he (Marsh) had put the plaintiff's insurance in another com-
pany. At that time the plaintiff was absent from his home. His clerk,
however, received the letter, and opened and read it. The agent, as
soon as he canceled the Sun policy, placed the risks in the defendant's
company, issued the policy in suit, and placed it in his safe for the plain-
tiff ; entered the policy on his daily register of the company's business,
reported it to the defendant company, accompanied by the premium,
which was three dollars, using the returned premium from the Sun
Company, advanced the balance, and charged the same to the plaintiff,
who, as soon as he learned the facts, approved and ratified all Marsh
had done for him in the premises.
The fire occurred, which did the damage to the buildings insured,
on the Sunday evening after the policy was issued. It is for this in-
jury the plaintiff brings this suit against the defendant under its pol-
icy. The defendant, disavowing its liability upon the policy, on IMarch
13, 1886, returned the premium it had received thereon to its agent,
Marsh, who, under the direction of the company, tendered it back
to the plaintiff, and he refused to accept the same. If the plaintiff
is entitled to recover, the amount is not disputed, nor is any question
made upon the proofs of loss. The facts are substantially undisputed.
The plaintiff was allowed to recover in the circuit, where a trial was
had before Judge Arnold and a jury. The defendant brings error.
An inspection of the record under the exceptions taken in receiving
the testimony discloses no error. The defendant's position in regard
CooLET Ins. — 8
114 THE MAKING OF THE CONTRACT
to the policy in question is stated by his counsel as follows : "The de-
fendant's position in regard to this policy may be briefly stated thus :
(1) The policy was never delivered. (2) The policy in suit was in-
tended to take the place of the Sun fire office policy, which was sup-
posed to be canceled. The Sun fire office policy was never canceled ;
ergo, defendant's policy never took eft'ect. (3) Defendant's policy was
issued by Marsh acting as defendant's agent, and was accepted by him
acting as plaintiff's agent, if it was ever accepted, as it is uncontradict-
ed and undisputed. (4) That plaintiff did not know of this policy until
after the fire. (5) That he never ordered it to be issued. And we
claim that a policy of insurance made by one person acting at the same
time as agent for both parties thereto is void at the election of either
party, unless they have full knowledge of how the same was made."
We have no doubt but tliat the facts shown upon the trial were suf-
ficient to establish the delivery claimed of the policy in question to
the plaintiff. The cancellation of the Sun policy was sufficiently prov-
ed, if the jury believed the testimony in the case, and their verdict is
against the defendant. Under the arrangement with the agent, as stat-
ed by himself, the consent of the plaintiff to a cancellation of the pol-
icy was not necessary. The selection of the companies in which plain-
tiff was to have his property kept insured was placed at the discre-
tion of the agent. The plaintiff's knowledge, or want of knowledge,
upon that subject could not affect the issue in this case under the
contract the plaintiff claims to have had with the agent.
While Marsh could not act for both parties in making the contract
of insurance, or upon any other matters reb.ting to the business re-
quiring the concurrence of both parties, he could act as the custodian
of the policy which was issued for the plaintiff, until he should call
for it. This was a matter in which the company had no interest, and
over which it had no control whatever, and, when the agent received
it for the plaintiff for that purpose, it was clearly a delivery by the
company. From the day the agent received the order for the insur-
ance until the property burned, he had the direction of the plaintiff to
issue the policy, and after it was issued and delivered neither party
could modify or cancel the contract without some special authority so
to do from the other. * * * Affirmed.
PAYMENT OF FIKST PREMIUM 115
IV. Payment of First Premium ^^
UNION CENTRAL LIFE INS. CO. v TAGGART.
(Supreme Court of Minnesota. 1893. 55 Miuii. 95, 56 N. W, 579, 43 Am.
St. liep. 474.)
Action on several promissory notes by the Union Central Life
Insurance Company against James R. Taggart. Plaintiff had judg-
ment, and defendant appeals.
Mitchell, J. The notes in suit were executed for part of the
first year's premium on a policy of insurance on the life of the
defendant. One of the conditions annexed to the policy was that
it "shall not be valid or binding until the first premium is paid to
the company or its authorized agent."
The main contention of the defendant, and the only one we deem
it necessary to consider, is that there was an entire want of con-
sideration for the notes, for the reason that, under the condition
quoted, the policy never became operative, because the first year's
premium had not been paid in cash. There is clearly nothing in
this point. It is usually provided that the policy, though delivered,
shall not be binding until the premium is paid ; and, where this is
the case, the policy does not take effect, even though delivered, until
the provision is complied with. But the mode of payment of the
premium is immaterial if it be accepted by the company or its agent,
and no special mode be provided for in the policy. The policy was
silent as to the mode of payment. It was delivered with a receipt
for the first year's premium attached, countersigned by the com-
pany's agent, who accepted defendant's notes for part of it. On
this state of facts, even in the absence of any express agreement to
that eft'ect, the company must, in judgment of law, be deemed to
have accepted the notes in payment of the premium. See Tayloe
V. Insurance Co., 9 How. 39CM02, 13 L. Ed. 187.
This constituted a consideration for the notes. There is no other
point in the case worthy of any special consideration. Order affirmed.
11 For discussion of principles, see Vance on Insurance, § 67. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, pp. 461-496.
Payment of premiums under conditions of policy, see post, pp. 13S, 189.
116 THE MAKING OF THE CONTRACT
TOMSECEK V. TRAVELERS' INS. CO.
{Supreme Court of Wisconsin, 1902. 113 Wis. 114. 88 N. W. 101.3, 57 L. R.
A. 455, 90 Am. St. Rep. 846.)
Action by Josephine Tomsecek and others ag-ainst the Travelers'
Insurance Company. Appeal from a judgment in favor of plaintiffs.
The defense was noncompliance with the following condition of the
insurance contract: "All premiums are payable at the home office
in Hartford, Connecticut, but will be accepted if paid to an agent
in exchange for a receipt signed by its president or secretary and
countersigned by the agent designated thereon. This policy shall
not take effect unless the first premium is paid while the insured is
in good health."
The evidence was to the following efifect: Maurice M. Enright
and Vincent J. Tomsecek were copartners in the business of running
a meat market at the time the policy was issued. By the consent of
Enright, Tomsecek and one Webb, agent for the defendant com-
pany, agreed that Tomsecek should take out a policy of life insur-
ance in such company, paying the first premium by giving such
agent credit on account at the meat market, as payment for meat
furnished and to be furnished, to the extent thereof. An application
was accordingly made to the company in due form, no mention being
made of the agreement aforesaid. The application was accepted and
a policy containing the condition before mentioned was forwarded
to the agent for delivery, who sent it to Tomsecek by mail, not
knowing that the latter was ill. Tomsecek was then in a hospital,
too ill to do business. The policy was received at the place of busi-
ness of Enright & Tomsecek, but was never brought to the latter's
knowledge. It remained under seal as taken from the post office
till after he died. That occurred soon after the policy was received.
No credit for the first payment on the policy was ever given to the
agent as agreed upon, nor was such premium ever paid in any way.
The court excluded all evidence as to whether the agent had au-
thority to accept anything in payment of the first premium upon
Ihe policy except money, upon the theory that the controversy in
that regard was to be solved solely by the writings. It was in efifect
admitted by plaintiffs' counsel on the trial that no payment was made
on the policy in money or otherwise, unless the agreement in regard
to payment being made by credit to the agent at the meat market
operated as payment.
Marshall, J.^" * * * ^^^iq learned trial court rightly decided
that if the agreement between Tomsecek and appellant's agent, that
the first premium on the policy might be paid otherwise than in
money, and the delivery of the policy pursuant to such agreement,
12 Part of the opinion is omitted and the statement of facts is rewritten.
PAYMENT OF FIRST PREMIUM 11 T
constituted a waiver by the company of payment of such premium
and of the condition that the policy should not take effect unless
such payment should be made while Tomsecek was in good health,
then the policy took effect before Tomsecek died and plaintiffs were
entitled to recover; otherwise appellant is entitled to judgment.
Was the decision of that question in respondents' favor right."
That is the proposition upon which this appeal turns.
Many authorities are cited to our attention to the effect that pos-
session of a policy by the assured at the time of his death prima
facie establishes all conditions necessary to its having taken effect
as a binding insurance contract in his lifetime, notwithstanding it
contains a stipulation that it shall not take effect unless the first
premium is paid while the assured is in good health; that if such
payment was not in fact made, a waiver thereof will be presumed
in the absence of evidence to the contrary. Some of such authorities
hold to rather an extreme doctrine when applied to a policy which
does not contain a receipt for payment of the first premium and in-
dicates that an independent instrument, evidencing such payment, is
to be delivered to the assured upon such payment being made, as
in this case. To that extent they are not in harmony with AIcDonald
V. Society, 108 Wis. 213, 84 N. W. 154, 81 Am. St. Rep. 885, and
do not meet with our approval. The trial court applied the doctrine
of such authorities to this case, and in that, as it seems, committed
error. The court w^ent further, not only holding that the agent
waived and had implied authority to waive payment of the first
premium while the applicant for insurance was in good health, but
waived and had authority to waive payment of such premium in
money and to make an agreement, binding on appellant, that pay-
ment might be made by applying the amount of the premium on
the agent's indebtedness for meat and as a credit entitling him to
further delivery of meat. The principle is familiar that the au-
thority of an agent as to waiving conditions of an insurance policy
before it takes effect is pretty broad, but it does not go beyond his
actual authority and that reasonably implied from the nature of
the business carried on. The rule in that regard is the same in
respect to an agent for an insurance company as any other. There
is no claim that the agent had actual authority to make the agree-
ment found by the jury, so his authority in that regard must be
tested wholly by what may be reasonably implied. It may be admitted
that Webb was a general agent, and still the difficulty is not lessened,
because it cannot be implied that he had any authority in excess of
the power of the corporation, and it must be presumed that such
power did not include the issue of policies of life insurance for any-
thing but money.
Several cases are cited to our attention to sustain the decision
that an agent may waive the conditions of an insurance policy calling
for payment of the first premium in money, but none of them fit
118 THE MAKING OF THE CONTRACT
the facts of this case. The nearest approach to a situation similar
to the one under consideration is that involved in Insurance Co. v.
Schlink, 175 111. 284, 51 N. E. 795. There the agent agreed to waive
payment in money of a part of the first premium, such part not
exceeding the amount allowed to him as his commission. The policy
was sustained upon the ground that payment of the full amount
going to the company was made in money, the court inferentially
holding that the agent had no authority to waive payment thereof.
The decision followed Insurance Co. v. Ward, 90 111. 545, where
the agent agreed to take part payment of the first premium out
of the assured's saloon. In respect to the defense of nonpayment
of the first premium in money, the court said : "As the amount
paid in cash was more than enough to pay the premium on this
policy, we see no ground for holding that the premium was not
all paid in cash." The agent "was entitled to commissions for pro-
curing the insurance, and if he saw proper to take out his com-
missions in the saloon, we know of no reason or authority to debar
him from doing so."
So many loose expressions are found in text-books and legal
opinions as well, as to the power of a general agent of an insurance
company to waive the conditions of a policy calling for payment
of premiums in money, that it is not to be wondered at that attor-
neys and courts as well sometimes go astray. A careful analysis of
the authorities will show that with few exceptions, which are not
of sufficient significance to be followed, the idea, that the agent of
an insurance company has implied authority to waive payment of
premiums on an insurance policy in money and agree to take some-
thing in lieu thereof which is neither money nor an agreement to
pay money, nor an equivalent to money to the insurance company
when taken, has no support. In May, Ins. § 360d, it is said : "An
agent authorized to deliver policies and receive payment may waive
the payment of the premium in cash notwithstanding a stipulation
in the policy to the contrary," citing Insurance Co. v. Gilman, 112
Ind. 7, 13 N. E. 118.
In that case the agent agreed to receive credit on his own debt
to the assured for the amount of the first premium and to pay the
insurance company the amount thereof, which agreement was fully
carried out, the company actually receiving payment in money. The
decision was grounded on the fact that the company received cash
for the first premium, substantially according to the contract. The
court said: "We are not recjuired to decide what the rights of
the parties would have been in case * * * the agent had failed
to give the company credit and remit in the usual course." How-
ever, the court quoted, without explanation or qualification, and in
a way to lead one astray if he fails to examine the supporting au-
thorities, from section 360 of May, Ins., this language: "If the
agent be authorized to receive the premium, an agreement between
PAYMENT OF FIRST PREMIUM 119
the assured and the agent that the latter will be responsible to the
company for the amount, and hold the assured as his personal debtor
therefor, is a waiver of the stipulation in the policy that it shall
not be binding until the premium is received by the company or
its accredited agent," citing Sheldon v. Insurance Co., 25 Conn. 207,
65 Am. Dec. 565; Insurance Co. v. Curtis, 32 Mich. 402; Willcuts
V. Insurance Co., 81 Ind. 300, 309.
The text in May is supported by Sheldon v. Insurance Co., supra,
and Insurance Co. v. Booker, 9 Heisk. (Tenn.) 606, 24 Am. Rep. 344.
In the last case mentioned the agreement was to the effect that
the agent should give the assured time to make the first payment
There was no waiver of payment in money. In Sheldon v. Insur-
ance Co., the facts were that the agent agreed to give the appli-
cant time to make payment of the first premium, to take his note,
payable to the company on short time for one half thereof, and his
promise to pay such agent the other half, and to personally make
the cash payment to the company. It was the custom between
the company and the agent to charge the amount of the first premium
to the latter upon forwarding to him the policy for delivery, and
for the agent to make settlements with the company from time to
time, and to remit money on account. There was no waiver of
the payment in money, only a waiver of the time of payment. In
Insurance Co. v. Curtis, the agent advanced the money for the
assured for the first premium, actually paying it to the company,
and it was held that there was a sufficient compliance with the
provision of the policy requiring payment of the first premium as
a condition of the policy going into effect. In Willcuts v. Insurance
Co. the facts were that the policy was issued to one of the medical
examiners of the company and it was agreed between him and the
agent that the dues to the applicant for services as medical examiner
niight be applied on the premiums. It was held that such agree-
ment was binding on the company as to services actually rendered
before the premium became due, because, to that extent, it dia not
really constitute a waiver of payment in money, as the amount due
to the examiner from the company was equivalent to it to a cash
payment to that extent.
Enough has been said to indicate the character of the authorities
relied upon to show that a general agent of an insurance comjiany
has implied authority to waive the provision of an insurance policy
calling for payment of the first premium in money. None of them
go to the extent of holding that the agent may waive such payment
and take something in lieu thereof which does not amount to pay-
ment to the corporation in cash, such as an agreement on the part
of the agent to take pay for a premium in meat, no credit being
given or payment actually made to the agent, or credit being given
by him to the corporation in the usual course of business.
120 THE MAKING OF THE CONTRACT
The precise question we have here was decided in Hoffman v.
Insurance Co., 92 U. S. 161, 23 L. Ed. 539. There the first pre-
mium was paid to a local or special agent, by consent of the general
agent of the company, in a horse, the cancellation of an indebtedness
of the special agent to the applicant for insurance, a note to such
agent and a note to the corporation. The transaction was held void.
Swayne, J., who delivered the opinion of the court, saying: "It
is an elementary principle, applicable alike to all kinds of agency,
that whatever an agent does can be done only in the way usual in
the line of business in which he is acting;"' and the implication to
that effect "is present whenever his authority is called into activity,
and prescribes the manner as well as the limit of its exercise."
It was further said, in effect, that as life insurance is a cash
business, the agent of an insurance company, whether he be a gen-
eral or a special agent, has no implied authority to take or agree
to take personal property, such as a horse, in payment of a premium
upon an insurance policy ; that such an agreement, even if made
by the company itself, would be ultra vires, and if made by an agent
without the knowledge of the company it would not only be ultra
vires but a fraud both upon the part of the agent and the appli-
cant for insurance, for the latter must be presumed to know that
an insurance premium cannot be legitimately paid in horses.
It would seem that nothing further need be said to show that
the policy in question never became binding upon appellant. The
jury found that the agent agreed to accept his own indebtedness
for meat as part payment for the first premium and to take meat
for the balance thereof. It is undisputed that such agreement was
never carried out by the insured so as to obligate the agent to pay
the company. Neither the company nor the agent received pay
for the first premium. There is no analogy between this case and
one where the agent merely agrees to give the applicant for insur-
ance time to make the first payment, or agrees that he will ad-
vance the amount of the first payment himself, and actually does
advance it, or agrees to charge himself with the first premium in
his account with the company, according to a custom of doing busi-
ness between himself and his principal, thereby becoming liable to
the company. We must hold here that the agent had no implied
authority to use the appellant's policy of insurance to pay his meat
bills or to build up a credit for future purchases of meat. There
are no circumstances disclosed in the evidence to avoid the effect
of that conclusion. * * * Reversed. ^^
13 Power of agent to waive conditions of the policy, see post, p. 243.
PAYMENT OF FIRST PREMIUM 121
FARNUM V. PHENIX INS. CO.
(Supreme Court of California. 1^90. 83 Cal. 246, 23 Pac. 869, 17 Am. St.
Rep. 233.)
Action by N. C. Farnum and others against the Phenix Insurance
Company. There was a judgment of nonsuit, and plaintiffs appeal.
On May 2, 1887, the plaintiffs applied verbally to the defendant's
agent at Stockton, Cal., for a policy of insurance on certain buildings.
A policy was issued insuring the buildings for five years from May
1, 1887. A loss occurred under the policy September 5, 1887. At
the time of the fire and loss no part of the premium had been actual-
ly paid, but it was in evidence that the local agent of the defendant,
at the time the policy was issued and delivered, verbally agreed and
promised to give the plaintiffs a credit on the premium until October
1, 1887, and that the policy was taken by plaintiffs with that under-
standing, and upon that condition, though the agreement for such
credit was not indorsed in writing upon the policy. The policy was
countersigned by the local agent, and delivered to plaintiff's, on May
24, 1887. It was admitted that it was the custom of defendant to al-
low its agents to give credit for premiums for the term 60 days ; and
it was proved that the local agent was, by virtue of his appointment,
made responsible for the collection of all premiums on policies issued
by him.
On June 25, 1887, the local agent mailed to plaintiffs a written no-
tice stating that "the premium on policy No. 73,143, on barn, tank,
etc., $1,200. amounting to $73.50 on five-years policy, falls due on the
1st of July," and inclosed in the same envelope was a notice that, "un-
less the premium thereon shall be paid on or before 12 o'clock noon
of July 1, 1887, we shall cancel the insurance under said policy on our
books, for non-payment of premium, without further notice, and ter-
minate our liability thereunder from that date." Neither of the plain-
tiffs actually received said notice. At the expiration of the time named
in the notice, the premium being still unpaid, the general agents of
defendant at San Francisco made an entry in the books in their of-
fice to the eff'ect that the policy was canceled, but no notice of the
cancellation was given to either of the plaintiffs. On September 30,
1887, plaintiffs tendered to the local agent of defendant the full
amount of the premium, which he refused to receive. The policy re-
cites a consideration of $73.50, but does not expressly acknowledge
receipt of payment. It contains the usual conditions of fire policies.
The following clauses are the only ones relevant to the points to be
considered : "The company shall not be liable by virtue of this policy,
or any renewal thereof, until the premium therefor be actually paid."
"The use of general terms, or anything less than a distinct specific
agreement, clearly expressed, and indorsed on this policy, shall not
be construed as a waiver of any printed or written condition or re-
122 THE MAKING OF THE CONTRACT
striction herein." "The insurance may be terminated at any time, at
the option of the company, on giving notice to that effect, and refund-
ing a ratable proportion of the premium for the unexpired term of the
pohcy."
VancliEP, C* * * * The defendant contends that there is no
Habihty upon the pohcy, because the premium was not actually paid
before the loss, and because the agreement for credit was not indorsed
in writing upon the policy. It seems to be settled by a controlling pre-
ponderance of authority that an express provision in a policy of in-
surance that the company shall not be liable on the policy until the
premium be actually paid, is waived by the unconditional delivery of
the policy to the assured as a completed and executed contract, under
an express or implied agreement that a credit shall be given for the
premium ; and that in such case the company is liable for a loss which
may occur during the period of the credit. Boehen v. Insurance Co.,
3S N Y 131, 90 Am. Dec. 787; Wood v. Insurance Co., 32 N. Y. 619;
Goit V. Insurance Co., 25 Barb. (N. Y.) 190: * * * Church v.
Insurance Co., 66 N. Y. 222 ; * * * Latoix v. Insurance Co., 27
La. Ann. 113; * * * Heaton v. Insurance Co., 7 R. I. 506; Ea-
gan V. Insurance Co., 10 W. Va. 583 ;**=!= O'Brien v. Insur-
ance Co. (C. C.) 22 Fed. 586; Tennant v. Insurance Co. (C. C.) 31
Fed. 322 ; Insurance Co. v. Norton, 96 U. S. 234, 24 L. Ed. 689 ;
Young V. Insurance Co., 45 Iowa, 378, 24 Am. Rep. 784 : Wagon Co.
V. Insurance Co. (C. C.) 20 Fed. 232; Post v. Insurance Co., 43 Barb.
(N. Y.) 351 ; Van Schoick v. Insurance Co., 68 N. Y. 440.
The reason for this rule is well expressed in the case last above
cited, as follows: "The fact that the insurer delivered to the insur-
ed the written contract as the consummated agreement between them,
and did not then exact present payment of the premium, as a neces-
sary precedent to delivery, was too plainly in contradiction with the
condition for prepayment for it to be supposed that it was meant by
the insurer, or supposed by either party, that it was intended to make
that condition a potent part of the contract. * * * It would be
imputing, a fraudulent intent to the defendant in this case to say or
to think that they did not mean, when they delivered this policy to
the plaintiff, to give him a valid and binding contract of insurance,
or that they did not mean that he should believe that he had one, or
that they did not suppose that he did so believe." In Insurance Co.
V. McCrea, 8 Lea (Tenn.) 520, 41 Am. Rep. 647, it is said: "It seems
to be well settled that, when a contract of insurance is executed with
a full knowledge of an existing fact which would render it void un-
der a condition precedent embodied therein, the condition or its
breach will be considered as waived, because otherwise it would be an
unmeaning form, the only effect of which would be to deceive and
defraud."
14 Part of the opinion is omitted and the statement of facts is rewritten.
PAYMENT OF FIRST PREMIUM 123
In Tennant v. Insurance Co., supra, Ross. J., holds that an exten-
sion of credit for an insurance premium pursuant to custom, by an
agent having power to countersign a renewal receipt upon a life-pol-
icy, made the renewal of the policy binding in favor of the assured,
notwithstanding the terms of the policy making the actual payment
of the premium a condition precedent to the binding force of the re-
newal, and notwithstanding the death of the insured before the pay-
ment of the premium, and assigns as the reason for so holding that
"it would manifestly operate as a fraud upon him to hold that the
insurance did not become operative until the premium was actually
paid." It should also be remarked that it would be manifestly un-
just for an insurance company, which extends the time for the pay-
ment of the premium upon an executed and delivered policy, to charge
the full amount of premium upon the risk for the entire period cov-
ered by the policy, and to accept such full amount at the expiration
of that period if no loss occurred meanwhile, and yet to deny the
validity of the policy, and its liability upon it during the period of
credit, in case a loss should occur during that period.
In this case the local agent of defendant at Stockton had unques-
tionable power to extend a credit upon the premium for the period of
at least 60 days. He represented the full power of the company to
make a consummated and binding contract of insurance by counter-
signing and delivering the policy; and when he countersigned and
delivered it unconditionally as a completed contract, under a specific
agreement for payment of the premium at a future date, he thereby
waived, to the full extent to which the company itself could then have
waived, the actual payment of the premium as a condition precedent
to its liability on the policy. "An insurance agent, clothed with au-
thority to make contracts of insurance or to issue policies, stands in
the stead of the company to the assured." Rivara v. Insurance Co.,
62 Miss. 728.
In Insurance Co. v. Block, 109 Pa. 538, 1 Atl. 523, it was held that
the counter-signature of an authorized agent upon a policy which is
unconditionally delivered by him to the insured, and which, by its
terms, requires such counter-signing to make it valid, is a virtual ac-
knowledgment of the receipt of premium, and estops the company to
deny the validity of the policy, upon the ground that the premium
was not actually received by the officers of the company.
The policy in this case does not formally express receipt of premi-
um, but it recites a consideration of $73.50 for the contract of in-
surance, and declares that the policy shall not be binding until counter-
signed by the agent at Stockton, and thus impliedly authorizes him to
consummate a binding contract of insurance for the consideration
expressed. If the policy had contained a formal receipt of premium,
its unconditional delivery would have been conclusive evidence of pay-
ment, so as to have estopped the defendant from denying the validi-
ty of the policy, notwithstanding the declaration in it that it shall
124 THE MAKING OF THE CONTRACT
not be binding until the premium is actually paid (Civil Code, § 2o98 :
Basch V. Insurance Co., 35 N. J. Law, 429 ; Insurance Co. v. FennelL
49 111. 180) ; and upon principle the same result should follow where
the policy is delivered as a valid and completed contract, upon a con-
sideration expressed therein, the receipt of which is impliedly ac-
knowledged, an authorized credit having been agreed upon as an
equivalent and substitute for cash payment. The promise to pay the
premium at a future time was a sufficient consideration for the con-
tract to insure, as there can be no question that the promise to pay at
a future day was binding on the plaintiffs, and could have been en-
forced by the defendant.
It is no answer to this to say that the Stockton agent was not au-
thorized to give so long a credit as that given in this case, — from
May 2 to October 1, 1887,— but was limited to a credit of 60 days;
for it is sufficient that he had authority to give a credit of 60 days.
The credit given was a valid credit for 60 days, at least, and the giv-
ing of any credit by authority of the company was a waiver of actual
payment as a condition precedent to the liability of the company. The
only remedy of the company thereafter was to rescind or to cancel
the policy for non-payment of the premium within the 60 days, upon
personal notice to the plaintiff's, which the bill of exceptions shows
was not received by either of the plaintiffs. When credit is given by
an insurance company it has no right to cancel the policy for non-
payment of premium, except after putting the insured in default (La-
toix V. Insurance Co., 27 La. Ann. 113), and personal notice of in-
tended cancellation must be given to the insured (Insurance Co. v.
Turnbull, 86 Ky. 230, 5 S. W. 542). If the notice is sent by mail,
and not received, as in this case, the cancellation for non-payment of
premium is ineffective. Mullen v Insurance Co., 121 Mass. 171.
* * *
Again, the local agent at Stockton, being clothed with general
power to receive proposals for insurance and to countersign and de-
liver policies in San Joaquin county, is presumed to have the power
of the company within that county to waive the immediate payment
of premiums, and to make contracts for credit. Wagon Co. v. In-
surance Co. (C. C.) 20 Fed. 232; Post v. Insurance Co., 43 Barb.
(N. Y.) 351. Whether an agent has general or only particular pow-
ers is not determined by simply calling him a local agent. Murphy v.
Insurance Co., 3 Baxt. (Tenn.) 448, 27 Am. Rep. 761. An agent
who, under general instructions from the home office, has authority,
within a certain territory, to deliver policies and receive premiums,
is a general agent, and has authority to waive cash payment. Insur-
ance Co. v. Booker, 9 Heisk. (Tenn.) 606, 24 Am. Rep. 344. A local
insurance agent is presumed to have power co-extensive with the busi-
ness intrusted to his care, and his powers will not be narrowed by
limitations not communicated to the person with whom he deals.
Baubie v. Insurance Co., 2 Dill. 156, Fed. Cas. No. 1,111. Where, by
PAYMENT OF FIRST TREMIDM 125
the terms of a policy, a particular local agent is to countersign it to
make it valid, so that the insured must deal with him and no one else,
he represents the power of the company, so that any policy which he
countersigns binds the company to any person insured through his
agency, who has no notice of limitation of his power, though he may
have exceeded his authority, and violated his duty to his principal.
Insurance Co. v. Earle, 33 Mich. 151, 153; \'iele v. Insurance Co.,
26 Iowa, 58, 96 Am. Dec. 83 ; ]\Iurphy v. Insurance Co., 3 Baxt.
(Tenn.) 440, 27 Am. Rep. 761; Whited v. Insurance Co., 76 X. Y.
415, Z2 Am. Rep. 330.
A local agent having ostensible general authority to solicit appli-
cations and make contracts for insurance, and to receive first pre-
miums, binds his principal by any acts or contracts within the gen-
eral scope of his apparent authority, notwithstanding an actual excess
of authority. Insurance Co. v. Wilkinson, 13 Wall. 234, 20 L. Ed.
617; Insurance Co. v. Neyland, 9 Bush (Ky.) 436; Rivara v. In-
surance Co., 62 2vliss. 721; Insurance Co. v. McLanathan, 11 Kan.
533 ; Insurance Co. v. Kasey, 66 Va. 271, 18 Am. Rep. 681 ; Wheaton
V. Insurance Co., 76 Cal. 415, 18 Pac. 758, 9 Am. St. Rep. 216; In-
surance Co. V. Barnes, 41 Kan. 161, 21 Pac. 165 ; Insurance Co. v.
Hosrue, 41 Kan. 524, 21 Pac. 641. Bv the authorities above cited it
appears that the plaintiffs were entitled to the whole term of the credit
for which they contracted, through the defendant's local agent, and
could not thereafter be put in default for a failure to pay or tender
the premium before the expiration of the period of credit actually
given. That credit from May 2 until October 1, 1887, was actually
given, must be assumed as a fact for the purposes of the motion for
a nonsuit. * * *
It also appears by the terms of the written appointment of the
local agent that he was made responsible to the company for the col-
lection of all premiums on policies issued by him, and that it was the
custom of the company to allow its agents to give a credit of 60 days
on premiums. From these facts it may fairly be inferred that the
company was content to substitute the personal liability of the agent
for the condition of prepayment of the premium. Elkins v. Insur-
ance Co., 113 Pa. 386-394, 6 Atl. 224; Insurance Co. v. Hoover, 113
Pa. 591, 8 Atl. 163, 57 Am. Rep. 511; Insurance Co. v. Elkins, 124
Pa. 484, 17 Atl. 24, 10 Am. St. Rep. 608. * * *
The next important question relates to the effect of the provision
in the policy that "the use of general terms, or anything less than a
distinct specific agreement, clearly expressed, and indorsed on this
policy, shall not be construed as a waiver of any printed or written
condition or restriction herein." So far as such provision has been
held to constitute a limitation upon the power of agents, it has been
applied to cases of waiver of conditions made after the signing and
delivery of the policy as a consummated contract, such as the waiver
of conditions relating to assignment of the policy, to increase of risk,
126 THE MAKING OF THE CONTRACT
or to occupancy of the insured premises. Shuggart v. Insurance Co.,
55 Cal. 408; Gladding v. Association, 66 Cal. 6, 4 Pac. 764; Enos
V. Insurance Co., 67 Cal. 621, 8 Pac. 379; Walsh v. Insurance Co.,
73 N. Y. 5. In the last case cited, it is expressly held that the con-
clusion that such a provision limits the power of agents after the pol-
icy has been delivered, and the restriction upon their power to waive
conditions as to the use or vacancy of the premises, known to the
insured, "does not interfere with that class of cases which have es-
tablished that conditions for pre-payment of premiums and the like
which enter into the validity of the contract of insurance at its in-
ception, may be waived by agents, and are waived, if so intended."
It has been expressly adjudged by the supreme court of Iowa, in
a well-considered case, that the insured is not bound to take notice
of the conditions in the policy that the premium must be actually paid,
nor of the provision that the waiver of condition must be indorsed in
writing on the policy when the policy is executed and delivered to
him as a valid and completed contract, by an agent having authority to
countersign it, and who before or at the time of the delivery of.it has
given the insured a credit upon the premium by parol ; and that, if
a loss occurs in such case before the credit expires, the company is
bound, notwithstanding that the agreement for credit was not in-
dorsed upon the policy. Young v. Insurance Co., 45 Iowa, 378, 24
Am. Rep. 784.
And it has been repeatedly held that where any fact, which would
constitute a breach of a condition precedent to any liability of the com-
pany on the policy, is fully known to an agent of the company, local or
general, who is authorized to consummate the contract of insurance,
the knowledge of such agent is the knowledge of the company, and his
act in executing and delivering the policy, as a valid and completed
contract, is an exercise of the power of the company, and constitutes a
waiver by the company of such condition precedent, and also a waiver
of the general requirement that waivers or conditions expressed in
+he policy shall be in writing indorsed on the policy. Van Schoick v.
Insurance Co., 68 N. Y. 434; Whited v. Insurance Co., 76 N. Y.
418-421, 32 Am. Rep. 330; Insurance Co. v. McCrea, 8 Lea (Tenn.)
513-520, 41 Am. Rep. 647; Insurance Co. v. Jones, 62 111. 458; In-
surance Co. V. Earle, 33 Mich. 151-153; Viele v. Insurance Co., 26
Iowa, 58, 96 Am. Dec. 83; Murphy v. Insurance Co., 3 Baxt. (Tenn.)
440, 27 Am. Rep. 761 ; Geib v. Insurance Co., 1 Dill. 449, Fed. Cas.
No. 5,298; Devine v. Insurance Co., 32 Wis. 471; Pelkington v. In-
surance Co., 55 Mo. 172; Insurance Co. v. Lyons, 38 Tex. 253; In-
surance Co. V. Hall, 12 Mich. 202; Carroll v. Insurance Co., 38 Barb.
(N. Y.) 402; Manufacturing Co. v. Insurance Co., 2 Paine, 501, Fed.
Cas. No. 17,206; Insurance Co. v. Schettler, 38 111. 166.
It is also well settled that an insurance company cannot so limit its
capacity to contract by general stipulations against waiver of condi-
tions, or that its contracts or waivers must be in writing, that it can-
WHAT PAPERS FORM THE WRITTEN CONTRACT 127
not, by its agents, make an oral contract or an oral waiver not for-
bidden by the statute of frauds. Trustees v. Insurance Co., 19 N.
Y. 305 ; Insurance Co. v. Norton, 96 U. S. 234, 24 L. Ed. 689 : Car-
rugi V. Insurance Co., 40 Ga. 141, 2 Am. Rep. 567; Lamberton v.
Insurance Co., 39 Minn. 129, 39 N. W. 76, 1 L. R. A. 222; Insur-
ance Co. V. Earle. 33 Mich. 153; Renier v. Insurance Co.. 74 Wis.
89, 42 N. W. 208; Steen v. Insurance Co., 89 N. Y. 326, 42 Am.
Rep. 297.
Whether or not any particular agent has the general power of the
company to make an oral contract, or an oral waiver of a condition,
notwithstanding the provision in the policy requiring a writing, is a
question of fact. Insurance Co. v. Norton, 96 U. S. 234, 24 L. Ed.
689; Steen V. Insurance Co., 89 N.Y. 326, 42 Am. Rep. 297. * * *
Reversed.^ ^
V. What Papers Form the Written Contract ^^
REYNOLDS v. ATLAS ACCIDENT INS. CO. OF BOSTON.
(Supreme Court of Minnesota, 1897. 69 Minn. 93, 71 N. W. 831.)
Action by Eva T. Reynolds against the Atlas Accident Insurance
Company of Boston. From an order dismissing the action, plaintiff
appeals.
Mitchell, J.^^ In April, 1893, the defendant issued to George
L. Reynolds an accident insurance policy, whereby, "in consideration
of the warranties and agreements contained in the application in-
dorsed hereon," it accepted him as a member of the company, "and
subject both to the conditions, agreenients, and limitations herein
contained, and to all conditions indorsed hereon," insured him against
the effects of bodily injuries caused solely by external violent and
accidental means in various sums, according to the nature and extent
of the injury, in case it did not result in death; but "if such injury
alone shall result in the death of the insured, within ninety days there-
after the company will pay $5,000 to Eva T. Reynolds, his wife, if
surviving." Among the conditions printed on the back of the policy
were the following: "The application for membership is made a part
of this contract, and printed thereon. Fraud or concealment in ob-
is As to power of agent to waive payment of first premium, see Tom-
secek v. Travelers' Ins. Co., ante. p. 116.
Power of agents to waive conditions of policy, generally, see post, pp. 243,
253.
16 For discussion of principles, see Vance on Insurance, § 6S. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, pp. GG2-G90.
17 Part of the opinion is omitted.
128 THE MAKING OF THE CONTRACT
taining membership * * * shall make chis contract and insurance
void. The provisions and conditions aforesaid * * * are condi-
tions precedent to the insurance hereof, and to its validity and en-
forcement."
Reynolds' application for membership, signed by him, stated that:
"Membership to be based upon the following statement of facts, which
are warranted by me to be true and complete." This application was
all printed, except Reynolds' answers to the questions propounded to
him, and his signature. It contained 17 questions to be answered by
the applicant, 5 of which required categorical answers of "Yes" or
"No." The sixteenth question was, "Have you ever had paralysis,
or fits of any kind, or are you subject to or affected by any bodily
or mental infirmity, or have you suffered the loss of a limb?"
It appeared that the answers were all in the handwriting of an agent
of the defendant who took Reynolds' application, but who had no
personal recollection of the transaction at the time of the trial. The
answers to the questions requiring categorical answers, including the
sixteenth, were indistinctly written, all of them appearing to consist
of the letter "n" followed by a part of the letter "o." None of them
had any resemblance to the word "Yes," and, as suggested by the
trial judge, we think "an inspection of the application would satisfy
any disinterested person that there was no ambiguity as to the answer
to the inquiry about fits," — that it was clearly intended for the word
"No," although indistinctly written.
This application was forwarded to the company, which executed
the policy, and attached to the back thereof, with mucilage or some
similar substance, a copy of the application, and forwarded the same
to the insured, the original application being retained by the company.
The instrument attached to the back of the policy was an exact copy
of the original application, except that the categorical answers to the
five questions referred to, including the sixteenth, were very clearly
and distinctly written "No." The policy, with this copy of the appli-
cation attached, was retained by the insured in his possession, with-
out objection, so far as appears, until his death, over three years after-
wards. About the last of April, 1896, the insured, while driving a
team attached to a load of lumber along a country road, from some
cause that can only be conjectured, fell off the wagon, and was run
over by one of its wheels, and thereby received injuries from which
he died almost immediately. His widow, as the beneficiary, brought
this action on the policy.
One of the defenses interposed by the defendant was misrepresenta-
tion and concealment of the deceased in obtaining membership, and
especially misrepresentation and falsehood in his answer to the six-
teenth question in the application already referred to. The evidence
is uncontradicted that the deceased was, at the time he made the appli-
cation for insurance, and for some years before had been, and up to
the time of his death continued to be, subject to quite severe epileptic
WHAT PAPERS FORM THE WRITTEN CONTRACT 129
fits at longer or shorter intervals. Upon the foregoing state of the
evidence, when plaintiff rested, the court, on motion of the defendant,
dismissed the action.
The first and main contention of the plaintiff's counsel is that the
application for membership was not "indorsed" upon the policy as
therein provided, and therefore it is no part of it, and the defendant
cannot claim by way of defense the benefit of anything contained in
the application. His claim is that "attached" is not "indorsed" ; that
the latter word means written or printed upon the back of the same
paper upon which are written or printed the terms of what is popu-
larly called the "policy."
We cannot agree with counsel. The word "indorsed," as used in
this policy, is not to be construed in the technical sense in which it
is used in the law merchant as applied to bills of exchange or promis-
sory notes, where it means written on the bill or note itself, but in
the more primitive and popular sense of something written or printed
upon or attached to a document, upon the opposite side of which
something else had been previously written or printed. Where an
application is made a part of the policy, provisions in the policy for
incorporating the application into the policy or attaching it thereto,
or statutes requiring this to be done, have for their object the protec-
tion of both the insurer and the insured against controversies grow-
ing out of alleged fraud or mistake in the statements made in the ap-
plication. These applications are usually filled up by an agent of the
insurer. Although correctly filled up according to the answers given
by the applicant, yet, when a loss occurs, the insured or his bene-
ficiaries may claim that correct answers were given, but not correctly
inserted in the application.
On the other hand, although correct answers may have been given,
they may have been, by mistake or fraud, incorrectly stated in the ap-
plication, and after the death of the insured his beneficiaries may be
confronted with it as a ground of avoiding the policy, when it is no
longer possible to prove its inaccuracy. But if a copy of the appli-
cation is in some way attached to or inserted in the policy delivered
to the insured, he may always, by reference to it, fully ascertain its
contents, and all the terms and conditions of his contract, and, if any
of his alleged answers are incorrectly stated, he may repudiate them,
and demand their correction. On the other hand, if he retains the
policy without objection, he will be deemed to have approved of it,
and accepted it as correctly stating his answers, so that neither he
nor his beneficiaries can say that the answers were inserted incorrectly,
and without his knowledge.
Hence the important and essential thing is not how, or in what
particular manner, the application is attached to or contained in the
policy, but that it shall be contained in or attached to it so as to fur-
nish to the insured full knowledge of its contents by reference to the
CooLEY Ins. — 9
130 THE MAKING OF THE CONTRACT
policy and the documents physically connected with it. Therefore in
statutes, as in Pennsylvania, Iowa, and Wisconsin, containing provi-
sions having this same general object, we find the expressions, "con-
tain copies," "attach to such policy or indorse thereon," and the like,
used indiscriminately, indicating that the particular manner of attach-
ing the application to the policy was deemed unimportant so long as
it was in fact attached to, indorsed upon, or contained in it. We are
therefore of opinion that attaching the copy of the application to the
back of the policy was a substantial compliance with the provisions of
the policy, so as to make the former a part of the latter. * * ■"
Affirmed.
*
VI. Same — Mutual Benefit Insurance ^'
SUPREME LODGE OF SONS & DAUGHTERS OF PROTEC-
TION v. UNDERWOOD.
(Supreme Court of Nebraska, 1902. 3 Neb. [Unof.] 798, 92 N. W. 1051.)
Commissioners' opinion.
Albert, C.^^ This action was brought by Emma E. Underwood
to recover on a beneficiary certificate issued by the Supreme Lodge
of the Sons and Daughters of Protection, a fraternal insurance com-
pany, organized for the benefit of its members and beneficiaries,
insuring the life of her husband for her benefit. The petition is
in the usual form, and sufficiently states a cause of action. * * *
The defense relied on is that the assured committed suicide. The
answer, among other things, contains the following allegations :
"That at the time of issuing said certificate * * * it [the de-
fendant] had in its possession the following agreement, made, exe-
cuted, and delivered to it by the said David M. Underwood, which
was in words and figures as follows, to wit." Then follows a copy
of what purports to be an application of the assured for member-
ship in the defendant order, containing, among other stipulations,
the following: "I further agree that, should I commit suicide within
two years from the date of my admission into the order, whether
sane or insane at the time, that this contract shall be null and void,
and of no binding force upon the said supreme lodge." Then fol-
lows the allegation that the defendant would not have issued said
certificate "but for the agreement, representations, and statements
18 For discussion of principles, see Vance on Insurance, § 69. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, p. 690 et seq.
19 Part of tbe opinion is omitted.
WHAT PAPERS FORM THE WRITTEN CONTRACT 131
made by the said Daniel M. Underwood in his application for mem-
bership." The jury returned a verdict for the plaintiff, and judg-
ment was given accordingly. The defendant brings error.
Every defense, save that of suicide, is eliminated from this case,
and the reasons urged for a reversal of the judgment of the dis-
trict court are based entirely in the evidence, rulings, and instruc-
tions of the court in regard to that defense. We do not deem it
necessary to examine into those reasons, because we are satisfied
that the question of suicide is immaterial, in view of the record.
The certificate names the plaintiff as beneficiary. It contains no
provision exempting the defendant from liability in case the assured
dies by his own hand. Neither the constitution nor the by-laws
of the defendant contains any such provision. It is true, what pur-
ports to be an application of the assured contains such a provision,
but it is not referred to in the certificate, nor does it provide that
it shall be a part of the contract ; neither does the constitution or
by-laws make it a part of the contract of insurance. There is no
doubt it might be a part contract, in the absence of all these things ;
but in that event its relation to the contract should appear by apt
averments. The answer contains no such averments. It does not
even give the date of the alleged application, nor is there any al-
legation that the certificate is based on such application. These
omissions are not cured by the appellation that the certificate would
not have issued "but for the agreements, statements, and representa-
tions made by the said David M. Underwood in his application for
membership," because such omissions destroy the force of this very
allegation. In our opinion, therefore, the certificate, with the con-
stitution and by-laW'S, constituted the contract of insurance ; and as
the contract, as thus constituted, contains no provision against suicide,
a defense based on such ground is not available in this case on the
facts stated. Mills v. Rebstock. 29 Minn. 380, 13 N. W. 162; Kerr
V. Association, 39 Minn. 174, 39 N. W. 312, 12 Am. St. Rep. 631;
Patterson v. Insurance Co., 100 Wis. 118, 75 N. W. 980, 42 L. R.
A. 253, 69 Am. St. Rep. 899; Fitch v. Insurance Co., 59 N. Y.
557, 17 Am. Rep. 372; Goodwin v. Association, 97 Iowa, 226, 66
N. W. 157, 32 L. R. A. 476, 59 Am. St. Rep. 411.
In this view of the case the record shows no defense to th^ ac-
tion, and the errors relied upon, should they be held errors, are
without prejudice to the defendant.
It is recommended that the judgment of the district court be af-
firmed.
Per Curiam. The conclusions reached by the commissioners are
approved, and, it appearing that the adoption of the recommendations
made will result in a right decision of the cause, it is ordered that
the judgment of the district court be affirmed.
132 THE MAKING OF THE CONTRACT
REYNOLDS v. SUPREME COUNCIL OF ROYAL ARCANUM.
(Supreme Judicial Court of Massaeliusetts, 1906. 192 Mass. loO, 78 N. E. 129,
7 L. R. A. [N. S.] 1154, 7 Ann. Cas. 776.)
Case reserved for full court.
Knowlton, C. J.-** This is a bill in equity to set aside certain
changes in the defendant's by-laws which affect the rights of certifi-
cate holders. The defendant is a fraternal beneficiary association, or-
ganized under the laws of Massachusetts in 1877, and now subject to
the provisions of Rev. Laws, c. 119, and the acts in amendment there-
of. The plaintiffs are certificate holders, who bring this bill for them-
selves and in behalf of others.
From the time of its organization the defendant issued certificates
to members, agreeing to pay to a designated beneficiary a sum not ex-
ceeding a certain number of dollars on the death of the member, upon
compliance by him with certain conditions therein stated. The by-
laws provided that the death benefit should be for a definite amount,
and payments of these definite amounts have always been made. The
words "not exceeding" are inserted in the certificate to meet the pos-
sibility of a single full assessment not being equal to the amount
stated. This limitation of the payment to the amount of an assess-
ment, except when there is an emergency fund, was expressly called
for bv St. 1899, p. 471, c. 442, § 11, which is now found in Rev. Laws,
c. 119, § 6.
Until 1898 the assessments paid by members, from which the death
benefits were derived, were certain sums dependent upon the age of
the member at the time of receiving his certificate, which sums re-
mained the same as the years went by. These sums were paid to
meet assessments as members died, and the amount for the first year
would equal the cost to the corporation of the insurance of these
members. But as the members grew older the risk of their death in-
creased, and as their payments remained constant, and as there was
at no time a payment of any surplus beyond the amount required to
meet losses, the payments by members of long standing were not
nearly enough to equal the cost of their insurance to the corporation.
So the only way in which the amounts required to meet losses could
be obtained was from the payments made by new members.
In 1898 the by-laws were amended so as largely to increase the pay-
ments to be made by all members, and to require the payments month-
ly. These amendments went into effect on August 1, 1898, and it ap-
pears by the agreed facts that no objection thereto has ever been
made by any member of the order. These payments, while much
larger than those required by the original by-laws, were upon the same
relative basis ; that is, the increase upon all was in the same propor-
20 Part of the opinion is omitted.
WHAT PAPERS FORM THE WRITTEN CONTRACT 133
tion, and they were all determined by the age of the member when
he received his certificate, and were not to be afterwards changed as
a member grew older.
When these amendments were made it was thought that the in-
crease would provide for the future payments called for by the cer-
tificates, and that an adequate emergency fund would be created from
this income. Under these amendments there was a surplus in 1898
from the excess of receipts above payments amounting to more than
$455,000, and afterwards there was annually a steadily diminishing
surplus from the same cause to and including the year 1903. In the
year 1904 the payments exceeded the receipts, and there was a deficit
of $270,540.50.
Prior to the session of the Supreme Council in May, 1905, the ex-
ecutive committee caused mortality tables of the order to be prepared,
and made extended investigations and studies with the aid of compe-
tent actuaries, to devise some method, through a change of by-laws,
which should enable the corporation to meet its obligations to mem-
bers. The actuaries prepared for them new tables, each the mathemat-
ical equivalent of the others, the first being the regular rates, and
three others optional alternatives. These were founded upon the pay-
ment by the order of the maximum value of each certificate, and the
payment by the member of a rate adequate, without further modifica-
tion or additional assessment, to pay the certificate at the maturity
thereof. It is agreed that "competent actuaries would testify, and
the case may be taken as though they had testified, that the old plan
of assessments was faulty, according to the assumptions made by the
actuaries, and that the order could not meet the maximum face of
its certificates under it; that upon their assumptions a change was
expedient or necessary; that the plans proposed and adopted were
mathematically correct; that if the members paid the amounts fixed
in these tables the order could continue to pay the maximum face
value of its certificates at their maturity; that such amounts are no
higher than necessary for this purpose, and that they fairly and eq-
uitably apportion among the members their contributions to the wid-
ows' and orphans' benefit fund, taking into consideration their age
and risk." "The plaintiffs do not controvert this evidence in this case,
but reserve the right to discuss its materiality, the basis and theories
upon which it rests, and its application to this case." On January 1,
1905, the members of the corporation were 305,083 in number, and
they held benefit certificates amounting to $680,848,000.
Under these conditions the changes recommended by the actuaries
were adopted by an amendment of the by-laws by an almost unani-
mous vote of the members of the Supreme Council, and the question
is whether the changes are legal and binding upon the members.
From the facts agreed it is plain that a great corporation, manag-
ing and controlling important financial interests for hundreds of thou-
sands of families, was conducting its business upon unsound princi-
134 THE MAKING OF THE CONTRACT
pies, which, if followed without change, would ultimately lead to finan-
cial ruin. The first question is, was the change adopted in excess
of the defendant's corporate powers, or in violation of the statute
governing such corporations? The statutes authorize the adoption of
by-laws declaring "the manner in which * * * the purposes of
its incorporation may be accomplished." Rev. Laws, c. 125, § 6; Id.,
c. 119, § 2. These by-laws may prescribe the "assessments and ben-
efits in case of disability or death, and the conditions upon which the
same shall be paid, * * * the method of the amendment of the
by-laws, and such other provisions as the corporation may determine."
Rev. Laws, c. 119, § 2. Such a corporation "may make provisions
for the payment of benefits in case of death or disability or both. The
funds from which the payment of such benefits shall be made shall be
derived only from assessments collected from the members. * * *
Such provisions, funds, assessments, and payments shall be as re-
quired in the by-laws of the corporation." Rev. Laws, c. 119, § 6.
Plainly the statute contemplates that such corporations shall have
power to establish by their by-laws a system of giving death benefits
which shall be sound and equitable, and founded on principles which
can reasonably be expected to furnish proper security for the per-
formance of their contracts with members. The power to make prop-
er changes in these particulars by amendment of the by-laws from
time to time is expressly given.
There is no ground for the contention that it is a violation of the
statute or of the defendant's chartered rights to provide for such as-
sessments as will be likely to insure the payment of the sums named
in the certificates. The statute expressly authorizes, not only a death
fund amounting to three full assessments upon the members, but also
the accumulation of an emergency fund amounting to 5 per cent.
upon the face value of all outstanding benefit certificates. The emer-
gency fund is to be invested in safe securities, and all of these are
to be deposited with the treasurer of the commonwealth. Rev. Laws,
c. 119, § 7. As the promise to pay the beneficiary is binding upon
the corporation, it ought to make adequate provision to obtain the
means of payment, Newhall v. American Legion of Honor, 181 Mass.
Ill, 63 N. E. 1.
The objection that the amendments are illegal by reason of the di-
vision of the members into classes cannot prevail. There is no objec-
tion to a classification of members according to age, and it would be
unjust to disregard age in determining the rates that different per-
sons shall pay for death benefits in an association of this kind.
The distinctive features of such organizations remain since the
adoption of the amendments as well as before. The fraternal plan,
with mutuality and without profit, distinguishes the work of such an
association from a commercial enterprise. It is a charitable and be-
nevolent organization, with a limitation of membership to a special
class, and a limitation upon the choice of beneficiaries. It is not al-
WHAT PAPERS FORM THE WRITTEN CONTRACT' 135
lowed to employ paid agents in soliciting- or procuring business, ex-
cept within very narrow limits prescribed by the statutes. Rev. Laws,
c. 119, § 16. Looking to the nature and purposes of fraternal bene-
ficiary corporations, we see nothing in the amendments at variance
with the laws. It cannot have been intended that such corporations
should be limited to a method of assessment that would be sure to
bring about their early dissolution.
Another question is whether the amendments are in violation of the
contract rights of members. It is stated in the record that "the agree-
ments between the plaintiff and the defendant concerning assessments
and benefits are not contained in any one specific instrument, but are
found in the application for membership, the benefit certificate, the
laws of Massachusetts constituting the charter and the constitution
and laws of the order." If there were no express stipulation in re-
gard to the by-laws in the application for membership or in the cer-
tificates, all members of such a corporation would be bound by by-
laws regularly made or amended. Durfee v. Old Colony, etc., R. R.
Co., 5 Allen, 230, 242; Pain v. Societe St. Jean Baptiste, 172 Mass.
319, 52 N. E. 502, 70 Am. St. Rep. 287; Oliver v. Hopkins, 144
Mass. 175, 10 N. E. 776; Spilman v. Supreme Council Home Circle,
157 Mass. 128, 31 N. E. 776; Wright v. Minn. Mutual Life Ins. Co..
193 U. S. 657, 24 Sup. Ct. 549, 48 L. Ed. 832; Supreme Lodge
Knights of Pythias v. Knight, 117 Ind. 489, 20 N. E. 479, 3 L. R. A.
409.
Every member of this corporation, at the time of joining it, enters
into an express agreement to "conform to and abide by the constitu-
tion, laws, rules and usages of the said council and order, now in
force or which may hereafter be adopted by the same." The certifi-
cates promise payment only on condition that the member complies
"with the laws, rules and regulations now governing the said council
and fund, or that may hereafter be enacted by the Supreme Council
to govern the said council and fimd," etc. Here in the contract is
full authority to amend the laws, rules and regulations. * * *
This part of the present case is covered in principle by the decisions
of this court in Messer v. Grand Lodge, 180 Mass. 321, 62 N. E. 252,
'and Pain v. Societe St. Jean Baptiste, 172 Mass. 319, 52 N. E. 502,
70 Am. St. Rep. 287, in which cases changes similar to those made by
the defendant were upheld under like contracts. The same general
doctrine has been stated in many cases in other courts. Wright v.
Minn. Mutual Life Ins. Co., 193 U. S. 657, 24 Sup. Ct. 549, 48 L. Ed.
832; Fullenwider v. Supreme Council Royal League, Th 111. App. 321 ;
s. c, 180 111. 621, 54 N. E. 485, 72 Am. St. Rep. 239; Bartram v. Su-
preme Council Royal Arcanum, 6 Ont. W. R. 404 ; Gaines v. Supreme
Council Royal Arcanum (C. C.) 140 Fed. 978; Fugure v. Society St.
Joseph, 46 Vt. 362 ; Supreme Lodge Knights of Pythias v. Knight,
117 Ind. 489, 20 N. E. 479, 3 L. R. A. 409; Haydel v. Mutual Re-
serve Fund Life Ass'n, 104 Fed. 718, 44 C. C. A. 169; Gaut v. Same
136 THE MAKING OF THE CONTRACT
(C. C.) 121 Fed. 403, 409; Richmond v. Supreme Lodge Order of
Protection, 100 Mo. App. 8, 71 S. W. 736; Barbot v. Mutual Reserve
Fund Life Ass'n, 100 Ga. 681, 28 S. E. 498; Mutual Reserve Fund
Life Ass'n v. Taylor, 99 Va. 208, 37 S. E. 854.
There are many cases in which it is held that the amount expressly
promised to be paid in a certificate like those issued by the defendant
cannot be cut down by an amendment of the by-laws. Newhall v.
American Legion of Honor, 181 Mass. Ill, 63 N. E. 1; Langan v.
Same, 174 N. Y. 266, 66 N. E. 932; American Legion of Honor v.
Getz, 112 Fed. 119, 50 C. C. A. 153. But in many of these, as in
the case from this court last cited, a distinction is made between the
express stipulation of the corporation to pay a certain sum and other
provisions relating to the methods of the corporation, and the duties
of the certificate holders, which properly may be a subject for regula-
tion by by-laws, even though they affect the rights of the parties un-
der their contract. The assessments to be paid for death benefits in
this case are provided for by the by-laws, while the promise in writ-
ing to pay a certain sum to a particular person is, as to that person,
a matter outside of those corporate rules which may be expected to
be changed by an amendment of the by-laws. This promise on one
side is set over against the promise of the member on the other. The
promise of the member is to do what may be called for by the by-
laws then existing or that may afterwards be adopted. The promise
of the corporation is stated expressly, without mention of the by-laws.
The member occupies a dual position, as an insurer and the insured.
As one of the association agreeing to provide for the payments that
may become due to members, he agrees to be subject to the by-laws.
As the insured person to whom a particular sum of money is prom-
ised, he has a right to stand on the terms of the promise.
That the duties of members prescribed by the by-laws remain sub-
ject to modification when a power of amendment is reserved has often
been decided. Loeffler v. Modern Woodmen of America, 100 Wis.
79, 75 N. W. 1012; Langnecker v. Grand Lodge A. O. U. W., Ill
Wis. 279, 87 N. W. 293, 55 L. R. A. 185, 87 Am. St. Rep. 860; Law-
son V. Hewell, 118 Cal. 613, 50 Pac. 763, 49 L. R. A. 400; Gilmore
V. Knights of Columbus, 77 Conn. 58, 58 Atl. 223, 107 Am. St. Rep.
17, 1 Ann. Cas. 715; Ellerbe v. Faust, 119 Mo. 653, 25 S. W. 390,
25 L. R. A. 149.
Most of the cases relied on by the plaintiffs, when rightly analyzed,
turn on the distinction between an attempted amendment of the by-
laws directly affecting the promise to the certificate holder as an in-
sured person, and an amendment affecting his duties as a member of
the corporation bound to perform his part in providing means or oth-
erwise as one of the association of insurers. Hale v. Equitable Aid
Union, 168 Pa. 377, 31 Atl. 1066; Fargo v. Supreme Tent, 96 App.
Div. 491, 89 N. Y. Supp. 65; Weber V. Supreme Tent, 172 N. Y.
490, 65 N. E. 258, 92 Am. St. Rep. 71Z; Sautter v. Supreme Con
WHAT PAPERS FORM THE WRITTEN CONTRACT 137
clave, 72 N. J. Law, 325, 62 Atl. 529; Tebo v. Royal Arcanum, 89
Minn. 3, 93 N. W. 513; Deuble v. Grand Lodge, 66 App. Div. 323,
72 N. Y. Supp. 755; Deuble v. Grand Lodge, 172 N. Y. 665, 65 N.
E. 1116; Beach v. Supreme Tent, 177 N. Y. 100, 69 N. E. 281 ; Start-
ling V. Royal Templars, 108 Mich. 440, 66 N. W. 340, 62 Am. St.
Rep. 709; Peterson v. Gibson, 191 111. 365, 61 N. E. 127, 54 L. R.
A. 836, 85 Am. St. Rep. 263; Wist v. Grand Lodge, 22 Or. 271, 29
Pac. 610, 29 Am. St. Rep. 603 ; Roberts v. Cohen, 60 App. Div. 259,
70 N. Y. Supp. 57 ; Roberts v. Grand Lodge, 173 N. Y. 580, 65 N.
E. 1122; United Workmen v. Stumpf, 24 Tex. Civ. App. 309, 58
S. W. 840; Hadley v. Woodman, 1 Tenn. Ch. App. 413; Spencer v.
Grand Lodge, 53 App. Div. 627, 65 N. Y. Supp. 1146. Other cases
cited by the plaintiffs are clearly adverse to the view which we take.
See Ebert v. Mutual Ass'n, 81 Minn. 116, 83 N. W. 506, 834, 84 N.
W. 457; Strauss v. Mut. Ass'n, 126 N. C. 971, 36 S. E. 352, 54 L.
R. A. 605, 83 Am. St. Rep. 699; Benjamin v. Mutual, 146 Cal. 34,
79 Pac. 517.
On principle and on the weight of authority we are of opinion that
there is nothing in this contract that prevents the corporation from
amending its by-laws in a reasonable way, to accomplish the purposes
for which it was organized, even though the change increases the pay-
ments to be made by certificate holders. Such changes necessarily in-
volve some hardship to certain individual members, but the corpora-
tion, under the law, should do that which will bring the greatest good
to the greatest number. The members who complain of its action are
those who have had the benefit of insurance for themselves and their
families for many years, at very much less than the cost of their in-
surance to the corporation. They have had the good fortune to sur-
vive, and therefore their contracts have brought them no money, but
all the time they have had the stipulated security against the risk of
death. If now they are called upon to pay for future insurance no
more than its cost to the corporation they ought not to think it un-
just. Bill dismissed. ^^
21 For a full discussion of the question as to the extent to which mem-
bers of a mutual benefit association are bound by subsequent by-laws, see
Cooley, Briefs on the Law of Insurance, vol. 1, pp. 703-720.
1.38 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
THE CONSIDERATION— PREMIUMS AND ASSESSMENTS
I. In General — Nature of the Obligation ^
FULLER V. METROPOLITAN LIFE INS. CO.
(Supreme Court of Errors of Connecticut, 1898. 70 Conn. 647, 41 Atl. 4.)
HamersIvEy, j.2 * * * Ljfg insurance is protection given to
one person against the damage he may suffer through the death of
another. A mere wager on the accident of death is void. In mutual
life insurance the protection is furnished by the premiums paid by
policy holders. The duration of any particular life is the merest
chance, but the average duration of life from any particular age ap-
proaches mathematical certainty. Hence it is possible to calculate the
sum which, paid annually by a large number of insured, will satisfy
the insurance on those who may die each year. It is the yearly death
claims which constitute the cost of insurance that the premiums muVt
pay. This cost for a young man is small, but increases each year, un-
til it becomes very large. To avoid the necessity of an increasing
premium, a uniform premium is calculated, which furnishes at first
much more than enough to pay the cost of insurance, and later on is
entirely insufficient for that purpose. So the portion of the premium
not used for the early yearly cost is reserved for use when the premi-
um will become insufficient, and is invested, so that it may increase
at compound interest. It follows that the portion of the premiums
applied to pay the yearly cost gradually increases, and that the por-
tion which has been reserved to make up the insufficiency of the pre-
mium to pay future cost increases with the aid of interest. ■ The part
of the premium intended to meet the cost of insurance, both current
and future, is called the "net premium." It is the sum paid yearly
by each to furnish the stipulated protection for all. But the policy
holders must pay not only for the cost of insurance, but also for the
expense of management; so to the net premium is added a sum
deemed sufficient to pay expenses and provide for contingencies, which
is called the "loading." In this way the policy holders pay the sum
necessary for the cost of insurance and expense of management.
The amount of the net premium is calculated upon the basis of cer-
tain tables of mortality, and upon the assumption that the company
will receive a certain rate of interest upon all its assets, and the
1 For discussion of principles, see Vance on Insurance. §§ 70, 71. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, pp. 98-105, vol. 2, pp. 910-1037.
2 The statement of facts and part of the opinion are omitted.
IN GENERAL — NATURE OF THE OBLIGATION 139
amount of the loading is calculated upon a certain assumed rate of
expense. Now, it may happen that the rate of mortality experienced
by the company is less, and the rate of interest actually received is
greater, than that assumed, and that the ratio of actual expense is
less. In such case the company has in reserve more than enough,
with the anticipated annual premiums, to provide for future cost of
insurance and management. It has a sum which is not needed for the
purpose for which it was paid. This sum is called "profits." It is in
fact a surplus resulting from overpayments by policy holders. This
surplus is derived from money paid by the insured and received by
the company for a particular purpose, i. e. providing for cost of in-
surance and expense of management. If not needed for that purpose,
it should, in equity, be returned to the policy holders. They do not.
however, own it, or have any legal control over its distribution. Part
of it, indeed, is derived from contributions of policy holders who are
dead ; but the equity is recognized, and it is the duty of the company,
when a surplus is ascertained, to return such portion as it does not
deem proper to keep as a guaranty fund to the existing policy holders
in equitable (i. e. as nearly as practicable) proportion to their overpay-
ments or contributions. Such return of overpayments, whether in
cash or by application on future premiums, or by increase of the
amount insured, is a dividend. This is the meaning of "dividend,"
and the only meaning it has or can have in connection with mutual in-
surance.
The surplus may also be increased through the failure of some to
continue their policies. Where a policy thus lapses, the company has
in hand the accumulations of a portion of its premiums, invested and
held in reserve to supply the insufficiency of future premiums to pay
future cost of insurance. (The amount thus held in reserve depends
on the judgment of the company in calculating its premiums and the
condition of its business, but the statute treats the company as le-
gally insolvent unless its whole reserve is at least equal in amount
to the reserve value of all the policies, calculated according to a rule
established by law. Some companies accumulate a reserve larger than
that required by statute. None can have less and remain solvent.)
By a lapse the company loses the future premiums, and may lose in
other ways; but it is relieved from providing for future cost of in-
surance as to that policy, and ordinarily, when the reserve fund is
good, there is a considerable gain, which may increase the surplus.
Formerly, whatever gain there was went to increase the surplus;
but latterly, in view of the fact that these overpayments are made to
provide for future cost of insurance by a policy holder who up to
the time of lapse has theoretically paid his full share of the yearly
cost and expense, the equity of the lapsed policy holder has prevailed
over the equity of those who remain, and he is allowed an equitable
portion of those overpayments, and this is called the "surrender value"
of his policy. When a policy lapses, the portions of prior premiums
140 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
invested and held in reserve can no longer be applied to the purpose
for which they were made, and to the extent of the net gain by the
lapse become overpayments, and in equity should be returned to the
holder of the lapsed policy, or to the surplus, for the benefit of all. A
dividend, therefore, is a distribution of existing overpayments, result-
ing mainly from savings on the annual cost of insurance and expense
of management, and in part from savings on the future cost of in-
surance, i. e. the net gain from lapsed policies. * * *
NEW YORK LIFE INS. CO. v. STATHAM.
(Supreme Court of United States, 1876. 93 U. S. 24, 23 L. Ed. 789.)
Bill in equity to recover amount of a policy of life insurance on
the life of A. D. Statham, a resident of Mississippi at the time of
his death. It appeared that premiums on the policy were paid until
the breaking out of the Civil War. Because of that the premium
due December 8, 1861, was not paid. Insured died in July, 1862.
Heard with the appeal in the equity case were writs of error in two
actions at law, involving similar facts. Each of the policies involved
provided for forfeiture of the policy for non-payment of premiums
when due, and such non-payment was pleaded in defense. The plain-
tiffs contended that non-payment was excused by the existence of
war. The decree and judgments below were for the plaintiffs.
Mr. Justice Bradley, after stating the case, delivered the opinion
of the court. ^
We agree with the court below, that the contract is not an assur-
ance for a single year, with a privilege of renewal from year to year
by paying the annual premium, but that it is an entire contract of as-
surance for life, subject to discontinuance and forfeiture for non-
payment of any of the stipulated premiums. Such is the form of the
contract, and such is its character. It has been contended that the
payment of each premium is the consideration for insurance during the
next following year, — as in fire policies. But the position is untena-
ble. It often happens that the assured pays the entire premium in ad-
vance, or in five, ten, or twenty annual instalments. Such instalments
are clearly not intended as the consideration for the respective years
in which they are paid ; for, after they are all paid, the policy stands
good for the balance of the life insured, without any further pay-
ment. Each instalment is, in fact, part consideration of the entire
insurance for life. It is the same thing, where the annual premiums
are spread over the whole life. The value of assurance for one year
of a man's life when he is young, strong, and healthy, is manifestly
not the same as when he is old and decrepit. There is no proper re-
8 The statement of facts is rewritten.
IN GENERAL — NATURE OF THE OBLIGATION 141
lation between the annual premium and the risk of assurance for the
year in which it is paid. This idea of assurance from year to year
is the suggestion of ingenious counsel. The annual premiums are an
annuity, the present value of which is calculated to correspond with
the present value of the amount assured, a reasonable percentage be-
ing added to the premiums to cover expenses and contingencies. The
whole premiums are balanced against the whole insurance.
But whilst this is true, it must be conceded that promptness of pay-
ment is essential in the business of life insurance. All the calcula-
tions of the insurance company are based on the hypothesis of prompt
payments. They not only calculate on the receipt of the premiums
when due, but on compounding interest upon them. It is on this
basis that they are enabled to offer assurance at the favorable rates
they do. Forfeiture for non-payment is a necessary means of pro-
tecting themselves from embarrassment. Unless it were enforceable,
the business would be thrown into utter confusion. It is like the for-
feiture of shares in mining enterprises, and all other hazardous un-
dertakings. There must be power to cut off unprofitable members, or
the success of the whole scheme is endangered. The insured parties
are associates in a great scheme. This associated relation exits wheth-
er the company be a mutual one or not. Each is interested in the
engagements of all ; for out of the coexistence of many risks arises
the law of average, which underlies the whole business. An es-
sential feature of this scheme is the mathematical calculations re-
ferred to, on which the premiums and amounts assured are based.
And these calculations, again, are based on the assumption of aver-
age mortality, and of prompt payments and compound interest thereon.
Delinquency cannot be tolerated nor redeemed, except at the option
of the company. This has always been the understanding and the
practice in this department of business. Some companies, it is true,
accord a grace of thirty days, or other fixed period, within which
the premium in arrear may be paid, on certain conditions of con-
tinued good health, &c. But this is a matter of stipulation, or of
discretion, on the part of the particular company. When no stipu-
lation exists, it is the general understanding that time is material,
and that the forfeiture is absolute if the premium be not paid.
The extraordinary and even desperate efforts sometimes made, when
an insured person is in extremis, to meet a premium coming due,
demonstrates the common view of this matter.
The case, therefore, is one in which time is material and of the
essence of the contract. Non-payment at the day involves absolute
forfeiture, if such be the terms of the contract, as is the case here.
Courts cannot with safety vary the stipulation of the parties by
introducing equities for the relief of the insured against their own
negligence.
But the court below bases its decision on the assumption that,
when performance of the condition becomes illegal in consequence
142 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
of the prevalence of public war, it is excused, and forfeiture does
not ensue. It supposes the contract to have been suspended during
the war, and to have revived with all its force when the war ended.
Such a suspension and revival do take place in the case of ordinary-
debts. But have they ever been known to take place in the case
of executory contracts in which time is material? If a Texas mer-
chant had contracted to furnish some Northern explorer a thou-
sand cans of preserved meat by a certain day, so as to be ready
for his departure for the North Pole, and was prevented from fur-
nishing it by the civil war, would the contract still be good at the
close of the war five years afterwards, and after the return of
the expedition? If the proprietor of a Tennessee quarry had agreed,
in 1860, to furnish, during the two following years, ten thousand
cubic feet of marble, for the construction of a building in Cincin-
nati, could he have claimed to perform the contract in 1865, on
the ground that the war prevented an earlier performance?
The truth is, that the doctrine of the revival of contracts sus-
pended during the war is one based on considerations of equity
and justice, and cannot be invoked to revive a contract which it
would be unjust or inequitable to revive.
In the case of life insurance, besides the materiality of time in
the performance of the contract, another strong reason exists why
the policy should not be revived. The parties do not stand on
equal ground in reference to such a revival. It would operate most
unjustly against the company. The business of insurance is founded
on the law of averages; that of life insurance eminently so. The
average rate of mortality is the basis on which it rests. By spreading
their risks over a large number of cases, the companies calculate on
this average with reasonable certainty and safety. Any thing that
interferes with it deranges the security of the business. If every
policy lapsed by reason of the war should be revived, and all the
back premiums should be paid, the companies would have the benefit
of this average amount of risk. But the good risks are never
heard from; only the bad are sought to be revived, where the
person insured is either dead or dying. Those in health can get
new policies cheaper than to pay arrearages on the old. To enforce
a revival of the bad cases, whilst the company necessarily lose the
cases which are desirable, would be manifestly unjust. An insured
person, as before stated, does not stand isolated and alone. His
case is connected with and co-related to the cases of all others in-
sured by the same company. The nature of the business, as a whole,
must be looked at to understand the general equities of the parties.
We are of opinion, therefore, that an action cannot be main-
tained for the amount assured on a policy of life insurance forfeited,
like those in question, by non-payment of the premium, even though
the payment was prevented by the existence of the war.
The question then arises, Must the insured lose all the money
IN GENERAL — NATURE OF THE OBLIGATION 143
which has been paid for premiums on their respective policies?
If they must, they will sustain an equal injustice to that which the
companies would sustain by reviving the policies. At the very first
blush, it seems manifest that justice requires that they should have
some compensation or return for the money already paid, otherwise
the companies would be the gainers from their loss ; and that from
a cause for which neither party is to blame. The case may be il-
lustrated thus : Suppose an inhabitant of Georgia had bargained for
a house, situated in a Northern city, to be paid for by instalments,
and no title to be made until all the instalments were paid, with a
condition that, on the failure to pay any of the instalments when
due, the contract should be at an end, and the previous payments
forfeited ; and suppose that this condition was declared by the parties
to be absolute and the time of payment material. Now, if some
of the instalments were paid before the war, and others accruing
during the war were not paid, the contract, as an executory one,
was at an end. If the necessities of the vendor obliged him to
avail himself of the condition, and to resell the property to another
party, would it be just for him to retain the money he had received?
Perhaps it might be just if the failure to pay had been voluntary,
or could, by possibility, have been avoided. But it was caused by
an event beyond the control of either party, — an event which made
it unlawful to pay. In such case, whilst it would be unjust, after
the war, to enforce the contract as an executory one against the
vendor, contrary to his will, it would be equally unjust in him,
treating it as ended, to insist upon the forfeiture of the money
already paid on it. An equitable right to some compensation or re-
turn for previous payments would clearly result from the circum-
stances of the case. The money paid by the purchaser, subject to
the value of any possession which he may have enjoyed, should, ex
aequo et bono, be returned to him. This would clearly be demanded
by justice and right.
And so, in the present case, whilst the insurance company has
a right to insist on the materiality of time in the condition of pay-
ment of premiums, and to hold the contract ended by reason of
non-payment, they cannot with any fairness insist upon the con-
dition, as it regards the forfeiture of the premiums already paid ;
that would be clearly unjust and inequitable. The insured has an
equitable right to have this amount restored to him, subject to a
deduction for the value of the assurance enjoyed by him whilst the
policy was in existence ; in other words, he is fairly entitled to
have the equitable value of his policy.
As before suggested, the annual premiums are not the considera-
tion of assurance for the year in which they are severally paid, for
they are equal in amount ; whereas, the risk in the early years of
life is much less than in the later. It is common knowledge, that
the annual premiums are increased with the age of the person ap-
144 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
plying for insurance. According to approved tables, a person be-
coming insured at twenty-five is charged about twenty dollars annual
premium on a policy of one thousand dollars, whilst a person at
forty-five is charged about thirty-eight dollars. It is evident, there-
fore, that, when the younger person arrives at forty-five, his policy
has 'become, by reason of his previous payments, of considerable
value. Instead of having to pay, for the balance of his life, thirty-
eight dollars per annum, as he would if he took out a new policy
on which nothing had been paid, he has only to pay twenty dollars.
The difference (eighteen dollars per annum during his life) is called
the equitable value of his policy. The present value of the assur-
ance on his life exceeds by this amount what he has yet to pay.
Indeed, the company, if well managed, has laid aside and invested
a reserve fund equal to this equitable value, to be appropriated to
the payment of his policy when it falls due. This reserve fund
has grown out of the premiums already paid. It belongs, in one
sense, to the insured who has paid them, somewhat as a deposit in
a savings-bank is said to belong to the person who made the deposit.
Indeed, some life-insurance companies have a standing regulation
by which they agree to pay to any person insured the equitable value
of his policy whenever he wishes it; in other words, it is due on
demand. But whether thus demandable or not, the policy has a
real value corresponding to it, — a value on which the holder often
realizes money by borrowing. The careful capitalist does not fail
to see that the present value of the amount assured exceeds the
present value of the annuity or annual premium yet to be paid by
the assured party. The present value of the amount assured is
exactly represented by the annuity which would have to be paid on
a new policy; or, thirty-eight dollars per annum in the case sup-
posed, where the party is forty-five years old; whilst the present
value of the premiums yet to be paid on a policy taken by the same
person at twenty-five is but little more than half that amount. To
forfeit this excess, which fairly belongs to the assured, and is fairly
due from the company, and which the latter actually has in its coffers,
and to do this for a cause beyond individual control, would be rank
injustice. It would be taking away from the assured that which
had already become substantially his property. It would be con-
trary to the maxim, that no one should be made rich by making
another poor.
We are of opinion, therefore, first, that as the companies elected
to insist upon the condition in these cases, the policies in question
must be regarded as extinguished by the non-payment of the pre-
miums, though caused by the existence of the war, and that an ac-
tion will not lie for the amount insured thereon.
Secondly, that such failure being caused by a public war, without
the fault of the assured, they are entitled ex aequo et bono to recover
WHEN THE PREMIUM IS A DEBT 145
the equitable value of the policies with interest from the close of
the war.
It results from these conclusions that the several judgments and
the decree in the cases before us, being in favor of the plaintiffs
for the whole sum assured, must be reversed, and the records re-
manded for further proceedings. We perceive that the declarations
in the actions at law contain no common or other counts applicable
to the kind of relief which, according to our decision, the plaintiffs
are entitled to demand ; but as the question is one of first impression,
in which the parties were necessarily somewhat in the dark with
regard to their precise rights and remedies, we think it fair and
just that they should be allowed to amend their pleadings. In the
equitable suit, perhaps, the prayer for alternative relief might be suffi-
cient to sustain a proper decree ; but, nevertheless, the complainants
should be allowed to amend their bill, if they shall be so advised.
In estimating the equitable value of a policy, no deduction should
be made from the precise amount which the calculations give, as is
sometimes done where policies are voluntarily surrendered, for the
purpose of discouraging such surrenders; and the value should be
taken as of the day when the first default occurred in the payment
of the premium by which the policy became forfeited. In each case
the rates of mortality and interest used in the tables of the com-
pany will form the basis of the calculation.
The decree in the equity suit and the judgments in the actions
at law are reversed, and the causes respectively remanded to be pro-
ceeded with according to law and the directions of this opinion.
II. When the Premium is a Debt *
CLARK v. SCHROMYER.
(Appellate Court of Indiana, 1899. 23 Ind. App. 565, 55 N. E. 785.)
Action by James H. Clark, receiver of the Masonic Benevolent
Association of Central Illinois, against Frederick W. Schromyer.
From a judgment for defendant, plaintiff appeals.
Henley, J. This action was by the receiver of the Masonic Benev-
olent Association of Central Illinois, a foreign corporation, to col-
lect assessments which were alleged to have accrued prior to the
dissolution of the association, and before the receiver was appointed.
The complaint was in two paragraphs. Appellee demurred to
4 For discussion of principles, see Vance on Insurance, §§ 72, 73. See, also,
Cooley, Briefs on the Law of Insurance, vol. 1, p. 82.
CooLEY Ins. — 10
146 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
each parag^raph of complaint. Appellee answered in two paragraphs,
the first of which w^as a general denial. Appellant's demurrer to the
second paragraph of answer was overruled. A reply of general
denial put the cause at issue. There was a trial by the court, re-
sulting in a general finding for appellee. Appellant's motion for a
new trial was overruled, and judgment rendered in appellee's favor.
Appellant assigns as error the action of the lower court in over-
ruling the demurrer to the second paragraph of answer and in over-
ruling the motion for a new trial. Appellee has assigned cross
errors separately questioning the action of the lower court in over-
ruling his demurrer to each paragraph of the complaint.
We will dispose first of the questions arising upon the assignment of
cross errors, because, if the complaint was bad, and the appellee's
demurrer ought to have been sustained to it, it is not material whether
or not subsequent errors intervened. In such a case the judgment
of the lower court will be affirmed, because a right conclusion has
been reached. Ice v. Ball, 102 Ind. 42, 1 N. E. 66; Palmer v.
Railroad Co., 108 Ind. 137, 8 N. E. 905; Manufacturing Co. v.
Booth, 10 Ind. App. 364, 37 N. E. 818; Butler v. Railroad Co., 18
Ind. App. 656, 46 N. E. 92.
The only questions presented by the demurrer to the complaint
are these: Can the receiver of an assessment insurance company
collect an assessment from one who has accepted a policy, but has
ceased paying thereon? Is the contract unilateral, and is the only
penalty w^hich follows a refusal to pay the loss of the policy holder's
rights thereunder? These are new questions in this state. Life
insurance contracts have been universally held to be unilateral, un-
less, by their express terms, made otherwise. The certificates issued
by the association for which appellant w-as the receiver were bene-
ficiary certificates, payable upon the death of the holders. They
were, in their nature, policies of insurance. The company so is-
suing them was substantially a life insurance company. In May, Ins.
§ 550, it is said : "There are certain organizations prevalent in this
country and elsewhere under the name of relief, benefit, or benev-
olent societies, or some similar name, which generally have for their
object aid to their members, or their widows and children after the
decease of their respective members. These associations, though not
speculative, and not based upon capital paid in as an investment,
have nevertheless a general purpose of mutual protection. * * *
These certificates often resemble, both in form and substance, or-
dinary policies of life insurance; and the courts have with great
uniformity treated them as substantially life insurance companies,
applying to them and to the relatives of the members^ the rules and
principles applicable to the contract of life insurance." See, also.
Association v. Robinson, 147 111. 138, 35 N. E. 168: Rockhold v.
Society, 129 111. 440, 21 N. E. 794, 2 L. R. A. 420; Com. v. Weth-
erbee, 105 Mass. 161.
WHEN THE PREMIUM IS A DEBT 147
The case of Lehman v. Clark, 174 111. 2/9, 51 N. E. 222, 43 L.
R. A. 648, was in all respects like the case at bar. Appellee in
that case was the same person as the appellant in the case at bar.
Precisely the same questions were before the supreme court of Illinois
as are here presented. It was there held that the certificate or
policy of insurance such as was issued to the appellee in this cause
was a unilateral contract. The case of Lehman v. Clark, supra,
was decided June 23, 1898, which was after the trial and judgment
in the case at bar. The supreme court of Illinois, in construing
this contract of insurance, say: "Such contracts have heretofore al-
ways been considered unilateral, and so the whole plan of withdrawing
is embraced in these self-executing clauses of the by-laws and con-
tract. The member's failure to pay is his declaration of severance,
and the forfeiture provided for in the by-laws and contract is the
association's compensation. The option is with the member, and
not with the association. When the appellant became a member he
was required, among other things, to pay a sum into the mortuary
surplus fund. The sum was two maximum assessments on his
$4,000 certificate. This money went directly into the fund for pay-
ing death losses; not a cent of it for dues or expenses. This more
than paid the insurance from the date of his admission to the date
of the maturity of his assessment for the first death benefit after
he became a member. When he had paid his first assessment, that
paid for his insurance to maturity of the second, and so on. The
requirements for admission, not only in this association, but in all
benefit associations or societies, more than cover the member's in-
surance from the date of his admission to the first assessment after
he becomes a member. The statute under which the receiver was
appointed contemplates that, if the court shall find that the associa-
tion cannot longer continue in operation, and properly serve its pur-
pose, then the court shall appoint a receiver, and wind up its af-
fairs; or if the court shall find that it might longer continue in
business, and properly serve its purpose, if the officers would do
their duty in making assessments, then the court need not appoint
a receiver, and wind up the concern, but may order an additional
assessment to be made to meet deficiencies, and allow the concern
to continue in operation. This shows that the legislature treated
these contracts as unilateral. It did not contemplate the making
of an assessment after the association had been found unable to
longer properly serve its purpose. It is true that, a receiver having
been appointed by the court, the court has power, independent of
any statute, to direct him to collect assets, but that power does not
change the character of the contract between the association and
the member, and make the member a debtor, who, by his contract,
is not so. When such association or society for any reason becomes
unable longer to properly carry out its purpose, some must lose.
All must lose except those who died andl were paid before the as-
148 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
sociation became disabled. Those that have died and not been paid
should have all that is left, and lose the balance; those that con-
tinue to live get nothing, and lose all. But it is said those that con-
tinue to live had their insurance all the time. They had just that kind
of insurance that those that died had, and no better, and paid just
as much for it. Those that have died get the surplus fund, and
whatever else there is, and those that have lived get nothing. The
mistakes or mismanagement which caused the ruin, if fault of the
members at all, was as much the fault of the dead as the living,
and was equally the misfortune of all."
We think the supreme court of Illinois arrived at the proper con-
clusion. Appellant correctly contends that the contract should^ be
construed and governed by the charter and by-laws of the society
and the statute of the domicile of the corporation. This being true,
then the case last quoted from is decisive of the question in this case.
Appellant went to trial upon an insufficient complaint. The trial
resulted in favor of appellee. There being no cause of action stated
against appellee, the judgment of the lower court in his favor was
correct, and the intervening errors, if any, will not be considered.
Judgment affirmed.^
III. Payment of Premiums '
1. To Whom Paid
AMERICAN FIRE INS. CO. v. BROOKS.
(Court of Appeals of Maryland, 1896. 83 Md. 22, 34 Atl. 373.)
Action by Walter B. Brooks and another against the American
Fire Insurance Company., Judgment for plaintiffs, and defendant
appeals.
Page, J.'^ This is an action on a policy of insurance issued by
the appellant to Walter B. Brooks and W. H. Bosley, receivers of
the Gay Manufacturing Company, upon a steam sawmill and ma-
chinery situated at Bosley, Gates county, N. C. * * * Policy
No. 5,450, being that which forms the subject of this suit, was placed
through the agency of George B. Coale & Son, brokers of Balti-
more city, at the request of Mr. Bosley. Mr. Coale states in his
6 Compare Lebman v. Clark, 174 111. 279, 51 N. E. 222, 43 L. R. A. 648 (1898).
6 For discussion of principles, see Vance on Insurance, §§ 74, 75. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, pp. 924, 996.
1 Part of the opinion is omitted.
PAYMENT OF PREMIUMS
149
testimony that the policy was forwarded to him by Mr. Kelley, the
general agent of the company, and was delivered by himself to the
receivers; that he collected the premium, and paid it to the com-
pany, less his commissions; and that he was never notified by it
not to collect the premium. He further testified that he informed
Mr. Kelley who Messrs. Brooks & Bosley were, and what business
they were engaged in. The policy was dated the 21st August, 1891,
and ran for one year from the 20th August.
On 1st August, 1892, a renewal receipt was sent by Mr. Kelley
to Coale & Son. In his note transmitting it, Mr. Kelley states that
he forwards to the Coales, "according to order received" ; but there
is no evidence that the plaintiffs gave such an order, or that it was
given by the Coales, as a consequence of any conversation had with
them or of any act for which they were responsible. Mr. Coale
delivered the receipt to the receivers, and received from them a
check for the premium; but, by reason of illness, he failed to remit
the money to the company. On the 6th of October, the general
agent of the company wrote to the Coales: "We seem to be without
your remittance for August on policy No. 5,450, and will thank
you for the same;" and again, on 3d November: "Premium of
$82.50 is still due on policy No. 5,450," etc. ; "and, unless same
is paid, we, of course, will consider our liability as having ceased,
after receipt of this notice." * * * Not having received the
premium from the Coales, on the 6th of December Mr. Kelley
caused to be made on the books of his company certain entries, which,
in that office, were understood to mean the policy was canceled,
though that was not written in words. On the 3d of June the prop-
erty was destroyed by fire. * * *
It appears to be well settled that, where one engages another to
procure insurance, the person so employed is the agent of the in-
sured, and not of the insurer, in all matters connected with such
procurement. Insurance Co. v. Reynolds, 36 Mich. 502 ; Oil Co.
v. Triumph Ins. Co., 64 N. Y. 85. This rule applies to cases where
the insurance has been effected through the medium of a broker,
although the broker may have solicited the insured to take out the
policy. Such solicitations only cannot constitute the broker the
agent of the insurer, so as to bind the latter for the acts, declara-
tions, or omissions of the former. 1 May, Ins. § 124a; Insurance
Co. V. Swigert, 11 111. App. 590. But, when the broker's employ-
ment extends only to the procurement of the policy, his agency is
not continuing. It ceases when the purpose of his employment has
been accomplished ; that is, upon the execution and delivery of the
policy. Grace v. Insurance Co., 109 U. S. 278, 3 Sup. Ct. 207, 27
L. Ed. 932; Hinkley v. Arey, 27 Me. 364; Lohnes v. Insurance Co.,
121 Mass. 439; Hermann v. Insurance Co., 100 N. Y. 411, 3 N. E.
341, 53 Am. Rep. 197.
150 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
If the broker undertake to do acts outside of such employment,
the question for whom he acts will depend upon the special cir-
cumstances of the case ; and, if the assured or insurer relies upon
such acts to bind the other party, the burden of proof rests upon
him who seeks to bind the other thereby, to prove his authority.
In the absence of direct proof of actual authority, and where the
effort is to bind the insurer, the insured may establish the agency
by showing what acts the insurer has permitted the broker to do,
and that the act relied on ought reasonably to be inferred to be
within the scope of the apparent authority implied from such acts.
2 Wood, Ins. § 420; Smith v. Insurance Co., 47 Hun (N. Y.) Zl ;
Pierce v. People, 106 111. 23, 46 Am. Rep. 683; Insurance Co. v.
Crutchfield, 108 Ind. 518, 9 N. E. 458; Kausal v. Association, 31
Minn. 17, 16 N. W. 430, 47 Am. Rep. 776.
It is contended, however, that these principles do not apply to
the case at bar, by reason of this provision contained in the policy,
viz. : "In any matter relating to this insurance, no person, unless
duly authorized in writing, shall be deemed the agent of this com-
pany." It is difficult, however, to perceive how this clause can be
made applicable in this case. The purpose of the provision could
not have been to take from the insurance company the power to
appoint an agent by parol, and thereby, in many cases, to secure
immunity from the consequences of its own acts. If the clause is
to be so construed as that although the company has expressly, or
by acts which warrant the implication, appointed an agent, yet it
shall not be responsible for the conduct of such agent, while acting
within the scope of his real or apparent authority, unless such ap-
pointment is in writing, then the clause is a mere trap to ensnare the
unwary policy holder, and a device by which an insurance company,
for its own purposes, may abrogate and repeal the fundamental
principle of the law of agency. The object of the insertion of the
clause was to protect the company from the statements, knowledge,
and acts of persons connected with the procuring of the policy, by
the clear understanding of the parties to the contract that in any
matter relating to such insurance no person, unless duly authorized in,
writing, shall be deemed its agent. Banking Co. v. Teiger, 90 Va.
277, 18 S. E. 195 ; Grace v. Insurance Co., 109 U. S. 278, 3 Sup.
Ct. 207, 27 L. Ed. 932; Arthurhoh v. Insurance Co., 159 Pa. 7,
28 Atl. 197, 39 Am. St. Rep. 659; Insurance Co. v. Lee, 7Z Tex.
641, 11 S. W. 1024.
In this case the uncontradicted evidence was that the employment
of Coale & Son by the insured extended only to the procurement
of the policy. Their duty was "to place the policy." This being
so, when the policy was delivered, their functions were ended so
far as the appellees were concerned. The policy was sent to Mr.
Coale, and by him delivered to Mr. Bosley. To Mr. Coale was also
PAYMENT OF PREMIUMS 151
sent the receipt for the premium which he collected, and remitted
to Mr. Kelley, retaining his commissions. One year later the re-
newal receipt was forwarded to Mr. Coale ; and, when it was de-
livered, he again collected the premium. That it was intended by
Mr. Kelley that Coale should collect the premium, and remit to him,
was left by the instruction to be determined by the jury. The course
of dealing between Coale and Kelley in relation to this and other
policies, the inclosure to Coale of the renewal receipt, and Kelley's
letter of October 6, 1892 (in which he writes to Coale, "We seem
to be without your remittance," etc., "and will thank you to send
the same forward at once"), were all before the jury, and tended
to prove what that intention was. If they found the intention was
that Coale should deliver the receipt and collect the premium, these
payments to him were equivalent to payment to the company. * * *
Affirmed.
2. TiMR AND Mode of Payment '
KEN YON V. KNIGHTS TEMPLAR & MASONIC MUT.
AID ASS'N.
(Court of Appeals of New York, 1890. 122 N. Y. 247, 25 N. E. 299.)
Action on a benefit certificate issued by the defendant association
on the life of Alexander M. Kenyon. A judgment for plaintiff
was affirmed by the general term of the supreme court for the
fourth department, and defendant appeals.
Bradley, J.a * * * fj-jg further question upon the merits is
whether the jury were, by the evidence, permitted to find that the
certificate of insurance was in force at the time of the death of
the member.
It is urged by the defense that the contract had terminated, and
the right of the plaintiffs to assert any claim against the defendant
upon it forfeited, by reason of the default of Kenyon in making
payment of an assessment, as required by it. The certificate con-
tained the provision that, if any assessment should not be paid
within 10 days after notice provided by the by-laws for its pay-
ment, at the office of the defendant in the city of Cincinnati, Ohio,
unless otherwise expressly agreed in writing, or to its agents on
production of a receipt signed by the president, vice-president, or
secretary, the certificate should cease and determine ; and by a by-
8 See Cooley, Briefs on the Law of Insurance, vol. 3, p. 2316.
« Part of the opinion is omitted and the statement of facts is rewritten.
152 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
law indorsed upon the certificate it was also provided that "any
member, failing to pay his assessment within ten days after such
notice has been served upon him, shall forfeit his certificate of
membership in the association, and all benefits therefrom; any mem-
ber having- forfeited his membership by failing to pay his assess-
ments may be reinstated, he being alive, within thirty days after
said notice was sent, he paying all arrearages," — and that such notice
might be sent by mail, and when so sent should be deemed a suffi-
cient notice for the payment of the assessment required. This,
with what appears in the application upon the subject, was the con-
tract between the parties in that respect, and, as such, efifectual to
govern their rights, except so far as it may have in some manner
been modified or strict com.pliance with such provisions waived. On
March 27, 1885, the secretary of the defendant at Cincinnati mailed,
addressed to Kenyon, at Watertown, N. Y., a notice that an as-
sessment of $4.75 on his certificate was then due, and payable on
or before April 6, 1885; and added: "Assessments are payable at
this office in cash, by sight draft on Cincinnati or New York banks,
money order, or American or U. S. Express Co. money order, pay-
able to Charles Brown, secretary;" and that the receipt was held
at the defendant's home office, where he could get it until April
6th, inclusive, on payment of the amount, and where he could pay
it after that date. The default alleged was in the payment of that
assessment.
This the plaintififs seek to meet by the fact, which the evidence on
their part tended to prove, that the member, on April 4, 1885, sent
by mail from Watertown his check, drawn upon a bank there for
the amount, to the defendant's secretary at Cincinnati, payable to
the order of the latter. It was sent sufficiently early to reach by
due course its place of destination within the 10 days mentioned in
the notice, but it was not received by the defendant's secretary, and,
if it had reached him within that time, he would not have been
required to accept it in performance of the contract, as represented
by its terms before mentioned. But the course of dealing between
the parties had been such that the member was at liberty to assume
that his check upon the bank was receivable by the defendant, be-
cause it had, uniformly and without objection, received his cheeky
in payment for assessments upon the certificate. So far the de-
fendant had waived strict performance, and permitted the member
to pay in his checks as a substitute for the method of payment
mentioned in the notice. It appeared that, within a little more than
a year and a half preceding the time of this assessment, Kenyon
had sent to the secretary 15 checks, drawn by him as this was, and
upon the same bank at Watertown, in payment of assessments, and
that they were so received; but it is contended that the receipt at
the home office of the defendant of that which the assured was
permitted to deliver in payment was essential to accomplish it. That
PAYMENT OF PREMIUMS
153
is the rule when nothing appears to the contrary. Insurance Co. v.
Davis, 95 U. S. 425, 24 L. Ed. 453. And such was the effect of
the contract in question, and, as we have seen, not modified by the
terms of the notice of assessment. The method of doing it through
the mail had been adopted by the assured, and, akhough many of
the checks before sent in that manner were not received, nor were
some of them sent, until after the expiration of the 10 days fol-
lowing the notice, no question had been raised. If that can be
treated as waiver of prompt payment, it is entitled to consideration.
But it is with much force suggested that payment within 30 days
after notice was the right of the assured, and, when so made, would
operate to reinstate his relation of membership, which had been ter-
minated by his default in payment during the first 10 days, and there-
fore furnished no evidence of any indulgence by the defendant or
extension of the time for payment. It is difficult to see any waiver
of payment within the time and at the place provided for by the
contract, unless the circumstances were such as to permit the as-
sured to understand, from the action of or the course of dealing
with the defendant, that the deposit of the check, properly indorsed
and directed, in the mail in due time, was a compliance with its
requirement to save him from default, and his contract of insurance
from forfeiture; or, unless what occurred by way of correspondence
between him and the defendant after he had so mailed the check
may have been treated as such waiver, by reference to which this
appears. On April 10th the secretary wrote Kenyon, saying that
his assessment, payable on or before April 6th, was yet unpaid; that
he could pay it, if living, any time before April 27th. "Until such
payment is made, you are carrying your own risk in case of death ;"
and after expressing the wish that Kenyon remain a member of the
association, and saying that, if the assessment was not paid within
that time, he would forfeit the certificate, added: "Remit by bank-
check, postal order, or American Express Co. order." In a letter
of date 13th April to the secretary, Kenyon stated that he paid the
assessment April 4th; and, before the secretary's letter in reply
reached its destination, Kenyon had died. Those letters do not, of
themselves, furnish evidence of purpose of the defendant to waive
the payment not made within the 10 days. It called the assured's
attention to the right the contract gave him, and recognized his right
to pay by bank-check. Further consideration is due to the effect of
the prior transactions between the parties in relation to the assess-
ments, and the manner of paying them, upon the rights of the parties,
arising out of the notice and attempted remittance in question. The
conditions inserted in a contract of insurance for the benefit of the
company making it may be waived by it. And in Insurance Co. v.
Eggleston, 96 U. S. 572, 24 L. Ed. 841, it was said by the court
"that forfeitures are not favored in the law, and that courts are
always prompt to seize hold of any circumstances that indicate an
154 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
election to waive a forfeiture, or an agreement to do so, on which
the party has rehecl and acted. Any agreement, declaration, or
course of action on the part of an insurance company, which leads
a party insured honestly to believe that by conforming thereto a
forfeiture of his policy will not be incurred, followed by due con-
formity on his part, will and ought to estop the company from in-
sisting upon the forfeiture, though it might be claimed under the
express letter of the contract." And substantially to the same effect
are Meyer v. Insurance Co., 7Z N. Y. 516, 29 Am. Rep. 200; Wyman
V. Insurance Co., 119 N. Y. 274, 23 N. E. 907; Helme v. Insur-
ance Co., 61 Pa. 107, 100 Am. Dec. 621.
If the check had been mailed, addressed to the secretary by the
direction of the defendant, the member would not have been in de-
fault, although it was not received ; assuming, as we may, that he
had the funds in the bank to meet it. Palmer v. Insurance Co., 84
N. Y. 63. There was no express agreement or direction to that
effect, and that method of remittance was, for all purposes, at his
risk, unless the course of dealing with the defendant enabled him to
believe and understand that the mailing of it would be effectual to
protect him against forfeiture. 2 Greenl. Ev. § 525 ; Gurney v.
Howe, 9 Gray (Mass.) 404, 69 Am. Dec. 299; Crane v. Pratt, 12
Gray (Mass.) 348; Morgan v. Richardson, 13 Allen (Mass.) 410.
The distance between the place of residence of the assured and
the defendant's home office was such that payment of assessments
by his personal delivery at the latter place evidently was not con-
templated; and, so far as appears, the defendant was satisfied with
the method of remittance from him directly to its officer by mail,
and such means of transmission may have been within the expec-
tation of the parties in view of their situation ; and doing it through
the postal service might very well be deemed no less safe and ap-
propriate than any other manner to make payments by means of
bank-checks. Buell v. Chapin, 99 Mass. 594, 97 Am. Dec. 58. As
this had been uniformly the manner of transmitting and accepting
payment, or the means of payment, of assessments, adopted by the
parties, it may be said that the postal medium of transmission had
in some sense become a matter of usage between them, having the
nature of an implied agreement to that effect. In that view it is
not essential, for the purpose of the question, that the mailing or
reception of the check should constitute actual payment, or that it
should have operated as such during the life of the assured. Maher
V. Insurance Co., 67 N. Y. 283. The parties apparently had ac-
quiesced in that method of representing the amount, as well as in
the means of transmission, and the conclusion was warranted that,
by the course of dealing adopted by the defendant in that respect,
the assured may fairly, and in good faith, have been led to suppose
that the requirement of the defendant upon him was satisfied by
mailing, as he did in his customary manner of doing it, the check
PAYMENT OF PREMIUMS 155
for the amount of the last assessment. The proposition was not nec-
essarily overcome by the fact that the other checks were received
prior to the time the assured had the right to make payment, al-
though that may properly have been a matter of consideration by
the jury upon the question submitted to them. * * * Affirmed.
GUILFOYLE v. NATIONAL LIFE ASS'N.
(Supreme Court of New York. Appellate Division. Second Department, 1899.
36 App. Div. 343, 55 N. Y. Supp. 236.)
Action by William E. Guilfoyle against the National Life Associa-
tion. There was a judgment for plaintiff, and defendant appeals.
Hatch, J. This action is brought to recover upon a contract of
insurance issued by the Mutual Benefit Life Association of America,
and subsequently transferred to the defendant. The question pre-
sented by the appeal relates solely to the sufficiency of a payment of
the premium due upon the policy prior to the death of the insured.
It appeared in the evidence that the contract of insurance was issued
in 1884. After its assumption by the defendant, it sent to the in-
sured, pursuant to its contract, from time to time, notices of pre-
miums due from the insured thereunder.
It does not clearly appear in the testimony who paid the first
premium, but for the most part the premiums were paid by the
plaintiff, who, with his sister, were the beneficiaries named in the
policy; and, she having assigned her interest to the plaintiff, he is
now the sole beneficiary therein. After the plaintiff began to pay
premiums, the usual course was for the insured to receive premium
notices and deliver them to the son, who, except in one or two in-
stances, when he paid by post-office money order, inclosed the notices,
with a check, in an envelope furnished by the defendant, directed to
its home office, in Hartford, Conn. ; and thereafter the notices,
stamped "Paid," were returned to the insured. The premium notice
first sent out by the defendant provided that payment of premium
should be made at the home office in Hartford, and, pursuant to such
notice, it recognized payments made by check and sent through the
mail. Under such a notice it has been held that payment by check
deposited in the post office prior to the date when the premium was
due was a good payment, even though it was not received at the
home office until after the date when the premium became due.
Primeau v. Association, 77 Hun, 418, 28 N. Y. Supp. 794, affirmed
in the court of appeals 144 N. Y. 716, ^9 N. E. 858.
Some time after 1894, and as early as Tune 29, 1895, the defendant
attached to its notice for the payment of premiums, in addition to
what it had previously contained, the following statement : "We in-
close you an envelope directed to the company, for your convenience
156 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
in case you remit by mail. But it must be distinctly understood that
the association is not, and cannot be, responsible for any loss or de-
lays of the mails. Mailing of the amount of premium is not payment.
It must reach the home office on or before the date due, in order
to prevent the policy from lapsing." This appeared in fine type, at-
tached to the foot of the notice. It does not appear that the defend-
ant gave any notice to the insured of this change in its requirement,
or that it took any other steps to call the attention of the insured to
the change in this regard. The plaintiff testifies that he had no no-
tice of such change, and that it was not called to his attention until
the trial of the action, and then by his attorney. No change was
made in the manner or method of making the payments of premium
after the change in the notice, and the defendant continued, as be-
fore, to receive an envelope directed in the same manner as had been
used under the prior form of notice.
The question, therefore, which we are called upon to decide, is
whether the plaintifif or the insured, in making the payments, was
bound to take notice of the character of the change contained in its
printed statement attached thereto. We think that the plaintiff was
not conclusively bound, as matter of law, by the statements contained
in such notice. On the contrary, we think that the question whether
the defendant took such steps as were fairly calculated to apprise the
insured, or the person making the payments, of the change contained
in the statement, was one of fact for the court or a jury to determine.
It is quite clear that it would be most unfair to the insured to permit
him to make payment in reliance upon a course of business which the
defendant had permitted, if not invited, and under which the insured
was protected when he had placed the check in the envelope furnished
by the defendant, paid the postage thereon, and deposited the same in
the post office. If the defendant desired to change the system, and
place the risk of safe transmission through the mail upon the insured,
when he had theretofore relied upon its being good, it should in plain
and unmistakeable terms call the attention of the insured thereto, in or-
der that he might have an opportunity to protect himself by making
payment in another manner.
It is matter of common knowledge that changes vital in character
may be easily made by notice inserted by the defendant in its printed
matter, and yet the same not be noticed by the insured, nor placed
in such form as would be calculated to attract his attention. In the
present case that part of the notice which called for the payment of
premium was not changed from what it had theretofore been. At
least, if there was change, it related to the amount of the assessment,
and did not embrace words showing any change in the manner of
payment. The language which made the present change was simply
an addition in the body of the printed matter, which had always ap-
peared upon the premium notice; so that a person receiving this no-
tice, so far as its general appearance is concerned, would find nothing
PAYMENT OF PREMIUMS 157
about it that attracted his attention to the pregnant matter which the
fine print contained, and under such circumstances might well assume
that the notice was the same as that which had theretofore been sent
out, and that no change was contemplated upon the part of the de-
fendant. That the question is one of fact, under such circumstances,
has been decided. Van Bokkelen v. Association, 90 Hun, 330, 35 N.
Y. Supp. 865. The failure of the mail to deliver the letter contain-
ing the check at the home office cannot avail to defeat the payment.
When the letter, properly stamped, was deposited in the mail, pay-
ment was accomplished, under the circumstances of this case, and the
delivery of the letter at the home office was thereafter at the risk of
the defendant. Palmer v. Insurance Co., 84 N. Y. 63.
In the present case the court has found that the deposit of the
check, under the circumstances presented in the record, constituted
a good payment of the premium. While it is true that the learned
court based its decision to some extent upon the ground of waiver,
yet this court is not concluded thereby. Having made a concise state-
ment of the grounds of its decision, without stating separately the
facts found and the conclusions of law, the whole question is before
this court for determination (Code Civ. Proc. § 1022) ; and we see
no reason why we should depart from the holding of the court that
the payment was a good payment, based upon the ground that no
notice of any change as to the effect of the payment by check was
ever brought to the attention of the insured or of the plaintiff, and
that the form in which the notice was given was not of such a char-
acter as was reasonably calculated to call attention to the vital change
which it effected.
It was not suggested upon the trial that the check which was mailed
was not a good check. The defendant stood solely upon the effect of
the notice which it had given, and, consequently, cannot now be heard
to raise any such question. Besides, the plaintiff at all times stood
ready to make payment in money, which the defendant refused to re-
ceive.
We see no reason for disturbing the judgment of the trial court.
It should, therefore, be affirmed, with costs. All concur.
STINCHCOMBE v. NEW YORK LIFE INS. CO.
(Supreme Court of Oregon, 1905. 46 Or. .316, SO Pac. 213.)
Action by Idonia Stinchcombe against the New York Life Insur-
ance Company. From a judgment of dismissal, plaintiff appeals.
George W. Stinchcombe made application. May 5, 1894, to defend-
ant for insurance on his life in the sum of $2,000, payable to his
wife, the plaintiff. Among other things, it was stipulated by the ap-
plicant that any policy that might be issued should not be in force
158 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
until the actual payment to and acceptance of the premium by the
company or its authorized agent during his (the applicant's) lifetime
and good health. The defendant signed and issued its policy on July
10th following, which was transmitted to Stinchcombe, who accepted
it and paid the premium of $70.40, being for two years, on the 24th
of the same month. The policy provides, and it is so conditioned, that
it is made in consideration of the written application therefor, and of
the agreements and warranties therein contained, which are made a
part of the contract, and in further consideration of $70.40, to be
paid in advance by the insured (being premium for two years' term
insurance), and of the payment of $47.40 (being the life premium),
on the 5th day of May every year thereafter during the continuance
of the policy.
The benefits and provisions placed on the next page of the policy
were also made a part of the contract. Among such provisions are
found these:
"All premiums are due and payable at the home ofifice of the com-
pany unless otherwise agreed in writing. * * * jf ^my premium
is not thus paid on or before the day when due then (except as here-
inafter otherwise provided) this policy shall become void, and all pay-
ments previously made shall remain the property of the company.
"A grace of one month will be allowed in payment of premiums
on this policy, subject to an interest charge of five per cent, per an-
num for the number of days during which the premium remains due
and unpaid.
"During said month of grace the unpaid premium, with interest as
above, remains an indebtedness due the company, and in the event of
death during the said month, this indebtedness will be deducted from
the amount of the insurance.
WoivVERTON, C. J.^'* The first question presented in the logical
course of inquiry is whether the policy had lapsed prior to the de-
cease of Stinchcombe, July 3, 1896. By its terms the life premium
of $47.40 is made payable on the 5th day of May in every year "there-
after," the premium for two years in advance having been paid on
July 24, 1894. Under a condition of the application, the policy was
not to be in force until the actual payment to and acceptance of the
premium by the company, and during the lifetime and good health
of the applicant. There was no binding receipt issued by the com-
pany, or its agent, putting the insurance in force from the date of
the application, to wit. May 5, 1894, subject to the condition of its
acceptance by the company and the issuance of the policy, as is some-
times done.
We have therefore only to look to the terms of the policy to ascer-
tain when it became effective as an insurance upon the life of Stinch-
combe, and to determine the conditions upon which it might be con-
10 Part of the opinion is omitted and the statement of facts is re\Yritten.
PAYMENT OF PREMIUMS 159
tinued in force, as well as those the nonobservance of which would
entail a forfeiture. There was a care, it will be seen, on the part of
the company, that the policy should not be in force — that is, that the
company should not itself become liable — except on the concurrent ex-
istence of certain conditions, namely, the actual payment of the pre-
mium during the lifetime and good health of the applicant. He might
have been living and in good health, but without the actual payment
of the premium no liability would have been incurred on its part, and
that because, as the condition reads, the policy "shall not be in force."
Now, if it was intended that the policy should become effective as
against the company only when these conditions were fulfilled on the
part of the applicant, what is there in the contractual relations to put
it in force or to cause it to become operative as against the applicant
in the meantime? There are no other stipulations indicating an in-
tendment of that nature, and, as we have seen, there is no binding
receipt putting it into effect at once, either conditionally or otherwise.
The policy was issued on July 10, 1894, and, if left to the provisions
on the face of it alone, would ordinarily have been effective from
that date ; but the application is made a part of it, and so are the con-
ditions and provisions on the next page following the signatures of
the officers of the company, and all must be construed together to
get at the true intendment of the parties as they are, and constitute
in reality but one contract.
If, therefore, the policy was not to be in force to bind the company
until the concurrence of the conditions designated, it is a most rea-
sonable and fair deduction that it was also not intended that it should
become effective as it concerned the assured at a date prior to their
fulfillment. The defendant either insured Stinchcombe from the 5th
day of May, or it did not insure him until the 24th day of July, when
the policy was delivered and the premium paid and accepted by it.
It is certain that it did not make itself liable until the latter date, and
are we to suppose that, without engagement to that purpose, the com-
pany intended to collect the premium and the insured to pay for in-
surance he did not have? Rather would the deduction be to the con-
trary. And such is our interpretation of the contract, that it did
not become effective and binding as an insurance upon the life of
Stinchcombe until such latter date, either to fix the liability of the
company or to require the insured to pay for insurance in the mean-
while.
Now, the $70.40 paid for two years' insurance. It is so expressly
stated in the policy as follows : "Being the premium for two years'
term insurance." This insurance began with the date of July 24, 1894,
by the delivery of the policy and the payment and acceptance of the
premium, and Stinchcombe's life became insured, not alone for the
term of two years, but for the entire term fixed by the policy accord-
ing to its provisions, but subject to forfeiture for the failure to per-
form those conditions subsequent as might entail such a result, among
160 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
which are those relating to the prompt payment of the premiums.
New York Life Ins. Co. v. Statham, 93 U. S. 24, 23 L. Ed. 789. By
one of the conditions on the next page, so denominated, a grace of
one month is allowed in the payment of the annual premiums, subject
to an interest charge, so that on the face of the contract there was
accorded the insured 25 months in which to make the second payment
of premium, thus extending the time to June 5, 1896. Such premium
not having been paid before that date, a forfeiture was incurred, but
when did it become operative? At once upon the default in meeting
the payment, or at the end of the time for which the insured had paid
for his insurance?
It is argued that the forfeiture clause is direct and unmistakable,
and indicates an intendment that the policy should become at once
void by reason of the nonpayment of the premium on the day it was
demandable. It does not say so, however, but that it "shall become
void." The interpretation would deprive the assured of a period of
the insurance that he had actually paid for, to wit, from June 5th
to July 24th, so that the forfeiture, in that view, would not only incur
the penalty of depriving the assured of his right to continue under
the contract, but also of cutting short by a most appreciable term the
insurance absolutely obtained by payment of the premium for two
years in advance. There is here a palpable incongruity, and, if the
company's contention be the correct one as to the proper interpretation
of the contract, it is perfectly manifest that it will be fraught with in-
justice to the beneficiary. It is very well understood, a condition aris-
ing from an innate sense of justice, that the law in its policy and spirit
is averse to the declaration of forfeitures, and will not entail such
consequences as between individuals but in pursuance of the plain
and obvious intendment of contractual relations. It is also a canon of
the construction of contracts, so well settled as to need no citation
of authorities to support it, that inconsistent provisions rendering it
doubtful or uncertain whether, or under what conditions, a forfeiture
was really intended, will be so interpreted, whenever they can, within
the bounds of reason and common fairness, as to elude the forfeiture
and secure to the parties that to which they are in justice entitled.
Beyond this there is another rule that, as between inconsistent, con-
flicting, and incongruous provisions, of doubtful and ambiguous sig-
nificance, in a policy of insurance, it being manifest that the form and
all the necessary conditions are the statements, essentially, of the offi-
cers, agents, and attorneys of the company, the construction most
favorable to the assured will be adopted and applied. Fenton v. Fi-
delity & Casualty Co., 36 Or. 283, 56 Pac. 1096, 48 L. R. A. 770;
Stringham v. Mutual Life Ins. Co., 44 Or. 447, 75 Pac. 822; Na-
tional Bank v. Insurance Co., 95 U. S. 673, 24 L. Ed. 563 ; McMaster
v. New York Life Ins. Co., 183 U. S. 25, 22 Sup. Ct. 10, 46 L. Ed. 64.
Now, applying these plain and obvious canons of construction and
interpretation, it is neither inconsistent with reason nor fair dealing
PAYMENT OF PREMIUMS 161
to conclude that the true intendment of the contract, looking through
the whole of it, including the application, the policy, and the provi-
sions on the next page, is that there should be no forfeiture of the
insurance paid for— that is, of any part of the "two years' term
insurance" — and that the policy was not rendered void, as affecting
such term or period, until its time had fully run. This does not take
into account the effect of the provision touching the month of grace
for making the payment, because not involved here. Such, in effect,
is the holding of the Supreme Court of the United States in Mc-
Alaster v. New York Life Insurance Company, supra. In reality,
this is a much stronger case than that for the beneficiary. It does
no injustice to the insurance company having received the stipulated
consideration, and it conserves to the insured or his beneficiary that
for which he has actually paid his money in the way of premium.
* * * Reversed.
MICHIGAN MUT. LIFE INS. CO. v. BOWES.
(Supreme Court of Michigan, 1879. 42 Mich. 19, 51 N. W. 962.)
Assumpsit by Mary E. Bowes against the Michigan Mutual Life
Insurance Company. Judgment for complainant. Defendant brings
error. Affirmed.
CooivEY, J. There are no disputed facts in this case. On the 15th
day of November, 1873, the plaintiff in error issued to Mary E.
Bowes, the defendant in error, a policy of insurance by which the
payment of $10,000 was assured to her on the death of her husband,
William R. Bowes, in consideration of the payment of an annual pre-
mium of $434.80. Mr. Bowes himself effected the insurance, and,
instead of paying the first premium in money, gave his note therefor.
November 15, 1874, the second premium was paid, and the note which
was given for the first was taken up. November 15, 1875, Mr. Bowes
gave his note for the third premium, less $62, the amount of certain
allowances made to him by the insurer. November 15, 1876, the
amount of this note was added to the fourth premium, and two notes
were given by Mr. Bowes therefor, one of $538.83, due in 7 months,
with 10 per centum interest, and one of $222.39, due in 60 days. This
last note when it fell due was renewed for 90 days, and was made
to bear 10 per centum interest. Neither of these notes was ever paid.
The premium which fell due on November 15, 1877, was not paid,
nor was any note or other security given for it. Mr, Bowes died
November 17, 1878.
It was provided in the policy that, if the premiums should not be
paid when due, the company should not be liable for the payment of
the sum insured, or any part thereof, and the policy should cease and
determine, excepting only that on the surrender of the policy duly
receipted, within one year after an accrued premium was due, the in-
CooLEY Ins. — 11
1G2 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
sured being then alive, the company would issue a paid-up policy
for the amount the surrender value u'ould purchase as a single pre-
mium. Claiming that the notes were, in legal effect, payments of the
premiums for which they had been given, Mrs. Bowes on November
8, 1878, tendered to the company a surrender of the policy, and de-
manded a paid-up policy for the surrender value, which the company
refused to issue while the notes remained unpaid. The surrender
value would at that time have purchased a paid-up policy for $1,210.-
85. For this sum Mrs. Bowes thereupon brought suit, and in the cir-
cuit court recovered judgment.
There was no express agreement to receive the notes in payment
of the premiums, and it is therefore insisted that, according to the
well-settled rule in this state, they cannot amount to payment until
actually paid. Gardner v. Gorham, 1 Doug. 507 ; Hotchin v. Secor,
8 Mich. 494. It appears, however, that renewal receipts were given
when the notes were taken, so that by the express act of the com-
pany the policy was kept alive, and the company precluded from any
right to insist upon a forfeiture up to November 15, 1877.
In determining whether the notes shall be considered payments, it
is important to note that the paper given for premiums was not the
paper of the insured. It was, indeed, the paper of the person on
whose life the risk was taken, but. had Mrs. Bowes given the paper
of any third person, the case would have been no different. The
company has taken the paper of another person than the assured for
the premiums the assured was to pay, and, if the paper is paid, will
receive a large interest thereon. Now, although it is conceded that
the taking of this paper was for the accommodation of the assured,
it is nevertheless a legal presumption that the insurer found it to its
interest to make the arrangement, so that the delay in the payment,
in consideration of the promise to pay interest, is to be considered as
agreed upon for the mutual advantage of the parties ; and, had the
notes been paid at any time prior to the demand for a paid-up policy,
it cannot be disputed that Mrs. Bowes would have been entitled to
receive it.
But, although the notes were not then paid, the insurance company
had an undoubted right to proceed and collect them, together with the
interest, which was the legal inducement for giving credit. The com-
pany might also have sold them, and this, as between the company
and Mrs. Bowes, would have been equivalent to collection ; and the
notes, so far as we know, remain in the hands of the company as
its property to this day, and may be collected of the estate of Mr.
Bowes, if that is solvent.
Under these circumstances, we are of the opinion that the insurance
company is precluded from denying that the notes were taken in pay-
ment for the premiums. As has been stated above, there could have
been, under the circumstances, no forfeiture of the policy prior to
November 15, 1877. It was in full force at that day, and, if the
rORFEITURE 163
premium then falling due had been tendered, the company could not
have refused it because of the notes remaining unpaid. Now, al-
though the contract provides that a policy for the surrender value
must be demanded within one year from the time an accrued premium
was due, we think this means an accrued premium for the non-pay-
ment of which the company had a right to determine the policy; and
there was no such accrued premium due until November 15, 1877, the
company having expressly renewed the policy to that day.
There is another consideration which is not unimportant. The fair
meaning of the policy, and of the statute in accordance with which
it was given, is that the insured, when he becomes unable or for any
reason fails to keep up his payments, shall have the advantage of all
he has made, in a paid-up policy proportioned to the amount. If,
instead of receiving currency, the company has taken the commercial
paper of third persons, which may be collected afterwards, it is ob-
vious that the assured cannot have the full benefit of his contract,
unless such paper is treated as payment. Suppose, for example, that
Mr. Bowes were still living, and that his notes should now be col-
lected, it is manifest that the company would then receive the full
benefit of the contract on its side, including full consideration for
the delay, but that the insured would be wholly deprived of the ben-
efit promised to her in a surrender policy, if any other view were
taken than is here adopted.
We think the judgment must be affirmed, with costs. If in this
particular case the company proves to be a loser in consequence of
the insolvency of the maker of the notes, it is a result that can be
provided against in the future by express stipulations.
IV. Forfeitures^
PERRY V. BANKERS' LIFE INS. CO.
(Supreme Court of New York, Appellate Division. First Department, 1900.
47 App. Div. 567, 62 N. Y. Supp. 553.)
Action by Marie B. Perry against the Bankers' Life Insurance Com-
pany of the City of New York. From a judgment for plaintifif, de-
fendant appeals.
RuMSE^Y, J.s^ The action was brought to recover on a policy of
life insurance issued to the plaintiff's husband in September, 1895,
11 For discussion of principles, see Vance on Insurance, § 77. See, also,
Cooley, Briefs on the Law of Insurance, vol. 3, pp 2257-2434.
12 Part of the opinion of the court, as also the dissenting opinion of Pat-
terson, J., are omitted.
164 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
and payable at his death to her. The insured died on the 27th of
March, 1898. The necessary steps were taken to entitle the plaintiff
to the payment of the policy, and the only defense is that it has been
forfeited by nonpayment of the premium said to be due on the 21st
day of March, 1898. * * *
The policy was made on the 21st day of June, 1895, upon an appli-
cation which is found in the case, and dated the 24th of April in the
same year. It was stated in the application that the premiums were
to be paid quarterly ($23.50). The policy purports to have been is-
sued in consideration of the application, and of all statements made
therein and to the medical examiner, and of the stipulations and agree-
ments on the back of the policy, all of which were made a part of
the contract, and in further consideration of the sum of $23.50 in full
payment of the first premium on this policy from this date until the
21st day of September, 1895, and the further payment of all premi-
ums coming- due on this policy in accordance with its terms and the
constitution and by-laws of the company. The policy itself contains
upon its face nothing further with regard to the payment of the
premiums. There is upon the back of the policy something over a
page of print, which is headed, "Stipulations and Agreements." All
that is said with regard to the payment of premiums in these stipu-
lations is that they may be paid annually, semiannually, or quarterly,
in accordance with the rates in the following table, subject to deduc-
tion by dividends as aforesaid; and that any unpaid semiannual or
quarterly installment of the current year's premium, or any indebted-
ness to the company, will be deducted in the settlement of the policy;
and the further provision that each premium is due and payable at
the home office of the company, but, for convenience, it will be ac-
cepted by an authorized agent at some other place. There is nothing
else, either in the policy or in the stipulations and agreements, with
regard to the payment of premiums. The by-laws contain a provi-
sion that premiums must be paid on the day they become due by the
terms of the policy, and a failure to pay the same on that day will
work a forfeiture of the policy and all benefits thereunder. But this
provision is not made a part of the policy, by its terms.
It is alleged that a premium which was due on the 21st of March,
1898, was not paid, and for that reason it is said that the policy had
become forfeited. The rule is well settled that no strained or forced
construction of a contract will be resorted to for the purpose of es-
tablishing a forfeiture, but that, to warrant a party in insisting that
his adversary has forfeited any rights which he would be entitled to
by a contract between them, he must put his finger upon the specific
provision of the contract which requires the party against whom the
forfeiture is alleged to do the thing the failure to do which is relied
upon to work a forfeiture. The breach of the contract here, upon
which the defendant insists as constituting a forfeiture, is a failure
to pay the premium when it became due by the terms of the policy,
FORFEITURE 165
and so it is essential to see when it did become due by those terms
of the policy.
It will be noticed that there is no direct agreement on the part of
the plaintiff, nor any requirement in the policy, or in the stipulations
and agreements which are made a part of it, or in the application,,
that the premiums shall be paid on any particular day. The amount
of the premiums is fixed. It is to be $23.50, payable quarterly ; and
the first premium paid at the date of the policy is said to be a pay-
ment up to the 21st day of September, 1895, and it is said that the
other premiums are to be paid quarterly. But it is nowhere said, ei-
ther in the application or the policy or the stipulations and agree-
ments, that they are to be paid on any particular day ; and from the
provision in the stipulations and agreements, that any unpaid quar-
terly installment of the current year's premium will be deducted in
settlement of the policy, it is fairly to be inferred that there was in
the minds of the parties at the time the contract was made an inten-
tion that the quarterly premiums might not necessarily be paid at
the end of the quarter, which in this case was the 21st of March, 1898.
In order to establish that the payment of the premiums was to take
place on the 21st of March, the defendant resorts to an indorsement
on the back of the policy, which is as follows :
"No. 1.544. Bankers' Life Insurance Company of the City of New
York. Insurance on the Life of N. W. Perry.
"Amount, $5,000.
"Premium, $23.50.
"Payable on the 21st day of June. Sept., Dec, Mch.
"Dated June 21, 1895."
This is the usual indorsement put upon every insurance policy by
the company before it is issued, and, although it is on the back of
this policy, it is no part of the stipulations and agreements, which
alone are made a part of the policy, and constitute the contract be-
tween the parties. Therefore, although this indorsement may be re-
garded, perhaps, as a suggestion of what was intended by the defend-
ant, it cannot, except by a very strained construction, be said to be
any part of the policy, so as to be binding upon the plaintiff, or to
constitute any of its terms, so that a violation of a suggestion con-
tained in it shall be sufficient to forfeit the policy.
But it is said that a construction has been put upon the policy by
the act of the parties, as the result of which the premium became pay-
able on the 21st of March, 1898. It is undoubtedly true that a notice
was given to Perry, from time to time, that a particular premium com-
ing due at a particular time had not been paid ; and it is quite proba-
ble that whenever he received that notice he complied with the de-
mand of the defendant by giving it a certificate of health, if he paid
the premium after the 21st day of the month. But those acts do not
constitute any part of the terms of the policy, for the purpose of au-
thorizing a forfeiture. If, when this notice had been served upon
166 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
Perry, he had said that the contract did not provide for the payment
of a premium on the 21st day of September, 1895, but that he had
a reasonable time to pay it, no one could have said that he had vio-
lated the terms of the policy ; and the fact that he acceded to this
demand does not change his rights to insist upon the precise terms
of the policy, when the defendant tries to forfeit the terms of the
contract.
The judgment must be affirmed, v^ith costs. All concur, except
Patterson, J., who dissents. ^^
V. Excuses for Nonpayment
14
THOMPSON V. KNICKERBOCKER LIFE INS. CO.
(Supreme Court of United States, 1881. 104 U. S. 252, 26 L. Ed. 765.)
Error to the circuit court of the United States for the Southern
district of Alabama.
This was an action on a policy of insurance for $5,000, issued by
the Knickerbocker Life Insurance Company, the defendant in error,
on the life of John Y. Thompson, for the benefit of his wife, Ruth
E. Thompson, the plaintiff in error. The policy bore date Jan. 24,
1870, and was to continue during his life, in consideration of an an-
nual premium of $410.20, payable on or before the twenty-fourth day
of January in every year. He died Nov. 3, 1874. The complaint was
in the usual form, setting forth the contract contained in the policy,
his death, and the performance of the conditions of the policy by him
and the plaintiff. The company pleaded the general issue, and two
special pleas, which set up in substance the same defence. The sec-
ond plea, after setting forth the provisions of the policy for the pay-
ment of the annual premium, proceeds as follows:
"Under said policy an annual credit or loan of a portion of said
premium was provided for, and said policy also contained a condition
or proviso that the omission to pay the said annual premium on or
before twelve o'clock noon on the day or days above designated for
the payment thereof, or that the failure to pay at maturity any note,
obligation, or indebtedness (other than the annual credit or loan) for
premium or interest due under said policy or contract, shall then and
thereafter cause said policy to be void without notice to any party or
parties interested therein.
13 Compare New York Life Ins. Co. v. Statham, ante, p. 140.
1-* For discussion of principles, see Vance on Insurance, § 78. See, also,
Cooley, Briefs on tlie Law of Insurance, vol. 3, p. 2328.
EXCUSES FOR NONPAYMENT 1C7
"The defendant further says that the said annual premium was not
paid on or before the twenty-fourth day of January, A. D. 1874, and
thereupon the defendant did give time for the i)ayment of said premi-
um upon the condition named in the note hereinafter mentioned, and
for the payment of said premium did take certain promissory notes
of said Thompson, one of which was as follows:
"$109. New York, Jan'y 24th, 1874.
"Nine months after date, without grace, I promise to pay to the
Knickerbocker Life Insurance Company one hundred and nine dol-
lars, at Mobile, Alabama, value received, in premium on policy No.
2334, which policy is to be void in case this note is not paid at ma-
turity, according to contract in said policy.
"No. 2334 was an error, No. 2331 being intended."
It then avers that the note was not paid when it became due, Oct.
24, 1874, and that by reason thereof the policy became void and of
no effect before the death of the assured.
To these pleas four replications were filed, numbered 2, 3, 4, and
.5, as follows:
"2. That the said policy of insurance was renewed by said defend-
ant on the twenty-fourth day of January, 1874, and continued in force
until Jan. 24, 1875. That the payment of said note at maturity was
not a condition precedent as alleged. That the said Thompson had
the money in hand, was ready and willing and intended to pay said
note, but that before the maturity thereof he was taken violently ill,
and before and at the time the same fell due was in bed, prostrated
by a fatal disease, and in this condition remained until he died on the
third day of November, 1874; that during all this time he was men-
tally and physically incapable of attending to his business, or know-
ing of and performing his obligations, and was non compos mentis;
that the existence of said note was not known to the plaintiff.
"3. That it was, and had been for many years before, and on the
day said note fell due, the uniform usage and custom of said defend-
ant in such cases to give notice of the day of payment to its policy-
holders ; such is and was the uniform usage and custom with all in-
surance companies, and the said defendant had in all cases adopted
and acted on said usage, and in all dealings with said Thompson had
adhered to said usage, and gave notice of the day when such payments
fell due ; yet said defendant in this case failed to give any notice of
the day of payment of said note, notwithstanding they knew said
Thompson was in the city of Mobile, and was sick. Plaintiff' avers
that said Thompson was ready and willing to pay, had said notice
been served as in previous cases, but acting on said usage he was
deceived by want of said notice, and that the plaintiff had no notice
■of the existence of said note, or when the same fell due, wherefore
and whereby said note was not paid.
"4. That on the twenty-fourth day of January, 1874, said policy
•was renewed and entered in full force for one year, to wit, until Jan.
168 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
24, 1875. That said note was for the balance of the premium of
that year, which defendant agreed should be deferred and paid as set
out on said note; that by said ag-reement said poHcy was not to be-
come void on the non-payment of the note alone at maturity as al-
leged in said plea, but was to become void at the instance and elec-
tion of said defendant, and plaintiff avers that said defendant did
not elect to cancel said policy or take any steps to avoid it or give
any notice of such intention during the life of said John Y. Thomp-
son, or since, and still holds said note against said estate of said
Thompson.
"5. And for further replication to the first and second special pleas
by said defendant pleaded, plaintiff says that it was the general usage
and custom adopted by said defendants, and practised by them before
and after the making of said note, not to demand punctual payment
of such premium notes on the days they fell due, but to give days
of grace thereon, to wit, for thirty days thereafter, and the said
defendants had repeatedly so done with said Thompson and others,
and they led said Thompson to believe and rely on such leniency in
this case, and thereby said Thompson was deceived, and said note not
paid, and he did rely on them for such notice."
Demurrers to these replications were sustained by the court. The
case was then tried upon the plea of the general issue. On the re-
jection of evidence at the trial, the same questions presented by the
replications were raised. Exceptions were taken in due form and pre-
served on the record.
There was a judgment for the defendant. The plaintiff thereupon
sued out this writ of error.
Mr. Justice Bradi,ey, after stating the facts, delivered the opinion
of the court.
The questions presented for review in this case arise on the rulings
of the court below on the demurrers of the defendant.
It appears from the special pleas that the policy contained the usual
condition that it should become void if the annual premiums should
not be paid on the day when they severally became due, or if any notes,
given in payment of premiums should not be paid at maturity.
The replications do not pretend that the note given for premium,,
which became due on the twenty-fourth day of October, 1874, was
ever paid, or that payment thereof was ever tendered, either during
the life of Thompson or after his death; but it is contended that
such payment was not necessary in order to avoid the forfeiture
claimed by the defendant.
First, it is contended that the mere taking of notes in payment of
the premium was, in itself, a waiver of the conditional forfeiture r
and for this reference is made to the case of Insurance Co. v. French,
30 Ohio St. 240, 27 Am. Rep. 443. But, in that case, no provision
was made in the policy for a forfeiture in case of the nonpayment
of a note given for the premium, and an unconditional receipt for
EXCC8ES FOR NONPAYMENT 160
the premium had been given when the note was taken ; and this fact
was specially adverted to by the court. We think that the decision
in that case was entirely correct. But in this case the policy does
contain an express condition to be void if any note given in payment
of premium should not be paid at maturity. We are of opinion, there-
fore, that whilst the primary condition of forfeiture for non-payment
of the annual premium was waived by the acceptance of the notes,
yet, that the secondary condition thereupon came into operation, by
which the policy was to be void if the notes were not paid at maturity.
Beside this general answer the plaintiff set up, in her replications,
various excuses for not paying the note in question, which are relied
on for avoiding the forfeiture of the policy.
In the second replication the excuse set up is, that before the note
fell due Thompson became sick and mentally and physically incapable
of attending to business until his death on the third day of November,
1874, and that the plaintiff was ignorant of the outstanding note. We
have lately held, in the case of Klein v. Insurance Co., supra, that
sickness or incapacity is no ground for avoiding the forfeiture of a
life policy, or for granting relief in equity against forfeiture. The
rule may, in many cases, be a hard one ; but it strictly follows from
the position that the time of payment of premiums is material in this
contract, as was decided in the case of Insurance Co. v. Statham, 93
U. S. 24, 23 L. Ed. 789. Prompt payment and regular interest con-
stitute the life and soul of the life insurance business ; and the senti-
ment long prevailed that it could not be carried on without the ability
to impose stringent conditions for delinquency. More liberal views
have obtained on this subject in recent years, and a wiser policy now
often provides express modes of avoiding the odious result of forfei-
ture. The law, however, has not been changed, and if a forfeiture is
provided for in case of non-payment at the day, the courts cannot
grant relief against it. The insurer may waive it, or may by his con-
duct lose his right to enforce it ; but that is all.
The third replication sets up a usage, on the part of the insurance
company, of giving notice of the day of payment, and the reliance of
the assured upon having such notice. This is no excuse for non-
payment. The assured knew, or was bound to know, when his pre-
miums became due. Insurance Co. v. Eggleston, 96 U. S. 572, 24 L.
Ed. 841, is cited in support of this replication. But, in "that case, the
customary notice relied on was a notice designating the agent to whom
payment was to be made, without which the assured could not make
it, though he had the money ready. As soon as he ascertained the
proper agent he tendered payment in due form. It is obvious that the
present case is very different from that. The reason why the insur-
ance company gives notice to its members of the time of payment of
premiums is to aid their memory and to stimulate them to prompt
payment. The company is under no obligation to give such notice,
and assumes no responsibility by giving it. The duty of the assured
170 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
to pay at the day is the same, whether notice be given or not. Banks
often give notice to their customers of the approaching maturity of
their promissory notes or bills of exchange ; but they are not obliged
to give such notice, and their neglect to do it would furnish no excuse
for non-payment at the day.
The fourth replication sets up a parol agreement of defendant made
on receiving the promissory note, that the policy should not become
void on the non-payment of the note alone at maturity, but was to
become void at the instance and election of the defendant, which elec-
tion had never been made. As this supposed agreement is in direct
contradiction to the express terms of the policy and the note itself, it
cannot affect them, but is itself void. We did hold, in Eggleston's
Case, it is true, that any agreement, declafation, or course of action
on the part of an insurance company, which leads a party insured
honestly to believe that by conforming thereto a forfeiture of his
policy will not be incurred, followed by due conformity on his part,
will estop the company from insisting upon the forfeiture. An in-
surance company may waive a forfeiture or may agree not to enforce
a forfeiture ; but a parol agreement, made at the time of issuing a
policy, contradicting the terms of the policy itself, like any other parol
agreement inconsistent with a written instrument made contemporary
therewith, is void, and cannot be set up to contradict the writing. So,
in this case, a parol agreement supposed to be made at the time of
giving and accepting the premium note cannot be set up to contradict
the express^ terms of the note itself, and of the policy under which it
was taken.
The last replication sets up and declares that it was the usage and
custom of the defendants, practised by them before and after the mak-
ing of said note, not to demand punctual payment thereof at the day,
but to give days of grace, to wit, for thirty days thereafter; and they
had repeatedly so done with Thompson and others, which led Thomp-
son to rely on such leniency in this case. This was a mere matter
of voluntary indulgence on the part of the company, or, as the plain-
tiff herself calls it, an act of "leniency." It cannot be justly construed
as a permanent waiver of the clause of forfeiture, or as implying any
agreement to waive it, or to continue the same indulgence for the
time to come. As long as the assured continued in good health, it is
not surprising, and should not be drawn to the company's prejudice,
that they were willing to accept the premium after maturity, and waive
the forfeiture which they might have insisted upon. This was for
the mutual benefit of themselves and the assured, at the time ; and
in each instance in which it happened it had respect only to that par-
ticular instance, without involving any waiver of the terms of the con-
tract in reference to their future conduct. The assured had no right,
without some agreement to that effect, to rest on such voluntary in-
dulgence shown on one occasion, or on a number of occasions, as a
ground for claiming it on all occasions. If it were otherwise, an in-
EXCUSES FOR NONPAYMENT 171
surance company could never waive a forfeiture on occasion of a par-
ticular lapse without endangering its right to enforce it on occasion
of a subsequent lapse. Such a consequence would be injurious to
them and injurious to the public.
But a fatal objection to the entire case set up by the plaintiff is,
that payment of the premium note in question has never been made
or tendered at any time. There might possibly be more plausibility
in the plea of former indulgence and days of grace allowed, if pay-
ment had been tendered within the limited period of such indulgence.
But this has never been done. The plaintiff has, therefore, failed to
make a case for obviating and superseding the forfeituie of the pol-
icy, even if the circumstances relied on had been sufficiently favorable
to lay the ground for it. A valid excuse for not paying promptly on
the particular day is a different thing from an excuse for not paying
at all.
Courts do not favor forfeitures, but they cannot avoid enforcing
them when the party by whose default they are incurred cannot show
some good and stable ground in the conduct of the other party, on
which to base a reasonable excuse for the default. We think that no
such ground has been shown in the present case, and that it does not
come up to the line of any of the previous cases referred to, in which
the excuse has been allowed. We do not accept the position that the
payment of the annual premium is a condition precedent to the con-
tinuance of the policy. That is untrue. It is a condition subsequent
only, the non-performance of which may incur a forfeiture of the
policy, or may not, according to the circumstances. It is always open
for the insured to show a waiver of the condition, or a course of
conduct on the part of the insurer which gave him just and reasona-
ble ground to infer that a forfeiture would not be exacted. But it
must be a just and reasonable ground, one on which the assured has
a right to rely. Judgment affirmed. ^^
15 Existence of war as an excuse for nonpayment of premiums, see New
York Life Ins. Co. v. Statham, ante, p. 140,
172 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
VI. Notice of Premiums Due ^'
MUTUAL LIFE INS. CO. v. COHEN.
(Supreme Court of United States, 1900. 179 U. S. 262, 21 Sup. Ct. 106, 45
L. Ed. 181.)
On writ of certiorari to the United States Circuit Court of Appeals
for the Ninth Circuit to review a decision affirming a judgment for
Hfe insurance.
On June 10, 1885, the petitioner delivered to Alexander Cohen, in
the state of Montana, a life insurance policy for $3,000, conditioned
upon the annual payment of a premium of $89.61. Upon it the in-
sured paid premiums up to and including June 10, 1892. No subse-
quent premiums were paid. On September 21, 1897, he died. His
wife. Tine Cohen, was the beneficiary named in the policy.
The application commenced in these words : "Application for insur-
ance in the Mutual Life Insurance Company of New York, 140 to
146 Broadway, corner of Liberty street, New York city, subject to
the charter of such company and the laws of said state." It further
contained this provision : "That if the insurance applied for be grant-
ed by the company, the policy, if accepted, will be accepted subject
to all the conditions and stipulations contained in the policy." Among
those conditions and stipulations was this : "Notice that each and
every such payment is due at the date named in the policy is given
and accepted by the delivery and acceptance of this policy, and any
further notice, required by any statute, is thereby expressly waived."
On November 9, 1898, this action was commenced in the circuit
court of the United States for the district of Washington.
The single defense was the nonpayment of premiums after June 11,
1892. There was no suggestion of rescission, abandonment, knowl-
edge by the beneficiary of the nonpayment of the premium, or any
refusal or failure on her part in respect to the policy. A demurrer
to the answer was sustained, judgment rendered for the amount of
the policy, less the unpaid premiums, which judgment was affirmed
by the United States Circuit Court of Appeals for the Ninth Circuit
(38 C. C. A. 696, 97 Fed. 985), and thereupon the case was brought
here on certiorari.
Mr. Justice Brewer delivered the opinion of the court.
Alutual L. Ins. Co. v. Phinney, 178 U. S. 327, 44 L. Ed. 1088, 20
Sup. Ct. 906, was an action against the same insurance company, in
the same district, on a policy like the one in controversy here, save
that in that the insured was himself the beneficiary. It resulted in a
16 For discussion of principles, see "Vance on Insurance, §§ 79-SO. See, also,
Cooley, Briefs on the Law of Insurance, vol. 3, p. 2281.
NOTICE OF PREMIUMS DUE 173
judgment in the circuit court against the company. Thereupon the
company sought to transfer it by writ of error to the court of ap-
peals of that circuit, but that court dismissed the writ of error.
Thereafter, on April 19, 1897, a certiorari was' issued by this court.
166 U. S. 721. 17 Sup. Ct. 1004. On examination we held that the
court of appeals erred in dismissing the writ of error, that it had juris-
diction, and that it ought to have reversed the judgment of the circuit
court. The decision was based on the ground of error in the ruling
of the circuit court in respect to rescission and abandonment. In the
opinion we referred to the fact that there was a primary question of
the applicability of a statute of the state of New York, but deemed
it unnecessary to decide it. That decision was followed by the cases
of the same company against Sears (178 U. S. 345, 44 L. Ed. 1096,
20 Sup. Ct. 912; Id., 176 U. S. 683, 20 Sup. Ct. 1032), against Hill
(178 U. S. 347, 44 L. Ed. 1097, 20 Sup. Ct. 914; Id.. 176 U. S. 683,
20 Sup. Ct. 1032), against Allen (178 U. S. 351, 20 Sup. Ct. 913, 44
h. Ed. 1098; Id., 176 U. S. 683, 20 Sup. Ct. 1032)— all of which
cases were disposed of in like manner.
The primary question noticed, but not decided, in those cases is dis-
tinctly and solely presented in this.
The insurance policy contained a stipulation that it should not be
binding until the first premium had been paid and the policy deliv-
ered. The premium was paid and the policy delivered in the state
of Montana. Under those circumstances, under the general rule, the
contract was a Montana contract, and governed by the laws of that
state. Equitable Life Assur. Soc. v. Clements, 140 U. S. 226, 232, sub
nom. Equitable Life Assurance Soc. v. Pettus, 35 L. Ed. 497, 500, 11
Sup. Ct. 822. In that state, there being no statutory provisions to the
contrary, the failure to pay the annual premium worked, in accord
with the terms of the policy, a forfeiture of all claims against the com-
pany.
New York, on the other hand, the state by which the insurance
company was chartered and in which it had its principal office, by
section 1 of chapter 321 of 1877 had enacted —
"Sec. 1. No life insurance company doing business in the state of
New York shall have power to declare forfeited or lapsed any policy
hereafter issued or renewed by reason of nonpayment of any annual
premium or interest, or any portion thereof, except as hereinafter pro-
vided."
The provision referred to, and which is stated at length in the suc-
ceeding part of the section, is one for notice of a special kind and to
be given in a particular way. The section is quoted in full in 178
U. S. 330, 44 L. Ed. 1089. 20 Sup. Ct. 906.
This notice was not given. Hence, if the law of New^ York con-
trols, the policy was still in force and the plaintiff was entitled to re-
prover.
174 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
The question therefore is whether the law of New York controls.
The presumption is in favor of the law of the place of contract.
He who asserts the contrary has the burden of proof. The Xew York
statute does not purport to change any insurance company charter.
On the contrary, its obvious purpose is only to reach business trans-
acted within the state. Proceeding on the accepted principle that a
state may determine the conditions, the meaning, and limitations of
contracts executed within its borders, the language of the statute
reaches contracts made within the state. Undoubtedly a foreign in-
surance company making a contract within the state of New York
would find that contract burdened b}^ its provisions, and equally clear
is it that such company making a contract in another state would be
free from its limitations. There is no indication of an intent on the
part of the legislature of New York to afifect, even if it were possi-
ble, the general powers of a foreign company coming within the state
and transacting business. But on the face of the statute there is no
express demarcation between foreign and local companies. There is
no attempt to say that a foreign company doing business within the
state shall, as to such business, be subject to the prescribed limita-
tions, and that a home company doing business within the state and
elsewhere shall as to all its business be so limited. If we cannot from
the language impute to the legislature an intent to regulate the busi-
ness of a foreign company outside of the state, how can we find in
such language an intent to prescribe limitations upon the contracts of
a home company outside the state? In the absence of an expressed
intent it ought not to be presumed that New York intended by this
legislation to afifect the right of other states to control insurance con-
tracts made within their limits. Can it be that the state of New York,
aware of the fact that other states and other countries might by their
legislation properly prescribe terms and conditions of insurance con-
tracts, meant by this legislation to restrict its local companies from
going into those states and countries and transacting business in com-
pliance with their statutes if in any respect they were found to con-
flict with the regulations prescribed for business transacted at home?
Again, it is worthy of notice that the state of New York has
changed its legislation repeatedly in the last quarfer of a century in
respect to this very matter of notice. See Laws 1876, c. 341, § 1 ;
the statute now under consideration, Laws 1877; Laws 1892, c. 690,
§ 92; Laws 1897, c. 218, § 92. The varying provisions of these stat-
utes, directed in terms, not to local companies, but to companies doing
business in the state of New York, strengthen the conclusion that the
state was not thus changing the several charters of its companies, but
prescribing only that which in its judgment from time to time was the
proper rule for business transacted within the state.
Again, the terms of the act itself tend in the same direction. It
provides for a thirty-day notice. While such a notice might be rea-
sonable as to all policies within the state, yet when it is remembered
NOTICE OF PREMIUMS DUE 175
that some at least of the New York insurance companies are doing
business in all quarters of the globe, it is obvious that a thirty-day
notice in many cases would be of little value.
Further, by section 2 the statute provides that an affidavit by one
authorized to mail the notice shall be "presumptive evidence" of the
giving of the notice. Can it be supposed that the legislature of New
York was contemplating a rule of evidence to be enforced in every
state and nation of the world?
These considerations lead to the conclusion that the statute of New
York, directed as it is to companies doing business within the state,
was intended to be, and is, in fact, applicable only to business trans-
acted within that state.
It is not doubted that a contract by an insurance company of New
York executed elsewhere may by its terms incorporate the law of New
York, and make its provisions controlling upon both the insured and
the insurer. And it is urged that, although there is nothing in the
policy to indicate this, the language of the application has that effect.
It recites that it is "subject to the charter of such company and the
laws of said state;" and the contract refers to the application, and
declares that it is issued "in consideration of the application for this
policy and of the truth of the several statements made therein."
While the contract is based upon the application, yet the latter is only
a preliminary instrument, a proposal on the part of the insured, and
a stipulation that it shall be controlled by the charter and the laws
of the state is not tantamount to a stipulation that the policy issued
thereon shall also in like manner be controlled. That such language
was incorporated into the application is not strange. Its meaning is
clear, and is that no local statute as to the effect of statements or
•representations or any other matter in the application should in these
respects override the provisions of the charter and the laws of New
York. In other words, if by the charter or the laws of New York
any statement in an application is to be taken as a warranty, no local
statute declaring that all statements in an application are to be taken
as simply representations shall override the terms of the charter and
the New York law. But that is very different from a provision that
the contract issued upon such application should also be in all its re-
spects controlled by the laws of New York.
Further, it may be noticed that even if the language justifies a
broader construction it may well mean that only such laws of the
state of New York as are intended to and do change the charters of
the companies, or are intended to have extraterritorial application,
should be considered a part of the policy.
The stipulation in this policy is different from that presented to the
court of appeals of New York in Baxter v. Brooklyn L. Ins. Co., 119
N. Y. 450, 454, 23 N. E. 1048, 1049 (7 L. R. A. 293), which was that
it was "a contract made and to be executed in the state of New York,
and construed only according to the laws of that state." There was
176 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
a direct provision in respect to the contract itself, and thus incor-
porated those laws into its terms.
While authorities on this particular question are not numerous, we
may properly refer to an opinion of the supreme court of Washing-
ton, the state in which this action was brought (Griesemer v. Mutual
L. Ins. Co., 10 Wash. 202, 211, 38 Pac. 1031, 1034) in which, refer-
ring to this special question, and the contention that this very statute
of the state of New York became a part of the contract of the com-
pany in the state of Washington, the court said, on 10 Wash. 206,
207, 38 Pac. 1031:
"It is claimed on the part of the plaintiff that upon its enactment
it became attached to the defendant, it being a corporation organized
under the laws of New York, and effected a change in its charter;
so that every policy thereafter issued by it, whether in the state of
New York or elsewhere, became subject to its provisions. On the
other hand, it is claimed by the defendant that it only affected policies
issued to, or held by, residents of the state of New York; that the
evident object of its enactment was to protect such residents; that to
give it a broader effect would be to convict the legislature of having
discriminated against life insurance companies organized under the
laws of the state.
"We are unable to construe the law in accordance with the conten-
tion of either party. The construction contended for by the defend-
ant is too narrow. The language used is, that 'no life insurance com-
pany doing business in the state of New York shall have power to
declare forfeited or lapsed any policy. * * * ' This language, con-
strued in its ordinary sense, seems to preclude such a narrow con-
struction. Beside, if it were warranted by the language, it would not
be reasonable to suppose that the legislature intended to so limit the
effect of the statute. If it had so intended, it vvou!d have made use
of language which in some manner confined the rights to be affected
by the statute to residents of the state, instead of to companies doing
business therein. While the construction contended for by the plain-
tiff seems to be equally untenable, for the reason that it would convict
the legislature of having sought to accomplish something not in its
power. So construed the act would apply to all policies of any com-
pany which should do business in the state of New York, wherever
issued, regardless of the question as to whether or not it was organ-
ized under its laws. That the legislature of New York could not con-
trol companies not organized under its laws as to their business trans-
acted in other states is too clear for argument. Hence the construc-
tion contended for by respondent would convict the legislature of
having attempted that which it could not do, or of having deliberately
discriminated against its own companies.
"In our opinion the reasonable and ordinary construction of the
language used in the statute is such as to make it applicable to busi-
ness done in the state of New York; and that the question as to
NOTICE OF PREMIUMS DUE 177
whether or not the companies doing such business were organized un-
der its laws, or those of some other state, has no influence upon the
question as to whether or not the statute is applicable. This con-
struction is justified by the language used, and will give force to every
word, while the other will not do so. And since the well-settled rule
as to construction of statutes requires every word to be given force
if possible, it follows that the limitations of the act are impressed upon
all policies issued in the state of New York by either domestic or
foreign companies, and that it has no application to policies not issued
therein, even although the companies issuing them were organized un-
der its laws."
The New York cases cited by counsel throw no light on the ques-
tion. Baxter v. Brooklyn L. Ins. Co., 119 N. Y. 450, 23 N. E. 1048,
7 L. R. A. 293, contained in the contract, as heretofore stated, an ex-
press stipulation of the controlling law. In Carter v. Brooklyn L. Ins.
Co., 110 N. Y. 15, 17 N. E. 396, the question was as to the significance
of the word "renewed" in the section referred to, and it does not ap-
pear where the policy was issued. In Phelan v. Northwestern Mut.
L. Ins. Co., 113 N. Y. 147, 20 N. E. 827, 10 Am. St. Rep. 441, the
statute was held applicable to a foreign insurance company doing busi-
ness in the state of New York, the notice given was held insufficient,
and no question was considered as to the scope of the statute other-
wise. De Frece v. National L. Ins. Co., 136 N. Y. 144, 32 N. E. 556,
was likewise an action against a foreign insurance company, and in-
volved no question like that before us. Rae v. National L. Ins. Co., 9
C. C. A. 215, 20 U. S. App. 410, 60 Fed. 690, was also an action
against a foreign insurance company, and the question was simply
as to the sufficiency of the notice.
We conclude, therefore, that the statute of the state of New York
does not, under the circumstances presented, control, and that the
rights of the parties are measured alone by the terms of the contract.
The insured having failed to pay the premium for years before his
death, the policy was forfeited. The judgment of the Circuit Court
of Appeals will be reversed, and the case remanded to the Circuit Court
of the United States for the District of Washington, with instructions
to set aside the judgment and overrule the demurrer.
CooLET Ins.— 12
178 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
VII. Paid-up Policies and Extended Insurance
17
KNAPP V. HOMCEOPATHIC MUT. LIFE INS. CO.
(Supreme Court of United States, 1886. 117 U. S. 411, 6 Sup. Ct. 807, 29
L. Ed. 960.)
In Error to the Circuit Court of the United States for the District
of Massachusetts.
This was an action brought March 19, 1878, by a citizen of Mas-
sachusetts against a corporation established by the laws of New York,
upon a policy of insurance, by which the company, "in consideration
of the representations made to them in the application for this policy,
which is hereby made a part of this contract, and of the sum of $47.-
40 to them in hand paid by Abby Knapp, wife of Charles L. Knapp,
and of the quarterly payment of a like amount on or before the six-
teenth days of July, October, January, and April, in every year, dur-
ing the continuance of this policy," insured the life of the husband,
for the sole use of the wife, in the amount of $5,000 for the term of
his natural life, beginning on April 16, 1869, payable at the office of
the company in New York to her, if living, in 30 days after notice
and proof of his death. The application declared that "neglect to pay
the premium on or before the day it becomes due shall and will render
the policy null and void, and forfeit all payments made thereon, un-
less otherwise specially provided for in the policy."
The policy contained the following clause : "This policy of in-
surance, after two annual premiums shall have been paid thereon, shall
not be forfeited or become void by reason of the non-payment of pre-
mium ; but the party insured shall be entitled to have it continued in
force for a period to be determined as follows, to-wit : The net value
of the policy when the premium becomes due and is not paid shall be
ascertained according to the 'combined experience' or actuaries' rate
of mortality", with interest at four per cent, per annum. Four-fifths
of such net value shall be considered as a net single premium of tem-
porary insurance, and the term for which it will insure shall be deter-
mined according to the age of the party at the time of the lapse of
premium and the assumptions of mortality and interest aforesaid ;
or at his option may receive a paid-up policy for the full amount of
premium paid: provided, that unless this policy shall be surrendered
and such paid-up policy shall be applied for within ninety days after
such non-payment as aforesaid, then this policy shall be void and of no
effect."
17 For discussion of principles, see Vance on Insurance, § 81. See, also,
Cooley, Briefs on tbe Law of Insurance, vol. 3, pp. 2407-24L'2.
PAID-UP POLICIES AND EXTENDED INSURANCE 179
A trial by jury having been duly waived, the circuit court found the
following facts : The policy was issued April 14, 1869, in the city
of New York, where the husband and wife then lived. It was taken
out by the husband, who signed the application in the wife's name as
her attorney. It was in the possession of the wife in 1871, and of the
husband before and afterwards. The premiums were paid for several
years, mostly by the husband, but one or two by the wife. She lived
apart from her husband nearly all the time after February, 1872. On
January 16, 1874, a premium became due and was not paid. On Feb-
ruary 26, 1874, the husband represented to the company that his wife
was dead. The company believed the representation to be true, and
he surrendered the policy, taking from the company $260 in money,
and a new policy, concerning which the only evidence was that it had
been forfeited before his death, which happened September 17, 1874.
Very soon after his death, the wife sent to the company for informa-
tion about the policy, and her agent was told by the company that it
was forfeited. A considerable time after this, being advised that she
might have some rights under the policy, she gave due notice and proof
of loss, and more than 30 days afterwards brought this action to re-
cover the full amount insured. The net value of the policy when the
non-payment of the premium occurred, if reckoned in the mode point-
ed out in the policy, would have been sufficient to continue it in force
until after the death of the husband. On these facts, the circuit court
ruled, as matter of law, that the policy was forfeited by the neglect to
pay the premiums and to call for a paid-up policy, and rendered judg-
ment for the defendant, and allowed a bill of exceptions tendered by
the plaintiff.
Mr. Justice Gray, after stating the case as above reported, delivered
the opinion of the court.
The canceling of the policy, in consequence of the husband's fraudl-
ulent representation that the wife was dead, had no effect upon her
rights. It is not relied on by the defendant, and there is nothing in
the case to show that it in any way influenced the conduct of the
plaintiff by preventing her from paying the premiums or making the
election required by the policy. The contract of insurance, made and
to be performed in New York, between a corporation and a citizen
of that state, is to be governed by the law of New York. By that law,
in respect to the payment of or the neglect to pay premiums, a mar-
ried woman stands like any other person insured ( Baker v. Union Ins.
Co., 43 N. Y, 283) ; and there is no statute which affects this case.
The decision, therefore, depends upon the true construction of the
non-forfeiture clause in the policy.
The single purpose of this clause is that, after two annual premiums
shall have been paid, a failure to pay any subsequent premium shall
not have the effect of avoiding the whole insurance, but the assured
shall have the right to an insurance for such a sum and such a time
as the premiums already paid would equitably cover. The policy does
180 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
not declare that it shall continue of itself without any act of the assured.
On the contrary, it stipulates that "the party insured shall be entitled
to have it continued in force for a period! to be determined" by as-
certaining, according to certain rules, the net value of the policy at
the time of failure to pay a premium, and making the amount of that
value, considered as a single premium, the basis for determining the
time for which there shall be a temporary insurance for the full
amount of the original policy. It then prescribes an alternative by
which the party insured, "at his option, may receive a paid-up policy
for the full amount of premium paid." In short, the forfeiture of
the policy, by a failure to pay any premium after the first two, is not
absolute, but qualified ; and the party insured is entitled to be insured
according to the sum already paid in premiums, either for the full
amount of the original policy, so long as that sum would pay for it,
or else for the full term of the original policy for such amount as
that sum would pay for. Then follows the proviso "that unless this
policy shall be surrendered and such paid-up policy shall be applied
for within ninety days after such non-payment, as aforesaid, chen this
policy shall be void and of no effect."
It is contended on behalf of the plaintiff that the words "such paid-
up policy" show that this provision refers only to a new insurance de-
termined by the second method, — that is, for the full term of the or-
iginal policy, and for an amount depending upon the sum already paid in
premiums ; and that if the assured does not seasonably apply for such an
insurance, she still remains insured for the full amount for a time com-
puted according to the sum paid. But the proviso does not say that
upon a failure to surrender the original policy, and to apply for a
paid-up policy, the original policy shall stand good for a temporary
insurance; but that it "shall be void and of no effect." The result
of either of the two methods already prescribed for determining the
extent of the insurance is a paid-up policy. According to either meth-
od there is to be no further payment of premium, nor is the original
policy continued in force; but the assured is to have the benefit of
the sum already paid in premiums, by being insured, either for the
amount of the original policy for a time to be determined, or for the
time of the original policy for an amount to be determined. Taking
the whole clause together, it is clear that the assured is to have the
benefit of that sum in one of two ways, at her election, and that elec-
tion must be made within a certain time. As that time expired with-
out any election, or any excuse for not making one, the forfeiture be-
came complete under the express provisions of the policy, and the
circuit court rightly held that the action could not be maintained.
Judgment affirmed.
DUES AND ASSESSMENTS IN MUTUAL BENEFIT SOCIETIES 181
VIII. Dues and Assessments in Mutual Benefit Societies
18
SUPREME LODGE KNIGHTS OF PYTHIAS v. W-lITHERS.
(Supreme Court of United States, 1900. 177 U. S. 260, 20 Sup. Ct. 611,
44 L. Ed. 762.)
In error to the Circuit Court of Appeals for the Fifth Circuit to
review a decision afifirming a judgment in favor of the plaintiff in an
action on a certificate or policy of insurance.
This was an action originally begun in the circuit court of Hale
county, Alabama, by Josephine R. Withers, to recover of the de-
fendant the amount of a certain certificate or policy of insurance upon
the life of her husband.
The case was removed to the circuit court of the United States for
the middle district of Alabama, upon the petition of the defendant
and upon the ground that the Supreme Lodge Knights of Pythias was
a corporation organized by act of Congress, and hence that the con-
troversy arose under the Constitution and laws of the United States.
The case was submitted to a jury upon an agreed statement of facts,
and the court instructed a verdict for the plaintiff in the sum of $3,-
000, the amount of the policy, with interest, upon which verdict a judg-
ment was entered for $3,392.54. The case was taken by writ of
error to the circuit court of appeals, which affirmed the judgment.
59 U. S. App. 177, 89 Fed. 160, 32 C. C. A. 182. Whereupon the de-
fendant sued out a writ of error from this court.
The facts, so far as they are material, are stated in the opinion of
the court.
Mr. Justice Brown delivered the opinion of the court. ^®
The Supreme Lodge Knights of Pythias is a fraternal and benevolent
society, incorporated by an act of Congress of June 29, 1894 (28 Stat.
96, c. 119), as the successor of a former corporation of the same name,
organized under an act approved May 5, 1870. The beneficial or
insurance branch of the order is known as the endowment rank, which
is composed of those numbers of the order who have taken out bene-
fit certificates. Such members are admitted into local subordinate
branches known as sections. The members of each section elect their
own president and secretary. The endowment rank is governed by a
board of control whose officers are a president and secretary, and
whose place of business is in Chicago. The endowment rank is gov-
erned by a constitution and general laws enacted by the Supreme
18 For discussion of principles, see Vance on Insurance, §§ 83-84. See, also,
Cooley, Briefs on tlie Law of Insurance, vol. 3, p. 2373.
10 Part of the opinion is omitted.
182 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
Lodge, and by rules and regulations adopted by the board of control
and approved by the Supreme Lodge.
On January 1, 1883, Robert W. Withers made application for mem-
bership in the endowment rank, and in that application made the fol-
lowing statement : "I hereby agree that I will punctually pay all dues
and assessments to which I may become liable, and that I will be gov-
erned, and this contract shall be controlled, by all the laws, rules, and
regulations of the order governing this rank, now in force, or that
may hereafter be enacted, or submit to the penalties therein contained."
His application was accepted, and, after receiving a certificate under
the first act of incorporation which he voluntarily surrendered, he
received the certificate upon which this action is brought. This cer-
tificate recited the original application for membership dated January
I, 1883, the surrender of the former certificate and the application for
transfer to the fourth class, which were "made a part of this contract,
* * * and in consideration of the payment heretofore to the said
endowment rank of all monthly payments, as required and the full com-
pliance with all the laws governing this right, now in force or that
may hereafter be enacted, and shall be in good standing under said
laws, the sum of $3,000 will be paid by the Supreme Lodge, etc., to
Josephine R. Withers, wife, * * * upon due notice and proof of
death and good standing in the rank at the time of his death, * * *
and it is understood and agreed that any violation of the within-men-
tioned conditions or other requirements of the laws in force govern-
ing this right shall render this certificate and all claims null and void,
and the said Supreme Lodge shall not be liable for the above sum or
any part thereof."
Withers was a member of section 432, at Greensboro, Alabama, of
which one Chadwick was secretary. By the laws of the endowment
rank Withers was required to pay $4.90 monthly in accordance with
his age and the amount of his endowment.
In January, 1894, defendant adopted and promulgated the following
general laws :
''Sec. 4. Monthly payments and dues of members holding, certifi-
cates of endowment shall be due and payable to the secretary of sec-
tion without notice, on the first day of each and every month ; and
a failure to make such payment on or before the 10th day of each
month shall cause, from and after such date, a forfeiture of the cer-
tificate of endowment and all right, title, and interest such member
or his beneficiaries may have in and to the same, and membership
shall cease absolutely. In case of such forfeiture, membership may
be regained by making application in the form prescribed for new
applicants, the payment of required membership fee and surrender
of the forfeited certificate. If approved by the medical examiner-in-
chief and accepted by the board of control, a new certificate shall be
issued, and the rating shall hereafter be at the age of nearest birthday
to the date of the last application."
DUES AND ASSESSMENTS IN MUTUAL BENEFIT SOCIETIES 183
"Sec. 6. The secretary of the section shall forward to the board of
control the monthly payments and dues collected immediately after
the 10th day of each and every month.
"If such payment and dues are not received by the board of control
on or before the last day of the same month the section so failing to
pay, and all members thereof, shall stand suspended from membership
in the Endowment Rank ; and their certificates and all right, title, and
interest therein shall be forfeited. Notice of such suspension shall be
forthwith mailed by the secretary of the board of control to the presi-
dent and secretary of such section.
"Provided, that the section whose membership has forfeited their
endowment, and whose warrant has been suspended, shall regain all
right as a section, and any surviving members thereof (not less than
five) shall regain full rights and privileges held previous to such for-
feiture, if within thirty days from suspension of warrant said section
shall pay to the board of control the amount of all monthly payments,
assessments, and dues accrued upon said members.
"Sec. 10. Sections of Endowment Ranks shall be responsible and
liable to the board of control for all moneys collected by the secretary
or other officers from the members for monthly payments, assessments,
or dues not paid over to the board within the time and manner pre-
scribed by law. Officers of sections are the agents of members, and
shall in no wise be considered as the agents of the representatives of
the board of control or of the Endowment Rank or of the Supreme
Lodge."
For over twelve years Withers made his monthly payments as re-
quired by law to the secretary of the section, and the money was reg-
ularly remitted to the board of control at Chicago. His last payment
was made prior to October 10, 1895, as required by section 4, for the
dues of that month. As there were a large number of members in
the section, and as their dues were not all collected until the latter
part of the month, the secretary of the section did not send the money
to the board of control until October 31, when he mailed to the secre-
tary of that board a check covering all the amounts due by all the mem-
bers of the section for that month. The letter did not leave the post-
office until the next day, and was received by the board of control
November 4. No notice was ever mailed by the board of control to
Withers notifying him of his suspension; but on November 1. as
required by section 6, the secretary of the board of control mailed to
Mr. Chadwick, the secretary of the section at Greensboro, a notice of
the suspension of all members thereof, with an intimation that the
members of the section might regain their rights under certain condi-
tions therein named. No notice was mailed to the president of the
section. In view of the technical character of the defense, it is worthy
of mention that the board of control did not strictly comply with its
own regulation in this particular.
184 THE CONSIDERATION PREMIUMS AND ASSESSMENTS
Upon receiving the remittance, and on November 4, the secretary of
the board .of control mailed the following postal card to the secretary
of the section :
"Office Board of Control,
"Chicago, November 4, 1895.
"Received of Section No. 432 one hundred and thirteen 30-100 dol-
lars in payment of monthly payments and dues for October, 1895, on
condition that all members for whom above payment is made were
living at date of this receipt. H. B. Stolte,
"Secretary Board of Control."
The insured was suddenly taken ill and died of an attack of cholera
morbus on November 1, 1895. Proofs of death were waived by the
defendant, which, however, refused to pay the amount of the x:ertifi-
cate.
It is hardly necessary to say that the defense in this case is an ex-
tremely technical one, and does not commend itself to the average sense
of justice. It ought to be made out with literal exactness. It is ad-
mitted that Withers for twelve years paid all his dues promptly to the
secretary of the section as required by section 4 of the general laws,
and that the failure of the board of control to receive them on or be-
fore the last day of the month was the fault of the secretary, and not
of the insured. The whole defense rests upon the final clause of sec-
tion 10, declaring that "officers of sections are the agents of the mem-
bers and shall in no wise be considered as the agents of the represen-
tatives of the board of control of the Endowment Rank or of the Su-
preme Lodge." It appears to have been the habit of the secretary, Mr.
Chadwick, not to remit each payment as it was made, but to allow all
the dues of each month to collect in his hands and to remit them to-
gether by a check covering the whole amount, about the close of the
month. In this connection he makes the following statement: "It
had never been the custom of my office for me to send the money off
by the twentieth of the month" (although section 6 required him to
forward it immediately after the tenth). "I usually sent the money
off about the last days of the month. For the previous year I had
mailed to the secretary of the board of control the dues of the section
as follows: October 27, 1894, November 28, 1894, December 29, 1894,
January 29, 1895, February 27. 1895, March 30, 1895, April 29, 1895,
June 29, 1895, July 8, 1895, August 29, 1895, September 28, 1895, Octo-
ber 28, 1895, October 31, 1895 — all of which sums were accepted by
the board of control."
The position now taken by the defendant, that in receiving the money
from the insured members, and remitting the same to the board of
control, the secretary of the section was the agent of the insured, and
not of the board of control, is inconsistent with the requirement of sec-
tion 4, which makes it obligatory upon policy holders to pay their
monthly dues to the secretary of the section, and to him only, as well
DUES AND ASSESSMENTS IN MUTUAL BENEFIT SOCIETIES 185
as with the provision of section 10, that "sections of Endowment Rank
shall be responsible and liable to the board of control for all moneys
collected by the secretary, or other officers, from the members for
monthly payments, assessments, or dues not paid over to the board
within the time and manner prescribed by law." The question at once
suggests itself. To whom does the money belong when paid to the
secretary of the section? If to the insured, it was within his power
to reclaim it at any time before it was remitted If to the board of
control, it was the duty of the secretary of the section to remit it.
Why, too, should the board of control attempt to deal with it at all be-
yond requiring it to be paid them by a certain day? Section 10 is a
complete answer since that makes the sections responsible to the board
of control from the moment the money is collected, and section 6
makes it the duty of the secretary to remit it at once.
There seems to have been an attempt on the part of the defendant to
invest Air. Chadwick with the power and authority of an agent, and
at the same time to repudiate his agency. But the refusal to acknowl-
edge him as agent does not make him the less so, if the principal as-
sume to control his conduct. It is as if a creditor should instruct his
debtor to pay his claim to a third person, and at the same time declare
that such third person was not his agent to receive the money. It
would scarcely be contended, however, that such payment would not
be a good discharge of the debt, though the third person never ac-
counted to the creditor ; much less, that it would not be a good pay-
ment as of a certain day, though the remittance, through the fault of
the person receiving it, did not reach the creditor until the following
day.
The position of the secretary must be determined by his actual power
and authority, andl not by the name which the defendant chooses to
give him. To invest him with the duties of an agent, and to deny his
agency, is a mere juggling with words. Defendant cannot thus play
fast and loose with its own subordinates. Upon its theory the policy
holders had absolutely no protection. They were bound to make their
monthly payments to the secretary of the section, who was bound to
remit them to the board of control ; but they could not compel him to
remit, and were thus completely at his mercy. If he chose to play into
the hands of the company, it was possible for him, by delaying his re-
mittance until after the end of the month, to cause a suspension of
every certificate within his jurisdiction ; and in case such remittance
was not made within thirty days from such suspension (section 6) ap-
parently to make it necessary under section 4 for each policy holder
to regain his membership by making a new application, surrendering
his forfeited certificate, making payment of the required membership
fee, undergoing a new medical examination, and paying a premium de-
termined by his age at the date of the last application. In other words,
by the failure of the secretary, over whom he had no control, to remit
within thirty days, every member of the section might lose his rights
186 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
under his certificate and stand in the position of one making- a new
appHcation, with a forfeiture of all premiums previously paid. The
new certificate would, of course, be refused if his health in the mean-
time had deteriorated, and the examining physician refused to approve
his application. This would enable the company at its will to relieve
itself of the burdens of undesirable risks by refusing certificates of
membership to all whose health had become impaired since the orig-
inal certificate was taken out, though such certificate-holder may have
been personally prompt in making his monthly payments.
It could not thus clothe the secretaries of the sections with the pow-
ers of agents by authorizing them to receive monthly payments and
instructing them to account for and remit them to the Supreme Lodge
at Chicago, and in the same breath deny that they were agents at
all. The very definition of an agent, given by Bouvier, as "one who
undertakes to transact some business, or manage some afifair, for an-
other, by the authority and on account of the latter, and to render an
account of it" presupposes that the acts done by the agent shall be done
in the interest of the principal, and that he shall receive his instruc-
tions from him. In this case the agent received his instructions from
the Supreme Lodge, and his actions were, at least, as much for the
convenience of the lodge as for that of the insured. If the Supreme
Lodge intrusted Chadwick with a certain authority, it stands in no
position to deny that he was its agent within the scope of that au-
thority.
The reports are by no means barren of cases turning upon the prop-
er construction of this so-called "agency clause," under which the de-
fendant seeks to shift its responsibility upon the insured for the neg-
lect of Chadwick to remit on the proper day. In some jurisdictions
it is held to be practically void and of no efifect ; in others, it is looked
upon as a species of wild animal, lying in wait and ready to spring
upon the unwary policy holder, and in all, it is eyed with suspicion and
construed with great strictness. We think it should not be given ef-
fect when manifestly contrary to the facts of the case, or opposed to
the interests of justice. Wherever the agency clause is inconsistent
wath the other clauses of the policy, conferring power and authority
upon the agent, he is treated as the agent of the company rather than
of the policy holder. The object of the clause in most cases is to
transfer the responsibility for his acts from the party to whom it prop-
erly belongs, to one who generally has no knowledge of its existence.
It is usually introduced into policies in connection with the applica-
tion, and for the purpose of making the agent of the company the
agent of the party making the application, with respect to the state-
ments therein contained. * * *
In Patridge v. Commercial F. Ins. Co., 17 Hun (N. Y.) 95, it was
said of the agency clause: "This is a provision which deserves the
condemnation of courts, whenever it is relied upon to work out a fraud,
as it is in this case. The policy might as well say that the president
DUES AND ASSESSMENTS IN MUTUAL BENEFIT SOCIETIES 187
of the company should be deemed the president of the assured.
* * * Such a clause is no part of a contract. It is an attempt to
reverse the law of agency, and to declare that a party is not lx)und
by his agent's acts. Whether one is an agent of another is a question
of mixed law and fact, depending on the authority given expressly
or impliedly. And when a contract is, in fact, made through the agent
of a party, the acts of that agent in that respect are binding on his
principal." * * *
Speaking of the agency clause in Continental Ins. Co. v. Pearce,
39 Kan. 396, 18 Pac. 291, 7 Am. St. Rep. 557, it is said: "This is
but a form of words to attempt to create on paper an agency which
in fact never existed. It is an attempt of the company not to restrict
the powers of its own agent, but an effort to do away with that re-
lation altogether by mere words, and to make him in the same manner
the agent of the assured, when, in fact, such relation never existed.
* * * We do not believe the entire nature and order of this well-
established relation can be so completely subverted by this ingenious
device of words. The real fact, as it existed, cannot be hidden in this
manner ; much less can it be destroyed and something that did not in
reality exist be placed in its stead. The substance is superior to the
mere drapery of words with which one party wishes to bring into ex-
istence and clothe an unreal authoritv." See also Kausal v. Minnesota
Farmers' Mut. F. Ins. Asso., 31 Minn. 17, 16 N. W^ 430, 47 Am. Rep.
776, in which the act of an insurance agent in making out an incorrect
application was held chargeable to the insurer, and not to the insur-
ed, notwithstanding the insertion of an agency clause in the policy.
In Planters' Ins. Co. v. ]\Iyers, 55 Miss. 479, 30 Am. Rep. 521, an
agency clause in a policy of insurance was held to be void, as involv-
ing a legal contradiction. The applicant made truthful answers to
certain interrogatories propounded by the agent, who stated certain
things that were not true. They were held not to be binding upon the
insured. * * *
The case of Schunck v. Gegenseitiger Wittwen und Waisen Fond,
44 Wis. 369, is almost precisely like the instant case. The constitu-
tion of the defendant corporation, whose governing body or directory
was elected by the several "groves" (corresponding to the sections in
this case) of the United Ancient Order of Druids, declared that every
member whose assessment was not paid by his grove to the directory
within thirty days after demand made forfeited his claim to have a
certain sum in the nature of life insurance paid to his widow, or heirs,
after his death. It was held that, in view of all the provisions of such
constitution, the benevolent object of the corporation, and the fact that
the several groves are, at least, as much its agents to collect and pay
over the dues of their members, as they are agents of the latter, in
case of a member whose dues have been fully paid to his grove at
the time of his death, the amount of insurance might be recovered, not-
188 THE CONSIDERATION — PREMIUMS AND ASSESSMENTS
withstanding a default of the grove in paying over such dues to the
defendant.
The agency clause was also once before this court in the case of
Grace v. American C. Ins. Co., 109 U. S. 278, 27 L. Ed. 932, 3 Sup.
Ct. 207, in which a clause in the policy that the person procuring the
insurance to be taken should be deemed the agent of the assured and
not of the company, was held to import nothing more than that the
person obtaining the insurance was to be deemed the agent of the in-
sured in the matters immediately connected with the procurement of
the policy, and that, where his employment did not extend beyond the
procurement of the insurance, his agency ceased upon the execution
of the policy, and subsequent notice to him of its termination by the
company was not notice to the insured.
In the following cases the officers of the subordinate lodge, or con-
clave, were treated as the agents of the Supreme Conclave in the
matter of granting extensions of time for the payment of assessments :
\Vhiteside v. Supreme Conclave I. O. of H. (C. C.) 82 Fed. 275;
Knights of Pythias of the World v. Bridges, 15 Tex. Civ. App. 196,
39 S. W. 333.
In the case under consideration it may be immaterial, except as
bearing upon the equities of the case, that the agency clause was in-
troduced into the general laws of the order in January, 1894, eleven
years after the first certificate was issued to the assured, and nearly
nine years after the certificate was issued upon which suit was brought.
There is no evidence that it was ever called to Withers' attention, or
that he had actual knowledge of it. If he were bound at all, it could
only be by the stipulation in his original application, and by the terms
of his certificate that "he would be bound by the rules and regulations
of the order, now in force or that may hereafter be enacted." All
that is required of him is a full compliance with such laws, and there
is not the slightest evidence that he failed personally in any particular
to comply with any laws of the order, present or future. The only
failure was that of the secretary of the section, who, to say the least,
was as much the agent of the order as he was of Withers, although
the latter is sought to be charged with his dereliction by a clause in-
serted in the general laws, long after the certificate was issued. The
decisive consideration is this: Chadwick was the agent of the defend-
ant, and of the defendant only, after the receipt of the money from
Withers. Under section 10 he then became responsible for it to the
board of control. In rendering his monthly accounts and paying over
the money he acted solely for the defendant. From the time he paid
the money to Chadwick the insured had no control over him, and was
not interested in its disposition. Unless we are to hold the insured
responsible for a default of this agent, which he could not possibly
prevent, we are bound to say that his payment to this agent discharged
his full obligation to the defendant. That it should have the power
DUES AND ASSESSMENTS IN MUTUAL BENEFIT SOCIETIES 189
of declaring that the default of Chadwick, by so much as one day
(and it did not exceed four days in this case), to pay over this mon-
ey, should cause a forfeiture of every certificate within his jurisdic-
tion, is a practical injustice too gross to be tolerated. * * *
The judgments of the Circuit Court and of the Court of Appeals
Avere right, and they are therefore affirmed.-"
2 Effect of subsequent by-laws changing rate of assessment, see Rey-
nolds V. Supreme Council Royal Arcanum, ante, p. 132.
190 THE CONSENT OF THE PARTIES — CONCEALMENT
THE CONSENT OF THE PARTIES— CONCEALMENT
I. What must be Disclosed.^
PENN MUT. LIFE INS. CO. v. MECHANICS' SAVINGS
BANK & TRUST CO.
(Circuit Court of Appeals of United States. Sixth Circuit, 1S96. 72 Fed. 413,
19 C. C. A. 286, 38 L. R. A. 33.)
In Error to the Circuit Court of the United States for the Middle
District of Tennessee.
This action was on a pohcy of insurance for $10,000 issued Decem-
ber 2, 1892, by the Penn Mutual Life Insurance Company to John
Schardt, on his own life. Schardt died April 17, 1893, during the
currency of the policy. Just before his death he had assigned the
policy to the Mechanics' Savings Bank of Nashville, to secure a
large debt owed by him to the bank. Since his death the bank has
made a general assignment for the benefit of creditors to J. J. Pryor,
for whose benefit, as assignee, this suit was brought. The trial resulted
in a judgment for the full amount of the policy and interest, in favor
of the plaintifif below, and the insurance company brings the judg-
ment here for review on writ of error.
Schardt's salary as teller was $1,500, and he had but a small
amount of property. When he died in April, 1893, he had $80,000
of insurance on his life, nearly all of which had been written within
six months. It was conceded that, for more than a year prior to
his death, Schardt had been constantly embezzling the funds of his
bank, and that his indebtedness to the bank thus criminally incurred
amounted at the time of the application for this policy to little less
than $100,000, and at his death exceeded that sum. He did not dis-
close the fact of his crime to the defendant at the time of his ap-
plication, or at any other time. His death in April, 1893, was
caused by congestion of the brain and other vital organs, caused by
the mental strain which a disclosure of his crime brought on.
The defendant requested the court to instruct the jury to bring
in a verdict for the defendant because it appeared by the undisputed
evidence that Schardt's warranties of the truth of certain repre-
sentations in regard to facts material as a matter of law had been
broken, and the policy avoided. Defendant asked the same instruc-
tion on the ground that Schardt had concealed from it and its
1 For discussion of principles, see Yance on Insurance, §§ 90-92. See,
also, Cooley, Briefs on the Law of Insurance, vol. 2, p. 1203; vol. 3, p. 2007.
WHAT MUST BE DISCLOSED 191
agents the fact that he was an embezzler in the sum of $100,000, —
a fact claimed to be material to the risk, as a matter of law. These
requests were refused by the trial court.
Before Taft and Lurton, Circuit Judges, and Hammond, Dis-
trict Judge.
Taft, Circuit Judge. ^ * * * 'j^j^g j-j-j^j court held, against the
objection of defendant, that, when Schardt was asked what his oc-
cupation was, he answered truly that he was a bank teller, and
that the scope of the question was not such as to require him to
add that he was an habitual embezzler. We concur in this view.
Neither the company nor Schardt could have thus understood the
question. The embezzling was merely misfeasance in his position
as teller. He was an unfaithful bank teller. But nothing in the
question called upon him to say whether he was a good or bad
bank teller. In New York Bowery Fire Ins. Co. v. New York
Fire Ins. Co., 17 Wend. (N. Y.) 359, the issue was whether a
contract of reinsurance was avoided by the failure of the company
seeking reinsurance to communicate to the reinsurer facts known
to it reflecting on the character of the original insured. The su-
preme court of New York held that it was, but in doing so ex-
pressed, through Justice Bronson, its opinion of what the duty of
the original insured was in this regard. * * *
Justice Bronson's discussion related to the disclosure of a fact
not inquired about, and the rule there laid down was, of course,
not intended to relieve an applicant from answering questions put to
him, which, in their necessary scope, require statements from him
which relate to his moral character. Nevertheless the reasoning of
the court justifies the conclusion that the insured is not called upon
to construe a simple question concerning his ordinary vocation into
one calling for a statement of crimes or misfeasances of which he
may have been guilty in pursuing such vocation. Then it is said
that he had expressly warranted that, in his statements and answers
in this application, no circumstances or information had been with-
held touching his past and present state of health and habits of
life, with which the Penn Mutual Life Insurance Company ought
to be made acquainted, and that his habit of embezzling should
have been communicated, to comply with that warranty. We are
of opinion that these words refer to questions and answers in the
application, and are equivalent to a warranty that the answers to
the questions are full and complete. The habits of life referred
to are those inquired about in the medical examination, and are
those which have a direct relation to physical health, and could
not be construed to refer to thefts or embezzlements of which the
applicant may have been guilty, and concerning which no inquiry was
made.
2 Part of the opinion is omitted and the statement of facts is rewritten.
192 THE CONSENT OF THE PARTIES CONCEALMENT
But, even if Schardt was not required by any specific question ^'O
disclose the fact of his embezzlements, the policy would still be
avoided, if it were material to the risk, and he intentionally con-
cealed it from the company. This is not controverted. The issue
of law between the parties is whether the policy would not be
avoided, even if his failure to disclose it were due, not to fraudulent
intent, but to mere inadvertence, or a belief that it was not material.
It is insisted for the plaintiff in error that the motive or cause of
the nondisclosure is unimportant, if the fact be found material to
the risk, and was known to the insured when he obtained the in-
surance. The trial court took the other view, and instructed the
jury accordingly. If this were a case of marine insurance, the con-
tention for the plaintiff in error must certainly be sustained.
The great and leading case on the subject is that of Carter v.
Boehm, 3 Burrows, 1905, where Lord Mansfield explained the effect
of concealment of material facts in insurance to avoid the policy.
He said : "Insurance is a contract upon speculation. The special
facts upon which the contingent chance is to be computed lie most
commonly in the knowledge of the insured only. The underwriter
trusts to his representations, and proceeds upon confidence that he does
not keep back any circumstance in his knowledge to mislead the
underwriter into a belief that the circumstance does not exist, and
to induce him to estimate the risk as if it did not exist. The keeping
back such a circumstance is a fraud, and therefore the policy is
void. Although the suppression should happen through mistake,
without any fraudulent intention, yet still the underwriter is de-
ceived, and the policy is void, because the risk run is really different
from the risk understood and intended to be run at the time of the
agreement."
Carter v. Boehm was the case of insurance of a fort and ware-
house in the East Indies against capture by the enemy; and, al-
though not strictly a case of marine insurance, it has usually been
treated as such, because of the resemblance of the risk, in its specu-
lative character, to that of a merchant vessel in time of war. That
it states the rule enforced by the courts of this country in cases
of marine insurance is established by many decisions. Perhaps the
one most recently considered by the supreme court of the United
States was a case of reinsurance of a marine risk. Sun Mut. Ins.
Co. V. Ocean Ins. Co., 107 U. S. 485, 1 Sup. Ct. 582, 27 L. Ed. 337.
The very marked difference between the situation of the parties
in marine insurance and that of parties to a fire or life policy has
led many courts of this country to modify the rigor of the doctrine
in its application to fire and life insurance, and to lean towards the
view that no failure to disclose a fact material to the risk, not in-
quired about, will avoid the policy, unless such nondisclosure was
with intent to conceal from the insurer a fact believed to be material ;
that is, unless the nondisclosure was fraudulent. In marine insur-
WHAT MUST BE DISCLOSED 193
ance the risk was usually tendered and accepted when the vessel
was on the high seas, where the insurer had no opportunity to ex-
amine her, or to know the particular circumstances of danger to
which she might be exposed. The risk in such a case is highly
speculative, and it is manifestly the duty of the insured to advise
the insurer of every circumstance within his knowledge from which
the probability of a loss can be inferred, and he cannot be permitted
to escape the obligation by a plea of inadvertence or negligence. In
cases of fire and life insurance, however, the parties stand much
more nearly on an equality. The subject of the fire insurance is
usually where the insurer can send its agents to give it a thorough
examination, and determine the extent to which it is exposed to
danger of fire from surrounding buildings, or because of the plan
or material of its own structure. The subject of life insurance is
always present for physical examination by medical experts of the
insurer, who often acquire, by lung and heart tests, and by chemical
analysis of bodily excretions, a more intimate knowledge of the
bodily condition of the applicant than he has himself.
Then, too, the practice has grown of requiring the applicant for
both fire and life insurance to answer a great many questions care-
fully adapted to elicit facts which the insurer deems of importance
in estimating the risk. In life insurance, not only is the applicant
required to answer many general questions concerning himself and
his ancestors, but he is also subjected to an extended examination
concerning his bodily history. This was true in the case at bar.
When the applicant has fully and truthfully answered all these ques-
tions, he may rightfully assume that the range of the examination
has covered all matters within ordinary human experience deemed
material by the insurer, and that he is not required to rack his
memory for circumstances of possible materiality, not inquired about,
and to volunteer them. He can only be said to fail in his duty to
the insurer when he withholds from him some fact which, though
not made the subject of inquiry, he nevertheless believes to be ma-
terial to the risk, and actually is so, for fear it would induce a re-
jection of the risk, or, what is the same thing, with fraudulent intent.
A strong reason why the rule as to concealment should not be
so stringent in cases of life insurance as in marine insurance is that
the question of concealment rarely, if ever, arises until after the
death of the applicant, and then the mouth of him whose silence
and whose knowledge it is claimed avoid the policy is closed. The
application is generally prepared, and the questions are generally
answered, under the supervision of an eager life insurance solicitor.
Only the barest outlines of the conversations between the applicant
and the solicitor are reduced to writing. The applicant is likely to
trust the judgment of the solicitor as to the materiality of everything
not made the subject of express inquiry, and, with the solicitor's
CooLEY Ins. — 13
194 THE CONSENT OF THE PARTIES CONCEALMENT
Strong motive for securing the business, there is danger that facts
communicated to him may not find their way into the appHcation.
With respect to a contract thus made, it is clearly just to require
that nothing but a fraudulent nondisclosure shall avoid the policy.
Nor does this rule result in practical hardship to the insurer, for
in every case where the undisclosed fact is palpably material to the
risk the mere nondisclosure is itself strong evidence of a fraudulent
intent. Thus, if a man, about to fight a duel, should obtain life in-
surance without disclosing his intention, it would seem that no argu-
ment or additional evidence would be needed to show the fraudulent
character of the nondisclosure. On the other hand, where men may
reasonably differ as to the materiality of a fact concerning which
the insurer might have elicited full information, and did not do so,
the insurer occupies no such position of disadvantage in judging of the
risk as to make it unjust to require that before the policy is avoided it
shall appear, not only that the undisclosed fact was material, but
also that it was withheld in bad faith. To hold that good faith is
immaterial in such a case is to apply the harsh and rigorous rule of
marine insurance to a class of insurance contracts dififering so ma-
terially from marine policies in the circumstances under which the
contracting parties agree that the reason for the rule ceases. The
authorities are not uniform, and we are able to take that view
which is more clearly founded in reason and justice. In England,
the tendency of the courts has been to hold that the same rules apply
to fire and life insurance as to marine insurance, in reference to the
efifect of the concealment of material facts. * * *
Coming now to the American authorities, we find very early in
reported cases a disposition to depart from the strict rules of marine
insurance law in the consideration of fire and life policies. In Loan
Co. V. Snyder, 16 Wend. 481, 30 Am. Dec. 118, Chancellor Wal-
worth, delivering the opinion of the supreme court of errors of
New York, refers to the peculiar rule of construction applied to
that "anomalous and informal instrument called a 'marine policy,' "
and expresses the opinion that it is not to be applied in its strict-
ness to fire policies. The same view is expressed in Jolly's Adm'rs
V. Baltimore Equitable Soc, 1 Har. & G. 295, 18 Am. Dec. 288,
by the court of appeals of Maryland.
In Burritt v. Insurance Co., 5 Hill, 188, 192 (40 Am. Dec. 345),
Bronson, J., speaking for the supreme court of New York, after
referring to the rule by which nondisclosure of material facts avoids
a marine policy, although no inquiry be made, and although it is
the result of innocent mistake or inadvertence, said: "But this doc-
trine cannot be applicable — at least, not in its full extent — to policies
against fire. If a man is content to insure my house without taking
the trouble to inquire of what materials it is constructed, how it is
situated in reference to other buildings, or to what uses it is ap-
plied, he has no ground for complaint that the hazard proves to
WHAT MUST BE DISCLOSED 195
be greater than he had anticipated, unless I am chargeable with
some misrepresentation concerning the nature or extent of the risk.
It is therefore the practice of companies which insure against fire to
make inquiries of the assured, in some form, concerning all such
matters as are deemed material to the risk, or which may afifect the
amount of premium to be paid. This is sometimes done by the
conditions of insurance annexed to the policy, and sometimes by re-
quiring the applicant to state particular facts in a written application
for insurance. When thus called upon to speak, he is bound to make
a true and full representation concerning all the matters brought to
his notice, and any concealment will have the like effect as in the
case of a marine risk."
The use of "concealment," in this last passage, should be re-
marked. It means there a failure fully to answer a question put.
* * * It is not a mere silence upon a matter not made the sub-
ject of inquiry. It is necessary to determine in which sense the word
is used in decided cases, before their bearing on the present question
can be clearly understood. Here we are considering only the duty
of the insured in respect to something not inquired about. The su-
preme court of the United States, in Clark v. Insurance Co., 8
How. 235, 249, 12 L. Ed. 1051, suggests a distinction between fire
and marine insurance, in reference to the obligation of the insured
to speak when not inquired of, and cites in support of it the Mary-
land and New York cases just referred to. * * *
In Insurance Co. v. Harmer, 2 Ohio St. 452, 59 Am. Dec. 684,
which was a fire insurance case, the defense was made that, previous
to the issuing of the policy, there had been a fire in the insured
premises, which had not been disclosed to the insurer. The court
charged the jury that, if they found the circumstance to be ma-
terial to the risk, the policy was void, "whether concealment re-
sulted from fraud, accident, or mistake." Judge Ranney — one of
Ohio's greatest judges — presided at the circuit in this cause, and
delivered the opinion of the supreme court. In the supreme court
he expressed the view that he was in error in his charge, in thus
enforcing the rule of marine insurance in a fire insurance case. Such
an expression of opinion was not necessary to the conclusion in the
case, but the high standing of the judge gives great weight to even
his obiter dictum. He said: "It is not now true, whatever may
be thought of the older authorities, that there is no difference in
this respect [i. e. as to the rule of concealment] between marine and
fire insurance, nor that a failure to disclose every fact material to
the risk, upon which information is not asked for, or suppressed
with a fraudulent intent, will avoid a policy of the latter description.
The reason of the rule, and the policy in which it was founded, in
its application to marine risks, entirely fail when applied to fire
policies. In the former the subject of insurance is generally beyond
the reach, and not open to the inspection, of the underwriter, often
19G THE CONSENT OF THE PARTIES CONCEALMENT
in distant ports or upon the high seas, and the pecuHar perils to
which it may be exposed, too numerous to be anticipated or inquired
about, known only to the owners and those in their employ; while
in the latter it is, or may be, seen and inspected before the risk is
assumed, and its construction, situation, and ordinary hazards as
well appreciated by the underwriter as the owner. In marine in-
surance the underwriter, from the very necessities of his undertak-
ing, is obliged to rely upon the assured, and has therefore the right
to exact a full disclosure of all the facts known to him which may
in any way affect the risk to be assumed. But in fire insurance no
such necessity for reliance exists, and, if the underwriter assumes
the risk without taking the trouble to either examine or inquire, he
cannot very well, in the absence of all fraud, complain that it turns
out to be greater than he anticipated. And so are the latest and
best authorities." * * *
The number of life insurance cases in which the question has arisen
is small. In Rawls v. Insurance Co., 27 N. Y. 287, 84 Am. Dec. 280,
the court of appeals held that, where an applicant for life insur-
ance fully and truly answered all questions put to him by the com-
pany, the mere omission to state matter, though material to the risk,
would not be a concealment, and would not affect the validity of
the policy, because the applicant might presume that the insurer had
questioned him on all subjects which he deemed material. In Mal-
lory V. Insurance Co., 47 N. Y. 52, 57, 7 Am. Rep. 410, the same
court sustained a charge to the jury, that, if the applicant did not
conceal any fact which, in his own mind, was material in making
the application, the policy was not void. See, also, Cheever v. In-
surance Co., 4 Am. Law Rec. 155.
In Vose V. Insurance Co., 6 Cush. (Mass.) 42, the supreme ju-
dicial court of Massachusetts announced the principle, as applicable
to life policies, that the concealment of a material fact will avoid
the policy, though it is the result of accident or negligence, and not
of design. The case did not call for the application of such a prin-
ciple. The applicant was asked if he was afflicted with any disease.
He answered that he was not. At the time he had consumption,
and had experienced several of the premonitory symptoms. His
answers were made the basis of the policy. It is probable that the
term "concealment," as used in this case, refers to an incomplete
answer to a general question, rather than a failure to volunteer a
fact not asked for, because the court uses in the opinion language
which is incorporated in the headnote as follows: "It is the duty of
the insured to disclose all material facts within his knowledge. Al-
though specific questions, applicable to all men, are proposed by the
insurers, yet there may be particular circumstances affecting the in-
dividual to be insured, which are not likely to be known to the in-
surers; and the concealment of a material fact, when a general
question is put by the insurers, at the time of eft'ecting the policy,
which would elicit that fact, will vitiate the policy."
WHEN FACTS CONCEALED ARE TO BE DEEMED MATERIAL 197
r,ut, whatever the effect of this case, we think the mo lern tend-
ency, 'even of Massachusetts decisions, is to require that a non-
disclosure of a fact not inquired about shall be fraudulent, before
vitiating the i:olicy ; and, as already stated, this view is founded
on the better reason. The subject is by no means as clear, upon
the authorities, as could be wished, and the text writers find much
difficulty in reconciling the cases. May, Ins. (3d. Ed.) §§ 202, 203,
207. We hold that the charge of the circuit court upon this question
was correct. * * * Reversed.*
II. When Facts Concealed are to be Deemed Material *
MASCOTT V. FIRST NAT. FIRE INS. CO.
(Supreme Ci.urt of Vermont, 1S96. 69 Vt. 116, 37 Atl. 255.)
Assumpsit by Fred E. Mascott and wife against the First National
Fire Insurance Company on a fire insurance policy. At the close of
the testimony defendant moved for a verdict, and, the motion being
denied, did not desire to go to the jury on any issue of fact. The
court then directed a verdict, and rendered judgment thereon, for
plaintiff, and defendant excepts.
Start, J.^ The action is assumpsit upon a fire insurance contract,
by which the plaintiffs were insured in the sum of $960 on their
two-story frame building, occupied for a storehouse and paint shop.
The policy contained the following provision : "This entire policy shall
be void if the insured has concealed or misrepresented, in writing or
otherwise, any material fact or circumstance concerning this insur-
ance, or the subject thereof; or if the interest of the insured in
the property be not truly stated herein." * * *
The clause in the policy against concealment and misrepresentation
provides that the entire policy shall be void if the insured has con-
cealed or misrepresented, in writing or otherwise, any material fact
or circumstance concerning the insurance, or the subject thereof;
or if the interest of the insured in the property be not truly stated
therein. There was a mortgage of $200 on the property, and this
fact was not represented to the defendant at the time the policy was
issued; and it is insisted by the defendant that this was a conceal-
ment of a material fact. The evidence tended to show that the
property was worth $2,500. It did not appear on trial in the court
below that any written application for the policy was made by the
3 The judgment was reversed ou the grouiul of error in the exclusion of
certain evidence.
4 For discussion of principles, see Vance on Insurance, §§ 93, 94.
6 Fart of the opinion is omitted.
198 THE CONSENT OP THE PARTIES CONCEALMENT
insured, nor that the agent of the company made any inquiry as to
incumbrance.
The terms of the condition rehed upon by the defendant are not
those which would naturally direct the attention of the insured to
the necessity of disclosing incumbrances upon the property, or sug-
gest that they were material to the risk. A concealment of a fact
not material would not avoid the policy. The question of whether
the policy shall be void by reason of concealment or misrepresentation
is, by the terms of the policy, made to depend upon their materiality.
The fact that there is a mortgage for $200 would not seem to be
material in effecting an insurance for $960. The defendant did not
desire to go to the jury upon the question of whether such con-
cealment was material, and we cannot, in view of the holding of
the court below, assume that it was. As neither party desired to
go to the jury on any issue of fact, it was for the court to direct
a verdict on such a state of facts as it regarded proved by the evi-
dence, and the verdict will be upheld if there is any evidence to
sustain it. Robinson v. Larabee, 58 Vt. 652, 5 Atl. 512.
The evidence tended to show that, if there was concealment or
misrepresentation, it was not material. The insured were the owners
of the property, notwithstanding there was a small mortgage thereon ;
and under the findings of the court below it must be held that there
was no material misrepresentation or concealment respecting such
ownership by reason of the undisclosed mortgage. If the company
had intended that the policy should be void if the insured omitted
to mention incumbrances, it could have made that intention clear
by inserting the word "incumbered," instead of leaving it for the
insured to conjecture respecting the materiality of facts and cir-
cumstances. The insured might well regard the existence of a small
mortgage upon their property an immaterial fact, inasmuch as their
attention was not directed to the subject of incumbrance by the de-
fendant's agent or by the policy.
A misrepresentation in insurance is a statement of something as
a fact which is untrue, and which the insured states knowing it
to be untrue, or which he states positively as true without knowing
it to be true, with intent to deceive, and which has a tendency to
mislead, such fact in either case being material ; and the materiality
of a representation or concealment is a question for the jury. Daniels
V. Insurance Co., 12 Cush. (Mass.) 416. 59 Am. Dec. 192; Clark v.
Insurance Co., 40 N. H. 333, 77 Am. Dec. 721. Concealment, ac-
cording to the law of insurance, is a designed and intentional with-
holding of any fact material to the risk which the assured ought
in honesty and good faith to communicate ; and any fact is material,
the knowledge or ignorance of which would materially influence the
insurer in making the contract at all, or in estimating the degree and
character of the risk, or in fixing the rate of insurance. Clark v.
Insurance Co., supra. * * * Affirmed.
CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES 199
THE CONSENT OF THE PARTIES— REPRESENTA-
TIONS AND WARRANTIES
I. The Nature and Effect of Representations ^
FREEDMAN v. FIRE ASS'N OF PHILADELPHIA.
(Supreme Court of Pennsylvania, 1895. 168 Pa. 249, 32 Atl. 39.)
Action by R. Freedman against the Fire Association of Philadel-
phia. Judgment for plaintiff. Defendant appeals.
Fell, J.^ The policy of insurance upon which suit was brought
was upon a stock of general merchandise in a country store. It
was insured as the property of R. Freedman. It was owned by
Rosa Freedman, a married woman, and was in charge of her brother-
in-law, Louis Freedman, who conducted the business at the store.
She resided with her husband, some 50 miles distant from the
place where the business was carried on, and gave it no supervision
whatever. The evidence at the trial was uncontradicted that the
insurance had been procured by her agent on the representation made
to the agent of the insurance company that "R. Freedman was a suc-
cessful business man," and that the policy was issued under the
belief based upon representations made that the company was
insuring a stock of goods owned by a business man, who was per-
sonally conducting the business, and that the risk would not have
been accepted had the truth been known. It was also undisputed
that the agents of the company had no knowledge that the repre-
sentations were incorrect until after the loss.
The jury was instructed that, if the defendant accepted the risk
because of these representations, and would not otherwise have done
so, the policy was void because of the fraud practiced. It was
clearly an imposition upon the company to procure a policy upon the
representation that the property insured was owned by and in charge
of a successful business man, when in fact the title was in a married
woman, who exercised no supervision over it. The actual business
risk because of the want of personal supervision by the owner and
the moral risk were both greater. Whether greater or less, they
were different. It was important to the company to know whose
1 For discussion of principles, see Vance on Insurance, §§ 98. 99. See, also,
Cooley. Briefs on the Law of Insurance, vol. 2, pp. 1120, 1232; vol. 3, pp.
1926, "2023.
2 Part of the opinion is omitted.
200
CONSENT OP PARTIES REPRESENTATIONS AND WARRANTIES
property it was insuring, in whose charge it was, and every fact
which affected the risk ; and any fraud or imposition in these matters
went directly to the foundation of the contract. * * * Reversed.^
SEAL V. FARMERS' & MERCHANTS' INS. CO.
(Supreme Court of Nebraska, 1899. 59 Neb. 253, 80 N. W. 807.)
Action by Lydia G. Seal against the Farmers' & ^lerchants' In-
surance Company. Judgment for defendant. Plaintiff brings error.
Sui^uvAN, J. This was an action by Lydia G. Seal against the
Farmers' & Merchants' Insurance Company to recover on a fire policy.
The jury, in obedience to a peremptory instruction, found the issues
in favor of the defendant, and, a motion for a new trial having
been denied, judgment was rendered on the verdict. The insured
property, a dwelling house in the city of Lincoln, was. at the date
of the policy, owned by Harriet A. Coffman. and incumbered by a
first mortgage in favor of the plaintiff for $2,300, and by a second
mortgage in favor of J. H. McMurtry for $2,200. W. B'. Seal, the
plaintiff's agent, was engaged in the business of loaning money on
real estate, and was in the habit of applying to the defendant's agent,
B. W. Richards, for insurance to protect his loans.
On July 19, 1894, Seal called on Richards, and made a verbal
application for a policy on the Coffman property. What then tran-
spired pertinent to the question here considered is shown by the
following testimony of Richards: "O. What inquiry did you make
about incumbrance, and what did Mr. Seal state to you about in-
cumbrance? A. Why, I asked Mr. Seal this question, as I do in-
variably, for the amount of incumbrance upon the property, and
he said it was $2,300. I think I asked him who the policy should
be made payable to, and he said Lydia G. Seal and J. H. McMurtry."
This testimony is not disputed. Neither is it claimed that there
was any disclosure of the $2,200 mortgage, or that the company
knew of its existence, before the loss occurred. The policy pro-
vides that: 'Tf the property above mentioned, or any part thereof,
be, or shall hereafter become, mortgaged or otherwise incumbered,
* * * without notice to and consent of this company indorsed
hereon, then, and in every such case, this shall be void."
It is shown conclusively that E. A. Becker, the secretary and ex-
aminer of the company, was influenced to accept the risk and issue
the policy by the representation that the incumbrance on the property
was $2,300. He testified that, under the rules of the company, the
risk would have been declined had the actual amount of the incum-
3 Compare British & Foreign Marine Ins. Co. v. Cummings, 113 Md 350
76 Atl. 571 (1910).
THE NATURE AND EFFECT OF REPRESENTATIONS 201
brance been disclosed. What is commonly known as the "loss pay-
able clause," is as follows: "Notice accepted of an incumbrance of
$2,300 on premises herein described. Loss, if any, under this policy,
first payable to Lydia G. Seal, mortgagee, as her interest may appear.
After the interest of Lydia G. Seal as mortgagee has been satisfied,
loss, if any, payable to Jas. H. McMurtry or assigns, mortgagee, as
his interest may appear."
The plaintifif contends that this clause advised the company that
both she and McMurtry had mortgage liens on the property, and
that, therefore, the representation in regard to the incumbance should
be construed as having reference to and covering only the plaintiff's
mortgage. We are not able to accept this view of the matter. The
policy was issued at the instance of W. B. Seal, and the quoted
testimony gives no indication, we think, that he intended to convey
to the insurer the idea that the incumbrance mentioned was owned
exclusively by his principal. The just interpretation is that the sum
named was intended to cover all liens to which the property was
subject. As there was nothing said about the amount of either mort-
gage, the natural inference would be that the aggregate of both
liens was $2,300. There is nothing to show that the misstatement
with respect to the incumbrance was fraudulently made, and we as-
sume that it was the result of an honest mistake on the part of
Mr. Seal.
The question, then, is whether, under the conceded facts, the mis-
representation rendered the contract void. It has been held that, when
the application is oral, and no inquiry is made as to the character or
condition of the title, mere silence will not avoid the policy. In-
surance Co. V. Bachler, 44 Neb. 549, 62 N. W. 911; Insurance Co.
V. Bohn, 48 Neb. 743, 67 N. W. 774; Slobodisky v. Insurance Co.,
53 Neb. 816, 74 N. W. 270. But we know of no case holding that
the misstatement of a material fact inducing the acceptance of the
risk will not vitiate the contract.
When the insurer makes inquiry about facts material to the risk,
he is justified in acting on the assumption that the information im-
parted by the applicant for insurance is correct. He is entitled to
know whether the property to be insured is incumbered, and. if so,
to what extent, so that he may act intelligently in determining
whether he will accept or decline the risk. The representations of
the applicant become the basis of insurance, and, if they be false
touching matters material to the risk, the contract obtained through
their influence cannot be enforced; and it is in such case quite im-
material whether the misstatement resulted from bad faith or from
accident or ignorance. Davenport v. Insurance Co., 6 Cush. (^lass.)
340; Hayward v. Insurance Co., 10 Cush. (Mass.) 444; Brown v.
Insurance Co., 11 Cush. (Mass.) 280; Jacobs v. Insurance Co., 7
Allen (Mass.) 132; Anderson v. Fitzgerald, 4 H. L. Cas. 484; Byers
v. Insurance Co., 35 Ohio St. 606, 35 Am. Rep. 623; Ryan v. In-
202 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
surance Co., 46 Wis. 671, 1 N. W. 426; Glade v. Insurance Co.,
56 Iowa, 400, 9 N. W. 320.
Our conclusion is that the company was induced to issue the policy
in suit by the false representation as to a material fact connected
with the subject-matter of the contract, that the condition against
undisclosed liens was broken, and that the district court was, there-
fore, right in directing a verdict for the defendant. Since this
conclusion leads to an affirmance of the judgment, other questions
discussed by counsel need not be considered. The judgment is
affirmed.*
II. Promissory Representations "
KIMBALL V. .^TNA INS. CO.
(Supreme Judicial Court of Massacliusetts, 1S65. 9 Allen, 540, 85 Am.
Dec. 786.)
Two actions of contract on policies of insurance issued by the de-
fendants respectively upon a dwelling-house of the plaintiff in Brad-
ford, dated January 17, 1862, and payable in case of loss to Jacob
Kimball, mortgagee.
The policy of the ^tna Company contained the following provi-
sions: "It being covenanted as a condition of this contract that the
company are not to be liable * * * for loss or damage, if the
assured in the written or verbal application for insurance makes any
erroneous representation materially increasing the risk." "Any chana^e
w^ithin the control of the assured, material to the risk, shall avoid this
policy."
The policy of the Springfield Company contained the following
provisions: "If the situation or circumstances affecting the risk there-
upon shall be so altered or changed by or with the advice, agency or
consent of the assured, as to increase the risk thereupon * * *
the risk thereupon shall cease and determine, and the policy be null
and void." "If the premises insured shall be vacated and so remain
for thirty days, without notice to this company, this policy shall cease
and determine."
The two actions were tried together in this court, before Metcalf,
J., and the defendants offered to prove that they had issued previous
policies on the same premises, which were to expire on the 17th of
January 1862; that the house was then unoccupied; that on the 6th
* Compare Mascott v. Insurance Co., ante, p. 197.
5 For discussion of principles, see Vance on insurance, § 101. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, p. 1477.
PROMISSORT REPRESENTATIONS 203
of January, 1862, an incendiary attempt was made to burn it, of
which the plaintiff informed the accent of the defendants ; that on the
17th of January the plaintiff applied for a renewal of ihe policies to
the agent, who informed him that unless the house was occupied he
could not renew them without consulting the companies and stating
all the facts, and in that case he did not think the companies would
authorize him to insure the property at all, but if occupied it could be
insured at the same rate as in previous years. The plaintiff said in
reply that the agent might renew the policies as before, as the house
would be occupied ; that he had a man in view who was going to oc-
cupy it. The agent thereupon wrote and delivered the policies. The
house remained unoccupied till June 26, 1862, when it was burned by
an incendiary. It was admitted, for the purposes of this trial, that
the occupancy of the house w'as a material fact, under the circum-
stances.
The judge ruled that the representations, if proved, would not con-
stitute a legal defence, and instructed the jury to return verdicts for
the plaintiff, which was accordingly done. The defendants alleged ex-
ceptions.
Gray, J." The ruling of the judge who presided at the trial was in
accordance wath the opinion which had been repeatedly expressed by
this court in previous cases. Higginson v. Dall, 13 Mass. 99, 100;
Whitney v. Haven, 13 Mass. 172; Rice v. New England Ins. Co., 4
Pick. 442, 443 ; Bryant v. Ocean Ins. Co., 22 Pick. 200. That opin-
ion has been ingeniously and elaborately criticised and controverted
by learned writers to whose commentaries the defendants have refer-
red ; but a careful re-examination has satisfied us that it is founded
upon elementary principles of the law of insurance, and supported by
the adjudged cases in England and in the United States.
The contract of insurance is a contract to indemnify the owner of
certain property against certain risks. This contract is founded upon
the representations previously made by the assured to the insurer.
The condition and circumstances of the property are within the knowl-
edge of the owner more than of the insurer, and must be truly rep-
resented by the former to the latter, in order that he may estimate
the risk before entering into the contract. In making this representa-
tion, the utmost good faith is required. If an existing fact material to
the risk is misrepresented by the owner to the underwriter, the minds of
the parties never meet, they agree on no subject matter to which the
contract can attach, the contract founded on such misrepresentation
never takes effect, the underwriter may treat it as a nullity, and the
other party, unless chargeable with fraud, may recover back the premi-
um. If representations, whether oral or written, concerning facts
existing when the policy is signed, are false, it never has any exis-
tence as a contract, unless it contains in itself terms which expressly
8 Part of the opinion is omitted.
204 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
or by necessary implication waive or supersede the previous represen-
tations. If the representations are positive and not of mere opinion
or belief, it matters not whether they are made at or before the time
of the execution of the policy, nor whether they are expressed in the
present or the future tense, if they relate to what the state of facts
is or will be when the policy is executed and the risk of the under-
writer begins. If the facts are then materially different from the rep-
resentations, the whole foundation of the contract fails, the risk does
not attach, the policy never becomes a contract between the parties.
Representations of facts existing at the time of the execution of the
policy need not be inserted in it ; for they are not necessary parts of
it, but, as is sometimes said, collateral to it. They are its foundation ;
and if the foundation does not exist, the superstructure does not arise.
Falsehood in such representations is not shown to vary or add to the
contract, or to terminate a contract which has once been made; but
to show that no contract has ever existed.
The word "representations" has not always been confined in use to
representations of facts existing at the time of making the policy ;
but has been sometimes extended to statements made by the assured
concerning w^hat is to happen during the term of the insurance; in
other words, not to the present, but to the future; not to facts which
any human being knows or can know, but to matters of expectation or
belief, or of promise and contract. Such statements (when not ex-
pressed in the form of a distinct and explicit warranty wdiich must be
strictly complied with) are sometimes called "promissory representa-
tions," to distinguish them from those relating to facts, or "affirma-
tive representations." And these words express the distinction ; the
one is an affirmation of a fact existing when the contract begins ;
the other is a promise, to be performed after the contract has come
into existence. Falsehood in the affirmation prevents the contract
from ever having any life; breach of the promise could only bring
it to a premature end. A promissory representation may be inserted
in the policy itself ; or it may be in the form of a written application
for insurance, referred to in the policy in such a manner as to make
it in law a part thereof ; and in either case the whole instrument must
be construed together. But this instrument is the expression, and the
only evidence, of the duties, obligations and promises to be performed
by each party while the insurance continues. To make the continu-
ance or termination of a written contract, which has once taken effect,
dependent on the performance or breach of an earlier oral agreement,
would be to violate a fundamental rule of evidence. A representation
that a fact now exists may be either oral or written; for if it does
not exist, there is nothing to which the contract can apply. But an
oral representation as to a future fact, honestly made, can have no
effect ; for if it is a mere statement of an expectation, subsequent dis-
appointment will not prove that it was untrue; and if it is a promise
CONSTRUCTION OF REPRESENTATIONS 205
that a certain state of facts shall exist or continue during the term of
the policy, it ought to be embodied in the written contract.
In the cases now before us, there was no representation that the
house was already occupied, and no representation or agreement that
it should be occupied the instant the policies took effect. The plaintiff's
statement was that "the house would be occupied ; that he had a man
in view who was going to occupy it." There is nothing to show that
this statement was not made in the most perfect good faith. Giving
it the strongest possible interpretation against the plaintiff, it was a
promise that the house should be occupied within a reasonable time,
and the policies attached as soon as they were made and continued in
force until such reasonable time had elapsed. The policies, having once
taken effect, cannot be terminated or avoided, in the absence of fraud,
by the subsequent breach of an oral agreement made before they were
executed. * * * Exceptions overruled.
III. Construction of Representations ^
MOULOR v. AMERICAN LIFE INS. CO.
(Supreme Court of United States, 1884. Ill U. S. 335, 4 Sup. Ct. 466, 28
L. Ed. 447.)
In Error to the Circuit Court of the United States for the Eastern
District of Pennsylvania.
Harlan, Justice.- This is an action upon a policy of insurance is-
sued by the American Life Insurance Company of Philadelphia. By
Its terms the amount insured — ^$10.000 — is payable to Emilie Moulor,
the plaintiff in error, her executors, administrators, and assigns, with-
in 60 days after due notice and satisfactory proof of interest and of
the death of her husband, the insured, certain indebtedness to the com-
pany being first deducted. Upon the first trial there was a verdict
for the plaintiff, which was set aside and a new trial awarded. At the
next trial the jury were peremptorily instructed to find for the com-
pany, and judgment was accordingly entered in its behalf. Upon writ
of error to this court that judgment was reversed upon the ground that,
as to certain issues arising out of the evidence, the case should have been
submitted to the jury. Aloulor v. Ins. Co., 101 U. S. 708, 25 L. Ed.
1077. At the last trial there was a verdict and judgment for the de-
fendant. * * *
7 For discussion of principles, see Vance ou Insurance, §§ 102, 103.
8 Part of the opinion is omitted.
20G CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
The seventh question in the appHcation for insurance required the
insured to answer yes or no, as to whether he had ever been afflicted
with any of the following diseases : Insanity, gout, rheumatism, palsy,
scrofula, convulsions, dropsy, small-pox, yellow-fever, fistula, rupture,
asthma, spitting of blood, consumption, and diseases of the lungs,
throat, heart, and urinary organs. As to each the answer of the in-
sured was, no.
The tenth question was : "Has the party's father, mother, brothers,
or sisters been afflicted with consumption or any other serious family
disease, such as scrofula, insanity, etc.?" The answer was, "No, not
since childhood."
The fourteenth question was: "Is there any circumstance which
renders an insurance on his life more than usually hazardous, such as
place of residence, occupation, physical condition, family history, he-
reditary predispositions, constitutional infirmity, or other known cause,
or any other circumstance or information with which the company
ought to be made acquainted?" The answer was, "No."
To the sixteenth question, "Has the applicant reviewed the answers
to the foregoing questions, and is it clearly understood and agreed
that any untrue or fraudulent answers, or any suppression of facts in
regard to health, habits, or circumstances, or neglect to pay the pre-
mkim on or before the time it becomes due, will, according to the terms
of the policy, vitiate the same and forfeit all payments made there-
on?" the answer was, "Yes."
At the close of the series of questions, 19 in number, propounded to
and answered by the applicant, are the following paragraphs:
"It is hereby declared and warranted that the above are fair and
true answers to the foregoing questions; and it is acknowledged
and agreed by the undersigned that this application shall form a
part of the contract of insurance, and that if there be, in any of
the answers herein made, any untrue or evasive statements, or any
misrepresentation or concealment of facts, then any policy granted
upon this application shall be null and void, and all payments made
[hereon shall be forfeited to the company.
"And it is further agreed that if at any time hereafter the com-
pany shall discover that any of said answers or statements are un-
true or evasive, or that there has been any concealment of facts,
then, and in every such case, the company may refuse to receive
further premiums on any policy so granted upon this application,
and said policy shall be null and void, and payments forfeited as
aforesaid."
The policy recites that the agreement of the company to pay the
sum specified is "in consideration of the representations made to
them in the application," and of the payment of the premium at
the time specified; further, "it is hereby declared and agreed that
if the representations and answers made to this company, on the
application for this policy, upon the full faith of which it is issued,.
CONSTRUCTION OF REPRESENTATIONS 207
shall be found to be untrue in any respect, or that there has been
any conceahnent of facts, then and in every such case the policy
shall be null and void."
The main defense was that the insured had been afflicted with
scrofula, asthma, and consumption prior to the making of his ap-
plication, and that, in view of his statement that he had never been
so afflicted, the policy "was, by its terms, null and void. There was,
undoubtedly, evidence tending to show that the insured had been
afflicted with those diseases, or some of them, prior to his applica-
tion ; but there was also evidence tending to show not only that
he was then in sound health, but that, at the time of his application,
he did not know or believe that he had ever been afflicted with any
of them in a sensible, appreciable form. * '''' *
Assuming — as in view of the finding of the jury we must assume —
that the insured was at the date of his application, or had been prior
thereto, afflicted with the disease of scrofula, asthma, or consump-
tion, the question arises whether the beneficiary may not recover,
unless it appears that he had knowledge, or some reason to believe,
when he applied for insurance, that he was or had been afflicted
with either of those diseases. The circuit court plainly proceeded
upon the ground that his knowledge or belief as to having been af-
flicted with the diseases specified, or of some one of them, was not
an essential element in the contract ; in other words, if the assured
ever had, in fact, any one of the diseases mentioned in his answer
to the seventh question, there could be no recovery, although the
jury should find from the evidence that he acted in perfect good
faith, and had no reason to suspect, much less to believe or know,
that he had ever been so afflicted. If, upon a reasonable interpre-
tation, such was the contract, the duty of the court is to enforce it
according to its terms ; for the law does not forbid parties to a
contract for life insurance to stipulate that its validity shall depend
upon conditions or contingencies such as the court below decided
were embodied in the pohcv in suit. The contracts involved in
Tefifries v. Life Ins. Co., 22 Wall. 47, 23 L. Ed. 833, and .^tna Life
Ins. Co. V. France, etc., 91 U. S. 510, 23 L. Ed. 401, were held to
be of that kind.
But unless clearly demanded by the established rules governing
the construction of written agreements, such an interpretation ought
to be avoided. In the absence of explicit, unequivocal stipulations
requiring such an interpretation, it should not be inferred that a
person took a life policy with the distinct understanding that it
should be void, and all premiums paid thereon forfeited, if at any
time in the past, however remote, he was, whether conscious of the
fact or not, afflicted with some one of the diseases mentioned in
the question to which he was required to make a categorical answer.
If those who organize and control life insurance companies wish to
exact from the applicant, as a condition precedent to a valid con-
208 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
tract, a guaranty against the existence of diseases, of the presence of
which in his system he has and can have no knowledge, and which
even skillful physicians are often unable, after the most careful ex-
amination, to detect, the terms of the contract to that effect must
be so clear as to exclude any other conclusion. * * *
These rules of interpretation, equally applicable in cases of life
insurance, forbid the conclusion that the answers to the questions
in the application constituted warranties, to be literally and exactly
fulfilled, as distinguished from representations which must be sub-
stantially performed in all matters material to the risk; that is, in
matters which are of the essence of the contract.
We have seen that the application contains a stipulation that it
shall form a part of the contract of insurance ; also, that the policy
purports to have been issued upon the faith of the representations
and answers in that application. Both instruments, therefore, may
be examined to ascertain whether the contract furnishes a uniform,
fixed rule of interpretation, and what was the intention of the parties.
Taken together, it cannot be said that they have been so framed as
to leave no room for construction. The mind does not rest firmly
in the conviction that the parties stipulated for the literal truth of
every statement made by the insured. There is, to say the least,
ground for serious doubt as to wdiether the company intended to
require, and the insured intended to promise, an exact, literal ful-
fillment of all the declarations embodied in the application. It is
true that the word "warranted" is in the application ; and, although
a contract might be so framed as to impose upon the insured the
obligations of a strict warranty, without introducing into it that
particular word, yet it is a fact, not without some significance, that
that word was not carried forward into the policy, the terms of
which control, when there is a conflict between its provisions and
those of the application. The policy upon its face characterizes the
statements of the insured as representations. Thus, we have one
part of the contract apparently stipulating for a warranty, while
another part describes the statements of the assured as representa-
tions. The doubt, as to the intention of the parties, must, according
to the settled doctrines of the law of insurance, recognized in all
the adjudged cases, be resolved against the party whose language
it becomes necessary to interpret. The construction must, therefore,
prevail which protects the insured against the obligations arising
from a strict warranty.
But it is contended that if the answers of the assured are to be
deemed representations only, the policy was, nevertheless, for-
feited, if those representations were untrue in respect of any matters
material to the risk. The argument is that if the insured was, at
the time of his application, or had been at any former period of his
life, seriously or in an appreciable sense, afflicted with scrofula,
asthma, or consumption, his answer, without qualification, that he
CONSTRUCTION OF REPRESENTATIONS 209
had never been so afflicted, being untrue, avoided the policy, without
reference to any knowledge or belief he had upon the subject. The
soundness of this proposition could not be disputed if, as assumed,
the knowledge or good faith of the insured, as to the existence of
isuch diseases, was, under the terms of the contract in suit, of no conse-
quence whatever in determining the liability of the company. But
is that assumption authorized by a proper interpretation of the two
instruments constituting the contract? We think not.
Looking into the application, upon the faith of which the policy
was issued and accepted, we find much justifying the conclusion
that the company did not require the insured to do more, when
applying for insurance, than observe the utmost good faith, and deal
fairly and honestly with it, in respect of all material facts about
which inquiry is made, and as to which he has or should be pre-
sumed to have knowledge or information. The applicant was re-
quired to answer yes or no as to whether he had been afflicted with
certain diseases. In respect of some of those diseases, particularly
consumption, and diseases of the lungs, heart, and other internal
organs, common experience informs us that an individual may have
them in active form, without, at the time, being conscious of the
fact, and beyond the power of any one, however learned or skillful,
to discover. Did the company expect, when requiring categorical
answers as to the existence of diseases of that character, that the
applicant should answer with absolute certainty about matters of
which certainty could not possibly be predicated? Did it intend to
put upon him the responsibility of knowing that which, perhaps, no
one, however thoroughly trained in the study of human diseases,
could possibly ascertain? We shall be aided in the solution of these
inquiries ty an examination of other questions propounded to the
applicauL. In that way we may ascertain what was in the minds of
the parties.
Beyond doubt the phrase "other known cause," in the fourteenth
question, serves the double purpose of interpreting and qualifying
all that precedes it in the same clause or sentence. For instance,
the applicant was not required to state all the circumstances within
his recollection of his family history, but those only which rendered
the proposed insurance more than usually hazardous, and of which
he had personal knowledge or of which he had information fairly
justifying a belief of their existence. If he omitted to state circum-
stances in his "family history" of which he had no knowledge, nor
any information deserving attention, that omission would not avoid
the policy, although it subsequently appeared that those circumstances,
if known to the company, would have shown that the proposed in-
surance was more than usually hazardous. Apart from other ques-
tions or clauses in the application, the tenth question would indicate
that an incorrect or untrue answer as to whether the applicant's
CooLET Ins. — 14
210 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
"father, mother, brothers, or sisters had been affected with con-
sumption, or any other serious family disease, such as scrofula, in-
sanity, etc.," would absolve the company from al' liability. Yet, in
the fourteenth question, the insured, being asked as to his family
history and as to "hereditary predispositions" — an inquiry substan-
tially covering some of the specific matters referred to in the tenth
question — was, as we have seen, only required to state such cir-
cumstances as were known to him, or of which he had information,
and which rendered an insurance upon his life more than usually
hazardous. So, in reference to that part of the fourteenth question
relating to the then physical condition of the applicant. Suppose at
the time of his application he had a disease of the lungs or heart,
but was entirely unaware that he was so affected. In such a case
he would have met all the requirements of that particular question,
and acted in the utmost good faith, by answering no, thereby im-
plying that he was aware of no circumstance in his then physical con-
dition which rendered an insurance upon his life more than usually
hazardous. And yet, according to the contention of the company, if
he had, at any former period of his life, been afflicted with a disease
of the heart or lungs, his positive answer to the seventh question,
that he had not been so afflicted, was fatal to the contract ; this,
although the applicant had no knowledge or information of the ex-
istence at any time of such a disease in his system. So, also, in
reference to the inquiry in the fourteenth question as to any "con-
stitutional infirmity" of the insured. If, in answering that question,
he was required to disclose only such constitutional infirmities as
were then known to him, or which he had reason to believe then
existed, it would be unreasonable to infer that he was expected, in
answer to a prior question, in the same policy, to guarantee absolutely,
and as a condition precedent to any binding contract, that he had
never, at any time, been afflicted with diseases of which, perhaps,
he never had and could not have any knowledge whatever.
The entire argument in behalf of the company proceeds upon a
too-literal interpretation of those clauses in the policy and applica-
tion which declare the contract null and void if the answers of the
insured to the questions propounded to him were, in any respect,
untrue. What was meant by "true" and "untrue" answers? In one
sense, that only is true which is conformable to the actual state of
things. In that sense, a statement is untrue which does not express
things exactly as they are. But in another and broader sense the
word "true" is often used as a synonym of honest, sincere, not fraud-
ulent. Looking at all the clauses of the application, in connection
with the policy, it is reasonably clear — certainly the contrary cannot
be confidently asserted — that what the company required of the ap-
plicant, as a condition precedent to any binding contract, was, that
he would observe the utmost good faith towards it, and make full,
direct, and honest answers to all questions, without evasion or fraud,
CONSTRUCTION OF REPRESENTATIONS 211
and without suppression, misrepresentation, or concealment of facts
with which the company ought to be made acquainted ; and that by
so doing, and only by so doing, would he be deemed to have made
"fair and true answers."
If it be said that an individual could not be afflicted with the dis-
eases specified in the application, without being cognizant of the fact,
the answer is that the jury would, in that case, have no serious diffi-
culty in finding that he had failed to communicate to the company
what he knew or should have known was material to the risk, and
that, consequently, for the want of "fair and true answers," the pol-
icy was, by its terms, null and void. But, whether a disease is of such
a character that its existence must have been known to the individual
afflicted with it. and therefore whether an answer denying its existence
was or not a fair and true answer, is a matter which should have
been submitted to the jury. It was an erroneous construction of the
contract to hold, as the court below did, that the company was re-
lieved from liability if it appeared that the insured was, in fact, af-
flicted with the diseases, or any of them, mentioned in the charge of
the court. The jury should have been instructed, so far as the mat-
ters here under examination are concerned, that the plaintiff was not
precluded from recovering on the policy, unless it appeared from all
the circumstances, including the nature of the diseases with which the
insured was alleged to have been afflicted, that he knew, or had rea-
son to believe, at the time of his application, that he was or had
been so afflicted.
It results from what has been said that the judgment must be re-
versed, with directions to set aside the verdict, and for further pro-
ceedings consistent with this opinion. It is so ordered.
IMUTUAL LIFE IXS. CO. OF XEW YORK v. MULLEN.
(Court of Appeals of Maryland. 1908. 107 Md. 457, 69 Atl. 385.)
Action by Thomas M. ]\Iullen and another as executors of Catherine
T. Mullen against the Alutual Life Insurance Company of Xew York.
From a judgment for plaintiffs, defendant appeals.
WoRTHiNGTON, j,9 * * * Several important questions concern-
ing the law of life insurance are involved in the appeal which we
will now proceed to consider. Before the Act of 1894, p. 1059, c. 662,
it was always a matter of great importance in considering a case like
this to determine at the outset whether the answers and statements
of the applicant as contained in his application for insurance were
warranties or mere representations. If the former, the policy was
avoided, unless such statements and answers were literally true, wheth-
9 Part of the opinion is omitted.
212 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
er they related to matters material to the risk or not. ]\Ionahan v.
Ins. Co., 103 Md. 156, 63 Atl. 211, 5 L. R. A. (N. S.) 759; Md. Cas-
ualty Co. V. Gehrmann, 96 Md. 648, 54 Atl. 678 ; Bankers' Life Ins.
Co. V. Miller, 100 Md. 1, 59 Atl. 116. If the latter, the policy was not
avoided, unless the answers and statements were false in relation to
some matters material to the risk. Bankers' Life Ins. Co. v. Miller,
supra.
By the aid of warranties, and the innocent mistakes of the insured,
it often happened that the insurer was able to escape liability on a
ground of the purest technicality. For the purpose of relaxing the
harsh rule of the common law which required warranties to be liter-
ally true without regard to their materiality to the risk, the Act of 1894,
p. 1059, c. 662, was passed. That act, which is a literal copy of the
Pennsylvania statute, and similar to the statutes of some other states
on the same subject, is as follows: "Whenever the application for a
policy of life insurance contains a clause of warranty of the truth of
the answers therein contained, no misrepresentation or untrue state-
ment in such application made in good faith by the applicant, shall ef-
fect a forfeiture, or be a ground of defense in any suit brought upon
any policy of insurance issued upon the faith of such application, un-
less such misrepresentation or untrue statement relate to some matter
material to the risk." Code Pub. Gen. Laws 1904, art. 23, § 196.
In construing the Pennsylvania statute which as we have said is
identical with our own, the Supreme Court of that state says : "The
meaning of this language is perfectly plain. A misrepresentation or
untrue statement in an application, if made in good faith, shall not
void the policy, unless it relate to some matter material to the risk. If
the matter is not material to the risk, and the statement is made in
good faith, although it is untrue, it shall not avoid the policy." March
v. Life Ins. Co., 186 Pa. 641, 40 Atl. 1100. 65 Am. St. Rep. 887.
In other words, the statute was passed to prevent the defeat of the
ends of justice by mere technicality. It is remedial in character, and
should be given such liberal and reasonable interpretation as will in-
sure judicial investigation in the ordinary way of the question whether
any particular statement in the application was untrue, and, if untrue,
whether it was material to the risk. If the statement is found to be
untrue and material, the penalty of the forfeiture of the policy will
usually follow as of course, whether the answer be made in good faith
or in bad faith. Penn Mutual v. Savs. Bank, 72 Fed. 413, 19 C. C.
A. 286, 38 L. R. A. ZZ; Id., 73 Fed. 653, 19 C. C. A. 316, 38 L. R.
A. 70.
As the application in this case contains a clause of warranty of
the truth of the answers therein contained, and as the appHcation is
referred to in, and made a part of, the policy, the statute by its very
terms is applicable, unless other circumstances render it inapplicable.
And the appellant contends that this act is not applicable to the case
at bar for two reasons:
CONSTRUCTION OF REPRESENTATIONS 213
First. Because the contract of insurance expressly provides that it
shall be subject to the charter of the company, and of the laws of the
state of New York, and, as there is no evidence of a similar statute
to our own in force in that state, this court will presume that the com-
mon law prevails there, and that consequently this contract must be
construed accordingly to the rules of the common law. Citing Fick-
lin's Case, 74 Md. 172, 21 Atl. 680, 23 Atl. 197.
Second. Because as the defendant company is a mutual one, as is
alleged, the contract of insurance must be construed in accordance
with the laws of the state where the company was created, and agree-
ably to its charter, in order to preserve the scheme of mutuality as
was done in Brashears' Case, 89 Md. 624, 43 Atl. 866, 73 Am. St.
Rep. 244
In answer to the first reason assigned, we refer to the case of Keat-
ley v. Travelers' Ins. Co., 187 Pa. 197, 40 Atl. 808, where it was at-
tempted to evade the provisions of the Pennsylvania act by reciting in
the policy that it should be construed by the laws of Connecticut.
The court in that case held that such an agreement was against pub-
lic policy, and that the contract must be governed by the laws of
Pennsylvania, where the contract was made. A similar rule was
adopted in Massachusetts in the case of Dolan v. Mutual Reserve,
173 Mass. 197, 53 N. E. 398, the court saying: "The contract was
made in Massachusetts through its agent here, and the policy was
delivered and paid for here. It is therefore governed by our laws."
The same rule was applied in Fidelity Mutual Life Ass'n v. Jef-
fords, 107 Fed. 402, 46 C. C. A. 377, 53 L. R. A. 193, and in Fletcher
v. New York Life Ins. Co. (C. C.) 13 Fed. 526.
In a suit in the United States Circuit Court, Sixth Circuit, on a
policy of insurance issued by a Pennsylvania corporation to a person
in Maryland, full effect is given to the Maryland statute. Fidelity
Mutual'Life Ass'n v. Miller, 92 Fed. 63, 34 C. C. A. 211. See, also,
Equitable Assur. Co. v. Pettus, 140 U. S. 226, 11 Sup. Ct. 822, 35 L.
Ed. 497.
We think, therefore, that while it is perfectly true that, in the ab-
sence of proof to the contrary, the common law is presumed to be
in full force, and to be the same as the common law of the forum,
in all those states which were originally colonies of England (8 Cyc.
387, B); and although in Ficklin's Case supra, this court gave the
benefit of the remedial statute of Pennsylvania, before its adoption
by the Legislature of this state, to one of our citizens suing in the
courts of this state upon a contract made here by a Pennsylvania cor-
poration, yet we deem it against public policy to permit a contract
of insurance made here since the passage of the act of 1894 with a
citizen of this state, to be governed by the harsh rules of the com-
mon law which, by legal presumption merely, is supposed to obtain
in the state of New York by whose laws it is sought to have this
contract construed.
214 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
When a corporation undertakes to do business beyond the territorial
limits of the state creating it, it does so merely by comity, and the
state which it enters for the purpose of transacting business therein
has the power to require such corporation to carry on its business
there subject to its statutes, and this court will not allow the parties
to such contracts as this, by any stipulations contained therein to con-
travene the salutary provisions of this statute intended for the pro-
tection of our own citizens against common-law warranties. New
York Life v. Cravens, 178 U. S. 389, 20 Sup. Ct. 962, 44 L. Ed. 1116.
In answer to the second reason assigned, we have only to say that
in the Brashears' Case, supra, the insurer was the Royal Arcanum, a
purely mutual benefit association, which is not controlled in this re-
spect by the ordinary rules of life insurance (Penn JMutual v. Savings
Bank, 72 Fed. 413, 19 C. C. A. 286, 38 L. R. A. 33; Id., 72> Fed.
653, 19 C. C. A. 316, 38 L. R. A. 70); and, besides, in this case we
have no knowledge that the appellant is in fact a mutual company,
except the inference to be drawn from the single word "Mutual" con-
tained in its corporate name. We think it is perfectly clear, there-
fore, that as the first premium on the policy was paid in this state by
a citizen of this state, and the policy delivered here, that it is a Mary-
land contract, and to be governed by Maryland laws.
The act of 1894, p. 1059, c. 662, being applicable to this case, as we
think it clearly is, the burden of proving the untruth of the insured's
statements and answers in his application, and also, if untrue, that
they relate to some matters material to the risk, or that they were
not made in good faith, was upon the defendant, if it relied upon
fraud or misrepresentation on the part of the insured as a defense to
the action. Brashears' Case, 89 Md. 633, 43 Atl. 866, 73 Am. St. Rep.
244; May on Ins. § 183. * * * Reversed.^"
IV. Warranties — In General ^^
GAINES v. FIDELITY & CASUALTY CO. OF NEW YORK.
(Court of Appeals of New York, 1907. 188 N. Y. 411, 81 N. E. 1G9, 11 Ann.
Cas. 71.)
Action by Lottie Gaines against the Fidelity & Casualty Company
of New York on an accident policy. From a judgment of the Ap-
pellate Division (111 App. Div. 386, 97 N. Y. Supp. 836), affirming a
judgment for defendant, plaintiff appeals.
10 Compare Lynch v. Prudential Ins. Co. of America, post, p. ?26.
11 For discussion of principles, see Vance on Insurance, § 104. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, p. 1120; vol. 3, p. 1926.
WARRANTIES — IN GENERAL
215
Gray, J.^- The policy in question insured Ulysses Gaines against
bodily injury, resulting in death, in the sum of $2,000. It stated that
the defendant insured him "in consideration of * * * the state-
ments in the schedule hereinafter contained, which statements the in-
sured makes on the acceptance of this policy and warrants to be true."
The warranties contained in the schedule of the policy included the
statement, in answer to a question as to the "relationship" of this
plaintitT, whom the insured had named as the payee, that she was his
wife. The assured was killed by a pistol shot, fired by another, and
this action by the plaintiff, as the beneficiary named in the policy, was
defended upon the ground, among others, that there had been a breach
of the warranty, in that she was not the wife of the assured. The
result of the trial was that the jury found a verdict in favor of the
defendant upon this question of fact and the unanimous affirmance of
the judgment thereupon is conclusive.
The question of law, which has survived, is raised by exceptions
taken by the plaintiff to the charge of the trial court that she could
not recover unless she was, at the time of the insurance, the wife of
the person assured. As the question of fact was submitted to the
jurors by the trial judge, they were to determine whether there was
any agreement between the assured and the plaintiff to enter into the
marital relationship, and, if there was, whether, the plaintiff's prior
marriage to another having been conceded, she was "capable of en-
tering into that relationship"; that is, "had she married the assured
in good faith believing her husband to be dead."
The question of the avoidance of the contract, under the clause of
the policy relating to injuries intentionally inflicted by another upon
the insured, was within the issues of the case; but the instructions
to the jurors required them, if they decided for the defendant upon
that defense, to return a verdict for the plaintiff for $16, the amount
■of the premium, according to the terms of the policy.
The argument of the appellant, in substance and effect, is that the
representation of the assured that Lottie Gaines was his wife was not
material, and should be considered as matter of description, and not
of warranty. This was, however, a distinctly expressed warranty, the
truth of which was a condition of liability and was of the basis of
the contract itself. The eft'ect of making the statement a part of the
policy and of warranting it to be true was, in law, to induce the de-
fendant's agreement to insure, and the statement became material. It
is a general rule, and one which the decisions of this court have as-
serted, that the materiality of the fact stated by the assured is of no
consequence, if the contract be that the matter is as represented, and
that, unless it prove so, whether from fraud, mistake, negligence, or
other cause, not proceeding from the insurer, or the intervention of
the law, or the act of God, the assured can have no claim. May on
12 Part of the opinion is omitted.
216 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
Insurance, § 156; Foot v. ^tna Life Ins. Co., 61 N. Y. 571, 577;
Cushman v.U. S. Life Ins. Co., 63 N. Y. 404, 409; Donley v. Glens
Falls Life Ins. Co., 184 N. Y. 107, 76 N. E. 914, 6 Ann. Cas. 81.
The author of the text-book cited well observes : "One of the very
objects of the warranty is to preclude all controversy about the ma-
teriality or immateriality of the statement." The parties to this con-
tract had the right to make any statements of fact material thereto
and conditions precedent to any liability thereupon, all things being
equal at the time in their attitude to each other, and if they proved
false the contract was avoided. The insurer was entitled to know the
actual relationship, which the person, for whom the assured desired
the benefit of the insurance contract, sustained to him, for it bore
upon the risk which it was to assume. The inquiry related to the risk,
the statement in the answer was made a warranty to be contained in
the policy, and, it having been determined that the statement was un-
true, the right to recover upon the contract was forfeited. * * *
Judgment affirmed. ^^
CHAMBERS v. NORTHWESTERN MUT. LIFE INS. CO.
(Supreme Court of Minnesota, 1896. 64 Minn. 495, 67 N. W. 367, 58 Am.
St. Rep. 549.)
Action by George W. Chambers, administrator, against the North-
western Mutual Life Insurance Company. There was a judgment for
plaintiff, and from an order denying a new trial defendant appeals.
Mitchell, J.^'' This was an action on a policy of insurance on the
life of plaintiff's intestate. The complaint alleged the issuing of the
policy, the death of the insured, the furnishing of proofs of loss, and
the refusal of the defendant to pay ; also, generally, that the insured
and the plaintiff had each fulfilled all the conditions of the policy. The
policy, which was attached to the complaint, provided that the in-
sured's application was made a part of the policy; also, that "if any
fraudulent representation or statement shall be made in the applica-
tion, * * * then and in every such case the policy shall be null
and void." The application, which was introduced in evidence, con-
tained numerous questions to the applicant and his answers thereto.
All of these related to then existing or past facts. It also contained
an agreement, signed by the applicant, that all the statements and an-
swers written on the application, including those made to the medical
examiner, are warranted to be true, and to be full and fair answers
to the questions, without evasion or concealment, and are offered to
the company as a consideration for the contract of insurance.
Defendant, in its answer, admitted the issuing of the policy, the
18 Compare Vivar v. Supreme Lodge, post, p. 223.
14 Part of the opinion is omitted.
WARRANTIES — IN GENERAL 217
death of the insured, the furnishing of proofs of death, and a refusal
on its part to pay, but, except as thus admitted, denied all the allega-
tions of the complaint. It then alleged that the answers to the fol-
lowing questions in the application were false and untrue : "Have
you ever had disease of the heart? Ans. No. Do you use malt or
spirituous beverages? Ans. No. Have you always been temperate?
Ans. Yes. Is there anything, or has there ever been anything, in your
physical condition, family or personal history, or habits, tending to
shorten your life, which is not distinctly set forth above? Ans. No."
And that by reason of said false and fraudulent representations, and
each of them, said policy or contract of insurance is null and void.
* * *
Was the burden on the plaintiff to allege and prove the truth of
the answers to the questions contained in the application, or was it
upon the defendant to allege and prove their falsity? Defendant's
contention is that because, if any of these answers were false, the
policy would be void ab initio, therefore they were conditions preced-
ent, and hence, according to a familar rule, the burden was on the
plaintiff to allege and prove that they were true. The law is so well
settled otherwise that it would hardly seem to require discussion.
For the purposes of this case it is immaterial whether these an-
swers are to be deemed warranties or mere representations, for the
rule of pleading and proof would be the same in either case. Hence
we shall assume, most favorably to the defendant, that the answers
are warranties. A condition precedent, as known in the law, is one
which is to be performed before the agreement of the parties becomes
operative. A condition precedent calls for the performance of some
act or the happening of some event after the contract is entered into.
and upon the performance or happening of which its obligation is
made to depend. In the case of a mere warranty, the contract takes
effect and becomes operative immediately. It is true that, where a
policy of insurance so provides, if there is a breach of a warranty,
the policy is void ab initio. But this does not change the warranty
into a condition precedent, as understood in the law. It lacks the es-
sential element of a condition precedent, in that it contains no stipu-
lation that an event shall happen or an act shall be performed in the
future, before the policy shall become effectual. It is more in the
nature of a defeasance, where the insured contracts that, if the rep-
resentations made by him are not true, the policy shall be defeated and
avoided. But, even if these warranties are to be deemed conditions
precedent, it has become settled in insurance law, for practical rea-
sons, that the burden is on the insurer to plead and prove the breach
of the warranties.
Not only so, but he must, in his pleading, single out the answers
whose truth he proposes to contest, and show the facts on which his
contention is founded. Otherwise, the insured would enter the trial
ignorant as to which of his numerous answers would be assailed as
218 CONSENT OF PARTIES — REPRESENTATIONS AND WARRANTIES
false. The number of questions in these applications is usually very
great, relating to the habits and health of ancestors, the personal
habits and condition of the applicant, etc., the truth of many of which
it would be impossible to prove affirmatively after the death of the
insured. To require such proof on part of the beneficiary would de-
feat more than half of the life policies ever issued. On the other
hand, it is no hardship to require of the insurer, if he believes that
any of these answers were false, that he specifically allege which ones
he claims to be false, and produce evidence of the truth of his claim.
It would be superfluous to cite authorities on this subject; but, to
the point that these warranties are not conditions precedent, in the
legal sense of the term, we refer- to Redman v. Insurance Co., 49 Wis.
431, 4 N. W. 591 ; and, for a forcible statement of the practical rea-
sons for the rule, to Insurance Co. v. Ewing, 92 U. S. ^17, 23 L. Ed.
610.
The dictum in Price v. Insurance Co., 17 Minn. 497 (Gil. 473), 10
Am. Rep. 166, that warranties are conditions precedent, the truth of
which must be pleaded and proved by the assured, was, we think, in-
advertent, and cannot be adhered to. We therefore hold that it was
no part of plaintiff's case to either allege or prove the truth of the
answers in the application, that the burden of alleging and proving
their falsity was on the defendant, that it v/as bound to specify in
its defense the particular answers which it claimed were false, and
that on the trial it was properly limited in its proof to those answers
which it had specifically alleged to be false. * * * Affirmed.^^
V. Affirmative and Promissory Warranties ^"
KNECHT V. MUTUAL LIFE INS. CO. OF NEW YORK.
(Supreme Coiu-t of Pennsylvania. 1879. 90 Pa. 118. 35 Am. Rep. 641.)
Amicable action of assumpsit, by A. S. Knecht, administrator of
Abram F. Fangboner, deceased, against the Mutual Life Insurance
Company of New York. In January, 1868, the deceased applied to
the defendant for a policy of insurance upon his life, the application,
among other clauses, containing the following: "And the said Abram
F. Fangboner further declares that he is not now afilicted with any
15 The contrnry rule prevails in Rhode Island and Connecticut. See
Sweeney v. Metropolitan Life Ins. Co., 19 R. I. 171, 36 Atl. 9, 38 L. R. A.
297, 61 Am. St. Rep. 751 (1896) ; Hennessey v. Metropolitan Life Ins. Co.,
74 Conn. 699, 52 Atl. 490 (1902).
16 For discussion of principles, see Vance on Insurance, § 105. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, p. 1465; vol. 3, p. 2188.
AFFIRMATIVE AND PROMISSOKY WARRANTIES 219
disease or disorder, and that he does not now, nor will he, practice
any pernicious habit that obviously tends to the shortening of life."
It is alleged that upon the faith of the conditions and promises in said
application, the defendant issued a policy to deceased. Among the
provisions of said policy was the following: "If any of the statements
or declarations made in the application for this policy, upon the faith
of which this policy is issued, shall be found in any respect untrue,
then and in every such case this policy shall be null and void." At
the time of making the application for insurance, Fangboner was of
correct and temperate habits. Some years after the issuing of the pol-
icy he became addicted to the use of intoxicating drinks, from the
immoderate use of which he was attacked with delirium tremens, from
which he died.^^
Paxson, J. It is not alleged that in his application for insurance
the insured made any false representation of an existing fact. What
he did declare was, "that he is not now afflicted with any disease or
disorder, and that he does not now, nor will he, practice any pernicious
habit that obviously tends to the shortening of life." The case stated
sets forth : "That at the times of making the aforesaid application for
insurance, the said Abram F. Fangboner was of correct and temper-
ate habits ; that some years after the issuing of said policy he became
addicted to the use of intoxicating drinks, from the immoderate use
of which he was attacked with delirium tremens, from which he died."
The policy issued in pursuance of said application contained this pro-
vision: "If any of the statements or declarations made in the appli-
cation for this policy, upon the faith of which this policy is issued,
shall be found in any respect untrue, then and in every such case this
policy shall be null and void."
It is unnecessary to discuss the question as to whether the declara-
tions of the insured as to existing facts in his application, constitute
a warranty. The authorities are by no means uniform upon this point.
Our own recent case of Washington Life Insurance Co. v. Schaible,
1 Wkly. Notes Cas. 369, holds that they do not constitute such war-
ranty. Where, however, the policy has been issued upon the faith of
such representations, and they are false in point of fact, the better
opinion seems to be that the policy is avoided. And this is so even
where the false statement is to a matter not material to the risk. Jef-
fries V. Life Insurance Co., 22 Wall. 47, 22 L. Ed. 833. In such case
the agreement is that if the statements are false, there is no insur-
ance ; no policy is made by the company, and no policy is accepted by
the insured.
In the case in hand the policy attached. There was nothing to
avoid it ab initio. Were the mere declarations by the insured in his
application, as to his future intentions, and his failure to carry out
his declarations, or to comply with his intentions as to his future con-
17 The statement of facts is abridged from that in the oflacial report.
220 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
duct, sufficient to work subsequent forfeiture of the policy? In no
part of the application did the assured covenant that he would not
practice any pernicious habit. Nor did he promise, agree or war-
rant not to do so. He declared that he would not. To declare, is
to state ; to assert ; to publish ; to utter ; to announce ; to announce
clearly some opinion or resolution ; while to promise is to agree ; "to
pledge one's self ; to engage ; to assure or make sure ; to pledge by
contract." — Worcester. There is no clause in the policy which pro-
vides that if the assured shall practice any pernicious habit tending to
shorten life, the policy shall ipso facto become void. There is only
the stipulation that, "if any of the statements or declarations made
in the application * * * shall be found in any respect untrue,
this policy shall be null and void." This evidently referred to a state
of things existing at the time the policy was issued.
As to such matters, as I have already said, there was no untrue
statement. But the assured declared, as a matter of intention, that
he would not practice any pernicious habit. Was this declaration of
future intention false? There is no allegation, much less proof, that
it was so. The assured might well have intended to adhere to his
declaration in the most perf(Vt good faith, yet in a moment of tempta-
tion have been overcome by this insidious enemy. In the absence of
any clause in the policy avoiding it in case the assured should practice
any such habit, and of any covenant or warranty on his part that he
would not do so, we do not think his mere declaration to that effect
in the application sufficient to avoid the policy.
The judgment is reversed, and judgment is now entered in favor of
the plaintiff and against the defendant for the sum of $1,500, with
interest from June 26, 1876.^^
PORT BLAKELY MILL CO. v. SPRINGFIELD FIRE & MA-
RINE INS. CO.
(Supreme Court of Washington, 1910. 56 Wash. 681, 106 Pac. 194, 28 L.
R. A. [N. S.] 593.)
Action by the Port Blakely Mill Company and the Detroit Trust
Company against the Springfield Fire & Marine Insurance Company.
From a judgment for plaintiffs, defendant appeals.
Morris, J.^*^ Action upon a fire insurance policy written by appel-
lant, insuring the property of the mill company against loss by fire
in the sum of $10,000, with loss, if any, payable to the Detroit Trust
Company. The policy was in the usual form, except that it had at-
tached to it a rider containing a description of the property insured,
18 Compare Schultz v. Mutual Life Ins. Co. (C. C.) 6 Fed. 672 (1881) and
Northwestern Masonic Aid Ass'n v. Bodurtha, 23 Ind. App, 121, 53 N. E.
787, 77 Am. St. Rep. 414 (1899 1.
19 Part of the opinion is omitted.
AFFIRMATIVE AND PROMISSORY WARRANTIES 221
and various special agreements with reference to the particular risk.
On April 22, 1907, a fire occurred, whereby a portion of the insured
property was damaged. The appellant, contending that the policy had
been avoided by the failure of the mill company to observe one of the
special agreements, claimed to be a "warranty," denied its liability,
and this action was instituted to enforce payment, resulting in findings
in favor of respondents, and a judgment in the sum of $6,452.90, with
interest from July 15, 1907, from which this appeal was taken.
Three contentions are made by applicant, upon which we are asked
to reverse the judgment:
(1) That the Detroit Trust Company may not maintain an action
within this state, not having paid an annual license fee nor otherwise
complied with the provisions of our laws in regard to foreign corpora-
tions doing business within this state.
(2) That the policy was avoided by the breach of a warranty therein
contained.
(3) That an automatic sprinkler system connected with the mill
plant was not in working order at the time of the fire.
Each of these contentions has been considered, but, having reached
a conclusion upon the second which is determinative of the appeal,
we will not discuss the first and third. The clause in the policy which
suggests the second assignment of error is as follows : "Warranted
by the insured that due diligence be used that the automatic sprinkler
system shall at all times be maintained in good working order."
The Port Blakely Mill Company was what is known in insurance
circles as "a sprinkler risk," and the evidence discloses that the rate
of premium upon "a sprinkler risk" was approximately 50 per cent,
less than upon the same mill without the sprinkler attachment. So
that, by the maintenance of the sprinkler system and the insertion in
the policy of the clause above referred to, the mill company obtained
this policy upon the payment of $229 premium, which otherwise would
have cost it approximately $458. It is apparent, therefore, that both
parties had fully in mind at the time of the issuance of the policy the
advantages that would result to each because of the existence of the
sprinkler system, and the use of due diligence on the part of the in-
sured to maintain it in good working order at all times. To the in-
sured it meant a saving of $229 on the premium paid, to the insurer
it meant a lessening of its risk, ample consideration to each why this
particular form of policy should be chosen, and the sprinkler clause
made a part thereof; and, having in mind this situation, it is not un-
reasonable to assume that the words used in the sprinkler clause were
employed by both parties with a full understanding that it was a
statement and assumption of condition and undertaking on the part
of the insured, relating to the risk and affecting its character and ex-
tent.
While, as is said by Shaw, C. J., in Daniels v. Hudson River Fire
Ins. Co., 12 Cush. (Mass.) 416, at page 423 (59 Am. Dec. 192), "there
222 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
is undoubtedly some difficulty in determining by any simple and cer-
tain test what propositions in a contract of insurance constitute war-
ranties ;" and conceding the leaning of the courts, in order to pro-
tect the insured and avoid a forfeiture, is to hold agreements and stip-
ulations in the policy to be representations rather than warranties in
all cases where there is any room for construction, it has nevertheless
become fixed and settled, except in so far as it may have been changed
and modified by statute in some of the states, that all statements re-
garding the risk contained in or appearing on the face of the policy
are warranties. Cooley's Briefs on the Law of Insurance, p. 1133.
And such is the rule irrespective of the use of the word "warranty"
or "warranted." Redman v. Hartford Ins. Co., 47 Wis. 89, 1 N. W.
393, 32 Am. Rep. 751; Wood v. Hartford Ins. Co., 13 Conn. 534,
35 Am. Dec. 92; Moulor v. Am. Life Ins. Co., Ill U. S. 341, 4 Sup.
Ct. 466, 28 L. Ed. 447 ; Barnard v. Faber, L. R. 1 Q. B. 340.
Wood on Fire Insurance, at page 449, says: "The rule seems to
be that such representations in or a part of the policy are construed
to be warranties when it appears to the court that they have had in
themselves, or in the view of the parties, a tendency to induce the
company to enter into the contract on terms more favorable to the
insured than without them. * * * Any statement or description
of any undertaking on the part of the assured on the face of the
policy which relates to the risk is a warranty, an express warranty.
* * * It is is not necessary that it should be stated to be a war-
ranty, or that it should be so by construction. It is enough that it ap-
pears upon the face of the policy and relates to the risk."
The case before us would undoubtedly fall within such a rule as
Mr. Wood refers to, when it appears that the premium on this policy
upon a "sprinkler risk," and with the sprinkler clause added was re-
duced approximately 50 per cent, of what it would have been other-
wise. This was certainly in his language "a tendency to induce the
company to enter into the contract on terms more favorable to the
insured than without them." In Wood v. Hartford Ins. Co., supra,
the court says: "The general rule in regard to what constitutes a
warranty in a contract of insurance is well settled. Any statement or
description or any undertaking on the part of the insured on the
face of the policy which relates to the risk is a warranty. * * *
When it is once ascertained that it relates to the risk and was in-
serted in reference to that, it must be strictly observed and kept or
the insurance is void." To our minds the conclusion, both upon rea-
son and authority, is that the clause in question was and is a warranty.
Having reached this conclusion, there is but one other question to
be considered: Was there a breach of this warranty? It is undisputed
that from April 1st to April 21st the sprinkler system in what was
known in the mill as "No. 3" was disconnected. The fire occurred on
April 22d, and there is a sharp conflict in the testimony as to whether
or not No. 3 was in operation at the time of the fire. But, giving due
WARRANTIES DISTINGUISHED FROM REPRESENTATIONS 223
weight to the finding- of the court below that it was connected upon
April 21st, there was a period of nearly three weeks when it is ad-
mitted that no protection was accorded by the sprinkler system in No.
3. The repairs undertaken by the mill during this time were permis-
sible under the policy, but it appears that it was the work of only
a few hours to disconnect system Mo. 3 from its old location and
move it to its new. Such being the fact, it was not "due diligence,"
as called for in the policy, for the mill company to continue the op-
eration of the mill without the protection of sprinkler system No. 3.
It was an undoubted and material increase in the risk, contrary to
the terms of the warranty, and was a breach thereof. The mill com-
pany, having broken its contract of warranty by the failure to use
due diligence in maintaining the sprinkler system at all times in good
working order, by such failure released the appellant from liability
under the policy, and the same thereby was avoided. So that whether
or not the system in No. 3 was in good working order on April 22d
is immaterial, since the policy, because of the breach of the warranty,
was not then in force or effect. And it was likewise immaterial
whether or not this breach contributed to the loss. The policy, being
at an end because of its broken warranty, no longer covered any loss
or damage to the mill property, and was wholly avoided. * * *
Reversed.
VI. Warranties Distinguished from Representations
20
VIVAR V. SUPREME LODGE KNIGHTS OF PYTHIAS.
(Supreme Court of New Jersey. 1890. 52 N. J. Law, 455, 20 Atl. 36.)
Action by Emily L. Vivar on certificates of membership in the En-
dowment Rank of the Order of Knights of Pythias, whereby the life
of Darius Vivar was insured. On the trial verdict was directed for
plaintiff, and defendant took a rule to show cause why the verdict
should not be set aside.
Dixon, J.^^ * * * f\^Q next ground on which the defendant
seeks a new trial is that although Vivar, in his application for mem-
bership in the Endowment Rank, in response to the question, "State
definitely to whom you wish the benefit made payable, and relationship
to you," had answered, "To my wife, Emily Louisa Vivar," and al-
though by the certificates sued on the sums insured were made paya-
2 For discussion of principles, see Vance on In.surance, §§ 106, 107. See,
also. Cooler. Briefs on the Law of Insurance, vol. 2, p. 1120; vol. 3, p. 192G.
21 Part of tlie opinion is omitted and the statement of facts is rewritten.
224 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
ble to "Emily Louisa Vivar, his wife," yet the trial judge rejected evi-
dence offered by the defendant to show that, before and at the time
of the plaintiff's marriage to Vivar, he had a lawful wife living, and
both he and the plaintiff knew it. The defendant, while admitting that
the plaintiff is the person intended by the contract, yet insists that
her being Vivar's lawful wife was made a condition of the obligation ;
that, as a part of the contract, Vivar warranted the existence of such
relationship.
By the terms of the certificates, the application forms part of the
contract. Nevertheless the statements contained in it are not neces-
sarily, for that reason, warranties. In order to have the force of a
warranty, the statement must, indeed, constitute part of the contract ;
but whether even such a statement should be deemed a warranty de-
pends upon the just construction of the entire agreement. Courts do
not favor warranties by construction, and hence parties will not be
held to have entered into the contract of warranty unless they clearly
appear to have intended it. If the contract refers to statements con-
tained in another paper for some other purpose than to give them
the force and effect of warranties, — for instance, if it refers to them
as "representations," — or if the purpose is doubtful, such reference
will not convert the statements into warranties. Of themselves, state-
ments in the application are mere representations, and they will not
become conditions or warranties, unless the parties plainly evince an
intention to make them such, either by so denominating them, or by
declaring the validity of the contract to depend upon their literal
truth. May, Ins. §§ 158-165; Insurance Co. v. Day, 39 N. J, Law,
89, 23 Am. Rep. 198. Even calling the statements warranties will not
make them such, when other terms in the contract indicate a different
understanding. Fitch v. Insurance Co., 59 N. Y. 557, 17 Am. Rep.
372; Anders v. Supreme Lodge, 51 N. J. Law. 175, 17 Atl. 119.
Under these rules, the statements in the application now before us
are not warranties. The certificates do not so designate them, but, on
the contrary, style them "representations ;" and in making them part
of the contract must be deemed to incorporate them as representa-
tions. Nor is there in the contract any provision to the effect that,
if they be false or untrue or inaccurate, the insurance will be void.
The clause at the end of the certificates "that any violation of the
w^ithin mentioned conditions * * * shall render the certificate
and all claims null and void," must be understood as referring to
matters which, by other parts of the contract, are made conditions,
and cannot of itself create a condition out of what had been before
mentioned as a representation only. The trial court, therefore, prop-
erly held that the statement concerning the relationship between Vivar
and the plaintiff was not a warranty.
It remains, however, to determine what effect it should have upon
the contract, if considered as a representation untrue to the knowledge
of the insured; for to that extent was the defendant's offer of proof.
WARRANTIES DISTINGUISHED FROM REPRESENTATIONS 225
In order to invalidate a contract, a representation made during the
negotiations must not only be willfully untrue, but must also be ma-
terial, or, at least, must appear to have been thought material, by the
party to whom it was made. * * *
If the representation made, though known by the insured to be false,
did not differ from the truth in any respect which was, either in fact
or in the view of the insurer, material to the contract, then the false-
hood did not mislead the insurer, or induce the contract, and should
not be allowed to avoid it.
Usually, the materiality of a representation will be inferred from
the fact that it was made pending the negotiations, in response to a
specific inquiry by the insurer; but this rule is not universal; for
the purpose of the inquiry must be considered, to see whether the in-
formation is sought to aid the insurer in fixing the terms on which he
will contract, or with an entirely different object. Thus, if a mutual
insurance company should require its premiums to be paid within a
definite time after the mailing of notice addressed to the residence of
the insured, and with this rule in view should require every applicant
for insurance to state his residence in his application, and an applicant
should give as his residence, not the truth, but the place where he
ordinarily received his mail, it would seem absurd to hold that such
circumstance could invalidate the contract.
In the present case, the inquiry related merely to the payee of the
money for which the insurer was to become responsible, and by the
very terms of the contract subsequently made the insurer expressly
left the designation of the payee to the absolute discretion of the
insured ; the language of the certificates being that the supreme lodge
will pay the sum insured to "Emily Louisa Vivar, his wife, as di-
rected by said brother [Vivar] in his application, or to such other per-
son or persons as he may subsequently direct by will or otherwise."
A similar power is given to the insured by article 9 of the constitu-
tion of the rank. It seems manifest that a subject thus committed te
the control of the insured was not material to the contract of the
insurer, nor so regarded by the insurer; and that, if Mvar had de-
clared Emily Louisa Vivar to be not related to him, as the lodge now
alleges the truth to have been, the contract would have been made on
precisely the same terms as at present. While, therefore, the fact
that the question was put might justify an inference that relationship
between the payee and the member was thought material, yet the ex-
press terms of the certificates, and the provisions of the constitution,
force the conclusion that it was not. In this respect the Endowment
Rank of the Knights of Pythias differs from those benevolent societies
wdiich are organized for the benefit of members and their families
solely, and with regard to which it has been properly held that the
relationship of the payee is material. Supreme Council v. Green, 71
Md. 263, 17 Atl. 1048, 27 Am. St. Rep. 527; American Legion v.
Smith, 45 N. J. Eq. 466, 17 Atl. 770.
CooLEY Ins. — 15
226 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
The defendant further insists that the relationship was made ma-
terial by the legal necessity that the beneficiary should have an insur-
able interest in the life insured. In New Jersey, the tendency of
judicial opinion seems to be in favor of the proposition that the as-
sured need not have an interest in the life insured, in order to sup-
port the contract of insurance. Insurance Co. v. Johnson, 24 N. J.
Law, 576; Martin v. Insurance Go., 38 N. J. Law, 140, 20 Am. Rep.
372. Elsewhere contracts of insurance without such an interest are
generally condemned, as being contrary to public policy; yet even in
those jurisdictions the ordinary rule appears to be that when a per-
son effects an insurance on his own life, and in the policy designates
another person as payee of the sum insured, the latter may maintain
an action on the policy without showing an insurable interest in the
life. Campbell v. Insurance Co., 98 Mass. 381; May, Ins. § 112.
In view of the opinions heretofore expressed in this court, we
should apply this rule to the present case, and hold that an insurable
interest in the payee of these certificates was not requisite, and that
consequently her relationship to Vivar did not become material on that
ground. Our conclusion is that the relationship of Vivar to the plain-
tiff was not material to the contract, either in fact or in contempla-
tion of the insurer, and that, therefore, the falsity of Vivar's state-
ment regarding it could not invalidate the insurance.
The last reason urged for a new trial is that Vivar in his applica-
tion misstated his age. There was, however, no testimony produced
at the trial which would warrant a finding to that effect.
On the whole, we think that justice was done by the verdict, and
that the rule to set it aside should be discharged. ^^
LYNCH V. PRUDENTIAL INS. CO. OF AMERICA.
(Court of Appeals of Missouri, 1910. 150 Mo. App. 461, 131 S. W. 145.)
Action by Maggie Lynch against the Prudential Insurance Company
of America. Judgment for plaintiff. Defendant appeals.
NoRTONi, J.-^ * * * Defendant, * * * on the 23d day of
July, 1907, issued its policy of insurance in the amount of $1,000 on
the life of Michael J. Lynch, payable in event of his prior death to
his wife, Maggie Lynch, the plaintiff. About six months thereafter,
January 29, 1908, the insured died as a result of paresis while insane,
and, though proofs of his death were duly made, defendant declined
and refused to pay the policy, asserting that it was obtained through
2 2 Compare Gaines v. Fidelity & Casualty Co. of New York, ante, p. 214.
See, also, as to distinction between warranties and representations, Alabama
Cold Life Ins. Co. v. Johnston, SO Ala. 407, 2 Soutli. 125, 59 Am. Rep. 816
(1887).
2 3 Part of the opinion is omitted.
OT
WARRANTIES DISTINGUISHED FROM REPRESENTATIONS 227
misrepresentation and fraud, and, further, that there was a breach
of warranty in respect of a condition contained in the pohcy to the
effect that the insurance should not become effective unless the in-
sured was in sound health at the time the policy was issued.
This suit having been instituted on the policy, defendant answered
thereto by interposing three affirmative defenses, w'hich will be no-
ticed in their order. For its first defense, it is averred that at the time
of making application to it for the insurance the insured stated therein
that he was in good health, and that he had never been attended by
a physician, and that he had never suffered from insanity ; that, rely-
ing upon the truth of said statements, defendant contracted the insur-
ance involved, which, but for its belief in the truth of the statements
aforesaid, would not have been issued.
It is averred, too, that each and all of said statements were misrepre-
sentations of fact on the part of the insured, in that he was not then
in good health, but was suffering from a disease known as paresis, or
softening of the brain ; that the insured had been attended by a phy-
sician .prior to the date of his application, and was then under the care
of a physician ; and that he had suffered and was then suffering from
insanity. It is further averred that the said disease, from which in-
sured represented he had never suffered, and for which he had been
attended by physicians, and which at the time rendered his health un-
sound, directly contributed to and occasioned his death on January 29th
thereafter, while in the insane asylum. Wherefore it is said the mat-
ters so misrepresented by insured to defendant actually contributed to
the event on which the policy became due and payable, and that said
misrepresentations were therefore material, and rendered the policy
void and of no effect. Defendant also tendered all of the premiums
which had been paid on the policy. * * *
It may be conceded the testimony shows conclusively that the insured
had been waited upon by two physicians recently before the insurance
w^as effected ; but there is no word in the proof tending to show from
what malady he then suffered, if any, and for what he was treated,
if treated at all, by those physicians. The mere fact that the applica-
tion contained a false statement with respect to the matter that insured
had not been treated by a physician and was in sound health is not suf-
ficient to render the policy void under our statute, unless it appears
he was treated for the disease which afterwards occasioned his death.
Such a misrepresentation is not a warranty, under our insurance law
as modified by the rule of the statute, and is wholly immaterial, un-
less it was made -with respect to a fact which actually contributed to
the contingency or event on which the policy is to become payable.
Even then, the question whether such representation concerned a matter
which did so contribute is one for the jury under the positive mandate
of the statute.
The statute referred to is as follows : "No misrepresentation made
in obtaining or securing a policy of insurance on the life or lives of
228 CONSENT OF PARTIES REPRESENTATIONS AND WARRANTIES
any person or persons, citizens of this state, shall be deemed material,
or render the policy void, unless the matter misrepresented shall have
actually contributed to the contingency or event on which the policy
is to become due and payable, and whether it so contributed in any
case, shall be a question for the jury." Section 7890, Rev. St. 1899
(section 7890, Ann. St. 1906). See, also, the following authorities in
point: Schuermann v. Union Cent. Life Ins. Co., 165 Mo. 641, 65 S.
W. 723 ; Keller v. Home Life Ins. Co., 198 Mo. 440, 95 S. W. 903 ;
Salts V. Prudential Ins. Co., 140 Mo. App. 142, 120 S. W. 714; Burns
V. Met. Life Ins. Co., 141 Mo. App. 212, 124 S. W. 539; Ashford v.
Met. Life Ins. Co., 98 Mo. App. 505, 72 S. W. 712 ; Christian v. Con-
necticut Mut. Life Ins. Co., 143 Mo. 460, 45 S. W. 268; Cooley's
Briefs on Insurance, vol. 3, pp. 1989, 1990.
The second defense relied upon sets forth a warranty, which, it is
asserted, is contained in the application, and a condition of the policy,
together to the effect that, unless the insured was in sound health at
the time of issuing the policy, it should not take effect. A breach of
this warranty is alleged, and defendant prays to be discharged on that
account. The court declined to deal with this matter of a breach of
warranty, and refused an instruction drafted on the theory that the
insured had warranted his good health in the application. This was
entirely proper ; for it has been many times decided that the statute
quoted abrogates the distinction which obtained at common law as be-
tween warranties and representations in life insurance contracts, and
relegates matters which were theretofore regarded as warranties to
the same plane as that occupied by representations. Jenkins v. Cove-
nant Mut. Ins. Co., 171 Mo. 375, 71 S. W. 688; Keller v. Home Life
Ins. Co., 198 Mo. 440, 95 S. W. 903 ; Jacobs v. Omaha Life Ass'n,
146 Mo. 523, 48 S. W. 462 ; Salts v. Prudential Ins. Co., 140 Mo. App.
142, 120 S. W. 714. See, also. Schuermann v. Union Cent. Life Ins.
Co., 165 Mo. 641, 65 S. W. 723.
In a recent case a similar matter was invoked as a warranty, and
we declared the statute applied to the conditions and stipulations in the
policy to the effect that it should not take eft'ect unless the insured was
in good health at the time, as well as to misrepresentations in the ap-
plication. In either case the influence of the statute is the same ; for
the public policy of the state, as declared in the statute, is not to be
thus indirectly evaded. Though the condition in the policy based on
the misrepresentation in the application would amount to a warranty
prior to the statute, it must now be regarded as within its influence,
and no longer possessed of the force of a warranty, unless the fact
of poor health at the time actually contributed to the death of the in-
sured. Salts V. Prudential Ins. Co., 140 Mo. App. 142, 120 S. W.
714. See, also. Burns v. Met. Ins. Co., 141 Mo. App. 212, 124 S. W.
539.
Under the instructions given for both plaintiff and defendant by
which the first defense was submitted, the verdict for plaintiff affirmed
WARRANTIES DISTINGUISHED FROM REPRESENTATIONS 229
either that the insured was in good health at the time the insurance
was effected, or that, if he was not in good health and had been visited
by physicians, his then condition in no way contributed to his death or
the event upon which the policy became payable. This verdict respond-
ed to the true issue under the law, and the court very properly de-
clined to treat with the second defense on the basis of a warranty;
for the doctrine no longer obtains with us in life insurance matters,
unless the matter said to be warranted becomes material by contributing
to the event which renders the policy payable.
The third count of defendant's answer presents the matter of willful
fraud on the part of both the insured and his wife, the plaintiff, in
obtaining the insurance, and prays that the policy be declared void for
that reason. It first avers the insured obtained the insurance by mis-
representing the facts which have been heretofore detailed as to his
condition; that he made said representations for the fraudulent pur-
pose of concealing from defendant the true state of his health, etc.,
in order to obtain the insurance ; that the plaintiff, his wife, at the
time knew of the insured's impaired condition of health, and fraudu-
lently aided and abetted him in procuring the insurance, etc. The
court declined to consider this matter, otherwise than as within the
influence of our statute above quoted, and we believe this was proper,,
for, after the death of the insured, the rule of the statute obtains alike
with respect to willful fraud and mere misrepresentations. So much
has been expressly decided, and the distinction theretofore sharply
made and pointed out overruled.
In Ashford v. Insurance Co., 80 Mo. App. 638, and Van Cleave v.
Union Casualty, etc., Co., 82 Mo. App. 668, the Kansas City Court of
Appeals declared that matters of willful fraud in obtaining the policy
were beside the statute, and might be pleadsd in bar to an action
thereon. But the doctrine was repudiated by the Supreme Court in
Kern v. Sup. Council Am. Legion of Honor, 167 Mo. 471, 4S6, 487, 488,
489, 67 S. W. 252, and the authority of those cases on this question
expressly overruled. In one of the same cases, on a second appeal
(see Ashford v. Alet. Life Ins. Co., 98 Mo. App. 505, 72 S. W. 712),
the Kansas City Court of Appeals receded from its former position,
and in obedience to the ruling of the Supreme Court held that, in a
suit on the policy after the death of the insured, matters of willful
fraud in obtaining its issue are to be treated as immaterial, unless the
fraud relied upon actually contributed to the cause of death. So the
doctrine now obtains to the effect that, though the fraud practiced in
obtaining the insurance is willful and designedly done, if it consists
in matter of fact inducing the issue of the policy, it will be regarded
as a material defense in a suit on the policy only when it appears to
have been about a matter which actually contributed to the cause of
death.
Mr. Coolev, in his work on Insurance, thus states the Alissouri doc-
trine: "In Klostermann v. Germania Life Ins. Co., 6 Mo. App. 582,
230 CONSENT OF PARTIES — REPRESENTATIONS AND WARRANTIES
the court seems to have taken the position that the :Missouri statute,
which provides that an untrue statement shall not defeat the policy,
unless it relates to a matter contributing to the loss, would apply,
whether the statements were made fraudulently or in good faith. But
in Ashford v. ^letropolitan Life Ins. Co., 80 Mo. App. 638, the court
held that the statute would not apply if the representations were willful
or fraudulent, calling attention to White v. Insurance Co., 29 Fed. Cas.
1011, in which the Missouri statute was construed, and wherein Judge
Dillon expressed the opinion that willful or fraudulent misrepresenta-
tions would not come within the operation of the statute. Following
the Ashford Case, the court, in A^an Cleave v. Union Casualty & Surety
Co., 82 AIo. App. 668, held that a willful misrepresentation would avoid
the policy, if it related to a fact made material by the agreement of
the parties. Similarly it was said, in Summers v. INIetropolitan Life
Ins. Co., 90 Mo. App. 69L that the statute did not do away with the
defense of actual fraud. The doctrine of the Ashford and Van
Cleave Cases has, however, been overruled in later cases. Thus, in
Schuermann v. Union Central Life Ins. Co., 165 Mo. 641, 65 S. W.
723, the court, while conceding that the statute did not restrain the
power of a court of equity to relieve against actual fraud, regarded
the plea that the applicant knowingly made untrue statements as a
legal, and not an equitable, defense, thus practically announcing the
rule that the statute must operate, even if the misrepresentation is
willful. The rule was subsequently reiterated in Kern v. Supreme
Council American Legion of Honor, 167 Mo. 471, 67 S. W. 252.
On the authoritv of these cases it was held, in Ashford v. Metropolitan
Life Ins. Co., 98 Mo. App. 505, 72 S. W. 712, overruling the de-
cision in 80 ^lo. App. 638, that a willfully false statement was no
defense to the policy, if it related to a matter not contributing to
the death of the insured."
It seems the Supreme Court recognizes the authority of a court
of equity to cancel the policy before it has become payable by the
happening of the event insured against on the grounds of willful
fraud, which generally obtain in the law apart from the statute, but
adheres to the doctrine that after the death of the insured the li-
ability of the company and its right to be relieved from the ob-
ligation of the policy, though fraudulently induced, is to be deter-
mined under the rule of the statute. Schuermann v. Union Cent.
Life Ins. Co., 165 Mo. 641, 65 S. W. 723. Indeed, in the case
cited, the defendant appealed to the chancellor for a cancellation of
the policy on the grounds that the insurance was obtained by the
insured through false statements and representations known to him
at the time to be untrue, by incorporating a count to that effect in
its answer to a suit on the policy, and the court denied the right
to such relief after the cause of action on the policy had accrued.
The averments of the answer in that case as reported import fraud
WARRANTIES DISTINGUISHED FROM REPRESENTATIONS 231
in the inducement, but do not disclose the representations to have
been material within the purview of the statute.
On this question a most recent case may be cited as directly in
point. A study of defendant's refused instruction No. 2 in Keller v.
Home Life Ins. Co., 198 Mo. 440-453, 95 S. W. 903, and the re-
marks of the court therein (page 462 of 198 Alo., and page 909 of
95 S. W.), will reveal the thought and an application of the doctrine.
It is entirely clear that under the authorities the only fraud of the
insured, Michael J. Lynch, in obtaining the insurance, available to
defendant in a suit on the policy, to the end of relieving it of li-
ability, is such fraudulent statements as he may have made, which
induced it to issue the policy, and are material because they con-
cerned a matter which contributed to his death. * * * Affirmed.-*
2 4 Compare Mutual Life Ins. Co. of New York v. Mullen, ante, p. 211. See,
also, Cooley. Briefs on the Law of Insurance, vol. 2, p. 1189; vol. 3, p.
1983.
232 INSURANCE AGENTS AND THEIR POWERS
INSURANCE AGENTS AND THEIR POWERS
I. The Doctrine of Agency in Insurance Law ^
1. In Generai,
BALDWIN V. CONNECTICUT MUT. LIFE INS. CO.
(Supreme Judicial Court of Massachusetts, 1903. 182 Mass. 3S9, 65 N. E. 837.)
Action by Frank E. Baldwin, as administrator, against the Connect-
icut Alutual Life Insurance Company. There was judgment for de-
fendant, and plaintiff brings exceptions.
Knowlton, C. J." The plaintiff seeks to recover $10,000 on an al-
leged oral contract of the defendant to insure the life of his intestate.
He introduced evidence tending to show that one Cooper was the gen-
eral agent of the defendant company for Western New York, who
resided and had his place of business at Syracuse, in that state ; that
Alvi T. Baldwin, a brother of the plaintiff, lived in Maysville, N. Y.,
doing business in Rochester, and knew Cooper several years as a life
insurance agent in Syracuse ; * * * that in September, 1894, the
brother met Cooper at the office of the Baldwin Bros. Company in
Boston, and then introduced him to the plaintiff's intestate, to the
plaintiff, and to others, as the general agent of the Connecticut Mutual
Life Insurance Company. * * * Cooper stated to those present
"that he had come from Syracuse for the purpose of being introduced
and writing insurance for the Connecticut Mutual Life Insurance
Company." The plaintiff's evidence tended further to show that the
plaintiff's intestate, the plaintiff, and one Daggett made appUcations
for insurance in the defendant company on that day. * * * The
witnesses also testified that Cooper told them that they were insured
from the time they signed the applications. None of them was ex-
amined by a physician until the next day, when a medical examination
of each was made. The application of the plaintiff's intestate was sent
to the defendant company, but before any policy was made he died.
The suit is brought on the alleged agreement of the agent that the
plaintiff's intestate was insured from the time of his signing the appli-
cation.
The defendant sets up a variety of defenses. It says first that there
was no evidence that Cooper had authority to bind it by such an oral
1 For discussion of principles, see Vance on Insurance, § 108. See, also
Cooley, Briefs on the Law of Insurance, vol. 1, p. 345 et seq.
2 Part of the opinion is omitted.
THE DOCTRINE OF AGENCY IN INSURANCE LAW 233
contract for insurance without a payment of money or an examination
by a physician. It invokes St. 1894, c. 522, § 3, which makes it "unlaw-
ful for any company to make any contract of insurance upon * * *
lives in this commonwealth, or with any resident thereof, or for any
person as insurance agent or insurance broker to make, negotiate,
solicit or in any manner aid in the transaction of such insurance, un-
less and except as authorized by the provisions of this act" ; also
section 65 of the same chapter, which forbids life insurance companies
to make any "insurance, guaranty, contract or pledge in this com-
monwealth * * * which does not distinctly state the amount of
benefits payable, the manner of payment, and the consideration there-
for"; also section 68, which provides that "no life insurance company
doing business in Massachusetts shall * * * make any contract
of insurance or agreement as to such contract other than as plainly
expressed in the policy issued thereon"; also section 68, which forbids
life insurance companies and agents paying or allowing, "as an in-
ducement to insurance, any rebate of premium payable on the policy,
or any special favor or advantage in the dividends, or other benefit
to accrue thereon, or any valuable consideration or inducement what-
ever, not specified in the policy contract of insurance" ; also, sections
77 , 78, and 84 of this chapter, which severally provide in very plain
terms that foreign insurance companies shall not do business in this
commonwealth otherwise than through an agent or agents who are
residents of the commonwealth. These statutory provisions are now
found in Rev. Laws, c. 118.
The defendant, in answer to interrogatories, after saying that Coop-
er was its general agent for Western New York, added that he "had
a license to solicit life insurance in ^Massachusetts." This we under-
stand to mean that he was permitted or licensed by the defendant to
solicit life insurance in Massachusetts, and not that he had any license
from the authorities here. Upon the plaintiff's testimony and the ad-
mitted facts, he was not a resident of this commonwealth, but resided
in Syracuse. Under the statute, therefore, he could not legally rep-
resent the defendant as its agent to make a contract of life insurance
in this commonwealth. If he made such an oral contract as the plain-
tiff contends, it was an illegal contract, which cannot be enforced. In
this respect the case comes within the decisions in Claflin v. System
Co., 165 Mass. 501, 43 N. E. 293, 52 Am. St. Rep. 528, and Insurance
Co. V. Sawyer, 160 Mass. 413, 36 N. E. 59.
It is unnecessary to consider the other defenses relied on by the de-
fendant under the statutes above referred to. It is proper, however,
to add that in another particular the plaintiff fails to prove his case.
There is no evidence of authority on the part of Cooper, except the
fact that he was the defendant's general agent for Western New York,
and that it also permitted him to solicit insurance in Massachusetts.
In no way did the defendant hold him out as having authority bevond
that which was to be inferred from these facts. His acts and declara-
234 INSURANCE AGENTS AND THEIR POWERS
tions at the time or subsequently are not competent evidence to prove
his authority. Nor is there any inference that a general agent of a
life insurance company for a particular territory has authority to rep-
resent the company in other territory, which presumably is assigned
to another general agent, or is retained by the company in its own
management. It is well known that life insurance companies trans-
act business over very large areas, some of them in all the states of
this country and in different foreign countries. A general agent for
a specified area is not expected to exercise authority in the territory
of another general agent. There is nothing in this case to indicate
that Cooper had any more power to bind the company in Massachu-
setts than an ordinary soliciting agent. The language of the applica-
tion signed by the plaintiff's intestate, and the policy of insurance in
evidence, issued by the defendant to another person, as well as the
general practice of life insurance companies, tend to show that an
ordinary solicitor of a life insurance company has no authority to
make such unusual contract as an oral agreement for life insurance
to take effect immediately, before there is a medical examination, and
without a payment of the premium otherwise than by a promissory
note. We do not intimate that the term "general agent," as applied to
representatives of life insurance companies, implies such an authority
to represent the company as would cover the making of a contract of
this kind, apart from the statutory restrictions.
We are of opinion that there was no evidence that Cooper was au-
thorized to bind the defendant by the alleged oral contract made in
Massachusetts. Exceptions overruled.
2. Apparent Powers
RUGGLES V. AMERICAN CENT. INS. CO. OF ST. LOUIS.
(Court of Appeals of New York. 1889. 114 N. Y. 415, 21 N. E. 1000, 11
Am. vSt. Rep. 674.)
Action by James H. Ruggles against the American Central Insur-
ance Company, upon an alleged contract of fire insurance. Judgment
for plaintiff, and defendant appeals.
Brown, J.^ * * * ^ more serious question is presented as to
whether the agreement thus made was binding upon the company.
At the close of the testimony the counsel for the defendant asked the
court to dismiss the complaint, upon the ground that it appeared that
the letter appointing Sedgwick & Hammond agents for the defendant
limited them against insuring special risks. * * *
3 Part of the opinion is omitted.
THE DOCTRINE OF AGENCY IN INSURANCE LAW 235
The request to charge that, if the jury should determine that the
risk was special, the defendant was not liable, raised no other or dif-
ferent question than that presented by the motion to dismiss the com-
plaint, as the risk was conceded to have been a special one, and the
jury would have been bound so to find. The request was, therefore,
equivalent to asking for a direction of a verdict for defendant. The
point of the appellant's contention was that the court should have de-
cided upon the letter which contained the agents' delegation of au-
thority that they possessed no power to bind the defendant upon a
special risk ; and this question is the most serious one presented upon
this appeal. It may be conceded that the commission of authority had
not, at the time of making the agreement, reached the agents. It had,
however, been mailed from St. Louis, as the letter of the secretary of
the company, dated October 13th, refers to it as having been for-
warded by mail on that day. It may also be conceded that it did not
reach the agents until October 20th, the day after the fire, as Ham-
mond in his letter to the plaintiff, under date of October 21st,- speaks
of the agents not having power to bind the company, "until yester-
day," and Sedgwick testified that the two letters introduced in evidence
were the only communications they had received from the company
with reference to their acting as agents prior to the fire, which occur-
red on October 19th. The evidence upon the question of power is,
therefore, to be found entirely in the two letters last mentioned.
The first of these letters bears date October 11th, and was written
to Sedgwick & Hammond by Air. Van Yalkenburgh, a general agent
of the company. In it he says: "If your appointment is confirmed,
your jurisdiction will be the city of Brooklyn, outside the shore line;
but we shall expect you to write no large risks for us until you know
for certain that we are not on, through our New York office. As we
are now on all Brooklyn specials of any size that we will write, please
do not undertake to write any specials for us at present." The sec-
ond letter was written by the secretary of the company from St. Louis,
dated October 13th, and addressed to Sedgwick & Hammond. It
states: "We take very great pleasure in forwarding to your address
by mail to-day a commission of authority as agents of this company
in the city of Brooklyn. We deem it unnecessary to enter into any
detailed instructions as to the conduct of our business at your agency,
as our Mr. \"an Valkenburgh has written you upon that subject," etc.
Whatever authority the agents had. they derived from these letters.
The risk was a special one, and so admitted by the plaintifif upon the
trial.
Was authority to insure such a risk withheld from the agents? We
do not so interpret the letters. It is true that \^an Valkenburgh wrote
that the agents should not write any large risks until they knew that
the company was not on, through their New York office, and should
not undertake to write any specials for the company, but this limited
authoritv is not confirmed in the letter from the company. In that
236 INSURANCE AGENTS AND THEIR POWERS
letter the authority is broadly stated to be "agents of this company in
the city of Brooklyn." There was no exception in the territory named,
nor limitation as to the character of the risks to be insured. The
other expression in the letter, that "we deem it unnecessary to enter
into any detailed instructions as to the conduct of our business at your
agency, as our Mr. Van Valkenburgh has written you upon that sub-
ject," does not in any way limit the agents' power. Its plain refer-
ence is to the manner of conducting the business, and not to the au-
thority to be exercised by the agent. That this view is the one enter-
tained by the agents is plain from Hammond's letter to the plaintiff,,
under date of October 21st, in which he places his denial of the ex-
istence of an agreement to insure on the fact that they had not, at
the date of the alleged agreement, received their commission of au-
thority, and not at all upon the ground that such a contract was in
excess of their power.
We think, therefore, that the letter of October 13th, fairly inter-
preted, constituted Sedgwick & Hamn nd general agents of the com-
pany, and that the utmost that could be claimed from the direction
contained in Van \^alkenburgh's letter, which I have quoted, was that
they were instructions for the guidance of the agent, which would
in no way affect contracts with third parties having no notice or
knowledge of such instructions. A general agent may bind his prin-
cipals by an act within the scope of his authority, although it may
be contrary to his special instructions. Story, Ag. § 733 ; Walsh v.
Insurance Co., 73 N. Y. 5 ; Lightbody v. Insurance Co., 23 Wend.
18; Angell v. Insurance Co., 59 N. Y. 171, 17 Am! Rep. 322. In
Walsh V. Insurance Co. the rule is stated as follows: "Nor would
restriction upon the power of an agent, not known to persons dealing"
with him, limiting the usual powers possessed by agents of the same
character, exempt the principal from responsibility for his acts and
contracts which were within the ordinary scope of the business in-
trusted to him, although he acted in violation of special instructions."
Lightbody v. Insurance Co. was a case very similar to the case under
consideration. The plaintiff owned property in Utica, upon which he
procured insurance in the defendant company by parol agreement with
an agent in Troy, whose authority was limited to "Troy and vicinity,"
and who was denied the power to insure special risks. The plaintiff's
property was a special risk. The supreme court held the agreement
to be binding on the defendant, Bronson, J., saying: "Although he
[the agent] must answer to his principals for departing from their pri-
vate instructions, he clearly bound them so far as third persons deal-
ing with him in good faith are concerned."
The manner of conducting the business of insurance is so well
known that a person may reasonably assume that one having the ap-
parent power of a general agent is not limited by his instructions as
to the class of risks he may insure. Corporations organized under the
laws of other states, and having their general officers in those states,.
CLASSES OF AGENTS AND THEIR POWERS 237
do business in this state throii^^h agents who are intrusted with
policies signed by the officers of the company, and which become bind-
ing contracts upon the indorsement of the agent. Such agents have
power to make original contracts of insurance, and this mode of con-
ducting the business is so well established that it has become a part
of the common knowledge of the community, and judicial notice must
be taken of it. Ellis v. Insurance Co., 50 N. Y. 406, 407, 10 Am. Rep.
495. Persons dealing with such agents in good faith have the right
to assume that they possess the power usually exercised by that class
of officers ; and, unless the limitation on their authority is brought
to their knowledge, the contracts made with them will be binding upon
the company. Walsh v. Insurance Co., supra.
There was nothing in the transaction between Barker and Ham-
mond, as shown by the evidence, from which the court could assume
that Barker had any notice of any limitation on the agents' power.
At the time of making the agreement, Hammond showed him a let-
ter from the company, and it having been proven by Sedgwick that,
prior to the fire, but one letter from the company was received, it
must be assumed that the letter shown was that of October 13th. As
I have already shown, this letter constituted Sedgwick & Hammond
the general agents for the city of Brooklyn, and no one in reading it
could have supposed that, by the reference to the Van A'alkenburgh
letter, the company intended to place any limitation upon the agents"
power, but that the direction contained therein related to the man-
ner of conducting the company's business at the agency. We think
the contract made with Hammond was, therefore, binding upon the
company.
There being no other question in the case requiring discussion, the
judgment must be affirmed, with costs. All concur.*
II. Classes of Agents and Their Powers '
WESTERN HOME INS. CO. v. HOGUE.
(Supreme Court of Kansas, 1889. 41 Kan. 524, 21 Pac. 641.)
Commissioners' decision.
This action was brought by S. R. Hogue against the Western Home
Insurance Company to recover on a policy of fire insurance. There
was a judgment for the plaintiff, and defendant brings error.
4 See, also. Hicks v. British America Assur. Co., 13 App. Div. 444, 43 X.
T. Supp. 623 (1897).
5 For difcussion of principles, see Vance on Insurance. §§ 109, 110. See,
also, Coolej', Briefs on the Law of Insurance, vol. 1, p. 345 et se<i.
238 INSURANCE AGENTS AND THEIR POWERS
The findings of fact show : That upon the 3d day of August, 1885,
the defendant, by its poHcy of insurance, duly signed by the president
and secretary of the defendant, and countersigned by the duly-au-
thorized agent at Spring Hill, Kan., did insure the plaintiff against
loss or damage by fire to an amount not to exceed $500, on his gen-
eral stock of hardware, etc. That upon the 3d day of August, 1886,
the plaintiff paid to G. C. Hunter, then the duly-authorized agent
of the defendant at Spring Hill, Kan., the sum of $20 as a consid-
eration for the renewal of said policy for one year, from the 3d day
of August, 1886, at noon, to the 3d day of August, 1887, at noon,
and Hunter issued to the plaintiff a renewal receipt. Hunter ap-
propriated the said $20 to his own use, and never reported any re-
newal of said policy to the defendant, and the officers of the defend-
ant never knew of any renewal or attempted renewal of said policy, un-
til after the fire. Hunter was duly authorized by said defendant insur-
ance company to issue policies of insurance sent to him in blank by the
company ; to receive the premium therefor, and renew outstanding and
expiring policies, by issuance of a new policy, but not by renewal receipt.
Plaintiff, at the time he paid said $20 and received said renewal re-
ceipt therefor, believed, and had reason to believe, that said Hunter
had authority to issue said renewal receipt, and had no notice to the
contrary ; defendant having held out said Hunter as its general agent
at Spring Hill, Kan.
Clogston, c." * * * The court found that the agent who
made this renewal certificate had authority to renew policies, though
not in the manner of renewal certificates, but by issuing new policies.
Now, it is contended by the plaintiff that the agent, not being author-
ized to issue renewal certificates, and the fact that the company did
not so renew its policies, the acts of this agent would not bind the
company. Where it is shown, as in this case, that the agent is a gen-
eral agent, and is so held out to the community in which he does busi-
ness, and third parties transact business with him as such agent, in
good faith, without knowledge of his limited authority, the acts of
such an agent must bind the principal ; and where the agent is shown
to have authority to renew a policy in any manner, and he does re-
new a policy in a manner not authorized by his company, but that
fact is not known to the insured, the agent's renewal must bind the
company. See Insurance Co. v. McLanathan, 11 Kan. 533; Insur-
ance Co. V. Wilkinson, 13 Wall. 222, 20 L. Ed. 617. In Baubie v.
Insurance Co., 2 Dill. 156, Fed. Cas. No. 1,111, it was said: "A local
agent of a foreign insurance company, empowered to solicit insur-
ance, receive premiums, and to issue and deliver policies, has, in fa-
vor of third persons dealing with him in good faith, and without no-
tice of any restriction on his authority, power to bind the company by
* * * a parol contract to renew the policy from time to time dur-
6 Part of tbe opiniou is omitted and tlie statement of facts is rewritten.
CLASSES OF AGENTS AND THEIR POWERS 239
ing plaintiff's ownership of the property." It is therefore recommend-
ed that the judgment of the court below be affirmed.
Per Curiam. It is so ordered; all the Justices concurring.
AMERICAN EMPLOYERS' LIABILITY INS. CO. v. BARR.
(Ciraiit Court of Appeals of United States, Eightli Circuit, 1895. 68 Fed.
873, 16 C. C.'A. 51.)
In Error to the Circuit Court of the United States for the District
of Colorado.
Before Caldwell, Sanborn, and Thayer, Circuit Judges.
Thayer, Circuit Judge. '^ This writ of error was sued out by the
American Employers' Liability Insurance Company, the plaintiff in
error, to reverse a judgment which was recovered against it in the
circuit court of the L'nited States for the district of Colorado on an
accident policy of insurance. * * *
The insured sustained certain injuries on May 20, 1892, by falling
from a platform in a building which was in process of construc-
tion in the city of Denver, and died four days thereafter, as it is claim-
ed, from injuries resulting from such fall. A suit was brought on
the policy by William P. Barr, the defendant in error, to whom, un-
der the aforesaid provisions of the policy, the same was made pay-
able in the event of the death of the assured, and a judgment was
recovered against the defendant company for the sum of $5,626.58.
One of the principal errors assigned is the action of the trial court
in sustaining a demurrer to the second defense which was pleaded
by the defendant company. That defense was, in substance, as fol-
lows : The defendant averred that it held itself out as insuring pre-
ferred or selected risks in professional and mercantile classes, and
that it did not hold itself out as insuring persons while actually en-
gaged in extrahazardous employments, such as "supervising contrac-
tor," in which employment Cousley, appears to have been engaged
when he was injured; that at the time the policy in suit was issued
one Francis A. Chapman was its duly-authorized agent to solicit
insurance in its behalf in the state of Colorado, "subject to and in
accordance with the instructions, terms, and conditions contained in
applications for insurance, prospectuses, and insurance policies, and
business forms, and regulations adopted and prescribed by the board"
of directors and the president, secretary and general manager,
* * * and that said Chapman was not authorized to waive, change,
or modify any of said terms or conditions ; * * * that the de-
fendant company, for the purpose of carrying on its business in the
state of Colorado, within the limitations aforesaid, "furnished its said
agent, Francis A. Chapman, with printed blanks and other stationery
7 Part of the opinion is omitted.
240 INSURANCE AGENTS AND THEIR POWERS
reasonably proper and necessary to carry on and conduct said busi-
ness" ; that on May 6, 1892, William P. Cousley made a certain writ-
ten application to its said agent, Chapman, for an accident policy
of insurance, which application was set out in full in the answer ;
that, according to the established mode of doing business, it was the
duty of said Chapman, on receipt of said application, to transmit the
same to its branch office in the city of Chicago, and thence to its gen-
eral office in the city of New York; that said application was so trans-
mitted, but that it failed to reach New York until after the as-
sured had sustained the injuries on account of which he ultimately
died. * * *
It is somewhat difficult to comprehend the precise nature of the
defense intended to be stated in the foregoing paragraph of the an-
swer. We shall assume, however, that the defendant company in-
tended to make two defenses : First, that the contract was not fully
consummated in the lifetime of the assured; and, second, that, if
fully consummated, the assured was guilty of such a concealment of
material facts, or made such false representations, as rendered the
contract voidable at the election of the company.
Conceding, for the purposes of this decision, that it was proper to
plead both of the aforesaid defenses in a single paragraph of the an-
swer, and that it was not necessary to state the defenses separately,
still we think that neither of them was well pleaded. It is clearly
shown by the plea aforesaid, and by other portions of the answer as
well, that Chapman was the duly-authorized agent of the defendant
company to solicit insurance in its behalf in the state of Colorado;
that he was provided with such policies, applications, and other print-
ed blanks as were necessary to conduct an insurance business ; that
he accepted Cousley's application for insurance, executed and deliv-
ered the policy, and received the premium thereon for one year's in-
surance. This made the negotiation complete. If Chapman disobeyed
secret instructions which he had received from the company, or if
he departed from the usual and ordinary course of business, in de-
livering the policy and in collecting the premium before Cousley's
application had been received and had been approved by the home
office in the city of New York, the assured cannot be prejudiced by
such misconduct on the part of the company's agent.
It has been decided, time and again, that when an insurance com-
pany appoints an agent to solicit risks, and provides him with printed
forms of its policies, duly signed and sealed by the proper officers of
the company, it will be bound by a policy which the agent sees fit to
countersign and deliver, unless the assured has notice, when the pol-
icy is delivered, that the agent is exceeding his powers or is violating
his instructions. Authority to solicit risks for and in behalf of a com-
pany, coupled with possession of its printed forms of applications,
and policies duly signed and sealed, vests the agent thus equipped
with an apparent authority to make a binding contract of insurance
CLASSES OF AGENTS AND THEIR POWERS 241
without any further approval of the risk by the company. Insurance
Co. V. Wilkinson, 13 Wall. 222. 234, 235, 20 L. Ed. 617 ; Insurance Co.
V. Snowden, 7 C. C. A. 264, 12 U. S. App. 704, 58 Fed. 342 : Insur-
ance Co. V. Robison, 7 C. C. A. 444, 19 U. S. App. 266, 58 Fed.
723, 22 L. R. A. 325, and cases there cited.
In the present case there was no averment in the answer that
Cousley had notice that his policy would not take effect until his ap-
plication was approved by the home office, nor was there any aver-
ment that he was acquainted with a mode of doing business on the
part of the defendant company which necessitated an approval of the
application by the home office before the contract became complete.
He had a right to presume that the contract took effect when the
policv was delivered to him and the premium was paid, and that Chap-
man was authorized to accept the risk and execute the contract.
The second defense above mentioned, which is suggested by the
answer, is equally without merit. * * * Affirmed.
O'BRIEN V. NEW ZEALAND INS. CO.
(Supreme Court of California, 1895. 108 Cal. 227, 41 Pac. 298.)
Action by Thomas H. O'Brien against the New Zealand Insurance
Company. Judgment for plaintiff. Defendant appeals.
Garoutte, J. This is an action upon a contract of fire insurance,
and defendant is appellant, as is usual in that class of cases. One
Peters was defendant's local agent in the town of Reedly, Fresno
county, and under his commission as agent he had no authority to
enter into a contract of insurance. But he was appointed subagent
"to receive proposals for insurance, and fix rates of premium, and to
receive money for policies and certificates of insurance."
Upon July 2, 1892, plaintiff, O'Brien, made a written application to
Peters, upon one of defendant's blanks, for insurance upon his saloon,
building and fixtures. This application, accompanied by a letter from
Peters, was deposited in the postoffice July 5th. addressed to defend-
ant at San Francisco. The letter referred to the inclosed application,
with the suggestion that the company should place the insurance, if
it was deemed advisable. The plaintiff's building was occupied as a
liquor saloon, and defendant did not take insurance upon saloons,
and the agent, Peters, knew this fact. When the application was
made, the agent informed plaintiff that he was insured from that time.
Upon July 4th. which was between the time of the making of the
application and the time when the application was mailed to defendant,
the property w^as destroyed by fire. It thus appears that the build-
ing was destroyed, not only before the application for insurance was
passed upon by the defendant, but before the application was ever
heard of by the company.
CooLEY Ins. — 16
242 INSURANCE AGENTS AND THEIR POWERS
As suggested, the agent, Peters, had no authority to enter into a
contract of insurance with plaintiff. His powers did not go to that
extent. Under a commission of authority in all material respects
similar to the authority possessed by Peters, it was held in Stewart
V. Insurance Co., 102 Cal. 218, 36 Pac. 410, that the agent had no
actual authority to enter into a contract of insurance. In that case
it was an application for the renewal of a policy, and the court said:
"The proposal of plaintiff made to such agent for a renewal of said
policy was, until communicated to and accepted by defendant, nothing
more than a mere offer upon the part of plaintiff to renew such pol-
icy." That there was no actual contract of insurance in this case, as
far as defendant is concerned, is apparent at a glance, for the con-
tract could only be made with the defendant, and the defendant knew
nothing of it. The defendant had the right to reject the application
when presented:, and until it was presented and granted no contract
was possible. If there was a contract of insurance in force from July
2d until the application reached the defendant, then it was equally
in force after that time and during the entire period covered by the
policy; but such a construction would deprive the defendant of the
right to reject unsatisfactory applications, and place the power of con-
tracting in the hands of agents like Peters, a result diametrically op-
posed to its purposes and practices.
Peters was not only lacking in actual authority to enter into a con-
tract of insurance with plaintiff, but the evidence fails to show any
ostensible authority in him. Ostensible authority is such as a princi-
pal, intentionally or by want of ordinary care, causes or allows a
third person to believe the agent to possess. Civ. Code, § 2317. Cer-
tainly in this case the company did not intentionally cause plaintiff
to believe that Peters had authority to make a contract of insurance,
and there is not a word in the evidence to indicate a want of ordinary
care upon defendant's part, which caused or allowed plaintiff to be-
lieve that Peters was clothed with any such authority. It would seem
to follow inevitably that, this agent having neither actual nor osten-
sible authority to make a contract of insurance, plaintiff must fail of
recovery.
The agent, Peters, told plaintiff that he had no power to write pol-
icies, and that the application would have to be forwarded to de-
fendant at San Francisco. This statement would indicate that Peters
did not attempt to enter into a contract of insurance with plaintiff,
and that plaintiff probably so understood it. If this were all the evi-
dence, there could hardly be a question about it. but it appears that
Peters, at the time of the application, told plaintiff that his insurance
would begin at that time. While this statement may have resulted in
misleading plaintiff, it could have no possible binding effect upon the
company defendant. At best, it was but the agent's conclusion as to
the legal effect of the transaction, and any loss suffered by plaintiff
by reason of this mistake of the agent is a matter to be settled between
LIMITATIONS UPON THE POWERS OF AGENTS 243
them. A reasonable view of the meaning of the agent's language
would seem to be that the policy would take effect as of the date of
the application, if the application were accepted, for, until action upon
it by the company, it was impossible to say whether or not it ever
would take effect.
It is attempted to bring this case within the principle declared in
Harron v. Insurance Co., 88 Cal. 16, 25 Pac. 982, but the facts do
not justify it. Borchers, the special agent of the company, was not
authorized to enter into contracts of insurance. He had no more au-
thority in this regard than the subagent, Peters, and, not having power
to enter into contracts himself, he necessarily had no authority to
delegate such a power to Peters. His appearance upon the scene,
pending the negotiations for this insurance, fails to strengthen the
plaintiff's case. Looking at the case from all sides, we think it would
be a manifest injustice to require defendant to pay the loss suffered
by plaintiff. This company did not insure saloon buildings, and the
application would most probably have been rejected, as far as defend-
ant was concerned, upon presentation.
We conclude the defendant assumed no risk, and is liable for no
loss. For the foregoing reasons the judgment and order are reversed,
and the cause remanded.
III. Limitations upon the Powers of Agents *
1. Improper Limitations in Generai,
LAMBERTON v. CONNECTICUT FIRE INS. CO.
(Supreme Court of Minnesota. 1888. 39 Minn. 129, 39 N. W. 76, 1 L. R.
A. 222.)
Dickinson, J.^ The plaintiff recovered a verdict in this action
upon a contract of fire insurance. This is an appeal from an order
refusing a new trial. The construction and effect of the following
provisions of the policy are to be considered : "If the premises here-
by insured are or shall hereafter become vacated or unoccupied, and
so remain for more than ten days, * * * without notice to the
company in each case, and consent indorsed hereon, * * * this
policy shall be void. * * * And it is further expressly covenanted
by the parties hereto that no officer, agent, or representative of this
8 For discussion of principles, see Vance on Insurance, §§ 114-117. See,
also, Cooley, Briefs on the Law of Insurance, vol. 3, pp. 25S0-2592, 2607, et
seq.
» Part of the opinion is omitted.
244 INSURANCE AGENTS AND THEIR POWERS
company shall be held to have waived any of the terms and condi-
tions of this policy, unless such waiver shall be indorsed hereon in
writing-." Some months prior to the destruction of the premises by
fire they became, and thereafter remained, vacant; the assured in
the mean time endeavoring to secure a suitable tenant. The local
agent of the defendant at Winona, where the property was situated,
who had issued this policy, knew that the house was vacant during
all of this time, and in negotiations with the assured upon this subject
he treated the policy as still continuing, in force; so that, if the de-
fendant was bound by his acts in this particular, it would be estopped
to claim that its liability had terminated. He did not, however, no-
tify the company of the fact, nor was there any written consent that
the policy should remain in force.
The question is thus presented whether the conduct of the agent
affected and bound the company. The position taken on the part of
the company is that the power of the agent to bind the principal in
this particular was, by the clause found at the close of the foregoing
extract from the policy, so restricted that he could only do this by a
written consent indorsed on the policy; and that, the assured being
thus advised of the restrictions upon the power of the agent, the ac-
tion of the latter was ineffectual to bind the company.
It is an important consideration that this policy does not impose
any restriction upon the power of any particular agent, or class of
agents ; nor does it limit the power of some agents by conferring au-
thority exclusively upon others; nor does it prescribe the manner
in which alone a particular agent or class of agents shall exercise
their authority. We do not, therefore, express any opinion concerning
the eft'ect of such stipulations. The restriction here is so broad that
it applies alike to every "officer, agent, or representative of this com-
pany;" and, as a corporation can only act through such agencies,
the substance of the provision under consideration is that the company
shall not be held to have waived any of the terms or conditions of
the policy, unless its waiver be expressed by a written indorsement
on the policy. That is to say, in other words, that one of the parties
to a written contract, which is not required by law to be in writing,
cannot subsequent to the making of the contract, waive, by parol
agreement, provisions which had been incorporated in the contract
for his benefit. A contracting party cannot so tie his own hands,
so restrict his own legal capacity for future action, that he has not
the power, even with the assent of the other party, to bind or obli-
gate himself by his further action or agreement contrary to the terms
of the written contract. Insurance Co. v. Earle, 33 :\Iich. 143. This
is self-evident.
The clause of this policy relied upon, as expressly restricting the
power of the agent whose conduct is here in question, is of that
character. If it is effectual at all, as a limitation of the power of
LIMITATIONS UPON THE POWERS OF AGENTS 245
future action, it limits the power of every agent, officer, and repre-
sentative of the company, and hence, practically, that of the corpora-
tion. It is no more applicable to this particular agent than to all of
those to whom the conduct of the affairs of the corporation is com-
mitted. In that board scope, and as applicable to all the representa-
tives of the corporation, it cannot be enforced so as to render inop-
erative such subsequent action or agreement of corporate agents as
would, if it were not for this clause in the contract, be deemed the
effectual action or agreement of the corporation. A more restricted
application of this clause, making it to refer to this particular agent,
or to any particular class of agents or officers, cannot be made ; nor
can the clause in the former part of the above extract from the policy,
as to the effect of vacancy "without notice to the company and con-
sent indorsed hereon," be construed as a limitation upon the power of
any particular agent or class of agents. If it applies to any agent or
officer, it does to all ; and if such a stipulation is not effectual to
limit the legal capacity of the corporation as to its future action, it
does not limit its capacity to act by its agents. The company, then,
was legally capable, acting through its proper agents, of waiving its
right to treat the policy as of no further binding force by reason of
the vacancy ; and it could also waive compliance with that part of the
same provision which related to the consent being indorsed on the
policy.
Confessedly, the agent whose conduct is in question, had authority
to give such consent by indorsing the same upon the policy. When,
in negotiating upon this subject with the assured, he did consent, as is
established by the verdict of the jury, he was acting as the agent of
the company. His action was the action of the company ; andi the
insured having been led to understand, as the agent seems to have
done, that the contract should remain in force until further action
should be taken, the company is now estopped, as by its own conduct,
to claim the contrary.
This conclusion finds sufficient support in the following decisions,
and in others, although we are aware that there are decisions to the
contrary. Insurance Co. v. Earle, 33 Mich. 143 ; Y\e\e v. Insurance
Co., 26 Iowa, 9, 96 Am. Dec. 83 ; Young v. Insurance Co., 45 Iowa,
377, 24 Am. Rep. 784; Insurance Co. v. McCrea, 8 Lea (Tenn.)
513, 41 Am. Rep. 647; Von Bories v. Insurance Co., 8 Bush (Ky.)
133; Insurance Co. v. Gusdorf, 43 Md. 506; Insurance Co. v. Nor-
ton, 96 U. S. 234, 24 L. Ed. 689 ; Stolle v. Insurance Co., 10 W. Va.
546, 27 Am. Rep. 593; Carrugi v. Insurance Co., 40 Ga. 135, 2 Am.
Rep. 567; Wakefield v. Insurance Co., 50 Wis. 532, 7 N. W. 647;
Whited V. Insurance Co., 76 N. Y. 415, 32 Am. Rep. 330; Morrison
v. Insurance Co., 69 Tex. 353, 6 S. W. 605, 5 Am. St. Rep. 62. The
order refusing a new trial is affirmed.
246 INSURANCE AGENTS AND THEIR POWERS
2. Stipulation that Agent Taking Application is Agent of
Insured
KANSEL V. MINNESOTA FARMERS' MUT. FIRE INS. ASS'N.
(Supreme Court of Minnesota, 1883. 31 Minn. 17, 16 N. W. 430, 47 Am.
Rep. 776.)
Mitchell, J.^** 1. On principle, as well as from considerations of
public policy, agents of insurance companies authorized to procure
applications for insurance, and to forward them to the companies for
acceptance, must be deemed the agents of the insurers and not of
the insured in all that they do in preparing the applications, or in
any representations they may make to the insured as to the character
or effect of the statements therein contained. This rule is rendered
necessary by the manner in which business is now usually done by
the insurers. They supply these agents with printed blanks, stimu-
late them by the promise of liberal commissions, and then send them
abroad in the community to solicit insurance. The companies employ
them for that purpose, and the public regard them as the agents
of the companies in the matter of preparing and filling up these ap-
plications — a fact which the companies perfectly understand. The
parties who are induced by these agents to make applications for
insurance rarely know anything about the general officers of the com-
pany, or its constitution and by-laws, but look to the agent as its full
and complete representative in all that is said or done in regard to
the application. And in view of the apparent authority with which
the companies clothe these solicitors, they have a perfect right to
consider them such. Hence, where an agent to procure and forward
applications for insurance, either by his direction or direct act, makes
out an application incorrectly, notwithstanding all the facts are cor-
rectly stated to him by the applicant, the error is chargeable to the
insurer and not to the insured. Ins. Co. v. Mahone, 21 Wall. 152,
22 L. Ed. 593; Ins. Co. v. Wilkinson, 13 Wall. 222, 20 L. Ed. 617;
Alalleable Iron Works v. Ins. Co., 25 Conn. 465 ; Hough v. Ins. Co.,
29 Conn. 10, 76 Am. Dec. 581 ; Woodbury Savings Bank, etc., Ass'n
v. Ins. Co., 31 Conn. 517; Miner v. Ins. Co., 27 Wis. 693, 9 Am.
Rep. 479 ; Winans v. Ins. Co., 38 Wis. 342 ; Rowley v. Ins. Co., 36
N. Y. 550; Brandup v. Ins. Co., 27 Minn. 393, 7 N. W. 72)3 ; 2
Am. Lead. Cas. (5th Ed.) 917 et seq. ; Wood, Ins. c. 12; May, Ins.
§ 120.
2. After the courts had generally established this doctrine, many
of the insurance companies, in order to obviate it, adopted the in-
10 Part of tlie opinion is omitted.
LIMITATIONS UPON THE POWERS OF AGENTS 247
I
genious device of inserting a provision in the policy that the ap-
plication, by whomsoever made, whether by the agent of the com-
pany or any other person, shall be deemed the act of the insured
and not of the insurer. But, as has been well remarked by another
court, "there is no magic in mere words to change the real into the
unreal. A device of words cannot be imposed upon a court in place
of an actuality of fact." If corporations are astute in contriving
such provisions, courts will take care that they shall not be used as
instruments of fraud or injustice. It would be a stretch of legal
principles to hold that a person dealing with an agent, apparently
clothed with authority to act for his principal in the matter in hand,
could be affected by notice, given after the negotiations were com-
pleted, that the party with whom he had dealt should be deemed
transformed from the agent of one party into the agent of the other.
To be efficacious, such notice should be given before the negotiations
are completed. The application precedes the policy, and the insured
cannot be presumed to know that any such provision will be inserted
in the latter. To hold that by a stipulation, unknown to the insured
at the time he made the application, and when he relied upon the
fact that the agent was acting for the company, he could be held
responsible for the mistakes of such agent, would be to impose bur-
dens upon the insured which he never anticipated. Hence we think
that if the agent was the agent of the company in the matter of
making out and receiving the application, he cannot be converted into
the agent of the insured by merely calling him such in the policy
subsequently issued. Neither can any mere form of words wipe out
the fact that the insured truthfully informed the insurer, through its
agent, of all matters pertaining to the application at the time it was
made. We are aware that in so holding we are placing ourselves
in conflict with the views of some eminent courts. But the conclu-
sion we have reached is not without authority to sustain it, and is,
as we believe, sound in principle, and in accordance with public
policy. Wood, Ins. § 139; Alay, Ins. § 140; Com. Ins. Co. v. Ives,
56 111. 402; Cans v. St. Paul F. & M. Ins. Co., 43 Wis. 108, 28
Am. Rep. 535; Columbia Ins. Co. v. Cooper, 50 Pa. 331.
3. It is contended by respondent that there is a distinction in this
regard between "stock" and "mutual" insurance companies ; that the
difference in the character of the companies makes a difference in
the relative duties of the applicant and the company, and the authority
of the agents employed ; that in the case of a mutual company the
application is in effect not merely for insurance, but for admission
to membership. — the applicant himself becoming a member of the
company upon the issue of the policy. By some courts a distinction
in this respect is made between the two classes of companies. This
distinction is usually based upon the ground that the stipulations
held binding upon the insured are contained in the charter or by-
laws of the company, and that a person applying for membership is
248 INSURANCE AGENTS AND THEIR POWERS
conclusively bound by the terms of such charter and by-laws. Such
is not this case, for the stipulations claimed to bind the insured are
only in the policy. But, so far as concerns the questions now under
consideration, we fail to see any distinction between the two kinds of
companies, and we feel confident that the average applicant for in-
surance is rarely aware of any. It is true that in the case of a mu-
tual company the insured becomes in theory a member of the com-
pany upon the issue of the policy. But in applying and contracting
for insurance the applicant and the company are as much two dis-
tinct persons as in the case of a stock company, and we see no
reason for holding the agent who takes the application any less the
agent of the insurer in the one case than in the other. The member-
ship does not begin until the policy is issued. As to all previous
negotiations the agent acts only for the company. Columbia Ins. Co.
V. Cooper, supra; May, Ins. §§ 139 et seq. * * * Reversed.^^
3. Stipulation That Insurer Shall Not be Charged with
Knowledge of Agent
STERNAMAN v. METROPOLITAN LIFE INS. CO.
(Court of Appeals of New York, 1902. 170 N. Y. 13, 62 N. E. 763, 57 L. R,
A. 318, 88 Am. St. Rep. 625.
Action by Olive A. Sternaman against the Metropolitan Life In-
surance Company. From a judgment of the appellate division (49
App. Div. 473, 63 N. Y. Supp. 674) affirming a judgment in favor
of defendant entered on a verdict directed by the court, plaintifif
appeals.
This action was brought to recover the sum of $1,000, alleged to
be due on a policy of insurance issued by the defendant to the plaintiff,
as beneficiary, upon the life of her husband, George H. Sternaman.
The policy recites that the promise to insure was made in considera-
tion of the statements contained in the application, all of which are
referred to as warranties, and made a part of the contract. The
application consists of two parts, A and B. Part A, entitled, "Ap-
plication to the Metropolitan Life Insurance Company," consists of
questions relating to the age, occupation, family history, etc., of Mr.
Sternaman, all of which were truthfully answered. At the close of
these questions and answers there appeared the following: "It is
hereby declared, agreed, and warranted by the undersigned that the
answers and statements contained in the foregoing application, and
11 See, also, tbe following case, Sternaman v. Metropolitan Life Ins. Co.
LIMITATIONS UPON THE POWERS OF AGENTS 249
those made to the medical examiner, as recorded in parts A and B
of this sheet, together with this declaration, shall be the basis and
become part of the contract of insurance with the jMetropolitan Life
Insurance Company; that they are full and true and are correctly
recorded, and that no information or statement not contained in this
application and in the statements made to the medical examiner, re-
ceived or acquired at any time by any person, shall be binding upon
the company, or shall modify or alter the declaration and warranties
made therein ; that the persons who wrote in the answers and state-
ments were and are our agents for the purpose, and not the agents
of the company, and that the company is not to be taken to be
responsible for its preparation, or for anything contained therein or
omitted therefrom; that any false, incorrect, or untrue answer, any
suppression or concealment of facts in any of the answers, any vio-
lation of the covenants, conditions, or restrictions of the policy, any
neglect to pay the premium on or before the date it becomes due,
shall render the policy null and void, and forfeit all payments made
thereon." * * *
Vann, J.^^ The decision of this appeal turns substantially upon
the following question: When an applicant for life insurance makes
truthful answers to all questions asked by the medical examiner, who
fails to record them as given, and omits an important part, stating
that it is unimportant, can the beneficiary show the answers actually
given, in order to defeat a forfeiture claimed by the insurer on ac-
count of the falsity of the answers as recorded, even if it was agreed
in the application that the medical examiner, employed and paid by
the insurer only, should not be its agent, but solely the agent of
the insured?
The power to contract is not unlimited. While, as a general rule,
there is the utmost freedom of action in this regard, some restric-
tions are placed upon the right by legislation, by public policy, and
by the nature of things. Parties cannot make a binding contract in
violation of law or of public policy. They cannot in the same in-
strument agree that a thing exists, and that it does not exist, or
provide that one is the agent of the other, and at the same time,
and with reference to the same subject, that there is no relation of
agency between them. They cannot bind themselves by agreeing that
a loan in fact void for usury is not usurious, or that a copartnership
which actually exists between them does not exist. They cannot
by agreement change the laws of nature or of logic, or create re-
lations, physical, legal, or moral, which cannot be created. In other
words, they cannot accomplish the impossible by contract.
The parties to the policy in question could agree that the person
who filled out part A of the application was the agent of the in-
12 Part of the opinion is omitted and the statement of facts is abridged
from that in the official report.
250 INSURANCE AGENTS AND THEIR POWERS
sured and not of the company. There is a difference in the nature
of the work of filling out the blank to be signed by the insured,
and that of filling out the blank furnished for the use of the medical
examiner. The former is the work of the insured, and may be done
as well by one person as by another. He may do it himself, or
appoint an agent to do it for him. It is quite different, however, with
the work of the medical examiner, because that requires professional
skill and experience and the insurer permits it to be done only by
its own appointee. The insured can neither do that work himself,
nor appoint a physician to do it, because the insurer very properly
insists upon making the selection itself. The medical examiner was
selected, employed, and paid by the company. The insured had noth-
ing to do with him, except to submit to an examination by him, as
the expert of the company, and to answer the questions asked by
him in behalf of the company. This he was forced to do in order
to procure insurance ; for the company required him to undergo a
medical examination by an examiner selected and instructed by itself,
before it would act upon his application for a policy. He could
neither refuse to be examined, nor select the examiner, and he was
not responsible if the latter was negligent or unfit for the duty as-
signed to him. He could not direct or control him, but the com-
pany could and did ; for it required him to make the examination,
fill out part B of the application blank, and report the facts with
his opinion. The insured made no contract with the examiner, and
was under no obligation to pay him for his services. The company,
however, made a contract with him to do certain work for it, and
agreed to pay him for the work when done.
As between the examiner and the insured, the relation of principal
and agent did not exist, while, as between the examiner and the
company, that relation did exist by operation of law ; yet it is
claimed that, as between the insured and the company, the examiner
was the agent of the former only, because he had so agreed, not
with the examiner, but with the company itself. Under the circum-
stances, an agreement that the physician was the agent of the in-
sured was like an agreement that the company or its president was his
agent. It was in contradiction of every act of the parties and of
every fact known to either. The law, when applied to the facts,
made the physician the agent of the company, and not of the insured.
* * *
An agency is created by contract, express or implied. It "is a
legal relation by virtue of which one party (the agent) is employed
and authorized to represent and act for the other (the principal) in
business dealings with third persons. The distinguishing features of
the agent are his representative character and his derivative au-
thority." Mechem, Ag. § 1 ; Story, Ag. § 3. "To constitute agency
there must be consent both of principal and of agent." Whart. Ag. § 1.
What was the contract between the company and the examiner?
LIMITATIONS UPON THE POWERS OF AGENTS 251
The defendant, beings a corporation, could act only through agents.
Having some work to do in the form of a medical examination, it
requested Dr. Langley to do it. It created the relation of agency be-
tween him and itself by employing him, paying him, etc. It alone
could discharge him, and to it alone was he responsible for disobed-
ience or negligence. It could control his conduct by any reasonable in-
structions, and hold him liable if he violated them. It prescribed cer-
tain questions that he should ask, and required him to take down the
answers in a blank prepared by itself. It could sue him if he did
not do it properly, and he could sue the company if it did not pay
him for doing it. Thus we have an agency between the company
and the examiner established by mutual agreement, with the right
on the one hand to instruct, to discharge, and to hold liable for de-
fault, and on the other to compel payment for services rendered.
Hence what the examiner did in the course of his employment the
company did, and what he knew from discovery while acting for it
the company knew.
What was the contract between the insured and the examiner?
None whatever. The insured did not employ the examiner, and the
examiner did not agree to work for him. Neither was under any
legal obligation or liability to the other. The insured could not
instruct the doctor, nor discharge him, nor sue him for negligence,
and the doctor could not sue the insured for compensation. The
relation of principal and agent did not exist between them, either
"by virtue of any contract or by operation of law.
What was the contract between the insured and the insurer? With
the relations above described as existing between the insurer and the
examiner in full force, and in the absence of any legal relation be-
tween the examiner and the insured, an attempt was made by the
insurer, by an agreement imposed upon the insured, to subvert the
relation of its own examiner to itself, and establish a relation be-
tween him and the insured, without the consent of either given to
the other. There was no tripartite contract. While the contract be-
tween the doctor and the company was still in existence, the latter
agreed with a third party only that that contract did not in fact
exist between the two parties who made it, but did exist between
two parties who did not make it. This was not possible by any
form of words, any more than to make black white, or truth false-
hood. We think that the medical examiner was the agent of the
defendant in making the examination of the insured, recording his
answers, and reporting them to the company.
Sound public policy prohibits the company from stipulating for im-
munity from the consequences of its own negligence, or, what is
the same thing, the negligence of its agent. Rathbone v. Railroad
Co., 140 N. Y. 48, 35 N. E. 418. The manner of conducting the
examination was, of necessity, intrusted to the judgment of the medi-
>cal examiner to a great extent. His judgment might influence him
252 INSURANCE AGENTS AND THEIR POWERS
to take down the answers in a general or in a particular way. In
exercising his judgment he determined that certain answers were too
trivial to be recorded. In making that determination he was not
acting for the insured, but for the company; for it had furnished
him with a blank, and had invested him with power to take down
the answers, and hence with power to decide how they should be
taken down. If he was negligent or failed to do his duty in this
regard, the company could not, by an agreement made in advance,,
cast the burden upon the insured, who did not select or employ him.
His negligence was its own negligence, and it could not by contract
make it the negligence of the insured, or relieve itself from the legal
consequences thereof. * * *
The insured also agreed that "no information or statement not
contained in this application, and in the statements made to the medi-
cal examiner, received or acquired at any time by any person, shall
be binding upon the company, or shall modify or alter the declara-
tions and warranties made therein." The facts sought to be proved
were contained in the oral statements made to the medical examiner,
but, assuming that recorded statements only were meant, the result
would be an agreement that the company might perpetrate a fraud
upon the insured, by issuing a policy and accepting premiums thereon,
knowing all the time that the contract was void, or voidable at its
election. The law does not permit this ; for it declares that the com-
pany is estopped from taking advantage of such a contract, because
it would be against equity and opposed to public policy.
We adopt, as expressing our own views upon the subject, the fol-
lowing language used by the supreme court of the United States, in
a case somewhat analogous : "If, however, we suppose the party
making the insurance to have been an individual, and to have been
present when the application was signed, and soliciting the assured
to make the contract of insurance, and that the insurer himself wrote
out all these representations, and was told by the plaintiff and his
wife that they knew nothing at all of this particular subject of in-
quiry, and that they refused to make any statement about it, and
yet, knowing all this, wrote the representation to suit himself, it is
equally clear that for the insurer to insist that the policy is void
because it contains this statement would be an act of bad faith and
of the grossest injustice and dishonesty. And the reason for this is
that the representation was not the statement of the plaintiff, and
that the defendant knew it was not when he made the contract, and
that it was made by the defendant, who procured the plaintiff's signa-
ture thereto. It is precisely in such cases as this that courts of law
in modern times have introduced the doctrine of equitable estoppel,
or, as it is sometimes called, 'estoppel in pais.' * * * Indeed, the
doctrine is so well understood and so often enforced that if, in the
transaction we are now considering, Ball, the insurance agent who-
made out the application, had been in fact the underwriter of the.
LIMITATIONS UPON THE POWERS OF AGENTS 253
policy, no one would doubt its applicability to the present case. Yet
the proposition admits of as little doubt that if Ball was the agent
of the insurance company, and not of the plaintiff, in what he did in
filling up the application, the company must be held to stand just
as he would if he were the principal. * * * This principle does
not admit oral testimony to vary or contradict that which is in writ-
ing, but it goes upon the idea that the writing offered in evidence
was not the instrument of the party whose name is signed to it ;
that it was procured under such circumstances by the other side as
estops that side from using it or relying on its contents; not that
it may be contradicted by oral testimony, but that it may be shown
by such testimony that it cannot be lawfully used against the party
whose name is signed to it." Insurance Co. v. Wilkinson, 13 Wall.
222, 20 L. Ed. 617.
We think it is established by the weight of authority in this state
that the medical examiner is the agent of the insurer in making the
examination, taking down the answers, and reporting them to the
company; that his knowledge thus acquired, his interpretation of the
answers given, and his errors in recording them, are the knowledge,
interpretation, and errors of the company itself, which is estopped
from taking advantage of what it thus knew and what it had thus
done when it issued the policy and accepted the premiums. O'Farrell
v. Insurance Co., 22 App. Div. 495, 48 N. Y. Supp. 199; Id., 44
App. Div. 554, 60 N. Y. Supp. 945; Id., 168 N. Y. 592, 60 N. E.
1117; O'Brien v. Society, 117 N. Y. 310, 318, 22 N. E. 954; Grattan
V. Insurance Co., 92 N. Y. 274, 44 Am. Rep. 372; Grattan v. In-
surance Co., 80 N. Y. 281, 36 Am. Rep. 617; Flynn v. Insurance
Co., 78 N. Y. 568, 34 Am. Rep. 561 ; Whited v. Insurance Co., 76
N. Y. 415, 32 Am. Rep. 330; Sprague v. Insurance Co., 69 N. Y. 128.
* * * Reversed.
254 WAIVEK AND ESTOPPEL
WAIVER AND ESTOPPEL
I. General Principles ^
METCALF V. PHENIX INS. CO.
(Supreme Court of Rhode Island, 1S99. 21 R. I. 307. 43 Atl. 541.)
Action by Mary L. Metcalf against the Phenix Insurance Com-
pany. On demurrer.
Matteson, C. J. This is assumpsit on a policy of insurance against
loss by fire. The defendant pleads that suit was not begun within 12
months next after the fire, as required by limitation in the policy.
The plaintifif replies that the defendant, by its duly-authorized agents
and servants, entered into negotiations with her for the purpose of
adjusting the loss without litigation, and repeatedly promised her
that the loss should be adjusted without suit, and requested her not
to bring suit; that, relying on these representations, requests, and
promises, she was induced to delay, and did delay, bringing suit,
until the 12 months had expired, and that, by reason of such repre-
sentations, requests, and promises, the defendant is estopped to plead
the limitation in the policy. By way of rejoinders, the defendant
sets up, in answer to the replications, the final clause of the policy,
to the efifect that no officer, agent, or other representative of the
company shall have power to waive any provision or condition of the
policy except such as, by the terms of the policy, may be the sub-
ject of agreement indorsed thereon or added thereto, and avers that
the limitation in the policy is not a provision which, by the terms of
the policy, may be the subject of agreement to be indorsed on or
added to it. The plaintifif demurs to the rejoinders upon the ground
that the facts alleged in the replications to avoid the limitation of
the policy are pleaded as an estoppel, and not as a waiver.
The question thus presented is whether the clause in the policy set
up in the rejoinders relating to waiver constitutes an answer to the
facts pleaded in the replications, and which, if proved, would create
an estoppel in pais against the defendant, and preclude it from avail-
ing itself of the limitation respecting the bringing of suits. Oakman
V. Insurance Co., 9 R. I. 357. As stated in this case, strictly speak-
ing, the defendant could not waive its right to insist on the limitation
until the time came for it to so insist, i. e. until it had been sued.
The clause in question is to receive a strict construction against the
1 For discussion of principles, see Vance on Insurance, §§ 118-120. See,
also, Cooley, Briefs on the Law of Insurance, vol. 3, p. 2455 et seq.
GENERAL PRINCIPLES 255
defendant, in whose favor it was designed to operate, and is to be
construed, if possible, so as to prevent a forfeiture. 11 Am. & Eng.
Enc. Law, 286, and cases cited. Giving to the clause this strict
construction, it is clear that it can have no application to the limi-
tation against the bringing of suits until the suit has been begun,
and therefore cannot be applied to matters which occurred previously
to the suit. And, since it in terms applies only to matters constituting
a waiver, it is clear that it can have no application to facts creating
an estoppel; for, though the terms "estoppel" and "waiver" may
sometimes loosely be used interchangeably, there is a clear distinction
between them.
A waiver arises by the intentional relinquishment of a right by a
person or party, or by his neglect to insist upon his right at the
proper time, and does not imply any conduct or dealing with another
by which that other is induced to act or forbear to act to his dis-
advantage, while an estoppel necessarily presupposes some such con-
duct or dealing with another. The matters set up in the replications
are matters operating by way of estoppel, and not as a waiver, and
our opinion is therefore that the rejoinders are not a sufficient answer
to them. Demurrers to the first rejoinder to the replication to the
second plea, and the first rejoinder to the replication to the third
plea, sustained, and said rejoinders overruled. Case remitted to the
common-pleas division for further proceedings,^
ALABAMA STATE MUT. ASSUR. CO. v. LONG CLOTHING
& SHOE CO,
(Supreme Court of Alabama, 1899. 123 Ala. 667, 26 South. 655.)
Action by the Long Clothing & Shoe Company against the Alabama
State Mutual Assurance Company on an insurance policy. From a
judgment in favor of plaintiff, defendant appeals.
Sharpe, J.^ The action is in the Code form, upon a policy of fire
insurance. The errors assigned relate only to the action of the court
in overruling demurrers to replications, * * * The second plea
averred, in substance, that the plaintiff violated the contract of insur-
ance by obtaining, contrary to its stipulations, additional insurance
upon the goods alleged to have been damaged, without giving notice
to, and obtaining the written consent of, the defendant. The replica-
tions in question each set up in avoidance of the plea facts depend-
ed upon as constituting a waiver on the part of the defendant of the
stipulation respecting additional insurance.
2 Distinction between waiver and estoppel, see, also, Germania Ins, Co.
V, Bromwell, post, p. 258.
3 Statement of facts and part of the opinion are omitted.
256 WAIVER AND ESTOPPEL
Provisions like the one set out in the second plea are inserted fof
the benefit of the insurer, and can therefore be waived by the insurer.
Since the law of waiver and estoppel cannot be abolished by contract,
the stipulation which in case of additional insurance purports to hinge
the validity of the policy upon the written consent of the secretary
does not prevent the operation of the usual rules by which a waiver
of that clause may be established. Such waiver may therefore be
shown by parol, and even by acts, declarations, or conduct on the part
of the insurer. Insurance Co. v. Young, 86 Ala. 424, 5 South. 116,
11 Am. St. Rep. 51; Bouton v. Insurance Co., 25 Conn. 542; Insur-
ance Co. V. Norton, 96 U. S. 234, 24 L. Ed. 689; Insurance Co. v.
Eggleston, 96 U. S. 572, 24 L. Ed. 841 ; Insurance Co. v. French,
30 Ohio St. 240, 27 Am. Rep. 443 ; Insurance Co. v. Earle, 33 Mich.
153; Williams v. Association, 89 Me. 158, 36 Atl. 63.
A waiver may be founded upon an estoppel, but it is not so nec-
essarily. Though the conduct of the insurer may not have actually
misled the insured to his prejudice, or into an altered position, yet
if, after knowledge of all the facts, its conduct has been such as to
reasonably imply a purpose not to insist upon a forfeiture, the law,
leaning against forfeitures, will apply the peculiar doctrine of waiver,
invented probably to prevent them, and will hold the insurer irrevo-
cably bound as by an election to treat the contract as if no cause of
forfeiture had occurred. Kiernan v. Insurance Co., 150 N. Y. 190,
44 N. E. 698 ; Titus v. Insurance Co., 81 N. Y. 410.
Under this principle the sufficiency of the second, third, fourth,
and fifth replications may be tested. They set up no estoppel, but they
each aver the failure of the defendant to object to the additional in-
surance before the loss occurred, though it had been given notice of
the subsequent insurance, and a reasonable time for objections had
then elapsed.
The authorities appear to be generally agreed that such failure to
act on the part of the insurer is evidence of an intention to waive the
stipulations against additional insurance, but they are not entirely in
accord as to whether such nonaction in itself will constitute a waiver,
as a legal conclusion. In Insurance Co. v. Young, supra, it was said :
"If the defendant did not have notice of the forfeiture until after
the destruction of the goods, some affirmative act or conduct is req-
uisite. In such case a waiver cannot be inferred from mere silence."
But, where the notice is given the company before the loss, the rea-
son is strong for holding it to the duty of expressing its dissent in
some unequivocal way, if a forfeiture is to be claimed. The right of
forfeiture residing alone with the company, it should not hold it in
abeyance for an unreasonable time so as to thereafter be enabled to
accept or reject the contract as may suit its interests, while the other
party continues bound for the premium, and ought to know whether
the property is protected. Acquiescence of the company in the con-
tinuance of the contract may be more readily presumed where it mav
PRIOR PAROL WAIVERS 257
bring benefits than where nothing- but loss is in sight, and the insured
is therefore more Hkely to be misled by the lack of objection. The
view that the silence of the company in such case should be treated
as its assent to the additional insurance is reasonable, and it is well
supported by authority. Beach, Ins. § 767; Wood, Ins. p. 807; In-
surance Co. V. Lyons, 38 Tex. 253 ; Cromwell v. Insurance Co., 47
Mo. App. 109; Potter v. Insurance Co., 5 Hill (N. Y.) 147. See,
also, Insurance Co. v. Marple, 1 Ind. App. 411, 27 N. E. 633; Joliffe
V. Insurance Co., 39 Wis. Ill, 20 Am. Rep. 35; Hayward v. Insur-
ance Co., 52 Mo. 181, 14 Am. Rep. 400.
The last-mentioned replications were therefore each good, in avoid-
ance of the plea, and the demurrers thereto were properly overruled.
4i * * 4
II. Prior Parol Waivers '
CALMENSON v. EQUITABLE MUT. FIRE INS. CO.
(Supreme Court of Minnesota, 1904. 92 Minn. 390, 100 N. W. 88.)
Action by Cain Calmenson against the Equitable Mutual Fire In-
surance Company of Minneapolis. From an order dismissing the
action, plaintiff appeals.
Lewis, J. This action was brought to recover the amount of loss
suffered by fire under a policy issued by respondent company. The
defense was interposed that, subsequent to the issuance of the policy,
appellant procured other insurance without respondent's assent. Re-
ply alleged that assent had been given.
During the progress of the trial, appellant made the following of-
fer of proof: That he had made application to the solicitor of re-
spondent company for $4,000 or $5,000 insurance on his stock of
goods at Lidgerwood, N. D. ; that the solicitor asked the company's
secretary if he would write the risk for that amount, and the secre-
tary, after inquiring concerning the character of the building in which
the goods were contained, said the company would place $2,000 of
the insurance, and appellant could get the remainder in some other
company ; that this fact was communicated to appellant by the solici-
tor, whereupon appellant made written application for $2,000 insur-
ance, which was submitted to the company, and' was examined and
approved by it; that the soHcitor told appellant he could get $2,000
* Reversed for other errors.
B For discussion of principles, see Vance on Insurance, § 122. See, also,
Cooley, Briefs on the Law of Insurance, vol. 3, p. 2595 et seq.
CooLEY Ins. — 17
258 WAIVER AND ESTOPPEL
Other insurance, which he advised him to take in old-line companies ;
that appellant took the policy with the understanding that he had the
right to take out additional insurance, and accordingly took out $500
in another company. The offer was refused, and at the close of plain-
tiff's case, on motion, the court dismissed the action on the ground
that appellant had not introduced evidence sufl^cient to sustain the
cause.
The ruling of the trial court was correct. Plaintiff's cause of ac-
tion was based upon the contract as evidenced by the policy, which
provided : "This policy shall be void * * * jf the assured now has
or shall hereafter take any insurance on said property without the
assent of the company." So far as appears from the policy, such
assent might be oral ; there being no requirement, as is usual, that
it be in writing or be indorsed on the policy. The offer of proof that
the assent was orally given by the secretary at the time verbal ap-
plication was made for the insurance was inadmissible, for the rea-
son that the application for and the contract of insurance were re-
duced to writing, and, under a familiar rule of evidence, all contem-
poraneous verbal statements, agreements, and understandings were
merged in the writings. For application of the rule to written con-
tracts of insurance, see Union Nat. Bank v. German Ins. Co., 71 Fed.
473, 18 C. C. A. 203 ; Insurance Company v. Mowry, 96 U. S. 544,
24 L. Ed!. 674 ; Germania Ins. Co. v. Bromwell, 62 Ark. 43, 34 S. W.
83. Order affirmed.
GERMANIA INS. CO. v. BROMWELL.
(Supreme Court of Arkansas, 1896. 62 Ark. 43, 34 S. W. S3.)
Action by C. E. Bromwell against the Germania Insurance Company.
From a judgment for plaintiff, defendant appeals.*'
RiDDiCK, J. It is admitted by Bromwell, the assured, that he did
not comply with the provisions of the iron safe clause in his policy.
That clause required the assured to keep a set of books showing the
changes taking place from time to time in the stock of goods insured.
The reason of it is apparent, for without such books the amount of
merchandise on hand at time of the fire could not be told. Similar
provisions have been frequently held valid by this court. Insurance
Co. V. Parker, 61 Ark. 207, 32 S. W. 509 ; Assurance Co. v. Altheim-
er, 58 Ark. 575, 25 S. W. 1067 ; Insurance Co. v. Wilkerson, 53 Ark.
353, 13 S. W. 1103.
As an excuse for failing to comply with this requirement of his pol-
icy, Bromwell testified that before the policy was issued the agent
of the company told him that it was unnecessary to keep such books. ■
But it was not competent thus to contradict the material stipulations.
6 Statement of facts rewritten.
PRIOR PAROL WAIVERS 259
of the policy by evidence of the parol declarations of the parties made
at' the time or before the policy was issued. The rule that "parol
contemporaneous evidence is inadmissible to contradict or vary the
terms of a valid written instrument" applies to contracts of insurance
as well as to other written or printed contracts. Robinson v. Insur-
ance Co., 51 Ark. 441, 11 S. W. 686, 4 L. R. A. 251 ; Southern Ins.
Co. V. White, 58 Ark. 281, 24 S. W. 425; Weston v. Emes, 1 Taunt.
115; Insurance Co. v. Pruett, 74 Ala. 497; Thompson v. Insurance
Co., 104 U. S. 259, 26 L. Ed 765 ; Insurance Co. v. Mowry, 96 U.
S. 547, 24 L. Ed. 674; 1 Wood, Ins. 10; 1 Greenl. Ev. § 275.
It is contended by counsel for appellee that this provision of the
policy was waived by the declaration of the agent, made before the
policy was issued, and that the company cannot now assert it ; but
we think that this contention is not sound. The case of Sprott v. As-
sociation, 53 Ark. 215, 13 S. W. 799. cited by counsel, does not sup-
port such contention, for there the written application for insurance,
upon which the policy was issued, notified the insurer where the books
would be kept. That was not an attempt to contradict the terms of
the policy by evidence of parol contemporaneous statements, but by a
writing which could be treated as a part of the contract. It is true
there are many cases which hold that requirements as to notice and
proof of loss may be waived. There are also many cases holding
that an insurance company may, under certain circumstances, be es-
topped from taking advantage of a forfeiture or breach of a condi-
tion in the policy. "Any unequivocal and positive act of the company
recognizing the policy as valid after a knowledge of its breach, or
any act that puts the insured to unreasonable expense or trouble in
the justifiable belief that the company still regards the policy as valid,
will estop the company from taking advantage of the forfeiture."
Rich. Ins. § 64; Wood, Ins. 1161; Insurance Co. v. Brodie, 52 Ark.
11, 11 S. \V. 1016, 4 L. R. A. 458; Insurance Co. v. Gibson, 53 Ark.
494, 14 S. W. 672.
There are a large number of cases resting upon this rule, some of
which have been cited by counsel, but there is a broad distinction be-
tween those cases and the one at bar. In those cases the acts of the
agent or company which were treated as a waiver or were held to
constitute an estoppel took place at the time of or after the breach
of the condition, but the declarations of the agent relied on here to
create an estoppel or waiver by the company took place not only be-
fore the breach of the condition occurred, but before the policy was
issued. An estoppel can seldom arise, except when the representa-
tion relates to a matter of fact existing at the time or previously.
Acts which waive a forfeiture must, of necessity, follow, or at least
accompany the acts which would otherwise constitute the forfeiture,
for there cannot be a waiver of a forfeiture until a forfeiture exists.
A company or its agents may, by acts clearly recognizing a policy
as valid after notice of the facts, waive a breach of a condition in a
260 WAIVER AND ESTOPPEL
policy already existing, but it cannot well be contended that an agent
could, by his acts or declarations, waive the stipulations of a policy
not then in existence. Bernard v. Association, 11 Misc. Rep. 441,
32 N. Y. Supp. 223 ; Insurance Co. v. Mowry, 96 U. S. 547, 24 L.
Ed. 674; Bigelow, Estop. (5th Ed.) 574; Thompson v. Insurance
Co., 104 U. S. 259, 26 E. Ed. 765; Insurance Co. v. Pruett, 74 Ala.
497.
This doctrine of estoppel and waiver has no application when the
declaration of the agent relates to the rights depending upon contracts
yet to be made, to which the person complaining is to be a party, for
in such a case he has it in his power to protect himself by proper
stipulations in the contract when reduced to writing. Insurance Co.
v. Mowry, 96 U. S. 547, 24 L. Ed. 674; Bigelow, Estop. (5th Ed.)
■74. The case last cited arose upon a life insurance policy. The agent
had agreed that the insured should be notified by the company when
each premium fell due. No such provision was put in the policy,
but by an express condition of the policy the company was released
from liability upon the failure of the insured to pay the premium when
it matured. It was contended that the company could not insist upon
this condition on account of the promise of the agent and the failure
of the company to give the notice before the premium became due.
"But," said the court, "to this position there is an obvious and com-
plete answer. All previous verbal arrangements were merged in the
written agreement. The understanding of the parties as to the amount
of the insurance, the conditions upon which it should be payable, and
the premium to be paid, were then expressed for the purpose of avoid-
ing any controversy or question respecting them. The entire engage-
ment of the parties, with all the conditions upon which its fulfillment
could be claimed, must be conclusively presumed to be then stated.
If by inadvertence or mistake provisions other than those intended
were inserted, or stipulated provisions were omitted, the parties could
have recourse for a correction of the agreement to a court of equity,
which is competent to give all needful relief in such cases. But, until
thus corrected the policy must be taken as expressing the final under-
standing of the assured and the insurance company." Insurance Co.
V. Mowry, supra.
The above extract from the opinion of the United States supreme
court asserts only well-known rules of law which must apply in this
case. If the agent of the insurance company agreed with appellee that
he need not keep books, he should have refused to accept a policy
in which it was expressly stipulated that he should keep books. If
through mistake he accepted a policy which did not express the con-
tract made with the agent, he should have applied to a court of equity
to have the contract reformed. Having brought his action at law upon
the policy, and prosecuted it to judgment, he has elected to treat it
as expressing the true contract between himself and the company,
and he cannot now recede from it, or contradict it. Washburn v. In-
SUBSEQUENT PAROL WAIVERS 2Gi
surance Co., 114 Mass. 175. We must therefore, in considering this
case, disregard entirely the testimony of oral contemporaneous declar-
ations which contradict the provisions of the policy, and we conclude
that the judgment of the circuit court is without evidence to support it.
The appellee undertook that he would keep a set of books showing
a complete record of his business. He failed to do so, and by the
terms of his contract he cannot recover. The judgment is reversed,
and the cause remanded for further proceedings.
III. Subsequent Parol Waivers '
GERMAN-AMERICAN INS. CO. v. HUMPHREY.
(Supreme Court of Arkansas, 1896. 62 Ark. 348, 35 S. W. -428, 54 Am. St.
Rep. 297.)
Action by J. H. Humphrey against the German-American Insur-
ance Company on a policy of fire insurance. Judgment for plain-
tiff, and defendant ap];eals.
Wood, J. The plaintiff sued upon a fire insurance policy, for the
loss of certain hotel furniture. The defense was based upon alleged
noncompliance with the terms of the policy, which provided "that if
the subject of the insurance be personal property, and be or become
incumbered by a chattel mortgage," the policy should be void. The
property covered by the policy was mortgaged after the issuance of
the policy. But the plaintiff contends that the policy was only sus-
pended during the continuance of the mortgage, and was revived by
the discharge of the mortgage before the loss occurred. There was
proof, though meager, to support the finding that the mortgage was
canceled before the fire, although the record was not satisfied until
after. The satisfaction of the record was not essential to the re-
moval of the incumbrance. If the mortgage was paid off and can-
celed, it was sufficient. May, Ins. § 292 ; Hawkes v. Insurance Co.,
11 Wis. 188; Smith v. Insurance Co., 60 Vt. 682, 15 Atl. 353, 1
L. R. A. 216, 6 Am. St. Rep. 144; Merrill v. Insurance Co.. 7Z X. Y.
452, 29 Am. Rep. 184.
But the proposition that the incumbrance, while it existed, only
suspended the policy, contravenes the unambiguous terms of the con-
tract, which the parties themselves have made. The language of the
clause quoted supra, in its plain, ordinary and popular sense, indicates
a total extinction of the policy if the property be incumbered, and
7 For discussion of principles, see A'anee on Insurance, § 123. See, also,
Coolej-, Briefs on the Law of Insurance, vol. 3, p. 2601 et seq.
262 WAIVER AND ESTOPPEL
not a suspended animation thereof, subject to be revived upon pay-
ment of the mortgage debt. Courts, by interpretation, cannot ingraft
upon insurance contracts, any more than upon any other, a meaning
totally foreign to that which the plain terms employed by the parties
themselves convey. It is undoubtedly true that where the contract,
on account of any ambiguity in the language used, is reasonably sus-
ceptible of different constructions, that construction should be adopted
most favorable to the insured. Imperial Fire Ins. Co. of London
V. Coos Co., 151 U. S. 452, 14 Sup. Ct. 379, 38 L. Ed. 231; 1 May,
Ins. §§ 175, 176, and authorities cited.
The insurer has the right to contract against any possible risk of
loss or embarrassment incident to incumbering the property insured.
If it be said that, where the mortgage is paid off, there is no longer
an incumbrance and increase of risk, still as to whether or not the
mortgage had been paid off would be the question, and one that
often could not be settled without expensive litigation. The insured
mortgagor might enter into collusion with the mortgagee to defraud
the insurance company after the loss occurred, by claiming that the
mortgage had been paid off and discharged, when in fact it had not.
Unfortunately, all men are not honest. Without some such provision
in the policy, the unscrupulous would have an inviting opportunity,
after a loss, to divide the spoils, at the expense of the insurer. Doubt-
less some such considerations as these prompted the clause in the
policy under consideration. The clause is reasonable and clear, and
the parties had the right to thus contract. The opinion in Imperial
Fire Ins. Co. of London v. Coos Co., supra, and the numerous au-
thorities there reviewed, leaves no doubt of the correctness of our
ruling. Contra, counsel cite May on Fire Insurance, at page 589
(section 294), where he says, "An incumbrance in violation of the
policy only suspends it, and, if paid before the loss, the policy re-
vives." And the learned author cites Kimball v. Monarch Ins. Co.,
70 Iowa, 513, 30 N. W. 862. An examination of that case will show
that after the mortgage had been paid off the insured assigned the
policy, and the company indorsed upon it its assent to the assignment.
This was tantamount to the issuance of a new policy. It was a
waiver of forfeiture. So the case cited does not support the text.
2. It is also contended by the appellee that, if there was a for-
feiture, it was waived by an agreement of the plaintiff' with John L.
Mills, clerk of the local agent, to the effect that the assured should
see the mortgagee, and have the mortgage canceled, and that the
policy should remain in force. And appellee says that said agreement
on his part was performed before the loss occurred. Such an agree-
ment if made by one having authority, would be a waiver of the
forfeiture. Pratt v. Insurance Co., 55 N. Y. 505, 14 Am. Rep. 304.
Since counsel for appellants have not questioned here the sufficiency
of the evidence to prove such an agreement, we will treat the verdict
as conclusive on that point. Appellant questions only the authority
SUBSEQUENT PAROL WAIVER8 263
of the clerk of the local agent to make such agreement. The testi-
mony as to the authority of the agent and his clerk is related by
John L. Mills as follows: "R. H. M. Mills is my father, and I am
a clerk in his office. I never make any agreement about insurance,
other than the conditions in the policy. The only contract we have
is the policy. I am not a partner with my father, but only a clerk.
I merely sell the policies and receive the premiums. My brother and
I merely do the office work for my father. I have no authority from
the German-American Insurance Company. My father has never
appointed me subagent for them. I have no power, from the agent
or otherwise, to alter any of the terms of the printed contracts, nor
to make any changes in a policy of insurance. I have no power
to sign policies, but they are all signed by my father. I solicit in-
surance, and fill up blank policies for my father's signature. I filled
up this one. This policy is signed by my father, who is the only
person authorized to sign it. I am simply a soliciting agent and clerk,
without any authority to modify the contract embodied in the policy."
The policy provides that "no agent shall have power to waive any
provision or condition of this policy, except such as by the terms of
this policy may be the subject of agreement indorsed hereon or
added hereto ; and, as to such provisions or conditions, no agent shall
have such power, or be deemed or held to have waived such pro-
visions or conditions, unless such waiver, if any, shall be written
upon or attach'ed hereto. Nor shall any privilege or permission affect-
ing the insurance under this policy exist or be claimed by the in-
sured unless so written or attached."
Under the express terms of the policy, the placing of a mortgage
upon the property, ipso facto, avoided the policy. The forfeiture
thus created could only be waived by one who had authority to do
so, and authority, too, as high as that by which the contract was
made in the first instance. Hamilton v. Insurance Co., 15 Mo. App. 59.
There is a marked distinction between a waiver of conditions made
before and those made after the issuance of a policy. But an agent
who has been furnished by his principal with blank applications, and
with policies duly signed by its officers, and who has been authorized
to take risks, and to issue policies by simply signing his name, to
collect premiums, and to cancel policies, — all without consulting his
principal, — would certainly be empowered to waive the condition as to
incumbrance either before or after the issuance of the policy. And
he could waive the forfeiture by parol, notwithstanding the limita-
tions upon his power in this respect contained in the policy. In-
surance Co. V. Brodie, 52 Ark. 11, 11 S. W. 1016, 4 L. R. A. 458,
and authorities cited; Grubbs v. Insurance Co., 108 N. C. 472, 13
S. E. 236, 23 Am. St. Rep. 62, and authorities cited; Insurance Co.
V.' Norwood, 16 C. C. A. 136, 69 Fed. 71.
If R. H. M. Mills, the local agent, possessed this power, there
is nothing in the record to show that he exercised it himself, or
264 WAIVER AND ESTOPPEL
that he assented to its exercise by his son. If he could delegate such
power to his subordinate, the undisputed proof shows that he has
not done so. The work of John L. Mills, as he shows, was clerical
and special. There was nothing in the nature of his employment,
or in the manner of the discharge of his duties, from which au-
thority to waive a forfeiture could be inferred. Nor does it appear
that the defendant company, or its local agent, held him out to
the public as possessing such power.
The court's first instruction was correct. The second was not
supported by the evidence. Reversed and remanded.
GRUBBS V. NORTH CAROLINA HOME INS. CO.
(Supreme Court of North Carolina, 1891. 108 N. C. 472, 13 S. E. 236, 23 Am.
St. Rep. 62.)
Action by W. F. Grubbs against the North Carolina Home Insur-
ance Company on a policy of fire insurance. From a judgment for
plaintiff, defendant appeals.
Avery, J.^ The defendant asked the court to instruct the jury that
upon consideration of all the evidence there was no waiver of the
condition of the policy requiring the written consent of the defendant
to be indorsed upon it, provided the plaintiff should take out ad-
ditional insurance in other companies. This request was equivalent
to a demurrer to the whole of the evidence, it being admitted that
additional insurance was taken out in other companies after the
policy sued on was issued, without first securing the written indorse-
ment of the defendant's consent upon it in accordance with the
express requirements of one of its conditions.
If Dr. Ramsey, the agent with whom the plaintiff treated, was
authorized to take fire risks and issue policies, he was empowered
to waive by parol a condition in a policy issued by him. Winans
V. Insurance Co., 38 Wis. 342; Miner v. Insurance Co., 27 Wis.
693, 9 Am. Rep. 479; Cans v. Insurance Co., 43 Wis. 108, 28 Am.
Rep. 535 ; Insurance Co. v. Spiers, 87 Ky. 285, 8 S. W. 453 ; Kit-
chen V. Insurance Co., 57 Mich. 135. 23 N. W. 616, 58 Am. Rep.
344; Insurance Co. v. Earle, 33 ■Mich. 143; A-'iele v. Insurance Co.,
26 Iowa, 63, 96 Am. Dec. 83; Wood, Ins. § 391; Shearman v. In-
surance Co,, 46 N. Y. 526, 7 Am. Rep. 380; Fishbeck v. Insur-
ance Co., 54 Cal. 422.
Where a general agent permits a subagent acting under his di-
rection to receive premiums from and to fill up and deliver policies
to the insured, the acts of the subagent are regarded as the acts
of the general agent. Insurance Co. v. Ruckman, 127 111. 365, 20
N. E. 77, 11 Am. St. Rep. 121. The powers of an agent are prima
8 Part of the opinion is omitted.
SUBSEQUENT PAROL WAIVER8 205
facie co-extensive with the apparent authority given him, and persons
deahng with him may judge of their extent from the nature of the
business intrusted to his care. \\'ood, Ins. § 500; Hornthal v. In-
surance Co., 88 N. C. 71 ; Beal v. Insurance Co., 16 Wis. 241, 82
Am. Dec. 719; Davenport v. Insurance Co., 17 Iowa, 276.
Though the authorities are conflicting upon many questions that
have arisen as to the powers of insurance agents generally to bind
the companies for which they act, there is a growing tendency to
abrogate rules laid down by some of the courts, when the insured
sought the principal officers of these corporations in the larger towns,
and asked the agents to forward applications for insurance, instead
of waiting at their homes for agents sent to solicit their patronage
and stimulated to active and persistent effort by their employers.
We concur with the judge below in the opinion that, if Dr. Ramsey
was intrusted by the defendant (as he testified that he was) with
the blank applications and with its policies duly signed by its officers,
and was authorized to take risks without consulting the company, to
issue policies by simply signing his name as agent, to collect pre-
miums, and cancel policies, then he was empowered as agent to
waive the condition that no additional insurance should be taken.
In the case of Insurance Co. v. Earle, supra, an agent, when asked
about the taking of additional insurance, said in substance that it
would make no difference, but, without saying it in so many words,
left the inference that consent in writing was not necessary, and the
court held that the agent had waived a condition in the policy similar
to that in plaintiff's policy, and that the insurers could not avoid
liability under the contract because additional insurance was subse-
quently taken in another company, without asking for or securing the
indorsement of its written consent on the original policy. See, also.
Cans V. Insurance Co., supra.
After testifying that he was permitted by the defendant to exercise
all of the powers enumerated by the court in the foregoing instruc-
tions, Dr. Ramsey stated also that Grubbs did say to him that he
would want further insurance, and that he (Ramsey) replied that he
thought Grubbs could get it if he wished; that he did not re-
member any more of the conversation on that subject. The witness
Gay testified that Ramsey said to Grubbs, when asked about further
insurance, that it was all right so that he did not insure for more
than three-fourths the value of the stock. Grubbs testifies that he
told Ramsey the exact amount of insurance that he proposed to place
and did take in each of the other companies, which did not in the
aggregate exceed three-fourths of the value of the property insured.
So that the facts in our case would more naturally warrant the
inference that the agent did not require his assent to be indorsed in
writing on the policy than the evidence in the Michigan authority
cited above, because Ramsey not only conveyed the idea that it
would be all right to get additional insurance, but added the condi-
266 WAIVER AND ESTOPPEL
tion that the whole insurance should not in the aggregate exceed
three-fourths of the value of the property insured, thereby excluding
the inferentje that he would insist upon any other condition. But,
even upon his own testimony, Ramsey was empowered to waive the
indorsement ; and if, after Grubbs notified him of the amount which
he proposed to take and did afterwards take in each of the other
companies, Ramsey by his language left Grubbs to infer that no ob-
jection would be made unless the aggregate amount of insurance in all
of the companies should exceed three-fourths of the value of the
insured property, and Grubbs did not exceed the limit, then, if
Grubbs was induced to believe that the forfeiture would not be in-
sisted on unless the limit in the amount of insurance should be tran-
scended, and acted under that impression in effecting additional in-
surance, that condition of the policy would be considered as waived
by the company. * * *
If after a breach of the conditions of a policy the insurers, with
a knowledge of the facts constituting it, by their conduct lead the
insured to believe that they still recognize the validity of the policy,
and consider him as protected by it, and induce him under such im-
pression to incur expense, they will be deemed to have waived the
forfeiture, and will be estopped from setting it up as a defense.
Viele V. Insurance Co., 26 Iowa, 9, and note page 68, 96 Am. Dec.
83; Oshkosh Gas-Light Co. v. Germania Fire Ins. Co., 71 Wis. 454,
Z7 N. W. 819, 5 Am. St. Rep. 233.
Where, with a knowledge of the facts constituting the alleged
waiver, the insurer, after the insured property had been destroyed
by fire, requires the insured to furnish invoice of goods destroyed,
proofs of loss, or plans and specifications of the building burned,
or to appear for examination, such acts of its adjuster amount to a
concession that the forfeiture for failure to secure the indorsement
of additional risks will not be insisted upon. Insurance Co. v. Kittle,
39 Mich. 51; Titus v. Insurance Co., 81 N. Y. 410; Cannon v.
Insurance Co., 53 Wis. 585, UN. W. 11; Webster v. Insurance Co.,
36 W^is. 67, 17 Am. Rep. 479.
Where, after a fire, the adjuster of a company joins the agents of
other companies in the effort to adjust the loss, requires the pro-
duction of books for examination, and asks for invoices from the.
time the insured went into business, and, the invoices not being fur-
nished because of their destruction by fire, then asks for duplicates,
which the insured endeavored by correspondence with creditors to get,
and objects to settling on the ground only that he cannot agree with
the insured as to the amount of loss, and offers to pay for his com-
pany its proportion of the loss as estimated by him, the company
represented by such adjuster is estopped from insisting upon a for-
feiture by reason of the breach of any conditions in the policy in
reference to taking additional insurance. Fishbeck v. Insurance Co.,
SUBSEQUENT PAROL WAIVER8 267
supra ; Argall v. Insurance Co., 84 N. C. 355. See, especially, opinion
of Cooley, J., in Insurance Co. v. Kittle, supra.
The testimony admitted after objection and constituting the ground
of exceptions 4, 5, and 7, will therefore appear at a glance to be
competent, if our view of the law in reference to waiver by conduct
subsequent to the loss, and inconsistent with the idea of insistuig
upon a forfeiture for failure to comply with the conditions set forth
in the policy, be correct. It would follow also from the principle
laid down by us that there was no error in so much of his honor's
charge as relates to the doctrine of waiver by the acts of the de-
fendant's agents after the property was destroyed. * * * Af-
firmed.
WILLIAAIS V. MAINE STATE REUEE ASS'N.
(Supreme Judicial Court of Maine, 1S96. 89 Me. 158, 36 Atl. G.3.)
Action by Flavilla Williams against the Maine State Relief Asso-
ciation. Submitted on an agreed statement.
Foster, J. This is an action to recover the amount of $1,500 al-
leged to be due the plaintifif as the beneficiary under a benefit certifi-
cate issued by the defendant, a mutual benefit association, to her hus-
band. Eugene Williams, deceased.
The promise to pay the plaintiff is conditioned upon the member
being in good standing in the association at the time of his death.
The defense is that he was not in good standing at that time. The
reply is that the defendant has waived that defense.
It appears that on July 15, 1893, two assessments, numbered 90
and 91, were laid on the members of the association, which were due
and payable August 15, 1893, and upon the failure of the assured to
pay the same on or before September 15, 1893. his membership would
be forfeited in accordance with the by-laws of the association ; that
the insured did not pay the assessments on or before September 15,
1893, although due notice thereof was sent to him by mail ; and it
is claimed on behalf of the defendant that, the assessments not being
paid on or before said 15th day of September, a second notice was
duly and seasonably mailed to the insured, but the reception of this
is denied by the plaintiff. On September 1, 1893, two other assess-
ments, numbered 92 and 93, were laid upon the insured, which were
due and payable October 1, 1893, of which he had due notice. On
October 16, 1893, assessments numbered 94 and 95 were also laid
upon the insured, payable November 15, 1893, and a regular notice
thereof mailed to him on October 19th, by the secretary of the associa-
tion.
The secretary would testify, as the agreed statement sets forth, that
this last notice was sent to the insured unintentionally and by mistake.
The insured paid assessments numbered 90, 91, 92, and 93 on Octo-
268
WAIVER AND ESTOPPEL
ber 24, 1893, to the assistant secretary of the association, at Lewiston,
and the money thus received was by him sent to the secretary at Port-
land, on the same day, and, so far as appears from any evidence in
tlie case, went into the hands of the defendant association, and was re-
tained unconditionally, till returned to the assistant secretary by the
secretary immediately after the death' of the insured, which occurred
November 10, 1893.
The by-laws show that it was the duty of the secretary to pay to
the treasurer of the association on the 1st and 15th of each month,
all moneys collected, taking his receipt therefor. As the money paid
on these assessments was not returned to the assistant secretary till
after the death of the insured, it is presumed to have come into the
defendant's possession on the 1st day of November, for the law pre-
sumes that every man in his official character does his duty, until the
contrary is shown.
The matter of reinstatement of the insured was never laid before
or considered by the executive board.
Assuming that the payment of the assessments on October 24, 1893,,
was too late to meet the requirement of the by-laws of the association,
the question remains whether the defendant, by the subsequent assess-
ment of October 16, 1893, the reception and retention of the money
paid upon the other assessments, with no notice of any objection
brought home to the assured, waived the conditions of forfeiture, and
its right to avoid the certificate of insurance on that ground. .
We think it did
Even where assessments have been levied and paid subsequent to
those unpaid, and upon which a forfeiture might have been claimed,
it has been held that such subsequent assessments and acceptance of
money paid upon them constituted a waiver of such right to avoid
a certificate for delay of payment. Rice v. Society, 146 Mass. 248,
15 N. E. 624.
In that case the court say: "Suppose the payment of the former
assessment had never been made at all, and the company, without in-
sistmg upon the nonpayment as a ground of forfeiture, had levied
new assessments upon the assured, which were all duly paid and ac-
cepted without condition, could it be contended that there was no
waiver? An unconditional acceptance upon assessment waives all for-
mer known grounds of forfeiture, and this effect is not varied or lim-
ited because an acceptance of a former assessment had been on con-
dition, and had not amounted to such waiver."
This principle has oftentimes been applied in cases of similar char-
acter, where a forfeiture has been sought on the part of the insurer
against the insured. It was applied in Hodsdon v. Insurance Co., 97
Mass. 144, 93 Am. Dec. 72>, where it was held that, although an agent
of the company had no authority to bind it by receiving payment of
a premium after it was due, the company might waive it at any time ;
and, if the company received it from their agent after it was due, it
SUBSEQUENT PAROL WAIVERS 269
was bound to inform itself of the time when it had been paid to him ;
and that by receiving it from him without inquiry it waived the right
to insist on delay of payment as a ground of forfeiture of the policy.
So in Insurance Co. v. Wolflf, 95 U. S. 326, 24 L. Ed. 387, where
forfeiture was set up for nonpayment of the premium at the time it
became due, but which was subsequently paid to an agent of the com-
pany, and a receipt delivered for the same. There the premium was
tendered back after the death of the insured, and the receipt demand-
ed. But the court held that the company, by the receipt of the pre-
mium, waived the forfeiture for nonpavment at the stipulated time.
And in Insurance Co. v. Raddin, 120 U. S. 183, 7 Sup. Ct. 500, 30
L. Ed. 644, the court held that the acceptance by insurers of payment
of a premium, after they know that there has been a breach of a con-
dition of the policy, is a waiver of the right to avoid the policy for
that breach. "To hold otherwise," say the court, "would be to main-
tain that the contract of insurance requires good faith of the assured
only, and not of the insurers, and to permit insurers, knowing all the
facts, to continue to receive new benefits from the contract, while they
decline to bear its burdens."
This principle is too firmly established to be questioned, and the
authorities are numerous where this doctrine has been applied, and
such is the current of modern decisions. Among the cases where this
rule has been applied, in addition to the foregoing, are the following-,
as a few of the more important ones : Bouton v. Insurance Co., 25
Conn. 542; Bevin v. Insurance Co., 23 Conn. 244; Viele v. Insurance
Co., 26 Iowa, 9, 96 Am. Dec. 83 ; Insurance Co. v. Slockbower. 26
Pa. 199; Frost v. Insurance Co., 5 Denio (N. Y.) 154. 49 Am. Dec.
234; Wing v. Harvey, 5 De Gex, ^I. & G. 265, 270; Shea v. As-
sociation, 160 Mass. 289, 294, 35 X. E. 855, 39 Am. St. Rep. 475;
Rice V. Society, 146 Mass. 248, 15 X. E. 624; Insurance Co. v. X^'or-
ton, 96 U. S. 234, 24 L. Ed. 689 ; Appleton v. Insurance Co., 59 X.
H. 541, 47 Am. Rep. 220.
In Shea v. Association, supra, where the defense set up forfeiture
for nonpayment within the stipulated time, the court held that, where
the company receives and retains the money, but seeks to make its
acceptance conditional, it must see to it that notice to that effect is
actually brought home to the insured, and that the acceptance of mon-
ey under an assessment after the expiration of the time of payment
constitutes a waiver of all objection growing out of the delay.
The conditions of forfeiture contained in the contract of insurance
are for the benefit of the association, and, of course, can be waived
by it either before or after they are broken. Being inserted for its
benefit, it lies with the association to say whether or not they shall
be enforced or waived. Forfeitures are not favored in law, for, as
was said in Insurance Co. v. Xorton, 96 U. S. 234, 242 (24 L. Ed.
689), "they are often the means of great oppression and injustice."
It is true that in life insurance time of payment is, as a general
270 WAIVER AND ESTOPPEL
rule, material, and cannot be extended b}^ courts against the assent of
the company. But it is equally true that, where such assent is given,
or where it may be inferred from the acts and conduct of the par-
ties to the contract, courts are liberal in construing the transaction in
favor of avoiding a forfeiture. Leslie v. Insurance Co., 63 N. Y.
27; Helme v. Insurance Co., 61 Pa. 107, 100 Am. Dec. 621. And,
while a waiver is the intentional relinquishment of a known right, it
may be inferred from any circumstances which show that the parties
understood the payment of a premium, when due, would not be re-
quired, or a forfeiture claimed. Currier v. Insurance Co., 53 N. H.
538, 549, 552; Pierce v. Insurance Co., 50 N. H. 297, 9 Am. Rep. 235 ;
Heaton v. Insurance Co., 7 R. I. 502; North Berwick Co. v. New
England F. & M. Ins. Co., 52 Me. 336, 340; Insurance Co. v. Wolff,
95 U. S. 326, 330, 24 L. Ed. 387.
But it is claimed in defense that the paym.ent of the assessments to
the assistant secretary was unauthorized, he having no authority to
bind the association by the receipt of money upon assessments unless
the same was paid within the time limited for their payment.
This would undoubtedly be true, were it not for the fact that the
money thus paid to him was immediately forwarded to the secretary
of the association, whose duty it was to turn the money over to the
treasurer at the beginning and middle of each month. It was paid
to the man whose duty it was to receive it in the due course of busi-
ness. No notice was ever brought home to the assured by the associ-
ation or any of its officers that it was not properly paid. Notwith-
standing the case shows that the money was returned to the assistant
secretary immediately after the death of the insured, the assistant sec-
retary claims it was not thus returned till three months after his death.
From the evidence and the presumption of law that those acting of-
ficially do their duty till the contrary is proved, it would appear that
the money was in the hands of the treasurer at the death of the in-
sured. If in the treasurer's hands, it was received by the association.
Swett V. Society, 78 Me. 541, 7 Atl. 394. In this particular the case
at bar is to be distinguished from the case of Lyon v. Society, 153
Mass. 83, 26 N. E. 236, cited by counsel for defense. In that case
the money never went into the possession of the company or its treas-
urer.
The difficulty, where a waiver is alleged, in the absence of written
proof of the fact, generally arises from the effect to be given to the
acts of agents in their dealings with the assured. Undoubtedly such
agents, if they bind the company, whether it be a mutual benefit or
stock company, must have authority to waive a compliance with the
conditions upon a breach of which a forfeiture is claimed, or to waive
the forfeiture when once incurred, or their acts and dealings in waiv-
ing such compliance or forfeiture must be subsequently ratified or
approved by the company. Swett v. Society, supra. It is upon this
latter ground that many of the decisions have turned when the ques-
SUBSEQUENT PAROL WAIVERS 271
tion of waiver of compliance or of forfeiture has come before the
courts. The law of agency, to be sure, is the same whether applied
to the act of the agent in undertaking to continue the insurance or to
any other act for which the principal is sought to be held responsible.
The rule that no one shall be permitted to deny that he intended the
natural consequences of his acts, which have induced others to act
upon them, is as applicable to insurance companies as to individuals.
If applied to the case at bar, this principle will serve to solve the
question presented. The association, notwithstanding the assistant sec-
retary was not authorized to waive a compliance with the conditions
annexed to the contract of insurance, received from their agents the
money paid by the assured upon assessments levied upon him. It was
not received upon any conditions accompanying such acceptance, as
in the case of Shea v. Association, supra. Nor was it ever returned
to the assured, nor was there any notice of objection to its payment,
acceptance, or retention ever given to the assured. From anything
that appears in the case, it still remains in the hands of the association
or its agents.
The analogy between the case under consideration and that of Rice
v. Society, 146 jNIass. 248, 15 N. E. 624, is very striking. In that case,
as in this, the defendant was a mutual insurance company. There was
default of payment of premiums when due, and subsequent assessment
by the company, as in this, and payment made and received after such
default. There was no determination by the company that the cer-
tificate, for the time being, should be considered or treated as not in
force or suspended ; and in making the subsequent assessments there
was no act of the company manifesting intention to exclude the as-
sured; nor was there any condition annexed to the assessments sub-
sequently made, or to the acceptance of the payment of them by the
assured. And there, as in other cases to which we have referred, the
company was held to have waived its right to insist upon a forfeiture
of the certificate upon the ground that the subsequent assessments and
acceptance of the money paid upon them, constituted such waiver.
The language of the court in the case of Insurance Co. v. Wolfif, 95
U. S. 326, 330, 24 L. Ed. 387, may well be applied to the case at
bar. "If, therefore," say the court, "the conduct of the company in
its dealings with the assured in this case * * * has been such as
to induce a belief that so much of the contract as provides for a for-
feiture if the premium be not paid on the day it is due would not be
enforced if payment were made within a reasonable period afterwards,
the company ought not, in common justice, to be permitted to allege
such forfeiture against one who has acted upon the belief, and subse-
quently made the payment. And if the acts creating such belief were
done by the agent, and were subsequently approved by the company,
either expressly or by receiving and retaining the premiums, the same
consequences should follow."
272 WAIVER AND ESTOPPEL
As the case is before this court on an agreed statement of facts,
the exceptions having been waived, the entry should be, judgment for
plaintiff.^
IV. Contemporaneous Parol Waivers ^^
GURNETT V. ATLAS MUT. INS. CO.
(Supreme Court of Iowa, 1904. 124 Iowa. 547, 100 N. W. 542.)
Action by T. F. Gurnett against the Atlas Mutual Insurance Com-
pany. The defendant company issued a policy for $1,500 on plain-
tiff's property, for a term of one year from February 9, 1902. The
property was destroyed by fire June 10, 1902. There was a judgment
for plaintiff, and defendant appeals.^ ^
Ladd, J. The policy of insurance sued on contained the following
conditions : "The total insurance permitted not to exceed at any time
three-fourths of the cash value of the property insured and to be con-
current herewith. * * * It is understood, and the insured by ac-
cepting this policy so agrees, unless permission signed by the secre-
tary be endorsed hereon or added to or attached hereto, if the insured
now has or shall hereafter make or procure any other contract of
insurance, whether valid or not, on property covered in whole or in
part by this policy, in excess of the amount permitted above, or in case
the other insurance is permitted and the additional insurance be not
valid and collectible insurance, * * * then, and in either such
case, it shall be held to be an election upon the part of the insured
to cancel said policy and the same shall be void and shall stand can-
celled upon the happening of any of the foregoing events. * * *
This company shall not be liable under this policy for a greater propor-
tion of any loss on the described property * * * than the amount
hereby insured shall bear to the whole insurance, whether valid or not,
by solvent or insolvent insurers, covering said property."
There was other insurance amounting to $2,700, of which a policy
of $1,000 issued by the Des ]\Ioines Fire Insurance Company was in-
valid, because the additional insurance exceeded that permitted. The
plaintiff received something from it, however, in settlement of his
claim of loss. The jury, in answer to special interrogatories, found
9 To the same effect, see .^tna Life Ins. Co. v. Fallow, 110 Tenn. 720. 77
S. W. 937 (1903). For a discussion of principles, see Cooley, Briefs on the
Law of Insurance, vol. 3, p. 2699 et seq.
10 For discussion of principles, see Vance on Insurance. § 124. See, also.
Cooley, Briefs on the Law of Insurance, vol. 3, p. 2619 et seq.
11 The statement of facts Is rewritten.
CONTEMPORANEOUS PAROL WAIVERS 27:5
the value of the property to have been $5,000 at the date of the poHcy
and $3,070.97 when destroyed. It will be observed that when de-
stroyed the property, valued at $3,070.97, was insured for $4,200, and
therefore that the insurance exceeded three-fourths of the value. For
this reason the appellant insists that the policy was void. Doubtless
this would be true were defendant in a situation to urge the defense.
The principle is well settled that when an insurance policy contains
a condition which renders it void at its inception, and this is known
to the insurer, it will be held to have waived such condition by re-
ceiving the premium and issuing its policy. Williams v. Niagara Fire
Ins. Co., 50 Iowa, 561, 568; Carey v. Home Ins. Co., 97 Iowa, 619,
66 N. W. 920; Hagan v. Merchants' Ins. Co., 81 Iowa, 321, 331, 46
N. W. 1114, 25 Am. St. Rep. 493. See, also. Independent School Dist.
v. Fidelity Ins. Co., 113 Iowa, 65, 84 N. W. 956; Fitchner v. Fidelity
Mutual Fire Ass'n, 103 Iowa, 276, 72 N. W. 530. The evidence with-
out dispute showed that when the defendant's agent negotiated the
insurance he was informed that the property was worth but $5,000,
and it was then covered by three policies issued by other companies,
amounting in the aggregate to $2,700. Knowledge of the agent is
to be imputed to the company, and in issuing its policy of $1,500 in
addition to the above amount the defendant must be held to have
done so knowing that this increased the insurance to more than three-
fourths of the value of the property. The law is charitable enough
to assume, in the absence of any showing to the contrary, that an
insurance company intends to execute a valid contract in return for
the premium received ; and when the policy contains a condition which
renders it void at its inception, and this result is known to the insurer,
it will be presumed to have intended to waive the condition, and to
execute a binding contract, rather than to have deceived the insured
into thinking his property is insured when it is not, and to have taken
his money without consideration.
Appellant suggests that a distinction should be made, in the matter
of imputing the agent's knowledge to the insurer, between a recording
and a soliciting agent. Possibly, but this court has held otherwise,
as appears from the cited cases, following the ruling of a bare majority
of the court in Jordan v. State Insurance Co., 64 Iowa, 216, 19 N. W.
917. It should be added that all the record shows with respect to the
class to which defendant's agent belonged is that the agent at one
time solicited an application, and that the policy was mailed to him.
He was informed of the facts when arranging for the insurance, and,
as he was acting for the company in that particular transaction, it
will be charged with the knowledge he acquired therein. To the sug-
gestion that a waiver of excessive insurance when the policy issued
will not include a subsequent excess, it is to be said that the latter,
under the terms of the policy, invadidates it only when occasioned by
additional insurance ; and none such was taken out by plaintiff. More-
CooLEY Ins. — 18
274 -WAIVER AND ESTOPPEL
over, it does not appear that the insurance was less than or merely
equaled three-fourths of the value of the property at any time, and
therefore the condition of things to which the company assented con-
tinued up to the time of the loss.
2. It is further urged that, as the policy issued by the Des Moines
Fire Insurance Company was invalid, the plaintiff, under the terms
of the policy, should be held to have canceled it, and the policy sued
on be declared void. But the clause of the contract, "or in case the
other insurance was permitted and the additional insurance be not
valid and collectible insurance, * * * it shall be an election to
cancel said policy," relates to insurance procured subsequent to the
issuance of the policy. Funk v. Association, 103 Iowa, 660, 72 N.
W. 774.
The policy stipulated that the company should not be liable for more
than its pro rata share of the entire insurance, valid or invalid, and
appellant argues that it should be required to pay but ^^42 of the
loss, instead of ^V3 2, as held by the district court. One thousand
dollars of the insurance was invalid, and section 1746 of the Code
provides that "no condition or stipulation in the policy of insurance
fixing the amount of the liability or recovery under such policy with
reference to the pro rata with other insurance on property insured shall
be valid except as to other valid and collectible insurance, any agree-
ment to the contrary notwithstanding." The stipulation of the policy
in so far as it undertook to include the void policy in the matter of
prorating ought not to be enforced. That the Des Aloines Fire In-
surance Company may have regarded its policy valid, or paid something
in compromise to avoid litigation, can make no difference. The statute
is to be read into the contract, and the rights of the parties thereunder
became fixed at the time of the loss, and could not be affected by
what might subsequently happen between the insured and third par-
ties ; especially when the total amount received by the insured does
not equal the loss suffered. Hayes v. Milford Ins. Co., 170 Mass. 492,
49 N. E. 754; Thomas v. Builders' Ins. Co., 119 Mass. 121, 20 Am.
Rep. 317; Turner v. Meridan Fire Ins. Co. (C. C.) 16 Fed. 460. Af-
firmed.
FORWARD V. CONTINENTAL INS. CO.
(Court of Appeals of New York, lS9i. 142 N. Y. 382, 37 N. E. 615, 25 L. R.
A. 637.)
Action by John D. Forward against the Continental Insurance Com-
pany on a fire policy. Verdict for plaintiff. The general term (66
Hun, 546, 21 N. Y. Supp. 664) overruled exceptions by defendant, and
defendant appeals.
O'Brien, J. The judgment in this case was recovered upon a pol-
icy of insurance issued April 23, 1891, at one year, upon a store and
CONTEMPORANEOUS PAROL WAIVERS 275
the goods therein, which were owned by the plaintiff. By the terms
of the poHcy the risk was distributed as follows : Upon the store, a
sum not exceeding $1,000; the goods, a sum not exceeding $1,200;
and the furniture and safe, a sum not exceeding $100. The entire
property was destroyed by fire on the 27th of September, 1891. The
complaint alleges, and the answer admits, that the loss was adjusted
and determined between the plaintiff and a general agent of the de-
fendant on the 6th of October following at $1,950, and the recovery
was for this sum and interest.
The only defense interposed by the answer, or urged upon the ar-
gument of the appeal in this court, was a breach on the part of the
plaintiff of one, or perhaps two, of the conditions contained in the
following clause of the policy : "This entire policy, unless otherwise
provided by agreement indorsed hereon or added hereto, shall be void
* * * if the interest of the insured be other than unconditional,
sole ownership, * * * or if the subject of insurance be personal
property, and be or become incumbered by a chattel mortgage.
* * * In any matter relating to this insurance, no person, unless
duly authorized in writing, shall be deemed the agent of this company.
* * * This policy is made and accepted subject to the foregoing
stipulations and conditions, together with such other provisions, agree-
ments, or conditions as may be indorsed hereon or added hereto ; and
no officer, agent, or other representative of this company, shall have
power to waive any provision or condition of this policy, except such
as, by the terms of this polic}^ may be the subject of agreement, in-
dorsed hereon or added hereto; and, as to such provisions and condi-
tions, no ofiicer, agent, or other representative of this company shall
have such power, or be deemed or held to have waived such provi-
sions or conditions, unless such waiver, if any, shall be written upon
or attached hereto. Nor shall any privilege or permission affecting the
insurance under the policy exist, or be claimed by the insured, unless
so written or attached."
It was shown at the trial that the plaintiff, about two months be-
fore the policy had been issued to him, had executed and delivered
to his brother an instrument in the form of a bill of sale upon the
stock of goods, furniture, and fixtures in the store, which on March
3, 1891, was filed in the town clerk's office. This instrument, in con-
sideration of $500, purports to transfer the plaintiff's interest in the
property absolutely to his brother. The proof at the trial tended to
show that there was in fact no consideration for the transfer ; that
it was colorable, merely, and made between the two brothers with
reference to some litigations pending or threatened against the plain-
tiff. The brother never in fact paid anything as a consideration for
the transfer, and no debt was due or owing to him by the plaintiff.
He never in fact claimed any title to the property, or any right to
its possession, which always remained in the plaintiff. There was
also proof that the existence of this bill of sale, and its true consid-
276 WAIVER AND ESTOPPEL
eration, character, and purpose, were disclosed to the defendant's agent
before the policy was issued or delivered.
The court submitted two questions to the jury: (1) Whether the
defendant, notwithstanding the condition of the policy, had knowledge
of all the facts respecting the existence, nature, and purpose of the
bill of sale; instructing them that the knowledge of the agent was
the knowledge of the company, and that, if they found that the de-
fendant had knowledge of the facts, the policy was not avoided. (2)
Whether a statement contained in the proofs of loss, to the effect that
there was no incumbrance on the property at the time, was willfully
false, and known to be so by the plaintiff when he made the proofs,
and was made for the purpose of defrauding the defendant; instruct-
ing them that, if it was not, then it did not amount to false swearing,
within the intent and meaning of a condition in the policy. The ver-
dict was in favor of the plaintiff, and hence all the disputed facts ma-
terial to the questions of law must be deemed to be established in the
plaintiff's favor.
It was said by Judge Andrews in Walsh v. Insurance Co., 73 N.
Y. 11, upon the authority of many cases, that "conditions for the pre-
payment of premium, and the like, which enter into the validity of
a contract of insurance at its inception, may be waived by agents,
and are waived, if so intended, although they remain in the policy
when delivered, and that a contract for renewal is, for the purpose,
to be treated as the original contract." It has uniformly been held
by this court that a condition of this character in a contract of in-
surance will not operate to avoid it after a loss, providing the com-
pany, before delivering the policy, had knowledge of the fact that the
insured, notwithstanding the warranty, or the statement and the con-
dition, was not the sole owner, or that it was incumbered. In such
cases the company is deemed to have waived the condition, or by the
delivery of the policy with the condition avoiding it in case the in-
sured is not the sole owner, or that the property is incumbered, and
accepting the premium, is held estopped from setting up the condition
as a defense. It was never supposed that such a condition was in-
tended to apply to a state of facts in regard to which the company had
been fully informed when it accepted the risk. The cases on this point
are numerous, and it is impossible to make any distinction in princi-
ple between the conditions considered and that involved in the case
at bar. Van Schoick v. Insurance Co., 68 N. Y. 434; Whithed v.
Insurance Co.. 76 N. Y. 415, 32 Am. Rep. 330; Woodruff v. Insur-
ance Co., 83 N. Y. 134; Short v. Insurance Co., 90 N. Y. 16, 43 Am.
Rep. 138; McNally v. Insurance Co., 137 N. Y. 389, 33 N. E. 475;
Carpenter v. Insurance Co., 135 N. Y. 298, 31 N. E. 1015; Cross v.
Insurance Co., 132 N. Y. 133, 30 N. E. 390; Berry v. Insurance Co.,
132 N. Y. 49, 30 N. E. 254, 28 Am. St. Rep. 548.
In these cases it was held, either that the company had waived the
condition, or was estopped by the delivery of the policy and the re-
CONTEMPORANEOUS PAROL WAIVERS 277
ceipt of the premium, since, under such circumstances, it could, not be
supposed that it intended to deliver to the insured a policy which it
knew to be void. When the underwriter, before the inception of the
contract, is informed by the owner that the property is incumbered,
but still delivers the policy with the condition embodied in it, then, as
it seems to me, it is not so much a question of waiver or estoppel,
as a question whether the condition ever attached or operated, upon
the facts thus disclosed. It can, of course, operate in the future upon
transfers or incumbrances, as the facts arise, and then the question
is one of waiver. But, when the facts are all known before any con-
tract is made, a condition against a state of things known by all the
parties to exist cannot be deemed to be within their intention or pur-
pose. This case cannot be taken out of the rule, by any possible dis-
tinction, unless it be by the character and powers of the agent of the
defendant, to whom, upon the finding of the jury, the facts were com-
municated.
It is urged that the cases cited do not apply, for the reason that
the waiver there was by a general agent. That may be true with re-
spect to the four cases last cited. But it does not seem to me to be
so much a question of power or authority in an agent to waive a con-
dition in the contract, as of knowledge by the company, through its
agent, of the real facts. In the Carpenter Case, supra, the informa-
tion as to the true state of the title was given to a mere clerk of the
general agent ; and we held that such knowledge was imputable to
the company through the general agent, for whom the clerk acted in
soliciting the insurance, and that a condition of this character remain-
ing in the policy did not avoid it. Now, the powers of the agent in
this case were certainly much broader than those of the clerk in the
case referred to. In this case the person to whom the information was
communicated was certainly an agent appointed by the defendant itself,
while in that the person had no authority directly from the company,
but was a mere servant or clerk, acting for, and solely under the au-
thority of, the agent. The agent, in this case, and the clerk, in the
other, were engaged in precisely the same duty, and performing the
same service, when they acquired the knowledge as to the condition
of the property and the state of the title. They were both soliciting
insurance, and ascertaining the character and condition of the prop-
erty upon which the risk was about to be taken ; and I am unable to
suggest any reason for imputing knowledge in the one case, and not
in the other. Moreover, the record is entirely silent as to any facts
tending to show that in this case the agent was acting in pursuance
of a special or limited power. On the face of the policy, he appears
to be the duly-authorized agent of the defendant, and actually did
grant special permits, and waive conditions in the policy. He had
power to waive conditions, providing it was done in the manner stip-
ulated in the policy ; that is to say, in writing. He had power to so-
licit insurance, collect premiums, and deUver policies. There is no
278 WAIVER AND ESTOPPEL
proof in the record that the plaintiff ever made application for this
policy, written or otherwise, or that he touched the company at any
point, or in any form, except through this agent. The fair infer-
ence from the proof is that the defendant furnished the agent with
policies duly executed, which he filled up and delivered at his discre-
tion, reporting the facts to the company. There is nothing on the
face of the policy, and nothing was communicated to the plaintiff, to
lead him to believe that the powers of the agent were special or re-
stricted. Insurance companies, doing business by agencies at a distance
from their principal place of business, are responsible for the acts of
the agent, within the general scope of the business intrusted to his
care; and no limitations of his authority will be binding on parties
with whom he deals, which are not brought to their knowledge. In-
surance Co. V. Wilkinson, 13 WaU. 222, 20 L. Ed. 617; Merserau v.
Insurance Co., 66 N. Y. 278; Bodine v. Insurance Co., 51 N. Y. 117,
10 Am. Rep. 566; Arff v. Insurance Co., 125 N. Y. 57, 25 N. E.
1073, 10 L. R. A. 609, 21 Am. St. Rep. 721.
It was held in the case of Ehis v. Insurance Co., 50 N. Y. 402, 10
Am. Rep. 495, that an agent with precisely such powers as I have
supposed the agent in this case possessed, could bind the company by
a parol contract of insurance, while an application for a policy was
pending, but none delivered till after a loss. I am unable to discover
in the record any basis for the contention that the knowledge of the
agent as to the existence and purpose of the bill of sale is not the
knowledge of the defendant. On the contrary, his knowledge of the
facts is, I think, imputable to his principal. So far as appears, the
plaintiff dealt with him as the representative of the company. If there
were in fact any limitations or restrictions on his powers as an ordi-
nary agent, it was for the defendant to show it. His commission was
not put in evidence, nor any proof given tending to show that he was
not what he was described in the complaint, — the defendant's duly au-
thorized manager or agent at the place where the contract was made.
There were no other means of communication between the plaintiff
and the defendant employed. So far as appears, he made the con-
tract for his principal, and the knowledge that he obtained in the
course of the business was the knowledge of the defendant.
There is another view of the question that deserves some notice.
Conditions in contracts of insurance against liability when the prop-
erty is incumbered, or where the title is not absolute in the insured,
are inserted for the purpose of guarding against the moral hazard in-
volved. When the transfer or incumbrance is merely colorable or
nominal, and not real or effective, the reasons that induced the stip-
ulation do not apply. Was there any real sale or transfer of this
property, within the meaning of the policy? Nothing was done, ex-
cept to execute and file a paper. There was no intention, in fact, to
transfer the title, or vest any beneficial interest in the nominal vendee.
There was no debt to be enforced, no consideration passed, and the
WHAT CONSTITUTES A WAIVER 279
use and possession remained unchanged. The filing- of the paper add-
ed nothing to its validity. It was not a mortgage, nor intended as
security for any debt. It was a mere paper transfer, without con-
sideration, and without delivery of possession; and while it had the
form, it had none of the legal elements, necessary, even between the
parties, to constitute a valid contract of sale. In legal effect, it was.
I think, the same as an unexecuted gift. The worst that can be said
of it is that it was intended to defraud creditors ; but, if that be true,
still the moral hazard which was the basis of the condition of the pol-
icy would still be absent, since the plaintiff's interest in the property
at the time of the insurance was in fact the same as before the paper
was executed.
There is no legal ground upon which this court can properly dis-
turb the verdict, and the judgment should therefore be affirmed.
V. V7hat Constitutes a Waiver ^^
SHIMP V. CEDAR RAPIDS INS. CO.
(Supreme Court of Illinois, 1888. 124 111. 354, 16 N. E. 229.)
MuLKEY, J. This was an action of assumpsit brought by the appel-
lant, Julia C. Shimp, in the Champaign circuit court against the Cedar
Rapids Insurance Company to recover a loss by fire under a policy
issued to her by the company, June 16, 1882, on her dwelling, furniture,
etc., to the amount of $1,500. The premium was $21.50, $10 of which
was paid in cash, and a note given for $11.50, payable June 1, 1883,
with this provision in it: "This note is given for insurance, and in
case of loss under the policy for which it is given becomes due and
payable on the date of such loss," — which we understand to mean that
if a loss occurred for which the company was liable the note was to
become due on the date of such loss. The property covered by the
risk was destroyed by fire on the 18th of February. 1883. Suit was
commenced on the 12th of April following, and the premium note was
paid by appellant to appellee through a bank on the 28th day of May,
1883, being a month and a half after the suit was commenced. The
plaintiff" having been unsuccessful in both the lower courts, brings
the case here for review.
Appellee set up as a defense in the trial court certain breaches of
the conditions in the policy. Appellee's counsel do not question the
truth of the facts constituting the defense thus set up, but insist that
12 For discussion of principles, see Vance on Insurance, §§ 125, 126.
280 WAIVER AND ESTOPPEL
the company is not in a position to avail itself of that or any other
defense by reason of its having accepted payment of the premium
note after having obtained full knowledge of all the facts and cir-
cumstances constituting the defenses made to the action. Indeed, it
is conceded that if the company has not waived the right to set up
the defenses relied on by reason of having accepted such payment, the
judgments below are right and ought to be affirmed. A recurrence
to a few well-settled principles it is believed will relieve the question
thus presented of all real or apparent difficulty.
That the company had a complete defense to the action on the
policy at the time the suit was commenced is admitted. But this, like
most other rights, is one that might be abandoned, released, or waived.
There is no pretense that it has been released, intentionally abandoned,
or expressly waived; so that if there has been a waiver at all, it is
what is known to the law as an implied waiver. This class of waivers
is frequently to be met with in the law of insurance. Thus, where
the assured has been guilty of some breach or breaches of the con-
ditions of the policy, and the insurer, wath full knowledge thereof, dur-
ing the pendency of the risk, accepts a maturing premium, or does
any other act recognizing the continued existence and validity of the
policy, such acceptance or other act will operate as a waiver of the
right of forfeiture occasioned by said breaches, unless something ap-
pears to show that it was not intended to have that efifect, and that
the assured so understood it. This well-recognized rule in the law of
insurance is founded, at least in part, upon the fundamental principle
that one having the exclusive right to terminate an executory contract
must abrogate it altogether, if at all. He cannot be heard to say it is
valid for one purpose, and in the same breath that it is invalid for all
other purposes. But it is founded chiefly upon the general principles
of common honesty and natural justice which the law exacts of man-
kind in their intercourse and dealings with one another.
The doctrine of waiver, however, in our opinion, has no application
whatever to the facts of this case. The act of the company relied
on as a waiver of its right of defense occurred long after the risk
, under the policy had terminated by the happening of the contingency
insured against; long after the defendant had refused payment of
the loss on the ground there had been a forfeiture of the policy, and
in the face of an action brought to enforce the payment of such loss.
The cases relied on by appellant's counsel differ materially in their
facts from the present case, and in our opinion fall far short of sus-
taining the position in support of which they are cited. The policy
being a valid obligation and binding contract between the parties,
upon its delivery to the assured, the risk attached and commenced run-
ning, and would have continued to run until the loss occurred, but for
the breach of its conditions by the assured which rendered it void at
the election of the company, and it is not claimed that there was any
waiver of such breach until after the commencement of the present
WHAT CONSTITUTES A WAIVER 281
suit. The insurer is not required in such case to formally declare a
forfeiture. It is sufficient to set it up by way of defense, when sued
for the loss, as was done in this case.
The waiver or estoppel relied on cannot prevail. It is destitute of
that element which is most essential to either. It does not appear, nor
is it claimed, that the assured has been misled in any manner to its
prejudice by the company's accepting payment of the note. What
other course of conduct could the appellant have pursued than that
which she did? She simply prosecuted the suit previously commenced
by her against the company to its termination ; the company from the
beginning denying its liability. As the payment of the note is the
only ground on which she now claims she ought to recover, it is clear
such payment could not have contributed to her failure to succeed in
the courts below. The grounds of recovery now urged are in legal
effect an admission that there was no right of recovery when her suit
w^as commenced. The payment to the company, therefore, so far from
misleading her to her injury, has, according to her present contention,
greatly improved her prospect of success. Upon the delivery of the
policy, and commencement of the risk, the appellee acquired a present
vested right in the premium as an entirety. The payment of part of
it was merely postponed, and consequently the company had the right
to receive the money. But, however this may be, we are clearly of
the opinion that the receiving of it did not operate as a waiver of the
breaches of the conditions of the policy.
The view here taken is fully supported bv the late case of Insurance
Co. V. Amerman, 119 111. 329, 10 N. E. 225, 59 Am. Rep. 799, and the
authorities there cited. Judgment affirmed.
282 RIGHTS UNDER THE POLICY
RIGHTS UNDER THE POLICY
I. Vested Rights of the Beneficiary ^
1. In Generai,
RICKER V. CHARTER OAK LIFE INS. CO.
(Supreme Court of Minnesota, 1880. 27 Minn. 193, 6 N. W. 771, 38 Am.
Rep. 289.)
Cornell, J. The original policy was issued upon the application of
Samuel Stanchfield, the person whose life was insured, and all the
provisions stipulated for were paid by him before the death of Eliza-
beth A. Stanchfield, who was his wife. By its terms the amount of
the insurance was made payable upon the death of the insured to
Elizabeth A. Stanchfield, his said wife, and- in case of her death before
his decease the same was to be paid to his children, or to their guard-
ian, if minors, for their use and benefit. The said Elizabeth died
intestate in July, 1874, leaving surviving her said husband, the plain-
tififs herein, and one Joel B. Stanchfield, who were the issue of their
marriage. After this Samuel Stanchfield married the intervener here-
in, by whom he had one child, Carl S. Stanchfield, both of whom are
now living. On the thirteenth day of February, 1878, Samuel Stanch-
field died. After the decease of his former wife and his marriage
with the intervenor, Louisa Stanchfield, the insured surrendered the
original policy, which was cancelled, and a new one was issued in its
place and as a substitute therefor, bearing the same date, and contain-
ing the same terms and conditions, save that it was therein provided
that it should enure "to the sole and separate use and benefit" of
said intervenor, Louisa Stanchfield, his second wife. The legal effect
• of this surrender and change, and the competency of Samuel Stanch-
field to make it without the consent of his children, are the important
questions presented for adjudication in this case.
Upon the allegations and admissions in the pleadings it must be
presumed that the original policy was made, and its stipulations were
to be performed, in the state of Connecticut, where the defendant
company was created, organized, and did its business, and hence its
legal effect, and the rights and obligations of the parties under it, de-
pe'nd upon the laws of that state ; but as no evidence appears to have
been given as to what those laws were, they are to be taken as identical
1 For discussion of principles, see Vance on Insurance, §§ 132-134. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, p. 3735 et seq.
VESTED RIGHTS OF THE BENEFICIARY 283
with the common law of this state, independent of any statute upon
the subject. Upon this theory the case has been argued, and it will
be considered and determined accordingly.
The general rule upon the subject, as stated by Mr. Bliss, is this:
"That a policy of life insurance, and the money to become due under
it, belong, the moment it is issued, to the person or persons named in
it as beneficiary or beneficiaries, and that there is no power in the per-
son procuring the insurance, by any act of his, by deed or by will, to
transfer to any other person or persons so named. The person desig-
nated in the policy is the proper person to receipt for and to sue for
the money. The principle is that the rights under the policy become
vested immediately upon its being issued, so that no person other than
those designated in it can assign or surrender it, and that in such as-
signment or surrender all the persons must concur, or the interest of
those not concurring is not affected." Bliss on Life Ins. (2d Ed.) §§
317, Z2)7. This is held to be the rule in Succession of Kugler, 23-
La. Ann. 455.
Upon the facts in the case at bar, however, the court is not called
upon to consider the rule as applied to a case where a portion of the
premiums which constitute the consideration for the insurance still
remains unpaid, and where the policy is liable to forfeiture in case
of non-payment. Here the entire amount of the premiums stipulated
for in the policy had been paid before the death of the wife, Eliza-
beth A. Stanchfield, and the subsequent attempted surrender of the
policy by her husband, whose life was insured. The case, therefore,
stands in the same position it would if the whole consideration for
the policy had been paid by the party procuring it at the time of its
execution and delivery by the company, and the question is, having
made such payment and taken out a policy for the benefit of his said
wife and his children, payable in express terms to her, or. in the event
of her prior decease, to his children, it was competent for him to sur-
render the same and take another policy in consideration of such sur-
render, and in lieu of the original, for the benefit of another party.
This question, it seems to the court, must be answered in the negative.
The transaction on the part of Mr. Stanchfield was in the nature of
an irrevocable and executed voluntary settlement upon his wife and
children of the sum secured to be paid by the policy at his death, con-
ditioned that the same should be to her for her benefit should she
survive him ; but if, not, then the same should be paid to his children,
or, if minors, to their guardian, for their sole use and benefit. Nothing
remained to be done on his part to make the intended gift of the policy
to the beneficiaries therein named complete and effectual as against
himself and all mere volunteers claiming under him. In paying for
the insurance and procuring the policy to be issued, payable, in ex-
press terms, upon his death, to his said wife, Elizabeth, if then living,
and if not to his children, for their sole use and benefit, without any
condition or stipulation reserving a right to change or alter any of the
284 RIGHTS UNDER THE POLICY
terms of the agreement, he did all that could well be done, under the
circumstances, in the execution of an intention to vest in his said ap-
pointees the entire interest in the policy, and all rights thereunder.
Adams v. Brackett's Ex'r, 5 Mete. (Mass.) 280; Landrum v. Knowles,
22 N. J. Eq. 594.
What he did was a "clear and distinct act," wholly divesting him-
self of all ownership or control over the money paid for the insurance,
disclaiming any interest in the policy, or intention to take or hold it
for himself or his legal representatives, at the same time putting it
beyond his power so to do by the stipulation obligating the company
to pay the sum insured, whenever it should become due, to such of the
persons named in the policy as might then be entitled thereto by its
terms. Taking the delivery of the policy from the company, under
these circumstances, can only be construed as an act of acceptance for
the designated beneficiaries, and his subsequent holding of the same as
that of a naked depositary, without any interest, for those entitled
thereto. Such conduct on the part of the husband and father was both
natural and proper, and it raises no presumption against the theory of
a completed transaction on his part, as evidenced by his other acts. As
the insured had no legal or equitable interest in the policy at the time
of its surrender and cancellation, the act was a nullity, and could not
affect the rights of his children, to whom it then belonged, and who
alone could release the company from the obligations it contained.
We concur in the opinion of the district court, that "his children"'
included the issue of both marriages. Order affirmed.
2. Efi^ect oif Murder oe Insured by Beneficiary
ANDERSON v. LIFE INS. CO. OF VIRGINIA.
(Supreme Court of North Carolina. 1910. 152 X. C. 1, 67 S. E. 53.)
Action by L. W. Anderson, administrator of Penelope Barnes, de-
ceased, against the Life Insurance Company of Virginia and N. R.
Parker, administrator of Seth Newby, deceased. On appeal from a.
justice, facts were agreed on, and plaintiff had judgm.ent. Defendant
Parker appeals.
The facts formally agreed upon were as follows : "That on Febru-
ary 1, 1909, Penelope Newby, now Barnes, obtained from the Life
Insurance Company of Virginia a policy of insurance on her life for the
benefit of Seth Newby, her brother; that both Penelope Barnes and
Seth Newby died on July 3, 1909 ; that Seth Newby died by his own
hand before Penelope Barnes died ; that Penelope Barnes was mur-
dered by Seth Newby ; that the Life Insurance Company of Virginia.
VESTED RIGHTS OF THE BENEFICIART 2S5
has paid to N. R. Parker, administrator of Seth Newby, deceased, the
sum of $110, the amount due under the said policy of insurance, with
understanding by all parties that Parker shall hold money to abide
determination of this action, and that the policy of insurance hereto
attached is an exact copy of the original policy of insurance, and the
same is hereby made a part of this statement of facts."
Hoke, J. It is a principle very generally accepted that a beneficiary
who has caused or procured the death of the insured under circum-
stances amounting to a felony will be allowed no recovery on the policy.
\^ance on Insurance, pp. 392, 393; Cooky's Insurance Briefs, 3153;
25 Cyc. 153; 3 A. & E. (2d Ed.) p. 1021.
This wholesome doctrine, referred by most of the cases to the maxim
"Nullus commodum capere potest de injuria sua propria," has been
uniformly upheld, so far as we are aware, except in certain cases where
the interest involved was conferred by statute, and the statute itself
does not recognize any exception. Such an instance has occurred in
our own court, in the case of Owens v. Ow^ens, 100 N. C. 240, 6 S. E.
794, where a widow, convicted as accessory before the fact to her hus-
band's murder, was awarded dower under the statute — a decision which
caused an immediate amendment of the statute (Pub. Laws 1889, c.
499), and this amendment has since prevailed as the law of the state
on that subject. The authorities are also to the effect that in cases
like the present, where the contract is made between the insured and
the company for another's benefit — that is, a valid contract of that
character — a felony of the kind indicated on the part of the beneficiary
will not relieve the company of all liability on the policy, but recovery
can be had usually by the representative of the insured, and for the
benefit of the latter's estate. Vance and Cooley, supra ; Schmidt,
Adm'r, V. Ins. Co., 112 Iowa, 41, 83 N. W. 800, 51 L. R. A. 141, 84
Am. St. Rep. 323 : Supreme Lodge v. IMenkhausen, 209 111. 277, 70
N. E. 567, 65 L. R. A. 508, 101 Am. St. Rep. 239 ; Ins. Co. v. Davis,
Adm'r, 96 Va. 7Z7 , 32 S. E. 475, 44 L. R. A. 305 ; Shea v. Mass.
Benefit Asso., 160 ^lass. 289, 35 N. E. 855, 39 Am. St. Rep. 475 ; Tyler
V. Odd Fellows Relief, etc., 145 Mass. 134, 13 N. E. 360; Cleaver
et al. v. Mutual Res. Fund, L. R. Q. B. ( 1892) p. 147.
This latter ruling would very likely not obtain in an ordinary life pol-
icy, where a valid contract of insurance had been made, and purported
to be between the company and the beneficiary, and such beneficiary
was, and continued to be throughout, the owner of the policy and of
all interest in it. Such a position, however, is not presented here in
any aspect of it, as the company recognizes its liability on the policy,
and the question is on the right to the fund as between the represent-
ative of the insured and of the beneficiary.
On that question, and under the authorities cited, there is no error
in the ruling of the court below, awarding the fund to the representa-
tive of the insured, and the judgment to that effect is affirmed. Judg-
ment affirmed.
286 RIGHTS UNDER THE POLICY
II. Beneficiaries in Mutual Benefit Associations ^
1. In Gene;rai,
HOEFT V. SUPREME LODGE KNIGHTS OF HONOR.
(Supreme Court of California, 1896. 113 Cal. 91. 45 Pac. 185, 33 L. R. A. 174.)
Action by Catherine Hoeft against the Supreme Lodge Knights of
Honor and others on a benefit certificate. From a judgment for plain-
tiff, defendants appeal.
Henshaw, J.^ Appeal from the judgment given in favor of plain-
tiff upon the pleadings. Plaintiff, the widow of Henry Hoeft, sued
defendant, a benefit association, to recover $2,000 upon a certificate
issued in her name, at request of the insured member, Henry Hoeft.
The defendant Supreme Lodge, for answer, paid the money into court,
and asked that the children of Henry Hoeft be allowed to appear and
contest. This was permitted, and the children — defendants and appel-
lants herein — interposed a general demurrer to plaintiff's complaint,
and thereafter filed an answer and cross complaint. The court, upon
motion, gave plaintiff judgment upon the pleadings, and this appeal
followed. * * *
The principal question presented is raised by the new matter plead-
ed by defendants in their cross complaint. They set forth that plain-
tiff is their stepmother. Originally their father — the insured — procured
a certificate to be issued in the name of their mother, his then wife.
Upon her death a certificate was issued in their favor. In the course
of time he married plaintiff, and thereafter surrendered the certificate
in favor of them, and caused the certificate under which plaintiff claims
to be issued to her. The last change, it is averred, was accomplished
through the fraudulent representations, undue influence, coercion and
duress practiced and exercised upon their father by his wife, this plain-
tiff. The specific averments to support this charge are to the last de-
gree meager and inconclusive ; but, passing that, under an assumption
of their sufficiency, we come to consider whether a cause of action is
stated. If so, the judgment must be reversed; if not, it was properly
given.
Defendants do not plead any contract with their deceased father,
or any special equities which would deprive him of the right to make
a change, but stand upon the ground that they may contest because
the change was procured by fraud. But, if it was a fraud, did they
2 For discussion of principles, see Vance on Insurance, §§ 137. 138. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, p. 3756 et seq.
3 Part of the opinion is omitted.
BENEFICIARIES IN MUTUAL BENEFIT ASSOCIATIONS 287
have a right to complain? Clearly they had not, unless either by con-
tract or in law they had some vested interest or right in the certificate
which had formerly been taken out in their favor. They claim no
such vested interest by contract. If it exists at all, then, it exists by
operation of law. But such rights are either constitutional or statutory,
and we are referred to no law which secures to them a right of action
for such a cause.
If they had a vested right in the certificate as such, then the in-
sured himself, of his own volition, and without the fraudulent con-
trivance of a third person, could not substitute a new beneficiary. But
this is not and cannot be claimed, for the contract is between the order
and the insured. The beneficiary's interest is the mere expectancy of
an incompleted gift, which is revocable at the will of the insured, and
which does not and cannot become vested as a right until fixed by his
death. If it is said that a devisee under a will has, during the life of
the testator, a like naked expectancy, it may be freely conceded that
it is so; but to the heirs and devisees is confirmed a right of action for
fraud, etc., by the provisions of the Code. Otherwise they, too, would
come within the scope of the general principle that a right of action
for fraud is personal and untransferable. One cannot be defrauded
of that in which he has no vested right. A vested right is property,
which the law protects, while a mere expectancy is not property, and
therefore is not protected.
These views will be found supported without conflict by a multitude
of authorities from which may be cited: Nibl. Mut. Ben. Soc. (2d
Ed.) § 234a ; Brown v. Grand Lodge, 80 Iowa, 287, 45 N. W. 884,
20 Am. St. Rep. 420 ; Schillinger v. Boes, 85 Ky. 357, 3 S. W. 427 ;
Robinson v. Association (C. C.) 68 Fed. 825 ; Supreme Conclave v.
Cappella (C. C.) 41 Fed. 1; Lamont v. Grand Lodge (C. C.) 31
Fed. 177; Knights of Honor v. Watson, 64 N. H. 517, 15 Atl. 125;
Beatty's Appeal, 122 Pa. 428, 15 Atl. 861; Martin v. Stubbings, 126
111. 387, 18 N. E. 657, 9 Am. St. Rep. 620. In our own state the
cases of Swift v. Exchange Board, 67 Cal. 567, 8 Pac. 94; Order
of Mutual Companions v. Griest, 76 Cal. 494, 18 Pac. 652; Bowman
V. Moore, 87 Cal. 306, 25 Pac. 409 ; and McLaughlin v. McLaughlin,
104 Cal. 171, 37 Pac. 865, 43 Am. St. Rep. 83, — recognize the same
general principles.
Jory V. Supreme Council, 105 Cal. 20, 38 Pac. 524, 26 L. R. A.
7Z2), 45 Am. St. Rep. 17, and the cases involving a like consideration,
differ radically from the case at bar. There is no conllict in the
decisions nor confusion in the principles. In the Jory Case the in-
sured endeavored to change the beneficiary, and did everything pos-
sible to that end except to surrender the outstanding certificate. This
he was prevented from doing by the fraud and contrivance of the
beneficiary named therein, who refused to part with it. As between
the two claimants to the fund, namely, the holder of the earlier certif-
icate which the insured had in effect canceled, and the beneficiary last
288 RIGHTS UNDER THE POLICY
named, equity, not demanding impossibilities, and not permitting one
to take advantage of his own wrong, decreed that the latter had the
better right. In other words, it gave complete effect to the acts of
the insured.
In this case appellants ask to have the acts of the insured nulli-
fied, — an essentially different demand. The judgment appealed from
is affirmed.*
2. Change of Beneficiary '
SANBORN V. BLACK.
(Supreme Court of New Hampshire, 1S94. 67 N. H. 537, 35 Atl. 942.)
Bill of interpleader by Edward B. S. Sanborn against Louisa F.
Black, Sarah M. Bruce, and others.
The Odd Fellows' Mutual Relief Association of the Connecticut
River Valley has paid to the plaintiff, for the benefit of the party
entitled to it, $975, upon a certificate of membership issued to the
plaintiff's intestate, Frederick A. Black, February 8, 1877, by which
the association promised to pay $1,000, upon Black's decease, to the
person or persons designated by him in his application for member-
ship, or in his last legal assignment, provided such person or per-
sons should be heirs or relatives of him, or dependents upon him.
The by-laws of the association contained the following provisions :
^'If either of the persons so designated have died prior to the death
of the member, the sum which would have been paid to said de-
tedent's beneficiary, had he or she been living at the time of the
member's death, shall be payable to other beneficiaries, if there are
any named, in equal proportions, but, if there are no other bene-
ficiaries named, to the next of kin of the deceased member. A
member shall not change his beneficiary * * * without the con-
sent of the directors, and a record being made of the same on the
tooks of the association."
In his application, Black designated his wife, Julia, as beneficiary.
She died in 1885, and he subsequently married the defendant Louisa,
September 27, 1889, he indorsed upon the certificate and signed the
following, "It is my will that the benefit named in this instrument
be paid to my wife, Louisa F. Black," and sent it to the association.
at Springfield, Mass., to get the consent of the directors to the change,
* See, also, Martin v. Stubbings, 126 111. 387, 18 N. E. 657, 9 Am. St. Rep.
620 (1888).
5 For discussion of principles, see Vance on Insurance, § 138. See, also.
■Cooley, Briefs on the Law of Insurance, vol. 4, p. 3767 et seq.
BENEFICIARIES IN MUTUAL BENEFIT ASSOCIATIONS 28'J
and have it recorded. He died October 3, 1889. The directors, not
holding any meeting in the meantime, did not consent to the change
before his death. Three of them consented in writing September 20,
1890. Louisa and the next of kin appear, each claiming the money
in the plaintiff's possession.
Chase, J. It is claimed that Black's designation of his second wife
as beneficiary is not effectual, because it was not consented to and
recorded, as required by a by-law of the association, before his
death. The association's promise to pay the sum named in the cer-
tificate of membership to some one— either the designated beneficiary
or the member's next of kin — is absolute. It also gives the member
authority to choose, and from time to time to change, his beneficiary,
provided the person appointed is a relative of, or a dependant upon,
him. This feature distinguishes the contract from ordinary contracts
of life insurance. Marsh v. Legion of Honor, 149 Mass. 512, 515,
21 N. E. 1070, 1071, 4 L. R. A. 382. It deprives any one from ac-
quiring a vested interest in the insurance during the lifetime of the
member. Barton v. Association, 63 N. H. 535, 3 Atl. 627; Knights
of Honor v. Watson, 64 N. H. 517, 519, 15 Atl. 125, 126. Com-
pare Bank V. Whittle, 63 N. H. 587, 3 Atl. 645.
Authority in the association or its directors to defeat the member's
choice by arbitrarily withholding consent would be inconsistent, not
only with the right expressly granted to him, but also with the general
nature and purpose of the contract. It would "go to the destruction
of the thing granted, and. * * * according to the well-known
rule, the thing granted would pass discharged of the condition." Dall-
man v. King, 4 Bing. N. C. 105, 109; Moore v. Woolsey, 4 El. &
Bl. 243, 256; Braunstein v. Insurance Co., 1 Best & S. 782, 795;
Boynton v. Insurance Co., 43 Vt. 256, 262, 5 Am. Rep. 276; Thomas v.
Fleury, 26 N. Y. 26, 34; Bowery National Bank v. Mayor, etc., of
City of New York, 63 N. Y. 336, 339, 340; Nolan v. Whitney, 88
N. Y. 648. It is not claimed that any reason existed in this case for
withholding consent. The person designated as beneficiary is one of
a class entitled to become such, and, so far as appears, is unexcep-
tionable in all respects.
One purpose of the by-law was to secure to the association reliable
evidence of every change in beneficiaries, so that it would know to
whom it was liable upon the death of a member, and be protected,
to some extent, at least, from litigation by adverse claimants. Anthony
V. Association, 158 ^lass. 322, 324, 33 N. E. 577, 578; American
Legion v. Smith, 45 N. J. Eq. 466, 17 Atl. 770; Supreme Conclave v.
Cappella (C. C.) 41 Fed. 1, 4. Here this purpose was fully accom-
plished. Black's designation was sufficient in form and substance.
It was forwarded to and received by the association several days
before his death. He did all that he was required to do — all that
he could do — to complete the transfer of the association's obligation
CooLEY Ins. — 19
290 RIGHTS UNDER THE POLICY
to Louisa. There being no sufficient reason to justify other action
on the part of the directors, he had the right to have the transfer
consented to by them, and recorded.
The only reason suggested why consent was not given, and record
was not made, is because the directors did not meet before his death,
after receiving the assignment. If they had met, and declined or
neglected to consent, and Black had lived, law or equity would have
furnished him an adequate remedy to secure his right. Walker v.
Walker, 63 N. H. 321, 56 Am. Rep. 514. Upon his death, Louisa's
expectancy became a vested right. She became entitled (as he was
in his lifetime) to insist that the directors should perform their duty
under the contract. Scott v. Association, 63 N. H. 556, 4 Atl. 792;
Connelly v. Association, 58 Conn. 552, 20 Atl. 671, 9 L. R. A. 428,
18 Am. St. Rep. 296; Vivar v. Knights of Pythias, 52 N. J. Law,
455, 20 Atl. 36. Under the circumstances, equity treats that as done
which ought to have been done. Supreme Conclave v. Cappella (C. C)
41 Fed. 1; Isgrigg v. Schooley, 125 Ind. 94, 25 N. E. 151. Case
discharged.
McGOWAN v. SUPREME COURT L O. O. F.
(Supreme Court of Wisconsin, 1899. 104 Wis. 173. 80 N. W. 603.)
Action by Addie McGowan against the Supreme Court of the
Independent Order of Foresters upon a benefit certificate issued by
the defendant to one Edward C. Pion, on the 3d day of June, 1896;
the defendant being a fraternal association issuing life insurance cer-
tificates to its members upon the assessment plan. The certificate,
when issued, was made payable to one Frances Heid, the affianced wife
of said Pion. The complaint alleges that on January 31, 1898, Pion
duly changed the beneficiary, in accordance with the rules and regu-
lations of the order, and thereby made his insurance payable to the
plaintiff, his sister, and that Pion died February 9, 1898. The amended
answer admits the issuance of the certificate of insurance, and the
death of the insured, and the furnishing of sufficient proofs of death,
but denies that the beneficiary was ever changed, and, further, sets
up the defense of false statements made by the insured in his ap-
plication for insurance, by which the policy was avoided.
The rules of the order prescribing the manner in which the in-
sured may make a change of beneficiary were put in evidence, and
they provide, in substance, that such change may be made in the
following manner: (1) By filing a written application with the local
court for such change ; (2) paying a fee of 50 cents ; (3) surrendering
the old certificate; (4) furnishing satisfactory evidence that he, and
not the beneficiary, has paid the assessments ; (5) whereupon the local
court shall cause the application, duly certified by the court officers
and sealed, to be transmitted, with the certificate, to the head office ;
BENEFICIARIES IN MUTUAL BENEFIT ASSOCIATIONS 291
(6) on the receipt of which, if approved by the supreme chief ranger,
the supreme secretary shall incorporate in the certificate the desired
change. The rules further provide that, upon the issuance of the
second certificate, the first should thereby become null and void, and
that no certificate should be assigned, nor the beneficiary changed,
except in the manner so provided.
It appears by the evidence that the insured removed from Galena,
III, to La Crosse, Wis., some time after the issuance of the original
certificate, and lived with the plaintifif, his sister. From October,
1897, until his death, February 9, 1898, he seems to have lived in
La Crosse with the plaintiff, his sister. The head of the defendant
order is called the "Supreme Chief Ranger," and he has his office at
Toronto, Canada. In January, 1898, one Robert Kidney, a deputy of
the supreme chief ranger, whose business, under the rules of the
order, is to incorporate subordinate courts, look after those already
in existence, and generally to represent the supreme chief ranger in
that respect, came to La Crosse, and saw the insured, on the 31st of
January, at the home of his sister. The insured on that day told him
that he wished to change the beneficiary in his certificate, and make
the policy over to his sister, the plaintiff. ]\Ir. Kidney produced the
proper blank, and it was filled out, the 50 cent fee was paid, and
the application was at once transmitted to the local court at Galena
for the signature of the court officers and the seal. The certificate
was not surrendered, because it was then in the possession of Frances
Heid, at Galena. The application reached Galena, and the proper cer-
tificate was placed thereon by the officers of the court, and the sum
was transmitted to the supreme chief ranger, and reached him Feb-
ruary 7, 1898. The original certificate reached Mr. Pion on the 7th
or 8th of February, but in wdiat manner it was obtained from Miss
Heid does not appear. He immediately delivered it to Kidney, who,
on the morning of the 9th of February, being the day of Pion's
death, mailed it to the proper officers at Toronto, where it was re-
ceived February 11th; Pion having died, as before stated, February
9th. No new certificate was ever issued, nor does it appear that the
original certificate was ever returned.
Judgment for the plaintiff for $2,099 damages and costs was ren-
dered, from which judgment the defendant appeals.
WiNSLOW, JO * * * It is now well settled that one who is in-
sured in a mutual benefit association, and who wishes to change the
beneficiary, must make the change in the manner required by his
policy and the rules of the association, and that any material deviation
from this course will render the attempted change ineffective. It is
equally well settled that there are cases where literal and exact con-
formity with the requirements of the policy may be excused. In the
case of Supreme Conclave v. Cappella (C. C.) 41 Fed. 1, the subject
6 The statement of facts is rewritten and part of the opinion is omitted.
292 RIGHTS UNDER THE POLICY
is exhaustively reviewed, and the conclusion reached that there were
three exceptions to the rule of exact compliance: First, where the
society has waived strict compliance by issuing- a new certificate with-
out insisting on the performance of all the intermediate steps ; second,
where, by loss of the first certificate without fault, its surrender be-
comes impossible, a court of equity will not require an impossibility,
but will treat the change as made if the insured has taken all the
other necessary steps, and does all in his power to make the change ;
third, where the insured has pursued the course required by the policy
and the rules of the association, and does all in his power to make
the change, but before the new certificate is actually issued he dies,
a court of equity will decree that to be done which ought to be done,
and will act as though a new certificate had been issued. Association
V. Kirgin, 28 Mo. App. 80; Isgrigg v. Schooley, 125 Ind. 94, 25 N.
E. 151; Grand Lodge v. Noll, 90 Alich. 7^7, 51 N. W. 268, 15 L.
R. A. 350, note 30 Am. St. Rep. 419; Marsh v. Supreme Council,
149 Mass. 512, 21 N. E. 1070, 4 L. R. A. 382; Luhrs v. Luhrs,
123 N. Y. 367, 25 N. E. 388, 9 L. R. A. 534, 20 Am. St. Rep. 754;
Bac. Ben. Soc. (New Ed.) §§ 310, 310a.
The case at bar clearly comes within the last of the above classes.
The insured had done every substantial act required of him by the
terms of the policy and the rules of the society in order to make a
complete change of beneficiaries. The last act was the surrender to
the deputy chief ranger of the original certificate, at least one day be-
fore his death. He could do nothing further. On the part of the
society, there were simply formal acts to be performed. There was
no discretion as to whether the society would allow the change. It
is true that the rules say that the change shall be made and a ne\'>
certificate issued if the application be approved by the supreme chief
ranger, but this approval plainly relates to matters of form only. It
was the right of tlie insured to make the change before his death it
he took the required steps, and if the new beneficiary was competent
to be such under the rules of the order. We hold, therefore, that,
under the rules laid down in Supreme Conclave v. Cappella, supra,
the insured in the present case had made an effective and complete
change of beneficiaries.
But it is urged that the cases in which this doctrine has been ap-
plied are all cases where the money has been brought into court,
and the other claimant has been interpleaded, and thus the action has
become an equitable one, in which equitable principles may be and
are applied, while the present action is an action at law, where strictly
legal principles must prevail. The objection does not seem forcible.
Either there was a change of beneficiaries or there was not. There
is no middle course. Nor do we see how there could well be a change
in equity and no change at law, or a change which should operate as
to some parties and not to other parties to the transaction. There-
POLICY PAYABLE TO A THIRD PERSON 293
fore we hold that the facts here shown prove a change of bene-
ficiaries, even though the action be one at law J * * * [Judgment
reversed on other points.]
III. Policy Payable to a Third Person
CENTRAL NAT. BANK v. HUME.
(Supreme Court of United States. 1888. 128 U. S. 195, 9 Sup. Ct. 41, 32 L.
Ed. 370.)
On the 23d of April, 1872, the Life Insurance Company of Wr-
ginia issued a policy of insurance on the life of Thomas L. Hume, of
Washington, D. C, for the term of his natural life, in the sum of
$10,000, for the sole use and benefit of his wife, Annie Graham Hume,
and his children, payment to be made to them, their heirs, executors,
or assigns.
The charter of the company provided as follows: "Any policy
of insurance issued by the Life Insurance Company of Virginia on
the life of any person, expressed to be for the benefit of any married
woman, whether the same be effected originally by herself or her hus-
band, or by any other person, or whether the premiums thereafter be
paid by herself or her husband or any other person as aforesaid, shall
inure for her sole and separate use and benefit, and that of her or
husband's children, if any, as may be expressed in said policy, and
shall be held by her free from the control or claim of her husband
or his creditors, or of the person effecting the same and his creditors."
Section 7.
The application for this policy was made on behalf of the wife and
children by Thomas L. Hume, who signed the same for them. On
the 28th of March, 1880, the Hartford Life & Annuity Company of
Hartford, Conn., issued five certificates of insurance upon the life of
Thomas L. Hume, of $1,000 each, payable to his wife, Annie G. Hume,
if living, but otherwise to his legal representatives. On the 17th of
February, 1881, the Maryland Life Insurance Company of Baltimore
issued a policy of insurance upon the life of Thomas L. Hume, in
the sum of $10,000, for the term of his natural life, payable to "the
said insured, Annie G. Hume, for her sole use, her executors, admin-
7 To the same effect, see Waldnm v. Honistad, 119 Wis. 312, 9G N. W. 806
(1903). See, also. John Hancock Mutual Life Ins. Co. v. White, 20 R. I.
457, 40 Atl. 5 (1898). And see Hoeft v. Supreme Lodge Knights of Honor,
ante, p. 286.
s For discussion of principles, see Vance on Insurance, §§ 139-141. See,
also, Coolej', Briefs on the Law of Insurance, vol. 4, p. 3787 et seq.
294 RIGHTS UNDER THE POLICY
istrators, or assigns ;" the said policy being issued, as it recites on its
face, in consideration of the sum of $337.20 to them duly paid by
said Annie G. Hume, and of an annual premium of the same amount
to be paid each year during the continuance of the policy. The ap-
plication for this policy was signed "Annie G. Hume, by Thomas L.
Hume," as is a recognized usage in such applications, and in accord-
ance with instructions to that effect printed upon the policy.
The charter of the Maryland Life Insurance Company provides
as follows: "Sec. 17. That it shall be lawful for any married woman,
by herself, or in her name or in the name of any third person, with
his consent, as her trustee, to be caused to be insured in said compa-
ny, for her sole use, the life of her husband, for any definite period,
or for the term of his natural life ; and, in case of her surviving her
husband, the sum or net amount of the insurance becoming due and
payable by the terms of the insurance shall be payable to her to and
for her own use, free from the claims of the representatives of her
husband, or of any of his creditors. In case of the death of the wife
before the decease of the husband, the amount of the insurance may
be made payable, after the death of the husband, to her children, or,
if under age, to their guardian, for their use. In the event of
there being no children, she may have power to devise, and, if dying
intestate, then to go [to] the next of kin."
On the 13th of June, 1881, the Connecticut Mutual Life Insurance
Company of Hartford issued a policy of insurance upon the life of
Thomas L. Hume, in the sum of $10,000, for the term of his natural
life, payable at Hartford to Annie G. Hume and her children by him,
or their legal representatives. The application for this policy was
signed "Annie G. Hume, by Thomas L. Hume." It was expressly
provided, as part of the contract, that the policy was issued and de-
livered at Hartford, in the state of Connecticut, and was "to be in
all respects construed and determined in accordance with the laws of
that state."
The "statute of Connecticut, respecting policies of insurance is-
sued for the benefit of married women," was printed upon the policy
under that heading, and is as follows: "Any policy of life insurance
expressed to be for the benefit of a married woman, or assigned to
her or in trust for her, shall inure to her separate use, or, in case of her
decease before payment, to the use of her children or of her hus-
band's children, as may be provided in such policy: provided, that
if the annual premium on such policy shall exceed three hundred dol-
lars, the amount of such excess, with interest, shall inure to the benefit
of the creditors of the person paying the premiums; but if she shall
die before the person insured, leaving no children of herself or hus-
band, the policy shall become the property of the person who has paid
the premiums, unless otherwise provided in such policy ;" and this
extract from the statute was printed upon the policy, and attention
directed thereto.
POLICY PAYABLE TO A THIRD PERSON 295
The American Life Insurance & Trust Company of Philadelphia
had also issued a policy in the sum of $5,000 on the life of Hume, pay-
able to himself or his personal representatives, and this was collected
by his administrators.
Thomas L. Hume died at Washington on the 23d of October, 1881,
insolvent, his widow, Annie G. Hume, and six minor children, sur-
viving him.
November 2, 1881, the Central National Bank of Washington, as
the holder of certain promissory notes of Thomas L. Hume, amount-
ing to several thousand dollars, filed a bill in the supreme court of the
District of Columbia against Mrs. Hume and the Maryland Life In-
surance Company, the case being numbered 7,906, alleging that the
policy issued by the latter was procured while Hume was insolvent ; that
Hume paid the premium of $242.26 without complainant's knowledge
or consent, and for the purpose of hindering, delaying, and defrauding
the complainant and his other creditors ; and praying for a restraining
order on the insurance company from paying to, and Mrs. Hume from
receiving, either for herself or children, the amount due pending the
suit, and "that the amount of the said insurance policy may be de-
creed to be assets of said Thomas L. Hume applicable to the payment
of debts owing by him at his death," etc. The temporary injunc-
tion was granted.
On the 12th of November the insurance company filed its answer
to the effect that Mrs. Hume obtained the insurance in her own name.
and was entitled under the policy to the amount thereof, and setting
up and relying upon the • seventeenth section of its charter, quoted
above. Mrs. Hume answered, November 16th, declaring that she
applied for and procured the policy in question, and that it was not
procured with fraudulent intent; that the estate of her father, A.
H. Pickrell, who died in 1879, was the largest creditor of Hume's es-
tate; that she is her father's residuary legatee; that the amount of
the policy was intended, not only to provide for her, but also to se-
cure her against loss.
Benjamin U. Keyser, receiver, holding unpaid notes of Hume, was
allowed, by order of court, November 16, 1881, to intervene as co-
complainant in the cause.
R. Ross Perry and Reginald Fendall were appointed, November
26, 1881, Hume's administrators. On January 23, 1882, the adminis-
trators filed three bills (and obtained injunctions) against Mrs. Hume
and each of the other insurance companies, being cases numbered
8,011, 8,012, and 8,013, attacking each of the policies (except the
American) as a fraudulent transfer by an insolvent of assets belong-
ing to his creditors.
The answers of Mrs. Hume were substantially the same, mutatis
mutandis, as above given, and so were the answers of the Connecticut
Mutual and the Virginia Life ; the former pleading the statute of
Connecticut as part of its policy, and the latter the seventh section
296 RIGHTS UNDER THE POLICY
of its charter. The Hartford Life & Annuity Company did not an-
swer, and the bill to which it was a party defendant was taken pro
confesso.
The administrators were, by order of court, January 2, 1883, ad-
mitted parties defendant to said first case numbered 7,906. and cases
numbered 8,011, 8,012, and 8,013 were consolidated with that case.
January 4, 1883, the court entered a decretal order, dissolving the re-
straining order in original cause numbered 8,012, and directing the
Virginia Insurance Company to pay the amount due upon its policy
into court, and the clerk of the court to pay the same over to Mrs.
Hume, for her own benefit and as guardian of her children (which
was done accordingly;) and continuing the injunctions in original
causes 8,011, 8,013, and 7,906, but ordering the other insurance com-
panies to pay the amounts due into the registry of the court.
By order of court, January 30, 1883, the Farmers' & Mechanics'
National Bank of Georgetown, which had proved up a large claim
against Hume's estate, was allowed to intervene in original cause No.
7^906 as a co-complainant ; and March 19, 1883, George W. Cochran,
a creditor, was by like order allowed to intervene as co-complainant
in the consolidated cases.
The supreme court of the District of Columbia, after argument, on
the 5th day of January, 1885, decreed that the administrators should
recover all sums paid by Thomas L. Hume as premiums on all policies,
including those on the Virginia policy from 1874; and that, after
deducting said premiums, the residue of the money paid into court
(being that received from the Maryland and the Connecticut Mu-
tual) be paid to Mrs. Hume individually, or as guardian for herself
and children; and that the Hartford Life & Annuity Company pay
over to her the amount due on the certificates issued by it. From this
decree the said Central National Bank, Benjamin U. Keyser, the Farm-
ers' & Mechanics' National Bank of Georgetown, George W. Coch-
ran, and the administrators, as well as Mrs. Hume, appealed to this
court, and the cause came on to be heard here upon these cross-ap-
peals.
Mr. Chief Justice Fuller, after stating the facts as above, delivered
the opinion of the court.® * * *
Mr Hume having been insolvent at the time the insurance was ef-
fected, and having paid the premiums himself, it is argued that these
policies were within the provisions of 13 Eliz. c. 5, and inure to the
benefit of his creditors as equivalent to transfers of property with
intent to hinder, delay, and defraud. The object of the statute of
Elizabeth was to prevent debtors from dealing with their property
in any way to the prejudice of their creditors ; but dealing with that
which creditors, irrespective of such dealing, could not have touched.
9 Tlie statement of facts is abridged from that in tlie original report and
part of tlie opinion is omitted.
POLICY PAYABLE TO A THIRD PERSON 297
is within neither the letter nor the spirit of the statute. In the view
of the law, credit is extended in reliance upon the evidence of the abil-
ity of the debtor to pay, and in confidence that his possessions will
not be diminished to the prejudice of those who trust him. This re-
liance is disappointed, and this confidence abused, if he divests him-
self of his property by giving it away after he has obtained credit.
And where a person has taken out policies of insurance upon his life
for the benefit of his estate, it has been frequently held that, as against
creditors, his assignment, when insolvent, of such policies, to or for
the benefit of wife and children, or either, constitutes a fraudulent
transfer of assets within the statute ; and this, even though the debtor
may have had no deliberate intention of depriving his creditors of a
fundJ to which they were entitled, because his act has in point of fact
withdrawn such a fund from them, and dealt with it by way of boun-
ty. Freeman v. Pope, L. R. 9 Eq. 206, L. R. 5 Ch. 538.
The rule stands upon precisely the same ground as any other dis-
position of his property by the debtor. The defect of the disposition
is that it removes the property of the debtor out of the reach of his
creditors. Cornish v. Clark, L. R. 14 Eq. 189. But the rule applies
only to that which the debtor could have made available for payment
of his debts. For instance, the exercise of a general power of appoint-
ment might be fraudulent and void under the statute, but not the ex-
ercise of a limited or exclusive power; because, in the latter case,
the debtor never had any interest in the property himself which could
have been available to a creditor, or by which he could have obtained
credit. ^lay. Fraud. Conv. 33. It is true that creditors can obtani
relief in respect to a fraudulent conveyance where the grantor can-
not, but that relief only restores the subjection of the debtor's property
to the payment of his indebtedness as it existed prior to the convey-
ance. * * *
We think it cannot be doubted that in the instance of contracts of
insurance with a wife or children, or both, upon their insurable in-
terest in the life of the husband or father, the latter, while they are
living, can exercise no power of disposition over the same without
their consent, nor has he any interest therein of which he can avail
himself, nor upon his death have his personal representatives or his
creditors any interest in the proceeds of such contracts, which belong
to the beneficiaries, to whom they are payable. It is indeed the general
rule that a policy, and the money to become due under it, belong, the
moment it is issued, to the person or persons named in it as the bene-
ficiary or beneficiaries ; and that there is no power in the person pro-
curing the insurance, by any act of his, by deed or by will, to transfer
to any other person the interest of the person named. Bliss, Ins. (2d
Ed.^ 517; Glanz v. Gloeckler, 10 111. App. 486, per McAllister, J.;
Id., 104 111. 573, 44 Am. Rep. 94; Wilburn v. Wilburn. 83 Ind. 55;
Ricker V. Insurance Co., 27 ^linn. 193, 6 N. W. 771, 38 Am. Rep. 289;
Insurance Co. v. Brant, 47 :^Io. 419, 4 Am. Rep. 328 ; Gould v. Em-
298 EIGHTS UNDER THE POLICY
erson, 99 Mass. 154, 96 Am. Dec. 720; Insurance Co. v. Weitz, 99
Mass. 157.
This must ordinarily be so where the contract is directly with the
beneficiary; in respect to policies running to the person insured, but
payable to another having a direct pecuniary interest in the life in-
sured ; and where the proceeds are made to inure by positive statutory
provisions. Mrs. Hume was confessedly a contracting party to the
Maryland policy; and, as to the Connecticut contracts, the statute
of the state where they were made and to be performed explicitly
provided that a policy for the benefit of a married woman shall inure
to her separate use or that of her children ; but, if the annual pre-
mium exceed $300, the amount of such excess shall inure to the ben-
efit of the creditors of the person paying the premiums.
The rights and benefits given by the laws of Connecticut in this
regard are as much part of these contracts as if incorporated there-
in, not only because they are to be taken as if entered into there, but
because there was the place of performance, and the stipulation of
the parties was made with reference to the laws of that place. And
if this be so as between Hume and the Connecticut companies, then
he could not have at any time disposed of these policies without the
consent of the beneficiary; nor is there anything to the contrary in
the statutes or general public policy of the District of Columbia. It
may very well be that a transfer by an insolvent of a Connecticut pol-
icy, payable to himself or his personal representatives, would be held
invalid in that district, even though valid under the laws of Connecti-
cut, if the laws of the district were opposed to the latter, because the
positive laws of the domicile and the forum must prevail ; but there
is no such conflict of laws in this case, in respect to the power of dis-
position by a person procuring insurance payable to another.
The obvious distinction between the transfer of a policy taken out by
a person upon his insurable interest in his own life, and payable to
himself or his legal representatives, and the obtaining of a policy by
a person upon the insurable interest of his wife and children, and pay-
able to them, has been repeatedly recognized by the courts. * * *
Conceding, then, in the case in hand, that Hume paid the premiums
out of his own money, when insolvent, yet, as Mrs. Hume and the
children survived him, and the contracts covered their insurable in-
terest, it is difificult to see upon what ground the creditors, or the ad-
ministrators as representing them, can take away from these depend-
ent ones that which was expressly secured to them in the event of the
death of their natural supporter. The interest insured was neither the
debtor's nor his creditors'. The contracts were not payable to the
debtor, or his representatives, or his creditors. No fraud on the part
of the wife, or the children, or the insurance company is pretended.
In no sense was there any gift or transfer of the debtor's property,
unless the amounts paid as premiums are to be held to constitute such
eift or transfer. This seems to have been the view of the court be-
C5
POLICY PAYABLE TO A THIRD PERSON 299
low, for the decree awarded to the complainants the premiums paid
to the Virginia Company from 1874 to 18S1, inclusive, and to the
other companies from the date of the respective policies ; amountmg.
with interest, to January 4, 1883, to the sum of $2,696.10, which sum
was directed to be paid to Hume's administrators out of the money
which had been paid into court by the Maryland and Connecticut Mu-
tual Companies. But, even though Hume paid this money out of his
own funds when insolvent, and if such payment were within the stat-
ute of Elizabeth, this would not give the creditors any interest in the
proceeds of the policies, which belonged to the beneficiaries for the
reasons already stated.
Were the creditors, then, entitled to recover the premiums ? These
premiums were paid by Hume to the insurance companies, and to re-
cover from them would require proof that the latter participated in the
alleged fraudulent intent, which is not claimed. Cases might be im-
agined of the payment of large premiums, out of all reasonable pro-
portion to the known or reputed financial condition of the person pay-
ing, and under circumstances of grave suspicion, which might justi-
fy the inference of fraud on creditors in the withdrawal of such an
amount from the debtor's resources ; but no element of that sort ex-
ists here.
The premiums form no part of the proceeds of the policies, and can-
not be deducted therefrom on that ground. Mrs. Hume is not shown
to have known of or suspected her husband's insolvency, and if the
payments were made at her instance, or with her knowledge and as-
sent, or if, without her knowledge, she afterwards ratified the act, and
claimed the benefit, as she might rightfully do (Thompson v. Ins.
Co., 46 N. Y. 675), and as she does (and the same remarks apply to
the children), then has she thereby received money which ex aequo et
bono she ought to return to her husband's creditors ; and can the de-
cree against her be sustained on that ground? If in some cases pay-
ments of premiums might be treated as gifts inhibited by the statute
of Elizabeth, can they be so treated here?
It is assumed by complainants that the money paid was derived from
Hume himself, and it is therefore argued that to that extent his means
for payment of debts were impaired. That the payments contributed
in any appreciable way to Hume's insolvency, is not contended. So
far as premiums were paid in 1880 and 1881 (the payments prior to
those years having been the annual sum of $196.18 on the Virginia
policy), we are satisfied from the evidence that Hume received from
Mrs. Pickrell, his wife's mother, for the benefit of Mrs. Hume and
her family, an amount of money largely in excess of these payments,
after deducting what was returned to Mrs. Pickrell ; and that, in pay-
ing the premiums upon procuring the policies in the Maryland and the
Connecticut Mutual, Hume was appropriating to that purpose a part
of the money which he considered he thus held in trust ; and we think
300 RIGHTS UNDER THE POLICY
that, as between Hume's creditors and Mrs. Hume, the money placed
in Hume's hands for his wife's benefit is, under the evidence, equitably
as much to be accounted for to her by Hume, and so by them, as is
the money paid on her account to be accounted for by her to him or
them.
We do not, however, dwell particularly upon this, nor pause to dis-
cuss the bearing of the laws of the states of the insurance companies
upon this matter of the payment of premiums by the debtor himself,
so far as they may differ from the rule which may prevail in the Dis-
trict of Columbia, in the absence of specific statutory enactment upon
that subject, because we prefer to place our decision upon broader
grounds.
In all purely voluntary conveyances it is the fraudulent intent of the
donor which vitiates. If actually insolvent, he is held to knowledge
of his condition ; and if the necessary consequence of his act is to hin-
der, delay, or defraud his creditors, within the statute, the presump-
tion of the fraudulent intent is irrebuttable and conclusive, and inquiry
into his motives is inadmissible. But the circumstances of each particu-
lar case should be considered. * * * j^ considering the sufficiency
of the debtor's property for the payment of debts, the probable, im-
mediate, unavoidable, and reasonable demands for the support of the
family of the donor should be taken into the account and deducted,
having in mind also the nature of his business and his necessary ex-
penses. Emerson v. Bemis, 69 111. 541.
This argument in the interest of creditors concedes that the debtor
may rightfully preserve his family from suffering and want. It seems
to us that the same public policy which justifies this, and recognizes
the support of wife and children as a positive obligation in law as well
as morals, should be extended to protect them from destitution after
the debtor's death, by permitting him, not to accumulate a fund as a
permanent provision, but to devote a moderate portion of his earnings
to keep on foot a security for support already, or which could thereby
be, lawfully obtained, at least to the extent of requiring that, under
such circumstances, the fraudulent intent of both parties to the trans-
action should be made out. And inasmuch as there is no evidence
from which such intent on the part of Mrs. Hume or the insurance
companies could be inferred, in our judgment none of these premiums
can be recovered.
The decree is affirmed, except so far as it directs the payment to
the administrators of the premiums in question and interest, and, as
to that, is reversed, and the cause remanded to the court below, with
directions to proceed in conformity with this opinion. Ordered ac-
cordingly.
THE RIGHTS OF THE A88IGNEB 801
IV. The Rights of the Assignee
10
MORRIS V. GEORGIA LOAN, SAVINGS & BANKING CO.
(Supreme Court of Georgia, 1S99. 100 r,a. 12, 34 S. E. 378, 46 L. R.. A. 506.)
Action by L. S. Morris, administrator, against the Georgia Loan,
Savings & Banking Company and others. Judgment for defendants,
and plaintiff brings error.
Little, J.^^ Morris, as administrator of Ragland, instituted an ac-
tion against Cassin, Purtell, and the Georgia Loan, Savings & Banking
Company, a corporation doing business in the city of Atlanta, to re-
cover the sum of $4,556.31, with interest, which he claims the defend-
ants to be due to him under the following alleged facts : In May, 1895,
Ragland procured from the Connecticut Mutual Life Insurance Com-
pany a policy of insurance upon his own life for the sum of $5,000,
on which the annual premium was $103.15. The premiums were pay-
able quarterly, and Ragland paid such premiums as were due on May
27 and August 27, 1895. Being unable to continue the payment of the
premiums, Cassin and Purtell agreed to advance to him the amounts
necessary to pay the same as they became due, and, to secure payment
of the amount so advanced, Ragland assigned the policy to Cassin and
Purtell, who required and received of Ragland his promissory note,
dated December 11, 1895, for $4,300 principal, to become due one year
after date. This pretended debt was fictitious, except as to the pre-
miums advanced by Cassin and Purtell. At the time of these transac-
tions, Cassin was the cashier of the defendant banking company. After
the execution of the note, Cassin and Purtell indorsed it in blank, and
made a pretended transfer of it to the defendant the banking company,
which took the same with notice of its character. On November 5,
1896, Cassin and Purtell also transferred the policy of insurance to
the banking company. A short time thereafter Ragland died. Cassin,
as cashier of the banking company, made out and forwarded proofs
of death, and on the 31st day of December, 1896, the insurance com-
pany paid to the banking company the face value of the policy ($5,000).
which was consented to by the plaintiff in error under notice that he.
as administrator, would claim from the banking company the amount
so paid, less what had been advanced to Ragland by Cassin and Pur-
tell. Of the $5,000 the banking company retained $4,663.11, and
$309.89 was received by Ragland's administrator. By the terms of
the policy, the amount insured was payable to the representatives of
10 For discussion of principles, see Vance on Insurance, §§ 14.3-145. See,
also, Cooley, Briefs on tlie Law of Insurance, vol. 4, p. 3802 et seq.
11 Part of the opinion is omitted.
302 RIGHTS UNDER THE POLICY
Ragland, and the only claim that Cassin and Purtell and the banking-
company have on the fund is the amount of one premium, $106. No
services were rendered, accepted, or contracted for from Cassin, Pur-
tell, or the banking company. * * *
It is insisted on the part of the plaintiff in error that there was
evidence before the court which would have authorized the jury to
have found that, having made a valid contract of insurance on his
life, payable to his executors, administrators, and assigns, Ragland
was induced by the two defendants, Cassin and Purtell, to transfer
and assign the policy to them for a consideration of $25 or $30 in
addition to the payment of certain subsequent premiums as they fell
due, and that the note of $4,300 delivered by Ragland to the assignees
was really without any consideration, and made as a cover to conceal
the nakedness of the transfer. An examination of the evidence con-
tained in the record shows that the policy was issued to Ragland on
May 27, 1895, and that the assignment of the policy to Cassin and
Purtell was made on December 11, 1895, more than six months there-
after. It does not appear that Cassin paid any premiums until May
subsequent to the assignment, and, for aught that appears in the record,
the policy evidences a good and valid contract insuring the life of
Ragland. If it be true that there was no consideration for the note
of $4,300, and that the same was executed and delivered by Ragland
only for the purpose of enabling the assignees to claim the entire
amount of the policy, it must fail to accomplish that result ; for, as
a matter of law, an assignment of a policy of life insurance to a
creditor by the insured, and for the purpose of securing his indebted-
ness, is valid only in the amount of the debt and the expense in-
curred by the creditor in keeping up the policy. In 2 May, Ins. §
459a, it is said: "A creditor's claim upon the proceeds of insurance
mtended to secure the debt should go no further than indemnity, and
all beyond the debt, premiums, and expenses should go to the debtor
and his representatives, or remain with the company, according as the
insurance is upon life or on property." And in 13 Am. & Eng. Enc.
Law (1st Ed.) p. 648, it is declared, on the authority of adjudicated
cases cited, that, "where the assignment is for the purpose of secur-
ing a creditor, although he is entitled to recover the face of the policy,
he cannot hold what is not necessary for his indemnity. The legal
representatives of the debtor will be entitled to the balance."
A case which seems directly in point is that of Cammack v. Lewis,
15 Wall. 643, where it appeared that L. was indebted to C. in the sum
of $70, and, at C.'s suggestion, L. took out a policy on his life for
$3,000, for which C. paid the premium. Immediately after the policy
was issued L. gave to C. a note for $3,000, and assigned to him the
policy of insurance. A short time thereafter L. died, and the widow
filed a bill to recover the amount of the policy, or, rather, such a part
of it as she had not theretofore received. In delivering the opinion
of the court, Mr. Justice Miller said : "We think that Cammack could,
RIGHTS OF MORTGAGOR AND MORTGAGEE 303
in equity and good conscience, only hold the policy as security for what
Lewis owed him when it was assigned and such advances as he might
afterwards make on account of it, and that the assignment of the policy
to him was only valid to that extent." See, also, the case of Bank
V. Loh, 104 Ga. 446, 31 S. E. 459, 44 L. R. A. 372, where this court
held that a creditor has, for the purpose of indemnifying himself
against loss and for no other, an insurable interest in the life of his
debtor, and that the insurance will be available to the creditor to no
greater extent than the amount of his insurable interest at the time
the insurance was effected, viz. the amount of the then existing indebt-
edness. So that if it be true that, at the time he executed and delivered
the promissory note for $4,300 and assigned the policy of insurance
to Cassin and Purtell, Ragland was in fact a debtor to the assignees in
an amount less than the face of the policy, the effect of the assignment
was to vest in the assignees title to so much of the fund collected as
equaled the amount of the true indebtedness. The original contract
of insurance made the executors and administrators of Ragland, as
well as his assigns, the payees of the policy, and after payment of the
debt his assignment secured the administrator would in law be entitled'
to have the balance.
But it is urged that, even if the note was without consideration, the
inference is legally irresistible that the purpose of the parties in the
execution of the note and the .assignment of the policy of insurance
was an accommodation. How this is we, of course, do not know. Only
a jury, under proper instructions, should determine that fact. * * *
Reversed.^^
V. Rights of Mortgagor and Mortgagee ^'
HOME INS. CO. v. MARSHALL.
(Supreme Court of Kansas, 1892. 48 Kan. 235, 29 Pac. IGl.)
Commissioners' decision.
Action by the Home Insurance Company against D. W. IMarshall
and wife to foreclose a mortgage. From a judgment in its favor for
only $103 plaintiff brings error.
Green, C.^* The plaintiff in error brought an action to foreclose
a mortgage executed by D. W. ^Marshall and wife to the Equitable
12 See, also, Nye v. Grand Lodge A. O. U. W.. ante, p. 19. Kii,'hts of
assignees of fire policies, see New v. German Ins. Co., ante, p. 15, ami Ka.se
V. Hartford Fire Ins. Co., ante, p. 17. See, also, Quarles v. Clayton, ante, p. 10.
13 For discussion of principles, see Vance on Insurance. §§ 140. 147. See,,
also, Cooley, Briefs on tlie Law of Insurance, vol, 4, p, 3G99 et seq,
14 Part of the opinion is omitted.
304 EIGHTS UNDER THE POLICY
Trust & Investment Company to secure the payment of eight hundred
dollars, dated February 1, 1886, due in five years. The notes and mort-
gage were assigned by the payee to the Massachusetts Mutual Life
Insurance Company, and on December 27, 1887, assigned to the Home
Insurance Company, the plaintiff below. The defendants below ad-
mitted the execution of the notes and mortgage, but alleged payment
by the collection of an insurance policy of $800, which they were re-
quired by the mortgage to take out upon the building situated upon
the mortgaged premises, which building they alleged had been destroyed
by fire on the 13th of June, 1887; that the plaintiff in error, after it
had received notice of the loss, sent an adjuster to inspect the same,
and, for the purpose of defrauding the defendant in error out of the
insurance, took an assignment of the notes and mortgage sued upon,
including the policy of insurance. A jury was waived, and the court
found, in substance, that the material allegations of the petition were
true; that the sum of $800 and interest was due from the defendants
upon the mortgage.
The court then made the following findings in relation to the set-
off claimed by the defendants : "The court finds that the plaintiff issued
to the defendant Daniel W. Marshall a policy of insurance on the
dwelling-house situated on the mortgaged property for $800, for the
term of five years, payable to the Equitable Trust & Investment Com-
pany, mortgagee and assignor of the mortgage to the IMassachusetts
Mutual Life Insurance Company, and by said company assigned to
plaintiff ; that in June, 1887, the insured property was burned, and
totally lost, of which the plaintiff' was notified, and by its agent and
adjuster made an examination, and inspected the affair, and afterwards
paid to the Massachusetts jMutual Life Insurance Company the amount
of the policy, and took an assignment of the mortgage and of the in-
surance policy; that the plaintiff' never adjusted this loss by fire with
the defendant Daniel W. Marshall, and on the 7th day of September,
1888, commenced this suit to foreclose the mortgage." The court
found that the defendants were entitled to such a set-off as reduced the
claim of the plaintiff to $103, and gave judgment in favor of the plain-
tiff for such amount.
It is first contended that there is no finding by the court that the
plaintiff was ever indebted to the defendants upon the insurance policy,
or that the policy found to have been issued was valid or in force at
the time of the fire, or that any of the conditions of the policy which
were necessary to make it the basis for a claim against the plaintiff
were complied with by the insured. Was such finding necessary to
fix the liability of the insurance company for the amount of the policy?
The court did find that the property insured was destroyed by fire in
June, 1887, and that there was a total loss of the property described in
the policy; that the company had notice of such loss, and inspected
the same. The court also found that it paid to the Massachusetts Mu-
tual Life Insurance Company the amount of the policy, and took an
RIGHTS OF MORTGAGOR AND MORTGAGEE 305
assignment of the mortgage and the insurance policy. How are we
to regard this finding of the court? Is it not to be taken as a recogni-
tion of the poHcy by the insurer? Why should the insurance com-
pany pay the amount of the policy to the holder of the mortgage and
policy unless the latter was valid? The rule has been stated in Wood
on Fire Insurance (volume 2, § 452): "In all cases where a party has
an election, he will be bound by the course he first adopts, with full
knowledge of all the facts ; and any act that indicates that an election
has been made, and that in any respect affects the rights of the other
party, estops him from afterwards doing anything inconsistent with
such election. Therefore, where an insurance company is in a posi-
tion where it may be liable upon a policy or not, at its election, when-
ever it does an act that indicates that it has elected to treat the policy
as the basis of a legal claim against it, it cannot afterwards recede,
if anything has been done of a decisive character indicating its elec-
tion."
We think the finding of the court that the insurance company paid
to the holder of its policy the amount named therein, clearly estab-
lished the fact that it recognized the policy as a valid and subsisting
obligation. The insurance company had no right to the full amount
due upon the mortgage, after recognizing the validity of the policy.
The insurance was collateral to the debt, and the amount paid upon
the policy should have been applied as a payment upon the debt secured
by the mortgage. Equity and fair dealing between the parties to this
contract of insurance require that the insurer should be required to
make such application, in accordance with the finding of the court.
The plaintiff in error contends that the special findings of the court
are not based upon the allegations of the answer, and are therefore
not sustained by the pleadings. The answer alleged, among other
things, that the debt secured by the notes and mortgage sued upon
had been paid. It then stated what had been done by the plaintiff in
reference to the loss and the payment of the amount of the policy to
the holder of the mortgage and policy. In a case not unlike this, in
some respects, it was decided by this court that, where the jury had
found that the mortgagee had received from the insurer and other
companies a sum sufficient to pay off the bond and mortgage, it au-
thorized the legal conclusion that the payment was in satisfaction of
the note and mortgage, and not for the purposes of assignment. 'Tn
other words, the insurance company had obligated itself to pay the
loss to the mortgagee. It did so, but, instead of discharging the mort-
gage, it took an assignment of it and sought to enforce it. There
can be no doubt but that the legal conclusion irresistibly follows the
findings of the jury." Insurance Co. v. Smelker, 38 Kan. 288, 16 Pac.
735. The legal conclusion of the court was that the payment of the
policy by the company was pro tanto to be applied in satisfaction of
the note and mortgage, and was not made for the purpose of an as-
CooLEY Ins. — 20
306 RIGHTS UNDER THE POLICY
signment. Under this view of the findings they are clearly in accord-
ance with the allegations of the answer. * * * It is recommended
that the judgment be affirmed.
FtR Curiam. It is so ordered; all the justices concurring.^^
VI. Subrogation
10
DILLING V. DRAEMEU
(Common Pleas of New York City and County, General Term, 1890. 9 N. Y.
Supp. 497.)
Action by Karl Billing against William Draemel, to recover on a
certificate of fire insurance. Plaintiff recovered a judgment, from
which defendant appeals.
LarremoriJ, C. J. The plaintiff held a certificate as a member of
a voluntary association, insuring his furniture and household
goods against loss "either immediate, through fire, explosion, or
collapse of building, or mediate, through water in extinguish-
ing fire." Subsequently the easterly wall of the house he occupied
fell, in consequence of an excavation made upon the adjoining lot.
Plaintiff in the first instance claimed that his landlord was liable to
him in tort as a wrong-doer by reason of the falling of the wall andJ
brought an action against him to recover damages for the loss, among
other things, to his goods, merchandise, and other property. That
action was settled in consideration of $300, paid by his landlord to
the plaintiff, whereupon he executed and delivered to the latter a
general release under seal against all claims, dues, and demands what-
soever. Thereafter he brought this action to recover that proportion
of his loss over the amount of $300, claiming that he had a dis-
cretion at his own pleasure to apportion such loss. He recovered a
judgment, from which this appeal is taken.
The case was decided in the court below upon the theory that the
plaintiff had not received all the damages sustained by him from the
wrong-doer, and that, although he had absolutely released the wrong-
doer such action might be maintained. It is well settled that, if a loss
under a policy of insurance is occasioned by the wrongful act of a
third party, the insurer occupies the position of a mere surety, and
the wrong-doer that of a principal debtor; and all the incidents of
suretyship attach to the position of the underwriter in such a case,
15 See, also, Kase v. Hartford Fire Ins. Co., ante, p. 17.
16 For discussion of principles, see Vance on Insurance. §§ 149, 150. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, p. 3^92 et seq.
SUBROGATION 307
including the right of subrogation. Hall v. Railroad Cos., 13 Wall.
367, Z7Z, 20 L. Ed. 594.
The same principle is applicable to a contract of insurance, if the
surety destroys the remedy of subrogation, and relieves the assurer
to the full extent to which the wrong-doer could have been made
liable for the loss. Sheld. Subr. § 222; Insurance Co. v. Storrow,
5 Paige (N. Y.) 285. Both parties rely on the case of Connecticut
Fire Ins. Co. v. Erie R. Co., 7Z N. Y. 399, 29 Am. Rep. 171. A
careful examination of that case shows that it is an authority against
the ruling of the court below. That action was brought by an under-
writer to recover from the Erie Railroad Company, under the right
of subrogation, the amount paid by the underwriter to the assured.
A release was given by the assured to the company, which was not
absolute in terms, as is the release in this case. The release in the
case contained a statement that the settlement did not include any
claim the assured had against the underwriter, and the court held
that, because of that reservation, the right of subrogation of the
underwriter was preserved as against the railroad company, and that
the release was limited, and by its terms preserved the rights of the
insured to collect what the insurance company owed him.
The release in this case is a general release without any such reserva-
tion, and the $300 paid cannot be considered as a payment pro tanto
for the loss. Such a release destroyed the right of subrogation. If
the assured, by his own act, absolutely and without reservation re-
leases the wrong-doer, he thereby discharges the insurer to the full
extent to which he has defeated the insurer's remedy over by right
of subrogation. Insurance Co. v. Storrow, supra ; Carstairs v. In-
surance Co. (C. C.) 18 Fed. 473. The judgment appealed from should
be reversed, with costs.
CHICKASAW COUNTY FARMERS' MUT. FIRE INS. CO. v.
WELLER.
(Supreme Court of Iowa, 1S96. 98 Iowa, 731, GS N. W. 443.)
Action by the Chickasaw County Farmers' Mutual Fire Insurance
Company to recover $110, with interest, alleged to have been fraudu-
lently obtained by the defendant from the plaintiff. Judgment for
the plaintiff. Defendant appeals.
Given, J.^'^ 1. The learned district judge made the following find-
ings of fact and of law, and we think the findings of facts are fully
sustained by the evidence :
"After the evidence and arguments of counsel were concluded, the
following findings of fact and law were made by the court, to-wit:
That plaintiff, the Chickasaw County Farmers' Mutual Fire Insur-
17 The statement of facts is rewritten and part of tbe opinion is omitted-
308 RIGHTS UNDER THE POLICY
ance Company, a corporation duly organized under the laws of Iowa,
issued to the defendant an insurance policy in the year 1875, which
policy has remained in full force from the time it was issued down to
the date of the commencement of this action; that on or about the
10th day of September, 1893, some stacks of hay covered by the in-
surance company with the insurance policy thus issued to the defend-
ant were burned, and the defendant sustained a loss thereby, for
which the plaintiff was liable under this policy; that both the plain-
tiff and the defendant claim, and have claimed in attempting to ad-
just the loss, that the loss was occasioned through the negligence of
the Chicago Great Western Railway Company, and that the Chicago
Great Western Railway Company was ultimately liable for the pay-
ment of the loss; that on or about the 19th day of March, 1894, the
defendant, having made a claim against the said railway company for
the loss of the hay in question, made a settlement with that company,
and on the 24th day of ^larch, 1894, received full payment of said
railway company for the loss thus sustained; that on the same day
that the settlement was made with the railway company the defend-
ant notified the plaintiff that he was ready to receive and receipt for
$110 from that company in payment of the same loss, this being the
amount that had been agreed upon between him and the insurance
company as the amount to be paid by the company for the loss ; that
the defendant, in thus notifying the plaintiff, did not notify the plain-
tiff that he had made a settlement of the same claim with the railway
company, and that the insurance company or its officers had no no-
tice that the railway comjjany had thus settled and paid the loss to
the defendant ; that on the 12th day of April, 1894, and without any
knowledge or notice that the loss had been adjusted by the railway
company with the defendant, the plaintiff paid the defendant said sum
of $110, and took his receipt therefor; that the plaintiff in this action
claimed during all the negotiations for settlement, and the defendant
knew that the plaintiff claimed, that if it paid the loss to him under
the policy issued to him it was the insurance company's right to re-
cover back the amount thus paid, if it could, from the railway com-
pany.
"As a conclusion based on these facts, I find that the settlement
made by the railway company with the defendant extinguished his
claim, both as against the railway company and the insurance com-
pany, and in receiving money from the insurance company after hav-
ing received it from the railway company, and without giving the in-
surance company notice of the fact that he had thus received the
money, he received the money wrongfully, and is liable to refund the
money to the company, and that the plaintiff is entitled to judgment
against him for it in this action; and judgment will be entered ac-
cordingly, with interest at 6 per cent, from the 11th day of April."
2. There is no question in this case but that the defendant was en-
titled to full compensation from the railway company for the loss
SUBROGATION 309
sustained by him in consequence of the fire set out by that company.
Neither is it questioned but that he was entitled to full indemnity un-
der his contract of insurance, not exceeding" the amount of the insur-
ance, from the plaintiff. One contention is whether he was entitled
to full compensation from the railway company, and also from the
plaintiff. This contract of insurance is a contract of indemnity, by
which the plaintiff agreed to indemnify the defendant against loss or
damages to the insured property by fire or lightning, not exceeding the
amount of the insurance. The law is well settled that in cases like
this the insurer, upon payment of the loss, is subrogated to all the
rights of the insured against the person whose fault or negligence
caused the loss. "If insured buildings or other property be destroyed
through the negligence of some j^erson other than the owner, the in-
surance company, upon the payment of the loss, will be subrogated to
the right of the owner to recover from the wrongdoer. The insured
cannot bar the insurer's right of action by executing a release of
damages to the wrongdoer, though he may release the wrongdoer
from all claim for injuries not covered by the policy without impair-
ing his rights against the underwriter. If he obtain satisfaction from
the wrongdoer, having previously received payment of the loss from
the insurer, he must account therefor to the latter." 24 Am. & Eng.
Enc. Law, 306, 308-310, and cases cited. Under these recognized
principles of law, it is clear that upon payment of the loss the plain-
tiff would have been subrogated to all the rights of the defendant
against the railway company, and that the defendant could not defeat
that right of subrogation by releasing the railway company.
Appellant instances the case of one who has insurance upon his
life, and is killed by the negligence of the employes of a railway com-
pany, and contends that because the estate has a claim for damages
against the railroad company it does not excuse the insurance com-
pany from liability. He cites 24 Am. & Eng. Enc. Law, 319. It
is there said, "A contract of life insurance is not a contract of in-
demnity, and the insurer who pays a loss under such a contract is
not entitled to be subrogated to any rights which the personal repre-
sentative of the deceased may have against other persons." The same
is true as to the other instance given by appellant, of one who pur-
chased a horse with the special warranty that it is not timid, and will
not shy in crossing bridges, and afterwards the horse does shy. and
falls from a bridge, and is drowned, for want of sufficient guards on
the bridge. In such case the contract of warranty is not one of in-
demnity merely. We think it entirely clear, under the law, that de-
fendant was not entitled to recover for the loss of hay in stack from
both of these parties.
3. Defendant was entitled to full compensation for the loss sus-
tained. His claim against the railway company was for damages to
his meadow and fence posts, in addition to the loss of the hay ; and
he contends that he only received part compensation from the railway
310 RIGHTS UNDER THE POLICY
company, and that the amounts received from both companies do not
exceed the actual loss. In his settlement with the railway company
the hay was estimated separately, and the defendant was compensated
to the full value thereof.
Defendant contends that the plaintiff knew he was claiming pay-
ment from the railway company, and that the payment made by the
plaintiff to him was a voluntary payment, and cannot be recovered
back. Let it be conceded that the plaintiff did know that the de-
fendant was making a claim against the railway company. It is en-
tirely clear that at the time of demanding and receiving payment from
the plaintiff the defendant concealed the fact that he had made a set-
tlement with the railway company, and had received payment from
that company. "When one pays money in ignorance of circumstances
with which the receiver is acquainted, but does not disclose, and
which, if disclosed, would have avoided the payment, the receiver acts
fraudulently, and the money may be recovered back."' 8 Am, & Eng.
Enc. Law, 645. There can be no doubt that had the facts been dis-
closed by the defendant, as it was his duty to do, the plaintiff would
not have made this payment. Therefore it was not a voluntary pay-
ment, but one obtained by fraud, and may be recovered back. * * *
We find no error prejudicial to appellant, and the judgment of the
district court is therefore affirmed.
NORWICH UNION FIRE INS. SOC. v. STANDARD OIL CO.
(Circuit Court of Appeals of United States, Eighth Circuit, 1894. 59 Fed. 984,
8 C. C. A. 433.)
In Error to the Circuit Court of the United States for the District
of Kansas.
This was an action by the Norwich Union Fire Insurance Society,
of Norwich, England, against the Standard Oil Company and the
Goodlander Mill Company, to recover the amount of certain insurance
paid by the plaintiff to the defendant mill company, upon the ground
that the property was burned through the culpable negligence of the
defendant oil company. A demurrer to the complaint was sustained.
It is alleged in the petition that in the year 1887 the Norwich Fire
Insurance Society issued a policy of insurance, in the sum of $3,000,
to the Goodlander Mill Company, — a corporation organized under the
laws of Kansas, and doing business at Ft. Scott; that the insurance
was upon certain wheat owned by the mill company. The petition
further shows that the German Fire Insurance Company had also is-
sued a policy of insurance in the same amount — $3,000 — to the mill
company, upon wheat. The last-mentioned policy having been as-
signed to the plaintiff in this case, plaintiff brings this suit to recover
the amount of both policies,— $6,000. The petition further shows that
SUBROGATION 311
after the issuance of the policies of insurance the wheat was destroyed
by fire, and that these insurance companies paid the loss in the amount
of their respective policies, $3,000 each, and took an assignment in
writing of whatever claim the mill company might have against the
defendant because of the loss to the amount of their policies. It is
further alleged that the fire occurred by reason of the negligence of
the defendant the Standard Oil Company. The facts stated in the
petition are to the efifect that the defendant shipped a tank car of
petroleum from Lima, Ohio, consigned to the gas company at Ft.
Scott, which car was placed upon a side track near the mill and ele-
vator of the Goodlander Mill Company, and that the employes of the
gas company attempted to unload the car, but, because of the defective
construction of the car, the oil escaped, took fire, and the mill and its
contents were destroyed. It appears upon the face of the petition that
the wheat destroyed by fire was of the value of $20,000, and that there
were other policies of insurance upon the wheat, in addition to those
upon which this suit is based. The written assignment given by the
Goodlander Mill Company to the plaintiff and to the German Fire
Insurance Company fixes the value of the wheat destroyed at $40,-
000. While this assignment is not in the body of the petition, a copy
of it is attached to, and made a part of, the petition. Hence, it is
clearly shown by the petition that the amount here sued for is but a
small part of the loss actually sustained by the Goodlander Mill Com-
pany in the destruction of its property by the fire alleged to have been
caused by the defendant's negligence. ^^
Before Caldwell and Sanborn, Circuit Judges, and Thayer, Dis-
trict Judge.
Caldwell, Circuit Judge, delivered the opinion of the court.
The circuit court sustained the demurrer to the complaint on the
ground that the plaintiff could not maintain the action in its own
name, and the correctness of this ruling is the only question we find
it necessary to consider.
When an insurance company pays to the assured the amount of a
loss of the property insured, it is subrogated, in a corresponding
amount, to the assured's right of action against any other person re-
sponsible for the loss. This right of the insurer against such other
person is derived from the assured alone, and can be enforced in his
right only. At common law it must be asserted in the name of the
assured. In a court of equity or of admiralty, or under the modern
codes of practice, it may be asserted by the insurance company in
its own name, when it has paid the insured the full value of the prop-
erty destroyed. St. Louis, I. M. & S. Ry. Co. v. Commercial Union
Ins. Co., 139 U. S. 223, 235, 11 Sup. Ct. 554, 35 L. Ed. 154, and cases
cited ; Marine Ins. Co. v. St. Louis, I. M. & S. Ry. Co. (C. C.) 41
Fed. 643. But the rule seems to be well settled that, when the value
18 The statement of facts is abridged from the original report
312 RIGHTS UNDER THE POLICY
of the property exceeds the insurance money paid, the suit must be
brought in the name of the assured. /Etna Ins. Co. v. Hannibal &
St. J. R. Co., 3 Dill. 1, Fed. Cas. No. 96; Assurance Co. v. Sainsbury,
3 Doug. 245 ; Insurance Co. v. Bosher, 39 Me. 253, 63 Am. Dec. 618 ;
Hart V. Railroad Corp., 13 Mete. (Mass.) 99, 46 Am_. Dec. 719;^ Con-
necticut, etc., Ins. Co. v. New York, etc., R. Co., 25 Conn. 265, 278,
65 Am. Dec. 571; Insurance Co. v. Frost, 37 111. 333; Fland. Ins.
pp. 360, 481, 591 ; Marine Ins. Co. v. St. Louis, I. M. & S. Ry. Co.,
supra. In such an action the assured may recover the full value of
the property from the wrongdoer, but as to the amount paid him by
the insurance company, he becomes a trustee ; and the defendant will
not be permitted to plead a release of the cause of action from the
assured, or to set up as a defense the insurance company's payment
of its part of the loss. Hart v. Railroad Corp., supra ; Hall v. Rail-
road Co., 13 ^^'all. 367, 20 L. Ed. 594. In support of this rule it is
commonly said that the wrongful act is single and indivisible and can
give rise to but one liability. "If," says Judge Dillon in ^tna Ins.
Co. v. Hannibal & St. J. R. Co., supra, "one insurer may sue, then,
if there are a dozen, each may sue ; and, if the aggregate amount of
all the policies falls short of the actual loss, the owner could sue for
the balance. This is not permitted, and so it was held nearly a hun-
dred years ago, in a case whose authority has been recognized ever
since both in Great Britain and in this country."
The learned counsel for the plaintiff in error challenges the sound-
ness of this rule, and contends with much force that the rule that a
wrongdoer who injures many people by the same act is liable to each
person separately for the injury done to each should be applied to
this class of cases. It is said, "The convenience of the innocent in-
jured man to sue and get reparation is paramovmt to the inconvenience
of the wrongdoer who suffers from a multiplicity of suitors." It
would serve no useful purpose to repeat here the reasoning of the
courts in answer to this contention. The subject is fully gone over in
the authorities we have cited.
The rule that, where the property exceeds in value the amount in-
sured, the suit must be in the name of the assured, seems not to rest
so much upon the necessity or desirability of exempting the wrong-
doer from a multiplicity of suits as upon the peculiar nature of the
relation existing between the assured and the insurer. It is held by
the supreme judicial court of Massachusetts (Hart v. Railroad Corp.,
supra) and by the supreme court of the United States (Hall v. Rail-
road Co., supra) that in respect to the ownership of the property,
and the risk incident thereto, the owner and the insurer are consid-
ered but one person, having together the beneficial right to the indem-
nity due from one who is responsible for its loss. When the insurer
pays the assured the full value of the property destroyed, the insurer
may maintain an action in his own name against one responsible for
its loss, because, by operation of law, the whole beneficial right to
SUBROGATION 313
indemnity from the wrongdoer has been vested in the insurer. He is
therefore the real and only party in interest, and, under the Code, the
proper party to bring the suit. But, when the value of the property
destroyed exceeds the insurance money paid, the beneficial right to
indemnity from the wrongdoer remains in the assured, for the whole
value of the property, — for the unpaid balance due to himself, as
well as for the amount paid by the insurer, as to which last sum he
is chargeable as a trustee.
It will be observed that in this case 10 other insurance companies
have issued separate policies on the property, and that the aggregate
amount of all the policies only equals three-fourths of the value of
the property, and that the assured has brought suit against the oil
company for the value of the property destroyed. If the contention
of the plaintiff in error is sound, then the 11 insurance companies
and the assured can each maintain a separate action against the al-
leged wrongdoer. We are cited to no case which supports this con-
tention, and we do not think one can be found. The allegation of
the complaint that the mill company, in its action against the oil com-
pany, makes no claim for the amount of insurance paid by the plain-
tiff, does not alter the case ; for, if this was done at the request of
the plaintiff, it cannot complain, and if it was done by the mill com-
pany on its own motion, and it recovers in the action, it will hold an
amount of the recovery equal to the insurance paid as trustee for
the plaintiff.
The judgment of the circuit court is affirmed.^®
19 Compare Atchison, T. & S. F. R. Co. v. Home Ins. Co., 59 Kan. 432, 53
Pac. 459 (1898).
314 THE STANDARD FIRE POLICX
THE STANDARD FIRE POLICY*
I. The General Rule of Construction *
CLAY V. PHCENIX INS. CO.
(Supreme Court of Georgia, 1895. 97 Ga. 44, 25 S. E. 417.)
Action by C. C. Clay against the Phoenix Insurance Company. From
a judgment of nonsuit, plaintiff brings error.
Atkinson, js * * * Courts are not at liberty to arbitrarily dis-
regard reasonable limitations imposed upon the liability of insurance
companies under policies of insurance by stipulations and conditions
therein expressed ; but in the construction of such poHcies and such
conditions and stipulations the courts will look through the whole con-
tract to the real intention of the parties at the time of the execution
of the instrument, and give to it such construction as will impute to
them a reasonable intendment, and such construction as will relieve
against forfeitures, if that construction be consistent with the general
intent expressed in the policy. Courts will presume, when policies
of insurance are issued by insurance companies, and they accept pre-
miums paid therefor, that such policies are issued in good faith, and
with the design, upon the consideration received, to afford to the as-
sured reasonable immunity in case of loss. If the condition be so
repugnant to the stating clause of insurance as that both cannot stand
together, courts should disregard the condition, upon the idea that
it will not be presumed that the insurance company issues a policy of
insurance with an intention never to become liable thereon. If the
condition impose upon the assured a duty with respect to the thing
insured, that duty must be performed, however slightly material to
the interest of the insurer its performance may appear to be. If the
condition or stipulation impose duties which are wholly immaterial,
or with respect to matters which are wholly irrelevant, the right of
the assured would not be aft'ected by a nonperformance.
There is no greater sanctity and no more mystery about a contract
1 The New York standard form of fire policy has been adopted in New
York, Connecticut, Louisiana, Missouri, New Jersey, North Carolina. North
Dakota, Pennsylvania, Rhode Island, and South Dakota, though there are
minor differences in some instances. In Maine, Massachusetts, Minnesota,
Michigan, New Hampshire, and Wisconsin standard forms have been adopt-
ed differing in some particulars from the New York form. In other states,
the New York standard form is generally used.
2 For discussion of principles, see Vance on Insurance. §§ 151, 152. See,
also, Cooley, Briefs on the Law of Insurance, vol. 1, p. 627 et seq.
3 Part of the opinion is omitted.
THE GENERAL RULE OF CONSTRUCTION 315
of insurance than any other. The same rules of construction apply
to it as to other contracts, and the true rule for their interpretation
may be stated to be that stipulations and conditions in policies of in-
surance, like those in all other contracts, are to have a reasonable in-
tendment, and are to be so construed, if possible, as to avoid forfeit-
ures, and to advance the beneficial purposes intended to be accom-
plished. * * * Reversed.
JOHN DAVIS & CO. v. INSURANCE CO. OF NORTH
AMERICA.
(Supreme Court of Michigan, 1S97. 115 Mich. .382, 73 N. W. 303.)
Action by John Davis & Co., a corporation, against the Insurance
Company of North America, to recover under a policy of insurance
issued by defendant, for the value of goods destroyed by fire. From
a judgment in favor of plaintiff, but for a less sum than that demand-
ed, both parties bring error.
Montgomery, J.* This is an action on a fire insurance policy. The
plaintiff was a dealer in grocers' supplies at 45 Larned street, Detroit,
occupying a brick building, and held a policy issued by the defendant,
and covering the stock in trade, in the sum of $2,000. There was
$6,000 concurrent insurance. On the 6th day of November, 1895, a
boiler exploded in the basement of an adjoining building, occupied by
the Detroit Journal, and both buildings fell in. A fire ensued in No. 47.
but none of the goods in No. 45 were actually consumed by fire. There
were saved from the wreck goods which in their perfect state were
worth $996. It was shown that goods were damaged by water poured
upon them for the purpose of extinguishing fire. * * *
The clauses of the policy under which the questions presented arise
are as follows : "This company shall not be liable for loss caused di-
rectly or indirectly by invasion, insurrection, riot, civil war, or com-
motion, or military or usurped power, or by order of any civil au-
thority, or by theft, or by neglect of the insured to use all reasonable
means to save and preserve the property at and after a fire, or when
the property is endangered by fire in neighboring premises, or (unless
fire ensues, and in that event for the damage by fire only) by explosion
of any kind, or lightning, but liability for direct damages by lightning
may be assumed by specific agreement hereon." "If a building, or
any part thereof, fall, except as the result of fire, all insurance by this
policy on such building, or its contents shall immediately cease."
It is contended by the defendant that the policy terminated imme-
diately upon the fall of the building. It may be conceded that, if
the last clause above quoted stood alone, such would be its effect.
Huck V. Insurance Co., 127 Mass. 306, 34 Am. Rep. 373. But this
4 Part of the opinion is omitted.
316 THE STANDARD FIRE POLICY
clause is preceded by a specific clause which governs in case of ex-
plosion. The case is directly ruled by Dows v. Insurance Co., 127
Mass. 346, 34 Am. Rep. 384. The policy in that case contained sub-
stantially the same provision as in the present. Referring to the last-
quoted provision, the court said: "It appears to us to have had in view
the case of a building falling by inherent defect or of withdrawal of
support, as by digging away the underlying or adjoining soil. It might
perhaps include the case of a building thrown down by a storm or
flood or earthquake, but it would be construing the case too liberally
in favor of the insurers to hold it to include the case of the destruc-
tion of a building by an explosion within the building itself, and of
a fire immediately ensuing on and connected with such explosion, the
measure of the liability for which had been carefully and previously
defined in the previous provisions of the policy."
We do not overlook the claim of defendant's counsel that the stand-
ard policy is in a form prescribed by state authority, and should no
longer be subject to the rule that such contracts are to be construed
most favorably to the insured. We need not determine how far this
rule of construction should be held modified by the conditions stated.
The terms employed in this policy have been in previous use in in-
surance contracts, and, as we have seen, had had a judicial construc-
tion. It is to be assumed that these terms were used in this policy in
the sense in which they were previously used and defined. The same
consideration answers defendant's suggestion that the words "damage
by fire" should be limited to loss by actual burning. It is conceded
that, in general, the words "loss by fire" include loss by water thrown
upon the property, to prevent its destruction by fire; and it is but
fair to assume that the language was employed in the statutory policy
in view of its previously accepted interpretation. * * * Affirmed.^
HORTON V. HOME INS. CO.
(Supreme Court of North Carolina, 1S9S. 122 N. C. 498, 29 S. E. 944, G5
Am. St. Rep. 717.)
Action by George P. Horton and others against the Home Insur-
ance Company, From a judgment for plaintifi^s, both parties appealed.
Douglas, j,6 * * * f^g counsel for the defendant called the
attention of the court to section 6 of chapter 299 of the Laws of 1893,
wherein it is provided that "the standard fire insurance policy, as pre-
scribed and set out in section 121 of the insurance law of New York,.
5 Effect of collapse of building in general, see Vance on Insurance, § 172 ;
Cooley, Briefs on the Law of Insurance, vol. 2, pp. 1609-1611; vol. 4, p. 3029,
The "falling building" clause is not contained in the standard form of pol-
icy adopted m Maine, Massachusetts, Minnesota, and New Hampshire. What
constitutes loss by fire in general, see, post, p. 361.
6 Pare of the opinion is omitted.
THE GENERAL RULE OF CONSTRUCTION 317
shall be exclusively used in this state by all fire insurance companies
from and after the first day of May, 1893," and insisted that such a
policy should be construed in accordance with the decisions of the
state from which it came. Whatever force there might otherwise
be in the suggestion is fully met by section 8 of the same act, which
reads as follows : "All contracts of insurance, the application for which
is taken within this state, shall be deemed to have been made within
this state, and subject to the laws thereof."
In the determination of a new question, the decisions of other states
may be taken as precedents to guide our action, but can never be au-
thorities to reverse the settled ruling of our courts. These two sec-
tions are not inconsistent, and, when construed together, become clear
in their meaning. The policy is essentially a North Carolina contract,
althought the form thereof may have been borrowed from another ju-
risdiction. A suit of homespun is none the less a native production
because the pattern by which it was cut came from another state.
It was deemed best to have a uniform policy, which would eventually
become familiar to our people, and, by repeated adjudications, ac-
quire a settled meaning. The New York form was selected because
it had been adopted by the largest insurance state in the country, and
was the outgrowth of many years of careful and efficient state super-
vision. It is none the less a North Carolina contract, solvable under
our laws, and determinable by our decisions. The judgment below
is affirmed.
WILD RICE LUMBER CO. v. ROYAL INS. CO. OE LIVER-
POOL.
(Supreme Court of Minnesota, 1906. 99 Minn. 190, 108 N. W. 871.)
Action by the Wild Rice Lumber Company against the Royal In-
surance Company and others. There was a judgment for plaintifl^
for less than the amount claimed, and both parties appeal.
Elliott, J.'^ The Wild Rice Lumber Company was the proprietor
of a sawmill and lumber yard situated in the village of Ada. During
the year 1904 certain insurance companies issued policies agreeing to
indemnify the lumber company from loss by fire upon the lumber de-
scribed therein. The policies were all in the form prescribed by chapter
175, p. 417, Gen. Laws 1895, as amended by chapter 254, p. 468, Gen.
Laws 1897. So far as at present material, the policies were identical
in form and contained the following description of the property in-
sured. "On lumber (pickets, posts, timber, lath, and shingles, if any)
owned by Wild Rice Lumber Company or held in trust or on com-
mission, or sold, but not delivered, piled on blocks [numbers here in-
7 Part of the opinion is omitted.
318 THE STANDARD FIRE POLICY
sertedl], and in streets and alleys adjacent to or connecting- with said
blocks, in Ada, Minn."
Each policy also contained the following statement, known as the
"space clause" : "In consideration of the issuance of this policy and
the basis upon which the rate of premium is fixed, the assured war-
rants and agrees that a continuous clear space of 200 feet shall here-
after be maintained between the property hereby insured and any wood-
working or manufacturing establishment, and that said space shall not
be used for handling or piling lumber thereon for temporary purposes,
tramways upon which lumber is not piled, alone excepted. But this
warranty shall not be construed to prohibit loading or unloading with-
in, nor the transportation of lumber or timber products across such
clear space; it being specially understood and agreed by the assured
that any violation of this warranty shall render this policy null and
void." * * *
On August 15, 1904, there was a loss by fire on lumber belonging
to the Wild Rice Lumber Company to the amount of $4,064. Of this
amount, $3,818 was on lumber which was located less than 200 feet
from the sawmill. The Home Insurance Company paid its pro rata
share of the loss, but all the other companies denied liability on the
grounds (1) that the lumber destroyed was not covered by the policy,
and (2) that the policy had ceased to be in force at the time of the
fire because of a breach of the warranties contained in the space clause.
* * *
The trial court found that the policies were in force, that the manner
in which the space between the yard and the mill was used was known
to the company before the policy was issued, that the right to claim
a breach of warranty had been waived, and that the policies did not
cover lumber located less than 200 feet from the mill. Judgment was
ordered! for the plaintiff for $233.94, being the value of the lumber
which was beyond the 200-foot limit. * * *
If the insurance companies had no right under the statute to require
the insured to warrant the maintenance of a continuous clear space of
200 feet between the insured property and the mill, numerous sub-
sidiary questions raised and elaborately argued by counsel are elimi-
nated The lumber company contends that the provision injects for-
bidden conditions into the standard policy, and the insurance companies
that it merely determines one of the "conditions of insurance" author-
ized by section 52, c. 175, p. 417, Gen. Laws 1895, and is also express-
ly authorized by section 1, subd. 2, c. 254, p. 468, Gen. Laws 1897.
A glance at the history of the standard form of policy makes it
very clear that the Legislature of this state intended to deprive fire
insurance companies of the right to add to or change the terms and
conditions of the prescribed form. The right to make such changes
and additions is one of the principal distinguishing characteristics of
the two classes of standard forms. The Massachusetts and New York
standard policies went into effect about the same time and have formed
THE GENERAL RULE OF CONSTRUCTION 319
the models for the legislation in other states. Both states were seeking
uniformity of insurance contracts, but Massachusetts did not attempt
to deprive the parties of the liberty of making their own contracts.
It merely adopted a model which the parties were at liberty to modify
at will. But New York went further and determined the form which
all must use with the privilege of adopting certain prescribed clauses
to cover particular conditions.
The Minnesota act of 1889 imposed upon the insurance commissioner
the duty of preparing a standard form of policy which should be
obligatory after that year. The New York form was prepared and
went into use but the act was declared unconstitutional because it at-
tempted to delegate legislative powers to the insurance commissioner.
In 1895 the Legislature adopted the Massachusetts form with such
moditications as were necessary to avoid conflict with the valued policy
law. Section 53 provided that "a company may write upon the margin
or across the face of the policy, or write or print in type not smaller
than long primer upon separate slips or riders to be attached thereto
provisions adding to or modifying those contained in the standard
form."
The insurance companies then adopted a general rider which em-
braced substantially all the provisions of the New York form. But
the Legislature of 1897, amending section 53, c. 175, p. 417, Gen.
Laws 1895, in express terms prohibited the making of any changes
except such as were specifically enumerated in the statute. The con-
clusion is inevitable that the Legislature intended to deprive the parties
of the right to make insurance contracts in any form except as pre-
scribed by the statute. The statute (section 53, c. 254, p. 468, Gen.
Laws 1897) provides that :
"No fire insurance company shall issue fire insurance policies on
property in this state other than those of the standard form herein
set forth, except as follows, to wit :
"Fifst. A company may print on or in its policies its name, location
and date of incorporation, the amount of its paid up capital stock, the
names of its officers and agents, the number and d!ate of the policy,
and if it is issued through an agent, the words, 'this policy shall not be
valid until countersigned by the duly authorized agent of the company
at .'
"Second. A company may print or use in its policies printed forms
of description and specification of the property insured, including per-
mits for the use of electricity, gasoline or the storage of other hazard-
ous or dangerous material or product also for repairs or improve-
ments for the operation or ceasing to operate and for the maintenance
of sprinkling or other improvements.
"Third!. A company insuring against damage by lightning may print
in the clause enumerating the perils insured against, the additional
words : 'Also any damage by lightning whether fire ensues or not' and
320 THE STANDARD FIRE POLICY
in the clause providing for apportionment of loss in case of other in-
surance the words, 'whether by fire, lightning or both.'
"Fourth. A company incorporated or formed in the state may print
in its policies any provisions which it is authorized or required by law
to insert therein ; and any company not incorporated or formed in this
state may, with the approval of the insurance commissioner, so print
any provision required by its charter or deed of settlement or by the
laws of its own state or country, not contrary to the laws of this state.
"Fifth. The blanks in said standard form may be filled in print or in
writing.
"Sixth. A company may print upon policies issued in compliance
with the preceding provisions of this section, the words 'Minnesota
Standard Policy.'
"Seventh. No provision shall be attached to or included in said pol-
icy limiting the amount to be paid in case of total loss on buildings to
less than the amount of insurance on the same."
The prescribed form with the changes thus authorized is the only
form of fire insurance contract authorized by the laws of the state.
But the insurance companies contend that the space clause is in com-
mon use and is authorized by the language of section 52, c. 175, p.
417, Gen. Laws 1895. The authorities cited are, with the exception
of one from an intermediate New York court, from states which have
no standard form, and common use can, of course, confer no rights in
the face of the statute. The act of 1895, as we have seen, permitted
the contract to be modified by riders, subject to the prohibitions con-
tained in section 25 (page 401) ; but it required the policy to contain
the entire contract. Section 52 provided that "the conditions of in-
surance shall be stated in full and neither the application of the in-
sured nor the by-laws of the company shall be considered as warranty
except they be incorporated in full in the policy." Coleman v. Retail
L. Ins. Ass'n, 17 Minn. 31, 79 N. W. 588; KoUitz v. Eq. Mut. L.
Ins. Co., 92 Minn. 234, 99 N. W. 892.
This section was not repealed by the amendment of 1897, but it can-
not be used to restrict the express requirement of the amendatory act.
Under the act of 1895, the conditions of insurance were required to
be stated in full in the policy and this included such as were prescribed
by the statutory form and also such additions and modifications as
were made by the parties. Changes and additions are now forbidden
except as specifically permitted, but the policy must still contain all
the conditions of insurance. Nor is the space clause authorized by sub-
division 2 of section 53 as amended. To hold that its provisions are
included within "the other improvements" there referred to would be
to give the words a strained and unnatural construction.
The parties were not authorized! to insert in the policy a provision
not contained in the statutory form or expressly authorized by the stat-
ute, whereby the insured warranted the maintenance of certain condi-
tions about the premises. But there seems to be no reason why refer-
EFFECT OF TEMPORARY BREACH OF CONDITION 321
ence may not be made to the added clause for the description and
identification of the property which was intended to be insured. The
policy must contain a complete description of the property and the
statute authorizes the company to print on its policy forms of de-
scription and specification of the property insured. In connection with
property of this character, location may be an essential element of
description. * * *
The warranty may be held ineffective, but the lans^uage clearly shows
that the parties did not understand that lumber piled within 200 feet
of the mill was insured. The insured, under the decision of the trial
court, got exactly wdiat it paid for.
The judgment of the trial court is affirmed on both appeals.
II. Effect of Temporary Breach of Condition '
HINCKLEY V. GERMANIA FIRE INS. CO.
(Supreme Judicial Court of Massachusetts, 1885. 140 Mass. 38, 1 N, E. 737,
54 Am. Rep. 445.)
This was an action by Edwin R. Hinckley against the Germania
Fire Insurance Company upon a policy of insurance against fire upon
a pool table and other saloon fixtures. At the trial in the superior
court a verdict was ordered for the defendant, and the case reported
for the consideration of the supreme court.
C. Allen, J.^ The report does not state the grounds upon which
the ruling rested, that the plaintifif was not entitled to recover. The
defendants, in their brief, rely on various objections, which we have
considered. * * *
It is then urged that, after the license had expired, the plaintiff kept
the insured property, in violation of law, from May 1, 1883. till the
last week in June, 1883. The policy was dated March 15, 1883, and
the license then existing expired May 1, 1883. The fire occurred on
August 6, 1883, and it was conceded that there was no illegal use of
the property after the last week of the preceding June, at which time
the plaintiff ascertained that his license would not be renewed. The
defendants rest their objection on two grounds: First, that the ille-
gality and criminality of the plaintiff's act in respect to the injured
property vitiates the policy by operation of law, independently of any
8 For discussion of principles, see Vance on Insurance, § 153. See, also,
Cooley, Briefs on the Law of Insurance, vol. 3, p. 1883.
» Part of the opinion is omitted and the statement of facts is rewritten.
Cooley Ins. — 21
322 THE STANDARD FIRE POLICY
express provisions contained in the policy ; and, secondly, that under
a provision of the policy the right to recover was taken away.
The authorities cited in support of the first proposition do not sup-
port it. In Kelly v. Home Ins. Co., 97 Mass. 288, the policy was on
intoxicating liquors, which at the time of the insurance, and there-
after to the time of the loss, were intended for sale in violation of
law. The policy never attached. There was never a moment when
the liquors were not illegally kept ; and all that the case decides is that
goods so kept at the time when the policy issued, or at the time of the
loss, cannot be the subject of a valid insurance. In Johnson v. Union
Ins. Co., 127 ]\Iass. 555, the facts were similar. The policy was on
billiard tables, balls, cues, etc., kept without a license at the time the
policy was issued, as well as at the time of the loss.
The ground of the decision in both of the above cases is stated to
be "that the object of the assured in obtaining the policy was to make
their illegal business safe and profitable ; and that, the direct and
immediate purpose of the contract of insurance being to protect and
encourage an unlawful traffic, the contract was illegal and void, and
the policy never attached." The same facts existed in Lawrence v.
National Ins. Co., 127 Mass. 557, note. In Cunard v. Hyde, 2 El.
& El. 1, the cargo which was the subject of insurance was partly
loaded on deck, in violation of law, and while in that condition was
totally lost.
In the present case, the plaintifif had a license at the time when the
policy issued, and the policy, therefore, was valid when obtained. If
it be assumed without discussion that the policy would cease to be op-
erative during the time when the property was kept in use without a
license, the question remains whether such temporary illegal use of
the property has the effect to avoid the policy altogether, or merely
to suspend it during the continuance of such illegal use. There is
nothing in the case to show that it was proved, as a matter of fact,
that the plaintiff, at the time of taking out the policy, intended to
make it cover any illegal use of the property. He may have expected
to get his license renewed ; or, failing in that, he may have intended
to close the place where the property was used, as, according to his
own testimony, in point of fact he did. Under this state of facts, we
are of opinion that the temporary use of the property without a li-
cense, if uncontemplated at the time of taking out the policy, would
not of itself, and as a matter of law, render the policy void during
the whole of the rest of the time which it was to run. If there were
any special or peculiar reasons why such absolute invalidity should
be declared, they should be made to appear. In the absence of such
reasons, such temporary and uncontemplated illegal use of the prop-
erty should not be visited with so severe a penalty as the absolute
avoidance of the policy. It does not appear that the defendants were
or would be in any way injuriously affected thereby after such illegal
use had ceased. They have the benefit of the temporary suspension
EFFECT OF TEMPOKARY BREACH OF CONDITION 323
of the risk, without any rebate of the premium. There is no hard-
ship to the defendants in requiring them to show an actual injury,
or else to avail themselves of the clause in the policy giving them a
right to cancel it upon notice, and a return of a ratable proportion of
the premium.
There is no rule of law preventing the revival of a policy of insur-
ance after a temporary suspension. "The doctrine that the risk may
be suspended, and again revive, without an express provision for the
purpose, seems to be within the strictest judicial principles." 1 Phil.
Ins. § 975. Accordingly, temporary unseaworthiness, if the ship has
become seaworthy again, will not defeat the policy. 1 Phil. Ins. § 730.
So as to other stipulations ; as, e. g., that of neutral character and
conduct. Id. § 975. And in Worthington v. Bearse, 12 Allen, 382,
90 Am. Dec. 152, it was held, on great consideration by this court,
that if the assured in a marine policy temporarily parts with his in-
terest in the property insured, and afterwards buys it in again, the
policy will revive, if there are no express provisions making it void,
and there is no increase of risk. As between the insurer and the as-
sured, there is no reason why the former should be allowed to avail
himself of a temporary illegal use like that which existed in the
present case, unless it can also be shown that the subsequent risk was
thereby increased, or the position of the insurer otherwise injuriously
affected. And, as a matter of general policy, it does not seem rea-
sonable to impose upon the assured so severe a consequence as the
forfeiture of his policy, in addition to the penalty of $100, which the
legislature have considered adequate as the maximum punishment for
his offense against the public. Pub. St. c. 102, § 111.
It is further contended by the defendants that, however, it might be
under the general rule of law, the policy contained a provision making
it void. In the standard form of policy established by the legislature,
which was used in the present case, the matters avoiding a policy are
enumerated. Omitting matters not here material, the provision is:
"This policy shall be void * * * if the insured shall make any at-
tempt to defraud the company either before or after the loss ; or if
gunpowder or other articles subject to legal restrictions shall be kept
in quantities or manner different from those allowed or prescribed by
law; or if camphene, benzine, naphtha, or other chemical oil, or burn-
ing fluids shall be kept or used by the insured on the premises insured,
except that what is known as refined petroleum, kerosene, or coal oil
may be used for lighting."
In this commonwealth, under the statutes for the regulation of
trade, and providing for licenses and municipal regulation of police,
there are a great many articles which, in a certain sense, may be said
to be "subject to legal restriction." Dogs, fish, nails, commercial fer-
tilizers, hacks, and horses, in cities, may be referred to as examples.
It may well be questioned whether, under the maxim noscitur a sociis.
324 THE STANDARD FIRE POLICY
the clause in the policy above quoted ought not to be limited in its ap-
plication to other articles of a character similar to gunpowder, the
keeping of which may have a natural tendency to increase the risk.
It would be rather a strained construction of this clause to hold that
a policy should be void because an unlicensed dog was kept upon the
premises; and yet such a dog, being subject to legal restriction, would
be kept in a manner different from that allowed by law. It would
not be sensible to give to these words the broadest construction of
which they are susceptible.
But, irrespectively of this consideration, it is not the necessary mean-
ing of the word "void," as used in policies of insurance, that it shall
under all circumstances imply an absolute and permanent avoidance
of a policy which had once begun to run ; but the meaning of the
word is sufficiently satisfied by reading it as void or inoperative for
the time being. In Phil. Ins. § 975, it is said: "After it (i. e., the
policy) has begun, so that the premium is become due, it surely is but
equitable that a temporary non-compliance should have effect only
during its continuance. To carry it further is to inflict a penalty on
the assured, and decree a gratuity to the insurer, who is thus permit-
ted to retain the whole premium when he has merited but part of it.
A forfeiture certainly ought not to be extended beyond the grounds
on which it is incurred. * * * ^^d there does not appear to be
any good reason why, in the absence of all fraud and all prejudice to
the underwriter, the same doctrine should not be applicable to express
conditions in the nature of warranties or conditions, unless by the
circumstances, or the express provisions of the policy, such applica-
tion is excluded." In accordance with this doctrine, a provision in a
policy that it should be void, and be surrendered to the directors of
the company to be canceled, in case of alienation of the property by
sale or otherwise, was held to be inoperative for the time being ; and
the assured, upon acquiring title after a sale of the property by him,
was held entitled to recover. Lane v. Maine Ins. Co., 12 Me. 44, 28
Am. Dec. 150. So where a policy provided that "in case of any
transfer or termination of the interest of the assured, either by sale
or otherwise, without such consent, (i. e., of the company,) this policy
shall from thenceforth be void and of no effect," it was held that
after such sale the policy revived upon the assured acquiring again
the title, and holding it at the time of the fire. Power v. Ocean Ins.
Co., 19 La. 28, 36 Am. Dec. 665.
The same rule of construction has been applied to provisions against
other insurance. Obermeyer v. Globe Ins. Co., 43 Mo. 573 ; New
England Fire & Marine Ins. Co. v. Schettler, 38 111. 166; Mitchell v.
Lycoming Ins. Co., 51 Pa. 402. The court in Illinois has gone so far
as to apply it also to a provision against an increase of risk, which
ceased before the loss. Schmidt v. Peoria Ins. Co., 41 111. 295 ; In-
surance Co. of North America v. McDowell, 50 111. 120, 129, 99 Am.
Dec. 497. Without at present going beyond what is called for by
THE SUBJECT OF INSURANCE — LOCATION 325
the circumstances of the present case, we are of opinion that, assum-
ing the temporary use of the property insured, without a Hcense, to
come within the prohibition of the policy in the clause above quoted
as to gunpowder or other articles subject to legal restriction, yet that
clause is not to receive such a construction as to prevent the policy
from reviving after such temporary use has ceased. * * * New
trial granted.^"
III. The Subject of Insurance — Location ^*
VILLAGE OF L'ANSE v. FIRE ASS'N OF PHILADELPHIA.
(Supreme Court of Michigan, 1S99. 119 Mich. 427. 78 N. W. 465, 43 L. R, A.
8.38, 75 Am. St. Rep. 410.)
Action by the Village of L'Anse against the Fire Association of
Philadelphia. There was a judgment directed for defendant, and
plaintiff brings error.
Long, J. On April 9, 1896, the defendant issued its policy of in-
surance to the plaintiff for the term of one year from April 19, 1896.
The policy provides that the association does "insure village of L'Anse
* * * against all direct loss or damages by fire, except as herein-
after provided, to an amount not exceeding $1,500, to the following
described property, while located and contained as described herein,
and not elsewhere, to wit : $400 on the two-story frame, shingled
roof, fire-engine house, situate detached 70 feet, in the village of
L'Anse, Baraga county, ]\Iichigan ; $700 on steam fire engine and
heater attached ; $200 on hose and hose pipe ; $300 on hose cart, tools,
and machinery not enumerated, — all contained in above-described
building. $1,500 other concurrent insurance noted." Then follows
the usual Michigan form of standard policy.
On May 9, 1896, the said steam fire engine, hose, hose pipe, and
hose cart, as covered by the policy, were burned and destroyed by fire.
None of the above property was in the building at the time it was
10 Accord: Tompkins v. Hartford Fii-e Ins. Co., 22 App. Div. 380, 49 X.
Y. Supp. 184 (1897; breach of mortgage clause). Contra: Concordia Fire
Ins. Co. V. Johnson, 4 Kan. App. 7, 45 Pac. 722 (1896; illegal use). Compare
Kyte V. Commercial T'nion Assurance Co., 149 Mass. 110. 21 N. E. ,361, 3
L. R. A. 508 (1889), distintiuishing the Hinckley Case, and holding that, if
the temporary breach causes an increase of risk, the policy will be void.
But see Traders' Ins. Co. v. Catlin, 163 111. 256, 45 N. E. 255, 35 L. R. A.
595 (1896). holding that increase of risk makes no difference. See. also,
German Mut. Fire Ins. Co. v. Fox, 4 Neb. (Unof.) 833, 96 N. W. 652, 63 L.
R. A. 334 (1903).
11 For discussion of principles, see Vance on Insurance, § 157. See, also,
Cooley, Briefs on the Law of Insurance, vol. 8, p. 1618.
326 THE STANDARD FIRE POLICY
burned, but was being used in an attempt to extinguish a fire some 200
to 800 feet from the building. The defendant refused to pay the dam-
ages claimed by the plaintiff for the loss of the property, on the
ground that, under the policy, it was insured only while contained in
the building mentioned and described in the policy, and not elsewhere.
The action brought to recover on the policy was tried before the court
without a jury, and the court found in favor of defendant's conten-
tion, and thereupon entered judgment in its favor. Plaintiff brings
error.
It is admitted by counsel for plaintiff that the case involves but the
one question: What is the proper construction of the words in the
policy, "while located and contained as described herein and not else-
where"? It is argued by counsel that the usual purpose and use by
the plaintiff of a fire engine, hose, hose cart, and other appliances de-
scribed in the policy would be to extinguish fires in the village and that,
in order to be so used, it would be, as occasion might require, tem-
porarily out of the engine house, which would be its place of deposit
when not in use ; that such use must have been contemplated by both
parties to the contract ; and that such use must be presumed to have
been taken into consideration by the defendant in fixing the rate of
premium.
It is said by counsel that the words "contained in," etc., and like
expressions, were in use before the adoption of the standard form of
policy, and had a well-settled meaning, and, if applied to property the
natural use of which required it to be kept in one place, the insurance
was lost if the property was removed to some other place, but if, how-
ever, the property was of a sort that the natural use of it required a
temporary removal from the place designated in the policy, and while
so temporarily absent was destroyed, it was covered by the policy;
that the words, "contained in," etc., were of further description, and
indicated the place of deposit, when the property was not necessarily
absent. It is therefore contended that, in framing the standard policy,
the intention was to express and adopt this construction. On the other
hand, counsel for the defendant claims that, even under the old forms
of policy, the insurance did not continue while the property was re-
moved from its place of deposit, where the limitations were as con-
tained in this policy, to wit, "while located and contained as described
herein, and not elsewhere."
We think the cases cited by counsel for plaintiff clearly distinguish-
able from the policy in suit. Here the words are plain and unambig-
uous, and are not susceptible of construction other than that which the
words themselves import. "While located and contained as described
herein, and not elsewhere," means that the policy covered the property
only while in that particular building, and did not cover it while it
was anywhere else.
In Green v. Insurance Co., 91 Iowa, 615, 60 N. W. 189, the words
of the policy were, "while contained in the two-story brick and frame
THE INTEREST OF THE INSURED 327
dwelling house," etc. The court, in speaking of other cases to which
its attention had been called by counsel for plaintiff, said : "This con-
tract is widely different from those in the cases cited. The evidence
shows that the property was kept sometimes in the chapel and some-
times in the house, and part of it used in both places ; and if we as-
sume that the parties, when making the contract, knew of this, we
have additional reason for limiting the liability to losses while in the
house. It is sufficient to say that the liability is thus limited, and the
courts have no right to extend it." This case was followed by Lak-
ings V. Insurance Co., 94 Iowa, 476, 62 N. W. 783, 28 L. R. A. 70.
In Bahr v. Insurance Co., 80 Hun, 309, 29 N. Y. Supp. 1031, the
limitation in the policy was, "while located as described herein, and
not elsewhere, to wit, while contained in the frame building occupied
as a wheelwright shop," etc. The carriage was burned in a livery sta-
ble a block and a half away from there. Judgment for plaintiff was
had below, and the court said: "This judgment cannot stand. The
location of the insured property was a warranty, a breach of which
avoided the policy." This rule was recognized by this court in Wildey
V. Insurance Co., 52 Mich. 446, 18 N. W. 212, and English v. Insur-
ance Co., 55 Mich. 273, 21 N. W. 340, 54 Am. Rep. Z77 .
The court below was not in error in directing judgment in favor
of defendant. That judgment must be affirmed. The other justices
concurred.^ ^
IV. The Interest of the Insured ^»
LANE V. PARSONS, RICH & CO.
(Supreme Court of Minnesota, 1906. 97 Minn. 98, 106 N. W. 485. 7 Ann.
Cas. 1144.)
In the matter of the receivership of the Millers' & Manufacturers'
Insurance Company; Freeman P. Lane and Hugh V. Mercer, re-
ceivers. From an order disallowing the claim of Parsons, Rich & Co.,
they appeal.
Elliott, J.^^ This is an appeal from an order of the district court
approving and confirming the action of the receivers of the Millers'
12 The clause construed in this case is contained in the standard policy
forms of New York, Connecticut. Louisiana. Michigan, Missouri, New Jersey,
North Carolina, North Dakota, Pennsylvania, Rhode Island, South Dakota,
and Wisconsin. It is not contained in the forms adopted in Maine. Massa-
chusetts, Minnesota, and New Hampshire.
13 For discussion of principles, see Vance on Insurance. §§ 158-160. See,
also, Cooley, Briefs on the Law of Insurance, vol. 2, pp. 1327-1391.
14 Part of the opinion is omitted.
328 THE STANDARD FIRE POLICY
& Manufacturers' Insurance Company in disallowing the claim of Par-
sons, Rich & Co. against the insolvent corporation. The facts upon
which the claim against the company arose are practically agreed upon
by the parties. The policy was issued June 21, 1903, and by its terms
insured the firm of Parsons, Rich & Co. against loss or damage by
fire upon the property described therein in the sum of $1,000 from ths
date thereof until May 20, 1904. On February 20, 1904, the insurance
company became insolvent, and Freeman P. Lane and Hugh V. Mercer
were appointed receivers. A fire occurred on August 21, 1903, and
the property covered by the policy was partially destroyed. A claim
was duly made and filed and disallowed by the receivers. It is con
ceded that if there is any liability on the part of the company or the
receivers it is for the sum of $830.
The policy in question covered a brick and frame building, and addi-
tions thereto, located upon certain lots in Newton, Iowa, and used
by the insured in connection with its manufacturing business. It also
covered the stock and machinery described in detail in the policy. The
policy contained the following provisions: "This entire policy shall
be void if the insured has concealed or misrepresented, in writing or
otherwise, any material fact or circumstance concerning this insur-
ance or the subject thereof; or if the interest of the insured in the
property be not truly stated herein. * * * This entire policy, un-
less otherwise provided by agreement indorsed thereon, or added there-
to, shall be void * * * jf the interest of the insured be other
than unconditional and sole ownership or if the subject of insur-
ance be a building on ground not owned by the insured in fee sim-
ple. * * * "
No written application was made for the insurance, and no written
or oral representations of any kind or character were made by the
applicant. When the policy was issued, and until the time of the trial,
the title to the lots upon which the insured building was situated was
not in Parsons, Rich & Co., but was in George W. Parsons. This fact
was not known to the insurance company or to any of its agents or
representatives until after the loss. * * *
The appellant contends : ( 1 ) That, in the absence of any inquiry or
application or representation, the condition in the policy as to title and
ownership did not apply to the then existing condition of the title,
but referred only to subsequent changes in the title. (2) That under
the circumstances the insurer should be held to have known of the
actual condition of the title, and to have waived the provisions in
the policy with reference to sole title and ownership at the time of
the issuance of the policy. * * *
The policy provides that "this entire policy * * * shall be void
* * * if the interest of the insured be other than unconditional
and sole ownership, or if the subject of insurance be a building on
ground not owned by the insured in fee simple." There are some
authorities which hold that this provision refers only to subsequent
THE INTEREST OF THE INSURED 329
changes in the title, but they rest upon an unnatural construction of
the language of the policy. The words used refer to the present and
not to the future, and the conditions relate to facts as they exist at
the date of the policy. * * *
The entire policy is not set out in the record, but we presume that
it contains the usual provisions with reference to the effect of aliena-
tion and change of title. The contract was made in Iowa, and the form
commonly in use in that state provides that it "shall be void if any
change or diminution other than by the death of the insured take
place in the interest, title, or possession of the subject of the insurance."
The legal effect of future changes in the title is provided for by this
provision, and the provisions relating to title and ownership refer to
conditions at the time of the inception of the contract. * * *
The form of policy now in common use requires the insured to dis-
close the extent and nature of his interest in the property, as it is a
matter which largely influences underwriters in taking or rejecting
risks and estimating and figuring premiums. * * * But it is con-
tended that, where the policy is issued by an insurance company with-
out a written application, the company must be held to have waived the
condition of the policy as to title and ownership. This does not appear
to be an open question in this jurisdiction, as we have in two instances
held contrary to the appellant's contention. * * *
It is claimed that the company waived the right to insist upon the
breach of condition by issuing the policy without making full inquiries
as to the true facts. We are unable to see any grounds for either
a waiver or an estoppel in the facts disclosed by this record. A waiver
means the intentional relinquishment of a known right. Dawson v.
Shillock, 29 ^linn. 191, 12 X. W. 526; Fraser v. .^tna Life Ins. Co.,
114 Wis. 510, 523, 90 N. W. 476. As said in Stackhouse v. Barnston,
10 Ves. 466, a mere waiver signifies nothing more than an expression
of an intention not to insist upon a known right. In Warren v. Crane,
50 ^lich. 300, 15 N. W. 465, it w^as said that waiver is a voluntary
act, and implies an election by the party to dispense with something of
value, or to forego some advantage which he might at his option have
demanded and insisted on. Both intent and knowledge actual or con-
structive, of the facts, are therefore essential elements. Schreiber v.
Insurance Co., 43 Alinn. 367, 45 N. W. 708; Pence v. Langdon. 99
U. S. 578, 25 L. Ed. 420. The intent may be inferred from facts and
circumstances, as well as found in declarations of the parties, and the
knowledge may also be either actual or constructive. Fraser v. ^Etna
Life Ins. Co., 'll4 Wis. 510, 90 X. W. 476. But, as said in St. Paul
F. & ^I. Ins. Co. V. Parsons, 47 Minn. 352, 50 X. W. 240: "Xor, in
general, where the facts do not constitute an estoppel, should one who
neither knows the fact of the forfeiture nor is chargeable with fault
in not knowing it be held to have waived the same by acts or con-
duct not intended to have such an effect." * * *
In the present case it is not claimed that there is any evidence even
330 THE STANDARD FIRE POLICY
tending to show that any agent or officer of the insurance company
had any information as to the condition of the title to the real estate
before the policy was issued. We are asked to presume that the in-
surer by issuing the policy without investigation on its part, intended to
waive facts and conditions of which it had neither actual nor construc-
tive notice. The great weight of authority supports the rule that an
insurance company will not be permitted to take advantage of a con-
dition contained in a policy to avoid payment of a loss, when the facts
rendering the policy void by its terms were known to the insurer di-
rectly or through its agent at the time it issued the policy and accepted
the premium. This doctrine rests upon the ground that facts made
known to an agent of the company, when acting as such, are in law
known to the principal, and that a fraud would be perpetrated if an
insurance company, through its agent, was allowed to deliver its pol-
icy and accept the premium with knowledge of facts which under its
provisions rendered it void, ab initio, and thereafter assert its in-
validity. * * *
The rule meets with our entire approval. But in the present case
neither the company nor its agent had knowledge of the conditions,
nor are there any facts upon which to base a waiver, unless they are
to be presumed from the mere fact that the policy was issued. * * *
In the case now under consideration there was no written applica-
tion, no questions were asked by the agent, and no representations,
other than by implication, were made by the applicant in regard to
the ownership of the property or the condition of the title ; and there
is nothing to show that the agent had any knowledge of the actual
facts. The policy in question, having been issued to Parsons, Rich &
Co. without the company or its agent having any information or knowl-
edge of the fact that the title of the lots upon which the insured build-
ing stood was not in the insured, was void ab initio by its own terms,
and is unenforceable unless the insurer, after the loss, waived its right
to assert the forfeiture. The difficulty with the cases which support
the appellant's contention is that they raised an estoppel or imply a
waiver from conditions of which the insurer had no knowledge. The
waiver rests on an implication arising out of an assumption. If the in-
surer had knowledge actual or implied, through its agent, when the pol-
icy issued, that the existing conditions created a ground of forfeiture
under the terms of the policy, a basis for waiver would have existed,
and the insurer could not thereafter have claimed a forfeiture. Issuing
the policy with such knowledge would have been inconsistent with an
honest intention to claim a forfeiture for a breach of the condition.
We are not inclined to restrict the application of the doctrine of
waiver as heretofore applied by this court to the conditions contained
in insurance contracts. It has been an efficient means by which to
prevent insurers from treating the contract as valid when it is to their
interest, and repudiating it when called upon to respond to its burdens,
thus playing fast and loose with the insured. But the rule contended
THE INTEREST OF THE INSURED 331
for seems to us to require an unreasonable extension of the doctrine.
The written contract says, in language plain and unambiguous, that
it shall be of no force and efifect unless certain conditions then exist,
and the existing facts are necessarily known to the insured. It is
argued that the law must assume that all such conditions were known
to the company, and, after having assumed this material and essential
fact, again presume that it intended to waive any results arising there-
from to its advantage. But the insured knew the condition of his title,
and, when he received the policy, must, if he read it, have known that
the insurer had entered into the contract upon the understanding that
the applicant had full ownership and a fee simple title to the lots upon
which the building stood. The modern fire insurance policy is prac-
tically free from the stipulations, conditions, and provisions set in-
finitesimal type and hidden away in elusive locations, which served as
traps for the guileless and unwary of the past generations of insured.
But the most of these objectionable features have been effectually
eliminated by the courts or legislatures, and there seems to be no good
reason why the present insurance contracts, even while giving the in-
.sured the benefit of the doubt when ambiguous language is used, should
not be treated like other written contracts between responsible parties.
Kollitz V. Equitable Mut. Life Ins. Co., 92 Minn. 234, 99 N. W. 892;
Quinlan v. Prov., etc., Ins. Co., 133 N. Y. 356, 31 N. E. 31, 28 Am.
St. Rep. 645. * * * Affirmed.^"
JOHANNES V. STANDARD FIRE OFFICE OF LONDON.
(Supreme Court of Wisconsin, 18S7. 70 Wis. 196, 35 N. W. 29S, 5 Am. St.
Rep. 159.)
Cole, C. J. The defense is based upon alleged breaches of the con-
ditions in the policy, which it is claimed exonerate the defendants
from all liability for the loss. The policy provided it should be void
if there was "any omission to make known every fact material to
the risk," and "if' the interest of the assured in the property be other
than the entire, unconditional, and sole ownership of the property for
the use and benefit of the assured, or if the building insured stands on
leased ground, it must be so represented to the company and so ex-
pressed in the written part of the policy, otherwise the policy to be
void." It is said the facts proven on the trial show a breach of these
conditions. There is really no disagreement about the material facts
of the case.
15 The provisions as to sole and unconditional ownership Is contained in
the standard form of policy prescril)ed in New York, Connecticut, Louisiana,
Michigan. Missouri, New Jersey, North Carolina, North Dakota, Pennsyl-
vania, Rhode Island, and Wisconsin. It is not contained in ihe standard
form prescribed in Maine, Massachusetts, Minnesota, New Hampshire, and
South Dakota.
332 THE STANDARD FIRE POLICY
It appears that the plaintiff apphed to the local agent of the Stand-
ard Company for insurance about the first of July, 1883. At this time
he had possession of the realty on which the building and insured
property were situated, under a land contract upon which he had paid
$100; $200, the balance of the purchase price, became due and was
paid after the policy was issued. The improvements on the land were
of greater value than the insurance. The policy was issued and re-
mained in the hands of the agent until the land was paid for and a
warranty deed obtained, which was in August, 1883. The plaintiff
received the policy from the agent in October following. There was
no written application made for insurance, and no representations
made, or question asked as to plaintiff's title or interest in the land
or building; nothing was said upon that subject. The agent testified
that he did not know what the plaintiff's title was in the land or that
he held it under a contract of purchase. The plaintiff, however, tes-
tified that when he made application for insurance he showed the
agent the contract, who took it to obtain a description of the land on
which the insured building was situated; and, in answer to a ques-
tion submitted, the jury found that such was the fact. It is plain,
therefore, that the agent had the means of information as to plain-
tiff's interest in the realty before him, and it is almost incredible that
he did not know what his title was. Under the circumstances, the
plaintiff cannot be justly charged with an omission to make known
the fact that he held the land under a contract for the purchase
thereof.
We do not dwell upon these facts nor express any opinion as to-
how they would affect the liability of the company, providing it was
made to appear that the plaintiff was not the sole and unconditional
owner of the entire interest in the property within the meaning of
the condition relied on. But if the plaintiff is held to the exact lan-
guage of the condition, which it is perfectly clear he never saw until
long after the policy was issued, still the evidence shows that his in-
terest in the property was an entire, unconditional, and sole owner-
ship. He was the real owner of the property in equity and for all
purposes of insurance. The condition does not relate to a legal title
in fee-simple nor is that the interest described. An equitable title, if
sole and unconditional, answers the description fully, and if the prop-
erty was destroyed the entire loss would fall upon the plaintiff. There
is no ground, therefore, for saying there was a misdescription of the
nature of the plaintiff's interest in the property. If the company
deemed it material that the state of the legal title should be described,
it doubtless would have framed the language to call for that informa-
tion. But it did not. The interest of the plaintiff satisfies the con-
dition as we construe it, as he was in possession and was the sole
equitable owner. In the absence of any specific inquiry by the insur-
ers, or express stipulation in the policy, no particular description of
the nature of the insurable interest is necessary. Strong v. Insurance-
THE INTEREST OF THE INSURED 333
Co., 10 Pick. (Mass.) 40, 20 Am. Dec. 507; King v. Insurance Co., 7
Cush. (Mass.) 13, 54 Am. Dec. 683 ; Insurance Co. v. Brown, 43 N.
Y. 389, 3 Am. Rep. 711.
But the question before us seems to be settled by the adjudications.
In Hough V. Insurance Co., 29 Conn. 10, 76 Am. Dec. 581, an ap-
plicant for insurance had described the property in a written appHca-
tion as "his house," and it was so described in the poHcy. The pol-
icy contained the condition "if the interest in the property to be in-
sured is not absolute it must be so represented to the company, and
expressed in the policy in writing; otherwise the insurance shall be
void." The legal title to the property was in another party, with
whom the insured had, at the time of the application, made a parol
contract for its purchase, for a price agreed upon, which the insured
had agreed absolutely to pay, and a part of which he had paid, and
the insured had entered into possession as purchaser, and had made
valuable improvements on the property. Upon the claim of the in-
surance company, in a suit on the policy, that the insurance was void
by reason of the omission of the insured to state in his application
the condition of the title, the court charged the jury that the plain-
tiff was to be regarded as the owner of the property, if he had the
equitable title, and his interest was such that the loss w^ould fall on
him if the property was destroyed. This charge was held to be cor-
rect, and that an absolute interest which is so completely vested in
the party owning it that he could not be deprived of it without his
consent, would satisfy the condition. In Dolliver v. Insurance Co.,
128 Mass. 315, 35 Am. Rep. 378, a policy of insurance contained the
same condition precisely as the one before us. The insured, at the
time the policy was issued, was the owner in fee of the property in-
sured, but had mortgaged it, and also leased it for a term of years.
The policy contained no statement of these incumbrances, still it was
held that the policy was not thereby avoided. The court say : "The
provision is in the body of the policy, and is inserted for the benefit
of the insurer. It is to be construed strictly against it, and liberally
in behalf of the assured. If, therefore, its terms can be satisfied by
a construction which will save the policy, and at the same time ac-
cord with the established rules of law, such construction must be
adopted." There are numerous cases, which hold that one who has
an equitable interest in property may be described as the owner there-
of. Insurance Co. v. Tyler, 16 Wend. (N. Y.) 385, 30 Am. Dec. 90;
Insurance Co. v. Martin, 40 N. J. Law, 568, 29 Am. Rep. 271 ; Pel-
ton V. Insurance Co., 77 N. Y. 605 ; Insurance Co. v. Weill, 69 Va.
389, 26 Am. Rep. 364 ; Acer v. Insurance Co., 57 Barb. (N. Y.) 68 ;
Insurance Co. v. Fogelman, 35 Mich. 482 ; Dohn v. Insurance Co., 5
Lans. (N. Y.) 275 ; Insurance Co. v. Wilgus, 88 Pa. 107 ; Martin
v. Insurance Co., 44 N. J. Law, 486, 4 Am. Rep. 397; Insurance Co.
v. Haven, 95 U. S. 242, 24 L. Ed. 473.
In this case, the plaintiff, by the contract and its part performance,
334 THE STANDARD FIRE POLICY
had acquired an absolute vested interest in the property which he
could incumber, sell, and which would descend to his heirs. He was
not in default in making payments, and was to all intents and pur-
poses the sole owner. The condition in question speaks only of the
nature of the interest insured, not of its extent or legal character.
The plaintiff's interest fully answered the description in the condi-
tion. In Hinman v. Insurance Co., 36 Wis. 159, the assured made a
written application in which he falsely represented his interest in
the property. He was in default in his payments, and this court held
that a representation that he was the sole and undisputed owner of
the insured property was in the nature of a warranty, and, being un-
true, avoided the policy. The case is distinguishable from the one at
bar. The learned counsel for the defendants called our attention to
cases which decide that one who has merely an estate for life in prem-
ises cannot be regarded as the sole and absolute owner, within the
meaning of a condition such as we are considering (Davis v. Insur-
ance Co., 67 Iowa, 494, 25 N. W. 745 ; Carver v. Insurance Co., 69
Iowa, 202, 28 N. W. 555) ; or one who has but a lien for a debt, as
in Rohrback v. Insurance Co., 62 N, Y. 47, 20 Am. Rep. 451; or a
purchaser at an execution sale (Insurance Co. v. Brennan, 58 111.
158, 11 Am. Rep. 54); or a mortgagee in possession (Southwick v.
Insurance Co., 133 Mass. 457; Walter v. Assurance Co. [C. C] 10
Fed. 232) ; or one who has only a leasehold interest (Mers v. In-
surance Co., 68 Mo. 127). But these cases, it is obvious, are not in
point here, where the insured was in no default in making payments,
and was the equitable owner, having the right to enforce a specific
performance of the contract, and obtain the legal title outstanding in
his vendor.
It follows from these views that there was no breach of the condi-
tion in question shown, and that the judgment must be affirmed/^
HAIDER v. ST. PAUL FIRE & MARINE INS. CO
(Suprerae Court of Minnesota, 1897. 67 Minn. 514, 70 N. W. 805.)
Action by Joseph Haider and the Citizens' Savings Bank of St.
Paul against the St. Paul Fire & Marine Insurance Company. Judg-
ment ordered for defendant. From an order granting a new trial,
defendant appeals.
Canty, J. This is an action on an insurance policy insuring a
dwelling house against loss by fire. The policy contains the follow-
ing clause: "This entire policy, unless otherwise provided by agree-
ment indorsed thereon or added thereto, shall be void * * * if the
16 Partnership proi>erty, see Wood v. American Fire Ins. Co., post, p. 389.
Effect of colorable transfer in fraud of creditors, see Forward v. Continental
Ins. Co., ante, p. 274.
THE INTEREST OF THE INSURED 335
interest of the insvired be other than unconditional and sole ownership ;
or if the subject of insurance be a building on ground not owned by
the insured in fee simple."
The case was tried before the court without a jury on a stipulation
of facts in which it is stated : That at the time the insurance policy
was made and at the time of the loss plaintiff was the owner of a cer-
tain lot 1, in the city of St. Paul, but was not the owner of lot 2,
adjoining lot 1, and never had or claimed any right or title in or to
said lot 2. That, except as hereinafter stated, the house was his prop-
erty. That the house was 45 feet in length and 16 feet in width, and
was built by plaintiff 2 feet of its w^dth on lot 2, without the consent
of the owner of lot 2, and so stood 2 feet on lot 2 at the time of
the loss. The balance of it w^as built and stood on lot 1, except that
20 feet of the front end of it stood on the street in front of the ends
of lots 1 and 2, which lots abutted on said street. That at the time
the policy was issued the defendant's agent personally examined the
premises for the purpose of inspecting the house as a risk, and noticed
that the house was not in line with the other houses, but stood further
out into the street, — nearer the center of the street, — but that the
street was then rough, ungraded, and obstructed by rubbish and bushes.
That at that time neither plaintiff nor defendant or its said agent knew
that any part of said house stood upon said street or on said lot 2,.
and plaintiff did not discover and was not informed as to the true
location of the house as aforesaid until several months after the pol-
icy was issued, and about two months before the loss. The court
found all of these facts, and thereon ordered judgment for defend-
ant. From an order granting a new trial, defendant appeals.
The only question presented on this appeal is whether the facts
above stated constitute a breach of the conditions of the policy above
quoted, or any of them, so as to avoid the policy.
There is no breach of the condition providing that, "if the subject
of insurance be a building on ground not owned by the insured in fee
simple," the policy shall be void. According to the well-established
principles of interpretation, there is no breach of this condition until
it is totally broken. As plaintiff owned in fee simple a part of the
land on which the building was situated, the condition was not broken,
although he did not own the other part. Thus, where a policy pro-
vided that, if the building should fall, the insurance should cease, it
was held that the insurance did not cease when a part of the build-
ing fell, and the rest remained standing. Breuner v. Insurance Co.,.
51 Cal. 101. 21 Am. Rep. 703; Insurance Co. v. Mette, 27 111. App.
324. So, where the condition was that the premises should not be-
come vacant and unoccupied, it was held not to be broken by the
premises becoming partly vacant, when they remained partly occupied.
American Fire Ins. Co. v. Brighton Cotton jManuf'g Co., 125 111. 131,
17 N. E. 771.
336 THE STANDARD FIRE POLICY
We will now consider the other condition avoiding the policy, "If
the interest of the insured be other than unconditional and sole own-
ership." The front end of the house was built 20 feet upon the street.
It must be presumed that plaintiff was the owner in fee of the street
in front of his lot to the middle of such street, and that the public
have only an easement therein. Then the public had no interest in
or title to this house, and can only compel plaintiff to remove the
house, which, as against the public, he would have a right to do.
Therefore, as between him and the public, he was the sole and un-
conditional owner of the house.
But the house also stood two feet on lot 2, and it is claimed by ap-
pellant that this part of the house had been attached to lot 2, and be-
came a part of it ; that the title and ownership of this two feet of the
house was in the owner of lot 2, and therefore plaintiff was not the
sole and unconditional owner of the house. Plaintiff built the house,
was in the exclusive possession of it, insured it in good faith believ-
ing that he was the sole owner of it, and up to the time of the loss
no one, so far as appears, asserted any adverse claim to any part of it.
Is it the meaning of this condition that whenever there is a loss the
insurance company may have the lot surveyed, and, if it is found that
the building stood an inch^ or a tenth of an inch, beyond the line of
the lot on land not owned by the insured, the company shall escape
liability? Is it the meaning of this clause that, whenever there is a
loss, the insurance company may examine with a microscope the title
to the land on which the building stood, and, if any flaw is found in
that title, the company shall escape liabiHty? In every such instance
the statute of limitations might have run in favor of the insured, and
he might have continued forever to be the owner of the property as
against all the world, were it not for the industry of the insurance
company in finding means by which to avoid its liability.
We cannot hold that by the condition in question it was intended
to give the insurer a right to assert a defect in the title of the in-
sured, which defect no one else had ever asserted. In the case of
Miller v. Insurance Co., (C. C.) 7 Fed. 649, Air. Justice Wallace, in
passing on this same condition in an insurance policy, said: "The
defendant's off'er of proof was, therefore, nothing more than a prop-
osition to show that the plaintiff", although he had a title to the mill
property which apparently vested in him the sole, unconditional, and
entire ownership of the property, had a defective title. * * * So
long as the plaintiff, under claim of right, had the exclusive use and
enjoyment of the insured property, without any assertion of an ad-
verse right or interest in it by any other person, he was the owner
of the property. In the ordinary acceptation of the term, who would
be considered the owner of real estate except the grantee in possession.
when no adverse claim has been made by another?" See, also, Steven-
son v. Insurance Co., 26 U. C. Q. B. 148.
CHANGE OF INTEREST, TITLE, OR POSSESSION 337
We are of the opinion that, as to the defendant insurance company,
plaintifif was the sole owner of the house, within the meaning of this
policy. The order appealed from is affirmed.
V. Change of Interest, Title, or Possession
IT
WOLF V. THERESA VILLAGE MUT. FIRE INS. CO.
(Supreme Court of Wisconsin, 1902. 115 Wis. 402, 91 N. W. 1014.)
Action by M. J. Wolf against the Theresa Village Mutual Fire In-
surance Company. From a judgment for plaintiff, defendant appeals.
Cassoday, C. J.^^ * * * The more serious question is whether
<he policy was forfeited by reason of a violation of the other clause
of the provision of the policy quoted, to the effect that the entire pol-
icy should be void "if any change" should take place "in the interest,
title, or possession" of the property, "whether by legal judgment or
process or by voluntary act of the insured or otherwise." The an-
swer denies "that the plaintiff' owned or had any interest in the build-
ings or premises mentioned in said complaint at the time of the hap-
pening of said loss." That is the particular question litigated upon
the trial. The motion for a nonsuit was based upon a supposed
change "in the interest, title, or possession" of the property after the
making of the contract of insurance, and before the fire. The defend-
ant proved, and the court found, and it is undisputed, that June 28,
1900, some four months prior to the fire, the plaintiff and his wife
executed and delivered to the Jos. Schlitz Brewing Company a con-
veyance of the premises in the form of a warranty deed, which was
recorded July 9, 1900. The trial court found that the deed was so
given "as security on an open account." It is undisputed that the
deed was so given as security, and that at the time of its delivery the
Jos. Schlitz Brewing Company gave back to the plaintiff a writing, of
which the following is a copy, omitting the description and signa-
tures: "We hereby acknowledge the receipt of the warranty deed of
* * * , which we are to hold as collateral security to guarantee
the payment of an account of M. J. Wolf, and we agree to deed back
this property upon said M. J. Wolf meeting all his obligations to
us." It also appears from the evidence that between the time of the
delivery of the deed and the fire the running account was constantly
changing, the lowest amount at any time being $1,182.78, and the
17 For discussion of principles, see Vance on Insurance, § 161. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, pp. 1713-1764.
18 Part of the opinion is omitted and the statement of facts is rewritten.
Cooley Ins. — 22
338 THE STANDARD FIRE POLICY
highest amount being $1,839.45. The trial court held, as a conclusion
of law, that the deed from the plaintiff to the Joseph Schlitz Brew-
ing Company "was a mortgage, and did not invalidate" the poHcy.
The defendant contends that the written agreement of the Brewing
Company to hold the deed "as collateral security" for "the payment of
an account" of the plaintiff and "to deed back" the property to the
plaintiff upon his payment of his account, not being recorded, was
improperly received in evidence, and therefore should not be consid-
ered as supporting the findings. In support of such contention, coun-
sel rely upon section 2243 of the Revised Statutes of 1898. That
section is contained in the chapter entitled "Of Alienation by Deed,
and the Proof and Recording of Instruments Affecting Title to Land."
It was manifestly intended to protect subsequent bona fide purchas-
ers of real estate for value, as prescribed in the two sections of the
statute imrnediately preceding, against such unrecorded defeasance.
In construing a statute, regard is to be had to the purpose of the
enactment. Harrington v. Smith, 28 Wis. 43; Wisconsin Industrial
School for Girls v. Clark Co., 103 Wis. 651, 79 N. W. 422. The
defendant was not a purchaser of the premises insured in any sense.
If the conveyance avoided the policy, it must be by virtue of a
change "in the interest, title, or possession of the" property insured, in
violation of the forfeiture clause in the policy. The giving of the
deed and taking back the defeasance was nothing more nor less than
a mortgage. Did the mere giving of the mortgage constitute such
change? This court held several years ago that an execution sale of
real estate is in itself no ground of forfeiture under the condition in
a policy which provides for the immediate termination of the risk, "if
the property be sold or transferred, or any alienation or change take
place in the title or possession, whether by legal process or judicial
decree, or voluntary transfer or conveyance." Hammel v. Insurance
Co., 54 Wis. 72, 11 N. W. 349, 41 Am. Rep. 1. So it has frequently
been held that a mortgage upon real estate does not constitute a
change in the title or possession of the premises, within the meaning
of such a clause in the policy. Insurance Co. v. Spankneble, 52 111.
53, 4 Am. Rep. 582; Insurance Co. v. Walsh, 54 111. 164, 5 Am.
Rep. 115; Insurance Co. v. Gibe, 162 111. 251, 44 N. E. 490; Nease
v. Insurance Co., 32 W. Va. 283, 9 S. E. 233; Barry v. Insurance
Co., 110 N. Y. 1, 17 N. E. 405; Bank of Glasco v. Springfield Fire
& Marine Ins. Co., 5 Kan. App. 388, 49 Pac. 329.
But it is contended that, although the mortgage did not operate to
change the title or possession, nevertheless that it did operate to
change "the interest" of the plaintiff in the property. At first blush
there would seem to be some plausibility in the contention. But it
is to be remembered that in this and most of the states a mortgage
is a mere lien or security. Slaughter v. Bernards, 97 Wis. 184, 72
N. W. 977; Cumps v. Kiyo, 104 Wis. 656, 80 N. W. 937. In this
last case the mortgage consisted of a deed absolute in form with a
CHANGE OF INTEREST, TITLE, OR POSSESSION 339
defeasance back, as here. We are not aware that the precise question
here presented has been determined in this court. In Ohio, under a
clause in the pohcy substantially like the one in question, it was held
that the giving of a mortgage did not avoid the policy, and that "the
words 'title' or 'possession,' as here used, mean an actual change in
law and equity, and the word 'interest' means a change in the insur-
able interest of the owner of the property, neither of which is affected
by the execution of a mortgage." Fire Ofifice v. Clark, 53 Ohio St.
414. 42 N. E. 248, 38 L. R. A. 562. In that case, as here, the mort-
gage was in the form of a deed absolute, with a defeasance. So it
has been held in Texas that "the execution of a mortgage on the real
estate on which the building insured is situated is not a change of
interest within the meaning of the condition in a policy declaring the
policy forfeited 'if any change other than the death of the insured
take place in the interest, title, or possession of the subject of the insur-
ance.' " Lampasas Hotel & Park Co. v. Phoenix Ins. Co. (Tex. Civ.
App.) 38 S. W. 361 ; Same v. Home Ins. Co., 17 Tex. Civ. App. 615,
43 S. W. 1081. It will be observed that the language of the forfeiture
clause in the policy in that case was the same as in this. The same
is true of the case of Peck v. Insurance Co., 16 Utah, 121, 51 Pac.
255, 67 Am. St. Rep. 600, where the deed was absolute in form, but
given to secure the payment of a debt.
We must hold that the giving of the mortgage did not operate to
change the "interest, title, or possession" in the property insured, with-
in the meaning of the policy.
The judgment of the circuit court is affirmed.^*
WOOD V. AMERICAN FIRE INS. CO. OF PHILADEL-
PHIA, PA.
(Court of Appeals of New York, 1896. 149 N. Y. 3S2, 44 N. E. 80, 52 Am.
St. Kep. 733.)
Action by Jennie M. Wood against the American Fire Insurance
Company of Philadelphia, Pa., on a policy of fire insurance. There
was judgment for plaintiff, which was affirmed by the general term
(78 Hun, 109, 29 N. Y. Supp. 250), and defendant appeals.
O'Brien, J. The plaintiff recovered upon a policy of insurance, of
which she was the assignee, issued by the defendant, upon a building
used as a store, January 9, 1891, and W'hich was destroyed by fire
March 31, 1891. The only defenses interposed by the answer, which
19 The provision is practically the same in the standard forms of policy
prescribed in New York. Connecticut. Louisiana, Mirhi.tran, Missouri. New
Jer-ey, North Carolina. North Dakota. Pennsylvania, Rhode Island, and Wis-
consin. In Maine, Massachusetts, Minnesota. New Hampshire, and South
Dakota the provision, thoutrh varying somewhat in the wording, declares that
the policy shall be void if the "property shall be sold."
340 THE STANDARD FIRE POLICY
were proven and found at the trial, were: (1) That Wood Bros., a
firm composed of six brothers, which owned the property and procured
the insurance, had not, at the time, the sole and unconditional title
or ownership of the property; and (2) that the property covered by
the policy had been sold upon judgment and execution against the
firm some days before the loss. The contract was made by means of
what is known as the "standard policy," which contained the condi-
tion that it "shall be void * * * jf ^\^q interest of the insured shall
be other than unconditional and sole ownership, or * * * if any
change, other than by the death of an assured, take place in the interest,
title or possession of the subject of the insurance * * * whether
by legal process or judgment, or by the voluntary act of the insured
or otherwise."
With respect to the defense first referred to, it appeared that in the
year 1885, one of the individuals composing the firm made a general
assignment of his individual property for the benefit of his creditors,
and also of his interest in the firm ; that in 1888 his assignee sold what-
ever interest in the firm property that passed to him by the assignment
to a third party, and before the policy was issued had accounted and
been discharged. The assignee had no accounting with the firm in
order to ascertain what interest the assignor had, if any, in the surplus,
if any, and no claim was ever made upon the firm for anything passing
by the assignment. It appeared by the proofs and findings that the de-
fendant's agents, who were, as may be fairly inferred, general agents,
knew, at the time of issuing the policy and before, all the facts and
circumstances with respect to the individual assignment and the trans-
fer of that interest as above stated. The answer to the defense, based
upon these facts, is twofold :
( 1 ) That, since the title to the real estate held by a partnership is
in the firm, and not in the individual members of it, the transfer of
the interest of one of the members, before the insurance, had no efifect
upon the unconditional and sole ownership of the firm ; that an as-
signment by one partner of his share in the partnership stock simply
transfers any interest he may have in any surplus remaining after pay-
ment of the firm debts and the settlement of the firm accounts. Wheth-
er the purchaser of such an interest takes anything whatever by the
transfer cannot be known until all the partnership afifairs have been
settled and adjusted. Alenagh v. Whitwell, 52 N. Y. 146, 11 Am.
Rep. 683. The title to the real property, which was the subject of the
insurance, was in the partnership firm, and was not affected by the as-
signment of one of the members. It still remained firm property, since
the assignee had no interest in it as such, and whether the sale or
transfer by the individual member was anything more than a mere
form, or conveyed anything to the assignee, must depend upon the
existence of a surplus after the partnership affairs are adjusted. It
does not even appear, in this case, that there would then be any sur-
plus to divide, though that circumstance cannot be regarded as material
CHANGE OF INTEREST, TITLE, OR POSSESSION 341
upon the question whether such a transfer by a member affects or
changes the estate or interest which the firm has in the partnership
realty.
(2) That general agents of an insurance company may waive stipula-
tions and provisions, contained in the policy, with respect to the con-
ditions upon which it shall have inception and go into operation as
a contract between the parties, by delivering it, with knowledge of all
the facts, and receiving the premium, has long been settled. It is so
obviously just that a party to a written contract should be precluded
from defeating it by asserting conditions and stipulations contained
in it which would prevent its inception, and which he knew, at the time
he delivered it and accepted the benefits, were contravened by the actual
facts, that any statement of the reasons upon which the rule rests is
no longer necessary. The principle is not a new one, and it has not
been shaken by any decisions of this court made since the adoption of
the standard policy. McNallv v. Insurance Co., 137 X. Y. 389, 33
N. E. 475; Forward v. Insurance Co., 142 X. Y. 382, 37 X. E. 615,
25 L. R. A. 637.
The restrictions inserted in the contract upon the power of the
agent to waive any condition, unless done in a particular manner, can-
not be deemed to apply to those conditions which relate to the in-
ception of the contract, when it appears that the agent has delivered
it, and received the premiums, with full knowledge of the actual situa-
tion. To take the benefit of a contract, with full knowledge of all the
facts, and attempt afterwards to defeat it, when called upon to perform,
by asserting conditions relating to those facts, would be to claim that
no contract was made, and thus operate as a fraud upon the other
party.
It appears, from the findings, that on the 20th of March, 1891, about
10 days before the fire, the real estate which was the subject of the
insurance was sold by the sheriff under an execution duly issued to him
against the firm, and a certificate of sale in due form delivered by him
to the purchaser, one Aurelia O. Wood ; and the remaining, and per-
haps most important, question is whether this sale worked such a
change in the interest, title, or possession of the property as to avoid
the policy, within the meaning of the conditions to which reference has
been made. In Walradt v. Insurance Co., 136 X. Y. 375, 32 X. E.
1063, 32 Am. St. Rep. 7^2, we held that, when the subject of the in-
surance was personal property, the conditions of the policv were not
violated by the mere levy of an execution upon the goods insured. The
reasoning of that case, however, plainly leads to the conclusion that
it would be otherwise in case the levy had been followed by a sale.
The sale of personal property upon an execution divests the owner of
his title to the property sold, and transfers it to another. But what
was said in that case with respect to the effect of a sale upon execution
applies to personal property. There was no question in the case with
respect to the effect of a sale of real estate, and nothing was decided
342 THE STANDARD FIRE POLICY
upon that question. The effect of a sale of real estate upon execution
is declared by statute, and no other effect can be given to it. The judg-
ment debtor, or his assignee, or his creditors, may redeem the same
within 15 months thereafter, and the right and title of the judgment
debtor is not divested by the sale until the expiration of the period for
redemption. Code Civ. Proc. § 1440. During that time the debtor is
entitled to the possession and use of the rents and profits.
At the time, therefore, that the property in question was destroyed
by fire, the interest, title, or possession of the insured had not been
changed. The statute had operated to postpone the effect of the sale
upon the interest, title, or possession of the owners until the expiration
of the period for redemption. In Browning v. Insurance Co., 71 N. Y.
508, 27 Am. Rep. 86, the policy contained a provision that, if the prop-
erty be sold or transferred, or any change take place in the title or pos-
session, then, in either such case, the policy shall be void. The in-
sured entered into a contract in writing for the sale of the premises,
and this court held that the conditions of the policy were not violated.
It was said that an executory contract for the sale of the property,
without change of possession, did not work a breach of the conditions
against a sale or transfer or change in title or possession ; that such
a condition applies only to a legal transfer which divests the insured
of title to or control over the property. Before we could assent to
the proposition that in this case there was a breach of the conditions
of the policy by the sheriff's sale, we would be compelled! to overrule
numerous cases in this court which, in principle, decide otherwise.
Baley v. Insurance Co., 80 N. Y. 21, 36 Am. Rep. 570; Cone v. In-
surance Co., 60 N. Y. 619; Haight v. Insurance Co., 92 N. Y. 51, 55;
Green v. Insurance Co., 82 N. Y. 517.
The judgment must therefore be affirmed, with costs. ^^ All concur,
except Gr<\y, J., who dissents upon the ground that the policy was
avoided by the change of interest effected by the sale of the property.
Judgment affirmed.
20 Accord: Greenlee v. North British «& Merc. Ins. Co., 102 Iowa, 427, 71
N. W. 534. 63 Am. St. Rep. 455 (1S97) ; Hammel v. Qneens Ins. Co.. 54 Wis.
72, 11 N. W. 349, 41 Am. Rep. 1 (1SS2). Compare Collins v. London Assiir.
Corp., 165 Pa. 298, 30 Atl. 924 (1895). And see, generally, New v. German
Ins. Co.. ante, p. 15; Kase v. Hartford Fire Ins. Co.. ante, p. 17: Quarles
V. Clayton, ante, p. 10. Effect of colorable transfer in fraud of creditors,
see Forward v. Continental Ins. Co., ante, p. 274.
OTHER INSURANCE 34
VI. Other Insurance ^^
STAGE V. HOME INS. CO. OF CITY OE NEW YORK.
(Supreme Court of New York. Appellate Division, Fourth Department, 1902.
76 App. Div. 50y, 78 N. Y. Supp. 555.)
Action by Augustus E. Stage against the Home Insurance Company
of the City of New York. From a judgment for plaintiff, defendant
appeals.
Spring, J. This is an action to recover on a fire insurance policy
issued by the defendant to the plaintiff. On the 11th of June, 1900,
the plaintiff owned a stock of goods in a store in the town of Critten-
den, in the county of Erie, and the same was insured in the Queens
& Suffolk Insurance Company in the sum of $2,800, represented by
three policies, one for $800. At that time the local agent of that com-
pany at Corfu, near Crittenden, at the direction of the home com-
pany, canceled the policy of $800, and at his request to the local
agent of the defendant the policy in suit was issued in lieu of the
one canceled. At the time of the issuance of this policy by the de-
fendant its local agent was apprised of the existence of the policies
of insurance in the Queens & Suft'olk Company. One of these poli-
cies expired December 11, 1900, and another identical in form and
amount was issued by the same company in renewal or extension of
the one terminating. On the 1st day of April, 1901, and while the
policy in controversy was apparently in force, the goods insured were
totally destroyed by fire, and the defendant is resisting payment.
The gist of the controversy arises over this provision in the policy :
"This entire policy, unless otherwise provided by agreement in-
dorsed hereon or added hereto, shall be void if the insured now has
or shall hereafter make or procure any other contract of insurance,
whether valid or not, on property covered in whole or in part by
this policy."
The knowledge of the local agent of the existence of the outstand-
ing policies was the knowledge of the defendant, and was tantamount
to a waiver of the quoted clause in the policy. Robbins v. Insurance
Co., 149 N. Y. 477, 44 N. E. 159; Forward v. Insurance Co., 142
N. Y. 382, 37 N. E. 615, 25 L. R. A. 637; Skinner v. Norman,
165 N. Y. 565, 569, 59 N. E. 309, 80 Am. St. Rep. 776. If the de-
fendant knew of the other insurance when it entered into its con-
tract with the plaintiff', and accepted the premium from him, it can-
not now, after his goods have been burned, escape payment on the
ground that its knowledge was not evidenced by a written indorse-
21 For discussion of principles, see Vance on Insurance, § 163. See, also,
Cooley, Briefs on tlie Law of Insurance, vol. 2, pp. 1438-1454, 1831-1859.
344" THE STANDARD FIRE POLICY
ment on the policy or other written waiver. Thebaud v. Insurance
Co., 155 N. Y. 516, 50 N. E. 284; Wood v. Insurance Co., 149 N.
Y. 382, 44 N. E. 80, 52 Am. St. Rep. 7?)Z ; McElwain v. Insurance
Co., 50 App. Div. 63, 65, 63 N. Y. Supp. 293 ; Sternaman v. Same,
170 N. Y. 13, 23, 62 N. E. 763, 57 L. R. A. 318, 88 Am. St. Rep. 625.
Each contract involved was a standard policy, and contained a
clause that the policy "may by a renewal be continued." The appel-
lant's counsel insists that by accepting a new policy instead of a re-
newal certificate extending the same the policy in suit was vitiated.
We apprehend this margin is too narrow to be successfully main-
tained. The defendant knew that as part of its contract the plaintiff
was permitted to continue each policy in force. Whether in form
that extension was by a certificate renewing it or by another policy
precisely like the one expiring is of no importance. By either method
the contract was exactly the same. The controlling feature here is
that the second policy in fact was a renewal or continuation of the
prior insurance.
In Pitney v. Insurance Co., 65 N. Y. 6, there was a clause in the
policy as follows: "If any other insurance has been or shall here-
after be made upon the said property, and not consented to by the
company in writing hereon, then this policy shall be null and void."
A new policy was issued in effect renewing the one running out.
It was contended in that case that the renewal was a new contract,
invalidating the policy issued by the defendant. The court held oth-
erwise, using this language at page 26: "A renewal is in one sense
a new contract, but it is not 'other' insurance, within the meaning
of the policy. It is but a continuation of an existing insurance. It
would be in the highest degree inconvenient to hold that notice
must be given on every renewal to other insurers on the theory that
it was a new insurance. If the notice of the original insurance is
properly given, it must be held to continue through all true renewals
of it."
In Brown v. Insurance Co., 18 N. Y. 391, the like principle was
enunciated, and in that case nearly three weeks intervened the ex-
piration of the policy and the taking of the new one, which was in
fact proved to be in renewal of the former insurance. There is no
substantial difference between the clause quoted from the standard
policy and that which was the subject of review in the cases cited,
and they are consequently decisive of the question now under consid-
eration.
The judgment should be affirmed, with costs to the respondent.
Judgment affirmed.^ ^
22 The provision as to other insurance is substantially the same in the
standard forms of policy prescribed in New York, Connecticut, Louisiana,
Michigan, Missouri. New Jersey, North Carolina, North Dakota, Pennsylvania,
Rhode Island, and Wisconsin. In Maine. Massachusetts, Minnesota, New
Hampshire, and South Dakota the provision does not contain the words
"valid or not."
OTHER INSURANCE 345
EDDY V. LONDON ASSUR. CORP.
(Court of Appeals of New York, 1^94. 143 N. Y. 311, 38 N. E. 307. 25 L.
R. A. 686.)
Actions by Fred C. Eddy, as receiver of the Syracuse Screw Com-
pany, against the London Assurance Corporation and seven other in-
surance companies, on poHcies of insurance issued by such com-
panies to the plaintiff, as receiver, on property formerly owned by
the screw company. Giles Everson was insured by the same policies
as mortgagee, as his interest might appear, and was joined as de-
fendant, in order that the rights of all parties might be decided in
one action. The policies contained the standard mortgage clause,
which provided that the insurance of Everson's interest should not be
invalidated by any act or neglect of the mortgagor or owner of the
property. The plaintiff failed to recover, and his complaint was dis-
missed in each action, because of the violation of the provisions in
the policies in regard to procuring other insurance. From a judg-
ment of the general term (65 Hun, 307, 20 N. Y. Supp. 216), afifirming
judgments in each case for defendant Everson, the insurance com-
panies appeal.
Peckham, J.-^ * * * Another question arises in regard to the
so-called "contribution." It seems that the plaintiff, Eddy, without
the consent of these defendant insurers, procured other insurance
upon the property. This additional insurance thus procured rendered
the policies of these insurers invalid as to the plaintiff. They con-
tend, nevertheless, that in arriving at the proportion of the loss pay-
able by each of them to the mortgagee, this other insurance should
be reckoned as part of the insurance on the property. It was pro-
cured by plaintiff without the consent or knowledge of the mort-
gagee, and was not made payable in any event to him, and did not
insure his interest in the property. If the claim of these defendant
insurers be allowed, the effect is to reduce the amount which each is
liable to pay to the mortgagee, and thereby to lessen his total re-
covery, as he has no claim under the other and additional policies.
The clause under which this claim is made provides in the body of
the policy that the insurer "shall not be liable for a greater proportion
of any loss on the described premises than the amount thereby in-
sured shall bear to the whole insurance, whether valid or not."
1 think the courts below were right in rejecting this claim of the
insurers. Taken in connection with the language in the mortgage
clause, the contract is quite plain. The provision in the latter clause
that the insurance of the mortgagee should not be invalidated by any
act or' neglect of the owner of the property applies, among others,
to a case of other insurance of his own interest by the owner with-
out the knowledge or consent of the mortgagee,
2 3 Part of the opinion is omitted and the statement of facts is rewritten.
346 THE STANDARD FIRE POLICY
The effect of the mortgagee clause hereinbefore set forth is to
make an entirely separate insurance of the mortgagee's interest, and
he takes the same benefit from his insurance as if he had received a
separate policy from the company, free from the conditions imposed
upon the owners. Where the company agreed that the mortgagee's
insurance should not be "invalidated" by any act or neglect of the
owner of the property, it was not intended to limit the application
of that word to a case where the whole policy would otherwise be
rendered invalid. The plain and obvious meaning of the language
is that the insurance of the mortgagee should not be affected or in
any wise impaired or lessened by any act or neglect of the owner.
Although contained in the same policy issued to the owner, yet the
insurer and the mortgagee were nevertheless entering into a perfectly
separate contract of insurance, by which the mortgagee's interest alone
was to be insured, and it would be most natural to provide that no
act or neglect of the owner should invalidate — that is, impair — any
portion of the insurance thus separately secured. Can it for a moment
be supposed that a mortgagee would otherwise ever consent to such
a contract? His desire is to obtain security, and to that end he in-
sures his interest in the property. Would he knowingly consent that
this security should be liable to be wholly frittered away and made
valueless by the action of the owner, unknown to him, in procuring
insurance upon the owner's interest in the property? Would any
sane man agree to hazard his security in such a way? Would he
agree that the value of his security should depend upon the acts of
a third party over whom he had no control, and of whose acts he
might be wholly ignorant? The statement of the proposition is its
best refutation. These views are supported by both of the opinions
in the case of Hastings v. Insurance Co., 7Z N. Y. 141.
There is some difference in the verbiage of the clause in the re-
ported case and that to be found in the clause under examination
here. In the Hastings Case the clause as to contribution contained
the proviso that, in case of other insurance, the assured should recover
only a proportionate sum from defendant company. The owner of
the property had mortgaged it to plaintift"'s testator, and had subse-
quently obtained an insurance upon his own interest as owner, and
subsequent to that time the indorsement in favor of the mortgagee
was made, and it was in the body of the policy issued to the owner
that the language was used as to the assured. In the clause here
under consideration it is seen that the word "assured" is not there,
and the condition is that in case of other insurance the company shall
not be liable under the policy, etc. The court in the Hastings Case
thought the word "assured" referred to the person who was first in-
sured when the policy was issued, and was not transferred to the
mortgagee when he subsequently, by a minute placed in the policy,
was made an assured also. This is very true, but a perusal of the
whole case shows that the controlling idea was a separate insurance
OTHER INSURANCE 347
of the mortgagee, freed from the conditions attached to the insur-
ance of the owner, and not to be impaired or weakened by any act
or neglect of such owner.
Force must be given to this positive language of the contract, and
no act or neglect of the owner can be permitted to invalidate — i. e.
impair or weaken {72> N. Y. at page 149) — the validity of the agree-
ment for the full amount named in the policy. By taking the insur-
ance in the manner the mortgagee herein did, instead of taking out a
separate policy, all the provisions in the policy which from their nature
would properly apply to the case of an insurance of the mortgagee's
interest would be regarded as forming part of the contract with him,
while those provisions which antagonize or impair the force of the
particular and specific provisions contained in the clause providing for
the insurance of the mortgagee must be regarded as ineffective and
inapplicable to the case of the mortgagee. So when the agreement in
regard to contribution, contained in the body of the policy issued to
the owner, is compared with the specific statement in the mortgage
clause that his insurance shall not be invalidated by any act or neglect
of the owner, we can only give the latter due force by holding that
the insurance of the mortgagee is not, in effect or substance, to be
even partially invalidated, — i. e. reduced in amount, — and to that extent
impaired and weakened by any act of the owner unknown to the
mortgagee. In such case the general agreement in the body of the
policy as to contribution does not, and was not intended to, apply.
If it did, then the special and particular contract in the mortgage
clause would be of no effect. If the two are inconsistent, the special
contract, particularly relating to the mortgagee's insurance, must take
precedence over the general language used in the policy issued to the
owner. For these reasons the claims of the insurers for a deduction
in the an]ount of their liability cannot be allowed.
As to three of the policies, the mortgage clause itself contained the
provision that the company was only to be liable in the proportion
which the sum it insured should bear to the whole amount of insur-
ance on the property, issued to or held by any party or parties having
an insurable interest therein, whether as owner, mortgagee, or other-
wise. What meaning is to be attached to this provision after taking
into consideration the language heretofore quoted that the insurance
of the mortgagee will not be invalidated by any act or neglect of the
owner of the property?
The act of obtaining this additional insurance was the act of the
owner, and it was unknown to the mortgagee, and of course not con-
sented to by him. The additional insurance could by no possibility
benefit him, as it was not upon any interest of his in the property. He
could not, therefore, resort to any of these additional policies for his
indemnity. It is not a case of contribution in any sense, but simply
one, on the insurers' theory, of diminution of their liability, caused by
the act of the owner and unknown, and with no possible corresponding
benefit to the mortgagee. As a general principle, it is settled that, be-
348 THE STANDARD FIRE POLICY
fore this apportionment of the loss between different companies can be
demanded, the different policies must have been upon the same interest
in the same property or some part thereof. Lowell Manuf'g Co. v.
Safeguard Fire Ins. Co., 88 N. Y. 592. Has this principle been changed
by this contract? Can it be that the mortgagee would knowingly con-
sent to a diminution of this liability to an extent which might leave
it of no value, consequent upon a secret act of a third party, and
where by no possibiHty could he protect his security from such
danger?
All the reasoning given under the head last above discussed applies
with equal force here, at least so far as the probabilities of entering
into such a contract by the mortgagee are concerned. It is clear
that the only object of the mortgagee is to obtain a security upon
which he can rely, and this object is, of course, also plain and clear
to the insurer. Both parties proceed to enter into a contract with
that one end in view. In order to make it plain beyond question, the
statement is made that no act or neglect of the owner with regard
to the property shall invalidate the insurance of the mortgagee. When,
in the face of such an agreement, entered into for the purpose stated,
there is also placed in the instrument a provision as to the propor-
tionate payment of a loss, we think the true meaning to be extracted
from the whole instrument is that the insurance which shall diminish
or impair the right of the mortgagee to recover for his loss is one
which shall have been issued upon his interest in the property, or when
he shall have consented to the other insurance upon the owner's in-
terest. This may not, perhaps, give full effect to the strict language
of the apportionment clause, but, if full effect be given to that clause,
and it should be held to call for the consequent reduction of the li-
ability of the insurers in such a case as this, then full effect is denied
to the important and material, if not the controlling, clause in the
contract, which provides that the insurance of the mortgagee shall
not be injuriously "impaired or affected'' by the act or neglect of the
owner. As used in these mortgage clauses, this is the meaning of
the word "invalidate." Hastings v. Insurance Co., 73 N. Y. 149.
We must strive to give effect to all the provisions of the contract,
and to enforce the actual meaning of the parties to it, as evidenced
by all the language used within the four corners of the instrument.
We are also at liberty to consider the purpose for which the contract
was executed, where that purpose plainly and necessarily appears
from a perusal of the whole paper. That construction will be adopted
in the case of somewhat inconsistent provisions which, while giving
some effect to all of them, will at the same time plainly tend to
carry out the clear purpose of the agreement ; that purpose which it
is obvious all the parties thereto were cognizant of and intended by
the agreement to further and to consummate. There is no equity in
this claim on the part of the insurers, and we think, from a perusal
of the whole clause in the policy, that it was not intended to, and
that it does not, cover such claim.
OTHER INSURANCE 349
The judgment of the supreme court must be affirmed, with costs
in each case. All concur, except Andrews, C. [., not sitting. Judg-
ment affirmed.
HAYES V. MILFORD MUT. FIRE IXS. CO.
(Supreme Judicial Court of Massachusetts, 189S. 170 Mass. 492. 49 N. E. 754.)
Action by Clarence H. Hayes against the Milford jMutual Fire In-
surance Company to recover damages for breach of contract. Judg-
ment was ordered for defendant, and plaintiff appeals.
Lathrop, J.-* * * * 'phg policy in suit contains, among the
printed clauses after the rider, the following : "This policy shall be void
* * * if the insured now has, or shall hereafter make, any other
insurance on the said property, without the assent in writing or in
print of the company." The plaintiff, as the agreed facts state, "on
or about October 29, 1895," obtained a policy from the Citizens' Mu-
tual Fire Insurance Company, of Providence, R. I., and on November
4, 1895, obtained another policy from the Security Mutual Fire In-
surance Company, also of Providence. Each policy contained a rider
similar to that in the policy in suit, and each also contained the fol-
lowing printed clause: "This entire policy, unless otherwise provided
by agreement indorsed hereon or added hereto, shall be void if the
insured now has or shall hereafter make or procure any other con-
tract of insurance, whether valid or not, on property covered in
whole or in part by this policy."
It is clear, under our decisions, that neither of these policies af-
fords any defense to the action. If the Citizens' Company's policy
was issued before the policy in suit, it became void by its terms, when
the defendant issued its policy. Forbush v. Insurance Co., 4 Gray, 337.
If it was issued subsequently, as was the policy of the security com-
pany, for the same reason neither it nor the policy of the latter com-
pany took eft'ect. Jackson v. Insurance Co., 23 Pick. 418, 34 Am. Dec.
69; Clark v. Insurance Co., 6 Cush. 342, 53 Am. Dec. 44; Hardy v.
Insurance Co., 4 Allen, 217; Thomas v. Insurance Co., 119 Mass. 121,
20 Am. Rep. 317.
The fact that the plaintiff has a suit pending against the Citizens'
Insurance Company is immaterial. In Thomas v. Insurance Co., ubi
supra, the plaintiff' had received payment under the subsequent policy,
which policy was found to be invalid, and this was held not to aff'ect
the plaintiff's rights against the defendant. * * * Reversed.-^
2 4 Part of the opinion is omitted.
2 5 The difference between the pi-ovisions in regard to other insurance in
the standard forms of policy prescribed in Massachusetts and in Rhode Is-
land is pointed out in note 22, p. 374.
But see Funke v. Minnesota i'armers' Mut. Fire lus. Ass'n, 29 Minn. 347,
13 N. W. 1G4, 43 Am. Rep. 21G (18S2).
350 THE STANDARD FlUE POLICY
VII. Increase of Risk 2«
FIRST CONGREGATIONAL CHURCH OF ROCKLAND v.
HOLYOKE MUT. FIRE INS. CO.
(Supreme Judicial Court of Massachusetts, 1893. 158 Mass. 475, 33 N. E.
572, 19 L. R. A. 587, 35 Am. St. Kep. 508.)
Actions by the First Congregational Church of Rockland against the
Holyoke Mutual Fire Insurance Company, and five other companies,
on fire insurance policies. There was a general verdict for plaintiff
directed by the court on special verdicts returned by the jury.
Knowlton, J.-'^ The policies of insurance sued on in these six
cases are all alike in containing provisions which are relied on in de-
fense, and which are as follows : "This policy shall be void if,
* * * without the assent in writing or in print of the company,
* * * the situation or circumstances affecting the risk shall, by
or with the knowledge, advice, agency, or consent of the insured, be
so altered as to cause an increase of such risk ; * * * or if cam-
phene, benzine, naphtha, or other chemical oils or burning fluids shall
be kept or used by the insured on the premises insured, except that
what is known as refined petroleum, kerosene, or coal oil may be used
for lighting," etc. The property insured was a church edifice built
of wood, not clapboarded, but sheathed horizontally with grooved and
tongued sheathing, closely matched together, and painted and sanded
on the outside. The paint had peeled and curled, and at the time of
the fire the plaintiff was repainting the building. Three trustees had
"the control and care of all the real estate belonging to the church,"
and were authorized to provide for its insurance and repairs. They
arranged with one Gilson, a painter, to paint the outside of the build-
ing by the day at the rate of $3 per day for himself, and $2.75 per
day for his men, the trustees furnishing the paint stock, and he fur-
nishing his own brushes, ladders, and other tools of trade. It was
also arranged that he was to burn off the old paint with a torch or
some such implement, preparatory to repainting. He procured for
the purpose a naphtha torch. * * *
The evidence tended to show that the trustees knew that Gilson
was to burn off the paint, and left it to him to determine exactly in
what way he would do it. One or more of them saw the torch
which was used before he began to use it, and they repeatedly saw
2 6 For discussion of principles, see Vance on Insurance, § 165. See, also,
Cooler. Briefs on the Law of Insurance, vol. 2, pp. 1492, 1606, 1623, 1636,
1643, 'leSl, 1781-1784.
2T Part of the opinion is omitted.
INCREASE OF RISK 351
him using it before the fire. When the work had been going on
about four weeks, the torch, according to the testimony, having been
used daily during all the working days, the building caught fire on
the edge of a board where there was a crack and where the torch
had just been used, and was entirely consumed. This was on the
16th day of July. 1890, and there was evidence that the weather was
hot, and the boards very dry. There was also evidence that, as a
protection against fire, a pail of water was kept on hand while the
work was going on. The evidence tended strongly to show that the
danger of a conflagration was greatly increased by the use of th2
naphtha torch on the dry, inflammable, soft pine boards, with their
shrunken joints.
If the risk was increased by the use of the torch, it seems, on the
undisputed facts, that it was by the agency and with the knowledge
and consent of the insured, for the officers represented the plaintiff in
the management of the property, and saw the torch in use, and they
authorized the use of it before the work was begun. Bank v. Cush-
man, 121 Mass. 490. Gilson was their agent, acting in the exercise
of his discretion and with full authority in procuring and using the
naphtha, and on the uncontradicted evidence the use of naphtha
by him was a use of it by the insured, within the meaning of the
provision quoted from the policies. Was a change of this kind in-
creasing the risk, with the knowledge, agency, and consent of the in-
sured, an alteration of "the situation or circumstances affecting the
risk," within the meaning of those words in the policies? These
words imply something of duration, and a casual change of a tem-
porary character would not ordinarily render the policy void under
this provision. But this change had existed continuously during the
working hours of every day for nearly a month, and the work was
not nearly done when it was interrupted by the fire. We are of
opinion that the change of the condition was sufficiently long con-
tinued to be deemed a change in "the situation or circumstances affect-
ing the risk." In the case of Lyman v. Insurance Co., 14 Allen, 329,
it was held that an alteration of a building which increased the risk
for three weeks was enough to render the policy void under a similar
clause.
We find no evidence that naphtha was kept on the premises. The
word "kept," as used in the policy, implies a use of the premises as
a place of deposit for the prohibited articles for a considerable period
of time. See Williams v. Insurance Co., 31 Me. 219; O'Xiel v.
Insurance Co., 3 N. Y. 122; W'illiams v. Insurance Co., 54 N. Y. 569,
13 Am. Rep. 620; Mears v. Insurance Co., 92 Pa. 15, 37 Am. Rep.
647; Putnam v. Insurance Co. (C. C.) 18 Blatchf. 368, 4 Fed. 753.
For nearly four weeks naphtha was used within a few inches of the
outer wall of the building to produce the flame which was brought in
contact with the building. It would be a narrow and unreasonable
construction of the policies, in reference to the purposes for which
352 THE STANDARD FIRE POLICY
the words were inserted, to say that the use of naphtha was not "on
the premises," because while in liquid form it was a few inches out-
side of the wall, when it was made to produce an eflfect directly on
the premises by burning it in the form of gas, and directing it against
the building.
On the undisputed facts, as stated in the bill of exceptions, the
only ground on which the plaintiff could fairly ask to present a ques-
tion to the jury is that the use of the naphtha and the change in
conditions afifecting the risk occurred through making ordinary re-
pairs in a reasonable and proper way, and that in the provisions
quoted from the policies there is an implied exception of what is
done in making ordinary repairs. It is generally held that such pro-
visions are not intended to prevent the making of necessary repairs,
and the use of such means as are reasonably required for that pur-
pose. O'Niel V. Insurance Co., 3 N. Y. 122; Dobson v. Sotheby,
Moody & M. 90; Franklin F. Ins. Co. v. Chicago Ice Co., 36 Md. 102,
11 Am. Rep. 469; Billings v. Insurance Co., 20 Conn. 139, 50 Am.
Dec. 277; Mears v. Insurance Co., 92 Pa. 15, Z7 Am. Rep. 647; Wil-
liams V. Insurance Co., 31 Me, 219; Putnam v. Insurance Co. (C. C.)
18 Blatchf. 368, 4 Fed. 753.
Both parties to a contract for insurance must be presumed to ex-
pect that the property will be preserved and kept in a p'oper con-
dition by making repairs upon it. Policies on buildings are often is-
sued for a term of five years or more. The making of ordinary re-
pairs in a reasonable way may sometimes increase the risk, more or
less, while the work is going on, or involve the use of an article
whose use in a business carried on in the building is prohibited by
the policy. In the absence of an express stipulation to that effect, a
contract of insurance should not be held to forbid the making of
ordinary repairs in a reasonably safe way, and provisions like these
we are considering should not be deemed to apply to an increase of
risk, or to a use of an article necessary for the preservation of the
property. We are therefore of opinion that if the use of naphtha
at the time, and in the manner in which it was used, was reasonable
and proper, in the repair of the building, having reference to the dan-
ger of fire as well as to other considerations, it would not render the
policies void.
But the questions submitted to the jury on the answers to which
verdicts were ordered for the plaintiff did not sufficiently present the
matters of fact in issue. The only question bearing on the most
vital part of the issue was as follows : "Was the method used the
method ordinarily pursued to remove paint on the outside of a build-
ing, preparatory to scraping it off to repaint it?" The verdicts ren-
dered on an affirmative answer to this question assumed that the
removal of the paint from this building was reasonably necessary to
the repair of the building. It also assumed that this building, in
leference to the danger from moving the flaming torch all over its
INCREASE OF RISK 353
external surface, was like ordinary buildings. Many buildings are
built of brick, and painted on the outer walls. Many others are clap-
boarded in such a way as to make a very close, tight covering. If
this is the method ordinarily pursued when paint is to be removed
from the outside of a building, it does not follow that it is ordinarily
pursued when the building is covered with soft pine sheathing, tongued
and grooved, and put on horizontally, and when, at the time of doing
the work, the weather is very hot and dry, and the boards shrunken
so that in some places there are cracks.
Gilson testified that, ahhough he had been a house painter in Rock-
land 25 years, he had never burned off paint from the outside of a
building before. The architect who was consulted by the plaintiff in
regard to repairs advised removing the old paint by the application
of a paint remover, which was a preparation to be applied by a
brush or a sponge. The use of naphtha and the increase of risk
by an alteration of the circumstances affecting it were permitted under
the implied exception only when reasonably required for the making
of repairs. If it was unreasonable to use naphtha under the cir-
cumstances, at the time and in the manner disclosed by the evidence,
the use was not within the exception, and the policies were avoided.
The question for the jury was whether the defendants, if familiar
with the condition of the building and the methods usually adopted in
making repairs, should have contemplated when they issued the policies
that the plaintiff' corporation would burn off' the paint at such a time
and in such a way as it did. Was such a use of naphtha a reasonably
safe and proper way of making repairs on this building, under the
circumstances? The questions submitted to the jury were not equiva-
lent to these.
As bearing on the question whether the use of a naphtha torch
would increase the risk, the defendants might show, if they could, by
an expert, in regard to the rates of premium for fire insurance, that
the rates on a building whose paint was to be removed from the out-
side by the use of such a torch would be higher than if there was to
be no such use. The relative rates usual for insurance under different
circumstances are treated as facts which a jury may consider in deter-
mining the degree of the risk. Luce v. Insurance Co., 105 Mass.
297-301, 7 Am. Rep. 522; Webber v. Railroad, 2 ?\Ietc. 147; Cornish
v. Insurance Co., 74 X. Y. 295 ; Hartman v. Insurance Co., 21 Pa.
466; Insurance Co. v. Rowland, 66 :\ld. 237, 7 Atl. 257. * * *
Verdicts set aside. -^
28 Compare Smith v. Insurance Co., 107 Mich. 270, 65 N. W. 236, 30 L. R.
A. 368 (1895). And see Aeugier v. Western Assur. Co., 10 S. D. 82. 71 N. W.
761. 66 Am. St. Rep. 685 (1897), holding that negligence of the insured in the
use of kerosene to light a fire in a stove was not within the clause as to
increase of risk. See, also, Straker v. Phenix Ins. Co.. 101 Wis. 413. 77 N.
W. 752 (1898), holding that the erection of a building adjoining the insured
CooLEY Ins. — 23
354 THE STANDARD FIRE POLICY
VIII. Assignments ^'
BREEYEAR et al. v. ROCKINGHAM FARMERS' MUT. FIRE
INS. CO.
(Supreme Court of New Hampshire, 1902. 71 N. H. 445, 52 Atl. 860.)
Action by Joseph Breeyear and others against the Rockingham
Farmers' Alutual Fire Insurance Company. Case transferred on
agreed facts.
August 23, 1897, Breeyear took out a policy in the defendant com-
pany insuring him against loss by fire in the sum of $700 upon his
buildings. Dearborn had a mortgage upon the property to secure the
payment of $700, and the policy was made payable to him as mort-
gagee in case of loss as his claim might appear. November 26, 1897,
Dearborn sold and transferred the mortgage to Louise Beaudry, and
assigned his right in the insurance, as follows: "I hereby assign my
right as mortgagee to Louise Beaudry." March 29, 1898, Beaudry
borrowed $400 of the Pittsfield Savings Bank, and pledged the Dear-
born mortgage as security, delivering therewith to the bank the policy
of insurance with the following indorsement upon it, signed by her :
"I hereby assign my right to ." The bank has held the policy
ever since. June 23, 1898, Breeyear conveyed the property to Beau-
dry. June 5, 1899, Beaudry took out a policy in the Granite State
Fire Insurance Company insuring her against loss by fire in the sum
of $700 on the same buildings. She did not disclose to the company
the existence of the prior insurance. The buildings were destroyed
by fire April 21, 1900. No notice of the above-mentioned transfers,
or of the conveyance of the property from Breeyear to Beaudry, or
of the subsequent insurance, was given to the defendants prior to the
fire, and they had no knowledge of the same. The defendants' poli-
cy contained a provision that it should be void if, without the assent
in writing or in print of the company, the insured had other insur-
preraises was an increase of risk within the policy, and avoided the insur-
ance if it was within the knowledge of the insured, though not within his
control.
The provision relating to increase of risk is substantially the same in the
standard forms of policy adopted in New York, Connecticut, Louisiana. Mich-
igan. Missouri, New Jersey, North Carolina, North Dakota. Pennsylvania,
Rhode Island, and Wisconsin. In Minnesota. Massachusetts, Maine, and New
Hampshire the provision is: "If the situation or circumstances affecting the
risk * * * shall be so altered" as to increase the risk. In South Dakota
the increase of risk must be occasioned by the agency or act of the insured.
2 For discussion of principles, see Vance on Insurance. § 168. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, pp. 1859-1867.
ASSIGNMENTS 355
ance on the property at the time of loss, or if, without such assent,
the property should be sold or the policy should be assigned.
Chase, J.^° The assignments by Dearborn to Beaudry and by
Beaudry to the bank were not assignments of the policy, but of the
assignor's right as mortgagee to the insurance in case of loss as pro-
vided in the policy. The object of the provision, which prohibited an
assignment of the policy without the assent of the company, was to
prevent an increase of the moral risk by the substitution of a person
for the insured in whose custody and care the property would be more'
likely to be burned. The assignments made no such substitution.
Breeyear continued to be the owner and custodian of the property
until he conveyed it to Beaudry, nearly three months after the date
of the last assignment. The assignments did not conflict with the
terms or the purpose of this provision, and afford no defense to the
bank's claim. Whiting v. Burkhardt, 178 ]\Iass. 535, 60 N. E. 1, 52
L. R. A. 788, 86 Am. St. Rep. 503 ; Alay, Ins. § 379.
The conveyance of the property by Breeyear to Beaudry, without
a corresponding assignment of the policy and an assent thereto in
writing or in print by the defendants, was a violation of the provision
of the policy relating to that subject, and rendered the policy void
as against Breeyear and his grantee. It would also render it void as
against the bank were it not for the provision protecting the rights of
the mortgagee. Without the latter provision, as the bank is not an
assignee of the policy but only a payee of the insurance in case of
loss, it would have to rely wholly upon the rights of the insured, and
would be chargeable with the consequences of his acts upon the va-
lidity of the policy. Baldwin v. Insurance Co., 60 N. H. 164; Hall
V. Association, 64 X. H. 405. 13 Atl. 648. But the provision refer-
red to, in unambiguous terms, differentiates the mortgagee's rights
from those of the insured, and places them beyond the power of the
latter to imperil. It is as follows: "If this policy shall be made pay-
able to a mortgagee of the insured real estate, no act or default of
any person other than such mortgagee or his agents or those claim-
ing under him, shall affect such mortgagee's right to recover in case
of loss on such real estate." The policy was made payable to a mort-
gagee. The insured is a person other than the "mortgagee or his
agents or those claiming under him." The bank, as assignee of Dear-
born's rights through the intermediate assignments to and from Beau-
dry, claims under Dearborn, the mortgagee of the insured real es-
tate named in the policy. The bank is a mortgagee of such real es-
tate, within the meaning of the provision. All the conditions of the
provision being fulfilled, it applied and prevented the act of Breeyear
in conveying the property to Beaudry from having anv effect upon the
bank's rights. Badger v. Platts. 68 N. H. 222. 44 Atl. 296. 7Z Am.
vSt. Rep. 572; Whiting v. Burkhardt, 178 Mass. 535, 60 N. E. 1, 52
3 Part of the opinion is omitted and the statement of facts is rewritten.
356 THE STANDARD FIRE POLICY
Iv. R. A. 788, 86 Am. St. Rep. 503. It also rendered Beaudry's act
in procuring other insurance without the defendants' consent harm-
less so far as the bank is concerned. * * * ^^
IX. Explosive and Inflammable Substances
32
YOCH V. HOME MUT. INS. CO.
(Supreme Court of California. 1S96. Ill Cal. 503, 44 Pac. ISO. 34 L. R.
A. 857.)
Action by Joseph Yoch against the Home Mutual Insurance Com-
pany. There was a judgment for plaintiff, and defendant appeals.
Harrison, J.^^ The defendant issued its policy of insurance against
fire to Mrs. W. H. Brooks, the assignor of the plaintiff, in the sum
of $4,000, upon a frame building occupied as a country store, and also
upon household furniture and the stock of merchandise, "such as is
usually kept in country stores," while contained in said building. Be-
fore the expiration of the policy the insured property was totally de-
stroyed, and the present action is brought to recover for the loss
thereby sustained. The defendant alleged, as grounds of defense,
that the insured kept for sale and allowed gasoline upon the premis-
es, in violation of the terms and conditions of the policy. * * *
In the insurance part of the policy the defendant insured Mrs.
Brooks for the term of one year against all direct loss or damage by
fire, "except as hereinafter provided." and intermediate this part of
the policy and the printed conditions and limitations was written,
with pen and ink, the description of the property upon which the in-
surance was made. One of these printed conditions was as follows:
"This entire policy, unless otherwise provided by agreement indorsed
herein or added hereto, shall be void * * * jf (any usage or
custom of trade or manufacture to the contrary notwithstanding)
there be kept, used, or allowed on the above-described premises ben-
zine, benzole, gasoline, Greek fire, etc." Testimony w^as given at the
trial tending to show that gasoline is one of the articles of merchan-
dise usually kept in country stores, but that it is customary to keep
it in a room or building by itself. It was also shown that, during
31 See, also. New v. German Ins. Co., ante, p. 15, aud Kase v. Hartford
Fire Ins. Co., ante, p. 17.
The standard forms of policy used in the various states contain substan-
tially the same provision prohibiting assignment of the policy before loss.
3 2 For discussion of principles, see Vance on Insurance, § 170. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, p. 16S7.
3 3 Part of the opinion is omitted.
EXPLOSIVE AND INFLAMMABLE SUBSTANCES 357
the month prior to the fire, the insured would, in the daytime, bring
Sinall quantities of gasoHne — one or two cans — from a building on
another lot, which was used for storing it, into a room within the in-
sured building, and adjacent to the store, for the purpose of selling
it at retail to her customers. * * *
A contract of insurance is to be interpreted by the same rules as
is any other contract. It must be so interpreted as to give eiTect to
the mutual intention of the parties as it existed at the time of con-
tracting, so far as the same is ascertainable. If it is reduced to writ-
ing, the intention of the parties is to be ascertained from the writing
alone, if possible. The whole contract is to be taken together. When
it is partly written and partly printed, the written parts control the
printed parts, and, if there is any repugnancy between the two, the
printed part must be disregarded. It may be explained by reference
to the circumstances under which it was made. In cases of uncer-
tainty it is to be interpreted most strongly against the party who
caused the uncertainty to exist Civ. Code, §§ 1636-1654.
Applying these rules to the contract in the present case, it must
be held that it was the intention of the defendant to insure gasoline,
if it was an article usually kept in country stores, and that, if such
was its intention, it was no violation of the policy for the insured
to keep gasoline upon the premises as a part of the stock of merchan-
dise. When the defendant agreed to insure a stock of merchandise
"such as is usually kept in country stores," it must be presumed to
have known the character of the merchandise which is usually kept
in country stores, and that gasoline was one of these articles, and,
consequently, that its policy covered all such merchandise. Harper
V. Insurance Co., 17 N. Y. 194; Pindar v. Insurance Co., 36 N. Y.
648, 93 Am. Dec. 544. The court would have no judicial knowledge
of the character of merchandise which is usually kept in countrv stores,
and it was therefore competent to offer evidence upon that point,
for the purpose of enabling it, when interpreting the language of
the policy, to understand the matter to which it related, and the cir-
cumstances under which it was made. Elliott v. Insurance Co., 13
Gray (Mass.) 139; Whitmarsh v. Insurance Co., 16 Gray (Mass.)
359, 77 Am. Dec. 414; Archer v. Insurance Co., 43 Mo. 434; Maril
V. Insurance Co., 95 Ga. 604, 23 S. E. 463, 30 L. R. A. 835, 51 Am.
St. Rep. 102; Fraim v. Insurance Co., 170 Pa. 151, 32 Atl. 613, 50
Am. St. Rep. 753; Wood, Ins. § 64; May, Ins. § 239. When it was
shown that gasoline is one of the articles which is usually kept in
country stores, the court correctly held that it was a part of the sub-
ject of the insurance, and that the insured did not violate the policy
by keeping it in stock. The defendant, when it issued the policy in
question, knew the character of a country store, and that Mrs. Brooks
kept it for the purpose of retailing to her customers all of the ar-
ticles kept by her, and that the gasoline which she kept was to be
disposed of by retail in the same way as the other portion of her stock.
358 THE STANDARD FIRE POLICY
To give to the policy the construction now claimed by the defend-
ant would be to hold that, although it agreed with her to insure all
the stock she usually kept in her store, yet, if she continued to keep
that stock, she forfeited all rights under the policy. The clause in
the policy above quoted, and which is relied on by the appellant, can-
not be construed as having this effect. The qualification therein which
excepts the policy from becoming void, viz. "unless otherwise pro-
vided by agreement indorsed hereon," is found in the policy itself.
The subject-matter of the risk — the stock of merchandise "such as
is usually kept in country stores" — was- written on the policy by the
insurer; and, as .the defendant must be deemed to have intended
thereby to insure all such articles as are usually kept in a country
store, it must be held that this was an "agreement indorsed" upon
the policy, which removed the exemption from liability that would
otherwise have existed. Insurance Co. v. De Graff, 12 Mich. 124.
If there be any repugnance between the written phrase, "such as
is usually kept in country stores," and the printed clause, "any usage
or custom of trade or manufacture to the contrary notwithstanding,"
the former controls the latter, as being the more deliberate expression
of the contracting parties. Fraim v. Insurance Co., 170 Pa. 151, 32
Atl. 613, 50 Am. St. Rep. 753; Civ. Code, § 1651. * * * Af-
firmed.^*
X. Vacant or Unoccupied Buildings
33
HOME FIRE INS. CO. v. PEYSON.
(Supreme Court of Nebraska, 1S9S. 54 Neb. 495, 74 N. W. 960.1
SuLUVAN, J. On February 26, 1892, the Home Fire Insurance
Company issued to John M. Peyson a policy of fire insurance cover-
ing his dwelling house and the household furniture therein contain-
ed. On the morning of June 27, 1894, the property was wholly de-
stroyed by fire. The defendant refused to adjust the loss, and Pey-
3 4 Accord: Ackley v. Phenix Ins. Co., 25 Mont. 272, 64 Tac. 665 (1901).
See, also, Mitchell v. Potomac Ins. Co., 183 U. S. 42, 22 Sup. Ct. 22, 46 L.
Ed. 74 (1901), holding that it must clearly appear that the article is usually
included in stock.
The standard forms of policy used in Maine, Massachusetts, Minnesota,
New Hampshire, and South Dakota do not contain, in the provision relating
to prohibited articles, the words "any usage or custom of trade or manufac-
ture to the contrary notwithstanding." In the other states in which a
standard form is prescril>ed, the provision is substantially the same as that
in the New York Standard form.
3 5 For discussion of principles, see Vance on Insurance, § 171. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, pp. 1652-1687.
VACANT OR UNOCCUPIED BUILDINGS 359
son commenced this action against it in the district court for Dakota
county. A trial resulted in a verdict and judgment for the plaintiff,
and the defendant brings the record to this court for review.
The company defended the action on the theory that the plaintiff
had violated the following condition of the policy: "If the above-
mentioned buildings be or become vacant or unoccupied, and so re-
main for more than ten days without consent indorsed hereon, then
in each and every one of the above cases this entire policy shall be
null and void." It is now strenuously insisted that the nonoccupancy
of the premises at the time of the fire and for six or eight months
prior thereto was conclusively proven, and that the trial court should
have peremptorily directed a verdict in favor of the defendant.
The evidence is voluminous and conflicting. We cannot present
it here nor discuss it at length. It either establishes or tends to prove
the following facts : That the insured building was situated in Cov-
ington, in this state, just across the river from Sioux City, Iowa, and
was the home of Peyson, who occupied it continuously with his wife
from the time it was insured until October, 1893, when they both went
temporarily to Sioux City to enable Mrs. Peyson to receive medical
treatment from a physician of that place ; that they did not again
regularly occupy the insured premises, but that the plaintiff", who
was engaged in business both in Sioux City and Covington, went
there frequently and slept there about half the time ; that he was
never away from the house more than three days at one time, except
when he went to Chicago or Waterloo on business ; that after the
1st of June he slept in the house almost every day or every night;
that between October, 1893, and June, 1894, plaintiff and his wife
visited their home together on numerous occasions, cooked meals there,
and on May 16th cleaned the house and spent the night there ; that
during a part of the time the Peysons were at Sioux City they had
a rented room and did light housekeeping, removing for that purpose
a small portion of their household furniture from Covington ; that
the plaintiff had no intention of abandoning, the premises as his home;
that it was always furnished and ready for use ; that he held an office
in Covington, and received his mail there from two to four times a
week ; that Mrs. Peyson was sick and receiving medical treatment
most of the time while in Sioux City; that on June 11th they gave
up the room occupied by them at that place, and Mrs. Peyson went
to visit her folks ; that during all the time in question Mr. Hall, a
neighbor, had a key to the house and exercised some supervision
over it.
Now, the jury were justified in finding, and we may assume they
did find, that these facts were established by the evidence. Being
so established, did they warrant the conclusion reached that the con-
dition of the policy above quoted had not been violated ? That is a
question of law to be decided by the court. The term "unoccupied,"
as used in the policy, should be given a fair and reasonable construe-
360 THE STANDARD FIRE POLICY
tion. It should be g-iven the me?ning contemplated by the parties
when the contract was made. While it was undoubtedly intended that
the dwelling house insured should be occupied as the customary and
habitual place of abode for the plaintiff and his family, it was not ex-
pected that there would be continuous actual occupancy. A policy
of fire insurance on a dwelling house should not be construed as an
instrument restraining in any manner the assured's ordinary free-
dom of action. In contracting for idemnity he does not consent to
become a captive in his own home.
In the case of Insurance Co. v. McLimans, 28 Neb. 846, 45 N. W.
171, it is said: "A party by effecting insurance upon his dwelling does
not thereby impliedly agree that he will remain on guard to watch
for the possible outbreak of a fire. He insures his property as a pre-
caution against possible loss. If he is indebted, his duty to his credi-
tors requires this ; and, if not in debt, his duty to his family may in-
duce him to procure the insurance. He is not to become a prisoner
on the property, however, nor to be charged with laches, when, in
the pursuit of his business, health, or pleasure, he temporarily leaves
the property, which still remains his home. The necessity of most
persons for temporary absence on business or family convenience is
known to every one, and must have been in the contemplation of the
insurer when the policy was issued. A policy of insurance is to be
so construed, if possible, as to carry into effect the purpose for which
the premium was paid and it was issued." In the case of Hill v. In-
surance Co., 99 Mich. 466, 58 N. W. 359, it was held that a dwelling
house was not unoccupied, although the owner had been absent on
business nearly two months at the time of the fire, and had left home
expecting to remain away about four months.
In the case at bar there was very clearly no intention on the part of
the Peysons to remove from Covington or to abandon the insured
premises as their home. The absence of the family at Sioux City
was temporary, and not unreasonably extended; and we feel con-
strained to hold that the jury, on the evidence, were warranted in
finding that the insured premises did not become unoccupied, within
the meaning of the policy. The judgment of the district court is af-
firmed.^ ^
3 6 See also, Hill v. Ohio Ins. Co.. 99 Mich. 466, 58 N. W. 359 (1894); Athens
Mut. Ins. Co. V. Toney, 1 Ga. App. 492, 57 S. E. 1013 (1907) ; Hampton v. Hart-
ford Fire Ins. Co., 65 N. J. Law, 265, 47 Atl. 433, 52 L. R. A. 344 (1900).
The provision as to vacant or unoccupied lirildings is substantially the
same in New York, Connecticut. Louisiana, Missouri, New Jersey, North
Carolina, North Dakota, Pennsylvania, and Rhode Island. In the Michigan
form is contained a clause: "Provided a loss occurs * * * while such
breach of condition continues, or such breach of condition is the primary or
contributory cause of loss." In the "Wisconsin form the words "And continu-
ing until tlie time of the Are" are added to the provision. In Maine, Massa-
chusetts, Minnesota, New Hampshire, and South Dakota the limit of time
is thirty days.
LIABILITY OF THE INSURER 361
XI. Collapse of Building
37
JOHN DAVIS & CO. V. INSURANCE CO. OF NORTH
AMERICA.
(Supreme Court of Michigan, 1897. 115 Mich. 382, 73 N. W. 393.)
For a report of the case, see ante, p. 315.
XII. Liability of the Insurer '»
CANNON V. PHCENIX INS. CO. OF HARTFORD, CONN.
(Supreme Court of Georgia, 1900. 110 Ga. 563, 35 S. E. 775, 78 Am. St.
Kep. 124.)
Lewis, J.^® This was a suit brought in Whitfield superior court
by A. E. Cannon against the Phoenix Insurance Company of Hart-
ford, Conn., on an insurance policy issued by the company on plain-
tiff's stock of merchandise alleged to have been insured, and dam-
aged by fire, the loss amounting to $3,000, and the defendant's lia-
bility therefor, pro rata with other concurrent insurance, being $300.
On the trial of the case, plaintiff introduced the policy of insur-
ance, one material part of which is as follows : "In consideration of
the stipulations herein named, and of thirty-seven and ^"/loo dollars
premium, the [said company] does insure A. E. Cannon for the term
of one year from the fifteenth day of February, 1897, at noon, to the
fifteenth day of February, 1898, at noon, against all direct loss or
damage by fire, except as hereinafter provided, to amount not ex-
ceeding twenty-five hundred dollars, upon the following, described
property, to wit ; * * * On her stock of merchandise, consisting"
3 7 For a discussion of principles, see Vance on Insurance, § 172. See, also,
Cooley, Briefs on the Law of Insurance, vol. 2, pp. 1609-lGll; vol. 4, pp.
3018, .3029.
The provision terminating the policy if the building or any part thereof
fall except as the result of fire is contained in the standard form of ix)licy
prescribed in New York, Connecticut, Louisiana, Michigan, Missouri, New
Jersey, North Carolina, North Dakota, Pennsylvania, Rhode Island, South
Dakota, and Wisconsin. The standard form of policy prescribed in Maine,^
Massachusetts, Minnesota, and New Hampshire does not contain the pro-
vision.
3 8 For discussion of principles, see Vance on Insurance, §§ 173-175. See,.
also, Cooley, Briefs on the Law of Insurance, vol. 4, p. 3006 et seq.
3 9 Part of the opinion is omitted.
362 THE STANDARD FIRE POLICY
chiefly of dry goods, notions, hats, clothing, caps, boots and shoes,"
etc.
Plaintiff then offered to read in evidence the proof of loss made and
given by plaintiff' to defendant, the material part of which is as fol-
lows : "To the Phoenix Insurance Company of Hartford, Conn. : By
your policy of insurance No. 1,115, issued by your agent at Dalton,
Ga., on the 15th day of February, 1897, for the term of twelve months,
you insured the undersigned, A. E. Cannon, against loss by fire to
the amount of twenty-five hundred dollars on her stock of merchan-
dise, consisting of clothing, dry goods, notions, boots, shoes, hats, and
caps, while contained in the two-story brick metal-roof building
situated at Nos. 553 and 554, on the east side of Hamilton street, Dal-
ton, Ga., block No. 4. On the day of November, 1897, the same
was damaged by fire, in the following manner : In arranging the stove
on the ground floor of the building the day before, the pipe thereof,
which extended through the ceiling and through the second story of
the building, became disengaged at the ceiling of the second floor.
When a fire was built in the stove on the morning of the 3d of No-
vember, the smoke and soot escaped into the second-story room, where
the damaged goods were situated. When the trouble was discovered,
the room was full of smoke and soot, and the ceiling where the pipe
went through was very hot, and by reason of the smoke and soot,
and of the water used in cooling the ceiling, the goods were damaged
as here set out."
Then followed in said proof of loss a statement of the other in-
surance on the same goods, together with a complete inventory of
the goods damaged, with the amount of damage claimed thereon.
To the introduction in evidence of this proof of loss the defendant
objected, on the ground that in said proof of loss it is stated that
the goods were injured simply by reason of the smoke and soot, and
that there is no allegation in said proof of loss that there was any
actual burning of anything except the material put in the stove pur-
posely to burn, and that the said proof of loss did not show, or claim
to show, that there was any loss or damage by fire under the terms
of the policy. The court thereupon sustained the objection. * * =(
Under the stipulations in the policy, there can be no question that
as a condition precedent to the payment of the loss, the proofs of loss
should be submitted to the company within the time prescribed
Southern Home Building & Loan Ass'n v. Home Ins. Co., 94 Ga
167, 169, 21 S. E. 375, 27 L. R. A. 844, 47 Am. St. Rep. 147. The
sufficiency of such proofs on the trial of the case is a question for
the court, and, to be sufficient, they should show a loss within the
terms of the policy. Travelers' Ins, Co. v. Sheppard, 85 Ga. 751,
761, 764, 12 S. E. 18. The question, then, is whether the proofs of
loss submitted in this case were within the meaning of this policy.
It seems that, in arranging the stove on the ground floor of the build-
ing the day before the damage, the pipe, which extended through
LIABILITY OF THE INSURER 363
the ceiling of the second floor, became disengaged at that ceiling, and
that, when the fire was built in the stove on the next morning, smoke
and soot escaped from the pipe into the second-story room, where
the damaged goods were situated. The damage claimed, therefore,
in the notice of loss, was by reason of the smoke and soot, and of
the water used in cooling the ceiling. It does not appear from the
proofs of loss that there was any fire in or about the building, ex-
cept in the stove where it was intended to be built. This fire did not
spread from where it was built and intended to remain. It was there-
fore, all the time during the alleged injury and damage to the goods,
what is termed in the books a "friendly," and not a "hostile," fire.
It is true there is sound authority for the proposition that an in-
sured can recover loss occasioned by smoke, soot, etc., thrown out by
a fire; but we think in these cases it will be found that such matter
causing injury was the product of a hostile fire. If a fire should
break out from where it was intended to be, and become a hostile ele-
ment, by igniting property, although it might not actually burn the
property insured, yet if it caused injury thereto by smoke or heat, or
other direct means, damages would be recoverable. But this is not
the case. In 1 Wood, Ins. § 103, the following principle is announced,
directly applicable to the facts in this case : "Where fire is employed
as an agent, either for the ordinary purposes of heating the building
for the purposes of manufacture, or as an instrument of art, the in-
surer is not liable for the consequences thereof, so long, as the fire
itself is confined within the limits of the agencies employed, as from
the effects of smoke or heat evolved thereby, or escaping therefrom,
from any cause, whether intentional or accidental. In order to bring
such consequences within the risk, there must be actual ignition out-
side of the agencies employed, not purposely caused by the assured,
and these, as a consequence of such ignition, dehors the agencies."
This seems to have been an early principle decided in England, and
the author refers to that decision in a note to the text just quoted.
See Austin v. Drewe, 6 Taunt. 436.
In the case of Gibbons v. Savings Inst., 30 111. App. 263, it was
decided that an ordinary fire insurance policy does not cover a loss
caused by escaping steam from a break in steam-heating apparatus.
Gary, J., says in his opinion that in principle that case was the same
as Austin v. Drewe, where, by the omission to open a register, in an
upper story of a seven or eight story building, smoke and heat came
into lower stories, and caused damage. He quotes the following lan-
guage from Gibb, C. J., in that case : "There was no fire except in
the stove and the flue, as there ought to have been, and the loss was
occasioned by the confinement of the heat. Had the fire been brought
out of the flue, and anything had been burnt, the company would have
been liable. But can this be said where the fire never was at all ex-
cessive, and was always confined within its proper limits? This is
not a 'fire,' within the meaning of the policy, nor a loss which the com-
364 THE STANDARD FIRE POLICY
pany undertakes to insure against. They may as well be sued for
the damage done to drawing-room furniture by a smoky chimney."
In the language of Gary, J., in his opinion: "If the fire were a moral
agent, no blame could be imputed to it. It was doing its duty, and
no more. The damage was caused by another agent, who, undertak-
ing to transmit the beneficial influence of the fire, broke down in the
task." See case of American Towing Co. v. German Fire Ins. Co.,
74 Md. 25, 21 Atl. 553, and the able opinion of Alvey, C. J., on page
34 et seq., 74 Md., and page 554, 21 Atl.
Neither is the plaintiff entitled to recover any damages by the wa-
ter used in cooling a portion of the ceiling heated by the pipe. In the
proofs of loss it is not claimed that anything was actually ignited by
this heat, and it does not appear that the use of the water was nec-
essary to prevent the ignition. * * * Judgment affirmed.*''
O'CONNOR V. QUEEN INS. CO. OF AMERICA.
(Supreme Court of Wisconsin. 1909. 140 Wis. 388, 122 N. W. 1038, 1122, 25
L. R. A. [N. S.] 501, 133 Am. St. Rep. 1081, 17 Ann. Cas. 1118.)
Action by D. J. O'Connor against the Queen Insurance Company
of America. There was a judgment for plaintifif, and defendant ap-
peals.
Kerwin, J.*^ The policy in this case, being the Wisconsin stand-
ard form, insured the plaintiff "against all direct loss and damage by
fire" ; and the controversy is as to whether the loss and damage was
caused by anything insured against by the defendant company. The
question arises whether the fire which caused the damage was a fire
within the meaning of the policy. The plaintiff lived in a rented
house heated by a furnace. His servant built a fire in the furnace
of material not for use therein or intended so to be used, and of such
a highly inflammable character as to cause intense heat and great vol-
umes of smoke to escape through the registers leading into the rooms,
and greatly damaged plaintift"s property. The heat was so intense
as to char and injure furniture, and the great volumes of smoke and
soot greatly injured the furnishings and personal property of the
plaintiff. It does not appear from the evidence that there w^as any
40 See, also, John Davis Co. v. Insurance Co., ante, p. 315.
The standard policy contains a provision exempting the Insurer from liabil-
ity for loss caused by explosion unless fire ensues, and in such case the in-
surer is liable for the damage by fire only. If the explosion is caused by a
hostile tire, the company is liable for all the damage. Mitchell v. Potomac
Ins. Co.. IG App. D. C. 241 (1900), affirmed in 183 U. S. 42. 22 Sup. Ct. 22, 46
Li. Ed. 74 (1901). If, however, the explosion is caused by a friendly fire, as
by striking a match, the insurer is not liable for damage caused by the explo-
sion. Mitchell V. Insurance Co., supra ; Heuer v. Northwestern Nat. Ins. Co.,
144 111. 393, 33 N. E. 411, 19 L. R. A. 594 (1893).
41 The statement of facts is rewritten.
LIABILITY OF THE INSURER 365
ignition outside of the furnace, although the fire was so intense as to
overheat the chimney and flues, and char furniture in the rooms. The
evidence shows that the chimney was so hot it seemed as though it
was on fire, that the fire was burning fiercely in the furnace, around
the mop boards was burned, and the mop boards blistered, the wall
paper charred and burned, and the chimney crackedl from the exces-
sive heat. It is the contention of appellant that the damage occasioned
by heat, smoke, and soot is not covered by the policy where the fire
is confined within the furnace. This position involves the construc-
tion of the words of the policy "direct loss or damage by fire," and
leads to a considieration of what fires are within the contemplation of
the policy.
No limitation is placed upon the word "fire" by the language of the
policy itself, but it is said that "contracts of insurance are to be con-
strued according to the sense and meaning, of the terms which the
parties have used, and, if they are clear and unambiguous, the terms
are to be taken and understood in their plain, ordinary, and proper
sense." No doubt this is the general rule, but it must also be remem-
bered in applying the rule that this and other courts have construed
contracts of insurance favorably to the insured. Karow et al. v. Con-
tinental F. Ins. Co., 57 Wis. 56. 15 N. W. 27, 46 Am. Rep. 17; Brady
V. Northwestern Ins. Co., 11 Mich. 425; May on Insurance (3d Ed.)
402 ; Peters et al. v. Warren Ins. Co., 14 Pet. 99, 10 L. Ed. 371.
Appellant insists that a fire confined within the limits of a furnace,
although prodkicing damage by smoke and heat, is not a fire within
the meaning of the policy in question, and relies mainly upon the case
of Austin V. Drew, 4 Camp. 361. In that case the plaintiff was the
owner of a sugar factory several stories high with pans on the ground
floor for boiling sugar and a stove for heating. A flue extended to
the top of the building with registers on each floor connecting with
the flue to introduce heat. Because of the negligence of a servant in
not opening a register at the top of the flue, or chimney, used to shut
in the heat during the night, the smoke, sparks, and heat from the
stove were intercepted, and, instead of escaping through the top of
the flue, were forced into the rooms, in consequence of which the
sugar was damaged. The flames were confined within the stove and
flue, and no actual ignition took place outside thereof, and it was held
that the loss was not covered by the policy. The Lord Chief Justice
said that there was no more fire than always existed when the man-
ufacture was going on, and which continued to burn without any ex-
cess. The case seems to turn upon the point that the fire was the
usual and ordinary fire, never excessive and always confined within
its proper limits. We shall briefly refer to other cases cited by ap-
pellant on this point.
In German American Ins. Co. v. Hyman, 42 Colo. 156, 94 Pac. 27,
16 L. R. A. (N. S.) 77, the loss was caused by an explosion pro-
duced by lighting a match, where the policy contained a provision
366 THE STANDARD FIRE POLICY
that the insurers should not be liable for loss by explosion unless fire
ensues, and in that event for the damage by fire only. Samuels v.
Continental Ins. Co., 2 Pa. Djst. R. 397, was a claim for damages
caused by smoke and soot from a lamp whose flame flared up above
the lamp. Ignited L. F. & M. Ins. Co. v. Foote et al., 22 Ohio St.
340, 10 Am. Rep. 735, was a case of explosion excepted from the
policy, and it was held that the fire was caused by the explosion ;
therefore the loss was occasioned by explosion. Renshaw v. Fireman's
Ins. Co., 33 Mo. App. 394, is also an explosion case caused by igni-
tion from a burning, gas jet, and it was held that, where the explosion
is the direct result of the antecedent fire, the policy covers it, but,
where the explosion is not occasioned by the fire, there is no liability
for the result of the explosion. In the one case the fire causes the
explosion, and in the other the explosion causes the fire. Briggs et
al. V. North A. & M. Ins. Co., 53 N. Y. 446, is a case where the ex-
plosion was before the fire, and not caused by the fire. Transatlantic
F. Ins. Co. V. Dorsey, 56 Md. 70, 40 Am. Rep. 403, was a case of ex-
plosion, and the main question was whether the fire was the direct
cause of the explosion. 1 Wood on Insurance (2d Ed.) § 103, it is
true lays down the general rule that no liability arises where the fire
is confined within the limits of the agencies employed, referring to
the case of Austin v. Drew, supra, with the observation that the doc-
trine of that case had been considerably misconceived by courts and
text-writers. Gibbons v. German Ins. & S. I., 30 111. App. 263, was
a case of damage caused by the escape of steam. Case v. Hartford
F. Ins. Co., 13 111. 676, discusses Austin v. Drew, 4 Camp. 361, and
discards the idea that there can be no loss by fire without actual igni-
tion. Millaudon v. New Orleans Ins. Co., 4 La. Ann. 15, 50 Am.
Dec. 550, is a case where the damage was caused by the explosion of
a steam boiler, while in Waters v. Merchants' L. Ins. Co., 11 Pet.
213, 9 L. Ed. 691, an explosion of gunpowder is held to be a loss
by fire where the thing exploded was on fire. American Towing Co.
V. German F. Ins. Co., 74 Md. 25, 21 Atl. 553, was a case of overheated
boiler owing to the absence of water. Austin v. Drew, supra, is re-
ferred to, and it was held damage not covered by the policy. Cannon v.
Phcenix Ins. Co., 110 Ga. 563^ 35 S. E. 775,' 78 Am. St. Rep. 124,
is a case where the fire was an ordinary fire in a stove. The fire was
what is termed in law books a "friendly," and not a ''hostile," fire.
In this case the stovepipe became disarranged, and snioke and soot
escaped, together with the water used in cooling the ceiling, causing
the damage. Austin v. Drew, supra, is cited in support of the opinion.
It will be seen from the foregoing cases relied upon by appellant that
the cases in this country in any way tending to support appellant's
contention rest upon the doctrine of Austin v. Drew, which has not
been extended, but limited to the particular facts of the case, and the
doctrine enunciated therein criticised in some well-considered cases.
We shall briefly refer to some of the authorities. At page 929, §,
LIABILITY OF THE INSURER 367
402, Mr. May in his work on Insurance discusses the doctrine laid
down in Austin v. Drew, and concludes that, if the doctrine in that
case is intended to go farther than the facts of the case, it has been
deemed not to be good law by every high authority. In Scripture v.
Lowell M. F. Ins. Co., 10 Cush. (Mass.) 356, 57 Am. Dec. Ill, the
doctrine of Austin v. Drew is explained, and the court says that lack of
study of the case by courts and text-writers has caused it to be mis-
applied, and refers to the language of the Chief Justice in Austin v.
Drew, to the effect that the fire was an ordinary one, and no more
than always existed when the manufacturing was going on. Single-
ton et al. V. Phenix Ins. Co., 132 N. Y. 298, 30 N. E. 839, is a
case where a boat was loaded with quicklime in barrels. The boa^
was found to be on fire through the slacking of the lime. It was
towed into the river and sunk to prevent total destruction. It was
claimed that some water in the boat must have caused the slack-
ing of the lime ; held, that the loss was by fire within the mean-
ing of the policy. Further intimated that it may not be necessary
to show actual ignition or combustion to establish a loss by fire. In
Way V. Abington M. F. Ins. Co., 166 Mass. 67, 43 N. E. 1032, 32
L. R. A. 608, 55 Am. St. Rep. 379, fire in the stove ignited the soot
in the chimney, and the smoke and soot from the burning chimney es-
caped into the room and damaged property. Held, that such dam-
age was covered by the policy insuring against all loss or damage by
fire. The case seems to have turned upon the fact that the fire in
the chimney was a "hostile" fire; therefore the damage caused by
such fire was covered by the policy. In Lynn G. & E. Co. v. Meriden
F. Ins. Co., 158 Mass. 570, 33 N. E. 690, 20 L. R. A. 297, 35 Am.
St. Rep. 540, it was held under an insurance policy against loss or
damage by fire that damage to machinery in a part of the building
not reached by the fire caused by short circuiting of electric current
was covered. by the policy. It was further held that the fire was the
direct and proximate cause of the damage under the words of the
policy "direct and proximate cause." In California Ins. Co. v. L'nion
C. Co.,; 133 U. S. 387, 10 Sup. Ct. 365, 33 L. Ed. 730, the words of
a policy "direct loss or damage by fire" are defined to mean loss or
damage occurring directly from fire as the destroying agencv in con-
tradistinction to the remoteness of fire as such agency. In German
American Ins. Co. v. Hyman, 42 Colo. 156, 94 Pac. 27, 16 L. R. A.
(N. S.) 77, under an insurance policy providing that the insurer
would not be liable for loss by explosion, it was held that if the fire
precedes the explosion, and the latter is an incident of the former
and caused by it, the insured may recover for his entire loss, but if
the explosion precedes the fire, and is not caused by it. the insured
can only recover for the loss by fire. In Russell v. German F. Ins.
Co., 100 Minn. 528. Ill N. \V\ 403. 10 L. R. A. (N. S.) 326, it is
held that, to render a fire the immediate or proximate cause of the
loss or damage, it is not necessary that any part of the insured prop-
368 THE STANDARD FIRE POLICY
erty actually ignited or was consumed by fire. In Ermentrout et al.
V. Girard F. & M. Ins. Co., 63 Minn. 305, 65 N. W. 635, 30 L. R. A.
346, 56 Am. St. Rep. 481, the case was on a policy insuring plaintiff
^'against all direct loss or damage by fire," and the policy further pro-
vided that, if the building, fell "except as result of fire," the insur-
ance on the building should immediately cease. There was evidence
tending to prove that a building adjacent to the one insured! caught
fire and was partially consumed, and as a result of such fire fell, car-
rying down with it a partition wall and a part of the insured building.
Held, that the fall of the insured building was "the result of fire"
and "a direct loss or damage by fire," although no part of it ignited
or was consumed by fire.
Cameron in his work on the Law of Fire Insurance in Canada, p.
51, discusses the effect of the word "direct" in policies providing
against "direct loss or damage by fire," and says that the word has
no significance or value, and whether used or not the fire must be the
proximate cause of the loss or damage. See, also, Richards on In-
surance Law (3d Ed.) § 231, where it is said that the word "direct"
in a policy means immediate or proximate as distinguished from re-
mote, but that the proximate results of fire may include other things
than combustion, as, for example, the resulting fall of a building,, in-
juries to insured property by water, loss of goods by theft, exposure
of goods during fire. See, also, Elliott on Insurance, ■§ 221, and Cle-
ment on Fire Insurance as a A^alid Contract, pp. 84-87.
The foregoing cases, we think, fully show that Austin v. Drew is
not authority against plaintiff here. There the fire was under con-
trol, not excessive, and suitable and proper for the purpose intended.
It was in the language of the books a "friendly," and not a "hostile,"
fire. In the case before us the fire was extraordinary and unusual, un-
suitable for the purpose intended, and in a measure uncontrollable,
besides being inherently dangerous because of the unsuitable material
used. Such a fire was we think a "hostile" fire, and within the, con-
templation of the policy. Ordinarily the question in such cases is for
the jury. New York & B. D. E. Co. et al. v. Traders' & M. Ins.
Co., 132 Mass. Z77 , 42 Am. Rep. 440; Xew York & B. D. E. Co. et
al. V. Traders' M. Ins. Co., 135 Mass. 221 ; Richards on Insurance,
§231.
But in this case the evidence being practically undisputed, we think
no error was committed in directing a verdict for the plaintiff. The
judgment of the court below is affirmed. *-
4 2 See dissenting opinion of Judge Marsliall, 140 Wis. 395, 122 N. W. 1122,
25 L. R. A. (N. S.) 506, 17 Ann. Cas. 1121.
MEASURE OF INSURER'S LIABILITY 369
XIII. Measure of Insurer's Liability *^
FARMERS' FEED CO. OF NEW JERSEY v. SCOTTISH
UNION & NAT. INS. CO. OF EDINBURGH.
(Court of Appeals of New York, 1903. 173 N. Y. 241, 65 N. E. 1105.)
Action by the Farmers' Feed Company of New Jersey ap;"ainst the
Scottish Union & National Insurance Company of Edinburgh. From
a judgment of the appellate division (65 App. Div. 70, 72 N. Y.
Supp. 7Z2) affirming, a judgment for plaintiff, defendant appeals.
Vann, J. This controversy was submitted upon an agreed state-
ment of the facts, which, so far as material to the appeal, are as fol-
lows :
In May, 1898, the defendant, by a policy of the standard form, in-
sured certain buildings belonging to the plaintiff in the city of New
York against loss by, fire for the term of three years from the 23d of
May, 1898, "to an amount not exceeding $60,000." On the 14th of
June, 1900, such insurance to the amount of $17,500 was, canceled by
mutual consent, leaving a balance of $42,500 still in force. The pol-
icy contained an apportionment clause, which provided that "this
company shall not be liable under this policy for a greater proportion
of any loss on the described property * * * than the amount here-
by insured shall bear to the whole insurance, whether valid or not, or
by solvent or insolvent insurers, covering such property. ♦ * ♦ "
On the 5th of June, 19(X), the plaintiff procured other insurance on
the same property "to an amount not exceeding $5,000" in each
of the following companies: The Springfield Fire & Marine In-
surance Company, the Providence Washington Insurance Company,
and the Westchester Fire Insurance Company, and "to an amount
not exceeding $2,500" in the Insurance Company of the state of
Pennsylvania; making $17,500 as the maximum amount for which
these four companies could, in any event, become liable. Each of
these policies contained a paragraph headed, "Percentage Co-Insur-
ance Clause," of which the following is a copy : "In consideration of
the premium for which this policy is issued it is expressly stipulated
that in the event of loss this company shall be liable for no greater
proportion thereof than the sum hereby insured bears to 80 per cent.
of the cash value of the property described herein at the time when
such loss shall happen, nor more than the proportion which this policy
bears to the total insurance."
4 3 For discussion of principles, see Vance on Insurance. §§ 176, 177. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, pp. 3061-3127.
CooLEY Ins. — 24
370 THE STANDARD FIRE POLICY
On the 1st of July, 1900, a fire occurred, by which the property in-
sured, the cash vakie of which was $124,660, was damaged to the
amount of $45,321.18, as ascertained by an appraisal duly had.
The plaintiff claims that the amount due from the defendant un-
der its policy "by reason of the fire loss" was $38,177.26, while the
defendant claims that such amount was but $32,102.50, which it has
paid to the plaintiff under an agreement that such payment should
be without prejudice. The appellate division rendered judgment in
favor of the plaintiff for the difference, between these sums, amount-
ing to $6,074.76, wnth interest thereon from November 28, 1900.
The decision of the controversy turns on the meaning of the words
"whole insurance," as used in the apportionment clause of the defend-
ant's policy. It was there provided that the defendant should not be
liable for a greater proportion of any loss than the amount insured
by its policy should bear to the whole insurance on the property.
There is no disagreement as to the amount of insurance made by the
defendant's policy, which was absolute, but the controversy is over the
amount made by the four other policies, which were not absolute, ow-
ing to the co-insurance clause. The defendant claims that the whole
insurance was $60,000, comprising the $42,500 made by its own policy
and $17,500, or the greatest sum for which, in any event, the four com-
panies could become liable, and that the plaintiff was a co-insurer tO'
the extent of the difference between the amount for which they are
liable and the maximum amount for which they might be liable.
This would reduce the indemnity furnished by the defendant's pol-
icy from $38,177.26, the amount claimed by the plaintiff, to $32,102.-
50. the amount paid by the defendant.
The plaintiff claims and the appellate division held, that under the
circumstances "the amount of insurance effected by the four policies
is identical with the amount of the loss, and that the extent of that
insurance couldl not be ascertained until after a loss, for the insur-
ance was to an amount not exceeding a stipulated sum, and was,
therefore, indefinite." This conclusion gives no force to the appor-
tionment clause in the defendant's policy when construed in connec-
tion with the co-insurance clause of the other policies. Moreover,
all five insurance policies, including that issued by the defendant, are
indefinite in the same way, for they all make insurance to an amount
not exceeding a sum named! which is usually regarded as the amount
of insurance effected.
The four companies stipulated that they should "be liable for no
greater proportion" of the loss, which was $45,321.18, "than the sum
hereby insured," or $17,500, "bears to 80 per cent, of the cash value
of the property," which was $99,728. Their liability, therefore, is rep-
resented by the following proportion: As $99,728 is to $17,500, so
is $45,321.18 to the amount required, or $7,952.84. Was this "the
whole insurance" effected by the four policies containing the co-in-
surance clause? If so, that clause has no effect in this case. We
MEASURE OF INSURER'S LIABILITY 371
think it was not. for, if the loss had been greater, the amount called
for by the policies would have been greater also, and yet it could not
have exceeded the amount of the insurance. The largest sum which,
in any event, can be collected under a policy, and not the smaller sum
which may be collected under special circumstances, is the amount
of insurance effected by the policy. There is no limit to the possible
liability under the four policies, except the amount that the compa-
nies stipulated it should not exceed, aggregating $17,500, which they
would have been obliged to pay if the loss had been total.
Under an open policy, if the loss is less than the insurance, the
former measures the liability, but if the loss is greater than the in-
surance, the latter measures the liability ; yet in either event the
amount of insurance is the same. The amount of the insurance, there-
fore, is the largest sum that the company, under any circumstances,
according to the terms of the policy, can be required to pay. This is
the popular understanding, as well as the legal definition. The test
is, what is the extent of the indemnity furnished under any possible
circumstances? The insurance effected by the four policies was for
a proportion of the cash value of the property less 20 per cent., which
can always be represented by a fraction, the numerator being un-
changeable, while the denominator may vary from time to time. The
numerator is the highest amount which the companies could be re-
quired to pay, while the denominator is 80 per cent, of the cash value
of the property. The amount of the insurance does not vary, but the
cash value of the property is subject to change; still that change does
not reduce the amount of insurance. The fact that the owner ran
his own risk or became his own insurer as to the 20 per cent, of the
cash value of the property did not lessen the amount of insurance, be-
cause, if the loss had been total, the whole $17,500 would have been
due upon the four policies. Thus the eftect of the co-insurance clause
is that, if the property is insured to 80 per cent, of its value, or more,
in case of a total loss the whole sum insured becomes due ; but with
insurance for less than 80 per cent, of the value and a loss also of
less than 80 per cent, the owner becomes, in effect, a co-insurer pro-
portionately. He could have procured insurance to 80 per cent, of the
value, but, not having done so, he became his own insurer pro tanto.
This accords with the way the clause is characterized in the pol-
icies, for it is entitled "Percentage Co-Insurance Clause," which means
insurance by the company and the owner, depending upon the percent-
age or proportion which the insurance bears to the value. The ob-
ject is through lower premiums to induce the owner either to take
out insurance to 80 per cent, of value, or to become a co-insurer with
less risk to the company in case of a loss falling below such percentage
of value. Where either the loss or the insurance equals or exceeds
80 per cent, of value, the clause has no effect, but when both are less
the insured and the insurer bear the loss in certain proportions. The
amount of insurance is not the variable factor, but the amount of loss.
o
72 THE STANDARD FIRE POLICY
The amount of insurance is at all times the same, but when the loss
is partial the insurer stands only a part, unless the insurance is for
the full percentage, whereas, if the loss is total, the insvired stands
all, not exceeding the limit stated in the policy. That limit is the
amount of insurance made by the policy, because the company may
be required to pay to that extent.
The words of the co-insurance clause, viz., "the sum hereby in-
sured," indicate the amount of insurance. That sum is fixed, definite,
and always the same. It should not be confounded with the actual
liability under special circumstances, for all open policies are neces-
sarily indefinite as to the sum to be paid until the amount of the loss
is known. The liability can never exceed the value of the property,
but the insurance may, for a house worth but $1,000 may be insured
for $2,000. If thus insured by two companies, one-half in each, and
the property was wholly destroyed by fire, neither would have to pay
$1,000, the amount of its policy, but only $500, the amount of its lia-
bility, owing to the apportionment clause. This would be true of a
standard policy even if one of the companies was insolvent, so that
the insured, by taking out other insurance, may reduce his security
while intending to increase it.
In the case before us the plaintiff, by procuring the four policies,
reduced his security in the event of a partial loss, but increased it in
the event of a total loss. For the purpose of apportionment, the
face value of the policies should be resorted to, regardless of thi
cash value of the property, and thus the whole amount of the in-
surance can be ascertained by a simple inspection of the policies.
The face value of a policy is not reduced by the actual value of the
property, or by the duty of apportioning the loss, or by the effect of
a co-insurance clause in another policy on the same property. The
amount of insurance is fixed at the inception of the policy, but the
amount of liability is not fixed until a loss has occurred. The one de-
pends upon the sum for which the policy is written, but the other de-
pends upon a number of contingencies which may or may not happen,
and hence cannot be known in advance. The fact that they are not
known, and may never come into existence, does not affect the amount
of the policy.
The question involved is new, and we are without controlling au-
thorities to guide us, but the discussion of a subject somewhat relat-
ed in a recent case has, aided us in reaching the conclusion an-
nounced. Continental Ins. Co. v. ^-Etna Ins. Co., 138 N. Y. 16, 21,
33 N. E. 724.
It may be asked why, if the whole insurance was $60,000, the plain-
tiff is not entitled to recover his entire loss, which was but $45,321.18;
and the answer is that he agreed in a certain contingency to stand
part of the loss himself. He accepted four policies, which provided
for the payment to him of not exceeding $17,500 in case of a total
loss, or, in case the loss was partial, and his insurance amounted to
CANCELLATION OF POLICY 373
80 per cent, of the cash vahie ; but he agreed that, if both loss and
insurance were each less than the 80 per cent., to take less than the
amount of his loss, and thus became a co-insurer for the difference.
The defendant, pursuant to its apportionment clause, is entitled to the
benefit of all other insurance, whether made by another company alone
or by a contract between another company and the insured, by which,
in case of partial loss, each stands part as a co-insurer.
We think that the "whole insurance" was $60,000, the face value
of all the policies, and that the judgment appealed from should, there-
fore, be reversed), and judgment ordered for defendant on the merits,
with costs.**
XIV. Cancellation of Policy"
TAYLOR V. INSURANCE CO. OF NORTH AMERICA.
(Supreme Court of Oklahoma. 1909. 2.5 Okl. 92, 105 Pac. 354, 138 Am. St.
Rep. 906.)
Action by William Taylor against the Insurance Company of North
America. Judgment for defendant, and plaintiff brings error.
Williams, J.*® The agent of the company, in whose possession the
insured left the policy upon which this action was based, was named
Comer. On September 26, 1904, Comer met Taylor on the streets
of Claremore and said to him : "The insurance company has canceled
your policy on your hay." Taylor asked him on what ground, and
the agent said: "They did not state." Taylor then said: "Where
is my money?" or "How about my money I have paid them, if they
have canceled it ? How about my money ?" And the agent said :
"They did not say anything about it." Taylor rejoined : "I guess I
can get my money then, if they have canceled it." The agent, Comer,
testified that he canceled the policy on September 26, 1904, and on
that day returned the same to the company.
It is the contention of counsel for plaintiff in error that the com-
pany, under the terms of this policy, could not cancel it except that
it at some time tendered or returned to him the unearned premium in
accordance with what he argues are its terms, and on account of the
fact that this unearned premium was neither returned nor tendered
prior to October 9, 1904, that this had the effect of keeping alive
the policy and rendering the company liable for the loss.
44 Actual cash value at time of loss, see Liverpool & London & Globe Ins.
Co. V. McFadden, 170 Fed. 179. 95 C. C. A. 429, 27 L. R. A. (X. S.) 1095 (liKX)).
45 For discussion of principles, see Vance on Insurance, § 183. See, also,
Cooley, Briefs on the Law of Insurance, vol. 3, pp. 2789-2814.
4 6 Part of the opinion is omitted.
374 THE STANDARD FIRE POLICY
The paragraph of the policy relating to cancellation is what is
commonly known as the "New York standard form," and reads as
follows : "This policy shall be canceled at any time at the request of
the insured, or by the company by giving five days' notice of such
cancellation. If this policy shall be canceled as hereinbefore provided,
or become void or cease, the premium having been actually paid, the
unearned portion shall be returned on surrender of this policy or last
renewal, this company retaining the customary short rate, except that,
when this policy is canceled by this company by giving notice, it shall
retain only the pro rata premium."
The construction of this contract is necessary in order to deter-
mine whether or not the policy is canceled. If the construction con-
tended for by the defendant in error is correct, the clause was in-
tended to read as follows: "If this policy shall be canceled as here-
inbefore provided, or become void or cease, the premium having been
actually paid, the unearned portion shall be returned on surrender of
this policy or last renewal, this company retaining the customary short
rate, except that, when this policy is canceled by this company by
giving notice (on surrender of this policy), it shall retain only the pro
rata premium."
Without the interpolation of the words "on surrender of this policy"
in the last clause, there is an ambiguity, and there is equal reason
for the following interpretation : "If this policy shall be canceled (at
any time at the request of the insured), or become void or cease, the
premium having been actually paid, the unearned portion shall be
returned on surrender of this policy or last renewal, this company
retaining the customary short rate, except that, when this policy is
canceled by this company by giving notice, it shall retain only the
pro rata premium."
When the policy is canceled by giving "five days' notice of such can-
cellation," the company retaining "only the pro rata premium," this
cannot be accomplished without a tender, unless the words "on sur-
render of the policy" are read into said clause ; and if that was the
intention, why repeat the words "by giving notice"? If that con-
tention is correct, it should have been stated as follows: "This policy
shall be canceled at any time at the request of the insured, or by the
company by giving five days' notice of such cancellation. If this
policy shall be canceled as hereinbefore provided, or become void or
cease, the premium having been actually paid, the unearned portion
shall be returned on surrender of this policy or last renewal, this com-
pany retaining the customary short rate, except that, when this policy
is canceled by this company, * * * jj. shall retain only the pro
rata premium."
To say the least, the cancellation clause is ambiguous, and when
we consider that the insurer was skilled, not only in the framing, but
also the interpretation, of such contracts, and that the insured had no
part in the framing thereof, as well as being unskilled in such inter-
CANCELLATION OF POLICY 375
pretation, such construction should be adopted as is more favorable to
the insured ; and especially is this true when the construction con-
tended for by the insurer is not only inequitable, but also unjust.
The contract of insurance here involved, known as the "New York
standard policy," was framed by virtue of chapter 488, p. 720, of
the Laws of New York of 1886, providing for a uniform contract of
fire insurance to be used by fire underwriters within said state. The
clause here under consideration was first before the Supreme Court
of the state of New York in the case of Nitsch v. American Central
Insurance Company, 83 Hun, 614, 31 N. Y. Supp. 1131, wherein a
tender was construed to be necessary to the cancellation of the policy.
The judgment of the Supreme Court was affirmed by the New York
Court of Appeals on March 16, 1897 (152 N. Y. 635, 46 N. E. 1149).
Afterwards, on Alarch 1, 1898, in the case of Tisdell v. New Hamp-
shire Fire Insurance Company, 155 N. Y. 163, 49 N. E. 664, 40 L.
R. A. 765 (see, also. Id., 11 Misc. Rep. 20, 32 N. Y. Supp. 166), it
was again held that a tender was a condition precedent to the can-
cellation of such a policy — the opinion being delivered by Mr. Justice
Bartlett, concurred in by Justices Haight, Martin, and Vann, Chief
Justice Parker and Mr. Justice O'Brien dissenting, and Mr. Justice
Gray being absent.
Again, in the case of Buckley v. Insurance Co., 188 N. Y. 399, 81
N. E. 165, 13 L. R. A. (N. S.) 889 (see, also, Id., 112 App. Div. 451,
98 N. Y. Supp. 622), the Court of Appeals, following the Nitsch and
Tisdell Cases, said : "It is a question of vital importance to the insurer
and the insured as to the precise meaning of the cancellation clause in
the standard policy. The situation is not a complicated one, and the
court desires to so construe the clause that its meaning may be made
clear. If the insurance company desires to cancel, it must, as we
have held in the cases cited, not only give the notice required, but
accompany it by the payment or tender of the pro rata amount of the
unearned premium. It cannot legally demand of the insured the sur-
render of the policy and its cancellation until this is done." The court
was unanimous as to the foregoing conclusion. At that time Chief
Justice Cullen, and Justices O'Brien, Haight, Hiscock, Bartlett, Chase,
and Vann comprised the court.
In the case of Philadelphia Linen Co. v. Manhattan Fire Insur. Co.,
8 Pa. Dist. R. 261, that court, after referring to the Tisdell Case,
said : "The question which is now before us was then passed upon
by the Supreme Court of New York upon a policy where the language
was identically the same as that which has been quoted from the de-
fendant's policy. The majority of the court in that case decided that,
upon cancellation of the policy by the company, it must return or
tender the unearned premium in order to efifect a cancellation. The
same conclusion seems to have been arrived at by the same court in
an earlier case, Nitsch v. American Cent. Ins. Co., reported in 152
N. Y. 635, 46 N. E. 1149. While these decisions are not binding
376 THE STANDARD FIRE POLICY
Upon the courts of Pennsylvania, they are, of course, entitled to great
respect. It is no doubt, eminently proper to hold companies and cor-
porations, such as insurance companies, to a strict construction of their
rights as defined in formal contracts, which are prepared in their own
interest and the terms of which the insured, as a rule, has little or no
part in determining. This has been the policy of the courts, and
has been found by experience to be necessary in order to guard the
interests of those who are in many cases ignorant, and in all cases
more or less at the mercy of such corporations. The courts of this
state have been moved by the same policy, and it may be, and we
are inclined to think, that the attitude which has been taken by our
own Supreme Court with reference to provisions not identical with,
but similar to, those in question, requires us to follow the ruling
which has been made in the state of N.ew York."
In the case of Gosch v. Firemen's Insurance Co., 33 Pa. Super.
Ct. 496, the court said : "The plaintiffs, then, having paid the pre-
mium for the entire term, could the defendant, at its own pleasure,
effect a complete extinguishment of the insurance contract, merely by
giving notice of its determination to cancel, without at the same time
returning or tendering the unearned portion of that premium ? Where
a contract with mutual undertakings has been entered into by two par-
ties and fully performed by one of them, we may certainly say,
speaking generally, that the other party could not successfully in-
voke the aid of any court in an effort to rescind until he had returned
or tendered the return of any valuable thing he had received by
reason of the contract. To permit him to retain the benefits and
at the same time repudiate the burdens of his own agreement would
be highly unconscionable and shocking to our sense of natural justice.
It would be out of harmony with some of the fundamental principles
on which our entire system of jurisprudence is built. Of course,
where the right to cancel has been expressly reserved in the contract
itself, then the extent of the right and the conditions upon which
it may be exercised must be determined by a reference to the con-
tract, rather than to principles of general law. Turning, then, to the
language of the agreement in which the parties have undertaken to
state their respective rights and duties, if we find it susceptible of
two constructions, one in harmony with, the other in opposition to,
those general principles already referred to, a sound discretion would
seem to invite us to accept the former and reject the latter, just as,
in ascertaining the true meaning of a doubtful clause in a will, the
courts incline to that construction which would vest the estate, rather
than leave it contingent, which would give the inheritance to the
heir rather than to a stranger. Taking up, then, the provision of the
policy on this subject, and looking at it as a whole, we may confidently
say that it contemplates a complete and effective destruction of the
contractual relation at the instance of either party, and that to ac-
complish this end the party moving must do two distinct and sep-
CANCELLATION OF POLICY 377
arate things; the object in view undeniably being that, when the
cancellation shall have been completed, both parties will have been re-
stored, as far as possible, to the conditions existing before the con-
tractual relation began. If the destruction of this relation be begun
by the assured, he must give notice to the other party and surrender
his policy, which proclaims the existence of the relation he would
now destroy. If begun by the company, it must also give notice and
repay or tender payment of the unearned premium in its hands. The
right reserved to each party is but a single one, viz., the right to
cancel; and the cancellation contemplated is not a partial, but a
complete, one. The obligation imposed on the party moving to can-
cel is, looking broadly at the entire contract provision, also single,
viz., the restoration of the other party, as far as may be, to the situ-
ation occupied before the contractual relation began. True, this in-
volves the performance or tender of performance of another act
besides the giving of notice : but it does not necessarily follow that
such performance or tender may be totally dissevered in time from,
and thus rendered wholly independent of, the giving of the notice.
Such a construction of the policy provision, although strongly urged
on us by the learned counsel for appellant, is, at best, a doubtful one.
More than this he can hardly claim for it, in the light of the fact
that it has been deliberately rejected by the courts of last resort of
most of our sister states. The argument supporting it, as he agrees,
has been stated, as forcibly as it can be, in the dissenting opinion of
Chief Justice Parker in Tisdell v. New Hampshire Fire Ins. Co.,
155 N. Y. 163, 49 N. E. 664. 40 L. R. A. 765. An examination
of this opinion seems to show that its conclusions are reached rather
from a critical analysis of some of the language of the policy pro-
vision and the order in which its sentences are collated than from a
broad view of the entire provision and a consideration of the nature
of the object to be accomplished thereby. The following language
from the majority opinion clearly indicates that the question must
now be considered as settled in that jurisdiction: 'The question pre-
sented on this appeal is no longer an open one in this court. It
was (^ecided in Nitsch v. American Central Ins. Co., 152 N. Y. 635,
46 N. E. 1149, affirmed in this court without an opinion. In that
case, as in this one, the question presented was whether the pro-
vision of the New York standard policy of fire insurance relating to
the cancellation of a policy at the instance of the company requires
that, in addition to giving the five days' notice, the company must
return or tender the unearned premium in order to eflfect a cancella-
tion. The answer was in the affirmative.' In an elaborate discus-
sion of the whole subject, to be found in Cooley's Briefs of Insur-
ance, wherein all of the cases from the various jurisdictions are cited
and considered, the general rule to be drawn from them is thus stated
on page 2801 : 'The general rule is that under such a provision, unless
waived, the repayment of such proportion of the premium is essential
378 THE STANDARD FIRE POLICY
to a valid cancellation, and notice without such repayment or a tender
of the amount is ineffectual. * * * There must be an actual re-
payment or tender ; a mere promise to pay, a request to call for
the amount due, or notice that the money is subject to insured's order,
being insufficient.' " * * *
In the case of Chrisman & Sawyer Banking Co. v. Hartford Fire
Insurance Co., 75 Mo. App. 310, that court said: "In the rescission
of a contract by one party, it is a necessary condition precedent to
such rescission to place the other party in statu quo — to restore to
him whatever may belong to him by reason of bringing the contract
to an end. This is the general rule, as applied to all cases of con-
tract. And within this rule it has been repeatedly held that before an
insurance company can make an effective cancellation it must re-
turn or tender the unearned premium. * * * j^ this case no at-
tempt was made to do so. No effort was made to ascertain what
the unearned premium was, and certainly it will not be pretended
that the president of the woolen mill released his claim for that.
But it is said that this particular policy provided that the unearned
premium was to be returned 'on the surrender of the policy.' And,
as the policy was not surrendered, it was not necessary to return the
premium. We think the return of the premium and the surrender
of the policy, under the terms of the contract, were concurrent acts ;
that neither could be demanded without the other. But, as defendant
was the party seeking cancellation, it was its duty first to have tendered
the unearned premium on a surrender of the policy. It then would
have done all that the contract required it to do in order to place the
assured in statu quo." * * *
In the case of Hartford Fire Ins. Co. v. McKenzie, 70 111. App.
615, the court for the Second district, in construing an identical con-
tract, said : "Where the company seeks to cancel the contract under
such stipidation as is above set out, the insured does not have to
tender his policy, in order to entitle him to receive back the un-
earned premium ; but it is for the company desiring cancellation to
seek the assured and tender the money to him, and till it does so the
cancellation has not been effected." See, also, Peterson v. Hartford
Fire Ins. Co., 87 111. App. 567 ; Hartford Fire Ins. Co. v. Tewes,
132 111. App. 321 ; Williamson v. Warfield-Pratt-Howell Co., 136 III.
App. 168; Mississippi Valley Ins. Co. v. Bermond, 45 111. App. 22;
Hamburg-Bremen Fire Ins. Co. v. Browning, 102 Va. 890, 48 S. E.
2; 2 Clement on Insurance, p. 405. * * *
The authorities holding to the contrary are as follows : Schwarz-
child & Sulzberger Company v. Phoenix Insurance Company of Hart-
ford, 124 Fed. 52, 59 C. C. A. 572; Id. (C. C.) 115 Fed. 653; El
Paso Reduction Company v. Hartford Insurance Company (C. C.)
121 Fed. 937; Davidson v. German Insurance Company, 74 N. J.
Law, 487, 65 Atl. 996, 13 L. R. A. (N. S.) 884, 12 Ann. Cas. 1065;
Insurance Company v. Brecheisen, 50 Ohio St. 542, 35 N. E. 53 ;
NOTICE AND PKOOFS OF LOSS 379
Newark Fire Insurance Company v. Sammons et al., 11 111. App. 230.
Such policy being framed by virtue of the laws of New York, and
the highest court of that state having interpreted same, such con-
struction should be of most persuasive influence, if not binding with us,
especially when supported by the weight of authoritv. Equitable Life
Assur. Soc. V. Brown, 213 U. S. 25, 29 Sup. Ct. 404, 53 L. Ed. 6S2.
Hence we hold that the policy was not canceled; no tender having
been timely made. * * * Reversed.*^
XV. Notice and Proofs of Loss *'
SERGENT v. LONDON & LIVERPOOL & GLOBE IKS. CO.
(Supreme Court of New York. General Term. Fourth Department, 1S95. 85
Hun, 31, 32 N. Y. Supp. 594.)
Action by Adelbert G. Sergent against the London & Liverpool
& Globe Insurance Company on a fire insurance policy. From a
judgment dismissing the complaint, and from an order denying a mo-
tion for a new trial, made on the minutes, plaintiff appeals.
Per Curiam.*^ On the trial the plaintiff was nonsuited. The prin-
cipal question involved upon this appeal is as to the validity of such
nonsuit. The policy which formed a basis for this action, among
others, contained the following provisions : "If fire occur, the in-
sured shall give immediate notice of any loss thereby in writing to
this company, and within sixty days after the fire, unless such time
is extended in writing by this company, shall render a statement to
this company, signed and sworn to by said insured, stating the knowl-
edge and belief of the insured as to the time and origin of the fire ;
the interest of the insured and all others in the property; the cash
value of each item thereof, and the amount of loss thereon ; all in-
cumbrances thereon ; all other insurance, whether valid or not, cover-
ing any of said property, and a copy of the descriptions and schedules
47 Contra: Davidson v. German Ins. Co., 74 N. J. Law, 487, 65 Atl. 99G, 13
L. R. A. (N. S.) 884. 12 Ann. Gas. 1065 (1907).
The provision as to cancellation is sulistantially the same in the standard
form of policy prescribed in New York, Connecticut, Louisiana. Michigan,
Missouri. New Jersey. North Carolina. North Dakota, Pennsylvania, and
Rhode Island. The Wisconsin form provides that, if the hazard is increased
solely by act of God, the company may not cancel except on .sixty days' no-
tice. The forms used in Maine, ^Massachusetts. Minnesota. New Hamp.shire.
and South Dakota, provide that cancellation by the company may be made
by gi\'ing notice and "tendering the ratable proportion of the premium."
4 8 For discussion of principles, see Vance on Insurance, §§ 184—189. See,
also, Cooley. Briefs on the Law of Insurance, vol. 4, p. 3347 et seq.
49 Part of the opinion is omitted.
380 THE STANDARD FIRE POLICY
in all policies; any changes in the title, use, occupation, location,
possession, or exposures of said property since the issuing of this
policy ; by whom and for what purpose any building herein described,
and the several parts thereof, were occupied at the time of fire.
That the property included in the policy in question was destroyed
by fire on August 27, 1892, and that proofs of loss were not furnished
until November 26th of that year, are undisputed facts in the case.
Thus, it conclusively appears that the condition of the policy re-
quiring the plaintiff to furnish proofs of loss within 60 days after
the fire was not performed or complied with ; nor is it pretended that
the time was extended in writing by the defendant. The furnishing
of proofs of loss as required by the policy was a condition precedent
to the plaintiff's right of recovery. Underwood v. Insurance Co., 57
N. Y. 500; Blossom v. Insurance Co., 64 N. Y. 162; O'Brien v.
Insurance Co., 63 N. Y. Ill; AIcDermott v. Insurance Co., 44 N. Y.
Super. Ct. R. 221 ; Bell v. Insurance Co.. 19 Hun, 238. And the
nonperformance of this condition constitutes a complete defense to
a recovery upon such a policy. Cuinlan v. Insurance Co., 133 N. Y.
356, 362, 31 N. E. 31, 28 Am. St^ Rep. 645.
These authorities seem to be decisive of the question before us,
unless this provision in the policy can be held to have been waived
by the defendant. We have carefully examined the evidence bearing
upon that question, and regard it as insufficient to raise any question
of waiver of this condition in the policy. Without discussing the
other questions upon which it is claimed that the nonsuit might be
sustained, we regard the one already considered as sufficient, and hence
do not examine the other questions presented for our consideration.
We have also examined the other exceptions to which our atten-
tion has been called by the appellant, but find none that would au-
thorize us to disturb the judgment. Judgment and order affirmed,
with costs.^''
MASON v. ST. PAUL FIRE & MARINE INS. CO.
(Supreme Court of Minnesota, 1901. 82 Minn. 336, 85 N. W. 13, 83 Am. St.
Rep. 4.33.)
Action by George A. Mason against the St. Paul Fire & Marine
Insurance Company. Judgment for plaintiff. From an order deny-
ing a new trial, defendant appeals.
BO The provision as to notice and proofs of loss is substantially the same
in the stanclard form of policy prescribed in New York. Connecticut. Louisi-
ana. Michigan. Missouri. New Jersey, North Carolina, North Dakota. Penn-
sylvania, Rhode Island, South Dakota, and Wisconsin. In Maine, Ma.ssa-
chusetts. Minnesota, and New Hampshire, the provision is in effect that in
case of loss or damage a statement "shall be forthwith rendered to the com-
pany," setting forth, etc.
NOTICE AND PKOOFS OF LOSS 381
Brown, J.^^ This action is one to recover upon a fire insurance
policy, issued by defendant to plaintiff and one ^labey, covering a steam
yacht on the waters of Lake Minnetonka. Plaintiff had a verdict in
the court below, and defendant appeals from an order denying a new
trial.
The facts, briefly stated, are as follows : Plaintiff and Mabey jointly
owned the yacht in question, and insured it in defendant company
for the sum of $1,000, the policy of insurance being- in the form of
the Minnesota Standard Policy, and dated and issued July 14. 1899.
On August 22d following the yacht was totally destroyed by fire, as
alleged in the complaint. Proofs of loss were served upon defendant
on October 10. 1899. Defendant refused to settle the loss, and this
action followed.
There are several assignments of error, but the main question for
consideration is as to the eft'ect of the failure on the part of the in-
sured to make and serve on the company proofs of loss within the time
prescribed by the terms of the policy, viz. forthwith, or, as we have
heretofore held, within a reasonable time after the loss. The trial court
charged the jury that plaintiff had failed to show a compliance with
such provision, but that it was not material ; that the failure did not
invalidate the policy, nor prevent a recovery for an actual loss there-
tmder, — the theory of the court evidently being that as the policy con-
tains no terms of forfeiture, and being silent as to the effect of a
failure in that respect, a provision rendering the policy unenforcea-
ble, and the rights of the insured forTeited, could not be read into it
hy judicial construction.
We have given the matter very careful consideration, and reach
the conclusion that the learned trial judge correctly disposed of the
case. His charge to the jury was in line with the general trend of the
authorities on the subject, and in full accord with the general principles
of law on the subject of forfeitures. The question was not necessarily
involved or considered in Rines v. Insurance Co., 78 Minn. 46, 80 N.
W. 839. nor in Fletcher v. Insurance Co., 79 Minn. 337, 82 N. W.
647, and is now before the court for the first time.
On the subject of proofs of loss, the policy provides as follows :
"In case of any loss or damage under this policy, a statement in writ-
ing, signed and sworn to by the insured, shall be forthwith rendered
to the company, setting forth the value of the property insured." etc.
It further provides for the payment of any such loss within 60 davs
after proofs of loss are served. It contains several provisions, a viola-
tion or failure of compliance with which on the part of the insured
renders it wholly void, but contains no provision or stipulation giving
any such effect to a failure to serve proper proofs of loss within the
time therein provided. Nor is there any general clause in the policy to
that eft'ect. The submission to arbitration as to the amount of loss,
51 Part of tlie opinion is omitted.
382 THE STANDARD FIRE POLICY
where the parties do not agree upon that question, is made a condition
precedent to the right of action on the policy. The policy also pro-
vides that an action thereon must be brought within two years from
the date of the loss, but contains no provision making the service of
proofs of loss within the time specified fatal to the rights of the in-
sured, or a condition precedent to the liability of the company.
It is very generally held by the authorities, in cases where this ques-
tion has been presented, that unless the policy provides a forfeiture,
or makes the service of proofs of loss within the time specified there-
in a condition precedent to the liability of the company, the time with-
in which such proofs are required to be furnished is not of the essence
of the contract. Where no forfeiture is provided by the terms of
the contract, and the service of proofs of loss within the specified time
is not made a condition precedent to the liability of the company,
the effect of such failure is simply to postpone the day of payment.
No liability attaches to the company, however, until such proofs are
furnished ; but unless otherwise provided, expressly or by fair im-
plication, it is not important that the proofs be not in fact served
within the time stated in the policy. 2 May, Ins. (4th Ed.) p. 1097,
note a; Association v. Evans, 102 Pa. 281; Carpenter v. Insurance
Co., 52 Hun, 249, 4 N. Y. Supp. 925 ; Vangindertaelen v. Insurance
Co., 82 Wis. 112, 51 N. W. 1122, 33 Am. St. Rep. 29; Rynalski v.
Insurance Co., 96 Mich. 395, 55 N. W. 981 ; Assurance Co. v. Hanna,
60 Neb. 29, 82 N. W. 97; Steele v. Insurance Co., 93 Mich. 81, 53
N. W. 514. 18 L. R. A. 85; Insurance Co. v. Downs, 90 Ky. 236, 13
S. W. 882; Insurance Co. v. Mattingly, 77 Tex. 162, 13 S. W. 1016;
Kahnweiler v. Insurance Co. ( C. C.) 57 Fed. 562 ; Insurance Co. v.
Knight, 111 Ga. 622, 36 S. E.~821, 52 L. R. A. 70, 78 Am. St. Rep.
216.
It was held by this court in Bowlin v. Insurance Co., 36 Minn. 433,
31 N. W. 859; Shapiro v. Western Home Ins. Co., 51 Minn. 239, 53
N. W. 463; Same v. St. Paul Fire & Marine Ins. Co., 61 Minn.
135, 63 N. W. 614; and Ermentrout v. Insurance Co., 63 Minn. 305,
65 N. W. 635. 30 L. R. A. 346, 56 Am. St. Rep. 481,— that a failure
of strict compliance with similar provisions in the policies there under
consideration was a condition precedent to the company's liability, but
such policies contained express provisions to that efifect, and the de-
cisions there made were based upon that fact. The cases are inap-
plicable, and not in point. Though the policy here under considera-
tion is identical with those in Rines v. Insurance Co. and Fletcher v.
Insurance Co., supra, the precise question now before the court was
not there presented. It was suggested in respondent's brief in the
latter case, but was not argued by appellant. It was there assumed
that compliance with the policy was essential to charge the company
with liability, and the only questions decided with respect to this im-
mediate subject were that "forthwith" should be construed to mean
within a reasonable time, and that what would constitute a reasonable
NOTICE AND PROOFS OF LOSS 383
time was a question of fact to be determined from the evidence and
circumstances of each case.
There is much force in the contention of counsel for appellant that
the insured should be held to a strict compliance with this provision
of the policy. There is every reason why prompt notice should be
given the insurance company. Some of them are suggested in Fletcher
v. Insurance Co., supra. Immediate notice, or notice within a reason-
able time, will afford the company an opportunity to make investigation
into the cause of the fire, which may be essential and necessary to the
protection of its interests, and to which it is justly entitled. It will
afford the company an opportunity to detect fraud, if any be connect-
ed with the loss, to ascertain the nature and extent of the loss, and
make such other investigation as would be fruitless after long delay.
But the policy before us contains no provisions which will justify a
holding that a strict compliance therewith in this respect is essential,
and the matter must be referred to the legislature to consider and ad-
just by proper amendment to the standard policy law, if such amend-
ment shall be deemed just and equitable. * * * Affirmed. ^^
6 2 See, also, Welch v. Fire Association, 120 Wis. 456, 98 N. W. 227 (1904).
384 TERMS OF THE LIFE POLICY
TERMS OF THE LIFE POLICY
I. Designation of Beneficiary *•
LYONS V. YEREX.
(Supreme Court of Michigan, 1894. 100 Mich. 214. 58 N. W. 1112, 43 Am.
St. Rep. 452.)
Action by James H. Lyons against David V. Yerex to recover pro-
ceeds of insurance on his father's life, held by defendant, because
claimed by the widow. From a judgment awarding the fund to the
widow, plaintiff brings error.
McGrath, C. J. On the 30th day of September there was issued
to Harrison H. Lyons a certificate of membership in the N^orthwestern
Masonic Aid Association, a mutual benefit or co-operative insurance
company, which was made payable "to the heirs at law of the said
Harrison H. Lyons." The insured died intestate, leaving a widow and
one son. By agreement the money was paid over to defendant, who
paid one-half thereof to plaintiff, who now sues to recover the bal-
ance, claiming that the widow is not entitled to share in the proceeds
of the policy.
Under our statute the widow takes a share of the personal prop-
erty of her husband as distributed, and not as dowress, and is an
heir as to such property. In Hascall v. Cox, 49 Mich. 435, 440, 13
N. W. 807, 809, it is said : " 'Heirs' is a technical word, and when
it is made use of in any legal instrument there is a presumption, more
or less strong, according to the circumstances, that it is employed in
a technical sense. But in common speech the word is frequently used
to indicate those who come in any manner to the ownership of any
property by reason of the death of an owner, and may then include
next of kin and legatees as well as those who take by descent. And
in wills, which are often very informal instruments, and drawn with-
out legal assistance, the word is sometimes employed with quite as
little regard to the technical sense."
In the present case we are not considering the use of the word in
a will, but in a contract of insurance, in which the insured has used
the word to designate the beneficiaries. In determining the significa-
tion of words used in any case we are to consider all the surrounding
circumstances. The original purpose of such contracts on the part
of the insured is to make provision for dependants. It is most prob-
1 For discussion of principles, see Vance on Insurance, § 193. See, also,
Cooley, Briefs on the Law of In.surance, vol. 4, p. 3720.
DESIGNATION OF BKNEFICIART 385
able that the insured was actuated by the motive which ordinarily
prompts men to take out insurance. The common acceptation of the
term "heir" has already been referred to. The statute makes the
widow an heir as to personal property, and the wife is within the class
of persons protected and sought to be protected by this class of in-
surance.
In Tillman v. Davis, 95 N. Y. 17, 47 Am. Rep. 1, cited by plaintiff,
the court w^as construing a will in which the testatrix was dealing with
both real and personal property, and the court held that the word
"heirs" w^as used to designate blood relations. In Griswold v. Saw-
yer, 125 N. Y. 411, 26 N. E. 464, it was held that the term "legal
representatives," as used in a life insurance policy, includes the widow.
The opinion was written by the same justice who wrote Tillman v.
Davis. The court say: "Air. Griswold was not a lawyer, and hence
cannot be supposed to have used these words in their strict, technical
legal sense, but it is more reasonable to suppose that he used them in
the general sense in which they are frequently used and generally un-
derstood by laymen."
In Kaiser v. Kaiser, 13 Daly (X. Y.) 522, it was held that the words
"legal heirs," used in a certificate of membership in a mutual insur-
ance association, include the widow. Bookstaver, J., says : "We think
all this inconsistent with the theory that he used the phrase 'legal
heirs' in its ordinary acceptation, but we think that he intended there-
by to designate his wife and children, if he should leave any; and
this is the meaning often attached to the phrase by the unlearned,
especially when only personal property is concerned."
Gauch V. Insurance Co., 88 111. 251, 30 Am. Rep. 554, is also cited,
but the court there held that under the statute the widow did not take
an interest in her husband's personal property as a distributee but
as dowress. In Lawwill v. Lawwill, 29 111. App. 643, decedent held
a policy in the ISIasonic Benefit Association, payable to his legal heirs.
He died, leaving a widow, but no children. The statute provided that,
in case the husband died without issue, the widow should take all the
personal property. The court held that the widow was within the
contingencies specified in the statute, and was the heir at law to his
estate, and that the word "heirs," when uncontrolled by the context,
must be construed to mean the persons designated by the statute as
such in case of intestacy. See. also. Association v. Hoffman, 110 111.
603, and Alexander v. Association, 126 111. 558, 18 N. E. 556, 2 L
R. A. 161.
In Johnson v. Supreme Lodge, 53 Ark. 255, 13 S. W. 794, 8 L. R.
A. 732, Battle, J., says : "Suffice it to say that the weight of authority
holds that the word 'heir,' when used in any instrument to designate
the persons to whom personal property is thereby transferred, given,
or bequeathed, and the context does not explain it, means those who
would, under the statute of distributions, be entitled to the personal
CooLEY Ins. — 25
386 TERMS OF THE LIFE POLICY
estate of the persons of whom they are mentioned as heirs, in the
event of death and insolvency. * * * j^ many states where the
widow is entitled to take under the statute of distribution she is held
to be heir of her deceased husband as to his personal estate, but it is
different in this state. * * * It is true that section 2592, Mansf.
Dig., provides : 'If a husband die, leaving a widow and no children,
such widow shall be endowed of one-half of the real estate of which
such husband died seised, and one-half of the personal estate, abso-
lutely in her own right.' But she takes the one-half of the personal
estate as dower, absolutely and independent of creditors and not as a
distributive share."
In Bailey v. Bailey, 25 Mich. 185 ; Barnett v. Powers, 40 Mich. 317;
Richardson v. Martin, 55 N. H. 45; Ivins' Appeal, 106 Pa. 176, 51
Am. Rep. 516; Luce v. Dunham, 69 N. Y. 36; and Dodge's Appeal,
106 Pa. 216, 51 Am. Rep. 519, — the property with reference to which
the word was used was real estate. In the latter case, Sterrett, J.,
in the opinion, says : "If the fund for distribution was personalty, the
widow would perhaps be entitled to participate therein."
In De Beauvoir v. De Beauvoir, 3 H. L. Cas. 537, the property
devised was both real and personal. The court says : "On the face
of the will it was the intention of the testator to make the two funds
a blended property, and to give them the character of real estate, and
to make both the properties go together."
Nibl. Mut. Ben. Soc. § 247, says : "At common law one's heirs are
the persons who would inherit his real estate by right of blood. The
statutes of adoption and those of descent have, in every state, to a
greater or less degree, enlarged the meaning of the word, so that it
may include persons not of the blood of the intestate. At common
law the word has no reference to the distribution of an}'^ personalty,
and this rule has not been disturbed by statute in some states. In
those states, therefore, where this common-law rule obtains, the word
'heirs,' in a statute setting forth a class of persons who may take the
fund, or in a certificate designating the persons who shall take the
fund on the member's death, must be taken to mean the person or
persons to whom the real estate of the member will pass under the
statutes of descent, whether such person or persons be akin to him or
not. In most states, however, the statutes provide not only who shall
inherit the realty of an intestate, but also who shall be the heirs of
his personal property."
The same author, at section 248, says : "Nothing is more natural,
therefore, than to regard the heirs of the intestate's personal property
as the beneficiaries designated in the contract of insurance as 'my
heirs.'" See Houghton v. Kendall, 7 Allen (Mass.) 72; White v.
Stanfield, 146 Mass. 424, 15 N. E. 919; Addison v. Association. 144
Mass. 591, 12 N. E. 407; Collier v. Collier, 3 Ohio St. 374; Eby's
Appeal, 84 Pa. 241 ; Freeman v. Knight, 2)7 N. C. 72 ; Insurance Co.
V. Miller, 13 Bush. (Ky.) 489; Wilburn v. Wilburn, 83 Ind. 55; Cos-
SUICIDE — WHEN NOT EXCEPTED IN THE POLICY 387
ling V. Caldwell, 1 Lea (Tenn.) 454, 27 Am. Rep. 774; Ward v.
Saunders, 3 Sneed (Tenn.) 387; Croom v. Herring, 11 N. C. 393.
Under the circumstances, we think it must be presumed that by the
use of the words "my heirs" the insured intended to include those
designated by the statute as such, and to whom the law would give
that class of property in case of intestacy. The judgment must there-
fore be affirmed.
II. Suicide — When Not Excepted in the Policy
SEILER V. ECONOMIC LIFE ASS'N OF CLINTON.
(Supreme Court of Iowa, 1S98. 105 Iowa, 87, 74 N. W. 941, 43 L. R. A. 537.)
Plaintiffs sue to recover insurance upon the life of one Joseph Seiler,
deceased. Two actions were brought, each upon a different policy.
The actions were consolidated in the trial court. Defendant made one
answer to the two claims, as combined. There was a trial to jury,
verdict and judgment for plaintiff's, and defendant appeals.
Waterman, J.=* The undisputed facts in the case are that the de-
fendant company issued to one Joseph Seiler the two policies in suit,
numbered, respectively, 17,146 and 17,147. By these policies the life
of said Seiler was insured for the benefit of the plaintiffs in the sum
of $2,000; each policy being for the sum of $1,000. Both of these
policies were issued upon a single application. This application was
signed, "Joseph Seiler ;" and a copy thereof, with the exception that
the signature was omitted, and in its place appeared the word "Signed,"
was attached to policy No. 17,146. No copy or purported copy of
the application was attached to policy No. 17,147, but there was an
indorsement thereon in these words : "For copy of application, see
policy No. 17,146, issued to same party." The policies were taken
out on the 31st day of August, 1895; and, on the 7th day of October
following, Seiler committed suicide. The policies contained no pro-
vision in relation to suicide, but there was this clause in the applica-
tion, "I also warrant and agree that I will not die by my own act.
whether sane or insane, during the period of three years following
the date of issue of the policy for which application is hereby made."
The defense of suicide was set up in two forms. In one, as we have
said, it went to the jury. The paragraph of the answer to which the
demurrer was sustained was as follows : "That the said Joseph Seiler
2 For cliscnssiou of r-rinciples. see Vauoe on Insurance. §§ 195, 196. See,
also, Coolpy, Briefs on the Law of Insurance, vol. 4, p. 3224.
3 Part of the opinion is omitted.
388 TERMS OF THE LIFE POLICY
on or about the 7th day of October, 1895, and while in sane mental
condition, and able to understand the moral character and consequences
of his act, committed suicide, and intentionally and purposely killed
himself, by shooting. The question thus presented by the ruling on
the demurrer is : If a policy of insurance on life, containing no stipu-
lation as to suicide, is taken out in good faith by the assured, will it
be avoided, as against a beneficiary named therein, by the fact that the
assured thereafter, while sane, deliberately and purposely took his
own life? The authorities are not many on the subject, and they are
not seriously in conflict. While there are a number of cases in which
something, has been said upon this matter in the way of dicta, there
is but one in which it has been expressly decided that the sviicide of
the assured, if sane, will avoid a policy that contains no provision
of forfeiture in such case ; and that is Ritter v. Insurance Co., 169
U. S. 139, 18 Sup. Ct. 300, 42 L. Ed. 693, decided at the October
term of the federal supreme court. The opinion in this case in the
circuit court of appeals appears in 17 C. C. A. 537, and 70 Fed. 954,
42 L. R. A. 583. This last citation is given because we shall have
occasion to refer to this opinion in the course of what we shall say.
It was held in the Ritter Case that there could be no recovery on a
policy of insurance by the executor of one who, while sane, intention-
ally took his own life, even though the policy contained no clause of
forfeiture because of such act. We think that case is readily dis-
tinguishable from the case at bar. In the Ritter Case the action was
brought by the personal representative of the assured, whose claim
had to be made through the wrongdoer, while here the suit is insti-
tuted by beneficiaries named in the policy, and who claim in their own
right.
An investigation will disclose that the distinction we make is mate-
rial, and supported by authority. In Moore v. Woolsey, 4 El. & Bl.
243, the policy contained a stipulation avoiding it, as far as regarded
the executors and administrators of the assured, if he died by his own
hand, but leaving it in force to the extent of any interest acquired by
a third person. The plea was that the assured had committed suicide.
Replication that one Kettle, before the death of the assured, had ac-
quired by assignment an interest in the policy. Upon these issues, Lord
Campbell, delivering the opinion, said : "If a man insures his life for
a year, and commits suicide within the year, his executors cannot re-
cover upon the policy, as the owner of a ship, who insures her for a
year, cannot recover upon the policy if within the year he cause her
to be sunk. A stipulation that in either case upon such an event the
policy would give a right of action would be void." This is the lan-
guage quoted in the Ritter Case, and it was obiter only. But Lord
Campbell said something more, and something, not oidy pertinent to
the issues before him, but that has direct application to the matter we
are considering. He continues : "But, v.here a man insures his own
life, we can discover no illegality in a stipulation that if the policy
SUICIDE — WHEN NOT EXCEPTED IN THE POLICY 389
should afterwards be assigned, bona fide, for a valuable consideration,
or a lien upon it should afterwards be acquired, bona fide, for a val-
viable consideration, it might be enforced for the benefit of others,
whatever may be the means of his death. * * * The supposed
inducement to commit suicide under such circumstances cannot vitiate
the condition, more than the inducement which the lessor may be sup-
posed to have to commit murder should render invalid a beneficial lease
granted for lives. When we are called upon to nullify a contract on
the ground of public policy, we must take care that we do not lay
down a rule which may interfere with the innocent and useful transac-
tions of mankind."
If public policy does not stand in the way of a recovery by an as-
signee, we can discern no reason why it should in the case of a bene-
ficiary named in the contract. It may be said that the assignee spoken
of is one whose claim rests upon a consideration paid. To this we
would say that the claim of the beneficiary is also based upon a con-
sideration paid by the assured. If it should further be said that pub-
lic policy does not bar a recovery by the assignee because the interests
of creditors furnish little or no motive for the self-destruction of the
assured, our answer would be this: The motives for suicide are mani-
fold and varied. An inquiry as to what inducement is most likely to
impel one to the act is profitless, for any rule of law that would pre-
vent a recovery by these plaintiffs would operate in like manner against
a mere creditor, if he were the beneficiary named.
And, further, we might call attention to the Ritter Case, in which
the assured admittedly sacrificed his life for the benefit of his cred-
itors. In the opinion in the Ritter Case in the circuit court of appeals
it is said : "In the cases brought to our attention where suicide during
sanity, by the person whose life was insured, was held not to be a valid
defense, the policy was issued for the benefit of some other person, or
an independent interest, by assignment or otherwise, had been ac-
quired by a third person." Here is the distinction plainly made. So,
also, in the opinion of Mr. Justice Harlan on appeal, we think the
same idea is expressed. In commenting on an expression used in an-
other case, he says : "This observation was irrelevant to the case before
the court, and cannot be regarded as determining the point in judg-
ment. If it was meant there could be a recovery by the personal rep-
resentative, * * * ^ve cannot concur in that view."
Another and a convincing reason for thinking that the doctrine an-
nounced in the Ritter Case was not intended to go further than to
deny a right of recovery to the personal representatives of the assured
is that no one of the several cases in which beneficiaries named in the
contract have been held entitled to recover was mentioned in that opin-
ion. We shall now refer to these cases :
Fitch V. Insurance Co., 59 N. Y. 559, 17 Am. Rep. 372. is the first.
Suit was brought by the w^idow, to whom the policy was payable. The
contract contained no clause avoiding it in case of suicide by the as-
390 TERMS OF THE LIFE POLICY
sured. One defense tendered was that the assured took his own life.
Evidence to sustain it was excluded by the trial court. In affirming this
ruling the court of appeals says : "The policy contained! no stipulation
that it should be void in case of the death of the insured by suicide.
It was not taken out for the benefit of Fitch, but of his wife and chil-
dren. Although they were bound by his representations, and any fraud
he may have committed in taking out the policy, the policy having been
obtained through his agency, yet they were not bound by any acts or
declarations done or made by him after the issue of the policy, unless
such acts were in violation of some condition of the policy."
In Darrow v. Society, 116 N. Y. SZ7 , 22 N. E. 1093, 6 L. R. A.
495, 15 Am. St. Rep. 430, the plaintii? was the beneficiary under the
contract. The assured committed suicide. There was a provision in
the policy that it should "be void if the member herein shall die in
consequence of a duel, or by the hands of justice, or in violation of,
or an attempt to violate, any criminal law of the United States, or
of any state or country in which the member may be." Held that,
suicide not being a crime in New York, the condition of the policy
was not violated, and the plaintifif could recover.
Kerr v. Association, 39 Minn. 174, 39 N. W. 312, 12 Am. St. Rep.
631, is a case similar in principle to the last. The same holding in
favor of a beneficiary has been made by this court in Goodwin v. So-
ciety, supra [97 Iowa, 226, 66 N. W. 157, 32 L. R. A. 473. 59 Am.
St. Rep. 411]. The policy sued upon provided for its forfeiture in
the event of suicide within two years, and by its express terms it was
incontestable after that time. After the lapse of that period the as-
sured took his own life. The policy was issued to the wife. In an ac-
tion by her, we held she could recover. Now, if suicide is a risk that
the company is forbidden, by considerations of public policy, to take,
it could not have been held as within the agreement not to contest ; for,
if a contract to insure as against the risk of suicide is void, the waiver
here must have been invalid, and the defense should have been sus-
tained. The question was brought directly to the attention of the court
in argument, as appears from the language of the opinion.
These are the cases which we have been able to find. We wish now
to add a few words on principle, by way of emphasis of a thought al-
ready expressed. It is not the wrongdoer who makes claim here, nor
any representative whose rights are to be measured by those of the
wrongdoer, but persons who acquired an interest at the time the policy
was taken out, and who are not in any way responsible for the loss
under it. The defendant might well have guarded against this con-
tingency in its contract. Not having done so, we think it is now in
no position to complain. * * * Affirmed.*
4 Accord: Kerr v. Minnesota Mut. Ben. Ass'n. 39 Minn. 174, 39 N. W. 312,
12 Am. St. Rep. 631 (1888). Tattergon v. Natural Prem. Mut. Life Ins. Co.,
100 Wis. 118, 75 N. W. 980, 42 L. R. A. 253, G9 Am. St. Rep. 899 (1898).
SUICIDE — WHEN EXCEPTED IN POLICY 391
III, Suicide — When Excepted in the Policy
BIGELOW V. BERKSHIRE LIFE INS. CO.
(Supreme Court of Fuited States. 1S76. 93 U. S. 284, 23 L. Ed. 018.)
Error to the Circuit Court of the United States for the Xorthern
District of Ilhnois.
This is an action on two poHcies issued by the defendant on the
life of Henry W. Bigelow. Each contained a condition in avoidance,
if the insured should die by suicide, sane or insane ; and in such case
the company agreed to pay to the party in interest the surrender
value of the policy at the time of the death of Bigelow. The defend-
ant pleaded that Bigelow died from the effects of a pistol-wound in-
flicted upon his person by his own hand, and that he intended by this
means to destroy his life. To this the plaintiffs replied, that Bigelow,
at the time when he inflicted the pistol-wound upon his person by his
own hand, was of unsound mind, and wholly unconscious of the act.
A demurrer to this replication was sustained by the court below, and
the plaintiffs bring the case here for review.
Mr. Justice Davis delivered the opinion of the court.
There has been a great diversity of judicial opinion as to whether
self-destruction by a man, in a fit of insanity, is within the condition of
a life policy, where the words of exemption are that the insured "shall
commit suicide," or "shall die by his own hand." But since the deci-
sion in Life Ins. Co. v. Terry, 15 Wall. 580, 21 L. Ed. 236, the ques-
tion is no longer an open one in this court. In that case the words
avoiding the policy were, "shall die by his own hand" ; and we held
that they referred to an act of criminal self-destruction, and did not
apply to an insane person who took his own life. But the insurers
in this case have gone further, and sought to avoid altogether this
class of risks. If they have succeeded in doing so, it is our duty to
give effect to the contract ; as neither the policy of the law nor sound
morals forbid them to make it. If they are at liberty to stipulate
against hazardous occupations, unhealthy climates, or death by the
hands of the law, or in consequence of injuries received when intox-
icated, surely it is competent for them to stipulate against intentional
self-destruction, whether it be the voluntary act of an accountable
moral agent or not. It is not perceived why they cannot limit their
liability, if the assured is in proper language told 6f the extent of
the limitation, and it is not against public policy. The words of this
stipulation, "shall die by suicide (sane or insane)," must receive a
5 For discussion of principles, see Vance on Insurance, §§ 197-199. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, p. 3224.
392 TERMS OF THE LIFE POLICY
reasonable construction. If they be taken in a strictly literal sense,
their meaning might admit of discussion; but it is obvious that they
were not so used. "Shall die by his own hand, sane or insane," is,
doubtless, a more accurate mode of expression ; but it does not more
clearly declare the intention of the parties.
Besides, the authorities uniformly treat the terms "suicide" and "dy-
ing by one's own hand," in policies of life insurance, as synonymous,
and the popular understanding accords with this interpretation. Chief
Justice Tindall, in Borradaile v. Hunter, 5 Mann. & Gr. 668, says,
"The expression, 'dying by his own hand,' is, in fact, no more than
the translation into English of the word of Latin origin, 'suicide.' "
Life insurance companies indiscriminately use either phrase, as con-
veying the same idea. If the words, "shall commit suicide," standing
alone in a policy, import self-murder, so do the words, "shall die by
his own hand." Either mode of expression, when accompanied by
qualifying words, must receive the same construction. This being so,
there is no difficulty in defining the sense in which the language of
this condition should be received. Felonious suicide was not alone in
the contemplation of the parties. If it had been, there was no neces-
sity of adding anything to the general words, which had been con-
strued by many courts of high authority as not denoting self-destruc-
tion by an insane man. Such a man could not commit felony ; but,
conscious of the physical nature, although not of the criminality, of
the act, he could take his own life, with a settled purpose to do so.
As the line between sanity and insanity is often shadowy and diffi-
cult to define, this company thought proper to take the subject from
the domain of controversy, and by express stipulation preclude all
liability by reason of the death of the insured by his own act, whether
he was at the time a responsible moral agent or not. Nothing can
be clearer than that the words, "sane or insane," were introduced for
the purpose of excepting from the operation of the policy any in-
tended self-destruction, whether the insured was of sound mind or
in a state of insanity. These words have a precise, definite, well-
understood meaning. No one could be misled by them; nor could
an expansion of this language more clearly express the intention of
the parties. In the popular, as well as the legal, sense, suicide means,
as we have seen, the death of a party by his own voluntary act; and
this condition, based, as it is, on the construction of this language,
informed the holder of the policy, that, if he purposely destroyed his
own life, the company would be relieved from liability.
It is unnecessary to discuss the various phases of insanity, in order
to determine whether a state of circumstances might not possibly arise
which would defeat the condition. It will be time to decide that ques-
tion when such a case is presented. For the purposes of this suit, it
is enough to say, that the policy was rendered void, if the insured was
conscious of the physical nature of his act, and intended by it to cause
SUICIDE — WHEN EXCEPTED IN POLICY 393
his death, although, at the time, he was incapable oi judging between
right and wrong, and of understanding the moral consequences of
what he was doing.
Insurance companies have only recently inserted in the provisos to
their policies words of limitation corresponding to those used in this
case. There has been, therefore, but little occasion for courts to pass
upon them. But the direct question presented here was before the
Supreme Court of \\'isconsin in 1874, in Pierce v. Travelers' Life In-
surance Company, 34 Wis. 389, and received the same solution we have
given it. More words were there used than are contained in this pro-
viso; but the effect is the same as if they had been omitted. To say
that the company will not be liable if the insured shall die by "suicide,
felonious or otherwise," is the same as declaring its non-liability, if
he shall die by "suicide, sane or insane." They are equivalent phrases.
Neither the reasoning nor the opinion of that court is at all affected
by the introduction of words which are not common to both policies.
It remains to be seen whether the court below erred in sustaining
the demurrer. The replication concedes, in effect, all that is alleged
in the plea; but avers that the insured at the time "was of unsound
mind, and wholly unconscious of the act." These words are identical
with those in the replication to the plea in Breasted v. Farmers' Loan
& Trust Company, 4 Hill (N. Y.) 73 ; and Judge Nelson treated them
as an averment that the assured was insane when he destroyed his
life. They can be construed in no other way. If the insured had
perished by the accidental discharge of the pistol, the replication would
have traversed the plea. Instead of this, it confesses that he inten-
tionally took his own life ; and it attempts to avoid the bar by set-
ting up a state of insanity. The phrase, "wholly unconscious of the
act," refers to the real nature and character of the act as a crime, and
not to the mere act itself. Bigelow knew that he was taking his own
life, and showed sufficient intelligence to employ a loaded pistol to ac-
complish his purpose; but he was unconscious of the great crime he
was committing. His darkened mind did not enable him to see or ap-
preciate the moral character of his act, but still left him capacity
enough to understand its physical nature and consequences.
In the view we take of the case, enough has been said to show that
the court did not err in holding that the replication was bad. Judg-
ment affirmed.*'
6 See. also, Scherar v. Prudential Ins. Co., 63 Neb. 530, S8 N. W. 6S7. 56
L. R. A. 611 (1902) in which the policy pi'ovided that if the insured should
commit suicide within three years from the date of the policy the liability
of the company should be limited to the amount of premiums paid.
39i TERMS OF THE LIFE POLICY
IV. Death in Violation of Law ^
COLLINS V. METROPOLITAN LIFE INS. CO.
(Supreme Court of Illinois. 1907. 2.32 111. 37, 83 N. E. 542, 14 L. R. A. [N. S.]
356, 122 Am. St. Rep. 54, 13 Ann. Cas. 129.)
Action by Hugh ColHns, as executor of the estate of Robert Kil-
patrick, deceased, against the MetropoHtan Life Insurance Company,
on a Hfe insurance policy issued by that company on the life of Robert
Kilpatrick. The policy provided that it should be incontestable after
two years except for the nonpayment of premiums or for fraud. Two
defenses are set up in the pleas of the insurance company : First, that
Kilpatrick was indicted, tried, convicted, and executed for murder ;
second, that in 1903 the plaintiff commenced a suit in the court of
common pleas of Philadelphia against the insurance company on the
same policy declared on in this suit ; that a rule was entered upon
the defendant by that court to file its affidavit of defense ; that the
defendant filed its affidavit, setting up the indictment, trial, conviction,
and execution of Kilpatrick on the charge of murder, and that it was
adjudged and decided by said court that on the ground of public policy,
the insured having been executed for a crime, the plaintiff could not
recover ; that the plaintiff took an appeal to the superior court of
Pennsylvania, and upon such appeal the superior court decided that the
facts alleged in the affidavit constituted a good defense to said suit,
and dismissed the plaintiff's appeal at the cost of the plaintiff, but with-
out prejudice. The plea setting up the latter defense contained aver-
ments of facts showing jurisdiction of the court over the parties and
subject-matter. The plaintiff below demurred to the pleas. The de-
murrer was overruled, and, the plaintiff electing to abide his demur-
rer, the court gave judgment against him for costs. Upon an appeal
to the Appellate Court for the First District, the judgment of the
circuit court of Cook county was affirmed. The case comes to this
court on a certificate of importance, the amount involved being less
than $1,000.«
ViCKERS, J. Whether the legal execution of the assured for a crime
committed by him constitutes a defense to an action by his legal rep-
resentative on a life insurance policy is a question of first impression
in this state. Where this defense has been sustained, it is generally
upon the ground that it is contrary to public policy to permit a re-
covery where the death is in consequence of a violation of the law.
7 For discussion of principles, see Vance on Insurance. §§ 200, 201. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, pp. 3143-3152.
8 The statement of facts is rewritten.
DEATH IN VIOLATION OF LAW 395
This is the basis of the decision of this case by the Appellate Court,
and is the main reason urged here in support of the judgment below.
It is said by the defendant in error that to permit a recovery on
this policy would be contrary to the public policy of this state, as it
would tend to remove a restraint thrown around persons who are
tempted to commit crimes. The argument rests upon the same
grounds that were urged centuries ago in support of the now obsolete
doctrine of attainder and corruption of blood. In the earlier history
of the common law various consequences other than the punishment
of the offender followed conviction for felony, and in some instances
the causing of a death by mere misadventure or negligence was visited
with certain forfeitures and penalties. Without attempting historical
accuracy, the law of England provided that all the property, real and
personal, of one attainted should be forfeited and his blood so cor-
rupted that nothing could pass by inheritance to, from, or through
him. He could not sue, except to have his attainder reversed. Thus
the wife, children, and collateral relations of the attainted person suf-
fered with him. As said by Bishop: "When the tree fell, it brought
down all its branches." 1 Bishop on Crim. Law, § 968. As further
illustrating the rigor of the old English law, it was provided that, if
a man be indicted for felony and flees, he forfeits by flight his goods,
and "he that committeth homicide by misadventure shall forfeit his
goods ; and so shall he which doth kill a man in his own defense for-
feit his goods ; and likewise he that killeth himself and is felo de se
shall forfeit his goods ; and he that being indicted to felony shall
stand mute and not answer directly, or challenge peremptorily above
twenty persons, shall forfeit his goods."
These ancient doctrines, whether resting upon grounds of public
policy or upon the other reason which is sometimes put forth, that the
government is entitled to the goods of the felon as compensation for
the injury done and the expense occasioned, have failed to satisfy the
conscience and judgment of courts of later periods in England, and
have never had a potential existence in American jurisprudence. The
Constitution of the United States, art. 3, § 3, provides that "no attain-
der of treason shall work corruption of blood or forfeiture except dur-
ing the life of the person attainted" and by an act of Congress passed
in 1790 (Act April 30, 1790, c. 9, 1 Stat. 112) all corruption of blood
and forfeitures, whether for treason or felony, as to convictions un-
der the federal law, were abolished. This doctrine never had any
existence in Illinois, even in the modified form which seems to be rec-
ognized in the federal Constitution. In all the Constitutions adopted
in this state a provision similar to the one found in section 11 of ar-
ticle 2 of the Constitution of 1870 is to be found. Thus, the Consti-
tution of 1818 provided: "No ex post facto law, nor any other law
impairing the validity of contracts, shall ever be made, and no con-
viction shall work corruption of blood or forfeiture of estate" (ar-
ticle 8, § 16). The Constitution of 1848 (article 13, § 17) contained the
396 TERMS OF THE LIFE POLICY
same clause, while the Constitution of 1870 declares: "All penalties
shall be proportioned to the nature of the offense, and no conviction
shall work corruption of blood or forfeiture of estate ; nor shall any
person be transported out of the state for any offense committed with-
in the same."
There are in these several constitutional provisions clear and un-
equivocal declarations of the public policy of this state, to the effect
that no forfeiture of property rights shall follow conviction for crime.
This public policy is further manifested by our statute in regard to
descent of property in case of intestacy, and the general power of
disposition of property by will, conferred by our statute of wills.
In none of these statutes is the right conferred in respect to property
made to depend on the manner or cause of the death of the owner.
To hold that the property of one who was executed in this state for
a crime was not subject to the same law of descent and devise as prop-
erty generally would be nothing less than judicial legislation by in-
grafting exceptions in statutes where none exist by the language of
the law. Statutes of descent and devise are legislative declarations of
the public policy of the state on the subjects to which they relate.
The rules of the common law on these subjects have been wholly
superseded by our statutes. Kochersperger v. Drake, 167 111. 122, 47
N. E. 321, 41 L. R. A. 446; Storrs v. St. Luke's Hospital, 180 111.
368, 54 N. E. 185, 72 Am. St. Rep. 211; Sayles v. Christie, 187 111.
420, 58 N. E. 480; In re Mulford, 217 111. 242, 75 N. E. 345, 1 L.
R. A. (N. S.) 341, 108 Am. St. Rep. 249, 3 Ann. Cas. 986.
Statutes of descent and devise similar to ours have generally been
held not to exclude an heir or devisee from the benefits of these stat-
utes on the ground that the heir or devisee had feloniously and in-
tentionally destroyed the life of the person from whom the legacy or
inheritance was expected. The Court of Appeals of New York, in
Riggs v. Palmer, 115 N. Y. 506, 22 N. E. 188, 5 L. R. A. 340, 12 Am.
St. Rep. 819, by a divided court decided against the right of a dev-
isee who had murdered the testator to take under the will ; but this
case has not generally been regarded as sound by the other courts.
In a well-considered case in Nebraska the Supreme Court of that
state retracted its first opinion in the case, and upon a rehearing held
that, under a statute of descent similar to ours, the fact that the father
had feloniously murdered his child did not prevent the operation of
the statute of descent, and that the felon inherited the estate of his
victim. Shellenberger v. Ransom, 41 Neb. 641, 59 N. W. 935, 25 L.
R. A. 564. The Supreme Court of North Carolina, in Owens v.
Owens, 100 N. C. 240, 6 S. E. 794, decided that the fact that the wife
had been convicted of being an accessory before the fact for the
murder of her husband furnished no legal reason for denying her a
dower in her husband's real estate. Another case in point is found in
Deem v. Alilliken, 6 Ohio Cir. Ct. R. 357. In this case the heir had
murdered the ancestor, and it was held that he was entitled to in-
DEATH IN VIOLATION OF LAW 397
herit. The case of Carpenter's Estate, 170 Pa. 203, 32 Atl. 637, 29
L. R. A. 145, 50 Am. St. Rep. 765, holds that one who kills his an-
cestor for an estate that would naturally come to him under the stat-
utes of descent and distribution may take it under a Constitution pro-
hibiting attainders working corruption of blood and forfeitures of es-
tates and under statutes providing no penalty for murder except by
hanging.
We cite these cases, but not for the purpose of approving them.
The question decided in them is not involved here. We refer to these
cases merely to show that the courts refused, in the face of a plain
statutory declaration of the public policy of the state, to interpolate,
by construction, an exception thereto.
In Holdom v. Ancient Order of United Workmen, 159 111. 619, 43
N. E. 772, 31 L. R. A. 67, 50 Am. St. Rep. 183, this court held that
an insane beneficiary who murdered the assured could recover. The
<:ases of Shellenberger v. Ransom and Owens v. Owens, supra, are
cited with approval by this court upon the general proposition that for
the courts to declare a forfeiture for crime where the Legislature has
remained silent is legislation by judicial tribunals — a subject with
which they have no concern. These cases are much stronger than the
one at bar. There is much more room for holding that one who has
been the guilty agent in accelerating a death as a result of which he
expects to come into an inheritance or legacy or a benefit under an
insurance policy should be denied the benefits of his own wrong on
grounds of public policy, than there is for denying innocent heirs, dev-
isees, or beneficiaries their rights because the person through whom
they claim was executed for crime. This court held in Knights of
Honor v. Menkhausen, 209 111. 277, 70 N. E. 567, that, while a ben-
eficiary who has murdered the assured could not recover, still the heirs
of the assured who are within the class of eligible beneficiaries were
entitled to recover, although not named in the certificate as benefici-
aries.
The public policy of a state is to be sought for in its Constitution,
legislative enactments, and judicial decisions. When the sovereign
power of the state has by written Constitution declared the public
policy of the state on a particular subject, the legislative and judicial
departments of the government must accept such declaration as final.
When the Legislature has declared, by law, the public policy of the
state, the judicial department must remain silent, and, if a modifica-
tion or change in such policy is desired, the lawmaking department
must be applied to, and not the judiciary, whose function is to declare
the law, but not to make it. Limiting their actions to questions left
open by the Constitution and the statutes, courts may, no doubt, apply
the principles of the common law to the requirements of the social,
moral, and material conditions of the people of the state, and declare
what rule of public policy seems best adapted to promote the peace,
good order, and general welfare of the community. Hence arises the
398 TERMS OP THE LIFE POLICY
rule that the decisions of its courts are to be investigated in determin-
ing the public policy of any government.
An insurance policy payable to the estate or personal representatives
of the assured is a species of property. It is in the nature of a chose
in action, which, sul3Ject to certain conditions, varying according ta
the terms of the contract, is payable upon the contingency of death
or at a stated time. Life insurance has become an important factor
in the commercial and social life of our people. To protect their
credit, save their estates from embarrassment, and provide for depend-
ent ones, the people of this state pay annually over $30,000,000 in
premiums for life insurance. See Official Report of Commissioner of
Insurance, part 2, p. 6. The amount of insurance carried is approx-
imately $1,000,000,000. Why should this enormous property interest
be subject to any different conditions than those applying to any other
property owned by the people? If a man who is executed for crime
has at his death $1,000 in real estate, $1,000 in chattels, and $1,000
life insurance payable to his estate, his real estate descends to his heir,
and his personal chattels to his administrator, but the $1,000 life in-
surance must be left in the hands of the company who has received
the premiums because it is said to be contrary to public policy to re-
quire the company to pay, lest by so doing it lend encouragement tO'
other policy holders to seek murder, and execution therefor, in order
that their estates or heirs might profit thereby. This is defendant in
error's position. This contention seems to border closely on the ab-
surd. We know of no rule of public policy in this state that will en-
force this species of forfeiture, but there is a rule of law which has
often been applied when two parties make a valid contract and the
same has been completely performed by one party and nothing re-
mains except the performance by the other, which will compel per-
formance or award damages for the default against the delinquent
party.
We are aware that courts have not always reached the same con-
clusion upon this question. So far as we are advised, all the cases
in which the opposite conclusion has been reached are based upon
the English case. Amicable Society v. Holland, 4 Bligh (N. R.) 194,
decided by the House of Lords in 1830. The facts in that case as
stated by the Lord Chancellor are: "In January, 1815, Henry Fauntle-
roy insured his life with the Amicable Insurance Society. In the
month of May, in the same year, he committed a forgery on the Bank
of England. He continued to pay the premiums upon his insurance
for a considerable period of time. In the year 1824 he was appre-
hended, and on the 29th of October in that year he was declared a
bankrupt, and an assignment of his effects was made to the respond-
ent. On the following day, the 30th of October, he was tried for
forgery, found guilty, and sentenced to death, and in the month of
November following was executed." The court held that there could
be no recovery. The grounds of the decision were that to allow a
DEATH IN VIOLATION OF LAW 390
recovery would "take away one of those restraints operating on the
minds of men against the commission of crime."
It should be borne in mind that forfeitures for the commission of
crime were enforced in England at the time of this decision, and con-
tinued to be, with more or less severity, until abolished by 33 and 34
Victoria, passed in 1870. 1 Bouvier's Law Diet. p. 446; Schouler on
Wills, § 33. The decision in the Bolland Case was based on the
ground of public policy, and no doubt was in strict accordance with
the established policy of Great Britain at that time. As a declaration
of the public policy of the English government at the time the deci-
sion was announced, it must stand as conclusive evidence of such pol-
icy; but it is no evidence whatever that the same public policy pre-
vails in any other nation or government. Each nation or state having
the power to adopt a Constitution and legislate for itself necessarily
has the inherent power to declare its own rules of public policy. There
is nothing in international law or the comity between our states that
requires our courts to enforce the consequences following the convic-
tion for felony in obedience to the public policy of the state where
the conviction is had, when to do so would be to depart from our
own public policy on the same subject. A few citations will establish
this principle.
All the authorities agree that a slave, on touching the land where
slavery is not recognized, becomes free. Purdy v. New York, etc.,
Railroad Co., 61 N. Y. 353; Bailey v. Cromwell, 3 Scam. 71; Kin-
ney V. Cook, 3 Scam. 232 ; Hone v. Ammons, 14 111. 29 ; Rodney v.
Illinois Central Railroad Co., 19 111. 42. In the case last cited this
court said : "The state of Illinois, as one of the independent sover-
eignties of the Union, will determine the condition of all persons with-
in the state according to her own laws and institutions, and can be
limited or controlled in this respect only by the Constitution of the
United States and the laws of Congress made under authority of that
instrument. Slavery in the states where it exists has its foundation
in the municipal regulations of such states, which have no extrater-
ritorial operation and no binding force in another sovereignty."
When one has been declared civilly dead under the law of his dom-
icile, such sentence will not be regarded by other nations as having any
extraterritorial effect. Wharton on Conflict of Laws, § 107. ''Civil
death," says Brocher, "raises a feeling of repulsion, whether the in-
capacity is presented singly or as a consequent of another punishment.
It is a barbarism condemned by justice, by reason and by morality.
The states which have abolished it cannot be held to accept it from
the hands of a foreign Legislature." Wharton on Conflict of Laws,
§ 107, note. In regard to attainder for crime the rule is the same.
Wharton, in his work on Conflict of Laws, says (volume 1, p. 254):
"So far as England is concerned, while her shores have been the
refuge of multitudes of persons who have been attainted and consigned
to infamy by their respective sovereigns, there is no case on record
400 TERMS OF THE LIFE POLICY
where such disabilities have been enforced by English courts." Story,
in his work on Conflict of Laws, says that "an American court would
deem them [such incapacities] purely local and incapable of being
enforced here." A person who by reason of his conviction for an
infamous offense cannot be a witness will not be incapacitated in an-
other jurisdiction where the incapacity does not exist. Wharton on
Crim. Evidence, § 363. The whole doctrine is condensed in one sen-
tence by Wharton, as follows : "There is no such thing as ubiquity of
national disabiHties." See Conflict of Laws, §§ 7, 8, 101, 104, 113.
The question, therefore, is one to be determined by our own local
rules of public policy. In view of these rules as evidenced by our
Constitution and the statutes above referred to, we conclude that the
execution of the assured for crime is no defense against an action
upon a life insurance policy held by the person executed, in the ab-
sence of a stipulation exempting the company from liability for a
death from this cause.
In view of the conclusions we have reached upon the question al-
ready discussed, the effect of the incontestable clause in this policy
becomes of no importance and need not be further alluded to.
Regarding defendant in error's plea of res judicata, but little need
be said. It will be remembered that by that plea defendant in error
sets up a proceeding on this policy in the state of Pennsylvania, and
it is to be noted that the plea is fatally defective, in that it contains
no averment of a final judgment. The plea shows simply that a suit
was commenced on this policy; that the company was ruled to present
an affidavit of defense; that such affidavit was presented and it was
adjudged sufficient. From this interlocutory order an appeal was tak-
en to the superior court, where the ruling of the common pleas court
was sustained. The case was not remanded for a trial and judgment,
but the plaintiff was permitted to dismiss the case without prejudice.
The rule is without exception that a plea of res judicata must show
a final judgment entered by a court of competent jurisdiction. 24 Am.
& Eng. Ency. of Law (2d Ed.) 793, and cases there cited. The de-
murrer to this plea, as well as to the one setting up the execution of
the assured for crime, should have been sustained.
The judgment of the circuit court of Cook county and of the Ap-
pellate Court for the First District are reversed, and the cause re-
manded to the circuit court of Cook county, with directions to sus-
tain the demurrer to the pleas, and for further proceedings in con-
formity with the views herein expressed. Reversed and remanded,
with directions.®
9 Contra: Burt v. Union Central Life Ins. Co., 187 U. S. 362, 23 Sup. Ct.
139, 47 L. Ed. 216 (1902) ; Collins v. Metropolitan Life Ins. Co., 27 Pa. Super.
Ct. 353 (1905). Accord: McCue v. Northwestern Mut. Life Ins. Co.. 167 Fed.
435, 93 C. C. A. 71 (1908). The decree in this case was, however, reversed in
Northwestern Mutual Life Ins. Co. v. McCue, 223 U. S. 234, 32 Sup. Ct. 220,
m L. Ed. (1912).
INCONTESTABLE CLAUSE 401
V. Incontestable Clause ^*
MASSACHUSETTS MUT. BEN. LIFE ASS'N v. ROBINSON.
(Supreme Court of Georgia, 1S9S. 104 Ga. 256, 30 S. E. 918, 42 L. R. A. 261.)
Action by Nora Robinson against the Massachusetts Mutual Bene-
fit Life Association on a policy of insurance for $5,000 issued by the
defendant on the life of plaintiff's husband, John M. Robinson. The
insured died on June 29, 1894. The defendant pleaded that the in-
sured had procured the policy to be issued by false and fraudulent
statements in his application, in that he had stated therein that he was
not in the habit of using malt or spirituous liquors, and had never been
in such habit, except as therein stated, whereas in truth and in fact
he was an habitual drinker of intoxicating liquors, and had suffered
from delirium tremens within less than three years from the date of
the policy, and that the policy would not have been issued to him, if
these facts had been known to the insurer.
At the trial there was much evidence tending to establish the fact
that the insured had been for years in the habit of getting on sprees,
which increased in number during the latter years of his life, and that
he had been arrested on numerous occasions for public drunkenness.
There was also evidence tending to show that this condition of affairs
existed during the three years following the date of the policy. His
habit as to sprees was public and notorious in the city of Atlanta,
where he lived. He died in the "city stockade," having been sent
there for public drunkenness. His death was caused by his being
placed at hard labor on a very hot day, immediately following the
excessive use of alcoholic stimulants. The plaintiff recovered a ver-
dict for the full amount of the policy. A motion for a new trial was
filed by the defendant, in which error was assigned upon various rul-
ings made during the trial. The motion was overruled, and the de-
fendant brings error.
Cobb, J.^^ * * * In dealing with this case, the first matter to
be considered arises out of questions made by the record in reference
to what is commonly known as the "incontestable clause" in a policy
of life insurance. This clause in the present case is In the following
words : "This policy is incontestable after three years from its date,
provided three full yearly premiums have been paid upon it, except
that error in the age of the Insured is open to adjustment, and, if
10 For discussion of principles, see Vance on Insurance, § 205. See, also,
Cooley, Briefs on the Law of Insurance, vol. 3, pp. 2755-2758.
11 Part of ttie opinion is omitteU and the statement of facts Is reivritten.
CooLET Ins. — 26
402 TERMS OF THE LIFE POLICY
understated, the insured will be entitled only to the amount of insur-
ance which the sum paid would have purchased at his correct age, if
insurable in this association." The policy contains the contract en-
tered into between the insurer and insured. The stipulations con-
tained therein, as well as those set forth in other papers made a part
of the contract by reference in the policy, must be looked to in order
to ascertain upon what terms the parties agreed, and what are the
rights and liabilities of each. Such a contract, from its very nature,
requires that each party should act in perfect good faith with the
other. The applicant for insurance must fully and freely disclose to
the insurer all facts which would in any way throw light on the ques-
tion then under consideration by the insurer ; that is, whether it would
be proper to enter into a stipulation with the applicant to insure his
life. On the other hand, the insurer is under a like obligation to
act in good faith with the applicant in regard to all matters where
there is a duty resting upon him. That this duty rests respectively
upon the applicant and the insurer in reference to all contracts of
life insurance is well settled, and is fully recognized by the Code of
this state. * * *
The contract entered into between the insurer and the insured in
the "incontestable clause" is, in effect, that the insurer says, on his
part, "Pay me your premiums according to the terms of the contract,
and I will pay at your death, to the beneficiaries named in the policy,
the amount thereof, without regard to the statements which you made
in your application, — whether they be true, or whether they be false."
Under such a contract the policy may be either absolutely incontesta-
ble, or it may be incontestable as to all matters of defense except such
as are reserved in the policy. Such a policy may be incontestable from
the very moment it is issued, or it may be incontestable after the
lapse of a certain time after its issue. Such being the classes of in-
contestable policies, the question now arises, how far can such con-
tracts be sustained by the law?
Where the incontestable clause provides that the policy shall not be
defended on any ground except such as would amount to a fraud in
the procurement of the policy, such a stipulation will be binding upon
the parties, even though it was to take effect from the moment the
policy was to be issued. Such was the view of the court of exchequer
in the case of Wood v. Dwarris, 25 Law J. Exch. (N. S.) 129-131,
where it was held that when an insurer holds out to the public that
its policies shall be "indisputable" except in case of fraud, and the
policy is effected upon the faith of that representation, the insurer is
barred in equity from saying that the application for the policy stip-
ulated that, if it contained any untrue statement, the policy should be
void, and that it did contain such a statement. In the trial of this
case Baron Martin remarked, "You have no right to set up such a
defense as this, after having stated that you will not dispute except in
cases of fraud."
INCONTESTABLE CLAUSE 403
A policy providing generally that it should be incontestable from
its date, but silent on the subject of defending upon grounds originat-
ing in fraud, would still be a valid contract. The waiver of the right
to defend on the ground of fraud not being the subject of express
stipulation, the law would imply that the insurer intended to reserve
to himself the right to defend upon that ground. If, however, the
policy stipulated that it should be incontestable from its date, and the
insurer should not be allowed any defenses, whether originating in
fraud or otherwise, or if it were clear from the terms of the con-
tract that it was the intention of the parties that fraud should not
be a defense, then such a contract would be void, as being opposed
to the policy of the law. Bliss, Ins. (2d Ed.) §§ 254, 255. But what
is the legal effect of a contract of life insurance where it is stipulated
. that it shall become incontestable after the lapse of a specified period
from the date of its issue, and that this incontestability shall apply to
all defenses, — whether originating in the fraud of the applicant or
not ? Such is the character of the stipulation in the present case, with
the exception as to age, set out in the clause quoted supra. While it
is true that fraud voids all contracts, it is equally true that it is com-
petent for the lawmaking power to fix a definite time in which an ac-
tion shall be brought to declare a fraudulent contract void, and a fail-
ure on the part of the person defrauded to bring such action within
the time designated would have the effect of debarring him from the
right to set aside such a contract. While in such cases it is generally
provided that the limitations so fixed shall not begin to operate in
favor of the party who has committed the fraud until the same has
been discovered, the duty is placed upon the party who seeks to avoid
the contract on the ground of fraud to make such efforts to discover
the fraud as would amount to ordinary diligence in law. Civ. Code,
§§ 3669, 3711-3785; Little v. Reynolds, 101 Ga. 594, 28 S. E. 919,
and cases cited.
As the law may prescribe such a limitation in which actions shall
be brought by the party to be affected, it is also within the power of
the contracting parties to agree among themselves upon a period of
time which would amount to a statute of limitations, either greater
or less than the period fixed by the law. Telegraph Co. v. James,
90 Ga. 254, 16 S. E. 83 ; Brown v. Insurance Co., 24 Ga. 97 ; Alelson
V. Insurance Co., and Maril v. Same, 97 Ga. 723, 25 S. E. 189; Ritch
V. Association, 99 Ga. 112, 25 S. E. 191. The period fixed by law be-
ing intended for the benefit of the parties interested in the contract,
and for their protection, it is competent for them to stipulate that the
time which the law gives them to act shall be shortened, on the one
hand, or lengthened, on the other. Parties interested in the contract
may waive the benefit of the statute of limitations fixed by the law,
the effect of the waiver being either to make a longer or shorter period
than the law prescribes. What is said above would seem, however,
to be subject to the qualification that where the effect of the contract
404 TERMS OF THE LIFE POLICY
would be to vitalize, by the lapse of time fixed in the contract, an un-
dertaking which would otherwise be void for fraud, the time fixed in
which the party would have a right to rescind the contract on account
of the fraud must be such a time as by the exercise of ordinary dili-
gence the same could have been discovered. If the period so fixed
is sufficient for the person, by the exercise of that care and diligence
which an ordinarily prudent person would give to his own business,
to ascertain whether a fraud has been perpetrated upon him, then the
contract would be valid, and would be enforceable after the period
had elapsed in which discovery of fraud, if any existed, was to be
sought ; and, even if actual fraud had been perpetrated, the party who
was the victim of such fraud would be debarred of this defense.
Where parties enter into a contract which from its nature affords
an opportunity to one party to perpetrate a fraud upon another, and
it is stipulated therein that the party who is liable to be defrauded
shall have a specified time in which to make inquiry as to the acts
and conduct of the other party, he is on notice, by the very terms of
the contract itself, that fraud may be involved in it, and the duty is
upon him to commence at once an investigation into the acts, conduct,
and representations of the other party; and if the time fixed is such
that the information which would show that the fraud had been per-
petrated could have been, by the exercise of ordinary diligence, ob-
tained, then the parties are bound by their contract as to time, and
after the lapse of that time fraud is no longer a defense. This does
not violate in any way the well-settled principle that fraud is to be
abhorred, vitiates everything it touches, and the person guilty of it
is not to be countenanced in any way by the courts. While all this
is true, it is equally well settled that a contract which has for its
foundation a willful fraud may become vitalized and enforceable by
the negligence of the party who was the victim of the fraud. * * *
As the terms of the incontestable clause in the present case were
broad enough to exclude the defense of fraud, and as the time fixed
in which the fraud must be discovered, if any had been perpetrated,
was three years, and as this is, beyond question, a reasonable time,
we feel no hesitancy in holding that the contract was valid, and that
there was therefore no error in the ruling of the court below that the
insurer could not set up as a defense to a suit on the policy any ground
growing out of misrepresentation or concealment, although amount-
ing to a fraud, after the policy had been in force three years, and
three full yearly payments had been made thereon ; there being no
question of misrepresentation as to age. The present case is one
peculiarly appropriate for an application of these principles. The very
matter now set up to defeat the policy (that is, habits of drunkenness
of the insured) was so public and notorious in the city in which he
lived that it is manifest from the record that a letter addressed to any
prominent business man or any city official at any time between the
date of the first application for insurance to the date of the death of
INCONTESTABLE CLAUSE 405
the insured would have disclosed practically the state of affairs now
shown to have existed.
There being no evidence before the trial court as to what the law
of Massachusetts is as to contracts like the one in question, it will
be presumed that the common law is of force there on the subject.
Railroad Co. v. Lacy, 43 Ga. 461 ; Pattillo v. Alexander, 96 Ga. 60,
22 S. E. 646, 29 L. R. A. 616. There being nothing in the common
law which would invalidate the contract, and it being consistent with
the law of Georgia to give it effect, it will be enforced in the courts
of this state.
It was contended that, even conceding the incontestable clause to be
valid, still, under the terms of the policy in the present case, the in-
surer was not debarred from taking advantage of other defenses which
it is claimed were embraced in the policy. The policy stipulated that
"death of the insured in consequence of the use of intoxicating liq-
uors or narcotics, or by his own hand or act, whether sane or insane,
whether the act be voluntary or involuntary, is a risk not contem-
plated or covered by this contract, and against which this association
does not insure," and that if "the insured shall fall into the habit of
becoming intoxicated, or into the habitual use of narcotics, or shall
have delirium tremens, within three years from the date hereof, then
this contract shall be void ; and in such event the insured hereby au-
thorizes and directs the association to cancel this contract, and return
to him the sum of all payments made thereon, which sum he agrees
to accept, for himself, his heirs or assigns, in full and complete settle-
ment of all liability of said association under this contract." The
contract as contained in the policy must be construed as a whole, so
that, if possible, each stipulation shall be made consistent with the
others, and the whole allowed to stand. * * *
Construing the above-quoted clauses of the policy in connection with
the incontestable clause, it would seem a proper interpretation of the
three clauses, as a whole, that these things which were declared to be
acts which would vitiate the policy were such as occurred within three
years from its date, and that they should be valid and sufficient rea-
sons for rescinding the contract and canceling the policy at any time
within the period provided for. This would be a fair interpretation
of the contract, and would appear, from the terms of the paper, to be
the intention of the parties to it. But even if this were not true, and
if the presence of the other two clauses raises a doubt as to whether
they are consistent with the incontestable clause, as it is to be pre-
sumed that the incontestable clause was placed in the policy for the
benefit of the insured the doubt as to the intention of the parties must
be resolved by giving it a construction which would make that clause
the controlling one. It seems to us that interpreting the policy fairly
and reasonably, according to its terms, it was the intention of the par-
ties that all grounds of defense which by the exercise of ordinary care
406 TERMS OF THE LIFE POLICY
.could have been discovered within three years, are intended to be cut
off by the incontestable clause.
We think this view is abundantly sustained by the authority above
cited, and also supported by reason. There can be no doubt that the
interpretation which is placed upon every policy of the character of
the one under consideration, by the holder, is that after the lapse of
the period fixed the policy is to be free from defenses. It can be as-
serted with equal confidence that the fact that the holder in each case
so understands is weh known to the insurer. The incorporation into
the policy of subsequent clauses which produce doubt, and make the
policy difficult of interpretation, will not have the effect of relieving
the insurer of the burden that is placed upon him by the rule which
requires that the clauses in the policy ''should receive the construction
the insurer had reason to suppose was put upon them by the insured."
Wadsworth v. Tradesmen's Co., 132 N. Y. 540, 29 N. E. 1104.
* * *
In Goodwin v. Society, 97 Iowa, 226, 66 N. W. 157, 32 L. R. A.
473, 59 Am. St. Rep. 411, the application for insurance stated that
the death of the insured by his own hand was a risk not assumed by
the association, and the policy declared that a claim thereunder by
death occurring two or more years after its date would be incontesta-
ble, except for fraud in procuring it. The court held that the society
was liable in case of death by suicide occurring two or more years
from the date of the policy. Deemer, J., in referring to the conflict-
ing provisions of the policy, said that: "We have a case, then, for
construction of these seemingly ambiguous and conflicting provisions.
The tenets established for the guidance of courts in such matters are
well understood, and no one is better established than that in all cases
the policy must be liberally construed in favor of the assured, so as not
to defeat, without a plain necessity, his claim for indemnity. And
when the words used may, without violence, be given two interpreta-
tions, that which will sustain the claim and cover the loss should be
adopted."
In Association v. Payne (Tex. Civ. App.) 32 S. W. 1063, where the
court had under consideration a contract of insurance where one
clause in a policy provided that, if a certificate should be in force five
years, it should thereafter "be incontestable for any cause except for
nonpayment of dues," and it was also provided in another clause that
if the insured died by his own hand, whether voluntary or involun-
tary, sane or insane, the association would not be liable, it was held
that the suicide of the insured after the policy had been in force five
years would not relieve the company from liability. It has, however,
been held that the incontestable clause does not have the effect of do-
ing away with clauses in the policy merely regulating the remedy to
be pursued by the person entitled to sue thereon, and that, if the pol-
icy stipulated that actions should be brought thereon within six months
INCONTESTABLE CLAUSE
407
from the death of the insured, there was no such inconsistency be-
tween this and the incontestable clause as would render the clause in
regard to the time in which the suit should be brought inoperative.
Brady v. Insurance Co., 168 Pa. 645, 32 Atl. 102.
It would seem therefore to be the rule that, in regard to every mat-
ter which would have the effect of defeating or destroying the con-
tract, the incontestable clause would be controlling, and stipulations in
the policy to the contrary must yield, and that provisions in regard to
remedies and conditions to be performed before suit is brought, and
like conditions merely affecting the remedy to be pursued upon a valid
contract, would not be affected by the clause as to incontestability.
* * * Affirmed. ^^
12 Compare Wright v. Benefit Life Ass'n, 118 N. Y. 237, 23 N. E. 186, 6 L.
R. A. 731, 16 Am. St. Rep. 749 (1890); Welch v. Union Central Life Ins. Co.,
108 Iowa, 224. 78 N. W. 853, 50 L. R. A. 774 (1899); Union Central Life Ins.
Co. V. Fox, 106 Tenn. 347, 61 S. W. 62, 82 Am. St. Rep. 885 (1901).
408 MARINE INSURANCE
MARINE INSURANCE
I. Implied Exceptions *
1. Seaworthiness.'
DODGE V. BOSTON MARINE INS. CO.
(Supreme Judicial Court of Maine. 1S92. 85 Me. 215, 27 Atl. 105.)
Action by T. Dodge against the Boston Marine Insurance Company,
on a policy of marine insurance. Heard on report.
Haskell, J. Assumpsit upon a policy of marine insurance, cover-
ing the freight of schooner Lyra on a voyage from Bangor to Boston.
We have said in Hutchins v. Ford, 82 Me. 370, 19 Atl. 833 : "There
was an implied warranty on the part of the owners that the brig was
seaworthy at the inception of the voyage ; that is, tight, staunch,
strong, properly manned and provisioned, and suitably equipped for
the voyage. This implied warranty was a condition precedent to any
liability of the insurer, aUhough the burden was upon the defendant
to establish its breach, since seaworthiness of the brig at the incep-
tion of the risk is presumed. The presumption of seaworthiness at
the inception of a risk under a marine policy may be rebutted, either
by direct evidence of the ship's actual condition, or by proof of facts
from which unseaworthiness may fairly be inferred ; and when the
latter is shown the insurance is destroyed, for the policy does not at-
tach, and the premium would be without consideration, and may be
recovered back. Taylor v. Lowell, 3 Mass. 347 [3 Am. Dec. 141] ;
Paddock v. Insurance Co., 11 Pick. [Mass.] 227; Swift v. Insurance
Co., 122 Mass. 573." These doctrines are applicable to this case.
The Lyra, loaded with lumber, was towed down river, and lay at
anchor over night. In the morning she made sail, and when barely
in the bay sprang a leak without any apparent cause, there being no
"stress of weather." Having a fair wind, she made Belfast water-
logged and unseaworthy. A survey was called, her cargo discharged
and reshipped, and she was condemned, stripped, and torn up as use-
less. She was fifty years old, had met with disaster two months previ-
ous, was weak, and substantially worn out.
The evidence rebuts the presumption of seaworthiness, and clearly
1 For discussion of principles, see Vance on Insurance, §§ 214-217.
2 For discussion of principles, see Cooley, Briefs on the Law of Insur-
ance, vol. 2, pp. 1253, 1553; vol. 3, p. 2bd'o.
IMPLIED EXCEPTIONS 409
shows that the vessel must have been unseaworthy at the inception
of the voyage. The insurance, therefore, never attached. The premi-
um, however, may be recovered back under the money count.
Judgment for plaintiff for the premium only.
2. Deviation ^
HEARN V. NEW ENGLAND MUT. MARINE INS. CO.
(Circuit Court of United States. District of Massachusetts, 1870. 3 Cliff.
318. Fed. Cas. No. 6.301.)
Assumpsit by George Hearn against the New England ^Mutual Ma-
rine Insurance Company on a policy of marine insurance.
Before Clifford, Circuit Justice, and Lowell, District Judge.
Clifford, Circuit Justice.* Policies of insurance against marine
risks are liberally construed, as they are regarded as commercial in-
struments in the strictest sense. Such instruments, where their terms
are ambiguous, may be explained by parol evidence of the usages of
trade ; but where the terms employed are clear and precise in them-
selves, the principles which govern their construction do not vary from
those which are applicable to other mercantile instruments, and no
evidence of any usage or custom can be admitted to explain, alter,
or impair the terms of the contract as made by the parties. Oelricks
V. Ford, 23 How. [64 U. S.] 63, 16 L. Ed. 534; Bliven v. Screw Co.,
23 How. 431, 16 L. Ed. 510; 1 Arn. Ins. (2d Am. Ed.) 64.
Insurance was effected in this case at Boston on the 9th of
May, 1866, in the sum of five thousand dollars "on charter of the
barque Maria Henry, at and from Liverpool to port in Cuba, and at
and thence to port of advice and discharge in Europe." When the
application for the policy was made, the barque was at Liverpool,
and it appears that she loaded at that port with a cargo of coal,
and, having been regularly cleared from that port, proceeded thence
without difficulty on her outward voyage to the port of St. Jago de
Cuba, where she discharged her outward cargo, and that, having dis-
charged her outward cargo, she sailed thence to Mansanilla, another
port in Cuba, and there took on board a cargo of the products of
the island, and on the 13th of September sailed thence for Europe
via Falmouth for orders, and on the 18th of the same month was
totally lost on her homeward voyage by perils of the sea. Due notice
8 For discussion of principles, see Cooley, Briefs on the Law of Insurance,
vol. 2, pp. 1567-1591.
4 Part of the opinion is omitted and the statement of facts is rewritten.
410 MARINE INSURANCE
of the loss was given to the defendants, and the loss is admitted
as alleged, but the defendants refused to pay the amount insured, or
any part of the same, upon the ground that the barque, without any
justifying cause, departed from the prescribed course of the voyage
as described in the policy on which the action is founded.
Reference was made in that proposition to the fact that the vessel,
after she went to St. Jago de Cuba and there discharged her out-
ward cargo, proceeded thence to Mansanilla for a return cargo before
she sailed for Europe ; but the plaintiff contended that going to a
second port in Cuba did not constitute a deviation, as it is the usage
for vessels bound from Liverpool and back, to discharge at one port
and then to proceed to a second port for a return cargo. Nothing
of the kind is expressed in the policy of insurance, if the words are
to be taken in their ordinary signification ; but the theory of the
plaintiff is that such is the usage of the trade, and he insisted that
parol evidence of such usage was admissible, and that the language
of the policy should, in view of that evidence, be construed as con-
ferring that right. Deviation in marine insurance is understood to
mean a voluntary departure without necessity or reasonable cause
from the regular and usual course of the specified voyage insured,
which in this case was to port in Cuba, and at and thence to port
of advice and discharge, as plainly and explicitly expressed in the
policy. Whenever a deviation of that kind takes place, the voyage
is determined and the underwriters are discharged from any responsi-
bility. Park, Ins. 294; Elliot v. Wilson, 4 Brown, Pari. Cas. 470.
Different language is sometimes employed, as where the voyage is
described as one from the port of departure to Cuba or to the island
of Cuba, but the terms of the policy in the case before the court
are "at and from Liverpool to port in Cuba, and at and thence to
port of advice and discharge," showing a contract complete in itself,
and one expressed in plain, clear, and unambiguous language, em-
ploying no terms of art nor any word or phrase of doubtful meaning.
L^nambiguous as the language is, the court cannot impute to the
parties any other intention than that which they have expressed, as
the court must do, to hold that port means ports, or port or ports, or
to a port of discharge, and also to a second port for a return cargo
and at and thence "to port of advice and discharge." Precisely the
same question was presented in the case of Brown v. Tayleur, 4
Adol. & E. 241, and the court held that the word "port" in such a
policy could not be construed to mean "ports," nor "port or ports,"
and that the going to a second port in such a case constituted a de-
viation, the judges giving their opinions seriatim, and all concurring
in the conclusion. Sea Ins. Co. v. Gavin, 4 Bligh (N. S.) 578, 2 Dow
& C. 125.
Evidence of usage, such as the plaintiff assumes in argument that
he has offered in this case, if admissible for any legitimate purpose,
must be expected to have the effect, and, if fully believed, ought to
IMPLIED EXCEPTIONS 411
have the effect, to induce the court to decide that a policy of insur-
ance covering a voyage to a single port in Cuba may be construed,
and if the evidence of such usage is full to the point, must be con-
strued, to cover not only that voyage, but also a voyage to a second
port for a return cargo, even though it be necessary in order to
accomplish the purpose, to make a coasting voyage to the opposite
side of that large and highly commercial island. Suppose, for ex-
ample, the master in this case had gone to Matanzas, on the north
side of the island, as his port of discharge, he might, under the
theory of the plaintiff, have afterwards gone to Trinidad for a return
cargo, which is on the southern side of the island. Every policy of
insurance, if properly drawn, describes the place ,of the ship's de-
parture, and also the place of destination, and the reason why a de-
viation discharges the underwriter is, that if the voyage is changed
after the ship sails, the voyage becomes a different one, and not
that against which the insurer has undertaken to indemnify. But
in the case supposed, the insurer would be held responsible for a
voyage from Matanzas to Trinidad, though no such voyage is men-
tioned in the policy.
Custom or usage is sometimes supposed to be admissible to show
that the parties to a written instrument had something in their con-
templation more than is expressed in what they have reduced to
writing ; but Lord Denman well said, in the case of Trueman v. Loder,
11 Adol. & E. 589, that the cases go no further than to permit the
explanation of words used in a sense different from their ordinary
meaning, or the addition of known terms not inconsistent with the
written contract. Extrinsic evidence of custom and usage is doubt-
less admissible in certain cases, where the transaction is of a com-
mercial character, to annex incidents to written contracts in respect
to which the contracts are silent, but such evidence cannot be properly
received if it is inconsistent with the terms of the written instru-
ment, whether such inconsistency appears by the express terms of
the written contract or by reasonable implication from the same as
applied to the subject-matter. Hutton v. Warren, 1 Mees. & W. 475;
1 Smith, Lead. Cas. 387. Apply that rule, and it is clear that evi-
dence of usage, if offered to show that the barque might go to one
port to discharge and to a second for a return cargo, ought not to
be admitted, as it is plainly inconsistent with the written contract,
which is to port and at and thence to the return port. * * *
Certain cases are cited by the plaintiff, which, it is suggested, sup-
port the opposite theory, but when carefully examined it wnll be
found that they do not have any such tendency. Warre v. Miller,
4 Barn. & C. 538 ; Cruickshank v. Janson, 2 Taunt. 301 ; Dickey v.
Ins. Co., 7 Cranch [11 U. S.] 327, 3 L. Ed. 360. At and from
Grenada to London was the description of the voyage in the first
case, and at and from Jamaica in the second, and at and from Trinidad
in the case decided in the supreme court. Evidence was introduced in
412 MARINE INSURANCE
the first case showing that there was but one custom-house for the
whole island of Grenada, and inasmuch as the voyage insured was at
and from Grenada and not at and from a port in Grenada, the court
decided that the island must be considered as all one place, and that
there was no deviation, although the vessel went to three places to
discharge. Nothing different is asserted in the second case, and in
the third the court decided that where the voyage as described in
the policy is "at and from an island," the vessel may sail from port
to port to take in cargo, but the decision has no application to the
case at bar, as the voyage described in this case is to port in Cuba
and at and thence to port of advice, which shows that the two cases
are in no respect analogous.
Underwriters are presumed to be acquainted with the course of the
trade they insure and with its peculiarities, and the court decided, in
the case of Noble v. Kennoway, 2 Doug. 510, that in that trade,
which was the Labrador trade, greater delay in landing the cargo
was customary than would be justifiable in most other adventures,
but it is not perceived that the case has much bearing upon the
question under consideration. Vallance v. Dewar, 1 Camp. 503. Un-
doubtedly, evidence of usage was also admitted to explain the terms
of the contract in the case of Salvador v. Hopkins, 3 Burrows, 1707,
as suggested by the plaintiff, but the motion for new trial was over-
ruled and the decision of the court placed expressly upon the ground
that the evidence offered and admitted was not repugnant to the
contract. Other cases of an analogous character are also referred
to, where evidence of usage was admitted to explain some ambiguous
phrase in the terms of the contract to which the same answer may be
given, that the evidence admitted did not contradict what was in
writing. Uhde v. Walters, 3 Camp. 16; Hyde v. Willis, Id. 202.
Such evidence was also admitted in the case of Gracie v. Marine Ins.
Co., 8 Cranch [12 U. S.] 75, 3 L. Ed. 492, to show the boundaries
and extent of a commercial port named in the policy as the port
of destination, and it is quite clear that the ruling was correct, as
the evidence tended to explain and not to contradict the terms of the
policy, and a like ruling is found in the case of Lowry v. Russell,
8 Pick. (Mass.) 362, where the court overruled the objection to the
evidence expressly upon the ground that it did not contradict the
terms of the bill of lading.
Reliance is also placed upon the case of Bulkley v. Protection Ins.
Co., Fed. Cas. No. 2,118; but the case was decided w'holly irre-
spective of any such question, as the evidence introduced failed to
show that there was any such usage as the plaintiff supposed. The
.policy in that case described the voyage as from Ocrocoke to St.
Bartholomew or St. Thomas, and at and from thence to Tobasco, and
the court, and rightly, held that it did not authorize the assured to
go to both ports, that he might go to either at his election, and
that, having first stopped at the island of St. Bartholomew and after-
PERILS OF THE SEA 413
wards proceeded to St. Thomas, it was a deviation. "That the policy
only covers a voyage to one or the other of those islands," said the
judge, "cannot admit of a doubt," and if the sentence stopped there
the case would be consistent with the recent decision of the supreme
court, and all the other modern decisions upon the subject, but he
adds, in continuation of the same sentence, "unless justified by usage,"
leaving it to be inferred that his opinion was that the evidence of
usage would be admissible to incorporate a different meaning into the
contract. But he could hardly have intended what the words imply,
as in the next sentence he says that "it was at the election of the
assured to go to either, to the one or the other, but the language
of the policy is too plain and explicit to admit of a construction that
it authorized a voyage to both," in which latter view w^e entirely
■concur. * * * e
II. Perils of the Sea «
PERRY v. COBB.
(Supreme Judicial Court of Maine, 1896. S8 Me. 435, 34 Atl. 278, 49 L. R.
A. 389.)
Bill in equity by J. C. Perry and others against W. T. Cobb and
others on a contract of marine insurance. Heard on report.
Haski-XL, J." * * * Xhe plaintiffs contracted with the associa-
tion for insurance to the amount of $2,548 on a cargo of lime on
board ship, under deck, at Rockland for New York. There were no
conditions in the contract, except that 5 per cent, particular average
on the whole value of the cargo was exempted from insurance. The
vessel was 36 days at sea, — an unusually long time for the voyage,
occasioned by rough weather, head winds, and successive gales. She
sailed the 14th of February, and arrived the 21st of ]\Iarch. She
labored heavily, and strained somewhat, but arrived tight, and with
no special damage in the hull, save the loss of a skylight, some sails,
and a compass box. On the 27th of March, she was given a berth,
and broke cargo. Some 7S barrels of lime were discharged. About
the 14th of April she was moved, and began the further discharge of
5 A bill in equity to reform the policy in this case was dismissed in Hearn
T. New England Mut. Mar. Ins. Co., Fed. Cas. No. 6,302 (1872). Similar ac-
tions by the same plaintiff against another company (llearn v. Equitable
Safety Ins. Co.) are to be found in Fed. Cas. No. 6,299 (1870), and Fed. Cas.
No. 6,300 (1872).
6 For discussion of principles, see Vance on Insurance, § 218. See, also,
Cooley. Briefs on the Law of Insurance, vol. 3, pp. 2882, 2892.
^ Part of the opinion is omitted.
414 MARINE INSURANCE
cargo that was all out on the 28th. A few of the casks may have
been stove, a few more showed signs of fire, and a few were bursting
from swollen contents. The balance of the cargo was in bad con-
dition, in that staves had shrunken and hoops loosened, allowing the
lime to sift out and fall through the tiers of barrels to the deck or
floor of the hold. No sea water reached the cargo, unless in a few
instances when a hatch had been taken ofif, or when the cabin was'
flooded once. The damage from sea water must have been very
slight, and did not affect the cargo, beyond the few barrels that
it touched.
The insurance was against perils of the sea for a particular voyage.
A voyage policy does not attach unless the vessel be seaworthy at
the inception of the voyage, which is presumed, but may be re-
butted. Dodge V. Insurance Co., 85 Me. 215, 27 Atl. 105; Hutchins
V. Ford, 82 Me. 370, 19 Atl. 832. It is so whether the insurance
be upon the ship, or upon the cargo, or upon freight. Van Wickle
V. Insurance Co., 97 N. Y. 350; Higgie v. American Lloyds (D. C.)
11 Biss. 395, 14 Fed. 143; Higgie v. National Lloyds, Id.; Daniels
V. Harris, L. R. 10 C. P. 1. "She must not be overloaded, and the
cargo must not be badly stowed." Arn. 649.
In this cause the insurance was "at and from Rockland to New
York," — meaning until safely landed in New York, or for a reason-
able time to land there under the usages of that port. The sea risk
continued until the goods might be put on shore by reasonable dis-
patch. On the sixth day after arrival the vessel was given a berth at
the wharf, and the hatches were opened. No damage to the cargo
is claimed after that time, and no point is made that the insurance
ended before. During the voyage the decks had been awash, and
the cabin once flooded. Some sea water found its way to the cargo,
and may have caused the bursting of a few casks, and the scorching
of a few more ; but this damage was far below the particular aver-
age — or, in this instance, partial loss — that had been excepted from
the insurance. So that the remaining loss or damage was from the
shrinking of the staves of the barrels, and slacking up of the cooper-
age, allowing their contents to sift out and fall through the tiers of
barrels to the deck or floor of the hold, and leaving the barrels so
tender that they could not easily be hoisted out of the hatch with-
out danger of falling to pieces. This condition is claimed to have
resulted from the rolling and pitching of the vessel, caused by the
storms and bad weather of an unusually protracted voyage; and the
question is, was it caused by a peril of the sea?
Tempests and rough weather are common incidents in sea transit.
How long a voyage may continue is beyond the power of prophecy
to foretell at the inception of it. Fair winds may. serve, or head
winds may drive the vessel off her course. The voyage policy con-
tinues until the port of discharge shall have been reached, and, if
upon goods, until they may have been safely landed. If the goods
PERILS OF THE SEA 415
be of a perishable nature, and decay from a protracted voyage before
they can be landed, the loss would not be from a peril of the sea.
If the cargo be shaken and stove from the inherent weakness of
the packages, unsuited to withstand the roughness of sea transit, or
caused by the effect of their contents during the voyage, it would not
be from a sea peril, but from natural causes produced either by the
fault of the shipper, or by the inherent nature of the goods. The
condition of the cargo when landed does not raise the inference that
its injury resulted from a sea peril, but the burden rests upon the
plaintiff to prove the fact.
No case has been cited at the bar that brings this loss within the
hazard underwritten. Insurance Co. v. Boon, 95 U. S. 117, 24 L. Ed.
395, is a suit upon a fire policy on goods ashore. So is Insurance
Co. v. Tweed, 7 Wall. 44, 19 L. Ed. 65. So is Railway Co. v.
Kellogg, 94 U. S. 469, 24 L. Ed. 256. Montoya v. Assurance Co.,
6 Exch. 451, is upon a marine policy on tobacco shipped with hides.
Sea water caused the hides to putrefy and injure the tobacco, and
it was held a sea peril ; but the damage by sea water in the cause
at bar did no mischief to the bulk of the cargo, and none resulted
from the small part injured. In Cory v. Insurance Co., 107 ^lass.
140, 9 Am. Rep. 14, it is held that underwriters "do not assume the
risk of ordinary perils incident to the course of the voyage, nor of
damage arising from intrinsic qualities or defects of the thing in-
sured," nor of "ordinary dampness of the hold, though aggravated
by the length of the voyage and the variety of climate through which
the vessel has passed in consequence of perils of the sea," because
the result is attributable to the goods themselves, and not to sea
perils, as the proximate cause. In Xeidlinger v. Insurance Co. (C.
C.) 11 Fed. 514, the policy was upon barley, with a clause excepting
damage from must or mold, unless from actual contact with sea
water, and the hazard was limited to that part of the barley actually
wetted. Taylor v. Dunbar, L. R. 4 C. P. 206, holds that the decay
of meat during a voyage protracted by tempestuous weather is not
within the terms of a marine policy. In Boyd v. Dubois, 3 Camp.
133, Lord Ellenborough said: "If the hemp was put on board in
a state liable to effervesce, and did effervesce and generate the fire
which consumed it, upon the common principles of insurance law the
assured cannot recover for a loss which he himself has occasioned."
Crofts v. Marshall, 7 Car. & P. 646, is an insurance of 36 casks of
oil, and, the cargo not having shifted, a part of them were found
empty, and others had lost a part of their contents. The jury dis-
agreed as to whether the leakage was from perils of the sea, and
the court gave judgment for defendant by consent. These are all the
cases cited by the plaintiffs.
The general rule is that everything which happens through the
inherent vice of the thing, or by the act of the owners, master, or mer-
chant shipper, shall not be reputed a peril, if not otherwise borne on
416 MARINE INSURANCE
the policy. Emerig. Ins. 290; Insurance Co. v. Adler, 65 Md. 162,
4 Atl. 121, 57 Am. Rep. 314; Baldwin v. Railway Co., L. R. 9
O. B. 582; Baker v. Insurance Co., 12 Gray (Mass.) 603; Cory
V. Insurance Co., 107 Mass. 140, 9 Am. Rep. 14; Boyd v. Dubois,
3 Camp. 133. If the inherent vice be stimulated by a protracted
voyage, it is still no loss from a peril of the sea. Cory v. Insur-
ance Co., supra; Taylor v. Dunbar, L,. R. 4 C. P. 206. So it is
if the loss be from some other intervening cause, as where slaves
die from starvation, from the failure of provisions during an un-
usually long voyage, occasioned by bad weather. Tatham v. Hodgson,
6 Term R. 307.
Lord Ellenborough, in Cullen v. Butler, 5 Maule & S. 461, dis-
tinguishes between perils on the seas and perils of the seas. Lord
Herschell says the latter phrase "does not cover every accident or
casualty which may happen to the subject-matter of the insurance on
the sea. It must be a peril of the sea. * * * There must be
some casualty — something that could not be foreseen as one of the nec-
essary incidents of the adventure. The purpose of the policy is to
secure an indemnity against accidents which may happen, not against
accidents which must happen." The Xantho, 12 App. Cas. 503.
It is not always easy to mark the line between the ordinary opera-
tion of the elements and their perilous action. The latter must be
the proximate cause of the loss. Lord Bacon's reason is : "It were
infinite for the law to consider the causes of causes, and their impul-
sions one on another. Therefore it contenteth itself with the im-
mediate cause." Gow, Ins. §§ 92, 137.
In applying this rule to the cause at bar, the only direct damage
to the cargo clearly shown is that resulting from the contact with sea
water, amounting to less than the particular average excepted. The
remaining damage to the cargo is not shown to have resulted but
from the unexpectedly long voyage, that may have excited the inherent
qualities of the goods, causing the packages to shrink and scatter
their contents so as to need cooperage before they could be safely
raised through the hatch. All authorities agree that a protracted voy-
age is not a sea peril, within a marine policy, because it is not an
unusual event, but one of the natural incidents to sea transit. In-
surance is not on the voyage, but for the voyage. Pole v. Fitzgerald.
Willes, 644.
If damage to the cargo resulted from its inherent vice that worked
the mischief under natural conditions, it was not a sea peril. Had
the voyage been performed in a week, such results would not have
been expected. The evidence is conflicting as to the proximate cause
for the condition of the cargo upon its arrival. The associates, to
whom it was agreed to submit the question of liability, are men of
large experience in burning and shipping lime. They are all fair
men, and appear to have heard the controversy with patience; and.
after full investigation, all but the plaintiff agreed that he had no
PERILS OF THE SEA 417
claim, and so decided. Their decision must have great weight upon
the fact as to whether the condition of the cargo, upon its arrival in
New York, was other than what might have been expected from ordi-
nary sea weather at that time of year, February and March, during a
voyage of 36 days, without any unusual sea peril. The cargo arrived
all in position. It had not shifted or been knocked to pieces by the
vessel having been thrown on her beam ends, or wrecked or stranded.
But it may be said that the damage, within the particular average
clause, gave the cargo a bad reputation, and thereby lessened its
market value. This result might be, and yet not be within the terms
of the policy. Bennecke, Ins. 438. No case is cited that holds such
doctrine. On the contrary, Cator v. Insurance Co., L. R. 8 C. P.
552, holds the reverse. That was insurance upon packages of tea.
Some were damaged, and others were not ; but the damage was re-
stricted to the former, although there was a clause in the policy
excepting damage other than by contact with sea water. The court
held the rule would be the same without the clause, for insurance
covers actual damage, and not suspicion of damage. Montoya v.
Insurance Co., 6 Exch. 451, supra, comes the nearest to an authority
for the contention, but there the tobacco was actually injured from
the fumes of the putrefying hides. So in Lawrence v. Aberdein, 5
Barn. & Adol. 107, approved in Gabay v. Lloyd, 3 Barn. & C. 793.
* * * Dismissed.
MILLER V. CALIFORNIA INS. CO.
(Supreme Coiu-t of California, 1888. 76 Cal. 145, 18 Pac. 155, 9 Am. St.
Rep. 184.)
Action on a policy of insurance, brought by M. J. Miller against
the California Insurance Company, for the loss of the steamer Pilot.
A general demurrer was entered and sustained, and judgment rendered
for defendant, from which plaintiff appealed.
Paterson, J. 1. This is an action brought on a policy of marine
insurance issued by the respondent on the steamer Pilot. The risks
insured against were as follows : "Touching the adventures and perils
which this insurance company is content to bear and take upon itself
in this policy, they are of seas, fires, pirates, assailing thieves, jettison,
barratry of the master or mariners, (unless the assured be owner or
part owner of the vessel,) embezzlement and illicit trade excepted in
all cases, and all other losses and misfortunes that shall come to the
hurt, damage, or detriment of the said vessel, or any part thereof,
to which insurers are liable by the rules and customs of insurance
in San Francisco, excepting such losses and misfortunes as are ex-
cluded by this policy. * * * It is also agreed that in case of
insurance on a steamer this company is not liable for any injury,
CooLET Ins. — 27
418 MARINE INSURANCE
derangement, or breakage of the machinery or bursting of the boilers
unless occasioned by stranding."
The complaint alleges that on May 25, 1883, "the boiler on said
vessel exploded, and said vessel became then and there unmanage-
able, and swung around on the water, and within a few minutes there-
after sank and became a total wreck, and was wholly and totally
lost to the owner thereof, and was abandoned by the owner to de-
fendant. There is no allegation in the complaint that under the
customs of insurance in San Francisco insurers are liable for ex-
plosions of boilers, or damages resulting therefrom. A demurrer to
the complaint was filed on the ground that it does not state facts
sufficient to constitute a cause of action. The demurrer was sus-
tained, and, plaintiff declining to amend, judgment was entered for
defendant.
Passing over the question as to the sufficiency of the allegation in
the complaint to show that the destruction of the vessel was caused
by the bursting of the boiler, or by any other means admitted to
be such as would make the company liable, and conceding that the
complaint shows the loss to have occurred by reason of the bursting
of the boiler without any fault of the plaintiff, these inquiries re-
main : First, is the explosion of the boiler a peril of the sea within
the first clause above quoted? and, second, if it be a peril of the
sea, are not the damages resulting therefrom excepted under the
special provision of the policy which is quoted above, and which relates
to the bursting of the boilers?
Perils of the sea are defined by our Civil Code to be "storms and
waves; rocks, shoals, and rapids; other obstacles, though of human
origin ; changes of climate ; the confinement necessary at sea ; animals
peculiar to the sea; and all other dangers peculiar to the sea." Civil
Code, § ^199. The bursting of a boiler is not within any of the first
six causes named. Is it a danger peculiar to the sea? Perils of
the sea have been defined to be "all perils, losses, and misfortunes
of a marine character, or of a character incident to a ship as such."
T. & M. I. Co. V. H. F. & Co., House of Lords, July 14, 1887. In
that case it was said : "The damage to the donkey-engine was not
through its being in a ship at sea. The same thing would have
happened had the boiler and engines been on land, if the same mis-
management had taken place. The sea, waves, and wind had nothing
to do with it. * * * It is, I think, impossible to say that this
is damage occasioned by a cause similar to perils of the sea on any
interpretation which has ever been applied to that term. It will be
observed that Lord EHenborough limits the operation of the clause
to marine damage. By this I do not understand him to mean only
damage which has been caused by the sea, but damage of a char-
acter to which a marine adventure is subject. Such an adventure
has its own perils, to which either it is exclusively subject, or which
PERILS OF THE SEA 419
possess, in relation to it, a special or peculiar character. To secure
an indemnity against these is the purpose and object of a policy of
marine insurance. * * * But the explosion of the boiler on board
the Panama had no marine character at all. It might have happened
in precisely the same way, and done the same kind of damage, if a
similar engine had been in use for the purpose of moving manufactur-
ing machinery on shore." These views seem to express very clearly
the proper meaning of the seventh clause of section 2199, supra.
In support of the contention that an explosion of the boiler is a
peril embraced within the list of perils insured against by this policy,
appellant cites Administrators of Perrin v. Insurance Co., 11 Ohio,
169, 38 Am. Dec. 728, and Insurance Co. v. Glasgow, 9 Mo. 413.
In the Ohio case the risks insured against were described in the
policy as follows: "Of the seas, rivers, fires, enemies, pirates of the
rivers, assailing thieves, and all other losses and misfortunes which
shall come to the damage of said steam-boat according to the true
intent and meaning of said policy." It was there held that the loss
occasioned by the bursting of a boiler was a loss within the policy,
but we do not understand the court to have held in that case that
such a loss was a loss by peril of the seas. In Telegraph Co. v. In-
surance Co., 6 Q. B. Div. 57, the Ohio case was quoted approvingly,
yet it was there held that the bursting of a boiler was a peril not
within the general term "perils of the sea." In Insurance Co. v. Glas-
gow, supra, it seems that the policy was the same as in the Ohio case.
In all the cases cited it was held simply that the loss was one
which came within the insurance clause providing against "all other
perils, losses," etc. In the case before us the general clause is,
"and all other losses and misfortunes that shall come to the hurt,
damage, or detriment of the said vessel, or any part thereof, to which
insurers are liable by the rules and customs of insurance in San
Francisco, excepting such losses and misfortunes as are excluded by
this policy." Our conclusion is that the loss complained of herein
is not within either the meaning of the term "perils of the sea" as
defined in our Civil Code, or as understood in the law of marine in-
surance generally ; and, of course, if the loss be one which falls
under the general clause of the policy, it is sufficient to say that
there is no allegation that by the customs of insurance in San Fran-
cisco insurers are liable for explosions of boilers, or damages resulting
therefrom.
2. The construction we place upon the clause of the policy above
quoted renders it unnecessary to consider whether the damages are
not in any event excepted under that provision of the policy relating
to the bursting of boilers. It is proper to say, however, that a clause
precisely the same in language was considered by the court of appeals
in Strong v. Insurance Co., 31 N. Y. 103, 88 Am. Dec. 242. It
was there held that the language is to be understood to mean that
420 MARINE INSURANCE
the company is not to be liable for damage resulting to the vessel or
otherwise on account of the bursting of the boilers, unless occasioned
by stranding. Judgment affirmed.
III. Particular and General Average Losses •
1. In General,
COSTER V. PHCENIX INS. CO.
(Circuit Court of United States, District of Pennsylvania, 1807. 2 Wash.
C. C. 51, Fed. Cas. No. 3,264.)
This was a case agreed, which stated, that in 1805, an order for
insurance of goods on board the shi]T Draper, at and from New York
to Amsterdam, was given by the plaintiff's agent to the defendants ;
in which it was stated the same were to be free of average under
ten per cent. On the 26th of December, 1805, a policy was subscribed
by the defendants on goods on board the same ship, at and from
New York to Anisterdam, at five per cent. ; which insurance was
declared to be made on one hundred and twenty-five bales of cotton,
and thirty-six boxes of sugar, valued at 12,150 dollars, and war-
ranted free from average under ten per cent., and with other war-
ranties not in question. That the following (printed) clause was also
contained in the policy, viz. "Memoranda. It is agreed that salt,
wheat, Indian corn, peas, or any other kind of grain, malt, dried
fish stowed in bulk, leaf tobacco or otherwise, fruit of all kinds, and
any other articles that are perishable in their own nature, are war-
ranted by the assured free from average, unless general ; all other
goods free from average under five per cent., unless general." The
vessel sailed from New York, and arrived in the Texel, where she
was subjected to certain extraordinary expenses and damages, of the
nature of general average.
The question submitted to the court was, whether the defendants are
liable and chargeable with the said average loss, being general, but
under ten per cent. If the court should be of opinion that the de-
fendants are liable for the said general average, judgment to be ren-
dered for the plaintiff ; the amount to be agreed upon by the parties.
If the opinion should be that they are not so liable, judgment to be
rendered for the defendants.
sFor discussion of principles, see Vance on Insurance, §§ 228. 224. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, pp. 2968, 2995.
PARTICULAR AND GENERAL AVERAGE LOSSES 421
Washingtox, Circuit Justice. The word "average" originally meant
a contribution, by the owner of the ship, cargo, and freight, towards
a loss sustained for the general benefit of all. But when understood
in this sense, it is at this day always called "general," to distinguish
it from "particular" average, which means nothing more than a par-
tial loss. So that from the time that the term "average" was used
to express a partial loss, the word "average" has, in the common
understanding of commercial men, so far varied its original meaning,
when applied to original insurances, as to import as well a general
contribution, as a particular loss ; and is intended to be used in either
of those ways: the adjuncts "general," "partial," or "particular," are
always affixed.
An attention to the true meaning of this phrase will assist us in
understanding the point in controversy. The printed clause liberates
the underwriters from particular average to any amount, on articles
of a perishable nature, and on other articles where the loss amounts
to less than five per cent. The written clause discharges the under-
writer from all responsibility for average losses, whether general
or particular, under ten per cent. These clauses are inconsistent
with each other, and one or the other must give way. If the written
clause varies from the printed, it is evidence of a special contract
made in that particular case, different from the usual contract of in-
surances ; and it must necessarily be considered as the real agree-
ment of the parties. If the written and the printed clauses can be
reconciled by any fair construction, it ought to be done ; if they
cannot, the former must prevail. Whether, in this case, the not
qualifying the general expressions, proceeded from mistake or was de-
signed, is quite uncertain. The insured may possibly have expected
that the usual words, "unless general," would be added, and the
underwriter may have taken a smaller premium in consideration of
being exempted from general average losses, under ten per cent.
There is no certain ground to go upon, but the construction fairly
deducible from the expressions which the parties have used.
The opinion of the court therefore is, that the defendants are not
liable for the average loss, and that judgment should be rendered for
them.
422 marine insurance
2. Ge;neral Average
MUTUAL SAFETY INS. CO. v. CARGO OF THE GEORGE.
(District Court of United States, Southern District of New York, 1845.
01c. 89, Fed. Cas. No. 9.981.)
The cargo and its proceeds are libelled in this action by three in-
surance companies [the Mutual Safety Insurance Company, the Amer-
ican Insurance Company, and the Jackson Marine Insurance Com-
pany], underwriters on ship and freight, to recover a contribution
share on general average, claimed to be payable by the cargo on
board the ship George, because of a voluntary stranding of the
vessel by her master to save the cargo and freight. The under-
writers had accepted the abandonment of the ship and freight after
the loss of the ship, and paid a total loss on the vessel and freight.
The facts are as follows : The George, being insured by the libel-
lants, (all the three companies having underwritten the vessel to the
valued amount of twelve thousand dollars, four thousand dollars
each, and the Mutual Safety Insurance Company having underwritten
the freight to the amount of $4,400, on a valuation of $6,800,) sailed
in May, 1841, from New Orleans to Trieste, with a cargo of cotton,
consigned to the claimants, Reyea & Schlick. When about six days
out, the vessel met with heavy weather, and sprung a leak. The
leak increased, and the master, after making a fruitless attempt to
reach the harbor of Nassau, finally, with the view to save the "cargo
from destruction, ran the ship on a reef, about three-quarters of a
mile from the main land on the west end of the Grand Bahamas.
The vessel and freight were wholly lost, and after, abandonment to
the underwriters, a total loss was paid by them. A large portion of
the cotton was saved, and the proceeds came to the hands of the
defendants, [Josiah] Macy & Son, as agents of Reyea & Schlick,
and Livingston & Barclay. The libel was now filed in rem against
the cargo and its proceeds, on the ground that they were bound to
contribute in general average to the loss of the vessel and freight,
and in personam against the respondents, as holders of those proceeds
or parts of the cargo.
Betts, District Judge.^ * * * f he point most contested on the
hearing is involved in the objection that the ship-owner is not en-
titled to bring the value of the ship into contribution on general
average, when the peril to which she was voluntarily exposed resulted
in her total loss and destruction. The facts of the case are free from
The statement of facts is abridged from the original report and part of
the opinion is omitted.
PARTICULAR AND GENERAL AVERAGE LOSSES 423
all conflict, and upon the testimony of the master, it appears the
vessel was voluntarily run ashore by him to save the cargo, the lives
on board not being in danger, and was totally lost in consequence.
The policy and justness of the rule which, in my opinion, warrants
this demand, is clearly manifested by these facts, because, if the
probable or even possible destruction of the ship might follow the act,
the master w^ould have no inducement to risk that sacrifice, if, when
the total loss followed, no claim for indemnity could be maintained
against the cargo and freight for whose benefit it was made. In
this act are all the requisites to a case of general average. The ex-
posure of the ship to loss was voluntarily made by the master and
crew for the common benefit of the shippers, and solely for the pur-
pose of saving the cargo. It conduced to their preservation.
The controlling test in questions of average is the voluntary placing
of part of the property in peril by the master and crew, for the
safety of the residue. 2 Browne, Civ. & Adm. Law, 199; Whitte-
ridge v. Norris, 6 Mass. 125. And in vindication of the soundness
of the new rule, admitted in the American courts, giving the value
of the ship w^hen she is totally lost a right to contribution. Ch. J.
Tilghman, in Gray v. Wain, says, if the case is not one of general
average, because the ship was totally lost, the result would be that
for a small loss there shall be compensation, but a great loss is to
go without compensation. 2 Serg. & R. (Pa.) 229, 7 Am. Dec. 642.
To constitute a case of general average it is admitted to be es-
sential that the ship and cargo should be in common danger, and
that a part should be sacrificed for the preservation of the remainder,
or, as is laid down by Emerigon (volume 1, 603), "le dommage n'est
avaire grosse, que dans les cas ou il ete opere voluntairement pover
le salut commerce." All these ingredients to a case of general aver-
age are proved to exist in the present instance, and it varies only
from those described and approved in the earliest edicts and adju-
dications on the subject, in the feature, that the ship was subjected
to a total instead of a partial loss, in the efifort to save the cargo.
This consideration augments the equity of the claim that such loss
should be apportioned, and the property saved should contribute to-
wards its remuneration.
The argument against the claim attempts to replace the old doctrine
declared by Emerigon and sanctioned by the supreme court of New
York, excluding the owners of a ship totally lost from participation
in the general average shared by the owners of cargo and freight.
Bradhurst v. Columbian Ins. Co., 9 Johns. 9; Emerig. vol. 1, c. 12,
§ 13, p. 614. "It will be general average if the stranding has been
voluntarily made for the common safety, provided, always, that the
ship be again set afloat; for if the stranding be followed by ship-
wreck, then it is, save who can." To do this efifectually, the effort
is made to distinguish the facts and principles acted upon by the
supreme court of the United States and other American tribunals,
424 MARINE INSURANCE
from the broad and direct proposition presented by this case. But
in my judgment no sound distinction can be shown between them, and
the scope and force of the reasoning and conclusions of the supreme
court embrace and dispose of every material question made upon
that point in the case.
Judge Story, in speaking for the court (Columbian Ins. Co. v. Ashby,
13 Pet. 339, 10 L. Ed. 186): Surely, says he, the question of con-
tribution cannot depend upon the amount of the damage sustained by
the sacrifice, for that would be to say, that if a man lost all his
property for the common benefit, he should receive nothing; but if
he lost a part only he should receive full compensation, and emphati-
cally declares the law to be that a voluntary stranding of the ship,
followed by a total loss of the ship, but with a saving of the cargo,
constitute, when designed for the common safety, a clear case of
general average. In this cardinal doctrine other influential decisions
concur. The principle to be gathered from the new application of
the rule is, that if the voluntary act of the master and crew is the
direct occasion, the efficient motive and cause of the stranding, the
loss becomes one of general average. Caze v. Reilly. Fed. Cas. No.
2,538; 2 Browne, Civ. & Adm. Law, 199; Whitteridge v. Norris.
6 Mass. 125 ; Gray v. Wain, 2 Serg. & R. (Pa.) 229, 7 Am. Dec.
642; Sims v. Gurney, 4 Bin. 513.
The Rhodian law, whence the doctrine of contribution is derived,
is founded upon this principle, j actus f actus levandse navis gratia.
The particular loss incurred is elected, with a view to the safety of
what remains. 2 Cond. Marsh. 536. There is nothing in the adage
of the Rhodian edict which imports that a partial injury of the prop-
erty put in peril is all that is contemplated by the devotion of it
to relieve the common peril; on the contrary, the larger doctrine has
always been deduced from it, that as the jettison is unreserved, and
may naturally result in the entire loss of the property abandoned to
the risk, so the average remuneration shall correspond to and be
measured by the degree of loss. Jac. Sea Laws, 345 ; Wesk. Ins.
(Fol. Ed.) tit. "General Average, Jettison"; Abb. Shipp. (Ed. 1829)
348; 3 Kent. Comm. (3d Ed.) 232.
This reference to the foundation of the law of general average is
sufficient to indicate that the application of its rules and principles
by the supreme court of this state (9 Johns. 9) is in restraint of the
exalted and comprehensive equity it is designed to accomplish in cases
of common perils wherein the property of one is sacrificed to pro-
mote the safety of others standing in equal exposure. Had the coun-
sel then succeeded on this argument in raising a doubt whether the con-
clusions of the supreme court (13 Pet. [38 U. S.] 339, 10 L. Ed. 186)
were in conformity with antecedent adjudications or usages on this
subject, the doctrine of that decision supplies the more satisfactory ex-
position of this important branch of maritime law, and gives a rule
eminently adapted to the exigencies of commercial navigation.
PARTICULAR AND GENERAL AVERAGE LOSSES 425
Independent of this acquiescence in the soundness of the views of
the court in that case, I should feel bound to conform to its exposi-
tions of the general principles and rules applicable to average claims,
although the particular facts of this case may be shown not to be
exactly coincident with those on which that judgment was founded.
The leading feature of that case embodies the principle which con-
trols this. But even if it could be demonstrated that the conclusions
of the supreme court were speculative and hypothetical, the solemn
enunciation and sanction of a rule of maritime law, by that high tri-
bunal, would be a guide and light I should not fail to follow in the
administration of that law in this court.
In commercial and maritime questions, the federal courts are not
governed by the jurisprudence of particular states, but by the general
principles and doctrines of commercial law, or the law-merchant.
Swift V. Tyson, 16 Pet. (41 U. S.) 1, 10 L. Ed. 865. I shall, there-
fore, hold the libellants, representing the rights of the owners of the
ship, as entitled to contributions on general average upon her value,
at the place of loss, notwithstanding she was totally lost by the strand-
ing. The act was voluntarily done by the master with a view to the
safety of the cargo alone. They are entitled to contribution toward
the loss, from all that was saved, including cargo and freight. The
ship, cargo and freight are to be estimated at their full value, at the
place of stranding. That value will be ascertained on the adjustment
of the average by appropriate proof. The invoices and bills of lad-
ing will be received as evidence of the value of the cargo at the place
of purchase and shipment, and the policies may be consulted as evi-
dence conducing to prove the worth of the ship at the port of de-
parture, and the value of the freight lost. 3 Kent, Comm. 167; Abb.
Shipp. 607 ; 2 Cond. Marsh. 618.
But additional evidence of the value must be produced. The prin-
ciples governing the valuation between assured and assurers, are
not conclusive in cases of average, because, in the first instance, the
policy is the common act of the parties in interest, and may estop all
question as to valuation, whilst on general average interests are brought
in which are not controlled by the policy. Still I think the policies
may be admissible before the adjusters as auxiliary proof of the value
of the ship, cargo or freight. The decree will be drawn up in cor-
respondence with this decision, and all questions of law which may
properly be raised on the proceedings of the adjusters under it, may
be brought forward for consideration on the coming in of the adjust-
ment or auditor's report. * * * Decree for libellants.
426 marine insurance
3. Particular Average
WASHBURN & MOEN MFG. CO. v. RELIANCE MARINE
INS. CO.
(Supreme Court of United States. 1900. 179 U. S. 1, 21 Sup. Ct. 1, 45 L.
Ed. 49.)
On Writ of Certiorari to the United States Circuit Court of Ap-
peals for the First Circuit to review a decision affirming a decree of
the Circuit Court in an action at law brought on a policy of marine
insurance in a state court and thence removed into the Circuit Court
of the United States for the District of Massachusetts.
See same case below, 50 U. S. App. 231, 82 Fed. 296, 27 C. C.
A. 134.
This was an action at law brought in the superior court of Massa-
chusetts for the county of Suffolk, and thence removed into the cir-
cuit court of the United States for the district of Massachusetts, by
the Washburn & Moen Manufacturing Company against the Reliance
Marine Insurance Company (Limited) of London, England, on a pol-
icy of marine insurance taken out, March 15, 1893, in the sum of $48,-
800, on a cargo of wire shipped from Boston to Velasco, Texas, on
the schooner Benjamin Hale, John Hall, master.
The memorandum clause of the policy ran thus: "Memorandum.
It is also agreed that bar, bundle, rod, hoop, and sheet iron, wire of
all kinds, tin plates, steel, madder, sumac, wickerware, and willow
(manufactured or otherwise), salt, grain of all kinds, tobacco, Indian
meal, fruits (whether preserved or otherwise), cheese, dry fish, hay,
vegetables and roots, rags, hempen yarn, bags, cotton bagging, and
other articles used for bags or bagging, pleasure carriages, household
furniture, skins and hides, musical instruments, looking-glasses, and
all other articles that are perishable in their own nature, are warranted
by the assured free from average, unless general ; hemp, tobacco
stems, matting, and cassia, except in boxes, free from average under
20 per cent unless general; and sugar, flax, flaxseed, and bread are
warranted by the assured free from average under 7 per cent unless
general; and coffee in bags or bulk, pepper in bags or bulk, and rice,
free from average under 10 per cent unless general."
And on the margin the following was stamped or written: "Free
of particular average, but liable for absolute total loss of a part if
amounting to five (5 %) per cent."
The Benjamin Hale sailed for Velasco, March 31, 1893, and on
April 15 ran ashore on Bahama Banks, but, after throwing overboard
200 reels of barbed wire, floated and proceeded. On the night of
April 19 the schooner again ran ashore, on Bird Key, near Dry Tortu-
PARTICULAR AND GENERAL AVERAGE LOSSES 427
g-as, and largely filled with water. Wreckers came on board April 21.
The master went to Key West, and from thence telegraphed the Wash-
burn & Moen Company, April 24, that the vessel was ashore, and he
thought the loss was total. April 24, 25, or 26 the agent of that com-
pany told the agent of the insurance company, in Boston, "what he
knew in regard to the troubles, and said that he wished to abandon
the cargo to the underwriters." April 29 a written notice of a1\indon-
ment was given, which the insurance company explicitly declined to
accept. The master returned at once with further assistance, reach-
ing the wreck the morning of April 25, and the vessel was floated
April 29, and finally taken to Key West, arriving May 4. The cap-
tain testified that "from the time the vessel went ashore until she
came off they were taking the cargo out as they could so as to get
her off. * * * Think about one half of cargo was discharged on
the reef, of which he thinks about 1,300 reels were dry." This was
substantially all carried to Key West, where the unloading was com-
pleted May 10.
Captain Hall made a memorandum at Key W^est as to the condition
of the cargo when landed there. From this it appeared that out of
13,051 reels of barbed wire, shipped from Boston, 12,277 (or 12,625)
were landed at Key West, of which 989 were perfectly dry, and 10,-
448 had received "hardly perceptible" damage. Of plain wire, 1,102
bundles were shipped, and all landed at Key West, and 464 were
stated to be nearly dry. Five reels of salamander wire and a wire
rope were all landed and transshipped dry and unimpaired ; also 243
kegs of staples out of 249; and 478 bundles of hay bands out of
1,050.
The goods were forwarded from Key West to Velasco on the
schooner Cactus, where they were tendered to the Washburn & Moen
Company, which refused to receive them. That company again aban-
doned, and the insurance company again declined to accept abandon-
ment.
At this time a very large part of the goods existed in specie, and
a considerable part was practically uninjured. There were no facil-
ities for handling, and no market for, barbed wire at Key West, but
there were at Velasco, which was also but 60 miles by rail from
Houston, the headquarters of the general agent of the manufacturing
company in Texas.
The goods were afterwards sold by order of court on the libel of
the master of the Cactus for freight, demurrage, and expenses, and
realized $10,000.
]\Ir. Chief Justice Fuller delivered the opinion of the court. ^^
By the memorandum, wire of all kinds was expressly "warranted
by the assured free from average unless general;" and by the rider,
10 The statement of facts is abridged from the original report and part of
the opinion is omitted.
428 MARINE INSURANCE
"free of particular average, but liable for absolute total loss of a part
if amounting to 5 per cent."
The memorandum and marginal clauses were in pari materia and to
be read together. They were not contradictory, and the rider merely
operated to qualify the memorandum by allowing recovery for an
actual total loss in part, which could not otherwise be had. In other
words, the qualification was manifestly inserted so that, while conced-
ing that under the memorandum clause no liability was undertaken
for a constructive total loss but only a liability for an actual total loss,
the insurers might be held for an actual total loss of a part.
The contracting parties thus recognized the rule that articles war-
ranted free of particular average, or free from average unless gen-
eral, are insured only against an actual total loss.
The warranty or memorandum clause was introduced into policies
for the protection of the insurer from liability for any partial loss
whatever on certain enumerated articles, regarded as perishable in
their nature, and upon certain others none under a given rate per cent.
This was about 1749, and since then, in the growth of commerce, the
list of articles freed by the stipulation from particular average has
been enlarged so as to embrace many, which, though they may not be
inherently perishable, are in their nature peculiarly susceptible to dam-
age.
The early form ran as follows: "Corn, fish, salt, fruit, flour, and
seed are warranted free from average, unless general or the ship be
stranded ; sugar, tobacco, hemp, flax, hides, and skins are warranted
free from average under five pounds per cent; and all other goods,
and also the ship and freight, are warranted free from average under
three pounds per cent unless general or the ship be stranded."
In 1764 Lord Mansfield in Wilson v. Smith, 3 Burr. 1550, held that
the word "unless" meant the same as "except," and that "the words
'free from average unless general' can never mean to leave the in-
surers liable to any particular average."
In Cocking v. Fraser, 4 Dougl. 295 (1785), the court of King's
bench held, Lord Mansfield and Mr. Justice Buller speaking, that the
insurer was secured against all damage to memorandum articles, un-
less they were completely and actually destroyed so as no longer
physically to exist. * * *
The general rule is firmly established in this court that the insur-
~ ers are not liable on memorandum articles, except in case of actual
total loss, and that there can be no actual total loss where a cargo
of such articles has arrived, in whole or in part, in specie, at the. port
of destination, but only when it is physically destroyed, or its value
extinguished by a loss of identity. Biays v. Chesapeake Ins. Co.
(1813) 7 Cranch, 415, 3 L. Ed. 389; Marcardier v. Chesapeake Ins.
Co. (1814) 8 Cranch, 39, 3 L. Ed. 481 ; Morean v. United States Ins.
Co. (1816) 1 Wheat. 219, 4 L. Ed. 75 ; Hugg v. Augusta Ins. & Bkg.
Co. (1849) 7 How. 595, 12 L. Ed. 834; Great Western Ins. Co. v.
PARTICULAR AND GENERAL AVERAGE LOSSES 429
Togarty (1873) 19 Wall. 640, 22 L. Ed. 216. And see Robinson v.
Commonwealth Ins. Co., 3 Sumn. 220, Fed. Cas. Xo. 11,949; Marean
V. United States Ins. Co., 3 Wash. C. C. 256, Fed. Cas. Xo. 9,064.
Biays v. Chesapeake Ins. Co. was a case of insurance upon hides,
of which some were totally lost; some were saved in a damaged con-
dition ; and some were uninjured. This court overruled the conten-
tion that there could be a total loss as to some of them notwithstand-
ing the memorandum clause, and Mr. Justice Livingston said:
"Whatever may have been the motive to the introduction of this
-clause into policies of insurance, which was done as early as the year
1749, and most probably with the intention of protecting insurers
against losses arising solely from a deterioration of the article, by its
own perishable quality; or whatever ambiguity may once have ex-
isted from the term average being used in different senses, that is,
as signifying a contribution to a general loss, and also a particular or
partial injury falling on the subject insured, it is well understood at
the present day, with respect to such [memorandum] articles, that un-
derwriters are free from all partial losses of every kind, which do
not arise from a contribution towards a general average.
"It only remains, then, to examine, and so the question has prop-
erly been treated at bar, whether the hides, which were sunk, and not
reclaimed, constituted a total or partial loss within the meaning of this
policy. It has been considered as total by the counsel of the assured,
but the court cannot perceive any ground for treating it in that way,
inasmuch as out of many thousand hides which were on board, not
quite 800 were lost, making in point of value somewhat less than
one-sixth part of the sum insured by this policy. If there were no
memorandum in the way, and the plaintiff had gone on to recover,
as in that case he might have done, it is perceived at once that he
must have had judgment only for a partial loss, which would have
been equivalent to the injury actually sustained.
"But without having recourse to any reasoning on the subject, the
proposition appears too self-evident not to command universal assent,
that when only a part of a cargo, consisting all of the same kind of
.articles, is lost in any way whatever, and the residue (which in this
case amounts to much the greatest part) arrives in safety at its port
of destination, the loss cannot but be partial, and that this must for-
ever be so so long as a part continues to be less than the whole. This
loss, then, being a particular loss only, and not resulting from a gen-
eral average, the court is of opinion that the defendants are not liable
for it."
In Marcardier v. Chesapeake Ins. Co. some of the goods insured
■were warranted "free from average unless general," and damages were
claimed for a constructive total loss of these goods, but the claim was
disallowed. After stating the American rule that a damage of ordi-
nary goods exceeding 50 per cent entitles the insured to recover for
a constructive total loss, Mr. Justice Story continued:
430 MARINE INSURANCE
"But this rule has never been deemed to extend to a cargo consist-
ing wholly of memorandum articles. The legal effect of the memor.
randum is to protect the underwriter from all partial losses; and if
a loss by deterioration, exceeding a moiety of value, would authorize
an abandonment, the great object of the stipulation would be com-
pletely evaded. It seems, therefore, to be the settled doctrine that
nothing short of a total extinction, either physical or in value, of mem-
orandum articles at an intermediate port, would entitle the insured to
turn the case into a total loss, where the voyage is capable of being
performed."
In Robinson v. Commonwealth Ins. Co., 3 Sumn. 220, Fed. Cas. No.
11,949, where a clause in the policy exempted the insurers from Ha-
bility for any partial loss on goods esteemed perishable in their own
nature, and the goods insured were held to be perishable, the same
eminent judge charged the jury:
"The principle of law is very clear that, as this is an insurance on
a perishable cargo, the plaintiff is not entitled to recover, unless there
has been a total loss of the cargo by some peril insured against. If
the schooner had arrived at the port of destination, with the cargo
on board, physically in existence, the plaintiff would not have been
entitled to recover, however great the damage might have been by a
peril insured against, even if it had been 99 per cent, or, in truth, even
if the cargo had there been of no real value."
Part of the cargo in Morean v. United States Ins. Co. was war-
ranted free from average unless general, and Air. Justice Washington
said :
"All considerations connected with the loss of the cargo, in respect
to quantity or value, may at once be dismissed from the case. As to
memorandum articles, the insurer agrees to pay for a total loss only,
the insured taking upon himself all partial losses without exception.
"If the property arrive at the port of discharge, reduced in quantity
or value, to any amount, the loss cannot be said to be total in reality,
and the insured cannot treat it as a total, and demand an indemnity
for a partial, loss. There is no instance where the insured can de-
mand as for a total loss, that he might not have declined an abandon-
ment, and demand a partial loss. But if the property insured be in-
cluded within the memorandum, he cannot, under any circumstances,
call upon the insurer for a partial loss, and, consequently, he cannot
elect to turn it into a total loss. * * * The only question that can
possibly arise, in relation to memorandum articles is whether the loss
was total or not ; and this can never happen where the cargo, or a
part of it, has been sent on by the insured, and reaches the original
port of its destination. Being there specifically, the insurer has com-
plied with his engagements ; everything like a promise of indemnity
against loss or damage to the cargo being excluded from the policy."
In Hugg V. Augusta Ins. & Bkg. Co. the insurance was upon
freight on a cargo of jerked beef, perishable articles being warranted
PARTICLLVR AND GENERAL AVERAGE LOSSES 431
free from average, and it was held that defendant was not liable for
a total loss of freight, unless it appeared that the entire cargo was
destroyed in specie. * * * ;\ji-. Justice Nelson, delivering the
opinion of the court, made these, among other, observations:
"What constitutes a total loss of a memorandum article has been the
subject of frequent discussion both in the courts of England and this
country, and in the former of some diversity of opinion ; but in most
of the cases the decisions have been uniform, and the principle gov-
erning the question regarded as settled ; and that is, so long as the
goods have not lost their original character, but remain in specie, and
in that condition are capable of being shipped to the destined port,
there cannot be a total loss of the article, whatever may be the ex-
tent of the damage, so as to subject the underwriter. The loss is but
partial. * * *
"The only doubt that has been expressed in respect to the sound-
ness of this rule is whether a destruction in value for all the purposes
of the adventure, so that the objects of the voyage were no longer
worth pursuing, should not be regarded as a total loss within the mem-
orandum clause, as well as a destruction in specie. * * * jn this
country the rule has been uniform that there must be a destruction
of the article in specie, as will be seen by a reference to the follow-
ing authorities. * * *
"Whether the test of liability is made to depend upon the destruc-
tion in specie, or in value, would, we are inclined to think, as a gen-
eral rule, make practically very little, if any, difference; for while
the goods remain in specie, and are capable of being carried on in
that condition to the destined port, it will rarely happen that on their
arrival they will be of no value to the owner or consignee. The prop-
osition assumes a complete destruction in value, otherwise the uncer-
tainty attending it would be an insuperable objection; and, in that
view, it may be a question even if the degree of deterioration would
not be greater to constitute a total loss than is required under the
present rule.
"The rule as settled seems preferable, for its certainty and sim-
plicity, and as affording the best security to the underwriter against
the strong temptation that may frequently exist, on the part of the
master and shipper, to convert a partial, into a total, loss."
The case came up on a certificate of division, and the answer to
the first question certified was :
"That, if the jury find that the jerked beef was a perishable article
within the meaning of the policy, the defendants are not liable as
for a total loss of the freight, unless it appears that there was a de-
struction in specie of the entire cargo, so that it had lost its original
character at Nassau, the port of distress ; or that a total destruction
w^ould have been inevitable from the damage received, if it had been
reshipped before it could have arrived at ^latanzas, the port of des-
tination."
432 MARINE INSURANCE
The cases in this court are reviewed and applied by Mr. Justice
Miller in Great Western Ins. Co. v. Fogarty, in which it was ruled
that, where certain machinery had been so injured as to have lost its
identity as such, recovery for total loss might be sustained. * * *
It would subserve no useful purpose to attempt a review of the
English cases on this subject. If in England a plaintiff may recover
for a constructive total loss of memorandum articles, it is when they
are so injured as to be of no substantial value when brought to the
port of destination.
In the United States (and herein is a material difference between
the jurisprudence of the two countries), the general rule is that a dam-
age exceeding 50 per cent, justifies abandonment and recovery as for
constructive total loss. Marcardier v. Chesapeake Ins. Co., 8 Cranch,
39, 3 L. Ed. 481 ; Le Guidon (Paris, 1831) chap. VII. art. 1 ; chap. V.
art. 8. But this principle is not applicable to memorandum articles in
respect of which the exception of particular average excludes a con-
structive total loss.
There is no pretense here that this wire, with some small exceptions
duly allowed for, did not exist at Key West, and did not arrive at
Velasco in specie, and, as to a large part, with its original character
unimpaired. Abandonment is necessary when the loss is only con-
structively total, and under this policy no right of abandonment ex-
isted at the time of the disaster or afterwards, by the exercise of which
the assured could turn this partial loss in fact into a total loss by
construction. * * * Affirmed.
IV. The Insurer's Liability— Total Loss "
JONES V. WESTERN ASSUR. CO.
(Supreme Court of Pennsylvania, 1901. 198 Pa. 206. 47 Atl. 948.)
Action by James Jones & Sons against the Western Assurance Com-
pany of Toronto, Ontario. From a judgment in favor of plaintiffs,
defendant appeals.
Mestrezat, J. This is an action of assumpsit brought to recover
$3,000, the full amount of a policy of marine insurance issued to the
plaintiffs by the defendant on the steam towboat Dauntless. The
policy is dated January 7, 1897, and ran for one year. There was an-
other policy on the boat of like amount, and covering the same pe-
11 For discussion of principles, see Vance on Insurance, §§ 225-227. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, p. 2920 et seq.
THE insurer's LIABILITY — TOTAL LOSS 433
riod, issued by the Eureka Fire & Marine Insurance Company of
Cincinnati, Ohio. The policy issued by the defendant company fixed
the value of the boat, by agreement of the parties, at $8,000. It was
a sternwheel vessel, and was used for towing purposes in the Ohio,
jMonongahela, and Allegheny rivers. In the early morning of March
8, 1897, the Dauntless was taken to McLaughlin's landing, on the
Pittsburg side of the Allegheny river, and about three or four hun-
dred yards above the exposition buildings, in the city of Pittsburg. It
lay there for two hours, and about 6:30 o'clock it backed out from
the landing, and started down the river with an empty flat in tow.
The river was high, and the current was strong from the Pittsburg
shore towards the Allegheny side of the river.
As the boat was proceeding down the river, and about 500 feet
above the Union Bridge, which spans the Allegheny river at the point,
the pilot, Capt. Clark, discovered that it was in a bad position. To
avoid a collision with the bridge pier, he stopped, and began to back
it up the river, and started to change the rudders. As the boat was
backing the tiller line by which the rudders are controlled by the
pilot parted, and it became helpless. In a couple of minutes it struck
the Union Bridge pier, the second pier from the Pittsburg side. The
boat struck on her right side, and a little back of the middle. After
lodging there awhile, the engineer, by direction of the pilot, shoved the
vessel off the pier, and it drifted down the river. It soon filled up
pretty well with water, and after going 200 or 300 feet fell on the
starboard side, and sank in about 14 or 15 feet of water, at the junc-
tion of the three rivers. This was about 7 o'clock in the mornins:.
The plaintiffs placed watchmen in charge of the boat, who remained
there a few days, until the defendant company took charge of it.
The company was at once notified of the loss, and of the abandonment
of the vessel. Proofs of the loss were also duly furnished.
The plaintiffs, claiming that the boat was a total loss, refused to
assist in raising it. The defendant took charge of the boat, raised
and repaired it, and on the 29th of June, 1897, tendered it to the
plaintiffs, claiming that it had been restored to a better condition than
it was just previous to the accident of March 8, 1897. At the same
time the defendant presented the plaintiffs with a bill incurred in
raising and restoring the Dauntless, accompanied by a demand for pav-
ment. The plaintiffs declined to receive the boat or to pay the bill,
and brought this action.
The defendant company denied its liability to the plaintiffs for the
amount of the policy, or any part of it, and interposed various de-
fenses at the trial of the cause. The risks assumed by the company
under the policy were the unavoidable dangers of rivers, of fires, and
of jettisons, that should cause loss or damage to the vessel. There
were specifically excepted from these risks "all perils, losses, or mis-
fortunes arising from, or caused by, the gross negligence, recklessness,
CooLEY Ins. — 28
434 MARINE INSURANCE
or willful misconduct of the owner, master, officers, or crew of the
vessel."
It was claimed on behalf of the defendant that the loss of the boat
came within these exceptions ; that the owners were guilty of gross
negligence in not providing a proper and safe tiller rope ; that the
pilot was guilty of gross negligence in trying to change the rudders
while the boat was backing, and in directing the engineer to shove it
off the pier. These questions have been settled by the verdict. The
learned judge below submitted them in a correct and very careful
charge, and the jury has found against the contention of the defend-
ant. The court, after referring to the testimony bearing upon the
subject, told the jury that "if the owners were guilty of gross negli-
gence in not providing proper machinery or a proper tiller rope, or
if those in charge of the boat were guilty of gross negligence with
reference to the collision or in getting the boat off the pier, then there
can be no recovery."
It is further claimed that the plaintiffs neglected their duty by fail-
ing to comply with clause 5 of the policy after the vessel had sunk.
This clause provides that, in case of loss, the assured shall use every
effort for the safeguard and recovery of the vessel by employing such
means as can be obtained for that purpose, and after recovery shall
cause it to be repaired, but, in case of the neglect or refusal of the
assured to do so, then the company may do it for account of the in-
sured. In such case the company, after taking from the cost the de-
ductions allowed in the policy in case of a partial loss, shall contribute
to the cost of the repairs in the proportion that the sum insured bears
to the agreed value. It is provided in the policy that the acts of the
assured or assurers in saving or repairing the property insured shall
be held not to be a waiver or acceptance of the abandonment or of
an acknowledgment of liability by the assurers.
The learned court below thought that this clause should be con-
strued in the light of, and in connection with, clause 8 of the policy,
which provides that there shall be no abandonment as for a total loss,
on account of the vessel grounding, unless the injury sustained (ex-
clusive of the cost of raising, docking, and any other general average
charges) shall be equivalent to 50 per cent, of the agreed value of
the vessel. We think the court was clearly right in this view of the
contract. He charged the jury that if the expense of repairing the
boat was equal to, or greater than, the one-half of its value, then the
plaintiffs had the right to abandon it, and the company could take
possession of the boat, repair it, and sell it, or do what they pleased
with it, and it would be their property ; but that "if the assured un-
reasonably refused to join with the defendant in raising that boat,,
when it could be raised and repaired at a less expense than fifty per
cent, of the agreed value, — that is, less than $4,000, — then the plain-
tiffs could not recover the whole of this policy, and I will say to you
that, if this is the case here, then there can be no recovery at all."
THE insurer's LIABILITY — TOTAL LOSS 435
With a slight inaccuracy in regard to the expense of raising the ves-
sel, hereafter referred to, we think the learned judge correctly deter-
mined the rights and liabilities of the parties under these clauses of
the policy, and submitted the questions of fact arising thereon prop-
erly to the jury.
The day of the accident the plaintiffs notified the defendant of their
loss, and the following day filed with them a marine protest. They
placed a watch in charge of the wreck, and in three or four days
the defendant's adjuster assumed control of it. The company raised
and repaired it, and tendered it to the plaintiffs, alleging that the boat
was then in a better condition than before it was injured. The plain-
tiffs, denying that such was its condition, refused to accept it. The
learned judge in his charge said there was no provision in the policy
directly providing for a tender back to the assured of the repaired
vessel, but, notwithstanding the view thus entertained, he submitted
to the jury to determine whether the boat was repaired so as to be
as good as it was before the accident, and instructed the jury that if
it was, and the plaintiffs refused to accept it, there could be no recov-
ery. The plaintiffs might have objected to this part of the charge as
holding them to the performance of an obligation not contained in
their contract, but. surely, the defendant has no right to complain.
The next question that need be noticed is whether there was total
loss, as contemplated in the eighth clause of the policy, which would
justify an abandonment of the vessel. As we have seen, clause 8
of the policy provides that, when the injury sustained (exclusive of
certain costs) is equal to 50 per cent, of the value of the vessel, a total
loss shall exist justifying an abandonment. At the request of defend-
ant, as contained in his fifth point, the court charged that this clause
"must be interpreted as meaning that only the actual amount spent in
repairs of the vessel shall be considered in calculating the 50 per
centum of the total valuation of the vessel."
The defendant's contention is that the repairs amounted to $3,339.65,
as shown by its bill presented with the tender to the plaintiffs of the
Dauntless after the vessel had been repaired. It was claimed by the
defendant that with these repairs the boat was in a better condition
than it was prior to the accident. On the other hand, this contention
was met on the part of the plaintiffs by the allegation that when the
vessel was tendered to them it was not in as good condition as it was
prior to the accident, and to put it in such condition would require
an additional expenditure of at least $2,700. This would make, as
claimed by the plaintiffs, the cost of repairing largely in excess of the
$4,000, 50 per centum of the value of the vessel. Each side presented
testimony to sustain its contention in this respect, but it is not neces-
sary to refer to it in detail, as we are of opinion that under it the
jury was justified in finding against the defendant.
The sixth point alleges error by the court in including the expense
of raising the boat in the 50 per cent, of its value required to make
the total loss. That part of the charge is not accurate, but any error
436 MARINE INSURANCE
that might have arisen from it was cured by the statements in other
parts of the charge that the vessel could not be abandoned unless the
cost of the repairing exceeded one-half the value of the boat, and the
positive statement in the defendant's fifth point, which was affirmed
by the court, that clause 8 of the policy "must be interpreted as mean-
ing that only the actual amount spent in repairs of the vessel shall be
considered in calculating the 50 per cent, of the total valuation of the
vessel."
To summarize : The plaintiffs, alleging that it was impracticable to
repair the boat within the terms of the policy, refused to assist in rais-
ing and repairing it, and abandoned the vessel. The company raised
and repaired it, and, claiming that the repairs were less than one-half
of its value, tendered the boat to the plaintiffs, and demanded pay-
ment of the plaintiffs' proportion of the cost of raising and repairing.
Under proper instructions, the jury has found that the cost of the re-
pairs did exceed the one-half of the value of the boat, and hence, un-
der the provisions of the policy, there was a total loss. The plaintiffs
were therefore justified in their action in abandoning the boat, and,
of course, in claiming the full amount of their policy. The questions
raised on the trial by the learned counsel for the defendant company
were all submitted to the jury by the court, with substantially correct
instructions. The offer to explain the policy by parol testimony was
properly refused.
We see no error in the record requiring us to reverse the court be-
low. The assignments of error are overruled, and the judgment is af-
firmed.
MURRAY V. GREAT WESTERN INS. CO.
(Supreme Court of New York, General Term, First Department, 1893. 72
Hun, 282, 25 N. Y. Supp. 414.)
Action by Joseph K. Murray, as trustee for mortgage bondholders
of the steamship Cleopatra, against the Great Western Insurance
Company, on a marine policy of insurance. From a judgment entered
on a verdict in plaintiff's favor, and from an order denying a mo-
tion for a new trial, made on the minutes, defendant appeals.
FoLLETT, J. ^2 This action was brought to recover on a marine pol-
icy of insurance, by which the defendant insured the Cleopatra against
perils of the sea for one year from September 16, 1878, for $9,000,
under a policy in which the vessel was valued at $75,000. The policy
was taken out by and in the name of the owners of the ship; but,
by an indorsement, the loss, if any, was made payable to the plaintiff,
as trustee for certain mortgage bondholders. The vessel was also in-
sured by other underwriters for $38,000.
12 Part of the opinion is omitted. Attirmed by the Court of Appeals, with-
out opinion, 147 N. Y. 711, 42 N. E. 724.
THE insurer's LIABILITY — TOTAL LOSS 437
The Cleopatra was a wooden steamship, of about 1,045 tons bur-
den, built in 1865. In August, 1878, she was found to be considerably
"hogged," both ends being lower than the center; and in that month
she was repaired, strengthened, and supplied with new boilers. At
this time, and at the time of the stranding, David Golden Murray,
Lindley Murray Ferris, Jr., and Robert M. Ferris, constituting the
firm of Murray, Ferris & Co., were the owners of ®^/ioo, and Sophus
Valentine, the master, was the owner of ^^/loo. To secure the pay-
ment of $20,000, the cost of the repairs, Murray, Ferris & Co., Sep-
tember 18, 1878, mortgaged their interest in the ship to Joseph K.
Murray, as trustee, to secure the payment of 40 bonds of $500 each.
The mortgagors stipulated in the mortgage to keep the vessel insured
for $25,000 for the benefit of the trustee. There was a prior mort-
gage of $6,000 on the ship, held by Joseph K. Murray, individually,
which he stipulated should become the second lien.
After the ship had been so repaired and insured, she made one
round voyage between New York and Santiago de Cuba via Nassau
and Cienfuegos without accident, and October 17, 1878, she left New
York on a second round voyage between the same ports.
October 23, 1878, the vessel was stranded on a reef in Douglas
channel, near Nassau, New Providence, — one of the Bahama islands.
December 18, 1878, the owners gave the defendant written notice of
the stranding, and that they abandoned the vessel to the insurers ;
and March 18, 1879, the plaintiff, as trustee, gave a like notice, in
which the owners also joined.
It is conceded that the vessel was considerably injured by the ac-
cident, and the plaintiff asserts that he and the owners were justified
in abandoning her, and that he is entitled to recover for a constructive
total loss.
Besides the question of damages, the only issue of fact submitted
to the jury (neither party requesting the submission of any other) was
whether the vessel was so injured that it became a constructive total
loss. This issue has been three times tried, — First, at special term,
before Mr. Justice Donohue, where a judgment was rendered for the
plaintiff; second, before a jury which disagreed; and, lastly, before
the jury which rendered the verdict on which this judgment now un-
der review was entered.
The policy provides : "And it is further agreed that, in case a total
loss shall be claimed for or on account of any damage or charge to
the said vessel, the only basis of ascertaining her value shall be her
valuation in the policy."
The valuation clause in the policy is as follows:
"Hull and apparel valued at $37,500
Boilers and machinery valued at 37.500
Total $75,000
438 MARINE INSURANCE
"The valuation of hull, tackle, and apparel being made separate
from that of the boilers and machinery, it is agreed that no abandon-
ment of one interest, as valued, shall be made unless there shall be
a total loss of the other."
It was further provided in the policy: "And, lastly, it is agreed
that, in case of any claim for loss or damage, a deduction of one-third
from the cost of repairing or replacing the same shall be made, after
deducting the value of the old materials, except in the case of anchors,
and of sheathing of copper and other metal; a deduction of one-
fortieth from the expense of repairing or replacing the metal sheath-
ing, or any part thereof (after first deducting the value of the old
metal and nails) shall be made for every month since the vessel wab
last sheathed until the expiration of forty months, after which time
the cost of remetalling or repairing the same shall be wholly borne by
the assured. If a technical total loss shall be claimed, similar deduc-
tions shall be made from the estimated repairs, and, unless the net
cost thereof would exceed a moiety of the value of the vessel after
making such deduction, the loss shall be deemed partial, only."
The term "technical total loss" is used in the policy, which means
the same as "constructive total loss." 2 Phil. Ins. 237; 2 Pars. Mar.
Law, 336; 2 Pars. Mar. Ins. 110.
Mr. Arnould, in his learned work on Marine Insurance, (volume 2,
[6th Ed.] p. 951,) defines the term "constructive total loss" as fol-
lows: "An absolute total loss takes place when the subject insured
wholly perishes, or there is a privation of it, and its recovery is hope-
less. A constructive total loss takes place when the subject insured
is not wholly destroyed, but its destruction is rendered highly proba-
ble, or the privation of it, though not quite irretrievable, is such that
its recovery is either exceedingly doubtful, or too expensive to be
worth the attempt. An absolute total loss entitles the assured to claim
from the underwriter the whole amount of his subscription. A con-
structive total loss entitles him to make such claim on condition of
giving notice of abandonment of all right and title to any part of the
property that may still exist, or may still be recovered." This defini-
tion by the courts and text-books. 3 Kent, Comm. 318; 2 Phil. Ins.
237; 2 Pars. I\Iar. Ins. 107, and cases cited.
The foregoing is the general rule, but in cases of injuries to ves-
sels, and in the absence of stipulations in the policies on the subject,
the courts of different jurisdictions do not agree as to the proportion
which the cost of repairing must bear to the value of the ship, so
as to justify an abandonment, and a claim for a constructive total loss.
Dickey v. Insurance Co., 4 Cow. 222, affirmed 3 Wend. 658, 20 Am.
Dec. 763; Suarez v. Insurance Co., 2 Sandf. 482, 2 Pars. Mar. Ins.
125 et seq. ; 2 Arn. :\Iar. Ins. (6th Ed.) 952; Irving v. Manning, 1
H. L. Cas. 287. And the courts do not agree, in the absence of stip-
ulations on the subject, whether the valuation in the policy, if the
vessel be therein valued, or the value of the ship just before the in-
THE insurer's LIABILITY — TOTAL LOSS 439
jury, or its value after reparation, should be taken as the basis in
estimating the proportion of the cost of repairs to value. Insurance
Co. V. Ogden, 20 Wend. 287; Wallerstein v. Insurance Co., 44 N. Y.
204, 217, 4 Am. Rep. 664; Insurance Co. v. Southgate, 5 Pet. 604,
8 L. Ed. 243; Deblois v. Insurance Co., 16 Pick. (Mass.) 303, 28
Am. Dec. 245; Peele v. Insurance Co., 3 Mason, 27, Fed. Cas. No.
10,905; Bradlie v. Insurance Co., 12 Pet. 378, 9 L. Ed. 1123; 3
Kent, Comm., 331 ; 2 Pars. Mar. Ins. 134; 2 Arn. Mar. Ins. (6th Ed.)
995, 1046, 1035, 1148.
In the case at bar, it is provided in the policy that a constructive
total loss shall not be claimed unless the net cost of repairs, after
making the deductions specified in the clause, exceed one-half of the
value of the vessel. In this state the rule is that, in determining
whether a ship is so far injured as to become a constructive total loss,
its value as stated in the policy controls. Insurance Co. v. Ogden.
supra; Wallerstein v. Insurance Co., supra; 3 Kent, Comm. 331.
This is also the rule in Massachusetts, (Deblois v. Insurance Co., su-
pra,) and in England, (Irving v. Manning, supra; 1 Arn. Mar. Ins.
[6th Ed.] 301).
The supreme court of the United States holds that the actual value
of the ship immediately before the accident is to govern. Insurance
Co. V. Southgate, supra; Bradlie v. Insurance Co., supra; 3 Kent,
Comm. 331.
The learned trial judge instructed the jury in accordance with the
rule of this state, which was acquiesced in at the trial by the liti-
gants, and the accuracy of the instruction is not questioned by coun-
sel on this appeal. Whether the extent of the injuries sustained by
the vessel was sufficient to justify its abandonment, within, the rule
of this state, was a sharply-contested issue of fact, which the appel-
lant insists was determined contrary to the weight of evidence. * * *
Was a legal abandonment effected? As before stated, the owners
gave the defendant written notice of abandonment on the 18th of
December, 1878, in which the plaintiff did not join. It is now as-
serted that the owners having mortgaged the vessel, and the insur-
ance being payable by indorsement to the mortgagee, they were with-
out power to make a legal abandonment. The mortgage is in the
ordinary form, and contains, in form, an absolute conveyance of the
title, with a defeasance. It recites that it is made to secure the pay-
ment of 40 bonds of $500 each, with interest, and that when tliey are
paid the mortgage shall be void. The mortgage further provides:
"And, until default shall have been made by the parties of the first
part in payment of said bonds, the parties of the first part shall be
permitted to possess and use the said steamship and appurtenances, and
to repair and renew the same, and to take and use the income thereof,
and apply the same to the necessary current expenses and the pur-
chase of necessary machinery and equipments, or dispose of the same
for the legal uses of the mortgagors, in any manner not inconsistent
440 MARINE INSURANCE
with this mortgage." It provides that, in case default shall be made
in the performance of any of the mortgagors' covenants, the mort-
gagee may take possession of the vessel, and sell or dispose of the
same at public or private sale. The mortgagors covenanted that they
would keep the ship insured for at least $25,000, and assign the as-
surances to the mortgagee as additional security.
A legal abandonment cannot be effected unless the person who as-
sumes to make it has at the time of the loss the power to make a
legal transfer of the property abandoned. 2 Pars. Mar. Ins. 119; 2
Arn. Mar. Ins. (6th Ed.) 956. In Hunt v. Royal Exchange Assur-
ance, 5 Maule & S. 47, it was held that, where an insurance was ef-
fected by part of the owners, they might make a legal abandonment
for all of the joint owners. In Insurance Co. v. Stark, 6 Cranch, 26S,
3 L. Ed. 220, it was held that an agent who procured an insurance
for his principal, and who abandoned the subject of the insurance,
must, in the absence of evidence that he was without authority, be
presumed to have had authority to make the abandonment. In Gor-
don V. Insurance Co., 2 Pick. (IMass.) 249, 260, a vessel was insured
in the name of the plaintiff, who was the owner. Afterwards, he
executed an absolute bill of sale of the ship, which contained no de-
feasance. By the instrument the title to the property was not to re-
vest in the plaintiff upon the performance of any condition. It was
shown, however, on the trial, that the bill of sale was intended as
security for the payment of debts due from the owner to the trans-
feree. It was held that by virtue of the absolute transfer the plain-
tiff had divested himself of the legal title to, and dominion over, the
property; could transfer none, and could not abandon it to the in-
surers. In Bidwell v. Insurance Co., 19 X. Y. 179, the defendant in-
sured a vessel on account of Crocker, the owner; the loss, if any,
payable to Bidwell, the mortgagee. It was stated in the policy that
there were no other liens upon the vessel. A loss occurred, and it
turned out that there were two prior mortgages on the vessel. It
was held that the insurance was of Crocker, the owner, upon the
vessel, and not of Bidwell, upon his interest as mortgagee of Crocker's
equity of redemption, and that the mortgagee could not recover on
the policy. In the case at bar the insurance was of the interest of
the owners, not of the interest of the mortgagee. In Younger v. In-
surance Co., 1 Spr. 236, Fed. Cas. Xo. 5,487, affirmed 2 Curt. 322,
Fed. Cas. No. 5,487 it was held that the master of the vessel has
not, by virtue of his office, authority to abandon her to the under-
writers.
In all the cases the right to abandon turned on the power of the
person tendering abandonment to transfer title to the subject of the
insurance to the insurer. In the case at bar the owners had the un-
doubted right to transfer the vessel to the insurer, and therefore
could effect a legal abandonment of her. In addition, the owners
procured the insurance for the mortgagee, who subsequently, March
THE insurer's LIABILITY — TOTAL LOSS 441
12, 1879, notified the defendant that the owners' notice of abandon-
ment, of December 18. 1878, was given with his authority, and that he
ratified and confirmed it. This brings the case within the principle
of Insurance Co. v. Stark, supra. It appears in this case that June
20, 1878, the owners mortgaged the vessel to Joseph K. Murray to
secure the payment of $6,000, and June 21, 1878, to Murray to secure
the payment of $4,000, both mortgages falling due September 14,
1878. These mortgages are not in the case, and we are ignorant of
their terms, nor do we know that they were unpaid when the vessel
was stranded.
Was the abandonment timely? November 26, 1878, the second
and final survey was made, and a notice of abandonment was served
December 18. 1878. The case does not disclose how frequently mails
were transmitted between Nassau and New York, nor whether there
was telegraphic communication between those ports, although it ap-
pears inferentially from the letter of Murray, Ferris & Co., of No-
vember 15, 1878, put in evidence by the defendant, that Savannah
was the nearest and most convenient telegraph station. In Insurance
Co. V. Stark, Chief Justice JMarshall, speaking for the court, said :
"The law is settled that an abandonment, to be eflfectual, must be
made in reasonable time; but what time is reasonable is a cjuestion
compounded of fact and law, which has not yet been reduced to such
certainty as to enable the court to pronounce upon it without the aid
of a jury. Certainly, the delay may be so great as to enable every
man to declare, without hesitation, that it is unreasonable, or the
abandonment may be so immediate, that all will admit it to have been
made in a reasonable time ; but there may be such a medium between
these extremes as to render it doubtful whether the delay has been
reasonable or otherwise. If it was a mere question of law, which the
court might decide, then the law would determine, to a day or an
hour, on the time left for deliberation, after receiving notice of the
loss. But the law has not so determined, and it therefore remains
a question compounded of fact and law, which must be found by a
jury under the direction of the court."
The defendant asked the court to decide, as a matter of law, that
the abandonment was not made within a reasonable time, but made
no request that any question of fact involved in that issue be deter-
mined by the jury, thus leaving the court to determine all questions
and inferences of fact arising from the evidence bearing on this
question. The facts, and inferences from them, having been found
against the defendant, it is not apparent that the question of rea-
sonable time was erroneously determined by the court. * * *
Modified.
442 MARINE INSURANCE
V. Abandonment ^'
MURRAY V. GREAT WESTERN INS. CO.
(Supreme Court of New York. General Term, First Department, 1893. 72
Hun. 282, 25 N. Y. Supp. 414.)
For a report of this case, see ante, p. 436.
1 3 For discussion of principles, see Vance on Insurance, § 228. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, p. 2949 et seq.
ACCIDENT INSUUANCE
443
ACCIDENT INSURANCE
I. Accidental Injuries — External, Violent, and Accidental Causes ^
MARYLAND CASUALTY CO. v. HUDGINS.
(Court of Civil Appeals of Texas, 1903. 72 S. W. 1047.)
Action by Sallie N. Hudgins against the Maryland Casualty Com-
pany. Judgment for plaintiff, and defendant appeals.
Rainey, C. J.- Suit on accident insurance policy issued by ap-
pellant to Wm. T. Hudgins, husband of appellee. Hudgins died No-
vember 1, 1900. * *' *
The other issue raised by the assignments is that defendant is not
liable under the terms of the policy, the evidence failing to show that
death resulted from an accidental cause. The policy provided for
indemnity in case of death sustained through "external, violent, and
accidental means" independent of all other causes. It contained a
clause which reads as follows : "This insurance does not cover disap-
pearances, nor war risks, nor voluntary exposure to danger, unless in-
curred in an attempt to save human life, nor injuries received while
attempting to board or alight from a moving conveyance propelled by
steam, electricity, or cable (except that in case of injuries received
while boarding or alighting from such conveyances while running at
a rate of speed not greater than eight miles an hour, the assured
shall be covered by clause 1 hereof), nor injuries, fatal or other-
wise, resulting from poison or anything accidentally or otherwise
taken, administered, absorbed or inhaled (anaesthetics administered by
a regular physician excepted), nor injuries, fatal or otherwise, re-
ceived while or in consequence of having been under the inlluence of
or affected by or resulting directly or indirectly from intoxicants,
narcotics, vertigo, sleepwalking, fits, hernia, or any disease or bodily
infirmity. But it is understood this policy covers the assured accord-
ing to the terms hereof in the event of his injury from freezing, sun-
stroke, drowning, or choking in swallowing."
The evidence shows that on Sunday, October 28, 1900, the in-
sured, his wife, and son were together at dinner at the Randolf Hotel,
in Texarkana, Tex. The insured ordered raw oysters for himself
and son. When he had eaten two and the son one, he said to his
wife: "Don't let that child eat any more of those oysters. They
1 For discussion of principles, see Vance on Insurance. § 2.32. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, p. 315G et seq.
2 Part of the opinion is omitted.
444 ACCIDENT INSURANCE
are not sound. They are tough." He was taken sick that evening,
complained of pains in his stomach, grew worse, and died the fol-
lowing Thursday, November 1, 1900. The unsound oysters produced
the death of the insured by passing out of the large part of the
stomach, lodging in the lower part of the stomach or upper intestine,
inflaming the intestinal tract and mucous membrane, causing the same
to enlarge, locking the bowels, obstructing and preventing passage,.
and thereby producing death. Said oysters contained no poison v/hat-
ever of any description. The insured did not discover that the oysters
were unsound until he had eaten the two, and then ate no more.
It is contended that the policy exempted the company from liability
for "injuries, fatal or otherwise, resulting from poison or anything-
accidentally or otherwise taken, administered, absorbed, or inhaled,"
and the act of the insured in eating the oysters falls within the terms
of said provision ; that he ate them voluntarily, consciously, and in-
tentionally; therefore they were not "accidentally" taken. Construc-
tion of clauses in policies similar to the one here under consideration
have been the subject of much dissension by the courts, and the
opinions show a want of harmony in the views entertained. Some
of the courts support the contention of appellant, while others of
equal weight support the contention of appellee, in effect, that eating
of the oysters not knowing they were unsound, he did not voluntarily
eat unsound oysters, and death produced thereby was accidental.
The evidence clearly shows that the insured did not intend to eat
unsound oysters. If such eating falls within the meaning of the
word "accident," as that word is ordinarily defined and understood,
then the proper judgment has been rendered in this case. "Death as
the result of accident imports an external and violent agency as the
cause." Healey v. Association, 133 111. 556, 25 N. E. 52, 9 L. R. A.
371, 23 Am. St. Rep. 637; Miller v. Fidelity & Casualty Co. (C. C.)
97 Fed. 836; Association v. Alexander, 104 Ga. 709, 30 S. E. 939.
42 L. R. A. 188; Association v. Smith, 29 C. C. A. 223, 85 Fed.
401, 40 L. R. A. 653 ; Am. & Eng. Ency. Law, vol. 1, 294-5. * * *
In Association v. Barry, 131 U. S. 100, 9 Sup. Ct. 75S, 33 L. Ed.
60, it is said: "If in the act which precedes the injury something
unforeseen, unexpected, unusual occurs, which produces the injury,,
then the injury resulted through accidental means." In Supreme
Council Chosen Friends v. Garrigus, 104 Ind. 133, 3 N. E. 822, 54
Am. Rep. 298, it is said : "The word 'accident,' as used in those laws
and in the relief fund certificates held by members, should be given
its ordinary and usual signification, as being an event that takes place
without one's foresight or expectation." In Carnes v. Association,
106 Iowa, 281, 76 N. W. 683, 68 Am. St. Rep. 306, where death
resulted from taking a dose of morphine, the court held that, if
he took more than he intended, the death was accidental, but that, if
he took the exact amount intended, and misjudged the effect, the
death was not accidental.
ACCIDENTAL INJURIES 445
It is true the insured knowingly ate the oysters, but he did not
know that he was eating unsound oysters. The effect was not the
natural and probable consequence of eating sound oysters, and the
effect produced by the eating of the unsound oysters could not have
been reasonably anticipated or foreseen by him. It was unexpected,
unforeseen, and unusual, and therefore it cannot be said that he
voluntarily ate the unsound oysters. This being true, his death was
caused by "accidental means," as that term is used in the policy.
But it is insisted that, as the oysters were "taken," the company
is exempted from liability under the terms of the policy. The de-
fendant, in pleading its exemption from liability by reason of the
claim under consideration, alleged that, if the oysters eaten caused
the death, it was because they contained ptomaine poison, and there-
fore defendant was not liable. The court instructed the jury that, if
the oysters contained ptomaine poison, to find for defendant. The
jury found against this theory, and the evidence supports this finding.
To avail itself of the exemption, defendant was bound to plead it
and the facts applicable thereto, and, having done this, its defense
will be confined to the matter pleaded, and it will not be heard on
the contention that death resulted from something else other than
poison taken.
If it should be conceded, however, that our position on this proposi-
tion is not sound — which we do not -we are still of the opinion that
the word "anything" as used in the language "poison or anything
accidentally or otherwise taken, administered, absorbed, or inhaled,"
does not refer to eating of food ordinarily harmless, not knowing it
to be unsound and dangerous in that condition. It must be inter-
preted as having reference to those agencies which are not strictly de •
nominated poison, but which have some elements of poison, antl which
may produce death if improperly taken. In Kasten v. Interstate
Casualty Co., 99 Wis. 73, 74 N. W. 534, 40 L. R. A. 651, where a
similar clause was under consideration, the court say: "While the
word 'poison,' as used in the policy, may be construed to mean liquids
commonly knowm as poisons, it is followed by the words 'or anything."
which clearly indicates that the intent was to include under the en
tire term everything of a poisonous nature."
The evidence in this case showing that the death of the insured
was not caused by the taking of poison or anything of a poisonous
nature, but resulting from other accidental cause, the company is
not exempt from liability. Paul v. Insurance Co., 112 X. Y. 472,
20 N. E. 347, 3 L. R. A. 443, 8 Am. St. Rep. 758 ; Menneily v. As-
surance Corporation, 148 N. Y. 597, 43 N. E. 54, 31 L. R. A. 686,
51 Am. St. Rep. 716; Association v. Thomas (Ky.) 17 S. W. 275;
Association v. Alexander, 104 Ga. 709, 30 S. E. 939, 42 L. R. A.
188; Association v. Sm.ith, 29 C. C. A. 223, 85 Fed. 401, 40 L. R. A.
653; Fidelity & Casualty Co. v. Waterman, 161 111. 632, 44 N. E.
283, 32 E. R. A. 654; Penfold v. Insurance Co., 85 N. Y. 322, 39
446 ACCIDENT INSURANCE
Am. Rep. 660; Ins. Co. v. Dunlap, 160 111. 642, 43 N. E. 765, 52
Am. St. Rep. 355 ; Pickett v. Ins. Co., 144 Pa. 79, 22 Atl. 871, 13
L. R. A. 661, 27 Am. St. Rep. 618.
The judgment is affirmed.^
WESTERN COMMERCIAL TRAVELERS' ASS'N v. SMITH.
(Circuit Court of Appeals of United States, Eiglith Circuit, 1S9S. 85 Fed.
401, 29 C. C. A. 223, 40 L. R. A. 653.)
In Error to the Circuit Court of the United States for the Eastern
District of Missouri.
Before Sanborn and Thayer, Circuit Judges, and Philips, Dis-
trict Judge.
Sanborn^ Circuit Judge.* The Western Commercial Travelers'
Association, the plaintiff in error, has sued out a writ to reverse a
judgment against it upon a certificate of insurance against accident
which it issued to Freeman O. Smith, one of its members, for the
benefit of Sarah I. Smith, the defendant in error. A jury was waived,
the court tried the case and made a special finding of the facts, and
the error assigned is that the facts found do not support the judg-
ment (1) because they show that immediate notice of the accident or
injury was not given to the association, as required by the policy,
and (2) because they fail to show that the death of the member was
produced "by bodily injuries effected by external, violent, and acci-
dental means." * * *
In the latter part of August, 1895, while this certificate was in
force. Freeman O. Smith, who was a strong and healthy man, com-
menced wearing a pair of new shoes. About September 6, 1895, the
friction of one of the shoes against one of his feet, unexpectedly
and without design on his part, produced an abrasion of the skin of
one of his toes. He gave the abrasion reasonable attention, but it
nevertheless caused blood poisoning about September 26, 1895, which
resulted in his death on October 3, 1895. * * *
It is earnestly contended, however, that the death was not caused
by bodily injuries effected by external, violent, and accidental means
(1) because the disease of blood poisoning was the cause, and the
abrasion of the skin of the toe was only the occasion, the locality in
which the disease first appeared, and (2) because the abrasion of the
skin was not an accident, but was made in the ordinary course of
things. The contract does not differ, in respect to the subject pre-
sented by this proposition, from those which have been repeatedly
considered by this court, and we state its legal effect briefly, because
the reasons and authorities in support of our views here have been
3 Rehearing denied March 21. 1903.
* Part of the opinion is omitted.
ACCIDENTAL INJURIES 447
frequently set forth in the opinions of this court which are cited
below.
If the death was caused by disease, w^ithout any bodily injury in-
flicted by external, violent, and accidental means, as in the case of
the malignant pustule (Bacon v. Association, 123 N. Y. 304, 25 N. E.
399, 9 L. R. A. 617, 20 Am. St. Rep. 748), and as in the case of
sunstroke (Sinclair v. Assurance Co., 3 El. & El. 478; Dozier v.
Casualty Co. [C. CI 46 Fed. 446, 13 L. R. A. 114), the association
was free from liability by the express terms of the certificate. If
the deceased suffered an accident, but at the time he sustained it he
was already suffering from a disease or bodily infirmity, and if the
accident would not have caused his death if he had not been affected
by the disease or infirmity, but he died because the accident aggra-
vated the disease, or the disease aggravated the effects of the accident,
as in the case of the insured who was subject to such a bodily infirm-
ity that a short run, followed by stooping, which would not have in-
jured a healthy man, produced apoplexy (Insurance Co. v. Selden. 24
C. C. A. 92, 78 Fed. 285), the association was exempt from liabilityr
because the death was caused partly by disease and partly by acci-
dent. If the death was caused by bodily injuries effected by exter-
nal, violent, and accidental means alone, the association was liable
to pay the promised indemnity. If the death was caused b}^ a dis-
ease which was not the result of any bodily infirmity or disease in
existence at the time of the accident, but which was itself caused
by the external, violent, and accidental means which produced the
bodily injury, the association was equally liable to pay the indemnity.
In such a case, the disease is an effect of the accident, the incidental
means produced and used by the original moving cause to bring about
its fatal effect, a mere link in the chain of causation between the acci-
dent and the death, and the death is attributable, not to the disease.
but to the causa causans, to the accident alone. Insurance Co. v.
Melick, 27 U. S. App. 547, 560, 561, 12 C. C. A. 544, 552, and 65 Fed.
178, 186; Railway Co. v. Callaghan, 12 U. S. App. 541, 550, 6 C. C. A.
205, 210, and 56 Fed. 988, 994; Railway Co. v. Kellogg, 94 U. S.
469, 475, 24 L. Ed. 256; Association v. Shryock, 36 U. S. App. 658,
663, 20 C. C. A. 3, 5, and 7Z Fed. 774, 776.
Now, the finding of the facts made by the trial court is conclu-
sive in this case, and the only question here presented is whether
those facts warrant the judgment below. That court has found that
the deceased was an exceptionally strong and healthy man when the
abrasion in question was produced. It has found that the wearing
of the new shoe produced the abrasion on September 6, 1895, that
this abrasion was the cause of blood poisoning on September 26, 1895,
and that the blood poisoning produced the death on October 3, 1895.
The question whether the death was produced by the abrasion or by
the disease is, therefore, extracted from this case. There is no
ground for the contention that the disease of blood poisoning was
448 ACCIDENT INSURANCE
an intervening and independent cause of the death, because the find-
ing of the court below is that that disease was a mere link in the
chain of causation between the abrasion which produced it and the
death which it produced.
The only question remaining, therefore, is whether or not the abra-
sion of the skin of the toe was produced by accidental means. If
it was, the death was so produced ; and if it was not, there was
no accident, and consequently no cause of action. The contract was
that the association would pay the promised indemnity for any death
caused "by bodily injuries effected by external, violent, and accidental
means." There is no claim that the friction of the shoe which
caused the abrasion was not external and violent. The contention is
that it was not accidental. The significance of this word "accidental"
is best perceived by a consideration of the relation of causes to their
effects. The word is descriptive of means which produce effects
which are not their natural and probable consequences. The natural
consequence of means used is the consequence which ordinarily fol-
lows from their use, — the result which may be reasonably anticipated
from their use, and which ought to be expected. The probable con-
sequence of the use of given means is the consequence which is more
likely to follow from their use than it is to fail to follow. An ef-
fect which is the natural and probable consequence of an act or
course of action is not an accident, nor is it produced by accidental
means. It is either the result of actual design, or it falls under the
maxim that every man must be held to intend the natural and prob-
able consequence of his deeds. On the other hand, an efifect which is
not the natural or probable consequence of the means which pro-
duced it, an effect which does not ordinarily follow and cannot be
reasonably anticipated from the use of those means, an effect which
the actor did not intend to produce and which he cannot be charged
with the design of producing under the maxim to which we have ad-
verted, is produced by accidental means. It is produced by means
which were neither designed nor calculated to cause it. Such an ef-
fect is not the result of design, cannot be reasonably anticipated, is
unexpected, and is produced by an unusual combination of fortuitous
circumstances ; in other words, it is produced by accidental means.
Railway Co. v. Elliott, 12 U. S. App. 381, 386, 387, 389, 5 C. C. A.
347, 350, 351, 353, 55 Fed. 949, 952, 953, 955.
Was the abrasion of the skin of the toe of the deceased the nat-
ural and probable consequence of wearing new shoes? It must be
conceded that new shoes are not ordinarily worn with the design of
causing abrasions of the skin of the feet, and the trial court has
found that the abrasion upon the toe of the deceased was produced
unexpectedly, and without any design on his part to cause it. An
abrasion of the skin, certainly, is not the probable consequence of
the use of new shoes ; for it cannot be said to follow such use more
frequently than it fails to follow it. Nor can such an abrasion be
ACCIDENTAL INJURIES 449
said to be the natural consequence of wearing such shoes, — the con-
sequence which ordinarily follows, or which mic:ht be reasonably antic-
ipated. How, then, can it fail to be the chance result of accidental
means, — means not designed or calculated to produce it? If the de-
ceased, without design, had slipped, and caused an abrasion of his
skin, as he was walking down the street, or had punctured the skin
of his foot by stepping on a nail in his room, or had pierced it with
a nail in his shoe as he was drawing it upon his foot, there could
have been no doubt that these injuries were produced by accidental
means ; and it is difficult to understand why an abrasion of the skin,
produced unexpectedly and without design, by friction caused by
wearing a new shoe, does not fall within the same category.
In McCarthy v. Insurance Co., 8 Biss. 362, Fed. Cas. No. 8,682,
it is held that death from the rupture of a blood vessel caused by
swinging Indian clubs for exercise may be a death from bodily in-
jury caused by accidental means. In Martin v. Insurance Co., 1
Fost. & F. 505, a total disability caused by straining the back while
lifting a heavy burden was declared to be a disability produced by
accident. In Insurance Co. v. Burroughs, 69 Pa. 43, 51, 8 Am. Rep.
212, the court said that an accident is "an event that takes place
without one's foresight or expectation; an event which proceeds
from an unknown cause, or is an unusual efifect of a known cause, and
therefore not expected ; chance ; casualty ; contingency," — and held
that a strain of the abdominal muscles, produced by pitching hay,
which caused an inflammation that resulted in death, was an accident.
Death by drowning, by involuntarily inhaling illuminating gas, or by
fright is death by accidental means. Trew v. Assurance Co., 6 Hurl.
& N. 839; Mallory v. Insurance Co., 47 N. Y. 52, 7 Am. Rep. 410;
Paul V. Insurance Co., 112 N. Y. 472, 20 N. E. 347, 3 L. R. A.
443, 8 Am. St. Rep. 758; ^IcGlinchey v. Casualty Co., 80 Me. 251,
14 Atl. 13, 6 Am. St. Rep. 190.
In Insurance Co. v. Melick, 27 U. S. App. 547, 12 C. C. A. 544,
and 65 Fed. 178, this court affirmed a judgment based upon a verdict
that a death caused by lockjaw, which was produced by a shot wound
unexpectedly inflicted upon himself by the deceased, without design,
was a death caused by bodily injury produced by accidental rriear^s
alone. In Association v. Barry, 131 U. S. 100, 9 Sup. Ct. 755, Zl
L. Ed. 60, three persons jumped from the same platform at the
same time and place. Two of them alighted in safety, while the
third suffered a stricture of the duodenum which produced a disease
which caused his death. The supreme court affirmed a judgment
founded upon a verdict that his death was the result of bodily in-
juries effected through external, violent, and accidental means, and
approved an instruction to the jury that: "The term 'accidental'
was used in the policy in its ordinary, popular sense, as meaning
'happening by chance; unexpectedly taking place; not according to
CooLEY Ins. — 29
450 ACCIDENT INSURANCE
the usual course of things ; or not as expected' ; that, if a result
is such as follows from ordinary means, voluntarily employed, in
a not unusual or unexpected way, it cannot be called a result effected
by accidental means ; but that if, in the act which precedes the in-
jury, something unforeseen, unexpected, unusual occurs, which pro-
duces the injury, then the injury has resulted through accidental
means."
We are unable to distinguish the case at bar from those to which
we have referred, and the case last cited is of controlling authority
in this court. The abrasion of the skin of the toe of the deceased
was unexpectedly caused, without design on his part, by unforeseen,
unusual, and unexpected friction in the act of wearing the shoe which
preceded the injury. It was not the natural or probable consequence
of that act, and it was, therefore, produced by accidental means.
The judgment below must be affirmed, with costs; and it is so
ordered.^
II. External and Visible Signs of Injury
UNION CASUALTY & SURETY CO. v. MONDY.
(Court of Appeals of Colorado, 1903. 18 Colo. App. 395, 71 Pac. 677.)
Action by Bertha Mondy and others against the Union Casualty &
Surety Company. Judgment for plaintiff's. Defendant appeals.
GuNTER, J.'^ * * * The complaint alleges that insured, in dis-
charging his duties as porter upon a sleeping car, was accidentally
struck upon the head by the falling of a berth, and from the injuries
so sustained died. These allegations the answer denies. * * *
The principal fact here was the injured condition of the insured.
There was evidence of this other than his declarations made to the
witnesses Carter and Stafford. He was a sound, healthy man, dis-
charging his duties as porter. The train entering the town of Davis-
ville made a sudden, violent, and unusual stop, the jar resulting to
passengers from the stop being so violent as to alarm them. Im-
mediately thereafter insured was seen standing at a berth partially
made down, his foot upon the stepping stool, his head between his
5 Accord: United States Mutual Accident Ass'n v. Barry. 131 U. S. 100. 9
Sup. Ct. 755, 33 L. Ed. 60 (1889) ; French v. Fidelity & Casualty Co., 135 Wis.
259, 115 N. W. 869, 17 L. R. A. (N. S.) 1011 (1908). For a discussion of the
rule as to proximate and remote cause, see, also, Cooley, Briefs on tlie Law
of Insurance, \ol. 4, p. 3175.
6 For discussion of principles, see Vance on Insurance, § 234. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, p. 3184.
7 Pai't of the opinion is omitted.
EXTERNAL AND VISIBLE SIGNS OF INJURY 451
hands, and in great pain. He continued in great pain, his face and
complaints showing pain. His head was tied up with a wet towel,
and in his suffering he was put to bed in the smoking room. This
was the night of October 26th. He remained in bed in the car, sick
and suffering, until he arrived at home (Denver) October 29th. He
there went to bed, called a physician, and remained under his care
until death — November 11th. An autopsy was then made, showing
a congested condition of the brain on the right side, and that from
this he died. He was found to have been a strong, healthy man ;
every organ, even in 'leath, was healthy and in good condition. There
was no symptom of any disease from which the congested condition
of the brain could arise. Dr. AIcNaught, who attended the insured
continuously after his arrival in Denver, and who participated in the
autopsy, testified that the probable cause of the congested condition of
the brain was an injury. These facts showed that insured was sud-
denly changed from the state of health to one of sickness and pain ;
they showed the principal fact, the injured condition of the insured.
* * *
The policy provided : "This insurance does not cover * * *
any injury, fatal or otherwise, of which there is no visible mark upon
the body." Appellant contends that there w^as no evidence of a
visible mark of the alleged injury upon the body of deceased. The
jury in effect found that deceased was accidentally struck upon the
head by the falling of an upper berth of a sleeping car, and that
the injury so produced was the cause of his death. It was the pur-
pose of defendant in issuing this policy, and the purpose of deceased
in taking it out, to have the policy cover accidents of the character
of the one here involved. The purpose of the provision of the policy
thus cited was not to exclude accidents of the character before us,
but to prevent the defendant from being imposed upon by fictitious
accidents claimed to be within the policy. If the accident was in-
tended by the parties to be within the policy, such a strained con-
struction should not be put upon it as to exclude the accident and
defeat the intention of the parties. The poHcy of the courts is to
give a liberal construction to such provisions in favor of the insured.
Travelers' Ins. Co. v. Murray, 16 Colo. 296, 305, 26 Pac. 774, 25
Am. St. Rep. 267; U. S. Mutual Ace. Ass'n v. Newman, 84 \'a. 52,
59, 3 S. E. 805.
In Mutual Accident Association v. Barry, 131 U. S. 100, 111, 9
Sup. Ct. 755, 759, 33 h. Ed. 60, the policy provided that it should
not extend to any injury of which there was no external and visible
sign. The trial court, in charging, said : "It is true there must be
an external and visible sign of the injury, but it does not necessarily
follow from that that the injury must be external. That is not the
meaning or construction of the certificate. Such an interpretation of
the contract would, in the opinion of the court, sacrifice substance to
shadow, and convert the contract itself into a snare — an instrument
452 ACCIDENT INSURANCE
for the destruction of valuable rights. Visible signs of injury, within
the meaning of this certificate, are not to be confined to broken limbs,
or bruises on the surface of the body. There may be other external
indications or evidence which are visible signs of internal injury.
Complaint of pain is not a visible sign, because pain you cannot see.
Complaint of internal soreness is not such a sign, for that you cannot
see, but if the internal injury produces, for example, a pale and
sickly look in the face, if it causes vomiting or retching, or bloody
or unnatural discharges from the bowels, if, in short, it sends forth
to the observation of the eye, in the struggle of nature, any signs of
the injury, then those are external and visible signs, provided they
are the direct results of the injury." The insured sustained duodenitis
by jumping from an elevated platform. The external and visible
signs of bodily injury were that he was ill immediately after the in-
jury, distressed in the stomach, vomited, and from that time retained
nothing on his stomach, passed nothing but decomposed bloody mucus,
and died nine days thereafter. By sustaining the recovery below,
the upper court held these to be external and visible signs of bodily
injury.
In Pennington v. Pacific Mutual Life Ins. Co., 85 Iowa, 468, 470,
52 N. W. 482, 483, 39 Am. St. Rep. 306, plaintifif, a locomotive fire-
man, while on duty, was violently and accidentally injured by the
lurching of a locomotive. He recovered upon an accident policy.
This provided : "The insurance shall not cover * * * injuries of
which there is no visible, external mark upon the body of the in-
sured." The injury sustained was a strain. It was contended the
accident was without the policy, because there was no visible mark
of the injury upon the body. The court held: "The contract does
not contemplate that there must be bruises, contusions, or lacerations
on the body, or broken limbs." An effect of the strain was the
disabled condition of insured. It was held that this was a visible,
external mark of the injury upon the body of the insured.
In Freeman v. Mercantile Accident Ass'n, 156 iNIass. 351, 30 N.
E. 1013, 17 h. R. A. 753, the policy provided "that benefit under
this certificate shall not extend to any case in which there shall be
no symptom or visible sign of bodily injury." The insured died of
peritonitis, localized in the region of the liver. The trial court was
asked by the defendant to charge there must be an external sign
of the bodily injury. This it declined to do, and charged that if
there were symptoms or signs which would become visible, and did
become visible, upon examination, by being able to inspect the interior
of the body, it would be sufficient whether that examination was made
before or after death. This was approved by the upper court.
Thayer v. Standard Life and Accident Insurance Company, 68 N.
H. 577, 41 Atl. 182, was upon an accident policy; recovery by plain-
tiff, the facts being: Plaintiff's shoulder was accidentally injured by
a fall, causing pain, and depriving him of the use of the arm. He
POISON OR CONTACT WITH POISONOUS SUBSTANCES 453
was disabled thereby from attending to business. The policy provided
that it should not cover "any injury, fatal or otherwise, of which
there is no visible mark upon the body." Construing this provision,
the court said: "The visible mark upon the body required by the
policy need not be a bruise, contusion, laceration, or broken limb, but
mav be any visible evidence of an internal strain which may appear
within a reasonable time after the injury received."
In U. S. Mutual Accident Ass'n v. Newman, 84 Va. 52, 54. 62,
3 S. E. 805, 809, the policy provided "that benefits under this cer-
tificate shall not extend to any bodily injury of which there shall be
no external, visible sign upon the body of the insured." Tt was held
that death of the body was an external and visible sign of bodily
injury upon the body of the insured.
We think death of the body of the insured was a visible mark of
injury upon the body, within the meaning of the policy. Further,
there was evidence of a localized redness of the tissues of the brain
of deceased on the right side of the head. This was not revealed
until the autopsy. This, we think, was a visible mark upon the body
as provided in the policy. The terms of the policy did not require
that the visible mark should be upon the surface of the body. * * *
Affirmed. *
III. Poison or Contact with Poisonous Substances '
MARYLAND CASUALTY CO. v. HUDGINS.
(Court of Civil Appeals of Texas, 1903. 72 S. W. 1047.)
For report of this case, see ante, p. 443.
8 In Horsfall v. Pacific Mnt. Life Ins. Co., 32 Wash. 132. 72 Pac. 1028. 63
L. R. A. 425. 98 Am. St. Rep. 846 (1903), where the insured was injured by
strain in lifting a heavy iron bar. it was said: "It is also urj-'ed that the
injuries causinir death left no visible external mark. ♦ * * The evidence
shows that immediately after the accident the deceased became deathly pale
and sick, his hands and feet became cold, and the perspiration stood out on
his face and hands. The next day after the accident his skin, which pre-
viously had been ruddy, became a bluish gray color, and remained so until
his death. These, we think, were visible external marks, and sutticient to
bring the case within the terms of the policy." See, also, Menneilley v. Em-
ployers' Liability Assurance Corp., post, p. 696.
9 For discussion of principles, see Vance on Insurance, § 237. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, p. 3193.
454 ACCIDENT INSURANCE
IV. Inhaling Gas ^"^
MENNEILLEY v. EMPLOYERS' LIABILITY ASSUR. CORP.
(Court of Appeals of New York, 1896. 148 N. Y. 596, 43 N. E. 54, 31 L. R.
A. 686, 51 Am. St. Rep. 716.)
Action by Mary Menneilley against the Employers' Liability As-
surance Corporation, Limited, to recover on a policy. From an order
of the general term (72 Hun, 477, 25 N. Y. Supp. 230) denying plain-
tiff's motion for judgment in her favor, ordered by the trial court
subject to the opinion of the general term, and dismissing the com-
plaint, plaintiff appeals.
The facts in this case were agreed upon by the parties, and were
as follows: "That on the 12th day of October, 1891, during the
continuance of the said policy of insurance, Samuel D. W. Menneilley,
the person mentioned in the complaint as the person insured in and
by said policy of insurance, died. That at the time of his death he
was stopping as a guest at the Millard Hotel, in Omaha, Neb. That
he went to his room in said hotel on the night of the said 12th
day of October, 1891, and at some time after he went to his room
the illuminating gas therein accidentally escaped into his room. That
early in the morning of the 13th day of October, 1891, the said
Menneilley was foimd in his bed, his room being tightly closed on
the inside, and filled with such illuminating gas. That the death of
said Menneilley was occasioned by accidental means, and arose from
and was caused by his involuntarily and accidentally breathing into
his lungs the said illuminating gas, which had so accidentally escaped
into such room, the escape of said gas being immediately discover-
able upon entering said room, in consequence of which inspiration of
said gas he died the same night of asphyxia. That the accident from
which said Menneilley died caused no external and visible marks,
and the body of said Menneilley bore no external and visible marks
of the accident on account of which he died, unless the facts that
illuminating gas emanated from his body when artificial respiration
was produced, to the perception of the person producing such artificial
respiration ; that the room, on entering the same, was easily per-
ceived to be full of illuminating gas, and that the gas was then es-
caping therein ; and that inspection of the body showed life to be
extinct, — be held or found to constitute such external and visible
marks, within the meaning of the term 'external and visible marks,'
contained in the policy. The defendant does not admit that such
10 For discussion of principles, see Vance on Insui-ance, § 238. See, also,
CJooley, Briefs on tbe Law of Insurance, vol. 4, p. 3196.
INHALING GAS 455
facts constitute 'external and visible marks,' within the meaning of
the term 'external and visible marks,' contained in the policy. The
plaintiff claims that they do."^^ * * *
Martin, J. This action is upon a policy or contract of insurance
issued by the defendant to Samuel D. W. Menneilley, by which, in case
of his death from any accident within the provisions of the policy,
the defendant agreed, within three months thereafter, to pay to the
plaintiff the sum of $5,000.
The conditions contained in the policy, so far as applicable to the
questions involved in this case, are as follows: "This policy does
not insure against death or disablement * * * from accidents
that shall bear no external and visible marks, * * * nor against
death or disablement arising from anything accidentally taken, ad-
ministered, or inhaled, contact of poisonous substances, inhaling gas,
or any surgical operation or exhaustion consequent thereon." The
general term held that the clause in the policy which provides that
it does not insure against death or disablement arising from anything
accidentally taken, administered, or inhaled, described an act that was
not voluntary and intelligent, but accidental, and that the admitted
facts bring this case within that exception. That court also held that
the facts did not establish a case within the exception as to inhaling
gas; citing the decision of Paul v. Insurance Co., 112 X. Y. 472, 20
N. E. 347, 3 L. R. A. 443, 8 Am. St. Rep. 758.
Thus, the sole ground upon which judgment was directed for the
defendant was that it was not liable because the cause of the death
of the insured was within the exception in the policy as to death
arising from anything accidentally taken, administered, or inhaled.
Moreover, the respondent admits that in this state, under the au-
thority of the Paul Case, the words "inhaling gas," contained in the
policy, when read in the light of the context, apply only to cases
where gas is inhaled intentionally, voluntarily, and consciously, and
that under the decision in that case the judgment of the general
term cannot be upheld on the theory that that provision exempted
the defendant from liability under its policy. In the Paul Case, Judge
Gray, in delivering the opinion of the court, said : "But, in expressing
its intention not to be liable for death 'from inhaling of gas,' the com-
pany can only be understood to mean a voluntary and intelligent act
by the insured, and not an involuntary and unconscious act. Read
in that sense, and in the light of the context, these words must be
interpreted as having reference to medical or surgical treatment, in
which ex vi termini, would be included the dentist's work, or to a
suicidal purpose. Of course, the deceased must have, in a certain
sense, inhaled gas; but, in view of the finding that the death was
caused by accidental means, the proper meaning of words compels,
as does the logic of the thing, the conclusion that there was not
11 Statement of facts is abridged.
456 ACCIDENT INSURANCE
that voluntary or conscious act necessarily involved in the process of
inhaling." In that case it was distinctly held that the defendant was
not exempt from liability under such a provision where the death
of the insured was caused by the accidental inhaling of illuminating
gas.
The acts in that case were so nearly like those in the case at bar
that no distinction between them exists. The Paul Case was re-
ferred to in Bacon v. Association, 123 N. Y. 304, 308, 25 N. E. 399,
9 L. R, A. 617, 20 Am. St. Rep. 748, and its doctrine expressly recog-
nized as correct. It was also followed in Pickett v. Insurance Co.,
144 Pa. St. 79, 91, 22 Atl. 871, 13 L. R. A. 661, 27 Am. St. Rep. 618.
It follows that the judgment appealed from cannot be sustained upon
the ground that the clause in the policy excepting death from inhaling
gas from its provisions exempts the defendant from liability in this
case.
The respondent, however, urges that upon the admitted facts the
general term properly held that the provision with reference to "any-
thing accidentally taken, administered, or inhaled," exempted the com-
pany from any liability whatever under its policy. We think other-
wise. That provision in the policy clearly implies voluntary action
on the part of the insured, or some other person. The insured must
take or inhale, or another must administer. The manifest purpose of
the provision is to exempt the insurer from liability where the in-
sured has voluntarily and consciously, but accidentally, taken or in-
haled, or something has been voluntarily administered which was in-
jurious or destructive of life. We think that the particular accidents
intended to be excepted by that provision are the accidental taking
or inhaling into the system of some injurious or destructive agency
under the mistaken belief that it was beneficial, or, at least, harmless.
That is made more apparent by that portion of the provision which
relates to something ''administered," as it cannot be reasonably con-
strued as referring to a thing involuntarily and unconsciously admin-
istered. Indeed, it is quite difficult to understand how a thing could
be involuntarily and unconsciously administered. Coupled together as
these provisions are, the same rule of construction must be applied to
that portion which relates to something accidentally inhaled as ap-
plies to the portion which relates to a substance accidentally taken or
accidentally administered. All the cases thus provided for plainly in-
volve voluntary and conscious action on the part of the insured, or
some other person. The leading and controlling idea in this provision
is the performance of a voluntary act which accidentally causes the
death or injury of the insured.
That a proper construction of the policy requires us to hold that
it applies only to cases where something has been voluntarily and in-
tentionally, although mistakenly taken, administered, or inhaled, there
can, we think, be but little d(«ubt. As thus construed, this provision,
manifestly, did not exempt tne defendant from liability in this case.
INHALING GAS 457
as it was admitted that the death of the insured was occasioned by
accidental means, and was caused by involuntarily and accidentally
breathings illuminating gas which had escaped into the room where he
was sleeping at the time of his death. The argument that the pro-
vision as to inhaling gas has been given the same efifect as is now
given to the other and more general one, and that such could not have
been their purpose, has little force. The inhaling of gas having been
specially provided for when taken for surgical and like purposes, it
is only when it is inhaled for some other purpose, or under other
circumstances, that the general provision applies. The special pro-
vision is applicable when gas is inhaled for surgical and like purposes.
The general provision applies when it is inhaled for other purposes.
Applying to the construction of this policy, the principles stated in
the opinion in the Paul Case, it is obvious that the construction we
have placed upon the policy is the proper and correct one.
The only remaining question relates to the provision which declares
that the policy "does not insure against death or disablement * * *
from accidents that shall bear no external and visible marks." It is
somewhat diificult to understand precisely what was intended by this
clause of the policy. We are, however, of the opinion that the lan-
guage employed, when fairly construed, indicates that its purpose was
to provide that a case of death or injury should not be regarded as
within the policy unless there was some external or visible evidence
which indicated that it was accidental ; in other words, that only such
injury as could be shown by external and visible evidence to have
been accidental should be regarded as within the policy.
In this case it is admitted that the decedent's death was occasioned
by his involuntarily and accidentally breathing illuminating gas which
had accidentally escaped into his room ; that there were no visible
marks of the accident upon the body of the deceased, but, when arti-
ficial respiration was produced, illuminating gas emanated therefrom
to the perception of the person producing such artificial respiration ;
that upon entering the room it was perceived to be full of gas, and
that gas was then escaping therein ; and that an inspection of the body
showed life to be extinct. We think this admission furnishes suffi-
cient evidence of an external and visible character that the death of
the decedent was accidental to exclude it from this exception in the
policy, and hence that it was one of the accidents against which the
defendant intended to insure. The respondent discusses this question
upon the theory that this clause in the policy should be construed as
though it read, "From accident where there shall be no external and
visible marks upon the body of the deceased." A fair construction
of the language does not, we think, justify the conclusion that such
was its intent and purpose, but that the more reasonable construction is
that which has already been suggested.
If we are correct in these conclusions, it follows that the judgment
of the general term should be reversed, and the judgment upon the
458 ACCIDENT INSURANCE
verdict directed for the plaintiff should be affirmed, with costs to the
plaintiff in all the courts. All concur, except Andrews, C. J., not
voting, and Haight, J., not sitting. Judgment accordingly.
V. Voluntary and Unnecessary Exposure to Injury ^'
DIDDLE V. CONTINENTAL CASUALTY CO.
(Supreme Court of Appeals of West Virginia, 1909. 65 W. Va. 170, 63 S. E.
962, 22 L. R. A. [N. S.] 779.)
Action by Lydia Diddle against the Continental Casualty Company.
Judgment for plaintiff, and defendant brings error.
PoFFENBARGER, J.^^ Thomas D. Diddle, insured for the benefit of
his wife, Lydia Diddle, in the Continental Casualty Company, for $2,-
000, was struck by a railway water column, while riding on a railway
engine, and killed. His wife brought this action on the policy and re-
covered a judgment for the sum of $2,049.30. The defense was predi-
cated on a limited liability clause in the policy, reading as follows :
"Where the accident or injury results from voluntary exposure to
unnecessary danger or obvious risk or injury, or from the intentional
act of the insured or of any other person ; * * * or (2) where
the accidental injury results from or is received while quarreling, fight-
ing or violating the law ; * * * Then and in all cases referred to
in this part 3, the amount payable shall be one-tenth of the amount
which otherwise would be payable under this policy, anything in this
.policy to the contrary notwithstanding, and subject otherwise to all
the conditions in this policy contained." Deeming this clause applica-
ble and controlling, under the circumstances attending the death of
the assured, the insurance company tendered the beneficiary $200, one-
tenth of the amount of the policy, less $20 due it on account of un-
paid premium, which she refused.
There is practically no controversy as to the facts. The main ques-
tion is whether the court can say, as matter of law, on the admitted
or established facts, the death of the insured resulted from voluntary
exposure to unnecessary danger or obvious risk of injury, or occurred
while he was violating law, and this is raised by exceptions, based on
the giving of instructions for the plaintiff, refusal of instructions re-
quested by the defendant, and the overruling of a motion to direct
a verdict for the defendant and a motion to set aside the verdict.
12 For discussion of principles, see Vance on Insurance, § 240. See, also,
•Cooley. Briefs on the Law of Insurance, vol. 4, p. 3216.
13 Part of the opinion is omitted.
VOLUNTARY AND UNNECESSARY EXPOSURE TO INJURY 459
The following facts are disclosed by the evidence: The insured was
a car repairer in the shops of the Chesapeake & Ohio Railway Com-
pany at Huntington. In the evening of the day he was killed, after
the completion of his work, he came out of the shop, walked down
the railway track in a westerly direction a short distance, passing the
water column, standing midway between two railway tracks, about nine
feet apart, and stepped on one of two, engines drawing a train of
cars over a switch from the west-bound track to the east-bound track,
as he had often done before. Instead of getting into the cab of the
engine, he stood on a step on the outside, holding to a handgrip, while
his body projected or swung from the side of it, and was riding in
that way, or he was in the act of climbing into the cab, and before
he had accomplished it, when the engine came to the water column
and his body came into violent contact with Jt. * * *
While the case is one of first impression in this state, the clause in
question is, and has been, in general use by insurance companies for
a long time, and its construction is thoroughly settled by numerous de-
cisions in other jurisdictions. A voluntary exposure to necessary dan-
ger is not forbidden by it. Keene v. New England Accident Ass'n,
161 Mass. 149, 36 N. E. 891. A merely inadvertent and unintentional
exposure to a known danger, under peculiar circumstances, not afford-
ing opportunity for deliberate action, is an involuntary, not voluntary,
exposure. Keene v. Accident Ass'n cited ; Casualty Co. v. Chambers,
93 Va. 138, 24 S. E. 896, 40 L. R. A. 432 ; Insurance Co. v. Osborn, 90
Ala. 201, 9 South. 869, 13 L. R. A. 267. Exposure to an unknown dan-
ger, though a voluntary act, is not a voluntary exposure. Miller v.
Insurance Co., 92 Tenn. 167, 21 S. W. 39, 20 L. R. A. 765 ; Carpenter
v. Accident Co., 46 S. C. 541, 24 S. E. 500; Johnson v. Accident Co.,
115 Mich. 86, 72 N. W. 1115, 40 L. R. A. 440, 69 Am. St. Rep. 549;
Burkhard v. Insurance Co., 102 Pa. 262. 48 Am. Rep. 205 ; De Loy
V. Insurance Co., 171 Pa. 1, 32 Atl. 1108, 50 Am. St. Rep. 787. Ei-
ther reckless or deliberate encountering of known danger, or danger
so obvious that a reasonably prudent person ought to have known it
at the time of encountering it, is universally held to be voluntary ex-
posure within the meaning of this clause. Garcelon v. Accident Ass'n,
195 Mass. 531, 81 N. E. 201, 10 L. R. A. (N. S.) 961; Willard v.
Accident Ass'n, 169 Mass. 288, 47 N. E. 1006, 61 Am. St. Rep. 285;
Smith V. Insurance Co.. 185 Mass. 74, 69 N. E. 1059, 64 L. R. A.
117, 102 Am. St. Rep. 326; Conboy v. Accident Ass'n (Ind. App.) 43
N. E. 1017; Insurance Co. v. Jones, 80 Ga. 541, 7 S. E. 83, 12 Am.
St. Rep. 270; Tuttle v. Insurance Co., 134 Mass. 175, 45 Am. Rep.
316; Rebman v. Insurance Co.. 217 Pa. 518, 66 Atl. 859, 10 L. R.
A. (N. S.) 957; Alter v. Cas. & Sur. Co., 108 Mo. App. 169, 83 S.
W. 276; Follis v. Accident Ass'n, 94 Iowa, 435, 62 N. W. 807, 28
L. R. A. 78, 58 Am. St. Rep. 408; Cornish v. Insurance Co., 23 L.
R. Q. B. D. 453.
460 ACCIDENT INSURANCE
These decisions emphasize the duty of exercising some degree of
care and prudence, in view of obvious danger, even though the in-
sured did not at the moment of injury reaHze it, or was not actually
conscious of it, as well as that of avoiding known danger by the
exercise of prudence and care, and deny to the beneficiary of the
policy the right to take the opinion of the jury as to whether the
insured was actually conscious of it, at the moment of the injury
or of the action from which it resulted. They proceed upon that
principle of the law which estops a man from saying he did not see
or hear that which he must have seen or heard, if he had given his
action and the surrounding circumstances that degree of attention
which prudence and a due regard for his own safety and the rights
of others require. This court has frequently applied it in neghgence
cases. Slaughter v. Huntington, 64 W. Va. 237, 61 S. E. 155, 16
L. R. A. (N. S.) 459; Riedel v. Traction Co., 63 W. Va. 522, 61
S. E. 821, 16 L. R. A. (N. S.) 1123; Van Pelt v. Clarksburg, 42
W. Va. 218, 24 S. E. 878; Hesser v. Grafton, 33 W. Va. 548, 11
S. E. 211 ; Moore v. Huntington, 31 W. Va. 849, 8 S. E. 512; Phillips
V. County Court, 31 W. Va. 480, 7 S. E. 427.
While the rights of the parties here are governed by the contract,
and not by the legal rules and principles of the law of negligence,
there are certain general principles common to many branches of
the law, and operative in the determination of the rights of parties,
whether they arise ex contractu or ex delicto. Though, perchance,
the insured may recover on a policy of this kind, when the cir-
cumstances would deny relief under the law of negligence, since thi-
clause does not contemplate such exposure as is incident to the ordi-
nary habits and customs of life (Accident Ind. Co. v. Dorgan, 58
Fed. 945, 7 C. C. A. 581, 22 E. R. A. 620), it is nevertheless well
settled that he must exercise at least ordinary care, and failure to
do so is negligence in a case, determined by the law of negligence.
]\Iany of the decisions assert that knowledge of the danger and con-
sciousness of peril on the part of the insured are requisites to the
application of this clause, but they were rendered in cases in which
he was in fact ignorant thereof, and the danger was not so obvious
as to invoke the rule of duty to know that which was not actually
known, and it was neither mentioned nor discussed. It is believed
that, in all those cases in which the danger was obvious, and there
was opportunity for deliberation, not instances of sudden peril, pre-
cluding volition or producing momentary confusion of thought, the
courts have uniformly held the insured bound to know it and treated
him as if his knowledge thereof had been admitted or uncontroverted.
There are cases, however, which have been excluded from the opera-
tion of the clause, apparently upon another principle, recognized in
the law of negligence, which excuses conduct that would amount to
neo-ligence but for the suddenness with which the party was con-
fronted with danger, rendering it uncertain as to whether the act
VOLUNTARY AND UNNECESSARY EXPOSURE TO INJURY 461
•was voluntary or deliberate. They go to the jury for the determina-
tion of the disputed question of fact, namely, whether the act was
voluntary.
We think Fid. & Cas. Co. v. Chambers, 93 Va. 138, 24 S. E. 896,
40 L. R. A. 432, relied upon in the brief for defendant in error
as being directly in point and controlling, belongs to this class. It
is akin to our negligence case of Mannon v. Railway Co., 56 W.
Va. 554, 49 S. E. 450. There was neither immediate nor apparent
danger when the insured sat down upon the railroad, but suddenly
a train came around a curve at full speed, and, in his confusion, he
attempted to secure the bag he had laid on or near the track, and
so subjected himself to the injury. It was a sudden emergency, and
the immediate or proximate cause of injury was probably an in-
voluntary act. Another case, so invoked, is governed by the same
general principle, but dififers from the Chambers Case in the circum-
stances and cause of involuntary action. The insured ran toward a
moving train, without any intention of boarding it or coming into
contact with it. By a mere mistake of judgment, he ran closer than
he should have done. In attempting to stop he stumbled and fell
against the engine. His falling was an accident and purely an in-
voluntary act.
Applying these principles to the undisputed facts disclosed by the
•evidence, we conclude that, as matter of law, there was a voluntary
exposure to obvious risk on the part of the insured. He must have
known the location of the standpipe or water column and its prox-
imity to the railway track. He had passed it frequently, and did
so just before the accident. The danger in his attempt to climb on
an engine, approaching thi^ structure at the rate of 8 or 10 miles an
hour, and at a distance of only 60 or 75 feet from it, was so baldly
apparent that he, if living, could not be excused on the ground that
he did not see it or was not conscious of it. Nothing in his situation
or the circumstances precluded deliberate action, and he was there-
fore bound to avail himself of the reasonable use of his faculties and
such judgment as an ordinarily prudent man would have exercised.
The fact that others did the same thing or similar acts, or that he
had previously done it without injury, does not alter the case. Garce-
lon V. Accident Ass'n, 195 Mass. 531, 81 N. E. 201, 10 L. R. A. (X.
S.) 961 ; Insurance Co. v. Seaver, 19 Wall. 531. 22 L. Ed. 155. The
beneficiary of the policy occupies no higher position in law than he
would hold if living.
We are unable to accept the view that the other clause in the
policy here quoted, limiting the liability when accidental injury re-
sults from or is received while quarreling, fighting, or violating the
law precludes a recovery of the full amount of the policy. The
mere jumping on or off of a car or train is not made a misde-
meanor by chapter 145, § 31a (sec. 42^2) Code 1906. A passenger
or employe may lawfully do this. The statute is aimed at tres-
462 ACCIDENT INSURANCE
passers. It is penal and ought to be strictly construed. Passengers
and employes are expressly excepted, because they are on the prem-
ises by invitation of the railroad company, and have right and fre-
quent occasion to board trains. The insured in this case was an
employe of the railroad company whose engine he attempted to board,
and his act was therefore expressly excepted by the statute, pro-
vided he was such an employe as is within the exception. The
statute does not classify either employes or trains. The terms of
the exception are general. In any attempt to limit it to employes
of any class or department, or to exclude sectionmen, shop employes,
or others whose duties do not require them to go on board the trains
or engines, or passengers boarding other than passenger trains, the
courts would apply the rule of liberal construction to a penal statute
in violation of a universally recognized principle. Reeves v. Ross,
62 W. Va. 7, 57 S. E. 284; Hall v. N. & W. R. Co., 44 W. Va. 36,
28 S. E. 754, 41 L. R. A. 669, 67 Am. St. Rep. 757; Shumate v.
Com., 15 Grat. (Va.) 653; Yancey v. Hopkins, 1 Munf. (Va.) 419;.
Lewis, Suth. Stat. Con. § 526 et seq. * * * Reversed.
VI. Occupation and Employment ^*
UNION MUT. ACC. ASS'N v. FROHARD.
(Supreme Court of Illinois, 1890. 134 111. 22.8. 25 N. E. 642, 10 L. R. A. 383,.
23 Am. St. Rep. 664.)
Baker, J.^^ On the 1st day of September, 1885, one John Erohard
was accepted as a member of the Union Mutual Accident Association,
and a certificate of insurance was issued to him. On January 26,
1887, while hunting with a gun, he accidentally shot and killed him-
self. The appellee, Minna Frohard, who is his widow, and the ben-
eficiary named in the certificate, filed this bill in equity against the
corporation, for the purpose of compelling it to levy an assessment
of $2 for each member of the association liable at the date of the
accident, for the purpose of paying the amount of $5,000, specified
in the certificate, or such part thereof as might be collected on the as-
sessment. * * *
Section 2 of article 10 of the by-laws of appellant is as follows :
"Sec. 2. Any member, who shall change his occupation to any other
14 For discussion of principles, see Vance on Insurance, § 242. See, also,.
Cooley. Briefs on tbe Law of Insurance, vol. 3, p. 2205.
15 Part of the opinion is omitted.
OCCUPATION AND EMPLOYMENT 463
more Hazardous than the one in which he was classified when insured,
shall immediately notify the secretary of such change; and any mem-
ber, receiving- an injury wdiile engaged temporarily, or otherwise, in
another occupation more hazardous than the one in which he was en-
gaged when insured, he, or his beneficiary, shall be entitled to receive
only such indemnity as provided for in the class or occupation in
which he is engaged at the time of the injury; and such shall be
payment in full upon the part of the company."
Article 14 of the by-laws classified certificates of insurance against
accidents, and placed them in six divisions, designated, respectively, as
"A," "B," "C," "D," "E," and "F." This classification purported to
be and was solely upon the basis of occupations, the least hazardous
occupations being placed in division A, the extrahazardous occupa-
tions in division F, and other occupations in one or another of the in-
termediate divisions. It was provided in said article that, in the event
of the death by accident of a member in division A, a sum not ex-
ceeding $5,000 should be paid, and that in the event of such death of
a member of division E, which was designated therein as "hazardous,"
a sum not exceeding $1,000 should be paid. Merchants were placed
in division A, and hunters in division E. * * *
The certificate or policy of insurance which was issued to John
Frohard provided, among other things, as follows : "That John Fro-
hard, by occupation, profession, or employment, a merchant, residing
at Sparta, state of Illinois, is accepted as a member in division A
of said association, subject to all the requirements, and entitled to
all the benefits, thereof, as provided in the by-laws, and that said mem-
ber, in case of death occurring through external, violent, and acci-
dental injuries, is entitled to participate in the mortuary or relief fund
of the association, not to exceed the amount of $5,000, which sum. or
such a part thereof as may be collected for that purpose by the pay-
ment of one regular assessment of two dollars ($2) for each member
of the association, liable at the date of the accident, shall within sixty
(60) days after sufficient proofs have been received, be paid to his
wife, Minna, if surviving. * * '■' It is expressly stipulated and
agreed that in the event of the member being either fatally injured,
or otherwise disabled, while engaged temporarily, or otherwise, in any
act or occupation classed as more hazardous than the one in which
he is accepted, according to the classification given by the rates and by-
laws of this association, (or if not specially mentioned, approximating
thereto,) then an amount shall be paid equal to the rate of the occu-
pation in which the member is engaged when receiving the injury.
and such amount shall be payment in full upon the part of the as-
sociation. * * * It is expressly stipulated and agreed that this
certificate is issued and accepted, subject to all the provisions, condi-
tions, limitations, and exceptions herein contained, or referred to."
The principal contention of appellant is that the deceased v^as killed
464 ACCIDENT INSURANCE
while engaged temporarily in an act or occupation classed as more
hazardous than the one in which he was accepted, and that appellee
is therefore entitled to recover only the amount provided for such
hazardous risk and occupation. The contention of appellee is that
there was no change of occupation, within the meaning of the by-
laws and certificate of insurance. The deceased was a hardware mer-
chant. He did not follow the occupation of a hunter for hire or
profit. He was killed while engaged in the act of hunting as a recrea-
tion, and it does not appear that he had hunted with a gun on any
occasion since the issuance of the policy other than that upon which
the accident occurred.
In our examination of the provisions of the by-laws and contract
of insurance, we will first ascertain the proper construction to be
placed upon the former. The language of section 2, as we have here-
tofore seen, is: Any member receiving an injury while engaged tem-
porarily, or otherwise, in an occupation more hazardous than the one
in which he was engaged when insured," etc. "Occupation" is defined
by lexicographers to mean "that which occupies or engages the time
or attention ; the principal business of one's life ; vocation ; employ-
ment; calling; trade." The classification of hazards in article 14 of
the by-laws is made upon the basis of occupations. ^Merchants, and
those following other like vocations, are placed in division A; grain
measurers and others in division B ; paper-hangers and others in di-
vision C ; teamsters and others in division D ; and boatmen and others
in division E. The by-laws in question must receive a reasonable
construction. It would be unreasonable and absurd to hold that the
merchant, who at one time measured a few bushels of grain, at an-
other hung a few rolls of wall paper upon his own premises, at an-
other drove a team of horses in a carriage or wagon, and at still
another rowed a skifif for exercise or recreation, became, within the
true intent and meaning of these by-laws, at these several times, a
grain measurer, a paper hanger, a teamster, and a boatman, respec-
tively.
The word "occupation," as found in these by-laws, must be held
to have reference to the vocation, profession, trade, or calling, which
the assured is engaged in for hire, or for profit, and not as precluding
him from the performance of acts and duties which are simply in-
cidents connected with the daily life of men in any or all occupations ;
or from engaging in mere acts of exercise, diversion, or recreation.
This view is not subversive of the word "temporarily" found in said
section 2, for there would be full opportunity for giving force and
effect to it, in the event that a professional man, merchant, or person
in some other calling, should temporarily abandon such vocation, and
for purposes of profit, or as a means of gaining a subsistence, tem-
porarily employ himself in some more hazardous occupation.
This construction of these by-laws seems to be sustained by the
OCCUPATION AND EMPLOYMENT 465
authorities. In Insurance Co. v. Burroughs, 69 Pa. 43, 8 Am. Rep.
212, there were conditions in respect to the matter of a change of
occupation, and the deceased was insured as an earthenware manu-
facturer, and he received a fatal injury from an accident which hap-
pened while he was assisting in hauling hay on a farm, while he was
on a visit to his grandfather; and it was held there was no change of
occupation or business, within the meaning of the policy there in-
volved. In Stone's Adm'rs v. Casualty Co., 34 N. J. Law, 375, the
language of the condition was: "Policyholders, insured under the
preferred class, will not be entitled to recover for injuries received
in any employment, or by any exposure, either more hazardous in
itself, or classified by the company as more hazardous, than the oc-
cupations named in the preferred class." The deceased was insured
as a teacher, but, while overlooking the construction of a building he
was having erected, fell from a second story, and was killed ; and it
was held the language of the condition had respect to employments, and
not to individual acts. See, also, Miller v. Insurance Co., 39 Minn.
548, 40 N. W. 839.
It is urged, however, that the contract of insurance contains the
words, "in any act or occupation," instead of the mere words, "in
another occupation," found in the by-law, and that the words, "while
engaged temporarily, or otherwise, in an act," cannot be ignored ; but
that they have a definite and clear meaning, and must be given legal
force and efifect. It is to be noted that the words used in the con-
tract are words selected and used by the corporation itself, and are
therefore to be interpreted most strongly against it; or that, at all
events, they are to be construed according to their common and lit-
eral meaning in favor of the insured. The provision of the policy,
upon which is based the claim that the demand of appellee is reduced
from one under division A to one under division E, is not simply that
if deceased was fatally injured "while engaged temporarily, or other-
wise, in any act or occupation more hazardous than the one in which
he was accepted," but contains the further requirement that the "act
or occupation" that will be effective to work such reduction must be
one that is "classed as more hazardous, * * * according to the
classification given by the rates and by-laws of the association." These
words last quoted are words of limitation, pertaining to, and qualify-
ing, the terms, "any act," and "occupation," as used in the contract.
We have already seen that the classification of hazards made in the
by-laws is predicated only upon occupations. There is not in the by-
laws, or in the record, any classification of hazards in respect to
acts. In other words, there is no act which is classified as more or
less hazardous than another, and no act which is classed as more
hazardous than the occupation designated in the certificate of insur-
ance issued to the deceased.
CooLEY Ins. — 30
466 ACCIDENT INSURANCE
The case, then, does not stand otherwise than it would if the word
"act" were not found in the contract. The courts below properly held
that the claim of appellee was under division A, and was for $5,000.
* * * Affirmed. .
VII. Liability of the Insurer— Total Disability ^^
LOBDILIv V. LABORING MEN'S MUT. AID ASS'N OF CHAT-
FIELD, MINN.
(Supreme Court of Minnesota, 1897. 69 Minn. 14, 71 N. W. 696, 38 L. R. A.
537, 65 Am. St. Rep. 542.)
Action by S. C. Lobdill against the Laboring :\Ien's Mutual Aid
Association of Chatfield, Minn. Verdict for plaintiff. From an or-
der refusing a new trial, defendant appeals.
Mitchell, J. The defendant, an accident insurance company, is-
sued its policy to plaintifif, w^hereby it insured him as a merchant by
occupation, under classification preferred, "in the sum of $25 per week,
against loss of time not exceeding twenty-six consecutive weeks, re-
sulting from bodily injuries effected through means aforesaid [exter-
nal, violent, and accidental] ivholly and continuously disabling said
member from transacting any and every kind of business pertaining
to the occupation above stated."
Plaintiff alleged that on May 21, 1895, and during the life of the
policy, he was accidentally thrown from his bicycle, and violently
thrown forward on his face, thereby dislocating the thumb of his
right hand, breaking loose some of his teeth, and so injuring or jar-
ring his head and neck as to affect his spine and nerves to such an
extent as to produce severe nervous prostration, by reason of which
injuries he was wholly and continuously disabled from transacting
any and every kind of business pertaining to his occupation as a mer-
chant for 17 weeks. The principal contest is as to the construction
of that part of the policy which we have italicized, and particularly
of the term "wholly disabled."
Accident insurance being of comparatively recent origin, the policies
do not seem to have acquired any settled form, and the decisions con-
struing them are comparatively few, and do not seem to have agreed
on any very definite meaning to be given to the term "total disability."
Such authorities as there are wull be found quite fully cited in Bac.
Ben. Soc. § 501, and in Nibl. Mut. Ben. Soc. § 401 et seq. See, also,
4 Harv. Law Rev. p. 180.
16 For discussion of principles, see Vance on Insurance, § 244. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, pp. 3287, 3312.
LIABILITY OF THE INSURER — TOTAL DISABILITY 467
The cases which have placed a construction upon the term "total
disability" might seem to be divided into two classes, viz. those which
construe it liberally in favor of the insured, and those which construe
it strictly against him. Among those of the first class may be cited
Hooper v. Insurance Co., 5 Hurl. & N. 545, 556 ; Young v. Insurance
Co., 80 Me. 244, 13 Atl. 896; Turner v. Casualty Co., 112 Mich. 425,
70 N. W. 898, 38 L. R. A. 529, 67 Am. St. Rep. 428; and of the
second class, Lyon v. Assurance Co., 46 Iowa, 631, and Saveland v.
Casualty Co., 67 Wis. 174, 30 N. W. 237, 58 Am. Rep. 863. Any
apparent conflict in the decisions, may, however, be mostly reconciled
in view of diflferences in the language of the policies, and of the dif-
ferent occupations under which the parties were insured. As is well
said in Wolcott v. Association, 55 Hun, 98, 8 N. Y. Supp. ,263: "Total
disability must, of the necessity of the case, be a relative term, and
must depend largely upon the occupation of the party insured."
One who labors with his hands might be so disabled by a severe
injury to one hand as not to be able to labor at all at his usual oc-
cupation, whereas a merchant or a professional man might by the
same injury be only disabled from transacting some kinds of business
pertaining to his occupation. In policies of this character the aim
of the insurer usually is to get as large premiums as possible by in-
curring the least possible liability ; and, on the other hand, after an
accident occurs, the usual aim of the insured is to recover the great-
est amount of indemnity for the least possible injury. All that the
courts can do is to construe the contract which the parties have made
for themselves ; but in doing so they should give it a reasonable con-
struction, so as, if possible, to give effect to the purpose for which it
was made.
There are a few propositions applicable to the construction of the
policy under consideration, which, under the evidence, are decisive of
this case. The first is that total disability does not mean absolute
physical inability on part of the insured to transact any kind of busi-
ness pertaining to his occupation. It is suJnficient if his injuries were
of such a character that common care and prudence required him to
desist from the transaction of any such business so long as it was rea-
sonably necessary to effectuate a cure. This was a duty which he
owed to the insurer as well as to himself. Young v. Insurance Co.,
supra. The second is that under the particular terms of this policy,
to wit, "from transacting any and every kind of business pertaining
to the occupation above stated" (merchant), inability to perform some
kinds of business pertaining to that occupation would not constitute
total disability within the meaning of the policy. For example, the
occupation of a retail country merchant (as plaintiff was) embraces
various departments or kinds of business, such as keeping the books,
making out accounts, and settling with customers; waiting on cus-
tomers, and doing up their purchases in packages ; also the handling
and arranging of goods in the store. If an injury disabled the insured
468 ACCIDENT INSURANCE
merchant from transacting one or more of these branches of the busi-
ness, but left him able to transact others with due regard to his health,
he would not be totally disabled within the meaning of this policy.
But, fourth, the mere fact that he might be able, with due regard to
his health, to occasionally perform some single and trivial act con-
nected with some kind of business pertaining to his occupation as a
merchant would not render his disability partial instead of total, pro-
vided he was unable substantially or to some material extent to trans-
act any kind of business pertaining to such occupation.
To illustrate this proposition by reference to the evidence in this
case, it appears, as we shall assume, that on one or two occasions
where the plaintiff went into his store when down town for other
purposes he handed out some small article to a customer, and took the
change for it. This would not necessarily prove that he was able to
attend to the business of waiting on customers, and that he was not
"wholly disabled" within the meaning of the policy. He might be
able, on temporary visits to the store, to occasionally perform a tri-
fling act of this nature, and yet be substantially and essentially unable
to transact any kind of business pertaining to his occupation of mer-
chant. The frequency and nature of these acts would be for the con-
sideration of the jury in determining whether he was totally disabled;
but would ordinarily be by no means conclusive on that question.
It only remains to apply these principles or rules to the evidence.
The evidence was, as might be expected, conflicting; but that intro-
duced on part of the plaintiff reasonably tended to show that the dis-
location of his thumb was by no means the most serious of his in-
juries; that by his fall he so injured his head and neck as to produce
severe nervous prostration, which so seriously affected his general
health and strength as to render him unable to transact, to any ma-
terial or substantial extent, any part of his business as merchant; that
due regard to his health required him to wholly desist from attempt-
ing to do so, and that he was so advised by his physician ; that when
at home he went down town several times a week to receive medical
treatment from his physician, and to get shaved; that when he did
so he would frequently go into his store, and sit down for a brief
time, but when there took no part or interest in the transaction of
the business except the trivial acts on two or three occasions, already
referred to ; that upon the advice of his physician he went to Chicago,
to consult a medical specialist; that when he returned, his health not
appearing to be improved, his family took him off on two occasions
on a summer outing ; and that it was not until the last of September
or the first of October that he was sufficiently recovered to give any
considerable attention to any part of his business. This evidence, in
our judgment, justified the jury in finding that he was, for the full 17
weeks, wholly disabled, within the meaning of the policy, from trans-
acting any and every kind of business pertaining to his occupation as
a merchant.
LIABILITY OF THE INSURER — TOTAL DISABILITY 469
Tlie requests to charge referred to in the assignments of error were
properly refused, for the reason, if no other, that they all assumed
that if the plaintiff on some particular date performed some single
act connected with his business, — as, for example, handing a customer
a package of garden seeds, or a dozen of nails, — it necessarily fol-
lowed that he was not "wholly disabled" at that date within the mean-
ing of the policy.
In his application for this insurance the plaintiff stated the value
of his time to be $25 a week. It cropped out on the trial that he held
like insurance for like amounts in three other companies. As no point
was made on the trial but that he was entitled to recover, if at all.
$25 a week during his total disability on the policy in suit, the ques-
tion of the effect of the other insurance on the amount he is entitled
to recover is not before us. Order affirmed.
470 GUARANTY, CREDIT, AND LIABILITY INSURANCE
GUARANTY, CREDIT, AND LIABILITY INSURANCE
I. Fidelity and Guaranty Insurance ^
CHAMPION ICE MFG. & COLD STORAGE CO. v. AMERICAN
BONDING & TRUST CO.
(Ck)urt of Appeals of Kentucky, 1903. 115 Ky. 863, 75 S. W. 197, 103 Am. St.
Rep. 356.)
Action by the Champion Ice Manufacturing & Cold Storage Com-
pany against the American Bonding & Trust Company. From a judg-
ment for defendant, plaintiff appeals.
Settle, J.^ The appellant, Champion Ice Manufacturing & Cold
Storage Company, is a corporation doing business in Covington, Ky.
It had in its employ a bookkeeper, Geo. H. Weitkamp by name, of
whom it required a bond of indemnity, which was furnished by the
appellee, American Bonding & Trust Company, for the consideration
of $12.50 paid it in cash. By the terms of this bond, appellee agreed
to indemnify appellant for one year for any "loss which it might sus-
tain by reason of any fraudulent or dishonest act upon the part of
Weitkamp, amounting to larceny or embezzlement," that might occur
while he continued in appellant's service as bookkeeper. It appears
that Weitkamp, while in appellant's service, wrongfully converted
$94.91 of its money, and, in addition, raised five of its checks, each
$100 in amount, which he caused to be cashed at the First National
Bank of Covington, and appropriated to his own use the amounts thus
fraudulently realized.
These frauds seem to have been committed in the following man-
ner : The weekly pay roll of the appellant company, as prepared by
one of its officers, was furnished Weitkamp, as bookkeeper, with di-
rection to make out the checks, payable to himself, for the amounts
indicated. Upon thus filling out the checks as directed, Weitkamp
handed them to the proper officer of the company, who signed and
returned them to him to take to the bank to be cashed. Weitkamp
raised five of these checks $100 in amount, each, had them cashed, and
retained the amounts of the excess over and above the sums for which
they were originally and truly issued. * * * The aggregate
amount realized by Weitkamp, from the fraudulent alterations of the
checks was $500, and the additional sum of $94.91 he retained out
1 For discussion of principles, see Vance on Insurance, §§ 247, 248. See,
also, Cooley, Briefs on the Law of Insurance, vol. 4, pp. 3319-3323, 3336-3338.
2 Part of ttie opinion is omitted.
FIDELITY AND GUARANTY INSURANCE 471
of moneys collected by him as bookkeeper of appellant, or took from
its money drawer. * * *
The appellee filed answer to the petition, denying any liability on
the bond, except to the extent of $94.91. * * *
The appellee company is engaged in the business of furnishing
bonds to secure the honesty and fidelity of fiduciaries and employes,
and the one sued on in this case provides, among other things, that
appellee "does hereby agree that it will within three months after re-
ceipt of proof, satisfactory to its officers and subject to the condi-
tions hereinafter expressed, reimburse the employer [appellant], to
an amount not in excess of the penalty of this bond [$2,500], for such
pecuniary loss as the employer shall have sustained of money, se-
curities, or other personal property belonging to the employer, or for
w^hich the employer is responsible, by any act of fraud or dishonesty
amounting to larceny or embezzlement committed by the employe dur-
ing the continuance of this bond, in the performance of the duties of
said office, or position, or such other position as he may be subse-
quently appointed to, or called upon to fill by the employer in said
service." The bond further provided that, in case of discovery of de-
fault or loss, the appellant should give immediate notice to appellee,
etc.
There can be no question but that the covenants of the bond cover
such a loss as was sustained by the appellant. Its only purpose was
to insure against loss that might result to appellant from the fraud
or dishonesty of Weitkamp, amounting to larceny or embezzlement,
whether the loss was that of money, securities, or other personal prop-
erty belonging to appellant, or for which it might be made responsi-
ble ; and the indemnity thus afforded by the bond not only applies to
any act of fraud or dishonesty which Weitkamp may have committed
in the performance of his duties as bookkeeper, but also to such as
he may have committed in any other position in appellant's employ-
ment to which he may have been appointed, or called upon to fill. It
is not material, therefore, whether the fraudulent and dishonest acts
of Weitkamp which caused loss to appellant were committed by the
making of false entries in its books, by the raising of its checks, or
by abstracting money from its money drawer; nor is it material
whether he was at the time acting as bookkeeper, or in some other
capacity in appellant's service. In either or in any of these events, ap-
pellee, under the terms of the bond, would be, and is, liable for the
loss which he occasioned.
There can be no doubt, under the evidence in this case, but that
W^eitkamp was authorized by appellant, and that it was a part of his
duty, to receive money due it from its customers, and to draw money
from the bank in which appellant's account was kept ; and it was also
his duty to account to appellant for the moneys thus received. His
failure to do so was dishonest and fraudulent, and, in fact, constituted
472 GUARANTY, CREDIT, AND LIABILITY INSURANCE
an act of embezzlement; and, for the loss resulting to his employer
thereby, appellee's liability is fixed by the terms of the bond.
It was not necessary, in order to fix the liability of appellee upon
the bond, that appellant should produce, in support of any claim that
it might have arising thereunder, such proof as would convict Weit-
kamp of the crime of larceny or embezzlement as defined by the
laws of Kentucky. Such a narrow construction of the provisions of
the contract is not required by the law, and was never contemplated
by the parties to it. While larceny is a common-law crime, yet in
this state it is to a great extent statutory. Embezzlement is purely a
statutory crime, but the terms "larceny" and "embezzlement," in the
bond or policy sued on, are used as generic terms to indicate the dis-
honest and fraudulent breach of any duty or obligation upon the part
of an employe to pay over to his employer, or account to him for,
any money, securities, or other personal property, the title to which
is in the employer, that may in any manner come into the possession
of the employe.
It will be observed that the bond in this case is a printed one — pre-
pared, doubtless, by a skilled attorney in appellee's employ. The con-
tract expressed therein is but a form of insurance, and the law of
insurance is that in the construction of policies, if there be any am-
biguity in them, it must be construed most strongly against the insur-
ance company. In American Surety Company v. Pauly, 170 U S.
133, 18 Sup. Ct. 552, 42 L. Ed. 977, Mr. Justice Harlan admirably
states this rule as follows : "If, looking at all its provisions, the bond
is fairly and reasonably susceptible of two constructions, one favor-
able to the bank, and the other favorable to the surety company, the
former, if consistent with the objects for which the bond was given,
must be adopted; and this for the reason that the instrument which
the court is invited to interpret was drawn by the attorneys, officers,
or agents of the surety company. This is a well-established rule in
the law of insurance. First National Bank v. Hartford Fire Insur-
ance Company, 95 U. S. 673 [24 L. Ed. 563]. * * * As said by
Lord St. Leonards in Anderson v. Fitzgerald, 4 H. L. Cas. 483: 'It
[a life poHcy] is, of course, prepared by the company; and if, there-
fore, there should be any ambiguity in it, it must be taken, according
to law, most strongly against the person who prepared it.' There is
no sound reason why this rule should not be applied in this case. The
object of the bond in suit was to indemnify or insure the bank against
loss arising from any act of fraud or dishonesty on the part of O'Brien
in connection with his duties as cashier, or with the duties to which,
in the employer's service, he might be subsequently appointed. That
object should not be defeated by any narrow interpretation of its
provisions, nor by adopting a construction favorable to the company,
if there be another construction equally admissible under the terms
of the instrument executed for the protection of the bank."
In Fidelity & Casualty Company v. Gate City National Bank, 97
FIDELITY AND GUARANTY INSURANCE 473
Ga. 634, 25 S. E. 392, 33 L. R. A. 821, 54 Am. St. Rep. 440, a bond
similar to the one under consideration was executed by the FideHty
& Casualty Company to indemnify the bank against loss by reason of
the fraud or dishonesty of one Lewis Redwine in connection with his
duties as paying teller, "or the duties to which in the employer's serv-
ice he may be subsequently assigned by the employer." After the
execution of the bond, Redwine was made assistant cashier, and as
such became a defaulter, causing loss to the bank in a large amount.
The Supreme Court of Georgia, in discussing the liability of the guar-
anty company on the bond, said : "One of the questions for decision
is whether or not the company was surety for him in the latter ca-
pacity [that of assistant cashier]. In view of the comprehensiveness
of the above-quoted language, it would be difficult to hold it was not.
He was certainly appointed subsequent to the execution of the bond
to the office of assistant cashier, as such had duties to perform in his
employer's service, and by a violation of those duties brought loss to
the master. We think the plain language of the contract covers the
precise state of facts which arose, and that the company is as much
bound to answer to the bank for Redwine's dishonesty in the latter
capacity as in the former."
Under the rule announced in the case supra, it is manifest that
though Weitkamp, in the application made by appellant to appellee for
the bond sued on, was designated as a bookkeeper in its service, and
is so entitled in the bond itself, the fact that he was intrusted by
his employer with the duty of making out checks, and drawing money
from the bank thereon, did not relieve appellee from liability on the
bond, as, at most, the additional duty was only one that was assigned
him by his employer subsequent to the execution of the bond, and
was allowed by the terms of the bond itself. We are not, however,
prepared to concede that the appellee would not have been liable for
the dishonesty of Weitkamp in causing loss to his employer by raising
the checks, and appropriating the money thereby received from the
bank. Even in the absence of the provision of the bond mentioned,
for we incline to the opinion that the duty of making out checks, and
procuring money of the bank thereon, was a service that might prop-
erly and naturally have been intrusted to a bookkeeper.
It is contended by counsel for appellee that the First National Bank
of Covington is liable to appellant for the sum embezzled by W^eit-
kamp, and that it therefore has no cause of action upon the bond
executed by appellee. We do not so understand the law. * * *
But even though the bank were liable to api^ellant for the amount the
checks were raised, that fact would not, in our opinion, exonerate ap-
pellee from liability. The purpose of the bond was to furnish indem-
nity to appellant from loss resulting from the fraud or dishonesty of
Weitkamp. The position of appellee was not only that of an insurer,
but in some sort that of a surety as well, and in both these capacities
its liability is primary and direct. It would be restricting the law of
474 GUARANTY, CREDIT, AND LIABILITY INSURANCE3
both insurance and suretyship to an absurd degree to say that appel-
lee cannot be held liable until after appellant, having exhausted every
other remedy, or prosecuted to insolvency any others who might be
liable, is still not reimbursed.
In other words, appellee's liability does not depend upon whether
appellant might collect the stolen $500 from some one else. Having
a right of action against the defaulter, Weitkamp, appellant has also
a right of action against the guarantor of his honesty. * * * Re-
versed.*
II. Credit Insurance *
SHAKMAN V. UNITED STATES CREDIT SYSTEM CO.
(Supreme Ck)urt of Wisconsin, 1896. 92 Wis. 366. 66 N. W. 528, 32 L. R. A.
383, 53 Am. St. Rep. 920.)
Action by L. A. Shakman against the United States Credit System
Company on a written contract issued by defendant to plaintifif, and
called a "certificate of guaranty." The plaintiff is a manufacturer of
clothing, doing business in IMilwaukee, and was such in 1889. The
defendant was, at that time, a corporation, incorporated under the
laws of the state of New Jersey. It appeared that, about the 23d day
of October, 1889, the defendant's agent at Chicago, one Langsdorf,
called on the plaintiff, and the plaintiff then made a written application
to the defendant company for a certificate of guaranty.
This application, so far as necessary to be stated, is as follows : "L.
A. Shakman & Co. hereby apply for a guaranty of five thousand dol-
lars of the debts of the persons to whom we may sell goods, according
to the system of said company, during the period of one year, com-
mencing on the 1st day of July, 1889, and ending on the 1st day of
July, 1890, and for that purpose we hereby make application to pur-
chase of said company a certificate of guaranty, according to its system
of credits, under the copyright of said company, for said term, and
desire to enter series A of said company, which series is made up of
not more than six hundred and fifty certificates, averaging a guaranty
of $5,000 for each certificate. This application is made with the un-
derstanding that the said company limits its liability to pay excess
losses in any one series in accordance with the following table, less
the deduction allowed, to be made by said company, as the value of
the bad debts sustained by the applicant, which is hereby agreed to be
3 Compare Reed v. Fidelity & Casualty Co., 189 Pa. 596, 42 Atl. 294 (1899).
4 For discussion of principles, see Vance on Insurance. § 251. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, pp. 3323-3326, 3338-3341.
CREDIT INSURANCE 475
12% per cent, of the total amount of losses incurred by reason of bad
debts remaining unpaid at the time of proving applicant's losses against
said company."
Langsdorf forwarded this application to the company, by whom it
was accepted and a "Certificate of Guaranty" returned to Langsdorf.
who delivered it to Shakman on the 8th day of November, 1889. This
certificate reads as follows :
"For and in consideration of the terms and conditions herein named,
and of the sum of one hundred and forty-five dollars, paid by L. A.
Shakman & Co., hereby grants, bargains, and sells to the said L. A.
Shakman & Co. this certificate, issued under its copyrighted system of
credits, in series A, class B, for the term of one year, commencing on
the 1st day of July, 1889, and ending on the 1st day of July, 1890.
And for said consideration the said United States Credit System Com-
pany guaranties, covenants, and agrees that if the said L. A. Shakman
& Co. should, by reason of the insolvency of any debtor or debtors,
who owe such debtor debts for merchandise sold and delivered during
said period, under the credit system of said company as hereinafter
mentioned, or by reason of any uncollectible judgment or judgments
that he or they may have obtained, for the sum or sums of money due
for merchandise sold and delivered as aforesaid, have losses in excess
of 1% per cent, on their total sales made during the above limited
period, to pay such excess loss, not exceeding five thousand dollars,
less the deductions, and subject to the terms and conditions herein-
after named. It is, however, expressly agreed and understood that this
certificate forms a part of series A, and the company's liability to pay
excess losses in any series is limited to the fund or funds provided for
said series, as appears more specifically in the application signed by
said L. A. Shakman & Co., which application forms a part of this
certificate.
"Terms and Conditions.
"(1) That no credit which may have been given to any party or par-
ties shall be included in the calculation of losses, unless he or they
were rated in R. G. Dun & Co.'s Mercantile Agency in the latest books
or reports issued by it at the time of shipping the goods, and that no
special or other report was received by said L. A. Shakman & Co.
changing the same. And in case any change has occurred, such sale
and shipment shall be considered to have been made in accordance with
such change. (2) That, in calculating the losses, no credit that may
have been given shall be included therein exceeding credit of 30 per
cent, on the lowest capital rating such party or parties were rated in
said Mercantile Agency's books or reports. (3) That, in the calcula-
tion of losses, no account against any debtor shall be included therein
for more than ten thousand dollars. (4) That no credit that may
have been given shall be included in the calculation of losses, unless
the rating of the party to whom such credit is given was at least two
476 GUARANTY, CREDIT, AND LIABILITY INSURANCE
thousand dollars ($2,000) at the time of shipping the goods, and that
the credit rating was the best or next to the best for the capital.
* * *
"Special : In condition No. 2, 20 per cent, is changed to 30 per
cent. Condition No. 4 is changed so as to include sales to parties
whose rating is K Sy^ in Dun's Agency Book."
At the time of the delivery of this certificate, and before payment
of the consideration or premium, Shakman objected that the policy
did not allow the use of Bradstreet's reports of ratings as well as
Dun's. There is a conflict in the evidence as to what followed this
objection. Shakman's evidence tends to prove that Langsdorf said
he would concede this, and that he had authority to do so, and that
Langsdorf thereupon wrote, and delivered with the policy, the follow-
ing slip: "Milwaukee, Nov. 8, 1889. Indorsement to certificate No.
3,452, in favor of L. A. Shakman & Co., to wit: Should any party
to whom above-named firm may sell goods not be rated within the
system of this company at Dun's Mercantile Agency, and Bradstreet's
Agency does rate such party, within the system of this company, then,
in such cases, the latter shall be binding upon this company. A. Langs-
dorf, Genl. Supt." Langsdorf, on the other hand, while admitting
that Shakman objected to the policy because it did not allow the use
of Bradstreet's ratings as well as Dun's, denies that he gave the in-
dorsement to Shakman as a contract, but says that he told him he
would submit the matter to the company for their decision, and that
he wrote out the indorsement simply to show Sha' man how it woul 1
read in case the company approved it. At the same time, and after
the delivery of the slip, Shakman paid to Langsdorf the premium of
$155.
It appeared that one Fishell was the partner of Langsdorf. and that
their office was at Chicago, and that they styled it the "Western De-
partment" of the United States Credit Company; Langsdorf calling
himself general superintendent, and Fishell general manager. Langs-
dorf testifies that they assumed these titles without authority of the
company, and really only had authority to solicit business and collect
premiums. On or about November 26, 1889, the plaintiff received a
letter from Fishell as follows : "Inclosed find indorsement slip, as re-
quested, which please attach to the certificate, to take the place of the
agreement left with you signed by our Mr. Langsdorf. \'ery respect-
fully, Albert Fishell, Mgr." The slip inclosed reads as follows :
"Should Dun's Mercantile Agency not rate a party, and Bradstreet's
Agency should give such party a rating or report, and such rating or
report is sufficient to be covered by the system of this company, then
and in that case the said L. A. Shakman & Co. may use Bradstreet's
Mercantile Agency as a basis for such party. This special permission
to take effect November 13, 1889. [Signed] Fred M. Wheeler. Sec-
retary." The plaintiff read the letter, but not the slip, and paid no
attention to it, and did not return it.
CREDIT INSURANCE 477
Judgment for the plaintiff for $2,856.75, with interest and costs,
was rendered, and the defendant appealed.
WiNSLOW, J.^ We regard the contract before us as unquestionably
a contract of insurance. An insurance contract is a contract whereby
one party agrees to wholly or partially indemnify another for loss or
damage which he may suffer from a specified peril. The peril of loss
by the insolvency of customers is just as definite and real a peril to a
merchant or manufacturer as the peril of loss by accident, fire, light-
ning, or tornado, and is, in fact, much mo^e frequent. Xo reason is
perceived w^hy a contract of indemnification against this ever present
peril is not just as legitimately a contract of insurance as a contract
which indemnifies against the more familiar, but less frequent, peril
by fire. This very contract has been (sub silentio) construerl as a
policy of insurance by the supren:e court of New Jersey. Robertson
V. Credit System Co., 57 X. J. Law, 12, 29 Atl. 42 i.
The contract being, then, a contract of insurance, and the defend-
ant's business being the making of such contracts, it follows that the
defendant is an insurance corporation, within the meaning of sections
1977 and 1978, Rev. St. Langsdorf was its agent for the purpose of
soliciting insurance, transmitting applications, and collecting premiums,
and received pay therefor. He was, consequently, under section 1977,
supra, its agent for all intents and purposes, and had power to make
the additional agreement contained in the indorsement dated X'ovem-
ter 8th. Renier v. Insurance Co., 74 Wis. 89, 42 X. W. 208. The
court has found, on ample evidence, that he did make that agreement,
and the fact is therefore settled. It is, then, a fact m the case that a
complete contract of insurance was made, on or about X'ovember 8th.
by the terms of which the plaintiff was to have the right to use the
Bradstreet's ratings in case a given customer was given no rating by
Dun.
But it is said that the memorandum sent to the plaintiff November
26th, which permitted the use of Bradstreet's reports only after No-
vember 13th, 1889, became effective and binding by reason of the
plaintiff's receiving it and failing to object thereto. We are unable
to agree with this contention. The agreement of Xovember 8th. bein :
perfect, the letter and inclosed memo'-andum of X^ovember 26th could,
at the most, amount to nothing more than a proposal to change the
terms of the existing contract. This the plaintiff could do or not, as
he chose ; but it cannot be said that he did so unless he expresslv
agreed to the change, or unless his silence was legally equivalent to an
express consent to the proposed change. There was no express agree
ment to make the change, nor do we think that the simple failure to
answer the proposal should be construed as such an agreement, in the
absence of all evidence showing that the defendant was influenced in
5 The statement of facts is abrid.i^ed from the original report aud part of
the opinion is omitted.
478 GUARANTY, CREDIT, AND LIABILITY INSURANCE
its conduct by plaintiff's silence. An agreement inferred from silence
must, in such case, rest on the principle of estoppel ; and one essential
element of estoppel is lacking here, namely, a change of position on
the part of the defendant, relying on the plaintiff's silence, which
would result in substantial injury to the defendant were it not per-
mitted to rely on the estoppel. The conclusion necessarily is that the
contract which became perfected November 8th, with the Langsdorf
indorsement, became the contract governing the rights of the parties.
Another question now arises upon the construction to be given to
the Langsdorf indorsement. It will be noticed that the policy, though
dated October 23, 1889, in terms covers the period of one year com-
mencing on the 1st of July, 1889, and that it insures against losses ac-
cruing for merchandise sold and delivered during that period. Thus,
the contract covers several months' business transactions previous to
its date. It appears in evidence that a considerable number of the
losses for which the plaintiff has recovered judgment were suffered
between July 1, 1889, and the delivery of the contract, and that these
losses arose from credits given to parties who had no credit rating
in Dun's reports, but did have such rating in Bradstreet's reports. It
is now contended that the Langsdorf indorsement is purely prospec-
tive in its operation, and only insures losses occurring after November
8th; so that, for the losses occurring before that date, covered by
Bradstreet's reports only, there can be no recovery. The indorsement
reads: "Should any party to whom above-named firm may sell goods
not be rated, within the system of this company, at Dun's Ixlercantile
Agency," etc. The argument cannot prevail. This indorsement is part
of the whole contract. It must be read in connection with all the
other provisions of the contract, and as though it were incorporated in
the contract at the proper place. So read, there can be no doubt that
the contract refers to all goods sold and credits given between July,
1889, and July, 1890, and that the right to use the Bradstreet ratings
in the proper cases w^as intended to be as broad in its terms as to time
as the right to use the Dun ratings.
Subdivision 2 of the terms and conditions of the policy provides
that, in calculating "losses, no credit that may have been given shall
be included therein, exceeding a credit of 30 per cent, on the lowest
capital rating such party or parties were rated at in said mercantile
agency's books or reports." In a number of instances of losses the
ptaintiff had given the insolvent debtors a larger credit than 30 per
cent, of their lowest capital rating. The court allowed, in such case^.
30 per cent, of such rating, and disallowed the excess. It is claimed
by appellant that the clause means that the entire credit is to be ex-
cluded, and not simply the excess above 30 per cent, of the rating.
This is purely a matter of construction of language, and our construc-
tion agrees w'ith that of the trial court, namely, that it is only that part
of the credit exceeding 30 per cent, of the rating which is to be ex-
cluded.
employer's liability insurance il9
It is claimed that a loss of $300 suffered by the failure of one Si-
mansky was improperly allowed. It appears that Simansky's name
appears in Dun's reports with the notation '"Blank 3"; that is, no
capital rating, and credit "fair." In Bradstreet's reports, however, he
appears rated "X D," which means $1,000 to $2,000 capital, credit
fair. It seems to us that this loss was properly allowed. Simansky had
no capital rating in Dun's reports. The system of the defendant re-
quired both a capital and a credit rating. This was, therefore, a case
clearly within the Langsdorf indorsement, where the party was not
"rated within the system of the company'' at Dun's Agency, and was
so rated in Bradstreet's Agency. * * * Affirmed.
III. Employer's Liability Insurance
STEPHENS V. PENNSYLVANIA CASUALTY CO.
(Supreme Court of Michigan, 190.3. 1.3.5 Mich. ISO, 97 N. W. GS6, 3 Ann.
Cas. 478.)
Action by Henry Stephens against the Pennsylvania Casualty Com-
pany. From a judgment for plaintiff, defendant appeals.
This is a case-made after judgment. On April 14, 1900, the de-
fendant and the Detroit, Rochester, Romeo & Lake Orion Railway
Company entered into a contract of indemnity ; the only parts which
bear upon this controversy being as follows :
"In consideration of the Agreements hereinafter and the \\'arran-
ties in the application for this Policy contained, which application is
made a part of this Contract of Insurance, and of fourteen hundred
dollars premium. The Pennsylvania Casualty Company of Scranton.
Pennsylvania (hereinafter called 'the Con:pany') does hereby agree to
indemnify Detroit, Rochester, Romeo & Lake Orion Railway Com-
pany of Detroit, County of Wayne and State of Michigan (hereinafter
called 'the Assured') for the term of one year, beginning on the four-
teenth day of April, 1900, at noon, and ending on the fourteenth dav
of April, 1901, at noon, standard time, against Leg:al Liabilitv of the
Assured for injury to or death of persons, and all legal liability aris-
ing or accruing therefrom for loss of service, funeral expenses, and
medical attendance, being the result of casualties occurring by reason
of the operation of the Street Railway named in the said application
to an amount not to exceed twenty-five hundred dollars for injury to
or death to any person, and subject to the same limit for each person
not to exceed ten thousand dollars for the total liability in any one
6 For discussion of principles, see Vance on Insurance, §§ 2.52. 2.53. See.
also, Cooley, Briefs on the Law of Insurance, vol. 4, pp. 3313^319, .3330-3335.
480 GUARANTY, CREDIT, AND LIABILITY INSURANCE
casualty, whereby several may be killed or injured; and not to exceel
thirty thousand dollars for total liability during the term of this con-
tract.
"Special Agreements.
*********
"(7) The indemnity hereby provided for shall not be payable until
the loss or damage has been adjusted and settled by the Company nor
until thirty days after satisfactory particulars of the loss or damage
shall have been furnished the Company.
********
"(10) The Company shall have control of the defense of any legal
proceedings against the Assured in the name and on behalf of the
Assured for accidents covered by the provisions of this contract, and
in case legal proceedings shall be instituted against the Assured for
such accidents, the Assured shall, within five days of the service of
any writ upon the Assured, deliver to the Company, at its home office,
any writ, and all papers or copies of the same, pertaining to said suiL
or action, and all other papers received, possessed or controlled by
the Assured, relating to such suit or action, immediately upon receipt
of same, and keep the Company at all times informed of each succes-
sive step, and of all steps taken in said suit or action, immediately upon
the occurrence of the same, and render to the Company all necessary
information and assistance to properly conduct a defense, or prosecute
an appeal, or effect a settlement, and a failure of the Assured to fully
comply with the provisions of this section shall release the Company
from all liability by reason of such accident, suit or action."
On September 21, 1900, a passenger upon the railroad was injured,
brought suit, and recovered on May 2, 1901, a judgment of $2,592
and costs of suit, taxed at $88.71. The defendant assumed the direct
control of the defense in that suit. The railroad company was satis-
fied with the adjustment, and did not desire to appeal, but the casualty
company insisted upon appealing to the Supreme Court. It was finally
agreed to assign only such errors as would, if sustained by the Su-
preme Court, result in a reversal of the judgment without ordering a
new trial. Upon an appeal to this court, taken at the instigation of the
defendant, which paid all the expense of the appeal, the judgment was
affirmed February 11, 1902 (89 N. W. 32), and costs taxed on Febru-
ary 20th at $73.51. On March 17, 1902, the judgment and the costs of
both courts, and the accrued interest upon the judgment and costs, to-
taling $2,892, were paid by the railway company; plaintiff furnishing
the money, and taking an assignment of the claim against the defend-
ant.
Grant, J. '' The main question arises upon the construction of the
contract of indemnity. Plaintiff contends that the legal liability be-
came adjusted and settled upon the rendition of the judgment in the
7 The statement of facts is abridged and part of the opinion is omitted.
employer's liability insurance 481
circuit court. Defendant insists that the Hability was not adjusted
and settled until the judgment was paid, or, if that be not so. until
the final determination in the Supreme Court. The contention of the
defendant upon the trial was that its liability was limited to $2,500,
and that, having paid that amount into court, its liability ended. This
result would follow if its construction of the contract be sound.
We think that, under the terms of this contract, when a final judg-
ment was rendered against the railroad company the liability under
defendant's contract became fixed, and it was obligated to pay the
amount of the indemnity, although the judgment had not been paid.
Under defendant's claim, if the indemnitee were insolvent and never
paid the judgment, the indemnitor would never be compelled to pay.
This result would, of course, follow if the contract of indemnity re-
quired the indemnitee to be first damnified by payment, as was held
in the case of Weller v. Eames, 15 Minn. 461 (Gil. 376), 2 Am. Rep.
150, upon which the defendant largely relies. That case is distinguish-
able from the present and others like it. Weller, the plaintiflF, was one
of the two defendants who were sued for the same cause of action.
Weller alone obtained an indemnity bond. It might very well be
held that in such case Weller might never be compelled to pay, as
plaintifif might enforce his judgment against the other defendant.
However that may be, the weight of authority seems to be that con-
tracts like that in this case are held to constitute an indemnity against
liability for damages, and not merely indemnity against damages. In
the former case payment is not essential, while in the latter it is.
The authorities make a distinction between these two classes of
indemnity. This distinction is very clearly stated in Gilbert v. Wiman.
1 N. Y. 550, 49 Am. Dec. 359, wherein the court say : "By the former
[a contract to indemnify against liability] he [the indemnitee] is to
be saved from the thing specified; by the latter [a contract to indem-
nify against loss or damage], from its consequences. * * * It is
the distinction between an aflfirmative covenant for a specific thing,
and one of indemnity against damage by reason of the nonperform-
ance of the thing specified. The object of both may be to save the
covenantee from damages, but their legal consequences to the parties
are essentially different." See, also, 16 Am. & Eng. Enc Law (2d
Ed.) 178. ^
The following authorities hold that, under contracts of like charac-
ter with the one in this case, a payment of the judgment is not es-
sential to recovery. Pickett v. Casualty Co., 60 S. C. 477, 38 S. E.
160, 629 ; Fenton v. Casualty Co., 36 Or. 283, 56 Pac. 1096, 48 L.
R. A. 770; Anoka, etc., v. Casualty Co., 63 Minn. 286, 65 N. W. 353,
30 L. R. A. 689; Hoven v. Association, etc., 93 Wis. 201 67 N w'
46, 22 L. R. A. 388; McBeth v. Mclntyre, 57 Cal. 49.
Which judgment fixed the time of liability— the judgment in the
circuit court, or the one in the Supreme Court ? By the terms of the
contract, the defendant's liability was limited to $2,500. It had the
CooLEY Ins. — 31
482 GUARANTY, CREDIT, AND LIABILITY INSURANCE
right to compromise and settle with the injured party, or, if it con-
cluded that the railroad company was not liable for negligence, it had
the right to contest the suit. It was also contemplated by the con-
tract that defendant might appeal the case to the Supreme Court.
This right of appeal in the defendant was absolute. If the railroad
company had settled the case, after such appeal had been taken with-
out the defendant's consent, or against its protest, the defendant would
have been discharged from liability. American Surety Co. v. Ballman
<C. C.) 104 Fed. 634; Security Trust Co. v. Robb (C. C.) 116 Fed.
201. This right, therefore, was given by the contract, and the loss or
damage was not adjusted and settled until the determination of the
case in this court. By that adjudication the defendant's liability was
adjusted and settled. Interest, therefore, can be charged only from
February 11, 1902. * * * Modified.
IV. Rights of Injured Person in Insurance Fund '
BAIN V. ATKINS.
(Supreme Judicial Court of Massachusetts, 1902. 181 Mass. 240, 63 N. E.
414, 57 L. R. A. 791, 92 Am. St. Rep. 411.)
Suit by Bain against Atkins and another. Reserved case.
Barker, J. It is now settled by the findings and the agreed facts
that when the plaintiff began this attempt to reach, in liquidation of
his claim against Atkins, a supposed obligation to Atkins on the part
of the Union Casualty & Surety Company, that obligation was no
longer in existence. The bill was filed on January 19, 1898. Nine
days before that date the supposed obligation, disputed by the com-
pany, had been ended by an actual payment of money then made by
the company to Atkins on a settlement made in good faith on the part
of both, and without notice to either of any claim on the part of the
plaintifif in the obligation, or founded upon it. The settlement was
not made for the purpose of enabling Atkins to avoid his liability to
the plaintiff, nor of enabling the company to avoid any liability to the
plaintiff. When it was made the company had no knowledge of At-
kins' financial condition.
The settlement is found to have been made as in the ordinary course
between two parties, one of whom denied all liability, and wanted to
settle for as little as it could without injuring its reputation for fair
dealing with those who insured with it, and the other of whom wanted
8 For discussion of principles, see Vance on Insurance, § 254. See, also,
Cooley, Briefs on the Law of Insurance, vol. 4, p. 3335.
EIGHTS OF INJURED PERSON IN INSURANCE FUND 483
to get all he could, up to the full amount of his claim. Atkins put
into his business the $3,000 which he received in the settlement, and,
had it not been for the judgment of $7,000 afterwards recovered
against him by the plaintiff in the action of tort for personal inju-
ries then pending, Atkins could have gone on with his business. He
went into bankruptcy in consequence of that judgment, and has paid
nothing upon the judgment, and the plaintiff has been unable to
collect the judgment, in whole or in part.
We do not consider whether, if, when the bill was brought, the
company had been under an existing obligation to indemnify Atkins
against the plaintiff's demand, the latter could have compelled, in eq-
uity, the application of that obligation to the satisfaction of his claim
against Atkins. The fact that when the plaintiff sought the aid of
an equity court there was no such obligation is conclusive against
the contention that there was an equity springing from such an ob-
ligation.
Therefore the plaintiff is compelled to contend that the obligation
of the company upon the happening of the accident constituted a fund
for the benefit of the plaintiff, impressed with a trust for him ; that
such a trust fund could be paid to Atkins, if at all, only to reimburse
him after he had satisfied his own liability to the plaintiff; and that
the company's settlement with x^tkins without the consent of the
plaintiff was in the company's own wrong, and void as to the plain-
tiff.
The essence of this contention, without which no part of it can
stand, is that the insurance constituted a trust fund for the benefit
of the plaintiff, and for this there is no ground.
The only parties to the contract of insurance were Atkins and the
company. The consideration for the company's promise came from
Atkins alone, and the promise was only to him and his legal repre-
sentatives. Not only was the plaintiff not a party to either the con-
sideration or the contract, but the terms of the contract do not pur-
port to promise an indemnity for the benefit of any person other than
Atkins. The policy only purports to insure Atkins and his legal rep-
resentatives against legal liability for damages respecting injuries
from accidents to any person or persons at certain places, and within
the time and under the circumstances defined. It contains no agree-
ment that the insurance shall inure to the benefit of the person ac-
cidentally injured, and no language from which such an understanding
or intention can be implied. Atkins was under no obligation to pro-
cure insurance for the benefit of the plaintiff, nor did any relation ex-
ist between the plaintiff and Atkins wdiich could give the latter the
right to procure insurance for the benefit of the plaintiff. The only
correct statement of the situation is simply that the insurance was
a matter wholly between the company and Atkins, in which the plain-
tiff had no legal or equitable interest, any more than in other prop-
erty belonging absolutely to Atkins.
484 GUARANTY, CREDIT, AND LIABILITY INSURANCE
Most of the cases cited in support of the plaintiff's contention are
entirely wide of the mark. In all of them the obligation which the
plaintiff sought to apply to the extinguishment of his demand existed
when he brought his suit. In Anoka Lumber Co. v. Fidelity & Cas-
ualty Co., 63 Minn. 286, 65 N. W. 353, 30 L. R. A. 689, Hoven
V. Assurance Corp., 93 Wis. 201, 67 N. W. 46, 32 L. R. A. 388,
and Fritchie v. Extract Co., 197 Pa. 401, 47 Atl. 351, the liability of
the insurer was sought to be reached by process of garnishment. In
Insurance Co. v. Fordyce, 62 Ark. 562, 36 S. W. 1051, 54 Am. St.
Rep. 305, and Casualty Co. v. Fordyce, 64 Ark. 174, 41 S. W. 420,
the question was whether the insured must first pay the judgment in
favor of the employe, before an action could be brought upon the
policy. In Fenton v. Casualty Co., 36 Or. 283, 56 Pac. 1096, 48 L.
R. A. 770, the action against the insurer by a surgeon who had at-
tended an injured employe was allowed because of an assignment to
the plaintiff of the cause of action. In Embler v. Insurance Co., 158
N. Y. 431, 53 N. E. 212, 44 L. R. A. 512, the decision was that a suit
could not be maintained by an assignee of the administratrix of an
employe who had been killed by an explosion, against the insurer,
upon a policy issued to the employer. The decision was put by the
majority of the court upon the ground that there was no such rela-
tion between the employe and his employer, and no such privity on
the part of the employe to the contract of insurance, as gave him or
his representatives a right of action upon the policy of insurance. It
is to he noted that this policy was written before the enactment of
the New York statute of 1892 (chapter 690, § 55), which authorizes
an employer to take out insurance for the benefit of his employes.
The case of Beacon Lamp Co. v. Travelers' Ins. Co. (Nov., 1900) 61
N. J. Eq. 59, 47 Atl. 579, was overruled by the court of last resort,
which held that the obligation of the insurer was with the employer
only, and left the person who had the claim for damages on account
of the accident to rely only on obligations from the insurer to the
employer existing when the bill was brought. Insurance Co. v. Moses,
63 N. J. Eq. 260, 49 Atl. 720, 92 Am. St. Rep. 663 ; Hunt v. Associa-
tion, 68 N. H. 305, 38 Atl. 145, 38 L. R. A. 415, 73 Am. St. Rep.
602, grew out of the reinsurance by a solvent company of a part
of a fire risk reinsured in part by a company which became insolvent
after the loss by fire; and the right of the original insurer to the
fund was a right in equity to avail itself of a then subsisting pro-
vision made by his insolvent debtor, the first reinsurer, for the pay-
ment of the claim of the original insurer. Neither that case nor
those of the class of Locke v. Homer, 131 Mass. 93,41 Am. Rep. 199,
or Keller v. Ashford, 133 U. S. 610, 10 Sup. Ct. 494, 33 L. Ed. 667,
' are put upon the ground of a trust.
If the usual result of insurance against liability for damages re-
specting accidental injuries to others was to give money to the in-
sured, when he was not obliged to compensate the person injured.
RIGHTS OF INJURED PERSON IN INSURANCE FUND 485
it would be for the legislature to say whether such insurance should
not be allowed as contrary to public policy. The insurance written
by the policy held by Atkins was in fact permitted by our statutes,
and for his own benefit, and not for that of the persons whose in-
juries might give them a claim against him. The fact that, owing
to his bankruptcy, the plaintiff's claim cannot be satisfied, although
he has in fact received the insurance money, or a part of it, cannot
make that a trust fund which neither the statute which allowed the
contract, nor the contract which created the fund, impressed with
a trust. Atkins had as full a right to settle with the company, and
to use in his business the proceeds of the settlement, as to deal at
his will with any other part of his property; and the company had
a right to settle with him as it did.
Bill dismissed, with costs.
WEST PUBLISHING CO., PRINTERS, ST. PAUL, MINN.
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