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UNIVERSITY
OF CALIFORNIA
LOS ANGELES
SCHOOL OF LAW
LIBRARY
A SELECTION OF CASES
ON THE
LAW OF INSURANCE
EDWIN H. WOODRUFF
''\
PROFESSOR OF LAW IN THE COLLEGE OF LAW
CORNELL UNIVERSITY
NEW YORK
BAKER, VOORHTS & COMPANY
1914
COPYRIGHT, 1900
By Edwin H. Woodruff
I
^
TABLE OF CONTENTS.
PART I.
"Nature of the Contract.
I. Fire insurance i
II. Marine INSURANCE 5
III. Life INSURANCE 7
IV. Mutual benefit insurance 13
V. Accident insurance 15
VI. Fidelity AND GUARANTY insurance 16
PART II.
Formation of the Contract.
L Parties 22
a. Infants 22
b. Corporations 31
II Insurable interest 38
a. In property , 38
b. In life 50
1. In one's own life ,. 50
2. In the life of another 53
Relationship 53
Debtor and creditor 60
c. Reinsurance 71
III. Form of the contract 76
a. Oral or written 76
b. The standard policy 8r
IV. Consideration 92
V. Consummation of the contract 93
VI. Reality of consent 104
a. Concealment.. 104
b. Representations and warranties 108
I. In general 108
[iii]
IV TABLE OF CONTENTS.
2. Promissory representations ii8
3. Statutory enactments 1 20
4. Effect of misrepresentation 123
5. Burden of proof 124
c. Mistake 126
VII. Illegality 12O
PART III.
Construction of the Contract.
I. In general , 131
PART IV.
Terms of the Contract.
I. In general 135
a. Warranties.. 135
b. Premiums 135
II. Terms OF THE FIRE insurance CONTRACT I42
a. Respecting matters before loss 142
1. Increase of hazard 142
2. Other insurance 146
3. Over-valuation 150
4. Ownership 152
5. Alienation 155
6. Incumbrances 158
7. Prohibited articles 162
8. Occupancy 165
9. Location of property 1 70
10. Operation of manufactory 172
11. Alterations 173
12. Structure on ground not owned by insured ... 176
13. Foreclosure proceedings 176
b. Loss by fire: proximate cause 178
I. In general 178
Negligence 181
Explosion 182
Falling building 184
Lighting 184
Removal for safety 184
e. Respecting matters after loss 185
1. Proofs of loss 185
2. Magistrate's certificate 188
TABLE OF CONTENTS. V
3. Examination of insured 190
4. Safe clause 192
5. Arbitration 194
6. Pro-rating and contribution 198
7. Option to rebuild 203
8 Divisibility of loss 205
9. Valued policies 207
10. Limitation of time to sue 211
III. Terms of the marine insurance contract 217
1. Attachment of the risk 217
2. Termination of the risk 219
3. Deviation 220
4. Seaworthiness 221
5. Perils insured against 228
6. General average 232
7. Total loss and abandonment 236
8. Particular average and the memorandum clause 241
9. Sue and labor clause 245
IV. Terms of the life insurance contract 248
1 . Age 248
2. Health 249
Medical attendant 254
Heredity 255
Intoxicants 256
3. Occupation 256
4. Other insurance 256
5. Military or naval service 256
6. Residence and travel 256
7. Suicide 258
8. Poison 263
9. Violation of law 263
10. Incontestability 264
11. Non-forfeiture 268
V. Terms OF THE accident insurance contract 270
1. What is an accident 270
2. External injury 277
3. Proximate cause 282
4. Voluntary exposure 284
5. Poison 287
6. Inhaling gas 290
7. Over-exertion 294
8. Intoxicants 295
9. Occupation 299
VI TABLE OF CONTEXTS.
10. Violation of law 301
1 1. Total disability 310
12. When liability fixed 314
13. Burden of proof 315
VI. Terms of the mutual benefit insurance contract.... 318
1. In general 318
2. Where the terms are to be found . . 318
3. Change of terms 321
VII. Terms of fidelity and guaranty insurance contract. 323
1. In general 323
2. Fidelity insurance 32^
3. Title guaranty insurance 329
PART V.
Limits of the Contractual Obligation.
I. Beneficiaries :336
a. Fire insurance 336
1. In general 336
2. Vendor and vendee 344
3. Mortgagor and mortgagee 349
l>. Life insurance 359
1. Who may be a beneficiary 359
2. Nature of the beneficiary's interest 362
c. Mutual benefit insurance 381
II. Assignment 389
c7. Fire insurance 389
l>. Marine insurance 401
c. Life insurance 402
PART VI.
Breach of Contract by the Insurer.
I. Remedies 410
II. Measure of damages 414
PART VII.
Waiver and Estoppel.
I. In general 4^7
II. Before the policy is issued 423
TABLE OF CONTENTS. Vll
III. After the policy is issued, but before forfeiture 443
IV. After forfeiture o 444
V. What constitutes WAIVER 459
PART VIII.
Insurance Agents.
I. Scope of authority , 468
1 . Local agents 468
2. Broker 500
3. Adjuster 501
4. Sub-agents 503
5. Oral waiver 512
II. Agent OF insured OR insurer? 517
III. Duty to principal 532
PART IX.
Subrogation.
I. Fire insurance 536
1. In general. » 536
2. Tort 550
3. Carriers » ..,. 553
4. Lessor and lessee 560
5. Mortgagor and mortgagee — lienholder 566
6. Procedure 581
II. Life and accident insurance 585
TABLE OF CASES.
*^f* Where « is prefixed to the page number, the case is, at that page^
digested or referred to in a note.
PAGE.
Accident Ins. Co. v. Crandal n. 278
-/Etna Life Ins. Co. v. Davey «. 297
./Etna Life Ins. Co. v. France 50, 248
.^tna Live Stock Ins. Co. v, Olm-
stead n. 521
Aitchison v. Lohre 245
Alexander v. Ins. Co. 443
Allen V. Ins. Co. n. 526
Amer. Cent. Ins. Co. v. Roth-
child
Amer. Fire Ins. Co.
Co.
Amer. Ins. Co. v. Padfield
Amer. Steam-Boiler Ins. Co. v.
Anderson 532
Amicable Soc. v. Bolland n. 307
Amer. Surety Co. v. Pauly n. 328
Anctil V. Ins. Co. «. 59, «. 264
Arff V. Ins. Co. 503
Arkansas F. Ins. Co. v. Wilson n. 157
n. 172
Manuf'g
n. 173
n. 170
Babcock v. Ins. Co.
184
Bacon v. Ace. Assoc.
n.
277
Baley v. Ins. Co.
158
Barney v. Dudley
414
Baron v. Brummer
n.
406
Benham v. Assur. Co.
n.
120
Bernard v. Ins. Co.
n.
526
Berwind v. Ins. Co.
227
Blackburn v. Vigors
n.
107
Blairmore Co. v. Macredie
n.
240
Bloom V. Ins. Co.
307,
n.
306
Bloomington M. B. Assoc.
V.
Bl
ue
n.
361
Boatmen's Ins. Co. v. Parker
183
Bowman v. Ins. Co.
n.
158
Bradbury v. Ins. Assoc.
170
Bradley v. Ins. Co.
n.
309
Bradlie v. Ins. Co.
Briggs V. Ins. Co.
Brown v. Ins. Co.
Bruce v. Ins. Co.
Bumslead v. Ins. Co.
Burgess v. Ins. Co.
Burkhard v. Ins. Co,
Burkheiser v. Assoc.
Burleigh v. Ins. Co.
Burritt v. Ins. Co.
PAGE.
236
183
«. 232
n. 270
185
220
284
«• 315
«• 133
105
Cam mack v. Lewis n. 66, «. 407
Campbell v. Ins. Co. 76
Carpenter v. Ins. Co. (la.) n. 140
Carpenter v. Ins. Co. [N. Y.) n. 188
Castellain v. Preston 536, n. 349
Central Bank v. Hume n. 27g
Central City Ins. Co. v. Oates 459
Chambers v. Ins. Co. 124
Chicago M. L. A. v. Hunt «. 31
Clafiin v. Ins. Co. n. 191
Clark V. Mobile n. 39
Clay Ins. Co. v. Huron Co. n. 154
Clyburn v. Reynolds n. 46
Commonwealth v. Vrooman n. 37
Commonwealth v. Wetherbee 13
Conn, Fire Ins. Co. v. Erie R'y 550
Conn. Fire Ins. Co. v. Ins. Co. «. 203
Conn. Life Ins. Co. v. Akens «. 263
Conn. Life Ins. Co. v. Luchs 60
Conn. Life Ins. Co. v. Schaefer
59. "' 14
Continental L. Ins. Co. v. Rogers n. 118
Cooper V. Ben. Assoc.
Cooper V. Schaeffer
Corson, Appeal of
Cornwell v. Assoc.
Cowles V. Ins. Co.
x]
314
69
^3
n. 287, ft. 306
«. 271
TABLE OF CASES.
PAGE.
Creed v. Sun Fire Office 38
Criichett z'. Ins. Co. 492
Cronin v. Ins. Co. 56
Cushn.an z'. Ins. Co., >i. 151, «. 209, ;/. 212
Dalby -■. Life Assur. Co.
Darrell f. Tibbitts
Darrovv z'. Soc.
Davis z'. Furniture Co.
Davis v. Ins. Co.
De Lancey v. Ins. Co.
Dolan V Assoc.
Dovvd V. Ins. Co.
Dryer v. Ins. Co.
Duran v. Ins. Co.
D wight V. Ins. Co.
Eadie z'. Slimmon
Earley z\ Ins. Co.
Eastman v. Assoc.
Emerick z'. Coakley
Employers' Liability Co.
Equitable Ace. Co. z/. Osborn
Erb V. Ins. Co.
Ermentrout -'. Ins. Co.
Evans v, Ins. Co.
Exchange Bank v. Loh
Fayerweather v. Ins. Co. 557
Fearn z>. Ward n. 93
Ferguson v. Ins. Co. w. 14
Fidelity & Casualty Co. Z'. Bank n. 328
Fidelity & Casualty Co. v. Eickhoff 323
Fidelity & Casually Co. v. John-
son «. 27S
Fillmore v. Knights n. 199
Fire Ins. Co. v. Felrath 354
Fireman's Fund Ins. Co. v. Sholm 184
First Cong, Church v. Ins. Co n. 164
Foster v. Gile
Fox V. Assoc.
Franklin Fire Ins. Co. v. Martin
7. "■ 59
560
-a.-3.P7
n
154
ti.
145
n.
133
71.
249
176
479
n.
306
n.
300
n.
406
n.
289
318
n.
406
Merrill
15
■n ;/.
2S6
126
184.
4S7
256
n. 66, «
• 71
«.
409
Freeman v. Ace. Assoc.
371
IQ7
435
n. 428
282
Gans. V. Ins. Co. n. 522
Georgia Home Ins. Co. v Allen 192
German Ins. Co. v. Eddy n. 197, n. 212
German Am. Ins. Co. v. Humphrey
ti. 162
PAGE.
Gibb V. Ins. Co. n. 157
Gilligin v. Ins. Co. n. 190
Glenn v. Burns 372
Globe Mut. Ben. Assoc, Matter of 28
(JoL'tzman v. Ins. Co. ;/. 306
Goodrich «& Hick's Appeal 71
Gore V. Assur. Co. 510
Gove z'. -Ins. Co. 181
Gracie v. Ins. Co. n. 220
Graitan v. Ins. Co. «. 300
Gray v. Ins. Co. 435
Green v. Ins. Co. «. 160
Gresham v. Ins. Co. «. 306
Griffey v. Ins. Co. «. iSS
Griffin v. Assoc. «. 300
Grosvenor z- Ins. Co. 349
Guardian Ins. Co. v. Hogan 11. 59
Hall V. Ins. Co, 389
Hamilton v. Ins. Co. 194
Hammel v. Ins. Co. «. 157
Hann v. Nat. Union n. 252
Harding v. Tovvnshend n. 588
Harley z>. Heist 362
Harris v. Ins. Co. 190
Harris v. Fire Co. «. 209
Harrison v. Pepper 44
Hart V. Ins. Co. 213
Hartford Ins. Co. z\ Davenport «. 422
Hartman v. Ins. Co. 299
Hastings v. Ins. Co. 350
Hatch V. Ins. Co. n. 130, «. 309
Hathaway v. Ins. Co. n. 257
Haughton v. Ins. Co. 217
Havens :. Ins. Co. «. 212
Hebert v. Ins. Co. 80
Heffron v. Ins. Co. 183
Hellenberg v. Dist. No. I. n. 321,
n. 322
Hermann v. Ins. Co. 165
Hicks V. Assur. Co. (N. Y.) 81
Hicks V. Ins. Co. (la.) 158
Hitchcock V. Ins. Co. «. 401
Hoffman v. Ins. Co. n. 140
Holdom V. A. O. U. W. «. 381
Hnlman v. Ins. Co. n. 271
Home Ins. Co. 'o. Hammang «. 190
Home Ins. Co. v. Myer 126
Home Mut. Ins. Co. v. O. R. & \.
Co. 581
TABLE OF CASES.
XI
Honore v. Ins.. Co.
Huck V. Ins. Co.
565
184
Illinois Mut. F. Ins. Co. v. Andes
Co. n. 76
Illinois Mut. F. Ins. Co. v. Fix 396
Imperial Fire Ins. Co. v. Coos Co. w. 175
Imperial Fire Ins. Co. v. Dunham 152
Insurance Co. v. Bachler n. 197
Insurance Co. v. Bennett «. 27S
Insurance Co. v. Boon w. 181
Insurance Co. v. Brame 585
Insurance Co. v. Butler 207
Insurance Co. v. Crunk 184
Insurance Co. v. Fogarty 241
Insurance Co. v. GriJley 255
Insurance Co. v. Leslie «. 211
Insurance Co. v. Stinson 576
Insurance Co. v. Updegraff n. 348
Insurance Co. v. Wilkinson 423
Insurance Co. v. Wolff 4S2
Jauvrin v. Ins. Co. w. 145
John R. Davis Co. v. Ins. Co. 500, w. 154
Johnson v. Ins. Co. (Mich.) ti. 300
Johnson v. Ins. Co. (Minn.) 22
Kausal v. Ins. Co. 517
Keeffe v. Soc. w. 295
Keene v. Assoc. n. 31S
Kettenbach v. Assoc, 252, «. 118
Kimball v. Ins. Co. 118, n. 123
King V. Ins. Co. n. 574
Klein v. Ins. Co. n. 140
Ktiapp V. Ins. Co. 268
Krumm 7'. Ins. Co. «. 509
Kyte V. Assur. Co. (144 Mass.) 477
Kyte v. Assur. Co. (149 Mass.) 142
Ladd V. Ins. Co.
Lamberton v. Ins. Co.
Lane v. Ins. Co.
Langdon v. Ins. Co.
Lantz V. Ins. Co.
■Laselle v. Ins. Co.
Lebanon Ins. Co. v. Leathers
Lipman v. Ins. Co.
Loomis V. Ins. Co.
Lovelace v. Assoc.
Lov z>. Ins. Co.
M, 173
512
18S
359
447
«. 170
172
100
207
270
155
PAGE.
Lucas V. Ins. Co. 198
Lynn Gas & Elec. Co. v. Ins. Co. 173
McAllister v. Ins. Co. 140
M'Carty v. Blevins «. 381
.McGlinchey v. Fidelity Co. 277
McGlother v. Ins. Co. n. 289
McGoivan v. Ins. Co. 205
McNally --. Ins. Co. n. igo
McQueeny v. Inc. Co. «. 207
Mack V. Ins. Co. 173
Maine Ben. Assoc, v. Parks 249
Mair v. Ins. Co. 11. 299
Manufacturer's Ins. Co. v. Zeit-
inger «. 188
.Markey v. Ins. Co. 98
Marv-in v. Ins. Co. «. 517
Mayo V. Ins. Co. «. 245
Mechanics' Sav. Bank v. Guarantee
Co. n. 21
Merchants' & Miners' Co. v. Ins.
Co. 232
Millaudon v. Ins. Co. 182
Miller v. Aldrich 355
Miller v. Ins Cj. (la.) 113
Miller v. Ins. Co. (Neb.) «. 213
Millville Ins. Co. v. Assoc. 468
Minn. Title Ins. Co. v. Drexel n. 333
Mobile Co. v. Walker «. 258
Moore z'. Ins. Co.(N. H.) n. 170
Moore v. Ins. Co. (N. Y.) n. 518
Moulor V. Ins. Co. 253
Murray v. Ins. Co. 301
Nat. Masonic Assoc, v. Burr n. ic^^
Nelson t. Ins. Co. (la.) 254
Nelson v. Ins. Co. (N. J.) 568
New Hamp. Ins, Co. v. Noyes ti. 28
New York Life Ins. Co. v. Fletcher
527, -". 428
New York Life Ins. Co. v. Statham
135, «. 138, n. 140
Newark Mach. Co. v. Ins. Co. 93
Niagara Ins. Co. 7'. Foxhand «. 191
Niagara Ins. Co. v. Scammon «. 150
Nightingale "c Ins. Co. n. 528
Noel 7'. Ins. Co. «. 126
North Amer. Ins. Co. v. Burroughs
«. 300
Nori'i Brit. Ins. Co. v. Ins. Co. it. 203
TABLE OF CASES.
Northwestern Life Ins. Co. v. Bank
n. 297
Norwich Fire Ins. Co. v. Boomer 357
Noyes v. Inn. Co. n. 172
Oakes v. Ins. Co. 444
O'Farrell v. Ins. Co. n. 526
Olmstead v. Keyes n. 368
Orient Ins. Co. v. Daggs n. 211
Oshkosh Gas Co. v. Ins. Co. 209
Parker v. Ins. Co. n. 519
Patterson v. Ins. Co. 258, n. 307
Paul V. Virginia «. 39
Pellazzino v. Soc. 321
Penn Mut. Fire Ins. Co. v. Schmidt
n. 160
Penn Mut. Life Ins. Co. v. Bank 120
People V. Fire Assoc, of Phila. «. 39
People V. Rose 16
People's Ins. Co. v. Pulver «. 188
People's Street Ry. v. Spencer 341
Phenix Ins. Co. v. Bank 578
Phenix Ins. Co. v. Holcombe «. 157
Phoenix Ins. Co. v. Trans. Co. 553
Phoenix Life Ins. Co. v. Raddin 92, 108
290
n. 133
«• 367. «• 381
n. 63
«. 254
5
n. 207
255
106
375
336
329
Pickett V. Ins. Co.
Piedmont Co. v. Young
Pingrey v. Ins. Co.
Powell V. Dewey
Powers V. Assoc.
Howies V. Innes
Pratt V. Ins. Co.
Price V. Ins. Co.
Proudfoot V. Montefiore
Pullis V. Robison
Quarles v. Clayton
Quigley v. Ins. Co.
Railway Cond. Assoc, v. Robinson
n. 322
Rau V. Ins. Co. n. 125
Raymond v. Ins. Co. «. 199
Rayner v. Preston 344, «. 536
Reed v. Ins. Co. «. 196
Reischer v. Berwick 231
Renier v. Ins. Co. «. 517
Riddlesbarger v. Ins. Co. 211
Riggs r. Ins. Co. 41
Ritter v. Ins. Co. «. 259
FACE.
Rittler v. Smith 67
Robinson v. Ins. Co. 463
Robinson v. Lodge n. 198
Rockford Ins. Co. v. Nelson n. 125
Rohrbach r. Ins. Co. n. 41
Rustin V. Ins. Co. 294
Ryan v. Rothweiler 368
Salisbury v. Ins. Co. n. 79
Saveland v. Fidelity Co. 310
Scarth v. Soc. n. 263
Schunck v. Fond n. 322
Scottish Union Ins. Qo. v. Dangaix
«• 535
Scripture v. Ins. Co. 182
Sergent v. Ins. Co. «. 518
Shackehoq v. Fire OflBce n. 170
Shader v. Assur. Co. 297
Shephard v. Ins. Co. n. 157
Singleton v. Ins. Co. 53
Skudera v. Ins. Co, 410
Smaldone v. Ins. Co. 501
Smith V. Ins. Co. (la.) n. 160
Smith V. Ins. Co. (N. Y.) 150
Smith V. Soc. n. 263
Sneed v. Ins. Co. n. 194
State V. Ackerman 31
State Ins. Co. v. Schreck 160
Steinbach v. Ins. Co. (N. Y.) «. 164
Steinbach v. Ins. Co. (U. S.) n. 164
Steinback v. Diepenbrock 402
Sternaman v. Ins. Co. n. 526
Stewart v. Ins. Go. 255
Sione V. Casualty Co. 300, «. 287
Supreme Commandery v. Ainsworth
n. 323
Supreme Conclave v. Cappella 381
Supreme Lodge v. Taylor 255
Suffolk Fire Ins. Co. v. Boyden 573
Sweeting v. Ins. Co. n. 150
Thames & Mersey Ins. Co. v. Co. 228
Thayer v. Ins. Co. n. 314
Thebaud v. Ins. Co. 221
Thibert v. Lodge «. 323
Thompson v. Ins. Co. n. 140
Titus V. Ins. Co. 176, «. 445
Townsend v. Ins. Co. «. 175
Trade Ins. Co. v. Barracliff 46
Travelers' Ins. Co. v. Dunlap 287
Travelers' Ins. Co. v. Ins. Co. n. 217
TABLE OF CASES.
XUl
Travelers' Ins. Co. v. McConkey 315
Travelers' Ins. Co. v. Melick n. 284
Travelers' Ins. Co. v. Murray 11. 285
Triniiy College v. Ins. Co. n. 361
Tucker v. Ins. Co. «. 287
Turley v. Ins. Co. «. 190
Turner v. Ins. Co. 146
Tuttle V. Ins. Co. n. 287
Underwood v. Ins. Co. «. 104
Union Mut. Co. v. Frohard «. 300
Union Mut. Co. v. Reif 295
United Firemen's Ins. Co. v. Thomes
«• 531
United Ins. Co. v. Foote 183
Van Schoick v. Ins. Co. 42S
Van Werden v. Assur. Co. 411
Van Zandt v. Ins. Co. n. 263
Vergeront v. Ins. Co. n. 151, n. 212
Viele V. Ins. Co. 417. 472
Wakefield v. Martin 401
Walden v. Ins. Co. 104
Wallace v. Ins. Co. (La.) n. 204
Wallace v. Ins. Co. (U. S.) w. 241
Waller v. Assur. Co. 123
Walradt v. Ins. Co. n. 157
Waring z. Ins. Co. «. 49
Washington Ins. Co. v. Ins. Co. n. 145
Welch V. Ins. Co. 267
Welts V. Ins. Co. 301
West of Eng Fire Ins. Co. -'. Isaacs,
562
Western & Atl. Pipe Lines v. Ins.
Co. 131
Western Assur. Co. v. McGlathery
n. 193
Western Com. Trav. Assoc, v.
Smith n. I'li
Wheeler v. Ins. Co. (N. H.) 162
Wheeler v. Ins. Co. (N. Y.) 136
White V. Ins. Co. 184
White V. Soc. n. 122
Whiied V Ins. Co. 524
Whiting V. Ins. Co. n. 140
Whitmore v. Sup. Lodge n. 52
Whitwell V. Harrison 219
Wiebeler v. Ins. Co. 79
Wilkins v. Ins. Co. 515
Wilson V. Hill i
Worley v. Assoc. «. 322
Worthington v. Ins. Co. «. 93, n. 135
Wright V. Assoc. 264, n. 59
Wynkoop v. Ins. Co. 203
Young V. Ins. Co.
312
A SELECTION OF CASES
LAW OF INSURANCE
A SELECTION OF CASES
THE LAW OF INSURANCE.
PART I.
Nature of the Contract.
I. Fire Insurance.
WILSON V. HILL.
3 Met. (Mass.) 66. — 1841.
Assumpsit for money had and received. The case was submitted
to the decision of the court on the following facts agreed by the
parties:
On the 3d of January, 1838, Benson, Phelps & Capron, of Mendon,
were the owners of a factory building and real estate there situate,
and of certain machinery in said building. The machinery was
mortgaged by them to Hill & Chapin, commission merchants in
Providence, R. I., to secure to them the general balance due them.
Said real estate was subject to two mortgages which are hereinafter
mentioned. On said 3d of Januarv, Benson, Phelps & Capron, by
their agents, the said Hill & Chapin, caused insurance against loss
by fire to be effected by the Manufacturer's Mutual Fire Insurance
Company of Rhode Island, for the term of one year then next ensu-
ing, on said factory building and machinery, to the amount of
$2,700; to wit, $800 on the factory building, $1,800 on the machin-
ery, tools, etc.; and $100 on a work-shop and machinery therein.
By the terms of the policy, (a copy of which is made part of this
case,) the money, in case of loss, was to be paid to Hill & Chapin,
On the 19th of April, 1838, Benson & Phelps, in consideration of
$2,800, conveyed all their interest in said factory building and real
LAW OF INSURANCE — I [l]
2 NATURE OF THE CONTRACT.
estate to William Capron, their cotenant; and on the loth of May
following, Capron, in consideration of $3,000, conveyed all his
interest in the same to the plaintiff; whereby the plaintiff became
sole owner thereof, subject to the said mortgages thereon.
The said factory building and machinery were destroyed by fire
in July, 1838, and on the 3d day of October following the insurers
paid over to said Hill & Chapin the said sum of $2,700, insured a?
aforesaid upon said property.
The said Benson, Phelps & Capron afterwards because insolvent^
and upon their application to the judge of probate for the county
of Worcester, their estate and effects were taken possession of by a
messenger on the ist day of September, 1838. A meeting of their
creditors was duly called by said judge of probate, under the insol-
vent act, (St. 1838, c. 163,) and the defendant was at that meeting
duly chosen as their assignee. He afterwards, as such assignee,
demanded of Hill & Chapin the money so paid to them by said
insurers. Hill & Chapin claimed to retain of it. and did retain of
it. in their hands, for what was due to them on their said mortgage,
the sum of $2,051.41. The defendant commenced an action against
them for the balance of said money, at the June term, 1839, of the
Court of Common Pleas held at Worcester, and at the following
September term of said court, they were defaulted, and judgment
was rendered against them for $626.21, and $11.19 costs, which
they paid to the defendant on the 24th of October, 1839, and the
defendant gave them a receipt therefor, and a written promise to
return the money to them, if Wilson (the present plaintiff) should
recover the same amount in a suit which he had commenced, or was
about to commence, against them, or against Benson, Phelps &
Capron.
Said property was subject, as before mentioned — First. To a
mortgage of one undivided third part of said factory building, made
by said William Capron to Arnold & Chadsey, to secure the pay-
ment of $5,000. This mortgage was assigned to the plaintiff on
the i2th of May, 1838. Second. To a mortgage made on the 24th
of May, 1837, by Benson & Phelps to William Whitney, of two-thirds
of said factory, etc., to secure the payment of $1,721, and assigned
to the plaintiff on the 17th of October, 1840.
Shaw, C. J. — There are so many decisive objections to the plain-
tiff's right to recover that it appears difificult to select the most
prominent. E^^en if the plaintiff had any interest in the 'loss under
this policy, and any right to claim the amount of the insurance
company, or of their assignees. Hill & Chapin, he would have no
FIRE INSURANCE. 3
right to follow the money into the hands of the defendant. Dan
Hill, the defendant, had been duly and legally appointed the
assignee of Benson, Phelps (t Capron, the original assured, and in
this capacity, and in behalf of the creditors, he demanded the
balance of the money in the hands of Hill & Chapin, as a sum due
to the insolvent debtors, whom he legally represented; brought an
action for that balance, and recovered it, under a judgment. He
cannot be considered as having received it to the use of the plain-
tiff; there was no privity, in fact or in law, between these parties.
If Hill & Chapin were liable to the plaintiff, for the same money,
they paid it to the defendant in their own wrong, and such payment
would have been no defense against the action of the plaintiff, if he
were legally entitled to it.
But it appears to us, that the claim of the plaintiff to recover in
this action is founded upon an entire misapprehension of the nature
and legal effect of a contract of insurance. An insurance of build-
ings against loss by fire, although in popular language it may be
called an insurance of the estate, is in effect a contract of indem-
nity, with an owner, or other person having an interest in the preser-
vation of the buildings, as mortgagee, tenant, or otherwise, to
indemnify him, against any loss, which he may sustain, in case they
are destroyed or damaged by fire. If, therefore, the assured has
wholly parted with his interest, before they are burnt, and they are
afterwards burnt, the underwriter incurs no obligation to pay any-
body. The contract was to indemnify the assured; if he has sus-
tained no damage, the contract is not broken. If, indeed, on a
transfer of the estate, the vendor assigns his policy to the pur-
chaser, and this is made known to the insurer, and is assented to
by him, it constitutes a new and original promise to the assignee,
to indemnify him in like manner, whilst he retains an interest in
the estate; and the exemption of the insurer from further liability
to the vendor, and the premium already paid for insurance for a term
not yet expired, are a good consideration for such promise, and
constitute a new and valid contract between the insurer and the
assignee. But such undertaking will be binding, not because the
policy is in any way incident to the estate, or runs with the land,
but in consequence of the new contract. Even the assignment of a
chose in action, with the consent of thedebtor, and a promise on
his part to pay the assignee, constitute a new contract, on which
the assignee may sue in his own name. Mowry v. Todd, 12 Mass. 281.
For the general principles herein stated we would refer to the
authorities cited by Mr. Chapin. Lynch v. Dahell, 3 Bro. P. C.
(ist ed.) 497; The Sadler's Company v. Badcock, 2 Atk. 554; Marshall
4 NATURE OF THE CONTRACT.
on Ins. (3d ed.) 800-807; Carroll v. Boston Marine Ins. Co.., 8 Mass.
515; .-Etna Fire Ins. Co. v. Tyler., 16 Wend. 397.
These considerations, however, do not apply to a case where the
assured, after a loss, assigns his right to recover that loss; it would
stand on the same footing as the assignment of a debt or right to
recover a sum of money actually due, which, like the assignment of
any other chose in action, would give the assignee an equitable
interest and a right to recover in the name of the assignor, subject
to set-off and all other equities. * * *
No assignment was ever made by Benson, Phelps & Capron to
the plaintiff; and he can only claim, therefore, as assignee in law,
in consequence of having been a purchaser of the estate; which has
already been considered.
But then it is contended, that at the time when the company paid
the amount of the loss to Hill & Chapin, for the original parties
insured, in consequence of their transfer of the estate, before the
loss, they could not legally recover, and therefore the money was
voluntarily paid by the company, and must be deemed to have been
paid, subject to the prior lien of Hill & Chapin, the agents, equitably
for the use of the plaintiff, who has become the purchaser of the
estate. I do not think we have the facts stated with sufficient full-
ness and accuracy to enable us to judge whether the assured had
parted with all their interest, at the time of the loss. It is stated
that the plaintiff had purchased the estate, subject to the mortgages..
If the assured remamed still liable to the payment of the debts for
which those mortgages were given as collateral security, then they
still had an interest in the estate; because a fire would impair or
destroy the value of the property appropriated to the payment of
their debt; and they therefore had an interest in its preservation,
covered by the policy. One of the mortgages on the property was
not assigned to the plaintiff till after the loss. Nor does it appear
that the assured had been exempted from the payment of any of
the mortgage debts. We cannot therefore say with confidence that
at the time of the payment by the company, they were not legally
liable for such payment. At all events, they yielded to a claim of
right, and paid to Hill & Chapin, pursuant to the provisions of the
terms of the policy, to enure to them to the extent of their lien;
and as to the balance, to the use of their principals. There are no
facts on which to raise an implication that they voluntarily paid,
upon considerations of policy, or intended to pay anything to the
use of the owner of the estate, or that they had any regard, in such
payment, to any supposed equitable claim to the present plaintiff.
Plaintiff nonsuit.
MARINE INSURANCE.
RAYNER V. PRESTON.
i8 Ch. D. I. — i88i.
[^Reported herein at /.344.]
PEOPLE'S STREET RY. v. SPENCER.
156 Pa.. 85. — 1S93.
[Jieported herein at />.34I.J
QUARLES V. CLAYTON.
87 Tenn., 308. — 1889.
\^Reported herein at /.336.]
II. Marine Insurance.
POWLES AND OTHERS v. INNES.
II Meeson & Welsby, 10. — 1843.
This was an action of assumpsit on a policy of insurance on ship.
The declaration stated that the policy was made by the plain-
tiffs as agents for Robert Page and Robert Chamberlain; that
Page and Chamberlain, and one Sarah Banks, were, during the risk
and until and at the time t)f the loss, interested in the ship to the
amount of the money insured; and that the ship was totally lost.
The defendant pleaded, first, payment of 75/.; secondly, as to the
residue, non-assumpsit; thirdly, except as to 75/., that although
Chamberlain was interested in the ship during the risk to the
amount of 400/., in respect of which the plaintiffs were entitled to
recover the said sum of 75/., yet that, save as aforesaid, Chamber-
lain and Page were not interested in the ship duing the risk, and
that the policy was not made by the plaintiffs as agents for Sarah
Banks or for her benefit, nor did she give any order for effecting
the same; and fourthly, except as to 75/., that although Chamberlain
was interested during the risk to the amount of 400/., etc., yet,
save as aforesaid, Chamberlain, Page, and Banks were not inter-
ested in the ship during the risk, modo et forma. On these pleas
issues were joined.
6 NATURE OF THE CONTRACT.
On the 22d of January, 1S38, tlie plaintiffs, who are insurance
agents, by directions from, and on account and for the benefit of
Robert Page and R(jbert Chamberlain, in respect of their two-iliirds
of the vessel, effected a poHcy of insurance on the ship Commerce.
The premiums were charged to and paid by Page an J Chamberlain.
The policy was subscribed by the defendant for 150/. At the time
of the insurance and at the time of the loss the vessel was of the
value of 1,200/ At the time of effecting the insurance Chamberlain,
Page, and Sarah Banks were each interested in one-third of the
vessel. The vessel was lost in January, 1839, within the time men-
tioned in the policy. Before the loss Page, by bill of sale, conveyed
his share to Sarah Banks. From the time of the said bill of sale
down to the time of the loss, Chamberlain and Sarah Banks were
owners of the Commerce, the former of one-third and the latter of
two-thirds of that ship.
Lord Abinger, C. B. — I am clearly of opinion that the defend-
ant is entitled to our judgment. The last authority that has
been cited is a mere note of a Nisi Prius case, the correctness of
which I greatly doubt. The contract of insurance was originally
only a contract of wager, that the vessel should arrive at her desti-
nation; since the legislature has adopted it, it is a contract of
indemnity only, and noboJy can recover in respect to the loss who
is not really interested. The policy is but a chose in action, and
cannot pass merely by the assignment of the ship.
Parke, B. — I am of the same opinion. The plaintiff can only
recover an indemnity. Then what has this party lost, if he has sold
his interest in the ship, irrespective of the policy? Bank's interest
is not protected, because she gave no authority to effect the insur-
ance. Unless, therefore, there was some understanding that the
policy should be kept alive for her benefit, the plaintiffs, suing on
behalf of Page, have lost nothing. If the policy had been handed
over with the bill of sale, or there had been an order to the brokers
to hand it over, the case would be different; then the parties might
sue as trustees for the purchaser; but we cannot infer that, no
facts being stated in the case to warrant such an inference.
GuRNEY, B., concurred.
Judgment for the defendant.
MERCHANTS AND MINERS' TRANS. CO. v. ASSOC. FIRE-
MEN'S INS. CO.
53 Mu. 448. — 1880.
[Reported herein at p. 232.]
LIFE INSURANCE. 7
III. Life Insurance.
DALBY V. INDIA & LONDON LIFE ASSURANCE CO.
15 C. B., 365. — 1854.
Parke, B. — This case comes before us on a bill of exceptions to
the ruling of my Brother Creswell at Nisi Prius. We learn that,
on the trial, he reserved the important point which arose in it for
the consideration of the Court of Common Pleas; and that when it
came on for discussion, it was thought right to put it on the record
in the shape of a bill of exceptions, that it may be carried, if it
should be thought proper, to the highest tribunal; and we have
now, after a very able argument on both sides, to dispose of it in
this Court of Error.
It is an action on what is usually termed a policy of life assurance,
brought by the plaintiff as a trustee for the Anchor Life Assurance
Company, on a policy for ^1,000 on the life of his late Royal High-
ness, the Duke of Cambridge.
The Anchor Life Assurance Company had insured the Duke's life
in four separate policies — two for ^1,000, and two for ^^500 each,
granted by that company to one Wright. In consequence of a reso-
lution of their directors, they determined to limit their insurances
to ;:r2,ooo on one life; and, this insurance exceeding it, they effected
a policy with the defendants for ^1,000 by way of counter-insurance.
At the time this policy was subscribed by the defendants, the
Anchor Company had unquestionably an insurable interest to
the full amount. Afterwards an arrangement was made between the
office and Wright for the former to grant an annuity to Wright and
his wife in consideration of a sum of money, and of the delivery up
of the four policies to be canceled, which was done; but one of the
directors kept the present policy on foot, by the payment of the
premiums till the Duke's death.
It may be conceded, for the purpose of the present argument,
that these transactions between Wright and the office totally put an
end to that interest which the Anchor Company had when the policy
was effected, and in respect of which it was effected; and that, at
the time of the Duke's death, and up to the commencement of the
suit, the plaintiff had no interest whatever.
This raises the very important question, whether, under these
circumstances, the assurance was void and nothing could be recov-
ered thereon.
If the Court had thought some interest at the time of the Duke's
death was necessary to make the policy valid, the facts attend-
8 NATURE OF THE CONTRACT.
ing the keeping up of the policy would have undergone further
discussion.
There is the usual averment in the declaration that at the time of
the making of the policy, and thence until the death of the Duke,
the Anchor Assurance Company was interested in the life of the
Duke, and a plea that they were not interested tnodo et formd —
which traverse makes it unnecessary to prove more than the interest
at the time of making the policy, if that interest was sufificient to
make it valid in point of law. Lush v. Russell, 5 Exch. 203. We are
all of opinion that it u<as sufificient; and but for the case of Godsall
V. Boldero, 9 East, 72, should have felt no doubt upon the question.
The contract commonly called life assurance, when properly
considered, is a mere contract to pay a certain sum of money on
the death of a person, in consideration of the due payment of a
certain annuity for his life — the amount of the annuity being calcu-
lated, in the first instance, according to the probable duration of
the life; and, when once fixed, it is constant and invariable. The
stipulated amount of annuity is to be uniformly paid on one side,
and the sum to be paid in the event of death is always (ekcept when
bonuses have been given by prosperous offices) the same, on the
other. This species of insurance in no way resembles a contract of
indemnity.
Policies of assurance against fire and against marine risks, are
both properly contracts of indemnity — the insurer engaging to
make good, within certain limited amounts, the losses sustained by
the assured in their buildings, ships, and effects. Policies on mari-
time risks were afterwards used improperly, and made mere wagers
on the happening of those perils. This practice was limited by the
19 G. 2, c. 37, and put an end to in all except a few cases. But, at
common law, before this statute with respect to maritime risks, and
the 14 G. 3, c. 48, as to insurances on lives, it is perfectly clear that
all contracts for wager-policies, and wagers which were not contrary
to the policy of the law, were legal contracts; and so it is stated by
the Court in Cousins v. Nantes, 3 Taunt. 513, to have been solemnly
determined in the case of Lucena v. Crawfurd, 2 Bos. & P. 324, 2 N.
R. 269, without even a difference of opinion among all the judges.
To the like effect was the decision of the Court of Error in Ireland,
before all the judges except three, in The British Insurance Company
V. Magee, Cooke & Alcock, 182, that the insurance was legal at
common law.
The contract, therefore, in this case, to pay a fixed sum of ^1,000
on the death of the late Duke of- Cambridge, would have been
unquestionably legal at common law, if the plaintiff had had an
LIFE INSURANCE. 9
interest thereon or not; and the sole question is, whether this
policy was rendered illegal and void by the provisions of the statute
14 G. 3, c. 48. This depends upon its true construction.
The statute recites, that the making insurances on lives and other
events wherein the assured shall have no interest, hath introduced
a mischievous kind of gaming; and, for the remedy thereof, it
enacts, " that no insurance shall be made by any one on the life or
lives of any person or persons, or on any other events whatsoever,
wherein the person or persons for whose use and benefit, or on
whose account such policy shall be made, shall have no interest, or
by way of gaming or wagering; and that every assurance made con-
trary to the true intent and meaning hereof shall be null and void
to all intents and purposes whatsoever."
As the Anchor Assurance Company had unquestionably an inter-
est in the continuance of the life of the Duke of Cambridge — and
that to the amount of ^1,000, because they had bound themselves
to pay a sum of ^1,000 to Mr. Wright on that event — the policy
effected by them with the defendants was certainly legal and valid,
and the plaintiff, without the slightest doubt, could have recovered
the full amount, if there were no other provisions in the Act.
This contract is good at common law, and certainly not avoided
by the ist section of the 14 G. 3, .c. 48. This section, it is to be
observed, does not provide for any particular amount of interest.
According to it, if there was any interest, however small, the policy
would not be avoided.
The question arises on the third clause It is as follows: "And
be it further enacted, that, in all cases where . the insured hath
interest in such life or lives, event or events, no greater sum shall
be recovered or received from the insurer or insurers, than the
amount or value of the interest of the assured in such life or lives,
or other event or events."
Now, what is the meaning of this provision?
On the part of the plaintiff, it is said, it means only that in all
cases in which the party insuring has an interest when he effects the
policy, his right to recover and receive is to be limited to that
amount; otherwise, under color of a small interest, a wagering
policy might be made to a large amount — as it might if the first
clause stood alone. The right to recover, therefore, is limited to
the amount of the interest at the titne of effecting the policy. Upon
that value, the assured must have the amount of premium calculated ;
if he states it truly, no difficulty can occur; he pays in the annuity
for life the fair value of the sum payable at death. If he misrepre-
sents, by over-rating the value of the interest, it is his own fault in
lO NATURE OF THE CONTRACT.
paying more in the way of annuity than he ought; and he can
recover only the true value of the interest in respect of which he
effected the policy; but that value he can recover. Thus, the lia-
bility of the assurer becomes constant and uniform, to pay an unva-
rying sum on the death of the cestui que vie^ in consideration of an
unvarying and uniform premium paid by the assured. The bargain
is fixed as to the amount on both sides.
This construction is effected by reading the word " hath " as
referring to the time of effecting the policy. By the first section,
the assured is prohibited from effecting an insurance on a life or on
an event wherein he " shall have " no interest — that is, at the lime
of assuring; and then the third section requires that he shall covvr
only the interest that he " hath." If he has an interest when the
policy is made, he is not wagering or gaming, and the prohibition
of the statute does not apply to his case. Had the third section
provided that no more than the amount or value of the interest
should be insured, a question might have been raised, whether, if
the insurance had been for a larger amount, the whole would not
have been void; but the prohibition to recover or receive more
than that amount, obviates any difficulty on that head.
On the other hand, the defendants contend that the meaning of
this clause is, that the assured shall recover no more than the value
of the interest which he has at the time of the recovery, or receive
more than its value at the time of the receipt.
The words must be altered materially to limit the sum to be
recovered to the value at the time of the death, or (if payable at a
time after death) when the cause of action accrues.
But there is a most serious objection to either of these construc-
tions. It is that the written contract, which for the reasons given
before, is not a wagering contract, but a valid one permitted by the
statutes and very clear in its language, is by this mode of construc-
tion completely altered in its terms and effect. It is no longer a
contract to pay a certain sum on the value of a then-existing inter-
est, in the event of death, in consideration of a fixed annuity calcu-
lated with reference to that sum; but a contract to pay — contrary
to its express words — a varying sum, according to the alteration of
the value of that interest at the time of the death, or the accrual
of the cause of action, or the time of the verdict or execution; and
yet the price or the premium to be paid is fixed, calculated on the
original fixed value, and is unvarying; so that the assured is obliged
to pay a certain premium every year, calculated on the value of his
interest at the time of the policy, in order to have a right to recover
an uncertain sum, viz., that which happens to be the value of the
LIFE INSURANCE. II
ii.terest at th.e time of the death, or afterwards, or at the time of the
verdict. He has not, therefore, a sum certain which he stipulate,!
for and bought with a certain annuity; but it may be a much less
sum, or even none at all.
This seems to us so contrary to justice and fair dealing and com-
mon honesty, that this construction cannot, v/e think, be put upon
this section. We should, therefore, have no hesitation, if the ques-
ti ji were res intfgi-a, in putting the much more reasonable construc-
ti m on the statute, that, if there is an interest at the time of the
policy, it is not a wagering policy, and that the true value of that
interest may be recovered in exact conformity with the words of
the contract itself.
The only effect of the statute is to make the assured value his
interest at its true amount when he makes the contract.
But it is said that the case of Godsallv. Boldero, g East, 72, has
concluded this question.
Upon considering this case it is certain that Lord Eilenboiough
decided it upon the assumption that a life-policy was in its nature
a contract of indemnity, as policies on marine risks and against
fire undoubtedly are; and that the action was, in point of law,
founded on the supposed damnific£tioa occasioned by the death
of the debtor existing at the time of the action brought; and his
Lordship relied upon the decision of Lord Mansfield in Hamilton v.
Mendes, 2 Burr. 12 10, that the plaintiff's demand was for an indem-
nity only. Lord Mansfield was speaking of a policy against marine
risks, which is in its terms a contract for indemnity only. But that
is not of the nature of what is termed an assurance for life; it really
is what it is on the face of it — a contract to pay a certain sum in
the event of death. It is valid at common law; and, if it is made
by a person having an interest in the duration of the life, it is not
prohibited by the statute 14 G. 3, c. 48.
But, though we are quite satisfied that the case of Godsall v.
Boldero was founded on a mistaken analogy and wrong, we should
hesitate to overrule it, though sitting in a Court of Error, if it had
been constantly approved and followed and not questioned, though
many opportunities have been offered to question it. It was stated
that it had not been disputed in practice and had been cited by
several eminent judges as established law. The judgment itself
was not, and could not be, questioned in a Court of Error; for, one
of the issues, //// debet^ was found for the defendant.
Since that case we know practically, and that circumstance is
mentioned by some of the judges in the cases hereinafter referred
to, that the insurance offices, generally speaking, have not availed
12 NATURE OF THE CONTRACT.
themselves of the decision, as they found it very injurious to their
interest to do so. They have therefore, generally speaking, paid the
amount of their life insurances, so that the number of cases in which
it could be questioned is probably very small indeed. And it may
truly be said that, instead of the decision in Godsall v. Bohiero being
uniformly acquiesced in and acted upon it has been uniformly
disregarded.
Then, as to the cases. There is no case at law, except that of
Barber v. Morris, i M. & Rob. 62, in which the case of Godsall v.
Boldero was incidentally noticed as proving it to be necessary that
the interest should continue till the death of the ^^i//// ^//^ z'/V. It
was proved in that case to be the practice of the particular ofifice in
which that assurance was made to pay the sums assured without
inquiry as to the existence of an insurable interest; and on that
account it was held that the policy, though in that case the interest
had ceased, was a valuable policy and the plaintiff could not recover
on the ground that the defendant, the vendor of it, was guilty of
fraudulent concealment in not disclosing that the interest had ceased.
This was the point of the case; and, though there was a dictum of
Lord Tenterden, that the payment of the sum insured could
not be enforced, it was not at all necessary to the decision of
the case.
The other cases cited on the argument in this case, were cases in
equity, where the propriety of the decision of Godsall v. Boldero did
not come in question.
The questions arose as to the right of the creditor and debtor,
inter se, where the offices have paid the value of a policy, in Hum-
phrey V. Arabia, 2 Lloyd & G. 318; Hen son v. Blackwell, 2 Hare,
434, cor. Sir J. Wigram, V. C. ; Phillips v. Eashvood, i Lloyd & G.
(Gas. temp. Sugden) 281 —where the point decided was that a life-
policy, as a security for a debt, passed under a will bequeathing
debts; the Lord Chancellor stating that the offices found it not for
their benefit to act on the rigid rule of Godsall v. Boldero. In these
cases the different judges concerned in them do not dispute — some,
indeed, appear to approve of — the case of Godsall \. Boldero: but
it was not material in any to controvert it; and the questions
to be decided were quite independent of the authority of that
case.
We do not think we ought to feel ourselves bound, sitting in a
Court of Error, by the authority of this case, which itself could not
be questioned by writ of error; and as so few, if any, subsequent
cases have arisen in which the soundness of the principle there
MUTUAL BENEFIT INSURANCE. 1 3
relied upon could be made the subject of judicial inquiry;
and, as in practice, it may be said that it has been constantly
disregarded.
Judgment reversed, and venire de novo}
IV. Mutual Benefit Insurance.
COMMONWEALTH v. WETHERBEE.
105 Mass., 149. — 1870.
Indictment on the St. of 1867, c. 267, § 5, for acting in the trans-
action of the business of insurance as agent of an insurance com-
pany not incorporated in this Commonwealth, without first procuring
from the insurance commissioner a certificate of authority to do so.
Gray, J. — A contract of insurance is an agreement by which
one party, for a consideration, (which is usually paid in money,
either in one sum, or at different times during the continuance of
the risk,) promises to make a certain payment of money upon the
destruction or injury of something in which the other party has an
interest. In fire insurance and marine insurance the thing insured
is property; in life or accident insurance it is the life or health of a
person. In either case neither the times and amounts of payments
by the assured, nor the modes of estimating or 3ecLiring the pay-
ment of the sum to be paid by the insurer, affect the question
' " There being a debt at the time the policy is issued, it is ihen valid. It
contains no condition referring to the continuance of the indebtedness. But,
on the contrary, the policy evidences a fiat and positive promise to pay a given
sum at the termination of the life named. * * * From the nature of the
contract, which is paid for by the creditor, he needs the payment of the policy
to do complete justice to him. Suppose he has received, subsequent to pay-
ment of premiums for years, the debt due from his debtor, he has thus received
only what it may be assumed he has advanced or loaned to his debtor. He has
received nothing for the series of premiums he has delivered over from year to
year to the insurer to keep alive the policy. So, too, in the case at hand, if we
were to hold that the policy was airoided by payment or discharge in bank-
ruptcy of the debt, the creditor would surely be the loserof the premiums paid,
after the payment of his debt or the discharge in bankruptcy, and the insur-
ance company would be the gainer. It would keep in its coffers moneys which
it received as a consideration for its promise, which it had not kept. It vvould be
the gainer by the incidental circumstance that the debtor had paid what only
he justly owed his creditor, or what he had escaped paying bv obtaining a dis-
charge in bankruptcy. Surely no such contingency was taken into mind or
measured in fixing the amount of premiums demanded for the policy. That
14 NATURE OF THE CONTRACT.
whether the agreement between them is a contract of insurance.
All that is requisite to constitute such a contract is the payment of
the consideration by the one, and the promise of the other to pay
the amount of the insurance upon the happening of injury to the
subject by a contingency contemplated in the contract.
The contract made between the Connecticut Mutual Benefit Com-
pany and each of its members, by the certificate of membership
issued according to its charter, does not differ in any essential par-
ticular of form or substance from an ordinary policy of mutual life
insurance. The subject insured is the life of the member. The
risk insured is death from any cause not excepted in the terms of
the contract. The assured pays a sum fi.\ed by the directors and
not exceeding ten dollars, at the inception of the contract, and
assessments of two dollars each annually, and of one dollar each
upon the death of any member ot the division to which he belongs,
during the continuance of the risk. In case of the death of the
assured by a peril insured against, the company absolutely promises
to pay to its representatives, in sixty days after receiving satisfac-
tory notice and proof of his death, " as many dollars as there are
members in " the same division, the number of which is limited to
five thousand. Tne payment of this sum is subject to no contin-
gency but the insolvency of the corporation. The means of paying
it are derived from the assessments collected upon his death from
other members; from the money received upon issuing other cer-
tificates of membership, which the by-laws declare may, after pay-
amount was ascertained by the standard tables relating lo the probabilities of
human life upon which life insurance companies anchor when they fi.K and
determine the schedule of premiums to be exacted in the conduct of their busi-
ness. We are, upon principle, prepared to agree with the English court in its
conclusion in Dalby v. India and London Life Assurance Company {2% Eng. Law-
and Eq. 312). Indeed, we think the doctrine of that case has been accepted in
this state, and thai both upon principle and authority we should say that the
insurer is bound to fulfil its contract, valid in its inception, notwithstanding the
debtor upon whose life il runs may have paid his creditor or obtained a dis-
charge in bankruptcy therefrom. Rawls v. American Life Ins. Co., 36 Barb.
357; affirmed 27 N. Y. 282; St. John v. American Mutual Life Ins. Co., 3 Kern.
31, and note at p. 41; Olmsted v. Keys, 85 N. Y. 59S, 599; Bliss on Life Ins,
§ 30; May on Ins., g§ 115, lib." — Ferguson v. Mass. Mut. Life Ins. Co., 32
Hun, 311, 312.
In Conn. Life Ins. Co. v. Schaefer, 94 U. S 457, the policy was taken by hus-
band and wife upon their joint lives, payable to the survivor. Subsequently
they were divorced a vinculo matrimonii, and the wife having paid the premium
up to her former husband's death, sued qp. the policy. It v\a-- held that the
policy being valid at its inception, the subsequent cessation of her insurable
interest did not affect her claim.
ACCIDENT INSURANCE. 1 5
r/.r.if. of expenses, be " used to cover losses caused by the delin-
quencies of members;" and from the guarantee fund of one hun-
dred thousand dollars, established by the corporation under its
charter.
This is not the less a contract of mutual insurance upon the life
of the assured, because the amount to be paid by the corporation
is not a gross sum, but a sum graduated by the number of members
holding similar contracts; nor because a portion of the premiums is
to be paid upon the uncertain periods of the deaths of such mem-
bers; nor because, in case of nonpayment of assessments by any
member, the contract provides no means of enforcing payment
thereof, but merely declares the contract to be at an end, and all
moneys previously paid by the assured, and all dividends and cred-
its accrued to him, to be forfeited to the company.
The fact, offered to be proved by the defendant, that the object
of the organization was benevolent and not speculative, has no
bearing upon the nature and effect of the business conducted and
the contracts made by the corporation.
The ruling that this association was an insurance company, within
the meaning of the statute upon which the defendant was indicted,
was therefore correct, and his
Exceptions must be overruled.
V. Accident Insurance.
Barker, J., in EMPLOYERS' LIABILITY ASSURANCE CO. v.
MERRILL.
155 Mass., 404, 408. — 1892.
The distinguishing feature of what is known in our legislation as
" accident insurance " is that it indemnifies against the effects
of accidents resulting in bodily injury or death. Its field is not to
insure against loss or damage to property, although occasioned by
accident. So far as the latter class of insurance has been developed,
it has been with reference to boilers, plate-glass, and perhaps to
domestic animals, and injuries to property by street cars, and is
known as " casualty insurance." The development of accident
insurance has been analogous to the development of fire and of life
insurance. The original fire policy stipulated for payment only for
the loss of tangible property destroyed or injured in its own sub-
stance by fire. But fire insurance is now made to cover rents lost
by the destruction of buildings by fire, and profits unearned because
i6 NATURE OF THE CONTRACT.
of the destruction by fire of a plant b}' the use of which they would
have been secured. The original life policy was payable only at
the death of the assured, but now the forms of life insurance are
very numerous, and adapted to meet all the risks into which the
continuation of the life of the person insured enters as a constituent.
The invention of accident insurance preceded the recent flood of
actions of tort for personal injuries, and the only risk froni accidents
to the person then commonly thought of as a factor in ordinary life
was the risk of injury to one's own person. Such insurance grew
popular, was afterwards seen to be too costly for general use, and
was abandoned by most of the companies which engaged in the
business. But when it came to be understood that every man
engaged in business, and every owner or lessee of business property,
was exposed to heavy losses from accidents to the persons of others,
the chance of which no prudent man could afford to ignore, a new
demand for accident insurance against personal injuries arose, which
it was the legitimate function of accident insurance companies to
meet. By the words of clause 5 of § 29, of the statute, (St. 1887,
c. 214,) such companies formed or operating in Massachusetts were
expressly authorized to insure against bodily injuries and death by
accident, and were not by the words of any statute restricted to
risks by accidents to the person of the assured. So long as they
confined themselves to insurance against accidents to the person,
and to contracting to indemnify the assured against losses by injuries
to persons in whom he had an insurable interest, because legally
liable for the results of the accident, they were within the legiti-
mate scope of accident insurance.
VI. Fidelity and Guaranty Insurance.
PEOPLE V. ROSE.
174 III., 310. — 1893.
Wilkin, J. — This is an original petition for mandamus against
James A. Rose, as Secretary of State. The petition sets forth that
on January 27, 1898, petitioners made application to the respondent
for a license authorizing them to open subscription books to the
capital stock of a proposed corporation. The application was made
in due form, and accompanied by the requisite fee. The object of
the corporation, as contained in the statement, is as follows: " To
transact in the State of Illinois and elsewhere the business of guar-
antying the fidelity of persons holding public or private places of
FIDELITY AND GUARANTY INSURANCE. 1 7
trust, and the performance by persons, firms, and corporations of
contracts, bonds, recognizances, and undertakings of every kind,
and of becoming surety on bonds required by law, and on every
kind of contract, obligation, and undertaking of persons, firms, and
corporations." The Secretary refused to issue the license, upon
the ground that the statute under which the application is made
does not authorize the organization of corporations for the objects
stated in the application. Section i of the statute, entitled " An
act concerning corporations," approved April 18, 1872, provides
" that corporations may be formed in the manner provided by this
act, for any lawful purpose, except banking, insurance, real estate
brokerage, the operation of railroads, and the business of loaning
money, provided," etc. The only question here raised is whether
or not the objects, or any of them, of the proposed corporation, fall
within the exception " insurance."
The following definitions of the term " insurance " are cited
from standard authorities by the attorney-general on behalf of the
respondent: " Guaranty insurance is a contract whereby one, for
a consideration, agrees to indemnify another against loss arising
from the want of integrity, fidelity, or insolvency of employes and
persons holding positions of trust, against insolvency of debtors,
losses in trade, losses from nonpayment of notes and other evidences
of indebtedness, or against breach of contract. It includes other
forms of insurance, which are specifically classified as ' fidelity
guaranty,' 'credit guaranty,' etc." i Joyce, Ins § 12. "Insur-
ance is a contract by which the one party, in consideration of a
price paid to him adequate to the risk, becomes security to the other
that he shall not suffer loss, prejudice, or damage by the happening
of the perils specified, to certain things which may be exposed to
them." Lucine v. Craufurd, 2 Bos & P. 300. " Insurance, in its
most gensral sense, is a contract whereby one party agrees to
indemnify another in case he shall suffer loss in respect of a speci-
fied subject by a specified peril." 11 Am. & Eng. Enc. Law, 280.
" Insurance is a contract whereby one, for a consideration, under-
takes to compensate another if he shall suffer loss. Such, in its
most general terms, is the definition of the contract which is to
constitute the subject of the following chapters. It is substantially
the definition given long ago by Roccus, and is recommended alike
by its brevity and its comprehensiveness, — qualities upon which
subsequent writers have scarcely been able to improve. * * *
It had its origin in the necessities of commerce. It has kept pace
with its progress, expanded to meet its rising wants and to cover its
ever-widening fields, and, under the guidance of the spirit of modern
L.\W OF INSURANCE — 2
1 8 NATURE OF THE CONTRACT.
enterprise tempere.l by a prudent forecast, it has, from time to time,
with wonderful facility, adapted itself to the new interests of an
advancing civilization. It is applicable to every form of possible
loss. Wherever danger is apprehended or protection required, it
holds out its fostering hand, and promises indemnity." i May on
Insurance, §§ i, 2, " \ contract whereby, for a stipulated consid-
eration, one party undertakes to indemnify the other against cer-
tain risks." I Phillips on Insurance, § i. " A contract by which a
person, in consideration of a gross sum or a periodical payment,
undertakes to pay a larger sum on the happening of a particular
event." Smith on Common Law, 299. " In law, a contract, by
which one party, for an agreed consideration, which is proportioned
to the risk involved, undertakes to compensate the other for loss on
a specified thing from specified causes." Century Diet. " Insur-
ance." " An act or system of insuring or assuring against loss;
specifically, the system by or under which indemnity or pecuniary
payment is guarantied by one party or several parties to another
party, in certain contingencies, upon specified terms." Standard
Diet. " Insurance." " The act of insuring against loss or damage
by a contingent event; a contract whereby one party undertakes to
indemnify or guaranty the other against loss by certain specified
risks." Webster's Diet. " Insurance."
It is said in 9 Am. & Eng. Ency. of Law, 65 (cited in People v.
Fidelity 6-* Casualty Co., 153 III. 25,): " Guaranty insurance is,
in its practical sense, a guaranty or insurance against loss in case
a person named shall make a designated default, or be guilty of
specified conduct. It is usually against the misconduct or dis-
honesty of an employee or officer, though sometimes against the
breach of a contract. This branch of insurance is so much more
modern in origin and development than fire, marine, life and acci-
dent insurance that there are few decisions upon the subject; but
the business is gradually increasing, and is doubtless destined to
take an important place in the commercial world. It may be con-
fidently stated, notwithstanding the comparative absence of specific
decisions, that the general principles applicable to other classes of
insurance are applicable here as well. Thus, the general doctrine
of warranty, representation, and concealment, as applied to fire,
life, and marine insurance, is applicable also to the subject of guar-
anty insurance. It was held in a Canadian case that a company
was liable on a policy guarantying the faithful and diligent perform-
ance of the duty of a clerk, where such clerk went to lunch, leaving
a large sum of money in open bag.s in his room, which money disap-
peared while he was gone. Overdrafts allowed without security,
FIDELITY AND GUARANTV INSURANCE. I9
by collusion with the party making the overdrafts, is within a policy
which insures against loss ' by the want of integrity, honesty, and
fidelity, or by the negligence, default, or irregularities, of the
manager.' "
In Shakman v. U. S. Credit- System Co., 92 Wis. 366, it was
held that a contract to indemnify a merchant against loss from
insolvency of customers was a contract of insurance, and it was
said: " We regard the contract before us as unquestionably a con-
tract 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, lightning, or tornado, and is in fact much more frequent. No
reason is perceived why 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 silentid)
construed as a policy of insurance by the Supreme Court of New
Jersey. Robertson v. U. S. Credit-System Co., 57 N. J. Law, 12.
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." In Tebbets v. Guaranty Co., 19
C. C. A. 281, 73 Fed. 95, the action was upon a policy of insurance
against business losses or " uncollectible debts " issued by the
defendant to the plaintiff, and ic was said: "Insurance against
mercantile losses is a new branch of the business of underwriting,
and but few cases dealing with policies of that character have as yet
found their way into the courts. The necessarily nice adjustments
of the respective proportions of loss to be borne by the insurer and
the insured, the somewhat intricate provisions which are required in
order to make such business successful, and the lack of experience
in formulating the stipulations to be entered into by both the par-
ties to such a contract, have naturally tended to make the forms of
policy crude and difficult of interpretation."
We do not understand counsel for petitioners to deny that under
these authorities and definitions one or more of the objects stated
in its application fall within the term " insurance." But it is
insisted that Inasmuch as at the time of the passage of the general
Incorporation law of 1872, under which they seek to organize, there
were already in existence statutory provisions for the incorporation
of :ompanies known as "insurance companies," — that is to say,
20 NATURE OF THE CONTRACT.
fire, inland navigation, and marine insurance companies, also life
insurance companies, — and that provisions like those of the charter
here sought by petitioners were practically unknown at that time
therefore the legislature did not intend, by the use of tl\e word
" insurance," other kinds of insurance than existed at that time,
and named in the prior enactments. The proposition is untenable.
While corporations of this character have not until recently been
organized, they must, under the foregoing authorities, be treated
as a form of insurance companies, and as such they fall within the
express limitation named in the statute. The language of the excep-
tion, in common acceptation, includes all insurance companies, and it
is not for the court to say that only certain classes were intended.
" Courts cannot, as a general rule, disregard the plain language of
a statute. It is their duty to accept it as they find it, and
enforce it as plainly written." Coke Co. v. Do7unc}\ \2i 111. 201,
and authorities cited. " It is not the province of the judiciary
to make laws, but to construe and interpret them, and pass upon
their validity." Referring to authorities cited, it is further said:
" A careful examination of all these cases will show that where the
construction given to the words of a statute is variant from their
strict and literal meaning, such construction is only justified upon
the ground that it effectuates the intention of the legislature as
manifestly disclosed by a consideration of the whole context."
Wunderle v. IViinderle, 144 111. 40.
The manifest purpose of the legislature in excepting banking,
insurance, real-estate brokerage, and other corporations from the
provisions of the act authorizing the incorporation of companies for
other lawful purposes, was that tht-^e excepted corporations should
be restrained by more strict requirements, securing the safe con-
duct and correct administration of their affairs. The object stated
in the petitioner's application — especially that of guarantying the
performance by persons, firms, and corporations of contracts,
bonds, recognizances, and undertakings of every kind — is not only
to enter into contracts of insurance, within the meaning of the
authorities cited, but within the spirit and reason of the exception.
We think the application of the petitioners was properly refused, and
the petition for a writ of mandamus will be denied.
Writ denied.'
M..\GRUDER, J., dissenting.
Carter, C. J. — I do not agree to the conclusion reached in
this case.
' "Although of more recent origin than the ordinary forms of insurance, such
as fire, marine, and life, that this bond is a branch of insurance is clearly
FIDELITY AND GUARANTY INSURANCE. 21
apparent. Cases involving this form of contract are extremely few, still, that
the law of insurance applies by analogy is undoubtedly true, and this was fully
recognized and clearly stated by the circuit court of appeals for this circuit in
Supreme Council Catholic Knights of America v. Fidelity &= Casualty Co. of New
York, 63 F. 48, II C. C. A. 96, in which Judge Lurton, delivering the opinion,
said: 'With reference to bonds of this kind, executed upon a consideration, and
by a corporation organized to make such bonds for profit, the rule of construc-
tion applied to ordinary sureties is not applicable. The bond is in the terms
prescribed by the surety, and any doubtful language should be construed most
strongly against the surety, and in favor of the indemnity, which the assured
had reasonable grounds to expect. The rule applicable to fire and life insur-
ance is the rule, by analogy, most applicable to a contract like that in this case.
This method of furnishing bond to make good loss is rapidly superseding all
others in the case of officers of private corporations, and I am advised that legis-
lation by the general assembly in session enables companies engaging in this
business to make bonds for all public officials of the state and counties thereof.
The business is, therefore, becoming one of vast public as well as private
importance, and it cannot be objected if rules of reasonably stringent liability
are applied to these contracts, as in other forms of insurance. Conditions on
which forfeiture of the contract is claimed being construed strongly against
insurer and liberally in favor of insured, the burden is on defendant, and the
defense must be clearly made out. Cotton v. Casualty Co., 41 Fed. 506; Steel v.
Insurance Co., 2 C. C. A. 463, 51 Fed. 723, and cases cited; Aloulor v. Insurance
Co.. Ill U. S. 341, 4 Sup. Ct. 466; Supreme Council Catholic Knights of America
V. Fidelity 6^ Casualty Co. of New York, 63 Fed. 48, il C. C. A. q6." — Mechanics'
Savings Bank v. Guarantee Co., 68 Fed. 459, 462.
PART II.
Formation of the Contract.
I. Parties to the Contract.
a. Infants.
JOHNSON V. NORTHWESTERN MUT. LIFE INS CO.
56 Minn., 365. — 1894.
Plaintiff, when seventeen years old, obtained a policy of insur-
ance from defendant company. Immediately after he became of
age, he disafifirmed the contract, tendered back the policy, and
demanded the return of the money he had paid upon it. The
defendant did not return the money and plaintiff brought this action
to recover it. The substance of the provisions of the policy with
respect to the surrender of the policy is given in the last paragraph
of Judge Mitchell's opinion. Defendant demurred to the complaint
on the ground that it did not state facts sufficient to constitute a
cause of action.
Demurrer overruled. Defendant appeals.
Mitchell, J. — This case was argued and decided at the last
term of this court.' A reargument was granted for the reasons that
although the amount was small the legal principles involved were
important; the time permitted for argument under our rules was
brief; the case was decided near the end of the term, without,
perhaps, 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: (i) 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
'Opinion, 56 Minn. 369.
[22]
PARTIES TO THE CONTRACT, 23
usual and ordinary one for life insurance, on the customar}' terms,
and was a fair and reasonable one, and free from any fraud, unfair-
ness, or undue influence on part of the defendant, unless the con-
trary 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 nothing of value under it. True, the plaintiff has
received no money, and the defendant has paid none to the plain-
tiff; but the life of the former was insured for four years, and if he
had died during that time, the defendant would ha^e had to pay the
amount of the policy to his estate. The defendant carried the risk
all that time, and this is the esseace 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 con-
tract 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 had 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, 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 woij.ld do any business with him. He could not get his life
24 FORMATION OF THE CONTRACT.
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 absolutely 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 infant, he may always inter-
pose 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 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 per-
formed 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 different 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 difference
between real and personal property, it is not necessary here to con-
sider. Fifth. Where the contract has been wholly or partly per-
formed 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 retains 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 over-reaching, and the infant has enjoyed the benefits
of it, but has spent or disposed of what he has received, or the
benefits received are, as in this case, of such a nature that they
cannot be restored. Can he recover back what he has paid? It is
well settled in England that he cannot. This was held in the lead-
ing case of Holmes v. Blogg, 8 Taunt. 508, approved as late as 1890
in Valentini v. Canali, 24 Q. B. Div. 166. Some obiter remarks of
PARTIES TO THE CONTRACT. 2$
the chief justice in Holmes v. Blogg, to the effect that an infant
could never recover back money voluntarily paid, were too broad,
and have often been disapproved, — a fact which has sometimes led
to the erroneous impression that the case itself has been overruled.
Corpe v. Overton, lo Bing. 252 (decided by the same court), held
that the infant might recover back what he had voluntarily paid,
but on the ground that the contract in that case remained wholly
executory on part of the other party, and hence the infant had never
enjoyed its benefits. In Chitty on Contracts (volume i, p. 222),
the law is stated in accordance with the decision in Holmes v. Blogg.
Leake, — a most accurate writer, — in his work on Contracts (page
553), sums up the law to the same effect. In this country, Chan-
cellor Kent (2 Kent, Comm. 240), and Reeves in his work on
Domestic Relations (chapters 2 and 3, tit. " Parent and Child "),
state the law in exact accordance with what we may term the
" English rule.'' Parsons, in his work on Contracts (volume i, p.
322), undoubtedly states the law too broadly, in omitting the quali-
fication, " and enjoys the benefit of it."
At least a respectable minority of the American decisions are in
full accord with what we have termed the " English rule." See,
among others, Riley v. Mallory, ■i^'i, Conn. 206; Adams v. Beall, 67
Md. 53, 8 Atl. 664; Breed V. Judd, i Gray, 455. But many — per-
haps a majority — of the American decisions, apparently thinking
that the English rule does not sufficiently protect the infant, have
moiified it; and some of them seem to have wholly repudiated 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 restored,
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 inexperi-
ence, and how, on the other hand, to compel him to conform to the
principles of common honesty. The result is that the American
authorities — at least the later ones — have fallen into such a condi-
tion of conflict and confusion that it is difficult to draw from them
any definite or uniform rule.
The dissatisfaction with what we have termed the " English rule "
seems to be generally based upon the idea that the courts would not
grant an infant relief, on the ground of fraud or undue influence,
except where they would grant it to an adult on the same grounds,
and then only on the same conditions. Many of the cases, we
admit, would seem to support this idea. If such were the law, it
26 FORMATION OF THE CONTRACT.
is obvious that there would be many cases where it would furnish
no adequate protection to the infant. Cases may be readily imag-
ined where an infant may have paid for an article several times
more than it was worth, or where the contract was of an improvi-
dent character, calculated to result in the squandering of his estate,
and that fact was known to the other party; and yet if he was an
adult the court would grant him no relief, but leave him to stand
the consequences of his own foolish bargain. But to measure the
right of an infant in such cases by the same rule that would be
applied in the case of an adult would be to fail to give due weight
to the disparity between the adult and the infant, or to apply the
proper standard of fair dealing due from the former to the latter.
Even as between adults, when a transaction is assailed on the ground
of fraud, undue influence, etc., their disparity in mtelligence and
experience, or in any other respect which g'ves one an ascendency
over the other, or tends to prevent the latter from exercising an
intelligent and unbiased judgment, is always a most vital considera-
tion with the courts. Where a contract is improvident and unfair,
courts of equity have frequently inferred fraud from the mere dis-
parity of the parties. If this is true as to adults, the rule ought
certainly to be applied with still greater liberality in favor of infants,
whom the law deems so incompetent to care for themselves that it
holds them incapable of binding themselves by contract, except for
necessaries. In view of this disparity of the parties, thus recog-
nized by law, every one who assumes to contract with an infant
should be held to the utmost good faith and fair dealing. We
further think that this disparity is such as to raise a presumption
against the fairness of the contract, and to cast upon the other
party the burden of proving that it was a fair and reasonable one,
and fr'='e from any fraud, undue influence, or overreaching.
A similar principle applies to all the relations, where, from dis-
parity of years, intellect, or knowledge, one of the parties to the
contract has an ascendency which prevents the other from exercis-
ing an unbiased judgment, — as, for example, parent and child,
husband and wife, guardian and ward. It is true that the mere
fact that a person is dealing with an infant creates no " fiduciary
relation " between them, in the proper sense of the term, such as
exists between guardian and ward; but we think that he who deals
with ah infant should be held to substantially the same standard of
fair dealing, and be charged with the burden of proving that the
contract was in all respects fair and reasonable, and not tainted
with any fraud, undue influence, or overreaching on his part. Of
tourse, in this as in all other cases, the degree of disparity between
PARTIES TO THE CONTRACT. 2/
the parties, in age and mental capacity, would be an important con-
sideration. Moreover, if the contract was not in all respects fair
and reasonable, the extent to which the infant should recover would
depend on the nature and extent of the element of unfairness which
characterized the transaction.
If the party dealing with the infant was guilty of actual fraud or
bad faith, we think the infant should be allowed to recover back all
he had paid, without making restitution, except, of course, to the
extent to which he still retained in specie what he had received.
Such a case would be a contract essentially improvident, calculated
to facilitate the squandering the infant's estate, and which the other
party knew or ought to have known to be such, for to make such a
contract at all with an infant would be fraud. But if the contract
was free from any fraud or bad faith, and otherwise reasonable,
except that the price paid by the infant was in excess of the value
of what he received, his recovery should be limited to the differ-
ence between what he paid and what he received. Such cases as
Medbury v. Watrous^ 7 Hill, no; Sparman v. Keim^ 83 N. Y. 245;
and Heath v. Stevens, 48 N. H. 251, — really proceed upon this prin-
ciple, although they may not distinctly announce it. The objec-
tions to this rule are, in our opinion, largely imaginary, for we are
confident that in practice it can and will be applied by courts and
juries so as to work out substantial justice.
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 jyhat he has received, or the
benefits recovered by him are such that the}' cannot be restored, he
cannot 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 ele-
ments, 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 sufficiently 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 contempla-
tion of law.
Applying these rules to the case in hand, we add that life insur-
ance in a solvent company, at the ordinary and usual rates, for an
amount reasonably commensurate with the infant's estate, or his
28 FUKMATION OF THE CONTRACT.
financial ability to carry it, is a provident, fair, and reasonable con-
tract, 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 contract the plaintiff could not recover the premi-
ums which he has paid in, so far as they were intended to cover the
current annual risk assumed by the company under its policy. But
it appears from the face of the policy that these premiums covered
something more than this. The policy provides that after payment
of three or more annual premiums the insured will be entitled to a
paid-up, non-participating policy for as many twentieths of the origi-
nal sum insured ($i,ooo) 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, non-participating policy for $200; and it there-
fore 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 somewhat different grounds.
Order affirmed.'
Buck, J., absent. Gilfillan, Ch. J., concurs in result.
IN THE MATTER OF THE GLOBE MUTUAL BENEFIT
ASSOCIATION.
135 N. Y. 280. — 1892
Andrews, J. — The order from which this appeal is taken enjoins
the defendant, a co-operative life and casualty insurance association
organized under the act, chapter 175 of the Laws of 1883, entitled
" An act to provide for the incorporation and regulation of co-ope-
rative or assessment life and casualty insurance associations and
societies," from transacting the business of infantile insurance.
The order proceeds on the ground that the insurance of infants is
not within the powers of corporations organized under this statute
' Insurance of an infant's property against fire is not a necessary and his con-
tract therefor is not binding but voidable. New Hampshire Mut. Fire Ins. Co.
V. Noyes, 32 N. H. 345.
PARTIES TO THE CONTRACT. 29
and is inconsistent with the statutory scheme and the legislative
intention.
The by-laws of the defendant provide that any persons between
the ages of six months and seventy years, approved by the medical
director, may become a member of the society. The applicant, if
approved, is entitled to a certificate of membership, and on paying
an entrance fee and a certain sum weekly during life, the company
undertakes to pay at his death to a beneficiary designated by the
member, or to the next of kin if no beneficiary is named, a certain
sum called a benefit, provided there is a fund realized from volun-
tary donations, admission fees and dues collected, or which may be
collected from members, out of which such payment can be made.
There are two classes of members, a life class and a casualty
class, the distinction between which is for the present purpose of
no importance. It appears from a schedule in the case that infants
from one to four years of age have been admitted as members of
the corporation, in whose name certificates of membership have
been issued designating a beneficiary, insuring the infant named in
a certain sum in one of the classes mentioned.
The first section of the act of 1883 authorizes any number of per-
sons not less than nine, residents of the state, to associate them-
selves together to organize a corporation thereunder. The second
section prescribes that the associates shall file in the office of the
superintendent of the insurance department a declaration of their
intention to form a company under the act, containing several par-
ticulars specified, to be signed and acknowledged by each of the
corporators. By the third section, upon the completion of the
organization, it is declared that " said corporators and those that
may thereafter become associated with them or their saccessors,
shall be constituted a body politic and corporate." The fourth sec-
tion authorizes the making of by-laws. The fifth section declares
that corporations organized under the act, issuing certificates pay-
able on the decease of a member or upon his sickness or other
physical disability, or to a beneficiary, from resources derived from
voluntary donations or admission fees, dues or assessments collected
from members, and whose payment is conditional upon means so
realized, etc., shall be deemed to be engaged in the business of life
or casualty insurance upon the co-operative or assessment plan and
" shall be subject only to the provisions of the act." The sixteenth
section provides for the holding of an annual meeting of the mem-
bers or policy-holders of the corporation, with a notice of the time
and place when and where the same will be considered. The
eighteenth section authorizes a member to change the beneficiary
30 FORMATION OK THE CONTRACT,
with the consent of the corporation, and without the consent of the
beneficiary.
The defendant was a co-operative association under the act, a
continuing membership in which is made dependent on the member
keeping up his dues. Each holder of a certificate is by virtue
thereof a member and corporator of the association, and so remains
until by nonpayment of dues his membership is forfeited. The
statute contemplates a meeting of the associates in annual meeting,
at which reports of receipts and expenditures are to be submitted,
and the associates assembled at a meeting duly notified, are to con-
sider and pass upon by-laws or amendments proposed for adoption.
It is plain that the powers conferred upon members cannot be
exercised by children of tender years, such as have been permitted
to become members of the corporation defendant. The children
insured by the defendant, whose ages are given in the schedule,
were incapable of exercising any choice in becoming members, or
of appointing a beneficiary, or of exercising the powers with which
members are invested by the statute. They could take no part in
the co-operative scheme upon which the corporation rests, and
which implies the voluntary association of persons capable of acting
in the administration of the affairs of the corporation. There is
nothing in the statute which permits the inference that a child may
be made a member of the corporation upon the application of the
parent, or that a beneficiary may be designated or changed by any
person except the member himself.
It has been held that where a statute authorizes persons to form
a corporation, it is implied that they shall be persons of full age.
Hamilton 6^ Flamborough Road Co. v. Townsend^ 13 Ont. App. R.
534; 16 Am. & Eng. Corp. Cas. 645. Infants admitted as members
by the defendant became members of the corporation, if legally
entitled to admission, and may be elected trustees or directors,
and it might happen Ihat the management of the affairs of the
corporation would become vested in persons who could not have
organized it.
We place our assent to the judgment below on the ground that it
appears from a consideration of the statute of 1883, and the nature
and object of co-operative insurance companies, and the relation
which members hold to the corporation, that adult persons only
were contemplated as entitled to membership. The law fixes an
arbitrary period when persons become clothed with general legal
capacity, and while in many cases youths under twenty-one are
capable of exercising an intelligent judgment and might properly
be admitted to the advantage of membership in a company like that
PARTIES TO THE CONTRACT. 3I
of the defendant, in many others they would be wholly unfitted to
act as members of such an organization.
We think the order below is right and it should be affirmed.
All concur, except O'Brien and Maynard, JJ., not sitting.
Order affirmed.'
b. Copporations.
STATE EX REL. V. ACKERMAN et al.2
51 Ohio St. 163. — 1894.
Quo WARRANTO by the State, on the relation of the Attorney-Gen-
eral, against C. F. Ackerman and ninety-nine others. Defendants
demur. Demurrer overruled, and judgment of ouster.
The petition is filed against C. F. Ackerman and ninety-nine other
persons, who are transacting the business of guaranty and accident
insurance in this State, under the name of the " Guarantee and
Accident Lloyds, New York," to oust them from the carrymg on of
that business, because they have not complied with the laws of the
State, or received any authority from it to do a business of that
kind.
Williams, J. — The action of quo warranto may be maintained,
under our statute, (i) against a person who unlawfully exercises a
franchise, and (2) against an association of persons who act as a
corporation within the State without being legally incorporated;
and the present action is prosecuted on both of these grounds. The
position taken in support of the demurrer is that the defendants, in
transacting the business of insurance in the manner alleged in the
petition, do not exercise a franchise, or act as a corporation, but
are pursuing, as individuals, an occupation in which any person may
of natural and common right engage; which right, it is contended,
cannot be abridged or controlled by legislation, and hence the
defendants are not subject to the conditions and regulations imposed
by the laws of the State on companies and associations doing an
insurance business. Insurance, in its early existence, when the
nature of the risks assumed were few, and the amount of business
small, was done chiefly, if not entirely, by individuals. But in more
recent times it has been extended until it embraces almost every
' But see Chicago Mutual Life Assoc, v. Htint, 127 111. 257, where it was held
that the admission of minors to membership was not sufficient ground for dis-
solving the association.
' This case also serves to illustrate generally the extent and nature of State
conirol over insurance business.
32 FORMATION OF THE CONTRACT.
kind of risk, and has grown to such proportions that it enters into
every department of business, and affects all classes of people, and
their property; and has, in consequence, everywhere become the
subject of legislative regulation and control. The several States
have enacted laws designed to place the business, within their limits,
on such substantial basis as will afford adequate protection to the
citizens and their property. There can be no doubt of the power
of the State to do so; nor that the power extends to the enactment
of such laws as its legislative body may deem wise and proper for
the purpose, not in conflict with the fundamental law; and there-
fore, within the legitimate exercise of that power, foreign com-
panies may be excluded altogether from doing business in the State,
or admitted on their compliance with such terms and conditions as
its Legislature chooses to impose. There has been enacted in this
State an extensive code or system of laws, covering the whole sub-
ject of insurance, regulating the incorporation and organization of
companies and associations for the transactions of the various kinds
of insurance, and prescribing their powers and duties, defining the
scope and effect of their policies, and otherwise regulating their
business. They are required, as a means of protection of those who
deal with them, to deposit adequate securities, and invest their
capital and earnings in designated modes, in the State, make peri-
odical reports of their financial condition and business affairs, submit
to visitations, and examinations of their affairs, by a public officer
charged with the duty of enforcing the insurance laws, and comply
with other specified requirements; a compliance with all of which,
by companies and associations organized in the State, is essential to
their right to carry on the business. Foreign companies, before
doing business in the State, are required to conform to the same
regulations, and others peculiarly applicable to them; among which
latter are those which prohibit any " insurance company, associa-
tion, or partnership, incorporated, organized, or associated under
the laws of any other of the United States, or of any foreign gov-
ernment," from doing an insurance business " in this State, until it
procures from the superintendent a certificate of authority to do
so," and forbid any person or corporation to " act as agent in this
State for any such company, association, or partnership, directly or
indirectly, either in procuring applications for insurance, taking
risks, or in any manner transacting the business of insurance, until
it procures from the superintendent a license to do so, stating that
the company, association, or partnership has complied with ail the
requirements of " the insurance laws " applicable to such company,
and depositing a certified copy of such license in the office of the
PARTIES TO THE CONTRACT. 33
recorder of the county in which the office or place of business of
such agent or agents is established." Rev. St. § 3656.
The chapter of the Revised Statutes which establishes the depart-
ment of insurance, and places it under the management of the
Superintendent, provides, among other things, that that officer shall
be appointed by the Governor, by and with the advice and consent
of the Senate. He holds his office for a fixed period, and is paid a
stated salary; he is provided with an office in the state-house, and
is specifically charged with the duty of seeing to the execution and
enforcement of all laws relating to insurance. He is authorized to
investigate the business and affairs of all insurance companies,
whether foreign or domestic, and employ skilled and competent
persons to assist him. It is made his duty when he has reason to
suspect that the affairs of any company are in an unsound condi-
tion, to cause them to be investigated, and its officers and agents
are required to submit themselves to examination under oath, and
their books and business to his inspection, and in every other way
facilitate the investigation; and, when satisfied the company is in
an unsound condition, his duty is to revoke its authority to do busi-
ness, and from his decision there is no appeal. State v. Moore. 42
Ohio St. 103. He must keep a record, and preserve in permanent
form his proceedings, including a concise statement of the condi-
tions of each company, and make reports to the Legislature of the
conduct and condition of each company doing business within the
State, with such suggestions as he may deem expedient. In short,
his department is a branch of the State government, and his func-
tions are derived from the State, and exercised in the public inter-
est. Every insurance company, before commencing business, is
required to pay into the department certain fees and charges for
filing its charter, and others for filing its preliminary statement for
admission, and for its certificate of authority to do business, and
for licenses to its agents; and, after the company commences busi-
ness, it " shall publish, at least once a year, in some newspaper of
general circulation, in every county where such company has an
agent, a certificate from the superintendent of insurance that such
company has, in all respects, complied with the laws of the State
relating to insurance." It is made unlawful for any person, com-
pany, or corporation not licensed by the Superintendent of Insur-
ance to receive or forward applications for insurance in any foreign
company, or in any manner aid in the transaction of its business;
and severe penalties are attached to the violation of any of the pro-
visions of the chapter which provides for the appointment of the
Superintendent, including those already pointed out, all of which
LAW OF INSURANCE — '\
34 FORMATION OF THE CONTRACT.
are made applicable, expressly, " to individuals and parties, and to
all companies and associations, whether incorporated or not, now
or hereafter engaged in the business of insurance; " and it is fur-
ther made unlawful for any " company, corporation, or association,
whether organized in this State or elsewhere, either directly or indi-
rectly, to engage in the business of insurance, or to enter into any
contracts substantially amounting to insurance, or in any manner
to aid therein, in this State, without first having complied with all
the provisions of this chapter." Rev. St. § 289. These are some
of the many statutory prcisions, showing the extent to which the
State has taken control of the business of insurance. They are
reasonable and just, and were adopted for the laudable purpose of
protecting the public against imposition by unreliable and untrust-
worthy companies and associations. Compliance with them is made
the condition upon which foreign companies and associations are
allowed to transact the business of insurance within the State.
There is not such compliance utitil the company or association has
obtained from the Superintendent of Insurance the necessary certifi-
cate of authority, and licenses to its agents. Companies and associ-
ations that have not received such certificate are denied the privi-
lege of doing business here. The certificate of authority so granted
by the Superintendent, so long as it remains in force, confers on the
company or association receiving it the right and privilege of car-
rying on its business of insurance in the State. The authority
emanates from the State, and the privilege granted is a franchise.
The author of a recent and well prepared work, treating of this
subject, says: " Where by statute the legal exercise of a right,
which at common law was private, is made to depend upon compli-
ance with conditions interposed for the security and protection of
the public, the necessary inference is that it is no longer private,
but has become a matter of public concern, — that is, a franchise,
the assumption and exercise of which, without complying with the
conditions prescribed, would be a usurpation of a public or sover-
eign function. In this case the Legislature has done no more than
was done by the court in the other instance, when it, from con-
siderations of a public nature, declared, as a principle of the com-
mon law, that facts brought to its notice, or of which it then took
judicial notice, warranted the application of principles existing
independently of the legislative declaration to the effect that the
right claimed was matter of public, and not exclusively of private,
concern." Spelling, Extraordinary Relief, § 1807. The same author
further says: " There was no class of business the transaction of
which, as a matter of private right, was better recognized at common
PARTIES TO THE CONTRACT. 35
law than that of making contracts of insurance upon the lives of indi-
viduals. But now, by statute, in almost, if not quite, all the States,
stringent requirements as to security of the persons dealing with
insurers, and the making and filing reports with public officers for
public information, are provided, and must be strictly observed and
complied with before any person, association, or corporation may
make any contract of life insurance. The effect of such statute is
to make that a franchise which previously had been a matter purely
of private right." Id. § 1808.
It is claimed, however, that the laws of Ohio do not apply
to the defendants, because they are not an organized corpor. -
tion, company, or association, or acting as such, but that, i,i
making contraqts of insurance, each individual acts for himself.
A careful consideration of their plan of business, as shown by
the articles of agreement and powers of attorney executed by
the defendants, has bought us to a different conclusion. They
have associated themselves together, in a business undertaking,
under a company name, in which, viz.: " Guarantee and Accident
Lloyds, New York," all of their policies are issued. Each sub-
scriber to the artick-s has contributed an equal amount to the capi-
tal stock of the concern, which is placed in the control of a board
of managers, called an advisory committee, to meet losses arising
on the policies. This board of managers is chosen by the subscrib-
ers, like the directors of a corporation, and invested with powers
quite as plenary. All the subscribers have executed powers of
attorney to the same individuals, investing them with the business
management of the insurance, under the supervision of the advisory
board. The powers conferred on the attorneys in fact are anal-
ogous to those of the executive officers of a corporation. They
execute the policies, keep accounts of the business and expenses,
which are open to the inspection of the advisory board, adjust all
losses, and prosecute and defend all suits growing out of the busi-
ness. Each member of the association stipulates with the others
that no policy shall be issued unless it is executed in behalf of
all, and yet that his liability shall be several only, and limited
to the amount contributed to the fund, or authorized by him;
so that, if some of the members become insolvent, and their
contribution is exhausted in losses, or. otherwise, the policy shall
be enforceable against the others only for an aliquot part,
equal to the proportion of the solvent to the insolvent mem-
bers. The liability of a stockholder of a corporation is not
more restricted. Then the interest of each member in the con-
cern is made transferable; a member who wishes to withdraw is
36 FORMATIUX OF THE CONTRACT.
authorized to procure another to take his place, and the representa-
tive of a deceased member may transfer the latter's share in like
manner, and, rn that way, the organization may be made as endur-
ing as it is possible for any corporation to be. The association has
the appearance, and some of the characteristics, of a corporation
formed for the purpose of doing a general insurance business in its
line, and its form of policies and mode of conducting its business
are calculated to impress one who does not make a critical examina-
tion, with the belief that it is a corporation, conforming to the
usages of such companies. The character of the organization
under which the defendants are operating, and their method of
business, bring them, we think, within the purview of that clause
of section 6760 of the Revised Statutes which authorizes an action
in quo warranto to be brought " against an association of persons
who act as a corporation within this State without being legally
incorporated." To be within the operation of that provision, it
is not necessary that the association, or persons composing it,
avow a purpose to act as a corporation; or assume to do so; it is
sufificient that the acts are such as appertain to corporations, or are
done after the manner of corporations.
Under a statutory provision identical with that of section 6760,
quoted above, it was held by the Supreme Court of Illinois that
" an association, or number of persons, who, in conducting the
business of insurance, profess to limit their liability to the amount
of money contributed by each, and assume to give perpetuity to the
business by making membership certificates transferable by the
assignment of the member, or his personal representatives, are ' act-
ing as a corporation,' so as to authorize a judgment of ouster in quo
warranto under Rev. St. 111. 1874, c. 112, where they are not legally
incorporated." Greene v. People^ 21 N. E. 605. The case is much
in point; and we fully concur in the doctrine announced by Schol-
field, J., in the opinion, where it is said: " The question here is
whether, under the facts presented by this record, ' any association
or number of persons are acting, within this State, as a corporation,
without being legally incorporated.' If they are, the judgment
below is authorized by our statute entitled ' quo warranto ' (chapter
112, Rev. St. 1874, p. 787), and must be affirmed; otherwise it must
be reversed. We think it clear that, in two respects at least, these
respondents are acting as a corporation, and it is not pretended
that they are actually incorporated, namely: First, in professedly
limiting their liability to the amount of money contributed by each;
second, in assuming to give perpetuity to the business by making
membership certificates transferable by the assignment of the mem-
PARTIES TO THE CONTRACT. 37
ber or his personal representative. It may be, as contended by
counsel, that individuals may insure property against loss by fire.
They cannot limit their liability to any given amount of capital they
choose to set apart for that purpose, nor can they perpetuate the
business without change of capital, beyond their own lives indefi-
nitely. These things can only be done by a corporation.
Ang. & A. Corp. (9th Ed.) § 41 ; 2 Kent, Comm. (8th Ed.) 296,
298; Pars. Partn. (2d Am. Ed.) 544; Gow, Partn. (2d Am.
Ed.) 17. The fact that these respondents may be legally held
individually liable upon any policies they may have issued does not
relieve them of the charge of having acted as a corporation. They
are, if individually liable, only liable because they have no statutory
authority to do what they have assumed to do, because, instead of
being a corporation in fact, they have usurped the powers of a cor-
poration. Were we to hold that these respondents can do, without
any legislative authority, what they here assume to do, our insur-
ance laws ought to be repealed; for individuals, then, by organizing
in this manner, could escape both individual and corporate liability
beyond the amount of assets they might choose to place in the
hands of their trustee as the basis of their liability. No public
officer could investigate whether the amount is in fact paid in, how
it is invested, or how secured, and the public would thus have prac-
tically no protection against dishonest companies. These respond-
ents, if they will carry on the business of insurance, must either
openly act upon their responsibility, as individuals, or they must
become incorporated, and subject themselves to the laws governing
such corporations.'' The judgment below was accordingly affirmed.
The grounds held sufficient for ousting the respondents in that
case are present in the case before us. The averments of the peti-
tion sufficiently show that the defendants, in transacting the busi-
ness of insurance in this State, are unlawfully exercising a franchise
within the State, and are acting as a corporation therein, without
being legally incorporated.
Demurrer overruled, and judgment of ouster.'
' Legislative Limitation of the Insurance Business to Corporations
Only. Such limitation is declared constitutional in Conunonwealih v. Vrootnan,
164 Pa. 306. The court concludes: " It [the act of 1870] does not prohibit the
business of insurance, but regulates it. It says to all persons interested: ' If
you wish to embark in this business, you must secure a charter of incorpora-
tion, so as to subject your business to the visitorial power of the state. If you
will not do this, you must not engage in insurance against fire at all.' This is
not prohibition of the business, for the business is distinctly authorized. It is
an eff ut to bring it under State supervision and control, by requiring all who
38 FORMATION OF THE CONTRACT.
II. Insurable Interest.
a. Insurable Interest in Property.
CREED ET AL. v. SUN FIRE OIFICE.
loi Ala. 522. — 1593.
Coleman, J. — This is an action by appellants upon a policy of
insurance issued for the benefit of plaintiffs, insuring a certain
dwelling against loss or destruction by fire. The suit is in the joint
name of Katie Creed and Mattie Flinn, the assured. The defend-
ant pleaded several special pleas, upon some of which issue was
joined, and to the others a replication was filed by plaintiffs. The
court sustained a demurrer to the replication, and, the plaintiffs
declining to plead further, judgment was rendered for the
defendant. * * *
The next proposition involves a question new in this State. Ha';
a creditor an insurable interest in a building, the property of the
estate of his deceased debtor which may be subjected to his debt,
the personal property being insufficient to pay the debts of the
estate? After much deliberation, our conclusion is that he has an
interest which maybe insured. We concede and affirm that a simple
contract creditor, without a lien, either statutory or contract, with-
out tijiis in re or dijus ad rem, owning a mere personal claim against
his debtor, has not an insurable interest in the property of his
wish to enter ihe business to put themselves in a position where the insurance
legislation of the State will reach them, and the insurance department of ihe
State can supervise their business and compel observance of the law. Without
going further into the discussion, we may now state our conclusions applicable
to the case before us: First. The business of insurance against loss by fire is,
by reason of its magnitude, its importance to properly owners, and the nature
of the business, a proper subject for the exercise of the police power of the
State. Second. The act of 1870 is a valid exercise of the police power. It does
not prohibit, but regulates, the business. It excludes no one from engaging in
it, but prescribes the preliminary qualification necessary for all alike to entitle
them to enter the business. Third. The qualification is reasonable. It is open
to all under general laws. It is not burdensoine. Its only effect is to secure
adequate capital at the beginning, and State supervision during thecontinuance
of the business. Fourth. Upon the special verdict, judgment should have been
entered in favor of the Commonwealth, and sentence should have been pro-
nounced under the act of 1870. That this may now be done, the judgment is
reversed, the record remitted, and a procedendo awarded." Dean. J. (with
whom concur Sterrett, C. J., and Green, J.), dissents, the conclusion of his
opinion being as follows: " If the exercise of the right of contract to indemnify
be injurious to the public, then it ought to be prohibited; if beneficial, it ought
not to be monopolized by a few * * * while a business affected by a public
IN'SLRADl.E INTEREST. 39
debtor. Such contracts are void, as being against public policy.
We do not think the principle applies after the death of the debtor,
as to property liable for the debt, and which, if destroyed, will
result in the loss of the debt. The real estate as well as personal
property of a deceased debtor is liable for his debts, but the real
estate cannot be subjected to the payment of his debts until after
the personalty has been exhausted. After the death of the debtor
the debt is no longer enforceable in personam. The proceedings to
reach the property of the estate of the deceased debtor are in rem.
The property of the debtor takes the place of the debtor, and
becomes, as it were, the debtor. Whoever knowingly receives the
property of a deceased debtor, and wrongfully converts it is answer-
able to the creditor. 3 Brick. Dig. p. 464, § 148; Id. p. 465, § 162.
The relation of creditor and debtor invests the creditor with an
insurable interest in the life of his debtor to the extent of his debt
Alexander v. Sanders, 93 Ala. 345, 9 South. 521; 11 Am. & Eng.
Enc. Law. 319. It would seem upon like principles that, when the
property becomes directly subject to proceedings /;/ rem for the
satisfaction of the debt, the creditor should become invested with
an insurable interest in the property. Certainly, if a creditor can-
not obtain satisfaction of his debt from the personal property of his
deceased debtor, and has a legal right, which cannot be defeated,
to enforce its collection by proceedings /;/ rem against a building
belonging to the estate of the deceased debtor, and if it be true
interest may be regulated, yet when not inimical to the health, morals, or safety
of the people, it cannot be prohibited. I do not think an exclusive grant to a
class is regulation. That is prohibition of all others, and is therefore unconsti-
tutional."
Retaliatory Legislation. Some States have legislative acts providing in
substance that an insurance corporation of another Stale seeking to do business
in such Stales shall pay for taxes, fees, etc., an amount equal to that imposed by
the State of its origin, upon insurance corporations of such other States. In New
York this legislation was held constitutional when attacked upon the ground
that (i) it was an unlawful delegation of the legislative power, by remitting 10
another Stale the enactment of tax laws, and (2) that the legislation violated the
Federal Constitution, by denying to a person within the jurisdiction of the
Slate, the equal protection of the laws. People v. Fire Assoc, of Phila., g2 N. Y.
311. Contra, Clark v. Mobile, 66 Ala. 217. The New York case is affirmed as
to the second point in Phila. Fire Assoc, v. A^ew York, 119 U. S. no.
Insurance as Interstate Commerce. State regulation of insurance corpora-
tions doing business in two or more Slates is not in conflict with that clause of
the Federal Constitution which declares that Congress shall have power to
" regulate commerce with foreign nations and among the several States."
Insurance policies are contracts, and " are not not articles of commerce in any
proper meaning of the word." Paul v. Virginia, 8 Wall. 168.
40 FORMATION OF THE CONTRACT.
that the destruction of the building by fire would immediately and
necessarily result in pecuniary loss, the loss being the direct conse-
quence of the fire, the creditor has an interest in the protection of
the building. He has no lien as in the case of a mortgagee nor
such lien as the statute may confer on an attaching or execution
creditor; but his right to subject the specific property to his debt
invests him with an interest but little less, if any, than that of the
attaching or execution creditor or mortgagee. In the case of
Herkimer v. Rice, 27 N. Y. 163, the question arose as to whether an
administrator of an insolvent estate held an insurable interest in
the real estate of the deceased debtor. The court (Denio, C. J.,
rendering the opinion) held that he did, and the conclusion was
based in great part upon the proposition, that the creditors had
such an interest which the administrator could protect by insurance
for them. We think whatever could be done by an administrator
for the creditor in this respect could be done directly by the cred-
itor for himself. Rohrbach v. Insurance Co., 62 N. Y. 47. Other
reasons might be given, but we are of the opinion these are sufficient
to show that the creditor of a deceased debtor, whose estate is insuffi-
cient to pay the debts, has an insurable interest in the property of
the estate, which by law may be subjected by proceedings /;/ rem
to the payment of the debts. The recovery cannot exceed the
amount of the insurable interest.
The next question is whether the pleadings show such an insur-
able interest. The pleas and the replication appear to have been
drawn with technical caution, so far as the rights of Mattie Flinn,
the creditor, are affected. The plea shows that the building and
lot upon which it is located belonged to the estate of Thomas Creed,
deceased, and that neither of the assured are his legal heirs. Upon
the death of Thomas Creed the land descended to his legal
heirs. Prima facie, upon the facts of the plea, the insured owned
no insurable interest. The replication avers that Katie Creed
was the widow of Thomas Creed, and that he owned no other
real estate, and this statement of facts is followed with the
conclusion that she owned a dower and homestead interest.
Hers was clearly an insurable interest. Its value is a fact to be
ascertained by proof. The replication then further averred that
Mattie Flinn was a creditor of Thomas Creed, stating the amount
of her claim, the insufficiency of personal assets to pay the debts,
and that there was no other real property belonging to his estate.
The interest shown by the plea to be in Katie Creed (dower and
homestead) does not include the entire estate. Under the replica-
tion there is a remainder interest in the real estate liable for the
INSURABLE INTEREST. 4I
debts of the estate. The pleadings inform us that the lot and
building were in the city of Montgomery. Whether it exceeded in
value $2,000, the constitutional limit of the value of the homestead
exempt from debts during the lifetime of the widow, does not
appear. We are not unmindful of the statutory provision by which,
under some circumstances, the fee to the homestead may become
vested in the widow and minor children or widow or minor child.
The consideration of these questions does not arise upon the plead-
ings. The court erred in sustaining the demurrer to the replication.
Reversed and remanded.'
RIGGS V. COMMERCIAL MUTUAL INS. CO.
125 N. Y. 7. — iSqo.
Action by John S. Riggs against the Commercial Mutual Insur-
ance Company. Defendant issued to Joseph L. Tobias a policy of
insurance upon the steamer Falcon for $1,000, loss payable to
Andrew Simonds. Tobias was, at the time of effecting this insur-
ance, a stockholder in the Merchants' Steamship Company, which
then owned the steamers Sea Gull and Falcon. Simonds, by an
indorsement on the policy, directed the insurance company to " pay
to John S. Riggs."
' " But the result of a comparison of the text writers above cited is that there
need not be a legal or equitable title to the property insured. If there be a
right in or against the property, which some court will enforce upon the prop-
erty, a right so closely connected with it, and so much dependent for value
upon the continued existence of it alone, as that a loss of the property will
cause pecuniary damage to the holder of the right against it, he has an insur-
able interest. Thus a mortgagee of real estate, though he hold also the bond
of the mortgagor, has an insurable interest in the buildings; while a judgment
creditor of the same mortgagor, his judgment being a lien upon the same real
estate and the same buildings, is said not to have an insurable interest in them.
The interest of the first is said to be specific, the interest of the latter, general.
As a general rule, the distinction may be sound. But I think it v\?ouId be diffi-
cult to show an appreciable practical difference in the pecuniary result to the
two. If the mortgagor and judgment debtor should die leaving no personal
property, and no real estate save that mortgaged, it principally valuable for the
buildings upon it, and they should be burned, each must then look to the real
estate, the lands alone, for a security for his debt; and if that be insufficient,
each must with equal certainty, suffer a pecuniary disaster, resulting directly
from the fire. What legal reason is there, why the one may not, as well as the
other, protect himself by a contract of insurance? " Rohrhach v. Ins. Co., 62 N.
Y. 47. 54.
42 FORMATION OF THE CONTRACT.
Andrews, J. * * * The question whether a stockholder in
a corporation, as such, has an insurable interest in the corporate
property, which he may protect by an insurance of specific, tangible
property 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
condition in the policy. Lawrence v. Van Home, i Caines, 276;
T\lfr 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.
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. 37, prohibiting wager policies, and this
was followed by the enactment in this State of a similar statute
(i Rev. St. 662) prohibiting wagers. But to prevent the applica-
tion 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 assured, and which are not
otherwise prohibited by law." Section 10. It would seem, there-
fore, tnat whenever there is a real interest to protect, and a person
is so situated with respect to the subject of insurance that its
destruction would or might reasonably be expected to impair the
value of that interest, an insurance on such interest would not be a
wager within the statute, whether 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 happen-
ing of some event, is not an insurable interest.
The stockholder in a corporation has no legal title to the cor-
porate assets or property, nor any equitable title which he can con-
vert 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. Bigelaiv, 93 N. Y. 593; Van
Allen V. Assessors, 3 Wall. 573. But stockholders in a corporation
have equitable rights of a pecuniary nature, growing out of their
INSURABLE INTEREST. 43
situation as stockholders, which may be prejudiced by the destruc-
tion of the corporate property. The object of business corpora-
tions is to make profits through the exercise of the corporate fran-
chises, and gains so made are distributable among the stockholders
according to their respective interests, although the time of the
division is ordinarily in the discretion 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 cor-
poration, the assets, after payment of debts, are divisible among the
stockholders. It is very plain that both these rights of stockhold-
ers — 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 corporation 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 corpora-
tion, should be burned. It is not necessary, to constitute an insur-
able interest, that the interest is such that the event insured against
would necessarily subject the insured to loss. It is sufficient that
it might do so, and that pecuniary injury would be the natural con-
sequence. 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. The
court, in a careful opinion, reached the conclusion that a sto-ck-
holder in a corporation had an insurable interest in the corporate
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 Com-
pany, 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, i Best & S. 336.) It is difficult to perceive any good reason
why, if a stockholder could be insured on his shares in a corpora-
tion against a loss happening in the prosecution of a corporate
enterprise, he could not insure specifically the corporate property
itself embraced in tht adventure, and prove his interest by showing
that he was a shareholder.
The question here is, did the plaintiff have an insurable interest
44 FORMATION OF THE CONTRACT.
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 reason, 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; Rohrbach v. Insurance Co., 62 N. Y.
47, and National Filter-ing Oil Co. v. Citizens' Ins. Co., 106 N. Y. 535,
13 N. E. Rep. 337, 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 insur-
ance now in question is not a wager policy, but is a fair and reason-
able 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.
HARRISON V. PEPPER.
166 Mass. 288. — 1S96.
Bill in equity to compel defendant to place the sum received by
her for insurance on premises, of which she was the life tenant, in
trust for plaintiff, as remainderman, until decease of defendant,
with income payable to defendant during life. Defendant demurred.
Demurrer sustained. Plaintiff appealed.
Morton, J. — The defendant, as life tenant, had an insurable
interest in the property; and although it is alleged in the bill that
she renewed the insurance on the building in her own name " as an
entirety of estate, without qualification, * * * for the sum of
twelve hundred dollars," and that that sum was paid to her as the
full value of the dwelling-house, without any deduction by reason
of the plaintiff's ownership in fee, it is not alleged that the sum so
paid exceeded the value of the defendant's interest, or what the value
of the defendant's interest was. If the amount received by the
defendant did not exceed the value of her interest, then it is clear that
the plaintiff has no right in equity to any portion of it. Reitenbach v.
Johnson., 129 Mass. 316; Martineau v. Kiiching, L. R. 7 Q. B. 436;
INSURABLE INTEREST. 45
Stilwellx. Staples, 19 N. Y. 401. But if we assume that the sum
paid is equal to the total value of the dwelling-house, and exceeds
the value of the defendant's interest, and that the bill tinally alleges
this, still we do not think that the plaintiff is entitled to recover.
A tenant for life is liable for any unauthorized act which tends to
the injury of the inheritance; in other words, for voluntary waste.
How far and under what circumstances he is liable for what is
termed permissive waste is not altogether clear, and we need
not consider. In re Cartiv right {^Avis v. JVetvman^, 41 Ch. Div. 532;
Leake, Land, 92; Pollock Torts, 285, 286; Taylor Landl. & Ten.
(7th Ed.) §688; Kerr, In], (ist Ed.) 252. We have been referred
to no case in which it has been decided that the neglect of the life
tenant to insure is to be regarded as in the nature of voluntary or
permissive waste, though it has been held that the failure to pay
taxes is {Stetson v. Day, ^i Me. 434); but that, manifestly, stands
upon different ground.
It is plain that the plaintiff is not entitled to recover unless she
has some claim upon the funds in the hands of the defendant. In
the absence of anything that requires it in the instrument creating
the estate, or of any agreement to that eftect on the part of the life
tenant, we think that the life tenant is not bound to keep the prem-
ises insured for the benefit of the remainderman. Each can insure
his own interest, but, in the absence of any stipulation or agree-
ment, neither has any claim upon the proceeds of the other's policy,
any more than in the case of mortgagor and mortgagee, or lessor
and lessee, or vendor and vendee. Biirlingame v. Goodspeed, 153
Mass. 24, 26 N. E. 232; Trust Co. v. Board/nan, 149 Mass. 158, 21
N. E. 239; Insurance Co. v. Boyden, 9 Allen, 123; Warivicker ^.
Bret nail, 23 Ch. Div. 1S8; leeds v. Chectham, i Sim. 146; Rayner \.
Preston, 18 Ch. Div. i; Kearney v. Kearney, 17 N. J. Eq. 59, 71.
The contract of insurance is a personal contract, and inures to the
benefit of the pariy with whom it is made, and by whom the premi-
ums are paid. It is a contract of indemnity against loss. The sum
paid " is in no proper or just sense the proceeds of the property."
lerow \. Wlmarth, 9 Allen, 382, 385; Insurance Co. v. Boyden, Id,
123; Wilson V. Hill, 3 Mete. (Mass.) 66; King v. Itisurance Co., 7
Cush. i; Insurance Co. v. Lawrence, 10 Pet. 507, 512.
It is not averred, and does not appear, that the defendant intended
to make a present of the proceeds of the policy to the plaintiff, or
was insuring for her benefit. Whether the amount of indemnity
received by the defendant for her loss was more or less than the
value of her interest cannot affect the plaintiff. Nor can the defend-
ant be converted into a trustee for the plaintiff by the mere fact
4^ KUKMAllU.N Ul- THE CuMKAC T.
that lac anijuat which she received was equal to the full value of
the lioase. It was paid to and received by her as indemnity for the
loss which she had ^u^tained, and, as already observed, does not
stand in the place of the property insured. In ^Vf/s/i v. Assurance
Co., 151 Pa. St. 607, 617, 25 Ati. 142, relied on by the plaintiff,
there was evidence that the life tenant intended to insure for the
benefit of herself and the remainderman. The plaintiff argues that
sound public policy requires that money received by a life tenant
on a total loss by fire should be used in rebuilding, or should go
to the remainderman reserving the interest to the life tenant for
life. This argument proceeds on the assumption that the proceeds
of the insurance take the place of the property insured — a view
which, as we ha^e seen, is contrary to our own and other decisions.
We think that the decree dismissing the bill, with costs, should be
affirmed, and it is so ordered.'
TRADE INSURANCE COMPANY v. BARRACLIFF.
45 N. J. L. 543. — 1883.
Dixon, J. — Upon a policy of fire insurance issued by the defend-
ant to the plaintiff this action was brought ir. the Supreme Court,
tried in the Cumberland Circuit, where the plaintiff obtained a ver-
dict, and removed by writ of error to this court. 'Vne assignments
of error relied on all relate to exceptions taken at the trial. * * *
The fourth exception is to the charge of the judge, that the plain-
tiff had an insurable interest in the prop.-irty and could recover for
the whole damage occasioned by the fire, not exceeding the amount
of tlie insurance.
Tne property insured consisted of the buildings and stock upon a
farm whereon the plaintiff with his family resided. The title of the
' " In the case of Atmely v. DeSaussure, 26 S. C. 505, an insurance policy
taken out by one tenant in common was held not to inure to the benefit of the
co-tenant. One tenant in common is not in any sense a trustee for his co-
tenant, and has no insurable interest in his share of the property. A life ten-
ant, on the other hand, is a trusiee for the remainderman, and is certainly
liable for loss by fire caused by his negligence. He ought not to be allowed to
put himself in a position in which he would have no motive for proper care of
the estate by having a policy of fire insurance by which, in case of loss, he could
substitute the full fee simple value of the buildings in place of his interest for
life. We therefore think that a sound public policy requires that any money
collected by a life tenant on a total loss by fire should be used in rebuilding, or
should go to the remainderman, reserving the interest for life for. the life ten-
ant.' — Clyburn v. Reynolds 31 S. C. 91. 118.
INSURABLE INTEREST. 47
pf3p:;rty, both real and personal, was vested in his wife, but he had
the possession and enjoyment of it as the head of his household.
The plaiatiff and his wife had had living offspring of their marriage.
The insurance was effected by the plaintiff with the authority of his
wife, aij the agent of the company who mide the contract knew
tliit t'le wife was the owner, at least of the realty. These are the
ficts upon which the validity of the exception is to be determined.
* * * I think It is clear that in the case before us the plaintiff
hiJ an insurable interest in both the personal and real property of
his wife. Of the personalty, he had the actual possession and
e.ijoyment, and also a reasonable expectation of these pecuniary
advantages as lawful incidents of his wife's ownership and his mari-
tal relations with her. His interest was such that, even in criminal
pleading, framed to convict one of the larceny of the goods,
he might be described as their owner. Petre v. State^ 6 Vroom
64. In the realty he had not only these same benefits, but also
an inchoate right of curtesy. He was not, indeed, tenant by the
curtesy initiate, since the act of 1852 prevented his acquisition
of that estate (^Porch v. Fries, 3 G. E. Green, 204), but by the birth
of offspring he had obtained an inchoate right which, on his wife's
death, he surviving, would bloom into a freehold. Ross v. Adatns,
4 Djtcher, 160. Such present benefits, coupled with such prospec-
tive rights, come easily within the definition of an insurable interest.
A::cordingly, when we seek for adjudications on these very points,
we find them almost uniformly supportmg the right to insure.
Thjs, in Goulstine v. Royal Ins. Co., i F. & F. 276, Ghief Baron
Pollock ruled that a husband had an insurable interest in goods set-
tled to his wife's separate use, but in their joint possession as the
furniture of their home, and could recover for their loss under a
policy issued to himself alone. In Clark et ux. v. Firemen s Ins. Co.,
18 La. 431, it was decided that a policy taken out by the husband
on furniture belonging to his wife, but used in their dwelling, was
valid. In Cohn v. Virginia Ins. Co., 3 Hughes G. Gt. 272, the hus-
band's right of using his wife's goods was said to be an insurable
interest, although a verdict for the plaintiff was set aside for want
of a proper description of that interest in the policy and declaration.
h:\ opposite view seems to have been entertained in Agricultural
Ins. Co. V. Montague, 38 Mich. 548, where a husband had procured
insurance on his wife's silverware; but the report does not indicate
whether the husband had any possession or use of the property, and
the decision rested on the invalidity of the policy, because the
wife's title was not set out in the policy as the contract required.
5 ) as to the wife' s realty. In Franklin Ins. Co. v. Drake, 2 B.
48 FORMATION OF THE CONTRACT.
Mon. 47, the husband was substantially a tenant by the curtesy
initiate of his wife's lands, and it was held that he had an insurable
interest, and that, having such interest, he was entitled to recover
the whole value of the property destroyed, without regard to the
value of his personal interest, the court saying that the amount of
recovery depends on the interest intended to be insured. In Mer-
rett V. Farmers' Ins. Co., 42 Iowa, 11, a husband had taken out a
policy in his own name on a building erected by his wife before
marriage, on land in which she had only a life estate, but which was
used by both as a homestead, and it was held that he had an insur-
able interest by reason of his possession, and that he could recover
for the whole damage, because the policy, by providing that the
amount of loss was to be estimated according to the ac:ual cash
value of the property at the time of the loss, indicated that the
insurance was intended to cover the entire injury. The court said;
" If the holder has an insurable interest, no inquiry is made as to
the value of that interest, * * * to limit the obligation of the
underwriters. The rule may be different in the case of mortgagees
and lienholders." In Harris v. York Mut. Ins. Co., 50 Pa. Sl. 341,
the husband's interest was precisely like that of the present plain-
tiff; he had an inchoate right of curtesy and was in occupation ut
the building insured as the dwelling of himself and wife. The pot-
icy and the action were in his own name, and they were sustained,
both because of his own interest and because of his implied agency
for his wife; Woodward, C. J., saying on this latter point: " When
a husband has effected an insurance on houses in the joint posses-
sion of himse'.f and wife, but which belong to her, the law will pre-
sume her ratification of his act, if not her precedent authority to
perform it, and will support the insurance for her benefit." To
like effect are Mut. Ins. Co. v. Deale, 18 Md. 26, and American Cent.
Ins. Co. V. McLanathan, 11 Kan. 533, and Mr. Phillips approves the
doctrine that a husband having a right to tenancy by the curtesy in
the event of his surviving his wife, has an insurable interest in her
real estate. Phillips on Ins. § 350.
Having thus, then, concluded that the plaintiff had an insurable
interest at the making of the contract and at the time of the loss,
the ne.xt question is as to the amount of recovery. And on this
point it will not be necessary to go so far as some of the cases already
cited, and say that no inquiry into the interest of the assured will
be permitted; but I think this principle may be justly laid down
that the amount to be recovered will depend, not on the loss hap-
pening to the individual interest of the assured, but on the damage
accruing to whatever interests are covered by the policy, so far as
INSURABLE INTEREST. 49
the assured represents those interests, whether as his own or by
the precedent authority or subsequent ratification of others. On
this notion rest all the cases enforcing insurance effected by con-
signees, factors and other bailees and agents, to the full amount of
the loss. It supports, too, the judgments in most of the cases
already cited. It finds a notable illustration in IVaring v. Indemnity
Ins. Co., 45 N. Y. 606, where the plaintiffs had taken out a floating
policy insuring themselves against loss by fire on goods " sold but
not removed," and it was held that they could recover the full
amount of the insurance, although when the fire occurred the prop-
erty had been sold and completely delivered by the plaintiffs, and
their responsibility terminated, but the goods had not been removed
by the vendees from the place of storage. The description in the
policy embraced the goods destroyed, and the plaintiffs recovered
for the benefit of their vendees.' See also Strong v. Manuf. Ins.
Co., 10 Pick. 40, and J/tzr/jT V. Cumberland Ins. Co., 15 Vroom, 478.
In the case before us there is no doubt that the plaintiff repre-
sented his wife's interest as well as his own, and that he intended
to effect this insurance on behalf of both, and that such intention
was known to the underwriters. This fact of representation is not,
indeed, expressly stated in the policy, but it is no part of the law
either of contracts or of evidence, that the principal shall be dis-
closed on the face of the writing. In Insurance Company v. Chase,
5 Wall. 509, the assured was only one of five trustees of a Congre-
gational church in Portland, and the policy insuring the church
edifice was issued to him as if he had been personally the absolute
owner in fee; the company contended that the policy could cover
only his individual interest, or, at the furthest, the fractional inter-
est which he had as trustee. But the court held that the plaintiff,
having assured the building with the assent of his co-trustees and
for the benefit of the cestuis que trustent, the company could not
' Insurable Interest of Bailees. "Agents, commission merchants or others,
having the custody of, and being responsible for, property, may insure in their
own names; and they may, in their own names, recover of the insurer not only
a sum equal to their own interest in the property by leason of any lien for
advances or charges, but the full amount named in the policy up to the value
of the pioperty. In all such cases, the right to insure and the right to recover
seem to be founded upon the relation above adverted to. See DeForrest v.
Fulton Ins. Co., i Hall Sup. Ct. Rep. 84: Stilluell v. Staples, 19 N. Y. 401; Siter
V. Motts, I Harris Penn. St. R. 218. The right is put upon the fact, that hav-
ing the possession of the property exclusive as to all but the owner, to whom
they are responsible, Ihey have the right to protect from loss, so that it or its
value may be rendered to the owner when he calls for his own." — Waring v.
Ins. Co.. 45 N. Y. 606, 611.
LAW OF INSURANCE — 4
50 FORMATION OF THE CONTRACT.
complain that the character of the interest was not incorporated in
the policy and must pay the whole loss.
The policy now under consideration clearly indicates a design to
have the insurance cover the entire ownership. This would be
inferred, at least for the purpose of supporting the contract, from
the fact that no particular interest is mentioned as the subject mat-
ter of the insurance, but it more expressly appears in the clause
which provides for estimating the arnountof loss or damage, accord-
ing to the actual value of the insured property at the time of the
fire, in that which requires the proof of loss to set forth the value
of the property insured and the interest of the assured therein, and
in that which gives to the company an option of replacing the
property burned with other of the same kind and goodness. These
expressions show that the property insured was not necessarily the
interest of the assured alone. Jf^a/ers v. Assurance Co., 5 E. & B.
870; Merre/t v. Farmers' Tin. Co., 42 Iowa, 11. * * *
The judgment of the Supreme Court should be afifirmed.
For affirmance — The Chancellor, Dixon, Knapp, Scudder,
Clement, Cole, Kirk:, Paterson, Whitaker — 9.
For reversal — The Chief Justice, Depue, Magie, Green — 4.
b. Insurable Interest in Life.
I. Insurable Interest in One's Own Life.
^TNA LIFE INSURANCE COMPANY v. FRANCE.
94 U. S. 561. — 1876.
Error to the Circuit Court of the United States for the Eastern
District of Pennsylvania.
Mr. Justice Bradley delivered the opinion of the court.
This action was brought by David France and Lucetta P., his
wife, to recover the amount of a policy of insurance for $10,000,
issued by the ^tna Life Insurance Company on the life of Andrew
J. Chew, of Philadelphia, dated September 13, 1865, and payable to
the said Lucetta, who was Chew's sister.
The proposals for the insurance, made out upon one of the printed
blanks of the company, were signed by both Chew and Mrs.
France. * * *
The trial resulted in a verdict and judgment for the plaintiffs.
The defendant sued out this writ of error. * * *
On the question whether Lucetta P. France had an insurable
interest in the life of Chew, the conceded facts are that she was his
INSURABLE INTEREST. 5 1
sister, as stated in the policy; that, at the time the policy was
issued, she was married to the other plaintiff, David France, and in
no way dependent on her brother for her support; that the latter
was earning his living as a ladies' shoemaker, and was of small
means. Evidence was given tending to show that Mrs. France had,
at different times, loaned money to her brother to an amount of
some $2,000, and lent him $400 more in September, 1865; that a
previous policy of like amount with the present had been obtained
of the defendant company on Chew's life for his sister's benefit
in June of the same year, and that at the time of issuing the
policy now in suit he was unmarried, but was engaged to be married,
and was in fact married the next day. The policy, as well as the
several receipts for the annual premiums, signed by the secretary
of the company, and countersigned by its agent in Philadelphia, all
acknowledged that said premiums were received from Chew.
The construction given to the policy by the court below was,
that it was a contract between the company and Chew for an assur-
ance of his life, with a stipulation and agreement that the money
should be paid to his sister; and the court held that such a policy
is sustainable at law on account of the nearness of the relationship
between the parties, and especially as Mrs. France, at the time the
insurance was effected, was one of Chew's next of kin, prospectively
interested in his estate as a distributee. We concur in the con-
struction of the policy made by the court, and in the validity of the
transaction. As held by us in the case of the Cotinecticut Mutual
Life Insurance Company v. Schaefer, supra, p. 457, any person has a
right to procure an 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 itself is equivalent to such
an assignment.
The insurance company gave in evidence three promissory notes
given by Lucetta P. France herself for part of the last three premi-
ums paid on the policy, and requested the court to charge, that if
the jury believed that the premiums on the policy were paid by
Lucetta P. France, whether in cash or by her notes, there was evi-
dence from which they could find that the application for insurance
was made and the policy in question taken out by her for her own
benefit; and, if such was the case, she must show an insurable
interest in the life of her brother, beyond that of mere relationship,
before she could recover. The court refused so to charge; and, we
52 FORMATION OF THE CONTRACT.
think, rightly. Waiving the question, whether, merely as sister of
Chew, Mrs. France could have effected in her own name an insur-
ance on his life, without its being obnoxious to the charge of a
wager policy, the evidence was incompetent to prove the fact sought
to be proved by it. The company, when taking the notes in ques-
tion, acknowledged the premiums to have been received from Chew,
and was estopped from going behind its own admission, under the
circumstances of the case. The contract of insurance, as correctly
construed by the court, was made with Chew; and the relationship
of the parties was such as to divest the "assignment of the policy or
the direction of its payment to his sister of all semblance of a wager-
ing transaction. Under the circum>tances, it matters not if the
money or notes required for paying the premium did come from
Mrs. France; at most, it was by way of advance on her brother's
account, and on his contract. He had a right to take out a policy
on his own life for his sister's benefit; and she had a right to
advance him the necessary means to do so. As between strangers,
or persons not thus nearly connected, such a transaction would be
evidence to go to the jury, from which, according to the circum-
stances of the case, they might or might not infer that it was mere
gambling. But as between brother and sister, or other near rela-
tions, desirous of thus providing for each other, and, as said by
Chief Justice Shaw, presumed to be actuated by " considerations of
strong morals, and the force of natural affection between near
kindred operating often more efficaciously than those of positive
law," [Loomis v. Eagle Life Ins. Co.., 6 Gray, 399), the case is
divested of that gambling aspect which is presented where there is
nothing but a speculative interest in the death of another, without
any interest in his life to counterbalance it. On this ground we
hold, that where, as in this case, a brother takes out a policy on his
own life for the benefit of his sister, it is totally immaterial what
arrangement they choose to make between them about the payment
of the premiums. The policy is not a wager policy. It is divested
of those dangerous tendencies which render such policies contrary
to good morals. And as the company gets a perfect quid pro quo in
the stipulated premiums, it cannot justly refuse to pay the insur-
ance when incurred by the terms of the contract. * * *
Judgment affirmed.'
' In Wkitmore v. Supreme Lod^e, 100 Mo. 36, the defendant issued its benefit
certificate to Mary Mudd, a member of the order, payable to Marie E. Whit-
more, as trustee of her daughter, Marie L. Whilmore. Marie E. and her hus-
band Benjamin T. sued upon the certificate. Defendant claimed that Benja-
INSURABLE INTEREST. 53
2. Insurable Interest in the Life of Another.
a. Relationship.
SINGLETON v. ST. LOUIS MUTUAL INS. CO. et al.
66 Mo. 63. — 1877.
Henry, J. — Plaintiff sued defendants on a policy of insurance
issued by the St. Louis Mutual Life Insurance Company, on the life
of John T. Anderson, procured by plaintiff, who paid the premiums,
and was to receive the amount for which said life was insured by
said company, on the death of said Anderson.
Plaintiff was an uncle of John T. Anderson, but it was neither
alleged nor proved by plaintiff that he had any pecuniary interest
in his life and the mere relation of uncle and nephew does not con-
stitute an insurable interest, to enable either to insure the life of
the other. It is maintained with great ability by Messrs. McFarlan
and Jones, attorneys for plaintiff, that a policy of insurance,
effected by one on the life of another in which he has no pecuniary
interest, is valid; and they rely upon Chisholm v. Insurance Co., 52
Mo. 213, in which this court (Wagner, J.) said: " In this State we
have no statute on the subject covering this case, and as the policy
is not void by the common law, it can only be declared so on the
ground that it is against public policy. There is nothing to show
that the contract was a mere wagering one, or that it is in any wise
against or contrary to public policy." These remarks, of course,
are to be restricted to the case then under consideration. The
plaintiff there had insured the life of Clark, between whom and
herself there was a marriage engagement, and the court held that
she had a pecuniary interest in the life of Clark, remarking that,
" had he observed and kept the same (his contract of marriage),
then, as his wife, she would have been entitled to support. Had
he lived and violated the contract, she would have had her action
for damages." There are intimations in the opinion which support
the views urged by respondent's attorney, but they are obiter dicta.
The case of Insurance Co. v. Johnson, 24 N. J. Law, 576, is approv-
ingly cited by the court, but a different doctrine from that announced
in that case has been held in Massachustts, New York, Connecticut,
min T. procured Mary Mudd to thus insure her life, and that he paid the
premiums, and that he had no insurable interest in Mary Mudd's life. It was
held that an instruction that what Benjamin T. Whitmore could not do directly,
in the way of effecting an assurance on a life in which he had no insurable
interest, he could not do indirectly, was correct. See also, upon this point,
Brockway v. Co., 9 Fed. 249.
54 FORMATION OF THE CONTRACT.
Maine, Rhode Island, Indiana, by the Circuit Court of the United
States, by Dillon, J., in Sjvtck v. Insurance Co., 2 Dill. 161, Fed.
Cas. No. i3',692, and in this State in McKee v. Insurance Co., 28
Mo. 383. And in Ganibs v. Insurance Co., 50 Mo. 44, it was held
indirectly that a person procuring an insurance on the life of another
must, to make it valid, have a pecuniary interest in the life insured.
In the latter case. Bliss, J., said: " Gambling, or wager policies,
are those where the persons for whose use they issue have no
pecuniary interest in the life insured. But the wife has a direct
interest in the life of her husband." In the former case, Scott, J.,
said: " There is nothing in the contract as stated in the petition,
which shows it to be a wagering one, or in any wise contrary to
public policy."
He then proceeds to show that the plaintiff had a pecuniary inter-
est in the life of the husband, which she insured for her benefit. In
Evers V. Association, 59 Mo. 430, Wagner, J., who delivered the
opinion of the court, did not seem entirely satisfied with Chisholm
V. Insurance Co. He said: "Our opinion on this subject was
expressed in Chisholm v. Insurance Co., 52 Mo. 213, to some extent,
but it is not necessary to examine the question further in this case,
as the plaintiff's own instructions assume that such an interest is
necessary." As the observations of our court on this subject, in
the case referred to, are obiter dicta, the question may be considered
an open one in this State. In his Commentaries (volume 3, p.
462) Chancellor Kent said: " But policies, without interest upon
lives are more pernicious and dangerous than any other class of
wager policies, because temptation to tamper with life is more mis-
chievous than incitement to mere pecuniary fraud." In LorJx.
Dall, 12 Mass. 115. it was held "that, unless the assured had an
interest in the life insured, it would be a mere wager policy, which
we think would be contrary to our laws, and therefore void." In
Stevens S.Warren, 10 r Mass. 564, Lordx. Z>rt// was cited and approved,
and Willis, J., speaking for the court, said: "The general rule
recognized by the courts has been that no one can have an insur-
ance upon the life of another, unless he has an interest in the con-
tinuance of that life." To the same effect are the cases of Mitchell
V. Insurance Co.^ 45 Me. 104; Lewis \. Insurance Co., 39 Conn. loi ;
Bevin v. Insurance Co., 23 Conn. 244; Motvry v. Insurance Co ,9 R.
I. 346; Insurance Co. v. Hays, 41 Ind. 117; Ruse v. Insurance Co.,
23 N. Y. 516; Freeman v. Insurance Co., 38 Barb. 247; Cammack v.
Lewis, 15 Wall. 643; Swick v. Insurance Co., 2 Dill. 161, Fed. Cas.
No. 13,692; May, Ins. § 587, p. 724.
Neither the case of Shannon v. Nugent, Hayes, Exch. 539, nor
INSURABLE INTEREST. 55
Ferguson v. Lomax, 2 Dru. & War. 120, cited in Chisholm y. I7isur-
a7ice Co., supra, sustains the doctrine contended for by respondent.
In the latter case the question was neither considered by the court
nor presented in the brief of counsel, and in the former, Joy, C. B.,
speaking for the court, said: " It is not now necessary for us
to decide whether a life insurance, made in Ireland, must be on
interest." He stated, however, that the leaning of the court was,
that interest was not necessary to give it validity. We feel con-
strained, therefore, by the weight of authority to hold that the
policy of insurance procured by one upon the life of another, for
the benefit of the former, who has no pecuniary interest in the con-
tinuance of the life insured, is against public policy, and therefore
void. This policy, upon its face, does not state an interest, nor in
the application is it stated that Singleton had a pecuniary interest
in the life of Anderson. The following question was propounded to
the applicant: " Has the beneficiary (if a creditor) an interest
in the life to be assured to the full amount of this application? "
To which he answered " No." He does not state that he is a
creditor. It was neither averred, in the plaintiff's petition, nor
proved, that plaintiff had any pecuniary interest in the continuance
of the life of John T. Anderson. The following instruction, asked
by defendant, the court refused: "That to entitle plaintiff to
recover in this action, he must show some insurable interest in the
life of John T. Anderson, the insured, and that in the absence of
any evidence, showing or tending to show such insurable interest,
the jury must find for defendant."
Plaintiff's counsel contend that it devolved upon defendant to
show that plaintiff had no such interest, and several cases from our
own Reports are relied upon as authority for this position. In the
earlier of these cases all that was determined was that when a con-
tract was good at common law, without being reduced to writing,
after the passage of the statute of frauds it was matter of defense
to be pleaded that the contract was not in writing. The case here
is of a contract void at common law, upon its face, and of course
it devolves upon plaintiff to show such facts as render it valid and
binding. In Freeman v. Insurance Co., supra, the court said: " It
must be considered as well settled at present that at common law,
as well as under the statute of betting and gaming, a policy of fire
insurance is void, unless the party has at the time an insurable
interest. It follows that a complaint in an action on the policy
must contain an averment of such an interest, in order to state a
cause of action." " The plaintiff must aver an insurable interest,
or if he has not that, the grounds upon which he rests his right to
56 FORMATION OF THE CONTRACT.
sue." May, Ins. § 5S7. In Ruse v. Insurance Co., supra, in which
the opinion was delivered by that able jurist, Judge Selden, the
court said: " And it is apparent from the authorities, that it had
always been previously held in suits upDn policies, not containing
the words, ' interest or no interest,' or other equivalent words, that
the plaintiff must aver and prove that he had an interest." This
was said in reference to Depaba v. Ludlcnc, Comyn, 361, which shows
how the doctrine that wagering policies upon ships are valid, origi-
nated. The defendant there had insured the plaintiff, " interest or
no interest," and it was held that the import of that clause relieved
plaintiff from proving his interest That the plaintiff must, in these
cases, aver and prove an interest, was held in the Supreme Court of
Illinois, in Insurance Co. v. Ilogan, 80 111. 35, and that he must
prove the same affirmatively as a part of the case.
The court below erred in refusing to give defendant's tenth
instruction, and for thaterror the judgment must be reversed. * * *
CRONIN V. VERMONT LIFE INS. CO.
20 R. I. 570. — 1898.
Stiness, J. — This action is brought to recover insurance on the
life of the plaintiff's niece, and the main question raised by the
defendant 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, § i) prohibited insurance on the life of a person in which
the beneficiary shall have no interest, or by way of gaming or wager-
i?ig. Although 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 exclusive. There has even been some
question- whether insurance without 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, 11 R. I. 439, it was
held that a policy valid in its inception could be transferred to a
botia fide purchaser even though he had no interest in the life, and
some of the objections to such insurance, on the ground of public
policy, were considered, 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
INSURABLE INTEREST. 5/
to hasten the possession of a remainderman 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, or 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 kin-
ship and debt have come to be recognized as sufficient grounds of
interest. Bliss, Ins. (2d Ed.) §§ 12, 13; i 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. 775, Field, J., said: " It is not easy to define
with precision what will 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." We think that this states
a reasonable rule, and that it is now substantially the accepted 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 not set out an insurable interest? We
do not understand 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 Lordv. Ball, 12 Mass. 115, 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 sister
had an interest." The later case of Loomisw. Insurance Co., 6 Gray,
58 FORMATION OF THE CONTRACT.
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 kindred,
operating often more efficaciously than those of positive law." In
Insurance Co. v. France, 94 U. S. 561, — a case between brother
an J 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
itself is equivalent to such an assignment." In Elkhart v. Hough-
ton, 103 Ind. 2S6, 2 N. E. 763, 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), and in the case of a widosv and her
son-in-law, who lived together {Adams v. Reed [K.y.] 2>^ S. W. 420).
The principle of these and other like cases is that the interest
does not depend upon any liability for support, nor upon any pre-
cuniary 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 considerations 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
relation 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
expected 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 husband's provision for his wife in the same way. It is natural
and reasonable, 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
INSURABLE INTEREST. 59
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.'
Bradley, J., in CONNECTICUT MUTUAL LIFE INS. CO. v.
SCHAEFER.
94 U.S. 457. — 1876.
It will be proper, in the first place, to ascertain what is an
insurable interest. It is generally agreed that mere wager policies
— that is, policies in which the insured party has no interest what-
ever in the matter insured, but only an interest in its loss or destruc-
tion — are void, as against public policy. This was the law of
England prior to the Re^'olution of 1688.^ But after that period a
course of decisions grew up sustaining wager policies. The Legis-
lature finally interposed, and prohibited such insurance: first, with
regard to marine risks, by statute of 19 Geo. II , c. 37; and next,
with regard to lives, by the statute of 14 Geo. III., c. 48. In this
country statutes to the same effect have been passed in some of the
States; but where they have not been, in most cases either the
English statutes have been considered as operative, or the older
common law has been followed. But precisely what interest is
' " The liability of a child under the poor laws for the support of a parent,
with the natural feelings of affection producing a desire to provide for the com-
fort of the parent, gives a right to the child lo effect an insurance on the life
of the parent." Syllabus in iMtif. /Reserve Ins. Co. v. Kane, 81 Pa. 154. "It is
the well founded expectation of advantage to be derived from the continuance
of the life insured which makes the insurable interest in it, and not the mere
relationship as between father and son, under any and all circumstances." —
Guardian Ins. Co. v. I/o:^an, 80 111. 35, 46.
Lack of Insurablk Interest in Incontestable Policies. " The quesiion
remains, whether that clause of the policy which provides that the instrument
shall become ' incontestable ' on the lapse of a period of a year or upwards,
during which premiums are regularly paid, furnishes a good answer to the
objection founded on the terms of the Code [art. 2590 of the Civ. Code of Lower
Canada: ' The insured must have an insurable interest,' etc.]. The rule of the
Code appears * * * to be one which rests upon general principles of public
policy and expediency and which cannot be defeated by the private convention
of the parties. Any other view would lead to the sanction of wager policies."
— Anctil V. Ins. Co.. [1899] A. C, p. 6og. Contra, Wright v. Mut. Benefit Life
Assoc, 118 N. Y. 237. 241, rep3rted herein at p. 264.
' But see the statement as to the validity of wagers, in England, at common
law, in Dalby v. Co., reported herein ante, p. 8.
6o FORMATION OF THE CONTRACT.
necessary in order to take a policy out of the category of mere
wager, ha> been the subject of much discussion. In marine and
fire insurance the difficulty is not so great, because there insurance
is considered as strictly an indemnity. But in life insurance the
loss can seldom be measured by pecuniary values. Still an interest
of some sort in the insured life must exist. A man cannot take out
insurance on the life of a total stranger, nor on that of one who is
not so connected with him as to make the continuance of the life a
matter of some real interest to him.
It is well settled that a m.an has an insurable interest in his own
life, and in that of his wife and children; a woman in the life of her
husband; and the creditor in the life of his debtor. Indeed, it may
be said generally that any reasonable expectation of pecuniary
benefit or advantage from the continued life of another creates an
insurable interest in such life. And there is no doubt that a man
may effect an insurance on his own life for the benefit of a relative
or friend; or two or more persons, on their joint lives, for the
benefit of the survivor or survivors. The old tontines were based
substantially on this principle, and their validity has never been
called in question The essential thing is, that the policy shall be
obtained in good faith, and not for the purpose of speculating upon
the hazard of a life in which the insured has no interest.
i>. Debtor and Creditor.
Field, J., in CONNECTICUT MUTUAL LIFE INS. CO. v.
LUCHS.
io8 U. S. 498, 505. — 1883.
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. At the
time the policy was applied for he was still in default, and although
it might have turned out that the actual amount due upon a settle-
ment 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. * * * Certainly Luchs
had a pecuniary interest in the life of Dillenberg on two grounds:
Because he was his creditor and because he was his partner. The
INSURABLE INTEREST. 6l
continuance of the partnership, and, of course, a continuance 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 like expectation,
was continued.
In Morrell v. Trenton Mutual Life and Fire Insurance Company, lo
Gushing, 282, 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 earnings for the
following year. In an action i;n the policy it was contended that
the plaintiff had no insurable interest upon the life of the insured,
but the court, after deciding that he had such an interest 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 incli.ied to the
opinion that the plaintiff had another interest in the life of the per-
son insured. " He had," said the court, " a subsisting contract
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
attached. 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 and Fire Insurance Company v. Johnson^ 4
Zabriskie's Reports, 576, a policy was taken out by the plaintiff on
the life of one Van Middiesworth for $1,000, one-half payable to the
plaintiff and the other half to Van Middiesworth. They belonged
to an association called the New Brunswick and California Mining
and Trading Company, the capital stock of which consisted of forty-
five shares of $600 each. The company consisted partly of share-
holding members and partly of active members, the shareholders
being each required to furnish a substitute to proceed to the mines
of the company. The plaintiff owned one share, advanced $600 of
capital and procured Van Middiesworth 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 treasures and all the pro-
ceeds 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
62 FORMATION OF THE CONTRACT.
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 interest 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 com-
pany had been virtually dissolved, he had an interest m him as his
creditor to the extent of his share of the assets in his hands."
In Bevin v. The Connecticut Mutual Life Insurance Company, 23
Conn. 244, the plaintiff had obtained a policy of insurance for $1,000
on the life of one Barstow, 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 continuance 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 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 policy 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 interest which the law
would recognize, the court said: " So, in every case, where a per-
son on his own account insures the life of a relative, 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." '
' " In the case of Trinity Colleog v. Ins. Co., 113 N. C. 244, this court said that
' under certain conditions a partner has an insurable interest in the life of his
co-partner,' and cites Ins. Co. v. Lucks, 108 U. S. 198. There, the fact was that
Luchs had furnished to the co-partnership fund for his co-partner Dillenberg,
$5,000. which was unpaid. We suppose that was the condition referred to in
the opinion in the Trinity College case, under which a partner might have an
insurable interest in the life of his copartner. It is true that in Ins. Co. v.
INSURABLE INTEREST. 63
APPEAL OF CORSON.
113 Pa. St. 438. — 1886.
Bill in equity wherein Corson, executor, etc., is plaintiff, and
the Provident Savings Life Assurance Society, and James Garnier
are defendants. The plaintiff claimed as executor of Ellen McLean's
estate, the avails of an insurance policy for $2,000 issued upon her
life in favor of James Garnier. The insurance company did not
defend, but paid the $2,000 into court. The other facts appear in
the opinion.
Clark, J. * * * It cannot be pretended that Garnier had an
insurable interest in the life of his aunt, by force of the mere rela-
tionship existing between them. No case has been brought to our
notice which carries the rule to this e.xtent. Between husband and
wife, and parent and child, the relationship is so close and intimate,
and the mutual dependence and legal liability for support so mani-
fest, that nothing more is wanting to establish the insurable inter-
est. Garnier, however, did not hold any such relation to Ellen
McLean, either natural or assumed. He was simply her " friend
and adviser." He was doubtless a valuable friend. He had
advanced money to bring her to Philadelphia. He fitted up, stocked,
and from time to time replenished, the store at Tenth and Manilla.
Having disposed of this for her benefit, he purchased the establish-
ment on Fitzvvater, and, selling this, he bought for her a third, on
Fifth bel Mv Christian. She repaid Garnier, however, for his out-
lays in her behalf, from time to time, from the ordinary receipts of
the several stores, and from the proceeds of the sales.
The only relation existing between James Garnier and Ellen
McLean which could give Garnier an insurable interest in her life
was that of debtor and creditor, and upon this ground alone the case
must be considered. It is not denied that at the date of the policy
Mrs. McLean was indebted to Garnier, for monev a'lvanced and
expended in her behalf, in some amount between $500 and $750.
It is said, however, in his answer that Garnier disclaims as a cred-
itor; that he places his right to the proceeds of the policy on other
grounds, and makes no claim whatever by reason of any indebted-
ness. We do not so understand either the answer or the evidence
given by the defendant in the case. The bill charges, in the first
paragraph, in substance, that the policy was taken out and applied
Luchs, supra, the court said that the continuance of the partnership was also a
reasonable expectation of advantage to Luchs and gave him an insurable inter-
est in the life of his co-parmer. Bui we are of the opinion that that position is
a :;ain5t the weight of authority." — Po-mcII v Dewey, 123 N. C. 103, 105.
64 FORMATION OF THE CONTRACT.
as a collateral security to the debt which Mrs. McLean then owed
Gamier; and, in the subsequent paragraphs, that the debt having
been fully paid in the lifetime of the assured, the proceeds of the
policy should pass into her estate. This fact is specifically denied,
the defendant in his answer says it is " not true that the policy of
insurance, referred to in paragraph one of the complainant's bill,
was applied for and issued upon the life of Ellen McLean for any
such reason or purpose as therein stated."
It is undisputed, however, that at the issuing of the policy the
relation of debtor and creditor did exist, and to the extent stated.
The defendant having denied that the policy was taken as collateral
security for that debt, a question of fact is thus raised to be deter-
mined by the evidence. Upon examination of the proofs we find
no evidence from which the fact might be fairly inferred. The
insurance was not effected at the instance of Mrs. McLean, but at
the suggestion of her son, Samuel McClatchy, in whose name a
second policy in $i,ooowasat the same time issued. The premiums
were paid and the policy maintained by Garnier. Indeed, there is
not the slightest proof in support of the plaintiff's hypothesis, that
the policy was held in trust for the debtor, and, in the absence of
such proof, the presumption is that the rights of the parties appear
upon the face of the policy. Cunningham v. Smith, 70 Pa. St. 450.
It has been said, however, on the authority of Godsall v. fioldero,
9 East, 72, that an insurance upon the life of a debtor, in behalf of
a creditor, is in legal effect but a guaranty of the debt, and, if the
debt is paid, the insurance is at an end. But it is now settled that
this case is not the law. It was directly drawn in question, and
was expressly overruled, in Da/by v. Assurance Co. (decided in the
Exchequer Chamber), 15 C. B. 365. The law seems to be well set-
tled that it is wholly unnecessary to prove an insurable interest in
the life of the assured at the maturity of the policy if it was valid at
its inception, and, in the absence of express stipulation to the con-
trary, the sum expressed on the face of the policy is the measure of
recovery. Rawis v. Insurance Co., 27 N. Y. 282; Moicry v. Insur-
ance Co., 9 R. I. 346; Hoyt V. Insurance Co., 3 Bosw. 440; Insurance
Co. V. Bailey, 13 Wall. 616.
The doctrine of all the cases to which our attention has been
called, is that, if the policy was originally valid, it does not cease to
be so by cessation of interest in the subject of insurance unless
such be the necessary effect of the provisions of the instrument
itself. Therefore, where a husband insured his life for the benefit
of his wife, and was subsequently divorced, it was held that not-
withstanding the relation of husband and wife no longer existed,
INSURABLE INTEREST. 6$
and her insurable interest had thus ceased, yet she could recover
the full amount of the policy. Insurance Co. v. Schae/er, 94 U. S.
457. " Supposing a fair and proper insurable interest of whatever
kind," says the court in the case last cited, " to exist at the time
of taking out the policy, and that it be taken out in good faith, the
object and purpose of the rule which condemns wager policies is
sufficiently attained and there is then no good reason why the con-
tract should not be carried out according to its terms." To the
same effect is McKee v. Insurance Co., 28 Mo. 383. All the cases
to which we have referred, it is true, arose from suits brought upon
the policies of insurance; but the same principles apply where the
company, admitting its liability, has paid the money into court to
abide the result, and the controversy is between the remaining
parties.
In our own case of Sco/f v. Dickson, 16 Wkly. Notes Cas. 181, [108
Pa. 6] our Brother Pa.xson, upon a review of the cases, concludes
that, where one has an insurable interest at the time an insurance is
effected upon the life of another for his benefit, the fact that his
interest ceases to e.xist at or prior to the death of the insured will not,
as against the personal representatives of the insured, deprive him of
the right to receive the insurance money. Therefore it was held
that a surety on an official bond had an insurable interest in the life
of the obligor, and that his right to recover upon the policy was not
affected by the fact that no breach of the condition of the bond had
ever occurred. But a merely colorable, temporary, or dispropor-
tionate interest may present circumstances from which want of good
faith, and an intent to evade the rule, maybe inferred. Therefore,
although the relation of debtor and creditor may in general be said
to establish an insurable interest, the amount of the insurance
placed upon the life of the debtor cannot be grossly disproportionate
to the benefit which might be reasonably supposed to accrue from
the continuance of the debtor's life, without leaving the transaction
open to the imputation of being a speculation or wager upon the
hazard of a life. Wainwright v. Bland, i Moody & R. 481; Miller
V. Insurance Co., 2 E. D. Smith, (N. Y.) 268.
The case of Cammack v. Lewis, 15 Wall. 643, is e.xactly in point.
The policy was taken out by Cammack, the creditor, upon the life
of Lewis, his debtor, in the sum of $3,000, — $2,000 for his own
benefit, and $1,000 for the benefit of Lewis. Lewis, in fact, only
owed Cammack $70, although he voluntarily and without consider-
ation gave his obligation at the time for $3,000. " If the transac-
tion," says Mr. Justice Miller, " as set up by Cammack be true,
then, so far as he was concerned, it was a sheer wagering policy,
LAW OF INSURANCE — 5
66 FORMATION OF THE CONTRACT.
and probably a fraud on the insurance 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
^o/m ^de etiort W secure the debt, and the strength of this propo-
sition is not diminished by the fact that Cammack 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 assigned by him to
Cammack. This view of the subject receives confirmation from
the note e.xecuted by Lewis to Cammack for the precise amount of
the risk in the policy, which, if Cammack's account be true, was
without consideration, and could only have been intended for some
pu'-pose of deception, — probably to impose on the insurance com-
pany." ' See also Insurance Co. v. Luchs, 108 U. S. 498, 2 Sup.
Ct. 949.
In the case at bar the policy was $2,000. The amount of the
indebtedness was, at the time, undetermined, and therefore uncer-
tain. It is since ascertained to have been between $500 and
$750. Considering the character of their business relations, the
unsettled condition of their affairs, the age of the subject of insur-
ance, the probable amount of premiums which might accrue, the
accumulation from interest, we could not say the transaction carries
with it any inherent evidence of bad faith. The essential thing is,
' * We think that Cammack coulJ in equity and good conscience only hold
the policy as security for what Lewis owed him when it was assijjned, and such,
advances as he might afterwards make on account of it." — Cammack v. Lezvis,
15 Wall. 643, 648.
"A distinction must be drawn between a contract of insurance on his own
life, made by one who is indebted to another, and who transfers the policy to
his creditor for the security of his debt, and a contract which is made directly
by the creditor with the insurer to insure the life of his debtor. In the first
instance the contracting parties are the person whose life is insured and the
insurer. In that case the creditor has no rights except such as may be given
to him by the assignment of the policy. The object of the transfer is to secure
the payment of the debt due the creditor. The assignment accomplishes noth-
ing else; and if, by any means, the debt be paid prior to the decease of the
debtor, the assignment has no force or effect, and the original contract is in
force, and the beneficiaries named in the contract will take the proceeds of the
policy. But where a creditor contracts directly with the insurance company
for a policy on the life of his debtor, neither the debtor nor his representatives
will at any lime thereafter have any interest in that contract, nor, under any
circumstances, would either of them be entitled to the proceeds of such con-
tract, because the contractual relations exist between the creditor and the
insurer independent of the debtor." — Little, J., in Exchange Bank v. Loh, ■iz
S. E. 459. 469 (Ga.).
INSURABLE INTEREST. 6^
as stated by the learned judge of the court below, that the policy
should be obtained in good faith, and not for the purposes of specu-
lation upon the hazard of a life in which the insured has no interest.
The case is materially different from Gilbert v. Afoose, 13 Wkly.
Notes Cas. 489. The principles mvolved in that case are not drawn
in question here.
We find no error in the decree of the court below, and it is there-
fore affirmed. The decree is affirmed, and the appeal dismissed, at
the costs of the appellant.
RITTLER V. SMITH.
70 Md. 261. — 1889.
Miller, J. — In June, 1886, Victor Smith was indebted to Wil-
liam H. Rittler in the sum of about $1,000, and Smith being insol-
vent, Rittler took out certificates of insurance on Smith's life, in
four several 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 Rittler collected from these insurances the sum
of $2,124.82, which appears to have been all that could have been
collected according to the terms of the certificates, and the financial
condition of the associations. Deducting from this sum the debt
and interest due Rittler, the premiums he had paid, and the costs
and expenses of effecting the insurances, there remained a balance
of $474.53, as of the isL of June, 1887. On the 3d of October fol-
lowing, letters of administration on Smith's estate were granted to
an administratrix, who thereupon filed her bill claiming this balance
as belonging to the estate of the decedent. In his answer Rittler
denied this claim, and insisted 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
impression 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 insur-
ance 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 speculation, 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 contend that where the creditor receives more than
68 FORMATION OF THE CON IRACT.
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; that the law says to the creditor in
such a case, " you may protect yourself; you may by insuring your
debtor's life secure your debt with all outlay and expenses; you
may make yourself whole, but you shall not speculate on his death;
you shall not have a greater direct pecuniary interest in his death
than you may have in his life." * * *
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 entitled to hold all he can recover? He
is in fact the owner of the policy, takes the risk of the continued
solvency of the insurance company, 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 obligation to do anything, and in
fact does nothing in this respect. If he pays the debt to his cred-
itor, he has only discharged his duty, and what interest has he in the
policy or in what his creditor may recover upon it? In a recent
English case it was held that a creditor who had insured the life of
his debtor could retain all the sums he had received from the poli-
cies, without accounting for them to the representatives of the
debtor, unless there \vas distinct evidence of a contract to the effect
that the creditor had agreed to effect the policy, and that the debtor
had agreed to pay the premiums, in which case only will the policy
be held in trust for the debtor. Bruce v. Garden, Law Rep., 5
Chancer/ Appeals, 32. This is the latest English authority to which
we have been referred, and was decided by Lord Chancellor Hath-
erley on appeal. In that case the amount received from the policies
by the creditor was nearly twice as much as the debt due him by
his debtor.
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 indicating upon its face want of good faith, and as a mere specu-
lation or wager. The case of Cammack v. Lewis [15 Wall. 643] 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 belter 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. The answer, which we must take as
INSURABLE INTEREST. 69
true, shows bona fides on the part of the creditor. The policies
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 cer-
tificates 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 members liable to assessment on this certificate, and from that he
received according to its terms only $250. Another of the associa-
tions 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 follow-
ing 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.
Without attempting a review of all the numerous decisions on
this subject we simply refer in support of our views to the following
cases, in addition to those already cited: Mutual Life Ins. Co. v.
Allen., 138 Mass. 24; Clark v. Allen, 11 R. I. 439; Olmstead x. Keyes
et al., 85 N. Y. 593; Amick v. Butler., iii Ind. 578; Johtison et al. v.
Van Epps, no 111. 562; Appeal of Corson, 113 Pa. St. 438. And among
the text-writers to Bliss on Life Ins., § 30, and Life Insurance, Law
of Assignments (Hine & Nichols), 81, 82. 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.
Decree reversed, and bill dismissed.
COOPER V. SHAEFFER.
II Atl. Rep. (Pa.) 548. — 1887.
Error to Court of Common Pleas, Lebanon County; McPherson,
Judge.
Case by Allen Shaeffer, administrator of Daniel Weaver, deceased,
against Jacob C. Cooper, to recover the excess of a policy of insur-
ance on the life of said Daniel Weaver, assigned to defendant's
70 FORMATION OF THE CONTRACT.
assignor as security for a debt, on the ground that the transaction
was a wager. The facts as they appeared on the trial are sufficiently
stated in the opinion. Verdict for plaintiff, $i , 100.04, and judgment
thereon; whereupon defendant took this writ.
Stlrrkxt, J. — It is conceded that the policy of $3,000 o i the
life of Weaver was taken out and immediately assigned to Blouch
for the purpose of securing a debt of $100, due by the former to
the latter. Subsequently one-half interest in the policy was assigned
by Blouch to plaintiff in error, but Weaver was not in any manner
a party to that transaction. On the death of Weaver the insurance
company, recognizing its liability for the amount insured, paid
$1,800 thereof to Cooper, and the residue to Blouch. In view of
the undisputed facts, the learned judge of the Common Pleas held
that the disproportion between the insurance, $3,000, and the debt,
Sioo, was so great as to require him to say, as matter of law, that
the transaction w'as a wager, and that the assignees of the policy
had no right to retain more of the insurance money received by
them than the amount of the debt, plus the premiums paid and
interest thereon. In this he was clearly right. The disproportion
is so great as to make the insurance a palpable wager, and no court
should hesitate to declare it so as matter of law. It has heretofore
been correctly said that the sum insured must not be dispropor-
tionate to the interest the holder of the policy has in the life of the
insured, but we have never found it necessary to adopt any rule by
which such disproportionate interest may be determined. Speaking
for himself, our Brother Paxson, in Grant v. Kline 19 Wkly. Notes
Cas. 260, 9 Atl. 150, suggests that a policy taken out by a creditor
on the life of his debtor ought to be limited to the amount of the
debt with interest, and the amount of premiums with interest
thereon, during the expectancy of the life insured, according to
the Carlisle tables. This appears to be a just and practicable
rule.' * * *
Judgment affirmed.
' " The test thai the amount of a policy taken out to secure a debt must not
be out of proportion to the amount of the debt with added premiums and interest
thereon will not stand scrutiny, for every one carrying the burden of keeping
up a life policy may, whether a debt b; thereby secured or not, suffer loss by
paying out more than is finally received on the policy. In the case of a man
who insured his life for the benefit of his wife, and paid out in premiums more
than the insurance company paid to her after his death, the loss would be the
difference between the sum of the premiums, with interest, and the proceeds of
the policy. If a creditor who held as collateral security a policy of life insur-
ance, and paid ihe premiums under a contract with the debtor to be reimbursed
therefor out of the fund to be realized by the payment of the policy, paid tu t!i;
INSURABLE INTEREST. yi
e. Reinsurance.
GOODRICH AND HICK'S APPEAL.
109 Pa. St. 523. — 18S5.
Appeal from the Court of Common Pleas No. i, of Philadelphia
County: of July Term, 1884, No. 128.
This was an appeal bv Henry C. Goodrich and William B. Nevins,
trading as Goodrich & Nevins, and Ralph Hicks. Richard Sinnot
and Alfred Grissom, Jr., owners of the steamer " Mary Bell," from
a decree of said court, confirming the report of an auditor appointed
to report distribution of a fund constituting assets of the Penn Fire
Insurance Company, an insolvent corporation.
The appellants had suffered loss under policies of fire insurance
held by them in said company, and, for the reasons hereinafter
mentioned, claimed a preference over general creditors of the com-
pany in the distribution of this fund; but the court below decided
that their right to participate was only pro rata, with general
creditors.
Mr. Justice Clark. — The only question raised by the several
assignments of error, in this case, is whether or not, in the distribu-
tion of the assets of the Penn Fire Insurance Company of Philadel-
company more than it returned when the debtor died (which would inevitably
be the case in the event that the latter lived out his e.vpectancy, and all pre-
miums up to that time were duly met), this creditor, if the collaieral was the
only source to which he could look for satisfaction, would lose the difference
between the amount received on the policy and the amount resulting from add-
ing the sums representing the premiums, the interest thereon, ai!(/ the debt; and
this would be I rue whether the debt was greater small. If, for instance, one man
loaned to another $10, and insured the latter's life in the sum of $50,000 to secure
the debt, the creditor undertaking to pay the premiums, and the debtor (whether
young or old) lived out his expectancy, and died, leaving no assets but the
insurance money, the creditor would certainly lose the difference between the
face of the policy and the sum of the premiums and the interest thereon, and
W3uld lose also the $10 and the interest on that sum. If the debt thus created
was $25 000, the creditor's loss would, in that case, be greater by $24,990 and
intaiest than in the other. There would be no difference in principle between
the I wo cases. It is therefore to be regretted that the Pennsylvania court, while
declaring that there should be ' a fixed rule ' for determining when a creditor
was and when he was not obtaining an ' excess of insurance,' did not succeed
in evolving a more satisfactory one. The truth is, there can be no sound rule
on the subject which does not recognize the truth of the proposition that when-
ever a creditor stipulates for receiving more than indemnity upon a policy insur-
ing his debtor's life he is engaged in a speculative venture, the gain from
which, if successful, would be represented by the excess of the sum derived
from the policy over the amount of the 'indebtedness' thereby secured." —
Exchange Bank v. Lo/i, 104 Ga. 446, 457.
72 FORMATION OF THE CONTRACT.
phia, in the hands of an assignee, the appellants are entitled to any
preference over the general creditors of the company. The prefer-
ence claimed is as to the fund of $6,000 received on settlement or
compromise, with the French corporation known as "La Caisse
Generale des Assurances Agricoles et centre I'lncendie." It is
unfortunate, perhaps, that the formal policy provided for in the
agreement, between the Caisse Generale, etc., and the Penn Com-
pany was never issued, as the true intent of the contracting parties
would doubtless have been therein more fully disclosed; but this
was not done, and we must learn that intent and determine the
rights of the contending parties, upon the fair " reading and con-
struction of the executory contract, evidenced by the writings of
26th and 28th February, 1876."
In the agreement of 26th February, 1876, the receipt of $10,000
is acknowledged; in consideration of which "a policy of insur-
ance " is to be issued by La Caisse Generale, etc., " re-insur-
ing the outstanding risks of the Penn Fire Insurance Company,"
etc. ; " the amount over and above $10,000, necessary to ' re-insure '
its outstanding risks to be paid," etc. In the more full and formal
contract, made two days later, it is provided that the " policy of
re-insurance " to be issued shall be subject to certain conditions,
etc.
Re-insurance is properly applied to an insurance effected by one
underwriter with another, the latter wholly or partially indemnify-
ing 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 re-insured to him by some other. There is in
such case, however, no privity between the original insured and the
re-insurer; the latter is in no respect liable to the former, as a
surety or otherwise, the contract of insurance and of re-insurance
being totally distinct and disconnected. But whilst 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 ascer-
tained, the re-insurer must pay the amount. The insurer may at
once, without payment to the original assured, resort to his action.
Fatne Ins. Co.'s Appeal, ^i Pa. St. 396. Even if the insurer fail, or
become insolvent so that his insured receives only a dividend, how-
ever small, the re-insurer can gain nothing by this, but must pay
the amount of the loss to the first insurer. Hastie v. De Feysier, 3
Caines, 190; Hone\. Mui. Saf. Ins. Co., i Sand. Sup. Ct. N. Y. 137,
affirmed in Court of Appeals, siih ncn. Miit. Saf. Co. v. Hone, 2
Comst 235; 3 Kent Com. 279; Marshall on Ins. 143. So in Hercken
rath V. Am. Ins. Co., 3 Barb. (N. Y.) Ch. 63. Chancellor Walworth
INSURABLE INTEREST. 73
decided that where an insurance company has underwritten a policy,
and afterwards causes itself to be re-insured, and after the loss of
the property insured, such company becomes insolvent, the person
originally insured has no equitable lien upo.i the sum of money due
on the contract of re-insurance; but the fund belongs 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 Generale, etc, and
the Perm Fire Insurance Company was for a policy of re-insurance,
properly so called, the appellants could have no preferable claim or
lien upon the fund in question, although the Penn Company was
admittedl}? and hopelessly insolvent.
It is contended, however, by the appellants that the contract in
question, when read in the light of the facts attending its exe-
cution, cannot in any strict sense be considered a contract for
re-insurance; that it was not intended to provide indemnity for the
company, but to the individual policy-holders, and that the policy-
holders can claim the advantage of this so-called re-insurance for
themselves, directly and exclusively; that the term " re-insurance "
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 re-insurance 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 individual protection, in case of loss {Glen v. Hope Mut. Co.,
56 N. Y. 379; Fischer v. Same, 69 N. Y. 161), which, even after
loss, they might ratify and approve {Fleming v. Mar. Ins. Co., 4 Wh.
59; Stilwellv. Staples, 19 N. Y 405; i Amer. Lead. Cas. 844); and,
if the insurance was in their interest, directly for their benefit, and
free from any additional burden or obligation on their part, ratifi-
cation 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 re-insurance, 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 insurance, and the presumption is a fair and reasonable
one, that words of technical or special import were by them prop-
74 FORMAIION OF THE CONTRACT.
erly applied. The words " re-insure " and " re insurance "would
therefore seem in the first instance at least to characterize the con-
tract and to point out the object and purpose of the parties. The
proper signification of these terms would, of course, vary with the
clearly manifested intention of the parties. B.it the contract is
u''th the Penn Company, for a consideration moving from it pro-
V'iing for a policy to the Penn Company, to re-insure its risks.
There is no provision whatever, expressed in the contract, for the
individual indemnity of the policy-holders nor for the insurance of
their property for them; the re-insurance is expressly upon the
" outstanding risks " of the company. The contract of re-insurance,
in some sense perhaps operates upon the property itself rather than
the risk, but the fact that the policy was to be upon the " risks,"
indicates that it was the company's insurable interest in the prop-
erty, which formed the basis of the insurance.
It is true, that e.xcept for the appellant's losses by fire, the fund
of $6,000 would not have been realized, but this is incident to all
cases of re-insurance. It is true, also, that the re-insurance was of
all the outstanding risks of the company, and not, as is usually the
case, of any particular part of them; but whether a company shall
re-insure the whole or only a part of its risks, is a question of policy
for the company, 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
re-insure the whole; under different circumstance he may choose
to indemnify himself as to part only. The provisions that the Penn
Company " will turn over to the Caisse Generale its original regis-
ters, 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 Com-
pany, which are thereby to be re-insured," arc consistent, we think,
with either theory of the case — as consistent with one as with the
other; and they, therefore, prove nothing either way. Such a course
of proceeding may be rare, but cases are rare perhaps when the
re-insurance is upon the whole list of the underwriters' 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 con
tract 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 inducing cause of the contract, doubtless, was the proceeding
INSURABLE INTEREST. 75
instituted by the Attorney-General, at the instance of the Insurance
Commissioner. After the order to suspend business, the company
was permitted to effect a re-insurance of its outstanding policies,
etc , for sixty days, with the hope that its available funds woul.l
prove sufificient to complete the re-insurance, at the expiration of
that time. Had these hopes been realized, it is probable that the
decree of dissolution, during the period of re-insurance at least
might not have been entered. The commissioner, i.i his report
refers, it is true, to this contract as an effort of the company to
"secure its policy-holders byre-insurance." But if the contract
were, in fact, otherwise, the report of the commissioner, subse-
quently made, could not change its provisions, or alter its effect:.
The Caisse Generale, etc., in paying certain of the losses directly
to the policy-holders, would seem, subsequently to have put a con-
struction on the contract, conformable to the appellants' claim; b. t
the effect of this is certainly overcome by the fact that the Pen i
Company repudiated this payment by bringing suit against the Caisse
General , etc., and the fund now for distribution is the result of
that action.
To sustain the appellants' contention in this case, the facts should
clearly appear, either by the contract, or otherwise in the transac-
tion, that the indemnity provided was to the policy-holders directly,
and in the absence of such proof their claim of preference must be
disregarded.
The case of Glen v. Hope Mitt. 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 re-insure the
Craftsman Company, on all risks for which its policies were out-
standing; 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 Mat.
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."
' " We can understand how the reinsured party, where the amount of his
liability has been ascertained, may be admitted to recover to the full extent of
the liability so lang as the liability to pay continues, although he may not have
made payment, or may be insolvent and unable to pay. But where the
liability has become actually discharged by the payment of a sum less in
76 formation of the contract.
111. Form of the Contract.
a. Oral or Written.
CAMPBELL V. THE AMERICAN FIRE ISURANCE CO.
73 Wis. ioo. — i8S8.
Action upon a contract for insurance against fire.
Taylor, j * H' * Qp ^j-jg trial, it was clearly established by
the evidence of Burr Sprague that he was the agent of the defend-
ant, and had full authority to take risks against fire for said com-
pany, and issue their policies covering such risks. And no conten-
tion is made on the hearing of this appeal that such agent could not
have bound the company by issuing a policy of insurance upon the
hay in question.
The evidence in regard to the contract of insurance is the evi-
dence of the plainti*T and of said agent, Sprague. The plaintiff testi-
fied as follows: " I saw Mr. Sprague about that hay on the 2d day
of July, 1887, about five o'clock, p. M. He was sitting on a dry-
goods box in front of Terry's store. I had a conversation with him
about that hay. I said ' Sprague, I have got a little baled hay that
I want to get insured.* He says, ' Where is your hay? ' I told him
it was in Jake Bush's tobacco shed. He said, ' How far is that
shed from his house? ' I told him the shed was in the northeast
corner of the block, and his house was in the northwest corner, —
just across, opposite. He says, ' How much have you got, and
how much insurance do you want on it? ' I said $500. He said,
' I can write you in the American Fire Insurance Company, the
same that your ice-house was insured in; ' or he first asked. ' How
long do you want it? ' I told him two or three months, and he says,
'You better have it for six months. It will cost you no more
for six months than it will for two or three months.' ' Well,' says
I, ' all right.' Says he, ' I will write you the risk for $3.' He says,
' Really, the rates would be only $2.50, but I cannot write a policy
for less than $3.' I says, ' That is all right; that was cheaper than
I expected to get it.' I told him I was fearful about the 4th of July.
amount, it is difficult to perceive, on principle, why the sum paid in discharge
of the liability should not be taken as the amount of damage sustained, and as
the measure of indemnity to be recovered under a contract which is confessedly
one of indemnity. Notwithstanding, then, the aiverse authority that is 10 be,
found, we are disposed to hold, on principle, as we regard it, that $600, the sum
paid by the reinsured company in discharge of its liability for $6,000, was the
actual loss it sustained and the extent of the recovery which should be had."
—Illinois Mut. Fire Ins. Co. v. Andes Ins. Co., 67 111. 365.
FORM OF THE CONTRACT. 'J'j
It was so. dry that it might get on fire. 'Oh,' said he, 'I will
have the policy take effect on the 4th day of July at noon.' " The
3d of July was on Sunday.
Sprague's testi.mony on the same subject is as follows: " On
July 2d, 1887, Mr. Campbell told me he wished some insurance on
some hay he had, — an amount of hay on which he wished insur-
ance. I asked him as to the condition of the hay, whether it was
loose hay or baled hay, and he said it was all baled hay. I asked
him where it was. He said it was in the Bush barn, on what is
known as the ' Bush block; ' and I asked him how much he had
there, and he said $800 or $1,000 worth, somewhere along there.
I asked him how much insurance he wanted. He said he wanted
$500 insurance. I asked him if he pressed hay there in the barn.
He said, ' No; ' he pressed it away from there, and stored it there.
I asked him if there was any loose hay in the barn — unpressed hay.
He said, ' No.' I then asked him if he knew the distance between
that barn and the house, and particularly whether it was more than
100 feet. I said to Mr. Campbell that insurance companies did not
like to take insurance on barns or property in barns, except private
barns in connection with dwellings, and I did not know whether the
company would carry it, — the company that I had. He asked me
the rate, and I asked him how long he wanted to insure. He said
six months. I told him that the rate for a private barn in connec-
tion with a dwelling was the same as a dwelling, — one per cent,
for three years, or one-half per cent, for one year; that this was
worth more, and I would fix the rate at one-half per cent, for half a
year, or $2.50 for $500; and then I added that companies did not
like to have a policy written for less than $3, and I would have to
charge him $3 anyway. He asked me if I would write it for that.
I said I would, but I doubted whether' the company would carry it,
but I ivould write it a/td report it; and the company was also named.
I recollect that I said to him that perhaps the American of Phila-
delphia, having his other risks, he being a patron of the company,
might carry it for him. My recollection is that I said to him it was
a kind of risk not desirable, and I did not know whether the com-
pany would carry it after it was written and reported. He had insur-
ance in the same company at the time. I did not write any policy,
or make any entries of this in my register. I didn't report it to
the company till after the fire. * * * This conversation was on
Saturday after the usual business hours, — after I had closed my
office."
This is all the evidence given on either side in regard to the con-
tract, and it appears to us to be conclusive upon the question
78 FORMATION OF THE CONTRACT.
whether a contract to insure was made. The plaintiff testifies thai
there was an agreement to write the policy for $500 for six months,
to take effect from twelve o'clock noon on the 4th day of July, for
a premium to be paid by him of $3. The agent of the defendant
testifies to t'.ie same thing, except he does not say when it was to
take effect; but he does say that he agreed to write the policy for
six months for the agreed premium of $3, but is silent as to when
it was to take effect; so that the only evidence on that point is the
uncontradicted evidence of the plaintiff that it was to take effect at
noon of Iul/4, 1887. The proof that the hay to be insured was
destroyed by fire on the i8th of July, 1S87, is not (jueslioned, nor
is there any question made as to the value of the hay destroyed.
Neither is there any dispute but that the plaintiff demanded the
policy after the fire, and the defendant refused to deliver it; nor
that he notified the company of his loss and demanded payment
before he commenced this action. The contention of the counsel
for the appellant, that the evidence of the agent of the company
contradicts the evidence of the plaintiff in any material point, is not
sustained by the record. He admits that he agreed to issue the
policy, but claims that he suggested to the plaintiff that the com-
pany might be unwilling to carry the risk after he reported it to
the company. He never did report it to the company, and the
company did not refuse to carry the risk before the loss occurred.
Under this evidence it is clear that if the agent had issued the
policy as he admits he agreed to, the company would have been
bound by it until it gave notice that it elected to cancel the same,
and if no notice that it chose to cancel the same had been given
before a loss, it would be too late to affect the liabdity of the com-
pany to the plaintiff. All the evidence on the subject of the
contract being before the court, and there being no material contra-
diction as to what the facts were, it seems to us that the learned
circuit judge was correct in directing a verdict for the plaintiff
upon that question. That the evidence established a contract to
insure as claimed by the plaintift, although the premium was not
paid, is settled by the decision of this court in the case of King v.
Hckla F. Ins. Co., 58 Wis. 508, and the case at bar is distinguished
from the case of Taylor v. Phxnix Ins. Co., 47 Wis. 365, exactly as
the case in 58 Wis. is distinguished. This case and the case in 58
Wis. are cases where the plaintiff bases his action upon the breach
of a contract to insure, and the case of Taylor v. Phoenix Ins. Co.,
was an action upon a policy of insurance, as though issued and m
force, although a policy had not in fact been issued.
That a person may maintain an action to recover damages for ih-
FORM OF THE CONTRACT. 79
L).-:a.a of a contract to insure, is well established by the authorities,
aad the damages in such a case is the sum which the policy was to
insure, if the property to be insured, and which was destroyed by
fire during the time of the life of the policy as it was agreed to be
issued, was of the value to be insured by the policy. Upon this
question there is no dispute. If the company is liable at all it is
liable for $500. * * *
By the Court. — The judgment of the Circuit Court is affirmed.
WIEBELER V. MILWAUKEE MECHANICS' MUTUAL
INSURANCE CO.
30 Minn. 464. — 1883.
GiLFiLLAN, C. J. — Action on a contract to insure. From the
admissions in the pleadings and on the trial, and from the evidence,
the referee was justified in Aiding 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 extending 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 presump-
tion 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 con-
tract 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 agree-
ment that by its terms is not to be performed within one year from
the making thereof." This, of course, does not include an agree-
ment 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 contingency 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."
' ' Upon an oral contract of insurance, where nothing is said about conditions,
if a policy is to be issued, the parties are presumed to intend that it shall con-
tain the conditions usually inserted in policies of insurance in like cases, or as
have been before used by the parties. That a particular condition is usual
must bs shown by the parly who insists upon it, who has the affirmative." —
Salisbury v. Ins. Co., 32 Minn. 458.
8o FORMATION OF THE CONTRACT.
HEBERT 7'. MUTUAL LIFE IXS. CO.
12 Fed. S07, (CiRciiT Cr. D. Ore.) — 1S82.
De.\dy, I). J. — This suit is brought to enforce a contract for the
delivery of a life insurance policy for the sum of $15,000, and for a
decree that the defendant pay the same to the plaintiff.
The bill alleges that the defendant, on June 11, 1878, and since,
was and has been a corporation organized under the laws of New
York, and doing a life insurance business in Oregon; that on said
day Oliver Hebert, of Marion county, Oregon, the husband of the ■
plaintiff, applied to the agents of the defendant in said county for
insurance upon his life of $20,000, payable to the plaintiff, and paid
them the first quarter's premium thereon, to wit, $105.60, which sum
was by them forwarded to the defendant upon the condition " that
if the amount of the risk should be reduced, a proportionate share
of the premium should be refunded," and if the whole application
should be rejected, it would all be refunded; that subsequently the
defendant rejected $5,000 of said application, and on August 26,
1878, remitted to said Hebert $26.40 of said payment, and "accepted,
received, and retained " the remaining $79-2o as the premium upon
the first quarter of such insurance, and in consideration thereof "did
insure the life of said Hebert from such time in the sum of $15,000,"
payable upon the death of said Hebert to the plaintiff; and also agreed
" to issue and deliver unto said Hebert a ' plain life insurance
policy ' upon his own life, according to the customary form adopted
and in use by the defendant, for said sum payable as aforesaid,"
which agreement it has hitherto neglected and refused to perform;
that about September 8, 1878, at said county, said Hebert died,
and the plaintiff thereupon demanded of the defendant said policy
and the payment of said insurance, which was refused; and that, by
reason of the refusal to issue said policy, the plaintiff is unable to
" enforce her rights in an action at law," wherefore she brings this
suit and prays the defendant may be required to deliver to her
"a plam life insurance policy" upon the life of said Hebert for the
sum aforesaid, to take effect from the date of said contract afore-
said, and payable to the plaintiff, and for a decree against the
defendant for said sum of $15,000, with interest.
The defendant demurs to the bill because (i) the plaintiff, upon
the case stated, is not entitled to the relief prayed for; (2) the policy
is not sufficiently described; and (3) the plaintiff has an adequate
remedy at law.
The jurisdiction of a court of equity to compel the specific per-
formance of a contract for insurance is well established. The policy
FORM OF THE CONTRACT. 8l
cannot be obtained by an action at law, although one might be main-
tained upon it for the insurance after it is issued. But a court of equity
having taken jurisdiction for the purpose of compelling the delivery
of the policy, will retain it where there has been a loss or death,
for the purpose of decreeing payment of the policy, both to avoid
expense and because the latter relief is a mere incident of the
former. Ang. F. & L. Ins. 34; Perkins v. Washington Ins. Co., 4
Cow. 645; Carpenter \. M. S. Ins. Co., 4 Sandf. Ch. 408; Brugger
V. S. I. I71S. Co., 5 Sawy. 304. Nor does there appear to be any
uncertainty as to the nature of the contract, or the form or effect
of the policy, as stated in the bill. The agreement was for " a
plain life insurance policy " upon the life of the deceased for
$15,000, payable to the plaintiff " according to the customary form
adopted and in use by the defendant," for which it was paid and
had received one quarter's premium.
If there is any reason not appearing on the face of the bill why
the defendant should not be compelled to perform its contract, as
that it was procured by fraud or falsehood, the defendant can set
it up as a defense.
The demurrer is overruled.
b. The Standard Policy.
HICKS V. BRITISH AMERICA ASSURANCE CO.
162 N. Y. 284. — igoo.
Appeal from a judgment of the Appellate Division of the Supreme
Court in the fourth judicial department, entered February 8, 1897,
affirming a judgment in favor of plaintiff entered upon a verdict,
and an order denying a motion for a new trial.
Th's action was brought to recover on an alleged oral contract to
insure a certain building in the village of Penn Yan, entered into
between George C. Hicks, the plaintiff's assignor, and Melmoth
Hobart, the agent of the defendant.
Parker, Ch. 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 Colonel Hicks, plaintiff's assignor,
the legal effect of which was to create a contract of present insurance
in the sum of $2,500.00 upon property of Colonel Hicks, which was
consumed by fire two davs later. The agreement that the contract
was one of present insurance accords with the allegations of the
complaint, the theory of the counsel as shown by their method of
LA.W OF INSI'RANXE — 6
82 FORMATION OF THE CONTRACT.
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
contract to insure, and nothing else. It is not pretended that a con-
tract of any kind between these parties was made after the conver-
sation of December 30th. The jury have found that the defendant'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 30th, 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. American Central Ins. Co. of St. Louis, 114 N. Y.
415. This contract of insurance, although verbal, embraced within
it the provisions of the standard policy of fire insurance, which the
legislature in its wisdom formulated for the protection of both
insured 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 tlian 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. Rnggles Case, supra;
Lipnian v. N. F. Ins. Co., \2\ N. Y. 454; Karelsen v. Sun Fire Office,
122 N. Y. 545; C/n{ler7C'ood V. Greenwich Ins. Co., 161 N. Y. 413. 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
insure, and necessarily according to the only form of insurance
contract 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 Lipmans 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 delivered." And in
Karelsen s case the court said: " While the binding slip contained
none of the conditions usually found in insurance policies, the con-
tract evidenced by it was the ordinary policy of insurance issued by
the company. So that, in any construction of the contract, it must
be regarded as tho igh it ha 1 expressed that the present insurance
was under the terms of the usual policy of the company to be there-
FORM OF THE CONTRACT. 83
after delivered." So that all this plaintiff had to do in order to
recover in this action, aside from showing a loss by fire and com-
pliance 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 conver-
sation disclosed the sum for which the property was to be insured,
the amount of premiums and the period of insurance, and the stat-
ute provided for all of the other conditions of the contract of insur-
ance. 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 attempt to prove anything more. This the trial court, as
well as the counsel, understood, anJ 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 com-
mencement 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 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 accordance
with the requirements of the standard policy. To avoid this result
it is pr >posed in the dissenting opinions not only to set at naught the
ma 1 , di isions of this court, holding that on an appeal a case must
be (i.sjiose 1 of upon the theory upon which it was tried [S/iider v.
Snider, 160 N. Y. 151 Stephens v. Meriden Britannia Co., 160 N. Y.
178; People ex rel. Warschaieer \. Da/ton, 159 N. Y. 235; Drunker v.
Manhattan Ry. Co., 106 N. Y. 157; Baird v. Mayor, etc., 96 N. Y.
507), but, also, to decide that growing out of this contract the
plaintiff had another cause of action, the maintenance 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 service 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
84 FORMATION OK THK CONIKACT.
insured from noon on the 30th day of December, 1893, to noon on
the 30th day of December, 1894 ' {A'/igg/fs v. Amrr. C. Ins. 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 sustained in the
manner referred to in the policy, and plaintiff performed the con-
ditions imposed upon him by it. But it is said that he may recover
either on the contract, or, ii. stead, if he elects, on the ground that
the defendant failed to deliver to him written evidence of the con-
tract, ;'. c, a policy of insurance.
If the case were one where the written evidence of the contract
had to come into the possession of the plaintiff before recovery
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 defendant
withheld, and further demanding that upon the policy delivered in
pursuance of the decree the plaintiff should have judgment in the
amount speci5ed 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 action
was not founded upon a policy, but upon the contract of insurance
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 cor-
rectly 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 prom.ised
policy, therefore, would have been a convenience possibly, but
nothing more.
Plainly, therefore, it is not true that the plaintiff suffered damage
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 con-
FORM OF THE CONTRACT. 8$
tract entered into, and hence the judgment cannot be affirmed on
the ground that the plaintiff sustained damages in the sum of
$2,500.00, 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 stand-
ard form of policy for the protection of both instrrer and insured.
It contains provisions specially protecting the insured from harsh
methods by insurance companies. On the other hand, it provides
that which experience has shown to be necessary in order to protect
insurance 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 neces-
sary that the insurer shall have immediate notice of the facts and
circumstances of the lire; another that within sixty 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 Legislature
to require these conditions precedent to a recovery upon a policy of
insurance; it is sufficient for our purpose that the Legislature
declared that it should be so, and we should see to it that the gen-
eral trend of our decisions is towards the enforcement of the legis-
lative 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, how-
ever, is that it was unnecessary to give notice of the fire and present
proofs of loss within sixty days, or at any other time, because, it is
said, such an action need not be treated as on a contract of insur-
ance, but on a contract to give a policy, which has not been carried
out, and, therefore, 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
86 FORMATION OF THE CONTRACT.
have passed, or, in some other case, until years have gone by, with-
out giving the company notice of the fire or any proofs of loss
whatever; he may then bring a suit claiming that two clays, or less
or more, before the fire, the defendant's local agent, without receiv-
ing anv pr^'miu.ii, 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 com-
pany be mulcted 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 perpe-
tration of fraud.
It IS said that if the foregoing argument seems not to be defective
upon its mere reading, it is nevertheless so because it leaves out of
consideration the decisions of this court in Ellis v. Albany City Fire
Insurance Co., 50 N. Y. 402; Angellx. Hartford Fire Insurance Co.,
59 N. Y. 171; Van Loan v. Fanners' Mutual Fire Insurance Assn.,
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 volun-
tary 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 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 " Standard Fire Insurance Policy of the State
of New York."' Upon the passage of this important legislation^
the policy of insurance was no longer of special moment
' The New York Penal Code, i; 577d, makes it a misdem ^in ir for ' any fire
insurance corporation or any officer or agent thereof" to i> u anv fire policy
except the " Standard fire insurance policy of the State ot New York," viola-
tion of the provision being punishable by a fine.
FORM OF THE CONTRACT. 8/
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 >vithin
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 Huggles case down will show.
[Here follows a discussion as to whether the proof s of loss were waived.\
It is plain, therefore, that the plamtiff is without a basis for a
recovery upon this cause of action, if a new trial be granted, because
neither she nor her father, the assignor, have presented to the
defendant any proofs of loss, nor was service of proofs of loss waived
by the defendant; and while such a result may or may not be in
the interest of justice, in this particular case there can be no doubt
that the measure of injustice done, if any, will be far less than
would necessarily ensue from a decision putting a premium upon
insurance obtained without a policy, by making it possible to
recover for the damages sustained through a fire, by an action com-
menced at any time before the six years' Statute of Limitations
shall have run, and that too without giving the company notice of
the fire or serving it with proofs of the loss, thereby preventing it
from being able to mquire about the facts and circumstances attend-
ing the fire until months or years after the happening of it. This
would in many cases effectually prevent the company from acquir-
ing any information whatever.
It follows, if the views expressed be sound, that the action is upon
a contract of insurance and not one for damages resulting from a
failure to deliver a policy, and, hence, that proofs of loss were
necessary in the absence of a waiver thereof by the defendant, of
which there is no proof, and the failure to so charge was error,
calling for a reversal of the judgment.
The judgment should be reversed.
Landon, J. (dissenting). * * * The complaint may be con-
strued as seeking either a recovery of damages for the breach of a
contract to issue a policy of insurance, or to enforce its delivery
and to recover thereon as if actually delivered. * * *
If the action were solely to enforce the delivery of the policy and
to recover thereon as if actually delivered, then service of proofs
cf loss would be necessary, since in such case the rights of the
insured would depend upon his performance of the conditions
expressed in the policy as precedent to his right of recovery.
DeGrove v. Metrop. Ins. Co., 6i N. Y. 594. The same would be true
88 FORMATION OF THE CONTRACT.
if the action were to recover upon an agreement for temporary
insurance intermediate the application for it, and the decision of
the insurance company, whether it will issue a policy, as in the
cases of " binding slips." Lipman v. Niagara Fire Ins. Co., 121 N.
V. 454; Karelsen v. Sun Fire Office, 122 N. Y. 545. In the two cases
last cited the insurance company did not repudiate the binding slip,
but claimed to have canceled the contract according to its terms.
Recovery was sought m each case under the contract, and not
because the agreement to make it was repudiated In the case of
a binding slip the insured has his written contract; and in the case
of an oral contract he must show his right to one. In the one case
the contract speaks for itself, and the action is upon the contract,
which for the time being is the policy. In the other case the action
may be upon the oral contract, but when the making of the con-
tract is denied and peformance by the company, therefore, refused,
the action may be for damages for the breach of the contract to
deliver the policy as of the date orally agreed upon. The right to
the policy is not affected by the fire. Ins. Co. v. Co/i, 20 Wall. 560;
Lightbody v. North Am. Ins. Co., 23 Wend. 18.
We may regard this action as one for the recovery of damages
consequent upon the breach by the defendant of its contract to
issue and deliver the policy, which, if delivered, would have enabled
the plaintiff, by complying with its conditions, to secure indemnity
for his loss. If the defendant repudiated the contract to issue the
policy, it repudiated its conditions, and, therefore, cannot, without
showing that it retracted its repudiation, insist upon the subse-
quent performance by the insured of any of them as a condition
precedent to his recovery of the damages accruing to him then or
thereafter by the completed breach itself. The defendant did not
retract the repudiation of the contract, but by its answer repeated
and confirmed it. Shaw v. Republic Life Ins. Co., 69 N. Y. 286;
Knickerbocker Life Ins. Co. v. Pendleton, 112 U. S. 696; Meyer v.
Knickerbocker Life Ins. Co., 73 N. Y. 516; Robinson v. Frank, 107 N.
Y. 655; Tayloe v. Merchants' Fire Ins. Co., 9 How. (U. S.) 390;
Post V. ^'F.tna Ins. Co., 43 Barb. 351.
It would be a useless act for the plaintiff to serve proofs of loss
in order to charge the defendant with liability under a contract
which it repudiated altogether, and to hold otherwise would be to
absolve the offender and punish its victim. As the plaintiff did not
commence this action until after seven months after the fire, no
question arises whether the action for full damages could accrue
upon the breach earlier than under the contract.
If we treat t're c^se as if the policy had been issued, it was not
FORM OF THE CONTRACT. 89
within Hobart's power thereafter to waive proofs of loss, because
his power was limited to the making of the contract and dehvery
of the policy, and did not extend to a subsequent waiver of the con-
ditions which the policy imposed upon Hicks. But as his power
was complete over the making of the contract and delivery of the
policy, it embraced as its necessary incident power to repudiate the
oral contract and thereupon to refuse delivery of the policy, and hence
his repudiation and refusal, if made, were the acts of the defendant.
In Ellis V. Albany Ins. Co. {supra) the court not only so held, but
also considered the suggestion, renewed in this case, that such a
rule would enable the agent to perpetrate a fraud upon the company
by making preliminary contracts, when the company only intended
to be bound by writing, and answered it by saying that that was no
reason for depriving third persons of the benefit of contracts entered
into with the agent. We cannot review the finding that the defend-
ant, through Hobart, did repudiate the contract and refuse to issue
the policy.
The charge of the court placed the waiver of the proofs of loss
and the lack of necessity to furnish them upon the same finding of
facts by the jury. The court was wrong as to the waiver of the
proofs, if plaintiff had no right of recovery except under the policy;
but upon the same facts the court was right in saying, if the agent
claimed that no contract was made, they were not necessary.
As the jury found the facts which made the service of proofs of
loss unnecessary, what was said as to waiver was unimportant, and
not reversible error.
It is said that the plaintiff sustained no damages by the defend-
ant's breach of its contract to deliver the policy, because she had
her remedy upon the orai contract to insure. It could be said with
equal force that she had no remedy upon the oral contract to insure
because she had her remedy for damages. Obviously she could
stand upon all the causes of action which the facts pleaded per-
mitted, and finally avail herself of the one proved. The form of
the policy is fixed by statute, but that simply affects ease of proof,
and not the remedy upon the proofs. * * *
Werner, J. (dissenting.) — It seems to me that we cannot hold
that an action may not be brought for the breach of an agreement
to insure without distinctly overruling Ellis v. Albajiy City Fire
Insurance Company, 50 N. Y. 402; Angell v. Hartford Fire Ins. Co.,
59 N. Y. 171; Van Loan v. Farmers' M. F. Ins. Assn., 90 N. Y. 281,
and Post v. ^Etna Ins. Co., 43 Barb. 351. I do not think that the
evidence wholly justifies the statement that the action was clearly
tried upon the theory of an executed contract of insurance. It is
90 FORMATION OF THE CONTRACT.
true that the complaint, and the evidence given in support thereof,
were undoubtedly appropriate to such an action; but it does not
follow that they were, therefore, not appropriate to an action for
damages arising out of the alleged breach of the contract to insure.
It frequently happens that the same pleadings and proofs will sup-
port different causes of actions which are governed by inconsistent
legal principles. I am prepared to agree with Chief Judge Parker
in holding that under the law providing for the standard policy it is
the logical rule to decide that every contract for insurance made
with an authorized agent, whether the same be oral or written,
constitutes a valid contract of insurance which requires nothing to
complete it except the written evidence of its terms and conditions.
The cases of Lipman v. JV. F. Ins. Co.., 121 N. Y. 454; Karelsen v.
Sun Fire Office, 122 N. Y. 545, and Undertoood \ . Greenwich Ins. Co..,
161 N. Y. 413, cited by him. clearly demonstrate that this is the
more receiit view of our court. But that is very different from
deciding that, when a plaintiff claims that a contract for insurance
has been made and broken, and a defendant insurance company
denies that any such contract was ever made, a plaintiff can recover
only upon the theory of an executed and completed contract. Sucli
a rule would result in exempting insurance companies from the
application of one of the most familiar principles of the law of con-
tracts. It is a rule of universal application that when a party to a
contract refuses to execute it, the other party thereto may treat it
as rescinded and sue for the breach. Beach on Modern Law of
Contracts, § 788. In such a case as this the difference in the
character of the action is one of form rather than of substance,
because the recovery in either case would be the same. But let us
assume that it is now the established law that a party claiming under
an oral or a written memorandum for insurance must recover, if at
all, upon the terms and conditions of a completed policy which are
to be read into his tentative contract. It is conceded that Hobart
was the duly authorized agent of the defendant for the purpose of
issuing policies of insurance. He was provided with blanks for that
purpose, which needed only to be countersigned by him to make
them executed and binding contracts. The right to issue policies
included the right to refuse to issue them. Hobart's agreement to
issue a policy was the act of the company. Whose act was Hobart's
refusal to issue a policy after he had bound the company by his
agreement to issue one?
To my mind there is no escape from the conclusion that if he
acted for the company in making the agreement, he acted in the
same capacity in breaking it. There was a dispute of testimony as
FORM OF THE CONTRACT. 9I
to whether he ever made such an agreement with plaintiff's assignor.
Tais presented a question of fact which the jury have settled in
f-ivor of the plaintiff. If, then, we treat this as an action upon the
policy, and hold the defendant responsible for the acts of Hobart,
what is the effect of such acts. The answer seems obvious. If the
defendant, through its proper officers, had issued a policy of insur-
ance, and after a loss under the same, had denied its liability on
the ground that it never made any such contract, it would be a dis-
tinct waiver of the right to demand proofs of loss. S/unc> v. Repub-
lic Life Ins. Co.., 69 N. Y. 286; Stokes v. Macka\\ 147 N. Y. 223;
People \. Empire Miit. Life Ins. Co., 92 N. Y. 105; May on Insur-
ance, § 469; Porter on Insurance (American Notes by Darrach,
1889), star page 194; Richards on Insurance, § 81; Grattan v.
Met. Life Ins. Co., 80 N. Y. 281; Payn v. Mutual Relief Society, 6
N. Y. S. R. 365; Knickerbocker Life Ins. Co. v. Pendleton, 112 U. S.
696; Brink v. Hanover Fire Ins. Co., 80 N. X. 113.
Is the result any different because these things were done by an
agent. As we have seen, this agent had authority to issue, and,
therefore, to refuse to issue policies. His agreement to issue a
policy was the act of his principal. His refusal to i.ssue a policy
after he had agreed to do so falls within the same category. Under
these circumstances the refusal of the agent has the same effect as
though it had actually been made by the principal. Indeed, for
the purposes of the particular act, he was the principal. Goodivin
V. Mass. Mut. Life Ins. Co., 73 N. Y. 490, 491.
But it is suggested that the policy provides that no agent shall
have power to waive any of the conditions thereof. This is undoubt-
edly true after a policy has been issued, and the limited powers of
the agent are spent. But in the case before us, the acts of the
agent were within the scope of his authority, for until the policy was
actually issued he was the alter ego of the defendant. At every
instant, within the period covered by the negotiations between
Hobart and the plaintiff's assignor, the former was acting within
the scope of his authority. As the case stands, it is just as though
the defendant itself had refused to issue a policy after it had agreed
to do so. Under these circumstances the plaintiff and her assignor
were not required to present proofs of loss, because they had been
absolved from this duty by the acts of the defendant.
If these views are adopted, it follows that the charge of the trial
ourt was substantially correct, wherein it stated that it was not
necessary for the plaintiff to serve proofs of loss; and by the same
rule it would seem to follow that the instructions relating to the
waiver by Hobart were harmless because they were immaterial.
92 FORMATION OF THE CONTRACT.
Gray, O'Brikn and Cullen, JJ., concur with Parker, Ch. J,, for
reversal. Landon and Werner, JJ., read for affirmance and
Haight, J., concurs with Landon, J.
Judgment reversed, etc.
IV. Consideration.
Gray, J., in PHCENIX LIFE INSURANCE CO. v. RADDIN.
120 U. S. 1S3, 196. — 1SS7.
The only objection remaining to be considered is that of variance
between the declaration and the evidence, which is thus stated in
the bill of exceptions: " After the plaintiff had rested, the defend-
ant asked the coart to rule that there was a variance betw^een the
declaration and the proof, inasmuch as the declaration stated the
consideration of the contract to be the payment of the sum of
$152.10, and of an annual premium of $304.20, while the policy
showed the consideration to be the representations made in the
application as well as payment of the aforesaid sums of money, and
that an amendment to the declaration was necessary; but this the
court declined to rule, to which the defendant excepted."
But the "consideration," in the legal sense of the word, of a
contract, is the quid pro quo, that which the party to whom a
promise is made does or agrees to do in exchange for the promise.
In a contract of insurance, the promise of the insurer is to pay a
certain amount of money upon certain conditions; and the con-
sideration on the part of the assured is his payment of the whole
premium at the inception of the contract, or his payment of part
then, and his agreement to pay the rest at certain periods while it
continues in force. In the present case, at least, the application is
collateral to the contract, and contains no promise or agreement of
the assured. The statements in the application are only represen-
tations upon which the promise of the insurer is based, and condi-
tions limiting the obligation which he assumes. If they are false,
there is a misrepresentation, or a breach of condition, which pre-
vents the obligation of the insurer from ever attaching, or brings it
to an end; but there is no breach of any contract or promise on the
part of the assured, for he has made none. In short, the state-
ments in this application limit the liability of the insurer, but they
create no liability on the part of the assured. The expression at
the beginning of the policy, that the insurance is made " in con-
sideration of the representations made in the application for this
CONSUMMATION OF THE CONTRACT. 93
policy," and of certain sunas paid and to be paid for premiums,
does not make tiiose representations part of tlie consideration, in
the technical sense, or render it necessary or proper to plead them
as such.'
V. Consummation of the Contract.
MACHINE CO. V. INSURANCE CO.
50 Oh. St. 549. — 1893.
The action below was brought by the Newark Machine Company
against the Kenton Insurance Company of Kentucky to recover the
amount of a policy of fire insurance. The issue tried was whether
the contract of insurance had been consummated by the parties.
The plaintiff prevailed in the Court of Common Pleas; but the judg-
ment there obtained was reversed by the Circuit Court, and error is
prosecuted here to the judgment of that court.
Williams, J. The facts of the case, as shown by the record, and
about which there is no controversy, are substantially as follows:
On the 30th day of June, 1884, the plaintiff, a corporation, owned
and was operating a large manufacturing plant in the city of New-
ark, and had been the owner and operator of it for several years.
The defendant, a fire insurance company, then had an established
' Some courts hold that the contract of insurance is a unilateral one, the con-
sideration of which is the payment of the first premium ; the contract being subject
to the condition subsequent that unless the subsequent premiums are paid the
contract shall be of no effect. " The contract of life insurance has its inception
in the issue of the policy, and is a complete and entire contract for the life of
the assured, continuing during life, and payable at death, when no earlier
definite period is fixed, but subject to be discontinued by non-payment of the
premiums as agreed, such payments being conditions subsequent. The annual
premium is not paid in consideration of insurance for a single year, and its
payment is not a condition precedent to renewal. Each premium constitutes a
part of the consideration of the contract, as one and entire, and the amount is
fixed and regulated by the prospecti^^e duration of the life of the assured,
which enters as an element into the contract." — Feam v. Ward, 80 Ala. 555,
563. Contra: " The applicant, upon the payment of the first premium, effects
an insurance upon his life for one year, and purchases a right to continue that
insurance from year to year, during life, at the same rate. Whether he will
continue it or not is optional with him. The premium for the first year pays
for the risk during that year, and for the right to subsequent insurance. The
rale of insurance for a single year is less than the annual premiums on a life
policy. The difference, continued, as it is supposed it will be, from year to
year through life, may be regarded as the consideration for the right to con-
tinue the insurance." — IVorthingto.i v. Ins. Co., 41 Conn. 372, 399.
See also Premiums, /mV, p. 135.
94 FORMATION OF THE CONTRACT.
agency in Newark, in the charge of H. U. Murphy, who was also
the agent of a number of other fire companies, among them
the Norwich Union Company. He was a regularly commis-
sioned agent of these companies, and was provided by them with
blank applications, and policies duly signed by the proper officers,
to be filled up and countersigned by him as agent, and delivered in
the course of the business of his agency, and also with registers in
which to keep a record of the business, and blanks for making
reports of the same to the respective companies. He had, during
the existence of his agency, issued a large number of policies of
different companies represented by him to the plaintiff, insuring its
buildings, machinery, and stock against loss or damage by fire, one
of which was a policy on the stock for $5,000 in the Norwich Union,
issued a short time prior to June 30, 1884. There was an under-
standing between the managing officer of the plaintiff and Murphy
that the latter should keep the insurance of the plaintiff up to a
certain amount, either by renewals or new policies in good com-
panies represented by him; and his course of dealing with the plain-
tiff under that understanding was to charge up the amount of the
premiums to the plaintiff when policies were issued or renewed, and
have periodical settlements, usually once a month, when the premi-
ums would be paid. The Norwich Union, not desiring to carry so
large an insurance on the plaintiff's stock, a few days prior to the
30th of June, 1884, directed Murphy to reduce its risk to $2,500.
He thereupon, on the 30th day of June, 1884, filled up for that
amount one of the blank policies which that company had furnished
him, duly signed by its proper officers, and countersigned it as
agent, and at the same time filled up, for the same amount, one of
the blank forms of policy with which the defendant company had
supplied him, duly signed by its officers, and countersigned the
same as its agent, ready for delivery. He made the customary
entries of the issuing of the policies in the registers of the respective
companies, and in that of the Norwich Union an entry also of the
cancellation of the $5,000 policy, in place of which the two policies
he had so filled up were intended to be substituted On the 2d day
of July, 1884, he forwarded to the defendant at its home office in
Covington, Ky., what is called a " daily report," in which he gave
the number of the policy he had written for the plaintiff, its date,
amount, and duration, the rate and amount of the premium, a
description of the property insured, and other particulars of the risk.
This report was received at the home office July 3, 1884. The
premium on the $5,000 policy had been fully paid by the plaintiff, and
when the entry of its cancellation was made the policy had run but
CONSUMMATION OF THE CONTRACT. g$
:: short time. The unearned or returned premium was carried to
ttie credit ofthe plaintiff on the books of the agent, and the amount
of the premiums due on the two new policies was charged to the
plaintiff by the agent in accordance with his previous custom. At
the next regular settlement between the plaintiff and the agent,
which was made July 7, 1S84, there was due him from the plaintiff,
on account of premiums on various policies, the sum of $438.55,
which amount included the balance due on the policy of the defend-
ant. The amount due on the account was then paid by the plaintiff.
When the policy of the defendant was written, and the cancellation
entered of the Norwich Union policy, the latter was m the posses-
sion of F. S. Wright, cashier of the First National Bank of Newirk,
as collateral. Wright was also vice-president of the plaintiff, and
looked after its insurance. On the 30th day of June, 1884, after
writing and executing the two new policies, and entering the can-
cellation of the one for which they were intended to be substituted,
the agcat called at the bank to see Mr. Wright, take up the policy
so held by him, and deliver the new ones in its place. Wright was
absent, and the agent failed to see him. He called several times
withm the next day or two with like results, and did not see ^Vright
until the evening of July 3, 1884, after the bank had closed. The
agent then informed Wright that at the request of the Norwich
Union Company he had canceled its policy for $5,000 which Wright
then held, and issued to the plaintiff m its place two other policies
for .$2,500 each, which he proposed to deliver, and take up the can-
celed policy. Wright replied that was all right; all he wanted was
to have it so that the amount was the same; and he (the agent)
could call at the bank any time when it was open, and make the
exchange, and if he (Wright) was not in, the person in charge
would make the exchange for him. There appears to have been no
reason why the exchange was not made at the time of the interview
oi the evening of July 3d, except that the bank was then closed.
No claim was thereafter made by the plaintiff to the canceled policy;
nor was there any question, at the trial, of Wright's authority to
act for the plaintiff, or of that of the agent. Murphy, to act for the
defendant. The property was totally destroyed by fire on the 5th
day of July, 1880. At that time the new policies had not been
actually delivered, or the old one taken up. Immediately after the
fire, the defendant was notified of it by telegram from the agent,
who received from the defendant the following response: " Yours
received. Have telegraphed you for list of companies on stock
with us. The list sent to Cincinnati made no mention of Kenton,
and we were willing to be ignored. George C. Coker, Secretary."
96 FORMATION OF THE CONTRACT.
It was admitted on the trial that proof of tlie loss was duly made
and filed with the defendant; that Wright then had no interest in
the claim; and, if the plaintiff was entitled to recover, the amount
of the recovery should be $2,500, with interest from September 30,
18S4.
It does not appear that the names of the companies in which the
new policies had been written were mentioned in the interview
between Wright and the defendant's agent, nor the rate or amount
of the premium, nor the duration or conditions of the policies; and
it is claimed by the defendant that there was, therefore, no mutual
assent of the parties to either of those terms, and so no completed
contract of insurance between them. It is undoubtedly true that
those are essential elements of a contract of insurance, and, if there
was not a meeting of the minds of the parties upon them, the con-
tract was not consummated, and no risk attached. But it is equally
true that the agreement need not be e.xpressed in words; it may be
implied from the circumstances, and conduct of the parties.
If the case of Cockerill v. hisiirance Co., 16 Ohio, 148, in which it
was held that a policy of insurance, to bs valid, must be in writing,
was not virtually overruled by the case of Insurance Co. v. Kelly, 24
Ohio St. 345, as it was said to have been by Okev, J., in the case
of Insurance Co. v. Wall, 31 Ohio St. d^i, it has been so qualified
by these subsequent cases as to limit the rule it announced to poli-
cies in their strict technical sense, and leave unaffected by it parol
contracts of insurance.
It is now well settled that a policy is only evidence of the con-
tract, and the latter may be shown by parol, when the policy has
not been written, or is withheld, unless such contract is forbidden
by statute or a provision of the company's charter which is brought
to the notice of the other contracting party, (Ostr. Ins. §§ 13, 14;
Richards Ins. § 140; Insurance Co. v. Sliaic, 94 U. S. 574; Insurance
Co. v. Kelly, supra; Palm v. Insurance Co., 20 Ohio, 529, 537) and,
as in other cases of parol contracts, the terms of the agreement,
and the assent of the parties to them, may be shown by their acts
and the attending circumstances, as well as the words they have
employed. There was, in this case, no express agreement in regard
to the property to be insured by the new policies. The property
was not mentioned in the interview between the defendant's agent
and Wright. But, as it was agreed the new policies were to be
exchanged for the canceled policy, it must have been as clearly
understood as if it had been expressly stated that they were to
cover the property inclu.led in the canceled policy. So, in regard
to the rate and amouni of the premium, and form and conditions
CONSUMMATION OF THE CONTRACT. 97
of the polic)-. It is not claimed that the conditions of
the defendant's policies, or its rate of insurance, are different
from those of like companies; and it is generally known that the
form and conditions of fire policies in use by good companies do
not differ substantially, and the rates of insurance are established
and uniform on the same classes of property. And, where nothing
is said in the negotiation for insurance about special rates or con-
ditions, it may be presumed t^hat those which were usual and cus-
tomary were' intended. In Richards on Insurance (2d ed. § 42) it
is laid down as a general rule that, " whether the contract of insur-
ance is closed by parol or by a preliminary binding receipt, the legal
presumption is that the usual policy is to follow." And in the pre-
ceding section the same author says that it is not necessary that all
the particulars of a contract should be made the subject of express
stipulation, " for it may well be understood, in the absence of
express declaration to the contrary, that the usual form of policy is
acceptable to both parties." It was held by the Supreme Court of
Minnesota, in Salisbury v. Insurance Co., 32 Minn. 460, 21 N. \V,
552, that " upon an oral contract of insurance, where nothing is
said about conditions, if a policy is to be issued, the parties are
presumed to intend that it shall contain the conditions usually
inserted in policies of insurance in like cases." And in Eamesw
Insurance Co., 94 U. S. 629, Mr. Justice Bradley says: " It is
sufficient if one party proposes to be insured, and the other party
agrees to insure, and the subject, the period, the amount, and the
rate of insurance is ascertained or understood, and the premium
paid if demanded. It will be presumed that they contemplate such
form of policy, containing such conditions and limitations, as are
usual in such cases, or have been used before between the parties.
This is the sense and reason of the thing, and any contrary require-
ment should be expressly notified to the party to be affected by it."
Upon the facts of the present case there can be but little doubt
that the contract of insurance made by the defendant, through its
agent, with the plaintiff, was complete in all its terms. The plain-
tiff had previously arrranged with the agent to keep its insurance
up to a certain amount in good companies, for which he was author-
ized to act. This arrangement virtually left the selection of the
companies to the discretion of the agent; and, acting under it, he
had written the policy of the defendant and the new policy of the
Norwich Union Company, each for $2,500, and duly countersigned
both, ready for delivery to the plaintiff, and entered the cancellation
of the policy which Wright had in his possession before the inter-
view of July 3d. The policy of the defendant was then complete
LAW OF INSURANCE — ■?
98 FORMATION OF THE CONTRACT.
containing a description of tlie property, the amount, comnience-
uient and duration of the risk, the rate and amount of the premium,
and all the terms and conditions usual in such policies. This policy,
and the new policy of the Norwich Union, the agent proposed to
Wright to exchange for the canceled policy, without condition or
qualification. Tne proposition was immediately assented to and
accepted without any qualification or condition whatever. The
terms of the contract of insurance thus proposed by the defendant,
thrjugh its agent, were definite and certain in every particular.
They were those set forth in the policy. The acceptance was as
broad as the proposition, and was, therefore, an acceptance of all
the terms and conditions of the policy as it was written. That tne
plaintiff chose to accept the proposition unqualifiedly without further
inquiry or examination affords the defendant no ground for claim-
ing the contract was, on that account, incom|)lete. The only reason
the exchange was not made was that the canceled policy was locked
up in the bank. The parties evidently regarded the exchange as
complete, and thereafter the agent was a mere custodian of the
policy in question for the plaintiff, and the actual handing of it over
was not essential to the risk. Effect will be given to the intention
of the parties, and what their conduct shows they considered a
delivery must control in determining whether it was made. Bid.
Ins. § 149; Dibble v. Assurance Co., 70 Mich, i, 37 N. W. 704;
Bodinc V. Insurance Co., 51 N. Y. 117; 11 Amer. & Eng. Enc. Law,
p. 285. It is quite evident the agent considered the policy of the
defendant in full force. He reported it as such to the company;
and that the latter so treated it, even after the fire, is shown by its
telegram to the agent, inquiring what companies were " on stock
with us." The policy was on the stock of the plaintiff in its manu-
factory. The manual surrender by VViight of the policy in his pos-
session was not, we think, necessary to effect its cancellation. His
assent to the cancellation made by the agent was sufficient. It
then ceased to be of any force, and was so treated by the par-
ties. * * *
MARKEY V. MUTUAL BENEFIT INS. CO.
118 Mass. 178. — 1875.
Gray,C. J. — The plaintiff undertook to prove a contract by the
defendant to insure $3,000 on the life of her husband, payable to
her: 1st, by a policy executed by the defendant, and delivered by
Wells as its agent to the plaintiff; 2d, by a contract to insure inde-
pendently of any policy.
CONSUMMATION OF THE CONTRACT. 99
X. Upon the issue whether the policy was 1 contract binding the
defendant, one question submitted to the jury was whether Wells
" did deliver the policy to the plaintiff, intending to vest the prop-
erty in her."
Upoa this question the testimony introduced by the plaintiff did
not subnantially differ from that introduced at the former trial, and
which this court, for reasons fully stated in 103 Mass. 78, which upon
reconsideration we are satisfied with, and do not propose to recapitu-
late, held insufficient to warrant a jury in finding such intention.
It aniDunted to this and no more: That the husband being ill at
home, VVels came to the house, bringing the policy with him, and
passed it to the husband, saying he had brought him his policy;
that the husband said he was glad of it, he had been expecting it
for some days past; that he took the policy and read it over, and
handed it to his wife, saying, " Eliza, there is your policy," and she
took it and glanced it over, and laid it upon the table; that the
husband told W-Us " that he was not well enough to go out and get
the money to pay for the policy, that he had made an arrangement
with Mr. Banks over at the shop to get the money and pay it to
him," and Wells said, " he would go over directly to Mr. Banks and
get the money for the policy;" that, when Wells started to go out,
the wife took the policy from the table and passed it to him, saying,
" If you are going to Mr. Banks for the money you may need the
policy; and may as \vell take it and leave it with him," and Wells
took the policy; that her object in giving the policy to Wells was
that she supposed he was going to Banks to get the money, and
Banks would want to see the amount; and that upon her learning
the next morning from Banks that the policy had not been
delivered to him by Wells, the money was immediately sent to
Boston for the policy.
The direction to leave the policy with Banks had no tendency to
prove that the policy had been delivered; for it was equally con-
sistent with the alternative that it was to be delivered to Banks, for
the use of the plaintiff, upon his payment of the premium to Wells.
The testimony of the plaintiff that, when she took the policy from
her husband in the presence of Wells, she understood it was deliv-
ered to her to keep, whatever its legal competency and weight
might be on the question of her own intention, had no tendency to
prove the intention of Wells.
The testimony of Wells, upon the question whether he had
authority to deliver policies without payment of the premium, added
nothing to the evidence upon the question whether he actually
intended to deliver this policy.
lOO FORMATION OF THE CONTRACT.
The whole evidence was in our opinion insufficient to warrant the
jury in finding that the policy had been delivered so as to constitute
a binding contract.
2. The plaintiff's own testimony, already stated, shows that the
only form of contract of insurance, contemplated by the parties, was
by a policy issued by the defendant upon the written application of
the assured, and there is no evidence whatever that the defendant
intended, or was understood by the assured or the plaintiff to intend,
to make a contract of insurance in any other form. Real Estate Ins.
Co. V. Roessle, i Gray, 336; Sanborn v. Firemaiis /ns. Co., 16 Gray,
448, 454; Hoytv. Mutual Beriefit Ins. Co., 98 Mass. 539; Heiman v.
Phtvnix Ins. Co., 17 Minn. 153.
This point having been presented by the defendant in a distinct
request for instruction at the trial, for the manifest purpose of
reserving the question, and overruled by the presiding judge, is
clearly open upon these exceptions. Esty\. JVihnot, 15 Gray, 168;
Markey v. Mutual Benefit Ins. Co., 103 Mass. 78, 87.
The jury having been erroneously instructed as to the sufficiency
of the evidence upon each of the grounds upon which the plaintiff
sought to recover, the defendant's
Exceptions must be sustained.
LIPMAN V. NIAGARA FIRE INS. CO.
121 N. Y. 454. — 1890.
This was an action upon an agreement of insurance evidenced by
what is termed by insurance men a " binding slip," which was in
these words:
" Pell, Wallack & Co., Insurances, )
" 55 Liberty Street, New York, Sept. 2, 1885. f
" The undersigned do insure for account of Shaped Seamless
Stocking Co. amounts as specified below at i\ for 12 months from
Sept. 2, 1885, on machinery and stock, building No. 3 (as per form,
building situate Randall's Island, N, Y.) This receipt binding
until policy is delivered at the office of Pell, Wallack & Co.
Company. Amount. Accepted by
Niagara $2,500 Pollock."
Andrews, J. — The binding slip signed by the defendant was not
a mere agreement to insure, but was a present insurance to the
amount specified therein. The instrument is informal. It states
on whose account the insurance is made, the property covered, the
amount insured, the term of the insurance and the date. But it
CONSUMMATION OF THE CONTRACT. lOI
does not specify the risk insured against, nor does it contain any
conditions such as are usually found in insurance policies. The
evident design of the writing as disclosed by the testimony, was to
provide temporary insurance pending an inquiry by the company as
to the character of the risk, or, if that was known, during any delay
in issuing the policy.
The secretary of the defendant signed the binding slip upon the
solicitation of Pell, Wallack & Co., insurance brokers of the plain-
tiff, in the afternoon of September 2, 1885. The officers of the
defendant having made inquiry as to the risk, notified the plaintiff's
brokers before one o'clock of the afternoon of September 3d, that
the defendant declined it. The property described in the binding
slip was destroyed by fire in the afternoon of September 3d, the fire
having commenced about three o'clock.
The claim on the one side is that the binding slip was a complete
and perfect contract, binding the defendant according to its lan-
guage, " until policy is delivered at the office of Pell, Wallack &
Co.," and not terminable, therefore, by notice prior to that time,
or, if so terminable, then only upon reasonable notice, which, as is
claimed, was not given, nor in any event upon notice to the plain-
tiff's brokers, they not being agents of the plaintiff for the purpose
of receiving such notice.
It is insisted on the other side that the contract evidenced by the
binding slip was a contract subject to the conditions contained in
the ordinary policy in use by the company, one of which contained
the following clause:
" This insurance may be determined at any time by request of
the assured, or by the company on giving notice to that effect to
the assured, or tu the person who may have procured this insurance
to be taken by this company."
The notice given on the third of September prior to the fire ter-
minated, as is insisted, the contract of insurance pursuant to this
condition. We think there can be no doubt that the true construc-
tion of the binding slip only obligated the defendant according to
the terms of the policy in ordinary use by the company. There is
no other reasonable interpretation of the transaction. The bindiug
slip was a short method of issuing a temporary policy for the con-
venience of all parties, to continue until the execution of the formal
one. It would be unreasonable to suppose either that the brokers
expected an insurance except upon the usual terms imposed by the
company, or that the secretary of the company intended to insure
upon any other terms. The right of an insurance company to
terminate a risk is an important one. It is not reserved in terms
I03 FORMATION OF THE CONTRACT.
in the binding slip and could not be exercised at all so long as no
policy should be issued, unless the condition in the policy is deemed
to be incorporated therein.
Upon the plaintiff's contention the company could not cancel the
risk so long as the binding slip was in force, and the only remedy
of the company to get rid of the risk would be to issue the policy
and then immediately cancel it. The binding slip was a mere memo-
randum to identify the parties to the contract, the subject-matter
and the principal terms. It refers to the policy to be issued. 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 delivered.
The trial judge was of the opinion that the binding slip was not
a complete and independent contract of insurance, subject to no
conditions, but he ruled that the obligation of the defendant was
to be determined by the question, whether the condition in the
defendant's policy, that the company might terminate the policy by
notice to the " person who procured the insurance," was a usual
one, and submitted the case to the jury on that issue. The case of
De Grcrve v. Metropolitan Ins. Co.., 6i N. Y. 594, is, we think, a
decisive authority against the view of the learned trial judge. The
General Term dissented from the ruling of the trill judge on this
point, and held that notice to Pell, Wallack & Co., the brokers who
procured the insurance, was authorized by the condition in the policy.
It, however, sustained the judgment on the ground that notice did
not terminate the contract until a reasonable time had elapsed after
it was given, and that the two and a half hours which intervened
between the notice and the happening of the fire was not such reason-
able time, and that consequently the insurance was then in force.
We think there can be no reasonable doubt upon the language of
the condition that notice to the brokers was a good notice, and that
if otherwise sufficient, it terminated the defendant's liability. The
brokers procured the insurance. In fact their duties in respect to
it had not been terminated. The binding slip provided that the
policy, when issued, should be delivered at their office. The notice
was given to persons to whom notice might be given by the express
language of the policy. The special language of the condition in
the defendant's policy upon this point was, it is said, inserted to
meet the objections pointed out by this court in Hermann v. Niagara
F. Ins. Co., 100 N. Y. 415.
It remains to consider whether under the condition the policy
terminated eo instanti ox\ notice by the company. There is na lan-
guage which postpones the effect of notice until the lapse of a rea-
CONSUMMATION OF THE CONTRACT. I03
aonable time thereafter. The rule is well settled that where a per-
son undertakes to do an act upon notice from another, it is implied
that he shall have a reasonable time after he is called upon to do
the thing, or render the service, and no time for performance being
specified, the law gives him a reasonable time. But where a con-
tract fixe§ ihQ time of performance, the rule of a reasonable time
has no application. We have been referred to no case, nor have we
found any, which sanctions the doctrine that where one has assumed
an obligation which is to continue until notice given to the other
party, the obligation continues after notice. If in this case the
premium has been paid beyond the period when notice was given,
then the bare notice would not have terminated the risk. But this
for the reason that the company is bound in such case, in order to
terminate the policy, not only to give notice, but to refund or offer
to refund the insurance premium. This is the construction placed
on clauses like the one in question. The cancellation in such case
only takes place on notice and return of the premium for the unex-
pired term. Va/i Valkenburgh v. Lenox Fire Ins. Co., 51 N. Y. 465;
Wood on Fire Ins., § 106.
The privilege reserved by the company to terminate the policy on
notice, cannot be exercised under the circumstances which would
make it operate as a fraud on the insured, as in case of notice given
pending an approaching conflagration, threatening to destroy the
property insured. Home Ins. Co. v. Heck, 65 111. rii.
In the present case no premium had been paid. The notice was
given in good faith. There was no special emergency at the time.
It was given during business hours, in ordinary course.
The contract provides that it should be terminated on notice.
We perceive no reason why the contract should not be construed
according to its terms. The parties might have provided that the
risk should be carried by the company after notice for a reasonable
time, to enable the insured to place it elsewhere. But they did not
do so, and even if a custom of that kind had been proved, which was
not, it would have been inadmissible to change or extend the explicit
language of the contract. We think the cancellation was effected
at the time of the service of the notice. Mueller v. South Side Fire
Ins. Co., 87 Penn. St. 399; Grace v. Am. C. Ins. Co., 109 U. S. 278.
The judgment should, therefore, be reversed and a new trial
granted.
All concur. Judgment reversed.'
'"A ' binding slip' issued by an insurance company to insurance brokers,
commencing with the word ' insure,' specifying certain property, giving the
name of the owner, expressing d specified sum and a period of twelve monca,
104 FOR>rATinN' OF THE CONTRACT.
VI. Reality of Consent.
a. Concealment.
WALDEN V. LOUISIANA INS. CO.
12 La. 134. — 1838.
Martin, J. — The plaintiff is appellant from a judgment, which
rejected his claim for the value of a house, insured by the defend-
ants, and which was destroyed by fire.
The facts of the case are these: A ropewalk, which was so con-
tiguous to the house, that the destruction of the former by fire,
must necessarily have involved the latter in the like calamity; it was
rumored, that an attempt had been made to set fire to the ropewalk,
which induced the plaintiff to insure the house. The defendants
resisted his claim, on the ground, that he had not communicated
the circumstance, which had excited his alarm and determined him
to insure.
It appears to us, the District Court did not err. The underwriter
had an undoubted right to be informed of every circumstance,
which, creating or increasing the risk against which insurance is
sought, may induce him tb decline the insurance, or demand a
higher premium. It appears, from the defendant's own confession,
that the attempt which had been made, to set on fire a building,
which could not have been consumed without materially endanger-
ing his house, created in him an alarm, which prompted him to
guard against the danger.
It is true, he evidently acted in good faith; for when he called on
the defendants for indemnification, he candidly informed them of
the circumstance which had alarmed him. His ignorance of his
duty cannot protect him against his omission to give information of
a material fact, which the defendants had a right to know, in order
to establish the proper rate of insurance.
It is, therefore, ordered, adjudged and decreed, that the judge-
ment of the District Court be affirmed, with costs.
but adding ' this memo, to be void on delivery of the policy,' is not on its face
such a perfect and complete contract of insurance as to preclude parol evidence
of a usage between insurance brokers and insurance companies and of an actual
intention of the parties that the slip should be binding only until action upon a
pending application for renewal of a policy, and should not survive the rejec-
tion, of the application and notice to that efifect to the insured." — Syllabus in
Underwood \. Ins. Co., 161 N. Y. 413
REALITY OF CONSENT. IO5
Bronson, J., IN BURRITT v. SARATOGA COUNTY
MUTUAL FIRE INS. CO.
5 Hill. (N. Y.) 188, 191. — 1843.
In marine insurance the misrepresentation or concealment by the
assured of a fact material to the risk will avoid the policy, although
no fraud was intended. It is no answer for the assured to say that
the error or suppression was the result of mistake, accident, forget-
fulness or inadvertence. It is enough that the insurer has been
misled, and has thus been induced to enter into a contract which,
upon correct and full information, he would either have declined,
or would have made upon different terms. Although no fraud was
intended by the assured, it is nevertheless a fraud upon the under-
writer, and avoids the policy. Bridges v. Hunter, i Maule & Selw.
15; Macdowall v. Fraser, Doug. 260; Fitzherbert v. Mather, i T. R.
12; Carter v. Boehm, 3 Burr. 1905; Bufe v. Turner, 6 Taunt. 338;
Curry v, Commomoealth Ins. Co., 10 Pick. 535; N. V. Boivery Ins. Cj-
v. N. Y. Fire Ins. Co., 17 Wend. 359; i Marsh. Ins. (Condy), 451-
453, 465; I Phil. Ins. 214, 303. The assured is bound, although no
inquiry be made, to disclose every fact within his knowledge which
is material to the risk. But this doctrine cannot be applicable, at
least not in its full extent, to policies against fire. If a man is con-
tent 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 vvhat uses it is applied, he has no ground for
complaint that the hazard proves to be greater than he had antici-
pated, unless I am chargeable with soma misrepresentation con-
cerning 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 affect the amount of premium to
be paid. This is sometimes done by the conditions of insurance
annexed to the policy, and sometimes by requiring the applicant to
state particular facts in a written application for msurance. When
thus called upon to speak, he is bound to make a true and full rep-
resentation concerning all the matters brought to his notice, and
any concealment will have the like effect as in the case of a marine
risk. (See i Phil. Ins. 284, 285, ed of 1840.) It is not necessary
for the purpose of avoiding the policy, to show that any fraud was
intended. It is enough that information material to the risk was
required and withheld.
This doctrine is fatal to the present action. The plaintiff was
plainly and directly called upon to state the relative situation of the
I06 FORMATION OF THE CONTRACT.
store as to all other builJings witliiii the distance of ten rods; and
he omitted to mention several buildings which stood within that
distance, and among the number was one which was far more haz-
ardous than that to which the policy applied. If there could be any
doubt that the facts concealed were material to the risk, the ques-
tion should have been left to the jury.
PROUDFOOT 7'. MONTEFIORE.
L. R. 2 Q. B. 511. — 1867.
DECLAR.A.TION agaiust the defendant as chairman of the Alliance
Marine Assurance Company, claiming damages from the company
in respect of tlie company not having delivered to the plaintift' a
policy of insurance on certain go )Js shipped on board a ship called
the Anne Duncan^ pursuant to an agreement alleged by the plaintiff to
have been entered into between the plaintiff and the company, and
in respect of the company not having paid the sum of money which
the plaintiff alleged would have become due on such policy if the
same had been so delivered.
The plaintiff, in Liverpool, employed an agent at Smyrna to buy
madder on his account, and to ship and consign the cargoes to him;
the agent purchased and shipped a cargo of madder, and advised
the plaintiff on the 12th of January, and sent the shipping documents
on the 19th of January. The ship sailed on the 23d of January, but
was stranded in the course of that day, and the cargo became a total
loss. Intelligence of the loss was communicated to the agent on
the 24th of January, and on the 26th, the next post day, he wrote
to the plaintiff announcing the loss, but purposely abstained from
telegraphing, in order that the plaintiff might not be prevented
from insuring. The plaintiff, on the 31st of January, after the
receipt of the letters of the 12th and 19th, but before the receipt
of the letter of the 26th, and without any knowledge of the loss —
which, however, had been telegraphed and posted in Lloyd's lists —
effected an insurance:
CocKBURN, C. J., \afler stating the facts in the present case, and
referring approvingly to Fitzherbert v. Mather, i T. R. 12, 16, and
Gladstone v. King, i M. 6- 6"". jj, jc?.] An eminent authority, the
late Mr. Justice Story, has, however, declined to be bound by these
decisions. In a case, Ruggles v. Itis. Co., 4 Mason, 74, tried before
him on a policy of insurance effected after a total loss, where the
master had omitted to give intelligence of the loss to his owner,
with the fraudulent design of enabling him to make an insurance,
and the insurance had been effected by the owner in ignorance of
REALITY OF CONSENT. lO/
the loss, that learned judge held that, as the owner at the time of
procuring the insurance had no knowledge of the loss, but acted
with an entire gocd faith, he was not precluded from recovering,
and that the policy was not rendered void by the omission of ths
master to communicate intelligence of the loss, although such omis-
sion was wilful and fraudulent. The case being taken to a court of
error, 12 Wheat. 408, the latter upheld the decision; not, indee^i,
on the grounds taken by Mr. Justice Story, but on the very unsatis-
factory, and, as we think, untenable grounJ, that by the total loss
of the vessel the master had wholly ceased to be the agent of the
owner, and had become the agent of the underwriters. From
the language of the judgment, it may be inferred that if the
Court had considered that the relation of the master to his owners
had not been interrupted by the loss of the vessel, they would not
have upheld the decision appealed from. The ruling of Mr. Justice
Story has been discussed by Mr. Duer, in his admirable work on ii.-
surance, ^'ol. ii, p. 418; and we think the reasoning of the learneJ
writer fully establishes his conclusion as to the ruling having been
erroneous. Notwithstanding the dissent of so eminent a jurist as
Mr. Justice Story, we are of the opinion that the cases of Fitzher-
bert V . Mather^ and Gladstone v. King^ were well decided; and that
if an agent whose duty it is, in the ordinary ct)urse of business, to
communicate information to his principal as to the state of a ship
and cargo, omits to discharge such duty, and the owner, in the
absence of information as to any fact material to be communicated
to the underwriter, effects an insurance, such insurance will be void,
on the ground of concealment or misrepresentation. The insurer
is entitled to assume, as the basis of the contract between him and
the assured, that the latter will communicate to him every material
fact of which the assured has, or, in the ordinary course of business,
ought to have knowledge; and that the latter will take the necessary
measures, by the employment of competent and honest agents, to
obtain, through the ordinary channels of intelligence in use in the
mercantile world, all due information as to the subject matter of
insurance. This condition is not complied with where, by the fraud
or negligence of the agent, the party proposing the insurance is kept
in ignorance of a material fact, which ought to have been made known
to the underwriter and through such ignorance fails to disclose it.'
' In Blackburn v. Vigors, 12 A. C.531, it was held that a policy^ of marine insur-
ance was not affected by the concealment of a material fact which was anknovvn
10 the assured and to the broker, though il had co"^e previously to the knowl-
edge of a different broker while formerly employed bv the assured to effect
another policy in respect of the same risk.
I08 FORMATION OF THE CONTRACT.
b. Representations and Warranties.
I. In General.
PHCENIX LIFE INSURANCE CO. v. RADDIN.
I20 U. S. 183. — 1887.
Gray, J. — This was an action brought by Sewell Raddin, and
prosecuted by his administrator, upon a policy of life insurance
dated April 25, 1872, the material parts of which were as follows:
" This policy of assurance witnesseth that the Phoenix Mutual
Life Insurance Company of Hartford, Conn., in consideration of
the representations made to them in the application for this policy,
and of the sum of one hundred and fifty-two dollars and ten cents
to them duly paid by Sewell Raddin, father, and of the semi-annual
payment of a like amount on or before the twenty-fifth day of April
and October in every year during the continuance of this policy, do
assure the life of Charles E. Raddin, of Lynn, in the county of
Essex, State of Massachusetts, in the amount of $10,000 for the
term of his natural life. This policy is issued and accepted by the
assured upon the following express conditions and agreements,"
namely, among others, that " if any of the declarations or state-
ments made in tlie application for this policy, upon the faith of
which this policy is issued, shall be found in any respect untrue,
this policy shall be null and void." The application was signed by
Sewell Raddin, both for his son and for himself, and contained
twenty-nine printed " questions to be answered by the person whose
life is proposed to be insured, and which form the basis of the con-
tract," three of which, with the written answers to them, and the
concluding paragraph of the application, were as follows:
" (10) Is the party addicted to the
habitual use of spirituous liquors or No.
opium?
" (2S) Has any application been made
to this or any other company for assur-
ance on the life of the party? If so,
with what result? What amounts are $10,000, Equitable Life Assurance
now assured on the life of the parly. Society,
and in what companies? If already
assured in this company, state the No.
of policy ?
" (29) Is the party and the applicant
aware that any untrue or fraudulent
answers to the above queries, or any
suppression of facts in regard to ihe Yes.
health, habits, or circumstances of the
party to be assured, will vitiate the pol-
icy, and forfeit all payments thereon?
REALITY OF CONSENT. IO9
" It is hereby declared thai the above are fair and true answers to the fore-
going questions, and it is acknowledged and agreed by the undersigned that
this application shall form the basis of the contract for insurance, which con-
tract shall be completed only by delivery of policy, and that any untrue, or
fraudulent answers, any suppression of facts, or should the applicant become
as to habits, so far different from condition now represented to be in as to make
the risk more than ordinarily hazardous, or 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."
It was admitted at the trial that all premiums were paid as they
fell due; that Charles E. Raddin died July 18, 1881; and that at
the date of this policy he had an endowment policy in the Equitable
Life Assurance Society for $10,000, which was afterwards paid to
him.
One of the defenses relied on at the trial was that the answer to
question 28 in the application was untrue, and that there was a
fraudulent suppression of facts material to the insurance, because
the plaintiff, by his answer to that question, "$10,000, Equitable
Life Assurance Society, " intended to have the defendant understand
that the only application which had been made to any other com-
pany for assurance upon the life of his son was one made to the
Equitable Life Assurance Society, upon which that society had
issued a policy of $10,000; whereas in fact the plaintiff, within three
weeks before the application for the policy in suit, had made appli-
cations to that society, and to the New York Life Lisurance Com-
pany, for additional insurance upon the son's life, each of which
had been declined. The defendant offered to prove that the two
other applications were made and declined as alleged, and that the
facts as to the making and the rejection of both those applications
were known to the plaintiff, and intentionally concealed by him, at
the time of his application to the defendant; and upon these offers
of proof asked the court to rule — First, that the answer to ques-
tion 28 was untrue, and, therefore, no recovery could be had on this
policy; second, that there was a suppression of facts by the plain-
tiff, and therefore, he could not recover; and, third, "that the
answer to question 28 must be construed to be an answer to all the
clauses of that question, and as such was misleading, and amounted
to a concealment of facts which the defendant was entitled to know,
and the plaintiff was bound to communicate." But the court
excluded all the evidence so offered, declined to give any of the
rulings asked for, and ruled " that, if the answer to one of the inter-
rogatories of question 28 was true, there would be no breach of the
warranty; that the failure to answer the other interrogatories of
question 28 was no breach of the contract; and that, if the company
no FORMATION OF THE CONTRACT.
took the defective apjjlication, it would be a waiver on their part of
the answers to the other interrogatories of that question." The
jury having returned a verdict for the plaintiff in the full amount of
the policy, the defendant's exceptions to the refusal to rule as
requested, and to the rulings aforesaid, present the principal ques-
tiu'.i in the case.
I'he rules of law which govern the decision of this question are
well settled, and the only difficulty is in applying those rules to the
facts before us. Answers to questions propounded by the insurers
in an application for insurance, unless they are clearly shown by
the form of the contract to have been intended by both parties to be
warranties, to be strictly and literally complied with, are to be con-
strued as representations, as to which substantial truth in everything
material to the risk is all that is required of the applicant. Moulor
V. Insurance Co., iii U. S, 335, 4 Sup. Ct. 466; Campbell v. Insurafice
Co., 98 Mass. 381; Thompson v. IVeems, 9 App. Cas. 671.
The misrepresentation or concealment by the assured of any
material fact entitles the insurers to avoid the policy. But the
parties may by their contract make material a fact that would other-
wise be immaterial, or m ike immaterial a fact that would otherwise
be material. Whether there is other insurance on the same subject,
and whether such insurance has been applied for and refused, are
material facts, at least when statements regarding them are required
by the insurers as part of the basis of the contract. Carpenter v.
Providence Washington Ins. Co., 16 Pet. 495; Jeffries r.Life Ins. Co..,
22 Wall. 47; Anderson v. Fitzgerald, a, H. L. Cas. 484; Macdonald
V. Insurance Co., L. R. 9 Q. B. 328; Edington v. Insurance Co., 77
N. Y. 564, and 100 N. Y. 536, 3 N. E. 315.
Where an answer of the applicant to a direct question of the
insurers purports to be a complete answer to the question, any sub-
stantial misstatement or omission in the answer avoids a policy
issued on the faith of the application. Cazenove v. Assurance
Co., 29 Law J. N. S. (C. P.) 160, affirming s. c, 6 C. B. (N S.) 437.
But where upon the face of the application, a question appears to
be not answered at all, or to be imperfectly answered, and the
insurers issue a policy without further inquiry, they waive the want
-or imperfection in the answer, and render the omission to answer
more fully immaterial. Conn. Insurance Co. v. Luchs, 108 U. S. 498,
2 S'jp. Ct 949: Hall V. Peoples Ins. Co., 6 Gray, 185; Lorillard his.
Co. V. McCulloch, 21 Ohio St. 176; American Insurance Co. v. Mahofie,
56 Miss. 180; Carson v. Insurance Co., 43 N. J. Law, 300, 44 N. J.
Law, 210; Lebanon Ins. Co. v. Kepler, 106 Pa. St. 28.
The distinction between an answer apparently complete, but \z
REALITY OF CONSENT. Ill
facL incomplete, and therefore, untrue, and an answer manifestly
incomplete, and as such accepted by the insurers, may be illustrated
by two cases of fire insurance, which are governed by the same rules
in this respect as cases of life insurance. If one applying for insur-
ance upon a building against fire is asked whether the property is
incumbered, and for what amount, and in his answer discloses one
mortgage, when in fact there are two, the policy issued thereon is
avoided. Tojvne v. Insurance Co., 7 Allen, 51. But if to the same
question he merely answers that the property is incumbered with-
out stating the amount of incumbrances, the issue of the policy
without further inquiry is a waiver of the omission to state the
amount. Nichols v. Insurance Co., 1 Allen, 63.
In the contract before us the answers in the application are
nowhere called warranties, or made part of the contract. In the
policy those answers and the concluding paragraph of the applica-
tion are referred to only as " the declarations or statements upon
the faith of which this policy is issued;" and in the concluding
paragraph of the application the answers are declared to be " fair
and true answers to the foregoing questions," and to "form the basis
of the contract for insurance.' They must, therefore, be considered,
not as warranties which are part of the contract, but as representa-
tions collateral to the contract, and on which it is based.
The twenty-eighth printed question in the application consists of
four successive interrogatories, as follows: " Has any application
been made to this or any other company for assurance on the life of
the party? If so, with what result? What amounts are now assured
on the life of the party, and in what companies ? If already assured
in this company, state the No. of policy." The only answer written
opposite the question is "$10,000, Equitable Life Assurance Soci-
ety." The question being printed in very small type, the answer
is written in a single line midway of the opposite space, evidently
in order to prevent the ends of the letters from extending above or
below that space; and its position with regard to that space, and to
the several interrogatories combined in the question, does not
appear to us to have any bearing upon the construction and effect
of the answer. But the four interrogatories grouped togther in one
question, and all relating to the subject of other insurance, would
naturally be understood as all tending to one object, — the ascer-
taining of the amount of such insurance. The answer in its form
is responsive, not to the first and second interrogatories, but to the
third interrogatory only, and fully and truly answers that interroga-
tory by stating the existing amount of prior insurance, and in what
company, and thus renders the fourth interrogatory irrelevant. If
112 FORMATION OF THE CONTRACT.
the insurers, after being thus truly and fully informed of the amount
and the place of prior insurance, considered it material to know
whether any unsuccessful applications had been made for additional
insurance, they should either have repeated the first two interroga-
tories or have put further questions. The legal effect of issuing a
policy upon the answer as it stood was to v/aive their right of
requiring further answers as to the particulars mentioned in the
twenty-eighth question, to determine that it was immaterial, for the
purposes of their contract, whether any unsuccessful applications
had been made, and to estop them to set up the omission to disclose
such applications as a ground for avoiding the policy. The insurers,
having thus conclusively elected to treat that omission as immate-
rial, could not afterwards make it material by proving that it was
intentional.
The case oi London Assurance v. Mansel, ii Ch. Div. 363, on which
the insurers relied at the argument, did not arise on a question
including several interrogatories as to whether another application
had been made, and with what result, and the amount of existing
insurance, and in what company. Bat the application or proposal
contained two separate questions — the first whether a proposal had
been made at any other office, and, if so, where; the second whether
it was accepted at the ordinary premium, or at an increased prem-
ium, or declined; and contained no third question or interrogatory
as to the amount of existing insurance, and in what company. The
single answer to both questions was, " Insured now in two offices
for $16,000, at ordinary rates. Policies effected last year." There
being no specific interrogatory as to the amount of existing insur-
ance, that answer could apply only to the question whether a
proposal had been made, or to the question whether it had been
accepted, and at what rates, or declined; and as applied to either
of those questions it was in fact, but not upon its face, incomplete,
and, therefore, untrue. As applied to the first question, it disclosed
only some, and not all, of the proposals which had in fact been
made; and, as applied to the second question, it disclosed only the
proposals which had been accepted, and not those which had been
declined, though the question distinctly embraced both. That case
is thus clearly distinguished in its facts from the case at bar. So
much of the remarks of Sir George Jessel, M. R., in delivering judg-
ment, as implies that an insurance company is not bound to look
with the greatest attention at the answers of an applicant to the
great number of questions framed by the company or its agents,
and that the intentional omission of the insured to answer a question
put to him is a concealment which will avoid a policy issued without
REALITY OF COx\SENT. II3
further inquiry, can hardly be reconciled with the uniform current
of American decisions. For these reasons, our conclusion upon
this branch of the case is that there was no error of which the com-
pany had a right to complain, either in the refusals to rule, or in the
ruHngs made. * * *
Day, C. J., IN MILLER v. MUTUAL BENEFIT LIFE INS. CO.
31 Ia. 216, 226. — 1871.
The court gave the following instruction, to wit: " The language
of the policy does not make the statements contained in the appli-
cation for it matters of warranty, but matters of representation."
The defendant excepted to this instruction and assigns the giving
of it as error.
A warranty differs from a representation in two essential aspects.
First, a warranty constitutes a part of the contract, and it is neces-
sary that it should be exactly and literally complied with; but a
representation is collateral to the contract, and it is sufficient if it
be equitable and substantially complied with. Second, in a case of
a warranty the burden of proof is upon the party seeking indemnity
to establish a case in all respects in conformity with the terms under
which the risk was assumed; but in case of a representation the
burden is cast upon the defendant to set forth and prove the col-
lateral facts upon which he relies: i Phillips on Insurance, §§ 669,
754, and Campbell v. New England Mutual Life Insurance Co., 98
Mass 389, 390, In the case of Daniels v. Hudson River Fire Insur-
ance Co., 12 Cush. 416, Shaw, C J., very clearly and forcibly illus-
trated the distinction between a warranty and a representation.
He said: " The difference " (between a warranty and a represen-
tation) " is most essential. If any statement of fact, however unim-
portant it may have been regarded by both parties to the contract
is a warranty, and it happens to be untrue, it avoids the policy. If
it be construed as a representation and is untrue, it does not avoid
the contract if not willful or if not material. To illustrate this, the
application in answer to an interrrogatory is this: * ashes are taken
up and removed in iron hods,' whereas it should turn out in evi-
dence that ashes were taken up and removed in copper hods, per-
haps a set recently purchased and unknown to the owner. If this
was a warranty, the policy is gone; but if a representation, it would
not, we presume, affect the policy, because not willful or designed
to deceive, but more especially because it would be utterly imma-
terial, and would not have influenced the mind of either party in
making the contract or in fixing its terms." In the case of Camp-
LAW OF INSURANCE — 8
114 FORMATION OF THE CONTRACT.
bell w Ne7C> England .\fi/tiuil Life Insurance Co., it was said, that
" when statements or engagements on the part of the insured are
inserted, or referred to in the policy itself, it often becomes difficult
to determine to which class they belong. If they appear on the
face of the policy they do not necessarily become warranties. Their
character will depend upon the form of expression used, the appar-
ent purpose of the insertion, and sometimes upon the connection or
relation to other parts of the instrument. If they are contained in
a separate paper, referred to in such a manner as to make it a part
of the contract, the same considerations, of course, will apply.
* * * In considering the question whether a statement forming
a part of the contract is a warranty, it must be borne in mind, as
an established maxim, that warranties are not to be created nor
extended by construction. They must arise, if at all, from the fair
interpretation and clear intendment of the words used by the par-
ties." Citing Daniels v. Hudson River Ins. Co., 12 Cush. 416, 424;
Blood V. Hoiuard Ins. Co., 12 Id 472; Jefferson Ins. Co. v. Cotheal,
7 Wend. 72; Forbush v. Western Mass. Ins. Co., 4 Gray, 337, 340.
" The application is in itself collateral merely to the contract of
insurance. Its statements, whether of facts or agreements, belong
to the class of representations. They are to be so construed, unless
converted into warranties by force of a reference to them in the
policy, and a clear purpose manifest in the papers thus connected,
that the whole shall form one entire contract. When the reference
to the application is expressed to be for another purpose, or when
no purpose is indicated to make it part of the policy, it will not be
so treated." Campbell v. Neiv England Mututal Life Ins. Co., 98
Mass 391, 392; Snyder v. Farmers' Ins. and Loan Co., 13 Wend. 92.
In the case of Daniels v. Hudson River Fire Ins. Co., Shaw, C. J.,
having alluded to the fact that a warranty, however immaterial, if
untrue, avoids the policy, uses this language: "Hence it is, we
suppose, that the leaning of all courts is to hold such a stipulation
to be a representation rather than a warranty in all cases whe'-e
there is any room for construction, because such construction will,
in general, best carry into effect the real intent and purpose which
the parties have in view in making their contract." And the learned
Chief Justice, in the same case, further said: " If b.y any words of
reference the stipulations in another instrument, such as the pro-
posal or application, can be construed a warranty, it must be such
as makes it in legal effect a part of the policy."
In th"; case of Campbell v. New England Mutual Life Ins. Co., the
defendant insisted, as in the present case, that certain statements
were to be regarded as warranties, and the point decided in the case
REALITY OF CONSENT. II5
is SO pertinent to the present inquiry, and the reasoning is so clear
and forcible that we feel justified in quoting further from it. The
court said: " In every case cited in support of the defendant's
position, there was an express reference in the policy which made
t'le application a part of the contract. The one most relied on, and
claimed to be especially applicable to the facts of the present case,
is that of Miles v. Connecticut Ins. Co., 3 Gray, 580. In that case it
was declared in the policy itself to be ' expressly understood and
agreed to be the true intent and meaning hereof, that if the pro-
posal, answer, and declaration made by the assured, and upon the
faith of which this agreement is made, shall be found in any respect
untrue, then and in such case this policy shall be null and void.'
In that proposal the assured declare (among other things) that the
answers and statements therein made are correct and true, and
' agreed that the answers given to the following questions and the
accompanying statements, and this declaration, shall be the basis,
and form part of the contract or policy between them and the said
company.' Two marked features in that case distinguish it from
the present. First, the clause in the policy relates distinctly and
exclusively to the paper called ' the proposal and declaration.'
Second, when the two papers are thus brought together there is a
distinct agreement r.ot only that the statements are true and cor-
rect, but that they are to form a part of the contract. In the
present case the policy contains no reference to any application,
nor to any declaration or statement in writing, made or to be made
by the assured. The only clause in the policy which can have any
bearing upon the question, when disconnected from other pro-
visions of a diverse character, reads as follows, namely: ' Or if
the statements made by or on behalf of, or with the knowledge of,
the said assured to the company, as the basis of, or in the negotia-
tion for, this contract shall be found in any respect untrue, then,
and in each of said cases, this policy shall be null and void.' It
is clear that this is not a reference to any particular instrument or
paper, but it includes any and all statements, whether oral or writ-
ten. The defendant, however, contends that a written application
having been made in this case, which by its own terms declares the
statements therein contained to be made ' as the basis of ' the
insurance applied for, the policy will attach to that application as
containing the statements referred to, and thus constitute an express
warranty. We are far from being ready to concede that the refer-
ence is sufficiently definite to warrant the bringing of the two papers
together for the purpose of giving a construction to the contract.
But, even if the application may properly be resorted to for aid in
Il6 FORMATION OV THE CONTRACT.
the construction, it contains no agreement and no words to indicate
that its statements are to be taken as warranties, nor that they are
to form part of the contract."
In the case at bar the proceedings with reference to the procur-
ing of the policy comprise five papers. The one designated " A "
is headed, " Particulars required from persons proposing to effect
assurance on lives in this company." That designated " B " is
headed, " Questions to be answered by the physician of the party
applying for insurance." That designated "C" is headed, "Ques-
tions to be answered by the friend of the party applying for assur-
ance." That designated " D " is headed, " Questions to be
answered by the agent, if the applicant is not previously known to
him." And the fifth is designated as follows: " Declaration to be
made and signed by the person proposing to make an assurance on
the life of another." This last-mentioned paper is the one which
appears first in the statement of facts, and is signed, " Mary L.
Miller, by James A. Miller." To this reference is made in the
policy as follows: "And it is also understood and agreed by the
within assured to be the true intent and meaning hereof that if
the declaration made by or for the assured, and bearing date the
19th day of February, 1866, and upon the faith of which this agree-
ment IS made, shall be found in any respect untrue, then and in
such case this policy shall be null and void."
It is worthy of note that the declaration is referred to by name,
and that to none of the other papers, each of which has a specific
designation in the proceedings, is any reference made in the policy.
In this respect it differs from the case of Miles v. The Connecticut
Insurance Co., before alluded to, in which the policy made direct
reference to the proposal, answer, and declaration made by the
assured, and provided that if they were found in any respect untrue,
the policy should be null and void.
Applying the principles of the foregoing decisions to the present
case it follows that the statements contained in the declaration can
alone be regarded as warranties, and that the answers of Miller to
the questions propounded to him are mere representations.
If the instruction of the Court had reference to the answers to
the printed interrogatories, it was proper. If it had reference to
the declaration, it was not error to the prejudice of appellant. The
only alleged misstatement, of which complaint is made, is contained
in the answer of Miller to the questions asked him. Hence it
becomes quite immaterial what construction is placed upon the
statements in the declaration. As the Court did not err in giving
the foregoing instruction, it follows that the fourth instruction
REALITY OF CONSENT. I17
asked by the defendant, embodying a doctrine at variance with it,
was properly refused.
In the case of Henry Wilkinson v. The Connecticut Mutual Life Ins.
Co., decided at the December Term, 1870, it was said that, under
the terms of the policy in that case, the answers to the questions
contained in the application became warranties. That action was
against the same company in which the decision of Miles v. The
Connecticut Ins. Co., 3 Gray, 580, was rendered, the policies of which,
as we have seen, contain provisions differing widely from those now
under consideration.
III. The Court further instructed the jury as follows: " It is for
you to determine the materiality of the alleged misstatements, if
any have been proven." This instruction we consider erroneous.
The only misstatements complained of are the answers of Miller to
the following questions, to wit: " Is the party sober and temperate? "
" Has he always been so? " A misrepresentation by one party of a
fact specifically inquired about by the other, though not material,
will have the same effect in exonerating the latter from the contract
as if the fact had been material, since, by making such inquiry, he
implies that he considers it so. In all jurisprudence this distinction
is recognized. It is partcularly applicable to written answers to
written inquiries, referred to in a policy. The rule is so because
a party, in making a contract, has a right to the advantage of his
own judgment of what is material, and if, by making specific inquiry,
he implies that he considers a fact to be so, the other party is bound
by it as such, i Phil, on Ins. § 342, and cases cited; also, Campbell
V. Neiii England Mutual Life Insurance Co., 98 Mass. 401. Repre-
sentations of this kind differ from warranties in that a substantial
compliance with them is sufficient to answer their terms. Whether
there has been such substantial compliance — that is, whether the
representation is in every material respect true, is a question of
fact for the jury. But it is not for the jury to say that the repre-
sentation, though substantially untrue, is, notwithstanding, imma-
terial. An illustration will make plain the view of the Court. Sup-
pose that in answer to a specific question the assured states that his
age is thirty years. It appears from the evidence that his age is a
week or a month greater. The question would be a proper one for
the jury to say whether the representation, though strictly and
technically untrue, was not substantially and materially true. But
suppose it appears from the evidence that the age of the assured is
fifty instead of thirty years. It is not the province of the jury to
say that the representation, though untrue, is immaterial As is
well said in the case of Campbell v. Neiu England Mutual Life Insu
Il8 FORMATION OF THE CONTRACT.
ance Co., it is not within the province of the jury, under the guise of
determining whether the statements of the applicant were materially
false or untrue in some particulars material to the risk, to find that
diseases and infirmities were not material to be disclosed, which the
parties had, by the form of the contract of insurance, and of the
contemporaneous written application, conclusi v'ely agreed to con-
sider material. See, also, Davenport v. Neio England Insurance Co.,
6 Cush. 341. We are aware that there are authorities which sustain
the instruction of the Court, but they seem not to have noticed the
distinction here recognized, and are not, in our judgment, so much
in accord with sound legal principles as those which support the
converse doctrine. * * * >
2. Promissory Representations.
Gray, J., ix KIMBALL v. ^TNA INSURANCE CO.
9 Allen, 540, 541. — 1865.
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 knowledge of the owner more than of the insurer, and
must be truly represented by the former to the latter, in order that
he may estimate the risk before entering into the contract. In
making this representation, 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 \vhich the contract can attach, the contract
' " It is, however, generally true, that where the application is expressly
declared to be a part of the policy, > and the statements therein contained are
warranted to be true, as was the case here, such statements will be deemed
material whether they are so or not and if shown to be false, there can be no
recovery on the policy, however innocently made, and notwithstanding their
falsity may have no agency in causing the loss or producing the death of the
assured. Ripley v. .^tna Ins. Co., 30 N. Y. 136; 0' Niel v. Buffalo Fire Ins. Co.,
3 Id. 122; Barteau v. Phosnix Mutual Life Ins. Co., 67 Id. 595. While this is
true as a general rule, still there are cases to be found in which the statements
in the application have been held to be representations, merely, notwithstand-
ing they were expressly declared to be warranties, a? they are here." [Citing
Fitch V. Ins. Co., 59 N. Y. 557.] — Continental Life Ins. Co. v. Rooers, 119 III.
474, 482. See also Kettenbach v. Assoc., 49 Neb. 842 (reported herein at p. 252),
where statements stipulated in the policy to be " warranties" were held lo be
representations.
REALITY OF CONSENT. I 19
founded on such misrepresentation never talces effect, the under-
writer may treat it as a nullity, and the other party, unless charge-
able with fraud, may recover back the premium. If representa-
tions, whether oral or written, concerning facts existing when the
policy is signed, are false, it never has any existence as a contract,
urless it contains in itself terms which expressly or by necessary
implication waive or supersede the previous representations. If
the representations are positive and not of mere opinion or belief,
it matters not whether they are made at or before the tihie 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 ri?k of the under-
writer begins. If the facts are then materially different from t'm
representations, 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 exe-
cution 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 con-
tract 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 what 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 expressed in the form of a distinct and explicit warranty
which must be strictly complied with) are sometimes called "prom-
issory representations," to distinguish them from those relating to
facts, or " afifirmative representations." And these words express
the distinction; the one is an afifirmation 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 afifirmation
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
' In the present case, plaintiff had procured the policies upon the representa-
tion that the house would be occupied.
120 FORMATION OF THE CONTRACT.
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; aid in
either case the whole instrument must be construed together. But
this written instrument is the expression, and the only evidence, of
the duties, obligations, and premises to be performed by each party
while the insurance continues. To make the continuance or termi-
nation 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
disappointment will not prove that it was untrue; and if it is a
promise 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.'
3. Statutory Enactments as to Representations and
Warranties.
Taft, J., IN PENN MUTUAL LIFE INSURANCE CO. v.
MECHANICS' SAVINGS BANK.
37 U. S. Ai'P. 692, 703, (72 Fed. 413, 418). — 1896.
There can be no doubt that this policy is to be construed
according to the law of Pennsylvania. It is expressly provided in
the application, which is made part of the policy, that " the place
of contract shall be the city of Philadelphia, State of Pennsylvania."
' In Benham v. Assurance Co., 7 Exch. 744, a case of guaranty insurance, the
written application, which was referred to in the policy as being the basis for
the contract, contained the following question: State " the checks which will
be used to secure accuracy in his accounts, and when and how often they will
be balanced and closed?" The answer was: " Examined by finance commit-
tee every fortnight." The opinion of Pollock, C. B., was as follows: " The
manner in which this question is put, the other quesiions with which it is
associated, and the decisions upon policies of insurance, lead me to the conclu-
sion that the answer was not expected to be upon the part of the office, or
meant to be on the part of the plaintifT, anything more than a declaration of
the ( ourse intended to be pursued; and if that answer was made dona fide and
honestly, it does not prevent the plaintiff from maintaining this action." The
other Barons concurred.
For a discussion and criticism of ihe view that a distinction is to be made
between affirmative and promissory representations, see Biddle on Insurance,
§§ 533-555-
REALITY OF CONSENT. 121
In U'ayinan v. Sout/iard, lo Wheat, i, 48, Chief Justice Marshall
stated it to be a principle of universal law that " in every forum a
contract is governed bythe law with a view to which it is made."
See Pritchard V. Norton^ 106 U. S. 124, 136, i Sup. Ct. 102, and cases
there cited. In this case no necessity exists for presumption from
the circumstances, because the intention of the parties is express.
An act of the Legislature of Pennsylvania, passed June 23, 1885,
pro^'ides that:
" 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 statement in such application, made in
good faith by the applicant shall effect a forfeiture or be a ground
of defense in any suit brought upon any policy of insurance issued
upon the faith of such application unless such misrepresentation or
untrue statement relate to some matter material to the rjsk." Laws
of 1885, p. 134, No. loi.
At common law it is held that the warranty of the truth of the
answer to a specific inquiry in the application implies the agreement
that the subject-matter of the question and answer is to be regarded
as material, and that an untrue answer thus Wdrranted avoids the
policy, whether the answer be made in good faith or not. Anderson
v. Fitzgerald^ 4 H. L. Cas. 484. It is contended by counsel for the
insurance company that the same mode of determining the materi-
ality of representations must obtain under this statute. If so, then
it is difficult to see what change the statute was intended to effect,
because every matter warranted would be material, and the good
faith in the statement would remain of as little importance as it did
without the statute. This is one of a class of statutes passed in
many States to relieve against the hardships arising from the strict
enforcement at common law of warranties in insurance policies con-
cerning matters having no real or proximate relation to the risk
assumed by the insurer. By the aid of such warranties, and the
innocent mistakes of the insured, it often happened that the instrer
was able to escape liability on a ground having no real merit, and
of the purest technicality. That such statutes are remedial in their
nature, and are quite within the police power of the Legislature, is
no longer a debatable question. White v. Insurance Co., 4 Dill. 177,
Fed. Cas. No. 17,545; Society v. Clements, 140 U. S. 226, 11 Sup. Ct-
822; Wall V. Assurance Soc, 32 Fed. 273; Eagle Ins. Co. of Cincin-
nati v. State, 153 U. S. 446, 14 Sup. Ct. 868; Reilly v. Insurance Co.,
43 Wis. 449; Insurance Co. v. Leslie, 47 Ohio St. 409, 24 N. E. 1072;
4 Thomp. Corp. §§ 5491, 5524. As the statute was passed to pre-
vent defeat of the policy by mere stringency of stipulation, a rea-
122 FORMATION OF THE CONTRACT,
sonable interpretation of it will not permit the mere fact of warranty
in form to render every statement of fact material to the risk. Its
manifest purpose was to leave open to judicial investigation in the
ordinary way the question whether the fact concerning which
inquiry was made, and an untrue answer given, v^as material to the
risk. If it is in this manner found to be material, then the plain
implication of the statue is that the usual penalty for breach of
insurance condition and warranty shall follow, and the policy I)e
avoided, whether the answer be made in good faith or not. If,
however, the question untruly answered relates to something not
found to be material to the risk, and if the answer is in good faith,
then the breach of warranty works no prejudice to the insured or his
representatives. If, though the question untruly answered relates
to something not directly material to the risk, the untrue answer is
made in bad. faith — that is, with a knowledge of its falsity, and for
the purpose of misleading the company into the contract — the
implication of the statue is that the rule at common law shall pre-
vail, and the policy shall be avoided. The statute has been con-
strued by the Supreme Court of Pennsylvania, and we think our
conclusions above stated are in accordance with the view's of that
court. Hermany v. Association^ 151 Pa. St 17, 24 Atl. 1064. In th^t
case the court say (page 23), 151 Pa. St., and page 1064, 24 Atl.:
" This act has effected a change in life insurance contracts — a
much-needed change so far as some companies are concerned. The
questions of materiality and good faith are ordinarily questions of
fact, and, therefore, for the jury. They were certainly so in this
case. * * * The evident purpose of this legislation was to strike
down, in this class of cases, literal warranties, so far as they may
be resorted to for the disreputable purpose of enforcing actually
immaterial matters. It provides a rule of construction for the pur-
pose of preventing injustice, and it is as much the duty of courts
to enforce such rules as it is to administer the statute of frauds and
perjuries."
The construction of a State statute by the highest court of the
State is usually authoritative in courts of the United States. Bur-
gess V. Selig??ian, 107 U. S. 20, 2 Sup. Ct. 10. And, even if it were
otherwise, we should reach the same conclusion in this case. The
Court of Appeals of Maryland has had occasion to construe this
same statute, and has given it a like interpretation. Association v.
Ficklin, 74 Md. 172, 21 Atl. 680, and 23 Atl. 197. * * * >
'Some other States hai^e similar statutes. See especially the discussion of
the Massachusetts statute in White v. Soc, 163 Mass. 108.
REALITY OF CONSENT. 1 23
4. Effect of Misrepresentation.
WALLER V. THE NORTHERN ASSURANCE CO.
64 Ia. 101. — 1S84.
These are actions at law to recover for money paid as premiums
upon certain policies of insurance successively issued to plaintiff,
the last one being held void, in an action thereon to recover for a
loss, on the ground that the assured held but a mortgage interest
in the property insured, while the policy was issued to him as the
absolute owner.
Beck, J. * * * H. A condition of the policy provides that,
" if the interest of the assured in the property be any other than
entire, unconditional and sole ownership of the property, for the
use and benefit of the assured, * * * j^ must be so represented
to these companies, and so expressed in the written part of this
policy, otherwise the policy shall be void." Under this condition,
each of the policies was absolutely void, and incapable of binding
or being enforced against defendants. And, in an action upon
the one last issued, its invalidity was pleaded by defendants and
adjudicated by the court. As the other policies in no respect differ
as to their conditions, or the facts pertaining to each contract, upon
which its validity depends, each is in fact invalid by law, and defend-
ants cannot now be heard to deny its invalidity. We can discover
no ground upon which to base a distinction as to the rights of
plaintiff under the several policies and growing out of the sev-
eral transactions. Each presents the case of a payment of money
by plaintiff, and a failure to receive any consideration therefor,
without any fraud or deception practiced by him. It is a simple case
of money paid in good faith, and nothing in return received. No
element of fraud exists which defeats plaintiff's rights. Nor is it a
case of voluntary payment, for it was made with the expectation of
receiving a consideration in return, which has wholly failed, for the
reason that the policy did not bind defendants. Under familiar
rules of law, plaintiff is entitled to recover the amount of the prem-
iums paid as money had and received to his use. This doctrine has
often been recognized by the authorities as applicable in actions for
the recovery of money paid as premiums upon policies when the risk
did not attach, or the contract was void ab initio. * * * '
•See also the first paragraph of Kimball v. Ins. Co. as given ante, p. 118.
124 FORMATION Oi" lili: Lu.n 1 RACT.
5. Burden of Proof.
Mitchell, J., in CHAMBERS v. NORTHWESTERN MUTUAL
LIFE INS. CO.
64 Minn. 495, 497. — 1S96.
2. The next question is, was tlie 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 falsits'? Defendant's contention is, that because, if any of
these answers were false, the policy would be void ab initio, there-
fore they were conditions precedent, and hence, according to a
familiar 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
answers 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 immedi-
ately. 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 essential element of a condition
precedent, in that it contains no stipulation 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 representations 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 reasons, 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 false. The number of questions in these applications is usually
REALITY OF CONSENT. 125
very great, relating to the haoits and health of ancestors, the per-
sona! 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 defeat 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 con-
ditions precedent, in the legal sense of the term, we refer to Redman
V. Itisurance Co., 49 Wis. 431, 4 N. \V. ^91 ; and, for a forcible state-
ment of the practical reasons for the rule, to Insurance Co. v. Etuing,
92 U. S. 377. The dictum in Price v. Insurance Co., 17 Minn. 497
(Gil. 473I, that warranties are conditions precedent, the truth of
which must be pleaded and proved by the assured, was, we think,
inadvertent, 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 prov-
ing their falsity was on the defendant, that it was 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.'
' " The policy with the condilions annexed constitute an entire contract, and
in declaring upon the contract, it, or a sufficient portion of it to show a right of
recovery, must be set out either in terms or in substance. This is not like suing
on a penal bond at common law, where the plaintiff might simply count on the
bond and leave the defendant to set up the condition and plead performance.
But in a case of this character, the money only being payable upon the assured
performing certain acts, all such precedent acts should be set out and iheir per-
formance averred. But all conditions subsequent to the right of recovery, and
all acts to be done by the company in discharge of their liability, may be omitted
and left to be set up as a defense." — Rockford Ins. Co. v. Nelson^ 65 III. 415, 418.
" The position of the appellant, that the plaintiff was bound, in the first
instance, to prove that he did not keep or use more than the specified quantity
of benzine, is not tenatle. In an action on a policy of insurance, the allega-
tion in the complaint, under section 533 of the Code of Civil Procedure, that the
plaintiff has duly performed all the conditions of the contract on his part, does
not require him to prove, as a part of his affirmative case, that he has not com-
mitted any of the acts which the policy prohibits. Proof to this effect need not
be offered by him until some evidence of a violation of the prohibition has been
given by the defense. Huntv. Hudson River Fire Ins. Co., 2 Duer, 481, 489; Fischer
v. Metropolitan Life Ins. Co., 37 App. Div. 575, 582; Bennett v. Maryland Fire Ins.
Co., 14 Blatchf. 422; and see Blasingame v. Home Ins. Co., 75 Cal. 633." — Ran v.
Ins. Co., 50 App. D. (N. Y.) 428. See the comprehensive article upon "Deciara
tions on Insurance Policies," by Adelbert Hamilton, in 28 Cent. Law Jour. 2.
126 FORMATION OK THE CONTRACT.
c. Mistake.
HOME INSURANCE COMPANY v. MYER.
93 III. 271. — 1879.
Mr. Justice Scholfield. — This was a bill in equity, by appellee
against appellant to rectify a mistake in a policy of insurance on a
stock of goods and fixtures, and to enforce payment on the policy,
when rectified, for loss.
The alleged mistake was in the description of the house in which
were the stock of goods and fixtures. The policy describes the
house as No. 57 Milwaukee avenue, Chicago, whereas it is alleged,
the intention was it should have described it as No. 59 Milwaukee
avenue, Chicago.
The mistake is denied in the answer, and it is also therein alleged
that there was no intention to insure any property at No. 59 Mil-
waukee avenue. The evidence leaves no reasonable doubt that the
mistake was made as alleged in the bill. Appellee is clearly shown
to have no interest in the house, or its contents — No. 57 Milwau-
kee avenue. And it is also clearly shown that he did business at
No. 59 Milwaukee avenue. Appellee swears that he applied for
insurance on the stock and fixtures in No. 59. and that the appellant
sent a solicitor, who examined No. 59 before the insurance was
effected. The mistake appears to have been mutual, and it is such
as is competent for a court of equity to rectify. * * * 1
VII. Illegality.
ERB V. GERMAN AMERICAN INSURANCE CO.
98 Ia 606. — 1897.
Granger, J. — On the 226. day of August, 1893, the defendant
company issued to the plaintiff its policy of fire insurance, to the
amount of $1,200, on a stock of drugs, patent medicines, etc., at
Coon Rapids, Iowa, and on the 9th day of September, 1893, said
stock of goods was destroyed by fire, and this action is to recover
on the policy. The following are defenses pleaded, to each of which
the court sustained a demurrer: " (8) The defendant says that
there was conducted, in the building described in the petition, and
by means of the property insured in said policy, a pharmacy, at the
time said insurance was written, and up to the time of said fire, by
' See also AW/ v. Iits. Co., 150 Pa. 523.
ILLEGALITY. 12^
the said B. F, Erb, and that said B. F. Erb had no permit to do
business as' a pharmacist, and that his business was conducted in
violation of the laws of the State of Iowa, and that this fact the
plaintiff concealed from this defendant, at the time this insurance
was written, and at all times thereafter — the fact that he was con-
ducting a pharmacy contrary to the laws of the State of Iowa, and
without a permit to conduct such a pharmacy, and in violation of
the statutes of Iowa — vvhich concealment was a material fact con-
cerning this insurance, and by the terms of the policy renders the
same void. (9) Defendant further says that said Erb was engaged,
at the place described in the petition, and by means of the appli-
ances and property insured in the policy, in illegally selling intoxi-
cating liquors, at the time said policy was written, and thereafter
up to the time of the fire, and that said Erb was not a registered
pharmacist, neither had he any permit to sell or deal in intoxicating
liquors, and these facts were all concealed from the defendant, and
which facts are each and all of them material facts concerning this
insurance; and by the express terms of this policy the same is
rendered void by such concealment." An amendment to the answer
was filed, having reference to some particulars of the defenses in
question; but it deals mainly with conclusions of law, and, as to
facts, it seems to add nothing to the sufficiency of the defenses
pleaded, and hence it need not be set out.
The proposition for consideration, as presented by appellant, is:
" Can there be a recovery on an insurance policy covering articles
of merchandise which are owned and kept and used in violation of
the laws of the State? " It is urged that to permit such a recovery
would be against public policy. The line of authorities coming to
our notice, to aid in the solution of the question, is quite limited.
Those nearest to sustaining appellant's view are in Massachusetts.
In Kelly v. Insurance Co, 97 Mass. 284, the msurance was on a
building that, in violation of the conditions of the policy that the
building should not be occupied or used for unlawful purposes, was
used for gambling, in violation of law, which avoided the policy.
The case seems to have no bearing on the facts of this case. Kelly
V. Insurance Co., Id. 288, is a case in which the insurance was on a
stock of liquors kept by the assured for sale in violation of law.
The policy covered the liquors and casks containing them. The
opinion holds the policy void, and, speaking of the assured, it closes
with the words: " His contract was in contravention of law, and
void as to him, because he entered into it in order to protect him-
self in his illegal acts." The case, as to authority, is grounded on
holdings in cases involving marine insurance. In such cases the
128 FORMATION OF THE CONTRACT.
rule is announced that " the illegality of the voyage in all cases
avoids the policy, and the voyage is always illegal when the goods
or trade are prohibited, or the mode of its prosecution violates the
provisions of the statute.'" In Boadinan v. Insurance Co., 8 Cash.
5S3, it was sought to avoid policies of insurance on a building and
peisonal property, consisting of leather and materials for the manu-
facture of shoes. The evening before the fire, persons assembled in
a room in the building and conducted a lottery, which was a use of
the room for an unlawful purpose. The rule of the case is stated
as follows: " The drawing of a lottery, with the consent and par-
ticipation of the assured, in a building insured against loss by fire
as a shoe manufactory, does not avoid the policy on the building,
nor on the stock therein." In the opinion is the following language:
" The distinction between cases where contracts are or are not
void, as against law, is well stated by Marshall, C. J., in Armstrong
V. Toler, 11 Wheat. 271. The principle established is that, where
the consideration is illegal, immoral, and wrong, or where the direct
purpose of the contract is to effect, advance, ur encourage acts in
violation of law, it is void. But, if the contract sought to be enforced
is collateral and independent, though in some measure connected
with acts done in violation of law, the contract is not void." This
rule is followed in Johnson v. Insurance Co., 127 Mass. 555, in which
a policy was held void. In Insurance Co. v. De Graff, 12 Mich. 124,
the policy included, among other things, groceries, among which
were liquors, and the policy was claimed to be void, because to
sustain the policy with liquors included would be insuring an illegal
traffic. The case is quite in line, on principle, with the one at bar.
The case briefly treats of the rule as to marine insurance, holding it
to be inapplicable, and, as suggesting a state of facts that would be
applicable, it is said: "If this policy were, in express terms, a
policy ins\iring the party selling liquor against loss by fine or for-
feiture, it would be quite analogous. But this insurance attaches
only to property, and the risks insured against are not the conse-
quences of illegal acts, but of accident." In the opinion it is fur-
ther said: " By insuring his property, the insurance company has
no concern with the use he may make of it; and, as it is susceptible
of unlawful uses, no one can be held to contract concerning it in an
illegal manner unless the contract itself is for a directly illegal pur-
pose. Collateral contracts, in which no illegal design enters, are
not affected by an illegal transaction with which they may be
remotely connected." The case cites Insurance Co. v. Polleys, 13
Pet. 157, and Armstrong v. Toler, 11 Wheat. 258. It is there said:
" It is difficult to perceive tiow public policy can be violated by an
ILLEGALITY. 1 29
insurance of any kind of property recognized by law to exist." In
Carrigan v. Insurance Co., 53 Vt. 418, the Massachusetts cases and
the Michigan cases are noticed, and the case quotes much of the
language we have quoted from them. The policy in that case cov-
ered a stock in trade consisting of groceries, provisions, drugs,
* * * including wines and liquors. In the case at bar, as in
that one, liquors are included in the terms of the policy. In that
case it is said: " If the purpose of the contract in question had
been to protect the assured in the sale of intoxicating liquors, it
would have been null; but the greater part of the property insured
consisted of goods insurance upon which was subject to no objec-
tion. The contract was legal on its face, nothing appearing to
show that the wines and liquors were intended for illegal sale; and
it is a fact, not needing proof, that in compounding medicines,
liquors, especially wines and alcohol, are of daily use, and for that
purpose their possession and use by druggists are legitimate. The
assured was a dealer in drugs and medicines, and in that respect
legitimately and presumably using liquors. There was evidence
tending to show that he legally sold them, including those not used
in compounding medicines; and the fact may have been that the
latter trade was the larger and the main one. If such illegal traffic
was the business of the assured, and his legal traffic and transactions
with other property a mere cover, ostensibly carried on for the
purpose of enabling him to secretly disguise his iniquity, the pur-
pose of the contract would be to protect him in illegal ventures, and
it would therefore, be void; but if he carried on business, using
alcoholic liquors legitimately in his drug trade, and occasionally
sold them in violation of law, we think that, if no legal design
entered into the making of the contract in its inception, that it
would be so far collateral to the illegal acts that it would be incon-
sistent, and in accordance with no well-adjudged case, to hold it
null." The case of Pollard v. Insurance Co., 63 Miss. 244, is deter-
mined upon a statute making contracts void, and is of no force as
authority in this case. This case, in some respects, differs from
any we have noticed or cited; but we think the rule of the Michigan
and Vermont cases announces the correct doctrine.
The following is the property insured, as stated in the policy:
" $1,200 on his general stock of drugs, patent medicines, lamps and
lamp goods, paints, oils, stationery, books, wall paper, liquors,
fancy and toilet articles, and druggists' sundries." It shows much
property insured, outside of liquors and drugs, for which permits
to sell must be obtained. The facts to bring the policy within the
rule to make it void are wanting. The drugs .and the liquors are
LAW OF INSURANCE — O
i^.o
FORMATION OF THE CONTRACT.
recognized property in this State, and as legitimate subjects of
insurance as other property. It is the illegal use of them that gives
rise to the questions before us. We have not seen a case in which,
because of the mere use of property for illegal purposes, not increas-
ing the hazard in the absence of stipulations to that effect, a policy
has been held void because of such use. It is not a case in which
the contract itself is against public policy, by the parties, at the
i.iception of it, intending it to be in aid of purposes or designs to
violate the law. This case simply presents the question whether,
where a party uses property for an unlawful purpose that is sus-
ceptible of legitimate use, such use will render the insurance con-
tract void, as against public policy. We think that no authority
sustains such a rule, and it does not seem to be dictated by
reason. * * * i
KYTE V. COMMERCIAL UNION ASSURANCE CO.
149 Mass. 116. — 1889.
\Reported herein at p. 142.]
' See Hatch v. Co., 120 Mass. 550, digested herein at p. 309, note.
PART III.
Construction of the Contract.
WESTERN & ATL. PIPE-LINES r. HOME INSURANCE CO.
145 Pa. 346. — i8gr.
Sterrett, J. — This action is on a policy of insurance issued by
the Home Insurance Company, defendant, insuring the Western &
Atlantic Pipe-Lines for one year from June 28, 1888, against loss or
damage by fire to the amount of $2,500, " on oil while contained in
the iron crude-oil tank known as ' No. i,' on plan situate, detached
273 feet, on the Johnson farm, at Johnson's Station, on the line of
the Washington branch of the Pittsburgh, Cincinnati & St. Louis
Railroad, on leased ground, Washington county. Pa." By neces-
sary implication, the verdict established the fact that, during the
life of the policy, over 3,600 barrels of oil were destroyed by fire
while in said " iron crude oil tank known as ' No. i,' " on the plan
of oil tanks at Johnson's Station. The jury found in favor of the
plaintiff for the value of the oil thus destroyed.
The company defendant, after being fully advised as to the loss,
etc., denied its liability on two grounds: (i) Because the tank
containing the oil insured had been removed " by an unforeseen dis-
aster, in the shape of a flood," and carried about four or five hun-
dred feet from the position it occupied when the policy was issued.
(2) Because the oil contained in said tank did not belong to the
plaintiff company, but to its customers, for whom it was held in
storage, which fact was not stated on the face of the policy.
Concedmg the fact that, at the time of the fire, the tank had been
removed by a flood about four or five hundred feet from the posi
tion in which it stood when the oil was insured, but not off
the premises described in the policy, the plaintiff contends that the
insurance company was not thereby relieved from liability for the
loss. In that we think it is right. The object of the contract was
indemnity against the destruction of oil described as " contained in
the iron crude-oil tank known as ' No. i,' " etc. With the view of
attaining that object, the terms of the policy should be construed
[131J
132 CONSTRUCTION OF THE CONTRACT.
liberally. If any doubt exists as to their meaning, it should be
resolved in favor of insured, rather than in the interest of the
underwriter. When words employed in a policy of insurance are sus-
ceptible of two interpretations, that which will sustain the claim of
the insured should be adopted. Wood, Ins. 145; May, Ins. 18.'.
Tested by these well-recognized principles of interpretation, the
position contended for by the defendant company is untenable. In
substance, its position is that the above-quoted description of the
property insured is, in effect, a warranty that, in case of fire, the oil
destroyed shall not only be contained in said iron tank, but that the
tank itself shall remain where it was when the insurance was effected ;
otherwise the insurance company will not be liable. Authorities
cited in support of that position, where property insured as con-
tained in certain barns, houses, etc., was destroyed after removal
to other buildings, have no application to the case before us. In
those cases there was necessarily a failure to show that the insured
property was in the designated buildings when destroyed. In this
case the jury must have found that the oil insured was destroyed
" while contained in the iron crude-oil tank known as ' No. i ' " on
the plan of tanks at Johnson's Station, and that, we think, fully
satisfies the terms of the contract. The parties were not contracting
with reference to an insurance upon the tank, but only upon the oil
contained in it.
With that construction of the company in view, the learned presi-
dent of the Common Pleas rightly instructed the jury as follows:
" If you conclude that this tank was picked up bodily by the flood,
and floated down the stream, and lodged from three to five hundred
feet away from the place where it was constructed, against the
abutments of the bridge, and remained intact, and in that way held
the oil, as an oil tank would hold oil, so that it could have been
recovered by the company, and while there, in place of on the
original foundation, the oil in the tank was burned, then the con-
tract of indemnity would be binding, and the defendant would be
liable for such loss as the plaintiff might sustain by reason of the
fire on their proportionate share of the loss." The jury, under this
instruction, having found for the plaintiff, and assessed its dam-
ages, the necessary implication is that they found the facts of which
the instruction is predicated to be true; that the oil tank No. i
contained and held the oil, for the value of which they assessed
damages in favor of the plaintiff, until it was destroyed by fire, etc.
But assuming, merely for argument's sake, that the description
of the tank's location may be regarded as in the nature of a war-
ranty, it can only be construed as a warranty of location at the time
CONSTRUCTION OF THE CONTRACT. 1 33
the insurance was effected, and not that the tank would thereafter re-
main in the same location. Insurance Co. v. Mitchell^ 48 Pa. St. 367.
As a statement of then existing facts, it is not even pretended that
the description of the location of the tank, etc., was not strictly
true. If it was intended to make the continued location of the tank
at the precise point where it then was a condition of the under-
writer's liability, it would have been an easy matter to have said so.
It is not the province of courts to indulge in conjectures favorable
to such insurance companies as are disposed, upon mere technicali-
ties, to avoid the payment of honest claims. Cases are not unfre-
quent in which statements in regard to the use and character of
buildings, etc., are construed as merely descriptive of the risk at
the time the application is made, and not as a warranty that there
shall be no change during the life of the policy. Wood, Ins. g§ 444,
446, and cases there cited. In Everett v. Insurance Co., 21 Minn.
76, a threshing machine was insured as " stored in a certain barn on
section ^d,"" etc., and it was held that this was a mere matter of
description, operating to identify the property, and not a promissory
stipulation on the part of the insured, nor a condition on the part
of the insurer.
But, giving the defendant the benefit of the broadest construc-
tion, the language used in describing the location of the oil insured
cannot amount to anything more than an implied warranty of the
plaintiff company that it will not voluntarily change its location.
This construction appears to have been recognized in Sillem v.
Thornton., 3 El. & Bl. 868, and was perhaps warranted by the facts
of that case. Even in that view, we have, on the one hand, only
an implied warranty that the insured will not voluntarily change the
location of the tank containing the oil, and, on the other, defend-
ant's admission, in its affidavit of defense, that the location of the
tank was changed " by a visitation of Providence." * * * [Z>/V-
cussion of the second point omitted here. ]
Judgment affirmed.*
' See also Burleigh v. Ins. Co.., 90 N. Y. 220, in which the clause " situate
detached at least 100 feet " was construed to mean the same as if the policy had
read " situate detached at least 100 feet from any other building of such char-
acter as to constitute an exposure and increase the risk."
For an emphatic and interesting statement of some of the causes which created
the tendency of courts to construe insurance policies against the insurer, see
Judge Doe's opinion in DeLancey v. Ins. Co., 52 N. H. 581, 587; and also Judge
Stone's opinion in Piedmont dr'c. Co. v. Young, 58 Ala. 476.
" We do not overlook the claim of defendant's counsel that the standard pol-
icy is in a form prescribed by State authority, and should no longer be subject
134 CONSTRUCTION 01" TIIK CONTRACT.
BALEV V. HOMESTEAD FIRE INSURANCE CO.
80 N. Y. 21. — 1S80.
{^Reported herein at p. 1 58.]
LOY V. HOME INSURANCE CO.
24 Minn. 315- — 1877-
[Reported herein at p. 155.]
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 had been in pre-
vious use in insurance contracts, and, as we have seen, had had a judicial con-
struction. It is to be assumed that these terms were used in this policy in the
sense in which they were previously used and defined." — John Davii df Co. v.
Ins. Co., 115 Mich. 382, 385.
PART IV.
The Terms of the Insurance Contract.
I. In General.
a. Warranties.'
b. Premiums.'
Bradley, J., m NEW YORK LIFE INSURANCE CO. v.
STATHAM.
93 U. S. 24, 30. — 1876.
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
assurance 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 posi-
tion is untenable. It often happens that the assured, pays the entire
premium in advance, 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 payment. 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 relation between the annual
'See Representations and Warranties, ante, p. 108.
'See also Consideration, ante, p. 92; Non-forfeiture, /oj'A P- 268. For waiver
of payment of premiums and waiver of other provisions of insurance contracts,
see the topic Waiver and Estoppel, post, p 417.
*See extract from Worthini^to;.. v, Ins. Co., 41 Conn. 372, 399, a«/c', p. 93, note.
r.35]
136 THE TERMS OF THE INSURANCE CONTRACT.
premium and the risk of assurance for the year in which it is paid.
This idea of insurance from year to year is the suggestion of ingeni-
ous 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 being added to the
premiums to cover expenses and contingencies. The whole prem-
iums are balanced against the whole insurance.
V.'HEELER V. THE CONNECTICUT MUTUAL LIFE INS. CO.
82 N. Y. 543- — 1880.
Miller, J. — The complaint in this action sets forth alleged causes
of action upon two separate policies of insurance, claiming to recover
the amount named in each, and also alleges that a dividend was
declared out of the surplus earnings and receipts of the company,
for a portion of which the insured was entitled to a paid-up policy,
which on demand was refused. The demurrer to the complaint
presents the question whether any cause of action is set forth
therein.
The policies upon which this action was brought provided for the
payment of an annual premium, and contained a condition as fol-
lows: " That this policy shall not take effect until the advance
premium hereon shall have been actually paid, during the life-time
of the insured, and that if any subsequent premium on this policy
be not paid when due, then this policy shall cease and determine
(except as hereinafter provided), and this company shall not be
liable for the payment of the sum insured herein, nor for any part
thereof." The annual premium due on the 28th of October, 1873,
was not paid; the complaint alleges, and upon demurrer it must be
taken as true, that previous to the day last mentioned, Vose, the
insured, became and was by the visitation and act of God, insane,
and consequently unable to and did not pay the premium,
although he had means to pay the same; but he was bereft of his
reason and so continued until his death, which occurred March 17,
1874, and in consequence thereof did not know nor remember that
said premium was then due, nor that he had agreed to pay the same.
Vose having died without a payment of the premium, according
to the terms of the contract, the question arises whether his insanity
is an excuse for non-payment and the forfeiture is thereby waived.
Courts of equity will relieve aganist a forfeiture in many cases, but
none of the decisions have gone to the extent of holding that
IN GENERAL. 1 37
insanity will constitute an excuse for failing to comply with the
terms of the condition referred to. In Rose v. Rose (Amb. ZZ'^)'>
Lord Hardwicke laid down the rule thus: " Equity will relieve
against all penalties whatsoever; against non-payment of money at
a certain day; against forfeitures of copyholds; but they are all
cases where the court can do it with safety to the other party; for
if the court cannot put him into as good condition as if the agree-
ment had been performed, the court will not relieve." Even if a
condition subsequent becomes impossible by the act of God, or of
the law, or of the obligee, etc., the estate will not be defeated. Co.
Litt. 206 b. The defendant here could not well be placed in as
good a condition as it had been, by the payment of the premium
after the forfeiture, for by such payment it would be compelled to
pay the amount named in the policies, thus adding to its obligation.
So also where the contract is for personal services, which none
but the person contracting can perform, inevitable accident, or the
act of God, will excuse non-performance. But when the thing or
work to be performed may be done by another person, then all acci-
dents are at the risk of the promisor. Story on Bailments, § 36 and
notes; Wolfe x.JIotaes, 20 N. Y. 197; Clark v. Gilbert, 26 id. 279;
Spalding V. Rosa, 71 id. 40. In the present case, the condition did
not require the insured himself to pay the premiums, ana it could
have been done quite as well by any one on his behalf. After Vose
became insane he was not really the party in interest. He had
assigned the policies to his children, and they were the parties inter-
ested therein and to be affected by a failure to perform the condition
of the contract. Although Vose was their guardian, if incapacitated
by his insanity a competent person could have been appointed in
his place, and hence his insanity was not necessarily an insuperable
obstacle to their performance of the condition of the policv, and
they were not relieved thereby. So long as the act could be per-
formed by any other person, its performance did not depend upon
Vose's continued capacity; and although rendered incapable by his
insanity, the case is not within the rule which relieves a party from
the consequences of an omission to do an act rendered impossible
by omnipotent power. Broom's Legal Maxims, 6th Am. ed., 178,
179; Howell V. Knickerbocker Life Ins. Co., 44 N. Y. 276. While as a
general rule where the performance of a duty created by law is
prevented by inevitable accident, without the fault of the party,
the default will be excused, yet when a person by express contract
engages absolutely to do an act not impossible or unlawful at the
time, neither inevitable accident, nor other unforeseen contingency
not within his control, will excuse him, for the reason that he might
138 THE TERMS OF THE INSURANCE CONTRACT.
have provided against them by his contract. Dexter v. N'orton, 47
N. Y. 62; Harmony v. Bingham, 12 id. 99, 107; Tompkins v. Dudley,
25 id. 275. The principle thus established has been especially
applied in reference to policies of insurance, where the payment of
the premium is held to be a condition precedent which must be kept
or the policy falls. Roehner v. Knickerbocker Life Ins. Co., 63 N. Y.
160; Evans v. U. S. Life Lns. Co., 64 id. 304; Beehe v. Johnson, 19
Wend. 500. In tlie case last cited it was laid down that to excuse
non-performance, it must appear that the act to be done could not
by any means have been accomplished.
The learned counsel for the plaintiff seeks to distinguish 63 N. Y.
160, and 64 id. 304, above cited, from the case at bar; but we are
unable to perceive any such difference as prevents an applica-
tion of the principle decided in these cases, and we think that
they are directly in point upon the question discussed. Reliance
is also placed upon the decisions of this court in Cohen v. The
N. V. Mut. Life Lns. Co., 50 N. Y. 610, and Sands v. The N. V. Life
Lns. Co., id. 626, to sustain the theory of the plaintiff. Those
decisions hold that the occurrence of war between two States forbid
and excused the transmission and payment of premiums on the poli-
cies then in question from one State to another, and legally excuses
their payment; and as the premiums could not be paid as they fell
due, they were suspended, and a tender, after the termination of
the war, with interest, renewed the policies.' This condition of
affairs arises from the belligerent attitude between the hostile
States, which rendered it impracticable to comply with the terms of
the contract. War necessarily prevented communication between
the citizens of such States; and as it existed without the fault of the
insured, in the cases cited, and for that reason no intercourse
could be maintained for business purposes, the insured were not m
any sense in fault for a failure to comply with the conditions con-
tained in the policies in question. As it was impossible for either
one of the insured to pay the premium required, or to procure any
one else to do so upon his behalf, there is no satisfactory reason
why he should not be excused. This rule which is well settled by
the law of nations, rests upon the grounds of public policy by which
' Contra, N'e~.u York Life his. Co. v. Statham, 93 U. S. 24, in which the court
concludes that " the policies in question must be regarded as extinguished by
the nonpayment of the premiums, though caused by the existence of the war,
and that an action 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 aquo ft bono to recover the equitable value of the policies
with interest from the close of the war."
IN GENERAL. 1 39
contracts between belligerent States are suspended during the war,
but are not annulled. This doctrine is founded upon the principle
that the state, and not the individual, wages the war. Phil. Int.
Law, 666; Wheat. Int. Law, 8th ed., 403, § 317 The cases cited
are not analogous; for while the individual can pay or provide for
payment through another, in case of war he is entirely helpless to
fulfill and carry out the contract, and at the mercy of the govern-
ment. The authorities of the hostile States have placed it beyond
his control, suspended all intercourse, stopped all business rela-
tions, and laid a heavy arm upon all communications between their
citizens. As there is no ability to fulfill, no means of paying, the
justice and propriety of the rule is apparent, while its application
in the case at bar cannot be upheld upon any such ground. There
is, we think, a wide distinction in principle recognized in the books
between inability to fulfill the terms of the contract, where, by the
act of two governments war intervenes and prevents a fulfilment,
and where the default arises from a duty or charge which has been
assumed by the party and is capable of fulfillment either by himself
or by another on his behalf.
While the court of equity will interpose its power to relieve against
forfeitures for a breach of a condition subsequent caused by
unavoidable accident, by fraud, surprise or ignorance, in many
cases, that power has never been extended so as to excuse a breach
of contract of this description arising from the disability of a party
caused by sickness or insanity.
The case of Baldwin v. The N. Y Life Lis. Co., 3 Bosw. 530,
which is cited and relied upon by the appellant, involved no ques-
tion as to the non-payment of the premium but related to a pro-
vision in the contract whereby the insured was licensed to travel in
prohibited localities, returning within a specified period, and was
prevented by illness from performing the condition. It was anal-
ogous to contracts for personal services, to which reference has
been had, and the authority has no application in the case consid-
ered. Besides it is overruled by Evans v. U. S. Life Lfis. Co., supra.
In the case at bar, it is not claimed that the performance was strictly
impossible, and therefore that it was excused by law or that equi-
table relief should be granted upon that ground; and we are unable
to discover that a case is made out, within any acknowledged prin-
ciple, which authorizes the interposition of a court of equity.
Nor is there any ground for claiming that, by the provisions of
the contract, the intention of the parties was that the terms of
payment should not be obligatory in case of unavoidable sickness or
insanity. The law places a reasonable constructio:! upon all con-
I4P THE TERMS OF THE INSURAN'CE CONTRACT.
tracts, but in cases of insurance policies, where the prompt payment
of premiums is an important element of the business, and forms the
basis of its calculation by the compounding of interest thereon, it
is scarcely to be supposed that such payment can be waived, except
in conformity with some established rule of law or by express
agreement.
The claim of the plaintiff that the moneys in possession of the
company belonging to Vose, being dividends on the policies in ques-
tion, should be applied in payment of the premiums falling due, is
without merit, as such dividends would have been insufficient to
pay the premiums due, even if applied. Nor we're the company
bound to pay such dividends to the insured and notify him that the
policy was forfeited if not applied. The money was never demanded,
nor any request made to apply the same; and hence the defendant
was under no obligation to apply or to pay the dividends on account
of the premiums. * * * »
McAllister v. new England mutual life
insurance co.
loi M.\ss. 558. — 1S69.
Action upon a life policy. It was agreed by plaintiff and defend-
ants that when the defendants delivered the policy they took for
the first annual premium $30.12, in cash and two promissory notes;
' " Promptness of payment is essential in the business of lifs insurance. Ail
the calculations of the insurance comoany 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 protecting themselves from embarrassment.
Unless it were enforceable, the business would be thrown into utter confusion."
— .\'. Y. Life Ins. Co. v. Stathant, 93 U. S. 24, 30. See also Thompson v. Co.,
104 U. S. 252; Klein v. Co., 104 U. S. 88; Carpenter v. Co., 68 la. 453.
An insurance agent having authority to negotiate contracts of life insurance
has no implied authority to contract for the payment of the premiums in goods.
— Hoffman v. Ins. Co., 92 U. S. 161.
In IVhitingv. Ins. Co., 129 Mass. 24, where it was provided in the policy that
it " shall not take effect until the advance premium hereon shall have been paid
during the lifetime of the person whose life is hereby insured " it was held that
a paymeni of the advance premium ty a third person, without the knowledge
of the assured, is of noefifect: for whatever may be the law as applicable to the
payments of annual premiums under a policy which has once attached, a con-
tract of insurance cannot be originally created without the consent of the
assured.
IN GENERAL. 141
one dated April 16, 1866, payable in six months; and the other,
dated April 11, 1866, payable on demand after five years. Samuel
McAllister, the life insured, died March 7, 1867.
Gray, J. The policy upon which this action is brought is expressed
to be made in consideration of a premium already paid, and of a
like sum to be paid annually during its continuance; and " does not
take effect until the premium is paid." But it is agreed by the
parties, in the case stated, that the defendants made and delivered
the policy to the assured, and at the time of the delivery took for
the first premium a certain sum in cash, and two notes of the assured,
one payable in six months and the other on demand after five years.
Whatever were the powers of the directors, the corporation itself
might certainly take notes for part of the premium, instead of insist-
ing on immediate payment of the whole. Hodsdon v. Insurance Co.,
97 Mass. 144. The policy thus took effect as a binding contract,
and the question is whether it was terminated before the death of
the assured.
The defendants rely upon that provision of the policy, which
declares, that, " in case any premium due upon the policy shall not
be paid at the day when payable, the policy shall thereupon become
forfeited and void," except for a certain period which had expired
before the death of the assured in this case. But the court is of
opinion that this clause, which is inserted for the benefit of the
insurers, and to be construed most strongly against them, and
which merely provides that the policy " shall become forfeited and
void," in case a premium " shall not be paid at the day when pay-
able," can only apply to a policy which has once taken effect, and
to non-payment of a premium payable after that time, and cannot be
held to refer to that premium which the policy contemplates and
requires to be paid before the contract of insurance has any binding
force.
This policy does not provide that it shall be avoided or forfeited
upon the failure to pay any note or obligation given for a premium,
and differs in that respect from the cases of Pitt v. Insurance Co.,
100 Mass. 500, and Roberts v. Insurance Co., Disney, 355, cited for
the defendants.
The subsequent stipulation, by which the policy, and any sums
that shall become due thereon from the company, are pledged and
hypothecated to them to secure the payment of any premium on
which credit may be given, and of any note or security therefor,
expressly declares that " this pledge and hypothecation shall in no
respect affect the provisions respecting the forfeiture of the policy,"
and cannot therefore enlarge those provisions.
142 THE TERMS OF THK I NSU KANCi-: CUM KACT.
The difference also in the form of the two notes taken by the
defendants for part of the premium — that for the smallest amount
and payable \n the shortest time omitting the provision, which is
carefully inserted in the other, of " said policy being agreed to be
subject to forfeiture, and to become void in case of non-payment of
interest and principal of this note in compliance with the terms
thereof " — accords with the construction that non-payment of the
first note was not intended to have the effect of avoiding the policy.
The ref'jsal of the assured to pay that note after it had become
due, accompanied by the statement that " he would not have any-
thing more to do with the company, and abandoned the whole
thmg," does not appear to have been assented to by the company;
for the company continued to hold the notes, and the assured to
hold the policy.
The defendants, having admitted the death of the assured and
due notice and proof thereof, and having failed to show that the
policy was forfeited, canceled, or in any way avoided or determined
before his death, are liable to his administratrix in this action.
Judgment for the plaintiff.
II. Terms of the Fire Insurance Contract.
a. Respecting Matters Before Loss.
I. Increase of Hazard.
KYTE V. COMMERCIAL UNION ASSURANCE CO.
149 Mass. 116. — 1889.
C. Allen, J. These policies were in the form of the Massachu-
setts Standard policy, and each provided that " This policy shall be
void * * * if, without such assent [namely the assent in writing
or in print of the company], the situation or circumstances affect-
ing the risk shall, by or with the knowledge, advice, agency, or
consent of the insured, be so altered as to cause an increase ol
such risks, * * * or if gunpowder or other articles subject to
legal restriction shall be kept in quantities or manner different from
those allowed or prescribed by law." Various other circumstances
were enumerated which would also avoid the policy. At the begin-
ning of the trial, the defendant waived every defence except
increase of risk. The defence of the illegal keeping of intoxicat-
ing liquors, as a separate and distinct defence, was therefore waived.
We have to consider, in the first place, whether the instructions
TERMS OF THE FIRE INSURANCE CONTRACT. I43
requested by the defendant were given in substance. The plaintiff
contends that they were. The learned judge before whom the case
was tried adopted in substance the third and fifth instructions
asked for by the defendant, and thus instructed the jury, that if
they should find that during the time for which these policies were
issued the plaintiff Kyte, by obtaining a victualler's license and
making use of this building under said license, and legally or ille-
gally selling intoxicating liquors therein, increased the risk, then
this policy became void as to the plaintiff Kyte, and he should
not recover for his interest therein; and if they should find that
while these policies were in force intoxicating liquors were kept and
sold in this building by the plaintiff Kyte, or with his consent or
knowledge, and that thereby the risk was increased, this policy
became void as to his interest, and he could not recover. This was
a general and broad instruction, including the increase of risk by
using the premises as a common victualling place, or as a place for
selling intoxicating liquors legally or illegally, and well covered the
general question of the effect of an increase of risk. From this
instruction, taken alone, a jury might well have inferred that the
policy would be void in case of any such increase of risk at any time
during the time covered by the policies and before the fire.
But the defendant, in the fourth request for instructions, asked
for a special instruction, adapted to the case of a temporary increase
of risk which had ceased before the time of the fire; that is to say,
that if the jury should find that, by the illegal sale of intoxicating
liquors in this building by the plaintiff Kyte, or by others with his
consent and knowledge, for a certain portion of the time for which
these policies were issued, the risk was for that period increased,
this policy would be void as to Kyte's interest, and he could not
recover, although this increase was not permanent. The judge
declined to give this ruling, and instructed the jury, in substance,
that if that illegal use was temporary, not contemplated at the time
when the policy was taken by the plaintiff, and ceased before the
fire, then the fact that he had made an illegal use of the premises
in 1882, which was during the time covered by the policy, would
not deprive the plaintiff of the right to maintain the action; and
that his right under the policy, if suspended while the illegal use of
the building continued, would revive when he ceased to use it ille-
gally. This instruction did not in express terms mention the sub-
ject of an increase of risk by the illegal use of the premises for
selling liquor; but the instruction was given in the place of the
fourth request for instructions, and that request was refused, the
judge saying that he had given what would be entirely inconsistent
144 THE TERMS OF THE INSURANCE CONTRACT.
with it. The question is thus presented whether the provision of
the policy that it shall be void in case of an increase of risk means
that it shall be void only during the time while the increase of risk
may last, and may revive again upon the termination of the increase
of risk. The provision is that the policy shall be void if any one of
several circumstances successively enumerated shall be found to
exist. Some of these circumstances relate to the time of issuing
the policy, and others could not arise till afterwards. They are of
different degrees of importance, some of them going to the essen-
tial matters of the contract, and others being comparatively trivial
in character. The language of the policy is the same in respect to
them all, that the policy shall be void.
In Hinckley v. Germania Ins. Co., 140 Mass. 38, the policy was in
the same form as those in the present cases, and for a short time
during the term of the policy the plaintiff kept a bowling alley and
billiard table without having any license therefor. There was no
question of increase of risk, or other actual prejudice to the insurer;
and under these circumstances two questions arose: first, whether
the plaintiff's act fell within the pro''isions that the policy should be
void if gunpowder or other articles subject to legal restrictions
should be kept in a manner different from that allowed by law; and
secondly, whether, assuming that the policy would be void during
the time of the illegal keeping of the bowling alley and billiard
table, it would revive after such temporary use had ceased. In decid-
ing the case, the court intimated that the plaintiff's act was not
within the meaning of the provision in the policy, unless the risk was
thereby increased, but placed the decision upon the second ground,
that the policy would revive. The court now thinks it would have
been better to place the decision of this part of the case solely upon
the first ground, leaving it an open question whether a departure
from the terms of the provision of the policy, without an increase
of risk, may be deemed merely to suspend, and not absolutely to
avoid the policy. However that may be, we think an increase of
risk entitles the insurer to avoid the policy absolutely. The con-
tract of insurance depends essentially upon an adjustment of the
premium to the risk assumed. If the assured by his voluntary act
increases the risk, and the fact is not known, the result is that he
gets an insurance for which he has not paid. In its effect upon the
company, it is not much different from a misrepresentation of the
condition of the property.
If the provision stood alone, that in case of any material misrep-
resentation as to the risk or any voluntary increase of risk after-
wards the policy should be void, it could hardly be doubted that the
TERMS OF THE FIRE INSURANCE CONTRACT. 145
words should be taken in their natural, obvious meaning. The fact
that with this are coupled the other provisions above referred to,
does not change its meaning with reference to the effect and conse-
quence of an increase of risk. An increase of risk which is sub-
stantial, and whicli is continued for a considerable period of time,
is a direct and certain injury to the insurer, and changes the basis
upon which the contract of insurance rests; and since there is a
provision that, in case of an increase of risk which is consented to
or known by the assured, and not disclosed and the assent of the
insurer obtained, the policy shall be void, we do not feel at liberty
to qualify the meaning of these words by holding that the policy
is only suspended during the continuance of such increase of risk.
Lyman v. State Ins. Co.., 14 Allen, 329; Mead v. Northwesterti Ins.
Co., 7 N. Y. 530. It follows, therefore, that the fourth instruction
which was requested, or something in substance like it, should have
been given. Upon the facts stated and assumed, the increase of risk,
if there was one, continued for fifteen months, and could not be
treated as a casual, inadvertent, or inevitable thing.
Exceptions sustained.*
' The use, near the insured property, of a corn-sheller with and engine an
boiler to propel it, is a change in exposure within the clause ' change in the
exposure, by the erection or occupation of adjacent buildings, or by any means
whatever within the control and knowledge of the insured;" the irial court
having erroneously construed the exposure contemplated by ihe clause to be an
exposure arising by erection of a permanent structure, or by change in the use
of an existing adjacent structure. — Davis v. Ins. Co., 81 la. 496. See also
Washington Mut. Ins. Co. v. Ins. Co., 5 Ohio St. 450.
\n Jattvrin v. Ins. Co., 46 Atl. Rep. 686, (N. H.), where there was a clause in
the policy making it void if the " situation or circumstances affecting the risk
shall, with the knowledge of the insured be so altered as to cause an increase
of such risk," a third party erected upon his own land, but near the property
insured, a building which was used as a grocery store and public hall. At the
date of the policy the other exposures were farm risks or dwellings. The court
said: " The effect of the provision, when there is a substantial increase of the
risk known to the assured, is to invalidate the policy unless the company assent
to the changed conditions. Although this construction avoids the policy by
reason of the acts of persons other than the assured, and in respect to property
other than that insured, yet, where the stipulations of the contract plainly so
provide, it has been upheld in this and other jurisdictions." It was held to be a
question foi the jury whether the risk had been thereby increased.
LAW OF INSURANCE — lO
146 THE TERMS OF THE INSURANCE CONTRACT.
2. Other Insurance.
TURNER V. MERIDAiN FIRE INSURANCE CO.
16 Fkd. 454 (Circuit Ct., Dist. R. I.). — 1883.
Before Lowell and Colt, JJ.
Colt, J. — On July 9, 1S79, the defendant issued a policy of
insurance to the plaintiff, running for five years. Afterwards, on
November 15, 1880, the plaintiff took out another policy for five
years, covering the same property, in the Springfield Fire & Marine
Insurance Company. The property was destroyed by fire March 8,
1881. Both policies contained a provision that they should be void
in case the insured " shall have or shall hereafter make any other
insurance on the property," without the written consent of the com-
pany. No notice was given of other insurance to either company,
nor was the fact discovered until after the fire. The Springfield
Company, on learning that the plaintiff had another policy in the
defendant company, declined to pay the loss. Afterwards, in Octo-
ber, 1881, the Springfield policy was surrendered and canceled on
payment of $200 to the plaintiff. The company, however, always
denied any legal liabilty. The defendant also refused payment of
its policy, on the ground of subsequent insurance in the Springfield
company, and false swearing in relation thereto in the proofs of
loss. This suit was brought in February, 1882, in the Rhode Island
State Court, and afterwards removed here, 'I'he case was heard by
the court, jury trial having been waived.
The main question to be determined upon this motion is whether
the defendant company can hold its policy to be invalid by reason
of the subsequent policy taken out in the Springfield Company.
What constitutes other insurance, within the meaning of this con-
dition in insurance policies, is a question upon which courts have
widely differed. The doctrine laid down by the highest tribunals of
Massachusetts and some other States is that the subsequent insur-
ance being invalid, at the time of loss, by reason of the breach of
condition therein, the prior insurance is good, even though the
second company waive the forfeiture and pay its policy in full.
Thomas v. Builder's Ins. Co., 119 Mass. 121; Jackson v. Mass. Fire
Ins. Co., 23 Pick. 418; Clarke v. Netu England Fire Ins. Co., 6 Cush.
342; Hardy v. Union Ins. Co., 4 Allen, 217; Lindley v. Union Ins.
Co., 65 Me 368; Philbrook v. Ne-iv England Fire Ins. Co., 37 Me,
137; Gee V. Cheshire Co. Ins. Co., 55 N. H. 65; Gale v. Ins. Co., 41
N. H. 170; Schenck v. Mercer Co. Ins. Co., 4 Zab. 447; Jersey City
Ins. Co. V. Nichol, Am. Law Reg., Sept , 1882, p. 620; Stacey v.
Franklin Ins. Co., 2 Watts & S. 506; Sutherland v . Old Dominion Ins.
TERMS OF THE FIRE INSURANCE CONTRACT. 147
Co., 8 Ins. Lid' J. 181, (Va. Ct. of Appeals); Ins. Co. v. Holt, 35
Ohio St. 189"; Knight v. Eureka Ins. Co., 26 Ohio St. 664; Rising
Sun Ins. Co. v. Slaughter, 20 Ind. 520; Allison v. Fhcenix Ins. Co., 3
Dill. 480. On the contrary it is held, elsewhere, that a subsequent
policy, whether legally enforceable or not, or whether voidable on
its face or voidable for extrinsic matter, works a forfeiture of the
prior policy. Somerfield v. Ins. Co., 8 Lea, 547; Funke v. Minnesota
Farmers Ins. Ass'n, 15 Rep. 114, 29 Minn. 347; s. c, 13 N. W.
Rep. 164; Suggs v. Liverpool, London &= Globe Ins. Co., 9 Ins.
Law J. 657, (Ky. Ct. of Appeals); Allen v. Merchants'' Ins. Co..,
30 La. Ann. 1386; Lackey v. Georgia Home Ins. Co., 42 Ga.
456; Bigler v. N. V. Cent. Ins. Co., 22 N. Y. 402; Landers v. Water-
town Ins. Co., 86 N. Y. 414; Carpenter v. Providence Washington
Ins. Co., r6 Pet. 495; Jacobs v. Equitable Ins. Co., 19 U. C. Q. B.
250; Ramsey, etc., Co. v. Ins. Co., 11 U. C Q. B, 516; Mason v,
Ins. Co., 37 U. C. C. P. 47; Royal Ins. Co. v. McCrea, 8 Lea, 531;
Equitable Ins. Co. v. McCrea, Id. 541.
There is still another view taken by the Supreme Court of Iowa,
in the case of Hubbard v. Hartford Fire Ins. Co., 33 Iowa, 325, to
the effect that the question of recovery under the prior policy turns
upon whether the subsequent policy has been in fact avoided. If
the subsequent policy is recognized by the company issuing it as a
valid policy, any breach of condition being waived, this makes it a
valid insurance, and constitutes it a good defense to an action upon
the prior policy; but if the subsequent policy has been avoided by
the company, there is no other insurance, so as to defeat a recovery
on the prior policy. Although at first this reasoning may strike the
mind as a fair compromise between the other conflicting positions
taken upon this question, it is a subject of such grave objections
that it cannot be considered tenable.
If the condition in the first policy was violated, it was done at the
time the second contract of insurance was entered into, and the
subsequent affirmance or disaffirmance of the second contract,
should not affect the validity of the first. The validity of the first
contract can hardly turn upon what a stranger to it may do with
reference to another contract, even after liabilty upon the first
contract has become absolute by a destruction of the property.
Funke V. Minnesota Farmers' Ins. Ass'n, supra.
At the trial of the cause it seemed as if the weight of authority
was in favor of holding the prior policy good upon the ground that
the subsequent policy was invalid, and this position had been held
by Judge Dillon in Allison v. Phcenix Ins. Co , 3 Dill. 480, not
to be in conflict with the real point in judgment in Carpenter v.
148 THE TERMS OF THE INSURANCE CONTRACT.
Providence \Vashiih:;toii Ins. Co., 16 Pet. 495; but upon further con-
sideration of all the authorities, and the principles which govern
them, we cannot adopt this view.
This construction is open to the objection thai the insured may
collect both policies. It is also subject to the criticism that, in
deciding upon the validity of one contract, the court, in the same
action, must go outside of it, and determine, first, the validity of
one or more independent contracts, involving perhaps, an inquiry
into complicated questions of fact respecting those contracts.
Rova! Ins. Co. v. McCrea, 8 Lea, 538. But further than this the
principle upon which this construction is founded does not appear
to be satisfactory. The reasoning in these cases is based largely
on the assumption that the second policy is void by reason of the
breach of condition therein, and that the issuing of such a void
policy is no violation of the condition as to other insurance in the
first policy. But is not this assumption too broad? Is it legally
true that the second policy is a void contract? Conditions of this
character in insurance policies are inserted for the benefit of the
insurer, and their violation does not render the policy void, but only
voidable at the election of the insurer. It is still a binding con-
tract upon the insured. He can take no advantage of this breach
of condition, and the insurer could still enforce the contract against
him if anything was to be gained by so doing. " Although the
policy by its terms provides that it shall be void on a breach of any
of its conditions, its legal effect is simply to render it voidable at
the election of the insurer, and that the insurer can waive the for-
feiture and continue the policy in force; or, to state the proposi-
tion more broadly, in all contracts where the stipulations avoiding
the same are inserted for the sole benefit of one of the par-
ties, the word ' void ' is to be construed as though the contract
read 'voidable.' This view seems to be sound in -principle, just
in practice, and is certainly well sustained by authority." Masonic
Mitt. Benefit Society v. Beck, (Sup. Ct. 01 Indiana); 11 Ins. Law J.
Oct. 1882, p. 755; Armstrong v. Turquand, 9 Irish C. L. 32; s. c, 3
Life & Ace. R. 350. The party in default cannot defeat the con-
tract. Viele V. Germania Ins. Co., 26 Iowa, i The policy is merely
voidable, and may be avoided by the underwriters upon due proof
of facts, but until so avoided it must be treated for all practical pur-
poses as a subsisting policy. Carpenter v. Providetice Washington
Ins. Co., 16 Pet. 495. See, also, Baer v. Pha-nix Ins. Co., 4 Bush,
242, and authorities before cited. The doctrine of waiver as applied
to conditions in policies of insurance, and which is invoked so fre-
quently, is founded, in part at least, upon the theory that breach
TERMS OF THE FIRE INSURANCE CONTRACT. I49
of condition only renders the policy voidable. The same principle
prevails as to conditions in leases where the term " void " is used.
The leases become void only by the lessor's electing to treat it so,
and not by the mere happening of the breach, and modern decisions
have quite exploded the old distinction in this respect between
leases for years and for life. Vide v. Gemiauia Ins. Co., 26 Iowa,
70, note; Taylor, Landl. & Ten., § 492. As the second policy is
Lot a void contract, but only voidable at the election of the com-
pany, as it is a contract entered into by the insured, and which he
cannot dispute, and as the reason, if any, why he cannot legally
enforce it arises from his own neglect or misrepresentation, may it
not be fairly claimed that this is other insurance within the meaning
tnd intent of the condition in the first policy? We think the rule,
supported as it is by authorities of great weight, which holds the
taking out of a voidable policy a violation of the provisions respect-
ing other insurance in the first policy, the best one, and subject to
less serious objections than any other.
What was the position of this plaintiff at the time of the loss?
He had one policy of insurance in the defendant company, and he
had another policy of later date in the Springfield Company.
This second policy was issued in good faith by the Springfield Com-
pany and the premium paid. Tt was a policy, the validity of which
the plaintiff could not deny, and upon which he obtained $200 by
way of compromise. It seems to us that upon any fair rule of
interpretation this must be considered a breach of the condition as
to other insurance in the defendant's policy. We cannot bring our
minds to assent to the proposition that a subsequent contract of
insurance, binding upon the assured, and which the company may
pay in full or in part is no violation of the first policy. We believe
the general rule, that conditions in insurance policies inserted for
the benefit of the company should be strictly construed against it,
to be a sound one, and we do not think our conclusion in this case
inconsistent with this doctrine; at the same time we should bear in
mind that this condition is a reasonable one, in that it is of great
consequence to the insurer as a protection against fraud to know
whether other insurance exists; and it is said, therefore, that this
provision is not regarded with the jealousy due to other provisions
which work a forfeiture, but is upheld as a fair and just provision
for a reasonable and proper purpose. May Ins., § 346.
New trial granted.'
'" But it is insisted that by a second policy on the same property, effected
without notice to, or the assent of, the first underwriter, the insurer may believe
he has obtained an over-insurance whereby the temptation to carelessness, if not
150 THE TERMS OF THE INSURANCE CONTRACT.
3. OVKRVALUATION.
Bradley, J., in SMITH v. HOME INSURANCE CO.
47 Hi-N. (N. Y.) 30. — 1888.
The policy was issued by one Farnam, the defendant's agent, at
Warsaw, N. Y., upon an application obtained by one Randall, acting
as solicitor. In the application signed by the plaintiff is his cove-
nant that the statements, valuation, description and survey in it are
to incendiarism, on his pari, will be greatly increased to the prejudice and prob-
able loss of the insurer; and, to use the language employed in The Phoenix Ins.
Co. V. Lamar, 106 Ind. 515, if a recovery be allowed on the first policy it " affords
the anomalous spectacle of an insured avoiding the effect of apparent over-
insurance and compelling payment of one policy by exhibiting his own turpi-
tude in obtaining another." But the obvious vice of this position consists in
its assumption, without proof, that the assured has acted in bad faith and nec-
essarily has been guilty of fraud in securing the second insurance. There is
no warrant in the law for making such an assumption in the absence of evi-
dence; Insuranee Co. v. Holt, 35 Ohio St. 192, or for its acceptation as a uni-
versal and unvarying rule. It is entirely possible, first, that two policies on the
same property in the hands of the same individual will not in fact create an
over-insurance; secondly, that the assured may not believe that the two policies
create an over insurance even if in fact they do; thirdly, that the second may
have been procured with a view of discontinuing the first, whilst the loss inter-
venes before the actual cancellation of the earlier one ; and fourthly, that though
legally chargeable with notice of the prohibition against other insurance, the
assured may be in reality ignorant of its terms and may, with a view to secure
additional indemnity whilst in absolute good faiih procure the subsequent
policy. In any one of these contingencies it would be going beyond a legitimate
presumption to hold inexorably that fraud or turpitude tainted the conduct of
the assured." — Sweeting v. Ins. Co., 83 Md. 63, 74.
The New York standard policy provides (line 12) against other insurance
' whether valid or not."
" The provision of this policy involved in behalf of this claim is as follows:
' If the assured, or any oiher person or parties interested, shall have existing
during the continuance of this policy any other contract or agreement for insur-
ance (whether valid or not) against loss or damage by fire on the property hereby
insured, or any part thereof, not consented to by this company in writing, and
mentioned in or indorsed upon this policy, then this insurance shall be void and
of no effect.' * * * The designation, ' any other person or parties inter-
ested,' includes only persons or parties interested in the insurance merely.
Acer V. Insurance Co., 57 Barb. 68. The expression, ' any other contract or
agreement for insurance,' found in this policy, does not apply to insurance
procured by a third person without the knowledge and consent of the assured,
said third person having or claiming an insurable interest in the property, and
no interest in the policy issued to the assured. May, Ins., § 372; 2 Wood, Ins.,
§ 377; Insurance Co. v. Tyler, 16 Wend. 385; Insurance Co. v. Hone, 2 N. Y. 235;
Burton v. Insurance Co., 14 U, C. Q. B. 342." — Niagara Ins. Co. v. Scammon,
28 N. E. 919, 922, 144 111. 490, 499.
TERMS OF THE FIRE INSURANCE CONTRACT. 151
true and correct, and are sabmitted as his warranty and a basis for
the desired insurance. And the policy provides that such application,
survey, plan and description, were considered part of the contract,
and a warranty by the assured, and that any false representa-
tions by the assured of the condition, situation or occupancy of the
property, or any omission to make known every fact material to the
risk or an overvaluation or any misrepresentation whatever, either
in the written application or otherwise, would render the policy void.
It is contended that there was an overvaluation of the dwelling-
house insured for $700, which vitiated the policy. The valuation of
this house, as stated in the application, was $1,400, while the evidence
tended to prove that its value did not exceed $1,000. The mere state-
ment of the value of property is ordinarily a matter of opinion. And
although in this case the application containing it, is part of the
contract of insurance, and the statements contained in it, warranties,
it is difficult to apply it strictly to those which are necessarily mat-
ters of opinion so as to make the validity of the policy dependent
upon the fact that the opinion of the assured was correct. If that
were so the rule would require such a result in all such cases upon
the finding of the jury that the statement in that respect is in excess
of the value of the property insured, although the fact should exist
in a conflict of evidence. Our attention is called to no case declar-
ing that doctrine to the extent claimed for it by the defendant's
counsel. And in analogy to the familiar rule on the subject it would
seem that the mere statement of that which is necessarily, from its
nature, matter of opinion, is not strictly within the term warran-
ties as applied even to a contract of insurance. Van Epps\. Har-
rison^ 5 Hill, 69; Dacey v, Agrl Ins. Co., 21 Hun, 83. And that the
statement of value in such an application is not effectual as an
overvaluation to defeat liability unless it is grossly or designedly
excessive. Redferd v. Mi4t. Fire Ins. Co., 38 Up. Can. (Q. B.) 538;
Ins. Co. of N. Am. v. AIcDowcll, 50 111. 120.' In this case the value
stated in the application is not so excessive as to require the conclu-
sion as matter of law, that it was an overvaluation within the
meaning of the warranty, but the question in such case whether it
was designedly excessive on the part of the plaintiff may be prop-
erly for the jury to bring it, as a false representation, within the
warranty. But this house was not burned and it is not made the
subject of claim in this action. Although in some of the States it
is held that, where a policy of insurance covers different kinds of
^Accord in the case of valued policies, Vergeront v. Co., 86 Wis. 425, 426;
Cushman v. Co., 34 Me. 487, 495.
152 THE TERM? OF THE INSURANCE CONTRACT.
property, the contract is entire altliough the valuation and amounts
of insurance are severally applied to the different classes of property
and that a breach of the warranty as to any portion of the subject
of insurance vitiates the policy as a whole, especially when the con-
sideration expressed is entire; that, however, is not the doctrine of
this State as applied to contracts of insurance. And this is the
general rule applicable to contracts. Merrill v. Agricultural Ins.
^"■> 73 ^'- ^- 452; Schuster v. Dutchess Co. Ins. Co., 102 id. 260;
Woodward \\ Republic Fire Ins. Co., 12 Hun, 365, 373. The ques-
tion of the effect of the policy upon the statement of excessive value
of the house, if made fraudulently or with evil intent for any pur-
pose, requires no consideration. While the use to which the fact
would be entitled, if found, was a question of law for the court;
whether or not such was the fact, was for the jury to find. No
request was made to submit it to them, and no exception appears
by the record presenting the question in that view. * * *
4. Ownership.
IMPERIAL FIRE INSURANCE CO. z^. DUNHAM.
117 Pa. 460. — 1888.
Cl.4RK, J * * * The insurance company further contends,
however, that Seeley, at the time the insurance was effected,
was not the absolute owner of the premises insured. By the
second condition of the policy it is provided, that, " if the inter-
est of the assured be other than the entire, unconditional, and
sole ownership, or if the property insured be a building standing on
■ground not owned by the assured in fee simple," the policy shall
be void and of no effect. On April 21, 1880, O. A. Seeley, by
agreement in writing, purchased the lands in question from T.
Smull's Sons; the consideration of his purchase was $5, 129.50, pay-
able in three equal annual payments, the first installment becoming
due December i, 1880. On November 11, 1881, T. Smull's Sons
conveyed the legal title and assigned the Seeley contract to F. T.
Page, the effect of which was merely to put Page in the place of T.
Smull's Sons as to Seeley On February 8, 1883, the policy in suit
was issued to Seeley. There is no evidence that Seeley paid any
part of the purchase-money; he erected a sawmill, however, and
made other improvements, and it is claimed that his interest in the
land was greatly enhanced thereby at the time the insurance was
TERMS OF THE FIRE INSURANCE CONTRACT. 1 53
effected. O.i March 29, 1883, Seeley, by contract in writing, assigned
his interest under the contract with T. Smuil's Sons to Page, who
thereupon at the same time sold by articles to Henry Dunham.
The consideration of the last-mentioned sale was $10,000; Page to
receive $5,759.18, being the balance, with interest unpaid, on the
contract between T. Smuil's Sons and Seeley; the residue being
$4,240.82, to be paid to and received by Seeley. There was a reser-
vation of the title to certain timber and bark until the purchase-
money was paid, an arrangement to apply part of the proceeds
thereof to the purchase-money, and a provision that in the event of
Dunham's failure to fufiU his contract, Seeley would resume his
former relation to Page under the Smull contract. But we find
nothing in the details of the several contracts of March 29, 1883,
to vary the question already stated, viz.: whether or not Seeley's
interest in the property insured was such as was required by his
contract with the company. Where the title to property passes,
and the policy is assigned to the vendee with the insurer's consent,
the policy has sometimes been treated as a new contract with the
vendee. Wood on Ins., § no. But, under the decisions of this
court, the assignee has always been held to take subject to all the
stipulations contained in the policy, and in an action by the assignee,
the question of interest to be referable to the time of the issuing of
the policy. State Mut. Co. v. Roberts., 31 Pa. 438; Lycoming Co.
V. Mitchell, 48 Pa. 367.
At the time the insurance was effected, Seeley, as we have said,
had become the purchaser in fee of the property, under articles of
agreement with T. Smuil's Sons; he had the equitable title only,
bat he was to all intents and purposes the " owner " of the prop-
erly; he was the equitable owner in fee, and, in respect to the insur-
ance, we think he may be said to have been the entire, uncondi-
tional, and sole owner. This provision of the policy does not
necessarily distinguish between the legal and the equitable estate.
If the title is conditional or contingent, if it is for years only, or for
life, or in common, it is not the entire, unconditional, and sole
ownership; but the interest is the same, as it affects the contract of
insurance, whether the title of the assured be legal or equitable.
The purpose of this provision is, to prevent a party who holds an
undivided or contingent but insurable interest in property, from
appropriating to his own use the proceeds of a policy, taken upon
the valuation of the entire and unconditional title, as if he were the
sole owner, and to remove from him the temptation to perpetrate
fraud and crime. For without this, a person might thus be enabled
to exceed the measure of an actual indemnity. But where the
154 THE TERMS OF THE INSURANCE CONTRACT.
entire loss, if the property is destroyed by fire, must fall upon the
party insured, the reason and purpose of this provision does not
seem to exist; and in the absence of any particular inquiry as to the
specific nature of the title, or of any express stipulation in the policy
that the insured held the legal or equitable title, either being avail-
able to secure an entire unconditional and sole ownership, the pro-
vision referred to can, we think, have no force to defeat the plaintiff's
recovery in this case.
Where articles of agreement are entered into for the sale of Ian .
the purchaser is considered the owner. " It does not seem to f.
necessary to produce this effect, that any part of the purchas' -
money should be paid, it results from the contract. When a par:
of the purchase-money is paid, the interest of the purchaser in the
land is not circumscribed by the extent of the money paid, but
embraces the entire value of the land over and above the purchase-
money due. He is treated as the owner of the whole estate, incum-
bered only by the purchase-money. If the land increases in value,
it is his gain; if it decrease, if improvements are destroyed by fire,
or otherwise, it is his loss." Si'fer, James &= Co." s Appeal, 26 Pa. 180.
WMiere the vendor retains the legal title he has a lien for the unpaid
purchase-money, Zerdjy v. Zerby, 9 W. 234; Bradley v. O' Don?iell, 32
Pa. 279; Zeigler's Appeal, 69 Pa. 471; but he may use the legal
title to compel payment thereof. Thompson v. Carpenter, 4 Pa. 132;
Woodward v. Tudor, 81 Pa. 382; Washabaugh v. Stauffer, 81 Pa.
497-
We are of the opinion, upon a full examination of this case in the
light of all the authorities, that Seeley's title, under his contract,
must be regarded as an equivalent to a fee simple; that the unpaid
purchase-money must be treated as an incumbrance upon it ; and that,
in respect of the insurance, he must be considered the entire, uncon-
ditional, and sole owner. The previous decisions of this court will
justify no other conclusion; and the cases in the other States, and
the views of the text writers, we find to be in harmony with our
own.
The judgment is affirmed.'
' In Clay Ins. Co. v. Huron Co., 31 Mich. 346, it was held that ihe vendor in a
land contract was not the unconditional and sole owner contemplated by the
policy, the vendee having gone into possession and paid the purchase price. In
Davis v. Furniture Co., io2 Wis. 394, the owner of an estate in fee upon con-
dition subsequent, who was in possession, with no condition broken, and for
whom there had also been deposited a deed in escrow, to oe delivered upon the
performance of the condition, was held to be the sole and unconditional owner
within the meaning of the policy.
TERMS OF THE FIRE INSURANCE CONTRACT. 1 55
5. Alienation.
LOY V. HOME INSURANCE CO.
24 Minn. 315. — 1877.
Cornell J, — The policy on which this action is brought contains
the following among other conditions: " If the property be sold or
transferred, or any change takes place in title or possession (except
by reason of the death of the insured), whether by legal process or
judicial decree, or voluntary transfer or conveyance, * * * xh\^
policy shall be void."
The property insured consisted of a dwelling-house, and certain
furniture and wearing apparel therein contained, situate upon
premises belonging to the respondent. After the issuance of the
policy the respondent mortgaged the premises, and the same were
sold under a power of sale, upon a foreclosure of the mortgage, by
advertisement, pursuant to the statute. After the sale and before
the period for redemption had expired, the loss occurred, the
respondent still being in possession of the premises.
The question for consideration is whether this foreclosure sale
was " a sale, transfer, or change in title," within the meaning of
the foregoing condition, such as avoided the policy.
In construing a condition of this character, if, upon a considera-
tion of the whole contract, it is uncertain whether the language of
the stipulation is used in an enlarged or restricted sense, or if it is
fairly open to two constructions, one of which will uphold and the
other defeat the claim of the insured to the indemnity which it was
his object in making the insurance to obtain, that should be adopted
which is most favorable to the insured, and most in harmony with
such, the main purpose of the contract on his part. The reasons
for this are two-fold: the tendency of any such stipulation is to
narrow the range and limit the force of the underwriter's principal
obligation. It is also inserted by him for his own benefit and in
language of his own choice. If any doubt arises as to its meaning,
the fault is his in not making use of more definite terms in which to
express it; hence the rule of strict construction against him, and
the liberal one in favor of the assured, which prevail under such
circumstances. Ho f man v.. -Etna Ins. Co.., 32 N. Y. 405; We^tfall
V. Hudson Rii'er Ins. Co., 2 Duer, 495; Ins. Co. v. Wright, i Wall.
456; W-st. Ins. Co V. Crapper, 32 Pa. St. 351.
Applying these principles, a correct interpretation of this condi-
tion of the policy would seem to be attended with but little difficulty.
In the first place it makes a sale or transfer of the property a cause
for avoiding the policy. Within the meaning of the stipulation this
156 THE TERMS OF THE INSURANCE CONTRACT.
refers to an absolute and comi->Ieted, and not a conditional or incom-
plete, sale or transfer; in other words, a sale that wholly divests
the owner of the property of all insurable interest therein.
The succeeding clause which gives a like effect to any " change
in title, * * * whether by legal process, judicial decree, or
voluntary transfer or conveyance," has reference to an absolute
transfer of the legal title in one of these ways, though such transfer
as in the case of a conveyance in trust, or by a deed, absolute in
terms, but intended merely as a security, might not operate to divest
the owner of the property of all his insurable interest therein.
In our judgment nothing short of a complete transfer of the legal
title comes within the prohibition of this stipulation. The mere
creation of a lien or incumbrance upon the property insured cannot
be regarded as effecting " any change in title," either in the legal
sense or according to the ordinary and popular understanding. " In
legal acceptation," says Allen, J, in S. J^. &^ M. Ins. Co. v. 'Allen,
43 N. Y. 389, " title has respect to that which is the subject of
ownership, and is that which is the foundation of ownership; and
with a change of title, the right of property, the ownership, passes."
As applied to real estate, it is defined to be " the means whereby
the owner of lands or other real property has the just and legal
possession and enjoyment of it; " " the lawful cause or ground of
possessing that which is ours." 2 Bouv. Law Diet. 986.
In this sense, which is also the ordinary and popular one in which
the word is used, a " change in title " is a change in ownership,
which carries the legal right of possession and property, and it is in
this sense we must understand the word as having been used in this
clause.
Although within the meaning of the registry laws a mortgage of
real estate is defined to be a conveyance, yet under our laws it is
not deemed a conveyance in the sense of passing any estate or inter-
est in lands, or transferring any legal title thereto. The only inter-
est which a mortgagee acquires is a lien upon the land in way of
security, which, prior to the foreclosure of the right of redemption,
is treated as personal property that goes to the administrator or
executor, and not to the heirs. The legal title, with the right of
possession, remains with the mortgagor until a completed foreclos-
ure is had by sale, and the same becomes absolute by the expiration
of the period for redemption Until this time expires the purchaser
at the sale has only a chattel and equitable interest. He has no
legal title to the lands, nor any conveyable estate therein. The
character of his interest is the same as that of a mortgagee before
foreclosure sale. Gen. St., c. 52, § 11 Id., c. 75, § 11; Donnelly
TERMS OF THE FIRE INSURANCE CONTRACT. 1 57
V. Sinionton^ 7 Minn, iio (167); H or ton v. Maffitt, 14 Minn. 290
292
Neither is a foreclosure by advertisement " legal process " or a
" judicial decree." The proceedings in this kind of a foreclosure
are carried on wholly outside of court, and without the aid of its
process or decree. It is obvious, then, that neither the giving of
the mortgage nor the sale of the premises on foreclosure, the time
for redemption not having expired, effected any change in title or
possession in respect to the property insured, and did not, therefore,
avoid the policy.
Order affirme 1.'
* In Gibh v. Ins. Co., 59 Minn. 267, where the policy provided that it was to
become void " if any change other than by the death of an insured, take place
in the interest, title, or possession of the subject of insurance," etc., it vras held
thai the word " interest " is broader than the word " title," and includes both
legal and equitable right, and that a contract in writing to convey the premiss?,
the vendee having taken possession and paid part of the purchase price, effected
a change of interest. Rut see Arkansas Fire Ins. Co. v. Wilson, 55 S. W. 933
(Ark.), where the policy provided that it was to become void " if the interest of
the assured became other than the entire, unconditional, unincumbered and
sole ownership," etc., and it was held that a contract in writing to convey the
premises, under which the vendee had not taken possession did not avoid the
policv; the word " interest " being construed in this clause as being synony-
mous with " title."
A pro»'ision in the policy against a change of inierest or title of the insured
properly does not apply to a transfer by one partner to another of his inter-
est in the insured partnership property. See Phenix Ins. Co. v. Holco»tbe, 57
Neb. 622, and cases there cited.
In Walradt v. Ins. Co., 136 N. Y. 375, the policy was to be void in case of any
change of interest, title, or possession, " whether by legal process or judgment
or by voluntary act of the insured or otherwise," etc. It was held that a
levy upon the insured stock of goods by the sheriff, under an execution, was
not a change of interest or title within the meaning of the policy, and that
althi)ugh the sheriff look possession, yet the possession of the property was not
changed within the meaning of the policy unless the occupancy of the place
where the goods were was also changed so as increase the risk. See also Ham-
mel V. Co., 54 Wis. 72.
" The title to property may be changed by a mortgage and foreclosure, but
it is not either a vulgar or technical expression to speak of a change of title by
the mere execution of a mortgage. In equity, and even at law, a mortgage is
not regarded as a title to land. It is considered a lien, or incumbrance, which
may transfer the title to the mortgagee; but the mortgagor is regarded as the
owner until entry of the mortgagee or foreclosure. We may so readily imagine
a great variety of forms of expression which would make a policy void, if the
property should be mortgaged, that it may be fairly inferred, from the use of
ihe phrase, ' when the title shall be changed,' that it was not designed to include
a mere mortgage." — Shepherd v. Ins. Co., 3S N. H. 232, 240.
158 THE TERMS OF THE INSURANCE CONTRACT.
6. Incumbrances.
HICKS V. THE FARMERS' INSURANCE CO.
71 Ia. 119. — 1887.
Beck, J. — The policy in suit contains a condition that it shall
become void "if the property insured be sold, or any change take
place in the title thereof, or if the property or any part thereof,
hereafter in any manner whatever incumbered. " The answer alleges
that plaintiff, after the execution of the policy, and before the
fire, incumbered the property insured by executing on his interest
therein, which was one-third, a mortgage, etc., and that it was
i.icumbered during the same time by a judgment against the plain-
tiff, which became and has remained a lien on the property. It is
shown by the pleadings that the policy was issued to a firm of which
the plaintiff is a partner, and that the policy, after the loss, was
assigned to him. The plaintiff demurs to the answer, on the ground
that the mortgage and judgment, having been executed and ren-
dered while plaintiff was one of the partners to whom the policy was
issued, do not constitute a breach of the condition of the policy.
The property insured was an office building and furniture therein.
The answer alleges that plaintiff held a one-third interest therein,
and that it was encumbered by the mortgage and judgment. Surely,
under these allegations, defendant would be permitted to show both
a mortgage and judgment incumbrance upon plaintiff's interest in the
property. And that the mortgage and judgment, as they are set
out in the answer, would incumber plaintiff's interest in the prop-
erty, there can be no doubt. The petition alleges that plaintiff
owned one-third of the property, and that the mortgage was exe-
cuted upon that interest, and the judgment was rendered while he
owned it. That liens were created as against the realty is very
plain. Their extent or the manner of their enforcement need not
be a subject of inquiry.
The case, in our opinion, was rightly decided by the court below
Affirmed.'
BALEY V. HOMESTEAD FIRE INSURANCE CO.
80 N. Y. 21. — 1880.
This action was brought upon a policy of fire insurance, issued
by defendant to plaintiff upon his dwelling-house, barn, etc. The
policy contained a condition that "this" company "shall not be
' Accord, as to judgment being an incumbrance, Bowman v. Ins. Co., 40 Md.
620.
TERMS OF THE FIRE INSURANCE CONTRACT. I 59
liable * * * if without written consent hereon the property shall
hereafter become incumbered in any way."
Andrews, J. — We are of opinion that the condition in the
policy that the company shall not be liable " if without the con-
sent of the company written on the policy, the property (insured)
shall hereafter become incumbered in any way," is to be construed
as referring to incumbrances created by the act of the insured,
and has no application to incumbrances by judgment, or otherwise
/;/ invitiim, created by operation of law. We think the condition
has the same meaning as if it had provi led that the policy should
be void if the assured should in any wy incumber the property
without the written consent of the company. The language used
implies that the consent of the company which will prevent the
avoidance of the policy, is to precede the creation of the incum-
brance. This condition of things has no proper application to the
case of judgments which may be obtained by third persons against
the insured, but only to incumbrances created by his voluntary act.
The provision for consent was not intended primarily to relieve the
insured from a forfeiture incurred, but to prevent the incurring of
a forfeiture. It is not reasonable to suppose that the parties
intended to provide for the consent of the company in advance to
the rendition of a juJgment against the insured in favor of third
persons. If the condition embraces incumbrances by judgment,
then in case of an insurance upon real property the moment a judg-
ment is rendered, and the lien attaches to the insured property, a
forfeiture occurs, and the contract of insurance is at an end, unless
the company consents to re-instate it, by waiving the forfeiture,
and this too, although the land cannot be sold on the judgment until
an execution against personal property is returned unsatisfied. If
mcumbrances created by operation of law, are within the condition,
the imposition of a tax on the insured property would create a
forfeiture of the insurance, and the result would be that each year
on the tax-rolls being completed, and put into the hands of the
proper officers, for the collection of the taxes imposed, the insur-
ances of the company on real property would be ipso facto termi-
nated, taxes being an incumbrance on the land taxed {Barloiu v. St.
Nicholas Nat. Bank., 63 N. Y. 399), and all land not specially
exempted being liable to taxation. A construction tending to such
consequences must be rejected as not within the intention of the
parties, if another construction is possible The condition ought to
be construed in the same manner as conditions in leases against
assignments, and it is well settled that an assignment by operation
of law is not a breach of such condition. 4 Kent, 124.
l6o THE TERMS OF THE INSURANCE CONTRACT.
The language of the condition in question, fairly interpreted,
does not extend to incumbrances created by law. To so construe
it would defeat the contract of insurance in cases which could not
have been contemplated. The defendant is claiming a forfeiture.
When a clause in a contract is capable of two constructions, one of
which will support, and the other defeat the principal obligation,
the former will be preferred. Forfeitures are not favored, and the
party claiming a forfeiture will not be permitted, upon equivocal or
doubtful clauses, or words, contained in his own contract, to deprive
the other party of the benefit of the right or indemnity for which he
contracted. \vl Eganx. Mutual Ins. Co.,^ Denio, 326, the condition
was to the effect that the policy should be void if the insured should
suffer any judgment, etc., unless he notified the company thereof,
in which case, the power was reserved by the company to assent
thereto, or to cancel the policy. This was a reasonable provision,
and a defense founded thereon was sustained by the court, but the
case has no bearing upon the one now before us.
The judgment should be affirmed.
All concur.
Judgment affirmed.'
STATE INSURANCE CO. v. SCHRECK.
27 Neb. 527. — 1889.
Reese, Ch. J. —Among the defenses presented by the answer
v/as one that defendant in error had by mortgages incumbered the
property insured in violation of the condition of the policy. This
condition was as follows: " Any other insurance or any incum-
brance upon any of the property hereby insured e.xisting at the date
of this policy not made known in the application, or if any sub-
sequent incumbrance is imposed, or title or occupancy changed or
hazard increased without the written consent of the secretary of the
company, or if the building becomes vacant, this policy shall be
void." * * *
' In Penn. Ins. Co. v. SchmlU. IIQ Pa. St. 449, it was held that a judgmer.t
entered upon a warrant of attorney was an incumbrance.
Mkchanic's Lien In Green v. Ins. Co., 82 N. Y. 517, it was held ihat a
mechanic's lien, not filed by the procurement of the insured, was not an incum-
brance within the provision of the policy. — Contra. Smith v. Ins. Co., 106 la.
225.
TERMS OF THE FIRE INSURANCE CONTRACT. l6l
It was shown by defendant in error upon the witness stand on
cross-examination, that some of the personal property which had
been destroyed had at some time or other subsequent to the execu-
tion of the policy had been mortgaged, but that at the time of the
fire the mortgages had all been paid and there was no incumbrance
upon the property. It is now contended by plaintiff in error that
the fact of the execution of the mortgage referred to avoided the
policy as to the personal property. The term of the policy was five
years from the date of its execution, which was the 8th day of Sep-
tember, 1884. An examination of the language hereinbefore copied
satisfies us that it was not the intention of the parties to the con-
tract to require that the same personal property should remain upon
the farm for the whole term of the policy, but that, as hereinbefore
indicated, it was upon certain kinds of property upon the premises.
The second item in the list given is " On beds and bedding while
therein, $50; " the third, " On wearing apparel while therein, $100."
It cannot be contended that it was the purpose of the parties to the
contract that the same beds and bedding and wearing apparel should
necessarily remain in that building for five years to secure the bene-
fit of the insurance, but rather that beds and bedding and wearing
apparel while in the building, without reference to any particular
kind or quality, should receive the benefit of the insurance. The
same may be said as to the household furniture, the sewing machine,
the hay in the buildings or stack, the harness on the farm, wagon,
farming utensils, and live stock. The clear intent and purpose of
the parties was that such as might be worn out and destroyed might
be replaced ; that such as it might become necessary to sell might be
sold and other stock purchased in its stead. The execution of a
chattel mortgage is a sale subject to the conditions named in the
mortgage. The legal title is vested in the mortgagee, and it is his
property subject alone to the conditions contained in the mortgage.
Had the property destroyed been sold, and the legal title transferred
to the purchaser, defendant in error could recover nothing for his
loss. Had it been mortgaged and the legal title so transferred, he
could still recover nothing. But, under the plain sense of the policy,
had the property been replaced by other of the same kind and spe-
cies, there could be no doubt of plaintiff's liability in case of loss.
Had the contract of insurance been upon specific personal property,
it is possible that the defense presented would have been available.
However, that question is not before us. But we are quite clear
that the transfer of the legal title to the insured property, either by
mortgage or sale, would avoid the policy so far only as that particu-
lar property was concerned, during the time of the existence of the
LAW OF INSURANCE — II
iGz thl: terms of the lxsurance contraci.
title in the purchaser or mortgagee, and to that extent only coulJ
the sale or mortgaging of the property under the provision of this
policy be a successful defense. * * * i
7. Prohibited Articles.
WHEELER 7>. TRADERS' INSURANCE CO.
62 \. H. 450. — 1883.
Assumpsit, on a policy of insurance on the plaintiff's woollen mib
and contents.
The plaintiff, for the purpose of killing moths in some wool, car
ried into the mill a barrel of naphtha, drew some of the liquid sev-
eral times into a watering-pot holding about two quarts, and
sprinkled it upon the wool at the opposite end of the room from the
cask. The fire broke out about thirt/ feet from the wool, and
spread rapidly to it. Nothing more is known of the origin of the
fire. The plaintiff bought the naphtha (supposing it to be benzine,
which he had ordered) for the use of destroying the moths, and he
intended to remove it from the building after sprinkling the wool,
and use it in cleaning the windows, which were to be taken out of
the mill for that purpose.
Allen, J. — The stipulation in the policy, that " if the assured
shail keep or use * * * petroleum naphtha, gasoline, benzine,
benzoic, or benzine varnish, or keep or use camphene, spirit gas, or
any burning fluid or chemical oils without written permission in this
policv, then and in every such case this policy is void, and all insur-
ance thereunder shall immediately cease and determine," was a
' Contra: In German Amer. Ins. Co. v. Humphrey, 62 Ark. 348, there was a pro.
vision in the policy against incumbrances by chattel mortgage. The insurea
property (hotel furniture) was mortgaged, but before the fire, the mortgage hat.
been paid. The court said: " 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 v,.
not the mortgage had hsen paid off would be the question, and one that of en
could not be settled without expensive litigation. The insured mortgagor
might enter into collusion with the mortgagee to defraud the insurance com-
pany after the lo=s occurred by claiming ihat the mortgage had been p»id off
and discharged, when in fact it had not. Unfortunately, all men are noi hon-
est. Without some such provision in the policy, the unscrupulous wou.J have
an inviting opportunity, after a loss, to divide the spoils, at the expen?t of the
insurer. Doubtless some such considerations as these prompted the ^lause in
the policy under consideration. The clause is reasonable and clear and the
parties had the right 'o thus contract."
TERMS OF THE FIRE INSURANCE CONTRACT. 163
part of the contract of insurance entered into by the plaintiff with
the defendants, without an)' apparent mistake, deception or fraud.
The plaintiff expressly agreed that a violation of the condition
should, of itself, be a forfeiture of all insurance under the policy.
Having voluntarily entered into the contract thus restricted, the
plaintiff cannot reasonably complain of the enforcement of the io\-
feiture for a violation of the condition. Mead\. N. IV. Ins. Co.., 7
N. Y. 530; Lee v. Howard Ins. Co.., 3 Gray, 583; Kelley v. Home Ins.
Co.., 97 M.1S0. 288. There is no ambiguity in the meaning of the
words used, or the sense in which they were employed, by which
the plaintiff might have the benefit of a doubt. Smith :. Ins. Co.,
32 N. Y. 399. The contract must be interpreted and the terms
used must be defined in the light of the mischief intended to be
avoided by the restriction. The prohibition of the keeping or use
for any purpose, or for any measurable time, of an article so inviting
to fire as that described in the case, was a reasonable prohibition,
the violation of which, in any degree and for any time, would expose
the insured premises to an extreme degree of danger; and to give
the restrictive clause in the policy a construction which would per-
mit the introduction into the premises of naphtha or benzine, and
its use there for any dangerous purpose for any time, would be a
practical nullification of that part of the contract. If it could be
said that merely " keeping" it, not for sale, nor for any general use
in the business of manufacturing, but for temporary storage, could
not be within the prohibition intended by the parties to the con-
tract, certainly the " use " made of it was one subject to the prohi-
bition of the use of an article hazardous to an extraordinary degree,
if the use of any combustible material ever could be. The cases in
which a disregard of the prohibition of keeping or using extraordi-
narily hazardous articles has not been held to work a forfeiture of
the policy are those where the use made was one incident to the
business of the insured, adopted from necessity or custom, and rec-
ognized by the insurer, so that a waiver of the prohibitory clause
follort^ed. Such cases are, — ■ Carlin v. Assurance Co., 57 MJ. 515,
in which the prohibited oil was, at the time of the insurance, known
by the insurers to be commonly used by the insured to lubricate
machinery; Buchanan v. Ins. Co., 61 N. Y. 26, where the oil was
known to be commonly used for illuminating purposes; and Whit-
march v. Ins. Co., 16 Gray, 359, in which the inhibited article was
known to be usually kept and dealt with as a part of the stock of
goods in a country store insureJ. The use by the plaintiff of the
benzioe or naphtha did not coma within the doctrine of any of these
cases, nor was it a use in a small quantity as a medicine, or for
164 THE TERMS OF THE INSURANCE CONTRACT.
Other special and not dangerous purpose, as in Williams v. Ins. Co.,
54 N. Y. 569.
The plaintiff claims that the policy was not forfeited by the use
of the naphtha, because the use was not habitual, but temporary,
and confined to a single occasion. The cases relied on as authority
for this position are cases, for the most part, where there was no
express stipulation or warranty against the use of the particular
dangerous article or material in question, but only a prohibition in
general terms of keeping hazardous things on the premises or of
carrying on a different or more dangerous trade. Dobson v. Sotheby,
M. & M. 90; Sha-ci' V. Robberds, 6 A. & E. 76. But where there is a
stipulation that the policy shall be avoided on the use of an article
expressly named, and there is nothing in the policy from which a
permission to use the article, in a partial, limited or temporary way,
can be inferred, full effect has usually been given to the prohibitive
clause by a forfeiture of the policy for its violation. Glen v. Letvis,
8 Exch. 607; Faulkner v. Central Ins. Co., i Kerr, N. B. 279;
Worcester v. Ins. Co., 9 Gray, 27; Matson v. Ins. Co , 73 N. Y. 310;
Birmingha?n Ins. Co. v. Kroegher, 83 Pa. St. 64; Cerfw Home Ins.
Co., 44 Cal. 320. No reason has been suggested by the plaintiff
why the restrictive clause in the policy of insurance in this case
should receive a construction by rules different from those applied
to ordinary business contracts. The terms of the prohibitive clause
are simple, well known, and in common use. There is nothing
ambiguous about them, and there can be no doubt as to their mean-
ing. The stipulation was a plain, unqualified agreement that the
policy should be forfeited if naphtha were used in the premises
insured. It was a reasonable restriction against the use of a very
dangerous and combustible material ; and a construction which would
uphold the policy, in spite of a plainly hazardous use of any substantial
quantity of so dangerous a fluid on the premises, for any substantial
time, would defeat the object for which the restriction was made.
Carpenter, J., did not sit; the others concurred.
Motion denied.'
' In First Cong. Church v. Ins. Co., 158 Mass. 475, the policy provided thai it
should become void if " naphtha * * * be kept or used by the insured on
the premises insured." A painter who had contracted 10 paint the church, used
a naphtha torch to burn off the old paint. It was held that there is an implied
exception to this provision of the policy, if what is done is in making ordinary
repairs by the use of such means as are reasonably necessary for that purpose.
This was the question for i.he jury: " Was such a use of naphtha a reasonably
safe and proper way of making repairs in this building, under the circum-
stances? " See also Steinbach v. Ins. Co., 54 N. Y. 90, and Steinbach v. Ins. Co.,
13 Wall. 183,
TERMS OF THE FIRE INSURANCE CONTRACT. 165
8. Occupancy.
HERRMAN v. ADRIATIC FIRE INSURANCE CO.
85 N. Y. 162. — 1881.
This action was upon a policy of fire insurance. The policy con-
tained this condition: " If the above-mentioned premises shall
* * * become vacant or unoccupied, and so remain for more
than thirty days, without notice to and consent of this company in
writing, * * * (-{^jg policy shall be void."
The premises upon which was the property insured constituted
the plaintiff's farm and summer residence. The farm was managed
by a farmer in plaintiff's employ, who received, as a part of his
compensation, the use of the smaller dwelling mentioned in the pol-
icy, and who, with his wife and children and a gardener, lived upon
it throughout the entire year. The plaintiff, with his wife and chil-
dren, actually lived upon it during the summer and part of the fall,
only. About the 20th of November, 1876, the plaintiff with his
family left the premises and returned to his city residence to remain
for the winter, leaving in the main dwelling mentioned in the policy
all his furniture, and the summer clothing of himself and family.
All the premises insured and the property remaining therein were
left in charge of the farmer. It was the duty of the farmer to see
that the main dwelling, which could be seen from the farm-house,
was well ventilated and properly watched, and he or some member
of his family, regularly once a week, did go into and through it, and
open all the windows for the purpose of ventilation. The house was
then carefully closed again, the windows bolted on the inside and
firmly secured, and the outer door locked, and thus secured, the
house was left for the ensuing week. The plaintiff, generally, in
company with his wife, visited the premises once a fortnight, to see
that the farmer took good care of them. The plaintiff was in the
habit on these visits of opening the main dwelling, going through
the rooms and lunching therein, but neither he nor his wife, nor any
other member of his family passed a night in the house during the
winter preceding the fire. About three days before the fire the
plaintiff and his wife were there, on one of these usual visits. On
the 8th of April, 1877, a fire occurred by which the main building,
with its furniture, and the wash-house, kitchen and privy in the
rear were destroyed, the loss exceeding the amount of the
insurance.
FoLGER, Ch. J. — This is an action on a policy of fire insurance.
The property insured consisted of different buildings, and different
l66 THE riiRMS OK llIE INSURANCE CONTRACT.
kinds of chattel property kept in those buildings, respectively. The
different properties insured, and the different amounts put at risk,
each are specifically named in the policy with much minuteness.
The property destroyed and for the loss of which the action is
brought was but parts of the whole at risk, being the dwelling-house,
and most of the contents of it, and four outbuildings, essential or
convenient for use with the dwelling.
The question in agitation at the Trial Term and at the General
Term was, whether the policy was avoided by a breach of the con-
dition, that if the premises should become vacant or unoccupied,
and so remain for more than thirty days without notice to, and
consent of, the defendant, in writing, the policy should be void.
The plaintiff contends that the two words " vacant " and " unoccu-
pied " are synonyms, and are to be interpreted as having the same
meaning, and that the meaning is empty. And then argues that,
as the dwelling-house was not empty, there was no breach of the
condition. There are doubtless conditions of a dwelling-house, or
other like structure, when either word applied to it, or both words
applied to it, will express a like state of it There are however,
states of it when that will not be the case. It is so, because the
different things that are receptive of the epithets of vacant and
unoccupied are different in their capability and susceptibility of
being filled or occupied. Some cannot have one of those terms
applicable to them, without the other at the same time being also
applicable. Some, from the nature of the use which goes with the
occupation of them, may not be vacant, and yet they will, in any
just use of the term as applicable to them, be unoccupied. A
dwelling-house is chiefly designed for the abode of mankind. For
the comfort of the dwellers in it, many kinds of chattel property
are gathered in it. So that, in the use of it, it is a place of deposit
of things inanimate and a place of resort and tarrying of beings
animate. With those animate far away from it, but with those
inanimate still in it, it would not be vacant, for it would not be
empty and void. And as a possible case, with all inanimate things
taken out. but with those animate still remaining in it, it would not
be unoccupied for it would still be used for shelter and repose.
And it is because, in our experience for the purpose and use of a
dwelling-house, we have come to associate our notion of the occu-
pation of it with the habitual presence and continued abode of
human bemgs within it, that that word applied to a dwelling always
raises that conception in the mind. Sometimes, indeed, the use of
the word " vacant," as applied to a dwelling, carries the notion that
there is no dweller therein; and we should not be sure always to
TERMS OF THE FIRE INSURANCE CONTRACT. 167
get or convey the idea of an empty house, by the words " vacant
dwelling " applied to it. But when the phrase " vacant or unoccu-
pied " is applied to a dwelling-house, plainly there is a purpose —
an attempt to give a different statement of the condition thereof;
by the first word, as an empty house, by the second word as one in
which there is not habitually the presence of human beings. In the
case of Hemnan v. The Merchants' Insurance Company^ 81 N. Y.
184 in this court, in June last, the decision went, not on the
ground that the two words were used to mean, or that they meant,
the same condition of the building, but that, by the use of the copu-
lative conjunction with them, there was a contract framed of which
there was no breach, unless the house was at the same time in the
double state expressed by the phrase; that is, both vacant and
unoccupied at the time of the fire, both empty and unused for
abode.
It is clear, from the testimony, that the dwelling-house insured
by the defendant was not occupied as such at the time of the fire.
The fortnightly visits of the plaintiff and his wife to it were not the
occupation that is meant when a dwelling-house is spoken of. The
weekly tours of inspection of the farmer and members of his family
living on the grounds, and his supervision of it from his own house,
were more useful, but they fell short of being occupation of it.
The term " unoccupied," used in the policy, is entitled to a sense
adapted to the occasion of its use, and the subject-matter to which
it is applied. It does not need that we go into discussion of the
good reasons for exacting the condition on taking a risk upon a
dvvelling-house. It is enough that the parties have come into that
covenant. It is to have a meaning fitted to the circumstances in
which it was made and to the subject to which it related. We have
already said enough to show our opinion that, for a dwelling-house
to be in a state of occupation, there must be in it the presence of
human beings as at their customary place of abode, not absolutely
and uninterruptedly continuous, but that must be the place of usual
return and habitual stoppage. We think that a verdict of a jury
would not have been allowed to stand, that found that this dwelling-
house was occupied at the time of the fire, within the terms of the
policy. But it is said, that though this may be so in general, yet
that the defendant made its contract with a view to just the state
of things that existed with this property; that it was chargeable
with a knowledge of the character and use of the premises, and that
there would be a change of occupancy, such as in fact occurred.
We cannot yield to that view. It may be that the defendant knew
that it was but the place of summer abode for the plaintiff. Its
l68 THE TERMS OF THE INSURANCE CONTRACT.
contract was issued in the summer when the property was in strict
occupancy, and it provided for the coming of the fall, when that
occupancy would be abandoned or modified; for the policy was not
void at once on a cessation of occupancy. That cessation must last
for thirty days, and be unnotified to the the defendants and con-
tinue thereafter without his consent. There was opportunity for
the plaintiff to keep up that indemnity or to get other; and to the
defendant to retain the risk, or to be freed from it, when that occu-
pancy was about to cease, and notice was given.
Nor are we able, after much consideration, to agree with the
learned General Term on the ground upon which it put its judg-
ment. The condition of the policy is: " Or if the above-mentioned
premises shall * * * become vacant or unoccupied * * *
this policy shall be void." As we have above said, there were sev-
eral different kinds and pieces of property insured, and, as was indi-
cated by the description of them, the whole making up a well-to-do
proprietor's rural establishment The understanding must have been
that there was comprised in the whole the buildings on a farm or coun-
try seat and the chattel property usually kept at such a place. The
contention is that the words " above-mentioned premises " are col-
lective and apply to all the property described, and the intent of
the condition is that if all of it should be left unoccupied, then the
policy would be void; but that one or several, or many of the build-
ings might be unoccupied, yet, if the rest were occupied, the con-
dition of the policy would be saved. To give this construction to
the phrase in question, it would need to carry it through all the
conditions in the policy, to manifest absurdity and to an incon-
venient precedent. There is a condition against other insurance,
" on the property hereby insured." If the plaintiff had over-insured
his dwelling-house, would not the condition have been broken, as
to that, though he had not increased that on his kitchen detached?
There is a condition against a change of title of the property. If
the plaintiff had sold off so many acres as would include the farm-
house, would he have retained his insurance on that building because
he had not transferred the whole premises? The plaintiff grasps at
a two-edged sword, when he seeks to make such application of those
general words of the policy. He contends that when words are
used in the policy referring back to the property described, they
mean to include the whole property. This would be to make the
contract of insurance entire and indivisible; and to affect all the
property insured with any act of the insured, which, as to any item
thereof, worked a breach of any condition. This is not the true,
just, or equitable construction. The clause is not to be used dis-
TERMS OF THE FIRE INSURANCE CONTRACT. 169
tributively, and to be applied to each singular of the previous
description of the property, as the kind of that property and the
nature of the use of it may demand. It was upon this principle that
we grounded our decision in Merrill v. Agr. Ins. Co., 73 N. Y.
452.
There we said: " Though there may have been some conduct of
the insured as to some of the property, not evil in itself, but work-
ing a breach of the 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 to be avoided, and as to the other subjects held
valid." This was the converse of the proposition that we are now
maintaining.
The case of Bryan v. Peabody Ins. Co., 8 W. Va. 605, is not par-
allel with this.
Therefore, though the farm premises and some of the buildings
thereon were in actual human occupation, that use of them did not
extend to and take in the dwellings burned, so as to keep good the
condition of the policy. It is further claimed that it was erroneous
for the trial court to direct a verdict for the defendant, because all
the property burned was not unoccupied. Besides, the dwelling-
house, there was lost a wash-house, a wood-house, a kitchen and a
privy. It is contended that there was no evidence that these were
unoccupied. The reasoning is ingenious, bnt it is not convincing.
It is said that it does not appear that the occupation of these struc-
tures was confined to the plaintiff or the members of his immediate
family as it was made up when he dwelt upon the place, and that it
might be that the farmer and the members of his family might have
used and occupied them. Now, these out-buildings were appurte-
nant to the dwelling-house; the use of them was concurrent with
the use of the dwelling-house; they were parts of the one domestic
establishment, and separate but forty feet from the nain buildiag.
It is too plain for denial, save as a dernier resort, that the occupancy
of them, in habitual continuous use for the purposes for which they
were built and to which they were put, began when that of the
dwelling-house began, and ended when that ended. The plaintiff and
the defendant made their contract in such terms as it pleased them
both. It may or may not be a strict and rigorous application to the
facts of the case of the condition that we have been considering;
but we cannot, consistently with lasting principles of construction
and interpretation, hold otherwise than that the plaintiff made a
breach of a binding condition, and must abide the unfortunate con-
sequence.
The order of the General Term should be reversed, and judgment
I70 THE TERMS OF THE INSURANCE CONTRACT.
absolute rendered in favor of the defendant upon the verdict, with
costs.
All concur, except Miller, J., not voting.
Order reversed and judgment accordingly.'
9. Location of Property.
BRADBURY v. FIRE INSURANCE ASSOCIATION.
80 Me 396. — 1 833.
LiBBEV, J. — These actions are on fire policies, and being substan-
tially alike were tried together and come to this court in one repor .
The first four policies insure a certain sum on the plaintiff's " franu
stable building, occupied by assured as a hack, livery and boar;'-
ing stable, situated on the north side of Court street, Aubuir,
Maine," and " five hundred dollars on his carriages, sleighs, hacks,
hearses, harnesses, blankets, robes and whips contained therein."'
The fifth does not insure the building, but insures fifteen hundred
dollars on the same kinds of personal property " stored in the private
frame stable occupied by assured and situated near east side of Main
street, Auburn, Maine." The loss claimed by the plaintiff is for dam-
age by fire to a hack not in his stable named in the policies at the
time of the damage, but in a repair shop of one Litchfield, on
another street about one-eighth of a mile distant, where it had been
removed the day before the fire without the knowledge or consent
of the defendant, and it is admitted that the board rate for insur-
ance on Litchfield's repair shop and contents was one per cent, more
than on the plaintiff's stable on Court street. The damage to the
hack by fire while at Litchfield's shop is admitted, and no question
is made as to the sufficiency of the notices. The only contention
between the parties is, whether the insurance attached to and fol-
lowed the plaintiff's carriages, hacks, etc., when removed from his
stable to another place for repairs or some other temporary purpose,
' See also Shackelton v. Sun Fire Office, 55 Mich. 288; and for a comprehensive
review of ihe cases, Continental Ins. Co. v. KyU\ 124 Ind. 132.
" A fair and reasonable construction of the language ' vacant and unoccupied,'
is, that it should be without an occupant,— without any person living in it." —
Amer. Ins. Co. v. Padfield, 78 III. 167.
A policy rendered void by a violation of the condition as to non-occupancy is
not revived by a subsequent occupation of the building. — Moore v. Ins. Co.,
62 N. H. 240; though contra, where the policy reads " vacant or unoccupied,
and so remain." — Laselle v. Ins. Co., 43 N J. L. 468.
TERMS OF THE FIRE INSURANCE CONTRACT. 171
or was limited to such carriages only as were at or in the stable
named at time of loss or damage.
Upon this question there appears some conflict among the authori-
ties. The general rule stated by text writers and held by the gen-
eral current of decided cases is, that place where the personal prop-
erty insured is kept is of the essence of the contract, as by that the
character of the risk is largely determined, and the property is cov-
ered by the policy only while in the place described. Wood on Ins.
p. no; Blodgett on Fire Ins. p. 22; Eddy Street Iron Foundry v.
The Hampden S. 6^ M . F. Ins. Co., i Cliff. 300; Annapolis ^ Eld ridge
R. R. Co. V. Baltimore Ins. Co., 43 MJ. 506; Fitchburg R .R. Co. v.
Charleston M. F. Ins. Co., 7 Gray, 64 The following cases are
cited as establishing an exception to the general rule and as sustaining
the plaintiff's contention. Everett v. Continental Ins. Co., 21 Minn.
76; Hoi brook V. St. Paul F. 6- AI. Ins. Co., 25 Minn. 229; McClure
V. Girard Ins. Co., 43 Iowa, 349; Longueville v. Western Ins. Co., 51
Iowa, 553; Lyons v. Protndence Washington Ins. Co., 13 R. I. 347.
We think a careful examination of all these case;, will show that the
chattels insured are so described in the policy that they can be
identified without reference to the building or place where they were
kept, and the courts held that the words " contained in " a certain
building, or kept in a certain building or place, was a part only of
the description of the chattel, and if from its nature, character or
ordinary use, the parties must have understood that it was to be out
of the building or place a part of the time in ordinary use, the
policy should be held to cover it while so out. This is going to the
verge in construing the language used by the parties in a contract,
when, ordinarily, it does not bear such meaning. But this case does
not appear to us to be within the authority of those cases.
The policies in suit do not insure a particular carriage or hack by
any description by which it can be identified without reference to
the stable. They do not insure all the plaintiff's carriages, hacks,
etc., used in his livery business, contained in the stable described.
It cannot be held that they cover only such carriages, hacks, etc.,
as were contained in the building named at the date of the policies.
From the nature of the plaintiff's business, it must have been in the
contemplation of the parties that the chattels named might be
changed from time to time during the year, some sold, some worn
out, some destroyed by accident, and others put in to take their
places. The policies are similar to an insurance of a shop-keeper on
his stock of goods in his shop, or of a railroad company on its roll-
ing stock on its road, constantly changing. In such case the prop-
erty insured can be ascertained only from the place of business
172 THE TERMS OF THE iS'SUKAN'CE CONTRACT.
named. Iaohs'^'. Provide lui- Was/ti/igto/t //is. Qk, 13 R. I. 347; Eddy
Street Iron Foundry v. Hampden S. or' M. F. Ins. Co., 1 Cliff. 300;
Fing V. F/iivnix Assuranee Co., Mass. N. E. R. V. 5, No. 14, p. 387.
The pi)licies insure such of the plaintiff's carriages, hacks, etc., as
are contained in his stable at the time of loss. We can see no other
way of identifying the property covered by the policies. It cannot
be that the policies should be so construed that they will cover a
hack once put into the stable and then taken out, wherever it may be.
The language of the contract is not apt to embrace such a risk. The
risk might thus be increased two or three-fold, and still if the con-
tract must be construed as covering it, it is not a forfeiture of the
policy for an increase of the risk. It is simply the risk contem-
plated by the parties. Fitchburg F. F. Co. v. Charleston M. F. Ins.
Co., 7 Gray, p. 66. The view we take of the first four policies
makes it unnecessary to consider whether the terms of the fifth
policy should receive a construction more strongly against the plain-
tiff. They are certainly no more favorable to him.
The actions are not sustained.
Judgment for the defendants in each action.
Peters, C. J., Walton, Virgin, Foster and Haskell, JJ., con-
curred.'
10. Operation of Manufactory.
LEBANON MUTUAL INSURANCE CO. z'. LEATHERS.
8 Atl. Rep. 424 (Pa.)— 1887.
The policy provided: " If the? property insured be a manufactur-
ing establishment or a mill running in whole or in part over or extra
time, or running at night, or if the same shall cease to be operated
without the consent of the company indorsed hereon, this policy
' In Noycs v. Ins Co., 64 Wis. 415, a sealskin dolman insured as wearing
apparel " contained in " a certain dwelling-house, was burned while at a fur-
rier's for repairs. The court held that considering the character of the property
the policy must be deemed to have contemplated such a change of location as pei-
missible, the court saying, howeirer, that " in a policy upon personal property,
which from its character and ordinary use, is kept continuously in one place,
as a stock of merchandise, machinery in a building, household furniture, or
goods stored, the rule undoubtedly is that the location of the property designated
in the risk is an essential element of the risk and usually a continuing war-
ranty." In Amer. Cent. Ins. Co. v. Kothchild, 82 111. 16, 168, it is held that " in-
surance upon a stock of goods which was to be sold and replenished, covers as
well the additions made fr.im time to time, after the insurance was effected, as
those on hand when the policy was issued. "
TERMS OF THE FIRE INSURANCE CONTRACT. 1 73
shall cease and determine." During part of the summer of 1883, and
some time prior to the fire, defendants in error did not do any tan-
ning in the shops connected with the property insured because they
had run out of hides. They negotiated with a number of persons
for hides and stocks; had ordered hides, but the orders were not
yet filled when the fire occurred. The property, however, during
all this time, was occupied and used as a tannery. Bark was pur-
chased, prepared, and placed into the sheds, in addition to the bark
that remained over from the previous year. The liquors were kept
in the vats ready for use whenever hides could be secured. The
machinery and tools all remained on the premises, and at no time
during the life of the policy was the property vacant, nor did it
cease to be kept and operated as a tannery.
Per Curiam. — A mere temporary suspension of the business of
the establishment for the purpose of repairing, or from want of a
supply of materials, is clearly not ceasing to operate the establish-
ment within the meaning of the policy. * * * »
II. Alterations.
MACK V. ROCHESTER GERMAN INSURANCE CO.
106 N. Y. 560. — 1887.
RuGER, Ch. J. — The policy of insurance upon which this action
was brought contained, among others, the following provisions:
" The working of carpenters, roofers, gas-fitters, plumbers and
other mechanics, in building, altering or repairing any building or
buildings covered by this policy will cause a forfeiture of all claim
under this policy, without the written consent of this company
indorsed hereon." It was also provided that the policy should be
void " if the risk be increased by any means within the control of
the assured."
At the Circuit a verdict was directed in favor of the defendant,
upon the ground that the loss occurred during the violation of the
conditions of the policy by the plaintiff, and while the building was
being occupied by carpenters in making alterations therein without
' So, too, where the operation of a cotton mill was temporarily suspended
because of difficulty in procuring cotton of the quality that could be worked up
at a profit. Anier.- Fire Ins . Co. v. Manuf g. Co., 125 111. 131. And likewise
where there was a temporary cessation of the operation of the machinery in a
saw-mill during the illness of the sawyer, the other business of the mill being
conducted as usual. — LaJd v. Ins. Co., 147 N. Y. 478.
174 rin: TERMS OF THE INSURANCE CONTRACT.
tlie tlefendant's written consent. The (ieneral Term was of the
opinion that the evidence presented a question of fact for the jury,
and that the trial court erred in directing a verdict. We differ with
the General Term. There was no material conflict in the evidence,
and the following facts were undisputed: The policy in question
was issued January 29, 1881, and the fire occasioning the destruction
of the building took place on October eleventh, thereafter. At the
time of the insurance the building was occupied as a grocery store
by a tenant of the plaintiff, and continued to be so occupied until
abmit October first. On September 29, 1881, the plaintiff executed
a lease of the building to other tenants, who contemplated using it
for the purpose of carrying on the business of drying fruit, and the
lease provided that they should have the privilege of putting the
machinery needed for their business into the building. This busi-
ness required some alteration in the structure, and the introduction
therein of a furnace and wooden shafts or boxes running from the
cellar to the roof, and constituting the driers in which fruit was
intended to be cured by heat. These driers required, in their forma-
tion, the cutting of large holes, five feet square, through each floor
of the building and its roof, and the removal of the timbers, boards,
scantling and plastering, constituting the flooring and roofing, and
the rcbracing of the joists or sleepers of the several floors. They
also required the introduction of wooden boxes or shafts running
from the cellar to six feet above the roof, divided into compart-
ments, for holding the fruit while it was in process of being d-ied.
These boxes were made of boards securely fastened to pine scant-
ling at each corner of the box and forming a well or shaft from
cellar to roof. From about October first to the tim.e of the fire,
carpenters were engaged in making these changes as well as making
tables and other conveniences for carrying on the business of dry-
ing fruit, and these improvements had not been completed when the
building was destroyed. The General Term assumed that the mak-
ing of ordinary and necessary repairs to a building to preserve it
from decay, or the cutting of a stove-pipe hole in a partition, or
other similar acts, would not be a breach of the condition of the
policy, and, therefore, the question here presented could not be
held as a question, of law to constitute such an alteration of the
building by carpenters as would violate the conditions of the policy.
These illustrations do not seem to us to be applicable to this case,
or to afford any authority for the proposition that a jury were
authorized, in such case as the present, to find that the covenants
were not violated by the plaintiff. The General Term properly laid
down the rule by which such instruments should be construed, and
TERMS OF THE FIRE INSURANCE CONTRACT. 175
hp] i that they should receive a reasonable construction, reference
beiag had to the object sought to be obtained by the parties." It
was also said that " such conditions are not to be e.\tended by
implication so as to include cases not clearly or reasonably within
the words as ordinarily used and understood." We have no diffi-
culty in agreeing with the rules of law laid down by that court, but
we are quite unable to concur in the view taken by it of the evi-
dence. * * * There can be no reasonable question but that the
evidence here showed a clear and deliberate attempt to change the
character of the occupation of the insured building from a com lar-
atively safe to a hazardous one, and a substantial alteration of the
structure by carpenters. Taese alterations required the removal of
large portions of two floors and the roof, and the introduction
therein of two flues constructed of inflammable materials and
extending through the entire height of the structure, affording every
means for the spread of conflagration and constituting a large
increase of combustible material. The case is brought clearly within
the spirit as well as the letter of the contract, and if it does not
show a violation of the conditions, we can conceive of no situation
which would have effected that result. In case there had been a
submission of the facts to the jury and it had found that carpenters
were not engaged in making alterations of this building within the
meaning of the policy, it would have been the clear duty of the
court to h9 ve set aside the verdict. Courts are under no obligation to
yield their assent to verdicts which deny significance to language,
or violate the plain meaning and intent of an unambiguous
contract.
The order of the General Term should be reversed and the judg-
ment entered upon the verdict affirmed, with costs.
All concur.
Order reversed and judgment affirmed.'
' The General Term said (35 Hun, 78): " It has been held that a similar
clause in a policy did not apply to ordinary or necessary repairs, because ihey
are presumed to be assented to by implication, and it would not be reasonable
to construe the provisions so as to make a contract to indemnify the building
from fire, provide for its destruction by other elements. {Franklin Ins. Co. v.
Chicago Ice Co., 36 Md. I02.)"
'■' " When a building is insured it is of course understood that it is to be used
in the ordinary way of using similar buildings and no one expects that it is to
be set apart and wholly devoted to being kept safely. One of the ordinary
incidents to this usual occupation is that of making repairs. The general right
to make these has never been doubted, when the policy contained no special
provisions upon the subject." — Townsend v. Co., 18 N. Y. 168, 174. See also
Imperial Fire Ins. Co. v. Coos County, 151 U. S. 452.
1/6 THE TERMS OF THE INSURANCE CONTRACT.
12. Structure on Ground Not Owned by Insured.
DOVVD V. AMERICAN FIRE INSURANCE CO.
41 Hln. 139. — 1886.
Appeal from judgment in favor of plaintiff in an action brought
upon an insurance policy. The policy provided; " If the building
insured stands on leased ground it must be so represented to the
company and expressed in the policy in writing, otherwise the insur-
ance as to such property shall be void."
Peckham, J. — It seems to me plainly pro i-ed that the building
which was insured under the policy, put in evidence in this case,
stood on leased ground, and it was not so represented to the com-
pany nor expressed in the policy in writing, and the policy con-
tained a provision that otherwise the insurance as to such property
should be void. The instrument, under which the plaintiffs' title
accrued, stated that John House, who was the original owner of the
land demised, leased and to farm let unto the assignor of the plain-
tiffs' the land upon which the building in question was erected, and
to his heirs and assignees forever and provided for perpetual pay-
ment of an annual rent, with a clause of re-entry for condition
broken. It was proved that at the time when the policy was exe-
cuted the rent had been in arrears for a number of years. The
ground was leased within the meaning of the language used in the
policy. Tyler X. Heidorn, 46 Baib. 439; Van Rensselaer v. Barrin-
ger, 39 N. Y. I, at 18. The first cited case shows the view taken
by the General Term in this department, of the character of those
instruments which reserved rent, even when in the language used
they were, in terms, conveyances in fee, subject to the payment of
rent; the court saying that the parties to the instrument were land-
lord and tenant, even when the language was as above stated. The
language in the instrument in question is technically that which is
used in leases, " demise, lease and to farm let," " yielding and
paying therefor " * * * " ^j^g annual rent," etc. I think it
must be held that it was proved the building stood on leased
ground. * * *
13. Foreclosure Proceedings.
Earl. J., in TITUS v. GLENS FALLS INSURANCE CO.
81 N. Y. 410, 417. — 1S80.
I NOW come to a more serious objection to this recovery. The
policy contains a provision that it should be void if foreclosure pro-
ceedings should be commenced against the insured property, and
r
TERMS OF THE FIRE INSURANCE CONTRACT. 1 7/
■this provisi-on was alleged to have been violated. The plaintiff com-
menced a foreclosure of his mortgage, by action, about the ist of
May, 1877, and he obtained a judgment of foreclosure, and under
tiiat judgment he caused the mortgaged premises to be advertised
for sale a few days before the fire. In reference to this objection
to plaintiff's recovery, the opinion pronounced at General Term
contains the following; " We do not think this condition relates to
the plaintiff's mortgage. It cannot be assumed that in a policy
issued by the defendant, with the loss payable to the plaintiff as
mortgagee, a condition would be inserted prohibiting him from
foreclosing his mortgage. The condition has some other meaning."
The argument of plaintiff's counsel is, that when the defendant
assented to this mortgage, it necessarily assented to all the neces-
sary incidents and consequences of the mortgage interest; that,
having been notified of the interest of the mortgagee in the prop-
erty, and having agreed to pay him the loss, if any, it cannot call in
question the natural result and incident of such a mortgage title, to
wit, the foreclosure thereof, but must be held to have agreed to it
in advance. This reasoning does not carry conviction to our
minds. A provision that a policy shall be void in the case of fore-
closure proceedings is common in insurance policies, and we must
assume that experience has shovvn to underwriters that such pro-
ceedings increase the risk to the insurer. The defendant might
have been willing, for the premium charged, to insure this barn
with the mortgage upon it, and yet not willing to insure it in case of
proceedings to foreclose the mortgage. It did assent to the mort-
gage, and agree that the loss, if any, be paid to the mortgagee, but
it did not assent to continue the insurance in case the risk was
increased by proceedings to foreclose the mortgage. Before com-
mencing the foreclosure the plaintiff should have obtained the
assent of the defendant. It might have examined the circumstances
and granted such assent without any conditions, or it might have
required an additional premium for the increased risk. It might
have refused altogether, and in that case the plaintiff could have
delayed his foreclosure until the end of the year, or surrendered the
policy and procured insurance elsewhere. Even if the provision
were found to be very inconvenient and embarrassing, there is no
help for it. There it is, and we cannot take it out of the policy by
construction. There are two provisions: one, that liens, without
the assent of the company, shall avoid the policy; and another,
that foreclosure proceedings shall avoid it; and effect must be given
to both. According to the construction contended for on the part
of the plaintiff, the latter provision would be wholly useless or nulli-
LAW OF INSURANCE — 12
178 THE TERMS OF THE INSURANCE C\)N IKAL 1
fied in every case, because all liens avoid the policy unless assented
to; and according to that construction, when assented to, fore-
closure proceedings may be instituted without avoiding the policy.
If such proceedings may be instituted as incident to the mortgage,
then they may be carried to their conclusion by a sale and convey-
ance, and thus by assenting to a mortgage, a company may be held
to have assented to a change of title of the insured property. Such
a construction is unreasonable and unwarranted Pratt v. The New
York Central Ins. Co., 55 N. Y. 505. But we are of opinion that
the claim of the plaintiff is well founded that the forfeiture caused
by the foreclosure proceedings was waived by the defendant. * * * ,
b. Loss by Fire : Proximate Cause.
LYNN GAS AND ELECTRIC CO. v. MERIDEN FIRE
INSURANCE CO. & Others.
158 Mass. 570. — 1S93.
Contract against several insurance companies, insuring the build-
ing and machinery of the plaintiff against loss or damage by fire. A
fire occurred in the wire tower, so called, of the plaintiff's building,
through which the wires for electric lighting were carried from the
building, which fire was speedily extinguished, without contact with
other parts of the building and contents, and with slight damage to
the tower or its contents. About the same time and in a part of the
building remote from the fire and untouched thereby, there occurred
a disruption by centrifugal force of the fly-wheel of the engine and
of certain pulleys connected therewith, by which disruption the
plaintiff's building and machinery were damaged to a large amount.
The defendants introduced evidence tending to show that the slip-
ping of a belt was the cause both of the fire in the tower and of the
disruption of the machinery and that a defective pulley might have
contributed to cause the disaster. The theory of the plaintiff is
stated in the opinion.
Knowlton, J. — The only exception relied on by the defendants
in these cases is that relating to the claim for damage to the
machinery used in generating electricity and to the building from a
disruption of the machinery. This machinery v;as in a part of the
building remote from the fire, and none of it was burned. In his
charge to the jury the judge stated the theory of the plaintiff as
follows: " The plaintiff says the position of the lightning arresters
in the vicinity of the fire was such that by reason of the fire in the
TERMS OF THE FIRE INSURANCE CONTRACT. I79
tower a connection was made between them called a short circuit;
that the short circuit resulted in keeping back or in bringing into
the dynamo below an increase of electric current that made it more
difficult for this armature to revolve than before, and caused a
higher power to be exerted upon it, or at least caused greater resist-
ance to the machinery; that this resistance was transmitted to the
pulley by which this armature was run, through the belt; that that
shock destroyed that pulley; that by the destruction of that pulley
the mail) shaft was disturbed and the succeeding pulleys up to the
jack pulley were ruptured; that by reason of pieces flying from the
jack-pulley, or from some other cause, the fly-wheel of the engine
was destroyed, the gov'ernor broken, and everything crushed; — in
a word, that the short circuit in the tower by reason of the fire
caused an extra strain upon the belt through the action of electric-
ity, and that caused the damage." The plaintiff contended that
the short circuit was produced by the fire, either by means of heat
on h ; h jrns of the lightning arresters, or by the flame acting as a
conJjctor between the two horns, or in some other way. The jury
found that the plaintiff's theory of the cause of the damage was cor-
rect, and the question is whether the judge was right in ruling that
an injury to the machinery caused in this way was a " loss or dam-
age by fire," within the meaning of the policy.
The subject-matter of the insurance was the building, machinery,
dynamos, and other electrical fixtures, besides tools, furniture, and
supplies used in the business of furnishing electricity for electric
lighting. The defendants, when they made their contracts, under-
stood that the building contained a large quantity of electrical
machinery, and that electricity would be transmitted from the
dynamos, and would be a powerful force in and about the building.
They must be presumed to have contemplated such ejects as fire
might naturally produce in connection with machinery used in gen-
erating and transmitting strong currents of electricity.
The subject involves a consideration of the causes to which an
effect should be ascribed when several conditions, agencies, or
authors contribute to produce an effect. The defendants contend
that the application of the principle which is expressed by the
maxim, Injure non remota causa sed proxima spectatiir, relieves them
from liability in these cases. It has often been necessary to deter-
mine, in trials in court, what is to be deemed the responsible cause
which furnishes a foundation for a claim when several agencies and
conditions have a share in causing damage, and the best rule that
can be formulated is often difficult of application. When it is said
that the cause to be sought is the direct and proximate cause, it is
l80 THE TERMS OF THE INSURANXE CONTRACT.
not meant that the cause or agency which is nearest in time or place
to the result is necessarily to be chosen. Franuin v. Mercantile
Accident Association, 156 Mass. 351. The active efficient cause
that sets in motion a train of events whicli brings about a result
without the intervention of any force started and working actively
from a new and independent source is the direct and proximate cause
referred to in the cases. McDonald v. Sne/iing, 14 Allen, 290;
Pcrlcy V. Eastern Railroad, 98 Mass. 414, 419; Gibneyw State, 137 N.
V. 529. In Milwaukee cs^ St. Paul Railicay v. Kellogg, 94 U. S. 469,
474, Mr. Justice Strong, who also wrote the opinions in Insurance
Co. V. Transportation Co., 12 Wall. 194 and in Western Massachusetts
Ins. Co. V. Transportation Co., 12 Wall. 201, which are much relied on
by the defendants, used the following language in the opinion of the
court: " The primary cause may be the proximate cause of a dis-
aster, though it may operate through successive instruments, as an
article at the end of a chain may be moved by a force applied at the
other end, that force being the proximate cause of the movement,
or as the oft-cited case of the squib thrown in the market-place. 2 Bl,
Rep. 892. The question always is, Was there an unbroken connec-
tion between the wrongful act and the injury, a continuous operation?
Did the facts constitute a continuous succession of events so
linked together as to make a natural whole, or was there some new
and independent cause intervening between the wrong and the
injury? "
If this were an action against one who negligently set the fire in
the tower, and thus caused the injury to the machinery, it is clear,
on the theory of the plaintiff that the negligent act of setting the
fire would be deemed the active efficient cause of the disruption of
the machinery and the consequent injury to the building. It remains
to inquire whether there is a different rule in an action on a policy
of fire insurance. * * * in suits brought on policies of fire in-
surance, it is held that the intention of the defendants must have
been to insure against losses where the cause insured against was
a means or agency in causing the loss, even though it was entirely
due to some other active, efficient cause which made use of it, or
set it in motion, if the original efficient cause was not itself made r.
subject of separate insurance in the contract between the parties.
For instance, where the negligent act of the insured, or of anybody
else, causes a fire, and so causes damage, although the negligent
act is the direct, pro.ximate cause of the damage, through the fire,
which was the passive agency, the insurer is held liable for a loss
caused by the fire. Johnson v. Berkshire Ins. Co., 4 Allen, 388;
Walker v. Maitland, 5 B. & Aid. 171 ; Waters v. Merchants louisville
TERMS OF THE FIRE INSURANCE CONTRACT. l8l
Ins. Co., II Pet. 213; Peters v. Warren Ins. Co., 14 Pet. 99, Gen-
era/Ins. Co. V'. Sherioood, 14 How. 351; Insurance Co. v. Tweed, 7
Wall. 44. This is the only particular in which the rule in regard to
remote and proximate causes is applied differently in actions on fire
insurance policies from the application of it in other actions. A
failure sometimes to recognize this rule as standing on independent
grounds, and established to carry out the intention of the parties to
contracts of insurance, has led to confusion of statement in some of
the cases. The difficulty in applying the general rule in complicated
cases has made the interpretation in some of the decisions doubtful;
but on principle, and by the weight of authority in many well con-
sidered cases, we think it clear that, apart from the single exception
above stated, the question, What is a cause which creates a liability?
is to be determined in the same way in actions on policies of fire
insurance as in other actions. Scripture v. Lowell Ins. Co., 10 Cush.
356; New York &= Boston Despatch Express Co. v. Traders &'
Mechanics' Ins. Co., 132 Mass. 377; St. John v. American his. Co.., i
Kernan, 516; General Ins. Co. v. Sherwood, 14 How. 351; Insurance
Co. V. Tweed, 7 Wall. 44; Waters v. Merchants' Louisville Ins. Co., 11
Pet. 213, 225; Livie V. Janson, 12 East, 648; lonides^. Universal Ins.
Co., 14 C. B. (N. S.) 259; Transatlantic Ins. Co. v. Dorsey, 56 Md.
70; United Ins. Co. ^\ Foote, 22 Ohio St. 340.
In the present case, the electricity was one of the forces of nature,
— a passive agent working under natural laws, — whose existence
was known when the insurance policies were issued. Upon the
theory adopted by the jury, the fire worked through agencies in the
building, the atmosphere, the metallic machinery, electricity, and
other things; and working precisely as the defendants would have
expected it to work if they had thoroughly understood the situation
of the laws applicable to the existing conditions, it put a great strain
on the machinery and did great damage. No new cause acting
from an independent source intervened. The fire was the direct
and proximate cause of the damage according to the meaning of the
words "direct and proximate cause," as interpreted by the best
authorities. The instructions to the jury were full, clear, and correct,
and the defendants' requests for instructions were rightly refused.
Exceptions overruled.'
Negligence. — In Gove v. Ins. Co., 48 N. H. 41, the insane wife of
the insured set fire intentionally to the insured buildings. The
company defended on the ground that it was gross carelessness to
' See also Ins. Co. v. Boon, 95 U. S. 117.
l82 THE TERMS OF THE INSURANCE CONIRACT.
leave the insane person alone on the premises, and that gross care-
lessness is a good defense to the action upon the policy. The court
said: " The doctrine now appears to be well settled by the authori-
ties, that a loss by fire on land, occasioned by the mere fault and
negligence of the insured party, his servants or agents, without
fraud or design, is a loss protected by the policies, and as such
recoverable from the underwriters. Judge Story in IVaiers v. T/ie
Merchants Louisville Ins. Co., ii Peters, 213; Sherwood v. General
Mutual Ins. Co.., 14 Howard, 351; 3 Kent's Com. 374, and notes;
Ruck v. Royal Exchange Co., Angell on Ins. §§ 124-5 and 122; 2
Barn. &• Aid. 73; Dixon v. Sadler, 5 M. & W. 405. 8 M. cS: W. 894;
Shaw v. Robarts, 6 A. «& E. 75. Generally, negligence is not design.
Catlin V. The Springfield Fire Ins. Co., i Sumner, 434, The court in
the State of New York, say that before this ground of defense can
be made available, there must be evidence of such a degree of neg-
ligence as will evince a corrupt design. Hyndes v. Schenectady
County Mui. Ins. Co., 16 Barb. 119. There are cases of gross negli-
gence which are, in law, deemed equivalent to a fraudulent pur-
pose or design, founded on the consideration of doing nothing,
when the slightest care on the part of the insured would prevent a
great injury. Judge Shaw supposes the case where the insured, in
his own house, sees the burning coals in the fire-place roll down on
his wooden floor, and does not brush them up. This would be non-
feasance, and evidence of a culpable recklessness, and indifference
to the rights of others. He also supposes the insured premises to
take fire, and the flames beginning to kindle in a small spot, which
a cup of water might put out, and the insured has the water at hand,
but neglects to put it out, this, also, would be culpable negligence,
manifesting a willingness differing little in character from a fraudu-
lent and criminal purpose to commit injury to others. Chandler v.
IVor Chester Alut. Fire Ins. Co., 3 Cush. 328, 31 Maine, 219; Hue kins
V. Insurance Co., 31 N. H. 238; Angell on Ins. § 130. * * *
We cannot see in this case evidence of the existence either of design
or of that degree of negligence or carelessness which will constitute
a legal defense for the defendants."
Explosion. — Where there is, in the policy, no provision as to explosion.
In Millaudon v. Ins. Co., 4 La. Ann. 15, it was held that the policy
did not cover loss caused by an explosion of steam boilers, no dam-
age having been caused by fire. But in Scripture v. Ins. Co., 10
Cush. 356, a burning match applied to a cask of gunpowder in a
house, caused damage to the house; that damage being in part
from combustion and in part from explosion. The policy insured
"against loss or damage by fire." The court said: " Where the
TERMS OF THE FIRE INSURANCE CONTRACT. 183
effects produced are the immediate results of the action of a burning
substance in contact with a building, it is immaterial whether those
results manifest themselves in the form of combustion, or of explo-
sion, or of both combined. In either case, the damage occurring
is by the action of fire and covered by the ordinary terms of a
policy against loss by fire."
Where there is, in the policy, a provision as to explosion. In The Boat-
man s Fire and Marine Ins. Co. v. Parker, 23 Ohio St. 85, where the
policy provided that the company shall not be liable " for damage
occasioned by the explosion of a steam boiler, nor for damage
resulting from such explosion, nor explosions caused by gunpowder,
gas or other explosive substances * * * unless otherwise
expressly provided," the insured was allowed to recover for damage
by fire resulting from an explosion of gas. In United Fire, Life and
Marine Ins. Co. v. Foote, 22 Ohio St. 340, the policy provided that
the company shall not be liable for " any loss or damage occasioned
by, or resulting from, any explosion whatever," etc. A fire followed
an explosion of spirit vapor ignited by the flame of a gas jet and the
insured was not allowed to recover for loss occasioned by this fire.
In Briggs v. Ins. Co., 53 N. Y. 446, the plaintiffs were engaged in
the business of rectifying spirits and insured their machinery by a
policy which contained this provision: " This company shall not be
liable for loss caused by * * * explosions of any kind, unless
fire ensues and then for the loss or damage by fire only." Vapor
from the works coming in contact with a burning lamp caused an
explosion which injured the machinery. No recovery was allowed
for the damage caused by the explosion, the court saying, "The
plaintiffs insist, however, that an explosion caused by fire is a fire,
and therefore the defendant is liable for the explosion, as for a fire.
But that reasoning gives no force to the exception. It allows a
recovery for the explosion, when the policy expressly stipulates that
the defendant will not be liable for that. * * * There was no
fire prior to this explosion. The burning lamp was not a fire within
the policy. The machinery was not on fire, as such a term is ordi-
narily used, until after the explosion. The explosion here was the
principal and the fire the incident."
Loss caused by the explosion of a lamp is covered by a policy
which provides that the company shall not be liable for loss caused
by " explosions of any kind whatever;" the argument being that
the exception covered by this section is to be restricted to losses
arising from explosions, rather than extended to the much broader
ground of losses by fire originating from explosions. — Heffronv,
Ins. Co., 132 Pa. 580.
l84 THE TERMS OF THE INSURANCE CONTRACT.
Falling Building. — In Ermcntrout v. Ins. Co., 63 Minn. 305,
the policy stipulated : " 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." The insured building was
adjacent to another used as a feed mill, the wall between them being
a partition wall. The feed mill caught fire before the insured build-
ing fell, and that fall was caused by the partial consumption of the
feed mill and the weakening of the partition wall. No part of plain-
tiff's building was actually ignited or consumed by fire. In holding
that the falling of the insured building was a direct " loss or dam-
age by fire," within the meaning of the policy, the court said, speak-
ing of the exception: " We think it has reference only to cases
where the building might fall from some other cause than fire, — as,
for example, defective construction, the withdrawal of necessary
support, storm, flood or other like cause, — and fire thereafter
ensued. But it was not intended to exclude cases where fire was the
immediate or proximate cause of the fall. To render the fire the
immediate or proximate cause of the loss or damage, it is not neces-
sary that any part of the insured property actually ignited or was
consumed by fire. * * * 'phe question is, was fire the efficient
and proximate cause of the loss or damage."
As to what constitutes a fallen building see Fireman' s Fund Ins.
Co. V. Sholm, 80 111. 558, where it was held that the building had not
fallen when, by a windstorm, it had been moved partly off the posts
upon which it rested. The building remained united although it
leaned toward the street and was so far rendered unfit for occupancy
that most of the movable furniture had been taken out. In Huck
V. Ins. Co., 127 Mass. 306, the building was held to have fallen, since
nothing remained standing but the outer walls and the elevator five
feet square, in one corner. See also upon this point. Insurance Co.
V. Crunk, 91 Tenn. 376.
Lightning. — In Babcock v. Ins. Co., 6 Barb. 637 (affirmed in 4 N.
Y. 326), the building was insured generally against loss by fire and
in a separate clause the policy declared that the insurers would be
liable for fire by lightning. The declaration alleged that the build-
ing " was struck by lightning and was thereby prostrated and
demolished." Demurrer on the ground that the declaration did not
show that the building as consumed or injured by fire. It was held
that the plaintiff had not averred a loss tvithin the meaning of the
policy.
Removal for Safety. — It was held in White v. Ins. Co., 57 Me.
91, that the damage and expense caused by removing, with that
reasonable degree of care suited to the occasion, insured goods from
TERMS OF THE FIRE LN'SU RANGE CONTRACT. l8$
an apparent imminent destruction by fire, are covered by a policy
insuring against " loss or damage by fire," although the building in
which they were insured and from which they were thus removed,
was not in fact injured by the fire.
c. Respecting Matters After Loss.
I. Proofs of Loss.
BUMSTEAD v. DIVIDEND MUTUAL INSURANCE CO.
12 N. Y. 8i. — 1S54.
Action on a policy of insurance, tried before a referee, who found
for the plaintiff. The judgment ordered by the referee was afifirmed.
W. F. Allen, J. — * * * The plaintiff, as a condition precedent
to his right to recover was, by the by-laws of the company, bound
to give notice forthwith of his loss, and within thirty days deliver in
a particular account of such loss or damage, signed with his own
hand and verified hy his oath or affirmation, and also, if required,
by his books of account and other proper vouchers; and by the
condition annexed to the policy, he was bound to furnish an inven-
tory of all property destroyed or damaged, giving the value in cash
of the damage sustained to each item — whether a building or other
property — verified by his affidavit. The conditions are reasonable,
and for the benefit of the insurers, to enable them to decide upon
their rights and the extent of their liability before they are
called upon to pay; and no liability attaches until they have been
complied with by the insured. Mann v. Harvey^ 8 Exch. Rep.
819.
What shall be considered a performance, so as to entitle a party
to insist upon payment of a loss withm the policy, depends upon the
true construction of the contract of the parties. A strict interpreta-
tion of the language employed would not unfrequently prevent a
recovery against the company, as no exceptions are made to the
requirement to furnish the inventory and produce the books of
account and other vouchers. The inventory required is one strictly
accurate, not approximating to accuracy, and made according to
the best knowledge the party may have. Such a statement, although
made out with all care and honesty, and really affording to the
insurers all the information they could reasonably desire, would not
be an inventory of the property destroyed within the literal condi-
l86 THE TERMS OF THE INSURANCE CONTRACT.
liop. So the iiDii-production of the books and vouchers which had
been destroyed by the very fire against which the party had sought
an indemnity would effectually defeat his claim under his policy.
Such an interpretation would be unreasonable, and cannot be
supposed to have been in the minds of the contracting parties
at the time the insurance was effected.
The construction of these conditions should be reasonable, and as
near the apparent intent of the parties as may be consistent with
the terms employed, taking into consideration the motives that led
to their insertion in the contract and the object intended to be
effected by them. It was not practicable for the parties to provide
for every case which might arise, but they could and did provide in
general terms for ordinary cases, and having done so, extraordinary
cases and exceptions were necessarily left to be decided upon the
general principles which they prescribed for those most likely to
happen. Ordinarily the books of the insured might be preserved
and capable of production at the call of the insurer, and hence their
production, if called for, was made a condition precedent to the
liability of the underwriter. This clause should not, however, be
so construed as to require the party to produce books which he had
not, and which, without fault on his part, he could not produce.
So, if all means of making an accurate inventory of the property
destroyed were lost, the condition should be so construed as only
to require the best and most perfect statement which the party could
make. This class of conditions, anne.xed to and making a part of
contracts of insurance, has always been liberally construed as
requiring only good faith on the part of the assured and the best
evidence of his loss which he could give, and so as to secure to the
insurer all the substantial benefits of the conditions. If this has
been found necessary, in former times, in order to give effect to the
contract of insurance as a real and not an illusory contract of indem-
nity, it is still more necessary now, when, with the multiplication of
companies holding themselves out as insurance companies and bid-
ding for risks, legal ingenuity and practical experience and skill
have been exerted to the utmost to devise terms and conditions and
new and unheard-of provisions by which the nominal underwriters
may guard against a le^.al liability in case of a loss of the property
insured by the perils proposed to be insured against.
The only safety for the insured is to apply the same rules of con-
struction to the new terms and conditions which have been by the
courts applied to the same contract heretofore, and to give them
that reasonable construction which good faith and good sense
require. In Norton v. Rensselaer er* Saratoga Company^ 7 Cow. 649,
TERMS OF THE FIRE INSURANCE CONTRACT. 187
Savage, Ch.- J., says: " The clause requiring proof of marine losses
has been construed with considerable liberality. The courts have
looked to the circumstances, and required no more information of
the party than what appeared to be within his control; " and the
same liberal construction was in that case extended to a fire policy.
Thompson, J., in Lamere v. The Ocean Insurance Company, 11 J. R.
260, says: " Tliis clause has always been liberally expounded,
and is construed to require only the best evidence of the fact
which the party possesses at the time." Such has been the uniform
construction put upon it by the courts. See also 2 J. R. 136; 8 I J.
317; McLaughlin v. The Washington County Mutual Ins. Co.., 23 W.
R- 525.
The " particular account of the loss or damage," and the "inven-
tory of all property destroyed or damaged, giving the value in cash
of the damage sustained to each item," require the party only to
furnish a statement as particular and full as he can under the cir-
cumstances make. The books and papers of the plaintiff having
been destroyed by the same fire which consumsd the merchandise
insured, he is thus deprived of the only means by which he could
comply literally with the conditions of the policy, and a less par-
ticular statement is sufficient and all that is called for within the
fair meaning and intent of the parties as expressed in the contract
by the conditions. * * *
The plaintiff, in his first statement of loss, says that the entire
amount of the property contained in his store and partly covered by
said insurance, that is, insured to a part of its value, together with
his books and papers, was destroyed by fire; that the total amount
of property in said store, owned by him and destroyed, was at least
$2,000, and, as he believed, much more, but from the destruction
of his books, papers, bills of purchase and inventories he was unable
particularly to set forth the same. The fact that he afterwards ^
attempted, at the request of the company, to make a more particu-
lar statement from recollection and estimate, as did Norton in the
case in 7 Covven, does not tend to invalidate the truth of the state-
ment; and in the absence of fraud or of evidence tending to impeach
its accuracy, the proof was a substantial compliance with the condi-
tions of insurance and the by-laws of the company, and sufficient to
entitle the plaintiff to recover. The conclusion to which I have
come upon the question considered, renders it unnecessary to exam-
ine the other question, which is of less general interest, to w^it,
whether the defendnts did not, by receiving and acting upon the
proofs furnished, without objections, assent to their sufficiency and
waive any formal objection which might have been taken to them.
l88 THE TEF^MS OF THE INSURANCE CONTRACT.
Bat upon this ground I think there is sufficient evidence in the case
to warrant the decision and uphold the judgment in the court
below. * * *
Affirmed.'
2. Magistrate's Certificate.
Mitchell, J., in LANE r. INSURANCE CO.
50 Minn. 227. — 1892.
The policy sued on contained a provision that the insured " shall,
if required, furnish a certificate of the magistrate or notary public
(not interested in the claim as a creditor or otherwise, nor related
to the insured) living nearest the place of fire, stating that he has
examined the circumstances, and believes the insured has honestly
svistained loss to the amount that such magistrate or notary public
shall certify." It also provided that " no suit or action on this
policy for the recovery of any claim shall be sustainable in any court
of law or equity until after full compliance by the insured with all
the foregoing requirements." * * *
Provisions similar to this are as old as fire insurance policies
themselves, and the doctrine has been established by a uniform cur-
rent of authorities in England and this country, beginning with
Oldman v. Benncke, 2 H. Bl. 577, and Rontledge v. Burrell, i H. Bl.
254, that the production of such certificate, unless the insurance
company itself has prevented the obtainiag it, or waived its want.
' Accord, People's Ins. Co. v. Piilver, 127 111. 246. Where the policy provided
thai the proofs of loss must be "' rendered " within 60 days, it was held sufficient
if the proofs were mailed within 60 days, although not received within that
^^x\oA.— Manufacturer' s Ins. Co. v, Zeitinger, 168 111. 286. If the policy pro-
vides thai in case of loss the insured " shall give immediate notice thereof and
shall render to the company a particular account of said loss under oath,"
embracing certain facts specified, it is the duty of the insured to furnish the
proofs of loss within a reasonable time, the court saying, in Carpetiier v. Ins.
Co., 135 N. Y. 298, 303: " What is such reasonable time may become a ques-
tion of law as where there has been a long delay unexcused. * * * Bat in
cases where circumstances are shown which reasonably justify the delay or the
insured acted with reasonable promptness in view of all the facts disclosed
having regard both to his own situation and the protection of the company, it
may be a question for the jury whether the provision as to proofs has been vio-
lated."
Notice of Loss. "Under the provision of the policy requiring notice of loss
to be ' forthwith ' given, it was enough for the insured to act in that matter with
diligence and without unnecessary delay." — Griffey v. Ins. Co., 100 N. Y. 417,
421.
TERMS OF THE FIRE INSURANCE CONTRACT. 189
is a condition precedent to the right of the insured to recover; that
the assured, by accepting the policy, assents to the condition; that
it is one which the company has a right to impose, and for which it
is not bound to accept any substitute ; that the inability of the
insured to furnish it because of the refusal of the magistrate or
notary, for any cause whatever, to give it, will not relieve him from
the performance of the condition; that the case comes within the
rule by which one who engages for the act of a stranger must pro-
cure the act to be done, and the refusal of the stranger without the
interference of the other party is no excuse. The inability of the
insured to procure the certificate because of such refusal does not
render the condition impossible in the legal sense, so as to excuse
the party from performing his contract. The cases on the subject
will be found cited in any text-book on fire insurance, but among a
few of the leading ones are IVorsley v. Wood, 6 Term R. 710; Insur-
ance Co. V. Laivrence, 2 Pet. 25, 10 Pet. 507; Roumage v. Insurance
Co., 13 N. J. Law, no; Leadbetter v. Insurance Co., 13 Me. 265; John-
son V. Insurance Co., 112 Mass. 49. We are not aware of a single
authority to the contrary, except a suggestion, in Insurance Co. v.
Miers, 5 Sneed, 139, that such a condition is directory only, and a
dictum, in Insurance Co. v. Block, 109 Pa. St. 535, i Atl. Rep. 523,
repeated in Davis Shoe Co. v. Kittanning Ins. Co., 138 Pa. St. 73, 20
Atl. Rep. 838, that such conditions are void for the reason that an
insurance company has no right to require a public officer to act in
the adjustment of losses. But this was expressly overruled by the
same court in Kelly v. Sun Fire Office 141 Pa. St. 10, 21 Atl. Rep.
447. While the doctrine that such stipulations are valid and consti-
tute a condition precedent to the insured's right to recover is
unquestionably sound in principle, yet, as they often operate
harshly in practice, they ha^e, in some States, been expressly or
impliedly prohibited by statutes regulating the form of policies.
See Shannon v. Insurance Co., 2 Ont. App. 81; Insurance Co. v.
Johnson, 46 Ind. 315. But there is no room in this State for hold-
ing such conditions void or unreasonable, for they have been incor-
porated into the Minnesota standard policy by the insurance
commissioner, under the authority vested in him by Laws 1889,
c. 217, by the provisions of which all fire insurance policies are
required to conform to the form prepared by him, and any other or
different form is prohibited.'
"^Contra: " The right of a citizen to maintain an action in the courts of this
state is fixed by the constitution and the laws thereof, and we do not think that
right can be made to depend upon the whim of a justice of the peace or a notary
public. Suppose that this justice of the peace should be the enemy of the insured
igO THE TERMS OF THE INSURANCE CONTRACT.
3. Examination of the Insured.
HiNMAN, C. J., IN HARRIS V. PHCENIX INSURANCE CO.
35 Conn, 310, 312. — 1868.
One of the conditions in the policy is " that the assured shall, if
required, submit to an examination under oath by any person
appointed by the company, and if deemed necessary by the com-
pany, to a second examination, and subscribe to such examination
when reduced to writing; and shall also produce his books, etc."
And then the policy provides by an express stipulation, that " until
such proofs, declarations and certificates are produced and exami-
nations and appraisals permitted, the loss shall not be payable."
* * * As the plaintiffs stand upon the right of the assured, Bass,
and are in no better condition than he would be, were he now prose-
cuting his suit for damages caused by the loss, {Dewit v. Baldwin,
I Root, 138,) It becomes important to determine whether the stipu
lation for his personal examination is a condition precedent to his
right under the policy. The plaintiffs insist that it is not such a
condition in this case, because it does not appear that notice
or for any other reason should refuse to furnish the insured a certificate of
good moral character, and should refuse to examine into the circumstances
attending the loss and the financial condition of the insured. How is the
insured to compel the making of this certificate? We are aware that the
supreme court of the state of Minnesota in Lane v. fnsurante Co., 50 Minn. 227,
sustained a provision like the one under consideration, and held that the furnish-
ing of the certificate was a condition precedent to the right of the insured to
recover, and that his inability to furnish the certificate because of the refusal of
ihe magistrate to give it afforded no excuse for the insured's failure. But it is
to be remembered that in that state the legislature prescribes the terms and con-
ditions of all fire insurance policies, and such was the policy considered in the
case last cited. Furthermore, the constitution of this state provides that " all
courts shall be open, and every person, for any injury done him in his lands,
goods, person or reputation, shall have a remedy by due course of law, and
justice administered without denial or delay." (Constitution, Section 13, Art. i.)
It may be that the legislature has the authority to provide that before an insured
can maintain an action in the courts to recover for a loss on an insurance policy
he must procure the certificate of a magistrate next to where the loss occurred
that he has examined into the conditions of the loss, and believes that it
occurred without the fault of the insured, that the insured is of good moral
character, and that he is acquainted with his financial condition. But we shall
hesitate a great while before we uphold any such provision as this, in the
absence of express legislation requiring it." — Home Co. v. Ilammanfi. 44 Neb.
566, 577.
The New York courts are not fivoiable to a rigid interpretation of the provi-
sion. Turley v. Co., 25 Wend. 374; Gilligan v. Co., 20 Hun, 93, aff'd 87 N. Y.
626; McNally v. Co., 137 N. Y. 389.
TERMS OF THE FIRE INSURANCE CONTRACT. I9I
that a personal examination was required has ever been brought
home to the assured. If this was so in consequence of the
fault of the defendants there would doubtless be force in the sugges-
tion. But the defendants have not been in fault. Having used due
diligence to notify the assured that they required the performance
of this stipulation, they clearly ought not to be held to have waived
its performance. If the assured has intentionally absented himself
so that he cannot be notified that performance of the stipulatiu.i is
required, he should be held to have had notice. And if for any
cause, whether by his fault or otherwise, he cannot be mLified, that
may be his misfortune or the misfortu-ne of those claiming under or
through him, but is no reason for treating as inoperative an impor-
tant stipulation which the defendants saw fit to require, and the
assured to give, as a condition which was to be complied with before
there could be any obligation to pay for the loss.'
' "Another plea set forth as a bar to the action is, that the insured refused to
submit his books and invoices for examination when requested. This plea was
based upon one of the conditions of the policy to which the plaintiff assented.
All the insured wa.9. entitled to recover, in the event of a loss, was pay for goods
actually destroyed. Books of account and invoices are the only means, in most
cases, of arriv^ing at such amount of the liability of the company. Where an
insurance policy makes it incumbent on the insured, in the event of a loss, to
proiuce his books or invoices for examination, he must comply with such pro-
vision or he cannot recover. yu6e v. Insurance Co., 48 Batb. 412; Haff \. Insur-
ance Co., 4 Johns. 132; 0' Brien v. Insurance Co., 63 N. Y. 108; Phillips v. Insur-
ance Co., 14 Mo. 220; Bonner v. Insurance Co., 13 Wis. 677; Harris v. Insurance
Co., 35 Conn. 3ro; Thomas ". Insurance Co., 47 Mo. App. 169. It is urged by
appellee as a reason for not complying with this provision, that he kept no
books of account. But that is not a sufficient legal avoidance of this condition.
* * * In this case the insured obligated himself to produce his books of
account and invoices, so that, in the event of a loss, the insurance company
might have before it some evidence of the amount of loss sustained by him.
This condition contracted by him to be observed wis a reasonable one, and a
failure on his part to comply therewith, without some excuse therefor, pre-
sented a sufficient defense by appellant, which it could only set up by way of
special plea. The plea of the appellant, therefore, which set up this defense,
was a proper one, and the demurrer to it should have been overrulsd." —
Niagara Ins. Co. v. Foxhand, 169 111. 626, 629, 630.
In Claflin v. Ins. Co., no U. S. 81, the policy required that in case of loss, the
assured should submit to an examination under oath by an agent of the insurer,
and that fraud or false swearing should forfeit the policy. It was held that
although the assured swore truthfully as to his actual loss, yet if he swore
falsely as to the persons from whom he had purchased the goods or the value of
those purchased from a certain house, even though the false swearing was with
no intent to deceive the defendant, but was for the purpose of deceiving other per-
sons, nevertheless the policy was forfeited thereby, for the question of assured's
insurable interest was in issue and these answers were material upon that point.
192 THE TERMS OF THE INSURANCE CONTRACT.
4. Safe Clause.
GEORGIA HOME INSURANCE CO. v. ALLEN.
119 Ala. 436. — 1S98.
In the policy upon which this action was brought the " iron safe
clause " was substantially that the assured covenanted and agreed
to keep a set of books showing a record of business transacted,
including all purchases and sales, both for cash and credit, together
with the last inventory in said business; to keep such inventory
securely locked in a fire-proof safe at night and at all times when
the store is not actually opened for business or in some secure place
not exposed to a fire which would destroy the house where said
business is carried on; and in case of loss the assured covenanted
and agreed to produce such books and inventory and in event of
failure to produce the same the policy was to be deemed null and
void.
Haralson, J. — * * * 6. It is well settled that an iron-safe
clause, such as the one contained in this policy which the insured
covenanted to keep, is a condition, the breach of which will avoid
the policy, but that it is one that may be waived, like any other
conditions. 3 Joyce, Ins., §§ 2063, 2064. The author, after refer-
ring to the authorities on the subject, concludes: " In a federal
case it is held, a substantial compliance is sufficient under the ' iron-
safe clause,' requiring a set of books and an inventory to be securely
locked in a fireproof safe at night and at all times when the store is
not actually open for business, or in some secure place, and that in
case of loss, assured will produce said books and inventory; such
a clause is a condition subsequent only, and a literal, exact fufiU-
ment is unnecessary. This decision certainly seems more in accord
with the actual intent of the parties, and with justice and reason of
the law, and with the tendency of the decisions, than a construction
requiring an exact and literal compliance." Joyce, Ins., § 2063;
Assurance Co. v. Redding, 15 C. C. A. 619, 68 Fed. 708.
It has come to be well settled, also, that conditions and duties of
the assured prescribed in a policy of insurance, should be liberally
construed in favor of the assured, but strictly against the insurer.
Insurance Co. v. Young, 58 Ala. 476; Tubb v. Insurance Co., 106 Ala.
651, 659, 17 South 615.
In seeming recognition of these principles, the defendant requested
the fourth instruction to the jury. The plaintiff's own evidence
showed, without conflict, that he had not made even a substantial
compliance with his covenants of the iron-safe clause of his policy.
He testified that he made entries of sales upon a pocket memoran-
TERMS OF THE FIRE INSURANCE CONTRACT. I93
dum book, and when he got time he would transfer these entries to
the blotter, and from the blotter to the ledger; that he made these
tranfers of entries once a week probably, and sometimes oftener;
that at the time, the four last days' sales had not been transferred
to the ledger, and he had lost his pocket memorandum, book, and
the blotter had been left on his desk the night of the fire, which he
sometimes did, and it had been destroyed by the fire; that the
blotter was the only book in which he made entries of goods bought
and sold on credit; that he made transfers from the blotter to the
ledger, sometimes once a day, sometimes in three days and some-
times not till the end of the week. He also swore that the blotter
showed the amount of the goods used out of the store by himself
and family for a part of the time, but that for the months of Sep-
tember, October and November, 1894, he made no entries in the
blotter or elsewhere of the goods or cash used out of the store by
himself and family, and the adjuster v/as left to calculation merely
as to these items omitted from the ledger. The object of the iron-
safe clause is to enable the insurer, in case of a fire, to arrive more
accurately than he otherwise would be able to do, at the exact
amount of the loss. We are unable, therefore, according to plaintiff's
own undisputed showing, to say that he complied substantially,
even, with the requirements of this covenant. This was sufificient
to defeat a recovery by him, unless the jury was satisfied from the
evidence, that the defendant or its agent, with full knowledge of
the forfeiture, waived it. This is all that the fifth instruction asked,
and it should have been given. * * * '
' " This clause, now almost universally introduced into policies of insurance
of merchandise kept for sale against loss by fire, has been of frequent consider-
ation by the courts, and most usually, it has not been subjected to any narrow-
ness or closeness of construction. Legal effect has been given it, for the
purpose of guarding the insurer against the fraud or imposition of the insured;
but ii. has received a fair, reasonable interpretation, so that it may not work
forfeitures, or defeat the claim of the innocent insured to the indemnity prom-
ised by the policy. Liverpool, etc., Ins. Co. v. Ellington, 94 Ga. 785; Western
Assurance Co. v. Reddinq, 68 Fed. Rep. 708; Standard Fire Ins. Co. v. Willock,
2g S. W. Rep. 218. In Liverpool Ins. Co. v. Ellington, stipra, it is said by the
court: ' Under the clause referred to, it was not indispensable that the books
kept should embrace what is usually termed a cash book, or that the books
should be kept on any particular system. It was sufficient if the books were
kept in such manner that, with the assistance of those who kept them or under-
stood the system on which they were kept, the amount of purchases and sales
could be ascertained, and cash transactions distinguished from those on credit.'
In Standard Ins. Co. v. Willock, supra, the court found a ' substantial compli-
ance ' with the requirements of the clause, and sustained a recovery against
the insurer." — Western Assur. Co. v. McGlathery, 115 Ala. 213, 223.
LAW OF INSURANCE — 1"^
194 mt: rEKMs of THt: insukancl: contract.
5. Akihtkation.
HAMILTON r. HOME INSURANCE CO.
137 U. S. 370 — 1S90.
Mr. Justice Gray. — This case resembles in some aspects that
of Hamilton v. Livcpool^ London ^s' Globe Ins. Co.., 136 U. S. 242,
decided at the last term, but is essentially different in important and
controlling elements. In that case, the effect of the provisions of
the policy, by reason of which it was held that the assured, having
refused to submit to the appraisal and award provided for, could
not maintain his action, was thus stated by the court: " The con-
ditions of the policy in suit clearly and unequivocally manifest the
intention and agreement of the parties to the contract of insurance
that any difference arising between them as to the amount of loss
or damage of the property insured shall be submitted, at the request
in writing of either party, to the appraisal of competent and impar-
tial persons, to be chosen as therein provided, whose award shall be
conclusive as to the amount of such loss or damage only, and shall
not determine the question of the liability of the company; that the
company shall have the right to take the whole or any part of the
property at its appraisal value so ascertained; and that until such
an appraisal shall have been permitted, and such an award obtained,
the loss shall not be payable, and no action shall lie against the
company. The appraisal, when requested in writing by either party,
is distinctly made a condition precedent to the payment of any loss
and to the maintenance of any action." 136 U. S. 254, 255. That
policy looked to a single appraisal and award, to be made as one
thing and by one board of appraisers or arbitrators, whenever any
difference should arise between the parties, and to be binding and
conclusive as to the amount of the loss, although not to determine
the question of the liability of the company; and the policy con-
" The contention of counsel for the insurer is, that having covenanted to keep
the books in a fireproof safe, and, in the event of the loss by fire of the properly
insured, thereafter, to produce them before the insurer, the insured was abso-
lutely bound to procure the books, and that no casualty can excuse any failure
10 comply with this condition 10 produce the books. * * * The words
' fireproof safe ' in this policy, in view of the situation of the small country
merchant, and his needs for and employment of an iron safe, can only mean
the usual fireproof safe used by the country generally — a safe composed of
incombustible materials, and fitted to protect, to the usual extent and in the
ordinary way, books and papers d;*posited therein, and not that rare and costly
structure (if, indeed, such there be), which is capable of successfully withstand-
ing the action of fire altogether, and of preserving its contents from harm abso-
lutely." — Sneed v. Co., 73 Miss. 279, 2S2, 283.
TERMS OF THE FIRE INSURANCE CONTRACT. 195
tained not only a provision that until such an appraisal the loss should
not be payable, but an express condition that no action upon the
policy should be sustainable in any court until after such an
award.
In the case now before us, on the other hand, the appraisal and
the award are distinct things and to take place at separate times,
and the effect assigned to each is quite different from that given to
the appraisal and award in the other policy. The " appraisal,"
without which the loss is not payable, is required to be made, not
merely when differences arise as to its amount, but in all cases, and
results in a mere " report in writing," which is not declared to be
binding upon the parties in any respect, and is in truth but a part
of the proofs of loss It is only by a separate and independent
provision, and when differences arise touching any loss " after proof
thereof has been received in due form," that the matter is required,
at the requi;st of either party, to be submitted to " arbitrators,
whose award in writing shall be binding on the parties as to the
amount of such loss, but shall not decide the liability of th'is com-
pany under the policy; " and there is no provision whatever post-
poning the right to sue until after an award.
The special defenses set up, with some tautology and surplusage,
in the answer, reduce themselves, when scrutinized, to a single one,
the plaintiff's refusal to submit to an award of arbitrators, as pro-
vided in the policy. This appears by the general frame of the
answer, and by its speaking of the award as "an arbitration and
the ascertainment of the said loss thereby " and as " an appraise-
ment by arbitrators," as well as by the distinct averment that
the defendant requested and the plaintiff declined a submission
to arbitration, and by the omission of any specific allegation that
the plaintiff neglected to procure a report of appraisers. The evi-
dence introduced at the trial was to the same effect. Proofs of loss,
sent by the plaintiff to the defendant, with a request that any defects
in substance or form might be pointed out so that he might perfect
the proofs to the defendant's satisfaction, were received by the
defendant, without then or afterwards objecting to their form or
sufficiency. The subsequent correspondence between the parties
was evidentl}' influenced in form by embracing insurances in differ-
ent companies under policies with various provisions; but, as
applied to the policy in suit, it manifestly related, and was under-
stood by both parties to relate, not to a mere report of appraisers,
but to an award of arbitrators which should bind both parties as to
the amount of the loss. The instruction to the jury, therefore, that
on the issues joined on the special defenses in the answer, and upoa
196 THE TERMS OF THE INSURANCE CONTRACT.
the evidence in the case, the plaintiff could not recover, was in
effect a ruling that the plaintiff could not maintain his action because
he had refused to submit the amount of his loss to arbitration.
A provision, in a contract for the payment of money upon a con-
tingency, that the amount to be paid shall be submitted to arbi-
trators, whose award shall be final as to that amount, but shall not
determine the general question of liability, is undoubtedly valid.
If the contract further provides that no action upon it shall be
maintained until after such an award, then, as was adjudged in
Hamilton v. Liverpool, London er" Globe Lns. Co., above cited, and
in many cases therein referred to, the award is a condition precedent
to the right of action. But when no such condition is expressed in
the contract, or necessarily to be implied from its terms, it is
equally well settled that the agreement for submitting the amount
for arbitration is collateral and independent; and that a breach of
this agreement, while it will support a separate action, cannot be
pleaded in bar to an action on the principal contract. Roper v.
Lendon, i El. & El. 825; Collins v. Locke, 4 App. Cas. 674; Daiuson
v. Fitzgerald, i Ex. D. 257; Reed v. Washington Ins. Co., 138 Mass.
572; Seivard v. Rochester, 109 N. Y. 164; Birmingham Ins. Co. v.
Pulver, 126 Illinois, 329, 338; Crossley v. Connecticut Ins. Co., 27
Fed. Rep. 30. The rule of law upon the subject was well stated in
Dawson v. Fitzgerald, by Sir George Jessel, Master of the Rolls, who
said: "There are two cases where such a plea as the present is
successful: first, where the action can only be brought for the sum
named by the arbitrator; secondly, where it is agreed that no action
shall be brought till there has been an arbitration, or that arbitra-
tion shall be a condition precedent to the right of action. In all
other cases where there is, first, a covenant to pay, and, secondly,
a covenant to refer, the covenants are distinct and collateral, and
the plaintiff may sue on the first, leaving the defendant " " to bring
an action for not referring," or (under a modern English statute)
" to stay the action till there has been an arbitration." i Ex. D.
260. Applying this test, it is (juite clear that the separate and
independent provision, in the policy now before us, for submitting
to arbitration the amount of the loss, is a distinct and collateral
agreement, and was wrongly held by the Circuit Court to bar this
action.
Judgment reversed, and case remanded, with directions to set
aside the verdict, and to take such further proceedings as may be
consistent with this opinion.'
' See also Reed v. Ins. Co., 13S Mass. 572.
TERMS OF THE FIRE INSURANCE CONTRACT. I97
Marshall, J., in FOX v. MASONS' FRATERNAL ACCIDENT
ASSOCIATION.
96 Wis. 390. 394. — 1897.
Counsel for the appellant claim that the learned circuit judge
erred in not nonsuiting the plaintiff, because the contract of insur-
ance prohibits any suit other than to enforce payment of an award
of arbitrators, except upon the refusal of the association to arbi-
trate. The contract was clearly so worded as to require all ques-
tions between the association and the assured to be, at its option,
settled by arbitration, and to thereby wholly oust the court of juris-
diction over every part of the subject of liability, and the amount
thereof as well. On grounds of public policy, all agreements
between parties to submit the whole subject-matter of their differ-
ences to arbitration, wholly stipulating away the rights of each or
either party to resort to the tribunals created by the law of the land
for a determination of such differences, are ^'oid, and have been
uniformly so held. Hamilton v. Insurance Co., 136 U. S. 242, 10 Sup.
Ct. 945; May, Ins., § 492; Leach v. Insurance Co.., 58 N. H. 245.
Agreements to arbitrate special matters, such as, under an insur-
ance policy, the amount of the loss, something that does not go to
the whole groundwork of the controversy, have been as universally
sustained. Viney v. Bignold, 20 Q. B. Div. 172; Scott v. Avery, 5 H.
L. Cas. 811; Delaware &= H. Canal Co. v. Pennsylvania Coal Co., 50
N. Y. 250; Reedv. Insurance Co., 138 Mass. 572; Wolff m. Insurance
Co., 50 N. J. Law, 453, 14 Atl. 561; Hall \. Insurance Co., 57 Conn.
105, 17 Atl. 356.' It is not here contended, as we understand it,
that the contract in question belongs to the first class, or that a
general provision requiring the whole subject of a controversy to
be submitted to arbitration can ordinarily be sustained, but it is
contended that such contract is of a class which fo^ms an exception
to the general rule, because, as said by counsel for appellant, the
association is purely a mutual company; that its contracts are
between certificate holders; and that any inexpensive method they
may see fit to adopt to settle their differences should be upheld. No
' Coiiij a : In Nebraska a provision in a policy that no action shall be sus-
tained until after an award by arbitration fixing the amount due after the loss,
is void, as having the effect of ousting the courts of their jurisdic'ion. — Nat.
Masonic Accident Assoc, v. Burr, 44 Neb. 256; Ins. Co. v. Bachler, lb. 549.
In those states where a valued policy is required by statute, the provision in
the policy for arbitration does not apply in case of a total loss, except it may be
to ascertain the value of the debris. The provisions of the statute override the
arbitration clause to that extent. — German Ins. Co. v. Eddy, 36 Neb. 461.
198 THE TERMS OF llIK I.\>UKA.\Ch COMRACT.
authority is brought to our attention to supjjort sucli contention,
and we may safely say that none exists, and that there is no reason-
able theory upon which it can rest. There is no exception to the
rule that parties cannot wholly deprive themselves, by contract, of
the right to resort to the courts of the country to settle controver-
sies between them; hence it necessarily follows that the ruling of
the trial court that the arbitration clause in the certificate under
consideration was void at the election of either of the parties must
be sustained.'
6. Pro-rating and Contribution.
LUCAS 7'. JEFFERSON INSURANCE CO.'
6 CowEN, 635. — 1827.
Assumpsit on a policy of insurance.
The defendants, by a policy dated August 23d, 1824, insured the
plaintiff against loss by fire to the amount of $4,000, on certain cot-
ton and woolen machinery, at Mechanicville, Saratoga county.
The Chatham and ALtna Fire Insurance Com[)anies, also insured the
plaintiff on the same property; the iormer to $5,500, the latter
$6,000. A loss had been sustained by fire. The evidence on the
part of the plaintiff, made the amount about $20,000; and that on
the part of the defendants, between nine and ten thousand dollars.
The policy under-written by the defendants, contained the following
clause: " In case of any other insurance upon the property hereby
insured, whether prior or subsequent to the date of this policy, the
' In Robinson v. Templar Lodoe, 117 Cal. 370, the constitution of the defendant
mutual benefit society provided that with respect to payments of assessments or
benefits " all questions whether of law or fact * * * appertain to the sole
jurisdiction of this lodge and authorities of this order, and their decision in the
premises shall be binding * * * /' The court said (p. 375): " The society
has many of the features of an organized charity, and it has been said that the
claim for a sick benefit is not a property right. In short, the rules of law have
not been applied to these institutions with the same strictness with which they
have been applied to corporations organized for profit. In an ordinary case I
should be loth to hold that one can effectually waive his right to sue in a court
of law before his action has arisen, or that he can in advance agree to an arbi-
tration, but it has been so held with reference to these mutual benefit societies,
and, with reference to them, I think the regulation reasonable. Rood v. Rail-
W1V fti^., Assn., 31 Fed. Rep. 62; Van Poncke v. Nctlierland, etc., Sor., 63 Mich
378; Canfields. Great Cajnp, etc., 87 Mich. 626, 24 Am. St. Rep. 1S6. But even
if this view were not correct there ran be no doubt of the proposition that he
must first exhaust all the remedies afforded within the order before he can main-
tain an action at law. No such fact is averred in the complaint, and, as I
TERMS OF THE FIRE INSURANCE CONTRACT. I99
insured shall not, in case of loss or damage, be entitled to demand
or recover on this policy, any greater portion of the loss or damage
sustained, than the amount insured shall bear to the whole amount
insured on said property." The Chatham and /Etna companies had
each paid the amount of their insurance, deducting one-sixth,
making together $9,583.34. These were voluntary payments with-
out suit, by arrangement between the parties. The judge charged
the jury, that in ascertaining the amount to be recovered, they
were not to take into consideration the payments made to the plain-
tiffs by other insurance companies, provided those companies were
aware of the existence of all the policies on the property at the time
they paid the plaintiff for his loss; and made the settlement solely
with the view of discharging the claim of the plaintiff against them-
selves. And that if the value of the property insured, and the
amount of the loss by fire, were equal to all the sums insured by the
different underwriters, the verdict, if the jury should think the plain-
tiff entitled to recover, ought to be for the face of the policy, with
interest. But if the value of the property insured, and the loss by
fire, were less than the aggregate amount of the sums insured by
the different underwriters, the verdict ought to be only for such a
proportion of the loss or damage sustained by the plaintiff, as the
amount insured by the defendants bore to the whole amount
insured. To this charge, the defendants excepted; the judge sealed
a bill of exceptions; on which the defendants now move for a new
trial.
Curia^ per Woodworth, J. — No objection was raised on the
argument, as to the finding of the jury; nor can this be questioned
on a bill of exceptions. It was contended that the charge of the
understand the record, although previous application had been made for bene-
fits which had accrued before the time during which the benefits here sued for
accrued, there is no evidence which tended to show that any application at all
had been made to the lodge for the amounts here sued for. The authorities all
seem to hold that this resource must be first exhausted. They are too numer-
ous to admit of full citation. In this state the following cases so hold: Levy
V. Ma^tiolia Lodge, no Cal. 297; Robinson v. Irish, etc., Soc, 67 Cal. 135. I can
discover no support whatever for a contrary opinion in Robinson v. Templar
Lodge, 97 Cal. 62."
In Raymond V. Farmers' Mut. Fire Ins. Co., \l\ Mich. 386, a by-law provided
that " any and all differences " were to be settled by arbitrators, and the court
held that such a provision was not against public policy as ousting the jurisdic-
tion of the courts, the court saying: " By the terms of the contract, this claim
has not become due and could not unless a sum should be awarded by the arbi-
trators." The same court had previously applied this doctrine to mutual benefit
societies providing sick and death benefits. — Fillmore \ . Knights, etc., 103
Mich. 437.
200 THE TERMS OF THE INSURANCE CONTRACT.
judge was erroneous, on the ground that the defendants were
entitled to the benefit of the payments made by the other compa-
nies; and that, inasmuch as the whole of the loss sustained had been
already paid, the defendants were entitled to a verdict. It is well
settled, that upon a double insurance, though the insured is not
entitled to two satisfactions, yet in the first action, he may recover
the whole sum insured, leaving the defendant to recover a ratable
satisfaction from the other insurers (i Bl. Rep. 416.) In such
cases, the two policies are considered as making but one insurance.
They are good to the extent of the value of the effects put in risk.
The insured may sue the underwriters on both policies; but he can
only recover the real amount of his loss, to which all the under-
writers shall contribute in proportion to their several subscriptions.
Marsh, on In. B. i, ch. 4, § 4, p. 116, or Condy's Ed., p. 146.
In the case before us, it is said, that the clause in the policv, as
to prior and subsequent insurances, differs essentially from tb.e like
clause in marine policies. I have looked at some of the printed
forms of policies against fire, in the books, but have not discovered
any such clause. There is no direct evidence, to show that the
policies made by the Chatham and .-Etna offices were similar to this.
Whether they are or not, the parties in this action must be governed
by the contract they have made. That is express. Suppose the
plaintiff had not received anything from the other offices; could he
recover the whole amount of the defendants' subscription, provided
his loss was equal to the amount? In a policy not containing the
clause referred to, the plaintiff would be entitled to recover the sum
insured, leaving the defendants to seek contribution from other
insurers. Here there is a stipulation against that course, in very
explicit language: " The insured shall not, in case of loss or dam-
age, be entitled to demand or recover on this policy, any greater por-
tion of the loss or damage sustained, than the amount insured bears
to the whole amount insured on the property. " The defendants did
not intend to be liable for the whole of their subscription in the
first instance, and then seek indemnity by way of contribution. If,
notwithstanding this clause, the defendants should voluntarily pay
the whole amount of their subscription, towards the plaintiff's loss,
I do not perceive on what ground they could claim contribution.
The answer to such a claim would be, that they paid in their own
wrong; and volenti non Jit injuria. If there is redress, it must be
against the party who received more than he was entitled to demand.
The principle of contribution can only be enforced where the party
paying was under a legal obligation to pay. If the policies of the
Chatham and ^"Etna companies are similar to this, the defendants
TERMS OF THE FIRE INSURANCE CONTRACT. 201
have no concern with the amount paid by them. In that case, they
acted for themselves; and if they have paid more than the plaintiff
could by law recover, it was done voluntarily. In the present case,
the amount of the plaintiff's loss is controverted. He claims much
more than the defendants are willing to admit. The weight of evi-
dence on this point may be contended for by the defendants; but
sti 1, it is a disputable fact. The Chatham and ^'Etna offices may
have chosen to pay on the exhibition of the plaintiff's proof, in
p.eference to a protracted litigation. They may have erroneously
considered the damages much greater than they really were. They
acted voluntarily, and for themselves. This was submitted to the
jury, and they have passed upon it. The act of settling for them-
selves, raises a presumption that the different policies were alike;
and that no claim for contribution was contemplated as against
each other.
On the supposition that the policies of the Chatham and .^tna
companies did not contain the clause in question, the plaintiff might
recover the amount of their subscriptions, if necessary to satisfy his
loss; and in such case, I apprehend, it would be competent for the
defendants to show the plaintiff had received satisfaction. As
indemnity can only be claimed, there is no right of action after it is
obtained. If the policies of the Chatham and Aitna. offices were such
as to entitle the plaintiff to recover of them all of their subscription,
if requisite to pay his loss, then their right to contribution against
the defendants would be undoubted. The clause in the defendants'
policy would not affect that question; but would apply, when they
should be prosecuted by the plaintiff, so as to protect them against
his claim beyond a ratable proportion of the loss. If the loss has
been already recovered, and paid, the claim for a ratable proportion is
necessarily extinguished. The Chatham and ^tna offices incurred
no risk in making payment, provided the clause is not in their poli-
cies; because it is conceded by the defendants that the loss was at
least equal to those payments. On this principle, the defendants
are liable to contribute a portion to those companies. If the
amount received was to be taken into consideration on the trial, the
duty of the jury would have been to ascertain the whole amount of
loss; and if it exceeded the sums paid, then, after deducting the
payment, to find a verdict against the defendants for the balance,
provided it did not exceed the proportion of the whole loss, which,
according to the contract, the defendants ought to bear; and if the
amount of the loss remaining unsatisfied was less than such ratable
share of the whole loss, then the verdict should have been for such
balance. In the action for contribution, an adjustment would be
202 THE TERMS OF THE INSURANCE CONTRACT.
made between the parties on these principles. In the view thus
taken, I think that part of the judge's charge incorrect, which
directed the jury not to take into consideration the payments made
to the plaintiff, by the other insurance companies, provided those
companies were aware of the existence of all the policies on the
property at the time; and made the settlement solely with a view of
discharging the plaintiff's claim against themselves. If the Chat-
ham and .-Etna companies were liable to the amount of their sub-
scri|nions, which I apprehend they were, unless protected by a
clause, like that in the defendant's policy, their knowledge of other
policies was immaterial. Whether they had knowledge or not, the
plaintiff was entitled to recover against them; and if so, they had a
remedy over against the other insurers. Neither can the fact that
they settled to discharge the claim solely against themselves, defeat
such remedy over if it appears they have not paid more than the
loss sustained. Suppose those companies had settled under a belief
that their proportion of the loss would be equal to the amount paid;
and therefore did not, at the time, contemplate a recovery against
others for a portion of it. This would not invalidate their right to
claim contribution, when it is shown that they had paid more than
their relative proportion. In this point of view, the charge was
calculated to produce a result unfavorable to the defendants. The
verdict was for the plaintiff; for how much does not appear; prob-
ably for the whole sum insured. A new trial should be granted if
the Chatham and /Etna companies were legally bound to pay what
the plaintiff received. But if those policies were like the one in
question, the defendants can derive no benefit from the payments
made. They should be put out of vi-e-w on this trial; and if so, that
part of the charge on which I have commented was incorrect as
respects the plaintiff. The defendants have no cause to complain.
It was allowing them the benefit of the payments, if the jury were
satisfied of certain facts submitted to them; whereas, they should
have been instructed not to regard the payments, if the policies
subscribed by those companies bound them only to pay, in the first
instance, a ratable proportion of the loss.
The question then is, what was the form of the Chatham and
^Eltna policies? Neither party has adduced any express testimony
to this fact. On whom devolved the necessity of showing what
those policies contained? Certainly not the plaintiff. His case was
made out without this. He claims of the defendants the proportion
they are bound to pay under their policy for the whole loss. They
contend it has been paid by other companies. But to make that
defense available, it must be shown either that the companies paid
TERMS OF THE FIRE INSURANCE CONTRACT- 203
in fact a s.um of money which was received in full satisfaction of all
the insurances; or that the amount paid by them was in pursuance
of a policy which authorized such payment. The first is not pre-
tended As to the second, the court is left to conjecture. It is a
fact on which the defense rests. There is no safificient ground for
presumption that those policies did not contain the clause in ques-
tion. The defendants' policy contains it. Some of the forms in
the books do not. We cannot assume the fact that the policies
differed from the one in this case. I think it may rather be pre-
sumed they are alike. The settlement made between the plaintiff
and the companies strengthens the presumption. They each
deducted one-six^h. They certainly had no right to make that
deduction if the loss exceeded the sums insured by them. The
plaintiff claimed considerably more. It is not probable the plaintiff
would have consented to a deduction of one-sixth, if the policies
were so drawn as to allow him to recover the whole sum insured.
Be this, however, as it may, I think the defendants ought t3 have
shown the other policies were different, in order to avail themseh'es
of the payments. The remainder of the charge is correct. If the
loss was equal to all the sums insured, the plaintiff was entitled to
the face of the policy. If less, to a proportion only. Whether the
jury have found too much, or too little, is not before us. The
motion for a new trial must be denied.
New trial denied.'
7. Option to Rebuild.
RuGER, C. J., IN WYNKOOP r. NIACxARA INSURANCE CO.
91 N. Y. 478. — 1S83.
The evidence showed that the house of the insured was struck
by lightning on the 3d day of June, 1876, and tended to show that
it was seriously injured. The defendant soon thereafter, under the
option clause of the policy, elected to repair the injury and restore
the house to its former condition. A carpenter was employed by
' When the property was insured independently by the mortgagee, the oivner
of the ground rents, and the lessee, and a loss having occurred, one of the
insurers of the lessee replaced the property, it was held that the insurer replac-
ing the properly, though entitled to contribution from its co-insurers of the
same interest could noi resort to the insurers of the other interests; that to
invoke conlribution the insurance must be for the same person, upon the same
subject-matter, and against the same risks. — Conn. Fire Ins. Co. v. Ins. Co , 15
Ins. Law Jour. 615 (Va. Sup. Ct.. Apr., 1886; not officially reported). See also
North Brit, and Mer. Ins. Co. v. Ins. Co., 5 Ch. D. 569.
204 THK TERMS OF THE INSURANCE CONTRACT.
it to make the re])airs, and after about one day's labor the defend-
ant informed the insured that it had completed the restoration;
some time afterwards a mason was also emplo3'ed to do work on the
house and the insured was again informed that the repairs were
finished. The insured always claimed that the repairs were insuffi-
cient, but declined to point out wherein the insufficiency consisted.
After such attempted repairs were declared finished, and about the
26th day of August, 1876, the plaintiff's intestate duly made out
and served proof of loss upon the defendant. * * *
The rights of the parties rested altogether in contract, and the
defendant assumed the responsibility of performing it according to
its terms, subject to the right of the insured to damages for any
breach of performance. The defendant in case of liability arising
against it upon its contract had an option as to the manner in which
it would discharge such liability. One mode looked to the com-
pensation of the insured by the payment of damages for his loss,
and the other to the restoration of the subject of insurance to its
former condition. It could not have been contemplated by the
parties that both methods of performance were to be pursued. The
selection by the defendant of one of these alternatives necessarily
constituted an abandonment of the other. The election of the priv-
ilege of restoration involved the rejection not only of the right to
discharge its liability by the payment of damages to the insured,
but also of those provisions of the contract having reference to that
method of performance. From the time of such election the con-
tract between the parties became an undertaking on the part of the
defendant to build or repair the subject insured and to restore it to
its former condition, and the measure of damages for a breach of
the substituted contract did not necessarily depend upon the
amount of damages inflicted upon the house by the peril insured
against. Those views have frequently been expressed by this court.
In Morrell v. Irving Fire Ins. Co., 33 N. Y. 429, the company had
availed itself of its option to restore the premises injured. Denio,
J., said: " The contract then became one for rebuilding, and the
obligation which looked to the payment of money became obsolete
and inapplicable, and the case then became the same which it would
have been if the contract had obliged the defendant simply to
rebuild in case of loss." To similar effect are the cases of Beals v.
The Home Ins. Co., 36 N. Y. 522; Hcilniann v. Westchester F. Ins.
Co., 75 Id. 9. * * *'
' There is no option to the insurer to indemnify by rebuilding or repairing
unless the policy so provides. — IVattaci- v. Co., 4 La. 289.
TERMS OF THE FIRE INSURANCE CONTRACT. 20$
8. Divisibility of Loss.
McGOWAN V. PEOPLE'S MUTUAL FIRE INSURANCE C(J>.
54 Vt. 211. — i88i.
Taft, J. — The policy in question contained the following pro-
vision: " Whenever any one hereinafter insured shall alienate con-
ditionally, by mortgage, his policy shall be void, unless he shall
make a representation thereof in writing to the secretary, stating
the amount, and to whom mortgaged, and the cash value of lands
and buildings separately, and when approved by a director, the
secretary shall enter a minute thereof on the record of said policy
and forward to the insured a certificate thereof."
The assured mortgaged the real estate covered by the policy on
the 24th day of July, 1878; the property was destroyed by fire on
the i8th day of the following month; notice of the mortgage was
given to the secretary on the 12th day of September afterwards —
fifty days after its execution, and twenty-five days after the fire.
The orator contends that he was entitled to a reasonable time to
represent the mortgage to the company. He delayed for twenty-
five days and until the destruction of the property. He could have
communicated with the secretary daily. There is much good sense
in saying that upon the execution of the mortgage the policy was
void, as though the contract had read " tintil he shall make a repre-
sentation," etc., instead of " unless he shall make," etc. But con-
struing the clause most favorably to the assured, and giving it the
construction contended for, we think the delay of twenty-five days,
when he could have communicated with the company daily, an
unreasonable one. * * * 'phe policy therefore, by reason of
the execution of the mortgage by the orator, became void; but the
orator claims that it was valid as to the personal property, situated
in the dwelling-house, which was the first item insured by the policy.
This is a question of great practical importance, as a large pro-
portion of insurance contracts embrace more than one item of prop-
erty insured. The decisions are apparently conflicting; but we
think are easily reconciled by referring to the plain principles
which should govern them. The general rule, " void in part void
in toto,'' should apply to all cases where the contract is affected by
some all-pervading vice, such as fraud, or some unlawful act, con-
demned by public policy or the common law; cases where the con-
tract is entire and not divisible; and all those cases where the
matter that renders the policy void in part, and the result of its
being so rendered void, affects the risk of the insurer upon the
other items in the contract. Keeping these rules in mind, the lead-
200 THK TERMS OF THE INSURAN'CE CONTRACT.
ing cases upon this subject can all be reconciled. A recovery should
be had in all these cases where the contract is divibible; the different
properties insured for separate sums; and the risk upon the prop-
erty, which is claimed to be valid, unaffected by the cause that
renders the policy void in part. Such are the cases of Howard-^.
Corniik ct a/., 24 111. 455; Hartford Fire Ins. Co. v. U'a/s/i, 54 III.
164; Clark V. New Eng. M. F. Ins. Co., 6 Cush. 324; Ua/e v. Gore
District M. F. Ins. Co., 14 Up. Can. C. P. 548; Pha-nix Ins. Co. v.
Laiurcnce ft a/., .\ Met. (Ky.) 9; lochner v. Howe M. Ins. Co., 17
M). 247; Koontz V. Hannibal S. <s' I. Co., 42 Mo. 126; Cucullu v.
Orleans Ins. Co., 18 Mar. (La.) 11. In French v. Chenango M. Fire
Ins. Co., 7 Hill, 122, the policy covered a building and its contents,
and was held void as to the former by omitting to state the existence
of a plough shop within ten rods of the property insured; but valid
as to the contents. Upon what principle a policy could be held
void in part and valid in part, for a misdescription of adjacent
buildings, affecting the various items of the risk in equal degree,
we are unable to determine. The case was substantially overruled
by Wilson v. Herkimer Co. M. Ins. Co., 6 N. Y. 53.
The cases following have held the contracts entire, indivisible,
and no recovery could be had upon them. Hinman v. Hartford
Fire Ins. Co., 36 Wis. 159; Associated F. Ins. Co. v. Assam, 5 Md.
165, Bowman v. Franklin Ins. Co., 40 Md. 620; Fire Association v.
Williamson, 26 Penn. St. 196; Gottsman v. The Penn. Ins. Co., 56
Penn. St. 210; Bleakley v. Niagara D. M. Ins. Co., 16 Grant's Ch.
Rep. U. C. 198.
In t!ie case at bar the whole property was insured for eight hun-
dred and seventy-two dollars, divided into specific items, but one
premium was paid, and one premium note given. We think the
authorities justify us in holding that the contract was an entire one;
separate and distinct only so far as to limit the extent of the risk
assumed by the company on each kind of property. The cost of
the insurance was to be assessed upon the premium note, and the
company had a lien upon the buildings insured, as security for the
payment of any assessment which might be made upon the note.
The encumbrance upon the buildings affected the security the com-
pany held for the payment of assessments which might be laid upon
the note; thus the risk upon the personal property was affected by
the cause which rendered the policy void as to the real estate. We
think for these two reasons that the whole policy was void. Fries-
muth V. Agawam M. F. Ins. Co., 10 Cush. 587; Brown v. People's
M. Ins. Co., II lb. 280; Lovejoy v. Augusta M. F. Ins. Co., 45 Me.
472; Gould V. York Co. M. F. Ins. Co., 47 Me. 403; Day v. Charter
TERMS OF THE FIRE INSURANCE CONTRACT. 20/
Oak F. 6^ J/. Ins. Co., ^\ Me. 91 ; Barnes v. Union M. F. Ins. Co..,
lb. no.
The views expressed render it unnecessary to pass upon the ques-
tions in the case as to proofs of loss, fraud, and false swearing. The
pro forma decree of the Court of Chancery is reversed, and cause
remanded with the mandate that the bill be dismissed.
Veazey, J., did not sit, having heard the case on demurrer."
9. Valued Policies.
INSURANCE CO. v. BUTLER.
3S Ohio St. 128. — 1882.
A FIRE insurance policy was issued to plaintiff for $800 on her
dwelling house and $400 on her barn, by which the company agreed
" to make good unto the said assured, * * * all such loss or
damage, not exceeding in amount the several sums insured," etc.
The application, made a part of the policy, contained are presenta-
tion that " the above description and diagram contains a full and
accurate description of the buildings and property insured, and the
insurance on the buildings does not exceed two-thirds their actual
cash value." The dwelling was totally destroyed by fire.
McIlvaine, J. — Whether the policy of insurance in this suit is
valued or open, is the sole question in this case.
A policy of insurance is essentially a contract for indemnity in
case of loss. Wager policies are contrary to public policy. The
insured must have an interest in the subject of the insurance — an
interest in its preservation. In case of loss, his contract rightfully
entitles him to compensation — nothing more. The reason upon
which this principle rests, is the prevention of fraud and crime, by
removing all inducement and temptation to commit them, which
would naturally arise from the great disparity between the consider-
ation paid and the indemnity received by the insured. This dis-
parity, however, does not amount to inadequacy or even a suspicion
of fraud ; because of the supposed remoteness of the contingency of
loss; nevertheless its existence requires the utmost good faith on
the part of the insured. While these considerations do not, in the
'See also Loomis v. Ins. Co., 77 Wis. 87; McQtieeny v. Ins. Co., 52 Ark. 257.
" Whatever the rule may be elsewhere, it is settled in this state that where
insuratice is made on different kinds of property, each separately valued, the
contract is severable, even if but one premium is paid and the amount insured
is the sum total of the valuations." — Pratt v. Ins. Co., 130 N. Y. 206, 221.
208 THE TERMS OF THE INSURANCE CONTRACT.
least, exempt the insurer from liability on his contract, they do
show that in the absence of a contract to the contrary, the amount
of recovery on a policy of insurance should be limited to the actual
loss sustained by the assured on account of the risk against which
the policy was taken. In other words, a policy of insurance must
be regarded as an open one, unless it appears to have been the
intention of the parties to the policy, upon a fair and reasonable
construction of its terms, to value the loss, and thereby fix, by con-
tract, the amount of recovery.
Mr. Wood, in his treatise on fire insurance, § 41, says: " Valued
policies are those in which both the property insured and the loss
are valued, and which bind the insurer to pay the whole sum insured,
in case of total loss. They may be said to be policies in which the
insurer himself, at the time of making the policy, assesses the dam
ages in case of total loss, unless fraud, inducing an over- valuation on
the part of assured, is established." And further along in the same
section he says: " If there is anything in the policy that clearly
indicates an intention on the part of the insurer to value the risk
and the loss, in whatever words expressed, the policy is valued,
otherwise it is open." Again, " No particular form of expression
is necessary; the intention of the parties, gathered from the whole
instrument, must determine the matter." Fuller x. Boston, etc., Ins.
Co., 18 Pick. 523.
It has been decided that a policy of a company whose charter
limited its liability to a certain proportion of the actual value of the
property insured, which refers to the value of the property as stated
m the application of the insured, is a valued policy. 10 Gushing,
551. Other cases go so far as to hold, generally, that a policy which
refers to the valuation of the property as it appears in the applica-
tion which is made a part of the policy, is a valued one. i Allen,
63; 100 Mass. 475.
Without expressing an opinion as to the soundness of such con-
struction when nothing further appears in the policy, we are satisfied
that the policy before us, which contains the further stipulation,
that " said Farmers' Insurance Company hereby agrees to make
good unto the said assured, his heirs, executors, administrators, or
assigns, all such loss or damage not exceeding in amount the several
sums insured, as shall happen by fire or lightning to any of the
aforesaid property, from the 28th day of March, 1873, at 12 o'clock
at noon, to the 28th day of March, 1878, at 12 o'clock at noon,
and to be paid ninety days after due notice and proofs of the
same bhall have been made by the assured and received at this
office, with the terms and provisions of this policy," shows that it
TERMS OF THE FIRE INSURANCE CONTRACT. 209
was not intended by the insurer to make the sum assured the
measure or value of the damages, although the loss might be total.
Proofs of loss or damage here required as a condition precedent to
the payment, refer to cases of total as well as partial losses. The
amount of liability on the policy was thus left open to inquiry,
limited, however, by the amount of insurance named in the policy.
The Court of Common Pleas, therefore, erred in rejecting testi-
mony offered by the defendant below as to the amount of actual
loss. And the District Court erred in affirming the judgment of
the Common Pleas.
Judgments reversed and cause remanded.'
OSHKOSH GAS LIGHT CO. v. GERMANIA FIRE
INSURANCE CO.
71 Wis. 454. — i838.
February, 8, 1885, the defendant issued to the plaintiffs its pol-
icy of insurance, whereby it insured the plaintiffs against loss by
fire to the amount of $750 in several sums, upon six separate pieces
of property, some of which were real estate, and some personal
property, including " $180 on the frame storehouse building and
shed adjoining, including scales." By the terms of the policy,
"$15,000 concurrent insurance" was "permitted," in the aggre-
gate, on the whole property covered by the policy. " There was
other insurance upon this property, amounting, in the aggregate, to
' See also Cushman v. Ins. Co., 34 Me. 487,.
In Har7-is v. Eagle Fire Co., 5 Johns. 368, the policy insured " 380 kegs of
manufactured tobacco, worth g,6oo dollars." Of Ihis tobacco, 157 kegs were
totally destroyed by fire. The court said: " The case states, that among the
articles insured there were 380 kegs manufactured tobacco, worth 9,600 dollars;
this was the rate at which the tobacco was estimated, in making up the 20,000
dollars, the an:ount of the insurance. The premium was paid according to this
valuation; and the 157 kegs which were lost, are expressly stated to be of the
same kind and quality as the whole 380 kegs. We have, therefore, an infallible
rule by which to estimate the several and distinct value of each keg of tobacco.
But it was said on the argument, that admitting this to be a valued policy, it
would make no difference, for it was only in case of a total loss, that there was
any distinction between an open and a valued policy; that in case of a partial
loss, the like inquiry into the true amount of such loss is to be made, whether
the policy be of the one sort or the other. This is undoubtedly true, when
ascertaining the extent of damage which the particular subject has sustained,
and when there was not an absolute destruction of the subject. But where
there is an actual loss of any article, distinctly valued in the policy, that valu-
ation, I apprehend, must govern all cases."
LAW OF INSURANXE I4
2IO THE TERMS OF THE INSURANCE CONTRACT.
$11,250." December 18, 1885. a fi-e occurred, as shown by the
evidence and found by the jury, wholly destroying " the frame store-
house building and shed adjoining, as well as the scales, and also
damaged slightly some of the other property." The aggregate
amount of insurance upon the property so destroyed at the time of
the fire was $2,700, in seven different companies, including the
defendant company, which carried one-fifth of the risk thereon.
The nature of the defense will appear from the opinion. On the
trial, August 18, 1887, the jury returned a verdict of $220.63. From
the judgment entered thereon the defendant appeals.
Cassoday, J. — I. Upon the verdict of the jury it must be
assumed that the building mentioned was wholly destroyed by the
fire. At the time of such destruction it was insured in seven
different companies, in the aggregate $2,700, one-fifteenth of which
was in the defendant company. The evidence tended to show that
the value of the building at the time of the fire was about $1,200.
The defendant concedes that, if it is liable at all, it should pay its pro-
portionate share of the true value of the building, but insists that it
is not bound to pay the amount specified in the policy. The contract
of insurance was made under a statute which declared that " when-
ever any policy of insurance shall be written to insure any real
property, and the property insured shall be wholly destroyed with-
out criminal fault on the part of the insured or his assigns, the
amount of the insurance written in such policy shall be taken con-
clusively to be the true value of the property when insured, and the
true amount of loss and measure of damages when destroyed."
§ 1943, R. S. Under this statute it is settled by frequent adjudi-
cations that the actual value of such real estate when insured or
destroyed, and the consequent actual loss to the insured, is wholly
immaterial. Reilly v. Franklin Ins. Co., 43 Wis. 449; Thompson v.
Citizens' Ins. Co., 45 Wis. 388; Cayon v. D-icelling House Ins. Co., 68
Wis. 515, 516. This is the necessary result of the language of the
statute making " the amount of the insurance written in such policy "
conclusive between the parties to the contract, not only as to " the
true value of the property 7iihcn insured," but also as to " the true
amount of loss and measure of damages when destroyed."
The statute must be regarded as a part of the contract of insur-
ance, and the amount written in the policy as liquidated damages
agreed upon by the parties conclusively in such contract. The sev-
eral concurrent policies were each written with the consent of the
respective companies. This being so, the aggregate amount of such
insurance written in the several policies is the value of such property
as stipulated in each contract, and hence, as between the parties,
TERMS OF THE FIRE INSURANCE CONTRACT. 211
must be regarded as conclusive, not only as to " the true value of
the property when insured," but also as to " the true amount of loss
and measure of damages when destroyed." This must be so, or
the statute would be wholly ineffectual whenever there is more than
one policy on the same property. And this is so notwithstanding
other clauses in the policies inconsistent therewith.'
The result is that the exceptions to such portions of the charge
as, in effect, directed the jury that in case they found the build-
ing to have been wholly destroyed, then the plaintiffs were
entitled to recover the full amount written in the policy, must be
overruled. * * *
The judgment of the County Court is affirmed,*
lo. Limitation of Time to Sue.
Field, J., in RIDDLESBARGER v. HARTFORD
INSURANCE CO.
7 Wall. 386.— 1868.
By the demurrer to the replication two questions are presented
for our determination: First: whether the condition against the
maintenance of any action to recover a claim upon the policy,
unless commenced within twelve months after the loss, is valid. * * *
The objection to the condition is founded upon the notion that
the limitation it prescribes contravenes the policy of the statute of
limitations. This notion arises from a misconception of the nature
and object of statutes of this character. They do not confer any
right of action. They are enacted to restrict the period within
which the right, otherwise unlimited, might be asserted. They are
founded upon the general experience of mankind that claims, which
' The policy in suit contained, among other clauses, the following- " In case
of any other insurance upon the property hereby insured, whether made prior
or subsequent to the date of this policy, the insured shall be entitled to recover
of this company no greater proportion of the loss sustained than the sum hereby
insured bears to the who e amount insured thereon, whether by specific or float-
ing policies."
'' The reasons leading to the adoption of valued policy statutes and the objects
they were intended to accomplish are stated in Insurance Co. v. Leslie, 47 Ohio
St. 409, 413-14. The constitutionality of these siatules. which was attacked
upon the ground that they " take away a fundamental right " and preclude " a
judicial inquiry of liability on policies of fire insurance by a conclusive pre-
sumption of fact," was upheld in Orient Ins. Co. v. Daggs, 172 U. S. 557. An
overvaluation by the injured under a valued policy, unless made fraudulently.
212 THE TERMS OF THE INSURANCE CONTRACT.
are valid, are not usually allowed to remain neglected. The lapse
of years without any attempt to enforce a demand creates, there-
fore, a presumption against its original validity, or that it has
ceased to subsist. This presumption is made by these statutes a
positive bar; and they thus become statutes of repose, protecting
parties from the prosecution of stale claims, when, by loss of evi-
dence from death of some witnesses, and the imperfect recollection
of others, or the destruction of documents, it might be impossible
to establish the truth. The policy of these statutes is to encourage
promptitude in the prosecution of remedies. They prescribe what is
supposed to be a reasonable period for this purpose, but there is
nothing in their language or object which inhibits parties from stip-
ulating for a shorter period within which to assert their respective
claims. It is clearly for the interest of insurance companies that the
extent of losses sustained by them should be speedily ascertained,
and it is equally for the interest of the assured that the loss should
be speedily adjusted and paid. The conditions in policies requiring
notice of the loss to be giv^en, and proofs of the amount to be fur-
nished the insurers within certain prescribed periods, must be strictly
complied with to enable the assured to recover. And it is not per-
ceived that the condition under consideration stands upon any
different footing. The contract of insurance is a voluntary one,
and the insurers have a right to designate the terms upon which
they will be responsible for losses. And it is not an unreasonable
term that in case of a controversy upon a loss resort shall be had
by the assured to the proper tribunal, whilst the transaction is
recent, and the proofs respecting it are accessible. * * *
The validity of the limitation stipulated in conditions similar to the
one in the case at bar, has been elaborately considered in the highest
courts of several of the States, Peoria Ins. Co. v. Whitehill, 25 111.
466; Williams v. Mutual Ins. Co.., 20 Vermont, 222; Wilson v.
^tna Ins. Co., 27 Id. 99; N. W. Ins. Co. v. Fhcenix Oil Co., t,i
is to be deemed a matter of opinion and cannot affect the recovery. Cushman
V. Co., 34 Me. 487, 495; Vergei-ont v. Co., 86 Wis. 425. 426.
As to what will constitute a total loss under a valued policy, it was held in
Havens v. Ins. Co., 123 Mo. 403, ihat where a mill and machinery were insured
for $8,400 and were destroyed by fire, except machinery worth $380, which had
been removed for repairs, the loss was total and the valuation in the policy
musi be paid less a deduction of $380. So, too, in Gaman Ins. Co. v. Eddy, 36
Neb. 461, the loss was held to be total where only the brick walls of the insured
building were left standing after the fire, and so badly injured that they would
have to be taken down. H, however, the insured were to use the brick to
rebuild, the insurer would be entitled to a deduclion for the value of such brick.
TERMS OF THE FIRE INSURANCE CONTRACT. 213
Penn. St. 449; Broivn and Wife v. Savannah Ins. Co., 24 Georgia,
loi; Portage Ins. Co. v. West., 6 Ohio St. 602; Amesbury v. Bowditch
Ins. Co., 6 Gray, 603; Fuilam v. Netv York Ins. Co., 7 Gray, 61;
Carter v. Humboldt, 12 Iowa, 287; Stout v. City Ins. Co., Id. 371;
Ripley yi . yEtna Ins. Co., 29 Barbour, 552; Gooden v. Amoskeag Co.,
20 N. H. 73; Brown v. Roger Williams Co., 5 Rhode Island, 394,
7 Id. 301 ; Ames v. New York Ins. Co., 4 Kernan, 253; and has been
sustained in all of them, except in the Supreme Court of Indiana,
The Eagle Ins. Co. v. Lafayette Ins. Co., 9 Indiana, 443, which fol-
lowed an adverse decision of Mr. Justice McLean in the Circuit
Court for the district of that State, French v. Lafayette Ins. Co.,
5 McLean, 461. Its validity has also been sustained by Mr. Justice
Nelson in the Circuit Court for the District of Connecticut, Cray
V. Hartford Ins. Co., i Blatchford, 280. * * * •
HART V. CITIZENS' INSURANCE CO.
86 Wis. 77. — 1893.
The plaintiff appeals from a judgment in favor of the defendant.
WiNSLOvv, J. — The action is upon a policy of insurance issued by
defendant, November 11, 1890, upon plaintiff's dwelling-house.
There is no dispute as to the facts. The house was burned March
5, 1891. Proofs of loss were served May i, 1891, being within the
time required by the policy. The defendant refused payment May
9, 1891, and plaintiff commenced this action May 3, 1892, nearly
fourteen months after the fire.
The policy contained provisions requiring immediate notice of
loss, proofs within sixty days after the fire, examination of the
assured under oath if desired, and appraisal in case of disagreement
as to amount of loss; also the following: " This company shall
not be held to ha^e waived any provision or condition of this policy
or any forfeiture thereof by any requirement, act, or proceeding on
its part relating to the appraisal or to any examination herein
provided for; and the loss shall not become payable until sixty
days after the notice, ascertainment, estimate, and satisfactory
proof of the loss herein required have been received by this com-
pany, including an award by appraisers when appraisal has been
required. No suit or action on this policy for the recovery of any
claim shall be sustained in any court of law or equity until after full
* Contra, Miller v. Ins. Co., 54 Neb. 121.
214 THE TERMS OF THE INSURANCE CONTRACT.
compliance by the insured with all the foregoing requirements, nor
unless commenced within twelve months next after the fire."
It was held by the Circuit Court that the action was barred
because not commenced within twelve months next after the dai.:
of the fire, and plaintiff appeals.
It is well settled that a clause in a contract limiting the time
within which an action may be commenced thereon to a time shorter
than that allowed by the statute of limitations is valid. The ques-
tion here is whether the expression " twelve months after the fire "
means what it says or something else. It is to be noticed that the
parties here have not used the expression " after the loss occurs."
Had this been the language used, it might reasonably be claimed,
upon authority, that the " loss occurs," not at the date of the fire,
but when the loss is ascertained and established and the right to
bring an action exists. The decisions 'n favor of this doctrine are
numerous. Steen v. Niagara F. Ins. Co., 89 N. Y. 315; Spare v.
Home Mut. Ins. Co., 17 Fei. Rep. 568; Chandler w St. Paul F. cr"
M. Ins. Co., 21 Minn. 85; Ellis v. Council Bluffs Ins. Co., 64 Iowa,
507; Miller V. Hartford F. Ins. Co., 70 Iowa, 704; German Ins. Co. v.
Fairbank, 32 Neb. 750; Barber v. Fired^ M. Ins. Co., 16 W. Va. 658.
There are, however, many decisions to the contrary. Chambers
V. Atlas Ins. Co., 51 Conn. 17; Johnson v. Humboldt Ins. Co., 91 111.
92; Fullam V. Neiv York Union Ins. Co., 7 Gray, 61; Glass v.
Walker, 66 Mo. 12; Bradley v. Phxnix Ins. Co., 28 Mo App. 7;
Virginia F. ^ M. Ins. Co. v. JVells, 83 Va. 736; Peoria Sugar
Refining Co. v. Canada F. or' M. Ins. Co., 12 Ont. App. 418; Blair
V. Sovereign Ins. Co., 19 N. S. 372; Travellers' Ins. Co. v. California
Ins. Co., I N. Dak. 151; Schroeder v. Keystone Ins. Co., 2 Phila 286.
Other cases, bearing more or less directly upon the question,
might be cited upon either side of the proposition. It seems
apparent that it can hardly be said that the great weight of authority
is on either side. It is a case where there are two directly opposing
lines of authorities, both very respectable in numbers and weight.
It was claimed by appellant that this court had substantially
approved of the afifirmative view of the proposition in Killips v. Put-
nam F. Ins. Co., 28 Wis. 472, and Black v. Winneshiek Ins. Co., 31 Wis.
74. Examination of these cases shows that this court expressly
declined to pass upon this question. The principle laid down in
them is simply that if the insurance company, by its acts, induces
the insured to suspend his proceedings and delay action on the
policy, the time elapsing during such delay so caused should not be
reckoned as a part of the time limited for the bringing of the action.
It is an application of the familiar principle of estoppel.
TERMS OF THE FIRE INSURANCE CONTRACT. 21 5
Doubtless the tendency of so many courts to construe the " loss "
as meaning the time when liability was fixed, induced many insur-
ance companies to substitute the word " fire," as in the policy
bjfore us. It would seem as if the phrase "twelve months next
after the fire " was susceptible of but one meaning; yet the courts
have disagreed upon this question also. In the following cases it
has been held that the word " fire " is to be construed as meaning,
not the date of the fire, but the time when liability is fixed and an
action accrues to the insured; Friezen v. Alletnania F. Ins. Co., 30
Fed. Rep. 352; Hong Sling v. Royal Ins. Co.., 7 Utah, 441; Casew.
Sun Ins. Co., 83 Cal. 473. On the other hand, the following cases
hold that the limitation begins to run from the date of the fire:
Steel V. Phenix Ins. Co., 47 Fed. Rep. 863; State Ins. Co. v. Alees-
man, 2 Wash. 459; McElroy v. Continental Ins. Co., 48 Kan. 200;
State Ins. Co. v. St off els, 48 Kan. 205 ; King v. Watertown Ins. Co.-,
47 Hun, I.
It is noticeable that all of the three cases above cited which hold
that " fire " means the time when liability is fixed, rely for authority
upon the cases which construe the word " loss " as having such
maaning. No attention seems to have been given to the fact
that the word "fire" has been substituted for the word "loss."
It is also noticeable that in the case of Case v. Sun Ins. Co.,
83 Cal. 473, the facts were that the insured was compelled to
submit to examination by the company, and to produce books,
bills and invoices, and that he complied with these requirements as
rapidly as he was able, but was unable to fully comply therewith
until more than thirteen months after the fire, or a month after the
expiration of the time limited for bringing suit. Here, certainly,
was a clear case of estoppel. The company, by its own acts, had
postponed the time when a cause of action accrued until after the
limitation had run, and should clearly be denied the right to rely
upon the limitation. See, to this effect, Thompson v. Phenix Ins.
Co., 136 U. S. 287. The cases of Friezen v. Alleniania F. Ins. Co.,
30 Fed. Rep. 352, and Hong Sling v. Foyal Ins. Co., 7 Utah, 441, are,
however, direct authorities to the effect that " twelve months after
the fire" means twelve months after the liability is fixed. The
argument in support of this view is briefly that all clauses of the
policy must be construed together; that there are clauses whicn
necessitate the making of proofs, the submission of the assured to
examination if required, the production of books and papers, and
the submission of the question of the amount of loss to appraisers,
all of which things will consume time; and, furthermore, the ]oss
not being payable until sixty days after the amount is fixed, it may
2l6 THE TERMS OF THE INSURANCE CONTRACT.
happen that more than twelve months may elapse after the date of
the fire before the company can be sued; and thus the plaintiff's
action may be cut off entirely if a literal meaning is to be given to
the words. The deduction is that the parties cannot have meant
what they said in the clause under consideration, but must have
meant sometihng else, which they did not say.
We cannot assent to this line of reasoning. It does violence to
plain words. It smacks too strongly of making a contract which
the parties did not make. It construes where there is no room for
construction. Plain, unambiguous words which can have but one
meaning are not subject to constructions. " Twelve months next
after the fire " has one certain meaning and l)ut one. It can have
no other. It may well be that the insurer may by his acts waive
the limitation, or estop himself from insisting on it, as held in the
cases of Killips v. Putnain F. Ins. Co., 28 Wis. 472; Black v. Winne-
shiek Ins. Co.y 31 Wis. 74, and Tliompson v. Phenix Ins. Co., 136 U. S-
287 ; but the invocation of this principle does no violence to the con-
tract of the parties. There is no element of estoppel present here,
however. The defendant company have done nothing which has
induced the insured to suspend proceedings or delay his action.
They notified him at once on the receipt of his proofs that they
denied liability. They did not require him to do anything. He
had nearly ten months in which to bring his suit. By failing to do
so he must be held to be barred by his contract.
The provision of § 1975, R. S., to the effect that no insurance
policy shall contain a provision that no action or suit shall be
brought thereon, is not applicable, because the clause under con-
sideration is plainly not such a provision.
By the Court. — Judgment affirmed.'
' " What right has any tribunal to find hidden somewhere in the contract a
privilege to have the full time to sue after the cause of action has accrued,
when the policy gives it only from the time the loss occurs? There are two dis-
tinct provisions — one that the insured shall not sue before a certain time,
another that he shall not sue after a certain time. These do not clash. They
merely necessitate the construction that the intention was to give the insured
such period in which to maintain his action after he could sue as would be left
after deducting from the time limited the time which must elapse before the
right to sue could accrue. But we find in these cases this e.xtraordinary reason-
ing: They assert that this doctrine will often kill the action before it could
have life. The answer is short and simple. Every limitation in a contract is
void which does not leave the plaintiff a reasonable time in which to sue after
his right to sue has become perfect. * * * Tf other provisions of the policy
make it appear that in every case a reasonable time will not be left after the
right to sue has become perfect, the limitation is void. If, acting in good faith.
TERMS OF THE MARINE INSURANCE CONTRACT. 21/
III. Terms of the Marine Insurance Contract.
I. Attachment of the Risk.
HAUGHTON and Others v. EMPIRE MARINE INSURANCE
COMPANY (Limited.)
L. R. I Ex. 206. — 1866.
Declaration on a valued policy of insurance on the ship Urgent,
" lost or not lost, a/ and from Havana to Greenock," alleging that
the ship when at Havana, and after the commencement and during
the continuance of the risk, sustained injury by the perils insured
against.
Channell, B. — This was an action on a valued policy on the ship
Urgent, lost or not lost, at and from Havana to Greenock, and the
question for us to determine is, whether or not the risk had
attached at the time when the damage occurred. A verdict was
entered at the trial for the plaintiffs, and a rule has been obtained
by the defendants to enter a nonsuit pursuant to leave reserved.
The facts are before us on the judges' notes and in certain docu-
ments admitted in evidence, and we are to be at liberty to draw
inferenpes of fact. It appears that the Urgent, having arrived off
Havana, the captain engaged the services of a steam-tug and a pilot
for the purpose of taking her to a clear anchorage. She was towed
into the harbor, past the point where she ultimately discharged her
cargo, to a point at the head of the harbor, called the Regla Shoal.
There she grounded, and received damage from the anchor of
another ship. In my opinion she was at that time at Havana, and
consequently the risk under the policy had attached. The damage
occurred at Havana, geographically speaking, and there is nothing
which, to my mind, shews that the parties, at the time this policy
was underwritten, contemplated any other meaning of the word
" «/." All the limitation which tire law appears ever to have
imposed as to the time of the commencement of the risk in such a
case is, that the ship should arrive at the port at which she is
insured in a state of sufficient repair or seaworthiness to be enabled
and wtih all proper diligence, it transpires in any particular case that other
conditions of the policy to be complied with as conditions precedent to a right of
action could not be performed in time to leave a reasonable time thereafter in
which to sue, the limitation is inoperative in such a case. * * * Thus the
insured is fully protected by the application of known and established princi-
ples. The contract is construed as it is written, and the lime when the limita-
tions begin lo run, if at all, is fixed, and not uncertain." — Travelers' Ins. Co.
V. Ins, Co., 1 N. Dak. 151.
2l8 THE TERMS OF THE INSURANCE CONTRACT.
to l)e there in safety. See Panneter v. Cousins, 2 Camp. 235, and
Biil V. Bell, 2 Camp. 475, in the latter of wliich cases the ruling of
Lord Ellenboroiigh, C. J., a.1 A^isiPrii/s, was upheld by the court in
banc. Here, however, there seems to be no doubt that tlie ship
was really in the harbor in good safety, and the loss occurred from
a peril in the harbor, and in no way from any injuries she had
received before her arrival. The ship being insured while at Havana
is evidently, in the absence of any provision to the contrary, insured
all the time she is there, and, therefor, the risk commences on her
first arrival, as put by Lord Hardwicke in Motteaux v. London Assur-
ance Company, i Atk. 545.
Unless, therefore, we can say that her first arrival at the port is
when she casts anchor there, instead of when she enters the port,
our judgment must be for the plaintiffs. \w many cases the nature
of the port may be such that the two events may be identical.
There may be nothing to shew the arrival till the vessel casts
anchor. But here we have evidence as to the port of Havana which
is sufficient, in my judgment, to shew that the arrival was before
casting anchor. It has been argued that the first arrival, which
must be no doubt in good safety, must be identical with the moor-
ing in good safety usually named in outward policies. ButT think
we cannot construe the terms of one contract by reference to those
of another not referred to in it. And it is clear that there is no
usage that the duration of the outward and homeward policies
should not overlap, because the outward policy usually extends to
twenty-four hours after the vessel is moored in good safety. Dur-
ing those twenty-four hours there is no question that there is a
double insurance, and, therefore, I see no ground for saying that the
parties contracted subject to any usage that such a policy should
not attach until the previous one had determined. If they had
wished to make such a condition it might easily have been done; or
if, having in view any special dangers, as shoals (;r the like, within
the port of Havana, they had chosen to make the risk date from the
vessel being moored in safety, they would have done so; but as it
stands it is from the first arrival, which, as a matter of fact, I think
to be on her entering the port My judgment is, therefore, for the
plaintiffs, that the rule be discharged.
[Opinion also by Pigott, B.J
TERMS OF THE MARINE INSURANCE CONTRACT. 219
2. Termination of thp: Risk:.
WHITWELL V. HARRISON.
2 ExcH. 127. — 1848.
Alderson, B. — This was an action on a policy of assurance, on
the ship Governor Halket, at and from Quebec to her port of dis-
charge in the United Kingdom. By the charter-party of the vessel,
which was put in, the vessel was chartered to take on board a cargo
of timber at Quebec, and to proceed therewith to Wallasey Pool, in
the river Mersey, or as near thereto as she could safely get, and
there discharge her cargo.
It appeared at the trial that the vessel sailed from Quebec on the
23d of July, 1845, and arrived in the Mersey on the 4th of Septem-
ber, and came to an anchor at the Bell Buoy in that river. The
next morning she was towed by a steam-boat, and came abreast of
Wallasey Pool; but being unable to get into Wallasey Pool, by
reason of her too great draft of water, the captain anchored her
there, and proceeded to Liverpool to report the vessel, and engaged
lumpers to discharge the cargo at a fixed rate of payment, which
was to include the expense of rafting the timber from the vessel
into Wallasey Pool, and discharged his crew, as was usual on
a ship's arrival at Liverpool, altogether. He then proceeded to
discharge the deck cargo, and afterwards a considerable portion of
the other cargo, by the usual mode, at the stern port, from the hold
of the vessel; and after occupying in this way several days, the ship
being at anchor, on the 14th of September, fell over and sustained
damage, the subject of the present action; and the question is,
whether the underwriters were at the time of this accident off the
policy, by reason of the vessel having been moored in safety twenty-
four hours after her arrival at her port of discharge. It appeared
in evidence, that the captain always intended ultimately to carry
the vessel into Wallasey Pool, with as much of the cargo on board,
as she could carry over the shallow part intervening between his
original anchorage and the pool. But it was also clearly established
that the discharge of the cargo was going on in due course, and that
if the water were not sufficient, and no accident had occurrred, the
whole cargo would have been discharged in the place where the
vessel was moored.
My Brother Rolfe held, under these circumstances, that the
underwriters were, not. liable and we think he was right ja.so hold-
ing. Here the ship was bound to Wallasey Pool, or as near thereto
as she could safely get, and it is clear that that was the intended
place for the discharge of her cargo. The cases on this subject
220 THE TERMS OF THE INSURANXE CONTRACT.
are well collected in Mr. HildyarJ's edition of Park on Insurance,
vol. i, p. 73. We were referred in the argument to Samuel v. The
Royal Exchange Company, 8 B. & C. 119; but this case is clearly
distinguishable from it, because there the vessel had n )t arrived at
the place where any part of her cargo was ever intended to be dis-
charged; .the vessel here had on the 5th of September arrived as
near Wallasey Pool as she could safely get, and did actually begin
to discharge her cargo accordingly, discharging her crew altogether,
and leaving none of them on board for the purpose of further navi-
gation. The case of Brereton v. Chapman, 7 Bing. 559, does not
appear to us at all to affect this question. There the vessel was
still m progress to the ultimate place for the discharge of her
whole cargo, and all that was done was to put on board lighters
a portion of her cargo, in order that the vessel might be enabled
thereby without delay to proceed with them to the usual place of
discharge. There the whole crew remained on board, and the vessel
was in all respects really continuing her voyage. Keyser v. Scott, 4
Taunt. 660, and Dalgleish v. Brooke, 15 East. 299, are authorities
showing rather that " the port of discharge " includes the whole
port within which any portion of the cargo is usually, according to
the custom of such port, taken out of the vessel. These are
authorities going on a totally different principle, viz., that of the
construction of a warranty from seizure in the port of discharge;
but, if at all applicable to the present question, they go further
than this case requires us to do. Upon the whole, we think that
here the vessel had clearly arrived at her poit of discharge, and
was actually in the course of discharging her cargo, and had moored
there twenty-four hours in safety before the accident occurred.
The rule therefore must be discharged.'
3. Deviation.
ENDICOTT, J., IN BURGESS v. EQUITABLE MARINE
INSURANCE COMPANY.
126 Mass. 70, 78. — 1878.
It may be stated in general terms that the assured is protected
by his policy, while the vessel pursues the usual and customary
course of the voyage; but any departure from the course, or delay
' " The voyage is understood to be terminated when the vessel arrives at her
port of destination, and has been moored there in safely for twenty-four hours."
— Grade v. Marine Ins. Co., 8 Cranch, 75, 82.
TERMS OF THE MARINE INSURANCE CONTRACT. 221
in prosecuting it, without necessity or just cause, is a deviation and
discharges the insurer, because another voyage has been voluntarily
substituted for that which was insured. Whether the degree or
period of the risk is increased, is unimportant, as the assured has no
right to substitute a different risk. Whenever, therefore, there is a
manifest departure from the course of the voyage, the assured must
show that it was justified by the necessity of the case. Stacker v.
Harris^ 3 Mass. 409, 418; Brazier v. Clcip^ 5 Mass. i; Coffin v.
Newburyport Ins. Co., 9 Mass. 436, 449; Kncttell v. Wiggin, 13
Mass. 68.
In the case at bar, the alleged necessity arose from scarcity of
bait. The plaintiff did not put on board, when the vessel sailed
from Plymouth, enough for the entire trip. Squid had been plenty
on the Banks during several years prior to 1874, and the plain-
tiff relied upon catching them there and using them for that
purpose. They happened this season to be very scarce, and, after
fishing three weeks, and nearly exhausting his supply, the master
sailed for St. Peter's, over 100 miles distant, procured bait, and
returned to the Banks after an absence of a week. It is to be
observed, that this so-called necessity did not arise from any peril
insured against in the policy, or ordinarily insured against in poli-
cies of insurance, and did not involve the safety of the vessel, or of
any property on board; it had relation solely to the success of the
fishing adventure and in this the defendant had no interest and
had assumed no responsibilitj'. We are of opinion that the
claim, of the plaintiff cannot be sustained; and that a necessity to
justify the departure in this case cannot be found in the fact that,
without going to St. Peter's for bait, the voyage would have failed
to be successful or profitable to the plaintiff.'
4. Seaworthiness.
THEBAUD V. GREAT WESTERN INSURANCE CO.
155 N. Y. 516.-1898.
O'Brien, J. — This was an action by the owners of a steamboat
upon a policy of marine insurance. The issues in the case were
tried before a jury, and the plaintiff recovered.
On the 28th of June, 1884, the steamer Dos Hennanos was in pro-
cess of construction at the port of Philadelphia for use as a river
' See also Thebaud v. Ins. Co., the next case.
222 THE TERMS OF THE INSURANCE CONTRACT.
Steamer at or near Frontera, Mexico. She was not constructed or
intended for use upon the open sea, but for service upon the rivers
or other inland waters of the country where she was destined for
use. On the day mentioned, the defendant issued to the plaintiff
its policy of marine insurance upon this steamer to cover the voyage
from Philadelphia, the place where it was built, to Frontera, Mexico,
the place where it was intended for use. The policy related only to
this voyage, part of which was, as all parties knew, upon the open
sea. The defendant, by the terms of the policy, undertook to pay
to the plaintiffs the sum of $5,000 in case of loss upon this voyage,
including what is known as the mechanic's risk while in port, mean-
ing that at the time of the execution of the contract the steamer
had not been completed, and, in fact, the voyage did not commence
until the 27th of August thereafter. The policy, by its terms,
indemnified the owners against loss from the usual perils of the sea
covered by policies of marine insurance. The steamer, while on
the voyage, was lost at sea, near the coast of North Carolina, on the
night of the 13th of September, 1884.
The defense to the action may be arranged under three general
heads: (i) That the steamer was not seaworthy, and, hence, that
the implied warranty of seaworthiness, which it is insisted enters
into and forms a part of every marine insurance upon a ship or ves-
sel, was broken, and for that reason the plaintiff is not entitled to
recover. (2) That in making the voyage there was a voluntary
deviation from the usual course of the voyage from Philadelphia to
Frontera. (3) That the steamer was not lost by the perils of the
sea, or by any casualty covered by the terms of the policy, but in
consequence of the unseaworthiness and unfitness of the vessel to
make the voyage covered by the contract.
It is no doubt the general rule that in all contracts of marine
insurance upon vessels there is an implied warranty that the subject
of the insurance was at the time seaworthy, or, in other words,
reasonably fit and capable of making the voyage. But in this
case both parties knew that the vessel was not intended for ser-
vice upon the open sea. She was not built or constructed for any
such purpose, but, on the contrary, for the river service. Before
the defendant entered into the contract the plans and speci-
fications with reference to the construction of the Dos Hermanos
had been submitted to its agents They put the defendant in pos-
session of all information concerning the character and construction
of the craft. The defendant's marine engineer, who had had con-
siderable experience assured the broker who took the risk " that
she was built for the river trade, and he did not consider that she
tp:rms of the marine insurance contract. 223
was just the thing to attempt all weathers on the coast going around
there, but if properly handled she might get there, provided she
took the inland course so far as possible." The defendant there-
upon concluded to write the risk, but exacted therefor double the
usual premium for marine insurance on ordinary seagoing vessels.
The steamer was not then completed, and, hence, the provision in
the policy covering the mechanic's risk while in port, including the
privilege of mechanics to work upon the vessel. Before starting
on her voyage for Frontera two trial trips were taken by direction
of the engineer, one up and one down the Delaware river. Neither
of these trips, however, extended beyond the limits of the port of
Philadelphia, and we do not understand that it is seriously claimed
that these trips constituted a deviation from the usual voyage.
They were merely preliminary in order to test the capacity of the
vessel to make the voyage.
It was competent for the jury to find upon the evidence that the
vessel was sufficiently provided with a crew and proper equipments.
There is evidence tending to show that suitable precautions were
taken before leaving Philadelphia for the ocean voyage to make her
as seaworthy as a vessel of her class could be made; that her
machinery was tried and the boilers inspected in the usual manner.
The voyage was commenced, after leaving Philadelphia, by taking
what is known as the inside course through the canals and bays, and
the sea voyage was not actually commenced until she reached Fort
Macon. Before reaching that point, however, it seems that an
accident occurred to the vessel b> a collision with a submerged
stump in one of the canals, and, hence, there was a stop at Balti-
more for repairs, where some further precautions were taken in
order to protect the steamer from the perils of the sea voyage.
Another stop was made at Norfolk, in order to procure a pilot to
take her through the Chesapeake and Albemarle canal and other
waters to Fort Macon. This was all inside navigation, and on
reaching the point last mentioned it became necessary to go outside
upon the open sea, and shortly afterwards the steamer was lost.
That the Dos Hernianos was not a seaworthy vessel, in the sense
in which these terms are applied to seagoing vessels, is made
quite clear by the evidence. It was undoubtedly competent for the
jury to so find and for the court below to so decide, but in this
court the question always is, upon an issue of this character, not
upon which side the evidence preponderates, but whether there is
any evidence to support the verdict. The parties knew perfectly
well that the subject of the insurance was not a seagoing vessel, but,
for the purposes of the trip the defendant was evidently willing to
224 THE TERMS O?^ THE INSURANCE CONTRACT.
take the risk, in consideration of the payment of a double premium,
and after inspecting the vessel and acquiring full knowledge as to
her construction and capacity. In view of the proof in the case
tending to show what was done in order to fit the steamer for i r
voyage, we do not think it can be said in this court that the verdict
of the jury is without any evidence to sustain it. Generally, the
question as to whether a vessel, covered by a policy of marine
insurance, was, or was not, at the time seaworthy, is one of fact
for the jury. Burgesx. Wickham^ 3 Best & Smith, 669; Claphatn v.
Langston, 5 Best cS: Smith, 729; Tiirnball v. Jansoii^ 36 L. T. R. 635;
Bouillon \. Li/pton, 15 C. B. (N. S.) 113. It is difficult to see how
such a question from its very nature can in practice be deter-
mined otherwise, except, possibly, in a very clear case. But we do
not regard that question as controlling, since, as already stated,
both parties to the contract knew that the vessel was not a seagoing
craft, or suitable for the navigation of the high seas, and, under
the circumstances, the implied warranty upon which the defendant
relies should not be construed in such a way as to be repugnant to
the general purpose which the parties had in view at the time of the
execution of the contract. We can discover no reason why the gen-
eral rule applicable to risks in fire insurance policies does not apply
to this case. As was said by this court in the case of Bidwell v.
N'ortJnvestern Ins. Co., 24 N. Y. 302: " Indeed it is not easy to per-
ceive why an insurance company, by reason of the formal words or
clauses (of a general and comprehensive nature), inserted in a policy
intended to meet broad classes of contingencies, should ever be
allowed to avoid liability on the ground that facts, of which the com-
pany had full knowledge at the time of issuing the policy, were then
not in accordance with the formal words of the contract, or some of
its multifarious conditions. If such facts are to be held a breach
of such a clause, they are a breach eo instanti of the making of the
contract, and are so known to be by the company as well as the
insured. And to allow the company to take the premium without
taking the risk would be to encourage a fraud." This rule, which
is clearly applicable to express warranties in contracts of insurance,
should, in reason and justice, be applicable to the implied warranty
of seaworthmess in policies of marine insurance. That such is the
well-settled rule in this court, with reference to express warranties
in contracts of fire insurance, covering conditions with respect to
which the underwriter had full knowledge, cannot now be questioned.
Van Schoick v. N'iagara Ins. Co., 68 N. Y. 434; Bennett v. Buchan, 76
N. Y. 386; McNally v. P. Ins. Co, 137 N. Y. 3S9; Forward v. C.
Ins. Co., 142 N. Y. 382; Bobbins v. Springfield Ins. Co., 149 N. Y. 477.
TERMS OF THE MARINE INSURANCE CONTRACT. 22$
Go we think the defendant must fail in defeating the recovery on
the ground that there was a breach of the implied warranty of sea-
worthiness.
Whether the vessel was unseaworthy or not by reason of insuffi-
cient crew, or insufficient machinery, or the absence of a pilot during
certain parts of the voyage, was under the circumstances, a question
for the jury. The master of the vessel was himself a competent
navigator, and whether after reaching Fort Macon and going into
the open sea a pilot was usual and necessary for the rest of the voy-
age, is not a matter of law, but of fact, and the burden of proof
showing negligence on the part of the plaintiff in this respect was,
we think, upon the defendant, i Phil, on Ins. (5th ed.) §§ 712, 713.
Nor do we think it can be said, as matter of law, that there was
such a deviation from the usual course of the voyage as to absolve
the defendant from the obligations of the contract. A deviation is
a voluntary and inexcusable departure from the usual course, and
whether the departure amounts to a deviation must be determined
by the motive, consequences and circumstances of the act. Heace,
in its nature it is a question of fact. Where the circumstances are
such as to leave no alternative to a reasonable and prudent man,
exercising a sound judgment, and acting for the best interests of
all concerned, it is not a deviation, i Arnold on Ins., §§ 151, 152.
This proposition covers the argument in behalf of the defendant
with respect to the inside voyage through canals and the stops made
at the various points already referred to. We have already intimated
that the trial trips cannot, in any just sense, be considered a de"ia-
tion. Moreover, where a vessel is insured for a voyage " at and
from " a port a reasonable time will be allowed while there engaged
in the business of preparing for her voyage. Snvde?- v. Ins. Co., 95
N. Y. 196; Fernandez x. Ins. Co., 48 N. Y. 571.
The subject of the insurance in this case was a new craft, and the
trial trips were reasonably necessary in order to determine before
undertaking the voyage, whether the vessel was suitable for that
purpose. Hence these trips may reasonably be regarded as a part
of the preparation for the voyage.
The delay in commencing the voyage may also be imputed to the
same cause, viz., the preparation necessary previous to sailing.
The vessel was not completed when insured. The underwriter is
not discharged by a delay incurred for the purposes of the voyage,
though its absolute duration be very considerable. There must be
a clear imputation of waste of time, and whether the delay be reason-
able or not must be determined, not by any positive or arbitrary
rule, but by the circumstances existing at the time. Arnold v.
LAW OF INSURANCE — 1 5
226 THE TERMS OF THE INSL' RANGE CONTRACT,
Pacific Mut. Ins. Co., 78 N. \'. 16, 17. The defenclant k u,\v the
condition of the vessel, and could f^rm a judgment for itself as to
the time when she would be ready to sail, and the insurance covered
the chances of dtlay. On all the facts the jury had the right to find
that the delay was not unreasonable.
The subject of the insurance was a non-seagoing vessel. It is
reasonable to suppose that the parties intended that in making the
voyage the open sea should be avoided as much as possible; hence,
what was called the inside course was taken. Considering the
character of the steamer and the purpose: for which she was built,
it cannot be said, as matter of law, that avoiding the sea until l-"ort
Macon was reached, by the inside course, was a deviation from the
usual course for vessels of that character. The ruling of the trial
court submitting the question to the jury was quite as favorable to
the defendant as it was entitled to. It was for the jury to say
whether, under all the circumstances, the delay in the canal at night,
the stop at Baltimore and Norfolk, the delay at Fort Macon and
the anchoring off Smithville was a deviation.
The defense that the loss was not from the perils of the sea, but
through inherent weakness, or defects, or faulty construction,
presented upon the proofs a question of fact. On the part of the
defendant it was claimed that the steamer foundered in a calm sea;
while the plaintiffs insisted that she was lost in a northeast gale.
The jury having sustained the plaintiff's contention, we cannot say
that the verdict in that respect is unsupported by evidence. The
question was for the jury, and the finding is not open for review
here. It appears from the evidence that this vessel was ninety feet
long, twenty-two feet beam, with from twelve to eighteen inches of
freeboard, flat bottom, drawing aboat three feet of water. It is
obvious that it would not require the severest tempest to sink such
a craft. The risk was doubtless an unusal one, and for that reason
an unusual premium was asked and obtained. It may be that the
regular seagoing vessel would have weathered the gale. But the
real question presented to the defendant, when the application for
insurance was made, was whether this boat, as she was known by
both parties to be, could make the transit from the port of departure
to her destination. The defendant concluded to take that risk in
consideration of a double premium, and to permit it now, after
receiving the premium, to defeat a recovery, on the ground that she
was not seaworthy in consequence of alleged defects of construc-
tion, known to it at the time of taking the risk, would scarcely be
consistent with commercial morality.
It seems to us that the question was properly submitted to the
TERMS OF THE MARINE INSURANCE CONTRACT. 22/
jury, and upon a careful examination of the exceptions taken during
the trial, and to the charge, we are of opinion that none of them
present any question of law that would warrant us in disturbing the
verdict.
The judgment should, therefore, be affirmed.
All concur, except Parker, Ch. J., not sitting.
Judgment affirmed.
BROWN, J., IN BERWIND v. GREENWICH INSURANCE CO.
114 N. Y. 231, 234. — 1889.
In every case of marine insurance by a general policy covering
all the perils of the sea, where the vessel insured is in port, there
is an implied warranty that the vessel is seaworthy at the inception
of the policy. It is a condition precedent to the risk, and if the
vessel is not seaworthy, the policy does not attach. In an action
to recover for a loss upon such a policy, where the fact of sea-
worthiness at the time of issuing the policy is shown, it is immaterial
what the vessel's condition is thereafter during the voyage, as loss
from unseaworthiness is among the perils insured against.
The plaintiffs, under such a policy, make out 3. prima facie case by
showing seaworthiness at the inception of the risk. But in time
policies there is implied warranty that the vessel will be kept in
repair and made seaworthy at all times during the continuance of
the risk, so far as that is reasonably possible, and this implied cove-
nant imposes upon the insured the duty of active diligence to keep
the vessel in good order and in a seaworthy condition. 2 Parsons
on Maritime Law, 147, and cases cited in note on page 148, etc. It
is doubtless true that, under a general time policy insuring against
all perils of the sea, unseaworthiness subsequent to the attaching
of the policy is a defense, the burden of proving which is upon the
defendant, and that the plaintiffs need offer no proof thereof as a
part of their case, but in the policy in suit loss from unseaworthiness
is among the excepted risks, and it was, therefore, incumbent upon
the plaintiffs to show that the loss arose from some of the perils
covered by the policy; and to make out their case some evidence
was necessary from which the jury could infer that the sudden sink-
ing of the boat was not due to defective structure or condition.
228 THE TERMS OF THE INSURANCE CONTRACT.
5. Perils Insured Against.
THAMES AND MERSEY MARINE INSURANCE CO.
(Limited) z: HAMILTON, FRASER & CO.
12 A. C. 484. — 1887.
The policy sued on was a time policy on the steamship Inchmaree^
for twelve months, from the 20th of August, 1883, to the 20th of
August, 1884; and the subject-matter of insurance, " the hull,
masts, spars, sails, boats, materials, and all stores, valued at
^20,000; and machinery, shafting, propeller, boilers, and connec-
tions, including donkey-engine and boilers, pumps, and all connec-
tions, valued at ^11,000."
The risks against which the insurance was effected are thus
described: " And touching the adventures and perils which the
capital stock and funds of said company are made liable unto by
this insurance, they are, of the seas, men-of-war, fire, enemies,
pirates, rovers, thieves, jettisons, letters of mart and countermart,
surprisals, takings at sea, arrests, restraints and detainments of all
kings, princes, and people of what nation, condition, or quality
soever, barratry of the master and mariners, and of all other perils,
losses, and misfortunes that have or shall come to the hurt, detri-
ment, or damage of the aforesaid subject-matter of this insurance,
or any part thereof."
On the 2d of March, 1884, the Inchmaree was at anchor off Dia-
mond Island, awaiting orders, and for the purposes of the voyage
it was necessary to pump up the main boilers, by means t;f a donkey-
pump and engine, in the usual way. A pipe led from the donkey-
pump to the boilers, and at its junction with one of the boilers there
was a check-valve, capable of being opened or closed with a screw
which ought to have been kept open and clear when the boilers
were being pumped up. This valve had either been left closed or
had become salted up when the donkey-pump was set to work off
Diamond Island, so that the water could not pass into the boiler.
The consequence was, that when the donkey-pump was ?et to work
the pipes and water chamber in the donkey-pump, and the air-
chamber therein, became overcharged, and the water was forced
up into the air chamber, which, in consequence, split, and the pump
was thereby damaged.
It was admitted, for the purposes of the case, that the check valve
was either allowed to remain closed or become salted up, by the
negligence of one of the engineers, or was accidentally salted up
without being noticed, though reasonable care was taken by the
TERMS OF THE MARINE INSURANCE CONTRACT. 229
engineers. It was also admitted that the closing or salting up, and
accident were not due to ordinary wear and tear. The parties were
unable to agree as to whether there was negligence in allowing the
check valve to remain closed, or to become salted up; but as the
plaintiffs contended that the defendants were liable, whether there
was negligence or not, it was agreed to leave that question for trial
(if material) after the decision of the case.
The questions stated for the opinion of the court were, whether
the defendants were liable under the policy in respect of the loss,
(i) if it could have been avoided by proper care, and occurred
through negligence; (2) if it occurred accidentally, without negli-
gence. The Queen's Bench Division gave judgment for the plain-
tiffs, and this judgment was affirmed by the majority of the
Court of Appeal (Lindley and Lopes, L. JJ.); Lord Esher, M. R.,
dissenting.
Lord Bramwell. — My Lords, I cannot agree with the judgment
in this case. The donkey-engine was insured. The adventures
and perils which the defendants were to make good, specified a
great many particular perils, and " all other perils, losses and mis-
fortunes that have or shall come to the hurt, detriment or damage
of the aforesaid subject-matter of insurance, or any part thereof."
Words could hardly be more extensive, and if the question, I ought
to say a question on them, arose for the first time, I might perhaps
give them their natural meaning, and say they included this case.
But the question does not arise for the first time. It has arisen
from time to time for centuries, and a limitation has always been
put on the words in question.
Definitions are most difficult, but Lord Ellenborough's seems
right: "All cases of marine damage of the like kind with those
specially enumerated, and occasioned by similar causes." I have
had given to me the following definition or description of what
would be included in the general words: " Every accidental cir-
cumstance not the result of ordinary wear and tear, delay, or of the
act of the assured, happening in the course of the navigation of the
ship, and incidental to the navigation, and causing loss to the sub-
ject-matter of insurance. ' ' Probably a severe criticism might detect
some faults in this. There are few definitions in which that could not
be done. I think the definition of Lopes, L. J., in Pafidorf \. Ham-
ilton, 16 Q. B. D. 629, 633, very good: " In a seaworthy ship
damage to goods caused by the action of the sea during transit not
attributable to the fault of anybody," is a damage from a peril of
the sea. I have thought that the following might suffice: " All
perils, losses and misfortunes of a marine character, or of a char-
230 THE TERMS OF THE IXSURAN'CE CONTRACT.
acter incident to a ship as such." I put it forward with distrust,
but it would comprehend all the cases cited where the assuretl ha?
recovered, save perhaps the Panama case \^in//a]. For example, it
would include the case of the ships blown over while in dock, of the
siii]) damaged by its moorings giving way, of the ship fired into by the
ship. It would not include the cases put by Lord Esher, nor the
case I put of the captain seized with giddiness dropping the chrono-
meter into the hold; nor would it include the present case. The
damage to the donkey engine was not through its being in a ship or
at sea. The same thing would have happened had the boilers and
engines been on land, if the same mismanagement had taken place.
The sea, waves and winds had nothing to do with it.
As a matter of principle and reasoning I think the.decision wrong.
I think the judgment in the JVest India and Panatna Telegraph
Company v. Home and Colonial Marine Insurance Company^ 6 Q. B. D.
51, wrong on the reasoning I have used. With most sincere respect,
though it is true that w-hat the winds are to a sailing vessel, steam
is to a steamer, that does not decide the question, for it is not every
damage to sails that would be covered by the policy. Suppose
damage by rats or mildew to spare sails. As to Lord Esher's judg-
ment in that case, I concur in his criticism on it in the present case.
And I agree with Lopes, L. J., that the word " fire " in the policy
will not sustain that judgment. The Lord Justice put the case of
a spar failing on the deck, while getting under sail, and being
broken, and says it would be within the policy. Perhaps; but if it
would, it would be because it was a loss in navigation, a loss which
could not have happened except on a ship. But suppose the spar
was being used to erect an awning on deck to give shelter to dancers
or the like, and was broken, the case would not be covered
bv the policy. It would not be a marine loss, not a loss with
which the sea, or navigation, or the ship, as a ship, had anything
to do.
I do not like cutting down the natural meaning of words; there
is alwavs great difficulty in saying what should be substituted. But
it is admitted that some limit must be put on those in question here.
I think a proper limit would exclude this loss. So that the judg-
ment of the Master of the Rolls is, I think, right, and that of the
other judges wrong, and their decision should be reversed.
Order appealed from and the judgment of the Queen's Bench
Division reversed; cause remitted to the Queen's Bench Division.
[Opinions were also given by Lord Halsburv, L. C, Lord Her-
scHELL and Lord Macnaghten.]
TERMS OF THE MARINE INSURANCE CONTRACT. 23 1
REISCHER V. BORWICK.
[1894] 2 Q. B. D. (C. A.), 548.
The plaintiff was the owner of the paddle-wheel steam tug Rosa,
which was insured by the defendants. The insurance was expressed
in the policy to be, " Only against the risk of collision (as per
clause attached), and damage received in collision with any object,
including ice." The clause attached related to collision with other
vessels; the policy did not include " perils of the sea."
During the currency of the policy, the Rosa was engaged in a trip
on the Danube. In the course of her voyage, on March 4, 1892,
she came into a collision with a floating snag, which first struck the
bottom of the ship, and then fouled the port paddle-wheel and
caused considerable damage to the machinery of the ship. Among
other things, the cover of the condenser ^vas broken, and a hole
made in it about twenty square inches in area. The water poured
in through the ejection pipes into the condenser, and thence through
the hole in the cover into the ship. The captain anchored the ship,
and set the pumps to work. He also succeeded in plugging the
ejection pipes with wooden plugs; and so long as the ship was at
anchor the water was thus prevented from entering the vessel to any
dangerous e.Ktent. The captain then applied for assistance, and on
March 6, a tug was sent to tow the Rosa to the nearest dock for
repairs. The tug commenced to tow the Rosa on the same evening;
but on the morning of March 7, while she was being towed, the
water poured in rapidly through the hole in the cover of the con-
denser, and it was found that the plug in the port ejection pipe had
fallen out and the ship was in danger of sinking. The towing was
stopped, but the captain was unable to stay the rush of water through
the ejection pipe, and, in order to save the lives of the crew, gave
orders to the tug to tow the Rosa ashore. This was done, and she
was grounded on the south bank of the river, where she was aban-
doned by the plaintiff.
The plaintiff claimed damages for the total loss of the vessel.
The defendants paid into court 37/. lo^-. to cover the damage caused
by the collision with the snag up to the time when the vessel was
taken in tow by the tug, but denied any liabilitv for the subsequent
damage, contending that the proximate cause of that damage was
not the collision, but the towing to the port of repair. Kennedy, J.,
who tried the action without a jury, gave judgment for the whole
amount claimed, and the defendants appealed.
Davey, L. J. — In this case the appellant? admit that damage
done by water coming through a hole caused by a collision with any
232 THE TERMS OF THE INSURANXE CONTRACT.
object is damage against which the assurers are bound to indemnify
the assured. What is the causa proxiina of the damage sustained in
this Cise? The only answer seems to me to be the inrush of water
through the hole in the condenser. What made the hole in the
condenser? The collision made the hole in the condenser, and the
broken condenser was a continuing source of risk and danger. The
failure of the attempt to mitigate or stop the damage arising from
the breach in the condenser cannot in my opinion be justly described
as the cause of the ultimate damage. 1 therefore agree in the
judgment which has been given.
Appeal dismissed.'
[Opinions were also given by Lindley and Lopes, L. JJ.]
6. General Average.
THE MERCHANTS' AND MINERS' TRANSPORTATION
COMPANY OF BALTIMORE v. THE ASSOCIATED FIRE-
MEN'S INSURANCE. COMPANY OF BALTIMORE.
53 Md. 448. — 1B79.
RoBixsoN, J. — This suit is brought by the appellant, owner of
the steamer George Appo/d, on a Jirc policy issued by the appel-
lee, insuring said steamer against loss by fire.
It appears that on the 20th of October, 1877, while loading at the
port of Savannah, a fire was discovered among a cargo of cotton
stowed in the forehold of the steamer, and in order to save both the
steamer and cargo from destruction, it was found necessary to sub-
merge the vessel. The damages direct and indirect to the steamer
itself, were estimated at $2,500, and the damages to the cargo at
$10,500. The adjuster to whom the matter was referred decided
that the damagesto the cargo were, according to the usage and laws
of the port of Baltimore, subject to the law oi general average; and
the appellant, as owner of the steamer, was obliged to contribute to
the cargo the sum of $5,231.29. The steamer was insured by the
appellee and other ^;r companies^ to the amount of $80,000; and the
cargo was insured under marine policies. The fire companies tender
themselves ready to pay $2,500, the amount of damage sustained
by the steamer, but the appellant claims that in addition to this sum,
he is entitled to recover the amount paid by him under the law of
' See also the exhaustive opinion as to proximate cause, in Brown v. Ins. Co.,
61 N. Y. 332.
TERMS OF THE MARINE INSURANCE CONTRACT. 233
general average to the cargo. And this is the cjuestion, and the
sole question, at issue between the parties.
^Vere this a question to be determined purely upon equitable prin-
ciples, there might be some ground to support the appellant's con-
tention. The steamer was fully insured by the fire companies, and
in the event of its destruction by fire, they would have been liable
for the entire loss sustained by the appellant. In that event, instead
of the sum of $5,231.29 now claimed by the appellant, they would have
been obliged to pay the entire amount covered by their respective
policies. If the steamer was saved from destruction by being sub-
merged, and the appellant, as owner, was, in consequence thereof,
obliged to pay $5,000 for damages to the cargo, it would seem but
fair and equitable that he should be reimbursed a loss thus incurred
for the benefit and protection of the insurers.
The liability, however, of the insurer is one arising upon contract,
and must be determined by the terms of the policy upon which this
suit is brought. It is hardly necessary to say, that a policy of
insurance like any other contract, must be construed according to
the evident intention of the parties, to be gathered from the lan-
guage used, taken in connection with the subject-matter to which it
refers. The rights and obligations of the parties to this suit must,
therefore, be determined by the contract as made between them ; and
we have no power to add new conditions or to extend the risk
beyond what is fairly within the terms of the policy itself. Now
what are the terms of this policy? Looking at the face of it, we find
the thing insured is a steamer, and the/.?;-// insured against is loss by
fire. No other risk was assumed by the insurer, and indemnity
against loss from this peril and this alone was the consideration for
which the premium was paid by the insured. Here then is a contract
in regard to d, specific subject di^^ made for a specific purpose, and by it the
correlative rights and obligations of the parties must be determined.
It is not contended that the appellee has in express terms agreed
to reimburse the appellant for losses which as owner he might be
obliged to contribute to the cargo, but the argument is, that the
msurer is liable for all damages resulting directly from the peril
insured against, and that actual combustion is not always the test by
which such damages are to be ascertained. This in a certain sense
is true. The insurer of a stock of goods may be liable for damages
caused by water, although the water was used to extinguish a fire
upon the house in which the goods are stored. And upon the same
principle it has been held, that the insurer of a house is liable for
its destruction, when such destruction was absolutely necessary to
arrest the progress of a fire in a city. City Fire Ins. Co. v. Corlies^
234 THE TERMS OF THE INSURANCE CONTRACT.
2 1 Wendell, 367; Wcthcrall \. Marine Ins. Co., 49 Me. 200; Geisekv.
Crescent Afiitual Ins. Co., 19 La. An. 297; Hillicr v. Allegheny Co.
Mill. Ins. Co., 3 Peiiii. 470; T/iompson v. Montreal Ins. Co., 6 U. C,
Q. B. 319. Ill these and other like cases, the law presumes, that
the parties from the very nature of things, must have contem-
plated the natural and physical consequences resulting from the
peril insured against. So, in this case, the appellee is not only liable
for the damages to the ship from actual combustion, but also for
damages to the vessel resulting directly from the means used to
extinguish the fire. But the liability of the insurer arising in cases
where the peril insured against has been the pro.ximate cause of the
loss, has never been held to cover damages to other property not
insured by the policy.
If, then, the appellant is entitled to recover in this suit, it must
be upon the ground, that the lani 0/ general ai'erage, by which he was
obliged to contribute to the loss sustained by the cargo, constitutes
and forms a part of the risk assumed by the appellee. Fire policies,
it is well known, have been in existence for centuries, and it is but
fair to presume that cases like the present, where the vessel has been
insured by such policies, and the cargo insured nndtv marine policies,
must have frequently occurred; and yet no case has been found, in
which it has been held, that the fire policy must contribute to the
loss sustained by the cargo. Not only this, but the proof in the
record shows, that the usage and laws recognized by mercantile men,
and by which such policies are construed, are all against this con-
tention. In determining for the first time a question arising upon
insurance, such usage and laws are entitled to weight, not only
because they are approved and sanctioned by practical and sagacious
men, in regard to a subject-matter, in which they are alike interested,
but also because the parties must be presumed to have contracted
with reference to them. In fact it has been said, that the whole
law of insurance has done little else, than to adopt such laws and
usages, and to give to them the force of authority.
In the absence then of any authority to support the appellant's
contention, let us see whether it can be supported on principle.
The whole scope and object and purposes of d. fire policy, are different
from those of a marine policy. By the former, the insurer agrees
to indemnify against loss by fire. That is the only peril for the loss
by which he agrees to become responsible; and we have no right to
enlarge the contract, or to extend the risk by implication. By a
marine policy, the underwriter engages to pay not only the loss or
damage to the thing insured, but also to reimburse the owner all
sums paid by him under the laws of general average.
TERMS OF THE MARINE INSURANCE CONTRACT. 235
General average is a contribution by all the parties in a sea
adventure^ to a loss suffered for the common benefit of all. In such
cases, where any sacrifice is deliberately and voluntarily made, or
any expense is fairly and bona fide Xwcw^x^A^ to prevent total los^,
or some greater disaster, it is but just and right, that the sac-
rifice or expense should be borne relatively by the owner of the ship,
freight and cargo, to the end, that the loss may fall equally upon all
the parties in interest. Birkley \. Fresgrave, i East, 228; Hallett
V. Wigrajn, 9 C. B. 580; Fletcher v. Alexander^ 37 L. J. (C. P.) 196.
L. R., 3 C. P. 380. For risks thus assumed, and which may be
said to be coextensive with the perils of the sea — embracing general
average, salvage and abandonment, the insured pays a premium
more than five times greater than the premium against loss by fire
alone. If the appellant desired protection against the risk of gen-
eral average, or against other perils of the sea, he should have insured
under a marine policy. If he preferred to insure at a lower rate of
premium, and to take upon himself all risks, other than loss by fire,
he has no reason to complain, because the insurer refuses to reim-
burse him for a loss not covered by the policy; and which by the
well-settled law of insurance constituted no part of the contract
between the parties.
In the many cases relied on by the counsel for the appellant, the
questions considered and decided arose on marine policies, under
which the rights and obligations of the parties are altogether
different from those belonging and incident to a fire policy. The
policy sued on in this case limits the liability of the appellee to
losses to the steamer itself by fire, and upon such a policy, the appel-
lant is not entitled either upon principle or upon authority to recover
the amount which under the law of general average, he was obliged
as owner of the vessel to contribute to the cargo, even though the
damages to the cargo were occasioned by the means used to extin-
guish the fire in the vessel.
The statement of facts shows, that the damages direct and indirect
to the steamer were $2,500, and this sum the appellee tenders itself
ready to pay. There was no error therefore in refusing to grant
the appellant's prayers, and the judgment must be affirmed.
Judgment affirmed.
236 THE TERMS OF THE INSURANCE CONTRACT.
7. Total Loss and AuANUoNMtNT.
BRADLIE ET AL V. MARYLAND INSURANCE CO.
12 Pet. 378. — 1833.
Mr. Justice Story delivered the opinion of the court:
This cause comes before the court upon a writ of error to the
Circuit Court of Maryland District. The original action was upon
a policy of insurance dated the 22d of Novt-mber, 1832, whereby the
defendants, The Maryland Insurance Company, caused the plaintiffs
by their agents, William Howell & Son, to be insured, lost or not
lost, ten thousand dollars, at a premium of four per cent., on the
brig Gracchus, Snow, master (valued at that sum), at and from
Baltimore, for six calendar months, commencing that day at noon;
and if she be on a passage at the expiration of that time, the risk to
continue at the same rate of premium, until her arrival at the port
of destination The declaration alleged a total loss by the casting
ashore and stranding of the brig on the 23d of March, 1833, in the
rivet Mississippi. Upon the trial of the cause it appeared in evi-
dence that the brig sailed from Baltimore on a voyage to New
Orleans, and safely arrived there; and took on board part of her
cargo (pork and sugar) at that port on a voyage for Baltimore; and
about the middle of the 23d day of March, 1833, sailed from New
Orleans, intending to proceed to Sheppard's plantation, on the river
Mississippi, about thirty-three miles below New Orleans, to take in
the residue of her cargo for the same voyage. At the English Turn,
about twenty-two miles from New Orleans, the brig attempted to
come to anchor, and in so doing lost the small bower anchor; and
then dropped the best bower anchor, which brought her up. The
next morning, while the brig w :, proceeding on her voyage, she
struck on a log, broke the rudder pintles, when she fell off and
went on shore. A signal was then made for a steamboat in sight,
which came to the assistance of the brig, and in attempting to
haul her off the hawser parted. It was then found that the brig
was making water very fast. Help was obtained from a neighbor-
ing plantation They commenced pumping and discharging the
cargo on board of the steamboat; and after discharging all the pork
and part of the sugar, they succeeded in freeing the ship on the
afternoon of the same day. She was then got off and proceeded to
New Orleans, where she arrived the same night, she continuing to
leak, and both pumps being kept going all the time. The next
day the master understood that the steamboat claimed a salvage of
fifty per cent., and intended to libel for it. On the 27th of the
same month the brig was taken across the river for repairs. On
TERMS OF THE MARINE INSURANCE CONTRACT. 237
the same day the brig was libelled for salvage in the District Court
of Louisiana.
On the 25th of March, Snow, the master, wrote a letter to one of
the owners containing an account of the loss and state of the brig,
and also of the claim by the salvors of fifty per cent., which the
underwriters on the cargo and himself had objected to, adding that
they should hold the steamboat liable for any damage that might be
incurred on account of the detention.
On the 22d of April, Messrs. Howell & Sons addressed a letter to
the company, submitting the letter of the 25th of March to the
company and say therein: "In consequence of the damage,
together with the detention that must grow out of a lawsuit (in
which it appears that the vessel is involved), the voyage being
broken up; we do hereby abandon to you the brig Gracchus, as
insured in your office, per policy No. 13,703, and claim for a total
loss." On the same day the company returned an answer, saying:
" We cannot accept the abandonment tendered in your letter of this
date; but expect you to do what is necessary in the case, for the
safety and relief of the vessel." * * *
The instructions of the court actually given in these prayers
involve the following propositions: i That if the expenditures in
repairing the damage exceeded half the value of the brig at the port
of New Orleans, after such repairs were made, including therein the
salvage awarded to the salvors, the plaintiffs were entitled to recover
for a total loss under the abandonment made on the 22d of April,
1833. * * *
In considering the first it is material to remark that by the well-
settled principles of our law, the state of the facts, and not the state
of the information at the time of the abandonment, constitutes the
true criterion, by which we are to ascertain whether a total loss has
occurred or not, for which an abandonment can be made. If the
abandonment, when made, is good, the rights of the parties are
definitely fixed; and do not become changed by any subsequent
events. If, on the other hand, the abandonment, when made, is not
good, subsequent circumstances will not affect it so as, retro-
actively, to impart to it a validity which it had not at its origin. In
some respects our law on this point differs from that of England;
for, by the latter, the right to a total loss, vested by an abandon-
ment, may be divested by subsequent events, which change that
total loss into a partial loss. It is unnecessary to cite cases on this
subject, as the diversity is well known; and the courts in neither
country have shown any disposition of late years to recede from
their own doctrine. The cases of Rhinelander v. The Insurance
238 THE TERMS OK THE INSURANCE CONTRACT.
Companv of Pennsylvania, 4 Cranch, 29, and Marshall w The Dela-
7i>are Insurance Company, 4 Cranch, 202, are direct affirmations of
our rule; and those of Bainbridge v. Neilson, 10 East's Rep. 329;
Patterson v. Ritchie, 4 M. & Selw. 394, and M ' Peer v. Henderson, 4
M. (S: Selw 584, of the English rule.
1 1 cases where the abandonment is founded upon a supposed
technical loss, by a damage or injury exceeding one-half the value
of the vessel, although the fact of such damage or injury must
exist at the time, yet it is necessarily open to proofs, to be derived
from subsequent events. Thus, for example, if the repairs, when
subsequently made, clearly exceed the half value, it is plain that
this affords one of the best proofs of the actual damage or injury.
On the other hand, if the subsequent repairs are far below the half
valuf^; this, so far as it goes, affords an inference the other way.
But it is not, and in many cases cannot be decisive of the right to
abandon. In many cases of stranding the state of the vessel at the
time may be such, from the imminency of the peril and the apparent
extent of expenditures required to deliver her from it, as to justify
an abandonment; although, by some fortunate occurrence, she may
be delivered from her peril without an actual expenditure of one-
half of her value after she is in safety. Under such circumstances,
if, in all human probability, the expenditures which must be incurred
to deliver her from peril are, at the .ime, so far as any reasonable
calculations can be made, in the highest degree of probability,
beyond hdlf value; and if her distress and peril be such as would
induce a considerate owner, uninsured and upon the spot, to withhold
any attempt to get the vessel off because of such apparently great
expenditures, the abandonment would doubtless be good. It was
to such a case that Lord Ellenborough alluded in Anderson v.
Wallis, 2 M. & Selw., when he said: "There is not any case nor
principle which authorizes an abandonment, unless where the loss
has been actually a total loss or in the highest degree probable at
the time of the abandonment." Mr. Chancellor Kent, in his learned
Commentaries (vol. 3, 321), has laid down the true results of the
doctrine of law on this subject. " The right of abandonment (says
he) does not depend upon the certainty, but upon the high proba-
bility of a total loss, either of the property, or of the voyage, or
both. The insured is to act, not upon certainties, but upon proba-
bilities; and if the facts present a case of extreme hazard and of
probable expense, exceeding half the value of the ship, the insured
may abandon; though it should happen that she was afterwards
recovered at a less expense." We have no difficulty, therefore, in
acceding to the argument of the counsel for the plaintiffs in error on.
TERMS OF THE MARINE INSURANCE CONTRACT. 239
this point. • But its application to the ruling of the court will be con-
sidered hereafter.
In respect to the mode of ascertaining the value of the ship, and,
of course, whether she is injured to the amount of half her value, it
has, upon the fullest consideration, been held by this court that the
true basis of the valuation is the value of the ship at the time of the
disaster; and that, if after the damage is or. might be repaired, the ship
is not, or would not be worth, at the place of the repairs, double the
cost of the repairs, it is to be treated as a technical total loss. This
was the doctrine asserted in the Patapsco Insurance Co. v. Southgate,
5 Peters, 604; in which the court below had instructed the jury that
if the vessel could not have been repaired without an expenditure
exceeding half her value at the port of the repairs, after the repairs
were made, it constituted a total loss. This court held that instruc-
tion to be entirely correct. It follows, from this doctrine, that the
valuation of the vessel in the policy, or the value at the home port,
or in the general market of other ports, constitutes no ingredient in
ascertaining whether the injury by the disaster is more than one-half
the value of the vessel or not. For the like reason, the ordinary
deduction, in cases of a partial loss, of one-third new for old from
the repairs is equally inapplicable to cases of a technical total loss by
an injury exceeding one-half of the value of the vessel. That rule
supposes the vessel to be repaired and returned to the owner, who
receives a corresf)ondent benefit from the repairs beyond his loss to
the amount of one-third. But in the case of a total loss the owner
receives no such benefit; the vessel never returns to him, but is
transferred to the underwriters. If the actual cost of the repairs
exceeds one-half of her value after the repairs are made, then the
case falls directly within the predicament of the doctrine asserted
in the case of 5 Peters, 604. The same limitations of the rule, and
the reasons of it, are very accurately laid down by Mr. Chancellor
Kent in his Commentaries (3 vol. 330), and in Da Costa v. Newn-
ham^ 2 Term Rep. 407.
If with these principles in view we examine the first instruction
given in th;s case in the Circuit Court, it will be found to be per-
fectly correct. Indeed, that part of the instruction which declares
that if the brig "could not be got off and repaired without an
expenditure of money to an amount exceeding half her value at the
port of New Orleans, after such repairs were made, then the plain-
tiffs are entitled to recover for a total loss under the abandonment,"
is [)recisely in the terms of the instruction given in The Patapsco
Insurance Company v. Southgate, 5 Peters, 604. The error, which
has been insisted on at the argument by the plaintiffs, is in the
240 THE TERMS OF THE INSURANCE CONTRACT.
additional direction; that "in ascertaining the amount of such
expenditure the jury must include the sum for which the brig was
liable to the salvors according to the decree of the District Court of
Louisiana stated in the evidence; " which, it is contended, removed
from the consideration of the jury the right to take into the account
the high probability, at the time of the abandonment, of the allow-
ance of a greater salvage, and even to the extent of the fifty per cent.
then claimed by the salvors. And in support of the argument it is
insisted that the state of the facts and the high probabilities at the
time of the abandonment constitute the governing rule, and not the
ultimate result in the subsequent events. But it appears to us that
the argument is founded upon a total misunderstanding of the true
import of this part of the instruction. The court did not undertake
to say, and did not say, that the jury might not properly take into
consideration the high probability of a larger salvage at the time of
the abandonment, but simply that the jury must include in the hall
value the amount of the actual salvage decreed, because that was,
in truth, a part of the loss. The instruction was, therefore, not a
limitation restrictive of the rights and claims of the plaintiffs, but
in fact a direction in favor of their rights and claims and in support
of the abandonment. This is demonstrated by the then actual
position of the cause. The defendants have asked an instruction
that the costs of tlie repairs only, exclusive of the salvage, should
be taken mto consideration in estimating the half value, and also
that the one-third new for old should be deducted from the amount
of the cost in estimating the half value. The court in effect nega-
tived both instructions; and in the particulars now objected to there
was a positive direction to the jury not to exclude but to include the
salvage in the estimate of the loss. In this view of the matter the
instruction was most favorable to the plaintiffs, and so far from
excluding evidence- which might show the amount of the actual
damage at the time of the abandonment, it resorted, and very prop-
erly resorted, to the subsequent ascertainment of salvage as positive
e\idence that to that extent at least the actual damage was enhanced
beyond the cost of the repairs. We are entirely satisfied with this
part of the instruction in this view, which seems to us to be the true
interpretation of it. * * * '
' In the Sailing Ship '"Blairinore" Co. v. Macredie, [1898] A. C. 593, the ship
was struck by a squall and sunk. The English rule as to constructive total loss
is thus stated (p. 612): " The test of whether a constructive total loss has or
has not occurred is to be found in the answer to be given to the question. What
would a prudent owner do if not insured? If such an owner having regard to
all ihe circumstances, would abandon his vessel and would not attempt to raise
TERMS OF THE MiVRINE INSURANCE CONTRACT. 24I
8. Particular Average and the Memorandum Clause,
INSURANCE COMPANY v. FOGARTY.
19 Wall. 640. — 1873.
Error to the Circuit Court for the Southern District of New York.
Fogarty sued the Great Western Insurance Company on a policy
of marine insurance and recovered a judgment for $2,611.95 and
costs. The policy was an open one, and the indorsement procured
by the plaintiff on it was of insurance for $2,250 on machinery on
board the bark Ella Adele, at and from New York to Havana, free
from particular average. The memorandum clause of the policy
provided that machines and machinery of every description were
warranted by the assured free from average unless general. The
machinery insured consisted of the various parts necessary for a
complete sugar-packing machine, including as part of it three sets
of truck irons and also other extra truck irons. It was described in
the bill of lading and invoice as eight pieces and eight boxes, com-
posing one sugar-packer and three trucks.
The vessel on which these articles were being transported from
New York to Havana, just before reaching the latter city, was driven
on rocks in a violent gale, was filled with water, and finally became
a total wreck, and was abandoned to the underwriters. Their
agent at Havana took possession, and was engaged about a month
in raising the cargo. A large number of the pieces composing the
plaintiff's machinery was recovered and tendered to him at Havana,
which he refused to receive on the ground that the insurance com-
pany was liable to hi-n as for a total loss. They denied that under
the circumstances of the case there was a total loss within the mean-
ing of the policy, and the soundness of the instruction to the jury
and repair her, because the cost of doing so would exceed her value when thus
restored to hei former condition, a constructive total loss has been incurred."
At p. 6ro the English rule as to when the rights of the parties are fixed by an
abandonment is stated to be " that if in the interval between the notice of aban-
donment and the time when legal proceedings are commenced there has been a
change of circumstances reducing the loss from a total to a partial one or in
other words, if at the time of action brought the circumstances are such that a
notice of abandonment would not be justifiable, the assured can only recover
for a partial loss." In this case, after the vessel was sunk, notice of abandon-
ment was given to the insurers, but thereafter and before action brought, they,
at their own expense, raised the ship and claimed that as the ship could at the
date of the action have been repaired by the expenditure of less money than her
total value, the loss was not total but a partial one. It was held that the insur-
ers could not char.ge a total loss of this character into a partial loss by raising
the ship at their own expense. See also IVnllace v. Ins. Co., 22 Fed. 66.
LAW OF INSURANCE — l6
242 THE TERMS OF THE INSURANCE CONTRACT.
on that point, given and refased by the Circuit Court on the trial,
was the only question now before this court.
There was very little conflict of testimony as to what was
recovered and what was its condition when tendered to plaintiff.
It was all of iron. About half of it in weight was saved and the
remainder left at the bottom of the sea. That which was saved was
entirely useless as machinery, and was of no value except as old
iron, for which purpose it would sell for about $50, The machinery
in working order was worth $2,250. That which was saved was
much broken and rusted, so that it would cost more to repair it,
polish it, and put it in order for use than to buy a new machine.
Upon the testimony offered by the plaintiff the counsel for the
defendant moved the court to instruct the jury that the action could
not be sustained because it showed that th°re was not a total loss.
The court declined to do this, and the request was renewed at
the conclusion of the defendant's evidence and again declined.
Several prayers for instruction were then presented by the defend-
ant, based upon the leading proposition that if any of the pieces of
the machinery insured was recovered and tendered in specie to the
assured, there was no total loss. These were refused and exceptions
taken to all these refusals, on which error is assigned here. An
exception was also taken as to the charge of the court laying down
the law by which the jury were to decide the question of total loss
submitted to them. Th.it charge was in the following words:
" The meaning of the term ' free from particular average,' used
in the policy, was that the defendants should be liable only for a
total loss of the subject insured; that the subject insured was not
machines, but machinery, by which is generally understood the
several parts or portions of machines, adapted and fitted to be put
together so as to constitute a machine (in this case a sugar-packing
machine), and, applying the rule of law as to what constitutes a
total loss to this particular subject insured, the jury will find whether
any piece or portion of the machinery insured arrived at its destina-
tion in a perfect condition, so that it could have been used with
its corresponding or connecting pieces had they also arrived in good
condition; in that case the plaintiffs could not recover, as the loss
would not be total; but that if every piece of machinery was so
damaged by the perils insured against as to be entirely unfit for use
on being supplied with its corresponding or connecting pieces, then
there was a total loss of the subject insured as machinery, although
the material itself might still exist; and if they so found they would
find a verdict for the plaintiff for the sum named in the policy with
interest from the tenth day of September, 1868."
TERMS OF THE MARINE INSURANCE CONTRACT. 243
Verdict and judgment having gone for the plaintiff, the insurance
company brought the case here.
Mr. Justice Miller delivered the opinion of the court. The
question presented in this case for consideration has been often in the
courts, and the discriminations between what is total loss and what
is not are frequently very nice and delicate. The authorities are by
no means uniform or consistent with each other when, as in the
present case, the line of distinction is very narrow. Several other
cases bearing upon the one before us have been decided in this
court, and perhaps a short review of them may aid us here better
than a more extended examination of the numerous other authori-
ties on the subject.
la the case of Biays v. Chesapeake Insurance Co., 7 Cranch, 415,
the plaintiff was insured upon hides, the whole number of which was
14,565. Of these 7S9 were totally lost by the sinking of a lighter,
and 2,491 of those sunk were fished up in a damaged condition and
sold. The hides were memorandum articles, and this court held
that inasmuch as less than 800 hides insured as part of a much larger
number of the same kind was lost, it could not be a total loss, and
overruled the argument that it was a total loss as to the 789 hides.
In the case of Marcardeir v. Chesapeake Insurance Co., 8 Id. 47, it
is said that " it seems to be the settled doctrine that nothing short
of a total extinction either physical or in value of memorandum
articles at an intermediate port would entitle the insured to term
the case a total loss, where the voyage is capable of being performed.
And perhaps even as to extinction in value where the commodity
specifically remains, it may yet be deemed not quite settled whether,
under like circumstances, it would authorize an abandonment for a
total loss.*
In the case of Morean v. The United States Insurance Co., i
Wheaton, 219, more than half of a cargo of corn was thrown over-
board anJ lost. The remainder was saved in a damaged condition
and soKl at about one-fourth the market value of sound corn. This
was held not to be a total loss, because part of the corn was saved,
and though damaged, was of some value. It was, therefore, only a
partial loss.
The next case is that of Hugg v. The Augusta Insurance Co., 7
Howard, 595. The question there arose on an insurance of jerked
beef of 400 tons, part of which was thrown into the sea and part of
the remainder was so seriously damaged that the authorities of the
city of Nassau refused to allow more than 150 of it to be landed.
This was wet and heated, and not in a condition for reshipment.
I- v-!?vv"r ti a question on this subject, certified to this court by
244 THE TERMS OF THE INSURANCE CONTRACT.
the judges of the Circuit Court, it was replied, " that if the jury
found that the jerked beef was a perishable article within the mean-
ing of the policy, the defendant is not liable as for a total loss of
the freight, unless it appears that there was a destruction in specie
of the entire cargo so that it had lost its original character at Nas-
sau, or that a total destruction would have been inevitable from the
damage received if it had been reshipped before it could have arrived
at Matanzas, the port of destination." And though there are some
very strong expressions of the judge who delivered the opinion as
to the necessity of the total destruction of the tiling insured, to
establish a total loss in memorandum articles, no doubt the language
here certified is the true expression of the court's opinion. And it
will be observed that in this case, as in the case of Marcardeir v.
Chesapeake Insurance Co., the destruction spoken of is destruction
as to species, and not mere physical extinction. Indeed, philosoph-
ically speaking, there can be no such thing as absolute extinction.
That of which the thing insured was composed must remain in its
parts, though destroyed as to its specific identity. In the case of
the jerked beef, for instance, it might remain as a viscid mass of
putrid flesh, but it would no longer be either beef or jerked beef.
And when the case went back for trial in the Circuit, the charge of
Taney, C. J., to the jury places this point in a very clear light.
Taney's Decisions, i68. He savs there was not a total loss at
Nassau, because a part of the jerked beef remained in specie, and
had not been destroyed by the disaster. And if there was reason-
able ground for believing that a poition of this beef could, by
repairing the vessel, have been transported to Matanzas, although
it might arrive there in a damaged condition, but yet retaining the
character of Jerked beef , there was no total loss. The jury found
there was a total loss. The case of Judah v. Randal, 2 Caine's
Cases, 324, where a carriage was insured and all lost but the wheels,
is another illustration of the principle. A part of the carriage,
namely, the wheels, a very important part, was saved; but the court
held that the thing insured, to wit, the carriage, was lost — that it
was a total loss. Its specific character as a carriage was gone.
In the case of Wallerstein v. The Columbian Insurance Co., 44 New
York, 204, the whole doctrine is ably reviewed with a very full ref-
erence to previous decisions, and it is there shown that there is far
from unanimity in the language in which the rule is expressed; and
the extreme doctrine of an absolute extinction or destruction of the
thing insured is not the true doctrine, or, at least, is not applicable
in all cases as a criterion of total loss.
The Circuit C-^url was rigln in holding that what was insured was
TERMS OF THE MARINE INSURANCE CONTRACT. 245
machinery • — pieces or parts of a machine — pieces made and
shaped to unite at points with other pieces, so as to make a sugar-
packing machine. If parts of them were absolutely lost, and every
piece recovered had lost its adaptability to be used as part of the
machine; had lost it so entirely that it would cost as much to buy a
new piece just like it, as to repair or adapt that one to the purpose,
Thtn there was a total loss of the machinery. If no piece recovered
\vMs of any use, or could be applied to any use connected with the
machine of which it was a part, without more expense on it than its
original cost, then there was no part of the machinery saved, how-
ever much of rusty iron may have been taken from the wreck.
The court went quite as far in behalf of the defendant as the law
justified, when it told the jury that the plaintiff could not recover
if any piece or portion of the machinery insured arrived at its des-
tination in a condition so perfect that it could have been used with
its corresponding or connecting pieces, had they also arrived in
good condition.
We are of the opinion that the charge of the court put the case
very fairly to the jury, as we understand the law, and the judgment
is, therefore,
Affirmed.'
9. Sue and Labor Clause.
AITCHISON V. LOHRE.
4 A. C. 755. — 1879.
Lord Blackburn. * * * j^ appears from the statements in
the case that the Critnea on the voyage home during the month of
January encountered a succession of stormy weather, and in con-
sequence of the perils of the seas great damage was done to her,
and she was reduced to a leaky and water-logged condition. It
appears, incidentally, that some general average had arisen, for a
proportion of which the ship was liable. The case then states that
" On the 30th of January, the ship, being then in great danger of
being completely lost, and being without fresh water or provisions,
and in a helpless condition and not capable of being navigated,
those on board of her sighted the steamship Texas, which ultimately
took her in tow, without any agreement being come to as to remunera-
tion for the service, and took her into Queenstown, and on or before
the nth of March she was placed in safety near the wharf of the
Victoria Dry Dock Company. * * *
' See also Mayo v. Ins. Co., 152 Mass. 172.
246 THE TERMS OF THE INSURANCE CONTRACT.
But there is a second point on which the courts below differed.
The policy contains the usual clause as to suing or laboring. The
Queen's Bench Division was of the opinion that the salvage, or
general average expenses, described in the case did not come within
that clause. The Court of Appeal was of a different opinion. In
the judgment delivered by Lord Justice Brett, it is said, 3 Q. B. D.
at p. 566, that " the general construction of the clause is that if, by
perils insured against, the subject-matter of insurance is brought
into such danger that, without unusual or extraordinar}' labor or
expense, a loss will very probably fall on the underwriters, and if the
assured or his agents or servants exert unusual or extraordinary
labor, or if the assured is made liable to unusual or extraordinary expense
in or for efforts to avert a loss, which, if it occurs, will fall on the
underwriters, then each underwriter will," etc. Now if the part of
this which is above emphasized is correct, there can be no question
that both salvage and general average are unusual expenses to which
the assured have become liable in consequence of efforts to avert a
loss. And such seems to be the opinion of the editor of the last
edition of Arnould on Insurance, who says, 2 Arn. 5th Ed. at p. 778,
that salvage " is recoverable from him in virtue of an expense clause
in the policy inserted for such a case, and known as the sue and
labor clause; " but for that position he cites no authority, and
though the Court of Appeal, in this case, agreed with him, I am
unable to do so. With great deference to the judges of the Court
of Appeal, I think that general average and salvage do not come
within either the words or the object of the suing or laboring
clause, and that there is no authority for saying that they do. The
words of the clause are that in case of any misfortune it shall be
lawful " for the assured, their factors, servants, and assigns, to sue,
labor, and travel for, in, and about the defence, safeguard an 1
recovery of" the subject of insurance, " without prejudice to this
insurance, to the charges whereof we the insurers will contribute."
And the object of this is to encourage and induce the assured to
exert themselves, and, therefore, the insurers bind themselves to
pay in proportion any expense incurred, whenever such expense
is reasonably incurred for the preservation of the thing from loss, in
consequence of the efforts of the assured or their agents. It is all
one whether the labor is by the assured or their agents themselves,
or by persons whom they have hired for the purpose, but the
object was to encourage exertion on the part of the assured; not to
provide an additional remedy for the recovery, by the assured, of
= indemnity for a loss which was, by the maritime law, a consequence
of the peril. In some cases the agents of the assured hire persons to
TERMS OF THE MARINE INSURANCE CONTRACT. 247
render services on the terms that the}' shall be paid for their work
and labor, and thus obviate the necessity of incurring the much
heavier charge which would be incurred if the same services were
rendered by salvors, who are to be paid nothing in case of failure,
and a large remuneration proportional to the value of what is saved
in the event of success. I do not say that such hire may not come
within the suing and laboring clause. But that is not this case.
The owners of the Texas did the labor here, not as agents of the
assured, and being to be paid by them wages for their labor, but as
salvors acting on the maritime law, which, as explained by Lord
Chief Justice Eyre, in Nicholson v. Chapman^ 2 H. Bl. at p. 257,
already cited, gives them a claim against the property saved by their
exertions, and a lien on it, and that quite independently of whether
there is an insurance or not; or whether, if there be a policy of
insurance, it contains the suing or laboring clause or not. The
amount of such salvage occasioned by a peril has always been
recovered, without dispute, under an averment that there was a loss
by that peril; see Cary v. King, Cas. t. Hardw. 304; and I have not
been able to find any case in which it was recovered under a count
for suing and laboring. I do not much rely on this, for it is very
likely that such counts often were in the declaration, and that
therefore, no inquiry was made whether the loss was recoverable
under one count or another; but at least there is no authority for
the position that salvage (properly so called) was recoverable under
that count.
There have been very few cases in our courts in which it has
become necessary to discuss the nature of the suing and laboring
clause. Kidston v. The Marine Insurance^ Law Rep., i C. P. 535,
is, I think, the only one in which there has been a recovery under
it. There, however, all the extra labor was directly and voluntarily
employed by the agents of the assured; and the charges were paid
by them in consequence of this employment. In the very able and
elaborate judgment of Mr. Justice Willes, not a word can be found
to countenance this extension of the construction of the clause
beyond what seems to me both its language and its object; and,
except the passage introduced for the first time into Arnould by the
present editor, I can find nothing in any text-book tending to sup-
port it. I, therefore, think that the judgment of the Court of
Appeal should be reversed and that of the Queen's Bench Division
restored. * * *
[Opinions also by the Lord Chancellor, by Lord Hatherlev
and by Lord O'Hagan.]
248 THE TERMS OF THE INSURANCE CONTRACT.
IV. Terms of the Life Insurance Contract.
I. Age.
^TNA LIFE INSURANCE CO. v. FRANCE et al.
91 U. S. 510. — 1875.
Mr. Justice Hunt. — The action was assumpsit to recover $10,000,
the amount of a policy insured upon the life of Andrew J. Chew, in
July, 1S65. * * * Xhe policy contained the following clause:
" And it is also understood and agreed to be the true intent and
meaning hereof, that if the proposal, answ^ers, and declaration made
by said Andrew J. Chew, and bearing date of the 12th day of July,
1865, and which are hereby made part and parcel of this policy as
fully as if herein recited, and upon the faith of which this agreement
is made, shall be found in any respect to be false or fraudulent,
then and in such case this policy shall be null and void." The
issuing of the policy was preceded by a proposal for insurance,
which contained a number of questions propounded to Chew by the
company, with the answers made by him. * * *
Among others were the following questions and answers, viz.:
" 4. Q. Place and date of birth of the party whose life is to be
insured?
" A. Born in 1835, interlined (Oct. 28), Gloster county, N. J.
" 5. Q. Age next birthday?
" A. Thirty years." * * *
Evidence upon both sides was given as to the age of Chew tend-
ing to show that he was thirty-seven years old, or at least thirty-five
years old, when he signed the application. * * *
The judge was requested to charge, — 5. If the jury believe that
the answers to questions Nos. 4 and 5 in the application for insur-
ance, as to the date of birth, and age next birthday, of said Andrew
J. Chew, were false and untrue, the policy issued upon the applica-
tion is void, and their verdict must be for the defendants.
In response to this request, the judge said, " If the jury believe
that the answer to the questions numbered 4 and 5 were materially
untrue as to the age of the said Andrew J. Chew, the policy is void,
and the verdict must be for the defendants." The defendants were
entitled to the charge they requested, without the addition made by
the judge of the word " materially." The judge, however, proceeded
to say, " And if he was thirty-seven, or even thirty-five years old,
the difference was not immaterial. I give the fifth instruction as
requested."
The process of reasoning by which the learned judge reached his
TERMS OF THE LIFE INSURANCE CONTRACT, 249
conclusion on this point we have held to be erroneous, viz.: that,
to make the representation important, it must be material to the
risk assumed; that the representation that he was but thirty years
old, when he was thirty-seven, or even thirty-five, was material to
the risk; and, if the jury believed that he was of the greater age
mentioned, their verdict must be for the defendants; and, therefore,
he charged as requested. The charge should have been, that, as
Chew had represented himself to be but thirty years of age, if the
jury found him then to be thirty-five years old, the false statement
would avoid the policy, and they must find for the defendants, rest-
ing his direction upon the falsity alone of the statement.
Still we do not see that the defendants can ask relief for this
reason. The charge was right, and could not be misunderstood by
the jury. The allegation of the defendants was that Chew had mis-
represented his age in the manner stated, and therefore the policy
should be adjudged void. The judge charged that, if he had so
misrepresented, the policy was void, and the verdict must be for the
defendants. We think no valid exception can be taken to this
charge. * * * »
2. Health.
MAINE BENEFIT ASSOCIATION v. PARKS,
81 Me. 79. — 1888,
Peters, C. J. — The complainants, by this bill, seek to have
cancelled a life insurance policy, issued by them to Alice J. Parks,
for the benefit of her husband. It is claimed that the policy was
wrongfully obtained, or improvidently issued. She has died since
this proceeding was instituted. The policy being for the benefit of
'" We are of opinion that the jury should have been instructed, as requested
by the defendant, that ' an understatement of age increases the risk of loss in
a'life insurance contract as matter of law.' The jury were permitted to find,
as a matter of fact, that such a misstatement did not increase the risk, and to
return a verdict for the plaintiff on that ground. It seems clear that death is
likely to come more quickly to a persdn of a given age in sound health than if
he were considerably younger, all other conditions being the same. It may be
that in an insurance for a short term, or upon an endowment policy, the rule
is not applicable to persons of every age and in all conceivable conditions; but
upon a policy for life we think it should be held, as matter of law, that a mate-
rial increase of age increases the risk. See Brown v. Greenfield Life Associa-
tion^ 172 Mass. 498; Rainger v. Boston Mutual Life Association, 167 Mass. 109."
— Dolan V. Assoc, 173 Mass. 197, 200.
250 THE TERMS OF THE INSURANCE CONTRACT.
her husband, the bill may be continued against him as her survivor.
The ground upon which the bill seeks a cancellation of the policy
is, that she falsely stated in her application that she was at the date
in good health, and that she had usually had good health. She
declares at the close of her application, which is made a part of the
policv, that she warrants all her statements in general and particu-
lar to be true to the best of her knowledge and belief, and that any
untrue or fraudulent statement or concealment of facts by her shall
forfeit and cancel all rights to any benefit under the policy. The
questions of fact, whether she had good health when insured, and
whether she usually had good health, were submitted to a jury
which found in her favor. The motion is, by the complainants,
not only to set the verdict aside, but that the court, notwithstand-
ing the verdict, shall declare the policy to be void. The judge has
reported the evidence, on this motion, to the full court for its
decision of the questions presented. Possibly a question exists as to
whether her answers in the application are warranties or representa-
tions, and nice distinctions may be found in the decided cases
between the two kinds of contract. But that is immaterial here,
as in either case the policy should be declared void, if the state-
ments were untrue. It matters not whether they were warranted
to be true, or merely represented to be true, if in fact untrue.
Campbell v. Life Ins. Co., 98 Mass. 381; 2 Pars. Cont., cited post,
and cases.
The insured was about twenty-four years old, had three children,
one about six months old, when her application was made. She
was confined by the birth of her infant in November, 1887, and
was sick of typhoid fever in January, 1888, from which she got up
sometime in March afterwards. Her application is dated March i,
1888, she was examined by the medical agent of the company on
April i8th, and her application was approved by the company on April
22d. On May 12, 1888, her physician was called, who found her
weak, with a cough, and sick with consumption, from which disease
she died on the 21st of July afterwards. The complainants con-
tended that she was sick of incipient consumption as early as when
her application was tendered to the company, and that she never
really recovered from the effects of the fever, with which she was
afflicted at the beginning of the year. These positions are denied
by the other side.
The usual question arises as to what is good health, and, as we
find no statement of the law on the question more satisfactory than
that of Professor Parsons, summarized from the authorities, we
quote from it as expressive of our views on the subject: " The
TERMS OF THE LIFE INSURANCE CONTRACT. 25 1
health of the body required to make the policy attach, does not
mean perfect and absolute health; for it may be supposed that this
is seldom to be found among men. ' We are all born,' said Lord
Mansfield, ' with the seeds of mortality in us.' Nor can there be
any other definition or rule as to this requirement of good health
than that it should mean that whicn would ordinarily and reasonably
be regarded as good health. Nor should we be helped by saying
that this good health must exclude all disorders, or infirmities, which
might possibly shorten life; for, as has been well said in an instruc-
tive English case, that may be said of every disorder or infirmity^.
But it must obviously be very difficult to determine questions like
these by any general rule. And it is the usual practice of courts to
leave these questions to the jury. * * * Courts and juries
usually, and we think properly, construe these questions and answers
quite liberally in favor of the answerer, and quite strictly against the
insurers, unless there be a reasonable suspici jn of fraud. The good
faith of the answers should be perfect. The presence of it goes very
far to protect a policy, while a want of it would be an element of
great power in the defense." 2 Pars. Cont. (6th ed.) 465.
There is obviously a close line between incipient disease, disease
in its first stages, and merely a bodily condition which is susceptible
to the contraction of disease. A weak person may be well, and a
strong person sick. And, of course, a person may have a disease
upon him without knowing it. The complainants contend that,
whether the insured knew or appreciated the fact or not, there was
an unbroken connection between the fever and the consumption, one
running into the other, the effect of which caused death, and that
it was impossible that she was in good health when insured. We
are so strongly impressed, that the jury have committed error in
their findings, we think the verdict should be set aside, and the case
decided without committing it to a jury again. It would, to our
minds, be flagrant injustice to other policy-holders on the facts
presented, and evidently no other material facts are attainable, to
allow this policy to stand. Larrabee v. Grant, 70 Maine, 79. We
think the bill should be sustained without costs, the policy annulled,
and all premiums received be returned.
Decree accordingly.
Walton, Danforth, Virgin, Emery and Haskell, JJ., con-
curred.'
' " The court also instructed the jury as to the meaning of the term ' good
health ' as follows: ' Good health means that he had no grave, important, or
serious disease. * * * It means a state of health free from any disease or
252 THE TERMS OF THE INSURANCE CONTRACT.
Ragan, C, in KETTENBACH v. OMAHA LIFE ASSOC.
49 Neh. 842, S49. — 1896.
In this application ' the assured was asked if he had then, or had
ever had since childhood, any of fifty-seven named diseases. What
sane man would consciously warrant that ever since his childhood
he had not had any disease of the heart, liver, lungs, kidneys, blad-
der, stomach, or bowels? No sane man would consciously consent
that on the literal truth of his negative answer to such a question
should depend the validity of a life insurance policy. It might
require a post-mortem examination to enable medical experts to
determine whether any of such organs of the assured had since his
childhood been diseased; and yet if these answers were warranties,
and such an examination revealed a diseased organ, the policy
would be void. The language of the lamented Justice Miller in
Insurance Co. v. Eicing, 92 U. S. 377, is applicable here: " How
can a man who has lived forty or fifty years prove that he never
had dyspepsia or a diarrhc^a or any disease of the heart or bowels?
And how can he prove that his habits of life have always been cor-
rect, and that he never drank ardent spirits to the extent of intem-
perance? While it may be easy enough to prove the affirmative of
one of these questions, it is next to impossible to prove the nega-
tive. The number of the questions now asked of the assured in
every application for a policy, and the variety of subjects, and
length of time which they cover, are such that it may be safely said
that no sane man would ever take a policy if proof to the satisfaction
of a jury of the truth of every answer were made known to him to
be an indispensable prerequisite to payment of the sum secured,
that proof to be made only after he was dead, and could render no
assistance in furnishing it." In this case if we are to consPder each
of these statements and answers of the assured to be warranties,
in order to do so we are compelled to adopt one of two assumptions:
We must either presume that the insured was insane or a man of
such colossal ignorance as to render his contracts voidable, or that
ailment thai affects the general soundness and healthfulness of the system
seriously, and not 'a mere indisposition, which does not tend to weaken or
undermine the constitution of the assured. A mere temporary ailment or
indisposition, which does not tend to undermine the constitution at the lime of
taking membership, does not render a policy void.' This charge was but fol-
lowing the language of this court in Brorvn v. Insurance Co., 65 Mich. 306, and
Pudritzky v. Knights of Honor, 76 Id. 428." — Hann v. N'af. Union, 97 Mich.
513. 519-
' The application in this case was, by stipulation in the policy, made a part
of the policy.
TERMS OF THE LIFE INSURANCE CONTRACT. 253
the insurance company, aware of the technical legal meaning of the
term " warranty " (and the assured being ignorant thereof), pur-
posely used it, so that, in case the assured died before the premiums
he paid equaled the amount of the risk, they might use that term
to defeat his representatives. We do not think it fair or just either
to the insurance company or to the insured to indulge either of
these presumptions, but prefer to rest our decision on the proposition
that the conduct and language of the contracting parties lead us to
the conclusion that the mind of the assured never consciously
intended and consented that the answers he made to the questions
propounded to him should be deemed and taken to be warranties,
as that term is understood in insurance law; and we accordingly
hold that the statements and the answers made by the insured in his
application for the policy in this suit were not warranties but repre-
sentations. See ^^tna Life Ins. Co. v. Simmons, 49 Neb. 811, and
cases there cited.
Harlan, J., in MOULOR v. AMERICAN LIFE INSUR-
ANCE CO.
Ill U. S. 335,345.-1884.
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, sin-
cere, not fraudulent. 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 applicant, 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, with-
out evasion or fraud, 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
diseases specified in the application, without being cognizant of the
254 THE TERMS OF THE INSURANXE CONTRACT.
fact, the answer is that the jury would, in that case, have no serious
difficulty in finding that he had failed to communicate to the com-
pany what he knew or should have known was material to the risk,
and that, consequently, for the want of " fair and true answers,"
the policy 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 relieved from liability if it appeared that the
insurer was, in fact, afflicted with the diseases or any of them,
mentioned in the charge of the court. The jury should have been
instructed, so far as the matters here under examination are con-
cerned, that the plaintiff was not precluded from recovering on the
policy, unless it appeared from all circumstances, including the
nature of the diseases with which the insured was alleged to have
been afflicted, that he knew, or had reason to believe, at the time of
his application, that he was or had been so afflicted.'
Medical Attendant. — In Nelson v. Ins. Co., 8i N. W. 807 (la.),
these questions and answers were in the application: " Q. What is
the name and address of your medical attendant, or that of your
family? A. None. Q. What physicians have you consulted here or
elswhere? When? For what complaints? A. None." The com-
pany defended an action upon the policy on the ground that the
insured's answers were false. The court said: "If the insured
consulted a physician, even though for a disease other than that
from which death resulted, or from apprehension of having some
ailment, the defendant was interested in knowing the fact, that
further investigation might be made. By the answers that none
had been seen, it may have been induced to refrain from doing so.
The information as to whether the insured had had occasion to
resort to medical aid, however, would seem of no little importance
to a company about to take a risk on the extent of his life, and, if
' In Powers v. Assoc, 50 Vt. 630, the application and policy stipulated for the
truth of the answers; the court said (p. 636): " It is wholly immaterial whether
the applicant knew of the existence of the disease, because he agreed absolutely
that it did not exist. Nor is it any answer to say that the question is a scien-
tific one. and a layman might easily be deceived into a false answer. Scientific
or simple, the applicant took the'risk of the answer. If he had answered that
he had no knowledge that the disease existed, the finding of the jury might
affect the result."
TERMS OF THE LIFE INSURANCE CONTRACT, 255
f.ilse in this respect, there appears no ground, in the absence of
statutory enactment, for upholding a contract based thereon. As
directly in point see Cobb v. Association (Mass.), 26 N. E. 231, 10
L. R. A. 666; Insurance Co. v. McTague, 49 N. J. L. 587, 9 Atl. 766."
In Sfe7vai-t\. Ins. Co., 81 N. W. 782 (la.), the application contained
this question : " How long since you have consulted a physician? "
The answer was, " Five years." Evidence that the insured had
consulted physicians during the year previous was held insulTficient
to establish the falsity of insured's answer, because the question was
ambiguous, and could be construed to mean either how long " since
he last" or how long " since he first" consulted a physician, and
it did not appear which construction he had given it.
In Supreme Lodge v. Taylor, 24 So. 247 (Ala.), this question was
asked in the application: " Have you consulted a physician during
the last five years? Answer. Yes. When and for what disease ?
Answer. Broken collar bone." Defendant averred that the insured
had taken what is known as the Keeley Cure for alcoholism, and
that said Taylor had warranted the truth of all statements in the
application This plea of defendant was adjudged bad on demurrer,
the court saying, " Drunkeness, in common and ordinary speech at
least, is not a disease, but a habit. We speak of the habit of drink-
ing to excess, never of the disease of such indulgence; of habitual
drunkenness or an habitual drunkard, but never of chronic drunken-
ness or a diseased drunkard."
In Price v. Ins. Co., 17 Minn. 497, 519, the question was, " Name
and residence of the family physician of the party, or of one whom
the party has usually employed or consulted? Answer — have none."
The court saiJ: " The phrase ' family physician ' is in common use,
an.] has not, so far as we are aware, any technical signification. As
used in this instance, and for the purposes of the testimony appear-
ing in this case, the chief justice and myself are of opinion that it
may be suff.ciently defined as signifying the physician who usually
attends, and is consulted by the members of a family in the capacity
of physician."
Heredity. — In Insi/rance Co. v. Gridley, 100 U. S. 614, the appli-
cation contained, among others, the following question: " Have
the person's (whose life is to be assured) parents, uncles, aunts,
brothers or sisters been afflicted with consumption, scrofula, insanity,
epilepsy, disease of the heart or any other hereditary disease^ "
The applicant answered: " No, except one brother, temporarily
insane six months since. Causes, domestic and financial troubles,
followed by hard drinking and excessive use of opium and morphine.
Recovery followed reformed habits. No hereditary taint of any kind
256 THE TERMS OF THE INSURANCE CONTRACT.
in family on either side uf house, to my knowledge." The court said:
" It was material to the risk, and hence important to the insurers, to
know whether either of the maladies named or any serious malady not
named was hereditary in the family of the applicant. If the question
were answered in the affirmative, it might be a reason for declining
to issue the policy. On the other hand, if either of such maladies
existed in a member of the family other than the applicant, but was
not hereditary, and, on the contrary, existed, according to the family
history, for the first time in the person affected, and in that case
was the effect of known contemporaneous causes, then it was not
material to the risk, was of no interest to insurers, and it is fairly
to be presumed they did not care to be advised upon the subject.
This may be illustrated by the case of insanity mentioned in the
answer of the applicant. He says his brother was afflicted in that
way. ' Causes, domestic and financial troubles, followed by hard
drinking and excessive use of opium and morphine.' He adds:
' Recovery followed reformed habits.' This explanation took the
subject wholly out of the scope and purpose of the inquiry by the
company, and made it, as it were, re's inter alios acta.'"
Intoxicants. — For cases upon this subject, eee Terms of the
Accident Insurance Contract, post, p. 295.
3. Occupation.'
4. Other Insurance.
PHCENIX LIFE INSURANCE CO. v. RADDIN.
120 U. S. 183. —1887.
[Reported herein at p. lOS.]
5. Military or Naval Service."
6. Residence and Travel.
Earl, J., in EVANS v. UNITED STATES LIFE INSUR-
ANCE CO.
64 N. Y. 304, 307. —1876.
The policy contained a provision that it should be " void, null
and of no effect," in case Starr, whose life was insured, should,
between the first day of July and the first day of November in any
' For cases uoon this subject, see Terms of the Accident Insurance Contract,
post, p. 299.
* See Occupation under Terms of the Accident Insurance Contract, post, p. 301.
TERMS OF THE LIFE INSURANCE CONTRACT. 257
year, visit any part of the United States lying south of the southern
boundaries of Virginia and Kentucky without the written consent
of the company. In November, 1869, he went to Louisiana and
remained there until he died, on the i8th of March, 1872. The
defendant alleged this as a breach of the policy and refused pay-
ment upon this ground. He had the written permit of the defend-
ant to go to New Orleans and remain there until the ist day of July,
1870. The claim on behalf of the plaintiff is that he became so sick
and feeble that he could not return, and hence that his return was
rendered impossible by the act of God, and that, therefore, his
absence was excused and there was no breach of the policy. Even
if this claim were otherwise valid the facts do not sustain it. The
only proof upon the subject is that he met with an accident before
going south; that his health was very poor in the summer of 1870,
and " he could ride out to the plantation in which he was interested
in a buggy, and ride back, not getting out of it, and was never any-
better." No witness testified that he was too unwell to return
north or that he made any effort to return, and his condition before
July first was not described. To bring the case within the supposed
rule there should have been proof that for some time before July
first he was unable to travel by any of the usual modes; not that it
was merely inconvenient for him to travel, but impossible. He was
bound to return if he could travel by short stages, or by incurring
unusual expense to secure comfort, safety and convenience. But
another answer to this claim is that he took the chances of being able
to return. He went south for business purposes, knowing that the
policy would be avoided if he did not return by the first day of July.
He had the right to go and remain there until July first without the
permit of the company. He obtained that that he might, without
violating another condition in the policy, go and return upon the
ocean if he desired to. He was feeble when he went, and he could
not go so far south that he could not return, and after remaining
there until he was too feeble to return enable the holder of the
policy to claim that his return was rendered impossible by the act of
God, and that thus the breach of the condition was excused.
The policy, therefore, became absolutely void after July i. 1870.
It was unnecessary for defendant to make any election or to do
anything else to render it void. It became dead by its own terms,
and could never again have any vitality except by some sufficient
act of the defendant reclothing it with life. * * *i
• In Hathaway v. Co., 11 Cush. 448, " A person whose life was insured within
the United States had permission to go to California and return home round
Cape Horn, or by Vera Cruz. Being taken sick in California, he returned
LAW OF INSURAN'CE — I 7
25» THE TERMS OF THE INSURANXE CONTRACT.
7. Suicide.
PATTERSON and Others v. NATURAL PREMIUM MUT.
LIFE INS. CO.
100 Wis. iiS. — 1S9S.
Action to recover upou an insurance policy issued by the appel-
lant July 20, 1895, upon the life of Alexander W. Patterson, and
originally payable to the administrators, executors, or assigns of
the insured. On the 4th of October, 1895, the policy was assigned,
with the consent of the company, to the plaintiffs, who are the chil-
dren of the insured.
The insured had no active employment, and was in financial diffi-
culties and shortly prior to his suicide talked with his children con-
siderably about his business affairs, but showed no evidence of
insanity. On the night of February 25, 1896, he deliberately shot
and killed his wife at his home, and then called his daughter to the
room, to see that she was in fact dead, after which he shot and
killed himself. The expert evidence given on the trial tended
strongly to show that the insured was sane when he killed himself.
WiNSLOw, J. — There was evidence tending to show that the
deceased was sane when he shot himself; hence, the verdict having
been directed, it must be assumed upon this appeal that such was
the fact. Starting from this basis, the argument of the defendant
is, in substance: (i) That intentional self-destruction while sane is
not a risk covered by a policy of life insurance, even when there is
home by way of Panama and Chagres, without the United States, and soon
after died. Held, that the policy was thereby avoided, although there was then
no usually traveled route by Vera Cruz, and although he returned the shortest
and safest way." {Syllabus.) In JVightiiii^ale v. Co., 5 R. I. 38, the court says:
" Ii is admitted that the late Bishop Henshaw did, without consent of ihe
defendant company issuing this policy, ' first had and indorsed thereon,' and
between the ist day of July and the 15th day of October, 1852, go into ihe State
of Maryland, a portion of the United States beyond the limits of constant resi-
dence permitted by the policy, and there remain more than five days, to wit,
about ten days, at the end of which period, and about the 20th day of July of
that year, he died. The holy errand on which he went, the absence of all con-
nection between his going and remaining and the cause of his death, are not
permitted lo swerve our judgment from the legal effect of so plain a breach of
the condition of this policy, upon the occurring of which it is, by its own terms.
' to be void, and all payments thereon to be forfeited to the company.' " In
Mobile Co. v. Walker, 58 Ala. 290. " the term residence, as employed in the ques-
tions propounded to the assured, was intended to signify the place of perma-
nent, rather than mere temporary abode; in the sense of domicile, rather than
of mere inhabitancv."
TERMS OF THE LIFE INSURANCE CONTRACT. 259
no clause in. the policy specifically exen)pting the company from lia-
bility for such death; (2) the incontestable clause does not cover
such a death, and, even if it be held to do so by its terms, such a
stipulation would be void, as against public policy ; (3) intentional
self-destructioa while sane is a crime, and hence the stipulation
providing that death in violation of law is not a risk assumed by the
company defeats recovery.
Upon the first proposition reliance is placed upon the recent
decision of the Suprem.- Court of the United States in the case of
Ritter V. Mut. L. Ins. Co., 169 U. S. 139. In this case it was dis-
tinctly held that intentional self-destruction by the assured while
sane is not a risk covered by a life insurance policy, even when the
policy contains no exception as to such a death; ' and it was further
said that such a risk could not be legally covered by a policy, because
it would be against public policy to make such a contract. This
was an action by the executors of the estate of the assured upon a
policy payable directly to his executors, administrators and assigns;
and there was much evidence tending to show that the assured
deliberately effected this, and a large amount of other life insurance,
with the intention of committing suicide, and thus enriching his
estate and paying his debts. Another and perhaps the only other
direct adjudication to the same effect is the decision in the case of
Supreme Commandery K. G. R. v. Ainsworth, -ji Ala. 436. The prin-
ciple upon which these decisions rest is thus well stated in the
last-named case: " Death, the risk of life insurance, the event upon
which the insurance money is payable, is certain of occurrence.
The uncertainty of the time of its occurrence is the material element
and consideration of the contract. It cannot be in the contempla-
tion of the parties that the assured by his own criminal act shall
deprive the contract of its material element — shall vary and enlarge
the risk and hasten the day of payment."
The authorities upon which these decisions are principally based
consist of certain expressions of opinion contained in Hartman v.
Keystone Ins. Co.., 21 Pa. St 466; Moore v. IVoo/sey, 4 El. & Bl.
243; and Arnicable Soc. v. BoHand, 4 Bligh (N. S.), 194, in none of
which cases, however, was the question directly in issue. Support
' " When the policy is silent as to suicide, it is to be taken that the subject of
the insurance, that is, the life of the insured, shall not be intentionally and
directly, with whatever motive, destroyed by him when in sound mind. To
hold otherwise is to say that the occurrence of the event upon the happening
of which the company undertook to pay, was intended to be left to his option.
That view is against the very essence of the contract." — Ritter v. Co., 169 U.
S. 139. 154-
26o THE TERMS OF THE L\SU RANGE CONTRACT.
for the proposition is also drawn from the well-established principle
of the law of fire insurance, that if the insured intentionally set fire
to the property insured and destroy it, he cannot recover for the
loss. It is certainly not to be denied that the reasoning in favor of
the proposition is cogent, and, were the question a new one in the
law, the argument would be well-nigh irresistible, especially where,
as in the Ritter Case, the policy runs in favor of the estate of the
insured, and the proceeds will go to the enrichment of such estate,
instead of to other beneficiaries. But it is by no means a new ques-
tion, and there are numerous authorities which directly hold that,
where life insurance is effected for the benefit of wife or children,
suicide while sane is not a defense, in the absence of a condition or
exception to that effect in the policy. Fitcli v. Am. P. L. Ins. Co..,
59 N. Y. 557; Darrow v. Family F. Soc, ii6 N. Y. 537; Patrick v.
Excelsior L. I?is. Co., 67 Barb. 202; Afil/s v. Rebsiock, 29 Minn. 380;
Kt-rr V. Mi?iii. M. B. As so., 39 Minn. 174; N. W. R. &' M. A.
Asso. v. Wanner, 24 111. App. 357. This principle was stated' as the
law in McCoy v. N. W. Mut. R. Asso., 92 Wis. 577, although it
probably was not directly involved in that case. The American
text-books which treat of the subject very generally state this to be
the law. I May, Ins. § 324; Niblack, Ben. Soc. & Ace. Ins. § 156;
3 Joyce, Ins. § 2653; 3 Am. & Eng. Ency. of Law (2d ed.), 1016.
While these text-book citations may not be considered as very con-
vincing, they certainly tend to show the general impression prevail-
ing among the legal profession upon the subject, and that impression
certainly prevailed in the Supreme Court of the United States when
the case of Life Ins. Co. v. Terry, 15 Wall. 580, was decided; for in
that case Mr. Justice Hunt refers to the conixdixy dictum in Hartman
V. Keystone Ins. Co , 21 Pa. St. 466, as confessedly unsound. The fact
that insurance companies have almost universally deemed it neces-
sary to insert in their policies provisions exempting them from lia-
bility in case of suicide, " sane or insane," may perhaps also be
considered as showing the general trend of opinion upon the sub-
ject in insurance circles; but, whether this deduction is to be prop-
erly drawn or not, we think it certain that the fact that life itisurance
policies universally contain this provision is of weight in determin-
ing the construction now to be placed upon a policy which omits all
specific reference to suicide, and also ostentatiously contains a
clause providing that it shall be absolutely incontestable for any
cause save for nonpayment of premiums or misstatement of age.
What would an applicant for insurance be entitled to think was the
meaning of such a policy, when presented to him, garnished with
the usual and customary commendations of the average solicitor of
TERMS OF THE LIFE INSURANCE CONTRACT. 261
insurance? .Certainly he would not think that its legal effect was
the same as that of a policy containing the usual provisions against
suicide, sane or insane.
The policy before us was originally payable to the administrators,
executors, or assigns of Patterson; but within a few days it was
assigned, with the consent of the company, to the plaintiffs, his
children, and so remained. After this assignment it was no longer
a policy in favor of Patterson's estate, but in favor of his children,
as beneficiaries, as much as though originally made payable to them.
Under the decision of this court in Foster v. Gile, 50 Wis. 603, such
a beneficiary has an actual, subsisting interest in the policy, subject
to the right of the insured, who has paid the premiums, to vest it
elsewhere; but, until such action by the assured, the interest of the
beneficiary is such a vested, subsisting interest as would pass to the
administrator of the beneficiary in case of his death. Such being
the case, it falls directly within the principle of the New York and
Minnesota cases before referred to, which hold that, as against such
a beneficiary, suicide of the insured while sane is not a defense, in
the absence of a provision in the policy. Nor would the application
of that principle to this case necessarily conflict with the Ritter Case,
where the policy was in favor of the estate of the insured. It may
well be in such a case that the mtentional suicide of the insured
while sane would prevent a recovery by his personal representatives,
and yet not prevent a recovery in case of a policy in favor of bene-
ficiaries who had a subsisting, vested interest in the policy at the
time of the suicide, and who could not, if they would, prevent the
act of the insured.
In determining what rule should be adopted by this court in the
present case, there are numerous considerations which deserve
attention. It must be borne in mind that the suicide clause has
become so universal in policies that its absence at once attracts
attention. It can hardly be otherwise than that the agent soliciting
insurance under such a policy as this would at once call attention to
its apparent liberality, in that there was no suicide clause, and,
further, that there was in addition an " absolutely incontestable "
clause; and the average laymen (not to say lav/yer), in looking it
over, would conclude that it was .in fact a very favorable policy to
the insured. These provisions are all carefully framed by the insur-
ance company, and expressly framed to induce people to insure; and
the principle is familiar and just that, when the policy is capable of
two meanings, that which is most favorable to the insured is always
to be adopted. Utter v. Travelers' Ins. Co., 65 Mich. 545. In at
least one state (Missouri) there exists a statute which prohibits the
262 THE TERMS OF THE IXSURAXCE CONTRACT.
defense of suicide, except when it was contemplated at the time of
effecting the insurance, and makes void any contrary stipulation in
the policy. R. S. of Mo. 1889, § 5855. This statute has been
enforced by the courts of Missouri, and by the Circuit Court of
Appeals of the United States, without apparent question as to its
validity on the ground of public policy. Keller v. Travelers iin.
Co., 58 Mo. App. 557; Knights Templar ■^ M. L. I. Co. v. Berr)\ 4
U. S. App. 353, 50 Fed. Rep. 511. Bearing these things in mind,
and while conceding the strength of the arguments upon public
policy on which the Kilter Case is based, we still think, in view of
the prior decisions above cited to the contrary of the rule there laid
down, and the general apparent acquiescence in those decisions by
the courts and by the people, that we ought to hold, in accordance
with those decisions, that, in a case where third persons are bene-
ficiaries, intentional suicide of the insured while sane does not avoid
the policy, in the absence of any provision in the policy to that
effect. Whether the rule would apply to a case where the personal
representatives of the insured were bringing the action for the
benefit of the estate of the insured is not decided, because that case
is not before us. * * * '
' " There lias been much discussion in adjudged cases as to the effect of con-
ditions in life insurance policies which provide that the policy shall be void if
the assured comes to his death by his own hand. At one time policies pro-
vided, generally, that they should be void in case of death by " suicide," or
" by one's own hand," without more. It was held that these terms were
synonymous, and conveyed the same idea. It has been held quite generally
by the courts of this country that this general condition in a policy referred to
an act of criminal self-destruction, which did not apply to an insane person
who took his own life. — Association v. IValler, 57 Ga. 533; Hathaivay v. insur-
ance Co., 48 Vt. 335; Insurance Co. v. Graves, 6 Bush, 268; Newton v. Insurance
Co., 76 N. Y. 426; Scheffer v. Insurance Co., 25 Minn. 534; Insurance Co. v.
Terry, 15 Wall. 580; Insurance Co. v. RoJel, 95 U. S. 232; Insurance Co. v. Isett,
74 Pa. St. 176; Insurance Co. v. Moore, 34 Mich. 41; Eastabrook v. Insurance Co.,
54 Me. 224. This being practically the settled law applicable to these condi-
tions, insurance companies adopted a more specific condition as to liability in
cases of death by suicide, and there are a number of cases where the language
of the policy is substantially the same as that employed in the policy under
consideration. In Bigelow v. Insurance Co., 93 U. S. 284, the condition in the
policy was that it should be void if the insured " shall die by suicide, sane or
insane." In an action on the policy the defendant pleaded that the insured
die 1 from the effect of a pistol wound, inflicted upon his person by his own
hand, and that he intended by this means to destroy his life. The plaintiff,
by reply, pleaded that the insured, when he inflicted the pistol wound upon his
person by his own hand, was of unsound mind, and wholly unconscious of the
act. It was held that a demurrer to the replication was properly sustained.
Th ; effect of the holding was that the policy was void, notwithstanding the
TERMS OF THE LIFE INSURANCE CONTRACT. 263
8. Poison.'
9. Violation of Law.'
self-destruction was accomplished at a time when the insured was wholly
unconscious of the act. There is no substantial difference between that case and
the one now under consideration." — Scarth v. Soc, 75 la. 346.
In Smith v. Soc, 123 N. Y. 85, recovery upon the policy was not allowed; the
insured, when he took out the policy having the fraudulent intent to commit
suicide.
What Constitutes Insanity. — " This case is governed by a uniform series
of decisions of this courts establishing that if one whose life is insured, inten-
tionally kills himself when his reasoning faculties are so far impaired by
insanity thai he is unable to understand the moral character of his act, even if
he does understand its physical nature, consequence, and effect, it is not a
' suicide,' or ' self-destruction.' or ' dying by his own hand,' within the meaning
of those words in a clause excepting such risks out of the policy, and containing
no further woids expressly extending the exemption to such a case. Life Ins.
Co. v. Terry, 15 Wall. 580; Bi:^ilowv. Berkshire Ins. Co., 93 U. S. 284; Insurance
Co. V. Rodel, 95 U. S. 232; Manhattan Ins. Co. v. Broughton, 109 U. S. 121 ; Con-
necticut Ins . Co. v. Laihrop, ill U. S. 612; Accident Ins. Co v. Crandal, 120 U. S.
527." — Conn. Life Ins. Co. v. Akens, 150 U. S. 468, 473. In Van Zandt v. Ins.
Co., 55 N. Y. 169, 173, the court states the English rule (citing Borradaile v.
Hunter, 5 Man. & Gr. 639, and Clift v. Sclnvahc, 3 Man. Gr. & Scott, 437), as
follows; "According to those decisions, to take a case out of the proviso, the
party must have been insane to such a degree as to render him unconscious
that the act he did would cause his death, or he must have committed it under
the influence of some insane impulse which he could not resist. His mind
must have been so far gone that it was not moving to the act. It is not suffi-
cient that his moral sense was so impaired as to deprive the act of its criminal
character." The court, criticising the rule adopted by the U. S. Supreme
Court, says:' " In the practical administration of justice, in cases of this
description, it seems to us a dangerous doctrine to hold that the attention of
the jury should be directed principally to the degree of appreciation which the
deceased had of the moral nature of his act, and that this question, most specu-
lative and difficult of solution, should be made the test by which it should be
delerLuined whether he had knowingly and voluntarily violated the condition
of his insurance. The real question is, whether he did the act consciously and
voluntarily, or whether, from disease, his mind had ceased to control his
nctions. Supposing a man to be in possession of his will and of the ordinary
mental faculties necessary for self-preservation, but that h's mind has become
so morbidly diseased on the subject of suicide that he cannot appreciate its
moral wrong, and in this condition of mind he takes his own life voluntarily and
intentionally — perhaps with the very object of securing lo his family the bene-
fits of an insurance upon his life — it is difficult to say that this is not a death
by his own hand within the meaning of the policy."
' For cases upon this subject, see Terms of the Accident Insurance Contract,
post. p. 287.
* For cases upon this subject, see Terms of the Accident Insurance Contract
fast, p. 301.
264 THE TERMS OF THE INSURANXE CONTRACT.
10. Lncontestahility.
WRIGHT 2'. MUTUAL BExNEFIT ASSOC.
iiS N. Y. 237. — 1890.
Potter, J. — This is an action to recover of the defendant the
amount it agreed to pay under a policy or certificate insuring the
life of Charles F. Wright. Upon the trial, after the plaintiff had
introduced the necessary proofs to entitle her to a recovery, the
defendant offered to prove as a defense to the action that the
deceased, Charles F. Wright, and Byron D. Houghton, the bene-
ficiary named in the policy, for the purpose of obtaining the policy
and of defrauding the defendant, falsely represented to the defend-
ant that Wright, the insured, was not then suffering and never had
been suffering, from certain diseases which had seriously impaired
his health, for the purpose of inducing and by means whereof
defendant was induced to issue the policy insuring the life of said
Wright, and that such representations were false, etc. This evi-
dence was objected to by the plaintiff, that such proof was inad-
missible under the provision of the policy; " that no question as to
the validity of an application or certificate of membership shall be
raised unless such question be raised within the first two years from
and after the date of such certificate of membership, and during the
life of the member therein named;" and the objection was sus-
tained, and defendant excepted. The defendant also offered to
show that the beneficiary, Houghton, had no insurable interest in
the life of tiie insured ; in short, that it was a speculative and fraud-
ulent scheme, devised and practiced by Houghton to secure an
advantage to himself upon the life of Wright, which must soon ter-
minate from the diseases he was then afiflicted with. This was also
objected to by the plaintiff, and excluded by the court, and defend-
ant excepted; the court holding that the defendant could not show
any such thing, unless during the life of the assured, or during the
period of two years from the date of the policy, such question had
been raised.'
These rulings present the main question upon this appeal, and,
inasmuch as I have reached the conclusion that the judgment
should be affirmed, there is but little, if any, occasion to add any-
thing to the reasons contained in the opinion of the General Term
affirming the judgment of the trial court in this case. 43 Hun, 61.
There does not seem to be room for any doubt in relation to the
' Contra, as to the defense of lack of insurable interest in incontestable
policies, Anctil \ . Ins. Ca. [1899] .A. C. 609 {ante p. 59 tiote).
TERMS OF THE LIFE INSURANCE CONTRACT. 265
meaning of_ the stipulation referred to. The defendant's counsel
does not contend that the language of the stipulation or waiver is
not plain and comprehensive of everything which can constitute a
defense, nor that the stipulation, though indorsed upon the cer-
tificate, does not form a part of the contract of insurance. But he
argues, from certain supposed analogies to stipulations releasmg
carriers from liability, and which have been held not to exempt the
carrier from liability for negligence, that it must have been intended
between the defendant and the insured to except the defense of
fraud from the operation of the stipulation in question. Mynardv.
Railroad Co. ^ 71 N. Y. 180; Holsapple \. Railroad Co. ^ 86 N. Y. 275.
It does not seem to me that there is any analogy between the two
classes of liability, and nothing is more misleading than an assumed
analogy. The liability of a common carrier of persons or property
for injury or loss was adopted at a very early period, in view of the
peculiar exigencies of the carrying trade, as a rule of public policy.
The degree and extent of the liability of the carrier for negligence
was fixed by law, and not by the terms of a contract between the
parties. There were numerous contingencies incident to the carry-
ing business other than the negligence of the carrier, which might
result in loss or injury to the person or goods carried, and for
which the liability of the carrier would depend upon the facts to be
established upon a trial. It might well be held, in construing an
agreem^ent of exemption in general terms, that its office and effect
was to relieve from those grounds of liability which depended upon
the evidence, and not the liability which was fixsd by law. The rules
laid down in the cases referred to by the appellant's counsel is merely
a rule of the construction of the terms and effect of an agreement.
It by no means holds that liability for negligence may not be stip-
ulated away, for the contrary has been repeatedly held, but the
terms of the stipulation in those cases did not provide exemption
from liability for negligence. The case under consideration is an
alleged fraud in making a private contract between the parties to it.
The contract contains a great number of material representations
in relation to the past and present condition of the insured, and of
course they are variable with every applicant for insurance and every
person insured. Such representations, if untrue, constitute a breach
of warranty which will avoid the contract of insurance. If the rep-
resentations are known by the party making them to be untrue when
made, they would also constitute a fraud, and avoid the contract of
insurance. The difference between the representations and the
proof of them upon a trial to avoid the contract would be only the
fact whether the party knew the representation was false when he
.?66 THE TERMS OF THE INSURANCE CONTRACT.
made it. It is to be presumed that the defendant had some purpose
when it offered to the insured a contract containing the stipulation,
and that the stipulation itself had some meaning. The court is
asked to hold that the parties to the stipulation understood (for
unless the insured so understood the stipulation the defendant was
practicing a fraud 'upon him) that, while the stipulation embraced
all representations that were untrue, it did not embrace the same
representations if known by the party making them to be untrue.
The practical difference or effect of this would be that upon a trial
to enforce the contract the proofs of the representation, their
materiality and untruth, would have to be made all the same; but
the stipulation would come in as a defense to all representations,
save those the insured knew to be false. While I might, perhaps,
entertain the idea that the insurer so understood the stipulation, I
am very confident that the insured did not so understand it. It
seems to me the analogy is based upon an entire misconception cf
the object and meaning of the stipulation. It is not a stipulation
absolute to waive all defenses, and to condone fraud. On the
contrary, it recognizes fraud and all other defenses, but it provides
ample time and opportunity within which they may be, but beyond
which they may not be, established. It is in the nature of, and
serves a similar purpose as statutes of limitations and repose, the
wisdom of which is apparent to all reasonable minds. It is exempli-
fied in the statute giving a certain period after the discovery of a
fraud in which to apply for redress on account of it, and in the law
requiring prompt application after its discovery, if one would be
relieved from a contract infected with fraud. The parties to a con-
tract may provide for a shorter limitation thereon than that fixed by
law, and such an agreement is in accord with the policy of statutes
of that character. Wilkinson v. Insurance Co., 72 N. Y. 499, 502.
No doubt the defendant held it out as an inducement to insurance
by removing the hesitation in the minds of many prudent men against
paying ill-afforded premiums for a series of years; when in the end,
and after the payment of premiums, the death of the insured, and
the loss of his and the testimony of others, the claimant, instead
of receiving the promised insurance, may be met by an expensive law-
suit to determine that the insurance which the deceased has been pay-
ing for through many years has not, and never had, an existence
except in name. While fraud is obnoxious, and should justly vitiate
all contracts, the courts should exercise care that fraud and imposition
should not be successful in annulling an agreement to the effect that
if cause be not found and charged within a reasonable and specific
time, establishing the invalidity of the contract of insurance, it
TERMS OF THE LIFE INSURANCE CONTRACT. 267
should thereafter be treated as valid. Hence I fail to perceive any
error in the disposition made of this question in the court
below. * * *
I think the judgment should be affirmed, with costs. All concur,
Haight, J., in result; Follett, C. J., not sitting.
Given, J., in WELCH v. UNION CENTRAL LIFE INS. CO.
108 Ia. 224, 229, 230. — 1S99.
Incontestable clauses in policies of life insuran-:e are variable,
some being absolute in form (that is, providing that the policy is
incontestable at any time, or for any cause), others are qualified
(as, that they are incontestable after a certain time, or after the
death of the assured, or for other than particular causes named)-
The clause under consideration is of the latter class, and is among
those enumerated on the second page of the policy, and made a
part thereof. It is that, " except as hereinbefore provided, this
policy shall be incontestable for any cause e.xcept misstatement of
VII. Another, and probably more conclusive, reason why this
defense may be asserted, is that fraud vitiates every contract into
which it enters. In Bliss Insurance, § 247, it is said: " An agree-
ment that an insurer will not raise any objection, even in case of
direct personal fraud, is a void condition. It has even been ques-
tioned whether it would not be sufficient to render the policy itself
wholly void ab initio, as an illegal contract. In these cases, then,
fraud, if not mentioned, must be assumed to be excluded, since that
construction is always to be preferred which will support a contract,
and it is never to be supposed that the parties to it intend an illegal
stipulation where a lawful meaning can be giv^en to their words.
Of course, this construction cannot make the policy really indis-
putable, for it leaves open the question whether the statement or
oirlission complained of was fraudulent or not, and also what is the
true meaning or construction of the policy itself." This statement
of the law is fully supported in all of a large number of cases which
have been examined, and disputed in none. There are cases where-
in the policy provided that it should be incontestable for any cause,
or for certain causes, after a specified length of time, and others
providing that the policy should be incontestable after the death of
the assured. Such provisions are held to be in the nature of a
statute of limitation or repose, and that, as the parties may stipulate
as to the time when action may be brought, so they may stipulate
268 THE TERMS OF THE INSURANCE CONTRACT.
as to the time within which certain defenses may be asserted.
Such stipulation did not condone the fraud, but limited the insurer
to a time within which it might assert the fraud as against the con-
tract. In these cases the right to defend on the ground of fraud
within the time agreed upon is recognized Of this class of cases
we refer to Wright v. Association, 43 Hun, 61 (affirmed 118 N. Y.
237); Association v. Robinson, 104 Ga. 256, 30 S. E. Rep. 919. An
able article upon this subject, in which the leading cases are referred
to, will be found in 45 Centra! Law J. 425. Our conclusion is that
the court erred in sustaining ai)pellee"s motion for a verdict.'
II. NOX-FURFEITURE.
KNAPP V. HOMEOPATHIC MUTUAL LIFE INS. CO.
117 U. S. 411. — 1886.
Action upon a policy of life insurance.
Mr. Justice Gray. * * * The decision * * * depends
upon the true construction of the non-forfeiture clause in the policy.
The single purpose of this clause is that, after two annual pre-
miums shall have been paid, a failure to pay any subsequent pre-
mium 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 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 continue in force for a
period to be determined " by ascertaining, according to certain
rules, the net value of the policy at the time of failure to pay a pre-
' The above quotation from Bliss is by him quoted from and credited to Bun-
yen's Law of Life Assurance, p. 88. Bliss cites as in accord with Bunyon,
Wheelton v. Hardisty, 8 E. & B. 232, and In re Gcu. Prov. Life Assoc. Co., i8
Weekly Reporter, 396, in which latter case the policy was indisputable, and
admitted on the face of it, the truth of the statements in the proposal, yet it
was held void for fraudulent concealment; the court not even discussing the
provision as to incontestability.
Some states have passed statutes respecting the incontestability of policies.
See the note in 42 L. R. A. 257; and, for example, the Ohio provision (g 3.626
Rev. St. Ohio) which reads- "All companies, after having received three
annual premiums on any policy issued on the life of any person in this state,
are estopped from defending upon any other ground than fraud, against any
claim arising upon such policy by reason of any errors, omissions, or misstate-
ments of the assured, in any application made by such assured, on which the
policy was issued, except as to age."
TERMS OF THE LIFE INSURANCE CONTRACT. 269
miuni, and making the amount of that value, considered as a single
premium, the basis for determining the lime 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 pre-
mium 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 sur-
rendered and such paid-up policy shall be applied for within ninety
days after such nonpayment as aforesaid, then 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 determined by the second method,
that is. for the full term of the original 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 irjsured for the full amount for a time computed 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 method, 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
election must be made within a certain time. As that time expired
without any election, or any excuse for not making one, the for-
feiture became complete under the express provisions of the policy,
and the Circuit Court rightly held that the action could not be
maintained. Judgment affirmed.'
' Some states provide by statute against forfeiture. Tlie following statute is
representative: "* * * All life insurance companies, authorized toirans-
art business in this state, shall provide in their policies that, after three or
2/0 THE TERMS OF THE INSURANCE CONTRACT.
V. Term^ of the Accident Insurance Contract.
I. Wha r IS AN Accident.
LOVELACE r. TRAVELERS' PROTECTIVE ASSOC.
126 Mo. 104. — 1894.
Action upon a benefit certificate issued by the defendant. Judg-
ment f )r plaintiff; defendant appeals. The contract sued upon was
cont.ii.ied in the certificate and certain parts of the constitution of
the defendant. The c )iistitation provided that " four thousand
dollars shall be paid to the heirs of any deceased member in case of
death by accident."
Barclay, J — This is an action upoa a benefit certificate, in the
nature of ai insurance policy, issued to Charles H. Lovelace, by the
Travelers' Protective Association of America, the defendant, a
benevolent association incorporated under the laws of Missouri.
The pleadings need not be recited, as no point is raised touching
the formal presentation of the case. Counsel for both parties, with
more annual piemiums have been paid upon a polic}' of life insurance, and
default is made in payment of any subsequent premiums wiien due, then not-
withstanding such default, the company shall convert the same into a paid-up
policy for as many cJollars as the value of such policy will purchase, to be
determined by the table of surrender values in use by such company at the
time of the issue of policy, which shall be not less than the full net value of
the policy per actuaries' experience table of mortality, four per cent, interest;
provided. That the application be made in writing for such paid-up policy by the
assured within six months after default in the paympnt of premiums shall first
have been made." — Mill's Ann. St. of Colorado, § 2223.
A question upon which there is a conflict of authority is the extent to which
a paid-up policy issued pursuant to the nonfoifeiture clause of the original
policy is affected by the forfeiture clause in the original policy. In Bruce v.
Ins. Co., 58 Vt. 253, th; court says: " The annual premium payable on Bruce's
policy in advance was $104.86. Under the rules of the company this could be
paid in cash, or one-half in cash and the other half by a note running one year,
the interest thereon being paid in advance. Rruce paid his annual premiums
on the half-cash and half-note plan for four years, and then claimed a paid-up
policy for four-tenths of the sum insured, * * * When the policy was
issued it provided in its third condition, that ' if the assured shall not pay the
said annual premiums on or before noon of the several days hereinbefore men-
tioned for the payment of the same and the interest annually in advance on
any outstanding premium notes which may he given for any portion thereof or
shall not pay at maturitv any notes or obligations given for the cash poriion of
any premium or part thereof, then and in every such case, this policy shall
cease and determine, and said company shall not be liable for the payment of
the sum insured or anv part thereof, except as hereinafter provided.' The
fourth condition then follows: ' Thai if, after the receipt by this company of
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 2/1
commendable frankness and brevity, have put the material facts
into comjabt form to facilitate the solution of the controversy It
was submitted to the trial judge, without a jury, upon an agreed
stateme It and depositions. The only question now urged is a ques-
tion of law. Mr. Lovelace was a member in good standing in the
defendant association when he met his death, August 8, 1892. The
plaintiff is his mother, the beneficiary in his membership certificate.
The contract of insurance is contained in the certificate, and in
parts of the constitution of the association, which, counsel mutually
agree, control the issue of the litigation. In the statement intro-
ducing the report of the case copies of these documents are given.
No point is raised touching proofs of loss, notice, or any formal
matter. The defendant meets the case broadly on its merits. The
decisive question before us is, was the death of the assured an
" accident," within the true meaning of that term as used in the
contract of insurance? That question was presented ty an instruc-
tion that, under the evidence, plaintiff was not entitled to recover,
which the trial court refused to give. On the contrary, the court
found for the plaintiff, and gave judgment accordingly for $4, 1 19.30
two or more annual premiums upon this policy, default shall be made in
the payment of any subsequent premium when due, then, notwithstanding
such default, this company will convert this policy into a paid-up policy for as
many tenth parts of the sum originally insured as there shall have been com-
plete annual premiums paid when such default shall be made.' * * * The
very end aimed at when offering and receiving the reduced or paid-up policy
is, as the company's circular declares, to obviate ' all possible danger of loss.'
The paid-up policy issues as a redemption from forfeiture of the original policy
which otherwise would ' cease and determine,' for nonpayment of premiums.
It can issue only in case two full premiums have been paid and if so many
have been paid, the right to it is given to the policy holder by the original
policy itself. Thus his right to it is a contract right that inheres in the original
policy. When issued it is not itself subject to forfeiture for further nonpay-
ment ofpreiniams. If any are payable in cash, notes, or interest, the company
must stand for their collection on the promise of the policy holder to pay. If
the paid-up policy could be forfeited for further nonpayment of premiums, it
becomes a delusion and a snare. The policy holder is no better off than before,
so far as the risk of forfeiture is concerned. May, Ins., §§ 345, 363. The
paid-up policy issues for so many tenths of the sum insured as annual pay-
ments have been made and is based on the theory that insurance to such an
amount has been fully paid for." Accord, Cowles v. Co., 63 N. H. 300: " The
original contract did no) make the nonpayment forfeiture clause applicable to
the promised 'paid-up' policy into which the original could be converted."
Contra, Hohnanv. Co., 54 Conn. 195, but the court expressly restricts its decision
to the precise question " whether the paid-up policy involved in this suit con-
tains a provision whereby the failure to pay interest has accomplished the for-
feiture of the policy."
2^2 THE TERMS OF THE IXSURANXE CONTRACT.
(which includetl some interest). Defendant then apjiealed, after the
usual preliminaries.
The following facts show the circumstances of the death of Mr.
Lovelace: He w^as a commercial traveler. On the 5th day of
August, 1892, he came as a guest to the hotel in Hazelhurst, Miss.
He was a friend of the proprietor, and spoke to some member of the
latter's family on the porch of the hotel before encering the office.
Another rnan named Graves was in the office of the hotel, making
more or le'ss noise, and cursing at times, when Lovelace arrived,
about half-past eleven o'clock at night. The only witness besides
Graves who saw the killing was one Scott. From his testimony it
seems that that night the proprietor, Mr. Brown, was sick, and
there was no one in charge of the office. Scoti was putting in the
chairs from the porch, when Lovelace walked in and said, "Who
has got charge of the office to-night?" Scott answered, " No one,"
and that he was going to bed. Lovelace then said, " It looks like
somebody ought to be about it;" and Lovelace then turned to
Graves, and said, " Look here, young man, you have got to get out
of here, drinking and cursing that way," and Graves replied, " What
have you got to do with it?" Lovelace answered, " I am a guest
at the hotel, and I think a heap of the family; and I think, in the
absence of Mr. Brown, it is sorter my duty to see after things."
Graves said, " You had better put me out. ' Lovelace replied, " I
will do it in a pair of minutes," and Graves said, with an oath, he
would like to see him (Lovelace) put him out. Lovelace said; " I
will do that quick." Scott then walked between them, and
separated them. Lovelace started upstairs, but it seems that he
turned again, and went back to the register. Lovelace then said,
with an oath, " Don't you shake your hand in my face." (Graves
had made a gesture which Lovelace interpreted as he stated.) They
were then a few feet apart. Graves replied, " You put me out.
You have not got any more to do with this than I have." Lovelace
then declared he would slap Graves, and applied an opprobrious
epithet to him. Lovelace then slapped and pushed Graves back
until he struck the wall or door, which was closed, and, whilst they
were thus together. Graves drew a pistol from his pocket, and shot
Lovelace several times, in consequence of which he afterwards died.
Lovelace weighed 175 pounds. He would have pushed Graves, who
was much lighter and smaller, out of the door, if it had been open.
Lovelace did not know Graves at the time, for the next day he asked
what boy that was that shot him.
The foregoing gives a sufficient description of the scene, as
defendant claims it occurred. The substance of the contention on
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 273
taac side is that Mr. Lovelace lost his life at the hands of Graves in
a fight with "the latter, brought on by the language and acts of the
former. It was not claimed, however, that Lovelace knew that
Graves was armed when the difficulty began. The defendant asserts
that " it is not an accidental killing, such as to make the defendant
liable, where the death was the result of a rencounter, or where the
party killed was the voluntary agent in bringing on the difficulty
resulting in his death, or placed himself in such a position as to
induce it." On the other hand, the plaint'ff insists that the occur-
rence was an " accident." The contract in this case is to be inter-
preted so as to give effect to the intention of the parties, as expressed
by the language they have used. That intention is, moreover, to
be construed as the reasonable and natural one imported by their
words. Ruth. Inst. (2d Am. ed.), p. 413. " In case of death by
accident " is the language immediately in view. In the same con-
tract we note that the defendant was to pay $100 " in case of his
death from natural causes." The form of the contract is very
simple. It is free from those limiting terms which, in two of the
three cases cited by the defendant, formed the basis of the judg-
ments therein. We are merely called on to say whether his death
was by "accident," within the intention of these parties. They
did not define the term, further chan its use in contradistinction to
" death from natural causes " may be considered as having some
significance. We hence should give the word its usual, natural, and
popular meaning, there being nothing to indicate a different purpose
in its use. In that sense, was Lovelace's death an accident? We
find the following definitions of " accident " in the law dictionaries:
" Death by accident means death from any unexpected event which
happens as by chance, or which does not take place according to
the usual course of things." Anderson (1889). "An unusual or
unexpected event." Abbott (1879). "An unforeseen event occur-
ring without the will or design of the person whose mere act causes
it; an unexpected, unusual or undesigned occurrence." Black
(1891). " An event which, under the circumstances, is unusual,
and unexpected by the person to whom it happens." Bouvier
(1883). "A casualty; an act of Providence; an event that takes
place without one's foresight or expectation." Burrill (1887).
"An extraordinary incident; something not expected." Whart.
Law Lex. (1883). The larger dictionaries of the English lan-
guage furnish these, among other, definitions of "accident,"
viz.: " In general, anything that happens or begins to be without
design or as an unforeseen effect. * * * Specifically an unde-
sirable or unfortunate happening; * * * a casualty or mishap."
LAW OF INSURANCE iS
274 THE TERMS OF THE INSURANCE CONTRACT.
Century (1S89). *' Literally, a befalling; an event that takes place
without one's foresight or expectation; a.i undesigned, sudden, and
unexpected event; * * * often an undesigned and unforeseen
occurrence of an afflictive or unfortunate character; a casualty; a
mishap; as, to die by an accident." Webster, International (1S92).
" An event proceeding from an unknown cause, or happening
without the design of the agent; an unforeseen event; incident;
casualty; chance." Worcester (1888). On several occasions the
courts have approved or quoted some of the foregoing definitions in
dealing with the subject of accident insurance. Schneider v. Insur-
ance Co. (1869), 24 Wis. 30; Insurance Co. v. Martin (1869), -^2 Md.
315; Ripley v. Assurance Co. (1870), 2 Bigelow, Cas. 741, Fed. Cas.
No. 11,854; Insurance Co. v. Burroughs (1871), 69 Pa. St. 5 i ; Supreme
Council etc. v. Garrigus (1885), 104 Ind. 140, 3 N. E. 818. In other
casi-s they have freely used the word in decisions, in the broad
meaning w^iich those defi'iitions express. Vincent v. Stinehour (1835),
7 Vt. 62; Bostjoick V. Sti/es (1868), 35 Conn. 195; Clements v. Rail-
Tt'^r C<?. (1894), 2 Q. B. Di\\ 482. Some special cases on accident poli-
cies, different from that now before us, furnish, nevertheless, opinions
of learned judges which cast some useful light on the present contro-
versy. In Sinclair v. Assurance ^o. (1861), 4 Law T. (N. S.) 15, a
case wherein the Cjurt of Queen's Bench denied a right of recovery
for death caused by a sunstroke sustained by the master of a ship
in China, holding that such death was not " a personal injury aris-
ing from an accident at sea," it was said by Chief Justice Cock-
burn: "It is difficult to define the term ' accident,' as used in a
policy of this nature, so as to arrive with perfect accuracy at the
boundary line between death from accident and death from natural
causes. At the same time we think we may safely assume that in
the term ' accident,' as so used, some violence, casualty, or vis
major is necessarily involved." In Fenwickw. Schmalz (1868) L. R.
3 C. P. 313, Willes, J., held that a snowstorm was not an accident
(as mentioned in a charter party), because it is one of the ordinary
operations of nature. He said it " is an incident, rather than an
accident." He then remarked: "An accident is not the same as
an occurrence, but is something that happens out of the ordinary
course of things." In Ripley v. Assurance Co. (1870), already cited,
it is said: '"In the more popular and common acceptation of the
word, 'accident,' if not in its precise meaning, includes any event
which takes place without the foresight or expectation of the person
acted upon or affected by the event." Death by drowning (^Win-
spear V. Insurance Co. [1880], 6 Q. B. Div. 42), and by fright {McGlin-
chey V. Casualty Co. [1S88J, 80 Me. 251, 14 .-\tl. 13) hav^e been hekl to
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 2/5
be deaths by accident under policies of much narrower scope than
that now before the court.
We have quoted these various cases, definitions, and comments,
not with a view to approve or criticise any one of them, but to indi-
cate the very wide range of meaning borne by the word " accident,"
when unaccompanied with any limitation in the context. We shall
not attempt to furnish any gereral definition of an accident in the
particular case before us, further than the conclusion we shall
announce may imply. The learned counsel for defendant concedes
the force of the argument deduced from the ordinary meanings of
the word, but insists that they cannot apply where the insured has
voluntarily assumed the risk which proves to be fatal — in this
instance, by entering into the altercation which led to his death.
But there is one weak point in that contention. There is no proof
whatever that the insured had any cause or reasonable ground to
anticipate that he would be shot or killed when he undertook to
attempt to eject Graves from the hotel. There is no proof that
Graves exhibited a weapon, or made any remarks indicating a pur-
pose to shoot, before the affray. The mere fact that Lovelace
engaged in or brought on a fight in the manner described did not of
itself indicate that he sought death, or had reason to expect it as a
consequence of his action. la Schneider v. Insurance Co. (1869), ?.Af
Wis. 28, a party was allowed to recover upon an accident policy,
though it appeared he had been negligent in attempting to board a
moving train of cars. The court said: " There is nothing in the
definition of the word 'accident' that excludes the negligence of
the injured party as one of the elements contributing to produce
the result. * * * An accident may happen from an unknown
cause, but it is not essential that the cause should be unknown.
It may be an unusual result of a known cause, and therefore unex-
pected by the party. And such was the case here, conceding that
the negligence of the deceased was the cause of the accident."
Page 30. That decision was approvingly followed in the case from
the 22 Md. report already cited. In Keene v. Association (1894), 161
Mass. 149, 36 N. E. 891, a recovery on an accident policy was sus-
tained where the assured was run down while passing over a street
crossing of a railway track in front of a moving freight car, not-
withstanding the policy required the assured " to use all due dili-
gence for personal safety." In Cornish v. Insurance Co. (1889), 23
Q. B. Div. 453, it appeared that the insured met his death by attempt-
ing, in broad daylight, to cross the main line of a railway in front of
a coming train, which struck and killed him.' The English Court
of Appeal held that there could be no recovery upon a policy which
276 THE TERMS OF THE INSURANCE CONTRACT.
excepted, from tlie risks insured against, accidents happening by
" exposure of the insured to obvious risk of injury." But Lindley,
L. J., who delivered the leading opinion, placed the ruling upon the
language just quoted, remarking, in so doing: " We accept the view
of the jury that this accident may be called an ordinary misad-
venture, but the question is whether the policy covers it." He
thus characterized the mishap as an "accident," notwithstanding
the gross negligence of the insured. In Insurance Co. v. McConkey
(18S8), 127 U. S. 661, 8 Sup. Ct. 1360, where the insured had been
killed by a shot (whether fired by himself or by another was in issue),
the Supreme Court of the United States based a similar ruling,
denying a recovery, on the express terms of the policy, excepting
from its scope " intentional injuries inflicted by the insured or any
other person." A like ruling was made in construing the same
language of an accident policy in this state. Phelan v. Insurance
Co. (1890), 38 Mo. App. 640. In other cases it has been held that
death produced by the direct violence of a third party is none the
less an accident, as regards the insured, because the injury was
intentionally inflicted by the third party. Hutchcraff s Ex' r v.
Travelers'' Ins. Co. (1888), 87 Ky. 300, 8 S. W. 570; Richards v. Insur-
ance Co. (1891), 89 Cal. 170, 26 Pac. 762. But in the former case a
recovery was denied because of a clause in the policy similar to that
quoted above from the McConkey case. It has been declared, with
reference to fire insurance, that even gross negligence of the insured
will not defeat a recovery in the absence of stipulations having such
an effect. Shawx. Robberds (\^2>l)-> ^ Adol. & E. 75; Insurance Co.
V. Glasgow {\'^if\)y 8 Mo. 713; Johnson v. Insurance Co. (1862), 4
Allen, 388; Ifisurance Co. v. Parisot (1878), 35 Ohio St. 35. In
Supreme Council, etc., v. Garrigus (1885), 104 Ind. 133, 3 N. E. 818,
it was ruled that where the insured engaged in a fight without fault
on his part, in consequence of which he received injuries resulting
in his death, the latter was an " accident," within the meaning of a
benefit certificate. In view of the definitions and legal precedents
above quoted and cited, and of the very general terms of the policy
under consideration, w^e conclude that its reasonable and natural
meaning includes within the term " accident " such a death as
Lovelace met. Whether he acted lawfully as a guest of the hotel,
during the absence and illness of the proprietor, in attempting to
remove Graves from the hotel office by force, we think needless to
investigate. It may be assumed that by his course of conduct he
voluntarily assumed the risks of a fight; but there is nothing in the
circumstances to show that he voluntarily assumed the risk of death.
We consider his killing \v\ " accident," in the popular and orjiniry
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 277
sense in which that word is generally used. It certainly was an
accident, so far as he was concerned. We do not doubt that such
should be the construction given to the word in the contract in suit;
and that, in so concluding, we give effect to the true purpose and
intent of the parties to the document. The learned trial judge
reached the same conclusion. The judgment is affirmed.
Black, C. J., and Brace and MacFarlane, JJ., concur.'
2. External Injurv.
McGLINCHEY v. FIDELITY AND CASUALTY CO.
80 Me. 251. —1888.
Peters, C. J. — The plaintiffs, who are minor children, sue for
one thousand dollars, an amount insured in an accident policy on
the life of their father by the defendant company. The circum-
stances of the father's death were these: On a morning, while a resi-
dent of Calais, he was driving in a covered carriage, containing
himself and his two small boys, on the principal public way in St.
Stephen, N. B., when his horse, frightened at a load of hides pass-
ing the same way, suddenly sprang into a run, iirst jumping to the
side of the way and nearly colliding with other teams, and ran a
' In Bacon v. Accident Assoc, 123 N Y. 304, the accident policy provided that
il should not extend to death caused by disease. Death was caused by a malig-
nant pustule upon the lip. The plaintiff contended that this pustule was not
a disease but a " pathological condition " caused by the accidental infliction of
putrid animal matter infected with bacilli anthrax which multiply and are
diffused through the system. The defendant contended and the court held that
the malignant pustule was an infectious germ disease, the court saying: " It
seems to me clear that the meaning of the words used in the policy cover just
such a case, and that the parties never intended that a cause of death which to
all outward appearances and to the world in general was a disease, should be
converted into a ' pathological condition ' of the body caused by accident."
In Western Commercial Trav. Assoc, v. Smith, 85 Fed. 401, where death
resulted from blood poisoning following an abrasion of the skin of a toe by
wearing a new shoe, the couit said: " Was the abrasion of the skin of the toe
of the deceased the natural 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 fol
low such use more frequently than it fails to follow it. Nor can such an abra-
sion be said to be the natural consequence of wearing such shoes, — the conse-
278 THE TERMS OF THE INSURANCE CONTRACT.
considerable distance before he was brought under control. The
result was that there was no collision, nor was the carriage upset or
any one thrown therefrom. Immediately afterwards the insured
experienced great sickness and pain, and, going directly to his
house, died in about an hour from the moment of the accident. He
was in good health on that morning, before the accident, and there
is no suggestion that he was not a person of generally sound and
strong constitution. His business was that of a commercial traveler.
The case is reported for our determination upon the law of the facts.
We think, on these facts, that the common judgment of men
would instinctively declare, irrespective of the refinements which
are often indulged in over primary and secondary causes, that here
was a plain accident causing death, and that the company should
pay the sum promised in the policy. In any reasonable view that
can be taken of the series of happenings, our minds go to the same
conclusion. We believe that the common-sense view is also the
legal view. The company insures against death by accident. And
as, in some cases, it is difficult to de^ermine whether the death is
caused by disease or accident, in order to prevent fraud or mistake,
the company provides its own test by which the fact shall be ascer-
tained. The leading provision of the policy is that those interested
quence which ordinarily follows, or which might be reasonably aniicipated
How, then, can it fail to be the chance result of accidental means, — means not
designed or calculated to produce it? If the deceased, 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 Accident Ins. Co. v. Crandal, 120 U. S. 527, the question as slated by the
court was: " Whether a policy of insurance against ' bodily injuries, effected
through external, accidental and violent means' * * * and providing that
' this insurance shall not extend to death or disabling, which may have been
caused wholly or in part by bodily infirmities or disease, or by suicide, or self-
inflicted injuries;' covers a death by hanging one's self while insane." The
court held (i) that " bodily" applies here to " diseases " as well as " infirmi
ties" and that " in the common speech of mankind mental are distinguished
from bodily diseases; " (2) that " suicide " and " self-inflicted injuries " cannot
be predicated of an insane person,— that acts thus committed cannot with
propriety be described as his acts. See also Fidelity and Casualty Co. v. Johnson,
72 Miss. 333, where death at the hands of a mob. by hanging, was held to have
lesuUed through " external, violent and accidental means; " and also Insurance
Co. V. Bennett, 90 Tenn. 256, upon accident insurance generally.
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 279
in the insurance, in order to establish the liability of the company,
shall prove' that death was caused "by bodily injuries effected
through external, violent and accidental means," within the mean-
ing of the contract. The company having chosen its definition of
liability, and having the opportunity of annexing conditions which,
usually, are not closely observed by persons accepting insurances,
the meaning of the terms employed need not be enlarged or restricted
for the benefit of the company, but should be liberally interpreted
in favor of the insured.
Was the death in this instance caused by bodily injuries effected
through external, violent and accidental means? Certainly there
was an accident. The definition of accident, generally assented to,
is an event happening without any human agency, or if happening
through human agency, an event which, under the circumstances, is
unusual and not expected to the person to whom it happens. This
definition exactly fits the facts here. Argument cannot be neces-
sary to satisfy any one that the injury happened by violent means.
A well man suddenly meets a perilous emergency which taxes all his
physical and mental strength, and his death is caused thereby in
an hour.
The greater question is whether the death was caused by external
means. We have no doubt it was. And really all the questions of
the case may be resolved into the single inquiry as to what was the
real cause producing death. And here a question of fact must to
some extent be determined. The testimony is meager. Possibly
the counsel for the plaintiffs relies on the preliminary proofs of loss
as evidence in chief, which are fuller than the general testimony,
but that is not allowable. Leaving the proofs of loss to serve only
the proper purpose for which they could be introduced, all the evi-
dence we have, more than the facts already stated, is that the
insured became deathly sick, and after death a discoloration
appeared on the surface of the body in the region of the heart.
There is no pretense that the body bore any marks of contact with
anything inflicting injury, or that it came in contact with any
physical object during the time of the accident. Our belief is, on
the facts legitimately before us, that death was produced by a
ruptured blood vessel about the heart, and that such rupture was
caused by the extraordinary physical and mental exertion which the
deceased put forth to save his children and himself from injury.
The physical strain and mental shock was more than he could bear.
In this calculation of the facts we come easily to the conclusion that,
as between these parties, physical and external causes effected death.
The misconduct of the horse, and inseparably connected therewith
280 THE TERMS OF THE INSURANCE CONTRACT.
the conduct of the man on the occasion, in his effort to avoid the
threatened catastrophe, brought death.
The defendants, however, do not agree to this version of the
facts. They contend that death was produced purely by frii^ht, and
not by the aid of any physical means whatever, and that the means
through which death was produced must be considered as internal
only. But if it is to be admitted that death was caused through
fright, even then we are just as strongly convinced it was also
caused by external means. Whether one thing or another shall be
considered the proximate cause depends upon the relation of the
parties to the suit with each other, as well as upon other circum-
stances. If the death be laid to fright, it must be because fright
produced bodily injury, and the means which produced fright were
external. It is impossible to impute the death to fright without an
explanation of the circumstances or situation which produced the
fright. Suppose any person inquires of another what caused the
death of a friend, and the answer be that he died from fright.
Would the question be more than half answered? Would not the
inquirer immediately and instinctively ask the cause of the fright?
^n most conditions, and in almost every sense, fear is an effect of
something merely. There must be some active cause behind it. In
the present case it was no more than an agency through which the
accident acted. It was a dependent and not independent factor in
the series of operating forces. It was no more the real cause of the
death than a hammer in the hands of a workman, -who strikes a blow
with it, is the cause of such blow. The efificient, true cause,
dominating all other causes in the combination, was the misbehavior
of the running horse. Subsequent occurrences were merely the
instrumentalities through which the real cause spent its force. The
act of the horse was the beginning, death was the end. * * *
Then there are cases more directly touching the question as to
whether the injuries in the case at bar were produced by external
means or not. It has been held that an insane man who takes his
own life dies from an injury produced by external, accidental and
violent means. Accident Ins. Co. v. Crandal^ 120 U. S. 527. Same
result follows when death ensues from accidental drowning. Trew
V. Assurance Co., 6 H. & N. 845; Winspear v. Accident Ins. Co., 6
Q. B. Div. 42. Accidentally inhaling coal gas, causing death,
entitles a recovery upon a policy like the present. Fai/i v. Travel-
ler s Ins. Co., 45 Hun, 318.' A death from blood poisoning, pro-
duced by virus communicated to the hand by a fly, comes within the
' Affirmed. 112 N. Y. 472.
TERMS OF THE ACCIDENT INSURAXCE CONTRACT. 28I
terms of such a policy. Bacon v. U. S. Mut. Accident Ass'n, 44
Hun, 599.' ' The latter case has been criticised upon the point
whether the means in that instance were violent or not. In /nsi^r-
ance Co. v. Burroughs., 69 Penn. St. 43, the court says: " If the
injury be accidental and the result is death, what matters it whether
the injury is caused by a blow from a pitchfork or from a strain in
handling it." In these cases it was held that the true cause of the
death came from the outside, were external means. Upon principle,
we think the same decision must be reached here.
Another point of defense is taken. By a subsidiary, conditional
clause in the policy it is provided that the insurance " does not
extend to any bodily injury of which there shall be no external and
visible sign upon the body of the insured." This does not apply to
fatal injuries, but only to those not resulting in death. It would be
utterly unjust if this condition applied in cases of death. It would
preclude recovery in all instances where death occurs by drowning,
freezing, poisoning, suffocation, concussion, means of death leaving
no outward mark, and also where the insured has been killed and
his body is missing. The context shows that the clause is only appli-
cable to injuries not resulting in death. The policy declares that
the insurance shall not extend to bodily injuries unless the external
sign of injury is visible, " nor to any death caused " in certain ways
named. There are reasons for the condition applying to a sur-
viving claimant. He has unusual chance for feigning an internal
injury, if disposed to defraud the insurers. But no such protection
is required where the accident causes death. The dead body is
external and visible sign enough that an injury was received. Mai-
lory v. Travellers' Ins. Co.., 47 N. Y. 52; Paul v. Travellers Ins.
Co., 45 Hun, 318.
Defendants defaulted.
Walton, Virgin, Libbey, Foster, and Haskell, concurred.
'General Term of the Supreme Ct., 1887, reversing a judgment entered upon
a verdict directed for the defendant, and granting a new trial. Upon the new
trial there was a verdict for the plaintiff; defendant appealed to the Genera)
Term of the Supreme Ct., but the judgment was affirmed. 20 N. Y. State
Reporter, 204. An appeal was taken to the Court of Appeals and the judgment
was reversed and a new trial ordered. 123 N. Y. 304. See digest of this case
ante, p. 277, note-
282 THE TERMS OF THE INSURANCE CONTRACT.
3. Proximate Cause.
FREEMAN v. MERCANTILE MUTUAL ACCIDENT ASSOC.
156 Mass. 351. — 1892
Knowlton, J. — The plaintiff claims under a policy or certificate
of insurance issued to Knowles Freeman, containing a provision for
payment to her of a sum not exceeding $5,000 in case of his death
from an accident, and also a provision for a weekly payment to him
as an indemnity against loss of time if he should be disabled by an
accident. The condition on which the plaintiff is entitled to pay-
ment is stated in the policy to be upon " proof that said Knowles
Freeman shall have sustained, during the continuance of his mem-
bership, bodily injuries effected through external, violent and acci-
dental means, within the intent and meaning of the by-laws of said
association, and the conditions herein recited, and such injuries
alone shall have occasioned death within ninety da)s from the hap-
pening thereof." The first part of the second paragraph of the con-
ditions above referred to is as follows: " That benefits under this
certificate shall not extend to any case in which there shall be no
symptom or visible sign of bodily injury; nor to any case in which
death or disability occurs in consequence of disease, or which
may have been caused by any surgical operation, or medical or
mechanical treatment, unless the said operation or treatment shall
have been undertaken for the relief of injuries which entitle the
member to the benefits of this association, nor to any case except
where the injury is the proximate cause of the disability or
death."
It was proved that Knowles Freeman died of peritonitis localized
in the region of the liver, and the evidence tended to show that it
was induced by a fall. There was also evidence indicating that he
had previously had peritonitis in the same part, and that the pre-
vious disease had produced effects which rendered him very liable to
a recurrence of it. The report presents questions arising on the
defendant's requests for rulings which relate to the portions of the
policy above quoted. The defendant contends that it is not liable
in case of a death from disease, even if the disease is caused by an
accident. The principal question in the case is, What kind of cause
is to be deemed proximate within the meaning of the policy? Where
different forces and conditions concur in producing a result, it is
often difficult to determine which is properly to be considered the
cause, and, in dealing with such cases, the maxim, causa proxima
non remota spectatur, is applied. But this does not mean that the
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 283
cause or condition wliich is nearest in time or space to the result is
necessarily to be deemed the proximate cause. It means that the
law will not go farther back in the line of causation than to find
the active, efficient, procuring cause, of which the event under con-
sideration is a natural and probable consequence, in view of the
excitnig circumstances and conditions. The law does not con-
sider the cause of causes beyond seeking the efficient predominant
cause, which, following it no farther than those consequences
that might have been anticipated as not unlikely to result from it,
has produced the effect. An injury which might naturally produce
death in a person of a certain temperament or state of health is the
cause of his death, if he dies by reason of it, even if he would not
have died if his temperament or previous health had been different;
and this is so, as well when death comes through the medium of a
disease directly induced by the injury, as when the injury imme-
diately interrupts the vital processes.
Most of the requests for rulings were founded upon a different
theory of law, and were rightly refused. On this part of the case
the presiding justice, after having explained and elaborated his
views, summed up as follows: " Upon the question as to whether
peritonitis, if that caused his death, is to be deemed a disease
within the meaning of this policy, and the proximate cause of death
within the meaning of this policy, so as to prevent a recovery,
depends the question whether or not before the time of the fall, and
at the time of the fall, he had then the disease — was then suffering
with the disease. If he was, then in the sense of the policy, although
aggravated and made fatal by the fall, he cannot recover But if,
owing to existing lesions caused by that disease, but not having the
disease at the time, the same kind of malady, that is, peritonitis,
was started up, the company are to be answerable, although, if there
had been a normal state of things the fall would not have occasioned
such a result." This ruling gives an interpretation to the language
of the policy which is in accordance with the apparent purpose and
intention of the parties, and which makes the contract a beneficent
provision for the beneficiaries named in it. It is also in harmony
with the general course of decisions. Marble v. IVorcester, 4 Gray,
395, and cases cited. McDonald y. Snelling, 14 Allen, 290; Perley
v. Eastern Railroad^ 98 Mass. 414; Metallic Compression Casting Co.
V. Fitchburg Railroad^ 109 Mass. 277; National Benefit Association v.
Grauman^ 107 Ind. 288; N'ort/i American Ins. Co. v. Burroughs, 69
Penn. St. 43; S/ieanonv. Pacific Ins. Co., 77 Wis. 618; Insurance Co.
V. Tweed, 7 Wall. 44; Insurance Co. v. Seaver, 19 Wall. 531, To
284 THE TERMS OF THE INSURANCE CONTRACT,
adopt the view contended for by the defendant would make the
policy worthless to beneficiaries in many cases of death where an
injury resulting from an accident was the efficient cause. * * *
Judgment on the verdict.'
4. Voluntary Exposure.
BURKHARD v. TRAVELLERS' INS. CO. OF HARTFORD.
102 Pa. 262. — 1S83.
Chief Justice Mercur * * * -pj-jg business of this comoany
is to insure against accidents. The purpose of this policy is to pay
specific damages for bodily injuries and death caused by external,
violent and accidental means. The death of the intestate was so
caused. The company seeks to avoid liability under two clauses
in the policy. One provides the insurance shall not extend to a case
of death or injury caused by " voluntary exposure to unnecessary
danger;" the other that " walking or being on the road-bed or
bridge of any railway are hazards not contemplated or covered by
' In the Traitclers' Ins. Co. v. Melick, 65 Fed. 178, the company insured Dr.
Robbins against death resulting from bodily injuries effected through external,
violent and accidental means alone, independent of all other causes; the policy
providing that the insurance did not cover suicide, sane or insane; nor acci-
dent, nor death, resulting wholly or partly from disease or bodily infirmity; or
from intentional injuries inflicted by the insured or any other person.
There was evidence that the doctor accidentally sent a bullet through the
fleshy portion of his foot, Jane i, 1890; that the wound thus caused became
very painful, confined him to his bed, caused a fever, and gradually reduced
his strength, until he died, June 18, 1890; that this gunshot wound was just
such an injury as would naturally produce telanus or lockjaw; that the doctor
and his physicians feared that disease from the first, and thai they used chloral
and chloroform to relieve the pain and ward off this disease; that in the early
morning of June 18, 1890, while the deceased was alone in his room, he was
seized with tetanus; that this disease causes the most excruciating pains that
human beings ever suffer; thai it is fatal in avast majority of cases; that it
produces spasms or convulsions, and sometimes causes death by a spasm of the
larynx, which prevents the passage of air through the trachea to or fiom the
lungs; that the doctor was found dead in his bed, June 18, 1890, with a scalpel
in his right hand, and his trachea and both his jugular veins cut; that the
tetanus was sufficient to croduce his death, and the throat-cutting was sufficient
to produce it. The question of proximate cause was left 10 the jury, and a
verdicl was rendered for plaintiff. Defendant appealed; judgment lelow
affirmed, the court saying: " It is assigned as error that the court below
refused to instruct the jury to return a verdict f:)r ihe insurance companv: and
it is contended that the question whether the shot wound which caused the tela-
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 285
this contract, and no sum will be paid for disability or loss of life,
in consequence of such exposure, or while thus exposed."
The insured was traveling by rail thiough Indiana on his way to
Kentucky. The train stopped on the bridge across the Ohio river
by reason of the draw part of the bridge being open. He went to
the front platform of the coach in which he was riding, and stepped
off, and through a hole in the floor of the bridge, causing his death.
This hole was about three feet wide and four feet long. It was
caused by the removal of some planks during the making of repairs.
I. Was this act of the insured a voluntary exposure to unnecessary
danger?
To make him guilty of a " voluntary exposure to danger " he
must intentionally have done some act which reasonable and ordinary
prudence would pronounce dangerous. The uncontradicted evidence
shows that several other passengers got out of the coach, and
some of them in advance of the insured. They certainly appre-
hended no danger. It is customary for male passengers to alight
when a train stops for any length of time. No notice was given to
passengers that it was dangerous to get out of the coach where it
stood. So far as appears, the bridge, with the exception of this
hole, was well covered with plank and entirely safe. When the
nus, or the throat cutting, was the proximate cause of the death, was a question
of law for the court. * * * This question was peculiarly one of fact. The
insurance company had agreed to pay the promised indemnity for any death
that resulted from the accidental shot wound alone. The question was, what
did in fact cause the death, — the shot wound, the cutting, or both? Nor would
this case be withdrawn from the effect of this rule if the evidence upon this
question was undisputed, for the question is always for the jury where a giv^en
state of facts is such that reasonable men may fairly differ upon it. It is only
when all reasonable men, fairly exercising their judgments, must draw ihe
same conclusion from an admitted state of facts, that it becomes the duty of
the court to withdraw a question of fact from the jury. * * * i[ must be
borne in mind that the doctrine of proximate cause has a different relation to
an action for negligence from that which it bears to a contract to indemnify for
the result of a given cause. In the former it measures the liability, while in
the latter the contract fixes the extent of the liability. In an action for negli-
gence the liability extends only to the natural and probable consequences of
the negligent act. In the case in hand the contract is to indemnify the insured
against death that shall result within ninety days from accidental bodily inju-
ries alone. The company was undoubtedly liable under this contract for the
death of the insured if that death did in fact result from the accidental shot
wound alone. The crucial question was whether or not it did in fact so result,
and the doctrine of proximate cause was applicable to this case only to aid in
finding a just answer to this question, and not to measure the liability which the
contract had fixed,"
See also Travelers' Ins. Co. v. Murray, 16 Col. 296.
286 THE TERMS OF TiIE INSURANCE CONTRACT.
intestate alighted other passengers were standing on the bridge near
the brakenian. The latter was sitting on timber that was lying
on the foot-walk of the bridge, and was to be used in the repairs
being made. The passengers had no knowledge of these repairs.
The brakeman held his lantern so placed on the floor that another
timber cast its shadow over this hole making it impossible for the
insured to see it. He could see that portion of the floor lighted by
the lantern, and the passengers standing thereon. He could see the
brakeman near them. He stepped out of the coach in plain sight of
the brakeman. He had a right to suppose he would land on a floor
as firm as that on which the others stood. Neither word nor sight
gave him any notice of danger. He did not approach the opening
caused by the draw, and was not injured thereby.
It is true he voluntarily left the car; but a clear distinction exists
between a voluntary act and a voluntary e.xposure to danger. Hid-
den danger may exist; yet the exposure thereto without any knowl-
edge of the danger does not constitute a voluntary exposure to it.
The approach to an unknown and unexpected danger does not make
the act a voluntary exposure thereto. The result of the act does
not necessarily determine the motive which prompted the action.
The act may be voluntary; yet the exposure involuntary. The
danger being unknown, the injury is accidental. Accident is defined
by Worcester to be an event proceeding from an unknown cause or
happening without the design of the agent; an unforeseen event;
incident; casualty; chance; and by Webster, an event that takes
place without one's forethought or expectation; an event which pro-
ceeds from an unknown cause or is an unusual effect of a known
cause, and therefore not expected; chance; casualty; contingency.
In view of the unquestioned facts, the death of the intestate was
accidental. The danger was unknown. The injury was not designed.
We think there was not such a voluntary exposure to danger as to
fairly bring the act of the insured within the meaning of the excep-
tion. * * * '
' In Equitable Accident Co. v. Oshorn, 90 Ala. 2or, one of the exceptions, not
covered by the accident policy, was " voluntary e.xposure to unnecessary dan-
ger." The court said (p. 206): " The evidence in the record fails to satisfy us
that the insured was guilty of voluntarily exposing himself to unnecessary dan-
ger, and any degree of negligence short of this will not operate to defeat a recov-
ery. May on Insurance (2d ed.), § 530 He was approaching the arriving
railway train, for the purpose of getting the mail for the postmaster. True, he
was moving rapidly. But he made an effort to check his speed, as he reached
the sloping bank which led down to the side track of the railroad; and in doing
this, he stumbled, and came in collision with the engine. But for the accident
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 287
5. Poison.
TRAVELERS' INSURANCE CO. v. DUNLAP.
160 Ills. 642. — 1896.
Action upon an accident policy. The policy provided that the
insurance did not cover death resulting from " taking poison."
Mr. Justice Carter. — It is settled by the judgments below that
the death of the insured was caused by accident. Mistaking a bottle
of carbolic acid for peppermint, which he wished to take for sjme
ailment, he poured a portion of the acid into a glass of water, drank
it, and died from the poison. The only question presented for our
decision is, is the appellant exempted from liability on the ground
that the insured died from " taking poison," within the meaning of
the policy? Appellant contends that it is so exempt by the terms
of the contract; that the term "taking poison," as used in the
policy and according to its ordinary signification, includes accidental
as well as intentional taking, and cites Pollock v. United States Mutual
of stumbling, the inference is fair that he would not have been injured. The
efficient and pro.ximate cause of the death, therefore, was the accident, as much
as if the collision had been with a huge stone, instead of with Mt steim-chesL
on the side of the engine."
In Corn7i<cll \-. Assoc, 6 N. D 201, an attempt, while hunting, to scale a bank
with a loaded gun in hand was held not a voluntary exposure to unnecessary
danger. In Tucker v. Co., 50 Hun, 50, there was the same holding where the
insured, a farmer, living oh the shore of Lake Ontario, losi his life by the cap-
sizing of a boat while on a mission of rescue during a storm. See also Tuttle
V. Co., 134 Miss. 175.
In Stone v. U. S. Casualty Co., 34 N. J. L. 371, an adion upon an accide.it
policy, the policy provided " the party insured is required to use all due dili-
gence for personal safety and protection." Upon this point the court said ;
" It was insisted that the assured did not use due diligence for his personal
safety and protection. The circumstances were these: The assured was hav-
ing a small barn put up, and while the same was building, had gone up to the
second story to look on at the work. Stepping to one side he tro 1 upon a joisi
which, from a concealed defect, broke, and he was killei by falling to the
ground. At the time of the accident he was heavily clad in t ato overcoats and
was said to be an awkward man. These facts do not show any disregard to
his personal safety, on the pan of the assured. There was no rashness or
undue exposure in placing himself in the position described, and the breaking
of the timber, which was the proximate cause of the death, was a pure acci-
dent. Besides, this was altogether a question for the jury, and they were
instructed in the language (jf the charge to ' lake all the circumstances into con-
sideration in determining, as a question of fact, whether his exposure was such
as a pruientman would not subject himself to, and whether he exercised that
degree of care v.hich would be requited of a prudent man.' The verdict in
favor of the assured, on this point, is amply warranted by the proofs."
2S8 THE TERMS OF THE INSURANCE CONTRACT.
Accident Ass., 102 Pa. St. 230, which so holds. Appellee, however,
contends (and in this she is supported by the Appellate and Circuit
Courts), that the words " taking poison," as employed in the policy
and in view of the rules of construction applied by the courts to such
instruments, mean the voluntary, intentional taking of poison, and
do not include cases of accidental poisoning; and counsel contend
that this court has, in effect, so decided in Healey v. Mittual Accident
Ass., 133 111. 556. While the precise point here at issue was not
discussed in the opinion in the Healey case, yet it was involved in
the decision, and is within the reasoning there employed. The lead-
ing cases on this subject were reviewed in the Heiley case, including
I'au/ V. Travellers Ins. Co., 112 N. Y. 472, and Pollock v. United
States Mutual Accident Ass., supra, di^d. it was then said, (p. 564):
" While we recognize the high ability of the court in which the case "
{the Pennsylvania case) " was decided, we are not disposed to fol-
low the rule there adopted. We think the rule established by the
Court of Appeals of New York one better calculated to carry out
the true intention of the parties when the contract of insurance was
entered into, and one, too, more nearly in harmony with the current
of authority bearing on the question." See, also, Pickett v. Pacific
Mutual Life Ins. Co., 144 Pa. St. 79; Mcnneilly v. Employers' Liability
Ass. Corp., 148 N. Y. 596.
We are inclined to the opinion that the term, " taking poison,"
would also, in common parlance, when used without any qualifying
words, be understood to mean an intelligent and conscious act. If,
in speaking of the cause of the death of another, we should say,
" he took poison," we would most commonly be understood to mean
that his act in taking poison was intentional, rather than accidental,
and it would hardly be deemed necessary to say " he intentionally
took poision," and if it were designed to avoid such understanding
we would naturally say " he accidentally took poison," or would use
some other qualifying words indicating that the act was accidental
or its cause doubtful or unknown. It must, however, be conceded
that the meaning of the term in the respect mentioned is not free
from doubt. Able and learned arguments have been made on each
side of the question by counsel, and cases are cited showing that
courts of high authority do not agree on the subject. It would,
therefore, seem to be eminently proper, in such a case, to apply the
well-known rule of construction applicable to such instruments,
that where there is a doubt or uncertainty as to the meaning of the
terms employed, the language, being that of the insurer, must be
liberally construed in favor of the insured, so as not to defeat,
without a plain necessity, his claim to indemnity, which, in making
TERMS OF THE ACCIDENT INSURANCE CONTRACT, 289
the insurance, it was his object to secure. Niagara Fire Ins. Co. v.
Scamino/i, 100 111. 644; Healcy v. Mutual Accident Ass., supra; May
on Insurance, § 175.
Counsel for appellant insist that, using their own language, "an
exception from an accident policy can only be of some accident
otherwise included within it, for if the cause of injury or death be
not accidental, it is manifestly not within the scope of the policy
at all. Hence an exception of ' taking poison ' means, ex vi termini,
the exception of an accidental taking of poison." It is clear, how-
ever, that the so-called exception is something more than a mere
exception excluding what would otherwise be included as accidents,
for suicide by a sane person could not be said to be an accident,
yet it, with other causes of death and injury not accidental, is
embraced in the exception.
It is also said that the term " taking poison " cannot be limited
in its meaning to the intentional taking of poison, for the reason
that death so caused is covered by the clause relating to suicide,
and to so construe it would give no force whatever to the words
" taking poison." Counsel are mistaken also in this contention.
When the entire provision in which these words occur is considered,
it is too clear for argument that it is recognized that death may
result wholly or partly, directly or indirectly, from voluntarily taking
pjison without any suicidal intent, and that death so caused, while
excepted from the risks covered by the policy, would not be so
excepted by the suicide clause. Besides different kinds of accidents
and injuries not resulting in death caused by the voluntarily taking
of poison, might be excluded from such risks by this provision. It
would not be difficult for the insurer to use language which, in respect
to the question here under consideration, would be free from doubt.
A policy of insurance should not be so framed as to be susceptible
of one construction in the hands of the soliciting agent, and of quite
a different one in the hands of the adjuster.
Finding no error in the record the judgment of the Appellate
Court is affirmed.
Judgment affirmed.'
' Contra is McGlother v. Co., 89 Fed. 685, where the exception clause was " death
* * * resulting from poison; " and also Early v. Co.. 113 Mich. 58, the court
saying: " We have not overlooked Travelers' Ins. Co. v. Dunlap,\bo III. 642.
But in the present case, the expression is ' death by poison.' We know of no
case which goes to the extent of holding that such an expression in the excep-
tion contained in the policy does not avoid it."
LAW OF INSURANCE — Xq
290 THE TERMS Ul" THE INSURANCE CONTRACT.
6. Inhaling CiAS.
PICKETT P. PACIFIC MUTUAL LIFE INS. CO.
144 Pa. 79. — 1891.
Action upon an accident policy.
Mr. Justice Stekrett. — The undisputed facts, upon which the
jury in this case was instructed to find for the plaintiff the full
amount of his claim, are briefly as follows:
On June 4, 1889, the plaintiff's intestate, John W. Moore, received
and paid for the policy of insurance on which this suit was brought,
a copy of which will be found in the record. Returning to his
boarding house the same evening he informed his landlady that he
had had no dinner, and requested that his supper be prepared. He
then went to the well in the open yard for a drink, and finding that
the pump required priming with water, he remarked that he would
fix it, so as to obviate that difficulty in the future. After procuring
a hatchet, and removing planks from the opening at the top, he
descended into the dug-out portion of the well, which was four or
five feet wide and only ten or twelve feet deep, for the purpose of
closing a small opening in the iron pipe, about midway down. A few
minutes later his lifeless remains were foand at the bottom of the
well. He died from asphyxia or suffocation due to the accidental
and unconscious inhalation of carbonic acid or other deadly gas that
had unexpectedly accumulated in the dug-out portion of the shallow
well. The well, with which deceased was familiar, and in which
he had been shortly before, was one of those known as a " driven
well," made by driving an iron pipe into the ground to the depth,
in this case, of about forty feet. For the distance of about ten or
twelve feet from the top the earth around the iron pipe was dug
out so as to form, as above stated, an open well of about four or five
feet in diameter, in which there was little or no water. The top of
the well was covered with plank. The deceased was a strong,
healthy man.
His sudden and wholly unexpected death, under the circum-
stances above stated, and within a few hours after he had procured
the policy of insurance, undoubtedly resulted from external, vio-
lent, and accidental injuries or means, and without any conscious or
voluntary act on his part. There was no evidence, nor was it even
suggested, that he had committed suicide, or that he was wanting
in reasonable care, or that he voluntarily exposed himself to dan-
ger. In describing the condition in which he found the body of
deceased the physician who made the post-mortem examination
testified: "The general surface of the body was of a livid bluish
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 29I
color. Th.e lips and tongue were blue. The right side of the head
was partially distended with dark blood; the left side was nearly
empty. The lungs contained more blood than they would under
different circumstances; they were somewhat congested. The pul-
monary arteries were distended with blood. The liver was slightly
congested, and also the kidneys; there was, however, no disease of
the kidneys, no disease of any of the internal organs. * * * His
death was caused by asphyxia, due to the inhalation of gas." If
the latter undisputed and undoubtedly correct conclusion of
fact needed any confirmation, it may be found in the testimony as
to the effect of the same noxious gas on those who went to the
relief of the deceased, and assisted in removing his remains from
the well. It shows how narrowly they escaped a similar violent and
accidental death. * * *
In view of the undisputed facts, of which the above is an outline,
the learned president of the Common Pleas refused to afifirm defend-
ant's points for charge, some of which are predicated of the forego-
ing facts, and instructed the jury that upon the undisputed facts
before them the plaintiff was entitled to recover, and there was
accordingly a verdict and judgment in his favor. This action of
the court in refusing defendant's points, and instructing the jury in
plaintiff's favor, are the subjects of complaint in the several specifi-
cations of error.
The first and main point was as follows: " The clause in the
policy of insurance sued on, to wit, ' This insurance shall not cover
* * * death or injury resulting from or attributable partially or
wholly to * * * inhalation of gas,' applies to the case of death
resulting from asphyxia caused by inhaling gas accumulated at the
bottom of the well." This, in connection with the remaining seven
points, was rightly refused. According to the undisputed facts
above referred to, the death of the insured was caused by external,
violent, and accidental means, and without any conscious or volun-
tary act on his part. No one, knowing, as he did, the shallowness
of the dug-out portion of the well, would ever suspect the presence
of noxious gas therein. Doubtless, he never for a moment con-
templated the slightest danger. His death was purely accidental;
quite as much so as if he had been suddenly and unexpectedly
engulfed in water and drowned. The deadly but invisible gas by
which he was unconsciously and accidentally enveloped was
undoubtedly the external and violent cause of his injury and death.
According to the physician's testimony above quoted, its violent
effect upon the vital organs of the deceased was plainly visible at
the time of the post-mortem examination.
292 thh: terms of the insurance contract.
As was well said in Paul v. Insurance Co., 112 N. Y. 472, which io
principle rules this case: " As to the point raised by appellant, that
the death was not caused by external and violent means, within the
meaning of the policy, we think it a sufficient answer that the gas in
the atmosphere, as an external cause, was a violent agency, in the
sense that it worked upon the intestate so as to cause his death.
That a death is the result of accident, or is unnatural, imports an
external and violent agency as the cause." In that case the policy
on which suit was brought provided that the insurance should not
extend to death caused "by inhaling gas." It appeared that the
insured was found dead in bed. Gas had escaped in the room, and
death was caused by breathing the atmosphere of the room filled
with gas. It was held that death was not caused by the inhaling of
gas, within the meaning of the policy. The company relied upon
the same narrow and technical defense that is made by the defend-
ant in this case. In an able opinion, reported in 45 Hun, 313, the
learned judge of the General Term, whose judgment was afterwards
affirmed by the Court of Appeals, said, inter alia: " Was the death
of the intestate caused by or through ' external, violent and acci-
dental means,' within the language of the policy? * * * We
should say the death was due to external and violent means as clearly
as drowning. * * + The cause of death came from outside, as
surely as would a rifle ball, or water in the case of drowning. The
escape of gas into the room was violent, in the same sense that
would be the flow of water into a wrecked vessel. In either case
the external means constitute the cause which produces death. It
is a violent death, produced by an external power, not natural.
Some poisons, such as opium and chloral, produce no violent action
on the human system. The man who descends into a well of car-
bonic-acid gas is killed with no greater violence, perhaps, than was
the intestate. Yet in all these cases the result would be called a
violent death. * * * \Ve also think the words ' inhaling of gas '
were used to designate those common uses of gas in dentistry,
surgery, etc. * * * Evidently an exception from death caused by
a surgical operation was not broad enough to include the use of
anaesthetics preparatory to the operation. It contemplated a volun-
tary and intelligent act by the assured, not an involuntary and
unconscious act."
On this question the Court of Appeals, in affirming the decision
of the General Term, said: " A careful consideration of this instru-
ment, and of the scope and design of its provisions, leads us to the
conclusion that appellant must fail in its contention. * * * jj^
expressing its intention not to be liable for death from ' inhalin-, of
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 293
gas ' the company can only be understood to mean a voluntary and
intelligent act of the insured, and not an involuntary and uncon-
scious 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 a suicidal purpose. Of course, the deceased
must have, in a certain sense, inhaled gas; but, in view of the finding
that death was caused by accidental means, the proper meaning of
the words compels, as does the logic of the thing, the conclusion
that there was not that voluntary or conscious act, necessarily
involved in the process of inhaling. An accident is the happening
of an event without the aid and the design of the person, and which
is unforeseen. * * * 'pg inhale gas requires an act of volition
on the person's part before the danger is incurred. Poison may be
taken by mistake, or poisonous substances may be inadvertently
touched; but, whatever the motive of the insured, his act precedes
either fact. * * * jf ^j^g policy had said that it was not to
extend to any death caused wholly or in part by gas, it would have
expressed precisely what the appellant now says is meant by the
present phrase, and there could have been no room for doubt or
mistake. Policies of insurance are to be liberally construed, and,
ai in all contracts, conditions are to be construed strictly against
those for whose benefit they are reserved."
The principles, so well stated and enforced in the cases above
cited, were afterwards approvingly considered in Bacon v. Associa-
tion, 123 N. Y. 304. In further support of the same principles, refer-
ence might be made to other authorities, among which are: May on
Insurance, 631, in which reference is made to Trew v. Assitra/ice
Co., 6 H. & N. 839; Winspcar v. Insurance Co., 6 Q. B. D. 42 (29
Eng. R. 488); Insurance Co. v. Craudal, 120 U. S. 532; Mallory v.
Insurance Co., 47 N. Y. 52; North American Ins. Co. v. Burroughs,
69 Pa. 43; McGlinchey v. Casualty Co., 80 Me. 251; Eggenberger \.
Association, 41 Fed. R. 172; U. S. Mut. Ass'n v. Nciv7nan, (Va.) 3 S.
E. Rep. 805; but further elaboration is unnecessary.
This case is not ruled by Pollock v. Accident Ass'n, 102 Pa. 230, on
which defendant relies. While that case may well stand upon its
own peculiar facts, we think the present case is clearly distinguish-
able in its controlling facts, as well as in the principles applicable to
them. In that case the injury did not result from external, violent,
and accidental means. The fatal drug was voluntarily and inten-
tionally taken by the deceased. In deciding that case this court
never could have intended to lay down the broad rule that in con-
struing an accident policy there is no distinction between external,
294 THE TERMS OF THE INSURANCE CONTRACT,
violent, and accidental causes of death, and those cases in which
death results from voluntary acts. What was decided in that case
was that, under the various clauses of the policy ?ued on, there
could be no recovery, and it was unimportant whether the means
arose from the designing act of the insured or otherwise. * * *
Without further referring to the specifications of error, it is suffi-
cient to say that neither of them is sustained. The deceased was
accidentally, violently, and fatally asphyxiated by the unknown
presence of a fluid foreign to his person. If that fluid had been oil,
smoke, water, or molten metal, the result would have been sub-
stantially the same. Death caused, not so much by the inhalation
of the fluid as by its action in excluding life-supporting air, would
have inevitably resulted. A fair construction of the policy leads
to the conclusion reached by the court below, that death resulting
from causes such as killed the intestate is not within any of the
exemptions relied on by the company.
Judgment affirmed.
7. OVER-EXERTION.
RUSTIN V. STANDARD LIFE AND ACCIDENT
INSURANCE CO.
79 N. W. 712 (Neb.) — 1S99.
Action on an accident policy issued to plaintiff and containing a
stipulation exempting the defendant from liability for injuries occa-
sioned by unnecessary lifting and voluntary overexertion.
Plaintiff, the president of a pleasure resort, was injured by lift-
ing a dumbbell purporting to weigh 450 pounds, used by a performer
at his resort. Plaintiff testified that he was in good physical con-
dition at the time, that in his opinion the dumbbell did not weigh
over 300 pounds, and that his purpose in lifting it was to detect
that the bell was under weight and so protect his resort and the pub-
lic from imposition. The trial court, at the conclusion of plaintiff's
testimony, instructed the jury to find for the defendant. Plaintiff
appeals.
Sullivan, J. — * * * Rustin's injury, it is true, was the
natural result of overexertion while attempting to raise the dumb-
bell and bring it to a horizontal position ; but that fact is not of itself
conclusive in favor of the company. The contract right to indemnity
was not lost because the injury resulted from overexertion unless
the overexertion was conscious and intentional. Indemnity Co. v.
Dorgan, 7 C. C. A. 581, 58 Fed. 952; Johnson v. Accident Co.
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 295
(Mich.) 72 N. W. 1 1 15. Surely, it cannot be said as a matter of
law that the plaintiff was aware of the probable result of his act,
or that he acted with a reckless disregard of consequences likely
to ensue. That he failed to accurately gauge his own strength, or
else to correctly estimate the weight of the dumbbell, is evident;
but accident insurance is not designed to furnish indemnity only in
cases where the policy holder orders his conduct with grave circum-
spection, and a provident foresight of consequences. Mere contri-
butory negligence is no answer to an action on a contract of
insurance. Neither is there any absolute inference that the lifting
was unnecessary. According to the plainti.f's testimony, the act
was the product of a reasonable motive, and was performed in
the line of duty. * * * Circumstances in evidence discredit the
reason given for the lifting, but they do not indisputably condemn
it as false. The question was for the jury to determine. The judg-
ment is reversed and the cause remanded.'
8. Intoxicants.
UNION MUTUAL LIFE INS. CO. v. REIF.
36 Ohio St. 596. — 1881.
The action below was founded upon a policy of insurance upon
the life of Charles Reif. It is averred that the following answers
made by Charles Reif in his application, were false and untrue:
" Has the party whose life is to be insured ever been intemperate? "
Answer: "No." "Is the party now of correct and temperate
habits?" Answer: "Yes."
Johnson, J. — The ninth request was that if the jury found that
' " This action is brought upon an ' accident policy ' issued by the defendant
to the plaintiff, and is to recover for injuries sustained while riding in a bicycle
race. The following provision was contained in the policy: ' This insurance
shall not extend to or cover * * * injury resulting from * * * volun-
tary over-exertion, either voluntary or unnecessary exposure to danger, or to
obvious risk of injury.' * * * it cannot be said, as a matter of law, that
the plaintiff was over-exerting himself, nor that he voluntarily exposed himself
to danger by entering into the race. Different, and equally intelligent and
unbiased men might fairly differ in opinion as to whether or not, by taking
part in such a race any risk of injury was necessarily incurred, and we think
Jhe court was right in leaving the decision of that question to the jury. Hart
v. H. R. Bridge Co., 80 N. Y. 622; Salt Springs Nat. Bank v. Sloan, 135 Id.
371-383." — Keeffd V. Soc, 4 App. Div. (N. Y.) 392.
2^6 THE TERMS OF THE INSURANCE CONTRACT.
the applicant was, before the date of his application, addicted to
periodical spreeing or getting drunk, without the knowledge of the
company or its agents, the policy would be void, even though there
were periods of longer or shorter duration in which he was duly
sober. The eleventh was in substance the same, that, if " he was
in the habit of periodically getting drunk, even though there were
times and occasions of longer or shorter duration in which he
was duly sober," the policy was void. Each of these requests was
refused, and in lieu thereof the court charged that it was obvious
that these questions are not, whether the insured was ever drunk,
or whether he ever used intoxicating liquors; " but whether he was
ever intemperate, that is, whether at any period of his life his usual
and daily habits were such as to constitute and render him what is
known as an intemperate man — a man habitually under the influence
of intoxicating liquor.
An occasional excess in the use of intoxicating liquor does not, it
is true, constitute a habit, or make a man intemperate, within the
meaning of this policy; but if the habit has been formed and is
indulged in of drinking to excess and becoming intoxicated, whether
daily and continuously, or periodically, with sober intervals of greater
or less length, the person addicted to such a habit cannot be said to
be of temperate habits, within the meaning of this policy. In view
of the fact that the evidence strongly tended to show that it was the
habit of the insured to indulge to excess at frequent times, and did
not tend to show a case of daily or continuous state of intoxication,
this charge was clearly misleading. From it the jury might well
understand, and in view of the whole evidence, we think, may rea-
sonably have understood, that Charles Reif was of correct and
temperate habits, although it was his habit to get drunk periodically
and frequently, with sober intervals of longer or shorter duration.
The habit of using intoxicating liquors to excess is the result of
indulging a natural or acquired appetite, by continued use, until it
becomes a customary practice. This habit may manifest itself in
practice by daily or periodical intoxication or drunkenness. Within
the purview of these questions it must have existed at some previous
time, or at the date of the application, but it is not essential to
its existence that it should be continuously practiced, or that the
insured should be daily and habitually under the influence of liquor.
Where the general habits cf a man are either abstemious or tem-
perate, an occasional indulgence to excess does not make him a man
of intemperate habits. But if the habit is formed of drinking to
excess, and the appetite for liquor is indulged to intoxication, either
constantly or periodically, no one will claim that his habits are
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 297
temperate, though he may be duly sober for longer or shorter periods
in the intervals between the times of his debauches. * * *
Judgment reversed and cause remanded for a new trial.'
SHADER V. RAILWAY PASSENGER ASSURANCE CO.
66 N. Y. 441. — 1876.
Action to recover the amount of an accident insurance policy
issued by the defendant in favor of one Wesley Shader. After
the policy was issued Shader dined with a friend. During the
dinner he and his friend were talking about shooting. Shader said
his friend " could not shoot a frog;" the latter responded that he
"could shoot his (Shader's) ear." The latter told him he might
try "for ten cents." He did try and killed Shader. Both men
were under the influence of intoxicating drinks at the time.
Miller, J. — The question arising directly upon this appeal
relates to the charge of the judge and to his refusal to charge as
requested by the counsel for the defendant. The policy provided
that: " No claim shall be made under this policy where the death
or injury may have happened while the insured was, or in conse-
quence of his having been, under the influence of intoxicating
drinks." The judge in his charge to the jury stated that the ques-
tion was not simply whether the deceased was under the influence
of intoxicating liquors at the time, but it was whether the injury
occurred in consequence of that, and it was the natural and reason-
able result of his being in that condition; and he charged, in sub-
stance, that if the injury happened in consequence of his being
under the influence of intoxicating liquors, the plaintiff could not
recover. The court was requested to charge that, if at the time
Shader was shot he was under the influence of intoxicating drinks,
the plaintiff could not recover; and this was so whether the influence
of the liquor occasioned the discharge of the pistol or not. This
was declined. Exceptions were duly taken to the portion of the
charge made and the refusal to charge.
The first inquiry which presents itself to our consideration is the
construction to be placed upon the proviso referred to. An exact
and accurate interpretation of the language employed manifestly
conveys the idea that it was intended to comprehend all cases where
injury or death might happen while the assured was under the influ-
ence of intoxicating drinks, as well as such as might occur by reason
of the use thereof. As to the first class of cases stated in the pro-
' See also Northwestern Life Ins. Co. v. Bank, 122 U. S. 501; AUtna Life Ins.
Co. V. Davey, 123 U. S. 739.
298 THE TERMS OF THE INSURANCE CONTRACT.
viso, the words imply that it is not required that the use of intoxi-
cating drinks should be the moving cause in proJucing the injury or
deatli, and quite sufficient to avoid a liability that the person in
whose favor the policy was issued was under the influence of such
stimulants, without regard to the effect which might result from
sjch a condition. The limitation in the policy related to the con-
dition of the insured, not to the cause which might produce his
death. And here lies the distinction which is to be drawn in its
construction, for, by any other or different interpretation, the words
used would not only be unnecessary but meaningless and without
point. As the policy was rendered void if the assured was injured
or killed while under the influence of intoxicating drinks, it was not
essential, to work a forfeiture, that injury or death should occur in
consequence of the use of the same.
As to the second class of cases the policy was designed to provide
for the possible contingency which might arise after the influence of
intoxicating liquors had ceased to operate directly, and the subse-
quent effects produced thereby in consequence of the previous use
thereof. The intention, evidently, was to limit the liability of the
company by the contract with the assured, and not to incur any
responsibility when the injury occurred while the assured was
directly under the influence, or where the result was remotely pro-
duced by intoxicating drinks. Accidental policies are issued princi-
pally to travelers or persons exposed to unusual peril and danger,
and the risk in such cases being extremely hazardous it is by no
means unreasonable that the insurer should require that the assured
should be under no exciting influence which may affect his self-pos-
session or judgment, or seriously interfere with the free, full and
deliberate exercise of his faculties in protecting himself from acci-
dent or harm. It follows that the proposition laid down by the
judge was erroneous; and he also erred in refusing to charge as
requested. * * * "
' " I assent to the vieiv that has been put forward by Mr. Russell, as at pres-
ent advised, that " death, or injury happening while the assured is under the
infljence of intoxicating liquor," must in reason be read " death, or injury
causing death, happening while the assured is under the influence of intoxicat-
ing liquor." The consequence would be, I think, preposterous if we held that,
if the death happened while he was under the influence of intoxicating liquor
the company would not be liable, whereas if the injury which caused the death
happened under the same circumstances, but the man happened to be sober
when he died, under those circumstances they would be liable under the pro-
viso; and, therefore, I think the good sense of the thing is clearly with the con-
struction which was put forwird on the company's behalf. I say it is not
necessary to go further for this reaso.i, that upon the best view I can take of
TEKM5 OF THE ACCIDENT INSURANCE CONTRACT. 299
9. Occupation.
Black, J., in HARTMAN v. KEYSTONE INSURANCE CO.
21 Pa. 466, 477. — 1853.
If the insured, who represented himself to be a farmer, was in
fact a slave-taker by occupation, and if the business of slave-taking
would expose his life to greater danger than farming, it is not pos-
sible to escape the conclusion that the policy was thereby rendered
void, since, if it was wilfully made, it was a fraud; and though made
ignorantly, or by mistake, it was a warranty by the express terms
of the policy. The plaintiff can only recover if the declaration of
the assured, upon the faith of which the risk was taken, was strictly
true in every material part. It will not do to say that this was
immaterial. Every fact is material which increases the risk, or
which, if disclosed, would have been a fair reason for demanding
a higher premium. Nor is it of any consequence that the death was
not, in fact, produced by a cause connected with the subject of the
tnisrepresentdtion. One who falsely declares himself free from con-
sumption canot effect a valid insurance on his own life, though he
die of cholera. A soldier or a sailor who warrants himself a mer-
chant, has a void policy, even though he is not slain in battle or
does not perish at sea. In such cases the whole contract is entirely
void, as much as if it had never been made, and of course it cannot
derive any force or validity from a subsequent event.'
the evidence that has been largely discussed before me, assuming against the
company that the true construction of these words is that the intoxicating
liquor must conduce to the accident, even in that view, which is the strongest
view that can be taken against the company, I think that the great weight of
the evidence is that in this case the man's state did conduce to the accident,
and did contribute to the result which happened. Speaking merely for myself
I should not construe the proviso so strongly in favor of the company. I should
think, speaking only for myself, that the words " under the influence of intoxi-
cating liquor " would be sufficiently satisfied by construing them to mean under
such influence of intoxicating liquor as disturbs the balance of a man's mind.
There is a point up to which any stimulating liquor, with most people at least,
possibly benefits, at any rate for the time, the exercise of the intellect. There
is a point beyond which it certainly impedes — disturbs it. 1 concede that it is
very difficult even in language — certainly in the English language — to ascer-
tain with precision where that point is; but it is enough to say that there is a
point, and it seems to me these words would be satisfied when the influence of
intoxicating liquor is found in point of fact to be such as to disturb the quiet
and equable exercise of the intellectual faculties of the man who has taken the
liquor." — Lord Coleridge, C. J., in Mair v. Co., 37 L. T. N. S. 356, 357 (C. P.
Div.)
' "'If a man, for want of employment, steps aside for a season from his regular
and usual calling, he does not lose his connection with or give up his craft, as
300 THE TERMS OF THE INSURANCE CONTRACT.
Beasley, C. J.. IN STONE'S ADMINISTRATORS v. UNITED
STATES CASUALTY CO.
34 N. J. L. 371. — 1S71.
The second objection, arising out of the clause of the policy above
recited, was, that there was error in the charge of the judge touch-
ing that provision which prohibited a change of occupation on tlie
part of the assured, without notice. In this policy the deceased
was described as a teacher, and it was insisted that he had given up
that occupation and had become a builder, which was, according to
the specifications of the policy, a business attended with greater
hazard. That Mr. Stone had been a teacher by profession was not
denied, and the entire proof of his change of occupation since he
had been insured consisted in the fact that he had caused, apparently
for his own use, two dwelling-houses to be erected. There seems to
be no substance whatever in this objection. The court would have
been fully warranted in saying that there was no evidence whatever
from which the assumption by the assured of any new business could
be inferred. But the point was left to the jury, with the explanation
that the expression " changing occupation," etc., meant an engag-
ing in another employment as a usual business. It seems to require
no argument to show that this exposition was correct. It is simply
the clear, literal meaning of the terms, which can, in this connec-
tion, have no other signification. Mr. Stone was a teacher out of
employment, and it seems preposterous to affirm that because he
had one or two houses built by contract, that he thereby became
a builder by profession. Persons of wealth often invest their money
in buildings, but it would be a palpable error to classify them, with
respect to occupation, among builders. The instructions of the
judge and the findings of the jury on this head were clearly correct.'
in this case he did not cease to be a maker of soda water because for the lime
being he sold it in the streets. Neither is inconsistent with the other, but both
are functions of the same calling.'' — Grattan v. Ins. Co., 80 N. Y. 281, 291.
See also Dwightv. Ins. Co., 103 N. Y. 341.
' In North Amer. Ins. Co. \. Burroitohs, 69 Pa. 43, the assured had stated in
his application that his occupation was " earthenware manufacturer." While
visiting a farm he was mortally injured by an accident while loading hay. It
was held that this was not a change of occupation, within the meaning of the
policy. In Johnson v. Co., 115 Mich. 86, one who represented himself in the
application as secretary and treasurer of a grocery firm was held not necessarily
to have changed his occupation to farming, by returning to his farm, which
was managed by his agent, when the firm by which he was employed went out
of business. In Union Mul. Co. v. P'rohard. 134 111. 22S, the assured whose-occu-
palion was that of merchant was accidentally killed while hunting, for recrea-
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 30I
Military or Naval Service. — In JVe/is v. Ins. Co., 48 N. Y. 34,
the life policy provided for forfeiture of the policy if the assured
entered 'into any military or naval service whatever." Assured
was killed while in the employ, during the Civil War, of the United
States Government, while he was superintendent of bridge construc-
tion upon a railroad, under the direction of, and in use by, the fed-
eral military authorities. The court said: " Entering the military
service, within the meaning of the policy, must be taken in its strict
or limited sense, as most advantageous to the assured, as well as
all other provisions therein. The company frame the policy and
choose the language. If there is anything uncertain it is the right
of the assured to enjoy the most favorable rule of construction.
The general understanding of the term includes such persons only
as are liable to do duty in the field as combatants."
10. Violation of Law.
MURRAY V. NEW YORK LIFE INSURANCE CO.
96 N. Y. 614. — 1884.
Appeal from judgment of the General Term of the Supreme
Court, in the second judicial department, entered upon an order
made September 11, 1883, which affirmed a judgment in favor of
defendant, entered upon a verdict and afifirmed an order and deny-
ing a motion for a new trial This action was brought upon two
policies of insurance issued by defendant upon the life of Wisner
Murray.
Andrews, J. — The policies upon the life of Wisner Murray, each
contain a condition that if the assured " shall die in, or in conse-
quence of a duel, or of the violation of the laws of any nation, State,
or province," the policy shall be void. The assured died from a
pistol shot from a pistol in the hands of one Berdell, upon whom
the deceased and his brother had committed a violent assault, and
the defense is based upon this condition in the policy. It is an
tion, and it was contended by defendant that the insured had, in contravention
of the by-laws of the company, met his death while engaged in an " occupation
more hazardous than the one in which he was engaged when insured." The
court held " occupation " as found in the by-laws " 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 incidents connected with the daily life of man in any or all
occupations, or from engaging in mere acts of exercise, diversion or recreation.'-'
302 THE TKR.MS OF THE INSURANCE CONTRACT.
undisputed fart that the brothers, acting in concert, planned the
assault upon Berdell. They stationed themselves in the waiting-
room of the station awaiting his arrival, and when he entered the
rojm, Spencer Murray seized him by the arms from behind and held
him, while his brother Wisner Murray, standing in front, beat him
over the head and face with a raw-hide, striking from ten to twenty
blows, inflicting severe and painful wounds from which the blood
flowed profusely, covering his face and clothing. The assault was
a brutal one, and, so far as appears, without provocation. Berdell
testified that in the struggle to escape from Spencer Murray, his
hand was involuntarily brought into contact with his hip pocket
containing a pistol. Hi drew it from his pocket, and it appears
that Wisner Murray, seeing the pistol, started toward the lunch
counter, keeping his face toward Berdell and calling on his brother
to " hold him and not to let him shoot." Wisner Murray jumped
over the lunch counter, and as he was passing through a door into
another room, the pistol in the hands of Berdell was discharged, the
ball hitting the assured in the forehead, causing his death.
Berdell, who was called as a witness by the defendant, testified,
in substance, that the firing of the pistol was accidental, and was
caused by the sudden jerking of his arm by Spencer Murray, who
was still holding him, and that he had no intention of firing at the
deceased. It is established by the great preponderance of testimony,
that until after the pistol was fired, Berdell was in the grasp of
Spencer Murray, and was struggling to release himself. Berdell
also testified that the deceased, during the time he was retreating,
had a pistol, which he pointed at the witness as if aiming at him.
He is confirmed as to the deceased having a pistol by another wit-
ness, and a pistol was found after the affray on the floor near where
the deceased fell, a distance of about thirty feet from the place
where Berdell was when the shot was fired. The witnesses differ as
to the time which elapsed between the commencement of the affray
and the firing of the pistol, the highest estimate given by any wit-
ness being thirty seconds.
It is not disputed that the assault made upon Berdell was a viola-
tion of law. But it is contended that as, according to the evidence
of Berdell, the firing was accidental and not intentional, and as it
also appears that it happened after the assured had abandoned the
combat, his death was not " in, or in consequence of, a violation of
law," and was not, therefore, a death excepted from the operation
of the policy. The argument is that death under such circum-
stances, from an accidental shooting, cannot, in a legal sense, be
attributed to the violation of law, which preceded it, so as to bring
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 303
it within the condition of the policy. There must, no doubt, be a
relation between the act causing the death and the violation of law
to avoid the policy. In the case of Bradley v. Mutual Ben. L. Ins.
Co., 45 N. Y. 422, involving the construction of a similar clause in
a life policy, the court said: " It seems to be clear that a relation
must exist between the violation of law and the death to make good
the defense; that the death must have been caused by the violation
of law."
It may be that the proviso in the policy was primarily intended to
exempt the company from the hazard of a death from violence to
whicii persons engaged in the execution of criminal acts are
exposed, and especially where the unlawful or criminal act is such as
is likely to be met by forcible resistance. It is plain that homicide
committed in self-defense would be a death within the condition; so,
also, a death at the hands of justice in punishment for crime. The
death in these cases would be the direct and legitimate result
of the criminal act. Another case, a little further removed from the
violation of law as its cause, would be one where a party assailed, in
the heat of passion, engendered by the act of the assured, on the
moment takes the life of the aggressor, although the provocation
might not be a legal justification of the homicide. Such a death we
conceive might be within the condition, depending upon circum-
stances. If the violation of law in which the deceased was engaged
was trivial, although calculated to some extent to excite opposition
or resistance, but the taking of life was a result which no reasonable
man could have contemplated as likely to follow from the unlawful
act, there would be no such relation between the act and the death
that the former could be said to be the cause of the latter. But if, on
the other hand, the party killed was engaged in committing a violent
assault, the natural result of which would be to arouse the passions
and excite the anger of the party assailed, and in the heat of passion
he killed his assailant, the death would, we think, be the result of
the unlawful act withm the meaning of the policy, although the party
causing it exceeded the bounds of lawful resistance. As between
the company and the assured, his violation of law ought justly to be
treated as the cause of the death, because the deceased must
be assumed to have known the danger he incurred, and that a
party resisting an assault under such circumstances, and whose
anger is naturally excited, does not mark with exactness the line
which separates lawful defense from excessive and unjustifiable
force.
We have, so far, had in view cases where the death of a person
insured was the result of the intentional act of another, or of the
304 THE TERMS OF THE INSURANCE CONTRACT.
law. But while it is probable, as we have said, that cases of this
kind were primarily in the contemplation of the parties to the con-
tract, the words of the condition are too broad to permit them to be
confined to this narrow and rigid limitation. The proviso clearly
exempts the company from all risks of life which attend the vio-
lation of law, which are the natural and reasonable concomitants
of thj transaction. Prize fighting is prohibited by law, and is
attended with some danger. Suppose in such a friendly contest, by
mishap one of the combatants strikes a blow which causes the death
of the other. Would a death under such circumstances be a death
in the violation of law within the policy, although there was no inten-
tion to kill? However this might be answered, we think it is clear
that there may be a death in violation of law within the meaning of
the policy, although not intentionally inflicted, and although it was not
occasioned by the act of another. A burglar, who in consequence
of a misstep, or to escape detection, falls or jumps from the roof of
a house which he is attempting to enter, and is killed, dies in viola-
tion of law as plainly as if he had been shot by the owner in defense
of his dwelling. In the former as in the latter case, the death
results from the criminal act, within the policy, as a natural and
reasonable consequence, because, although the immediate cause of
the death was the fall, yet the exposure to the danger was encoun-
tered in the prosecution of the criminal purpose. Another case may
be stated, of which there may perhaps be more doubt. Suppose the
assured in this case instead of having been killed by the pistol had,
in the struggle with Berdell, ruptured a blood vessel, or, being pre-
disposed to heart disease, it had been brought on by the excitement
of the affray, and he had died from either of these causes in the
midst of the struggle. Death from a rupture of a blood vessel,
or from disease of the heart, occurring independently of any
violation of law, would be covered by the policy. The company
assumes the risks of death from these causes under ordinary circum-
stance. But do they assume such risk when the immediate, excit-
ing cause of the death is the struggle originating in a criminal
assault in which the deceased was engaged at the time? To exempt
the company, must the death result from some peculiar and special
risk connected with the commission of crime? It seems to us not,
and that it is sufificient to bring a case within the condition, if there
is such a relation between the act and the death that the latter
would not have occurred at the time if the deceased had not been
engaged in the violation of law.
In the case before us it is said that the shooting was accidental,
and not voluntary or intentional, and consequently was not a death
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 305
in or in consequence of a violation of law. What incidents would
attend the assault by the Murrays could not be foreseen. They
probably did not know that Berdell had a pistol, and if they had
known it, they could not have anticipated that it would be discharged
in the manner stated by him. But they took the risk of his resist-
ance to any extremity. They took the risk of any injury which
might happen to them in consequence of his handling a deadly
weapon, whether such injury was intentional or accidental. The
case is to be considered under the actually existing circumstances of
the assailants and assailed, and if the killing under these circum-
stances was not an unnatural result of the attack, the case is within
the condition. Assuming that Berdell's statement that the shooting
was unintentional was binding on the jury, and that the killing was
accidental, yet the accident was the result of the struggle of Berdell
to free himself from the grasp of Spencer Murray, and the jerking
of his arm by the latter. The accident, so called, was caused by the
assault, and the risk of injury from the discharge of the pistol
was occasioned by the criminal act of the Murrays. The claim
that Wisner Murray had abandoned the combat before the firing of
the pistol, if true, does not meet the difficulty. He was a party to
the original encounter. The struggle with Spencer Murray was con-
tinuing when the pistol was fired. If the shot had killed Spencer
Murray, and he had been the person msured, there could, we think,
be no doubt. It killed his brother who was unfortunately within
its range, but at a time when it was said he was attempting to escape
from the scene. But he was not relieved from responsibility for the
act of his confederate in a crime jointly planned, who was continu-
ing the assault, and the act of Spencer Murray in jerking the arm
of Berdell, causing the explosion, is as to the company the act of
both.
We are of opinion, assuming as true to its full extent the state-
ment made by Berdell, that the defense was established. If, as there
is some slight evidence to show, Berdell fired the pistol after he had
escaped from Spencer Murray, the case is not changed. At all events
the jury upon that theory of the case might well have found, and could
not justly have found otherwise, that it was fired by Berdell in the
heat of passion, and under circumstances which, if they did not fully
justify him, made the firing and the consequent death a natural
and reasonable consequence of the assault. Whether, therefore, the
firing of the pistol was intentional or not, or whether Wisner Murray
had or had not abandoned the combat, the jury upon the evidence
were justified in findmg, as they did by the general verdict, that
the assured died in, or in consequence of, a violation of law. This
LAW OF INSURANCE — 20
305 THE TERMS OF THE INSURANCE CONTRACT.
conclusion answers tlie points made upon the exceptions to the
charge. * * *
We think the judgment should be affirmed
All concur, except Danforth, J., absent.
Judgment affirmed.'
' In Goetzman v. Co., 3 Hun, 515, the proof in the case tended to show that
just after having committed adultery with Mr5. Hesler, the assured was shot
and killed by her husband. The court said: " The condition of the policy is,
that ' if the assured shall die by suicide, or in consequence of his violation of
any law,' the policy shall be void. Assuming that the act of adultery was a
violation of law, within the meaning of the parties to the contract of insurance,
we are of opinion ihat the assured did not die in consequence of it. The undis-
puted facts show that he was killed, not in the act of adultery, nor in defense
of person or property. The offense had been completed, and the assured was
about to go away. He was not, therefore, at the time he was killed, violating
any law, or even commiiiing a trespass, for he was in the house by the license
of the wife, from whom the husband had separated." In Griffin v. Assoc, 20
Neb. 620, assured had wrongfully obtained money from the state treasury.
The attempt having been expected a policeman was stationed to intercept
him when escaping and assurei refusing to slop the policeman shot him. The
court said: " It will be observed that the condition named is, ' if a member
shall die luhile violating any law,' etc. That is, in the actual violation of a law.
Now suppose Giiffin hid robbed the state treasury, and had left it. and was
about to emerge from the building when he was killed, can it be said that at
the time of his death he was violating any law of the state? We think not.
Suppose that instead of robbing the treasury he had made an assault upon
the treasurer in his office, or committed a battery upon him and had left ihe
treasury department and nearly reached the outer door of the capitol when he
was killed, it will not be contended that at the time of his death he was violat-
ing the law. So in this case the act of Griffin in obtaining money from the
treasury had been completed and he was then endeavoring to make his escape.
Griffin therefore was not killed while violating the law, and there is no forfeiture
of the certificate on that ground."
In Cornwell X. Assoc, 6 N. D. 201, where the insured having started out in
the prohibited season to kill prairie chickens accidentally shot himself while
scaling a bank, it was held that the insured " was not engaged in the killing of
anything at the time the accident occuired " and recovery was allowed. But
in Duran v, Co., 63 Vl. 437, the insured slipped and injured his knee while
walking home from hunt'ng on Sunday, and he was not allowed to recover
from the company. Both traveling on Sunday and hunting on Sunday were
prohibited by statute, but in this case the provision of the policy was that there
should be no recovery if the violation of law were the act, cause, or condition of
the injury or where the injury " was effected by any such act, cause or
condition."
See also Greshani v. Co., 87 Ga. 497 (assault and battery); Bloom v. Co., 97
Ind. 478 (assault and battery).
Suicide as a Violation of Law. — " The provision relied upon to support the
defense so alleged, is the provision in the contract thit it should " be void if
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 307
Elliott, C. J., in BLOOM v. FRANKLIN LIFE INS. CO.
97 Ind. 478, 481, 482. — 1884.
Granting it to be true, as decided in C/nff v. Mutual, etc.. Insur-
ance Co , 13 Allen, 308, that the violation of law must, in order to
avoid the policy, be a breach of some criminal statute, still the
answer is good, for courts judicially know that an assault and
ihe member herein shall die * * * in I'iolation of or attempt to violate any
criminal law of the United States, or of any state or country in which the mem-
ber herein named may be." The death of Darrow was in this state. At com-
mon law suicide was a crime, and the consequence was the forfeiture of the
chattels, real and personal, of ihc felo de se. (4 Bl. Com. 190.) It is not a crime
in this stale. (Penal Code, §§ 2, 173.) The attempt to commit suicide ib made
a crime by the statute. * * * (Id., § 178.) While the attempt to commit
suicide is a crime, the accomplishment of the purpose to do so is not. * * *
It must, for the purpose of the question here, be assumed that Darrow had the
purpose of taking his own life, and that he fully accomplished such purpose.
The result of his act influenced by such intent, then, was his death. By the
act of taking his own life he violated no criminal law, unless the attempt to do
it may be distinguished from the act accomplished. An act is characterized by
the purpose, when ascertained, of the party doing it, or by its result. If the
act fails to accomplish its purpose, it constitutes an attempt, bat if the result of
it is the consummation of the purpose, the act is not commonly designated as
an attempt." — Darroiv v. Sor., ri6 N. Y. 537.
" We now come to consider the effect of the clause providing that death ' in
consequence of, or in violation of law ' is not a risk covered by the policy. It
is truly said that intentional suicide while sane was a felony at common law.
It was punished by forfeiture of goods, but, as we do not inflict such punish-
ments, it is now little more than the shadow of a crime. Technically, it is still
a crime in this state, because we have retained the common law so far as it is
not inconsistent with our laws and general situation, but it is not a crime within
the ordinary meaning of the term, or any usual definition, because we have no
statute punishing either suicide or attempted suicide." — Patterson v. Co., 100
Wis. 118.
Death AT THE Hands OF Justice. — " The question is whether, * * * the
party effecting the insurance having committed felony, and having been tried,
convicted, and executed for felony — the parties representing him, and claiming
under him and in his right, can maintain the suit. * * * Suppose that in
the policy this risk had been insured in terms — that in the event of the party
effecting the insurance being executed for a capital felony, the money should
become payable — is it possible that a claim in right of a party effecting such
an insurance could be maintained, or that the insurance should not be held void
as affording encouragement to crime, and being contrary to public policy? If
such a policy could not be sustained where a risk of that kind was mentioned
in direct terms and language, how can you give effect to a policy if it in reality
involves that condition? On this short and plain ground, we are of opinion
that the claim cannot be sustained." — Amicable Sac. v. Bollatid, 2 Dow. «&
Clark, I.
308 THE TERMS OK THE INSURANCE CUMRACl.
battery is an offense punishable as a crime. * * * 'p^g sound-
ness of the decision in Cluff \. Mutual, f/c, Ins. Co., supra, upon the
point immediately under discussion, is questioned in the well-con-
sidered case of Brai/lcy v. Mutual, etc., Ins. Co., 45 N. V. 422, and
was denied in the same case by the Supreme Court of New York.
It does seem a wide stretch of judicial power to affirm that a clause
reading, " Or in case he shall die by his own hand, or in consequence
of a duel, or by reason of intemperance from the use of intoxicating
liquors, or by the hands of justice, or in the known violation of any
law of these States, or of the United States, or of the said provinces,
or of any other country which he may be permitted under this policy
to visit or reside in, this policy shall be void," refers solely to
criminal laws. If the words employed are taken in their usual sig-
nification, it would seem quite clear that death in the known viola-
tion of any law, criminal or civil, would make the policy inoperative.
An illustration was put by Grover, J., in Bradley v. Mutual Ins. Co.,
supra, which goes far to show the unsoundness of the decision in
Cluff \. Mutual, etc., Ins. Co., supra : "Again, suppose the death
occurred from injury received while the assured w^as attempting to
obtain by force the possession of a chattel of which another was in
peaceable possession, the title to which was claimed by both, but
which was really in the assured, the case would come within the
proviso, for the reason that the risk was increased, and the death
caused by the violation of law by the assured, although such law
was the civil only, the deceased having committed no breach of the
peace or any indictable offense." Suppose, as a further illustration,
that the law prohibits a passenger from standing on the platform of
a railway car while in motion, or that it prohibits persons from
approaching within a specified distance of a blast about to be fired,
would not a known violation of such a law increase the risk, and be
within the letter and the spirit of the provision in the policy? On
the other hard, it is not every violation of law which should
absolve the company even though the law be a criminal one. Sup-
pose a man violates our law against profanity, and is shot while
doing it, should that absolve the company from liability? Again,
suppose a man violates our Sunday law by fishing, and while com-
mitting the offense is shot and killed, would that relieve the com-
pany? In a late case. Hatch v. Mutual life Ins. Co., 120 Mass. 550
(21 Am. R. 541), a rule was declared which it seems difficult, if not
impossible, to reconcile with that laid down in Cluff \. Mutual, etc.,
Co., supra, for it was held in the later case that where an assured
submits to a surgical operation for the purpose of producing abortion
there can be no recovery upon the policy. It is true that tlie
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 309
opinion puts the decision upon the ground of public policy, but when
the real reason for the decision is reached, it will be found that it
rests upon the ground that the act was in violation of the rights of
the insurance company, for an act against public policy cannot relieve
the company unless it is one increasing the risk. If a man should
violate public policy by entering into an illegal conspiracy to pre-
vent competition at a public sale, and this should lead to his death,
we suppose no one would claim that because his act was against pub-
lic policy the insurance contract was avoided. Again, if an assured
should enter into a conspiracy to corruptly control the acts of a gov-
ernment official, or should enter into a marriage brokerage contract,
and these acts should lead to his death, it would be clear that the
policy of insurance would not be rendered void. In our opinion the
lavv is this: A known violation of a positive law, whether the law is
a civil or a criminal one, avoids the policy if the natural and reason-
able consequences of the violation are to increase the risk; a viola-
tion of law, whether the law is a civil or a criminal one, does not
avoid the policy if the natural and reasonable consequence of the
act does not increase the risk.'
' " The first step in the inquiry is the construction of this proviso. The exact
interpretation to be given to the words ' in case he shall die * * * in the
known violation of any law of these States,' etc., has been the subject of seri-
ous debate. In another action upon a like policy of the same company on the
life of the same party, which was tried four times in the State of Massachu-
setts, the Supreme Court of that State, in a carefully considered opinion, held
that the proviso must be construed to refer to a voluntary criminal act on the
part of the insured, known by him at the time to be a crime against the lavv of
the State, and not to mere trespasses against property or infringements of civil
laws to which no criminal consequences are attached. Cluff y. Mutual Ben. L.
Ins. Co., 13 Allen. 308, 316, 317; s. c, 99 Mass. 318. This conclusion is based
by that learned court upon the natural import of the words ' known violation
of law,' and upon their being found immediately following the words ' by the
hands of justice.' A similar construction was adopted by the Supreme Court
of Missouri, in the cases of Harper's Administrators v. The Phcsnix Ins. Co , ig
Mo. 500, and 39 Mo. 122; and the case of Breasted v. The Farmers' L. &= T. Co.
4 Seld. 299, has some bearing in the same direction. The Supreme Court of
this State, [3 Lans. 341], whose decision is now under review, do not agree to
the interpretation given to the proviso by the courts of Massachusetts and
Missouri, and a difference of opinion exists between the members of this court
as to whether the proviso applies only to violations of the criminal law, or
whether it embraces all illegal acts of such a character as to lead to violence."
— Bradley \. Co.. 45 N. Y. 422,427. "A contract to insure a woman against
the risk of her dying under or in consequence of an illegal operation for abor-
tion would be contrary to public policy and could not be enforced in the courts
of this commonwealth." — Hatch v, Co., 120 Mass. 550.
3IO THE TERMS OF THE INSURANCE CONTRACT.
II. Total Disaijiiitv.
SAVELAND v. FIDELITY AND CASUALTY CO.
67 Wis. 174. — 1886.
Plaintiff, by occupation a merchant grocer in Milwaukee, in
consideration of $15 by him paid, procured of the defendant a policy
of insurance, wherein the defendant, among other things, agreed in
effect that "if the insured shall sustain bodily injuries, * * *
effected through external, violent, and accidental means, which
shall, independently of all other causes, immediately and 7v holly 6.\%-
able and prevent him from the prosecution of any and every kind of
business pertaining to his occupation, then, on satisfactory proof
of such injuries, he shall be indemnified against loss of time thereby
in a sum not exceeding $15 per week for such period of continuous
total disability as shall immediately follow the accident and injuries
aforesaid, not exceeding, however, twenty-six consecutive weeks
from the time of the happening of such accident." Plaintiff was
accidentally hit with great force upon his instep by a stick of wood
thrown by some party, inflicting an outward and external mark,
breaking through the flesh, and seriously injuring his foot, by rea-
son of w^hich he " was wholly disabled " and " unable to engage in
any business " for the first week thereafter, and was, during that
time, " confined to his home and under the doctor's charge;" " that
afterwards, by means of great exertion, he was enabled to get to his
buggy, and superintend a small part of his business, but was almost
wholly disabled for the whole period of twenty-six weeks." The
answer alleged, in effect, that the proofs of loss from the accident,
furnished by the plaintiff, stated a " total disability therefrom for
four days, and no more." Under the charge of the court, the jury
returned a verdict " for the plaintiff in the sum of $135, for nine
weeks, at $15 per week." Defendant appeals.
Cassoday, J. — The cause was submitted to the jury on the theory
that it was the object of the policy to insure the plamtiff against
accident, and to pay the plaintiff what the company had agreed to
pay for the accident he had received, if by that accident he had been
disabled in any way from prosecuting the business in which he was
engaged; that it was to indemnify the plaintiff " for his want of
capacity to prosecute the business in which he was engaged;" that
the plaintiff was " entitled to recover, at the rate agreed on in the
policy, for such time as by reason of such accident he " was " ren-
dered wholly unable to do his accustomed labor; that is, to do sub-
stantially «// /^/V/(/y of his accustomed labor to some extent." The
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 31I
learned trial judge was supported in such theory by the language of
the court in Sawyer v. U. S. Casualty Co., 8 Am. Law Reg. (N. S.)
233. The clause of the policy there involved was, " totally disable
him from the prosecution of his usual employment." The case was
in the Superior Court of Worcester, Massachusetts, but never
reached the Supreme Court of that State, nor do vve find it referred
to in any subsequent case in any court. That case apparently fol-
lowed Hooper v. Accidental D. Ins. Co., 5 Hurl. & N. 546, where
the clause of the policy relied upon was, " any bodily injury to the
said insured of so serious a nature as wholly to disable him from
following his usual business, occupation, or pursuits;" and it was
held, in effect, that a disability which incapacitated the assured
from " following his usual occupation, business or pursuits " was a
breach. In neither of those cases was the language .of the policy
so broad and sweeping as in the case at bar. The language of this
policy is even more sweeping than in Rhodes v. Railway Pass. Ins.
Co., 5 Lans. 77, where it was held that there could be no recovery
because it was not shown that there was a " total disability to labor."
In that case the language of the policy was, " accident and injury
which totally disabled and prevented from all kinds of business."
Tiie same is true with respect to lyon v. Railway Pass. Assur. Co.,
46 Iowa, 631, where the language of the policy was, " while totally
disabled and prevented from the transaction of all kinds of busi-
ness;" and it was held that such language could not be construed
to mean " partially disabled from some kinds of business."
Here the plaintiff was only entitled to recover in case the injury
was such as to "wholly disable and prevent him from the prosecution
of a?iy and every kind of business pertaining to his occupation," and
then only " for such period of continuous total disability," not
exceeding the amount stipulated, nor " the money value of his time
during the period of continuous total disability, not exceeding
twenty-six weeks." The ordinary object of a policy of insurance
may be such as stated by the learned trial judge, but the manifest
purpose of this policy was to obtain premiums by incurring as little
risk as possible. But there was no law to prevent the parties from
making their own contract. The plaintiff consented to and made
this one. He cannot repudiate or alter its conditions in the day of
his calamity. The courts are powerless to make a new contract for
him or to strike some words from the contract he made for himself,
and insert others, and thus enlarge the risk, in order to meet the
expectation of the plaintiff in obtaining the policy. This we should
be compelled to do in order to sanction the charge to the jury. The
plaintiff's right to recover is necessarily restricted to the time he
312 THE IHRMS OF rillC INSURANCE CONTRACT.
was w'nolly disabled and prevented " from the prosecution of any
and every kind of business pertaining to his occupation."
By the Court. — The judgment of the County Court is reversed,
and the cause is remanded for a new trial.
YOUNG r. TRAVELERS' INSURANCE CO.
80 Me. 244. — 1888.
LiBBEY, J. — The plaintiff seeks to recover on an accident insur-
ance policy issued to him by the defendant corporation. The main
questions involved are: i. Whether the plaintiff by the accident to
him was wholly disabled and prevented from the prosecution of any
and every kind of business pertaining to the occupation under which
he was insured. * * *
The language of the policy upon which the first question arises is
as follows: If the insured, " at any time within the continuance of
this policy, shall have sustained bodily injuries, effected through
external, violent, and accidental means, within the intent and mean-
ing of this contract and the conditions hereunto annexed and such
injuries alone shall have occasioned death within ninety days from
the happening thereof; or, if the insured shall sustain bodily injuries,
by means as aforesaid, which shall, independently of all other
causes, immediately and wholly disable and prevent him from the
prosecution of any and every kind of business pertaining to the
occupation under which he is insured, then, on satisfactory proof of
such injuries, he shall be indemnified against loss of time thereby,
in a sum not exceeding twenty-five dollars per week, for such period
of continuous total disability as shall immediately follow the acci-
dent and injuries as aforesaid not exceeding, however, twenty-six
consecutive weeks from the time of the happening of such accident."
The occupation under which the plaintiff was insured was that of
a billiard saloon keeper. The contention between the parties is,
whether to maintain his action it is incumbent upon the plaintiff to
prove that the injuries he sustained by the accident wholly disabled
him from the doing of any and every kind of act necessary to be
done in the prosecution of his business, or it is sufificient if he proves
that the injury received from the accident wholly disabled him from
the doing of all substantial and material acts necessary to be done
in the prosecution of his business. The plaintiff admitted that he
could do some acts necessary to be done in the business of a billiard
saloon keeper, but claimed and introduced evidence tending to
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 313
prove that he was wholly disabled from doing many of the material
acts necessary to be done in that business. Upon this point the
presiding justice instructed the jury as follows: "' Now the reason-
able construction which must be put upon the language here used is,
that it must have meant that if the plaintiff was so disabled as to
be incapable of doing any and every kind of business pertaining to
his occupation as a billiard saloon keeper, then he would be wholly dis-
abled from the prosecution of every kind of business pertaining
to such occupation and entitled to the stipulated compensation.
Otherwise, if he was not so disabled he would not be entitled; and
therefore, gentlemen, I instruct you as matter of law that the
meaning of the language here used is, not that he must be so dis-
abled as to prevent him from doing anything whatsoever pertaining
to his occupation, or any part of his business pertaining to his occu-
pation as billiard saloon keeper; but that he must be so disabled
as to prevent him from doing any and every kind of business per-
taining to his occupation. There may be a difference between being
able to perform any part of his business^and any and every kind of
business pertaining to his occupation."
We think that there is no error in this instruction. A contract of
insurance is to receive a reasonable construction so as to effectuate
the purpose for which it was m_ade. In cases of doubt it is to be
liberally construed in favor of the insured that in all proper cases he
may receive the indemnity contracted for. At the same time legal
effect should be given to all the language used, for the purpose of
guarding the company against fraud and imposture. The object to
be accomplished by this contract was indemnity to the plaintiff for
loss of time from being wholly disabled from prosecuting his busi-
ness by an injury received as specified in the policy. He was not
able to prosecute his business unless he was able to do all the sub-
stantial acts necessary to be done in its prosecution. If the prose-
cution of the business required him to do several acts and perform
several kinds of labor, and he was able to do and perform one only,
he was as effectually disabled from performing his business as if he
could do nothing required to be done, and while remaining in that
condition he would suffer loss of time in the business of his occupa-
tion. Suppose a barber, who can use his razor and shears in his
right hand only, but can use his left to wipe his customer's face,
comb and dress his hair and receive pay and make change, by an
accident is wholly deprived of the use of his right hand so that he
can neither shave his customer nor cut his hair; can it be said that
he is not wholly disabled from the prosecution of his business as a
barber? An accident policy which would not afford indemnity in
314 THE TERMS OF THE INSURAXCE CONTRACT.
such a case would be a delusion and a snare. This construction is
sustained by May on Insurance, § 522. Hooper v. Accidental Death
Ins. Co., 5 H. & N. 545. Affirmed in Exch. Ch. 6 H. & N. 839.
We think the presiding justice might have gone farther in the
construction of this clause t)f the policy, and mstructed the jury
that to entitle the plaintiff to recover he was not required to prove
that his injury disabled him to such an extent that he had no
physical ability to do what was necessary to be done in the prosecu-
tion of his business, bur that it was sufficient if he satisfied them
that his injury was of such a character and to such an extent that
common care and prudence required him to desist from his labors
and rest so long as it was reasonably necessary to effectuate a speedy
cure — so that a competent and skillful physician called to treat him
would direct him so to do. It is the duty of the insured towards
the insurer to use all due care and pursue the proper course to
effect a cure so that the loss of time for which he is to receive
indemnity may be no greater than is reasonably necessary. * * *'
Exceptions and motion overruled.
Peters, C. J., Walton, Danforth. Emery, and Haskell, JJ.,
concurred.
12. When Liability Fixed.
COOPER V. UNITED STATES MUT. BENEFIT ASSOC.
132 N. Y. 334. — 1892.
Haight, J. — This action was brought upon a certificate of insur-
ance, issued by the defendant, to recover five thousand dollars.
The defendant, by its certificate, undertook to insure Theodore H.
Cooper against personni bodily injury, and in case he should receive
such injuries disabling him from transacting busi;iess pertaining to
his occupation to pay him certain amounts specifically named in the
certificate, dependent upon the nature of his injuries, and in case
death should result from such injuries within ninety days to pay to
the plaintiff, as his wife, the sum of five thousand dollars. The
certificate contained the following: " No suit or proceeding at law
or in equity shall be brought * * :■= to recover any sum under
this insurance unless the same is commenced within one year from
the time of the alleged accidental injury."
Cooper received an accidental bodily injury on December 10, 1887,
which resulted in his death on January 2, 1888. This action was
' See also Thayer v. Co., 68 N. H. 577.
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 315
commenced on December 29, 1S88, more than one year after the
accident, but within one year of his death. It is claimed that the
action was not commenced within the time required by the provision
of the certificate referred to. It will be observed that provisions
are made in the certificate for two different persons who, upon the
happenmg of the events specified, may have a right of action against
the association. One provision is in favor of Cooper, who may
recover during his lifetime the amounts provided for his disability
resulting from the accidental injury received. The other is to his
wife, which is for the injuries she suffers by reason of his death
resulting from such accident. The accident received by Cooper did
not injure the plaintiff or give her a right of action until death
ensued. So far as she is concerned the infliction of the wound is
but the beginning, and the death is the completion of the injury.
Her suit must be " commenced within one year from the time of the
alleged accidental injury." In other words, within one year from
the time of the injury to her, which was the death of her husband,
as the result of the accident. * * *'
13. Burden of Proof.
TRAVELLERS' INSURANCE CO. v. McCONKEY.
127 U. S. 661. — 1888.
Mr. Justice Harlan. — There is no escape from the conclusion
that, under the issue presented by the general denial in the answer,
it was incumbent upon the plaintiff to show, from all the evidence,
that the death of the insured was the result, not only of external and
violent, but of accidental means. The policy provides that the
insurance shall not extend to any case or death or personal injury,
unless the claimant under the policy establishes, by direct and
positive proof, that such death or personal injury was caused by
external violence ^r;/^ accidental means. Such being the contract,
the court must give effect to its provisions according to the fair
meaning of the words used, leaning, however — where the words do
not clearly indicate the intention of the parties — to that interpre-
' In Burkheiser V. Assoc, 61 Fed. 8r6, the certificate provided for payment for
accidental death, if the death occurred within ninety days from the time of the
accident. After the accident and before death the insured ceased to be a mem-
ber of the association by reason of failure to pay an assessment falling due after
the accident. Plaintiff was allowed to recover, since defendant's liability
became fixed at the time of the accident.
3l6 THE TERMS OF THE INSURANCE CONTRACT.
ration wiiich is most favorable to the insured, yaiional Bank \.
//IS. Co., 95 U. S. 673; Western Ins. Co. v. Cropper., 32 I'enn. St. 351,
355; J^eyno/ds v. Commerce Fire Ins. Co., 47 N. Y. 597, 604; Anderson
V. Fitzgerald, 4 H. L. Cas. 484, 498, 507; Fowkes v. Manchester, etc.,
Life Assurance Ass'n, 3 B. & S. 917, 925.
The requirement, however, of direct and positive proof, as to cer-
tain matters, did not make it necessary to establish the fact and
attendant circumstances of death, by persons who were actually
present when the insured received the injuries which caused his
death. The two principal facts to be established were external
violence and accidental means, producing death. The first was
established when it appeared that death ensued from a pistol shot
through the heart of the insured. The evidence on that point was
direct and positive; as much so, within the meaning of the policy,
as if it had come from one who saw the pistol fired; and the proof,
on this point, is none the less direct and positive, because supple-
mented or strengthened by evidence of a circumstantial character.
Were the means by which the insured came to his death also
accidental? If he committed suicide, then the law was for the com-
pany, because the policy by its terms did not extend to or cover
self-destruction, whether the insured was at the time sane or insane.
In respect to the issue as to suicide, the court instructed the jury
that self-destruction was not to be presumed. In Mallory v. Trav-
ellers" Ins. Co., 47 N. Y. 52, 54, which was a suit upon an accident
policy, it appeared that the death was caused either by accidental
injury or by the suicidal act of the deceased. " But," the court
properly said, " the presumption is against the latter. It is con-
trary to the general conduct of mankind; it shows gross moral
turpitude in a sane person." Did the court err in saying to the
iury that, upon the issue as to suicide, the law was for the plain-
tiff, unless that presumption was overcome by competent evidence?
This question must be answered in the negative. The condition
that direct and positive proof must be made of death having been
caused by external, violent, and accidental means, did not deprive
the plaintiff, when making such proof, of the benefit of the rules of
law established for the guidance of courts and juries in the investi-
gation ind determination of facts.
Upon like grounds, we sustain the ruling to the effect that the jury
should not presume, from the mere fact of death, that the insured
was murdered. The facts were all before the jury as to the move-
ments of the insured on the evening of his death, and as to the con-
dition of his body and clothes when he was found dead, at a late
hour of the night, upon the floor of his office. While it was not to
TERMS OF THE ACCIDENT INSURANCE CONTRACT. 317
be presumed, as a matter of law, that tlie deceased took his own
life, or that he was murdered, the jury were at liberty to draw such
inferences in respect to the cause of death as, under the settled
rules of evidence, the facts and circumstances justified.
We are, however, of opinion that the instructions to the jury
were radically wrong in one particular. The policy expressly pro-
vides that no claim shall be made under it where the death of the
insured was caused by " ///^'////c;//^// injuries, inflicted by the insured
or any other person." If he was murdered, then his death was caused
by intentional injuries inflicted by another person. Nevertheless,
the instructions to the jury were so worded as to convey the iilea
that if the insured was murdered, the plaintiff was entitled to
recover; in other words, even if death was caused wholly by inten-
tional injuries inflicted upon the insured by another person, the
means used were " accidental " as to him, and, therefore, the com-
pany was liable. This was error.
Upon the whole case, the court is of opinion that, by the terms of
the contract, the burden of proof was upon the plaintiff, under the
limitations we have stated, to show, from all the evidence, that the
death of the insured was caused by external violence and accidental
means; also, that no valid claim can be made under the policy, if
the insured, either intentionally or when insane, inflicted upon
himself the injuries which caused his death, or if his death was
caused by intentional injuries inflicted upon him by some other person.
The judgment is accordingly reversed, and the cause remanded,
with directions to grant a new trial and for further proceedings
consistent with this opinion.'
' " Death through external, violent, and accidental means having been prove.1
the burden of proof was on the defendant to show a voluniary exposure to
unnecessary danger, or a want of due diligence. Fi-eentan v. Traveldrs' Ins.
Co., \\\ Mass. 572; Badeufeld v. Massarhitsetts Accident Association, 154 Mass.
77. The question is not the same as would arise in an action against the rail-
road company to recover damages for the accident which caused the death. In
such action, the relation of the deceased to the railroad company would prob-
ably be that of a bare licensee, to whom the railroad company owed no duty
except to abstain from reckless and wanton conduct. Hedigan v. Boston 6*
Maine Railroad, 155 Mass. 44. and cases there cited. Moreover, there may have
been such a want of positive care on his part with reference to approaching cars
as would prevent a recovery, the burden being upon the plaintiff in such action
to prove due care affirmatively. In the present action the burden of the proof
is differeni, and the questions of due diligence and of voluntary exposure to
unnecessary danger arise, not upon general principles of the law of negli-
gence, but upon the construction of the contract of insurance against accidents.
Clearly a contract of indemnity against accidents should be construed with
31 8 THE TERMS OF THE INSURANCE CONTRACT.
V'l. Terms of the Mutual Benefit Insurance
Contract.
1. In General.
COMMONWEALTH v. WETHERBEE.
105 Mass. 149. — 1870.
\Reported herein at p. 13.]
IN THE MATTER OF THE GLOBE MUTUAL BENEFIT
ASSOCIATION.
135 N. Y. 280. — 1892.
\Reported herein at p. 28. J
2. Where the Terms Are to be Found.
EASTMAN V. PROVIDENT MUTUAL RELIEF ASSOC.
62 N. H. 555- — 1883.
Assumpsit, by the administrator of the estate of George H, Gigar,
to reco\er $2,000 insurance on the Hfe of the deceased. The defend-
ants are a corporation chartered " for charitable and benevolent pur-
poses, and furnishing relief and assistance by means of mutual agree-
ments and payments of funds," and are authorized " to establish all
by-laws and regulations which may be necessary to carry out the pur-
poses of this act." One of the by-laws reads as follows: " When
a member dies the association shall pay, within sixty days, to his
direction, as entered upon his certificate of membership, the sum
of two thousand dollars. * * * " The deceased was a member
of the Subordinate Association, No. 10, located at Tilton. He
paid all fees, dues, and assessments to the time of his death, and
was otherwise in good standing. He left many creditors, but no
father, mother, brother, sister, nor, so far as known, any other
relative. He held a membership certificate in common form, which,
after reciting his admission, provided this: " In accordance with
the provisions and laws governing said association, a sum not
exceeding $2,000 will be paid by the association as a benefit, upon
more liberality to the assured than the rules of common law, if the same person
seeks under ihem to put the responsibility for his accident upon another." —
Keenes. Assoc, i6r Mass. 149. 150. See also Anthony v. Assoc, 162 Mass. 354.
TERMS OF THE MUTUAL BENEFIT INSURANCE CONTRACT. 319
due noticeof his death and the surrender of this certificate, to such
person or persons as he may, by entry on the record-book of the
association, or on the face of this certificate, direct said sum to be
piiJ, pro^'iJing h<; is in good standing when he dies." No person's
name was entered on the record-book of the association or on the
certificate, showing to whom the benefit should be paid. No ques-
tion is made as to the proper notices of his death, nor that all proper
demands and proofs have not been made according to the by-laws.
No part of the benefit has been paid to the administrator or to any
other person.
At the trial the defendants offered to show that the deceased had,
for two years prior to his death, been engaged to be married to
A. G. S. ; that he said at the time of making his application for mem-
bership, that he designed the benefit ultimately to be made payable
to her, and that he afterwards frequently told her and others that
he intended the benefit to be payable to her in case of his death,
and this was repeated to her a short time before his death. The
evidence was excluded, and the defendant excepted. The plaintiff
offered to show, by parol evidence, that the deceased omitted to
insert any name as a beneficiary, with the intention of making the
benefit of $2,000 payable to his administrator for the benefit of his
estate. The evidence was excluded and the plaintiff excepted.
The court found the plaintiff entitled to recover, and the defendants
excepted.
Smith J. — The defendants are a corporation organized for char-
itable and benevolent purposes. These purposes, as described in
their charter, are the " furnishing relief and assistance by means of
mutual agreements and payments of funds." Their object is
more particularly defined in their by-laws to be " to secure to
dependent and loved ones assistance and relief at the death of
a member." They resort to assessments for the procurement
of the funds to discharge their mutual obligations, and are gov-
erned by by-laws which limit and define those obligations. Such
associations for the general purpose of mutual protection re-
semble life insurance companies, and are life insurance companies
in substance. May Ins. (2d ed.), § 550; Dennett v. Kirk, 59 N. H.
10; Smith V. Billiard, 61 N. H. 381; Commomoealth v. IVetherbee, 105
Mass. 149; State w. Society, 72 Mo. 146. But a beneficiary certificate
differs considerably in its nature from the ordinary life insurance
policy. The latter is generally regarded as a debt payable by the
company to the estate of the insured, and collectible at all events
from the company by the legal representatives of the insured, or by
parties named in the policy. Hirschl Law of Fraternities, § 8.
320 THE TERMS OF THE INSURANXE CONTRACT.
The defendants' contract bound them to pay a sum not exceed-
ing $2,000, as a benefit, upon due notice of the death of the plain-
tiff's intestate and the surrender of his certificate of membership,
to such person or persons as he might, by entry on the record-book
of the association or on the face of his certificate, direct the sum to
be paid. Does the neglect of the holder of the certificate to desig-
nate a beneficiary in the manner specified absolve the association
from the payment of the benefit? The charter, by-laws, and cer-
tificate of membership taken together show what was the under-
standing of the parties. It was no part of the object of the association
to provide a fund for the payment of a deceased member's debts,
however meritorious such purpose might be; nor, as in this case,
where there are no heirs, and the claims of creditors are less than
the amount of the benefit, that the benefit should escheat to the es-
tate. The designation in the certificate of one class — such person or
persons as Gigar should appoint — e.xcludes the other classes — heirs,
creditors, etc. The certificate was neither payable to the deceased,
nor to his administrator, assigns, heirs, estate, or legal representa-
tives. The defendants promised to pay the benefit to no one save
such person or persons as Gigar should direct by entry upon the cer-
tificate or record-book. By the contract he had the mere power
of appointing the person who should receive the benefit. He was
bound by the rules of the association, and could not change the
beneficiary in a way not in conformity with them. Kentucky Masonic
Mut. Ins. Co. V. Miller s Adyn'r, 13 Bush, 494. Why he did not
exercise his power of appointment it is unnecessary to inquire. He
may not have decided in his mind who should receive it. He may
have intended that his associate members should not be called upon
to contribute the sums required to fulfil his contract with the asso-
ciation. The presumption is, that he intended not to do what he
omitted to do. IVorley v. Association, 3 M'Crary, 53, s. c, 10 Fed.
Rep, 227. He had no pecuniary interest in his membership, and
his personal representatives, as such, can take no interest in it
after his death. The benefit is not assets, for if the administrator
can collect the money, it must go primarily to Gigar's creditors.
The charter, by-laws, and certificate show that neither party had
any such understanding. If he had exercised the power of appoint-
ment, his administrator could not maintain a suit to recover the
money; and his neglect to exercise it does not give the adminis-
trator the power. There being no contract to pay to the deceased
or to his legal representative, there is no breach. In IVorley v.
Association, supra, upon a similar state of facts, it was held that the
administrator of the assured could not recover. McClitre v. John-
TERMS OF THE MUTUAL BENEFIT INSURANCE CONTRACT. 32 I
son, 56 Iowa, 620, decides that where a life policy by its terms is pay-
able to a person other than the assured or his representatives, the
payee cannot by will make a different disposition of the fund from
that directed by the policy. A mere power of appointment, which
is not exercised prior to the death of the beneficiary in the manner
specified, becomes inoperative, and the company or association is
not bound to pay it to any one. Maryland Mut. Benev. Soc. v.
Clendinen, 44 Md. 429.
The evidence offered as to Gigar's intention as to whom the
money should be made payable was inadmissible to vary the con-
struction of the certificate, and was insufficient to constitute a trust.
Wason V. Colbutn, 99 Mass. 342.
Case discharged.
Allen and Clark, JJ., did not sit; the others concurred.'
3. Change of Terms.
PELLAZZINO V. GERMAN CATHOLIC ST. JOSEPH'S SOC.
16 Week.lv La'v Bulletin and Ohio Law Jour. 27. — 1886.
{Sp. Term, CinciiDiati Superior Cl.)
Harmon, J. — Defendant is a mutual benevolent society of which
plaintiff's ward, her husband, Joseph Pellazzino, had been for six-
teen years, and when this action was brought was a member in good
standing. By one of the by-laws, sick members were entitled to
receive three dollars per week, while unable to pursue their usual
business, and by another such benefits were guaranteed to sick
members, though in public charitable institutions. In October,
1881, Pellazzino became insane, and in April, 1882, was sent to Long-
view Asylum. He escaped in July, and remained at home until
October, when he was returned to the asylum, where he still remains.
* * * By the original by-laws of the defendant the usual right
to amend them was reserved; and on October 31, 1882, after due
presentation and notice, an amendment was duly adopted limiting
said benefits to sick members to thirteen weeks in each year. The
only question in the case is whether the rights of Pellazzino to bene-
fits during his then existing inability were affected by this amend
ment, he not having been present at or agreed to its adoption.
'Accord as to failure of designation of beneficiary. Hellenberg\ . Dist. N'o.
One, 94 N. Y. 580.
" It is true the membership certificate bears upon its face no promise of
indemnity, but it entitles ihc hoIJer 10 membership in the association and to
LAW OF INSURANCE T- 2 I
322 THE TERMS OK THE INSURANCE CONTRACT.
That members whose rights to benefits have become fixed by ill
ness are liable to have them lessened or taken away entirely by such
amendments was decided in Fitgate v. Mut. Society of St. Joseph, 46
\'t. 362; but the court's reasoning and conclusion are so wide a
departure from the common principles of our system of law and of
natural justice that I should hesitate to follow them if that case
were the only authority on the subject. I certainly am not willing
tt) do so after reading Poultney v. Bachmann, 62 How. Pr. 466; Guiid-
lach v. Ger. Mech. Ass' n, 4 Hun, 339, and Herschl on the Law of
Fraternities, etc., p. 61.
It is true, as argued by counsel for defendant and held by the
court in Vermont, that by the terms of the agreement between
the members which constitutes the society, and of that between the
society and each member which amounts to a policy of insurance,
a right to amend was reserved. But it was a right to amend the
by-laws, not to repudiate a debt. A by-law provides what the rights of
members shall be in certain events if they continue to pay their
dues until such events happen; this, of course, by virtue of the
reserved right, may be amended or repealed. But when the event
happens, what was a contract depending on a contingency becomes
in law a debt. The right to modify a contract does not include the
right to repudiate a debt any more than the reserved right of a
legislature to repeal the charter of a corporation gives it the right
to confiscate its property. The rights of Pellazzino as a member,
including his contingent right to benefits, were subject to modifica-
tion, whether he consented at the time or not; his rights as a creditor
when by falling ill he became one, this contingent right so becom-
ing fixed, are not made so by the language of the contract between
him and defendant, and therefore cannot be surrendered except by
his consent. This dual character of a member who has fallen ill,
which is analogous to that of a borrowing member of a building
association, was, we think, overlooked by the learned court in Ver
mont and the learned counsel in Cincinnati.
Judgment for plaintiff.'
all rights that appertain thereto, and ii is to be construed, in connection with
the constitution and bylaws, the same as though all of those documents were
combined in one." Railway Cond. Ben. Assoc. \. Robinson, 147 111. 138, 152. In
Hellenberg v. Dist. No. One, 94 N. Y. 580, there was apparently no provision for
issuing a certificate, and the court said: "The charter and by-laws of the
defendant corporation constituted ihe terms of an executory contract to which
the testator assented when he accepted admission into the order." — See also
Schtinck V. Fond,i^\ Wis. 369; Worley v. Assoc, lO Fed. 227
'" Subsequent or existing by-laws are valid only when consistent with the
charier, and confined to the nature and objects of the association. While a
FIDELITY AND GUARANTY INSURANCE CONTRACTS. 323
VII. Terms of Fidelity and Guaranty Insurance
Contracts.
I. In General.
PEOPLE V. ROSE.
174 III. 310. — 1898.
\_Reported herein at p. 16.]
2. Fidelity Insurance.
FIDELITY AND CASUALTY CO., OF NEW YORK v.
EICKHOFF.
63 Minn, 170. — 1895.
Appeal from an order sustaining a demurrer to the complaint,
plaintiff appeals. Re^^ersed.
Mitchell. J. — Trie plaintiff, a foreign corporation, is what is
termed a "guaranty insurance company," engaged in the business
of guarantying to employers the fidelity of their employees. This
action was brought to recover money alleged to have been paid to
the Red River Elevator Company, defendant's employer, upon a
bond by which the plaintiff obligated itself to make good, and reim-
burse to the elevator company, such pecuniary loss as it might sus-
tain by reason of the infidelity of the defendant as its receiving
agent in one of its grain elevators. The appeal is from an order
sustaining a demurrer to the complaint on the ground that it did
not state facts constituting a cause of action.
subsequent law, because of the assent of the member, may add new terms or
conditions to a certificate, terms or conditions reasonably calculated to promote
the general good of the membership, and may be valid and binding, it does not
follow that a law operating a destruction of a certificate, or a deprivation of all
rights under it, would be of any force." — Supreme Comtnandery v. Ainsworth,
71 Aii. 436, 451.
" The rights of members in these associations must, of course, depend upon
the articles or by-laws, to which all members assent when becoming such; and,
generally speaking, the same body which is authorized to make by-laws can
change, amend, or repeal those already made; and to this Thibert agreed when
he joined. Bat changes, amendments, and repeals are subject to the restrictions
and limitations of the by-laws themselves, as well as those of the charter or
articles of association, and are also subject to the implied condition of being
reasonable. Bacon, Ben. Soc, §9ia, and citations." — Thibert v. Supreme Lodge,
81 N. W. 220, 223-4. (Minn.^
324 THE TERMS OF THE IXSURANXE CONTRACT.
The material conditions of the bond, which is set out in the com-
plaint, are as follows:
" The aforesaid company [the plainiiff] shall, * •"■ * subject to the con-
ditions and provisions herein contained, * * * make good, and reimburse
to the said employer, such pecuniary loss as may be sustained by the empioyer
by reaso'i of the fraud or dishonesty of any or either of the employees [of whom
defendant was one] named upon said schedule, or added thereto, as hereinafter
provided, in conneclion with his duties as receiving agent or buyer: * ♦ *
Provided, * * * that the company shall be liable only for the acts of fraud or
dishonesty on the pan of the persons mentioned in the schedule, who act as receiv-
ing agents for shortages in their grain accounts, as follows, viz. : There shall be
deducted from the total amount of grain and dockage received by the receiving
agent at said elevator or elevators screenings and dirt from sach grain as has been
cleaned at said elevator or elevators, together with the amounisof shipments based
upon weights of grain and dockage at terminals; and if the result shows a deficit,
and the shortage is not caused by the various exceptions agreed to, this proof
of Joss will be accepted as binding on the part of the company. In case where
screenings and dirt are burned at an elevator, they shall be weighed before
being burned, and the weight reported daily to the employer: provided, ihit
the company shall not be liable for the grading of grain, loss by heating, dry-
ing, or leakage of cars, or other damage, shortages caused by defective weigh-
ing apparatus or appliance, or for shortages in any elevator or elevators caused
by the failure of any of the parties mentioned in said schedule to take dockage
enough to make good their weights for grain checks issued, as the employer
hereby assumes the risks of its superintendents, traveling men, and otEcers in
giving instructions to ils receiving agents as to the amount necessary to take
lo make good the amount of dockage at terminal points, and the action of
receiving agents in taking dockage, the loss by cleaning grain, and the ordinary
shrinkage arising from dust in handling of said grain in elevators. And it is
further agreed that the company shall not be liable for errors or carelessness
in weighing of grain, nor for thefts of grain by persons other than those covered
by this bond, nor for robbery or thefts of money from the persons so covered,
where proofs of such errors, carelessness, thefts, or robbery are conclusive, as
negligence is not covered by this bond."
The complaint alleges that defendant, in consideration of plain-
tiff's becoming a guarantor for him by executing this bond, agreed
to indemnify it against any losses, damages, or expenses it might
sustain or become liable for in consequence of executing the bond;
also, that this bond was in the form requested by the defendant;
also, that defendant further agreed " to admit the voucher or other
proper evidence of such payment by plaintiff as conclusive evidence
against himself as to the fact and extent of his liability to this plain-
tiff." It is further alleged that defendant, within the scope of his
employment as receiving agent of plaintiff, issued tickets for,
received, and took in, at one of the elevator company's elevators, a
certain number of bushels cf wheat and dockage, but, of the same,
FIDELITY AND GUARANTY INSURANCE CONTRACTS. 325
only delivered to the elevator company a certain less number of
bushels at the termination of his employment; leaving nearly 1,000
bushels which he never delivered, although requested to do so.
The complaint then states specifically the manner in which this
shortage was ascertained and made to appear, which was the exact
manner provided for in the bond. It then negatives specifically
that this shortage was caused by any of the exceptions named in
the bond. It is then alleged that the elevator company presented
its claim for this shortage to the plaintiff; that the latter was com-
pelled to pay the same, and now holds the elevator's voucher for the
same, but that defendant refuses to indemnify the plaintiff for the
money thus paid out in his behalf. Counsel for plaintiff asks us to
pass upon numerous questions touching the construction of this
bond; but as it is a novel contract, and its provisions prolix, some-
what obscure, and sometimes apparently contradictory, we deem it
"unwise, upon a demurrer, to decide much except what is necessary
to determine whether a cause of action is stated. Hence we shall
confine ourselves mainly to the specific objections made by defend-
ant's counsel to the sufficiency of the complaint.
1. The first objection urged against the complaint is that it does
not allege that the plaintiff had a license to do an insurance busi-
ness in this State, as required by Gen. St. 1894, § 3331. Notwith-
standing that there would seem to be some decisions holding
otherwise, we are of opinion that the case is one where the maxim,
" Omnia rite acta prasumuntur,'' is applicable. Noncompliance
with the laws of this State will not be presumed, but, if it exists,
must be set up in defense. Williams v. Cheney, 3 Gray, 215.
2. The second point urged is that a contract guarantying the
honesty of employees is void as being against public policy; that it
is the duty of all employers dealing with the general public to
employ honest agents; that the effect of such a contract as set out
in the complaint is to make it a matter of indifference to an_elevator
company whether it employs honest or dishonest agents to deal with
the patrons of the elevator. There is nothing whatever in this
objection. The same principle is involved in every bond exacted
from a public officer or a private agent as security for the faithful
performance of his duties. And it is wholly immaterial whether the
guarantor is a private person or an incorporated guaranty insurance
company. The advantages of the latter over the former mode of
suretyship, if properly conducted, are very apparent. 2 May, Ins.,
§541-
3. The third objection is that the stipulation between the plain-
tiff and defendant that the voucher, or other evidence of payment
326 THE TERMS OF THE INSURANCE CONTRACT.
by plaintiff to tlie elevator company, should be conclusive evidence
against the defendant as to the fact and extent of his liability to the
plaintiff, is void as being against public policy. This question is
not really involved in this appeal, but, as it is one which will neces-
sarily arise at the very threshoUl of the trial of the action, it may
properly be considered now. The right of a party to waive the pro-
tection of the law is subject to the control of public policy, which
cannot be set aside or contravened by any arrangement or agree-
ment of the parties, however expressed. Thus, an agreement to
waive the defense of usury is void. So, also, according to the
weight of authority, is an agreement, made at the time of contract-
ing a debt, to waive the prospective right of exemption. The agree-
ment under consideration is more than a mere enlargement of
contractual rights, or the establishment of a rule of evidence. It
provides that the plaintiff may, by his own ex parte acts, conclu-
sively establish and determine the existence of his own cause of
action. In short, he is made the supreme judge of his own case.
The case is not at all analogous to the common provisions in build-
ing and construction contracts, by which the determination of some
third person, such as the architect or engineer, as to the amount or
character of the work, is made conclusive between the parties, in
the absence of fraud or mistake. Nor is it at all analogous to a
provision in an executory contract for the sale or manufacture of
an article to the satisfaction of the buyer, where, if the article is
declined, the parties are, in contemplation of law, left in statu quo.
In the present case the attempt is to provide that, after the alleged
cause of action has accrued, the plaintiff shall be the sole and con-
clusive judge of both its existence and extent. Such an agreement
is clearly against public policy. If the provision had been that the
voucher, or other evidence of payment, should be merely pri?na
facie evidence of the fact and extent of defendant's liability — thus
merely shifting the burden of proof, but leaving the defendant at
liberty to rebut thxs prima facie evidence — although even then a
somewhat drastic provision, we do not think that it could be held
to contravene public policy. To that extent we think this provision
is valid, but in so far as it assumes to make the voucher of payment
by plaintiff conclusive of defendant's liability, it is void.
4. The fourth objection urged against the complaint is that, while
the bond only covers acts of fraud and dishonesty, it contains no
allegation that this shortage was caused by the fraud or dishonesty
of the defendant. Whoever drafted this bond used language very
loosely, and employed a great many words to express, or else con-
ceal, ver,v few ideas. But after taking it by the four corners, and
FIDELITY AND GUARANTY INSURANCE CONTRACTS. 327
considering all its provisions, our construction is that the plaintiff
was only bound to make good and reimburse the elevator company
for loss sustained by reason of a shortage of grain caused by the
actual fraud or dishonesty of the defendant. But the bond also
provides how the existence and amount of a shortage shall be ascer-
tained, and that, when thus ascertained, it shall be accepted as evi-
dence that it was caused by the fraud or dishonesty of the defend-
ant, and not by any of the various other causes, enumerated as
exceptions, for which the plaintiff was not to be liable; in other
words, that a shortage ascertained in the manner prescribed should
be prima facie evidence of its existence, and that it was caused by
defendant's fraud or dishonesty, thus casting the burden upon the
plaintiff to rebut this prima facie case by proof. It is not bound to
do this by afifirmative evidence showing the particular one of the
causes, enumerated as exceptions, which produced the shortage, but
may do it by negative evidence showing that it was not caused by
the fraud or dishonesty of the defendant, and hence must have been
produced by one or more of the excepted causes. This it may do
by a fair preponderance of evidence as to any of the excepted
causes, except errors or carelessness in weighing, and thefts by per-
sons other than those covered by the bond, in which cases the proofs
must be conclusive. The word "■conclusive," in that connection, we
think, must be construed as meaning so strong as to require a find-
ing or verdict that the shortage resulted from the cause alleged.
This may also be done by negative or circumstantial evidence. So
much for the construction of the bond.
The bond having been executed at the request of the defendant,
and in the form requested by him, it follows that his obligation to
indemnify the plaintiff is coextensive with that of the plaintiff to
reimburse the elevator company; also, that any provisions in the
bond, as to proof of liability, binding on the plaintiff in favor of the
elevator company, are equally binding on the defendant in an action
brought by the plaintiff against him to recover indemnity for what
it has paid in his behalf. Therefore it follows that the complaint
alleges facts which, under the provisions of the bond, constitute a
cause of action against the defendant; that is, if all the facts alleged
are proved on the trial, it would follow, as a matter of law, that the
plaintiff would be entitled to recover, That the facts alleged are,
in one sense, merely evidentiary, and may be rebutted by other
evidence, is not material, inasmuch as, by the agreement of the
parties, they m.ake out prima facie a cause of action, and if not
rebutted they conclusively make it out. Otherwise expressed,
under the contract of the parties, the facts alleged prove that the
328 THE TERMS OF THE INSURANCE CONTRACT.
shortage was caused by defendant's fraud or dishonesty. Under
these circumstances, an express and direct allegation that it was so
caused was unnecessary. The complaint states a cause of action.
Order reversed.'
' In Antc-rican Surety Co. v. Pauly, 170 U. S. 133, the bond was given by the
company to a bank to indemnify the bank against loss arising from the fraud
or dishonesty of its cashier. It was held (i) Under the clause in the bond
requiring the bank to notify the company of " any act " of the cashier which
might involve a loss for which the company would be responsible " as soon as
practicable after the occurrence of such act shall have come to the knowledge "
of the bank, notice of surpicion of the cashier's dishonesty was not required
to be given, but it was the duty to give notice when " satisfied that the cashier
had committed acts of dishonesty or fraud likely to involve loss " to the com-
pany upon the bond. (2) The act of the president of the bank in giving a cer-
tificate required by the company, of the cashier's character, was not authorized,
nor within the scope of his employment, and the president's concealments or
misrepresentations with respect to the certificate were not to be imputed to the
bank. (3) The cashier was held to be in the service of the bank after the sus-
pension of the bank, while it was in the hands of the national bank examiner,
and at least until the appointment and qualification of the receiver, although
the cashier ceased to perform the ordinary duties of cashier, after the suspen-
sion of the bank. As the b:)nd was 10 cover losses occurring during the con-
tinuance of the bond and which should be discovered within six months there-
after, losses would at least be covered which were discovered within six months
from the appointment and qualification of the receiver.
In Fidelity and Casualty Co. v. Gate City Bank, q-j Ga. 634, a bond was gii-en
10 the bank y the company to indemnify against loss by the fraud or dishonesty
of Redwine, who, as assistant cashier, was covered by the bond. The court
said: " The main question in the case is whether or not, under ihe stipula-
tions expressed in the contract, the knowledge of the bank's cashier of fraud or
dishonesty on the part of Redwine, or of any act done by him involving a loss
to the company of more than $100, was imputable to the bank itself. * * *
There is not a syllable in the contract, however, bearing the construction that
the bank should exercise any degree of diligence in inquiring into or super-
vising the conduct of Redwine, in order that the company might be saved from
loss through his misconduct. The bank did not undertake to exercise reason-
able care and diligence to find out if Redwine had become untrustworthy; but
as to this matter, the company, in effect, invited the bank to repose in peace;
for it guaranteed that Redwine would remain honest and faithful. Only after
knowledge had actually come to the bank that he was, or had become, other-
wise, was it under any duty to the company; and then it was only required to
immediately notify the company of what it had ascertained. * * * In the
absence of any guarantee on the part of the bank that its other emplr)yees
would be h^inest and faithful, and in view of the purpose of the condition
inserted in the bond, it would seem that the better construction of it would be
that the bank only obligated itself to act in good faith and impart only actual
knowledge on its part. The bond would, indeed, be of no practical protei^tion
if, in order to realize its benefits, the bank had to insure, not cinly the honesty
FIDELITY AND GUARANTY INSURANCE CONTRACTS. 329
3. Title Guaranty Insurance.
QUIGLEY V. ST. PAUL TITLE INSURANCE CO.
60 Minn. 275. — 1895.
Canty, J. — On the ist day of July, 1889, one Amelia Kingsley
was the owner of a certain city lot in St. Paul, and was then erect-
ing a building thereon, which was not completed for seveial months
thereafter. She procured a loan of $2,200 of plaintiffs' intestate,
John O. Quigley, and mortgaged the lot to him to secure the repay-
ment of the same. The mortgage is dated oa that day, but was
not recorded until October 22, 1889. The business of the defend-
ant corporation is that of insuring titles, and on September 20, 1889,
a written application was made to it by Quigley's agent to insure
the title of this lot to the extent of the mortgage interest of Quig-
ley therein. The application was accepted, and a policy of insurance
dated October 22, 1889. issued to Quigley accordingly. Thereafter
Quigley foreclosed the mortgage, and bid the lot in at the fore-
closure sale. The time to redeem expired on February 26, 1S92.
No redemption was made, and Quigley became the owner of the lot.
But between October 10, 1889, and April 10, 1890, work and labor
of the value of $95 was performed for Mrs. Kingsley in painting the
building as a part of the erection of the same. A mechanic's lien
was filed therefor. Suit was brought to. foreclose the same, in
which Quigley was made a party, and a judgment of foreclosure was
entered, adjudging the mechanic's lien paramount to the lien of the
mortgage. The lot was sold to satisfy the judgment, and the time
to redeem from that sale expired on August 18, 1892, and no
redemption was made. This divested the title of Quigley which he
had acquired under his foreclosure sale nearly six months before.
The defendant was duly notified by Quigley of the commencement
of the suit, and undertook and conducted the defense of the same
in the name of Quigley under the provisions of the policy. The
complaint in this action alleges that Quigley was in his lifetime a
resident of New York, and that neither he nor these plaintiffs had
and fidelity, but the faithful and conscientious attention to duty, of a dozen
others of its employees. Stupidity of an employee in not comprehending ordi-
narily apparent facts and circumstances which would be equivalent to actual
knowledge if within the knowledge of the bank itself, might lead to a for-
feiture of the bond, while forgetfulness or mere negligent inattention to duty
on the part of such employees would bring about the same result. The
cashier, according to the undisputed testimony in this case, was a mere
employee. Unless the bank obligated itself to use his eyes and ears, it haJ no
knowled'^e of ReJwins's misconduct * * * "
330 THE TERMS OF THE INSURANCE CONTRACT.
any knowledge or notice of the entry of said judgment, nor of the
sale under it, until after the time to redeem from that sale had
expired. The action is brought to recover from defendant as dam-
ages tiie value of the lot — which is alleged to be $3,500 — on the
ground that it was the duty of defendant to indemnify and save
harmless Quigley and these plamtiffs from this mechanic's lien, and
that defendant was negligent in fading Lo satisfy the lien, and in
failing to pay the sum necessary to redeem from the sale under the
judgment before the time to redeem from that sale expired, and in
failifig to notify plaintiffs that it did not intend to redeem, and
thereby give plaintiffs an opportunity to do so. The case was tried
by the court below without a jury. Judgment was ordered for
plaintiffs for $2,200 and interest, and each party made a motion for
a new trial, and appeals from an order denying such motion. * * *
2. We will next consider plaintiff's appeal. It appears by the bill
of exceptions that on the trial plaintiffs offered to prove that at the
time their title to the lot was divested by the expiration of redemp-
tion on the mechanic's lien foreclosure, the lot was worth $3,200.
Defendant admitted that at that time the lot was worth more than
$2,200, and objected to the offer as incompetent and immaterial.
On this admission the court sustained the objection, holding that by
the terms of the policy the limit of defendant's liability was $2,200,
and this ruling is assigned as error. We are of the opinion that this
assignment of error is well taken. The policy, by its terms, limits
the liability of the defendant for loss on account of certain kinds of
defects and incumbrances to $2,200. But this limitation on its lia-
bility does not apply where the loss is caused by its own negligence
in the performance of duties which it assumes to perform under the
contract. The foUowmg are all the parts of the policy which we
deem material on the question now under consideration: The
defendant, " in consideration of the sum of $22 to it paid, doth
hereby covenant that it will for the period of 25 years from the date
hereof indemnify, keep harmless, and insure John O. Quigley, New
York, the mortgagee named in a certain mortgage executed by
Amelia Kingsley, * * * from all loss or damage not exceeding
twenty-two hundred dollars, which the said insured shall, during
said period of twenty-five years, sustain by reason of defects in the
present title of said mortgagors to the real estate or interest
described in Schedule A, hereto annexed, or by reason of liens or
incumbrances affecting the same at the date hereof, or by reason of
any defect apparent of record in the execution or filing for record
of said mortgage, excepting only such as are set forth in Schedule
B; subject to the conditions and stipulations hereinafter contained,
FIDELITY AND GUARANTY INSURANCE CONTRACTS. 33 1
and, together with said schedules, made a part of this policy."
Attached to the policy, and made a part of the same, are, among
others, the following stipulations and conditions:
" (i) This company will, at its own cost and charge, defend the insured in
all actions of ejectment or other proceedings founded upon a claim of title
or incumbrance prior in date to this policy, and not herein and in Schedule B
excepted; reserving, nevertheless, the option of settling the claim, or of pay-
ing the amount of its liability at that time under this policy: and payment,
or tender of payment, of such amount shall determine all liability of the
company under such claim. In case any such action or proceeding is begun, it
shall be the duty of the insured to notify the company thereof in writing,
within ten days after service of the summons therein, and secure to it the
right to defend the action or proceeding, and to give all possible assistance
therein; but such defense by the company shall not change or alter the rights
or obligations of any of the parties hereto. If such notice shall not be so given
and such righl to defend be secured to the company in such action or proceed-
ing, then this policy shall be void."
" (3) As lona: as the interest of the insured in said real estate consists of a
mortgagee's interest and subject to redemption, the company may, at its option,
at any time, if it shall deem such action necessary for its protection under this
policy, pay the amount then remaining unpaid on said mortgage, and in that
case the mortgagee or his assigns shall, by proper instrument, assign to this
company said mortgage, together with the indebtedness secured thereby, or
the proportion thereof remaining unpaid."
" (5) No right of action shall accrue under this policy * * * until the
insured (unless absolved by the company) has, at the company's option, eiiher
assigned or conveyed, or in writing agreed on demand to assign and convey to
the company, or such person as it may name, all the right, title, and interest of
the insured in and to said above-described real estate or interest, at the follow-
ing price, viz.: (a) As long as the interest of the insured shall continue to be a
mortgagee's interest, or still subject to redemption, the price to be paid shall
be the amount then remaining unpaid on said mortgage indebtedness, or the
amount necessary to permit such redemption, (b) If the interest of the insured
shall by foreclosure and the expiration of the period of redemption have
matured into an ownership in fee simple, the price to be paid, unless deter-
mined by mutual agreement, shall be the amount bid at said foreclosure sale,
with interest thereon at legal rate from the date of such foreclosure sale,
together with any and all subsequent expenditures by the insured for improve-
ments, taxes, or assessments on said real estate, with interest at the legal rate
on each of such expenditures from the date of the making thereof, less any
sum or sums received by said insured from any partial redemption or sale of
said real estate, (c) Any payment under this policy, whether made as the con-
sideration of any such assignment or conveyance as aforesaid or otherwise,
shall reduce the liability of the company hereunder by the amount of such
payment."
" (7) Claim under this policy having been settled, the company shall he sub-
rogated to all rights of action and remedies for recovery; and the insured
hereby assigns and warrants to the company such rights, and agrees that his
name may be used in all lawful proceedings therefor. If the payment does not
332 THE ti:rms ok the insurance contract.
cover the loss of the insured, the company shall be interested in such rights
with the insured in the proportion of the amount paid to the amount of the loss
not hereby covered; and the insured warrants that such rights of subrogation
shall vest in the company, unaffected by any act of the insured."
It will be seen by an e.Kamination of the provisions in the body of
the policy, above quoted, that the defendant agreed to indemnify,
save harmless, and insure Quigley against loss from three different
causes: (i) "' Defects in the present title;" (2) " liens or incum-
brances affecting the same at the date hereof;" (3) " any defect
apparent of record in the execution or filing for record of said mort-
gage." Its liability for loss from these three causes is expressly
limited to $2,200, and the insured has a right to recover that
amount of loss arising from any or all of these three causes alone,
and this fairly implies that, if his loss arises from some other cause
besides these three, this limitation does not cover it also. In this
case it is claimed that his loss does, at least in part, arise from
some other cause, to wit, that of the negligence of defendant.
Under said section or subdivision i of the stipulations and con-
ditions attached to the policy, the defendant has the option to
defend the suit, or pay the claim on which suit is brought, or pay
the insured the amount of its liability under the policy. If it elects
to defend the suit, it must be held to do so for its own benefit, and
must exercise reasonable care; if it fails to do so, it is liable for any
loss caused by such failure, and the limitation above quoted does
not apply. Neither does the provision, " but such defense by the
company shall not change or alter the rights or obligations of any
of the parties hereto," contained in said section i, relieve the com-
pany from liability for its negligence, but it also implies that such
defense will be conducted with reasonable care, and must be read
as if that condition was expressly attached to it. Even if the claim
on which the suit was brought was one against which defendant had
not insured the title, and against which it was not obliged to
defend, still, if it voluntarily undertook to indemnify the insured,
and defend the suit for him, it would be obliged to use reasonable
care, and would be liable for its negligence or misconduct by reason
of which he was misled and injured. It may be proper here to
remark that no claim is made that the lien in question is not covered
by the policy of insurance. Neither is it claimed that subdivision
or section 5 above quoted in any manner limits the amount of
recovery, and we cannot see that its provisions have any other
effect than that of creating a condition precedent to the commence-
ment of the action. It certainly cannot be held that the option
there provided for must be held open so as to give the insurer a
FIDELITY AND GUARANTY INSURANCE CONTRACTS. 333
chance to speculate on the amount of the verdict, and accept the
option afterwards if more favorable • to him than the verdict.
Neither would the prices there provided for be in any sense the
measure of damages. We are of the opinion that it was error to
exclude the testimony offered.
The court also excluded the affidavit of one Stevens, who was an
officer of the defendant corporation, and who was acting within the
apparent scope of his authority when he made the affidavit, in which
he set out the reasons why defendant failed to redeem the lot from
the mechanic's lien foreclosure sale. The evidence was competent
as an admission tending to prove negligence on the part of the
defendant, and it should have been received. This disposes of the
case. The order denying defendant's motion for a new trial is
affirmed, and the order denying plaintiffs' motion for a new trial is
reversed, and a new trial is granted.
MINNESOTA TITLE INSURANCE CO. v. DREXEL.
70 Fed. 194; 36 U. S. App. 50. — 1895.
Caldwell, C. J. — The only error assigned is the overruling of
the demurrer to the complaint. The contention of the learned
counsel for the plaintiff in error is that the foreclosure of the mort-
gages by notice and sale, and the purchase of the mortgaged prem-
ises by the mortgagee for the full amount of the mortgage debt,
" canceled the mortgage debt as completely as though it had been
paid in cash, "and that such satisfaction of the mortgage debt inures
to the benefit of the insurer, and absolves it from liability on its
policy as fully as if the mortgage debt had been extinguished by a
cash payment made by the mortgagor. The contention is not
sound. The cases cited by counsel to support this contention have
no application to this case.
The case at bar depends upon the construction of the policy of
insurance, and the same liberal rules of interpretation that apply to
fire and other policies of insurance are applicable to the policy in
suit. The policy in suit, on the point in question, is not ambiguous,
nor its meaning doubtful; but if there was room to doubt as to its
proper interpretation, the doubt would have to be resolved in favor
of the insured, according to the settled canon of construction
applicable to such contracts. National Bank v. Insurance Co., 95
U. S. 673, 678; Thompson V. Insurance Co., 136 U. S. 287, 297, 10
Sup. Ct. 1019; 2 Whart. Cont. 670; Kahmueiler v. Insurance Co..,
14 C. C. A. 485. 67 Fed. 483.
334 THE TERMS OF THE INSURANCE CONTRACT.
The insurer is not a surety. The defendant company, for an
adequate consideration, agreed to " indemnify, keep harmless, and
insure " Drexel, the mortg>igee, " from all loss or damage, not
exceeding $55,000," the amount of the mortgage debt, which he or
his assigns might sustain by reason of defects in the title to the
mortgaged premises, or by reason of liens or incumbrances tnereon
existing at the date of the policy. The contract is plain and
explicit on this point. In a word, it is a guaranty that the mort-
gagee should not suffer any loss or damage by reason of defects in
the title to the property, or liens or incumbrances thereon, existing
at the date of the policy. Under this guaranty, if the mortgaged
property, with a clear title and free from incumbrances, was worth
the amount of the mortgage debt, the mortgagee could confidently
rely upo.i the sufificiency of his security. The mechanics' liens upon
which the mortgaged property was sold were liens upon the prop-
erty at the date of the policy. The defendant company, neverthe-
less, refused either to pay these prior liens, or to pay the insured
the amount bid for the property at the foreclosure sale, which was
the amount of his mortgage debt, thus forcing the insured, in order
to protect his security and his title, to redeem the property from the
sale on the mechanics' liens.
The policy provides that, where by foreclosure the insured has
acquired the title to the property, the price to be paid by the insurer
" shall be the amount bid at said foreclosure sale." The defendant
was obligated, by the terms of the policy, either to pay this amount,
or to relieve the property from all liens existing thereon at the date
of the policy. It refuses to do either, and seeks to escape all lia-
bility by putting the burden of freeing the property from the liens
existing ihereon at the date of the policy upon the mortgagee, on
the ground that, at the sale of the property under the mortgages,
the mortgagee bid the full amount of his mortgage debt, and there-
by himself assumed the burden of paying off the mechanics' liens.
Under the terms of the policy, the mortgagee had a right to look to
the defendant for the extinguishment of all liens upon the property
which existed at the date of the policy, and to gauge his bid on the
assumption that the defendant would discharge its obligation in this
regard. The contention of the defendant is in the teeth of a very
plain provision of the policy which declares:
" Payment, discharge, or satisfaction of said mortgage indebted-
ness (except by foreclosure of said mortgage) * * * shall fully
terminate, annul, and avoid this policy, and all liability of the com-
pany thereunder."
The case at bar fails directly within this exception. We need not
FIDELITY AND GUARANTY INSURANCE CONTRACTS. 335
consider what effect this provision would have where the property
was purchased by a stranger at the foreclosure sale. Beyond con-
troversy, it includes and binds the parlies to the contract, and is
applicable to every case where the mortgagee, insured, becomes the
purchaser of the property at the foreclosure sale for the amount of
his mortgage debt.
The judgment of the Circuit Court is attirmed.
PART V.
Limits of the Contractual Obligation.
I. Beneficiaries.
a. Fire Insurance.
I. In General.
QUARLES V. CLAYTON.
87 Tenn. 30S. — 1889.
LuRTON, J. — The deceased husband of appellant took out a
policy of fire insurance upon his dwelling, loss payable to the assured,
his executors, or administrators. Before the expiration of the policy
by time, but after the death of the assured, the house was acci-
dentally burned. The insurance company, by consent of the claim-
ants, paid the loss into the 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 Chan-
cery 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 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 to be acquired by said John W. Quarles, shall continue to be his, and
shall remain wholly unaffected by said contemplated marriage with said Mrs.
Nancy M. Kirk, in favor of whom no marital or other rights in his said prop-
erty and estate shall attach or inure by virtue 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
[336J
BENEFICIARIES. 337
gifi, last will and testament, or otherwise. If he die without making any such
provision for her, then she shall, out of his real estate, if she survives him,
have a comfortable hotne, to consist of say about one hundred and forty acres
of his lands, in which ivill be included his d7iie//i>/^^ and out houses, the same to be
surveyed and laid off to her by proper metes and bounds, and in such manner
as will be most useful and convenieni to her, and with least injury to his estate.
This home so laid ofif 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 described, then the same shall descend to his proper heirs, and be dis-
tributed 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. Quarles and 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
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
marriage agreement had not at the time of the fire been laid off by
metes and bounds, but this was subsequently done to the satisfac-
tion of all concerned. This estate was so laid off, as required by
the contract, as to include the out-houses of the assured, and like-
wise the site of the burned mansion house. The insurance policy
was not taken out upon any agreement or contract, express or
implied, that she was to have any interest whatever therein.
Under this state of facts, has appellant any equitable or legal
interest in the proceeds of this fire policy? That the precise
boundaries of the one hundred and forty 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 off in all events so as to include
the mansion house and out-houses 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 contingent 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.
LAW OF INSURANCE — 22
338 LIMITS OF THE CONTRACTUAL OBLIGATION.
Whatever right she had to any interest in this fund must arise
from the contract of insurance. The person assured against loss in
the policy paid upon the premises of Mrs. Quarles was the owner
himself. By all the authorities, a contract of fire insurance is a per-
sonal 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 Mr. Quarles contained the usual provision
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 death of the assured."
These provisions have been upheld by the courts as reasonable con-
ditions, limiting and restricting the liability of the insurer. That
they are reasonable is obvious when we consider that the contract
is one for the personal indemnity of the assured against a loss affect-
ing his interest in the property covered by the policy. The insurer
contracts with reference to the character of the assured for integrity
and prudence. 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 another. 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 indemnified because he has sustained no loss. The provision
against change of titk is therefore in precise harmony with the per-
sonal character of the contract. In some fire insurance contracts
the stipulation 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 the law passed to his heirs, or by will to his
devisees, and a change of title so accruing has been held to defeat
an action for a loss occurring after the death of the assured. Shcr-
woodx. Agricultural Insurance Company., 73 N. Y. 447; s. c, 29 Am.
Rep. 180; Hine v. Woohuorth, 93 N. Y. 75; s. c, 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
when the insurer does not assent to the assignment of the policy to
the grantee of the property, neither the assured nor his assignees of
the property can recover upon the policy. Hobbs v. Insurance Com-
pany, I Sneed, 444.
But this policy was not annulled by the change of title which
occurred by the death of the assured. It expressly provides that a
change of title shall defeat the policy, except where it occurs " by
BENEFICIARIES. 339
succession By reason of the death of the assured.'' The legal effect of
this exception is to continue and extend the policy, notwithstand-
ing 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 damnirisd by the loss. This word " succession," in the con-
nection in which it appears, is a word of technical meaning, and refers
to those vvho 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 former purchase or contract. This meaning is made
more 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 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,
that in case the risk is upon real estate, that the extension is by
intendment of the contract to operate as an indemnity to those who
by " succession " have become the owner of the property. In such
a case the administrator or distributee would not have any interest
to be insured, while the heir or devisee, upon whom the title has
been cast, would be the legal and equitable owner and the person
to suffer by loss.
The root principle of insurance being that the loss is payable only
to the extent that the assured had an insurable interest, would 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 arisen, although the text-book writers seem not to have seized
upon the distinction. IVyman v. IVynian, 26 N. Y. 253; Culhertson
V. Cox., 29 Minn. 309; s. c, 43 Am. Rep. 204. But does the appel-
lant take any interest in the insured property by succession? If she
had taken as dowress, or under the homestead laws, she would be
within the principle just discussed, and would be within the express
holding of the two cases last cited. Unfortunately for this litiga-
tion, 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
340 LIMirS OF THE CONTRACTUAL (JliLlOA HON.
lieu of all riglits which the law would have given her, the provision
which she covetiauted for by marriage 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 iier. Both of these
events occurred, and instantly upon the death of her husband she
became seized 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 acquires her estate, she has an equitable interest to 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 parties who, in the character of grantee,
mortgagee, or creditors, may have sustained loss in the absence of
some trust or contract to that effect. May on Insurance, § 456; 3
Kent's Comm., loth ed., 499.
This rule applies as well to vendors and lienors 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 building had no equitable lien on a fire
policy effected by the owner and assigned to a mortgagee. Galyon
V. Ketchen, i Pickle, 55.
An equity will attach where the vendee or mortgagor was, by
covenant or otherwise, bound to insure the property for the better
security of the vendor or creditor. In such 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 out by the
mortgagor or vendee, or otlier debtor who had given a security upon
the insured property, and this would be so even though the policy
stood in the name of the debtor, vendee, or mortgagor. But in the
absence of some such agreement the mortgagor, or vendee, or
grantee, having an insurable interest, might insure such interest for
his own benefit, and no lien would attach thereto in favor of his
creditors secured by lien or mortgage, or otherwise, upon the
insured property. Carter v. Rockett, 8 Paige (N. Y.) 436; Wheeler
v. Insurance Co., loi U. S. Rep. 436: Nordyth v. Gery, 112 Ind. 535;
s. c, 2 Am. Rep. 219; Sheldon on Subrogation, §§ 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
BENEFICIARIES. 34I
insurable one; so v;as the remainder interest of the heirs. The
decedent having left no debts, and the distributees being the same
persons who take the real estate as heirs, no controversy can arise
between the administrator and the remaindermen. That the insur-
ance company had the option to rebuild is urged as a reason why
ih J insurer's election to pay instead of rebuild ought not to operate
to the disadvantage of complainant. This option is one common
to all contracts of fire insurance, and the agreement, 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 persons
who have suffered loss in the absence of some agreement to that
effect. If this option to pay or rebuild should be granted as a suffi-
cient ground to found an equity upon in favor of a third person dis-
appointed by the election of the insurer, the law of insurance would
have to be rewritten. There is no privity between appellant and
the insurer, and no action of his can be ground to give her an inter-
est which she would not otherwise have.
The decree of the chancellor will be affirmed.
PEOPLE'S STREET RAILWAY CO. v. SPENCER.
156 Pa. 85. — 1893.
Action brought by the corporation against Spencer to determine
the rights of the parties to certain money deposited by a fire insur-
ance company in payment of a loss by fire. The company had been
the owners of the property in question, and in consideration of a pay-
ment of $20,000 by Spencer, a conveyance of the property was exe-
cuted to him and a lease back to the company at a nominal rent with
no change of possession, which remained all the while in the com-
pany. This arrangement included the giving by Spencer to the com-
pany of an absolute and exclusive option to repurchase at the end
of the year for the same sum with interest. At the end of the year
the company paid up the interest, and the arrangement was renewed
for another year. During the continuance of the agreement the
company effected an insurance upon the premises and paid the
premium. In the policy the company were described as the assured,
and there was inserted therein the following clause: " The interest
of the assured in the above described building is the right to pur-
chase from A. D. Spencer, owner; and, in case of loss, the insurance
is payable to him, as his interest may appear under said contract."
The property was destroyed by fire, and pending this action (which
342 LIMITS OF THE CONTRACTUAL OBLIGATION.
was instituted as the result of an agreement between the compan^
and Spencer) the company exercised the option to purchase and
took a conveyance upon the payment of the purchase money.'
Mitchell, J. — All the facts appear in the writings set forth ir»
the plaintiff's statement. None of tlie papers which are merely
referred to, but not set out in full, seem to be essential to the cause
of action, and the omission to give them in full is not therefore
fatal. The affidavit of defense raises no issue of fact, for it denies,
no part of the statement, except the inferences from the face of the
papers. The case was therefore one for the court to decide upon
the statement and afifidavit. All the writings constitute parts of one
transaction, and the nature of that, beyond question, was a convey-
ance of the land as security for the repayment of a loan of money.
It starts with admitted title in the company (appellee); then a con-
veyance to appellant for $20,000; a contemporaneous lease from
appellant back to the company, at a nominal rent of $1, with no
change of possession, which remained all the time in the company;
and an absolute and exclusive option in favor of the company to
repurchase at the end of the year for the same amount — $20,000 —
with interest; that is, to resume its original title on payment of the
loan. At the end of the term the arrangement was extended, or
renewed for another year, during which the option was exercised by
the company, the money paid, and the title reconveyed by the
appellant. It is unimportant what name we apply to the relation of
the parties during the year. Whether technically vendor and
vendee, mortgagor and mortgagee, or lessor and lessee, is imma-
terial. The nature of the relation is incontestable. Appellant was
the holder of the legal title, subject to an equity in the company.
It is strongly argued for appellant that his interest at the time of
the fire was an absolute fee-simple title. But this is an error. It
was not absolute. It was the legal title in fee, but subject to the
equitable interest of the company — an interest in the land, capable
of being specifically enforced, and good, not only against the appel-
lant, but all others, creditors, purchasers, or strangers, to whom the
recorded deeds and the company's possession gave notice.
The only substantial question in the case is the date at which the
company's equity became complete. The fire took place during the
running of the term. The option to redeem was exercised after
the fire had occurred. Did the company's interest begin to run only
from the exercise of its option, or did it, upon that event, relate
' This abridged statement of facts is given by Professor G. W. Pepper in his
extended comment on this case, 33 A//t. Law Heg., N. S. 134.
BENEFICIARIES. 343
back for all purposes to the beginning of the transaction? We are
of opinion that both principle and authority sustain the latter view.
As already said, the transaction was in substance a loan of money,
and appellant's right was to have his money back with interest at a
specified time, or, in default of that, to have his title become abso
lute. The insurance was for his protection, not to increase his
profit; to keep up the sufficiency of his security while the loan
lasted, or make good the value of his purchase if it became absolute.
For that reason it was to be kept up by the appellee. If the latter
had exercised its option before the fire, there could have been no
question that the insurance money would have belonged to it. But
the date of the fire makes no substantial difference when, as was the
case, the appellee elected to repay the loan, and resumed its title.
On the happening of that contingency, the appellant got his money,
with interest, which was all he was entitled to, while the appellee
got back its land, lessened in value by the fire, but the loss compen-
sated by the insurance money. The insurance was, in contemplation
of law, for the benefit of whomever should be entitled when the
option was exercised or expired by default, and, in fact, it was con-
tracted for " as interest may appear." It stood in place of so much
of the property as was destroyed by the fire, and followed the title
when the equitable and legal interests united. The authorities, so
far as we have any analogous cases, lead to the same conclusion.
It was held in Kerr v. Day, 14 Pa. St. 112, that an option to pur-
chase is a substantial interest in land, which may be conveyed to a
venaee, and the English chancery cases were reviewed by Bell, J.,
with the result that, " when the lessee made his option to purchase,
he was to be considered as the owner ab initio. Indeed, the
determination can only be supported by attributing to the lessee an
equitable estate in the land, under his covenant for an optional pur-
chase, which passed to his alienee, vesting him v.'ith the right to call
for a specific execution on declaring his election." And in Frick's
Appeal, loi Pa. St. 485, where the land was sold upon a prior judg-
ment before payment or conveyance, it was held that the surplus
was the property of the optional vendee. It is true that the option
in that case had been exercised before the levy and sale, but that
circumstance was not of controlling weight, as the decision was put
on the ground that " in equity the vendee became the owner, sub-
ject to the payment of the price stipulated. His right of property
therein flows from the contract, and exists before any purchase
money may" have been paid;" citing Siter s Appeal, 26 Pa. St. 178.
We are of opinion that, upon the exercise of its option to redeem,
the appellee's equitable title reverted back to the date of the original
344 LIMITS OF THE CONTRACTUAL OIJLIGATION.
agreement, and appellee became the owner of the land as it was at
such date, or of the insurance money which stood pro tanto in its
place.
Judgment affirmed.
WILSON V. HILL.
3 Met. 66. — 1841.
\^Reported herein at p. I.]
2. Vendor and Vendee.
RAYNER V. PRESTON
iS C«. D. X. — 1881.
Appeal from a judgment of the master of the rolls disn'.issir'^ fno
action. The plaintiffs purchased from the defendants a messuage
and workshops. Between the date of the contract and the time
fixed for completion the buildings purchased were injurtd by fire.
The vendors had before the contract insured the buildings against
fire, but there was not in the contract any mention of chis fact, or
of the policy. The plaintiffs brought an action to establish their
right to a sum received by the vendors from the insurance office, or
to have it applied in or toward reinstating the buildings injured.
The master of the rolls decided against their claim, and from this
decision the plaintiffs appealed.
Brett, L. J. — * * * This action is brought by the plaintiffs
against the defendants to recover money which is in the hands of
the defendants; and therefore, if the action had been brought at
common law, it would have been an action for money had and
received. That action was always treated at common law as being
founded upon equity, and therefore it seems to me that the decision
in this case, whatever it ought to be, would be the same whether it
should be considered to be a decision at common law or in equity.
It seems to me that the question raised between the plaintiffs and
the defendants calls upon us to consider, first of all, the nature of a
policy of fire insurance; and, secondly, what was the relation with
regard to the policy and to the property between the plaintiffs and
the defendants in this case. Now, in my judgment, the subject-
matter of the contract of insurance is money, and money only. The
subject-matter of the insurance is a different thing from the subject-
matter of the contract of insurance. The subject-matter of insur-
ance may be a house or other premises in a fire policy, or may be a
BExVEFICIARIES. 34$
ship or goods in a marine policy These are the subject-matter
ol insurance, but the subject-matter of the contract is money, and
money only. The only result of the policy, if an accident which is
within the insurance happens, is a payment of m.oney. It is true
that under certain circumstances in a fire policy there may be an
option to spend the money in rebuilding the premises, but that
does not alter the fact that the only liability of the insurance com-
pany is to pay money. The contract, therefore, is a contract with
regard to the payment of money, and it is a contract made between
two persons, and two persons only, as a contract.
In this case there was a contract of insurance made between the
defendants and the insurance company. That contract was made
by the defendants, not on behalf of any undisclosed principal, not
on behalf of any one interested other than themselves. The con-
tract was made by the defendants solely and entirely on their own
behalf, and at a time when they had no relation of any kind with
the plaintiffs. It was a personal contract between the defendants
and the insurance office, to which they were the sole parties. It is
true that under certain circumstances a policy of insurance may, in
equity, be assigned, so as to give another person a right to sue upon
it; but in this case the policy of insurance, as a contract, never was
assigned by the defendants to the plaintiffs. It would have been
assigned by the defendants to the plaintiffs if it had been included
in the contract of purchase, but it was not. Any valuation of the
policy, any consideration of increase of the price of the premises in
consequence of there being a policy, was wholly omitted. There
was nothing given by the plaintiffs to the defendants for the con-
tract. The contract, therefore, neither expressly nor impliedly, was
assigned to the plaintiffs; and, so far as regards the contract of
insurance, there never was any relation of any kind between the
plaintiffs and the defendants.
But there did exist a relation between the plaintiffs and the defend-
ants, not with regard to the subject-matter of the contract, but
with regard to the subject-matter of the insurance. There
was a contract of purchase and sale between the plaintiffs and the
defendants in respect of the premises insured. It becomes neces-
sary to consider accurately, as it seems to me, and to state in
accurate terms, what is the relation between the two people who
have contracted together with regard to premises in a contract of
sale and purchase. With the greatest deference, it seems wrong to
say that the one is a trustee for the other. The contract is one
which a court of equity will enforce by means of a decree for specific
performance. But, if the vendor were a trustee of the property for
346 LIMITS OF THE CONTRACTUAL OBLIGATION.
the vendee, it would seem to me to follow that all the product, all
the value of the property received by the vendor from the time
of the making of the contract, ought, under all circumstances, to
belong to the vendee. What is the relation between them, and
what is the result of the contract? Whether there shall ever be a
conveyance depends on two conditions; first of all, whether the title
is made out, and, secondly, whether the money is ready; and,
unless those two things coincide at the time when the contract
ought to be completed, then the contract never will be completed,
and the property never will be conveyed. But suppose at the time
when the contract should be completed the title should be made out
and the money is ready, then the conveyance takes place. Now it
has been suggested that when that takes place, or when a court of
equity decrees specific performance of the contract, and the convey-
ance is made in pursuance of that decree, then by relation back the
vendor has been trustee for the vendee from the time of the making
of the contract. But again, with deference, it appears to me that if
that were so, then the vendor would in all cases be trustee for the
vendee of all the rents which have accrued due and which have been
received by the vendor between the time of the making of the con-
tract and the time of completion; but it seems to me that that is not
the law. Therefore, I venture to say that I doubt whether it is a
true description of the relation between the parties to say that from
the time of the making of the contract, or at any time, one is ever
trustee for the other. They are only parties to a contract of sale
and purchase, of which a court of equity will under certain circum-
stances decree a specific performance. Bat even if the vendor was
a trustee for the vendee, it does not seem to me at all to follow that
anything under the contract of insurance would pass. As I have
said, the contract of insurance is a mere personal contract for the
payment of money. It is not a contract which runs with the land.
If it were, there ought to be a decree that upon the completion of
the purchase the policy be handed over. But that is not the law.
The contract of insurance does not run with the land; it is a mere
personal contract, and unless it is assigned no suit or action can be
maintained upon it except between the original parties to it. * * --
I therefore, with deference, think that the plaintiffs here cannot
recover from the defendant on the ground that there was no rela-
tion of any kind or sort between the plaintiff and the defendant
with regard to the policy, and therefore none with regard to any
money received under the policy.
[.\n opinion concurring with that of Brett, L. J., was rendered
by Cotton, L. J.]
BENEFICIARIES. 347
James, L. J. — I am unable to concur in affirming the judgment
of the master of the rolls. According to my view of the case the
plaintiff's contention is founded not only on what I may call
the natural equity which commends itself to the general sense of
the lay world not instructed in legal principles, but also on artificial
equity as it is understood and administered in our system of juris-
prudence.
I am of opinion that the relation between the parties was truly
and strictly that of trustee and cestui que trust. I agree that it is
not accurate to call tlie relation between the vendor and purchaser
of an estate under a contract while the contract is in fieri the rela-
tion of trustee and cestui que trust. But that is because it is
uncertain whether the contract will or will not be performed, and
the character in which the parties stand to one another remains in
suspense as long as the contract is /« fieri. But when the contract
is performed by actual conveyance, or performed in everything but
the mere formal act of sealing the engrossed deeds then that com-
pletion relates back to the cantract. and it is thereby ascertained
that the relation was throughout that of trustee and cestui que trust.
That is to say, it is ascertained that while the legal estate was in the
vendor, the beneficial or equitable interest was wholly in the pur-
chaser. And that, in my opinion, is the correct definition of a trust
estate. Wherever that state of things occurs, whether by act of
the parties or by act or operation of law, whether it is ascertained
from the first or after a period of suspense and uncertainty, then
there is a complete and perfect trust, the legal owner is and has
been a trustee, and the beneficial owner is and has been a cestui
que trust.
This being the relation between the parties, I hold it to be an uni-
versal rule of equity that any right which is vested in a trustee —
any benefit which accrues to a trustee, from whatever source or
under whatever circumstances, by reason of his legal ownership of
the property — that right and that benefit he takes as trustee for
the beneficial owner. If the policy of insurance in this case were a
collateral contract, such as the policy which a creditor effects on the
life of his debtor, the case would be wholly different But the
policy of fire insurance is not, in my opinion, a collateral contract;
it is not a wagering contract, a contract that if a fire happens then a
certain sum of money shall be paid to the insurer; it is in terms and
in effect a contract that, if the property is injured, then the insur-
ance company will make good the actual damage sustained by the
property. That damage, and that damage only, gives the right and
is the measure of the right, and it seems to me impossible to say
348 LIMITS OF THE CONTRACTUAL OBLIGATION.
that it is not by reason of the legal ownership, and in respect solely
of the injury done to that legal ownership, that the right to recover
from the insurance company accrued to the insured. If the fire in
this case had happened through the wrongful or negligent act of a
third person while the contract was /// fieri^ the legal right to sue
for the damage would be in the vendor, but on the completion of
the contract the purchaser would be entitled to use the name of the
vendor as his trustee to sue for the damage so sustained, or, if the
dam.igis had actually been recovered in the interval, to recover
the damages from the vendor. And it appears to me that there is no
distinction in principle between this right and the right to use the
vendor's name in an action on the contract of indemnity agamst
Idss by fire which the policy of insurance is. It is not, in my view
of the case, at all material to consider what would be the case if
after actual conveyance and during the currency of the policy, a fire
had occurred. The vendor in that case would have no right as
between him and the insurance office, and the purchaser would have
no right of action, because one of the conditions of the policy
excludes it, and, independently of that condition, the policy would
or might probably be hsld not to run with the land, in the hands of
the subsequent owner, and in that case there would not be that
which is the foundation of the right — legal ownership and right in
one person, and equitable ownership in another.
No doubt it is a mere accident that there was such a policy and
there was such a right. The vendor could not have complained if
there had been no insurance. But that has occurred in a great
variety of cases in which equitable rights have arisen. Where there
is a creditor, a debtor, and a surety, and the surety finds out that by
something to which he was not privy and of which he had never
heard, somebody else had become surety, or the creditor had
obtained security, the surety has a right to obtain contribution from
such surety, or to obtain such security, as the case may be, and the
creditor releasing such surety or parting with such security would
probably find himself in considerable peril. * * * »
' In Ins. Co. v. Updegraff, 21 Pa. St 513, the vendor, after contract to sell and
before conveyance, insured to the full value of the buildings; and after loss,
which occurred before conveyance, the vendor Updegraff sued upon the policy
for the use of the vendee. It was held that such insurance was ''prima facie
upon the whole legal and equitable estate, and noi upon the balance of the
purchase money," and that " the plaintiff was entitled to recover under a trust,
as to the surplus, for the benefit of the vendee." The court says- "As the
vendor is a trustee for the vendee, every act of his in relation to the estate will
be presumed 10 be for the benefit of the vendee, subjecl, of course, to the prior
BENEFICIARIES. 349
Brett, L. J. — I should like to add to what I have said that I feel
very great doubt whether, as between the defendants and the insur-
ance company, the defendants can keep the money.
Cotton, L. J — I quite concur in that doubt.'
3. Mortgagor and Mortgagee.
Harris, J., in GROSVENOR v. ATLANTIC FIRE INS. CO.
17 N. Y. 391, 393. — 1S58.
In this case the contract was between the defendants and McCarty.
The agreement was to insure Eugene W. McCarty against loss or
damage by fire, to the amount of $7,000, on his three story biick
■dwelling-house. But after the contract was made, and before the
alleged loss, McCarty had sold and conveyed the property insured.
At the time of the fire he had no insurable interest; of course, he
has no claim for indemnity. No action, therefore, could be main-
tained upon the policy by McCarty. But at the time the insurance
was effected the plaintiff in this action, Grosvenor, was the holder of
a mortgage upon the premises insured. As such mortgagee, he,
too, had an insurable interest. The extent of that interest was the
amount of his debt. To that extent he might have contracted with
the defendants to indemnify him against loss by fire. The payment
of his debt would as completely terminate the contract to insure as
would the alienation of the property, when the contract is made
with the owner. The important inquiry in this case is, to which of
these classes does the contract in question belong? The action is
brought by the plaintiff as mortgagee. The contract was made with
McCarty, the mortgagor. But the policy provides that in case of
loss .such loss should be payable to the plaintiff. What is the legal
effect of this provision? Without it the plaintiff could have had no
claim against the defendants for indemnity. Is this provision to be
regarded as an appointment of the plaintiff to receive any money
which might become due from the insurers by reason of any loss
claims of the vendor himself. This is reasonable because as the vendee must
suffer the losses which may happen to the properly; it is just that he should
have ihe advantages of any benefits which accrue to it; and next to the security
of his own interest a trustee will be presumed to have in view the interest of the
cestui que trust."
' In Castellain v. Prcstou. II O. B. D. 380, Castellain, representini^ the above
insurance companv, brought an action againM the abov'e defendant in respect
of the money paid, and he was allowed to recover it. See/t^jY p. 536.
350 LIMITS OF THE CONTRACTUAL OBLIGATION.
sustained by the mortgagor, or has it the effect to render the policy
which would otherwise be a contract to indemnify the mortgagor
against a loss, a contract to indemnify the mortgagee? A determin-
ation of this question will also determine the rights of the parties to
this action. * * *
The undertaking to pay the plaintiff was an undertaking collateral
to and dependent upon the principal undertaking to insure the mort-
gagor. The effect of it was that the defendants agreed that when
ever any money should become due to the mortgagor upon the con-
tract of insurance, they would, instead of paying it to the mortgagor
himself, pay it to the plaintiff. The mortgagor must sustain a loss
for which the insurers were liable, before the party appointed to
receive the money would have a right to claim it. It is the damage
sustained by the party insured, and not by the party appointed to
receive payment, that is recoverable from the insurers. Macomber
V. The Cambridge Mutual Fire Ins. Co., 8 Cush., 133. The insur-
ance being upon the interest of the mortgagor, and he having parted
with that interest before the fire, no loss was sustained by him, and,
of course, none was recoverable by his assignee or appointee. The
right of such a party being wholly derivative, cannot exceed the
right of the party under whom he claims. Carpenter v. The Provi-
dence Washington Ins. Co.., 16 Peters, 495 ; Foster v. The Equitable Fire
Ins. Co., 2 Gray, 216,
HASTINGS ET AL., Executors v. WESTCHESTER FIRE
INSURANCE CO.
73 N. Y. 141. — 1878.
The plaintiffs, as the surviving trustees and executors of the will
of George Hastings, deceased, were on the 8th day of May, A. D.
1875, the owners of a bond and mortgage executed by Sarah C.
Stout and Thomas H. Stout, her husband, for the sum of $14,000;
the mortgage covering premises in the village of Irvington, West-
chester county. New York. Defendant, on said 8th day of May,
1875, issued to Mrs. Stout its policy of insurance for the sum of
$10,000, for a term of three years, on her dwelling-house, upon said
mortgaged premises, which policy contains this clause: " Other
insurance permitted." Also the following condition numbered
nine: " In case of any other insurance upon the property hereby
insured, whether made prior or subsequent to the date of this
policy, the assured shall be entitled to recover of this company no
greater proportion of the loss sustained than the sum hereby insured
BENEFICIARIES. 35 1
bears to the whole amount insured thereon, whether such other
insurance be by specific or by general or by floating policies." On
September i, 1876, with the consent of Mrs. Stout, and at the
request of the plaintiffs, the defendant indorsed upon said policy
the following words: " Loss, if any, payable to Maria L. and East-
burn Hastings, trustees and mortgagees," and at the same time
annexed to said policy the following clause, known as the " mort-
gage clause: " " It is hereby specially agreed that this insurance,
as to the interest of the mortgagee only therein, shall not be invali-
dated by any act or neglect of the mortgagor or owner of the property
insured, nor by the occupation of the premises for purposes more
hazardous than are permitted by this policy. It is also provided
and agreed that the mortgagee shall notify the company of any
change of ownership or increase of hazard not permitted by this
policy to the mortgagor or owner as soon as the same shall come to
his or her knowledge, and shall, on reasonable demand, pay the
additional charge for the same, according to the established scale of
rates, for the time such increased hazard may be or shall have been
assumed by this company, during the continuance of this insurance.
And it is further agreed that whenever the company shall pay the
mortgagee any sum for loss under this policy, and shall claim that,
as to the mortgagor or owner, no liability therefor existed, said
company shall at once be legally subrogated to all the rights of the
mortgagee under all the securities held as collateral to the mortgage
debt, to the extent of such payment, but such subrogation shall not
impair the right of the mortgagee to recover the full amount of his
claim, or at its option said company may pay to the mortgagee the
wliole principal due or to grow due on the mortgage, with the inter-
est then accrued, and shall thereupon receive a full assignment and
transfer of the mortgage, and all other securities held as collateral
to the mortgage debt.
GEO. R. CRAWFORD,
Secretary.'"
The policy was thereupon delivered to the plaintiffs. On the 20th
day of October, 1876, said dwelling was destroyed by fire. Due
notice of the loss was given, and proof of loss, as required by said
policy, was made and delivered to said defendant on the 14th day of
November, 1876, and arbitrators were on the nth day of December,
1876, chosen to adjust the amount of loss, difference having arisen as
to amount of such loss. On the i8th day of January, 1877, the amount
of the loss and damages was adjusted at $9,832.52. At the time of
t'le issuing of the said policy, and of the indorsements and the
35^ LIMITS OF THE CONTRACTUAL OBLIGATION.
delivery of the same to the plaintiff, said Sarah C. Stout had
obtained another polic)' of insurance upon the property in the
amount of $4,000, issued by the Lycoming Insurance Company,
containing a clause as to the contribution in case of other insurance,
the same as the one issued by the defendant, but the fact of such
insurance was not known to either the plaintiffs or defendant until
after the said fire, and t|;ie said policy was not payable to plaintiffs.
The amount of the loss as adjusted, together with the value of the
land covered by the mortgage, would not more than pay the plain-
tiffs the amount of their mortgage, and upon a foreclosure would
not realize that amount. The plaintiffs claimed the whole amount
of said loss as adjusted, $9,832.52, with interest thereon from Janu-
ary 14, 1877, said date being sixty days after proof of loss, was
delivered to the defendant. Defendant claimed that by reason of
the insurance in the Lycominj Insurance Company it was only lia-
ble for ten-fourteenths of the loss; also, that under its policy the
amount due was not payable until sixty days after the adjustment of
the loss. The General Term sustained plaintiffs' claims.
Rapallo, J. — By the terms of the mortgage clause attached to
the policy the defendant agreed that the insurance, as to the inter-
est of the mortgagee only, should not be invalidated by any act or
neglect of the mortgagor or owner of the property insured, nor by
the occupation of the premises for purposes more hazardous than
were permitted by the policy. But it was further agreed, in sub-
stance, that if the defendant should pay the mortgagee any loss, for
which it would not be liable to the mortgagor, it should be subro-
gated to the rights of the mortgagee under all securities for the
mortgage debt, or it might pay the amount due on the mortgage
and take an assignment thereof. * * *
I think the intent of the clause was to make the policy operate as
an insurance of the mortgagors and the mortgagees separately, and
to give the mortgagees the same benefit as if they had taken out a
separate policy free from the conditions imposed upon the owners,
making the mortgagees responsible only for their own acts. It
established a privity between the company and the mortgagees, and
provided that, notwithstanding that the insurance might be invali-
dated as to the mortgagors, it should, nevertheless, protect the
mortgagees; and, as a consideration for this undertaking, it was
stipulated that, in case the company should be called upon to pay
the mortgagees, under circumstances which discharged it from lia-
bility to the mortgagors, it should be indemnified by subrogation,
or an assignment of the mortgage and all securities held by the
mortgagees for the mortgaged debt. This provision, in case the
BENEFICIARIES. 353
policy were invalidated as to the mortgagors, made it, in substance,
an insurance solely of the interest of the mortgagees, by direct con-
tract with them, unaffected by any questions which might exist
between the company and the mortgagors. The same consequences
would follow,//-^ tanto, from a partial, as from an entire invalidation,
or a reduction of the policy as Lo tlie mortgagors.
There having been in the present case no additional insurance
upon the interest of the mortgagees, which should reduce their claim
to one for contribution, I do not think they are affected by the
additional insurance on the interest of the mortgagors, even though
it existed at the time of the issuing of the policy now in question,
the mortgagees having been ignorant of, and having no interest in,
such additional insurance. For whatever amount the defendant
may have to pay the plaintiffs in excess of the sum which the mort-
gagors could have collected on the policy, were there no mortgage,
the company is entitled to reimbursement, by enforcing the bond
and the mortgage, to which it is entitled by subrogation to that
extent; or it may pay them and take an assignment, in which case
it would be bound to give credit thereon, only for its contributive
share of the loss for which it is liable in respect of the interest of
the mortgagors. If the security is insufificient to make the defend-
ant whole for its excessive payment, that is no answer to the claim
of the plaintiffs; it is a loss resulting from the contract of the
defendant with the mortgagee.
The mortgagors derive no benefit from the sum paid by the
defendant in excess of its contributive proportion. The mortgage
debt is not reduced by that payment, but only to the extent of the
contributive share for which the policy stood for the benefit of the
mortgagors. The mortgagors remain liable on their bond for
the amount payable thereon beyond this contributive share, in case
the company takes an assignment. If the mortgaged premises
should, on a foreclosure, prove insufificient to pay this excess, the
mortgagors will be liable for the deficiency. They have their claim
against the Lycoming Insurance Company for its contributive share
of the loss which is identical in amount with the excess which the
defendant is obliged to pay to the mortgagees. The Lvcoming
Insurance Company can claim no benefit from the payment by the
defendant to the mortgagees. Whether the defendant can, for itr-
indemnity, have any recourse against the proceeds of the policy in
the Lycoming Company is a question not involved in the present
case. The only question here is whether it can set up that insur-
ance as against the claim of the mortgagees.
For the reasons stated I concur in the conclusion of my
LAW OF INSURANCE — 23
354 LIMITS OF THE CONTRACTUAL OBLIGAITON.
leurned brother xMiller, J.,' * * * that the judgment should t^t
aflfirmed.
All concur for affirmance, except Allen, Folger and AxDREAVi.,
JJ., dissenting.
Judgment affirmed.
Stone, C. J., in FIRE INSURANCE COMPANIES v.
FELRATH.
77 Ala. 194. — 1884.
Can Felrath maintain these actions in his own name? We think
not for the following reasons: The policies were taken out in the
name and in favor of James Clark, who owned the property. The
gross sum of the policies was $1,550. Felrath had a mortgage on
the property, but the policies were neither assigned nor trans-
ferred to him so as to constitute them his property, nor to make
him, Felrath, the party assured. The only interest Felrath had is
shown on the face of the policies themselves and is expressed in
this language : ' ' Loss if any payable to Joseph Felrath, to the extent
of his mortgage.'" * * *
It is contended for appellee that Felrath can maintain these actions
under section 2890 of the Code of 1876, which provides that actions
on contracts express or implied for the payment of money, must be
prosecuted in the name of the party really interested, whether he
has the legal title or not. This would undoubtedly be the case if
by the terms of the policy or assignment pursuant to its terms, the
entire sum of the insurance money had been made payable to Fel-
rath. Appleton Iron Co. v. Br. Amer. Assur. Co., 46 Wis. 23; Keeler
V. Niagara Falls Fire Ins. Co., 16 Wis. 523. We hold however that
the right of action on this contract must be determined by the status
of the transaction which the parties by their contract have fixed
upon it. It is the contract itself and not any after occurring acci-
dent which determines the intention the parties had. They ap-
pointed the payment of part of the money to Felrath in case of loss.
They did not appoint the payment of the entire sum nor were the
policies assigned. They did not confer on Felrath a right to sue
for a part and on Clark the right to sue for the residue. That
would have been to split one contract into two causes of action
which can only be done by agreement of debtor and creditor having
that object in view. It was not done in this case; and the accident
' The opinion of the court was written by Miller, J., but the briefer opinion
bv Rapallo, J., has been chosen for publication here.
BENEFICIARIES. 355
that the loss was only partial, and ditl not exceed the sum appointed
to be paid to Felrath, can neither change the contract relations of
the parties nor affect an assignment of the policies. There are a
few cases which it is contended hold the contrary of these viev.'s,
but if they do we decline to follow them. N. JF. Mut. Life Ins.
Co. V. Ger mania Fire Ins. Co..^ 40 Wis. 446; Hammel v. Queen Ins.
Co., 50 Wis. 240; s. c, 41 Am. Rep. i; State Ins. Co. v. Maackens,
38 N. J. Law, 564. In some of these cases the appointee's claim
equalled or exceeded the whole sum insured, which of course
involved no splitting up of the cause of action. This distinguishes
such cases from this. IVatertozvn Fire Ins. Co. v. Seiuing Machine
Co., 41 Mich. 131.
MILLER V. ALDRICH.
31 Mich. 408. — 1875.
CooLEY, J. — The following facts we think are established by the
evidence in this case: Miller, the complainant, on the eighth day
of August, 187 1, became surety for Alpheus O. Chapman, on a note
for three hundred dollars to Edward Paine, payable in two years
from date with ten per cent, interest. To secure him for doing so,
Chapman orally agreed to give him a mortgage on a certain house
and lot, and as the lot without the house was of little value, he also
agreed to keep the house insured for Miller's benefit. This agree-
ment was earned into effect so far as the giving of the mortgage
was concerned, and a policy of insurance was also taken out for
the sum of one thousand dollars, loss if any payable to Miller to the
extent of his interest, but terminating August 19th, 1872. On the
fourteenth day of March, 1872, Chapman sold the mortgaged prem-
ises to the defendant Aldrich, subject to this mortgage, and on an
oral understanding that Aldrich should perform its condition.
Instead, however, of having the insurance policy assigned to
Aldrich, it was surrendered, and a new one taken out in the name
of Aldrich, and without providing in terms for the protection of
Miller. This insurance was for eight hundred dollars, which was
quite as much as the value of the building would justify. Miller,
when he was informed what had been done, called upon Aldrich, and
expressed apprehension about his security, but Aldrich quieted him
by assuring him that in event of loss he should be protected by the
insurance money. The building was actually destroyed by fire in
the December following, and the loss has been adjusted and is
ready to be paid over, but Aldrich now refuses to apply any portion
of the money to the protection of Miller. The purpose of this suit
356 LIMITS OF THE CONTRACTUAL OBLICATION.
is to compel the application, and the Circuit Court has decreed that
the insurance moneys, to the amount of the Paine note, shall be
paid into court to be paid over to Miller on his discharging his
mortgage.
In the main we think the decree correct. Though Chapman may
have a legal right to surrender the policy he had taken out for
Miller's protection, he had no equitable right to do so; and as
Aldrich knew all the facts, and took his new policy on a wrongful
surrender of the one which protected Miller, and for a sum which
precluded Miller from insuring on his own behalf, we think Miller
must be held to have an equitable interest in the new policy to the
extent of his lien, whether Aldrich did or did not expressly agree
with Chapman that such should be the case, as the latter says he
did. The case is within the principle of Crom-cvell v. Brooklyn Ins.
Co., 44 N. Y. 42, and it is not important whether Chapman had or
had not legally bound himself to Miller to keep up insurance for his
benefit, when by virtue of the oral understanding he had actually
executed such insurance.
It is objected that Chapman should have been made a party to
the suit, but we discover no necessity for it. The decree will inci-
dentally protect him, and he might doubtless have been joined; but
complete justice is done to all parties concerned, when complainant
obtains the relief prayed for. Complainant's case is, that Chapman
is wholly insolvent, so that the complainant has no resource but this
insurance money for his indemnity; and defendant certainly has no
interest in having Chapman made a party, as in no contingency
could he be entitled to any relief as against Chapman, and his satis-
faction of complainant's equity will at the same time satisfy any
equity of Chapman based on his oral promise to pay off this claim.
It is also objected that the decree is erroneous, inasmuch as it
provides that insurance money to the amount of the Paine note
shall be paid to complainant when the mortgage is discharged,
though this may be done leaving the note outstanding. This was
probably an inadvertence in drafting the decree, and the decree
should be so modified as to make the payment of the insurance
money secure the surrender or satisfaction of the note, together with
satisfaction of the mortgage. We cannot say that the error was
immaterial to Aldrich, as, under the agreement between Chapman
and himself when the sale took place, the former would doubtless
have a lien on the land for his protection in case the note was not
met when due and should be taken up by himself. Under the cir-
cumstances, while modifying the decree as suggested, and affirming
it in all other respects, no costs will be awarded in this court.
IIENEFICIARIES. 357
Walker, J., in NORWICH FIRE INS. CO. z'. BOOMER.
52 III. 442, 446. — 1869.
It is again urged that, inasmuch as the mortgagors paid the debt
to appellee [mortgagee] before the recovery in the court below, and
the mortgagee has sustained no loss, he is not entitled to recover.
Had appellants paid this loss before the mortgagors paid the debt
to appellee, then the question of their right to subrogation would
have been presented for consideration; but, inasmuch as appellants
had not done so, the questions presented are of a different char-
acter. Had appellee applied for the policy, paid the premium, and
effected the insurance, and on the occurrence of this fire appellants
had paid the loss, they would no doubt have been entitled to subro-
gation, by an assignment of the mortgage. In such a case, the
insurance would be considered as a further security of the debt,
and on the familiar principle that a surety who pays the debt may
resort to the principal debtor for payment; in such a case the
insurer might, no doubt, resort to the mortgagor for payment.
But in this case the mortgagors paid the premium, and obtained
the policy, in pursuance to an agreement with the mortgagee before
it was effected. The mortgagors procured it as a part of the secur-
ity they agreed to give appellee for the debt they owed him. It
was, then, in equity, their policy, and not appellee's, although in his
name. Had the mortgagors paid the premium, and obtained the
policy in their names, the question could not have arisen. Then why,
when they, in pursuance of their agreement, pay the premium, should
they not be regarded as the beneficial assured, when they shall have
paid the debt and released the property? In such a case they seem to
have strong equitable, as well as legal, claims to pay for the loss,
and should be permitted to use the name of the mortgagee to
recover. Had they taken this policy in their own names, with the
OSS payable to appellee, according to his interest, and they had!
subsequently paid the debt, no one, we presume, would question
their right to sue in the name of the mortgagee, and recover for
their own use. We understand it to be the settled law that, when
the mortgagor or pledgor insures the property, and a loss occurs,
he may recover because he has an insurable interest in the property,
and reason and justice require that when he pays the premium,
although he insures in the name of the incumbrancer, and he after-
wards pays the debt, he should be permitted to recover for loss to
the property. And this rule is supported by the authorities. King
V. The State Mutual Fire Insurance Co., 7 Cush. i; Concord Union
Mutual Fire Insurance Co. v. Woodbury, 45 Me. 447 ; Kernochan v
358 LIMITS OF THE CONTRACTUAL OHLIGATION.
The Neii.' York ^ Fire l/isu ranee Co., 17 N. V. R. 42S. The first of
these cases, however, goes further, and holds that the mortgagee
may insure, and, in case of loss, may collect his debt and recover on
the policy; and the insurer has no right to subrogation. But these
latter propositions are not in harmony with the current of the
authorities, but the opinion sustains the rule we have announced.
Amount of Mortgagee's Recoverv. — "It is not a defense to
the insurer that the debtor is solvent and that the insured may make
good his personal claim against him. The insured is not bound to
e.xhaust his remedies against third parties before claiming indem-
nity from his insurer. Collingridge v. Royal Exch. Asso., 3 Q. B. D.
173; Haneoxv. Fishing Ins. Co., 3 Sumner, 132. It has not been de-
cided in this country [England] whether it is a valid defense that
the security, although diminished in value by the fire, is still suf-
ficient to cover the mortgage debt, and the American authorities
upon the question are not unanimous. In the leading case the
defense was rejected, and it was held that a mortgagee who has
insured his separate interest is entitled, upon assigning his mort-
gage to his insurer, to claim the full amount insured wherever
the security has been materially damaged by fire. The ground of
judgment was that the insured is not bound to resort elsewhere than
to his policy for indemnity, and that this principle, recognized as
regards the mortgagee's personal claim against the debtor, is equally
applicable to his remedy upon the mortgaged property. Excelsior
Fire Ins. Co. v. Royal Ins. Co. of Liverpool, (55 N. Y. 343), 14 Am.
R. 271, where all the authorities are reviewed, pp. 279, 283. The
competing theory is that a mortgagee insures not the ultimate
safety of the whole property, but its capacity to pay the mortgage
debt, and that he can only claim under his policy the balance of his
debt which his security remaining after the fire is insufificient to
cover. As a consequence of this view it was held that, where
insurance is effected by a mortgagee upon his special interest, the
existence of prior incumbrances is material to the risk and must be
disclosed. Smith v. Columbia Ins. Co., (17 Pa. St. 256), 55 Am. D.
546; Carpenter v. Prov. Ins. Co., 16 Peters, 495; 2 Am. L. Cas. 865.
The two theories may be illustrated by the following case. Sup-
pose that property of the value of ;^i,ooo is mortgaged to A for
^500 and to B for ^500, and that A and B insure in respect of
their mortgage interests to the full amount of their debts. Suppose
that the security is injured by fire to the extent of ^500. If A's
mortgage be prior to B's, A's insurer upon the theory last exphined
BENEFICIARIES. 359
would not be liable to him, because the value of the security is still
sufficient, if realized, to pay his debt. B's insurer upon the same
theory would be liable to him for ^500 because his debt is wholly
uncovered. On the first theory A and B would each be entitled to
c'aim the whole sums insured, because A's security is less valuable
;; / its margin of ^500 than it was before the fire, while B's debt is,
as before, entirely uncovered, A's insurer having been subrogated
to A's preferable rights upon the security. Upon either theory the
acutal loss of ^500 is ultimately made good by the insurer of the
postponed creditor." — Wm. Harvey on "Insurance of Limited
Interests," in 10 Law Quar. Rev. 48.'
b. Life Insurance.
I. Who May be a Beneficiary.
LANGDON V. UNION MUTUAL LIFE INS. CO.
14 Fed. 272 (Circuit Ct. E. D. Mich.)— 1882.
This was an action upon a policy of life insurance upon the life
of Augustus E. Baker, " for the sole and separate use and benefit
of his brother-in-law, William W. Langdon. But in case of his
previous death to revert to the insured." The facts in relation to
this policy were substantially as follows: The agent of the defend-
ant solicited Langdon, the plaintiff, to insure his life in his com-
pany. Tnis application plaintiff declined, but said to the agent
that he might go to his brother-in-law, Baker, and get him to make
■ Professor McClain, in an article on " Insurance of Limited Interests," (11
Har. L. Rev. 512), concludes that " Briefly, the obligation to make indem-
nity may be indicated as follows: i. Fire insurance is a contract of indemnity
against damages to the insured by reason of loss or injury to the property by
fire. 2. The recovery for a loss should not exceed the damage, certain or con-
tingent, which insured has suffered, or may suffer, by reason of the loss. 3. If
the interest of the insured is that of ultimate owner, with a limitation in the
nature of a lien to secure his indebtedness, he is entitled to full indemnity for
loss of, or injury to, the property to the extent of the insurance, for the loss falls
upon him. If his interest is that of a lienholder, his recovery should be for the
amount of his lien. 4. In case of a lien-holder, bailee, or other person having
a contingent or temporary interest, the doctrine of indemnity leads to subroga-
rion, and perhaps to a right to recover from insured any amount paid beyond
the damage which subsequently appears to have been suffered. 5. The right of
subrogation is not a primary right of insurer, but arises only as between himself
and insured to prevent the ultimate realization by the insured of mote than full
indemnity."
30O LIMITS OF THE CONTRACTUAL OBLIGATION.
an application for a policy, and the plaintiff would pay the premiums.
Baker was the plaintiff's brother-in-law, but he had no other inter-
est in his life. The court left it to the jury to say whether the
policy was taken out in good faith by Baker, with a designation of
the plaintiff as a person to receive the money, or whether it was
intended by the plaintiff as a wagering contract upon Baker's life.
The jury returned a verdict for the amount of the policy. Motion
was made for a new trial upon the ground of misdirection upon this
and other points stated in the opinion.
Brown, D. J. — The policy in this case purported upon its face
to be taken out by the insured upon his own life, but the evidence
shows that it was taken at the suggestion of his brother-in-law, who
sent the agent of the company to Baker, and paid all the premiums
upon the policy. It was made payable to the plaintiff in case he
survived Baker. Baker's life had previously been insured in other
companies for plaintiff's benefit to the amount of $6,000. He had
also made application to the Massachusetts Mutual Life Insurance
Company for a policy of $3,000, which was rejected. Upon the
trial, the question was left to the jury to say whether the policy was
obtained in good faith, and not for the purpose of speculation in
the hazard of a life in which the plaintiff had no legal interest. It
was thought that the fact that the policy provided in express terms
that in case of the previous death of the plaintiff it should revert to
the insured, and hence that the plaintiff's interest was contingent
upon his surviving Baker, was some evidence to go to the jury that
the policy was taken out in good faith. It was certainly consistent
with an understanding that the plaintiff wished to hold the policy
during his life as security for the premiums, with a resulting trust
in favor of Baker's wife, who was his own sister.
It is now well settled in the federal courts that a party cannot
take out an insurance upon his own life and assign the policy, either
contemporaneously with its execution or subsequently, to a person
having no legal interest in his life, although the decisions of the
State courts upon this point are conflicting. Wa>->wck v. Davis, 104
U. S. 775; Camtnack v. Lewis, 15 Wall. 643. But there is no case,
to my knowledge, which holds that a party may not insure his own
life and make the policy payable to any one he may select, though
such person have no legal interest in his life. This point was first
held in the case of Campbell v. Neiv England Mut. Ltfe Ins. Co., 98
Mass. 381. The policy in this case was taken out by Campbell upon
his life, payable to him, his executors, etc , for the benefit of the
plaintiff, in very nearly the same terms as are contained in the policy
under consideration. The only substantial difference in the two
BENEFICIARIES. 3DI
cases is that the premium in this case was paid by the assured, and
not by the beneficiary. So in the Providoit Life Ins. Co. v. Bau}n,
29 Ind. 236, it was said to be " beyond question that a person has
an insurable mterest in his own life, and that he may effect such
insurance, and appoint any one to receive the money, in case of his
death during the existence of such a policy." This was an accident
policy in similar terms. Although this exact question has not often
been decided, the intimations of the courts are uniformly in the
same direction. Lemon v. Phoenix Mut. Life Ins. Co., 38 Conn. 294,
302; Guardian Mid. Life Ins. Co v. Ilogan, 80 111. 35; American L.
6- H. Ins. Co. V. Robertshaiv, 26 Pa. St. 189; Fairfield v. N. E. Mut.
Life Ass' n, 51 Vt. 624; Olmstcad m. Keyes, 11 Ins. Law J. 55.
Hence, the production of the policy, proof of payment of premi-
ums, and of the insured's death, were sufficient to make 2, prima
facie case for the plaintiff without evidence of interest in him. The
facts, however, that the policy was taken out by Baker at the plain-
tiff's instigation, and that the premiums were paid by plaintiff, taken
in connection with Baker's position in life, his total want of means,
and the further fact that the plaintiff had obtained policies upon his
life to the amount of $6,000 in addition to this, were strong evi-
dence to show that the transaction was a mere wager upon his life,
notwithstanding the fact of Baker's reversionary interest. The
case was submitted to the jury in supposed conformity to the
opinion of the Supreme Court in Conn. Aliitiial Life Ins. Co. v. Shaffer,
94 U. S. 67. See, also, ^Etna Life Ins. Co. v. France., Id. 561;
Brockway v. Mut. Benefit Life Ins. Co., 10 Ins. Law J. 763-769,
Wainw right v. Bland, 1 Moody & R. 481 ; Swick v. Home Life Ins.
Co.., 2 Dill, 160. The mere payment of the premiums by plaintiff is
not conclusive evidence that the policy was taken out by him.
Tuston v. Hardey, 14 Beav. 232; Armstrong v. Mut. Life Ins. Co., 13
Reporter, 711. Were it an original question, I should be disposed
to say that a policy taken out by one person for the benefit of
another could no more be supported without evidence of legal mter-
est in the beneficiary, than a policy assigned to one having no
interest in the life. But a large number of cases seem to make this
distinction, and I know of none which reject it. Under all the cir-
cumstances, I think the question was properly submitted to the
jury. * * =i« 1
' See also, in accord, Bloomins^ton Mut. Ben. Assoc, v. Blue. 120 111. 121.
In Trinity Colles,e v. Ins. Co., 113 N. C. 244, Sheppe insured his life, making
Trinity College the beneficiary. The beneficiary paid all the premiums, but
had no insurable interest in Sheppe's life. The beneficiary sued to recover the
362 LIMITS OF THE CONTRACTUAL OliLIGATION.
2. Nature of the Beneficiary's Interest.
HARLEY, Adm'r r. HEIST
86 Ind. 196. — 1882.
ZoLLARS, J. — The record in this case presents in different forms
the following material facts: On the ist day of February, 1867, in
consideration of the payment of a premium of $70.20 by David
Snvder, and the same amount thereafter to be paid annually, the
Connecticut Mutual Life Insurance Company executed and delivered
to said David Snyder a policy of insurance upon his life, in which
it agreed to pay $2,000 upon due proof of his death. That portion
of the policy which is material to the parties in this controversy is
as follows: " And the said company do hereby promise and agrc-e
with the said assured, his heirs, executors, administrators and
assigns, well and truly to pay, or cause to be paid, at the city of
Hartford, the said sum insured to the said assured, his executors,
administrators or assigns, within ninety days after due notice and
proof of the death of the said David Snyder, for the benefit of and
payable to Wilhelmina R. Snyder, wife of said David Snyder,
deducting therefrom all notes taken for premiums unpaid at that
date. And it is hereby conditioned and agreed, that if at any time
after three premiums have been paid on this policy, it shall be sur-
rendered while yet in force, the company will issue a paid-up, non-
forfeiture policy therefor, for such an amount as the then present
value of this policy would purchase, as a single premium." The
wife Wilhelmina, died intestate in December, 1869. and left surviv-
ing her, her husband, David, and their two minor children. On
the 20th day of February, 1871, said David Snyder, being indebted
to appellee, assigned the policy to him by endorsing upon it the
following-
" Columbia City, February 20///, 1871.
" For value received, I herewith assign my interest to the within
policy to Henry Heist.
David Snyder."
In the month of November, 1874, David Snyder died intestate.
Up to the time of the assignment and delivery of the policy to
appellee, said David Snyder paid the premiums as stipulated for in
the policy. After the assignment, appellee paid the premiums, viz. :
cash surrender value of the policy, there bein? a provision in the policy for sur-
rendering the policy. The complaint was demurred to and the demurrer sus-
tained; the court saying that the policy was " illegal and void " as a wagering
contract.
BENEFICIARIES. 363
On the 24th day of January, 1872, $48 70; on the 24th day of Janu-
ary, 1873, $46.20; and on the 24th day of January, 1874, $46 55. In
1875, after appellant had been appointed administrator of the estate
of said Wilhelmina, the insurance company filed its complaint in the
Whitley Circuit Court against the parties in thi^ cause, asking that
they be required to set up their respective claims to the policy and
the money due thereon. After appellee had filed his answer and
cross-complaint, the insurance company, by agreement of the par-
ties, and an order of the court, paid to the clerk $1,909.73, being
the amount due on the policy, less an unpaid premium note, and
interest on the same, amounting in all to $127.68. We are not
informed by whom this note was executed.
After this, the venue was changed to the Kosciusko Circuit Court.
In that court appellant filed his answer and cross-complaint, to
each paragraph of which, except the general denial, a demurrer by
appellee was sustained, and appellant excepted. The cause was
then submitted to the court, and after the finding of facts, and con-
clusions of law on the same, a judgment was rendered, giving to
appel'.ee the full amount of money so paid over by the insurance
company, the same not exceeding the amount of the premiums paid
by him, with interest, and the amount due him frjm Snyder for
which the policy was assigned. From this judgment appellee appeals.
Was the policy the personal property of the wife Wilhelmina in
such a sense that, upon her death, it went to her heirs at law as a
part of her estate, or was it upon her death the property of the hus-
band, so that his assignment transferred the legal title to the same
to appellee? This is the important question presented by the record,
the determination of which, counsel agree, will be decisive of this
controversy. That the policy was personal property, under our
statute (2 R. S. 1876, p. 314), we think there can be no question.
In consideration of the payment of the annual premiums, it con-
tained a definite and fixed promise to pay a definite and fixed amount
of money, upon the happening of an event, which was uncertain in
.nothing except the time at which it might occur. Such a policV of
insurance is a chose in action, governed by the same principles
applicable to other agreements involving pecuniary obligations,
Bliss, Life Insurance (2d ed.), p. 540; Hutson v, Mcrrifield, 51 Ind. 24,
19 Am. R. 722.
The policy in this case, by its terms, was executed for the benefit
of the wife, and, upon a fair construction, was payable to her, and
not to the personal representatives of the husband. Upon its exe-
cution, the title vested in the wife, and not in the husband. Ey the
procurement of the husband, the wife became the owner of the
364 LIMITS OK THE CONTRACTUAL OBLIGATION.
policy and entitled to collect the amount that might become due on
the same upon the death of the husband. Had the wife procured
the policy to be issued, and paid the premiums, no one could doubt
as to the ownership of the policy, and the right to collect the money
due thereon. We are unable to see, in this case, why there should
be any difference in the ownership and title of the policy by reason
of the application having been made and premiums paid by the
husband. Had the policy been made payable to the husband, he
doubtless might have given it to the wife, and, by proper indorse-
ments thereon, conveyed to her the legal title to the same. In such
a case it would have become her separate property, by gift from her
husband; and so, too, he had the legal right, in the first instance,
to make the application, pay the premiums, and have the policy
made payable to the wife for her benefit, and thus vest in her the
legal title and ownership of the policy, as- her separate property.
The title and ownership of the policy being vested in the wife by
gift from the husband, it was her separate property, to be disposed
of under the statute, which provides that the personal property of
the wife, acquired during coverture, by descent, devise, or gift,
shall remain her own separate property, to the same extent and
under the same rules as her real estate so remains, and, on her death
before the husband, shall be distributed in the same manner as her
real estate descends, and is apportioned under the same circum-
stances. I R. S. 1S76, p. 412; R. S. 1881, sec. 2488.
Personal property thus acquired by the wife, upon her death,
descends to her heirs at law, as does her real estate, except for the
purpose of paying debts and costs of administration, the title vests
in the administrator, if one be appointed. In this case the policy
of insurance, upoii the death of the wife Wilhelmina, descended to
her heirs at law; the undivided one-third to the husband, David
Snyder, and the other two-thirds to the minor children, subject to
the rights of the appellant, as the administrator of her estate, who,
for the purpose of paying debts and costs of administration, has the
right to collect the money due upon the policy, to the exclusion of
all others. If there had been no need of administration, and no
administrator had been appointed, the heirs at law of the wife might
have collected the money. Subject to this right of the administra-
tor, the husband had the legal right to assign his interest in the
policy, as he did, to the appellee. Upon such assignment appellee
became the owner of, and entitled on distribution to. one-third of
the amount due upon the policy, after the payment of debts and
costs of administration.
We have carefully examined the cases cited by the learned coun-
BENEFICIARIES. 365
sel on either side, besides many others, and, while there is some
conflict, the conclusions reached by us in this case are in accord
with the decided weight of the authorities. In the case of Hiitson
V. Merrifield, 51 Ind. 24, the contest was between the administrator
of the husband and the surviving wife. The wife had taken out a
policy upon the life of the husband, payable to herself, or in case of
her death, to her children. The premiums were paid by the wife.
She died before the husband and without children. The case was
disposed of as though the policy had contained no clause in relation
to children. After deciding that the policy was a chose in action,
the court say: " If the policy is a chose in action, it is personal
property which at the death of the party holding and owning it
would vest in the heirs of such person, subject to the payment of
debts. That the amount of the policy is not payable until the death
of the life insured, can make no difference."'
In the case of Pence v. Afakepiece, 65 Ind. 345, the question arose
between the administrator of the assignee of a policy of life insur-
ance, and the widow of the insured. The husband had procured a
policy of insurance upon his life, payable to his wife, and paid the
premiums. During the lifetime of the husband the policy was
assigned as collateral security, and the assignee, before the death
of the husband, paid three annual premiums. After the death of
the husband, and on the trial of the cause in relation to the money
due on the policy, the wife denied that she joined with her husband
in the assignment of the policy. The court below had instructed
the jury that the policy, being payable to the wife, vested in her
alone the absolute ownership of it, and that it could not be assigned
or transferred to any one by her husband, or any other person,
without her authority. This instruction was held by this court to
express the law correctly. See, to the same effect, Wilburn v.
Wilburn, 83 Ind. 55, and authorities cited. In Bliss on Life Insur-
ance (2d ed.), § 318, the author says: "We apprehend the gen-
eral rule to be 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 beneficiary or beneficiaries, and that there is no power in the
person procuring the insurance, by any act of his, by deed or by
will, to transfer to any other person the interest of the person
named. An irrevocable trust is created. * * * The legal repre-
sentatives of the insured have no claim upon the money, and cannot
maintain an action therefor, if it is expressed to be for the benefit
of some one else."
In the case of Keller v. Gaylor, 40 Conn. 343, a husband had taken
a policy upon the life of his wife, payable to himself, or, in case of
366 LIMITS OF THE CONTRACTUAL 015LIGATU)N.
his death before the wife, to his children. He died before the wife,
and without children. Held, that at his dec:th he had a vested
interest in the policy, and that, by his will, it went to the wife. See,
also, Chapin v. Fcllowes, 36 Conn. 132, 5 Am. R. 49; Crittenden v.
Phoenix Mutual Life Ins. Co.., 41 Mich. 442; Connecticut Mutual Life
Ins. Co. V. Burroughs, 34 Conn. 305 ; Ruppert v. Union Mutual Ins .
Co.. 7 Rob. (N. Y.) 155.
It is maintained by the learned counsel for appellee, that Snyder,
having paid the premium, had the right, after the death of the wife,
to omit the payment and thus let the policy forfeit; and that, to
avoid this loss, he had the right to change the beneficiary, or con-
stitute himself such, by the assignment. If the policy was personal
property, and the title thereto was vested in the wife, we are unable
to understand how the husband, by any act of his, without the con-
sent of the beneficiary, could change the ownership. The property,
under the statute, passed at once upon the death of the wife to her
heirs at law, and the husband had no more control over it than
before her death. True, he could not have been compelled to pay*
the premiums., or provide for the payment, but having paid them by
himself and his assignee, the policy did not lapse, and the title to
and ownership of the same did not change.
In the same edition of Bliss above quoted from, section 337, the
author says: " Where the policy designates a person to whom the
insurance money is to be paid, the person who procures the insur-
ance and who continues to pay the premiums has no authority, by
will or deed, to change the designation or title to the moneys. He
is under no obligation to continue to pay the premiums, unless he
has covenanted so to do, but if he does so, the person originally
designated in the policy will derive the benefit. The change of
designation can only be made by the person originally designated,
and therefore all of such persons must concur in the change. If
the policy is for the benefit of a woman and her children, the chil-
dren as well as the woman must concur." In the case of Chapin v.
Fellowes, 36 Conn. 132, a policy was issued upon the life of the hus-
band, payable to the wife; or, in case of her death, to her children.
The wife died before the husband. After her death the husband
surrendered the policy and took another for the same amount,
the same date, and the same premium, but payable to himself. He
paid one year's premium, and died insolvent. In a contest between
the children and the husband's creditors, it was held that the hus-
band had no right without the consent of the children thus to sur-
render the old policy and take the new one, payable to himself; and
that the children were entitled to the amount due on the latter
BENEFICIARIES. 367
policy, In the case of Ricker v. Charter Oak Life Ins. Co., 27 Minn.
193, 38 Am. R. 289, the husband had procured a poHcy of insurance
np ) 1 Ills life, payable to his wife, or in case of her death, to his
civi. Iroa. After the death of the wife, and a remarriage, he surren-
dered the original policy, and a new one was issued in its place as a
substitute therefor, bearing the same date and containing the same
terms and conditions, except a provision that it should inure to the
sole use and separate benefit of the second wife. Held, that the
husband had no right to thus change the policy without the consent
of the children, and that they were entitled to the avails of the new
policy as against the second wife. It is said by counsel that these
decisions were made under peculiar statutes, and are therefore not
authority in this State. It will be found upon examination that
these statutes, where they exist, give to married women no greater
rights in policies or the avails of policies, upon the lives of their hus-
bands, than they have under the laws of this State, except that, in some
of the States, no claim of fraud can be made by creditors if the annual
premiums paid by the husband do not exceed certain amounts.
It is said further, that to deny to the husband who has paid the
premiums the right to dispose of the policy to his own use, after
the death of the wife, imposes upon him a hardship and wrong. A
sufificient answer to this is, that if he wishes to retain to himself the
control and ownership of the policy in such case, he may so provide
in the policy. It was to avoid this so-called wrong, that the Wis-
consin court has held that the person procuring the policy may dis-
pose of it without the consent of his nominee. Such a view, we
thmk, is not consistent with legal principles, is in conflict with
former rulings of this court, and against the weight of the authori-
ties in the other States.
The appellee, having in good faith paid the premiums since the
assignment of the policy, is entitled to have the amount so paid,
with interest at six per cent., refunded to him out of the money paid
over by Xht insurance company. It follows from the conclusion we
have reached, that the court below was in error in rendering judg-
ment for appellee, and in its rulings upon demurrers to pleadings.
The judgment is therefore reversed, at the costs of appellee, with
instructions to the court below to overrule appellee's demurrers to the
first, second, fourth, fifth, and sixth paragraphs of appellant's answer
and cross-complaint, to sustain the demurrer to appellee's answer
and cross-complaint, and to proceed in accordance with this opinion.'
' In Pingrey v. Ins. Co., 144 Mass. 374, an insurance company issued a policy
of insurance on the life of Pingrey, payable to him as soon as the premiums,
together with such other sums as he should pay, should amount to the sum
368 LIMITS OF THE CONTRACTUAL OBLIGATION.
RVAX V. ROTHWEILER et al.
50 Ohio. 595 — 1S93.
On the 19th day of March, 1864, the Home Life Insurance Com-
pany executed its policy of that date, and thereby insured the life
of Charles C. Hehvig in the sum of $2,000, in consideration of a
premium of S72.20, to be paid on or before the 19th day of March
of each year during the life of said Charles C. Hehvig. The policy
was made payable to Anna Helwig, wife of the assured, and in case
of her death during the lifetime of her husband the policy was made
payable to her children by her said husband, to their use, or to their
guardian, if under age. Anna Hehvig died November 21, 1872,
leaving an only child, Anna C. Helwig, who was afterward married
to Charles T. Ryan, and she died on the 29th day of December,
1881, leaving an only child, Raymond C. Ryan, who died on the
2ist day of September, 1883. Charles C. Helwig died in the month
of September. 1885, leaving two daughters by a former wife surviv-
ing him. Their names are Caroline Salome Ketter and Maria Rosina
Scherman. Jacob Rothweiler was duly appointed administrator of
the estate of Charles C. Hehvig, deceased, and Charles T. Ryan
was duly appointed administrator of the estate of his wife, and also
of his infant son. Notice of the death of Charles C. Helwig having
been given to the life insurance company, and the company failing
to pay the policy, an action was commenced by the administrator of
insured. In case of his prior death the company agreed with him to pay the
sum insured to his mother. The policy further provided, that, after the pay-
ment of 1 wo full premiums, it should not lapse. His intention was to make the
policy for the benefit of his mother, who furnished him with money to pay part
of the first premium. The mother never had possession of the policy. He
subsequently married, and, without his mother's assent, surrendered the policy
to the company, and took out a new one for the same amount payable to his
wife. This policy contained the statement that it was a continuation of the first
policy. He died before his payments amounted to the sum insured. It was
held, that the first policy was a settlement in trust for the benefit of the mother,
which he could not revoke; and that the mother was entitled to the proceeds.
The court said: "There appears to have been a full understanding between
him and his mother that the policy was to be taken out for her benefit, and
afterwards that it had been so done. In point of fact, it was made payable to
her, and this was done with the intention of giving to her the benefit of it.
This constituted a valid settlement in her favor. Nothing remained to be done
by him to complete it. He might, indeed, afterwards fail to pay the. annual pre-
miums. This, however, does not prevent it from being a good trust. An
unrevoked trust is valid, even though there is an express povver of revocation.
S/o>te V. Hackett, 12 Gray, 227. In this case the assured reserved to himself no
povver of revocation, or of changing the beneficiary."
See also Olmstead v. Keyes, 85 N. Y. 593, digested in Steinback v. Diepenhrock,
post. p. 404.
BENEFICIARIES. 369
Charles C. Helwig and by his two surviving daughters against the
insurance company, and said Charles T. Ryan was made a defend-
ant, and required to set up his interest in the policy. The insur-
ance company paid the money into court, and was discharged^
Charles T. Ryan filed his answer and cross-petition, averring that he
had been appointed administrator of the estate of his wife and of
his infant child, and claiming the insurance money as such adminis-
trator. The plaintiff below demurred to Ryan's answer and cross-
petition on the ground that the same does not state facts sufficient to
entitle him to the insurance mone}'. The Court of Common Pleas
overruled the demurrer; to which exceptions were taken, and, plain-
tiffs below not desiring to further plead, judgment was rendered in
favor of said Charles T. Ryan as such administrator. A petition
in error was filed in the Circuit Court, and the judgment of the
Court of Common Pleas was reversed. Thereupon, Charles T.
Ryan filed his petition in error in this court for the purpose of
reversing the judgment of reversal of the Circuit Court.
BuRKET, J. — The petition avers that the premium was paid by
Charles C. Helwig, and this is not denied by Charles T. Ryan in his
answer and cross-petition. True, he avers, in the language of the
policy, that the first premium was in hand paid by the wife, and
that the subsequent premiums were to be paid, without stating by
whom the payments were to be made. The fact that Charles C. Hel-
wig survived his wife and daughter and grandson, and that no aver-
ment is made in the cross-petition as to the payment of the premi-
um, during all the years from 1864 to 1885, and the further fact
that the allegation in the petition to the effect that the premiums
were to be paid by the assured is not denied, further than by a
recital of the contents of the policy, leaves the fact reasonably cer-
tain that the premiums were paid by the assured, Charles C. Helwig.
In fact, no other conclusion can be reached from a careful reading
of the petition and cross-petition, regard being had to the order in
which the parties died; and the arguments of counsel on both sides
seem to concede the fact so to be. On the part of Charles T.
Ryan, it is claimed that, by the terms of the policy, Mrs. Helwig,
and, after her death, her daughter, Anna Ryan, had a vested inter-
est in the amount to be paid, which could not be divested by any
act of the husband or the insurance company, or both; that this
vested right was a chose in action, — a simple contract to pay her
(Anna Ryan) a certain sum of money on the happening of an event
certain; that upon her death the chose in action passed to her
administrator, to be collected when due, and the proceeds dis-
tributed to her next of kin. On the part of the defendants in error,
LAW OF INSURANCE — 2J.
3/0 LIMITS OF THE CONTRACTUAL OBLIGATION,
it is claiiufd that tliis insurance policy is a kind of trust, and that
when the beneficiaries of the trust fund died tiie fund lapsed into
the estate uf the person who created the trust, and at his death
became a part of his estate, subject to administration and bequest
as other parts of his personal estate. Many authorities have been
cited by the attorneys on both sides to support these propositions,
and the Circuit Court well said that " there is admitted confusion
among the reported cases and authors upon the subject." The
question has never been decided in this State, and hence, we are at
liberty to adopt such rule as we think is most consistent with jus-
tice, and the intention of the parties. The question is not governed
so much by the principles of choses in action and vested rights as
by the principles, aims, and well-known objects of life insurance.
The cases which hold the insurance money to be a trust fund, which
reverts to the estate of the assured in case of the death of all the
named beneficiaries during the lifetime of the assured, give different
reasons for the result arrived at. Some place it upon the ground
that the person to whom the fund would otherwise go has no insur-
able interest in the life of the assured, while others place it upon
the doctrine of failure of trust by the death of the beneficiary.
In the case nr)w under consideration, should plaintiff in error
succeed, he would receive the insurance money, while he manifestly
had no insurable interest in the life of Mr. Helwig. While Anna C.
Ryan had an insurable interest in the life of her father, her adminis-
trator had no such interest. While a man may cause his own life
to be insured for the benefit of a stranger, and the want of insur-
able interest in the stranger will not invalidate the policy, a policy
taken out by a man, for his own benefit, on the life of a stranger,
would be void, for want of insurable interest. May, Ins. § 75b.
The theory of a failure of trust comes with more force and stronger
reasons than the doctrine of choses in action, so strongly urged by
counsel for plaintiff in error. We regard the doctrine of choses in
action as not fully applicable, because it conflicts in many cases with
the controlling doctrine of insurable interest. The case of Manhattan
Insurance Co. v. Smith, 44 Ohio St. 156, 5 N. E. 417, was a case of
attempted change of beneficiary, and of forfeiture of policy. No
such questions arise in this case. Here the question is not as to
change of beneficiary, but as to reverter of the policy to the assured
by reason of the death of all the beneficiaries. Hence, that case
throws no light upon the question here involved. On principle,
therefore, and aside from any statute on the subject, we think that
in this case the policy reverted to Mr Heiwig. and at his death
became a part of his estate. It seems to us that this was the mani-
BENEFICIARIES. 3^1
fest intention and understanding of all the parties interested, and
that the result is just and equitable. While there may have been a
vested interest, it was an interest not in possession, but in expec-
tancy, liable to be divested by the death of the beneficiary before
the death of the assured. * * *
Lyon, J., in FOSTER v. GILE.
50 Wis. 603, 605. — 1880.
It was held in Clark v. Durand^ 12 Wis. 223, and again in Kerman
V. Howard, 23 Wis. 108, that a person who procures a policy of
insurance on his own life for the benefit of another, and pays the
premiums thereon, may dispose of it, by will or otherwise, to the
exclusion of the beneficiary named in the policy. The opposite
doctrine was held in a very late case in Minnesota, Ricker v. Charter
Oak Life Ins. Co., [27 Minn. 193] 6 N. W. Rep. 771, and the opinion
of the court seems to be fortified with authorities. However, until
the Legislature enacts otherwise, the rule of Clark v. Diirand and
Kerman v. Howard must be adhered to by this court. * * *
Did the death of the beneficiaries,' their father surviving them,
of itself abrogate the stipulation making the insurance money pay-
able as therein prescribed? If such was the legal effect of the death
of the beneficiaries, undoubtedly the proceeds of the policy are a
part of the estate of Walter H. Ballou, and should be awarded to
his administrator, the appellant. The solution of this question
requires a consideration of the relations of the beneficiaries to the
policy, and their interest (if they have any) in it.
In the Minnesota case, above cited, it was held that the taking of
the policy payable to the beneficiaries was an irrevocable and exe-
cuted voluntary settlement upon the beneficiaries, and that the
latter had an absolute vested interest in the proceeds of the policy,
which could only be divested with their consent. This is an extreme
view, and is in conflict with our own cases. On the other hand, it was
said in Clark v. Durand, supra, that the beneficiary has no present
beneficial interest, no vested right, in the policy or the moneys
agreed therein to be paid; and it must be conceded that the judg-
ment in that case was placed upon the ground that during the life-
time of the insured the party beneficially interested had no actual
equitable interest therein. This, also, is an extreme view in the
' Walter Ballou, the father, took out the policy upon his own life, payable to
his two minor sons, " their guardians, executors, administrators or assigns,"
372 LIMITS OV THE CONTRACTUAL OBLIGATION.
opposite direction to the Minnesota case. Of course, we cannot
adopt the doctrine of the Minnesota case to its full extent; for, as
already observed, it overturns Clark v. Durand and Kennan v.
Howard. But if there is any middle ground upon which the judg-
ments in these cases may rest, and which commends itself as more
reasonable and just, it ought to be adopted. We believe there is
such ground, and we feel at liberty to adopt it. Notwithstanding
what was said in Clark v. Durand., we ttiink the taking of the policy
by the insured, payable to another, is so far in the nature of an
executed voluntary settlement tliat it vests in the person to whom
the insurance money is made payable an actual subsisting interest
in the policy, but not the absolute, unco iditional ownership of it,
and of the moneys therein agreed to be paid. The interest of the
beneficiary is subject to the right of the insured, who has paid the
premiums, to revoke the same and retain it himself or vest it else-
where. At least, he may do this with the consent of the company
which issued the policy. * * * >
We conclude that, under the circumstances of the case, the bene-
ficial interest of the children under the policy did not lapse by their
death (their father surviving them), but goes to their administrator
to be distributed as intestate estate of such children, and that the
court properly awarded the proceeds of the policy to him.
The judgment of the Circuit Court must therefore be affirmed.
GLENN V. BURNS.
loo Tenn. 295. —1898.
Beard, J. — In 1869, M. Burns, Sr., took out two policies of
insurance on his own life of the respective amounts of $10,000 and
$5,000. In the policies it was provided that this insurance should
be paid to his wife, Margaret, if living at the time of his death;
but, in the event she should die before his decease, then " to their
children, for their use, or to their guardian, if under age." At the
date of their issuance Mr. and Mrs. Burns had nine living children,
three of whom died before their mother. In 1885 she died, leaving
' The effect of the application of this rule to the present case was to hoH that
while the assured was free to change Ihe beneficiaries, still they had such a
vested present interest in the policy that their interest did not lapse, upon their
predeceasing the assured, if the assured had not changed the beneficiaries before
his death. The personal representatives of the beneficiaries were entitled to
the proceeds of the policy.
BENEFICIARIES. 373
surviving her husband and six children. Upon the death of Mr.
Burns, which occurred several years thereafter, the insurance was
paid to the complainant Glenn, when, a controversy having arisen
as to a proper distribution thereof, this bill of interpleader was filed.
The record presents a single question, and that is, did the children
of Mr. and Mrs. Burns take each an interest in these policies,
immediately upon their delivery, and, if so, were the interests of
the three whose deaths antedate that of the mother transmitted to
their distributees and representatives ? This question seems first
to have been considered by the Supreme Court of Connecticut in the
case of The Continental Life Insurance Co. v. Palmer.^ 42 Conn. 60,
upon a policy similar in its provisions to those issued to Mr. Burns,
and in a controversy between the representative of a child which pre-
deceased its mother and children who survived both the mother and
father. That court, in an able and exhaustive opinion, held that each
child, upon the delivery of the policy, took a transmissible interest in
it ; and that, the mother having died before the father, at his death the
distributee of the dead child stood in the place of its parent, and
was entitled to share with the living children in the insurance fund.
On this point the court said: " The moment this policy was exe-
cuted and delivered, it became property, and the title to it vested
in some one. It will not be claimed that it vested in the person
whose life was insured. It must have vested, then, in all or in a
part of the payees. The payees consist of two parties, the wife and
the children. As only one could take and enjoy the property ulti-
mately, it did not vest m all as tenants in common, nor did it vest
in either so as to give a right to the present enjoyment of it. It
was not, however, a mere expectancy, nor a naked possibility,
but it was a possibility, coupled with, a present interest. It was
visible, tangible property, and, like any other insurance policy,
it was capable of assignment, and had an appreciable value.
Each ^arty took a conditional, not an absolute, right to the
whole policy. It was not a condition precedent, but subse-
quent. * * * T\it right to the policy, in a strict sense, was not
contingent; the possession and enjoyment of the fund thereby
created were postponed to the future, and were contingent. This
contingency applied to both parties, — to the wife as well as to the
children, * * * in respect to each it was then a present right
to the future enjoyment of property, but it was liable to be defeated
by a subsequent contingency, and was certain to be defeated as to
one of them. That such a right is recognized as property, and is
transmissible :o heirs, is a proposition abundantly sustained by the
authorities." This rule, thus announced, and enforced with so much
374 LIMITS OF THE CONTRACTUAL OBLIGATION.
vigor of statement, has been adopted, eitlier upon the authority of
that case or else upon considerations of a similar character, in Estate
of Conrad, 89 Iowa, 396. 56 N. W. 535 ; Suggs v. Hooker, 102 N. C. 115,
8 S. E. 919; Ciinniiighatn v. Smith, 79 N. C. 303. On the other
han'd, the Stprenie Court of New York rejects this view, and applies
the class doctrine to such policies, so that under the rule there
recognized only such children take as are alive at the death of the
insured. United States Trust Co. v. Mutual Ben. Life In. Co., 115
N. Y. 152, 21 N. E. 1025; Walsh v. Insurance Co., 133 N. Y. 408,
31 N. E. 228. In this latter case the justices of the general term
in distributing the proceeds of such a policy had applied the Con-
necticut rule, but on appeal their judgment was reversed, and the
" class doctrine " was adhered to; evidently on the ground of stare
decisis. In delivering the opinion of the Supreme Court, we think
Justice Gray, in reply to a strong argument at the bar against tb.e
application of this doctrine to such a contract, clearly indicates the
court's dissatisfaction with it in the following words: " If we were
at liberty to treat this question at first hand, and as altogether an
original one in this court, I should say that the arguments to sustain
the judgment of the general term are cogent, and not easily over-
come. Certainly, they have a moral support in equitable consider-
ations. > But if we are to be guided, in the disposition of the cases
which come before us, by the principle of stare decisis, then we must
adhere to views which have been held and assented to within recent
decisions." The Supreme Court of Alabama in Continental L. Insur-
ance Co. v. Webb, 54 Ala. 688, coincides with New York in the applica-
tion of the class doctrine to such a policy; but both courts agree
that on the delivery of the policy the children then alive have a
contingent interest in it, yet they also agree in holding it nontrans-
missible. We think the view of the Supreme Court of Connecticut
is supported by the better reason, as well as the weight of authority.
For when it is conceded that the then living children have such an
interest, this is necessarily a property right, though subject to be
defeated or destroyed by the contingency of the mother (the assured)
outliving the father (the insured); in other words, by a condition
subsequent. If property, it was none the less alienable, however
much its value was affected, because contingent; and, if alienable,
certainly it was transmissible. That such an interest is the subject
of disposition, as other property, we think, is well established.
[Here follow extracts from Washburn on Real Property, 5th ed., vol.
2, p. 611; Jarman on Wills, vol. 2, p. 479; Ins. Co. v. Palmer, 42
Conn. 60; Eeadx. Mosby, 87 Tenn. 759.] We are satisfied to adopt
the rule as announced by the Supreme Court of Connecticut, not
BENEFICIARIES. 375
only because we regard it as sustained " by the weight of authority "
{see editorial note to Estate of Conrad^ supra, 48 Am. St. Rep.
396), but because in this case, as well as in all similar cases, it
produces results which may be reasonably assumed to have been
within the contemplation of the parent, who secures and carries the
policies of life insurance. In the present case no reason has been,
and we think none can be, assigned, why Mr. Burns, the father, in
taking out the policies, and making in them a contingent provision
for his children, would have desired or intended to devolve their
proceeds upon his surviving children, to the exclusion of the dis-
tributees of others of that class who might die before the contin-
gency occurred. It is a natural presumption, growing out of the
relation of the parties, and strengthened by equitable considerations,
that he assumed in the event of such an emergency the statute of
distributions would be resorted to for the protection of the interest
of those who stood in the room and stead of the dead child or
children.
PULLIS V. ROBISON.
73 Mo. 201. — 1880.
Norton, J. — This is a proceeding in the nature of a creditor's
bill, instituted by certain creditors of James P. Robison, deceased,
whose claims had been allowed by the Probate Court against his
estate, to subject to the payment of said debts the proceeds of cer-
tain policies of insurance taken out on the life of said Robison,
and made payable to his wife. The creditors suing are three in
number, and each having brought a separate action, the three suits
were consolidated and tried together. Three of the policies, the
proceeds of which constitute the subject-matter of controversy,
were issued by the Mutual Benefit Life Insurance Company, each of
them being for $5,000, and dated respectively February 26th, 1867,
February 21st, 1868, and May 12th, 1870. The amount of the
annual premiums was as follows: $283 on the one dated in 1867,
$263 on the one dated in 1868, and $289 on the one issued in 1870.
The plaintiffs claim and allege in their bill that Robison was in
embarrassed circumstances, and at the time the premiums were paid
he was insolvent, and that said policies were donated to his wife,
and were procured for the purpose of hindering, delaying and
defrauding creditors. Defendant, Mrs. Henrietta Robison, to
whom said policies were made payable, denies all the allegations of
the bill, and asserts her right to the proceeds of the same.
376 LIMITS OF THE CONTRACTUAL OBLIGATION.
Upon the trial of the issues thus tendered, the court found that
Robison was solvent at the time said policies were taken out, and
remained solvent till about the year 1876; that the payment of the
two last premiums on two of said policies, amounting to $342.05,
dated respectively in 1S67 and 1868, which payment occurred in
1S76, was made by Robison while he was insolvent, and that all
payments of premiums anterior to 1876 were made by him when he
was solvent. Upon this finding the court decreed that Mrs. Robi-
son was entitled to the proceeds of the policies, less the amount of
premiums paid by Robison when insolvent, with the interest
thereon, and also decreed that Mr. Pullis, the plaintiff who first
brought suit, was entitled to the whole amount of the premium paid
in 1876 with its interest. From this judgment plaintiffs appealed
to the St. Louis Court of Appeals, where the judgment was afifirmed,
and from this judgment they appealed to this court.
The evidence adduced on the trial, we think, was sufficient to
justify the trial court in finding the facts above set forth, and we
will, therefore, accept its finding as correct, and thus accepting it,
the question presented for our determination is, whether, on the
facts, the court in its decree properly disposed of the funds in dis-
pute. Plaintiffs insist that error was committed in this respect, and
contend that the premiums paid by Robison in 1876, being in
excess of the sum of $300, and having been paid while he was insol-
vent, out of funds which ought to have been appropriated to the
payment of his debts, entitles them to so much of the proceeds of
tiie policies as may be necessary to satisfy in full their claims as
creditors, even though it should consume it all.
We think it settled that the wife has such an interest in the life
of her husband as to make valid an insurance effected on his life for
her benefit. This has been so held in the case of Gambs v. Covenant
Mutual Life Ins. Co.., 50 Mo. 44. AVe think it also settled that when
such a policy issues and e.xpressly designates a person who is
to receive the insurance money, such designation .s conclusive
unless some question arises as to the right of creditors of the per-
son who paid the premiums. " The receipt of the designated per-
son will discharge the company, and such person will be entitled to
maintain an action against the company." Bliss, Life Ins., § 317.
We think it also settled that a husband who is solvent has the right
to effect an insurance on his life for the benefit of his wife, and to
pay the annual premiums thereon so long as he remains solvent and
can do so without prejudice to, or in fraud of, the rights of credit-
ors. Larkin v. McMullin., 49 Pa. St. 29. To what extent, if to
any extent, the husband can affect the rights of the wife in such a
BENEFICIARIES. 377
policy, by an assignment or other disposition of it, is a question
which does not arise in this case, and we have, therefore, deemed
it unnecessary to notice the numerous authorities cited by counsel
bearing on that point.
The interest of the wife in a policy of insurance on the life of her
husband, effected for her benefit by the husband while in unembar-
rassed circumstances, and fully able to discharge all his indebted-
ness, is not affected, as plaintiffs contend it is, by section 15,
Wagner's Statutes, 936, if the husband remains solvent during the
time the policy is kept alive by his paying the annual premiums.
That section provides that a married woman may cause to be issued
for her sole use a policy of insurance on the life of her husband,
and in case she survives him, that the insurance money shall be
payable to her, free from the claims of the representatives of her
husband, or of any of his creditors, but such exemption shall not
apply when the amount of premiums annually paid shall exceed
$300.' We do not think this statute can be so interpreted as to
curtail or restrict the right of a solvent husband to apply only $300
of his means annually to the payment of premiums on his life policy
procured for the benefit of his wife. * * *
We think it was the purpose of the statute to allow a husband
who might be in an embarrassed and even in an insolvent condition
to secure to the wife the benefit of an insurance on his life free from
the claims of creditors when the annual premium on such policy
does not exceed $300; or, in other words, that he might annually
withdraw for such a purpose that sum without subjecting the amount
insured to the payment of creditors. Previous to the enactment of
the statute, an insolvent husband could not apply any portion of his
means to such a purpose, and deprive creditors of the right of
asserting their claims to all the benefits resulting from such appli-
cation. The object of the statute, in our opinion, was to change
this rule to the extent indicated in the act. It follows from the
view we have taken that inasmuch as all the premiums paid by
Robison, except the sum of $343 paid in February, 1876. were paid
while he was solvent, Mrs. Robison is entitled to the benefits result-
ing therefrom, and that the last payment being in excess of $300,
and made while Robison was insolvent, should go to the benefit of
the plaintiffs.
It is insisted, by counsel, that inasmuch as the payment made in
1876 kept the policies on foot and gave them vitality, the whole
amount of the insurance money, or so much thereof as will be sufifi-
' Similar statutes exist in several States.
37^"^ LIMITS OF THE CONTRACTUAL OBLIGATION.
cient to satisfy their debts, should be so applied. We have not
been cited to, nor have we been able to find any authority that goes
to that extent, nor are we acquainted with any equitable principle
on which the claim can be founded. How the insurance money,
under the facts and circumstances of this case, should be appor-
tioned, presents a question of some difficulty, especially so as the
authorities we have been able to examine are conflicting in the rules
laid down. The case of LanJrmn v. Knoivles, 22 N. J. Eq. 594,
goes farther in support of plaintiffs' position than any which has
fallen under our observation, and it falls far short of what is contended
for by them. In that case the wife insured the life of her husband
for the benefit of her children, and after paying the annual premiums
for about ten years assigned the policy, in conjunction with her
husband, to one of the husband's creditors in payment of the debt.
After said assignment the wife ceased to pay the premiums, but
they were paid for about nine years by the creditors. Upon the
death of the husband the insurance money was claimed by the chil-
dren on one hand, and the assignee on the other, and the chancellor
decided that the children were entitled to the cash value of the
policy at the time it ceased to be kept alive by the mother, and that
the residue of the money due on the policy should be paid over to
the assignee.
On the other hand, in the case of Trough's Estate, 8 Phila. 214,
where Trough, having taken out a policy on his life, assigned the
same, while solvent, to a trustee for the benefit of his children, and
becoming insolvent thereafter, still continued to pay the premiums,
in a contest for the insurance money between the children and
I'rough's creditors, the rule was laid down that the only claim the
creditors could sustain would be the amount of the premiums paid
by Trough to keep the policy alive after he became insolvent.'
The object of such rules being to do exact justice between the
contending parties and to distribute the fund according to their
rights, it appears to us that neither of the above rules accomplishes
the object; and inasmuch as the insurance money in contest in this
case was the product of all the premiums paid, we think a just dis-
tribution of it would be obtained by declaring that Mrs. Robison
should be decreed to have so much of the fund as was produced by
the payment of the premiums by her husband when solvent, and
plaintiffs so much as the premiums paid by Robison when insolvent
' In this case, on appeal (75 Pa. St. 115), the decree was reversed on the ground
that the assignment to the trustee operated neither as an e.\ecuted gift nor as
the creation of a valid trust.
BENEFICIARIES. 379
contributed to produce; that is, that plaintiffs are entitled to
recover the same proportional part of the. whole insurance money
that the premiums paid b}' Robison when insolvent bear to the
premiums paid by him when solvent. Giving effect to this rule in
the disposition of the case, and accepting the fact found by the
court that Robison, after his insolvency, paid $342.05 as being cor-
rectly found, and the further fact, as shown by the record, that
Robison had paid on two of said policies during his solvency
premiums amounting to $4,650, plaintiffs would be entitled to
recover the sum of $686.84, and Mrs. Robison the residue.'
As plaintiff Pallis in the race of diligence was the first to file his
bill, asking an appropriation of the fund to the payment of his
demand, he has obtained a priority over the other creditors, and
the said sum of $686.84 should be applied on his debt. George v.
Williamson., 26 Mo. 193. The judgment will be reversed and cause
remanded, with directions to the Circuit Court to enter up a decree
in conformity with this opinion, directing the receiver in whose
hands the fund has been placed, to pay first the costs of the suit,
next the sum of $686 84 to plaintiff Pullis, and next the residue to
defendant, Mrs. Robison. All the judges concur.^
' " From the fact that frequently many years elapse between the issuing of a
policy and the time when the insurance falls due, it may often happen that the
insured, though solvent when the policy was issued, has paid some of the latter
premiums when insolvent. In that case the proper distribution of the proceeds
would depend on the view taken by the court of the nature of a policy of insur-
ance. By some couris it is held that each premium is a portion of the consider-
ation for which the company promises Xo pay the amount of the insurance. If
that view be taken the creditors would be entitled to such a proportion of it as
the amount, with interest, of the premiums paid by the insured when insolvent
bears to the whole amoani of the premiums with interest. Pullis v. Robison,
73 Mo. 2or. The more usual doctrine, and that held by the Supreme Court
of the United States {Central Bank v. Hume, 128 U. S. 195), is that the payment of
the first premium alone is the consideration of the contract and that payment of
the subsequent premiums is merely a condition. Under that view, creditors
would be confined to the recovery of the premiums paid by the insured after he
became insolvent, with interest; since those premiums did not form the con-
sideration for the policy, and therefore payment of them can give no other right
than an equitable lien for the amount paid in fraud of creditors. The bene-
ficiaries named in the policy would be entitled to the rest. In re Bear v. Stein-
berg, II N". B. R. 46." — Prof. Williston in 25 Am. Law Rev., pp. 196-197.
' Contra, Central Bank v. Hume, 128 U. S. 195, holding that the proceeds of a
life policy taken out by an insolvent debtor in his wife's name, cannot be reached
by his creditors after his death, nor can the amount paid in premiums by the
insolvent debtor be recovered b> the creditors; the widow being entitled to the
whole. The case is severely criticised by Prof. Williston in 25 Amcr. Laiv Rev.
185, reviewing the English and American authorities. He summarizes the
38o LIMITS OF THE CONTRACTUAL OBLIGATION.
opinion of ihe court as follows: " Chief Justice Fuilei delivered the opinion of
the court. He admits that a voluntary assignment of a policy of insurance,
effected by an insolvent in favor of his executors coald not be sustained under
the statute of 13 Eliz., c. 5, but he adds, the rule applies only to what the cred-
itor could have made available for the payment of his debts, whereas these pol-
icies of insurance were made directly to the wife and Mr. Hume could exercise
no control over them. The conclusion is, therefore, drawn that at any rate
the creditors could not claim the whole proceeds of the policies, and the question
is then examined whether the creditors were entitled to a return of the premi-
ums. The question is answered in the negative. It is hinted that perhaps the
fact that Hume was largely indebted to his moiher-in-lavv and that the money
received from her was to have been used for the benefit of his family, or the
laws of the States where the insurance companies were formed, might perhaps
affect the question; but these points are waived, the court preferring to rest the
decision broadly on the following basis. ' The 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 transaction 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 pre-
miums can be recovered.' "
Professor Williston says in conclusion: " It is not intended to find fault with
the statutory provisions allowing an insolvent debtor to insure his life for the
benefit of those dependent upon him. It may well be that such a pjj y 15 bet-
ter for society than to require all assets of every kind to be given jp i;- cred-
itors. What is insisted upon is this, that by the common law as brought to this
country, no exceptions were made to the sweeping rule that an insolvent debtor
could not, in any way, convey his properly to a volunteer, so as to free it from
the claim of creditors. The statutes themselves above referred to are an
admission of this, for if the law without the statutes were not what is contended,
why pass the statutes? If, now, the sentiment is right and just that a man
should make provision — to some extent at least — for those dependent upon
him, before paying his debts, and if that sentiment exists among a majority of
the people, it should find expression in statute, and the extent of the right
should so be properly defined. Till then the rule of the common law should
prevail and the courts, uninfluenced by considerations of ' meritoriousness '
which are for the Legislature to consider, should enforce the law."
Right of the Beneficiary to Sue.— The well established right of a beneficiary
to sue upon a life insurance policy does not seem to have been judicially dis-
cussed in relation to the larger question as to the right of a third person to sue
upon a contract made for his benefit. In most American jurisdictions such
third person can sue. In Massichusetts, on the contrary, he cannot; neverihe-
BENEFICIARIES. 381
c. Mutual Benefit Insurance.
SUPREME CONCLAVE, ROYAL ADELPHL\ v. CAPPELLA
ET AL.
41 Fed. Rep. i, (Circuit Ct. E. D. Mich.) — i8qo.
In Equity. This was a bill of interpleader to settle the title to a
certain benefit certificate issued by the plaintiff to Leo F. Kratzsch,
a member of Carpenter Conclave, No. 17, Royal Adelphia, located
less in that jurisdiction the beneficiary of a life insurance contract can sue; the
taking out of such a policy being deemed a declaration of trust, though the bene-
ficiary is allowed to proceed at law. Pingiey v. Ins. Co., 114 Mass. 374, {ante-.
p.2,t>'],note ) The effect of most of the decisions seems to be that the insured
through the operation of the contract with the insurers creates a res in the
nature of property which thenceforward belongs to the beneficiary. In Richer
V. Co., 27 Minn. 193, the court describes as follows the transaction and its e.Tect,
where one takes out a policy on his own life and makes the amount payable tii
a beneficiary: " What be [the insured] did was a ' clear and distinct act,'
wholly divesting himself 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
powerso 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. * * * 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."
The situation may, perhaps, be assimilated to that in M' Carty v. Blevins, 5
Yerg. ig5, where Rogers agreed with Buler that his horse should go to the
mare of Bufer without pay, provided the produce should be the property of
Blevins; and it v/as held that the pioperty in the produce of the mare wa'j
vested by the contract in Blivens and that he could recover the colt from one
who had purchased it from Buler.
Killing of the Assured by the Beneficiary. — " The only question of l.iw
presented in this record is, does an insane beneficiary in a life insurance policy,
who kills the insured under such circumstances as would cause the killing to
be murder if the beneficiary were sane, thereby forfeit his right to recover the
insurance money? This presents a question of first impression. * * * The
causing the death of an assured by felonious means, by a sane assignee of a
policy of life insurance, has been held sufficient to defeat a recovery on the
policy. New York Mutual Life Ins. Co. v. Armstrong, II7 U. S. 591; Prince of
Wales Ins. Co. v. Palmer, 25 Beav. 605. * * * We hold: where an insane
beneficiary in a life policy kills the assured under such circumstances as would
cause the killing to be murder if the beneficiary were sane, such killing does
not cause a forfeiture of the policy nor bar his right of recovery for the insur-
ance money." — Holdom v. A. 0. U. IV., 159 III. 619.
382 LIMITS OF THE CONTRACTUAL OBLIGATION.
at Milwaukee, and payable on its face to defendant Cappella, the
aunt of the insured. Her title to this certificate, however, was dis-
puted by (iefendant Julius Kratzsch, father of the deceased member,
upon the following state of facts:
The certificate in question, which was for the sum of $3,000, was
originally issued October 17, 1885, to Leo F. Kratzsch, and made
payable to his sister Emma, in accordance with the laws of the order,
one of which provided as follows: " A member may at any time,
when in good standing, surrender his benefit certificate, and a new
one shall be issued, payable to such beneficiary or beneficiaries as
such member may direct, in compliance with the laws and usages of
the order, and the payment of a fee of fifty cents. Said surrender
and direction must be made in writing, signed by the member, and
forwarded under the seal of the subordinate conclave, with the
benefit certificate, to the supreme secretary," who resided in
Detroit.
In March, 1888, the insured member, being then afflicted with a
pulmonary disease, went to Florida for the benefit of his health.
He returned in June by the way of St. Louis, and remained there
for about three weeks, at the house of one Pesch, for whom his
aunt. Miss Cappella, was housekeeper. His aunt took care of him
during his stay, and loaned him $400; he saying to her that he
would " will her the policy," and that " he wanted her to have it."
Soon after his arrival home, and on June 23d, he surrendered his
certificate, and procured another to be issued in favor of the defend-
ant Cappella. In the month of August, the insured, being then at
the residence of his father, the defendant Julius Kratzsch, about
thirty-five miles from Milwaukee, and in the last stages of consump-
tion, sent for the defendant Cappella, who came from St. Louis,
where she resided, to Kratzsch's house. There was some dispute
as to what took place there, but it seems to have been agreed that
the certificate then in force should be surrendered, and a new one
issued, wherein Miss Cappella should be made a beneficiary to the
extent of $1,000, and the defendant Julius Kratzsch to the extent
of $2,000. For the purpose of carrying out such arrangement, Leo
made a request in writing, directed to the collector of Carpenter
Conclave, No. 17, requesting him to cause his benefit certificate to
be changed in accordance with such agreement; which request was
delivered to defendant Cappella upon her promise to hand it,
together with the fee of fifty cents, to the collector of such conclave,
to be forwarded to the supreme secretary at Detroit. Miss Cappella
also agreed to call upon one Mueller, at Milwaukee, to whom
Kratzsch had given the certificate then in force, and procure such
BENEFICIARIES. 383
certificate -from said Mueller, and deliver the same to the collector,
to be surrendered by him to the supreme secretary. Up to this
time Miss Cappella had never been in actual possession of the cer-
tificate then in force. After leaving Kratzsch's house, Miss Cap-
pella went to Milwaukee, obtained the certificate then in force from
Mueller, but did not deliver the request for the change of the cer-
tificate to the collector of Carpenter Conclave, but retained posses-
sion of the one received of Mueller. Upon returning to St Louis,
on the 26th of August, she addressed a letter to the insured Leo,
in which, speaking of the certificate, she said:
" I went to Mr. Eckstein, and he advised me not to have it
changed. If anything would happen to you, dear Leo, while it is
getting changed, they would not pay the money. And he said you
could not write your name so plain any more as you used, and then
they could make trouble through that. It takes four or five weeks
to change that policy. I think it is best to leave it the way it is,
and I won't cheat your father out of that money."
This le!;ter, though affectionate, was not entirely satisfactory,
and, on the 14th of September, Leo, being then very near his end,
signed and duly executed and acknowledged an instrument in writing,
directed to the supreme secretary of the plaintiff, requesting plaintiff
to change his certificate in accordance with his original agreement
with Miss Cappella, and stating that he could not make an actual
surrender of the certificate then in force, because the same was in
possession of the defendant Cappella. Tiiis instrument was duly
attested by the secretary of Carpenter Conclave, No. 17, sealed
with the seal of the conclave, and on the i8th of September delivered
to and received by the supreme secretary of the plaintiff, together
with the fee of fifty cents required by the rules of the order. On
the 19th of September the insured died at the residence of his father.
Due proof having been made of his death, the plaintiff audited the
claim upon which it became liable, by reason of his death, at the
sum of $2,910, being the amount of the certificate, less the s^m of
$90 paid prior to his death. Suits having been begun by Miss Cap-
pella in this court, and by the defendant Julius Kratzsch in the
State court at Milwaukee, plaintiff filed this bill of interpleader to
compel defendants to litigate their respective claims upon the fund,
and paid into court the amount of the certificate as audited.
Brown, J. — This is one of a class of cases which have become
quite common within the past twenty-five years, arising out of an
inexpensive method of insurance, by which persons in moderate
circumstances may, by the payment of a small monthly assessment,
secure a provision for themselves or their families in case of sick-
384 LIMITS OF THE CONTRACTUAL OBLIGATION.
ness, accident, or death. Much of the law applicable to ordinary
cases of life insurance is equally applicable here. In a few particu-
lars, however, it seems to be somewhat less favorable to the person
for whose benefit the policy is taken out. For instance, in case of
an ordinary policy, the right of a person for whose benefit the policy
IS issued cannot be defeated by the separate and joint acts of the
assured and the company, without the consent of the beneficiary,
Bliss, Ins., § 318; while it is entirely well settled that in cases of
this description the beneficiary has no yested interest in the benefit
certificate until the death of the insured member. Up to this time
he may change his designation of beneficiary at will, against the
consent of such beneficiary, even though the latter may have
advanced the money to pay the assessments upon the certificate.
Bac. Ben. Soc, § 306; Lament v. Association^ 30 Fed. Rep. 817;
Wendt V. Legion of Honor ^ 72 Iowa, 682, 34 N. W. Rep. 470; Associa-
tion \. Monfgo?nery, 38 N. W. Rep. 588; Fisk v. Union, 11 Atl. Rep.
84; Hellenberg v. District No. /, 94 N. Y. 580; Society v, Burkhart,
no Ind. 192, 10 N. E. Rep. 79, and 11 N. E. Rep. 449; Holland v.
Taylor, in Ind. 121, 12 N. E. Rep. 116; Laniont v. Grand Lodge, 31
Fed. Eep. 177; Schillinger wBoes, 3 S. W. Rep. 427; Knights of
Honor v. Watson, 15 Atl. Rep. 125; Beatty's Appeal, Id 861, Byrne
V. Casey, 70 Texas, 247, 8 S. W. Rep. 38.
In making such change of beneficiary, however, the insured is
bound to do it in the manner pointed out by the policy and the
by-laws of the association, and any material deviation from this
course will invalidate the transfer. Thus, if the certificate provides
that no assignment shall be valid unless approved by the secretary,
an assignment without such approval will be invalid. Harnian v.
Leivis, 24 Fed. Rep. 97, 530. So, if it be provided that such change
must be made on a prescribed foi m or blank, the signature to which
shall be attested before a notary, and the change entered upon the
books, an assignment to a creditor as collateral security, not made
upon the prescribed blank, and of which the association had no
notice until after the death of the member, was held to be fatally
defective. Association v. Brown, 2,2) Eed. Rep. 11. So, where the
certificate required every surrender to be in writing, attested by the
reporter under the lodge seal, it was held that a conditional sur-
render of the same by the holder, not to take effect until after his
death, and not made in the presence of or attested by such lodge
reporter, was invalid. Supreme Lodge v. Nairn, 60 Mich. 44, 26 N.
W. Rep. 826. See, also, Wendt v. Legion of Honor, 72 Iowa, 682,
34 N. W. Rep. 470; Elliott V. Whedhee, 94 N. C. 115; Mellows v.
Mellows, 61 N. H. 137; Highland \. Highland, 109 111. 366. So, if
•
BENEFICIARIES. 385
the by-lawB fix definitely the manner of changing the beneficiary by
his action during his life, an attempt to divert the benefit by will
has usually been held to be abortive. Holland v. Taylor^ iii Ind.
121, 12 N. E. Rep. 116; Stephenson v. Stephenson^ 64 Iowa, 534, 21
N, W. Rep. 19; Insurance Co. v. Miller., 13 Bush. 489; Vollman s
Appeal., 92 Pa. St. 50: Renk v. Herrman Lodge., 2 Dem. Sur. 409;
Daniels v. Pratt, 143 Mass. 216, 10 N. E. Rep. 166.
There are, however, three exceptions to this general rule requir-
ing an exact conformity with the regulations of the association:
(i) If the society has waived a strict compliance with its own
rules, and, in pursuance of the request of the insured to change his
beneficiary, has issued a new certificate to him, the original bene-
ficiary will not be heard to complain that the course indicated by
the regulations was not pursued. This naturally follows from the
fact that, having no vested interest in the certificate during the
lifetime of the assured, he has no right to require that the rules of
the association, which are framed alone for its own protection and
guidance, are not complied with. Martin v. Stubbings., 126 III 387,
18 N. E. Rep. 657; Splawn v. Chetv, 60 Tex. 532; Manning v. Ancient
Order., 5 S. ^V. Rep. 385; Society v. Lupoid, loi Pa. St iii; Brouni
v. Mansus, 5 Atl. Rep. 768; Knights of Honor v. Watson., 15 Atl.
Rep. 125; Byrne v. Casey, 70 Tex 247, 8 S. W. Rep. 38; Titsworth
v. Titsic'orth, 20 Pac. Rep. 213. The case of IFendt v. Legion of
Honor., 72 Iowa, 682, 34 N. W. Rep. 470, appears upon its face to
lay down a different rule, but upon examination it will be seen that
the change was attempted to be made by a paper which the insured
called his last will, but which was no will in law; and the court held
that, the interest of the beneficiary having becoir.e vested by the
death of the insured, they had acquired rights which could not be
cutoff, except in the manner prescribed in the contract. This case,
evidently, has no application to a change made prior to the death
of the insured.
(2) If it be beyond the power of the insured to comply literally
with the regulations, a court of equity will treat the change as hav-
ing been legally made. Thus, in the case of Grand Lodge v. Child,
70 Mich. 163, the insured made his betrothed the beneficiary,
and subsequently lost his certificate. His beneficiary having mar-
ried another, he made a statement of the loss, and applied for a
reissue of the certificate, making his son the beneficiary. His
application was refused. The rules of the organization required
the change to be indorsed on the original certificate, but, by the
advice of the oflicers, he attempted to make the change of bene-
ficiary by giving a power of attorney to another to collect the amount
LAW OF INSL'RANCE — 2;
386 LIMITS OF THE CONTRACTUAL OBLIGATION.
which should accrue under the certificate. It was held that such
acts constituted an equitable change of beneficiary, and that the
son was entitled to the fund. The court held that the insured had
done all that he could, and all that he was required in equity to do,
to change the donee of the certificate. " The rules of the order
allowed him to do this, and it was not in the discretion of the order
to prevent it. * * * The law never requires impossibilities;
and the rules of the order, which required the certificate to be sur-
rendered when a change of the beneficiary was made, that it might
be indorsed upon the certificate, could only be construed as requiring
that to be done when the certificate was in existence. The exist-
ence of the right to share in the benefits of the order, and to direct
who should receive the fund in case of the death of a member, was
a right vested in the member as soon as he became entitled thereto,
and the certificate was only evidence of the existence of that right,
and, when that evidence was lost, the right remained, and its exist-
ence could be established by any other competent evidence; and
the same is true of the existence of the change directed by the
member of the beneficiary."
(3) If the insured has pursued the course pointed out by the laws
of the association, and has done all in his power to change the
beneficiary, 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 act as though the certificate had been issued. The
case of Association v. Kirgi?i, 28 Mo. App. 80, is an illustration of
this exception. In this case the insured, having met with a fatal
accident, called a friend, and requested him to take his certificate
to the association and surrender it, pay the fee of fifty cents, and
request them to issue a new one, payable to his wife. This was
done, and a minute of the transaction was made on the records of
the association for that day. On the following day the insured
died. It was held that in doing this he had done all that the laws
of the order required to be done on his part in order to have a new
certificate; that his right to make the change was absolute, and
that the association had no right to refuse his request; and, further,
that the fact that the certificate was issued after his death was
immaterial, since the certificate was not the right itself, but merely
the evidence of the right. See, to the same effect, Mayer v. Asso-
ciation^ 2 N. Y. Supp. 79; Supreme Lodge v. Nairn, 60 Mich. 44, 26
N. W. Rep. 826; Kepler v. Supreme Lodge, 45 Hun, 274. The case
of Ireland v. Ireland, 42 Hun, 212, is distinguishable from these in
the fact that the insured made no written request for a change, as
required by the rules, but merely delivered the certificate to a friend,
BENEFICIARIES. 387
telling him he wanted it changed. This was manifestly insufifi-
cient.
We think the case under consideration falls within these excep-
tions. Five days before the death of the insured, he signed and
acknowledged before a notary a written application for a change in
his certificate in the form prescribed by the by-laws, stating that
the original certificate to Anna Cappella was in her possession, and
beyond his control. This application was delivered to the secretary
of the Carpenter Conclave at Milwaukee, who affixed the seal of the
conclave, and forwarded it to the supreme secretary. It is true, he
did not surrender the original certificate, as required by the regula-
tions; but he had done all in this connection which was within his
power, or which he could reasonably be required to do. He had
requested defendant Cappella to obtain it of Mueller, and deliver it
to the proper officer at Milwaukee, and had taken her word that she
would do so. She probably went to Milwaukee with that intention,
but upon calling upon Mr. Eckstein, the collector of the Carpenter
Conclave, she says he advised her that it would take four or five
weeks to make a change, and she had better not do it. This was
before she had obtained the certificate of Mueller, It is but just
to Mr. Eckstein to say that he gives an entirely different version of
the transaction, and swears that she told him that she had been pre-
vailed upon to make the change in the benefit certificate which was
entirely satisfactory to her, saying that $1,000 was all she cared for,
seeing that that was the amount the insured was owing her. Says he:
" I asked her whether she had something written to that effect;
that it should be made in that manner, or indorsed on the certificate.
She said that nothing had been indorsed on the certificate, but she
was perfectly willing to leave it as it was, and to give the father
bonds or some security for the $2,000."
Upon arriving at St. Louis, she writes Leo that she thinks it best
to leave it the way it is, and that she will never cheat his father out
of the money. Her purpose was illy concealed by this letter.
Upon the stand she explains this by saying that Leo was being
annoyed by his father about the certificate, and she wished to put
his mind at rest, that he might die in peace, and that his father
might understand that he was to have the benefit of two-thirds of
the certificate. In short, she leaves us to infer that she never really
intended to make the change. Our impression, however, is that
she did intend, at first, to comply with Leo's request, but was over-
persuaded by someone to change her mind. With regard to the
writing which she received from Leo, she first says that it was
destroyed, and then that it was lost; but, whichever it was, it is
388 LIMITS OF THE CONTRACTUAL OBLIGATION.
clear that the certificate was as much lost to the insured as if it had
been destroyed. While the supreme secretary may have been justi-
fied in refusing to issue a new certificate without a surrender of the
old one, according to the requirements of the order, it certainly
does not lie in the mouth of Miss Cappella to set up this failure in
a court of equity, when she herself is a cause of it, and the com-
pany has admitted its liability by the payment of the money into
court. No maxim of the law is founded upon more substantial
justice than that which declares that no one shall take advantage of
his own wrong Under the by-laws of the company, the insured
had a legal right to change his beneficiary whenever he pleased;
and the consent of the company does not seem to be required, much
less that of the beneficiary. Were the non-surrender of the certifi-
cate set up by the company in a common-law action brought by
Kratzsch, it is possible that the court might be compelled to hold
that he had failed to establish his title; but when the company
waives this defense, or at least disclaims any interest in the result
of the controversy, the objection comes with ill grace from one who
is solely responsible for such non-surrender. A court of equity is
seldom embarrassed by technicalities, and will make such a decree
as the justice of the case manifestly requires. The cases above
cited, which establish the proposition that the failure to take the
proper steps to change the designation can only be taken advantage
of by the company itself, are equally pertinent to show that it can-
not be made available by one standing in the relation of Miss Cap-
pella to this fund. The case of Hainer v. Legion of Honor, 78
la. 245, is instructive in this connection. In this case the de-
ceased had made his certificate payable to his mother. Upon the
back was a printed blank designed for changing the designation.
After the issuance of the certificate, the insured married, and sub-
sequently died, leaving a will, in which he bequeathed one-half of
the amount due upon the certificate to his daughter. The associa-
tion appeared, and paid into court the amount of the certificate. It
was held that the mother, having known of the provisions of the
will, and having made no objections thereto, but, on the contrary,
having expressed her acquiescence in the same, and taken posses-
sion of certain real property devised to her, and otherwise having
availed herself of the benefits conferred upon her by the will, was
estopped to claim the full amount of the certificate. The court
held that, although a change of beneficiaries by will was not such a
compliance with the regulations of the company as would entitle
the person name] in the will to recover, yet the company having
disclaimed any interest in the controversy by the payment of the
ASSIGNMENT. 3^9
money into court, the original beneficiary was estopped by tier con-
duct in taking under the will to repudiate the provision by which
one-half of the certificate was bequeathed to the daughter. The
case of Marsh v. Supreme Council, 149 Mass. 512, is still more
direct authority to the point that the original beneficiary cannot
avail herself of her own misconduct to allege that the insured did
not comply with the requirements of the association.
There must be a decree awarding one-third of the fund to defend-
ant Cappella, and the residue to the defendant Julius Kratzsch,
with costs against Miss Cappella.
II. Assignment.
a. Fire Insurance.
WILSON V. HILL.
3 Met. 66. — 1841.
[^Reported herein at p. I.]
HALL V. NIAGAR.\ FIRE INSURANCE CO.
93 Mich. 184. — 1892.
Action upon a fire policy issued to Hough in 1888, for three
years, upon a house built upon land which he held under a contract
of purchase. May 14, 1889, Hough contracted in writing to sell
" lot 7," upon which this house was built, to one Stevens, for $3,500
upon monthly payments of $25. Stevens went into possession at
once and occupied the premises at the date of the fire. The policy
provided that " this policy shall become void, unless consent in
writing is indorsed by the company hereon, in each of the following
instances, viz.: * * * if any change take place in the title,
interest, location, or possession of the property, (except in case of
succession by reason of the death of assured), whether by sale,
transfer, or conveyance, in the whole or in part, or by legal process
or judicial decree; or if the title or possession be now or hereafter
become involved in litigation; or if this policy be assigned or trans-
ferred before a loss."
In March, 1890, and before the fire, Hough assigned all his inter-
est in his original contract of purchase, to Hall, the plaintiff. At
the time of that assignment, Hough assigned the policy to Hall, and
Hough and Hall went together to the office of defendant's agent.
390 LIMITS OF THE CONTRACTUAL OBLIGATION.
Hall told the agent that Hough had " assigned his interest in the
property " to him (Hall), and that he " wanted the policy to read
payable to him in case it should burn," and thereupon the consent
of the company was indorsed upon the policy. The court below
directed a verdict for defendant. Plaintiff appeals.
McGrath, J. — * * * 'p[-)g record presents two questions:
(i.) Was this contract valid at its inception? (2.) Conceding that
the policy was vitiated by the Stevens contract as to Hough, what
was the effect of the company's consent to the assignment to plain-
tiff? [77/c? court here discusses the first question and gives an affirmative
answer to //.]
The other question is the more serious one, and one upon which the
authorities are by no means uniform. In Insurance Co. v. Munns,
X20 Ind. 30, 22 N. E. Rep. 78, the assured had mortgaged the prop-
erty, and afterwards sold it to Munns, and assigned the policy, to
which assignment the company, without knowledge or notice of the
mortgage, consented. The court held that a contract of insurance
is a purely personal engagement, and does not run with the property
insured, c\\^\x\<g Nordyke <^ Marnion Co. v. Ger\\ 112 Ind. 535, 13 N.
E. Rep. 683, and Cum/nings v. Insurance Co., 55 N. H. 454. " That
the policy e.xpires with the transfer of the estate, so far as it relates
to the original holder, but the assignment and assent of the company
thereto constitute an independent contract with the purchaser and
assignee, the same, in effect, as if the policy had been reissued to
him upon the terms and conditions therein expressed. * * *
The contract of insurance, thus consummated, arises directly
between the purchaser and the insurance company, to all intents
and purposes the same as if a new policy had been issued embracing
the terms of the old. In such a case, no defense predicated on
supposed violations of the conditions of the policy by the assignor
will be available against the assignee. Until the latter himself does
some act or permits a condition of things to exist in violation of
the terms of the policy, he is not in default." That, being a new
and independent contract, both parties are subject to the same
rules which govern the making of the original contract. A large
number of authorities are cited in support of the conclusions
reached. In Steen v. Insurance Co., 89 N. Y. 315, the court held
that the consent to the assignment created a new contract between
the company and the assignee, unaffected by the forfeiture, if, in
any event, it could have been insisted upon. In Shearman v.
Insurance Co.., 46 N. Y. 526, the property was conveyed to plaintiff
March 4th. The policy was renewed in the name of the grantor,
March 21st, and was assigned to plaintiff, April 15th, and on the
ASSIGNMENT. 39I
same day the company consented to the assignment. The com-
pany insisted that at the time of its consent it had no knovvl-
edge of any fact except that at that time it was notified that
the property had been conveyed to plaintiff, but the time of the
transfer had not been given, nor the fact that the poHcy was issued
after the transfer. The court held that " the renewal revived the
original policy, and continued it with all the virtue which it would
have had for any purpose, if it had not expired; that the consent to
the assignment was equivalent to an agreement to be liable to the
assignee upon the policy as a subsisting operative contract, for
which agreement the retention of the premium received on the
renewal was a good consideration."
In Hooper v. Insurance Co., 17 N. Y. 424, the insurance was upon a
stock of goods which had been sold on execution, and the purchaser
obtained the consent of the company to an assignment to him, and
the court held that the policy became a new contract of insurance
between the underwriters and the assignee. "An assignment, there-
fore, being of no avail, except in case of an interest in the assignee
in the subject insured, the request made to the defendant to consent
to an assignment to plaintiff was of itself notice to them that he had
acquired or was about to acquire an interest in the insured property.
If, therefore, it was important to the defendants to know what the
nature of the interest was which the plaintiff had acquired, they
should have asked for information in respect to it. If they were
content to give their consent without such inquiry, it was their own
fault."
In Ellis V. Insurance Co., 64 Iowa, 507, 20 N. W. Rep. 782, it was
held that, "Although the assured may have made statements in his
application which by the terms of the policy would defeat a recovery
thereon by him, yet, where the insured property is sold and the
policy assigned to another, and the comp,iny assents to such assign-
ment, a new contract arises, which is not affected by the fraud of
the party originally insured." In Ellis v. Insurance Co., 68 Iowa,
578, 27 N. W. Rep. 762, a majority of the court held that the pro-
vision in the policy that, " if the title of the property is incumbered,
the policy shall be void," was imported into the new contract, and
that the existence of the mortgage invalidated that contract. The
court divided upon the construction of this provision, a minority of
the court holding that it was not against prior or existing incum-
brances, but against those which should fall on the property subse-
quent to the execution and delivery of the new contract. Upon
this question the dissenting opinion is in accord with the case of
Hoose V. Insurance Co., [84 Mich. 309].
392 LIMITS OF THE CONTRACTUAL OBLIGATION.
In Ellis V. Insurance Co., 32 Fed. Rep. 646, there is a very able
discussion of the question by Brewer, J., who says:
" Where an assignment goes with an absolute sale of the property there
is the creation of a new contract. If it is a new contract for one purpose, it is
a new contract for all purposes. The assignment is expressed to be subject to
the terms and conditions of the policy. What does that mean ? It is equiva-
alent to saying that the assignee takes the contract as of present writing, con-
taining the same terms and stipulations, binding him to the same duties, and
subjecting him to the same liabilities that were imposed by the contract in
the first instance upon the assignor. In no other way can it fairly be said that
a new contract was made. Tested by that rule, the assignee agreed, as the
assignor, had agreed, in the first instance, that he vvould place no incum-
brance upon the property, and that, if he did, the policy should fail. There is
no pretense that he has violated that stipulation thus construed. It may
well be doubted whether the use of the technical terms ' assignment,'
' assignor,' and ' assignee ' are apt to describe the actual transaction. When
the insured sells the property, that moment the policy falls. He has no insur-
able interest. The policy cease= to have legal force as a policy. Can it be
said he is assigning that which is nothing, and that the insurance company
contemplates and assents to the transfer of that which has no legal exist-
ence ? * * * This is a practical question, and vve must look at these mat-
ters in a practical light. When the purchaser buys the property, naturally
the thought in his mind is insurance. It being his, and the old policy
being dead, he looks for insurance. He finds a policy which had been in force,
dead because of his purchase and cessation of the insurable interest in the
assignor, yet which the insurance company is willing to have transferred to
him. Would it not be an injustice to him if, after the insurance company has
consented to that transfer, it could turn back to acts done by the person from
whom he obtained the policy, and claim that those acts vitiated the whole
thing, and rendered it not liable to the assignee? * * * But it is said there
is really no consideratio:i for this contract on the part of the company.
* * * The assignment of this policy is an assertion, practically, by the
assignor of a right to an unearned premium, and the claim of such unearned
premium, presented to the assignee, is assented to by the company when it con-
sents to the assignment. It matters not that there may have been no actual
right to such unearned premium, for the recognition and compromise of a
claim is consideration. Further than that there would be the injury to the
assignee as well as the benefit to the insurer to be considered.' Again,
' " It is hard to see hovv the person originally insured has any claim upon the
insurance company for a return of the premium paid for a term not yet
expired. Apart from any special agreement for the return of premium, his
claim will rest entirely upon a failure of consideration; and there has been no
failure of consideration here, either partial or total. The contract in favor of
the insured still exists after the assignment of the property, and if subsequently
any interest in the subject-matter of the insurance becomes vested in the insured
during the continuance of the policy the insured will be protected from any loss
to his interest. Yet the suggestion, that the exemption of the insurer from
further liability to the vendor is a sufficient consideration for the new promise.
ASSIGNMENT. 393
it is said that there can be no waiver without knowledge; that the insur-
ance company was ignorant of the fact of this incumbrance; and there-
fore it should not be held lo have waived its rights. There may be estoppel
without knowledge. * * * This consent lo the assignment, dealing with
things in a practical way, must be construed as a statement by the in-
surance company that it recognized that policy as a valid instrument. Surely it
vvDuld be unjust to think that the insurance company put itself into the positiun
of assenting to the transfer of a policy, which had no validity, going through
the form of consenting to that which had no legal existence, and was worthless.
These considerations, although we concede that the question is one of not per-
fect transparency, lead us to the conclusion that this assignment must be
caken. in the language of the text-books and the authorities, to create a nevv
contract between the assignee and the insurance company, — a nevv contract
embracing, as of present wriiing, the same terms and stipulations as were
embraced in the contract originally written between the assignor and insurer.
2 May, Ins. § 378; Wood, Ins. §§ no, 366; Fland. Ins. 484; Cummings v. Insurance
Co., 55 N. H. 457; Wilson v. Hill^ 3 Mete. (Mass.) 66; Flanagan v. Insurance Co.,
25 N. J. L. 506; Pratt V. Insurance Co., 64 Barb. 589."
may afford an explanation of this question. It is apparent that this explanation
depends entirely upon principles of novation. The argument is that the old
obligation to the vendor is released in consideration that the insurer incurs a
new obligation to the vendee. The writer is unable to see how this doctrine
of novation can be justified upon any principles of the common law. It is clear
that it violates a fundamental principle in regard to consideration, viz., that the
consideration must move from the promisee. In the present case, the promisee
suffers no detriment and makes no change of position at the request of the
promisor, and he has given nothing to the insurer for the benefit of the promise,
so that from him there is no consideration. Furthermore, the circumstances of
the transaction will hardly justify this view, even if the doctrine of novation be
admitted. In their bare detail they amount to this. The property insured is
sold, and the policy is handed over either with or without a written assignment.
The policy is then taken by the assignee to the insurance company, and they
consent to the assignment. It is sometimes customary for the assignment and
the consent to be in writing and then the consent is usually indorsed on the
policy. Nothing more is done, and it is difficult to see how these facts can be
construed to mean a surrender of an old obligatinn and the issue of a new one,
— particularly as the same obligation is reissued which was issued in the first
place. But in policies like that which was transferred in Fogg v. Middlesex
Mutual Fire Insurance Co., [10 Cush. 337], there is a condition that the policy
shall be void if the property be assigned. In most cases the property is assigned
before the consent of the insurer is obtained, and this condit ion is broken, there-
fore, before the consent of the insurer to the assignment is obtained. The obliga-
tion of the insurers, therefore, is avoided, and hence there is no legal obligation
which can be surrendered in return for the new obligation; and yet the assign-
ment is perfectly effectual against the insurance company. Shear?nan v. Xiagara
Fire Insurance Co., 46 N. Y. 526. See Stei?i v. Niagara Ins. Co., 61 How. Pr.
144; Hooper V. Hudson R. F. Ins. Co., 17 N. Y. 424." — Chauncey G. Parker on
" The Nature of a Policy of Insurance with Regard lo its Assignability," in I
Har. Law Rev. 388, 390.
394 LIMITS OF THE CONTRACTUAL OBLIGATION.
An insurance policy is a personal contract of indemnity. It is
non-assignable, except with the assent of the insurer; nevertheless-
the assignment of policies of insurance is an incident of nearly every
transfer of personal property or improved real estate. Une.xpired
policies, before loss, have, as a rule in the hands of the person to
whom issued or his assignee, a certain face value, which is the
unearned premium or indemnity to the assignee for the unexpired
term. They are either transferred as a part of the consideration
for the purchase money, or the value of the unearned premium is
agreed to be paid in consideration of the assignment. The assignee
acquires the right to the unearned premium, or the right to the
indemnity for the unexpired term for value. The right to the
unearned premium may be subject to the conditions of the contract,
for he takes that right subject to the consent of the company. But
suppose that the unearned premium is paid over to the assignee of
the policy, or credited upon the premium for a new policy, could it
be contended that the company would have the right to recover
back the sum so paid or credited from the assignee? The company,
in such case, recognizes the validity of the policy, and the assignee
is simply reimbursed for what he has paid to the assignor. The
ordinary railroad mileage ticket is not transferable, and attached Is
a condition that its use by any other person will operate as a for-
feiture. Suppose that A. hold such a ticket, which he desires to
transfer to B., and they go together to the office of the railroad
company, and A. transfers the ticket to B., and the company
indorses its consent, B. paying the value represented by the unused
strip for the transfer. Could the railroad company be afterwards
heard to say, as against B., that A. had, before the transfer, for-
feited the contract, even though it had no knowledge of the breach,
and therefore the contract was void as to B? Certainly not. By
consent, a new contract between the company and B is created.
The company has agreed with B. that the unused coupons are good
in his hands. The company cannot be said to have waived that
which it had no knowledge of, but it has waived the right as
against B. to insist upon A.'s infirmities, whatever they may have
been. The contract which, prior to the transfer, was personal with
A., has ceased, and has become personal with B. B. does not agree
that A. has not violated its provision, but only that he will not.
Insurance contracts are peculiar, and hence rules applicable to other
contracts are applicable to them only so far as the provisions are
analogous.
When a party to a non-assignable instrument, representing upon
its face an unearned vnlu--, coPFert- to its transfer without riisrva-
ASSIGNMENT. 395
tion, and .the assignee in good faith pays value for such transfer,
the party consenting cannot be heard to set up mental reservations
or prior breaches which were unknown to either party. The rule
applicable to the transfer of an assignable contract has no applica-
tion to such contracts. The consent to the assignment imported
validity. The right to withhold or grant it is for the benefit of the
insurer. It has its burdens as well as its advantages. The applica-
tion for consent is, in effect, one for a contract of indemnity to the
assignee. It affords an opportunity to the company to examine the
risk, or. to inquire as to the title or interest to be insured, or as to
whether there had been any other change in risk or title. Had de-
fendant done so, and refused its consent, plaintiff wouLl have been in
a position to retain or recover the consideration paid, and to seek
indemnity elsewhere. It is too late now, after the loss, to set up
the changed conditions. It may be said, too, that at the time of
the application for the consent of the company to the assignment,
plaintiff informed the company that Hough had assigned his inter-
est in the property to him That was suthcient, of itself, to put the
company upon inquiry.'
Defendant insists, further, that, inasmuch as plaintiff had com-
menced proceedings against Stevens before a Circuit Court commis-
sioner, to recover possession of the premises, the policy was invalidated
thereby. The policy contained a provision that, " if the title or
possession be now or hereafter become involved in litgation,"
the policy should become void. Stevens was clearly in default,
having occupied the premises for twelve months, and paid but ^j^,
whereas he had agreed to pay $25 per month. Plaintiff had declared
the contract under which Stevens occupied void, as he had the right
to do under the contract. From that moment Stevens became and
was a tenant holding over without permission. The proceeding to
recover possession was predicated upon these provisions of the con-
' Judge Hare, in his notes to 2 Amer. Lead. Cas. (5th ed.) SS8, criticises the
accepted doctrine as to the formation of a new contract between the assignee
and the insurer He says that this explanation of the transaction is " at vari-
ance with the main current of authority which establishes that the assignee
claims through and under the assignor, and is subject to e^-ery defense that
would be good against him; " that the explanation " is, moreover, inapplicable
to the assignment of a marine policy, which does not require the assent of the
insurers, and is manifestly a transfer of the old, and not the creation of a new
contract." He suggests that " if the policy be interpreted as a contract for the
benefit, not only of the insured, but of those who claim under him subse-
quently, as purchasers, the necessity for resorting to a new contract will dis-
appear, and there will be no difficulty in adjusting the rights of the parties on
their true basis."
Sg6 LIMITS OF THE CONTRACTUAL OBLIGATION.
tract. It cannot be contended that the provision of the policy
referred to contemplated that, in the event that proceedings were
instituted to oust a tenant, the policy should become void. This
provision, taken in connection with the other provisions of the
policy, clearly relates to a litigation over the title or possession of
the assured. The judgment must be reversed, and a new trial had,
with costs of this court to the plaintiff. The other justices
concurred.
ILLINOIS MUTU.\L FIRE INS. CO. v. FIX.
53 III. 151. — 1870.
L.AWRENCE, J. — The appellee, Fix, being indebted to Mayer, for
whose use this suit is brought, executed to him his notes, secured
by mortgage on a brewery, and at the same time assigned to him a
policy of insurance, issued by the appellants, upon the building
and fixtures. This assignment was made with the consent of the
company indorsed upon the policy. The present suit was brought
in the name of Fix for the use of Mayer, and resulted in a verdict
and judgment for the plaintiff, from which the company appealed.
On the trial, the company offered to prove that the building was set
on fire by the plaintiff. Fix. The evidence was objected to by
plaintiff's counsel, and the objection was sustained. This ruling
presents the main question in the case, to wit, whether, where a
policy of insurance has been assigned by the assured to one holding
a mortgage on the premises, with the consent of the company
indorsed upon the policy, its validity can be destroyed by acts done
by the assignor in violation of its conditions.
This question has received much discussion in the courts of New-
York, and the decisions first made have been deliberately overruled.
It was first held, in Insurance Co. v. Robert.^ 9 Wend. 404, that no
act of the assured, after the assignment of the policy with the con-
sent of the company, can impair the rights of his assignee. This
case was approved and followed in Tillon v. Insurance Co.., 5 N. Y.
406, the court holding that the assignment of a policy, with the
assent of the insurer, creates new and mutual relations and rights
between the assignee and the insurer, which cannot be impaired by
a third person, over whom the assignee has no control. The ques-
tion again came up in Grosvenor v. Insurance Co.., 17 N. Y. 392, and
in Buffalo Sleatn Engine Works v. Sun Mut. Ins. Co., IJ. 401. In
the first case the policy was not assigned by the mortgagor to the
mortgagee, but, by its original terms, the loss, in case of fire, was
ASSIGNMENT. 397
made payable to the mortgagee. The majority of the court held
the case was not distinguishable from an assignment of the policy,
and, overruling the cases already cited, held the policy was avoided
by certain acts done by the mortgagor in violation of its terms.
One of the eight judges composing the court dissented altogether,
and two others concurred only on the ground that the case was not
like one in which the policy had been assigned. In the other case,
decided at the same term, and which was one of assignment, the
majority of the court held the policy avoided by the acts of the
assignor, the three judges dissenting.
In these two cases, the question involved received a much fuller
discussion than was given to it when the former decisions were ren-
dered. In reply to the argument of the court in 9 Wend, that the
assignor could not be permitted to execute a release to the insur-
ance company which would impair the rights of the assignee, and
that he should not be permitted to do indirectly what he could not
do directly, the court very justly say, this argument fails to dis-
tinguish between acts done for the purpose of discharging a liability,
and acts which, by the terms of the contract, were necessary to be
done or omitted, in order to continue the liability in force. The
principle, however, laid down in the case in 5 N. Y. that the
assignment of a policy, with the assent of the company, creates new
relations and rights between the assignee and the company, is not
wholly repudiated as never applicable, for it is admitted that, in
cases where there has been an absolute sale of the insured property,
the assured retaining no interest in it, and there has been an assign-
ment of the policy to the purchaser, with the consent of the com-
pany, such purchaser may be considered as becoming a party to the
contract, taking upon himself the performance of its conditions,
while the assignor, cessing to be a substantial party, and having no
interest in the subject-matter, could do no act affecting the rights
of the assignee. The court insist, however, that this principle can-
not be applied to an assignment to a mortgagee, because, in such
cases, the mortgagor retains his interest in the property and in the
policy, and whenever the mortgage debt is paid, the benefit of the
policy reverts to him, or in case the policy exceeds the amount of
the mortgage, the surplus, in the event of a loss, would be payable
to the mortgagor. The court further say, that the rule of the
former cases would make insurance companies liable for risks which
they never assumed, and against which their policies are intended
to guard them, for, under this rule, a mortgagor, remaining in
possession, might convert a building, insured as a dwelling-house,
to a use vastly more hazardous, as by making it a place for manu-
398 LIMirS OF THE CONTRACTUAL OHLIGATION.
facturing fireworks, and still the company be required to pay,
allriGJgh one of the material terms of its contract was that its lia-
bility should cease in the event of such a change in the uses of the
property. The Supreme Court of Pennsylvania, in Insurance Co. v.
Roberts, 31 Pa. St. 438, adopts the rule of these cases, in a well
considered opinion. The Supreme Court of the United States in
Carpenter \. Insurance Co., 16 Pet. 495, lays down a similar principle.
This rule is also followed in People v. Resolute Ins. Co., 17 Wis 378.
On the other hand, the earlier New York cases were followed in
Pollard \ . Insurance Co., 42 Me. 226.
In this State the question is an open one. Counsel for appellee
cite Insurance Co. v. Wetmore, 32 III. 242, and Insurance Co. v. Marks,
45 111. 4S2, as adopting the rule of the earlier New York cases. But
in the first of these cases, the policy was issued directly to the
mortgagees, and assigned by them with the note and mortgage, and
the question, in regard to which the case in 5 N. Y. was cited, was
as to the right of the assignee to bring suit in the name of the
assignors. In the case in 45 III. the assured had sold the stock of
goods insured, and the policy had been assigned to the purchaser
with the consent of the company. The court, in its opinion, cites
the earlier New York cases only, but even under the rule laid down
in the last case, in 17 N. Y., the assignee was entitled tc recover,
the transaction being a sale and not a mortgage.
This court has shown, in various cases, a disposition to hold insur-
ance companies to a full measure of responsibility, but we are of
opinion that the cases in 17 N. Y. stand upon the better reason.
The consent of insurance companies to an assignment of the policy
by a mortgagor to a mortgagee, should not be construed as impos-
ing upon them, as a consequence of such mere naked assent, a lia-
bility which they never would intentionally assume, and against
which they take all possible pains to guard themselves, and must
guard themselves in order to preserve their solvency The principle
contended for by counsel for appellee, and laid down in the earlier
New York cases, is, that no act of the assignor, done without the
consent of the assignee, can invalidate the policy, so far as relates
to the assignee. If this be true without limitation, then, as said by
the New York Court of Appeals, a risk taken by a company at the
lowest rates, because in the least hazardous class, might be changed,
by the mortgagor remaining in possession, and without the concur-
rence of the mortgagee, to the class of e.xtra-hazardous, and the
liability of the company would remain the same. A detached dwell-
ing-house might be converted into a powder magazine, or to some
other use which would prevent any sound insurance company frcni
ASSIGNMENT. 399
taking the- risk on any terms, and still, under the rule claimed by
appellee, the company would remain responsible. The mortgagor
might go further, and not only convert his building to extra-hazard-
ous uses, but absolutely set it on fire, with a view of defrauding the
company, as the appellants offered to prove was done in the present
case.
We cannot adopt a rule which would lead to such results. In
analogy to the case of absolute sales by the assured, we should be
much inclined to hold to the rule announced in 5 N. Y., if it were
possible to separate the interest of the mortgagor and mortgagee.
But it is not, for the mortgagor is not only interested in the pay-
ment of the mortgage, but, where he pays the premium, the fruits
of the policy absolutely belong to him, subject to the lien of the
mortgagee. Where there is an absolute sale, there is no difficulty
in determining the measure of the assignee's rights and the com-
pany's liabilities, for he stands in the position of receiving a new
policy as owner, and becomes responsible for any extra-hazardous
uses to which the building may be applied, a responsibility he
cannot evade on the ground that the building is not under his
control.
But where there is no sale, but the policy is merely assigned as
security, we are obliged to hold, either that the company is bound
absolutely to the assignee, no matter how far the conditions of its
contract may have been violated, which would be a very unreason-
able ruling, or that there is such identity of interest in regard to
both the property and the policy, that there can be no recovery,
even for the use of the assignee, if the assignor fails to comply with
the conditions.
The utmost that can be claimed for an assignee in such cases is,
that he should stand in the same position as if he had taken out a
new and independent policy to protect his own interest as mortgagee.
Bat admitting such claim, we have no rule to guide us. It is impos-
sible for us to say what conditions the company would deem it
necessary to insert in such a policy for its own protection. It is
very certain it would stipulate that the hazard to the building should
not be increased, and thus would compel the mortgagee to take
upon himself the responsibility of the mortgagor's acts, from which
he could not escape by saying that his rights should not be preju-
diced by the acts of a third person. It would necessarily result,
from the nature of the interest insured, that its owner might be
damnified by the acts of the mortgagor in possession, although
beyond his control. Whether a company would also stipulate, in
such a policy, that neither the mortgagor nor the mortgagee should
400 LIMITS OF THE CONTRACTUAL OBLIGATION.
obtain further insurance, without its consent, we do not know,
though it is evident such a stipulation would be a wise precaution.
The history of the Robert Case, in 9 Wend, singularly illustrates
the injustice of attempting to base a judgment against an insurance
company, in favor of the mortgagor, upon the equities of his
assignee. In that case, the judgment was rendered in favor of
Robert, the mortgagor, for the use of Bolton, his assignee, on the
ground that, though Robert had violated the policy, this could not
prejudice Bolton. After the rendition of the judgment, and before
its payment, Robert paid oft the mortgage, and threatened the
insurance company with an execution The company moved the
court for a perptual stay, which was granted, the court holding,
consistently with its former ruling, that Robert had no equitable
rights under the policy. 9 Wend. 404 and 474. From this order
an appeal was taken to the court for the correction of errors, and
that court held, as the original judgment was unreversed, it was
conclusive upon the rights of the parties, and, as the mortgage had
been paid, the benefit of the judgment reverted to Robert, the mort-
gagor. He thus received the full benefit of the policy, although he
had forfeited all rights under it, and a judgment had been rendered
in his favor only in consequence of the equities of his assignee.
17 Wend. 631.
It is, in our opinion, very clear, if we attempt to dispose of cases
of this character on the theory that the assignment is to be treated
as a new policy, issued directly to the mortgagee, for his exclusive
benefit, and to adjust the rights of these parties in accordance with
what we may suppose such a policy would contain, we shall be wan-
dering in a labyrinth where there would be but one thing certain,
and that is, that great injustice would be done these companies.
We should practically be enforcing liabilities against them which
they never intended to incur, and giving to the mortgagor the
benefit of a policy in which he has forfeited all his rights. We deem
it safer and more just to say, that where a policy is assigned as
collateral to a mortgage, though with the consent of the company,
the assignee takes it subject to the conditions expressed upon its
face, or necessarily inhering in it, and that no recovery can be had
merely in consequence of the equities of the assignee, if the assignor
has lost the right to recover by violating the terms of the contract.
The evidence, offered to show that the plaintiff set the building
on fire, should have been admitted, and the instruction asked for
defendants, in regard to the effect of a second insurance, should
have been given.
Judgment reversed.
ASSIGNMENT. 4OI
b. Marine Insurance.
WAKEFIELD v. MARTIN AND TRUSTEES.
3 Mass, 558.'
William C. Martin, being indebted to James Scott in the sum
of $5,000, and having shipped a parcel of goods on board the ship
-, upon which he had eftected a policy of insurance, in order to
secure Scott, assigned the bills of lading and the policy to him by
a blank indorsement. A total loss happened. The plaintiff, a
creditor of Martin, summoned Welles, one of the underwriters, as
trustee of Martin; Welles having no knowledge of the assignment
to Scott. The question was, whether this assignment to a creditor,
without notice to the underwriters, was good so far as to vest a
property in the assignee, and thus preclude an attachment.
Mr. Parsons, for Scott, contended that the assignment was good
and perfect between the assignor and assignee, and vested an equi-
table right in the latter; and although, if the underwriters had
actually paid the loss to Martin without notice of the assignment,
they would have been discharged, yet that an attaching creditor
was in no better condition than the assignor himself.
Mr. Ames., for the plaintiff, contended that a policy of insurance
was not assignable; that it was a mere chose in action., and by law no
property vested in the assignee; that the assignor might revoke the
authority, or might release and discharge the underwiters; that the
attaching creditor stepped in with the authority of the law, and
effected this revocation; and that a contrary doctrine would intro-
duce great frauds.
The Court, after taking time, pronounced their opinion unani-
mously., that the assignment, though without the knowledge or assent
of the underwriter, vested an equitable right in the assignee; and,
therefore, they discharged the trustees."
' No date; probably about 1800.
^" It is only by force of the special clause, prohibiting an assignment of the
interest of the assured in the policy, or in the property insured, without the
consent of the insurers, that a forfeiture of the policy is claimed to have
occurred. In the absence of such provision, an assignment of property and
policy, in marine insurances (however it may be in regard to fire policies), is
valid, and the policy remains in force for the benefit of the assignee, although
there is no notice of the assignment given to the insurers. Wakefield v. Martin,
3 Mass. 558; Earl v. Shaw, r John. Cases. 313; Powels v. Iiines, 11 M & VV. 10;
3 Kent's Com. 261-275; 2 Am. Leading Cases, ist ed., 309-314." — Hitchcock v.
Ins Co., 26 N. Y. 68, 69.
LAW OF INSURANCE — 26
402 LIMITS OF THE CONTRACTUAL OBLIGATION.
POWLES AND OTHERS ?-. INNES.
II Meeson & Welsby, io. — 1843.
\^Reported hereiit at p. 5.]
c. Life Insurance.
STEINBACK v. DIEPENBROCK.
158 N. Y. 24. — iSgq.
This action was brought to recover the proceeds of a certain
policy of insurance for ^10,000, issued on the life of Alois Diepen-
brock, appellant's testator, by the Equitable Life Assurance Society
of the United States. The amount due thereon was claimed, on
the one hand, by the plaintiff as assignee, and, on the other hand,
by the defendant Louise Diepenbrock, as executrix of the estate of
Alios Diepenbrock, deceased. The plaintiff brought suit against
the insurance company to recover the amount due upon the policy.
The company, admitting its liability to some one, paid the money
into court and procured the defendant Louise Diepenbrock, as
executrix, to be substituted as defendant, together with William
Erdtmann, the original assignee of the policy, who had assigned it
to the plaintiff. Further facts are stated in the opinion.
Parker, Ch. J. — The counsel for the appellant in his argument
insisted with great earnestness and force that the position several
times asserted by this court in support of the legality of the assign-
ment of a policy of insurance to a person having no insurable inter-
est in the life of the insured, is a mistaken one and in conflict with
the decisions of the United States Supreme Court and the court of
last resort in many of the States.
Waruflcks . Davis^ 104 U. S. 775; Frankli/i v. Hazzard, 41 Ind.ii6;
Missouri Co. v. Sturges, 18 Kan. 116; Schoenfieldv. Turner.^ 75 Tex.
334; Baxse V. Adams, 81 Ky. 368, and Helmetig v. Miller, 81 Ala.
183, furnish support for his assertion as to the rule in the United
States Supreme Court and in some of the other States. Supported
by these authorities, the counsel challenged the correctness of the
rule that concedecHy has been long acquiesced in in this State by
the courts and the profession. Indeed, Mr. Justice Field in his
opinion in Warnock v. Davis, supra, stated the rule in this State to
be that a valid assignment of a policy of insurance could be made
to a person without interest in the insured. But the appellant con-
tends that, while this may be the rale here, the decisions in other
jurisdictions demonstrate that our positi 'n is wrong as a matter of
ASSIGNMENT. 4O3
sound public policy, and, therefore, the true rule should be laid
^down, notwithstanding that expressions inducing the belief that the
abov.e rule obtained may have been made by our courts. It is urged
that this task will not be a difficult one for the reason, as the appel-
lant contends, that there have been no cases in this State where the
question was necessarily up for decision, and, therefore, all that has
been said upon that subject by this court is mere dictum.
In S/. John v. Am. L. I. Co., 13 N. Y. 31, a recovery in favor of
the plaintiff against an insurance company was sustained where it
appeared that one Noyes had effected policies of insurance upon his
own life and shortly afterwards assigned them to the plaintiff for a
valuable consideration. In the answer the defendant alleged, by
way of defense, that the plaintiff was entitled to recover only" the
amount of money that he had advanced as a consideration of the
transfer of the policy to him, and that if defendant was liable
beyond such amount upon the policy, the personal representatives
were interested in the excess, and, therefore, necessary parties to
the suit. And upon the close of the evidence the counsel for the
defendant pressed the point that the plaintiff had no insurable inter-
est in the life of the insured, and, therefore, was not entitled to
judgment. The court regarded the question as one necessary to be
passed upon in the final disposition of the case, and after consider-
ing it, held that the policies in question were valid in their incep-
tion and that the assignment of them to the plaintiff did not affect
the liability of the company, and that to entitle the assignee to a
recovery it was not necessary for him to have had an insurable
interest in the life of the insured.
The next case was Valton v. N. F. L. A. Co., 20 N. Y. 32, where
Schumacher obtained a policy on his life for $10,000, and by his
articles of copartnership agreed that the plaintiff and another part-
ner should become the owners of the policy and all due thereon in
the event of his death before the termination of the partnership.
This contingency happened, and the court held that it operated to
vest absolutely the title to the policy in the plaintiff and his other
partner and a recovery could be had thereon as against the
defendants.
It will be observed that in the cases cited the contest was between
the assignee and the company issuing the policy, and the question
was not squarely presented whether, as between the assignor and
the assignee, the assignee would be entitled to retain more than the
sum actually invested by him, which is the rule in some jurisdic-
tions. But it nece.ss^iril V was decided that the policy was not ren-
dered invalid by the assignment, and further that the assignee
404 LIMITS OF THE CONTRACTUAL OBLIGATION.
acquired thereby the riglit to enforce collection of the full amount
of the policy from the company.
In Oliiisicad v. Kevt's, 85 X. Y. 593, the plaintiff, having obtained
the proceeds of a policy of life insurance, brought an action for the
purpose of ascertaining and determining the conflicting claims of
various defendants to the moneys paid on the policy. It appeared
that Keyes procured a policy of insurance on his life, payable to the
plaintiff as trustee for his wife Huldah; Huldah died intestate a few
years later; afterwards Keyes married again and thereupon the
plaintiff for value assigned the policy to Keyes' second wife at his
request. Keyes subsequently died intestate, leaving him surviving
his widow and one child by her and several children by his first
wife. It was held that during the life of the first wife the policy
was her property; upon her death the title vested in her husband
as survivor, and he having caused it to be assigned to his second
wife, the assignment vested the title in her and she alone was enti-
tled to the money due thereon. There was a difference of view in
the court as to the disposition of the case, and the argument that
led to the decision considered with care the assignability of a policy
of life insurance like any other contract; in the course of the argu-
ment the court referred to and considered many authorities in Eng-
land and in this country and reached the conclusion that while an
insurable interest is necessary to enable one to take out a policy of
insurance on the life of another, it is not necessary that the assignee
of a policy validly issued should have such an interest. After care-
ful examination of that opinion we find it impossible to reach any
other conclusion than that it was intended to put at rest whatever
controversy there may have been in this State touching the assign-
ability of a valid policy of insurance. The case at bar is the only
one we know of where the rule laid down in the case last referred
to has been seriously questioned, although it is true that some dis-
cussion of the principle was had in Wright v. M. B. L. A. of A., 118
N. Y. 237, where the defendant unsuccessfully challenged the right
ot the assignee to recover on the ground, among others, that the
plaintiff had not an insurable interest in the life of the insured at
the time of the assignment; the court in its opinion cited the case
of Olmsted w Keyes ^ supra.
The result of our further examination persuades us that what has
been understood to be the rule in this State is not only in line with
the authorities in most jurisdictions upon that subject, but is sound
as a matter of public policy. It was formerly the rule in England
that while a policy of insurance could not be assigned at law it
could in equity. By the act of 1867 (30, 31 Vict., c. 144) a policy
ASSIGNMENT. 405
of life insurance was made assignable at law, and in some of the
decisions it was said by the court that the object of the statute was
to enable the assignee to sue in his own name; but it did not in r.ny
other way improve the position of the assignee, who could before
that secure the money in equity. B. E. I. Co. v. T. \V. R. Co.., 38
L. J. Ch. 132; /// re Turcaii, L. R. (40 Ch. D.) 5.
The rule asserted by this court has also been held to be the law
in many of our sister States in a number of cases where the question
has been raised either in actions brought by personal representatives
of the assignor to recover the money received by the assignee on a
policy, or in suits brought by the company issuing the policy for
the purpose of determining whether the personal representatives or
the assignee were entitled to the proceeds, all claimants being
made parties defendant. Mut. Co. v. Allen., 138 Mass. 24; Eckels.
Renner., 41 Ohio St. 232; Martin v. Stubbings, 126 III. 387, 403; Fitz-
patrick V. Hartford Co.., 56 Conn. 116; Clark v. Allen., 11 R. I. 439;
Murphy V. Red., 64 Miss. 614; Rittler v. Smith, 70 Md. 261. These
authorities are, it seems to us, well grounded in principle. They
recognize not only the existence of, but the necessity for, the rule
that forbids any insurance upon the life of a person, in which the
person for whose benefit the insurance is made has no interest.
Such a policy constitutes what is termed a wager policy, or a mere
speculative contract upon the life of the insured, with a direct
interest in favor of its early termination. It is, in terms, forbidden
by statute in England (14 Geo. III., c. 48) and in many other juris-
dictions, including this State (Laws 1892, chap. 690, § 55), and this
court held in Ruse v. Mutual Benefit Insurance Company, 23 N. Y.
516, that such insurance is void at common law, and that the Eng-
lish statute, in so far as it prohibits such insurance, is merely a
declaratory act But the question we are considering presupposes
a valid contract of insurance, the policy being issued either for the
benefit of the assured personally, or for the benefit of some one
having an insurable interest in the assured at the time of the taking
out of the policy. Such a policy constitutes a contract to pay a
certain amount of money to the payee on the death of the assured.
It is a chose in action with all the ordinary incidents belonging
thereto, and as such may be assigned either as collateral or abso-
lutely, as the payee may elect.' While an insurable interest in the
' The general rule in New York upon the assignability of life policies is sub-
ject to modification where a wife attempts to assign a policy issued in her favor
upon the life of her husband. Chap. 80, Laws 1840 (since followed by various
amendatory acts and now embodied in § 22 of the Domestic Relations Law)»
406 LIMITS OF THE CONTRACTUAL OBLIOATION.
payee is necessary, in the first instance, to the creation of a valid
contract, it is not necessary that such interest should continue.
The case of a wife divorced from her husband will serve as an illus-
tration. The policy taken out for her benefit during the existence
of the married relation is not affected by a subsequent stiverance
of that relation through a decree of a court of competent jurisdic-
tion by which she ceases to have an insurable interest in his life.
Connectiiut Mutual Life Ins. Co. v. Sc/uii'/er, 94 U. S. 457. The
materiality of the value of the interest has relation to the question
whether the policy is taken out in good faith, and not as a gambling
transaction. If it be taken out in good faith, then a sound public
policy would seem to require that the payee should be permitted to
treat it as he may any other chose in action and go to the bes:
market he can find, either to sell it or borrow money on it. Ii
would substantially confine him to such terms as the company issu-
ing the policy should choose to make with him, if he should b.-
limited in his choice of a purchaser to the party having an interest
in the continuance of the life of the assured.
On the other hand, it is said that if the payee of a policy be
allowed to assign it, a safe and convenient method is provided by
which a wagering contract can be safely made. The insured,
instead of taking out a policy payable to a person having no insur-
able interest in his life, can take it out to himself and at once assign
it to such person. But such an attempt would not prove successful,
for a policy issued and assigned, under such circumstances, would
be none the less a wagering policy because of the form of it. The
intention of the parties procuring the policy would determine its
character, which the courts would unhesitatingly declare in accord-
provided that a wife might take out a policy upon the life of her husband, etc.
By a process which seems to be an example of judicial legislation, the Court of
Appeals has held that such policies are not assignable. \n Romaine v. Chauncev,
129 N. Y. 566, 574, Judge Finch, in the course of his opinion, though merely for
purposes of illustration, has epitomized the New York doctrine as follows:
*' Policies of life insurance in favor of the wife on the life of the husband we
have persistently held to be non-assignable. Eadie v. Sliimnon, ib N. Y. 9.
We determined that their peculiar character and purpose necessarily took from
ihem the chief and most important characteristic of property in general. As I
read the later case of Baron v. Brumme>\ 100 N. Y. 372, we distinctly held ' that
such policies should not be subjected to the lien of creditors either of husband
or wife; as to the former by the express words of the statute, and as to the latter
by the determination of the courts.' We took from them the transferable charac-
teristic of property as such and tied them closely to their lawful object and
purpose." On the contrary, in Maryland, where there was subslaniially the
same legislation, the court said- " We cannot recognize the decisicm in Eaait
V. Slimmon as law in this State." — Emerick v. CoakUy\ 35 Md. 192.
ASSIGNMENT. 407
ance with the facts, reading the policy and the assignment together,
as forming part of one transaction.
Cammack v. Letcis, 15 Wall. 643/ and JVarnock v. Davis, 104 U.
S. 775, were cases where the policies were taken out in order that
they might be assigned to the assignees, through their procurement,
under circumstances that might well be held to be in evasion of the
law prohibiting gaming policies.
In IVarnock's Case the agreement touching the procurement of
the policy and the use to be made of it, including the promise to
assign it, was in writing, and executed the very day the policy was
applied for, and the day following the assured executed an assign-
ment of the policy, which had in the meantime been issued in pur-
suance of such an agreement. The insurance company paid over
the money to the assignee, and the court held that the personal
representatives of the assured were entitled to receive from the
assignees all the money except the sums advanced by them under
the agreement, plus the sum paid by them to the widow. In the
opinion it is said that the assignment of the policy to a party not
having an insurable interest is as objectionable as the taking out of
a policy in his name. That remark was clearly true as applied to
the facts of that case, for the policy was taken out in pursuance of
an agreement to assign it. It was, therefore, in fact a policy taken
out for the benefit of parties having no insurable interest, although
in form issued to the assured and by him assigned to such parties.
In such case the court will always declare the fact to be as it is,
without regard to the effort of the parties to hide the truth and
cheat the law. But the language employed by the court, and evi-
dently advisedly, is broad enough to cover all assignments of poli-
cies to parties not having an insurable interest, including as well
those taken out in good faith and kept up as long as the financial
condition of the insured permits, as those deliberately taken out for
the purpose of speculation upon a life that the intended beneficiary,
whether as payee in the policy or by assignment, has no interest in pro-
longing. The pointof actual separation between the cases asserting the
assignability and those asserting the non-assignability of policies of
insurance to persons not interested in the continuance of the life of
the assured, seems to be that those asserting non-assignability pro-
ceed on the assumption that the question is one of law, and that if
a policy is not assignable in one case, it cannot be in any case;
while in the other line of cases the underlying principle is that all
valid contracts are assignable, but that contracts are not necessarily
' Cammack v. Lewis, is siated and discussed, ante, pp. 65, 66.
408 LIMITS OF THE CONTRACTUAL OBLIGATION.
valid and free from the taint of gambling because upon their face
tliey appear to be regularly and properly issued. In order to ascer-
tain the truth all the facts and circumstances may be proved, and
if it then appear that the parties intended by the contract to enable
a third and uninterested party to speculate upon the life of another,
the court will declare such contract invalid, not because of the
assignment, but in spite of it.
Warnock's Case and this one are very wide apart in their facts and
serve very well to illustrate the necessity for the position taken by
the courts of this State upon this general subject.
In December, 1887. Alois Diepenbrock took out a policy of insur-
ance on his life in the Equitable Life Assurance Society. He paid
the premiums regularly down to December, 1892, a period of about
five years, at which time the surrender value of the policy was about
$485. He was pressed for money and finally sold the policy to the
defendant Erdtmann for $600, or something like $115 more than he
w )ulJ have received by the surrender of the policy to the company.
He had paid a much larger sum in premiums, something over $2,000^
and there seems to be no good reason why a person owning such a
policy and obliged to sell it, should not be permitted to get back as
much as possible of the money that he has paid out for insurance.
His condition of health may have changed very materially, of which
fact the company can take no advantage; for in its contract it made
allowance for that possibility. There is no good reason for saying
that an insured person should not have the right, whenever his
necessities press him because of a failing condition of health that
assures a speedy death, to realize on his policy and obtain for it
something like a fair price, which may, perhaps, be almost equal ta
its face value.
The personal representatives of the assured contested the assign-
ment also on the ground that it was intended as collateral, although
in form a valid assignment, but the Special Term found otherwise,
and the Appellate Division approved that finding, so that question
is no longer open for consideration.
Other questions are presented by the appellant, but after a care-
ful examination of them we conclude that no error was committed
below that will support a reversal of the judgment.
The judgment should be affirmed, with costs.
All concur, except Martin, J., absent.
Judgment affirmed.'
' " It is well settled that a creditor has an insurable interest in the life of his
debtor, but the natuie and extent of this interest has become a seriously com-
plicated question. Much of the confusion now surrounding this subject is, we
ASSIGNMENT. 409
think, attiib-utable to two erroneous views which have been entertained and
annojnced by quite a number of the most respectable courts and judges in this
country. The first is, that a contract effecting insurance upon ihe life of a
debtor for the benefit of a creditor is not a contract of indemnity; and the sec-
ond is, that the creditor's insurable interest in the debtor's life is not confined
striclly to the amount of indebtedness to be secured. Before proceeding
further, it may be remarked that the form in which the transaction is clothed
is utterly immaterial. It makes not a particle of difference whether the policy
is payable to the insured, or his estate, with an assignment to the creditor, or
payable directly to the creditor as the nominated beneficiary. The real thing
to be ascertained, in any given instance, is, what was the actual object of the
parties; for by this test alone is the legality of what they did to be determined.
I. Our first proposition is, that effecting insurance for the purpose of securing
an indebtedness is a contract of indemnity, and nothing else. We have the
utmost confidence in the correctness of this assertion. Indemnity is the only
logical end to be obtained by a transaction of this kind. What possible right
has a creditor to be the beneficiary of such insurance except to protect himself
against loss? and what is such protection, if not indemnity? Notwithstanding
the fact that eminent jurists have held otherwise than as above laid down, we
cannot help thinking that this is a very plain proposition, and one as to which
there ought to be no serious difference of opinion." — Lumpkin, J., in Exchange
Bank v. Loh, 104 Ga. 446. See also, upon the assignment to a creditor, of a life
policy, as security for a debt, the extract from Judge Little's opinion in the same
case, quoted herein at p. 66, note.
PART VI.
Breach of Contract by the Insurer.
I. Remedies.
SKUDERA V. THE METROPOLITAN LIFE INSURANCE CO.
17 Misc. (N. Y.) 367. — 1896.
(Supreme Ct., Appellate Term.)
Appeal from a judgment of nonsuit rendered by the District
Court, in the city of New York, for the Fourth Judicial District.
BiscHOFF, J. — The action was in assumpsit to recover the pre-
miums paid upon five several policies of life insurance which were
alleged to have been wrongfully forfeited by the insurer; and the
judgment appealed from being one of nonsuit, the plaintiff is entitled
to a construction of the evidence most favorable to her. McNally
V. Pha'nix Ins. Co., 137 N. Y. 389.
Observing the rule stated, the case, as developed upon the trial,
was that during the years 1882 and 1883 the plaintiff effected five
policies of life insurance in the defendant company, upon each of
which policies she regularly paid the weekly premiums as they
matured until March, 1895, amounting in the aggregate to $165.95;
and that thereafter the defendant unjustifiably assumed to forfeit
each of such policies for nonperformance of a condition subsequent,
to wit: The payment of premiums maturing subsequently to those
actually paid.
The question which arose upon the motion of the defendant's
counsel for dismissal of the complaint was solely with regard to the
plaintiff's right to recover m assumpsit, as for money had and received
by the defendant to her use, the premiums paid; and we concur in
the justice's decision that the plaintiff had mistaken her remedy.
Granting that upon the defendant's breach the plaintiff could treat
the contract, with regard to each of the policies, as determined, it
does not follow that the defendant was bound ex aquo et bono to
restore the premiums received by it, for which, in part, at least, the
[410]
BREACH OF CONTRACT BY THE INSURER. 41I
plaintiff had liaJ value in the risk assumed by the defendant.
Plainly, the plaintiff could not predicate a rescission of the contract
of the defendant's breach without restitution by her of what she had
received under the contract, and a contract of life insurance being
essentially indivisible in point of performance by either of the
parties thereto {Cohen v. N. Y. Mat. Life Ins. Co., 50 N. Y. 610),
such restitution was in the nature of things impossible. Wharton on
Contracts, § 748; Clark on Contracts, 774; Hunt v. Silk, 5 East, 783.
In a case such as the one at bar, if the insured is unwilling to
await the maturity of the policy and then to test its continued
vitality, only two remedies are available, the insured may either
sue at law for damages for the insurer's breach of contract, or
prosecute an action in equity to have the policy adjudged to be in
force and the insurer to accept the premium refused. Sutherland
on the Meas. of Dam., § 838; Speer v. Phoenix Mat. Life Ins. Co.,
36 Hun, 323; Day v. Conn. Gen. Life Ins. Co., 45 Conn. 480; 29 Am.
Rep. 693; Hayner v. Am. Pop. Life Ins. Co., 69 N. Y. 435; Cohen
v. N. Y. Mitt. Life Ins. Co., supra.
The case at bar should be distinguished from the case where the
failure of consideration for the premiums paid is entire in that the
risk to be assumed by the insurer under the policy never attached,
the policy being avoided for noncompliance with a condition prece-
dent, fraud, or other causes. 11 Am, & Eng. Ency. of Law, 345;
Delavigne v. United Ins. Co., i Johns. Cas. 310; Fulton v. Met. Life
Ins. Co., 4 Misc. Rep. 76; Miller v. Union Cent. Life Ins. Co., 86
Hun, 6.
Judgment affirmed, with costs.
Daly, P, J., and McAdam, J., concur.
Judgment affirmed, with costs.
VAN WERDEN v. EQUITABLE LIFE ASSURANCE SOC.
99 Ia. 621. — 1S96.
From the petition it appears that September 19, 1891, the plain-
tiff paid to the defendant society the sum of $500.40, the same
being three annual premiums on a $3,000 bond or policy of insur-
ance on his life, which policy was afterwards issued to plaintiff; that
on the 19th day of September, 1892, the defendant sent to plaintiff
a receipt for $166.80, being the annual premium due on that date;
that on September 19, 1893, the defendant demanded of plaintiff the
sum of $166.80, being the third annual premium o;i said policy,
which had already been paid, and which plaintiff refused to again
412 BREACH OF CONTRACT BY THE INSURER.
pay; and that because of such refusal defendant notified plaintiff
that the policy was not in force, and becauie suspended and avoided
because of the nonpayment of the third annual premium. The
petition asks to recover the amount originally paid — $500.40 —
with interest. At the close of the entire evidence plaintiff moved
for a verdict in his favor, which the court directed, and from a judg-
ment thereon the defendant appealed. Affirmed.
Granger, J.—* * * IV. It is urged by appellant that the
pl.aintiff hav^ing had the insurance two years, there could be no recov-
ery back of the entire premium paid. The court held that plaintiff,
if eatitled to recover, was entitled to the entire amount paid, with
interest. There is a rule that, where the contract has once taken effect,
there is ordinarily no law to sustain a recovery of premiums paid.
Cooke, Life Ins., § 104; May, Ins., § 567 ; Bliss, Ins., § 423. In sup-
port of the rule are cited Standley v. Insurance Co., 95 Ind. 254; Insur-
ance Co. V. Houser, 89 Ind. 258, and the same case in in Ind. 266,
12 N. E. 479. It is observed that the rule as stated is the ordinary
one, and the cases supporting the text are generally, if not entirely,
based on facts as to which there might not have been room for
doubt; and the text writers from whom we quote make such dis-
tinctions as to render doubtful the application of the rule to the
facts of this case. From some language in the latter case, cited
from Indiana, it would seem as if the rule there stated might be
doubted, as, because of its former application to the case, it is held
to be the law of it. But, however that may be, we think the rule for
this case quite definitely settled. In Insurance Co. v. AIcAden, 109
Pa. 399, I Atl. 256, the company wrongfully revoked the policy
that had run for ten years. The action was to recover the premiums
paid, and it was held that there could be a recovery. In that case
there had been no advance premiums paid, so that the recovery was
sought only for premiums covering the time when the policy had
been in force. In the opinion it is said: " In the case at bar the
rights of the parties under the contract of insurance had attached,
but the plaintiff had never received any actual benefit from it. They
may, in some sense, perhaps, be said to have enjoyed the protection
which the policy afforded in the event of the husband's death; but,
as that event did not occur, the policy had as yet been of no appreci-
able actual advantage to the plaintiff, and no real disadvantage to
the defendant. The parties, for anything that appears, upon the
plaintiff's recovery are placed precisely in the same situation that
they were before the contract was made; for, although the company
had carried the risk, and the plaintiff, Mary A. McAden, at all
times during the continuance of the contract, upon the happening
BREACH OF CONTRACT BY THE INSURER. 413
of the event provided against was entitled to the indemnity it
secured, yet the company has paid nothing and the plaintiffs have
received nothing. As in the case of any other contract, the parties
were entitled, during its continuance, according to its terms. The
policy, when made, was admittedly valid; the premiums which were
paid were voluntarily paid upon the policy; the risk had been run-
ning for ten years; the obligations of the contract were long smce
in force on both sides; and it is clear that plaintiffs could nol, on
their own mere motion, rescind it so as to recover back the premiums
paid. But if, after receiving the several premiums, the company,
without right, refuses to receive further premiums as they mature,
■deny their obligation, and declare the contract at an end, the plain-
tiff, we think, may take the defendants at their word, treat the con-
tract as rescinded, and recover back the premiums paid as so much
money had and received for their use." Rescission or avoidance,
properly so called, annihilates the contract, and puts the parties in
the same position as if ic had never existed. And notice that a
party will not perform his contract has the same effect as a breach.
The latter proposition is supported in Ballon v. Billings, 136 Mass.
307. For the purposes of the question we are considering, the case
at bar does not differ, in any essential fact, from the Pennsylvania
case. In McKee v. Insnrance Co., 28 Mo. 383, it is said: " If the
defendant [the company] wrongfully determined the contract by
refusmg to receive a premium when it was due, then the plaintiff
had a right to treat the policy as at an end, and recover back all
the money she had paid under it." In Insurance Co. v. Garmany,
74 Ga. 51, it is said that, if the assured makes defaults in his pay-
ments, he forfeits all his payments, with the interest that would have
accrued thereon from the time of payment. It then holds that
when the company violates the conditions of its contract it is liable
to return to the assured as much as he (the assured) would lose
because of the breach of the contract. The case holds that, where
the company violates its policy, the assured may recover the pre-
miums paid, with interest. The case cites Insurance Co. v. McAden
and McKee v. Insurance Co., supra. The rule of those cases has a
clear support in Meade v. Insurance Co., 51 How. Prac. i. That
such a rule has ample support on authority is hardly to be doubted.
The case at bar, in its facts, is clearly within the rule.
It is urged that the act of the company in avoiding the policy
could not affect the right of plaintiff thereon if the facts did not
justify the avoidance. That may be true as a legal proposition, but
it is held in Insurance Co. v. McAden, supra, that the assured in such
a case may take the insurance company at its word, and treat the
414 BREACH OF CONTRACT RV THE INSURER.
contract as rescinded. The authorities sustain the rule that in such
a case the assured may elect whether to enforce the contract or
treat it as rescinded, and recover for the breach. The judgment of
the District Court is affirmed.
2. Measure of Damages.
BARNEY V. DUDLEY.
42 Kan. 212. — 1889.
Action for damages for conversion of a life insurance policy.
Clogston, C. — The motion for a rehearing is denied; but, inas-
much as this case goes back for a new trial, it is thought better to
establish the rule or measure of damages the plaintiff is entitled to
if she should recover. The plaintiff had, before the conversion
of this policy, paid in as premiums $803.60. This included fourteen
semi-annual premiums of $57.40 each. Now, to establish this
sum as the plaintiff's measure of recovery, with interest, would be
to allow the insured free insurance during the seven years in which
premiums have been paid. This rule would not be a correct one,
for the insured would have paid no consideration for the insurance
during that period of time. The general rule is, as between the
insured and the insurance company, when the company's business
is wound up, or a policy is cancelled, where an action is brought for
damages, that the measure of damages is the difference between the
rate of premium paid for the old insurance and what another com-
pany of equal credit and standing would charge to issue a new policy
on the same life, and the difference in the rates of premium calcu-
lated upon his expectancy of life. This is upon the ground that the
insured is placed in as good a condition as he was before his policy
was cancelled. This seems just and equitable. People v. Life Ins.
Co., 78 N. Y. 114; Bell's Case, L. R. (9 Eq.) 717; Life Ins. Co. v.
Binford, 78 Va. 103; Phoenix Ins. Co. v. Baker, 85 111. 410. But it
is claimed that this rule is not an equitable one as applied to the
facts of this case. It is shown here that Barney, by reason of ill-
health, is now non-insurable. This, then, presents a different
question, a question that has been discussed in many courts, and
always a conclusion reached with doubts as to its correctness. The
rule above stated we think not equitable as applied to this case, for
this reason: The insured, at the time of taking the insurance, does
it upon the thought and reason that disease and sickness are likely
to happen to him. Insurance would be effected upon few lives, we
BREACH OF CONTRACT BY THE INSURER. 415
think, if the insured was certain that no such mishap would overtake
him, and that only by old age would death come; and insurance
companies insure each individual with this in view. The premiums
are figured upon a contingency of accident, sickness, and prema-
ture death, and now to apply this rule to this case would leave the
plaintiff robbed of a part of the contract against accident and pre-
mature decay, Holdich's Case, L. R. (14 Eq.) 79.
Again, to establish a rule that would make the tables of mortality
the only evidence of the number of premiums the plaintiff would be
compelled to pay, and deduct these premiums from the face of the
policy, would practically deprive the plaintiff of the very thing that
insurance was taken to guard against, and plaintiff would recover no
benefit by reason of the ill-health of the insured which prevents
reinsurance. This general rule is held to apply to both classes in
the case of People v. Life Ins. Co., 78 N. Y. 114; but that was a case
where the insurance company was going out of business, and was
closing up its affairs, and the court established that general rule in
that case because of the impossibility and impracticability of ascer-
taining the state of health of each person holding a policy therein.
The defendants in this case stand upon a different footing from the
insurance company in that case. Here the insurance company is
still carrying the policy, and the defendants will receive the benefit
from it. They have elected to appropriate and withhold this policy
from the plaintiff, seeking to pay the premiums, and finally to
recover at the death of Barney. Whan they place themselves volun-
tarily in this position, they cannot complain if the strongest rule is
held against them.
It is said in People v. Life Ins. Co., supra: " But the health of the
policy-holder may since his insurance have become so impaired that
his life is not now reinsurable, and hence in his particular case the
value to be arrived at upon this basis (speaking of the general rule)
would not be the measure of his damage." So we think as applied
to these defendants the rule ought to be such as will give the plain-
tiff the full value of the policy at the time of its conversion, with
interest. Ho^v to arrive at this value, as we said before, is a diffi-
cult question — one surrounded with uncertainties, depending up:)n
the opinions of persons or insurance companies; but, as before said,
the defendants voluntarily assumed the risk, and they cannot com-
plain. We therefore think the general rule above stated applicable
to this case, with the modification, that if Barney is not insurable by
reason of ill-health or accident, that fact may be shown to reduce
his expectancy. It may also b? shown by experienced and exoert
insurance men that by reason of the ill-health of the insured a
4l6 BREACH OF CONTRACT BV THE INSURER.
greater rate of premium would be required to reinsure him on
account of the shortened expectancy of his life. All these things
may be given for the purpose of aiding the jury in determining his
expectancy, and in this way determining tiie actual value of the
policy at the time of its conversion; for if the insured's expectancy
has been reduced, in proportion to such reduction the value of his
policy has increased. It was said in Bell's Cast\ L. R. (9 Eq.) 717:
" As to the lives, it will be assumed, until the contrary is shown,
that they are all in a normal state; that no other change has taken
place than that which arises from the advance of age. If in addition
to that, either from accident or illness, a higher rate of assurance
is required, that must be added to the proof. That is one of the
things w^hich the office has assured against, and the chance of life
has diminished."
See also Speer v. Life Ins. Co.., ^^d Hun, 322.
We think the rule is fair and equitable as between the plaintiff and
defendants, and therefore recommend that it be adopted.
By thk Court: It is so ordered.
All the j vstices concurring.
PART VII.
Waiver and Estoppel, i
I. In General.
Beck, J., in VIELE v. GERMANIA INSURANCE CO.
26 Ia. I, 48. — 1868.'^
III. The solution of one question will dispose of many points
made by the defendant relating to the admission and exclusion of
evidence, and the giving and refusing of instructions to the jury.
The question is this: Can the breach of the conditions of the policy
against the increase of the risk, without the written consent of the
insurers, whereby the instrument became forfeited, be waived by
parol or by the acts of the defendant?
The plaintiff admitted the increase of the risk by the use of a part
of the building insured for the manufacture of rustic window shades,
but sought to avoid the forfeiture, which otherwise would have
resulted, by evidence tending to show the consent of the agent of
defendant to such use, his acts and declarations recognizing the con-
tract of insurance, after the increase of the risk, and his admission
that the building continued to be covered by the policy. This evi-
dence was given to the jury against the objection of the defendant,
and the court hcld^ in the instructions to the jury, that such facts,
if proved, would operate as a waiver of the forfeiture and entitle
plaintiff to recover. The following are among the conditions of
the policy: " If the above mentioned premises shall be used or
occupied so as to increase the risk, or become vacant and unoccu-
pied, or the risk be increased by the erection of adjacent buildings,
or by any other means whatever, within the control of the assured,
without the assent of the companies indorsed hereon; * * * or
' See also cases on Insurance Ag^ents, post^ p. 468.
' The part of the opinion treating of the authority of agents to waive pro-
visions of the contract is printed herein at p. 472.
LAW OF INSURANCF. — 27 [417]
41 y WAIVER AND ESTOPPEL.
if the assured shall keep upon the said premises gunpowder, or
phosphorus, or petroleum, or rock or earth oils, or benzole, benzine
or naphtha, or any explosive substance, or shall keep or use upon
the said premises camphene, spirits, gas or chemical oils, without
written permission on this policy, then, and in every such case,
this policy shall be void."
The (juestion above stated is fairly presented by the record, and
is of very great importance, not only in its relatiou to this case, but
to the business of insurance generally. We have endeavored to
give it the careful and patient consideration, aided by the able
argument of the counsel for the respective parties, »vhich its
importance demands.
The policy which is the foundation of this action, though a uni-
lateral contract in form, contains covenants of the assured as well
as of the underwriters, and mutual agreements of the parties. Some
of these covenants on the part of the assured are in the nature of
warranties and conditions precedent; others are in the nature of
obligations imposed by the conditions limiting or measuring the lia-
bility of the underwriters. The covenants of the insurers are mostly,
if not all, dependent upon the obligations or covenants of the
insured, expressed or implied in the policy. The policy, though
subscribed only by the underwriters, is evidence of the contract
entered into by both parties, and binds both. 2 Parsons' Maritime
Law, 27; Parsons' Mercantile Law, 404. Contracts of this char-
acter, binding the obligor upon conditions to be performed by the
obligee, but subscribed only by the obligor, are not uncommon.
Those for the sale of real estate are often in this form. The
language used to express the idea that the obligor is not bound to
perform his covenant, until the conditions imposed upon the other
party are performed, or, in other words, that the obligor's covenants
are dependent, is usually a recital of the conditions which are to be
performed by the obligee, following with the declaration that if they
are not performed, the instrument shall become void or forfeited.
The policy under consideration is in this form. It declares that if
the risk is increased by means within the control of the assured,
without the assent of the underwriters, it " shall be void." By the
conditions expressed the assured is prohibited from increasing the
risk, and he obligates himself that it shall not be increased in
the manner prohibited. This is his undertaking, and, as we have
seen, he is bound thereby as though he had subscribed the policy.
This is obvious; but a word or two more may express the idea more
clearly. The underwriters obligate themselves to pay a certain sum
in case of the loss of the building by fire, with the condition, how-
WAIVER AND ESTOPPEL. 419
ever, that the risk shall not be increased in the manner prohibited.
To this condition the assured assents by the acceptance of the con-
tract, and he thus obligates himself and becomes bound by the policy,
that the risk shall not be increased. If he permits it to be increased
his covenants are broken. The condition which he is bound to per-
form is precedent to the underwriters' covenant. The underwriters
are, therefore, not liable on the policy, which ceases to bind them,
and to that extent the policy becomes void.
Unsound conclusions in the argument of defendant's counsel
result from an improper understanding of the expression " shall be
void," used in the condition above quoted from the policy. It is
insisted that the instrument, by force of these words, upon the
increase of the risk, became absolutely null and void. The phrases
and words used to convey the idea are, " ipso facto void;" " dead;"
" extinct ;" " defunct;" " of no effect," etc., etc. ; meaning thereby
that the instrument has no force or effect in the sense of these
terms when applied to instruments void in law, as the deeds of
parties having no legal capacity to contract, or contracts against
public policy, etc. But the term " void," as used in the policy,
has no such meaning. It simply means that the underwriters, upon
the violation of his covenants by the assured, shall cease to be
bound by their covenants in the policy; and this is in accordance
with the true definition of the word and its common use in like con-
nections. The policy does not cease to have a legal existence, it is
the only competent evidence of the contract it embodies, and in
truth is not void except so far that the underwriters are no longer
bound thereby. Neither will they be discharged therefrom unless
they plead the fact that the insured failed to perform his covenants
contained in the policy. Their silence would waive the default of
the opposite party.
The position of defendant's counsel, which is supported by several
authorities, is to the effect that upon a breach of the conditions of
the policy by the assured, which would defeat recovery thereon, it
becomes absolutely void — as it were, dead — and that nothing short
of a new creation could impart vitality to it. This doctrine is
certainly unsound when applied to other contracts; for, on the con-
trary, after default in the conditions by one party, the other ma)
waive the forfeiture and treat the instrument as of binding force
upon himself. No reasons can be given to except policies of insur-
ance from the operation of this rule. The party in default cannot
defeat the contract; the party for whose benefit the conditions are
introduced may waive the forfeiture. It follows, therefore, that the
instrument is forfeited at the option of the innocent party; and if
420 WAIVER AND ESTOTPEL.
he waives the forfeiture, the contract stands as if no breach . i
occurred. In WilUatns v. Bank of the United States, 2 Peters, 102,
the doctrine is announced in these words: " If a party to a contract,
who is entitled to the benefit of a condition, upon the performance
of which his responsibility is to arise, dispenses with, or by any act
of his own prevents, the performance, the opposite party is excused
from proving a strict compliance with the condition."
We conclude, therefore, that the forfeiture of the policy on
account of the breaches of the conditions thereof, could have been
waived by the defendant, and if waived, the policy continued of the
same binding force which it originally possessed. This view is
sustained by the following authorities: Keenan v. Mo. State Mut.
Ins. Co., 12 Iowa, 126; David V. The Hartford Ins. Co., 13 Iowa, 69;
Carpenter v. The Prov. Wash. Ins. Co., 16 Pet. 509; Coursen v. Penn.
Ins. Co., 46 Penn. St. 323; Atlantic Ins. Co. v. Goodale, 35 N. H. 328;
Frost v. Saratoga Ins. Co., 5 Den. 154; Clark v. Joties, i Id. 516;
Cartwright v. Gardner, 5 Cush. 281; North Berwick Co. v. Ins. Co.,
52 Maine, 336; Warner v. Peoria Ins. Co., 14 Wis. 323; Smith v.
Gugerty, 4 Barb. S. C. 614; N. E. F. ^ M. Ins. Co. v. Schettler, 38
111. 166; Viall v. Ins. Co., 19 Barb. 440; Ins. Co. v. Stockboiver, 26
Penn St. 199; Buckbee v. Life Ins. Co., 18 Barb. 541; Beal v. Park
Ins. Co., 16 Wis. 241 ; Wing v. Harvey, 27 Eng. Law & F.q. 140; Peoria
F. 6^ M. Ins. Co. v. Hall, 12 Mich. 202.
IV. We are next led to inquire as to the manner of the waiver of
the forfeiture, whether it must be in writing or may be by parol,
and what acts of the defendant will amount to a waiver. Parol evi-
dence is not admissible to contradict or alter a written instrument,
but this rule does not exclude such evidence when adduced to prove
that a written contract is discharged, or that the damages for non-
performance were waived, or that performance of a part of the con-
tract was dispensed with, i Greenleaf's Ev., §§ 302-304; 2 Phil.
Ev. (Cowea & Hill's and Edwards' Notes) 692 and note 505; 2
Starkie's Ev. 574; Fleming v. Gilbert, 3 Johns. 528; Merrill v. Ithaca
dr" Oicego R. R. Co., 16 Wend. 586. These exceptions to the rule,
or rather the rule admitting parol evidence for these purposes, may
not apply to specialties; but a contract of insurance need not be by
specialty, or even in writing. It seems to be the better opinion that
it may be oral only. Parsons' Mercantile Law, 403 and notes; 2 Par-
sons' Maritime Law, 19 and notes; City of Davenport v. Peoria Ins.
Co., 17 Iowa, 276; Commercial Ins. Co. v. Union Ins. Co., 19 How.
321; Baptist Church v. Brooklyn Ins. Co., 19 N. Y. 305. We need
not, then, inquire whether a policy executed by an incorporation
and attested by its corporate seal is a specialty, for the policy sued
WAIVER AND ESTOPPEL. 421
on is not sealed by the companies, and is therefore a simple con-
tract and not a specialty. The rule therefore will not, in this suit,
exclude parol evidence for the purposes above mentioned. The
cases which we will hereafter cite, in considering what acts may
amount to a waiver of conditions or forfeiture on account of breaches
of conditions, support this doctrine and will illustrate its application,
It is argued that the condition in the policy, to the effect that an
increase in the risk avoids the contract on the part of the under-
writers, unless consent thereto be had in writing, implies that such con-
sent can be given in no other way. It will be at once remarked that
this restriction is itself a condition, and is just as capable of being
waived or dispensed with as any other condition of the instrument
and in the same way. There is nothing in the terms of this con-
dition prohibiting its waiver. But the conditions of the policy
became broken by an increase of the risk, without written consent,
and there at once happened a forfeiture whereby defendant was
discharged from the contract. Now, as a matter of fact, the waiver
was not of the written consent, but of the forfeiture.
V. What will amount to or have the effect of a waiver of a forfeit-
ure of the policy, or a dispensation of the performance of its con-
ditions? The party for tvhose benefit a condition is introduced in a
contract may determine whether it shall or shall not be enforced,
and, as we have seen, may waive or dispense with its performance.
It seems reasonable that the same character of evidence will estab-
lish a waiver or dispensation of conditions that is sufficient to prove
the existence of a contract. An express agreement to that effect
will of course be sufficient. Circumstances proving that the party
treated the contract as subsisting and not forfeited, a course of
dealing consistent only with that hypothesis, and acts and declara-
tions whereby the other party was induced to believe that the con-
dition was dispensed with or forfeiture waived, will be sufficient to
preclude the setting up of the breaches of the condition as a defense
to the contract of the party bound thereby. Thus the receipt of
premium upon a policy after forfeiture is a waiver thereof. N'orth
Berwick Co. v. Insurance Co.^ 52 Maine, 336; New York Insurance
Co. V. National Prot. Ins. Co., 20 Barb. 468; liddle v. Market Fire
Inmrance Co.., 29 N. Y. 184; Ames v. Neiv York Union Ins. Co., 26
Id. 263; Bochen v. Williamsburgh Ins. Co., 35 Id. 131; Goit v.
National Prot. Ins. Co., 25 Barb. 189; Viallv. Genesee Mutual Ins.
Co., 19 Id. 446; Frost V. Saratoga Mutual Ins. Co., 5 Den. 154;
Lycotning Ins. Co. v. Stockbower, 26 Penn. St. 199; Wing v. Harvey,
27 Eng. Law & Eq. 140. So the taking of an additional risk on the
same policy will waive a forfeiture existing at the time for breach
422 WAIVER AND ESTOPPEL.
of condition. Rathbom v. City Ins. Co., 31 Conn. 193. The knowl-
edge of the officers of an insurance company taking a risk upon the
life of a party, that he intended to go south of a certain degree of
latitude, is a dispensation of a condition that the insured should not
go beyond that latitude. Bevin v. Connecticut Life Ins. Co., 23
Conn. 244. The renewal of a life policy which had expired by non-
payment of premium, in favor of one who at the time was sick, and
so known to the officer renewing the policy, is a waiver of conditions
against ill-health of the assured, which otherwise would have avoided
the policy. Btickbeew United States Ins. 6^ Trust Co., 18 Barb. 541.
The following cases which illustrate the doctrine under discussion
we have not space to classify or further notice in this connection:
Peoria Ins. Co. v. Hall, 12 Mich. 202; Sheldon v. Atlantic Ins. Co., 26
N. Y. 460; Warner v. Peoria Ins. Co., 14 Wis 318; N. E. P. &• M.
Ins. Co.\. Schettler, 38 111. 166; Coursen v. Penn. Ins. Co., 46 Penn.
St. 323; Ruse V. Mutual Ben. Life Ins. Co., 26 Barb 556.
It will be observed that the waiver of the condition or forfeiture,
under these authorities, is not required to be supported by a con-
sideration. In the cases where it is held that the payment of pre-
mium upon a policy forfeited for breaches of condition is a waiver
of forfeiture, the payment was not made in consideration of the
waiver, but for the renewal or continuance of the insurance. The
waiver or dispensation is not in the nature of a contract which
requires the support of a consideration, but rather of an estoppel,
whereby the underwriter is precluded from denying the validity of
the contract, on account of acts or admissions either recognizing it
as of binding force after the forfeiture or holding out to the assured
that the performance of the condition is dispensed with. It is not
an accurate use of terms to say that the condition of a contract
must be supported by a consideration. The contract itself must be,
but the condition is a mere incident thereto, and its sufficiency,
validity or force is in no way affected or dependent upon the con-
sideration. It is true the condition may influence the parties in
fixing the amount of the consideration, but the law will not, in the
absence of fraud, inquire into its sufficiency, nor hold a contract
invalid because a full or just value has not been received by the
obligor. The case of a policy of insurance illustrates the point.
The underwriter is bound thereby to pay the assured the amount of
any loss by fire which may happen to his property within a certain
time. The consideration of this contract is the premium received
by the underwriter. The assured is bound not to permit the risk
to be increased; this obligation is the condition of the policy, and
with it we can associate no idea of considerition. It mav enter into
WAIVER AND ESTOPPEL. 423
the contemplation of the under\vriter when fixing the value of the
risk, which may be worth a greater premium without the condition
in the policy, but the adequacy of the consideration, as we have
remarked, is not a matter of inquiry, and the consideration itself
no element of the condition. We conclude, therefore, that, as the
condition is not dependent upon nor supported by the considera-
tion, it may be waived or dispensed with even by an agreement with-
out consideration, * * *
2. Before the Policy Is Issued.
INSURANCE CO. v. WILKINSON.
13 Wall. 222. — 1871.
The Union Mutual Insurance Company, of Maine, insured the life
of Mrs. Malinda Wilkinson in favor of her husband. Both husband
and wife, prior to the rebellion, had been slaves, and the husband
came to Keokuk, Iowa, from Missouri. The company did business
in Keokuk (where the application was made and the policy deliv-
ered), through an agent, one Ball, to whom it furnished blank appli-
cations. The mode of doing business appeared to have been that
the agent propounded certain printed questions, such as are usual
on applications for insurance on lives, contained in a form of appli-
cation, and took down the answers; and when the application was
signed by the applicant, the friend and physician forwarded it to
the company, and if accepted, the policy was returned to this agent,
who delivered it and collected and transmitted the premiums. On
this form of application were the usual questions to be answered by
the person proposing to effect the assurance; and by the terms of
the policy it became void if any of the representations made proved
to be untrue. Among the questions was this one: Question.
Mother's age, at her death? Answer. 40. Question. Cause of her
death? Answer. Fever. Mrs. Wilkinson having died, and the
company refusing to pay the sum insured, Wilkinson, the husband,
brought suit in the court below to recover it. The defense was
that the answers as above given to the questions put were false;
that the mother had not died at the age of forty, but at the earlier
age of twenty-three, and had not died of fever but of consumption.
Evidence having been given by the defendant tending to show that
she died at a much younger age than forty years, and of consump-
tion, the plaintiff, in avoidance of this, was permitted (under the
plaintiff's objection and exception) to prove that the agent of the
424 WAIVER AND ESTOPPEL.
insurance company, who took down the answers of the applicant and
his wife to all the interrogatories, was told by both of them that
they knew nothing about the cause of the mother's death, or of her
age at the time; that the wife was too young to know or remember
anything about it, and that the husband had never known her; and
to prove that, there was present at the time the agent was taking
the application, an old woman, who said that she had knowledge on
that subject, and that the agent questioned her for himself, and
from what she told him he filled in the answer which was now
alleged to be untrue, without its truth being affirmed or assented to
by the plaintiff or the wife. This the jury found in their special
verdict, as they had the other facts, and found that the mother died
at the age of twenty-three; did not die of consumption; and that
the applicant did not know when the application was signed how
the answer to the question about the mother's age and the cause of
her death had been filled in.
In charging the jury, the court said, that if the applicant did not
know at what age her mother died, and did not state it, and declined
to state it, and that her age was inserted by the agent upon state-
ments made to him by others in answer to inquiries he made of them,
and upon the strength of his own judgment, based upon the data
thus obtained, it was no defense to the action to show that the
agent was mistaken, and that the mother died at the age of twenty-
three years.
Verdict and judgment having gone for the plaintiff, the insurance
company brought the case here on error.
Mr. Justice Miller. — * * * -pj^g defendant excepted to the
introduction of the oral testimony regarding the action of the agent,
and to the instructions of the court on that subject; and assigns the
ruling of the court as error on the ground that it permitted the
written contract to be contradicted and varied by parol testimony.
The great value of the rule of evidence here invoked cannot be
easily overestimated. As a means of protecting those who are
honest, accurate, and prudent in making their contracts, against
fraud and false swearing, against carelessness and inaccuracy, by
furnishing evidence of what was intended by the parties, which can
always be produced without fear of change or liability to miscon-
struction, the rule merits the eulogies it has received. But experi-
ence has shown that in reference to these very matters the rule is
not perfect. The written instrument does not always represent the
intention of both parties, and sometimes it fails to do so as to
either; and where this has been the result of accident, or mistake,
or fraud, the principle has been long recognized that under proper
WAIVER AND ESTOPPEL. 425
circumstan.ces, and in an appropriate proceeding, the instrument
may be set aside or reformed, as best suits the purposes of justic-:,
A rule of evidence adopted by the courts as a protection against
fraud and false swearing, would, as was said in regard to the analo-
gous rule known as the statute of frauds, become the instrument of
the very fraud it was intended to prevent, if there did not exist
some authority to correct the universality of its application. It is
upon this principle that courts of equity proceed in giving the relief
just indicated; and though the courts, in a common-law action,
may be more circumscribed in the freedom with which they inquire
into the origin of written agreements, such an inquiry is not always
forbidden by the mere fact that the party's name has been signed to
the writing offered in evidence against him.
In the case before us a paper is offered in evidence against the
plaintiff containmg a representation concerning a matter material
to the contract on which the suit is brought, and it is not denied
that he signed the instrument, and that the representation is untrue.
But the parol testimony makes it clear beyond a question, that this
party did not intend to make that representation when he signed the
paper, and did not know he was doing so, and, in fact, had refused
to make any statement on that subject. If the writing containing
this representation had been prepared and signed by the plaintiff in
his application for a policy of insurance on the life of his wife, and
if the representation complained of had been inserted by himself, or
by some one who was his agent alone in the matter, and forwarded
to the principal office of the defendant corporation, and acted upon
as true, by the officers of the company, it is easy to see that justice
would authorize them to hold him to the truth of the statement, and
that as they had no part in the mistake which he made, or in the
making of the instrument which did not truly represent what he
intended, he should not, after the event, be permitted to show his
own mistake or carelessness to the prejudice of the corporation.
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 insur-
ance, and that the insurer himself wrote out all these representa-
tions, and was told by the plaintiff and^ his wife that they knew
nothing at all of this particular subject of inquiry, 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
426 WAIVER AND ESTOPPEL.
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 signature thereto.
It is in precisely such cases as this that courts of law in modern
times have introduced the doctrine of equitable estoppels, or, as it
is sometimes called, estoppels /'// pais. The principle is that where
one party has by his representations or his conduct induced the
other party to a transaction to give him an advantage which it
would be against equity and good conscience for him to assert, he
would not in a court of justice be permitted to avail himself of that
advantage. And although the cases to which this principle is to be
applied are not as well defined as could be wished, the general doc-
trine is well understood and is applied by courts of law as well as
equity where the technical advantage thus obtained is set up and
relied on to defeat the ends of justice or establish a dishonest claim.
It has been applied to the precise class of cases of the one before
us in numerous well-considered judgments by the courts of this,
country. Plumb v. Cattaraugus Ins. Co., i8 N. Y. 392; Rowley v.
Empire Ins. Co., 36 Id. 550; IVoodbury Saz'ings Bank v. Charter Oak
Im. Co., 31 Conn. 526; Combs v. The Hannibal Savings or' Ins. Co., 43
Missouri, 14S. 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 policy, no one would doubt its appli-
cability 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.
Although the very well-considered brief of counsel for plaintiff in
error takes no issue on this point, it is obvious that the soundness
of the court's instructions must be tested mainly by the answer to
be given to the question, " Whose agent was Ball in filling up the
application? "
This question has been decided differently by courts of the high-
est respectability in cases precisely analogous to the present. It is
not to be denied that the application, logically considered, is the
work of the assured, and if left to himself or to such assistance as
he might select, the person so selected would be his agent, and he
alone would be responsible. On the other hand, it is well known,
so well that no court would be justified in shutting its eyes to it,
that insurance companies organized under the laws of one State,
and. having in that State their principal business ofifice, send these
WAIVER AND ESTOPPEL. 427
agents all over the land, with directions to solicit and procure appli-
cations for policies, furnishing them with printed arguments in favor
of the value and necessity of life insurance, and of the special
advantages of the corporation which the agent represents. They
pay these agents large commissions on the premiums thus obtained,
and the policies are delivered at their hands to the assured. The
agents are stimulated by letters and instructions to activity in pro-
curing contracts, and the party who is in this manner induced fo
take out a policy, rarely sees or knows anything about the company
or its officers by whom it is issued, but looks to and relies upon the
agent who has persuaded him to effect the insurance as the full and
complete representative of the company, in all that is said or done
in making the contract. Has he not a right to so regard him? It
is quite true that the reports of judicial decisions are filled with the
efforts of these companies, by their counsel, to establish the doc-
trine that they can do all this and yet limit their responsibility for
the acts of these agents to the simple receipt of the premium and
delivery of the policy, the argument being th it, as to all other acts
of the agent, he is the agent of the assured. This proposition is not
without support in some of the earlier decisions 0.1 the subject; and,
at a time when insurance companies waited for parties to c.^me to
them to seek assurance, or to forward applications on their own
motion, the doctrine had a reasonable foundation to rest upon. But
to apply such a doctrine, in its full force to the system of selling
policies through agents, which we have described, would be a snare
and a delusion, leading, as it has done in numerous instances, to the
grossest frauds, of which the insurance corporations receive the
benefits, and the parties supposing themselves insured are the vic-
tims. The tendency of the modern decisions in this country is
steadily in the opposite direction. The powers of the agent are,
prima facie, co-extensive with the business intrusted to his care, and
will not be narrowed by limitations not communicated to the person
with whom he deals. Bebee v. Hartford Ins. Co., 25 Conn. 51; The
Lycoming Ins. Co. v. Schollenberger, 8 ^Vright, 259; Beal v. The Park
Ins. Co., 16 Wis. 241; Davenport v. Peoria Ins. Co., 17 Iowa, 276.
An insurance company, establishing a local agency, must be held
responsible to the parties with whom they transact business for the
acts and declarations of the agent, within the scope of his employ-
ment, as if they proceeded from the principal. Savings Bank v.
Charter Oak Ins. Co., 31 Conn. 517; Horwitz v. Equitable Ins. Co., 40
Mo. 557; Ayres v. Hartford Ins. Co., 17 Iowa, 176; The Howard
Ins. Co.w. Bruner, 11 Harris, 50.
In the fifth edition of American Leading Cases, published A. D.
428 WAIVER AND ESTOl'PKL.
1872, vol. 2, p. 917, after a full consideration of the authorities, it
is said: " By the interested or officious zeal of the agents eiiijjloyed
by the insurance companies in the wish to outbid each other and
procure customers, they not unfrequently mislead the insured, by a
false or erroneous statement, of what the application should con-
tain, or, taking the preparation of it into their own hands, procure
his signature by an assurance that it is properly drawn, and will
meet the requirements of the policy. The better opinion seems to
be that, when this course is pursued, the description of the risic
should, though nominally proceeding from the insured, be regarded
as the act of the ins jrers.' Rowley v. Empire Ins. Co., 36 N. Y. 550.
The modern decisions fully sustain this proposition, and they
seem to us founded in reason and justice, and meet our entire
approval. This principle does not admit oral testimony to vary or
contradict that which is in writing, 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 cir-
cumstances by the other side as estops that side from using it or
relying on its contents; not that it may be contradicted by oral tes-
timony, but that it may be shown by such testimony that it cannot
be lawfully used against the party whose nami is signed to it.
Judgment affirmed.'
VAN SCHOICK V. NIAGARA FIRE INSURANCE CO.
68 N.Y. 434- — 1877-
FoLGER, J. — This was an action upon a policy of fire insurance.
It contained this condition: "Any interest in property insured not
absolute, or that is less than a perfect title, or if a building is
insured that is on leased ground, the same must be specifically rep-
resented to the company, and expressed in this policy in writi.ig,
otherwise the insurance shall be void." The fact is, that part of
the property described in the policy, as subject of the insurance,
was a building on leased ground. That fact was not expressed in
writing in the policy. The defendant claims that thereby the
insurance was void, and puts itself thereon as a defense to the
action. It is to be observed of this condition, that it is not one of
' See the discussion of tliis case in New York Life Ins. Co. v. Flete/ier, iij
U. S. 519, reported herein at p. 527; and also the comments upon this case
and later decisions of the same court, in Franklin Fire Jns. Co. v. Martin, 40
N. J. L. 568. reported herein at p. 435 (439).
WAIVER AND ESTOPPEL. 429
those which are subsequent to the formation of the contract, a
breach of which may occur after there has been a valid contract
made and entered into, and continued in existence for a part of its
prescribed term. It is a condition precedent, lying at the threshold
of the making of the contract, and which if not then performed, or
not then obviated, prevents the formation of an enforceable con-
tract. It is obvious, that this building being upon leased ground,
the very moment that the policy passed from the defendant to the
plaintiff, the insurance on it was void, if the condition holds. They
were concurrent acts, the delivery of the contract, and a breach of
this condition; so that at the same instant that the defendant said
we insure this building, at the same instant the condition was broken
and the insurance was void. So that if nothing is shown to break
the rigid effect of this condition, there never was any insurance by
this defendant upon that building. We would scarce expect two
parties to go through so senseless and trifling an act, if the facts
were known to each at the time; but would rather conclude that
they had by words or act agreed that the condition should not be
considered as binding. " If these defendants were an entity, and
could have stood near to that building, when the oral negotiation
for insurance was made and completed, and have seen " and known
that it was upon leased ground; " could it fairly be contended that
they would have offered to the plaintiff, or that he would knowingly
have received, as the correctly written evidence of the contract,
this policy, with the condition in question, contained in it as an
operative and binding clause? We cannot suppose that either plain-
tiff or defendant would do the utterly absurd thing of making, with
deliberation and knowledge, a contract that was void from incep-
tion, and was in contradiction of the facts and statements of the
negotiation." It is plain that the plaintiff and the agent meant to
contract and did contract for the insurance of that building, as a
building on leased land. Cone v. Niagara F. Ins. Co., 60 N. Y. 619.
Hence we are not surprised that the plaintiff claims that the fact
that the building was on leased ground, was made known to the
defendant when the policy was applied for; and that the policy was
delivered and the premium accepted by them, without insisting upon
the fact and the condition. He makes that action of the company,
with that knowledge, his reply to their defense based on that con-
dition and its breach. * * *
And so again comes up the oft-recurring and still vexed question,
"between insurance companies and their policy-holders, whether a
fact, thoroughly well known and comprehended by both sides to the
contract before it is delivered, may, by force of some condition,
430 WAIVER AND ESTOPPEL.
crouched unseen in the jungle of printed matter with which a
modern policy is overgrown, make a defense for the company, after
the catastrophe and damage has happened against which it professes
to guard. It is to be confessed, that the decisions in this State do
not, upon a cursory perusal at least, seem strictly in harmony in
regard to it. There are cases which hold that where an application
is made a part of the policy by the terms of it, and some false asser-
tion has been inserted in the application by the agent, when the
truth has been at the same time well known to him, that the insured
shall not be prejudiced thereby. Rowley v. The Empire Ins. Co.,
3 Keyes, 557; Plumb ". Catt. Ins. Co , 18 N. Y. 392; Ames v. N. V.
Ins. Co , 14 N. Y. 253. There are others, where the fact fell
within the condemnation of some condition of the policy; yet as
the fact, as it existed, was known to the company, it was held to
be estopped from setting up the condition against a recovery. 14
N. Y, supra; Bidwell v. N. IV. Ins. Co.., 24 Id. 302; Bodine v.
Exchange Ins. Co., 51 Id. 117. There are others in which there was
a suit in equity, seeking a reformation of the contract, and it was
held that the facts showed unmistakably, that the parties never
meant to enter into a contract with such a condition or description
in it as was set up against a recovery; Cone v. Niagara Ins. Co., 60
N. Y. 619; Mahar \. Hibernia his. Co.., 67 Id. 283. In the latter
case, the facts made a clear estoppel in pais against the company.
It has also been held, that a warranty, part of the printed matter
of the policy, has been dispensed with by the oral agreement of the
parties made before the delivery of the policy; McCall v. Sun Mut.
Ins. Co.., 66 N. Y. 505. On the other hand, in an action at law, it
has been held, that where the terms of the policy are clear and
unambiguous, parol proof is inadmissible to vary them, or to show
that either or both parties were not aware that they were e.xchang-
ing a contract such as was requested, and as agreed with the facts
in the situation of the property. Pindar ■>•. Resolute Ins. Co., 47 N.
Y. 114. See also Rohrbach v. Germania Ins. Co., 62 Id. 613. And
so it has been held that parol proof is not admissible, to show that
both parties knew that a statement in an application for a policy
was not true. Ripley v. yEtna Ins. Co., 30 N. Y. 136. Other cases
bearing upon the subject might be cited — quafitum suff.
There is no doubt but that, ordinarily considered, this condition
in a policy was a warranty that the building did not stand upon
leased land; and that the truth of that warranty became a condition
precedent to any liability on the part of the defendant. Yet, there
is no doubt, too, that a condition in a policy may be waived by the
insurer, or, as some cases put it, he be estopped from setting it up.
WAIVER AND ESTOPPEL. 43 1
and that such result may be worked by parol, or by act without
words. It has been held over and over, that the customary clause
in a policy, that it will not be binding upon the insurer until the
premium is paid m fact, may be waived by parol, or by act, and
the policy may be delivered and become a binding contract upon the
insurer, without payment in hand of the premium; Trustees^ etc. v.
Br. Ins. Company^ 19 N. Y. 305; Sheldon v. Atlantic F. Ins. Co., 26
Id. 460; Woodw. Po. Ins. Co., 32 Id. 619; Boehen v. Wms. B. City Ins.
Co., 35 Id. 131; Bodine v. Ins. Co., 51 Id. 117. As to other waivers,
see Ludwig v. Jersey City Insurance Company, 48 N. Y. 384, and cases
there cited; Shearman v. Niagara Fire Insurance Company, 46 Irl.
532. Now, in this first class of cases, it has been thought that the
fact that the insurer delivered to the insured the written contract,
as the consummated agreement between them, and did not then
exact present payment of the premium as a necessary 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 con-
dition a potent part of the contract. Such a provision, it is said,
could have no effect upon the delivered and perfect contract in
which it was contained; 19 N. Y., supra. 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. And such imputation can
be avoided only by supposing that it had overlooked this con-
dition, and so forgotten to express the fact as to the building, in
writing, upon the policy; or that it waived the condition, or held
itself estopped from setting it up. The condition of prepayment
of premium is, like this under consideration, one at the threshold
of the making of the contract, and if it is not observed, no valid
contract is made unless it is stepped over or thrust aside. It is
consistent with fair dealing and a freedom from fraudulent purpose,
to hold that one or the other was done; that is, that there was a
waiver, or is estoppel.
There are other conditions precedent which may be waited.
Thus, in Myers \. life Insurance Company, 27 Penn. St. 268, it is said
that the countersigning by the agents is under some circumstances
not essential, though required by condition. The ground there
stated is, that on an equitable interpretation of the whole contract,
it may become the duty of the court to dispense with a portion of
the forms of the contract, if it can find any reliable substitute for
432 WAIVER AND ESTOPPEL.
them; on the principle that cures defective execution of powers,
where the intention to execute is sufficiently plain. The contract
was to be complete when delivered by the agents, and countersign-
ing by them was to be the appointed evidence of its proper delivery.
There may be other evidence, to be regarded as equivalent. So
here, it was not that the defendant would not at all insure a build-
ing on leased lands. They did agree to take a risk upon it. Bat to
have it insured by them, the fact of it being on leased land must
be expressed to them. This was done. As evidence that it was
done, it must, they said in the policy afterwards delivered, appear
in writing on the policy. This is, like countersigning by agent, but
one of the forms of making the contract. That the policy was deliv-
ered, and the premium recei^^ed, with full purpose of insuring that
building, with full purpose of mriking a valid and obligatory con-
tract, is evidence that through neglect or forgetfulness one of the
forms was not observed; or that it was waived by the parties.
This case is to be distinguished from that of Pindar^ 47 N. Y.
114. There, Pindar asked a policy in a certain form of words.
The insurer issued it to him in a different form, and in such form as
would not cover certain classes of goods, and as, by the presence of
those classes in the store, rendered the whole policy void. It was
not proposed to show that the insurer knew that the very class of
goods on which insurance was sought was in the store, and that the
policy was delivered with the purpose to insure that class, and with
the mutual understanding that by the policy it was insured. Hence
that case differs from this, and it was properly held that Pindar was
bound by his contract. In RohrbacJis Case, supra, the decision went
upon the effect of a peculiar clause in the policy, and in that fact is
quite different from this. Chase v. Hamilton Ins. Co., 20 N. Y. 52,
is put upon a ground very like that in Rohrbach' s Case; that it was
printed in the application, that the company would not be bound by
knowledge of the agent, and that the company could not be held
thereby, unless there was fraud, or prevention of the application
from making a true statement. Ripley v. The .Etna Insurance Com-
pany, 30 N. Y. 136, is to be distinguished from this in hand. There
the representation or warranty was promissory. It was an agree-
ment by the applicant that he would thereafter keep a watchman in
his mill of nights. This looked to the future conduct on his part.
It was not a part of the form of the contract. And though the
agent of the insurer knew the custom of the applicant had not
been to keep a watchman in his mill from midnight on the last day
of the week till midnight on the first day of the next week, that
did not affect his promise thereafter to do differently. It is also
WAIVER AND ESTOPPEL. 433
said in that .case, that there may be a waiver of conditions, but only
on an agreement founded on a valuable consideration, or when the
act relied upon as a waiver is such as to estop a party from insist-
ing on the condition. In the case in hand, there is a consideration
in the premium paid, which would not have been done with an under-
standing that the condition should remain and be enforced, thus
making the payment futile. In the purview of some of the cases
there is also an estoppel.
It is difficult to make all the cases upon this subject harmonize;
but by the force of authority, we are constrained to hold that such
a condition as this may be waived by the insurer, by express words
to that effect, or by acts done under such circumstances as would
otherwise impute a fraudulent purpose, and as will estop him from
setting up the condition against the insured. * * *
We, therefore, conclude that the judgment appealed from should
be affirmed.
Church, Ch. J., Andrews and Miller, JJ., concur; Allen,
Rapallo and Earl, JJ., dissent.
Judgment affirmed.
GRAY AND Another v. GERMANIA FIRE INSURANCE CO.
155 N. Y. 180. — xSgS.
Martin, J. — The only question we are called upon to determine
in this case is whether the knowledge of the defendant's agent that
the plaintiffs intended to procure other insurance upon the property
covered by the defendant's policy constituted a waiver of the pro-
vision therein prohibiting other insurance without the indorsement
upon the policy of an agreement to that effect. The courts below
have so held. This conclusion was based upon the theory that as the
defendant's agent knew that the plaintiffs intended to procure other
insurance when the policy in suit was issued, and delivered it with
that knowledge, it constituted a waiver of its provision as to other
insurance. Manifestly, this theory cannot be sustained. It is well
settled in this State that where an insurance company issues a policy,
with full knowledge of facts which would render it void in its incep-
tion if its provisions were insisted upon, it will be presumed that it
by mistake omitted to express the fact in the policy, waived the
provision or held itself estopped from setting it up, as a contrary
inference would impute to it a fraudulent intent to deliver and
receive pay for an invalid instrument. Van Schoickv. Niagara F.
Ins. Co., 68 N. Y. 434; Whited v. Germafiia F.Ins. Co., 76 N. Y.
LA.W OF INSURANCE — 28
434 WAIVER AND ESTOPPEL.
415; Richmond v. Niagara F. Ins. Co., 79 N. Y. 230; Woodruff v.
Imperial F. Ins. Co., 83 N. Y. 133; Short v. Home Ins. Co., 90 N. Y.
i6; Foncard \. Continental Ins. Co., 142 N. Y. 382; JFoodv. Ameri-
can F. Ins. Co., 149 N. Y. 382; Robbins v. Springfield F. er* M. Ins.
Co., 149 N. Y. 477, 484.
But it is manifest that that principle has no application to the
facts in this case. When the defendant's policy was delivered
neither of the other policies had been issued, but were subsequently
obtained. Consequently, the defendant's policy was valid in its
inception. If it became invalid it was by the act of the plaintiffs in
subsequently procuring additional insurance, without obtaining an
indorsement upon the policy of the defendant's consent. As the
defendant issued to the plaintiffs a policy which was valid when
delivered, the fact that they informed the defendant's agent of their
intention to subsequently procure other insurance was insufficient to
justify the courts below in holding that there was a waiver of that
c:)ndition, or that the defendant was estopped from insisting upon
it. Baumgartel w. Providence-Washington Ins. Co., 136 N. Y. 547;
Moore v. H. F. Ins. Co., 141 N. Y. 219; McNierney v. Agricultural
Ins. Co., 48 Hun, 239.
The distinction between the knowledge of an existing fact which
renders a policy void when delivered and the omission of the insured
to give notice of and procure the required consent to a subsequent
act, which, by its conditions invalidated it, although previously
consented to, was clearly pointed out in the authorities cited.
The decisions of the courts below are at variance vv^ith the principle
that written contracts cannot be controlled or varied by oral evi-
dence, and that a written instrument must be regarded as the recep-
tacle of the entire contract between the parties, and merges all
previous oral agreements in it.
Nor do we think the contention of the respondents, that they were
entitled to recover upon a parol contract of insurance, made with
the agent, can be sustained. There was no proof that the defend-
ant's agent ever agreed to issue a policy different from the one deliv-
ered, or that he agreed that other insurance might be procured
without the indorsement required. It is manifest that this action
was upon the policy issued by the defendant, and was not based
upon any other agreement between the plaintiffs and the agent of
the defendant.
The judgment of the General Term and of the trial court should
be reversed and a new trial granted, with costs to abide the event.
All concur, except Gray, J., absent
Judgment reversed.
WAIVER AND ESTOPPEL. 435
FRANKLIN FIRE INS. CO. v. MARTIN.
40 N. J. L. 568. — 1878.
This action was brought upon a policy of insurance, under seal,
bearing date April 27th, 1870, issued to the plaintiff as owner of the
property insured. At the trial before the Circuit a verdict was had
by Martin, the plaintiff below, whereupon this writ of error was
sued out by the defendant. Errors were assigned upon the record,
and upon the proceedings at the trial.
Depue, J. — * * * Fourth. In the policy the property insured
is described as a building occupied " as a dwelling and boarding-
house." This description defines the character of the risk assumed,
and is a warranty that the property, at the time of the insurance,
was used for that purpose. Dewces v. Manhattan Ins. Co., 6 Vroom,
366. In fact, it was at that time occupied as a dwelling and board-
ing-house, and also as a country tavern, and in a room back of the
l)ar-room there was kept for use a billiard-table. The property
continued to be so used until the fire occurred.
In the conditions of insurance it is stipulated that if the assured
shall cause the buildings, goods or other property insured to be
described in his policy otherwise than as they really are, so that
they be charged at a lower premium thin is therein proposed, the
policy shall be of no force. In the classification of risks, drinking-
houses and taverns were classified as extra hazardous, and subject
to a higher premium than hazardous risks; and billiard-rooms were
named in the specially hazardous class, subject to a still higher pre-
mium. Dwelling and boarding-houses were not mentioned in any
special classification. The consequence of a misdescription of the
use of the premises at the date of the insurance is prescribed by
the condition mentioned. It does not avoid the policy simply for a
misdescription m that respect. To accomplish that result, the mis-
representation must have been operative to cause the insurance to
be effected at a lower premium than it would otherwise be subject
to; and that question was properly left to the jury. Columbian Ins.
Co. V. lawrence, 2 Peters, 46; i Bigelow's Ins. Cas. 264.
Fifth. The insurance was obtained through one Buckley, an agent
of the company. The judge received evidence that he inspected
the premises at the time of taking the proposals of insurance, and
knew the manner in which they were then used, and left the ques-
tion to the jury whether the parties themselves did not knowingly
use the term boarding-house to describe the very thing that was
insured; and if they did, in that view the knowledge of the agent
was material: That if the agent, acting on his own knowledge, mak-
435 WAIVKK AND ESTOI'I'EL.
ing Ills own survey, undertake to describe the building, it is his
description of the risk, and if the company accept it, it agrees that
the term used shall describe the risk as it existed.
The evidence in relation to the agent's knowledge of the actual
condition of the property was competent on the question whether
the assured, by the misdescription, in fact procured the insurance to
be made at a lower premium than would otherwise have been
demanded. But these instructions were erroneous. They left the
jury to find from such knowledge by the agent that the company
insured a country tavern under the description of a dwelling and
boarding-house — thus making a different contract from that
expressed on the face of the policy.
There is a distinction between a representation which is merely
collateral to the contract of insurance, and a i^-arranty or condition
which is part of the contract itself. A representation collateral to
the contract will not avoid the policy though it be untrue, unless it
was fraudulently made; but the validity of the entire contract
depends upon the truth or fulfilment of the warranties and con-
ditions. Deduces v. Manhattan Ins. Co., 5 Vroom, 247. Where the
defense is that a representation collateral to the contract was false,
and was fraudulently made, the gist of the defense is the fraud of
the plaintiff by which the insurer was misled, and induced to make
the contract of insurance. To such a defense proof that the agent
of the insurer had knowledge of the true state and condition of the
premises is a. complete answer; for with such knowledge no decep-
tion is practiced. Marshall -v. Columbian Mut. Fire Ins. Co.., 7 Foster,
157; Protection Ins. Co. v. Harmer, 2 Ohio St. R. 452; Patten v.
Insurance Co., 40 N. H. 375; State Mutual Ins. Co. v. Arthur, 30
Penn. St. 315. A different rule prevails with respect to a warranty
contained in the policy; if it is in fact not complied with, the con-
tract falls, without regard to the knowledge of the insurer of the
actual condition of the property insured. This distinction between
a representation collateral to the contract and a warranty which is
part of it is taken in State Mutual Ins. Co. v. Arthur, supra, and it was
there held that knowledge of the insurer or its agent of the exact
state and condition of the premises will relieve the insured from the
consequences of a false or imperfect representation, but not as
against a warranty not complied with.
If the proposal for insurance be prepared by the agent of the com-
pany, and he misdescribe the premises, with full knowledge of their
actual condition, and there be no fraud or collusion between the
agent and the insured, the contract of insurance may be reformed
in equity, and made to conform to the condition of the premises as
WAIVER AND ESTOPPEL. 437
they were known to the agent. Collett \. Morrison, 9 Hare, 162;
In re Universal Non- Tariff Fire Ins. Co., L. R. 19 Eq. 385; Malle-
able Iron Works v. Pha'nix Ins. Co., 45 Conn. 465; IVoodbury Savings
Bank V. Charter Oak Ins. Co., 31 Id. 517; Maker v. Hibernia Ins. Co.,
67 N. Y. 2S3. But in an action at law upon the policy the rights of
the parties must be determined by tne contract of insurance, which
cannot be altered or modified by extrinsic evidence of a different
agreement, to be established from a knowledge of the insurer or its
agents of the actual condition of the property insured. Dewees v.
Manhattan Ins. Co., 6 Vroom, 366. When the insurer defends on
the ground of a breach of warranty, it is no answer that he knew
that such warranty was not in fact true. Columbia Ins. Co. v. Cooper,
50 Penn. St. 331. Thus, it being stipulated in the conditions of
insurance tnat a false description of the property insured should
avoid the policy, it was held that a misdescription defeated the
plaintiff's right to recover under it, though the statements were
known to be false by the insurer's agent who prepared the descrip-
tion, and informed the plaintiff that in that respect the description
was immaterial. Smith v. Cash Mut. Ins. Co., 24 Penn. St. 320.
Evidence is not competent in an action on the policy to show that the
matter complained of as a breach of warranty was mentioned to the
agent at the time of the application, and that he said it was of so
little consequence that it need not be mentioned in the policy.
Loehner v. Home Mut. Ins. Co., 17 Mo. 247. Nor will it be received
to show that the insured informed the agent of the exact condition
of his title, and that the agent filled out the application in his own
language. Hough v. City Fire Ins. Co., 29 Conn. 10. The decided
weight of authority is against the admission of such evidence as a
clear violation of the salutary rule of law, that all prior statements
are merged in the concluded contract, and that a contract put in
writing cannot be added to or altered by parol testimony. Barrett
V. Union Mut. Ins. Co., 7 Cush. 175; Lowell -v. Middlesex Ins. Co., 8
Id, 127; Jenkins v. Quincy Mut. Ins. Co., 7 Gray, 370; Kibbe v.
Hamilton Mut. Ins. Co., 11 Id. 163; Jennings ". Chenango County
Ins. Co., 2 Denio, 75; Rohrbach v. Germania Ins. Co., 62 N. Y. 47;
Columbia Ins. Co. v. Cooper, 50 Penn. St. 331; Sheldon v. Hartford
Fire Ins. Co., 22 Conn. 235. Many of the cases to the same effect
are cited by the chief justice in his opinion in De^uees v. Manhattan
Ins. Co., as reported in 6 Vroom, 366, which, in itself, is a weighty
authority against the competency of such evidence.
In Sheldon v. Hartford Fire Ins. Co., supra, it was held that where
the policy and survey constituted a contract between the parties,
and there was no imperfection or ambiguity in the contract, evidence
438 WAIVER AND ESTOrPEL.
of parol representations made to the agent prior to the issuing of
the policy could not be received to explain or qualify the contract.
See also Glendale Mfg. Co. v. Protection Ins. Co., 21 Conn. 19-37.
In Feck V. ^V. Z. Miit. Ins. Co., 22 Conn. 575, the evidence was
received not to vary the terms of the policy, but for the purpose of
rebutting the presumption that the policy was a wagering policy.
In Bevin v. Conn. Mut. Ins. Co., 23 Conn. 244, it was admitted solely
for the purpose of showing knowledge by the company of the
insured's intention to travel, in violation of the conditions of the
policy, to give effect to a waiver arising from subsequent receipts
of premiLims. In Bebee v. Hartford Co. Mut. Ins. Co., 25 Conn. 51,
proof of communications made by the insured to the agent was
received to show that the insured had not fraudulently concealed
facts material to the risk. In Hough v. City Fire Ins. Co., 29 Conn.
10, the court had decided that there was no warranty of the con-
dition of the title of the insured, and the evidence was considered
legitimate to meet the claim of the company that the insured by a
misrepresentation had rendered the insurance void. Woodbury
Savings Bank \. Charter Oak Ins. Co., 31 Conn. 517, was in equity
on a bill to reform the policy and enjoin the defense in an action at
law upon it. In none of these later cases was Sheldon v. Hartford
Fire Ins. Co. overruled; nor was parol evidence of prior transactions
with the agent of the insurer admitted to vary the terms of the
policy, or to make a contract different from that expressed therein.
The leading case in New York is Jennings v. Chenango County
Mut. Ins. Co., 2 Denio, 75. This case held, in accordance with a
series of cases beginning with Vandevoort v. Columbian Ins. Co., 2
Cair.es, 155, that parol evidence that the insured truly informed
the agent of the insurer, who prepared the application, as to the
situation of the premises, was not competent to vary a warranty on
that subject, or save the insured from the consequences of a breach
of the contract of insurance. This case was recognized as good
law by the courts of that State until the decision of Plumb v. Catta-
raugus Ins. Co., 18 N. Y. 392, where such evidence was held by a
divided court to be admissible, not to change the contract, but to
produce the same result under the guise of an equitable estoppel.
Plumb v. Cattaraugus Ins. Co. was followed in Rowley v. Empire Ins.
Co., 36 N. Y. 550. It was justly criticised and condemned as founded
on erroneous views, by the chief justice in Detvees v. Manhattan Ins.
Co., as reported in 6 Vroom, 366; and with Roxvley v. Empire Ins. Co.,
has been greatly shaken by subsequent decisions in the same court,
if it was not practically overruled by Rohrbach v. Germania Ins. Co.,
62 N. Y. 47-63. In Maker v. Hibernia Ins. Co., 67 N. Y. 283, refor-
WAIVER AND ESTOPPEL. 439
mation of the contract of insurance seems to have been regarded as
the appropriate method of relief under such circumstances. The
condition of the law on this important subject in that State is such
that it would not be advisable to adopt it, or prudent to endeavor to
follow the decisions of its courts. The discordant and irreconcila-
ble decisions which have grown out of the departure from the law
as held in Jennings v. Chenango County Alut. Ins. Co., are cited by
Judge Folger m Van Schoick v. Niagara Fire Ins. Co.., 68 N. Y. 438.
Some of the conditions of the policy may be controlled by evidence
of the knowledge of the parties at the time the insurance was
effected, and others not; but no rule or principle has been promul-
gated for ascertaining, in advance of the litigation, what stipulations
in the contract belong to the one class or the other — a condition
of the law sure to result from the effort to deal with contracts of
this kind, in disregard of established rules of law, and acknowledged
legal principles.
The Supreme Court of the United States has held that the policy
of insurance issued by the company, and accepted by the insured,
must be taken to be the final agreement of the parties, and that if
by inadvertence or mistake, stipulated provisions were omitted, or
provisions other than those intended were inserted, the remedy
was in equity for the correction of the agreement, and that neither
party could resort to the verbal negotiations preliminary to the
execution of the policy to contradict or vary its terms, or to ascer-
tain what the contract really was. Ins. Co. v. Lyman, 15 Wall. 664;
Ins. Co. V. Mozvry, 96 U. S. 544. But in Ins. Co. v. Wilkinson, 13
Wall. 222, the same court, following Plutnb v. Cattaraugus Ins. Co.,
and RoT.vIey v. Empire Ins. Co., held that parol evidence that the
application of the insured was prepared by the company's agent,
and that he filled up, from inquiries made by himself, the answers to
the interrogatories, the falsity of which was the breach of warranty
relied on, was competent as a matter of estoppel. The only other
cases cited for this decision were Combs v. Hannibal Ins. Co., 43
Mo, 148, which was itself decided on a following of the two New
York cases above cited, and IVoodbury Savings Bank v. Charter Oak
Ins. Co., 31 Conn. 526, which was a bill in equity for the reforma-
tion of the policy.
It is manifest that the theory that such parol evidence, though it
may not be competent to change the v^ritten contract, may be
received for the purpose of raising an estoppel in pais, is a mere eva-
sion of the rule excluding parol testimony when offered to alter a
written contract. A party suing on a contract in an action at law
must be conclusively presumed to be aware of what the contract
440 WAIVER AND ESTOTPEL.
contains, and the legal effect of his agreement is that its terms shall
be complied with. Extrinsic evidence of the kind under considera-
tion must entirely fail in its object unless its purpose be to show
that the contract expressed in the written policy was not in reality
the contract as made. A defendant cannot be estopped from making
the defense that the contract sued on is not his contract, or tliat his
adversary has himself violated it in those particulars which are
made conditions to his rights under it, on the ground of negotia-
tions and transactions occurring at the time the contract was entered
into, unless the plaintiff is permitted to show, from such sources,
that the contract, as put in writing, does not truly express the
intention of the parties. The difficulty lies at the very threshold.
An estoppel cannot arise except upon proof of a contract different
from that contained in the written policy, and an inflexible rule of
evidence forbids the introduction of such proof by parol testimony
when offered to vary or affect the terms of the written instrument.
The subject has been so fully and forcibly discussed by Chief Justice
Beasley in Deivees v. Manhattan Ins. Co. that it is unnecessary to
pursue it further.
Nor is the reasoning of the learned justice who delivered the
opinion in Insurance Co. v. Wilkinson., that the admission of such
testimony is rendered necessary by the manner in which agents are
sent over the country by insurance companies and stimulated by
them to exertions in effecting insurance — which often leads to a
disregard of the true principles of insurance as well as fair dealing
— any more satisfactory. It introduces into the administration of
the law the novel doctrine that the rules which regulate the admis-
sion of evidence fl ictuate with the character of the agencies parties
employ in transacting business, and upon that foundation establishes
an exceptional rule of evidence to be applied to an entire class of
contracts whether agents, ignorant, incompetent or unscrupulous,
were employed or not. It leaves the whole subject of contracts of
insurance at the mercy of a kind of evidence which is regarded as
too untrustworthy and unreliable ever to control contracts in writing.
The cases usually cited for the proposition that a contract of insur-
ance is excepted out of the class of written contracts with respect to
the admissibility of parol evidence to vary or control the written
contract will be found, on examination, to be, to a large extent,
those in which the proof has been received with a view to the
reformation of the policy in equity or to meet the defense that the
contract was induced by false and fraudulent representations not
embodied in the contract, or are the decisions of courts in which
the legal and equitable jurisdictions are so blended that the func-
WAIVER AND ESTOPPEL. 44I
tions of a court of equity have been transferred to the jury box.
A distinction is sometimes made between policies issued by a stock
company and those issued by a mutual company. This distinction
is without any substance. In a mutual company the insured, by
taking out policies, become members of the company. But, never-
t'leless, a member of a corporation, and even a director, in dealing
with the corporation, stand, with respect to their contracts, just the
same as a stranger [Straiton v. Allen, i C. E. Green, 229), and the
powers of agents of every kind of principals to act for and bind
their principals are determined by the unvarying rule of ascertain-
ing what authority is delegated to them. How the contract was
effected, whether directly with the insurer or by the intervention
of agents, is of no consequence. The question of the admissibility
of the testimony does not relate to the method by which the con-
tract was made. It concerns the rule of evidence by which the con-
tract, however made, shall be interpreted.
Upon principle, it is impossible to perceive on what ground such
testimony should be received. A policy of insurance is a contract in
writing, of such a nature as to be within the general rule of law that
a contract in writing cannot be varied or altered by parol testimony.
If it be ambiguous in its terms, parol evidence such as would be
competent to remove an ambiguity in other written contracts may
be resorted to for the purpose of explaining its meaning. If it
incorrectly or imperfectly expresses the actual agreement of the
parties, it may be reformed in equity. If strict compliance with
the conditions of insurance, with respect to matters to be done by
the insured after the contract has been concluded, has been waived,
such waiver may, in general, be shown, by extrinsic evidence,
by parol. Further than this it is not safe for a court of law to go.
To except policies of insurance out of the clas.> of contracts to which
they belong, and deny them the protection of the rule of law that a
contract which is put in writing shall not be altered or varied by
parol evidence of the contract the parties intended to make, as dis-
tinguished from what appears, by the written contract, to be that
which they have in fact made, is a violation of principle that will
open the door to the grossest frauds. If, as was said by Judge
Folger, in Van Schoick v. Niagara Fire Ins. Co., " a fact thoroughly
well known and comprehended by both sides to the contract before
it is delivered may. by force of some condition crouched unseen in
the jungle of printed matter with which a modern policy is over-
grown, make a defense for the company, after the catastrophe and
damage have happened, against which it professes to guard," the
remedy is with the Legislature to prescribe what conditions only
442 WAIVKR AND ESTOl'PEL.
shall be valid, and to compel the printing of them in the policy, in
such a manner as to be capable of being read and understood.
A court of law can do nothing but enforce the contract as the
parties have made it. The legal rule that in courts of law
the written contract shall be regarded as the sole repository of the
intentions of the parties, and that its terms cannot be changed by
parol testimony, is of the utmost importance in the trial of jury
cases and can never be departed from without the risk of disastrous
consequences to the rights of parties.
In the present case the property insured was described in the
policy as a dwelling and boarding-house. There was no ambiguity
in the terms used that justified resort to extrinsic evidence to
explain the meaning of the contract. The effect given to the testi-
mony on this subject, by the charge of the court, was to change the
terms of the contract and reform it, and make another and a different
contract. In this there was error, for which the judgment should
be reversed.'
For affirmance — Dixon, Clement, Lilly — 3.
For reversal — The Chancellor, Chief Justice, Depue, Reed,
ScuDDER, Van Syckel, Woodhull, Dodd, Green — 9.
' " There was a condition which declared that ' if the premises hereby insured
shall become vacated by the removal of the owner or occupant, and so remain
for a period of more than fifteen days, without notice to the company and con-
sent indorsed hereon,' it should become void. The premises were burned during
such a vacancy, but evidence was received and acted on that before the issu-
ing of ihe policy the insured had stated lo the agent that he expected during
the currency of the policy to leave his house vacant during a year or
more, and was informed it would make no difference. * * * The vacancy
concerning which the parties conversed, if there was any such conversation,
was one contemplated in the future, and the stipulation or understanding, if it
amounted to anything, was an executory contract, intended to form a part of
the contract of insurance. This being so, the doctrine cannot be admitted that
any part of the completed contract can rest in parol. The policy was ihe con-
clusion of the bargain, and its acceptance would exclude any parol promises
inconsistent with it. There is no resemblance between a parol variance of a
written contract, and a waiver of a condition after it has become binding on the
parties." — Hartford Ins. Co. \. Davenport, 37 Mich. 608, 611-12, See also
Promissory Representations, ante, p. 118.
WAIVER AND ESTOPPEL. 443
3. After the Policy Is Issued, but Before a Forfeiture.
Taylor, J., in ALEXANDER 7l CONTINENTAL
INSURANCE CO.
67 Wis. 422, 427 — 1886.
The insured had taken a policy in which there is a condition that
the policy shall terminate if any instalment on the premium note is
not paid promptly on or before the day it becomes due. The com-
pany has no place in the vicinity of the insured where the money
can be paid. The agent says to the insured: " True, the policy
says the liability of the company shall cease immediately if the
money be not paid on the day, but I say to you, as agent of the
company, that I will give you notice when payment is required."
The insured, relying upon this promise of the agent, does not pay
on the day. Two months or more after the day the agent appears
and demands payment, and payment is made. No claim is made
that there has been a forfeiture of the policy, or that it is necessary
to have the policy renewed by procuring the written consent of the
company in the manner prescribed in the contract, and the agent
renews his promise to give notice when the next and subsequent
instalments should become due, and says he will call upon her per-
so:ially for payment. No notice is afterwards given, and no one
calls for the money. The note is retained by the company, and not
presented for payment, nor payment thereof demanded in any way,
and in the meantime a loss occurs.
The condition or forfeiture in the policy having been once waived,
and the insured having been led to believe that it would not be
thereafter enforced, the company cannot enforce it except by an
actual demand of payment of the money due on the note and a neg-
lect or refusal to pay the same, or by a return of the note to the
insured with notice that the company insists upon the condition in
the policy. See Marcus v. St. L. Miit. L. Ins. Co., 68 N. Y. 625;
Dilleber v. K. L. Ins. Co., 76 N. Y. 567; She/don v. A. F. 6^ M. Ins.
Co., 26 N. Y. 460, 465; Goit V, National P. Ins. Co., 25 Barb. 189;
Devine v. Home Ins. Co., 32 Wis. 471, 477; Hoiuell v. K. I. Ins. Co.,
44 N. Y. 276, 283. See also many of the cases in this court cited
above. The case of Dilleber v. K. I. Ins. Co., supra, was a case of
a life policy, where prompt payment had been waived by the com-
pany; and afterwards, when the insured offered to pay some days
after the payment became due by the terms of the policy, the com-
pany refused to receive payment, and the insured shortly after-
wards died. It held there was no forfeiture. The court say: " It
may be inferred that the company had waived a strict compliance
441- WAlNEk AM) ESTOPPEL.
\»i :i tiieir written condition, and they also aid in the proper con-
bi: action of the agreement of the parties made in April, i860.
Indeed, the conduct of both parties from the time of tliat transac-
lio 1 seems to indicate that they regarded it as a part of the arrange-
ment of insurance, and the insured was not in fault in trusting to its
continuance. The company was bound by it, and could not in good
faith insist upon a strict compliance with the condition of payment
until, before a premium became due, they gave the insured notice
that they should exact it. They cannot, when their own interest
seems to demand it. waive a condition, and, after reliance upon it by
the insured, withdraw the waiver without notice " The above
argument is strictly applicable to the case at bar, upon the allega-
tions made in the complaint, which, for the purposes of this case,
are admitted to be true.
4. After Forfeiture.
OAKES V. MANUFACTURERS' FIRE AND MARINE
INS. CO.
135 Mass. 248. — 1883.
Holmes, J. — This is an action upon a policy of insurance con-
ditioned to be void if the property should be " sold or conveyed in
whole or in part." The plaintiff subsequently conveyed through a
third person to his wife, and the answer sets up the conveyance as a
breach of condition. It has already been decided that the condition
was broken by the conveyance. Oakes v. Manufacturers Ins. Co.,
131 Mass. 164. But at a second trial the plaintiff offered to prove
that he went to the office of the defendant company, and orally
notified it of the conveyance and of a mortgage, which was made
before the policy and was still outstanding, and requested the
defendant to cure the defect in the policy caused by the convey-
ance, and handed the policy to the defendant for that purpose; and
that, at that time, and upon said request, the defendant made the
following indorsement on the policy: " Boston, Aug. 29. 1877.
Pay the within insurance of Si.xteen Hundred Dollars on House in
case of loss to the Andover Savings Bank. Chas. T. Oakes.
Assented to Aug. 30, 1877. Jas. J. Goodrich, Secretary.''' That
said policy was then redelivered by the defendant to the plaintiff,
and no return of premium, or any portion thereof, was made. The
court excluded the evidence, and directed a verdict for the defend-
ant.
WAIVER AND ESTOPPEL. 445
The plaintiff's insurable interest is admitted, and the defendant
supports this ruling and direction on the single ground that the
plaintiff's offer was an attempt to modify and enlarge the effect of
the written indorsement by evidence of contemporaneous oral deal-
ings, and to import into it, or establish alongside of it, a larger scope
or transaction than can be gathered from its words. No other ques-
tion is raised.
In the opinion of the court, the evidence was admissible. To
begin at a little distance from the ground of the chief contention,
the highest authorities have declared that the condition against
alienation does not take away the defendant's power to waive a
breach and to continue the insurance in force, and that a new con-
sideration is not necessary for this purpose. Titus v. Glciis Falls
Ins. Co., 81 N. Y. 410, 419." Wheeler v. WatertoK'ii Ins. Co., 131
Mass. I, 8; hisurance Co. v. Norton, (^dA] . S. 234. A condition sub-
sequent can rarely be meant to deprive the party for whose benefit
it is inserted of his choice in this respect. Hence a contract which
is subject to such a condition is usually construed to provide by its
own terms that it shall remain in force after a breach, unless by
some overt act the contractor shall manifest his election to avoid
it or if by some overt act he shall manifest his election to afinrm it,
as the case may be. It follows that, if he elects to remain bound,
he remains so by force of the original contract, and on the original
consideration.
It might be said that this reasoning applies to a condition subse-
quent, strictly so called, which goes to the whole contract, and
which, if insisted on, avoids it ab initio, but that the proviso in this
case only limits the scope of the promise and the extent of the risk
assumed. And then it might be argued further, that the scope of a
promise cannot be enlarged without a n^^'N consideration. The
answer is, that, even taking it that way, by the same settled con-
struction that reads " void " as " voidable," the limitation of the
' " But it may be asserted broadly that if, in any negotiations or transacdons
with the insured, after knowledge of the forfeiture, it recognizes the continued
validity of the policy, or does acts based thereon, or requires the insured by
virtue thereof to do some act or incur some trouble or expense, the forfeiture is
as matter of law waived; and it is now settled in this court, after some differ-
ence of opinion, that such a waiver need not be based upon any new agree-
ment or an estoppel. Allen et al. v, Vermont Mut. Fire Ins. Co., 12 Vt. 366;
Webster v. Phcenix Ins. Co., 36 Wis. 67; Cans v. St. Paul Ins. Co., 43 Id. 109;
Insurance Co. v. Norton, g6 U. S. Sup. Ct. 234.; Goodwin v. Mass. Alut. Life Ins.
Co., 73 N. Y. 4&0, 493: Prentice v. Knickerhocker Lije Ins. Co., 77 Id. 483; Brink
V. Hanover Fire Ins. Co., 80 Id. 108." — Titus v. Gtens Falls Ins. Co., 81 N. Y,
410, 419.
446 WAIVER AND ESTOP I'EL.
promise is itself conditional, and that the original promise is to
insure throughout the term, in spite of an alienation, in case the
insurer manifests an election to keep the insurance on foot.
Whether it be said that the contract remains subject to affirmance
after an alienation, or that the promise is alternative to insure up to
or beyond that event, at the election of the promisor, all that is
necessary to impose the greater burden on the insurer is an overt
act directed toward the insured and manifesting an election to
assume that burden. And it is enough that the act implies that the
insurance is to continue, although its immediate purpose is some
further result.
Thus, where, as here, the thing set up as manifesting the election
is a writing, the election need not be expressed in the words used.
The writing may contain no reference to the breach of condition,
yet if the undertaking which it does set forth carries with it, as the
necessary premise, that the insurer was content to remain bound,
he will remain bound as certainly as if he had written out that such
was his intention.
Of course, however, if the act thus relied on as an indirect election
be shown to have been done in ignorance of the breach of condition,
it will not continue the insurance unless in the exceptional case
where the insurer has acted with indifference to what the facts might
be, and has assumed to act with equal effect however they might
turn out. Parol evidence is therefore admissible to show that the
insurer knew of the breach at the time of the act relied on.
The application of the foregoing principles to this case is obvious.
The defendant had the power to continue the insurance if it chose.
When, at the request of the plaintiff, it indorsed upon the policy its
consent to pay the insurance, in case of loss, to the mortgagee, it
did an act which necessarily assumed that the contract remained in
force; for by such an indorsement it necessarily admitted and
affirmed that, in case of loss, money would be due and payable to
some one under the contract. Such an affirmation was an overt act
of election to continue the insurance, provided the act was done
with knowledge that the condition had been broken. But this indi-
rect effect of the indorsement as an act of election depended upon
the defendant's having such knowledge. Hence, evidence that the
conveyance had been communicated to the company was most
material, not as tending to enlarge the writing or add a further
agreement, but as showing that the condition attached by the law
to the operation of the indorsement as an act of election had been
satisfied.
Barrett v. Union Ins. Co.., 7 Cush. 175, was cited on behalf of the
WAIVER AND ESTOPPEL. 447
defendant. In that case, a policy was issued by a mutual company,
subject to a by-law, which formed part of the contract, to the effect
that all policies upon property previously insured should be void,
unless such previous insurance was mentioned in the policy at the
time it was issued. There was previous insurance not mentioned in
the policy; and it was rightly held that, in an action on the policy,
parol evidence was inadmissible to show that this had been made
known to the company and assented to by it. The evidence would
have directly contradicted the written instrument declared on. The
policy in effect stipulated that its delivery should not make a con-
tract if there was previous insurance not mentioned. The evidence
went to show that delivering the policy made a contract, notwith-
standing such insurance; or, in other words, that the condition pre-
cedent was not insisted on at the very moment when, by the words
of the policy, it was insisted on. The other cases cited do not
require special notice.
To avoid misapprehension, it may be well to add that this case is
not affected by the clause providing that the policy may continue for
the benefit of the purchaser, if the company consents, etc. The
plaintiff claims in his own name, under the contract made with him,
which he made voidable by his act, but which he says he can prove
the company elected to affirm. The power of the company to elect
in favor of the contract is not dependent upon any printed clause,
but is given to it as legally incident to a condition subsequent.
Exceptions sustained.
LANTZ V. VERMONT LIFE INS. CO.
139 Pa. 546. — 1891.
Paxson, C. J. — This was an action oi a policy issued by the
defendant company, insuring the life of Simeon B. Lantz, for the
benefit of his wife, Evalina E. Lantz, the plaintiff below. The
policy stipulated that the premiums should be paid quarterly, on the
19th days of February, May, August, and November in each year;
that if the said premiums should not be paid on the days named,
and in the life-time of the assured, the policy should cease and
determine; that the acceptance of a premium after maturity should
not be deemed or construed as a waiver, or as any evidence of an
agreement to waive the payment of any future premiums at the time
the same shall, by the terms of the policy, become payable, and
that no person e.xcept the president and secretary, acting together,
are authorized to make, alter, or discharge contracts or waive
forfeitures.
448 WAIVER AND ESTOPPEL.
Upon the trial below it was among the admitted facts of the case
that the premiums falling due in May, August, and November, 1887,
were not paid at maturity, but were paid after maturity, and accepted
by the com[)any; that the premium due on February 19, 1888, was
not paid at maturity; that on March 2, 1888, a brother of the
insured, who was also a policy-holder, called on the general agent of
the company in Philadelphia, and informed the latter that Simeon
B. Lantz would be down on March 6th to pay his premium, and was
told that he, the agent, did not make out his monthly report until
the loth of the month, and that if the premium was paid by the 9th
it would be all right. So far there is no dispute. But Mr. Lantz,
the witness, testified that there was no condition annexed to the
promise to receive the money, while Mr. Ryer, the agent, testified
that he said he would receive the money, provided the insured was
in his usual health at the time; that he would have to be satisfied
upon this point either by a health certificate, or by seeing the
insured personally, and that in the meantime the latter was carry-
ing the risk himself. This question of fact was submitted to the
jury, and they have found there was no condition annexed to the
promise. We-must, therefore, treat the case upon this basis.
It may simplify the discussion somewhat to note the following
admission of the learned counsel for the company, to be found on
page 12, of his paper-book: " It was admitted on the trial that the
insured had paid three prior premiums after maturity, which had
been received by the defendant; and also that the manager was in
the habit of, and practically had authority to, receive premiums and
deliver renewal receipts after maturity, provided that the insured
was at the time of the payment in good health. This was as far as
the testimony went. There was no evidence which, even the plam-
tiff pretends, goes to show that the agent had authority, or has ever
acted beyond this, or that the company had ever known of or
ratified such agreement; and it was further admitted that, if Simeon
B. Lantz, the insured in this case, had on March 9th been alive and
in good health, and had tendered payment of the premium, it would
have been received." Simeon B. Lantz, the insured, was in good
health on March 2d, but was taken ill on the next day, and died on
March 6th. The above admission disposes of any question as to
the authority of the general agent to receive overdue premiums.
But we must stop where the admission ends, unless a further or
greater authority is to be found in the evidence. In order to estab-
lish an authority to receive an overdue premium after the death of
the insured, one of two things must be shown, viz.: (a) An express
authority to do so, conferred upon him by the company; or (d) such
WAIVER AND ESTOPPEL. 449
a course of' dealing on the part of the company, by ratifying or
recognizing such acts of the agent, as would justify persons dealing
with said company in assuming that he possessed such authority.
There is not a word in the testimony to sustain either of these prop-
ositions. All that it shows was the receipt of overdue premiums
on three occasions. But the insured was in full life and health at
the time. The case of the plaintiff, if sustained at all, must rest
upon the promise of the agent to receive the premium up to the 9th
day of March. This promise, as before observed, the jury have
found to be an unconditional one. This I understand to mean that
the money would be received as late as the 9th of March, without
regard to the health of the insured, or even his death prior to that
time. It remains to consider the legal effect of such promise.
The first question which logically suggests itself is, what was the
legal effect upon the stains of the policy by the default or failure to
pay the premium due on the 19th of February ? Did it continue to
bind the company and protect the insured thereafter? And, if so,
how long did it remain in force? Was it for a week, a month, or a
year? I know of no instance in which a policy was held to be in
force after such a default, unless in pursuance of a contract made
between the company and the insured contemporaneous with the
insurance, or during the life of the policy. In Helnie v. Insurance
Co., 61 Pa. St. 107, the plaintiff offered to prove "that it is the cus-
tom among insurance companies to receive premiums if tendered at
any time within thirty days of the time they fall due, provided the
insured is in usual health, and that this is the custom among com-
panies issuing policies stipulating that non-payments of premiums at
the day shall be a forfeiture." This offer was rejected by the court
below, and the rejection was held to be error. Chief Justice Thomp-
son saying: " It might have been a difficult thing to prove such a
custom, but that was not a good ground on which to refuse the
offer." The grounds of this decision are obvious. While a custom
which has grown into a law may not be heard, as a general rule, to
affect the terms of a statute nor a contract to the extent of enlarg-
ing or abridging the force of it, yet it may interpret either. Rapp
v. Palmer, 3 Watts, 178. The chief justice gives a number of
examples of the application of this principle; among others, the
familiar instance of the days of grace on commercial paper. By the
custom of merchants, so universal as to ha^^e grown into law, such
paper is not due until three days after it purports to be due; or,
rather, the remedy is suspended during that period.
It was not alleged that any such custom existed in this case.
There was not e\'en an offer to show it, much less proof to support
LAW OF INSURANCE — 29
450 WAIVER AND ESTUlTEL.
it. Did the fact that the company upon three prior occasions
accepted the premium from the insured after maturity, the insured
being in good health at the time, continue the policy in force after
the default on the i9lh of February? I know of no authority for
such a proposition, and none has been called to our attention. It
was at most a mere personal indulgence, a matter of grace on the
part of the company, and all that can be claimed for it is that it
may have led the insured to believe that, if he again neglected to
pay on the day, the money would be accepted if paid shortly there-
after, provided no change had occurred in his condition of health.
The law upon this subject is so clearly stated by Mr. Justice Bradley
in Thompson v. Insurance Co., T04 U. S. 252, that I need make no
apology for quoting it at length: " The last replication sets up and
declares that it was the usage and custom of the defendants, prac-
ticed by them before and after the making of said note, not to
demand punctual payment thereof at the day, but to give days of
grace, to wit, for thirty days thereater; and they had repeatedly so
done with Thompson and others, which led Thompson 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 plaintiff himself
calls it, an act of leniency. It cannot be justly construed as a per-
manent waiver of the clause of forfeiture, or as implying any agree-
ment 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 particular instance, without involving any waiver of the
terms of the contract in reference to their future conduct. The
assured had no right, without some agreement to that effect, to rest
on such voluntaiy indulgence shown on one occasion, or on a num-
ber of occasions, as a ground for claiming it on all occasions. If it
were otherwise an insurance company could never waive a forfeiture
on an occasion of a particular lapse without endangering its right t >
enforce it on occasion of a subsequent lapse. Such a consequence
would be injurious to them and to the public."
The consequence of a default in the payment of the premium is
defined in the policy itself. It declares that, if not paid on the days
named, and in the lifetime of the insured, the policy should " cease
and determine." By this I understand that it is suspended, it
ceases to bind the company and to protect the assured, and this-
WAIVER AND ESTOPPEL. 45 1
without any act or declaratioa on the part of the former. It does
not require a formal forfeiture. This term is often used, and, I
think, inaccurately, in such cases. Nor is the policy void in the gen-
eral sense of that term. It is voidable at the election of the com-
pany, and that election can be exercised without notice to the
assured, for the reason that the policy itself is notice that his rights
cease with the non-payment of the premium. As to him it is a dead
policy. It is true it may be restored to life by the subsequent pay-
ment of the premium, and its acceptance by the company. This,
however, is a new contract by which the company agrees in con-
sideration of the premium to continue in force a policy which had
previously expired; in other words, it is a new assurance, though
under the former policy. Wan^ v. Blunt, 12 East, 183. I do not
understand it to be contended that, had the assured died between
the 19th of February and the 2d of March, there could have been a
recovery on this policy. It seems almost a work of supererogation
to cite authorities for so plain a proposition, and I will refer to but
few, out of an abundance. In Insurance Co. v. Rosenberger., 84 Pa.
St. 373, which was a case of fire insurance, our Brother Sterrett,
after saying that the default suspended the protection of the policy,
continued: " Upon the payment of the assessment the policy
would have been revived in its full vigor; but it was never paid, or
even tendered, until after the fire, and as delinquent policy-holders
they had no right to maintain the action without showing that the
default was either waived or excused by the company. There is no
evidence of wai"er, nor do we think there is any evidence to excuse
the default. There was considerable testimony showing that great
indulgence was extended to delinquent members, and that the com-
pany was accustomed to receive assessments long after they were
due; but this is entirely consistent with the fact that, while the
default continued, the protection of the policy was suspended." In
Insurance Co. v. Rought, 97 Pa. St. 415, it was said by Mr. Justice
Mercur: "It is well settled, if a member of a mutual insurance
company is in default in the payment of an assessment upon his
policy, after due notice according to the by-laws and rules of the
company, the protecting power of the policy is suspended until the
assessment is paid. No recovery can be had for a loss sustained
during the continuance of such default." Citing Hummel' s Appeal,
78 Pa. St. 320; Insurance Co. v. Buckley, ?)T, Pa. St. 293; Insuratice
Co. V. Rosenherger, 84 Pa. St. 373; Insurance Co. v. Cochran, 88 Pa.
St 230. It is true these were cases of fire insurance companies, but
the principle is equally applicable to a case of life insurance.
This we think sufficient to show that no recovery could have been
452 WAIVER AND ESTOPPEL.
had upon this policy had the assured dieil between the date of the
maturity of the premium and the promise of the agent to accept the
premium on the 9th of March. Regarding that as a promise to
accept the premium even in the case of the previous death of the
assured, we are led to inquire, in the first place, what authority had
the agent to make such a promise? The condition of the policy is
explicit that the premium must be paid " in the life-time of the
insured." Had the agent the authority to waive this condition?
The policy not only declared that no person except the president
and secretary, acting together, are authorized to make, alter, or
discharge contracts, or waive forfeitures, but a notice to the same
effect was printed on the back of each renewal receipt given to Mr.
Lantz. It was not alleged that the president and secretary, acting
together or singly, had ever waived this condition in the policy, or
that they, or either of them, had given authority to the agent to
waive it in this or any other listance. No course of dealing was
shown on the part of the company by which the grant of such
authority to the agent could be implied. There was not even an
attempt to prove that the company or its agent had ever received an
overdue premium after the death of the assured. There is nothing
within the four corners of this record to show that the agent had
authority, express or implied, to waive this condition. What right
had the assured to suppose, with this condition in the very front of
his policy, that the agent would receive his overdue premium after
his death?
We are not without authority upon this point. The leading case
is JFani v. Blunt^ 12 East, 183. The following statement of the
facts is condensed from the opinion of Lord Ellenborough. The
policy provided for the payment of quarterly premiums on March
25th, June 24th, September 29th, and 20th of December during the
life of the said W. W. Want, or within such time after those days,
respectively, as is or shall be allowed for that purpose by the rules
of the said society. It was provided by the rules of the society that
if any member neglected to pay the quarterly premiums for fifteen
days after the same become due, the policy will be void. This pro-
vision was attached to the policy. The quarterly payments were all
paid at maturity until the one that came due on December 20th,
which was not paid, and Want died on December 25th; and on
December 27th, two days after his death, but within the fifteen
days, his executors tendered the payment of the premium, which
was refused. The court sustained the refusal. Lord Ellenborough
saying, inter alia: " This is a contract of assurance, and must be
construed according to the meaning of the parties as expressed in
WAIVER AND ESTOPPEL. 453
the deed or policy. * * * I'^e risk insured against is his death,
and the premium is a quarterly payment, to be made by him to the
society during his life. The duration of the msurance is so long as
he shall continue to make those quarterly payments; but the insur-
ance is not to be void if he pay the quarterly premium within such
time after the quarter day as is allowed by the rules of the society.
* * * The covenant on the defendant to pay the wife's annuity
after Want's death is: 'If Want shall pay, or cause to be paid, the
quarterly premium on every quarter day during the life of Want, or
within such time after as shall be allowed by the rules of the society
for that purpose; ' in construing which sentence, the expression,
' during the life of Want,' must be understood as applying to and
carried on to the latter part of the sentence, and is the same as if
the words ' during the life ' had been repeated after the words
' within such time after,' /. e., or ' within such time after, during
the life.' * * * Yox these reasons we are of opinion that the
death of W. W. Want, which happened on the 25th of December,
was during a period of time not covered by the policy, and that on
the true construction of the policy and rules of the society, the
insurance could not be continued beyond the expiration of the quar-
ter, which ended on the 20th of December, by a tender of the pre-
mium by his executors after his death, though within fifteen days
after the quarter day, so as to include within the policy the period
of his death." la Simpson v. Insurance Co., 2 C. B. (N. S.) 257, the
words of the policy were: " Provided he, the said insured, on or
before * * * pg^y qj. cause to be paid to the defendant the
annual premium; " and on this point the court said: " The policy
was to continue, provided he. the insured, paid the premium within
the twenty-one days; and this, we think, did not give the executors
the right to pay it after his death." To the same point is Pritchard
v. Society, 3 C. B. (N. S.) 622; Insurance Co. v. Ruse, 8 Ga. 534.
The lule lai 1 down in Want v. Blunt., supra, appears to have been
followed in all subsequent cases where the same point arose. If
there has been any departure it has not been called to our attention.
If, however, we are wrong in this, if we regard the condition in
the policy that the premium must be paid in the life-time of the
insured, as of no effect, or, if effective, that it has been waived,
there is another reason why the company was not bound to receive
the premium after the death of the assured. I have endeavored to
show that by the failure to pay the premium, the policy lapsed, or
was suspended, on the 19th of February. With the policy in this
condition, the plaintiff proved, as already stated, an unconditional
promise on the part of the agent of the company to accept the pre-
454 WAIVKR AND ESTOTFEL.
mium up to the 9th of March. I a the ordinary case of the payment
of an overdue premium, as all the authorities show, the policy does
not bind between the default and the payment. The plaintiff claims
that this case does not come within the rule; that the promise
enlarged the time of payment, precisely as if March 9th had been
the period stipulated in the policy; and that from the time the
promise was made until the time it was to be fulfilled the policy
was in full force. But if, as I have at least endeavored to show,
the policy did not bind between the default and the promise, what
occurred on the 2d day of March to change the situation of the
parties and restore this dead policy to life? Was it the payment
of the premium ? The premium was not paid. W x^ it a prom-
ise to pay it? There was no such promise. There was nothing
but the bare promise of the agent to accept the premium if paid
by the 9th of March. Had it been paid by the assured prior to that
date, and accepted by the company, the policy undoubtedly would
have been restored to life. This would result, not by virtue of the
promise of the agent, but from the acceptance of the premium as a
consideration for the renewal. It would have been a new assurance
under the old policy. The mere promise of the agent, made after
the default had occurred, to receive the premium up to March 9th,
was a nudum pactum. It was not a contract, because there were no
contracting parties. The assured gave nothing; promised nothing.
A lapsed policy can only be restored to life, so far as the assured is
concerned, by the actual payment and acceptance of the premium,
or a contract based upon a sufificient consideration. What consid-
eration did the company receive for carrying this risk from the 19th
of February until the 9th of March? Had the insured lived until
the latter date, and then refused or neglected to pay his premium,
he would have had the benefit of an insurance on his life during said
period without paying a dollar of consideration. For, as before
stated, he did not give anything, nor did he promise anything. It
was optional with him to pay. The company could not have
enforced it against him had he declined. There is no provision in
the policy which covers such a case. If the insured does not pay,
the policy drops, and the contract relation ceases.
Marvin v. Insurance Co., 85 N. Y. 282, is so exactly like the case in
hand upon the facts that a reference to it will not be out of place.
In that case one Milton B. Marvin had a policy of $3,000 on his life,
payable to his wife in case of his death. The premium due on the
13th of April was unpaid. On the 27th of April, Hinkle, the agent
of the company, told the assured that if he paid the premium the
next morning, the 28th, he, the agent, would receive the same.
WAIVER AND ESTOPPEL. 455
Hinkle went to the house of the assured the next day, and there
found him lying sick upon his bed, and, on being offered the o\'er-
due premium by the assured, declined to receive it at that time,
because the assured was then sick, but told him to keep the money,
and when he got well, he, Hmkle, would receive it, and keep the
policy alive. The assured never did recover from his sickness, the
premium was not paid, and the company notified the assured that
it would hold itself absolved from the contract by reason thereof.
The assured died in the following September. Under this state of
facts it was held there could be no recovery upon the policy, the
court below saying: " We think the plaintiff was properly non-
suited. As we understand the law as laid down by the court of last
resort in such cases, in order to a valid extension of the time for
the payment of a premium upon a life-policy after the time of pay-
ment has gone by, there must be some valid consideration for the
extension or waiver of the condition of payment, or there must be
something said by or on behalf of the insurance company, while the
party bound to make the payment has still time and opportunity for
so domg, by which the insured is induced to believe the condition
is waived, or that strict compliance will not be insisted on. This
introduces an element of estoppel in the case. In such a case it
would be unjust to allow the insurance company to repudiate the
agreement, and to insist that, because of the non-payment of the
premium punctually, which omission had been induced or counte-
nanced by its own act, it should be absolved from the performance
ot its part of the contract." This case was affirmed in the Court
of Errors and Appeals in an opinion by Finch, J., principally upon
the ground that, even if Hinkle was the general agent of the com-
pany, he had no authority to waive the condition as to payment,
the clause in the policy containing a condition similar in this respect
to that in the policy in this case. For this reason the court did not
deem it necessary to express an opinion upon the ground upon which
the court below rested the case, viz., the want of consideration for
the promise, but said expressly: " It must not be inferred that we
deem the ground of the decision belov; incorrect." This case is
valuable for the further reason that it shows very clearly the ground
of the distinction between a promise to extend the time of payment
made before the time of such payment and one made after the
default. In the former instance the assured may have relied upon
the promise, and allowed the time to slip by, whereas, without such
promise, he might have procured the money and paid the premium.
Hence the cases hold that the company, having misled the assured
to his harm, are estopped from alleging a default because of non-
45^ WAIVER AND ESTOPPEL.
payment on the day. But where a promise is made after the default
the assured has not been misled or injured in any manner. He has
allowed his policy to lapse by his own neglect. It can only be
restored by the consent of the company, and he has no reason to
suppose that if he dies before the matter is perfected by the pay-
ment and acceptance of the premium the company will pay as in the
case of a live policy.
In nearly every case cited to show the authority of an agent to
bind the company, by a promise made after a default to pay the
premium, the decision of the court was rested upon the ground of
estoppel, a principle which I do not thmk has any application to the
case in hand. In Dean ^.Insurance Co., 62 N. Y. 642, the agree-
ment to extend the time was not only made before the premium
became due, but the company had actually received the notes of the
assured for the payment of three-fourths of the premium. This not
only introduced the element of estoppel, but the notes received
constituted a valid consideration for the waiver of punctual pay-
ment. In Homer v. Insurance Co., 67 N. Y. 478, the agreement
extending the time of payment was also made before the premium
fell diie, and thus the policy-holder was prevented from paying the
premium on the day it became due by the terms of the policy. In
Tcnnant v. Insurance Co., 31 Fed. Rep. 322, the credit was extended
while the policy was in full force. In Churchv. Insurance Co., 66 N.
Y. 222, the dealings were between the assured and the home office,
and no question was involved as to the authority of the agent. The
court held there was evidence to go to the jury that a credit was
intended, inasmuch as it showed a prior dealing with the assured for
many years, and that he was in the habit of getting policies without
paying for them at the time. In Insurance Co. v. Norton, 96 U. S.
234, there is an expression by Mr. Justice Bradley which indicates
that he did not see any difference between a promise to extend the
time of the payment of the premium, made before the default, and
a promise made after such default. In this case, however, there was
not only a promise made to pay, but this was followed up by an
actual tender of the premium, and a refusal by the company of such
tender. This presents an entirely different state of facts from the
case I am discussing, and Mr. Justice Bradley's remarks must be
taken in connection with the particular facts to which he was refer-
ring. In Insurance Co. v. E^^^leson, 96 U. S. 572, the question was
whether the assured was excused for not paying his premium at
maturity. This clearly appears from the concluding portion of the
opinion of Mr. Justice Bradley. It is as follows: " The insured,
residing in the State of Mississippi, had ahvays dealt with agents of
WAIVER AND ESTOPPEL. 45/
the company, located either in his own State, or within some acces-
sible distance. He had originally taken his policy from, and had
paid his first premium to, such agent, and the company had always,
until the last premium became due, given him notice what agent to
pay to. This was necessary, because there was no permanent agent
in his vicinity. The judge rightly held that, under these circum-
stances, he had reasonable cause to rely on having such notice.
The compa-ny itself did not expect him to pay at the home ofifice.
It had sent a receipt to an agent located within thirty miles of his
residence; but he had no knowledge of the fact, at least such was
the' finding of the jury from the evidence." Insurance Co. v. Dos-
ter, io6 U. S. 30, I Sup. Ct. Rep. iS, is somewhat similar as to its
facts. The assured was entitled to a dividend on the business of
the company, which was set apart to the insured in part discharge
of his premium. The company failed to notify him of the amount,
and it was the cause of the delay in the payment. In Insurance Co.
V. Block, 109 Pa. St. 535, I Atl. Rep. 523, the premium had been
paid, and the question was whether it had been paid to the proper
person. In Insurance Co. v. Hoover, 113 Pa. St. 591, 8 Atl. Rep_
163, which was the case of a payment of the premium on a fire policy
after maturity, there was a course of dealing by which the agent
gave the assured a credit in his accounts, and became himself the
debtor of the company therefor. This clearly appears from the
following extract from the opinion of Mr. Justice Sterrett: " On
the trial, evidence was received tending to show that Fredrick,
through whom the insurance was placed, was the recognized agent
of the company for the purpose of securing risks, receiving and
remitting premiums, etc.; that in his dealings with the company he
was made its personal debtor for premiums on all policies issued
through him, and that he periodically accounted to it therefor,
whether the money was received by him from the persons to whom
the policies were issued or not; that he made the persons or firms
to whom he delivered policies his personal debtors, and dealt wiih
them in that relation, charging them with the prem.iums on his
books, sending them bills in his own name, and making himself
responsible to the company for the same; and that the bills for pre-
miums were generally rendered some time during the month after
the insurance was effected."
I have not, of course, reviewed all the authorities cited; I have
considered the most important. To review them all would protract
this opinion to such a length that no one would probably read it.
No Pennsylvania case was cited which is in serious conflict with the
views above expressed, nor have I been able to find one after a
458 WAIVER AND KSTOPPEL.
careful examination of the digests. It is possible I may, in the
press of business, have overlooked some such case. We have little
leisure to search for cases that are not cited. But I regard the
overwhelming weight of authority, both in this State and elsewhere,
to be in accord with the principles above stated; moreover, 1 believe
them to be sustained by the sounder reason.
L nder the circumstances, we think it was error for the learned
judge below to charge the jury as follows: " Therefore,.! think the
question arises, and it is for you to say, in this case, whether this
general superintendent, residing here in Philadelphia, with his prin-
cipal in Vermont, and in the constant habit of doing this very thing,
because we find a number of receipts where he did receive the money
subsequent to the time fi.ved, and it is testified to in this case thit
he certainly agreed to do it, and had done it in the case of Mr.
Lantz, his brother, so that, if the rule was to be enforced as it is
written, he would have no right to do this thing which he was in
the habit of doing, and that, therefore, it is a question for you to
say whether he had any authority; whether the company, having
permitted him to do this thing constantly, had not authorized him
— the secretary and president had not authorized him — to perform
the acts that he was domg." See first assignment. The " thing "
which the agent had done and which the company had ratified was
the acceptance in three instances of overdue premiums from the
assured, he being in full life at the time. Authority beyond this
could not be inferred from any act of the company or its agent. It
was not denied — indeed, it was expressly admitted — that, had the
assured tendered the premium during his life-time, it would have
been accepted, and the policy reinstated. No inference can be
properly drawn from this, however, that the company would receive
the premium after the death of the assured. The learned judge
failed to note the difference between the renewal of a lapsed policy
by the actual payment and acceptance of the premium and a mere
attempt to renew it without any consideration moving from the
assured to the company. The one is a completed transaction, and
therefore binding; the other is uncompleted, and does not even
amount to a contract. The same error runs through the charge.
The assignments are all sustained. We think there should have
been a binding instruction in favor of the defendant.
Judgment reversed,
Sterrett and Clark, JJ., dissented.
WAIVER AND ESTOPPEL. 459
5. What Constitutes a Waiver.
CENTRAL CITY INS. CO. v. GATES.
86 Ala. 558. — 1888.
This was an action brought by W. J. Gates against the Central
City Insurance Company, and was founded on a policy of insurance
issued by defendant to plaintiff on a stock of goods owned by him.
Defendant pleaded the general issue, and by special pleas set up the
defense that defendant had not fulfilled the conditions stipulated in
the policy; had not forwarded to the company sworn proof of loss;
and had not given the company a certificate of loss by a magistrate.
Plaintiff filed his replication, and setting up waiver of such proof
and certificate by the company, after having been given notice of
the loss, on the ground that the company had made no objection to
the notice as forwarded to them, and had not complained to plaintiff
of not having received such proof and certificate, but that in the
dealings of plaintiff with the agents of the company, and with the
company itself, no objection was made- as to plaintiff's failure to
give such proof and certificate. Defendant demurred to this repli-
cation of plaintiff, on tUe ground that the facts, as set out, consti-
tuted no waiver of the conditions of said policy. The court
overruled this demurrer, and defendant duly excepted. Among
many charges requested by defendant was the following: " That if
the jury believe the evidence they must find for the defendant."
The court refused to give this charge, and defendant excepted.
There was verdict and judgment for plaintiff, and defendant appeals.
SoMERViLLE, J. — The policy of insurance sued on, among other
conditions, requires three important steps to be taken by the
assured in the event of a loss by fire (i) He must '' fort/mnt/i give
notice of said loss to the company in the city of Selma ;'' (2) " as
soon after as possible, [he must] render a particular account of such
loss, signed and sworn to by him " (the assured), stating the
origin of the fire, what other insurance he has, if any, his interest
in the property, its value, and by whom and for what purpose it
was occupied; (3) "he must produce the ccrtifcate oi the nearest
disinterested magistrate that such officer has examined the circum-
stances of the loss, and believes that it originated without fraud, and
amounted to a specified sum." These three requirements, omitting
for the present all mention of others, viz.: (i) notice of loss; (2)
sworn proof of loss; (3) certificate of loss by a magistrate — have
uniformly been held by the courts to be conditions precedent in
policies of insurance like the present one, and satisfactory evidence
of compliance with them, in proper time, has been held to be an
460 WAIVER AND ESTOPPEL.
essential prerequisite to the right of recovery by the assured, unless
such compliance is waived by the insurer. IVcl/come v. Insurance
Co., 2 Gray, 480; May, Ins., §§ 460, 466; Insurance Co. \. Felrath,
77 Ala. 194.
" Forthwith," in all such policies, means without unnecessary
delay, or with reasonable diligence, under the circumstances of the
particular case. Insurance Co. v. Kyle, 11 Mo. 278; s. c, 49 Amer.
Dec. 74.
It has been held in one case that delay of eleven days, and in another
of eighteen days, in giving notice of loss, is not a compliance with such
a requirement, in the absence of excusatory facts explaining the delay.
Trask V. Insurance Co., 29 Pa. St. 198; s. c, 72 Amer. Dec. 622;
Edwards v. Insurance Co., 75 Pa. St. 380. Where the fire occurred
on the 15th, and the plaintiffs, hearing of it on the i8th, gave notice
by mail on the 23d, this was held to be a sufficient compliance with
a condition requiring notice to be given " forthwith." Insurance Co.
V. Insurance Co., 20 Barb. 468. And notice given on the morning
after the fire was held sufficient in Hovey v. Insurance Co., 2 Duer,
554. The settled rule in all cases, however, is to construe such
requirements liberally in favor of the assi»red, and strictly against
the insurer. Insurance Co. v. Young, 58 Ala. 476; Insurance Co. v.
Johnston, 80 Ala. 467, 2 South. Rep. 125; s. c. 60 Amer. Rep. 112.
It has been held, by this and other courts, that where preliminary
proofs of loss are presented to the insurer in due time, and they
are defective in any particular, these defects may be waived in either
of two modes: (i) By a failure of the insurer to object to them on
any ground within a reasonable time after receipt — in other words,
by undue length of silence after presentation; or (2) by putting
their refusal to pay on any other specified ground than such defect
of proof. The reason is that fair dealing entitles the assured to be
apprised of such defect, so that he may have an opportunity to
remedy it before it is too late. Insurance Co. v. Felrath, 77 Ala.
194; Insurance Co. v. Crandall, t^i Ala. 9; Insurance Co. v. McDowell,
50 111. 120; s. c. 99 Amer. Dec. 497; Insurance Co. v. Kyle, 49 Amer.
Dec. ']\, supra; Insurance Co. \. Allen, 80 Ala. 571, i South. Rep. 202.
So, there are cases decided by this and other courts which hold,
and properly so, we think, that an entire failure to make any formal
proof of loss may sometimes be excused on the principle of waiver
or estoppel in pais. In Martin v. Insurance Co., 20 Pick. 389, s. c.
32 Amer. Dec. 220; no evidence was offered of any preliminary
proofs before bringing the action, but only of an abandonment not
accepted, and a demand of payment of the loss. The insurer refused
to pay the loss solely on account of the unseaworthiness of the ves-
WAIVER AND ESTOPPEL. 461
sel, and in'all their communications with the plaintiff made no objec-
tion to the want of proof. The court held that the refusal to pay on
theground specified was a fact from which the jury were authorized
to infer a waiver of the proof of loss. On like principle, a waiver
of preliminary proofs has been inferred from a distinct refusal of the
company to pay because the assured had taken other insurance with-
out notice, and " had in other ways acted unfairly." Insurance Co.
V. Neve, 2 McMul. (s. c.) 237. And again, on the ground that no
valid contract of insurance had ever been entered into because incom-
plete at the time of the loss, no objection being made to the want
of such proofs Tayloe v. Insurance Co., 9 How. (U. S.) 390; Insur-
ance Co. V. Adlcr, 71 Ala. 518. So, where the insurance company
subjected the assured to a personal examination under oath, which
statement he subscribed as required by the terms of the policy, and
no demand was made for formal proofs, it was held that, upon this
state of facts, the jury were authorized to find a waiver of such
proofs. Badger v. Insurance Co., 49 Wis. 40a. The payment by the
insurer of a part of the sum agreed to be paid by the policy in case
of loss has also been held a waiver of the usual preliminary proofs.
IVesilake v. Insurance Co., 14 Barb. 206. So, the offer tJ pay a speci-
fied sum, accompanied by a denial of liability for some of the articles
as not covered by the policy, without demand of such proofs.
Insurance Co. v. Alien, 80 Ala. 571, i South. Rep. 202.
We can find no case, however, where the mere silence of the
insurer has been construed as a waiver of the presentation of pre-
liminary proofs by the insured, where no such proofs, defective or
otherwise, have been presented. The policy itself is the most
solemn notification possible of the imperative prerequisite of fur-
nishing such proofs. It is there stipulated that they must be fur-
nished as soon as possible after the fire, and this stipulation is a
standing notice of the requirement. It stands to reason that this
notice need not be reiterated by the insurer, nor any special atten-
tion of the assured called to it, unless the particular circumstances
of the case render it necessary to fair and honest dealing between
the parties. And the authorities accordingly hold that the mere
silence of the underwriter or insurer, or his failure to specify the
non-production of such preliminary proofs, as an objection to the
payment of the loss, is not sufficient evidence to justify a jury in
inferring a waiver of the production. Insurance Co. v. Lawrence, 2 Pet.
{U. S.) 25; O'Reilly v. Insurance Co., 60 N. Y. 169; Keeuan v. Insur-
ance Co., 12 Iowa, 126. A like principle was applied in Insurance Co.
y.Kyle, II Mo. 278,5. c. 49 Amer. Dec. 74, where thtre was a fail-
ure on the part of the insurer to object to a notice of loss when it
462 WAIVER AND ESTOPPEL.
was received too late. It was suggested by the court that it was not
the duty of the company to make any formal objection to the want
of notice, and whether they were silent, or made objections on this
ground, could not alter the rights of the parties. " S ach a doctrine
would be in fact," it was said, " implying a new contract between
the parties from the mere inaction or silence of one party." See
also Patrick v. Insurance Co , 43 N. H. 621 ; s. c. 80 Amer. Dec. 197.
As we have said, the contract exacts (i) a notice of loss forth-
with, and (2) proofs of loss as soon thereafter as possible. It is
manifest that mere notice of loss is noi proof oi such loss, and can-
not ortlinarily subserve such purpose; although proof of loss, if made
" forthwith," may answer, not only as proof, but as notice. Wood,
Ins., § 42S; May, Ins., § 460. It has been accordingly held, in
rc^cognition of this distinction, that there might be a waiver of the
notice of loss, without a waiver of the proof of loss required to be
furnished. Desilver v. Insurance Co., 38 Pa. St. 130.
In this case there was notice of loss, but the company received no
preliminary proofs. The policy required that such proofs should
be rendered to the company, meaning from the context, in the city
of Selma, where the notice also was required to be given. The
deposit in the post-ofifice of a written statement of loss, made out
and sworn to, and addressed to the company at Selma, but never
received by them, was not a delivery of such proof to them, and
could not operate to fulfill the requirement of the contract that such
proofs of loss should be rendered to the company at Selma. Hodg-
kins V. Insurance Co., 34 Barb. 213.
Waiver is necessarily a matter of mutual intention between the
contracting parties in the nature of a new contract between them.
In the absence of evidence that the company had ever received any
proofs of loss, or knew their contents and defects, if any, it cannot
be contended that such defects were waived. There can be no
waiver of anything as to the e.\istence of which one is totally
ignorant. Bennecke s. Insurance Co., 105 U. S. 355.
In Daiues v. Insurance Co., 7 Cow, 462, it was held that the presi-
dent of an insurance company, as such, possessed no power to waive
full preliminary proofs. \(\ Insurance Co. v. Young, 86 Ala. 424, 5
South. Rep. 116, it was decided that a local soliciting agent has no
authority, after loss, to waive the breach of any condition in a fire
insurance policy. And Patrick v. Insurance Co., 43 N. H. 641,
s. c. 80 Amer. Dec. 197, is authority for the proposition that a con-
dition in a policy of insurance, requiring notice of loss to be given
within thirty days, is not waived by a vote of the directors of the
company to indefinitely postpone the consideration of the loss, which
WAIVER AND ESTOPPEL. 463
was tantamount to a refusal to pay anything on account of it, the
notice not having been given in due time. The jury were probably
justified in coming to the conclusion that the notice of loss, under all
tne circumstances of the case, was given in a reasonable time, and
in proper mode. But there were no proofs of loss furnished, and no
conduct on the company's part from which the jury were authorized
to infer a waiver of such proof.
Under a proper application of the foregoing principles, it is our
opinion that the defendant's demurrer to the plaintiff's replication
should have been sustained, and that the defendant was entitled to
have the general affirmative charge given as requested.
Reversed and remanded.'
ROBINSON V. PENNSYLVANIA FIRE INS. CO.
90 Me. 385. — 1897.
WiswELL, J. — * * * As to the second point raised, we quote
from the bill of exceptions: " The plaintiff did not within a reason-
able time aft r her loss deliver to the defendant an account of the
loss and damage, as required by section 21 of chapter 49 of the
Revised Statutes, but claimed that the defendant, by its agents, had
waived the delivery of such proof of loss. There was evidence
tending to prove that, when the defendant's agents were notified of
the loss, they denied that the defendant was liable for such loss on
the policy in suit, for the reason that the policy did not cover the
goods and chattels, in said new building, destroyed by fire. The
plaintiff contended that such denial was a waiver of the proof of
loss required by the statute, while it was contended by the defend-
ant that such denial of the plaintiff's claim was not such a waiver."
Upon the question of waiver the presiding justice instructed the
jury as follows: " So, gentlemen, you will determine whether or
not, from the beginning, the defendant has denied its liability under
this policy because they claim it did not cover this property; and, if
it has, then, gentlemen, they have waived any proof on the part of
the plaintiff, and, as I have said to you, she may recover, provided
she satisfies you that the policy covered the property consumed by
reason of its being in the building that was mentioned in the policy."
We think that this instruction was erroneous. Ordinarily the ques-
tion as to whether or not there has been a waiver is one of fact for
' See also point " 3 " of the opinion in £r?netitrout v. Co., reported herein at
p. 487.
464 WAIVER AND ESTOPPEL.
the jury. "It is always so whenever it is to be inferred from evi-
dence adduced, or is to be established from the weight of evidence."
A'^iikerson v. iVickerson, 80 Me. 100, 12 Atl. 880, It was a (juestion
of fact in this case. There was no express waiver. It was there-
fore for the jury to determine whether, from the acts relied upon
and proved, the inference could be properly drawn either that there
was an intention upon the part of the insurer to waive its right to
have a proof of loss furnished by the insured, or that the denial of
liability, for another cause, was of such a character, or made under
such circumstances, as to reasonably induce a belief upon the part
of the assured that the furnishing of a proof of loss would be a use-
less formality, and that in relying upon the belief thus induced she
neglected to make the required proof of loss within a reasonable
time. When there is no express waiver, it is not only necessary for
the jury to determine what the facts are which are relied upon for
the purpose of showing a waiver, but it is also the peculiar and
appropriate province of the jury to determine what inferences are
properly deducible from such facts.
That the question whether or not there has been a waiver, where
it is a matter of inference, is one of fact for the determination of
the jury, is generally, if not universally, held by the courts of this
country. It was early so decided in this State in the case of Manu-
facturing Co. v. Armstrongs 17 Me. 34, in which it was held, "Whether
there was or was not such a waiver is for the decision of the jury,
and the presiding judge cannot order a nonsuit, even if the court
should be of opinion that the evidence of waiver would not warrant
a verdict." This case was cited and approved in N'lckerso/i v.
Nickerson, supra. In Smith v. Insurance Co.., 87 Me. 190, 32 Atl. 872,
the plaintiff's counsel requested the presiding judge to rule as a
matter of law that the defe.ndant had waived their right to arbitration.
The court declined to do this, but, explaining what might constitute
a waiver, it submitted the question to the jury to determine for
themselves. The ruling was sustained, although there was no dis-
cussion of the question as to whether this was within the province
of court or jury. In Fitch \.Iron Works, 29 Conn. 91, it was held
that this was a question for the jury, " because a question of waiver
is one of intention, and most usually depends on acts or declarations
which, in regard to their character, are of an inconclusive or doubt-
ful nature, and furnishes only evidence of intention and grounds of
inference and deduction which it is the appropriate province of trie
jury only to consider." In Fox v. Harding., 7 Cush. 516, it is said:
" It may be laid down as a general rule that the question whether
the evidence in any case establishes a waiver of any legal right by
WAIVER AND ESTOPPEL. 465
a party is one of fact, to be settled by the verdict of a jury. * * *
In ail questions of ttiis sort so much depends on the intent with
which parties act that it would be impossible for courts to establish
any certain rule by which all cases could be governed. They must
necessarily be left to the determination of juries, whose peculiar
province it is to ascertain the intent of parties as gathered from the
various facts and circumstances proved in each particular case."
In Railroad Co. ''. Paige, 135 Mass. 145, it is said: " Taking the
view most favorable to the defendant, it was a question of fact,
upon the evidence, whether he had not thus waived his rights upon
which the plaintiff would, in a jury trial, have the right to go to the
jury. The ruling, therefore, that as matter of law the defendant
was entitled, upon the evidence, to recover under his declaration in
set-off, without passing upon this disputed question of fact, was
error." Numerous other cases to the same effect might be cited,
but it is unnecessary.
Nor, in our opinion, was the instruction complained of a strictly
correct statement of the law. It was too broad and unqualified.
The mere denial by the company of its liability, because of the claim
that the property destroyed was not covered by the policy, was not,
m and of itself, a waiver. It would be evidence from \vhich a jury,
in connection with all the other facts and circumstances, might draw
the inference that a waiver was intended; or it might have the effect
of a waiver, under certain circumstances, upon the doctrme of
estoppel. A waiver is the intentional relinquishment of a known
right. And even where a waiver is not intended, the language, con-
duct, or even the silence of one party to a contract may be of such
a character and under such circumstances as to induce the other
party to believe that a waiver was intended; and if, acting upon this
belief, he fails to perform a required condition, then the party whose
conduct caused the belief will be estopped from taking any advan-
tage thus obtained. Upon the same principle it has very generally
been held that if an insurance company denies its liability upon other
ground, and thereby causes the insured to believe that a compliance
with the condition to furnish proofs of loss would be unavailing and
but a useless formality, and he for that reason neglects to comply
with such condition, it will be considered as equivalent to a waiver.
It is true that many decided cases contain statements to the effect
that a general denial by an insurance company of all liability waives
notice and proof of loss, but an examination of these cases will show
that they very generally rest upon the essential principles of estoppel.
And while this is not universally true, and although some courts
assert that this rule is independent of, or at least not necessarily
LAW OF INSURANCE — 30
466 WAIVER AND ESTOPPEL.
based upon, the doctrine of estoppel, we think that upon principle
there can be no waiver unless one was intended, or unless the cir-
cumstances create an estoppel. In Welsh v. Corporation, 151 Pa. St.
607, 25 Atl. 142, it was decided that when the insured, in good
faith and within the stipulated time, does what he plainly intends as
a compliance with the requirements of his policy as to proofs of loss,
good faith equally requires that the company shall notify him
promptly of any objections thereto, so as to give him an opportunity
to obviate them, and that mere silence may so mislead him, to his
disadvantage, to suppose the company satisfied, as to be of itself
sufficient evidence of waiver by estoppel. In the opinion in that
case it is said: " The plaintiff's fifth point, however, that if the
authorized agent of the defendant refused payment of the loss, giv-
ing a specified reason therefor to the plaintiff, they must be confined
to that reason upon the trial, and the jury should disregard any
other defense now made by them, was entirely too broad, and its
affirmance, as a general proposition of law, would be clear error.
It ignores the elements of estoppel, and lays down a rule without
reference to conditions essential to its existence and applicability."
And later in the same opinion, in speaking of certain cases in that
state, it is said: " All of these cases rest upon the substantial ele-
ment of estoppel, that the defendant, having led the plaintiff to
suppose that a compliance >vith the preliminary formalities would be
unavailing, could not thereafter set up the want of such prelimin-
aries. Of the soundness of that principle there can be no question."
In Insurance Co. v. Eggleston, 96 U. S. 572, Mr. Justice Bradlev, in
delivering the opinion of the court, said: " Any course of action on
the part of an insurance company which leads a party insured hon-
estly to believe that by conforming thereto a forfeiture of his policy
will not be incurred, followed by due conformity on his part, will
and ought to estop the company from insisting upon the forfeiture,
though it might be claimed under the express letter of the contract."
In Insurance Co^ v. Potts, 55 N. J. Law, 158, 26 Atl. 27, 537, the
court adopts the language of Mr. Justice Bradley above quoted.
In this case the insured procured additional insurance without the
written consent of the insurer, as required by the policy. He noti-
fied the company, and the company directed its agents to cancel the
policy, which they failed to do until after the loss. It was held
that the insurer was estopped from setting up a forfeiture, the court
saying in its opinion: " The case thus presented would, in my opin-
ion, come within the elemental rule of estoppel, that in dealing with
others no one shall be permitted to deny that he intended the natural
consequences of his conduct, when such conduct has in fact induced
WAIVER AND ESTOPPEL. 467
Others to rely upon it to their loss." " In cases like the present
it must appear that the insured was misled to his prejudice; and,
where no act has been done or left undone by the insured in reliance
on the act or nonaction of the insurer, there can be no estoppel.
The acts or declarations must have influenced the conduct of the
other party to his injury." Wheaton v. Insurance Co., 76 Cal. 415,
18 Pac. 758 In Butterworth n. Insurance Co., 132 Mass. 489, the
principle of estoppel is recognized in this language: " No objection
is here made to the proofs, but, on the contrary, they are by impli-
cation recognized as satisfactory. It is against good faith for the
defendant, after thus having lulled the plaintiffs into a feeling of
security, to object at the trial that the proofs were not sufficient;
and the jury were justified in finding, if not required to find, a
waiver by the defendant."
The decisions of the New York court have been somewhat con-
iiicting upon this question, but in Devens v. Insurance Co., 83 N. Y
168, the Court of Appeals distinctly recognizes this doctrine in the
following language: " The doctrine of .waiver was, we think, prop-
erly applied in that case but it should not be extended so as to
deprive a party of his defense merely because he negligently or
incautiously, when a claim is first presented, while denying his lia-
bility, omits to disclose the ground of his defense, or states another
ground than that upon which he finally relies There must, in
addition, be evidence from which the jury would be justified in find-
ing that with full knowledge of the facts there was an intention to
abandon, or not to insist upon, the particular defense afterwards relied
upon, or that it was purposely concealed under circumstances calcu-
lated to, and which actually did, mislead the other party to his injury."
The doctrine is thus stated in Bigelow, Estop., p. 660: " Frequent
illustrations of the estoppel in question are to be found in cases of
actions upon insurance policies, where the conduct of the under-
writer has been such as reasonably to lead the assured to believe,
until too late, that a requirement of the policy, as, e. g., in regard
to the proofs of loss or the prompt payment of the premium or of a
premium note, will not be required. If the assured, as a sensible
man, has really been misled, it would be a fraud upon him to insist
upon the term or condition forborne." And on page 664 the same
author says: " The question to be considered in such cases, it will
be seen, is whether the conduct of the one party had had a natural
tendency to prevent the other from doing what he has undertaken to
do, and has not done."
For the reasons given, and upon the authority of the cases cited,
this exception must be sustained.
Exceptions sustained.
PART VIII.
Insurance Agents.
a. Scope of Authority.
I. Local Agents.
MILLVILLE MUTUAL MARLNE AND FIRE INS. CO. v.
MECHANICS', ETC., ASSOC.
43 N. J. L. 652.— 1881.
Van Syckel, J. — The plaintiff held the policy of insurance in
this ease as collateral security for a nriortgage debt, and instituted
this suit to recover loss by fire. The property was insured in the
name of George H. Stinson, the then owner. After the assignment
of the policy to the plaintiff, Stinson decided to convey the prop-
erty to his wife, and to effect his purpose made a conveyance of the
premises to Winslow Beynor, who thereupon conveyed to the wife.
The defense is that this conveyance was made without the consent
or approval of the defendant company, and without any assignment
of the policy approved and consented to by the defendant within
thirtv days after the alienation, or at any time. It is conceded that
by the express terms of the policy a change in the title of the
insured premises, without the consent of the insurer, makes the
policy void.
The question in the case is, whether notice of alienation was
given to the company, and whether they assented to it or waived
the condition of the policy in this respect. The case turns upon
the authority with which the company's agent shall be held to be
invested. A special agency strictly exists where authority is given
to do a single act or designated specific acts. A general agency
arises where there is a grant of power to do all acts connected with
a particular branch of business, or a general authority in regard to a
particular transaction. A general authority may arise from a gen-
eral employment in a specific capacity. The rule is well stated in
Story on Agency, § 19, thus: " On the other hand (although this is
[468J
INSURANCE AGENTS. 469
not the ordinary commercial sense), a person is sometimes said to
be a special agent, whose authority, although it extends to do acts
generally in a particular business or employment, is yet qualified
and restrained by limitations, conditions and instructions of a
special nature. In such a case the agent is deemed, as to persons
dealing with him in ignorance of such special limitations, to be a
general agent; although as between himself and his principal, he
may be deemed a special agent. In short, the true distinction (as
generally recognized) between a general and special agent (or, as
he is sometimes called, a particular agent), is this: A general agency
does not import an unqualified authority, but that which is derived
from a multitude of instances, or in the general course of an employ-
ment or busmess; whereas, a special agency is confined to an indi-
vidual transaction." Such general authority enables the agent to
bind the principal, without orders, in dealing with those who, acting
in good faith, have no notice of the want of lawful power in the
agent.
One who intrusts authority to another is bound by all that is
done by the agent within the scope of his apparent power, and can-
not screen himself from the consequences thereof upon the ground
that no authority was given to do the particular act. If a person
is in fact, or apparently, a general agent of the company, he stands
in the place of the company to the assured, and in the absence of
any limitation of his power made known to the assured, any act done
by him within the apparent range of his employment, before or after
the contract is entered into, is binding on the principal. Mr. Wood,
in his work on Fire Insurance, § 392, forcibly remarks: " It would be
disastrous to commercial, as well as other interests, if a person,
by acting through the agency of another, could shield himself from
liability for such person's acts, ad libitum. Fortunately no such
rule exists, and he who intrusts authority to another, in whatever
department of business, is bound by all that is done by his agent
within the scope of his apparent power, and cannot screen himself
from the consequences thereof upon the ground that no authority,
in fact, was given him to do the particular act, unless the act was
clearly in excess of his apparent authority, or was done under such
circumstances as put the person dealing with him upon inquiry
as to the agent's real authority." The diversity in the cases, which
it will be futile to attempt to reconcile, arises not in the compre-
hension of what is the true rule, but from the application of it to
particular circumstances.
In this case D. C. Heminway, who was the company's agent at
Newfield, in this state, wrote the policy and delivered it to Stinson.
470 INSURANCE AGENTS.
Upon the policy, when delivered, was tiiis indorsement: " !>. C.
Heminway, agent;" the word " agent " being printed on the form.
The policy itself contained no notice that there was any limitation
upon the power of the agent, and there was no evidence to charge
the insured with knowledge o*" any restriction. Under such circum-
stances, with what authority will the law presume the agent was
invested? The true answer to this inquiry will correctly solve this
controversy. He must either be treated as a special agent or as a
general agent, in the sense in which that term has hereinbefore been
defined. There is no middle ground to stand ujjon. If it is deemed
to be a special agency, then it was the duty of the insured to
acquaint himself with the limitations by which the power of the
agent was circumscribed before he dealt with him. This would
render insurance through an agency wholly delusive, and prove a
mere snare to the unwary; for even the right to deliver the policy
might be hampered with secret instructions. The company said to
the insured, " This is my agent; you may deal with him as such,"
not intimating that there was any qualification of or restraint upon
his power. Being held out as an agent, without the expression of any
limitation, public policy and good faith unite in requiring that gen-
eral authority shall be ascribed to him as the defendant's repre-
sentative.
In Insurance Company v. Wilkinson, 13 Wall. 234, Mr. Justice
Miller says, in speaking of insurance agents: " The agents are stimu-
lated by letters and instructions to activity in procuring contracts,
and the party who in this manner is induced to take out a policy
rarely sees or knows anything about the company or its officers by
whom it is issued, but looks to and relies upon the agent, who has
persuaded him to effect insurance, as the full and complete repre-
sentative of the company, in all that is said or done in making the
contract. Has he not a right so to regard him? The powers of the
agent diVt, prima facie, co-extensive with the business intrusted to
his care, and will not be narrowed by limitations not communicated
to the person with whom he deals." That the authority of the
agent will be assumed to be general in all matters relating to the
effecting of the insurance was maintained by Justice Sharswood, in
Mentz v. Lancaster Firs Ins. Co,. 79 Penna. St. 476, a case which is
cited with approbation by Chancellor Runyon, in Combs v. Shreivs-
bury Ins. Co., 7 Stew. 403. This is simply another form of express-
ing the idea that an agent shall be presumed to have the power with
which he is apparently clothed; that the principal shall not be per-
mitted to say to the pul)lic in a general way, without any qualifica-
tion, " This is my agent," and at the same time charge one who, at
INSURANCE AGENTS. 4/1
a remote point, deals with liim in that capacity, with the duty of first
ascertaining the precise limit of his authority.
In Merserau v. Phcenix Mutual Life Ins. Co.., 66 N, Y, 274, Justice
Allen says: " The rule is well expressed in Insurance Company v.
Wilkinson., 13 Wall. 222, and Miller \. Phcenix Ins. Co., 27 Iowa, 203.
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. It is
upon and within this general principle that insurance companies
have been held bound by the acts of their agents in dispensing with
or varying the terms and conditions of their policies of msurance."
In that case the authority of the agent was held to be circumscribed,
only because the policy itself contained an express limitation of his
power. That, in the v'ew of this court, the power will be regarded
as general, in the absence of express limitations in the policy or of
notice to the assured of the existence of a restriction, may be
inferred from the case of Catoir v. American Ins. Co., 4 Vroom,
487. There, Mr. Justice Bedle, in delivering the opinion of the
court, denied the right of the agent to dispense with a condition in
the policy exclusively, for the reason that the policy contained an
express limitation of authority. Heminway must, therefore, be con-
sidered the general agent of the defendant conipany, invested with
the right to exercise a power commensurate with the business
apparently intrusted to his care. That such an agent may assent
to alienation and waive conditions on behalf of an insurance com-
pany is established by numerous authorities. Woodbury Savings
Bank V. Charter Oak Co., 31 Conn. 517; Dayton Ins. Co. v. Kelly, 24
Ohio St. 345; Goit v. National Ins. Co., 25 Barb. 189; Sheldon w.
Atlantic Ins. Co., 26 N. Y. 460; Bodine v. Exchange Fire Ins. Co., 51
N. Y. 117; Merserau v. Phxnix Mut. Co., 66 N. Y. 274; Durar v.
Hudson County Mutual, 4 Zab. 171; Shearman v. Niagara Ins. Co.,
46 N. Y. 526; Wood on Fire Ins., §§ 391. 393. It was within the
power of the agent in this case, under the apparent authority
intrusted to him, to waive the conditions of the contract, to receive
notice of the alienation and assent to it on behalf of the principal.
The question remains whether there was evidence from which the
jury might lawfully find such waiver. Heminway testified that
inquiry was made whether it was not necessary to notify the com-
pany of the change in the title, and Stinson then asked him if he
would attend to the business, and he said he would attend to it, and
it would be all right. The conveyance of the property to the wife
472 INSURANCE AGENTS.
had been previously executed under the direction of Heminway.
Another witness testified that after the transfer of title Stinson
asked Heminway if he was the agent of the company, and he replied
that he was. Stinson then asked him if he would notify the com-
pany of the transfer, and he said: " I wdl attend to it, and it will
be all right." Heminway having power not only to receive notice of
alienation, but also to waive the condition of the policy on behalf
of the company, this conversation must be treated as if it had been
addressed by the insured to the board of directors, and the replies
of the agent, as the replies of the directors to the insured. In this
aspect of the case it is manifest that the insured was justified in
drawing the inference that nothing more was necessary to be done
on his part to continue the life of the policy. Until notice was
given to him to do some further act he had a right to rest securely
upon the agent's assurance. The company cannot thus lull their
policy-holder into a false security, and take advantage of an omis-
sion on his part thereby induced, to work a forfeiture of their
contract.
The trial judge submitted the case to the jury with proper instruc-
tions upon these questions of law.
The judgment below should be affirmed.
For affirmance — The Chancellor, Chief Justice, Depue, Dixon,
Knapp, Scudder, Van Syckel, Clement, Cole, Dodd, Green — ii.
For reversal — Magie, Reed, Whitaker — 3.
Beck, J., in VIELE v. GERMANIA INSURANCE CO.'
26 Ia. I, 57. — 1868.
VI. We approach the consideration of the questions involving the
power of the agent of the defendant to dispense with the conditions
of the policy or to waive the forfeiture resulting from the breach
thereof. Defendant's counsel contend that, as shown by the policy,
the agent possessed no power to assent to an increase of risk except
in writing, and that, in order to bind the company by his acts,
declarations or agreement, dispensing with the conditions or waiv-
ing the forfeiture, his authority so to do must be expressly proved.
There was evidence tending to prove that the agent had full power
to effect contracts of insurance, to fix rates of premium, to give
consent to the increase of risk and change of occupation of build-
' The pan of the opinion treating of waiver generally, is printed herein at
p. 417.
INSURANCE AGENTS. 473
ings insured, to cancel policies in his discretion, and that in the
prosecution of their business it was the custom of agents of insur-
ance companies to exercise supervision over property covered by
policies issued at their respective agencies during the term of insur-
ance. The instructions to the jury, and the rulings upon objections
to evidence, in effect, hold that the authority of the agent to waive
forfeitures and dispense with conditions may be sufficiently shown
by proof of the possession and exercise of the powers above stated,
and that express authority need not be shown in order to bind the
defendant thereby. This we conceive to be the law. By proof of
the possession of the powers aforesaid, the authority of the agent is
shown to be in fact of the broadest and most plenary character. It
is difficult to conceive of an act in the prosecution of the business
of insurance, which the officers of the companies can do, that cannot be
done by the agent. He is provided with blank policies whereby
he is enabled to enter into the contract of insurance. These blank
instruments are in no sense contracts until signed by him, for it is
expressly provided therein that they " shall not be valid unless
countersigned by the duly authorized agent of said companies at
Davenport, Iowa."
Such is the express provision of the policy upon which this suit is
brought, and there is not one word of limitation upon the authority
of the agent contained in it. No attempt was made to prove knowl-
edge on the part of the assured of any limitation of the power of the
agent further than by the policy itself, and a general custom or rule
of insurance companies and agents that no change can be made by
agents in the printed conditions of the policy. The effect of such
limitation will be hereafter noticed. The powers of the agent, then,
are those of a general agent, and the companies are bound by his
acts which are within the scope of the general authority he pos-
sesses, even though he violates limitations upon that authority which
are not brought home to the knowledge of the party with whom he
deals. Story on Agency, §§ 126, 134; Keenan v. Mo. State Mut.
Ifis. Co., 12 Iowa, 131; City of Davenport V . Peoria Ins. Co., 17 Id. 276;
Warner v. Peoria Ins. Co., 14 Wis. 318, 323; North Berwick Co. v.
N. E. F. 6^ M. Ins. Co., 52 Maine, 336; Post v. ^tna Ins. Co., 43
Barb. 351; Sheldon v. Atlantic Ins. Co., 26 N. Y. 460.
VII. This brings us to inquire what powers may be exercised by
the agent within the scope of his general authority. Under this
general authority he has power to conduct the business of insurance
of his principals at the city of Davenport. This is the aggregation
of all his powers, and he possesses implied authority to do all things
proper and necessary in the prosecution of that business, subject, of
474 INSURAN'CE AGENTS.
course, to limitations imposed by his i)rincipals and known to those
with whom he deals. These incidental powers may be numerous,
and their enumeration is not necessary. Among others, he has the
power to assent to the increase of the risk and to a change of occu-
pancy of property insured, and to cancel policies on account of
increase of risks or for any other reason. In the exercise of these
powers he is guided by his own discretion, which, it is presumed, will
be exercised for the best interest of his principals. He has also all
the powers which, by the usages of the business, are properly and
ordinarily exercised by agents engaged therein. Story on Agency,
§§ 77, io6.
It appears that insurance agents usually exercise supervision over
the property insured by them, and this necessarily results from the
character of the business and their authority to cancel policies on
account of increase of risk. The agent is charged, by the terms of
the policy on which this suit is based, with the power to determine
whether the risk is increased. If he so determines, he may cancel
the policy and put an end to the contract. This involves the neces-
sity of examination of the condition of the insured property during
the life of the policy, and constant watchfulness to protect the
interest of the underwriters. If he determines that the risk is
increased, such determination is final, for it seems the assured has
no appeal therefrom and no redress for loss that may be sustained
thereby. Such being the great, and in some respects extraordinary,
power of the agent, it follows that he is clothed with the power to
dispense with conditions and waive the effects of breaches thereof,
in contracts of insurance made by him. These powers are neces-
sary incidents of his general authority, and without their exercise
he could not act to its full extent. If he can determine that the
conditions of the contract have been broken, surely he can also
determine that they have not been broken. If he can put an end to
the contract because of the increase of the risk, and the consequent
forfeiture, certainly he can waive that forfeiture. If, possessing
such full authority to make the contract, determine that it is per-
formed, and to put an end to it, he cannot dispense with its con-
ditions after it is executed, the rules of law controlling agents
generally and all kinds of contracts, must be held not applicable
to insurance policies and insurance agents. These companies have
no way of dealing with their customers and the public, except
through their agents. They are incorporations existing under the
laws of another State. Practically those powers can only be exer-
cised by agents. They are inherent in the corporations, whose
interest as well as fair dealing towards others (as it did in the case
INSURANCE AGENTS. 475
before us) may require their exercise. The agents, therefore, must
be held to have full authority to dispense with the conditions of
policies, after their execution, and to waive forfeitures for breaches
thereof.
As we have already intimated, the law, in its application to other
kinds of contracts and to agents transacting other kinds of business
fully sustains the doctrines we have announced. This may readily
be illustrated by facts disclosed by the record. The owner of the
property upon which the policy in question was issued was a non-
resident of the State, and the business was transacted for him by an
agent, who, it seems, exercised general powers in all matters per-
taining to the property. Now, suppose this agent had executed a
contract for the rebuilding of the property burned, or his principal
had executed it, and it was delivered by the agent, blanks being
filled by him under proper authority, with the name of the other
contracting party, sums to be paid, etc. This contract contained
many conditions, as we may suppose, for the benefit of the property
owner, and the agent was authorized to assent in writing to the dis-
pensation of certain of them, and the power to put an end to the
contract in case of the failure of the other party to comply with its
conditions. During the progress of the work questions arose
whether certain things done or omitted to be done by the builder
were in violation of the conditions of the contract. The agent, as
to whose power not one word of limitation existed in the contract,
or was otherwise known to the builder, asserts that the matters in
question are not in violation of the contract, and treats it as com-
plied with, or verbally assents to the dispensation of certain con-
ditions. When the building is completed, in accordance with the
contract as thus modified, the principal refuses to pay the sum
agreed on, because of non-compliance on the part of the builder
with the conditions thus waived by the agent. Upon no recognized
rules of law could this defense be sustained, and we would have no
difficulty in finding ample authorities in support of the doctrine that
the waiver of forfeitures by reason of the breaches of the conditions
and the dispensation of the conditions by the agent were binding on
the principal. This supposed case is not distinguishable upon
principle from the case disclosed by the record.
The views above advanced are fully sustained by the more recent
decisions of the courts. In the Peoria Fire and Marine Ins. Co. v.
Hall, 12 Mich. 213, the knowledge of the agent when the policy was
issued that gunpowder was kept on the premises insured was held to
be a waiver of a condition prohibiting the keeping of it without
written permission. In Warner v. The Peoria Fire and Marine Ins.
476 INSURANCE AGENTS.
Co., 14 Wis. 319, the policy required notice to be given of additional
insurance, and consent thereto indorsed on the policy. The a^^ent
indorsed a waiver uf this condition as follows: " Other insurance
permitted without notice until required." The court held this to
be a sufficient waiver, and that the agent had authority to make it.
In the N. E. Fire and Marine Ins. Co. v. Schett/er, 38 111. 170, the
agent, upon the receipt of additional premium, gave permission,
indorsed on the policy, for the removal of the building and goods
to another lot. In a suit upon the policy the insurance company
claimed that the agent had no power to consent to the removal of
the property. The court held that the power will be presumed
without proof. The following additional authorities support the
doctrine we have above announced: Sanfordw Handy, 23 Wend. 260;
Conoi'er v. Mutual Ins. Co., 1 Comst. 290; Roiuley \. Empire Ins. Co.,
36 N. Y. 550; Plunil) v. Cattaraugus Ins. Co., 18 Id. 392; Sheldon v.
Atlantic Fire and Mutual Ins. Co., 26 Id. 465. The cases cited in
prior pages in support of the positions that there may be a waiver
of a breach of the conditions of a policy, and that such waiver may
be by parol or presumed from the acts of the parties, sustain the
point here made; the waiver in those cases being generally, if not
all, made by agents.'
It is not to be disguised that, upon this question, there is a very
great conflict of authorities, some cases restricting the power of
the agents to the most narrow limits of the express terms of their
appointments, and circumscribing it strictly by the restrictions
imposed by the principals, the insurance companies. But the more
recent cases support the contrary view, and are in consonance with
the doctrines we have attempted to maintain in this opinion.
As an illustration of the progress of the authorities upon this ques-
tion it may be mentioned that Roivley v. The Empire Ins. Co., above
cited, which was decided in 1867, overrules five prior cases adjudged
in the courts of New York, and is supported by only one older case
in the reports of that State, viz., Plumb v. The Cattaraugus Ins. Co.,
18 N. Y. 392. These latter decisions are in harmony with reason
and sound public policy, in view of the manner of conducting the
business of insurance through a system of agencies far distant from
the place of business of the corporations. While it is true that
these companies transact business only through their agents at dis-
tant points, it is also true that much of their business is acquired
through the diligence, skill and capacity of these agents, and
that parties effecting insurance rely in a great measure upon the
' See ante, p. 420, and following.
INSURANCE AGENTS, 477
representations made by them as to the rights and obligations of
the respective parties to the policies, and are controlled in the care
of the insured property by their directions. The acts of these
agents, in all matters pertaining to the proper business they are
appointed to transact, should bind their principals, unless contrary
to restrictions of their powers, brought to the knowledge of those
with whom they deal.
It is argued that, inasmuch as by the restrictions imposed on the
power of the agent by custom, as well as by the rules of the com-
pany, he can make no change in the printed conditions of the policy,
therefore he had no authority to waive a forfeiture of such terms,
or dispense with their performance. Without determining whether
this could be done by agreement at the time the policy was issued,
we are clearly of the opinion that such restriction of authority in no
way affects his power so to do after the policy is issued, in a proper
case, and without fraud on his part or by the assured. The distinc-
tions between omitting a condition required by the terms of his
authority and by custom to be introduced into the policy and the
waiver of such condition for a proper cause, after the policy had
been executed are obvious.
It has been held that an agent intrusted with blank policies to be
filled up and countersigned by him may bind the underwriter by new
clauses or conditions inserted by the agent before issuing the policy,
2 Phillips' Ins. 528, § 1877; Gloucester Manufacturing Co. wHoivard,
5 Gray 497.
Devens, J., IN KYTE v. COMMERCIAL UNION
ASSURANCE CO.
144 Mass. 43, 45. — 1887.
In regard to the policy upon the house, other questions are pre-
sented. The defendant had offered evidence that the house was
used by the plaintiff, during the time covered by the policy, for the
illegal sale of intoxicating liquors; and requested a ruling that, if
this were the case, the plaintiff could not recover. This ruling was
refused, and the exception thereto is not now insisted on. The
jury were, in this connection, instructed that, if there was such a
change in the use of the house and the manner of its occupation (it
having been insured as a dwelling house), as to increase the risk,
without the knowledge of the defendant, this would affect the policy.
The plaintiff then offered the evidence of Alexander Blaney, the
local agent of the defendant, who was also chairman of the select-
478 INSURAN'CE AGENTS.
men of Natick, that the plaintiff had, during the time covered by
the policy, received a victualler's license, and one to sell spirituous
liquors of all kinds; and that he informed the plaintiff, on granting
the license, that he could continue under the policies of insurance
as they then existed, although he would have to charge him more
the next time. The plaintiff, as well as Blaney, testified that, at the
time of obtaining the license as a victualler and also to sell liquor,
or at some other time, it was agreed that this would not affect any-
thing during the life of the policy, but that Blaney would not give
another on the same terms. Upon this evidence the defendant
requested the court to instruct the jury, in substance, that a local
agent, with authority to receive premiums and issue policies,
had no authority, as such, to waive the terms and condition^
of the policy, or to waive the condition in the policy which
required the written or printed assent of the company to any
change in " the situation or circumstances affecting the risk." To
these instructions the defendant was entitled. They correctly state
the law, and were called for by the evidence. An agent to receive
premiums and issue policies is not, independently of evidence show-
ing that he has a much larger authority than this, empowered to
waive conditions so important that parties have seen fit to incor-
porate them into their contract. Some additional evidence must be
offered, as that he had been held out by the company as possessing
some authority, or that the company had so ratified similar acts, or
had so conducted itself in regard to his other transactions, that the
insured was justified in believing that he had such authority. Tate
v. Citizens' Ins. Co., 13 Gray, 79; Harrison v. City Ins. Co.., 9 Allen,
231; Lohnesv. Ins. Co. of North America., 121 Mass. 439. Nor, even
if the agent had the fullest authority, could the conditions of the
policy be waived except in the manner in which they provide for
such waiver. A company which has seen fit to prescribe that the
terms and conditions of its policy shall only be waived by its written
or printed assent, has prescribed only a reasonable rule to guard
against the uncertainties of oral evidence, and by this the insured
has assented to be bound. Hale v. Mechanics' Ins. Co., 6 Gray, 169;
Worcester Bank v. Hartford Ins. Co., 11 Gush. 265. Upon this point
the case was submitted by the learned judge to the jury only upon
the question whether the plaintiff had acted in good faith. This
was erroneous, for the plaintiff might have acted in entire good
faith, and honestly believed that his change in the occupation of the
premises insured was justified upon the oral permission of an agent
without authority for any such purpose, and yet by such change
have avoided his policy.
INSURANCE AGENTS. 479
DRYER V. SECURITY FIRE INSURANCE CO.
94 Ia. 471. — 1895.
Action at law to recover the amount of a loss alleged to have
been covered by a policy of insurance issued by the defendant.
There was a trial by jury, and a verdict and judgment for the plain-
tiff. The defendant appeals. Reversed
Robinson, J. — The defendant issued to the plaintiff a policy
insuring him against loss or damage by fire, to the amount of $400,
on household furniture, beds, bedding, sewing machine, wearing
apparel, and provisions. During the life of the policy, property it
was designed to cover, to the amount of $340, was destroyed by fire.
The defendant resists payment on the ground that the property
insured was covered by the policy only when on the premises therein
described, and that it was five miles from them when destroyed.
The policy was issued on a written application of the plaintiff, which
was prepared by an agent of the defendant named Adams. The
application described the property insured as situate on and con-
fined to premises on a section specified, and that description was
carried into the policy. It may be conceded, for the purposes of
this appeal, that, according to the terms of the policy, it covered
the property in question only when on the premises described; and
it is admitted that the property was five miles from them when
destroyed, although in the same county. The plaintiff is a German,
unable to read or write the English language. The application was
signed in October, 1889, and asked for insurance for the term of
five years from the first day of that month. The policy was issued
as asked in the application. At that time the plamtiff occupied the
premises described in the application, as a tenant, and his lease for
them expired on the first day of the next March. He testifies that
when the application was prepared he told Adams that he would
have to move on the first of March, and had better wait before
insuring until he was settled; that Adams told him it would make
no difference, so long as he remained in the county; that Adams
said he " would fix it all right for him, so that it would be effectual
wherever he might move to in the county " The application was
then executed, but was not read by nor to the plaintiff. He had no
knowledge before the fire that the policy did not cover the property
excepting while it was in the premises he occupied when insured.
Adams denies some of the statements made by plaintiff, and
claims that he told the plaintiff that in case of a change in location
he must notify the company, but the jury was authorized to find
the facts to be as testified by the plaintiff. The defendant contends
that the plaintiff is not entitled to recover, even though it be con-
480 INSURANCE AGENTS.
ceded that his claims in regard to the statements of Adams are well
founded, for the reason that Adams was a soliciting agent only,
without power to make contracts for his company. It cannot be
claimed that the evidence shows the authority of Adams to have
been greater than ttiat of a soliciting agent. It does not appear
that he had power to do more than to obtain applications for insur-
ance, and forward them, with premiums, to the defendant. Cer-
tainly it is not shown that he had any power to agree that a policy
would be issued, on the application of the plaintiff, which would
cover the property insured, wherever it might be, in Clayton county.
It is the well-settled rule in this State that the insurance company
is bound by the knowledge of material facts which the soliciting
agent possesses when he takes an application for insurance. If the
applicant answers correctly the questions asked by the agent, he
has a right to rely upon the latter to so prepare the application that
it will properly state the facts of which the principal wishes to be
advised before issuing the policy. If the agent prepares the appli-
cation, but fails to have it show material facts, and the applicant is
blameless, the failure of the agent is chargeable to the company,
and furnishes no ground upon which it can avoid liability. Jamison
^'. Insurance Co., 85 Iowa, 233, 52 N. W. 185, and cases therein cited;
Reynolds v. Insurance Co., 80 Iowa, 566, 46 N. W. 569; McComb v.
Insurance Co., 83 Iowa, 251, 48 N. W. 1038. It was the right of the
plaintiff to insure his property only on condition that the insurance
should be good wherever the property might be in Clayton county,
and it was within the apparent power of the defendant to furnish
that kind of insurance. It was a part of the duty of Adams, in pre-
paring the application, to designate in it the place or location where
the insured property was to be kept during the life of the policy.
He knew that the plaintiff would take insurance only on condition
that it .should continue good wherever the insured property might
be, in Clayton county, during the life of the policy. He knew, for
he was told, that plaintiff could not read in the English language.
The application was designed to be the proposition of the plaintiff
for insurance, and, as the agent prepared it, he should have caused
it to express fairly and fully the proposition as made by the plain-
tiff. Knowing what that was, he volunteered to express it, but
failed to do so. If the plaintiff was ignorant of that failure, and was
not guilty of culpable negligence in not discovering the omission in
the application or policy, it may be that the defendant would be
estopped to deny that its policy covered the loss in question. Eat
the District Court instructed the jury as follows: "' (8) The plain-
tiff, however, alleges, in substance, that, at the time he made the
INSURANCE AGENTS. 481
application for said policy, Mr. Adams, who, as agent for said com-
pany, solicited said application, represented to the plaintiff, without
qualification, that the policy to be issued to him would cover said
property, wherever the same might be located in this county, and
that he, believing this and relying upon it, was induced to make the
application, and accordingly removed the property. The defendant
company denies this, and thus is presented the issue which you are
to decide. (9) The burden of proof is on the plaintiff to prove, by
a preponderance of evidence, that he was deceived by the agent of
the company in the manner aforesaid. Unless the plaintiff has so
proved this, he cannot recover. If he has so proved this he is
entitled to a verdict in his favor. (10). The plaintiff and the agent
Adams have both testified. Both agree that the plaintiff told
the agent that he was only a tenant, and might want to remove his
property. The plaintiff testifies, in substance, that the agent told
him, without qualification, that it would be fixed so that he could
remove the property to any place in the county, and said nothing
about notice to the company. Adams testifies, in substance, that
he told the plaintiff that he could remove the property-to any place in
the county by giving notice to the company. If Adams was right
in his testimony, the plaintiff cannot recover. If the plaintiff was
right, and if he was misled, as he claims, thereby, the plaintiff can
recover." This portion of the charge, in terms, instructed the jury
in regard to alleged misrepresentations of the agent, and the reliance
of the plaintiff upon them; but its real effect was to instruct the jury
that the plaintiff was authorized to rely upon the statements of the
agent as to what the policy would cover, or, in other words, that
the agent might make a contract which would bind his principal.
That this was the natural and legal effect of the language used,
cannot, we think, be successfully denied. But as we have seen,
Adams appears to have been only a soliciting agent, and if that was
his true character it was no part of his duty, and not within the
scope of his powers, to contract for his principal, to construe its
policies, or to determine their legal effect. As he was a special
agent, not clothed with any apparent right to do more than to solicit
insurance, and to perform such acts as were incident to that power,
the plaintiff was charged with knowledge of the limitations of his
agency, and was not authorized to give any contractual effect to the
statements he made. His principal was bound by the knowledge
he had when the application was prepared and accepted, but not by
statements he made outside the scope of his apparent powers. We
conclude that the District Court erred in giving the portion of the
charge quoted, and its judgment is for that reason reversed.
LAW OF INSURANCE — 3 1
482 INSLRANCE AGENTS.
INSURANCE CO. v. WOLFF.
95 U. S. 326. -1877.
The Globe Mutual T^ife Insurance Company of New York, on the
5th of November, 1869, issued to Eliza Garber a policy of insurance
for $5,000 upon the life of her husband, commencing on the first of
that month. The premium was payable annually on the first of
November. The policy stipulated for the payment of the amount
of the insurance within sixty days after due notice and proof of the
death of the insured, subject, however, to certain express con-
ditions. One of these conditions provided, that, if the premiums
were not paid on or before the days mentioned for their payment,
the company should not be liable for the sum insured, or any part
of it, and that the policy should cease and determine. Another
condition provided, that, if the insured resided in any part of the
United States south of the 33d degree of north latitude, except in
California, between the first of July and the first of Novem.ber, with-
out the consent of the company previously given in writing, the
policy should be null and void. And the policy declared that agents
of the company were not authorized to make, alter, or discharge
contracts, or waive forfeitures. The insured died at the city of
New Orleans on the iith of November, 1872. Between the first of
July and the first of November of that year he had resided at that
city, which is south of the 33d degree of north latitude, without the
previous consent in writing of the company; and the annual pre-
mium due on the first of that month was not paid on or before that
day. Due notice and proof of his death having been given to the
company, and payment by it refused, suit was brought by Mrs. Gar-
ber in the Circuit Court of St. Louis county, whence it was removed,
on the petition of the company, to the Circuit Court of the United
States for the Eastern District of Missouri. Judgment was ren-
dered for the plaintiff, and the cause removed here by writ of error.
Mrs. Garber died, and Wolff, her executor, was made the defendant
in error.
Mr. Justice Fikld. — By the residence of the insured within the
prohibited district of country during the period designated in the
policy without the previous consent of the company, and the failure
of the assured to pay the annual premium when it became due, the
policy, by its express terms, vi^as forfeited, and the company
released from liability, unless the forfeiture was waived by the
action of the company, 01 of its agents authorized to represent it in
that respect.
The waiver of the forfeiture for the non-payment of the premiun-i
INSURANCE AGENTS. 483
due on t.ij first of November, 1872, is alleged on the ground that
the premium was subsequently paid to an agent of the company, he
delivering its receipt for the same, signed by its secretary, and
countersigned by the manager and cashier of the local ofifice, the
plaintiff contending that the company, by its previous general
course of dealing with its agents, and its practice with respect to
the policy in suit, had authorized the premiums to be paid and the
agent to receive the same after they became due, and thus had
waived any right to a strict compliance with the terms of the policy
as to the payment of premiums.
The waiver of the forfeiture arising from the residence within the
prohibited district between the first of July and November, without
the previous consent of the company, is also alleged from the sub-
sequent payment of the premium and its receipt by the local agent,
the plaintiff contending that the premium was received with knowl-
edge by the agent of the previous residence of the insured within
the prohibited district.
It appears from the record that the deceased was taken sick with
the yellow fever at New Orleans, on the 6th or 7th of November,
1872, and died on the nth of the month, between the hours of
eleven and twelve in the forenoon. On the previous day a telegram
was sent by Mrs. Garber from New Orleans to a gentleman in St.
Louis, directing the latter to go to the agency of the company in
that city, at which the policy was issued, and pay the premium due
on the first of the month. Accordingly, on the following morning,
at about nine o'clock, the premium was paid by this gentleman,
and a renewal receipt was thereupon delivered to him. This
renewal receipt was dated in New York, and signed by the secre-
tary of the company. It not only acknowledged the receipt of the
premium, but it continued the policy in force for another year.
The practice of the company was to send to its agents in St Louis
receipts in this form, signed by its secretary, to be countersigned
by the local manager and cashier before being used. The receipt
given was thus countersigned. The payment was made in the pres-
ent case to a boy in the office of the agent, and by him the renewal
receipt was delivered. It was his habit to receive premiums and
deliver the proper renewal receipt in the absence of the agent. In
this case the money was given by him on the latter's coming to the
office the same morning. The agent credited the amount to the
company in his semi-monthly account transmitted to the home
office. The gentleman who paid the premium was not aware at the
time that the insured was sick, and no inquiries were made by the
boy or the agent as to his health. It is conceded that they had no
484 INSURANCE AGENTS.
infoimation on the subject. A few days afterwards, the agent
learned of the death of the insured, and of the sickness which was
the immediate cause of it, and informed the home office. The com-
pany at once telegraphed the agent to return the premium and
demand a surrender of the renewal receipt. The money was accord-
ingly tendered to the gentleman who paid it, and a surrender of the
renewal receipt demanded; but the tender was not received, nor
the receipt returned.
The conditions mentioned in the policy could, of course, be waived
by the company, either before or after they were broken; they were
inserted for its benefit, and it depended upon its pleasure whether
they should be enforced. The difficulty in this case, and in nearly
all cases where a waiver is alleged in the absence of written proof
of the fact, arises from a consideration of the effect to be given to
the acts of agents of the company in their dealings with the assured.
Of course, such agents, if they bind the company, must have
authority to waive a compliance with the conditions upon a breach
of which the forfeiture is claimed, or to waive the forfeiture when
incurred, or their acts waiving such compliance or forfeiture must
be subsequently approved by the company. The law of agency is
the same, whether it be applied to the act of an agent undertaking
to continue a policy of insurance, or to any other act for which his
principal is sought to be held responsible. The principle that no
one shall be permitted to deny that he intended the natural conse-
quences of his acts when he has induced others to rely upon them,
is as applicable to insurance companies as it is to individuals, and
will serve to solve the difficulty mentioned. This principle is one of
sound morals as well as of sound law, and its enforcement tends
to uphold good faith and fair dealing. If, therefore, the conduct of
the company in its dealings with the assured in this case, and with
others similarly situated, has been such as to induce a belief that so
much of the contract as provides for a forfeiture 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 subsequently 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 con-
sequences should follow.
This principle applied to the case at bar will render the question
presented one of easy solution. The company, notwithstanding the
provisions in the policy that its agents were not authorized to waive
INSURANCE AGENTS. 485
forfeitures, sent to them renewal receipts signed by its secretary, to
be used when countersigned by its local manager and cashier, leav-
ing their use subject entirely to the judgment of the local agent.
The propriety of their use, in the absence of any fraud in the mat-
ter, could not afterwards be questioned by the company. Accom-
panying these receipts was a notice, printed on the same paper, that
policies which became null for non-payment might be renewed at
the home office, within a reasonable time, upon furnishing satisfac-
tory evidence of good health, such satisfactory evidence being left
to the judgment of the local agent, and the renewal by the home
office consisting of a receipt signed by its secretary, transmitted to
such agent, to be used when countersigned by the local manager
and cashier. It was the habit of the agent to give such renewal
receipts whenever the premiums were paid after the time stipulated;
and his accounts to the home office showed such subsequent pay-
ment. His action in this respect was not questioned by the com-
pany ; and the premiums were retained by it witliout any pretense
that the policies had ceased to be obligatory for want of punctuality
in their payment. The mode of dealing by the agent with persons
taking out policies at the local office, his use of renewal receipts, his
acceptance of premiums after the day on which they were payable,
were all known to the home company, and its retention of the pre-
miums thus received was an approval of his acts. So far, then, as
the waiver of the forfeiture incurred for non-payment of the pre-
miums is concerned, it is clear that the company, by its course of
dealing, had, notwithstanding the provision of the policy, left the
matter to be determined by the local agent, to whom the renewal
receipts were intrusted.
But, so far as the forfeiture arose from the residence of the insured
within the prohibited district, the case is different. There is noth-
ing in the acts of the company which goes to show that it ever
authorized its agents to waive a forfeiture thus incurred, or that it
ever knew of any residence of the insured within the prohibited dis-
trict until informed of his death there. In every case where pre-
miums were received after the day they were payable, the fact that
a forfeiture had been incurred was made known to the company
from the date of the payment, and the retention of the money consti-
tuted a waiver of the forfeiture; but no information of a forfeiture
on any other ground was imparted by the date of such payment.
The agent receiving the premium, in the case at bar, testified that
he knew nothing of the residence of the insured within the pro-
hibited district during the excepted period, and the evidence in
conflict with his testimony was slight. He knew that the insured
486 INSURANCE AGliNlS.
had a place of business tliere, and that he was permitted to make
occasional visits there within that period, and tu reside there at other
times. Everything produced as evidence of knowledge of residence
within the prescribed district is consistent witli these occasional
visits and residence at other times than during the excepted period.
But, even if the agent knew the fact of residence within the
excepted period, he could not waive the forfeiture thus incurred,
without authority from the company. The policy declared that he
was not authorized to waive forfeitures; and to the provision effect
must be given, except so far as the subsequent acts of the company
permitted it to be disregarded. There is no evidence that the com-
pany in any way, directly or indirectly, sanctioned a disregard of
the provision with reference to any forfeitures, except such as
occurred from non-payment of premiums. As soon as it was
informed of the residence of the insured within the prohibited dis-
trict, it directed a return of the premium subsequent!}' paid. It
would be against reason to give to the receipt of the premium by
the agent, under the circumstances stated, the efficacy claimed.
The court, in its instructions, treated the receipt of the premium by
the agent, with knowledge of the previous residence of the insured
within the prohibited district, if the agent had such knowledge, as
itself a sufficient waiver of the forfeiture incurred, without any evi-
dence of the action of the company when informed of such residence;
and in this respect we think the court erred. It is essential that
the company should have had some knowledge of the forfeiture,
before it can be held to have waived it.
It is true, that, where an agent is charged with the collection of
premiums upon policies, it will be presumed that he informs the
company of any circumstances coming to his knowledge affecting
its liability; and, if subsequently the premiums are received by the
company without objection, any forfeiture incurred will be presumed
to be waived. But here there was no ground for any inference of
this kind from the subsequent action or silence of the company.
There was no evidence of a disregard of the condition as to the resi-
dence of the insured in any previous year, and, consequently, there
could be no inference of a waiver of its breach from a subsequent
retention of the premium paid. This is a case where immediate
enforcement of the forfeiture incurred was directed when informa-
tion was received that the condition of the policy in that respect fiad
been broken. Not only should the company have been informed
of the forfeiture before it could be held by its action to have waived
it, but it should also have been informed of the condition of the health
of the insured at the time the premium was tendered, upon the pav-
INSURANCE AGENTS. 487
ment of which the waiver is claimed. The doctrine of waiver, as
asserted against insurarice companies to avoid the strict enforce-
ment of conditions contained in their policies, is only another name
for the doctrine of estoppel, It can only be invoked where the con-
duct of the companies has been such as to induce action in reliance
upon it, and where it would operate as a fraud upon the assured if
they were afterwards allowed to disavow their conduct and enforce
the conditions. To a just application of this doctrine it is essential
that the company sought to be estopped from denying the waiver
claimed should be apprised of all the facts; of those which create
the forfeiture, and of those which will necessarily influence its judg-
ment in consenting to waive it. The holder of the policy cannot be
permitted to conceal from the company an important fact, like that
of the insured being /// extremis, and then to claim a waiver of the
forfeiture created by the act which brought the insured to that con-
dition. To permit such concealment, and yet give to the action of
the company the sam.e effect as though no concealment were made,
would tend to sanction a fraud on the part of the policy-holder,
instead of protecting him against the commission of one by the com-
pany.
It follows that the judgment m^-st be reversed, and the cause
remanded for a new trial; and it is
So ordered.
ERMENTROUT et al. v. GIRARD FIRE & MARINE
INS. CO.
63 Minn. 305. — 1895.
Appeal by plaintiffs from an order denyinga motion for a new trial.
Mitchell, J. — This action was brought on a policy issued by the
defendant to the plaintiff Ermentrout, insuring him, to the amount
of $1,000, for one year " against all direct loss or damage by fire,"
on his " brick, iron-roof, grain warehouse building, and bins
therein, including foundations and all permanent fixtures," etc.
The only other provisions of the policy involved on this appeal are
as follows: " If a building or any part thereof fall, except as the
result of fire, all insurance by this policy on such building or its con-
tents shall immediately cease." " If fire occur, the insured shall
give immediate notice of any loss thereby in writing to this com
pany." " The simi for which this company is liable, pursuant to
this policy, shall be payable sixty days after due notice, ascertain-
ment, estimate, and satisfactory proof of the loss have been received
488 INSURANCE AGENTS.
by this company, in accordance with the terms of this policy."
When the plaintiffs rested, the defendant moved to dismiss the
action, for the reason that phiintiffs had failed to establish their
cause of action, in that — First, it did not appear that the loss or
damage was the direct result of fire; second, that it did appear
that the plaintiffs had not given immediate notice of the loss in
writing to the company. The judge granted the motion, although
placing his decision exclusively on the last ground. Of course, if
the action should have been dismissed on either ground, the ruling
of the court must be affirmed.
1. [^ digt'sl of that part of the opinion upon the first point — falling
building — is given herein, ante, p. 184.]
2. Seeley & Co., who issued the policy, were the local agents of the
defendant, with authority " to receive proposals for insurance * * *
within the county of Hennepin, and to receive premiums thereon,
and to give receipts and issue policies therefor." It also appeared
that these agents had authority to accept applications for insurance,
fiv the premium or rate of insurance, and fill up, countersign, and
issue policies thereon, which they received from the company,
signed by its president and secretary. So far as appeared from the
evidence, this was the extent of their actual authority, and there
was no evidence tending to show that their apparent authority was
other or g'^eater than their actual authority. The only evidence of
the giving of notice of loss, except the sending of proofs of loss to
the general managers of the defendant at Chicago on or after
October 9th (received by them on or about October 23d), was to the
effect that, within a day or two after the loss, one of the plaintiffs
verbally notified Seeley & Co. that " the fire had destroyed the
building " Although probably not material, it does not appear that
he requested Seeley & Co., to give or forward the notice to the com-
pany, or that they promised to do so, or made any reply to the
plaintiff. As the loss occurred on the 12th of August, it is clear,
under the authorities, that, as a matter of law, the time for giving
notice of loss had expired before the proofs of loss were sent to
Chicago. It is also settled law that, where the policy requires
notice of loss to be given to the insurer within a specified time, such
notice is a condition precedent to the right of action on the policy.
Hence, for their right of recovery on the policy, the plaintiffs have
to rely on the verbal notice given to Seeley & Co.
If Seeley & Co. were the proper parties to whom to give this
notice, — in other words, if it was within the scope of their authority
to receive notice of loss, — we would not feel any doubt but that
if, when they received verbal notice, they made no objection to its
INSURANCE AGENTS. 489
form, they would be deemed to have waived the omission to give it
in writing. But it is self-evident that if they had no authority to
receive such notice, then they could waive nothing in the matter.
Upon this state of facts, it was not within the scope of the authority
of Seeley & Co. to receive or wai^e notice of loss, and hence notice
to them was not notice to the company. Even if there could be
any doubt of the correctness of this proposition as a new question,
it has been too long and too well settled in this State to be now con-
sidered open. Bowlin v. Insurance Co., 36 Minn. 433, 31 N. W. 859;
Shapiro \. Insurance Co., 51 Minn. 239, 53 N. W. 463; Shapiro \.
St. Paul F. ^ M. Ins. Co., 61 Minn. 135, 63 N. W. 614. But we
think the rule is correct upon both principle and authority. It is in
accordance with the general principles of the law of agency. It is
elementary that a principal is only liable for acts done by his agent
within the scope 01 the authority, actual or apparent, with which
the principal has clothed him; that it rests entirely with the princi-
pal to determine the extent of the authority which he will give to his
agent; also, that every person dealing with an assumed agent is
bound, at his peril, to ascertain the nature and extent of the agent's
authority.
In insurance cases courts frequently inaccurately classify agents
as " local " and " general." But the extent of the territory which
is to be the field of his agency is no test of the extent of an agent's
authority within that field. His field of operations may include the
whole United States, and yet his powers be special and limited.
On the other hand, his field of operations may be confined to a
single county or city, and yet his authority within that field be
unlimited. In the present case there is no question of apparent, as
distinguished from actual, authority. The question is simply one of
actual authority, express or implied. Authority to act in the mat-
ter of a loss under the policy, after it has occurred, is not expressly
given. All the authority expressed relates to the making of the
contract of insurance. It is a fundamental principle in the law of
agency that a delegation of power, unless its extent be otherwise
expressly limited, carries with it, as a necessary incident, tl^e power
to do all those things which are reasonably necessary to carry into
effect the main power expressly conferred. But it is equally funda-
mental that the power implied shall not be greater than that fairly
and legitimately warranted by the facts; in other words, an implied
agency is not to be extended by construction beyond the obvious
purpose for which the agency was created. We do not think that
mere authority to make a contract of insurance carries with it
implied authority to act in tne matter of a loss under the policy
490 INSURAN'CE AGENTS.
after it has occurred. If the implied authoritj- extends to accept-
ing notice of the loss, it would logically follow that it also extends to
proof of loss, and even to the adjustment of the loss, — a length
to which no court has ever gone. The rule which we have adopted
is also in accordance with the general current of the authorities.
Lohiies \. Insurance Co., 127 Mass. 439; Smith \ . I nsurance Co., 60
Vt. 6S2, 15 Atl. 353; Busli V. Insurance Co., 63 N. Y. 531.
Occasional statements in some of the text-books seem to announce
a different rule, but they are not borne out by the authorities cited
in their support. For example, in Wood, Ins., § 419, it is stated
that, " where an agent is intrusted with policies signed in blank,
an J is authorized to issue them upon the application of parties seek-
ing insurance, he is thereby clothed with apparent authority to bind
the party in reference to any condition of the contract, whether
precedent or subsequent, and may waive notice of proofs of loss,
and may bind the company by his admissions in respect thereto."
Upon an examination of the large number of authorities cited in
support of the text, it will be found that not one of them tends
to support the author's proposition as to proofs of loss, unless it be
the nisi prius decision in Ide v. Insurance Co., 2 Biss. 2>Z2), Fed. Cas.
No. 7,001, in which the question is not discussed, no authorities
cited, and the statement of facts so meagre that it cannot be ascer-
tained what the evidence was as to the actual or apparent authority
of the agent. Most, if not all, of the other cases may be classified as
follows: First. Cases holding that, where an agent is authorized
to make the contract of insurance and issue the policy, the com-
pany is bound by his acts, representations, or omissions preceding
or accompanying the issuing of the policy. Considered as the state-
ment of a general rule, this is the doctrine of all courts. Second.
Cases holding that authority to make the original contract of insur-
ance carries with it implied authority to modify or waive any of its
conditions while the contract is still current, as by consenting to
other insurance, change of risk, etc. This court has adopted this
general rule, althouh some courts do not go that far. Third. Cases
where the agent had, with the knowledge of the company, been in
the habit of receiving notices of loss, proofs of loss, and adjust-
ing losses, and it had thereby clothed him with apparent authority
to do these things. Fourth. Cases where the authority of the agent
to do the particular acts was admitted, or not disputed, and the only
question was as to the effect of his acts, as, for example, whether
they constituted a waiver.
3. When the general managers received the proofs of loss in
October, they wrote to plaintiffs, stating that they were in receipt
INSURANCE AGENTS. 49I
of papers purporting to be proofs of loss, but adding: " This is to
notify you that we deny any liability under said policy on the part
of this company." They did not, however, return the proofs of
loss. If the question was one of the sufficiency of the proofs of
loss, we have no doubt the conduct of the general managers would
have amounted to a waiver of any defect in them, either of form or
substance. But this did not amount to any waiver of the prior fail-
ure of the plaintiffs to give notice of loss as required by the terms
of the policy. It will be observed that by reason of this prior fail-
ure the policy was already dead when the proofs of loss were
received; also, that in this letter the general maiagersdid not place
their denial of liability on any particular ground, but denied all
liability generally. What would have been the effect, under the cir-
cumstances, of placing their denial of liability upon some specific
ground other than the failure to give notice of loss we need not
inquire. But there was nothing in the language or conduct of the
general managers that could be construed as a waiver of plaintiffs'
prior failure to give notice of the loss, by reason of which the policy
was already dead. If the policy had been still alive, and the plain-
tiffs still had time within which to give the notice, or to supply
defects in one already given, a different question would be pre-
sented, and many of the numerous cases cited by plaintiffs' counsel
would have been in point. Our conclusion is that the court was
right in dismissing the action, on the ground that plaintiffs had failed
to give notice of loss as required by the policy. Order affirmed.
Canty, J. — I concur in the first division of the foregoing
opinion, but not in the second. I am of the opinion that an insur-
ance agent who has authority " to receive proposals for insurance,"
" receive premiums thereon," " fix the premiums or rate of insur-
ance," and " fill up, countersign, and issue policies of insurance,"
should be presumed to have authority to receive notice of loss, at
least when no higher local authority appears to exist. Especially
is this true of the highest local representative of an insurance com-
pany in so large and populous a county as Hennepin
It is a matter of common knowledge that every insurance com-
pany depends largely (though perhaps not exclusively) on such
agents to furnish it information concerning such losses. Every
company doing a considerable amount of business in any locality,
especially in a commercial center of any size, must have and always
does have the assistance of its local agent in ascertaining the facts
concerning the loss, just as much as they have his assistance in
obtaining business or determining the character of risks. It is true
that an adjuster is often and quite usually sent to examine into the
492 INSURANCE AGENTS.
facts and adjust the loss, but it is almost the invariable custom
for the local agent to furnish the company all the facts within his
knowledge, and all the facts which he can ascertain, immediately
after he learns of the loss, and usually long before the adjuster
comes upon the ground. Of course most of this information from
the agent to the company is secret and confidential, but it is none the
less within the scope of the agent's duties to furnish it. These
are things that everybody knows, and what everybody knows the
courts should not refuse to know. These are duties which such
agents usually perform. It should be presumed that such duties are
within the scope of their authority, and if so it should be presumed
that they ha^'e authority to receive information of such a loss from
the insured and transmit it to the company, and that when such
information is so received it is their duty so to transmit it.
As far as concerns the authority of such agents generally, there
is no clear or well-defined line drawn between matters arising in
connection with or accompanying the making of the policy and
other matters, except as that line is being drawn by some of the
courts. The line which the companies themselves have always
drawn is the line between the right to receive and retain premiums
and the right to refuse to pay losses. They always admit that their
agents have authority to receive such premiums, and always deny
that these agents have any authority to waive any forfeiture what-
ever, whether arising before or after loss, whether arising in con-
nection with the issuing of the policy or in connection with the
giving notice of loss. I am of the opinion that notice to the local
agent was sufficient notice of loss, and that the retention by the
company of the proof of loss subsequently sent it, tended to prove
waiver of prior conditions, as well as performance of the condition
requiring such proof of loss.
CRITCHETT v. AMERICAN INSURANCE CO,
53 Ia. 404. — 1880.
Action upon a policy of insurance. The defendant alleges that
the plaintiff was in default at the time of the loss by reason of the
non-payment of an instalment of the premium. For a portion of
the premium the company had taken the plaintiff's note, whereby he
had obligated himself to pay the company three dollars upon the
first day of November, 1876, and the same amount upon the first
day of November in each of the three succeeding years. The policy
INSURANCE AGENTS. 493
contained' a provision in these words: " If default shall be
made by the assured in the payment of any instalment of premium
upon the instalment note given for this policy for the space of thirty
days after such instalment shall beco^ne due, by the terms of
such note, then this policy shall be null and void, and this company
shall not be liable to pay any loss happening during the continuance
of such default in payment of such instalment; but on payment by
the assured or his assigns of all instalments of premium due under
this policy, or upon the instalment note given therefor, the liability
of the company under the policy shall attach, and this policy be in
force as to all the losses happening after such payment, unless it
shall be inoperative from some other cause." The instalment fall-
ing due Nov. I, 1876, was not paid. The loss occurred March 9,
1877. There was a trial by jury, and verdict and judgment were
rendered for the plaintiff. The defendant appeals.
Adams, Ch. J. — The plaintiff claims that he was not in default
at the time the loss occurred, notwithstanding the non-payment of
the instalment, which, by the terms of his note, fell due on the first
day of -November, 1876. He claims that the company had extended
the time of payment. As evidence of such extension he testified
that one Kennedy, the agent of the company at Oskaloosa, near
where he resided, agreed with him after the instalment became due
to extend the time of payment until he (plaintiff) shoulJ receive a
certain pension; that he received his pension March 8, 1877, and on
the same day went to Kennedy's ofifice to pay the instalment due
upon his insurance note, but did not find him, and on the next day,
about 4 o'clock in the afternoon, the property insured was destroyed
by fire.
The defendant denies that any agreement for extension was made
between the plaintiff and Kennedy and introduced Kennedy as a
witness who testified that none was made. Upon this point the
jury found against the defendant, and the evidence being conflict-
ing, their finding must be taken as conclusive. But the defendant
insists that conceding that Kennedy agreed to an extension the
defendant would not be bound by it, because Kennedy had no
authority to bind the company in that respect, and further, if he
had, that the plaintiff cannot recover, because the loss occurred
after the time as extended, and the plaintiff had not' paid even then.
Kennedy's authority was shown by the certificate of his appoint-
ment introduced in evidence. From it, it appears that he was
authorized to receive applications for insurance, and collect and
transmit premiums. Kennedy testified that he was not authorized
to issue policies, and it is not pretended that he was. The court
494 IXSU RANGE AGENTS.
instructed the jury, in substance, that the plaintiff would be entitled
to recover if they found that Kennedy agreed to extend the time of
payment, and that the loss occurred within such time. The giving
of this instruction is assigned as error.
According to the terms of the policy, the company ceased to
carry the risk at the end of thirty days from the time the instalment
became due. If the company continued to carry it, it was by rea-
son of a contract not contained in the policy, and that contract
mast have been the allege J contract with Kennedy. Now, what
precisely was that contract, taking the plaintiff's statement as to
what it was? He says: " He (Kennedy) agreed he would give me
time to get my pension." From this it will be seen that Kennedy
ditl not undertake to contract that the company would, without pay-
ment, continue to carry the risk after it had ceased by the terms of
the policy. It is doubtful, indeed, whether he even meant to bmd the
company not to enforce payment of the instalment before plaintiff
could get his pension. The words do not necessarily mean more
than that he would not himself enforce it. But we are of the opin-
ion that if Kennedy had expressly contracted that the company
should carry the risk without payment after it had ceased by the
terms of the policy, such contract would not have bound the com-
pany. There is no pretense that Kennedy had any express authority
to bind the company by any contract whatever. He belonged to
an extensive and well recognized class of insurance agents from
whom the power to make contracts is withheld. If he had the power
to contract in the name of the company to carry the risk without
payment after it had ceased by the terms of the policy, it is because
the law would imply such power from the fact that he was author-
ized to collect and transmit premiums. But an agent employed to
collect a claim does not thereby have authority to bind his principal
even to grant an extension of time. Hutc/iings v. Munger, 41 N. Y.
155; Kirk V. Hiatt, 2 Carter (Ind.) 2,22,', Corning v. Strong, i Carter
(Ind.) 329. Still less would such agent have authority to bind his
principal by a contract of insurance. We have seen no case where
the doctrine contended for by the plaintiff has been held. We do
not say that where a policy is delivered by an agent without the
prepayment of the premium it will not take effect even though the
agent have no authority to pass upon and accept the risk, even
though the policy provides that it shall not take elect unless the
premium is prepaid. Where an agent is intrusted with a policy for
the purpose of delivering it, and does deliver it, though in violation
of a provision of the policy as to prepavment, it has been held that
the assured has a right to assume that prepayment has been waived.
INSURANCE AGENTS. 495
i'v/z/i,-- V. Hartford Fire Ins. Co., 45 Iowa, 377; Boiainan v. Agri-
iuliural Ins. Co., 59 N. Y. 521; Mississippi Valley Ins. Co. v. N'eyland,
9 Bush. 430; Sheldon v. Conn. J/u. Ins. Co., 25 Conn. 9.
But the vvaiver rests not simply upon something said by the agent
which could be construed into an agreement of waiver but upon
something done by the agent which he v/as employed to do. The
authorities all agree that a mere agreement to waive prepayment
will not put a policy in force where it is not delivered. It is there-
fore the delivery of the policy which constitutes the ground of
waiver. It is true that in Hallock v. Commercial Insurance Co., 2
Dutcher, 268, a recovery was allowed although the premium had
not been paid nor the policy delivered. But the agreement for the
insurance had been made and the premium tendered, which the agent
declined to receive because the policy was not made out. In Trus-
tees of Baptist Church v. Brooklyn Ins. Co., 19 N. Y. 305, there was a
parol contract for a renewal, but no payment of the premium. It
was held that the plaintiff was entitled to recover. That case was
substantially like the case at bar, except that the contract was
made by the officers of the company and not by an agent. The prin-
ciple decided, therefore, was materially different. Nor does the
case at bar come within the rule held in Viele v. Germania Ins. Co ,
26 Iowa, 9. That was a case where the risk was increased by the
act of the assured contrary to the provisions of the policy. It
appeared, however, that the agent assented to the use of the premises
by reason of which the risk was increased. Such assent was held to
be a waiver of the forfeiture. The doctrine of that case is unques-
tionably correct, but it rests upon the fact that the agent is made
the judge as to whether a given use is an increase of risk or not.
Mr. Justice Beck, who wrote the opinion, said: " The agent is
charged, by the terms of the policy on which the suit is based, with
the power to determine whether the risk is increased. If he so
determines he may cancel the policy and put an end to the con-
tract. This involves the necessity of examination of the condition
of the insured property during the life of the policy, and constant
watchfulness to protect the interest of the underwriters. If he
determines that the risk is increased such determination is final.
Such being the great and extraordinary powers of the agent, it fol-
lows that he is clothed with the power to dispense with conditions
and waive the effect of breaches thereof in contracts of insurance
made by him. If he can determine that the conditions of the con-
tract have been broken, surely he can also determine that they have
not been broken."
In our opinion there is nothing in this doctrine that affords sup-
4g6 INSURANCE AGENTS.
port to the proposition that an agent who has not the power to make
the contract of insurance can bind the company by his contract to
an indefinite postponement of the payment of a renewal premium,
and keep the policy in force in contravention of its provisions. In
Bouton V. The American Mutual Life Insurance Company, 25 Conn.
542, the premium was actually paid to the agent, though after the
day it fell due. It was held that though the agent had power to
make the contract of insurance, and had power to receive the pre-
mium when due, he had no power without an express authorization
to bind the company by receiving it after it was due. Substantially
the same doctrine was held by implication in Insurance Company v.
Xorton, 96 U. S. 234. In that case a recovery was allowed wheie
the agent had extended the time of payment of premium, but the
right of recovery was made to turn upon the ground that the jury
was justifi^J in inferring from the practice of the company an
express authorization of the agent to extend the time of payment.
There was no pretense that the agent by virtue of his power to
make the contract of insurance and collect premiums could extend
the time of payment. It is not uncommon, we think, for agents to
keep a policy in force after a renewal premium becomes due, with-
out actual payment by the assured. The agent sometimes credits
the assured or issues a receipt to him without payment by him, the
understanding being that the agent becomes personally liable to the
company, and the assured to the agent. In such case as between
the assured and the company the premium is regarded as paid. See
Flanders on Insurance, page 164, and cases cited.
There is a class of cases where a receipt of premium by an agent
paid when due has been held to be a waiver of a forfeiture incurred
by a violation of a condition of the policy. See Walsh v. .-Etna Life
Insurance Compatiy, 30 Iowa, 133, and cases cited. But where an
agent who is authorized to receive premiums receives a premium
paid when due, he is acting within the scope of his general authority.
The assured has a right to suppose that the payment is valid; that
it becomes a payment to the company; that the company by receiv-
ing it, if it receives it w'ith knowledge of the forfeiture, waives the
forfeiture. We have been unable to discover any rule in the law of
insurance which would justify us in holding that an agent can bind
the company by his consent of a postponement of a payment of a
renewal premium, and keep a policy in force contrary to its pro-
visions, unless he is expressly authorized to do so.
It has been suggested that Kennedy's authority to receive pay-
ment of premiums should be deemed to include the authority to
bind the company to carry the risk without payment, becaus*:; it
INSURANCE AGENTS. 497
might be for the interest of the company to do so. But authority
to an agent to do one thing does not include, by impHcation, an
authority to do another thing merely because it might be for the
interest of the principal to do the other thing. An agent has
implied authority to employ the usual and necessary means to accom-
plish what he is expressly authorized to do. In the case at bar the
carrying of the risk without payment of the premium was not neces-
sary to enable the company to collect the premium; that was collec-
tible without any new contract or consideration. In no view, then,
did Kennedy have the implied power to make the contract relied upon.
In our opinion the rule contended for by plaintiff would have
a tendency to impair the value of all insurance, both fire and life.
If insurance agents can grant a valid extension of the payment of
renewal premiums for a few months, as in this case, while the risk
continues, they can grant such extension for a few years, or such
length of time as the policy can be renewed. No company under
such rule would be safe. Liabilities would constantly tend to
become disproportionate to available resources. The interests bound
up in insurance are too important to be thus jeopardized.
The foregoing considerations dispose of the case without regard
to the fact that the loss occurred one day after the alleged exten-
sion had expired. The evidence was not such as to justify the
instruction given, nor the verdict rendered.
Reversed.
Beck, J., dissenting. — The policy in the case insured the propertj'
for five years, the term to end November 12, 1880. The premiums
were payable annually, the first being paid when the policy was
issued, and the others secured by a promissory note payable in
instalments of equal sums on the 12th day of November of each sub-
sequent year. The whole of the condition of the policy touching
the effect of non-payment of these instalments is not set out in the
opinion of the majority of the court The part omitted follows
what is quoted in that opinion. I here present it: " When a promis-
sory note is given by the assured for the cash premium it shall be
considered a payment of such premium, provided such note is paid
at or before maturity, but if such note, or any part thereof, shall
remain unpaid and past due more than thirty days at the time of any
loss or damage, then this company shall not be liable to pay such
loss or damages happening during such default, and no attempt to
collect such note or any instalment of premium upon the instalment
note aforesaid, whether by legal process or otherwise, shall be
deemed a waiver of any of the conditions of this policy, or have the
effect to renew the policy; but upon payment by the assured of the
LAW OF INSURANCE — ^2
498 INSURANCE AGENTS.
full amount of such note or instalment, as the case may be, and all
costs that may have accrued, then this policy shall be in force as to
losses happening thereafter, unless inoperative or void from some
other cause."
The agent who, as plaintiff claims, extended the time of payment,
was expressly empowered by the defendant to collect and remit the
premium due upon notes of the kind given by plaintiff.
The case presents this state of facts: The policy was an existing
contract at the time of the destruction of the plaintiff's property.
But on account of the failure of plaintiff to pay an instalment of the
note which had fallen due, the contract could not be enforced
against defendant if the breach of the condition were interposed as
a defense. The contract had not ceased to exist; it was binding
upon the parties, and defendant would become again liable thereon
upon payment of the premiums. The case does not, therefore,
require us to determine whether the agent was authorized to enter
into a contract of insurance. It is not claimed that his acts had
that effect; nor, indeed, did the agent in the act of giving plaintiff
time upon his note make any contract for the company. The whole
contract between the parties is embodied in the policy. But by
extending the time of payment the agent dispensed with the strict
performance of the contract of the plaintiff to pay the premium on
the day stipulated. The opinion of the majority of the court, I
understand, concedes that if the agent did extend the time of pay-
ment, and had authority to do so, his act would operate as a dispen-
sation of the condition of the policy and operate as a waiver of the
forfeiture resulting from the non-payment. The only question,
then, to be determined involves the power of the agent to make an
arrangement with the plaintiff that he should have further tims for
the payment of the instalment then due or about to fall due.
The agent was authorized to collect the premiums. It cannot be
doubted that if the plaintiff had paid to the agent the premium after
default, the policy would have again attached. The agent could
have enforced the payment under the terms of the policy. Thus far
he was clothed with authority, upon the exercise of which, at his
discretion, depended the binding force of the policy. His authority
to collect the premium could be exercised in such a manner and at
such times as the interest of the defendant determined by the agent
required. Surely, the authority to collect the premium was not so
limited that it could not have been exercised after default by plain-
tiff. It follows that the agent, before default, could arrange with
the plaintiff to extend the time in the evercise of his authority to
collect, or, in other words, could extend the time for payment.
INSURANCE AGENTS. 499
It is not necessary to hold that the agent had authority to enter
into a contract for the extension of the time upon the note. This
would require authority to make a new contract under which the
old contract would be modified. But the extension of indulgence
to the plaintiff under an agreement that the insured shall not be
prejudiced by delay is quite a different thing. I will illustrate this
point by a supposed case. A. enters into a contract for the sale of
lands to B., payment to be made upon a specified day, the time of
payment being of the essence of the contract. The note given by
B. to secure the purchase money is placed in the hands of C. for
collection, who agrees with B. that indulgence shall be extended for
a time agreed upon. In such a case the condition as to time is
waived. The agent's power to collect the money was exercised in
granting indulgence. I know of no reason why the same doctrine
should not apply to policies of insurance. It is based upon the
plainest reasons. Parties to a contract should not be enabled to lay
ambuscades and pitfalls for one another; they should not, by pro-
fessions of kindness and indulgence, induce the violation of the con-
tract, and then take advantage of the default. The agent of defend-
ant in this case was authorized to collect the premium; there was
no limitation upon this authority. He, therefore, could, in the
exercise of his authority, do all acts that could have been done by
his principal in collecting the premium. He could grant indulgence
and delay in the exercise of his authority. As I have said, the
agent made no new contract; his act in granting indulgence does
not demand the exercise of authority to make a new contract.
My brothers in the foregoing opinion express the thought that the
agent could not grant indulgence, unless he had the authority to
enter into a contract of insurance. They think that the time for
the payment of premiums can only be extended by insurance agents
when they deliver the policy, or do some other act required in the
execution of the contract. That agents possessing such authority,
and under such circumstances may waive conditions as to the time
of payment, does not support the conclusion that indulgence, or, if
you please, extension of time, may not be granted by an agent
employed to collect premiums after the policy has attached. In my
opinion the time at which an agent may perform acts under his
authority, if not prescribed by the principal, rests in his discretion,
to be exercised for the interest of the principal. The agent of
defendant was authorized to collect the premium; he determined
that he would not collect it or demand its payment until plaintiff
received his pension, and so informed plaintiff, who, relying upon
the arrangement, did not pay the premium before his house was
50O INSURANXE AGENTS.
burned. As the act of the agent in extending the time of payment
was done in the exercise of authorit}' to collect the premium, the
defendant is estopped to enforce the forfeiture for the non-payment
of the instalment. The conclusion I reach that the payment of the
instalment on the day it fell due was dispensed with, and the for-
feiture waived by the act of the agent in extending the time of pay-
ment is supported by the following authorities: Viele v. Germania
Insurance Company^ 26 Iowa, 9; Walsh v. The yEtna Life Insurance
Company, 30 Id. 133; Young &" Co. v. Hartford Fire Insurance Com-
pany, 45 Id. 377; Insurance Company v. Norton, 96 U. S. 234; Mis-
sissippi Valley Life Insurance Company v. N'eyland, 9 Bush, 430;
Sheldon v. Connecticut Mutual life Insurance Company, 25 Conn. 207;
Bouton V. American Mutual Life Insurance Company, 25 Conn 542;
Trustees of Baptist Church v. Brooklyn Insurance Company, 19 N. Y.
305; Bowman \. Agricultural Insurance Company, 59 N. Y. 521; Hal-
lock V. Cofnmercial Insurance Company, 2 Dutcher, 268.
In my opinion the judgment of the District Court ought to be
affirmed.
2. Broker.'
Marshall, J., in JOHN R. DAVIS LUMBER CO. v. HART-
FORD FIRE INS. CO.
95 Wis. 226, 233. — 1897.
What the powers of an insurance broker are can hardly be a sub-
ject for serious controversy. He is the agent for the assured,
according to all authorities on the subject, though at the same time,
for some purposes, he may be the agent for the insurer, and his acts
and representations within the scope of his authority as such agent
are binding upon the assured. Mechem, Agency, § 931; Hartford
F. Ins. Co. V. Reynolds, 36 Mich. 502; Standard Oil Co. v. Triumph
Ins. Co., 64 N. Y. 85; Hamhlet v. City Ins. Co., 36 Fed. Rep. 118;
May, Ins., § 124 A. Says Mr. Justice Page, in Am. F. Ins. Co. v.
Brooks, 83 Md. 22, 34 Atl. Rep. 373: " It appears to be well settled
that where one engages another to procure insurance, the person so
employed is agent for the insured, and not for the insurer, in all
matters connected with such procurement." Questions involving
the scope of the powers of an insurance broker to represent the
insured arise most frequently where notice of cancellation is served
by the insurer on such broker, when the contract of insurance
' See also Arff s. Ins. Co., post, p. 503.
INSURANCE AGENTS. 5OI
requires it to be served upon the insured. In such cases the ques-
tion turns on whether the employment of the broker extended
beyond the mere procurement of the insurance. If not, it is held
that his agency ceased upon the delivery and acceptance of the
policy, so that service of notice of cancellation on him was ineffectual
Kehler, v. Ncio Orleans his. Co., 2^ Fed. Rep. 709; Franklin Ins. Co.
V. Sears, 21 Fed. Rep. 290; Body v. Hartford F. Ins. Co., 63 Wis.
157; Hermann v. Niagara Ins. Co., 100 N. Y. 411 ; Grace v. Am. Cent.
Ins. Co., 109 U. S. 278; Broadzvater v. lion F. Ins. Co., 34 Minn.
465; W7iite v. Con/i. F. Ins. Co , 120 Mass. 330; Indiana Ins. Co. v.
Hartwell, 100 Ind. 566. But the broker may be so clothed with
authority as to have full power to act for the insured in cancelling,
as well as procuring, policies. Standard Oil Co. v. Triumph Ins. Co.,
supra; Hartford F. Ins. Co. v. Reynolds, supra. In all cases the
familiar rule respecting the relation of principal and agent applies,
that, within the scope of his authority to procure insurance, he
stands in the place of the principal, and the latter is bound by what-
ever, within such scope, such agent may do, to the same extent as
if it were done by such principal.
3. Adjuster.
SMALDONE v. INS. CO. OF NORTH AMERICA.
162 N. Y. 580. — 1900.
Appeal from a judgment of the Appellate Division of the Supreme
Court, in the Third Judicial Department, entered December 10,
1S97, affirming a judgment in favor of plaintiff entered upon a
verdict, and an order denying a motion for a new trial.
CuLLEN, J. — The action is brought on a standard fire insurance
policy, and the only question raised on this appeal is as to the power
of an agent sent by the defendant to adjust the loss to waive the
provision of the policy requiring the service of proofs of loss. This
agent was not only authorized to adjust the amount of the loss, but,
as appears by his own testimony, was empowered to negotiate any
settlement of the claim of the insured on the policy and to pay and
discharge such claim. Shortly after the occurrence of the fire, and
before the expiration of the time within which it was necessary to
serve the proofs of loss, the agent, in his negotiations with the
plaintiff's assignor and his attorney, absolutely repudiated any lia-
bility on the part of the defendant, claiming that the premises insured
502 INSURANCE AGENTS.
were vacant in contravention uf the terms of the policy, though he
seems to have been willing to have settled with the insured if he
could do so for a sufficiently small sum. The parties couid not agree
on the amount to be paid, when, as testified by the plaintiff's wit-
nesses and as found by the jury, the agent told the attorney for the
insured that he did not want him to file proofs of loss or have
appraisers appointed, but that he mig!u " go on and sue as soon as
you wish to." The defendant requested the court to instruct the
jury that the agent had no power to waive the requirement for
service of the proofs of loss unless it was indorsed upon the policy.
This request was refused and the court charged the jury that if the
agent waived the service of the proofs of loss and the appointment
of appraisers, his act bound the defendant.
We think that this ruling of the trial court was correct. It is not
necessary to review the many cases to be found in this State on the
power of agents to waive the conditions or requirements of insur-
ance policies. There is no necessary inconsistency in the decisions
of this court on the subject. The determination of the question
depends on the rank and authority of the agent and the subject-
matter with reference to which he assumes to act. We have recently
held [Hicks v. British Am. Ass. Co., 162 N. Y. 284) that a local agent
authorized to issue policies could not by his declarations or acts
waive the provision of a policy that proofs of loss must be furnished.
The agent in this case however was not a local agent but was vested
with plenary powers to adjust the defendant's liability and pay any
claim that might be made against it. As to the matter in hand he
was a general agent, not a special agent or one witli limited authority,
and could do whatever the company itself might do. It is unques-
tionable that he could have paid the loss without the production of
any proofs of loss; equally, he could repudiate all liability on the
part of the defendant and waive the proofs of loss or appointment
of appraisers. The question seems settled by the late decision of
this court in Sergent v. Liverpool &' L. Csr' G. Ins. Co., 155 N. Y. 349,
355, where it is said through Bartlett, J., that " While it is true that
the policy in suit contained the usual clause as to proofs of loss
being filed within sixty days, and that no officer, agent or other
representative of the company should have power to waive any con-
dition thereof, except by written agreement indorsed thereon, yet a
party to a contract containing such a provision may, by con-
duct, estop himself from enforcing it against one who has acted
in reliance upon such conduct. He may also be estopped by
the act of an agent who possesses, or whom he has held out to
possess, this power in respect to the provision." In that case
INSURANCE AGENTS. 503
the court followed its previous decision in Bishop v. Agr. Ins. Co.,
130 N. Y. 488.
The judgment should ba affirmed, with costs.
Parker, Ch. J., Gray, Bartlett, Martin, Vann and Werner,
JJ., concur.
Judgment affirmed.
4. Sub-agents.
ARFF V. STAR FIRE INSURANCE CO.
125 N. Y. 57. — 1890.
Action by Daniel Arff against the Star Fire Insurance Company
on a policy of insurance. A judgment for defendant, entered on
the dismissal of the complaint at the trial, was affirmed on appeal
to the General Term; and from the judgment of affirmance plaintiff
appeals.
Peckham, J. — This is an action to recover upon a policy of insur-
ance issued by the defendant upon certain personal property belong-
ing to the plaintiff. A loss having occurred, and plaintiff having
made a demand upon defendant for payment under the policy, the
defendant refused to pay, because it appeared that other insurance
had been taken subsequent to the issuing ot the policy in question,
and, as defendant claimed, no notice had been given to it of the
taking of such insurance. There was a clause in the policy by which
the plaintiff " agreed to notify the company if at the making of this
insurance, or at any time during its continuance, there shall be
any other insurance applied to the property herein described, or any
part thereof, whether the same be valid or not." It was also pro-
vided that the policy should become void if the assured neglected
to comply with its terms, conditions, or covenants. There was also
a provision in the policy, that " only such persons as shall hold the
commission of this company shall be considered as its agents in any
transaction relating to this insurance or any renewal thereof, or the
payment of premium to the company. Any other person shall be
deemed to be the agent of the assured, and payment of the premium
to such person shall be at the sole risk of the assured." The plain-
tiff claimed upon the trial that he had given the notice required by
the company. He had in fact given it to one Werner Strecker,
and whether or not that notice is sufficient is the only question in the
case. The plaintiff was nonsuited on the ground that he had not
given the notice as required by the policy, and that judgment of
nonsuit has been affirmed by the General Term, and the plaintiff
504 INSURANCE AGENTS.
appeals here. It appeared in evidence that McDonald & Van
Alstyne were the duly commissioned agents of the company in the
city of Troy at the time when this policy was issued. Mr. Van
Alstyne swore that his firm had authority, as agents of the defend-
ant, to give permits for additional insurance, and to consent to
assignments for transfers of insurance. He also stated that their
authority as agents of the defendant was to do a general insurance
business for the company, collect premiums, give receipts and con-
sents and indorsements on insurance policies. They had been agents
of the defendant for five or six years at the time in question. When
this policy was issued, and up to the time of the occurrence of the
loss, this firm had been doing business in the city of Troy for the
defendant as general insurance agents, and during that time Mr.
Van Aliityne said that they " had in their employ, among others, this
Werner Strecker," and he designated the manner of his employment
as " woiking for us as a broker. I mean soliciting insurance on
commission. He was soliciting insurance for our firm, and our firm
only, on a commission. His compensation was regulated by certain
commission on business he brought. He did not do other fire insur-
ance that I know of.- What he would do would be to go and solicit
insurance and bring it to our office. If we approved it, we would
take it and pay him his commission. That was all. He was not
soliciting fire insurance for any one else. His arrangement about
his working for us in the way of fire insurance was that he was
employed by us to solicit insurance for our office exclusively, upon
which we paid him a commission upon the business he brought in."
He also said that Strecker had a desk in their office during this time.
" Not one of his own, but he used one that was in the office, the
same as any person. When he happened in, he came in and used a
desk there the same as any broker. He had a desk that he used
pretty much all the time for himself."
Mr. Strecker himself testified that he was " in the insurance busi-
ness principally in 1884, — fire and life both ; working for McDonald
& Van Alstyne, and for no one else, not in fire insurance. I was
paid according to the business I brought in. If I did a great deal
of business, I got a great deal of money; and, if I didn't, I got less.
During that year, I do not know whether it could be called working
under a salary or not; it was always regulated by the amount of
business. There was a desk in the office I usually occupied. The
nature of my employment was soliciting." He solicited from Mr.
Arff an application for the policy in question, and it was after the
issuing of the policy that the plaintiff informed Mr. Strecker that
other insurance had been taken through Mr. Fromann. It was also
INSURANCE AGENTS. 505
Stated by Mr. Van Alstyne that, under their agreement with Mr.
Strecker, " he was at liberty to work for any other insurance com-
pany if he pleased. He could place his business with other insur-
ance companies if he chose. He could place such business as he
solicited, with other companies if he chose, with other agents. He
had, for some considerable period anterior to 1884, acted for us in
the matter of soliciting fire insurance. His ofifice was located with
us. He had a desk in our office. Prior to this he had been in our
employ since 1880, doing business exclusively for our company, and
having a desk in our office during that time."
There was thus evidence from which the jury could infer that Mr.
Strecker was solely in the employ of these agents, and that the kind
of employment in which he was engaged was the soliciting for them
of policies of insurance, and for them exclusi^'ely, and that his com-
pensation for the services performed by him for them depended upon
the amount of business which he was able to do; or, in other words,
the number of applications which he secured for them, and which
they accepted. It is true that Mr. Van Alstyne denominated this
kind of service as the service of a broker, and he also stated that
Mr. Strecker was at liberty to work for any other insurance com-
pany if he pleased. If he meant that Mr. Strecker had the power
to violate his agreement with them, and, instead of working exclu-
sively for them, work for others, why that is a self-evident propo-
sition, and has no bearing upon the question as to the capacity in
which he was then employed by them. If he meant to assert that
he was not exclusively employed by them, then it is a contradiction
of what the witness had already several times stated to be the truth,
and also a contradiction of the testimony of Mr. Strecker himself,
and the fact of exclusive employment, if material, should have been
left to the jury to determine. If the witness Strecker were really
nothing but an ordinary insurance broker, notice to him of subse-
quent insurance would not be notice to the company. Mellen v.
Insurance Co., 17 N. Y. 609; Devens v. Insurance Co., Z2> ^- ^ ■ 168.
What is understood under the designation of an insurance
broker is one who acts as a middleman between the insured and
the company, and who solicits insurance from the public under no
employment from any special company; but, having secured an
order, he either places the insurance with the company selected by
the insurer, or, in the absence of any selection by him, then with
the company selected by such broker. Ordinarily the relation
between the insured and the broker is that between the principal
and his agent, and, according to Arnould on Insurance, (vol. i, 2d
ed., p. 108, c. 5), " the business of a policy broker would seem to
506 INSURANCE AGENTS.
be limited to receivinjj instructions from his principal as to the
nature of the risk, and the rate of preniium at which he wishes to
insure; communicating these facts to the underwriters; effecting
the policy with them on the best possible terms for his employer;
paying them the premium and receiving from them whatever may
be due m case of loss." In the two cases above cited of Mellen v.
Insurance Co. and Devens v. Insurance Co., it appeared that the broker
who effected the insurance in either case was not in the employment
of the insuring company at all, and that tlie only connection
between the company and him was that when he presented to them
an application for insurance, if the company chose to issue a policy,
he was paid a commission thereon by the company. In each of
those cases the man procuring the insurance was not confined to any
company in his labors. He was in no sense in the employment of
any company, and the nature of his connection was such that upon
receipt of the premium by the company, and the delivery of the
policy to the insured, his connection with the company wholly
ceased.
The connection in this case between this assumed broker and his
principal is entirely different. Assuming the truth of the statement
that he was in the exclusive employment of these agents, and that
it was his duty in such case to bring whatever applications he
received to the agents because of his agreement with them that he
should work for them exclusively, it would seem that his character
as an ordinary insurance broker had ceased from the time that he
entered into such employment. However these agents might char-
acterize his employment, the fact upon the testimony in the case,
assuming its truth as above construed, leaves him, in my opinion,
nothing more ot less than a clerk or employee of these agents. He
performs the same duties that would be performed by an individual
employed as a clerk, and told to do this business. The mere solic-
itation of insurance, and the bringing of the application to these
agents, v.'ho are to determine finally whether it shall or shall not be
accepted, is not of such a nature that it could not be done by an
ordinary clerk, nor does the doing of it in that way, and under such
circumstances, necessarily preclude the person who does it from
occupying the position of clerk, and place him in the position of an
ordinary insurance broker. If, upon these facts, he acted as clerk,
and the oral notice were given to him in his capacity of clerk of
these agents, such notice would be sufificient. McEwen v. Insurance
Co., 5 Hill, loi, approved in Wilson v. Insurance Co., 14 N. Y. 418,
at 421.
It has been held that an ordinary agent of an insurance company
INSURANCE AGENTS. 507
has the power to employ clerks to discharge the ordinary business
of his agency, and that a waiver of a character which the agent him-
self could make is to be attributed to him when made by his clerk.
In Bodiiie \\ Insurance Co., 51 N. Y. 117, it was said by Earl, C, at
page 123: "We know, according to the ordinary course of busi-
ness, that insurance agents frequently have clerks to assist them,
and that they could not transact their business if obliged to attend
to all the details in person; and these clerks can bind their princi-
pals in any of the business which they are authorized to transact.
An insurance agent can authorize his clerk to contract for risks, to
deliver policies, to collect premiums, and to take payments of pre-
miums in cash or securities, and to give credit for premiums, or to
demand cash; and the act of the clerk in all such cases is the act of
the agent, and binds the company just as effectually as if it were
done by the agent in person. The maxim of dch'ga/iis invi potest
delegare does not apply in such a case. Story, Ag., § 14."
In the case of Clark n. Insurance Co., 21 Wkly. Dig. 197, the Gen-
eral Term of the Supreme Court held that the policy in that suit,
countersigned by a clerk in the office of the authorized and com-
missioned agent of the defendant, was a proper and valid policy,
where the clerk was authorized by the agent to contract new insur-
ance and to give renewals, to make monthly and daily reports, and
collect premiums on policies and renewals issued. In Chase v.
Insurance Co., 14 Hun, 456, it was held that the knowledge of a clerk
of the agents of defendant's company that the house insured was
vacant was the knowledge of the agents of the comp?)ny, and there-
fore the knowledge of the company itself. And in Kuney v. Insur-
ance Co., 36 Hun, 66, the Supreme Court in the Fifth Department
held that a general agent of a foreign insurance company had a right,
by virtue of its authority, and for the purpose of discharging the
duties appertaining to his office, to employ all necessary agents,
clerks, and surveyors to enable him to conduct the business with
correctness, intelligence, and promptness, and that, when he did in
fact employ others, their acts and contracts would be binding upon
the company the same as if made personally by Miller, the general
agent.
Enough has been said to show that an agent of an insurance coir^-
pany has the right to, and indeed it is the expectation of the com-
pany that he will, employ such clerks and other assistants as may
be necessary and proper in order that he may do the business for
which he has been appointed agent. Soliciting insurance is part of
the business of such agents, and it is not to be assumed that such
solicitation can be made only by the agents personally, nor can it
508 INSURANCE AGENTS.
be held, as matter of law, that, when it was made by some person
employed exclusively by them, such solicitation on the part of the
person thus employed makes him an insurance broker, and takes
away from him his character as clerk or employee of the agent.
The fact that Strecker was compensated for his services to these
agents by a commission on the business which he brought in is not
conclusive upon the question of the capacity in which he worked.
Clerks or other employees are frequently compensated by a com-
mission upon the aiuount of business brought to the employer by
them. In order to constitute Strecker such an employee that he
might receive notice fof his employers as to subsequent insurance
in a case like this, it is not necessary that he should have been
engaged to perform only sach duties as may be and are done in the
office of his employer. The place of the performance of the duties
is neither the sole, nor always a necessary, criterion by which to
judge of the nature of such service. The employee of the agent in
the case of Bodine x. Insurance Co., supra, was not confined to the
office in the performance of duties which he discharged for his
employer.
There is, moreover, in the evidence of one of the agents, sufficient
for a jury to infer that Strecker had a desk in their office and belong-
ing to them, assigned to him for his personal use while at the office
in the discharge of duties pertaining to his employment by them,
and that it was his habit to so use the desk, which was regarded as
his for such purpose. But, upon the question of the character of
the service, we think it is sufficient that the person is engaged by
the agent to do for him some portion of the ordinary, usual, and
well-known duties pertaining to the position of the agent, and what
he does in the course of that employment, and within its general
scope, is done by the agent. The notice which he receives while in
the performance of his duties, and which relate to the subject-matter
thereof, must be regarded in the same light as and equivalent to a
notice to the agent.
The proof in the case is susceptible of the inference that Strecker
was employed exclusively by the agents of defendant, and to per-
form for them that which is part of the ordinary and usual business
of an agent of an insurance company, viz., to solicit business. If
the agents refused to accept the particular application, Strecker had
nevertheless done all that he was employed to do by bringing it to
them. By his agreement, their refusal did not authorize him to
solicit some other agent or company to take the risk. At least this
construction can be given to some of the evidence on the part of the
plaintiff. In truth, in one view of the evidence, Strecker was not a
INSURANCE AGENTS. 509
middleman at all. He did not act as such in this case. What he
did was done by him from the very first in the interest of and for
these particular agents.
Nor does the provision in the policy, that no one not holding the
commission of the company shall be considered as its agent, pre-
vent the agents' employment of the usual, and mdeed necessary,
clerical and other assistants, in order to enable them to properly
perform their duties as commissioned agents of the company. And,
when thus employed, the ordinary rules of law are applicable to
their acts and positions. We think that if Slrecker were exclusively
employed by the agents, and that his duties could only be honestly
discharged while the agreement between them lasted by giving his
entire service in that line to the agents of the defendant, and if he
were thus employed at the time that he procured this application
and received this notice, the defendant is bound by such notice the
same as if it had been given in person to their agents. If, on the
contrary, according to some possible construction of the evidence
of one of the agents, the employment were not exclusive, and he
was occupying really the position of a simple insurance broker, then
the notice was not sufficient, There were many questions put to
the agent when he was on the stand, the purpose of which was to
show (what may be inferred from the naiure of the business) that
the agents employed clerks. Counsel for the plaintiff also asketi
the witness whether clerks in his employ did not frequently and
generally sign consents for other and additional insurance in respect
to this company; whether it had been the habit of this firm of
agents to attend to the details of the business, and how many clerks
the firm had at this time. All these questions were objected to, and
ruled out by the court below. We think they were proper for the
purpose of showing the manner in which the business of this firm
was conducted, although perhaps the court might assume or take
judicial notice of the fact that agents of an insurance company do
business largely through clerks and sub-agents, and that many of the
details of their business are not performed by themselves. We
should not perhaps, in this instance, reverse the judgment for the
refusal to admit this evidence, but we think its admission would not
have been error.
Upon the whole we think the learned judge erred in nonsuiting
the plaintiff, and that the judgment entered upon the nonsuit must
be reversed, and a new trial granted, with costs to abide the event.
All concur, except Earl and Gray, JJ., dissenting '
' Accord as to sub agents, Krumm v. Co., 40 Oh. 225.
510 INSURANCE AGENTS.
Hooker, J., m GORE <■. CANADA LIFE ASSUR. CO.
77 N. VV. Rep. 650 (Mich.)— 1898.
•
The plaintiff brought an action against the defendant, and recov-
ered a judgment for a balance claimed to be due him for commis-
sions upon insurance premiums obtained from policies written for
defendant's patrons upon his solicitation. The defendant has
brought the case to this court by writ of error.
At the threshold of the case is the question whether the plaintiff
sustained contract relations with the defendant. His claim is that
he was employed on behalf of the defendant by one Glass, with the
subsequent approval of Bucknell, who was called the " manager of
the Michigan branch." The defendant asserts that it made a con-
tract with some men named Cox, living in London, Ontario, by
which they had control of its business in Michigan and some other
States, upon a commission of fifty percent, upon new business, they
to employ and pay their own subordinates; and that they estab-
lished a branch office for Michigan, which they maintained under
the charge of Bucknell, who was called " manager of the Michigan
branch of the Canada Life Assurance Company," who was paid by a
share of the commission on Michigan business and an allowance
made by the Coxes. It is claimed that Glass was engaged by them
upon similar terms; that he was designated " inspector of agen-
cies; " that he was not authorized to employ any agents for the
company, but was at liberty to divide his own commissions, as he
pleased, with any whom he should see fit to engage to help
him * * *
The claim is made that Bucknell was held out as a general agent,
and, therefore, that Gore had a right to assume that he was author-
ized to employ him, or ratify the act of Glass. Bucknell had charge
of the Michigan branch or office for Cox, who had a contract to
work the territory. The Coxes were the ones who were held out
as general agents, if there were any general agents, and we do not
find anything showing that Bucknell was a general agent, of the
company. Gore himself testified that he did not know what his
arrangement was. There is nothing to show that he was mis-
informed by the company, or that he even tried to ascertain. He
may, perhaps, have known that the circulars of the company con-
tained his name as manager of the Michigan branch, but that is all.
We do not intend that it shall be understood that we are of the
opinion that a general agency, so called, necessarily carries with it
the authority to appoint special agents for the company. Mani-
festly, any agency, general or special, is no more than the principal
INSURANCE AGENTS. ' 511
chooses to make it, unless he undertakes to limit the effect of the
power which others have a right to suppose he has conferred, when
he will be estopped to deny such power. We are aware that the
case of Assurance Co. v. Probst, i8 Neb. 526, 26 N. W. 204, is author-
ity for the proposition that, where the company conceded that one
Craine was the agent for all of its business for the Northwest, the
company would be bound by his employment of an agent, notwith-
standmg a private understanding that payment of all agents
appointed was to be made by the agent. There the general author-
ity to appoint is apparent. But here we have no employment by a
general agent, nor by any one held out or advertised as such.
Bucknell was advertised as manager of the Michigan branch, and
neither Glass nor Bucknell, nor even the Coxes themselves, had
authority to issue a policy, but merely to obtain and submit appli-
cations to the head office, as the witnesses call it, of the company.
The true test, after all, is not a real or imaginary distinction
between the general or special agents. It is a question whether
the agent, general or special, as the case may be, has acted within
the apparent scope of the authority confided. In the Nebraska
case cited the holding of the court was based on the fact that the
agent was authorized to transact all of the business of the company,
not because he was called a general agent. The act was held to be
within the general scope of his authority; and, while secret instruc-
tions might take away the power, one ignorant of them could not
be permitted to suffer loss because of his ignorance of such secret
instructions, having in good faith relied upon the general authority
conferred. This rule is as applicable to a case where one authorizes
an agent to sell a particular horse, the authority being general.
The secret instructions as to price or warrant cannot bind the pur-
chaser, as these are ordinarily within the scope of the general
authority to sell the horse. Hatchv. Taylor, 10 N. H. 538; Hunter
v. Jameson, 28 N. C. 252; Bradford \. Bush, 10 Ala. 386. There is
no testimony in this case that warrants the conclusion that Buck-
nell had general authority to appoint agents and conduct defendant's
business in Michigan. He was advertised as the manager of
the branch. Apparently he had charge of the business brought to
the office by the various sub-agents, and was the medium through
which such business reached the company. But, unlike the
Nebraska case, there is a lack of evidence to show that he had
charge of all of the defendant's business in Michigan. He was man-
ager of the Michigan branch, but that does not justify a guess by
court or jury that binding the company by the appointment of
agents for it was within the general scope of the authority actually
512 ' INSURANCE AGENTS.
given him. In i Pars. Cont., p. 43, it is said: " We think the dis-
tinction between a general agency and a special agent useful, and
siitticientl}' defiiiite for practical purposes, although it may have
been pressed too far and relied upon too much in determining the
responsibility of a principal for the acts of an agent. It may,
indeed, be said that every agency is, under one aspect, special, and
under another, general. No agent has authority to be in all
repeats and for all purposes an alter ego of his principal, binding
him by whatever the agent may do in reference to any subject what-
ever; and, therefore, the agency must be special so far as it is limited
by place or time, or the extent or character of the work to be done.
On the other hand, every agency must be so far general that it must
cover not merely the precise thing to be done, but whatever usually
and rationally belongs to the doing of it. Of late years, courts seem
more disposed to regard this distinction, and the rules founded
upon it, as altogether subordinate to that principle which may be
called the foundation of the law of agency, namely, that a princi-
pal is responsible, either when he has given to an agent sufificient
authority, or when he justifies a party dealing with his agent in
believing that he has given to this agent this authority." We can-
not say that this evidence tends to prove that the appointment of
agents usually and rationally belongs to the doing of the business
confided to Bucknell, and we certainly cannot say it as a matter
of law.
5. Oral Waiver.
LAMBERTON v. CONNECTICUT FIRE INSURANCE CO.
39 Minn. 129. — 1888.
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
hereby 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. * * * This policy may be cancelled
at any time at the request of the assured, the company retaining
customary monthly short rates for the time the policy has been in
force. It may also be cancelled at any time by the company, upon
giving written or verbal notice to that effect, and refunding or ten-
dering to the assured * * * a ratable proportion of the premium
INSURANCE AGENTS. 513
for the unexpired term of the policy. * * * Limitations to Suits.
* * * And it is further expressly covenanted by the parties
hereto that no officer, agent, or representative of this company
shall be held to have waived any of the terms and conditions of this
policy, unless such waiver shall be indorsed hereon in writing."
Some months prior to the destruction of the piemises 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 vacantduring 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
defendant was bound by his acts in this particular, it would be
estopped to claim that its liability had terminated. He did not,
however, notify 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 fore-
going 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 action 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
authority 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 con-
cerning the effect of such stipulations The restriction here is so
broad that it applies alike to every " officer, agent, or representative
of this company;" 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, vhich is not required by
law to be in writing, cannot, subsequent to the making of the con-
tract, waive, by parol agreement, provisions which have been incor-
porated 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
LAW OF INSURANCE — 33
514 INSURANCE AGENTS.
party, to bind or obligate himself by his further action oragreemenc
contrary to the terms of the written contract. Westchester Fire Ins.
Co. V. Earle, n Mich. 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 future action, it limits
the power of every agent, officer, and representative of the com-
pany, and hence, practically, that of the corporation. It is no more
applicable to this particular agent than to all of those to whom the
conduct cf the affairs of the corporation is committed. In that
broad scope, and as applicable to all the representatives of the cor-
poration, it cannot be enforced so as to render inoperative such sub-
sequent 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 consent
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; and, the assured having been led to understand,
as the agent seems to have done, that the cnntract 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 con-
clusion finds sufficient support in the following decisions, and ia
others, although we are aware that there are decisions to the con-
trary. Westchester Fire Ins. Co. v. Earle, t,^ Mich. 143; Viele v.
Germania Ins. Co.., 26 Iowa, 9; Young v. Hartford Fire Ins. Co., 45
Iowa, 377; American Cent. Ins. Co. v. McCrea, 8 Lea, 513; l^on
Bories v. United, etc., Ins. Co., 8 Bush, 133; Maryland Fire Ins. Co.
INSURANCE AGENTS. 51$
V. Gusdorf^Of-Xt Md. 506; Insurance Co. v. Norton^ 96 U. S, 234; Stolle
V. ^-Etna F. &= M. Ins. Co., 10 W. Va, 546; Carrugi v. Atlantic Fire
Ins. Co., 40 Ga. 135; Wakefield \. Orient Ins. Co., 50 Wis. 532, 7 N.
W. Rep. 647; Whited v. Germania Fire Ins. Co., 76 N. Y. 415; Morri-
son V. Insurance Co. 0/ North America, 69 Te.x. 353, 6 S. W. Rep. 605.
Order affirmed.
WILKINS V. STATE INSURANCE CO.
43 Minn. 177. — i8go.
Mitchell, J. — The defendant, an Iowa corporation, but doing
business in this State, had an agent at Faribault, whose general
duties were to solicit insurance, fill up the blanks in printed policies
already signed by the general officers of the company, and left in.
his possession, countersign and deliver the same, and collect and
remit the premiums. It is undisputed in the evidence that this
agent, having solicited the plaintiff for insurance on his stock, and
the plaintiff being unable then to pay the premium, assumed to
waive immediate payment, and to give plaintiff a temporary credit
for the premium, and delivered to him the policy on which this
action is brought. The agent subsequently called on the plaintiff at
least twice for the premium, but the latter failed to pay; and some
two and one-half months after the policy was issued the property
was burned, the premium being still unpaid.
The question is whether the company was bound by the act of the
agent in waiving immediate payment of the premium, and giving
plaintiff credit. The policy contains a provision that " no insurance
shall be considered as binding until actual payment of the premium."
The same rules apply to insurance companies as to any other case
of agency. They are bound by all the acts of their agents within
the scope of the real or apparent authority with which they have
clothed them., and no farther; and it would seem well settled by (he
great weight of authority that, at least in the case of stock com-
panies, a person dealing with an agent possessing the powers exer-
cised by this agent has a right to assume, in the absence of notice
to the contrary, that he has authority, pending negotiations for a
contract of insurance, to waive a provision like the one quoted, and
to give a short credit for the premium. But it is the undoubted
right of the company, as in the case of any principal, to impose a
limitation upon the authority of its agents. And it is as elementary
as it is reasonable that if an agent exceeds his actual authority, and
the person dealing with him has notice of that fact, the principal is
not bound; and it is upon this proposition that defendant chiefly
5l6 INSURANCE AGENTS.
relies. There are two provisions in the policy to whicli he refers in
support of his contention. The first is that " no officer, agent, or
representative of the company shall be held to have waived any
of the terms or conditions of this policy unless such waiver shall be
indorsed thereon." Following Lc7m/ft'r/(>/i v. Conn. Fire Ins. Co.., 39
Minn. 129, 39 N. W Rep. 76, which is abundantly supported by the
authorities, this contains no limitation upon the authority of any
class of agents, prohibiting them from waiving any of the terms or
conditions of the policy. It applies alike to all representatives of
the company, executive or general officers as well as others; and,
so far as it assumes to be a limitation at all, it is upon the company
itself, to the effect that it can only waive the conditions of the policy
in a certain way, or, rather, it assumes to provide what shall be
the exclusive evidence of such waiver. This provision, therefore,
will not support defendant's contention, but the other or second one
does. It is as follows: " This policy is made and accepted upon
the above express terms, and no part of this contract can be waived
except in writing signed by the secretary of the company." The
words "policy" and "contract" are evidently here used as
synonymous, and the latter clause clearly means that none of the
terms of the policy can be waived by any one except the secretary.
Conceding that this would not prevent the company itself, through
its board of directors, or other body representing it in its-corporate
capacity, from waiving any of the terms or conditions of the policy,
yet it is a plain declaration that no representative of the company
but the secretary can do so, and hence that no local agent can do
it. This, being in the policy itself, was notice to plaintiff that this
agent at Faribault had no authority to waive the condition that no
insurance would be binding until payment of the premium. It is
no answer to say that he did not read the policy, and hence did not
know what it contained. He was bound to know this; and, by
accepting the policy, he is estopped from setting up powers in the
agent in opposition to the express limitations contained in it. For
this reason, we think the court erred in charging the jury that, if
the policy was delivered by the agent to the plaintiff with the inten-
tion of giving him a temporary credit for the premium, this would
be a delivery that would bind the company so that the policy would
be operative and in force.
Order reversed.'
' " The contention is that, under one clause of the policy quoted above, there
could be no such waiver by any officer or agent of the company, because no
such ' waiver or extension in express lerms and in writing, signed by the presi-
INSURANCE AGENTS. 517
b. Agent of the Insured or Insurer?
KAUSAL V. MINNESOTA FARMERS' MUTUAL FIRE
INS. CO.
31 Minn. 17. — 1883.
The plaintiffs brought this action in the District Court for Hen-
nepin County to recover upon a policy of insurance against fire,
issued to them jointly by the defendant, upon a certain house and
furniture in which they allege that they had an insurable interest,
and which were subsequently destroyed by fire. The answer of the
defendant admits the issuance of a joint policy to the plaintiffs,
alleges that the same was issued in reliance upon plaintiffs' applica-
tion for membership in defendant and for the insurance mentioned,
dent or stcreiary of the company,' as therein provided, was ever made. The
court instructed the jury, in effect, that the local agent had no such authority,
and that any action by him in that regard, without the knowledge or approval
of somebody higher in authorfiy, would be ineffectual as against it. This is
within the ruling in Hankins v . Rock ford his. Co., 70 Wis i. But the clause of
the policy referred to is claimed 10 be broad enough to include the general ageni,
and in fact e^'ery officer and agent of the company, except the president and
secretary, — and even them, unless the act be in express terms and in writing,
signed by one of them. We must hold, however, that such attempted restric-
tions upon the power of the company or its general officers or agents, acting
within the scope of their general authority, to subsequently modify the contract
and bind the company in a manner contrary to such previous conditions in the
policy, are ineffectual. Especially is this true in respect to a foreign insurance
company, whose officers are practically inaccessible to the assured. These
views are in harmony with the repeated rulings of this court. Gaiis v. St. Paul
F. iff M. Ins. Co., 43 Wis. 108; Am. Ins. Co. v. Gallatin, 48 Wis. 36; Shajcr v.
Ph(£nix Ins. Co., 53 Wis, 361. The same principle has been sanctioned in well-
considered opinions of other courts. Lamherton v. Connecticut F. Ins. Co.,
(Minn.) 39 N. W. Rep. 76; Willcuts v. Northwestern M. L. Ins. Co., 81 Ind. 308;
Steen v. Niagara F. Ins. Co., 89 N. Y. 326; Richmond v . Niagara F. Ins. Co., 79
N. Y. 230; Eastern R. Co. v. Relief F. Ins. Co., 105 Mass. 570; American L. Ins.
Cc. V, Green, 57 Ga. 469; PVestchester F. Ins. Co. v. Earle, 33 Mich, 143." —
Renier v. Ins. Co., 74 Wis. 89, 97 (1889).
In Marvin v. Co., 85 N. Y. 278, 282 (1881), thecourt says: " Thepolicy contained
an express provision that any alteration or waiver of its conditions, ' unless made
at the head office, and signed by an officer of said company, shall not be consid-
ered as valid.' Granting, therefore, that Henkle was shown to be a general agent
of this company; granting also what was not proved, but perhaps may be
inferred from the character of his office. {Carroll v. Charter Oak Ins. Co., i Abb.
Ct. App. 318; Sheldon V. The Atlantic Fire and Marine Ins. Co., 26 N. Y. 465,)
that he had authority, unless restricted, to waive conditions; the difficulty
remains that he was in that respect restricted, and his authority limited and
curtailed, by an express provision in the policy itself, thus brought to the knowl-
edge of the assured, and, therefore, had no power, in and of himself, to waive
the condition of payment, or agree that it should be waived."
5l8 INSURANCE AGENTS.
and upon the statements and answers contained in such application,
which the plaintiffs agreed should be warranties on their part; that
" in and by said policy it is provided that any misrepresentation by
the assured of the value, condition, situation, title or occupancy of
the property, or any omission to make known every fact material
to the risk, or any misrepresentation whatever, or fraud, or attempt
at fraud, whether m written application or otherwise, or fraud, or
false swearing in proofs of loss, shall cause a forfeiture of all claims
under the policy," and " that if the interest of the assured, whether
as owner, or trustee, factor, agent, or mortgagee, lessee or other-
wise, be not truly stated, then the policy shall be null and void."
Oral Waiver in New York under Standard Fire Policy. In Moore v. Ins.
Co., 141 N. Y. 219, 223 (.1S94), the court says: " The sole question is the con-
struction of the standard policy issued under the requirements of chapter 488,
Laws of 1886. The precise point involved in this case has been before this
court frequently since the enactment of the law of 1886. The use of the stand-
ard policy was compelled by legislative enactment to remedy existing evils,
and, among others, to protect insurance companies from the perils of alleged
parol waivers by their local agents. Every person who now enters into a con-
tract of insurance is required to agree that no officer or agent or other representa-
tive of the company shall have power 10 waive any provision or condition of
the policy, except such as by the terms thereof may be subject of agreement
indorsed thereon, and as to such provisions and conditions the waiver must be
written upon or attached to the policy, and he specially covenants that he will
not claim any privilege or permission unless it be in writing. The judgment
appealed from ignores the plain provisions of the contract of the parties relat-
ing to foreclosure and waiver, and is contrary to the decisions of this court on
the precise point presented now, and others which involve the same principle
of construction. In Qitinlan v. Providence Washington Ins. Co., 133 N. Y. 356,
the necessity of notice in case of foreclosure was considered. Judge Andrews,
in discussing the question of alleged waiver, said (p. 363): ' It is to be assumed
that Kelsey ' (the agent of the company) ' learned of the commencement of the
foreclosure proceedings, and thereupon assured the plaintiff that his rights
under the policy would not be prejudiced thereby.' Again, at page 366, after
holding that the principle that courts lean against forfeitures is unimpaired,
says: ' But where the restrictions upon the agent's authority appear in the
policy, and there is no evidence tending to show that his powers have been
enlarged, there seems to be no good reason why the authority expressed should
not be regarded as the measure of his power; nor is there any reason why courts
should refuse to enforce forfeitures plainly incurred, which have not been
expressly or impliedly waived by the company.' The following cases are also
in harmony with these views, viz.: Armstrong; v. Agri. Ins. Co., 130 N. Y. 560;
Baiimis^artfl v. Prov. W. Ins. Co., 136 Id. 547; Allen v. German Am. Ins. Co.,
123 Id. 6; Messelback v. N'orman, 122 Id. 583; O'Brien v. Prescott Ins. Co., 134
Id. 28; Lett V. Guardian Fire Ins. Co., 125 Id. 82." In Sergent v. Ins. Co., 155
N. Y. 349, 355 (1898) the court savs: " This is an action upon the usual
standard policy ol fire insurance. * * * While it is true that the policy
INSURANCE AGENTS. 519
The answer further alleges that in their application the plaintiffs
stated that they were the owners of the property described in the
application, and that such statement was false; that in such applica-
tion the plaintiffs stated that there was no incumbrance upon any of
the property described, and that such statement was false, specifying
certain incumbrances; that in such application the plaintiffs stated
that the dwelling-house described was completed and painted, and
that it was used and occupied as a dwelling-house solely, and that
such statements were false. The answer also contains allegations of
false swearing in the proofs of loss, of negligence of plaintiffs causing
the fire, and of the amount recoverable under the policy, and denies
the alleged value of the property destroyed.
in suit contained the usual clause as to proofs of loss being filed pvithin sixty
days, and that no officer, agent or other representative of the company should
have power to waive any condition thereof, except by written agreement
indorsed thereon, yet, a party to a contract containing such a provision may, by
conduct, estop himself from enforcing it against one who has acted in reliance
upon such conduct. He may also be estopped by the act of an agent who pos-
sesses, or whom he has held out to possess this power in respect to the pro-
vision. Bishop K. Agricultural Ins. Co., 130 N. Y. 488."
Oral Waiver in Massachusetts under the Standard Fire Policy. — In
Parker v. Ins. Co., 162 Mass. 479, an agent of an insurance company, to whom
the company had intrusted blank policies of the Massachusetts standard form,
signed by the president and secretary, with authority to countersign and issue
such policies, " and by writing indorsed thereon to renew any such policies, or
to vary the risk therein," and providing that all his powers are to be exercised
subject to the rules and regulations of the company, " and, when provision is
made therefor in such policy in the manner provided therein," was held to have
no authority to give an oral assent to the removal of property insured; the
policy containing a condition requiring the written or printed assent of the com-
pany to such removal. The court said: " It might, however, be suggested
that the agents orally agreed to give a written assent in the future to the
removal of the property, and that such oral agreement is binding upon the defend-
ant. This position, if tenable, would to a great extent do away with the pro-
tection and safeguards which the requirement of a writing was designed to
secure. There is nothing to show that the agents had authority to enter into
such oral agreement in behalf of the company, though perhaps they might
themselves oe bound thereby. It might further be suggested that the agents
ould by indirection evade the provision requiring a written assent to the
removal; that is, that they might consent to a cancellalion of the policy, and
then agree orally to ?ssue a new policy to the plaintiffs upon their property in
the place to which it had been removed. Whelher the agents had power in any
case to bind the defendant by an oral agreement to issue a policy, we need net
inquire; but if they had, it does not follow that they could also bind the defend-
ant by an oral assent to the removal of the property. If direct authority to do
a certain thing is denied, it is not to be inferred or implied because by possi-
bility substantially the same result may be reached by indirection."
520 INSURANCE AGENTS.
The reply alleges that the plaintiffs " are foreigners, and ignorant
of the English language, and did not know what was contained in
the application for insurance mentioned in said answer; that the
same was made out by an agent of the defendant, and plaintiffs
signed the same by his direction, without knowing the contents of
the same; that the said Julia Kausal was, at the time of such insur-
ance, the owner of an undivided three-quarters of the land upon
which the dwelling-house stood, and in possession of all said land,
and the said plaintiff, William Kausal, was the owner of all of said
dwelling-house; that all of such ownership was told to said agent
of the defendant at the time of such insurance, and the defendant
had at such time due notice of the same." The reply admits " that
said house was not painted," but alleges that " the same was com-
pleted," and " that, at the time the said application was made, an
agent of the defendant, duly authorized to solicit insurance and to
take and receive applications therefor on the part of the defendant,
was present at the said house so insured, and examined the same,
and fully knew all the circumstances of its condition, and solicited
said insurance, and wrote out said application as aforesaid, and told
the plaintiffs the same was correct, and induced them to sign the
same." The reply denies all other allegations than those above
admitted.
On the trial before Young, J., and a jury the defendant objected
to the reception of any evidence on the part of the plaintiffs, on the
ground that it is incompetent, irrelevant and immaterial under the
pleadings, which objection was sustained. The plaintiffs then
offered to prove all the allegations of the reply, which offer was
rejected, upon defendant's objection, and, on defendant's motion,
the action was dismissed Plaintiffs appeal from an order refusing
a new trial
Mitchell, J. — i. On principle, as well as for 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 application, 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,
stimulate them by the promise of liberal c )mmissions, and then
send them abroad in the community to solicit insurance. The com-
panies employ them for that purpose, and the public regard them as
the agents of the companies in the matter of preparing ani filling
INSURANCE AGENTS,- 52I
up the applications — a fact which the companies perfectly under-
stand. The parties who are induced by these agents to make appli-
ations for insurance rarely know anything about the general officers
of the company, 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, not-
withstanding all the facts are correctly stated to him by the appli-
cant, the error is chargeable to the insurer and not to the insured.
Insurance Co. v, Mahone, 21 Wall 152; Insurance Co. v. Wilkinson.,
13 Wall. 222; Malleable Iron Works v. Phcenix Ins. Co.., 25 Conn.
465; Hough V. Insurance Co.., 29 Conn. 10; Woodbury Sav. Bank v.
Charter Oak Fire 6^ Marine Ins. Co.., 31 Conn. 517 ; Miner v. Insur-
ance Co., 27 Wis. 693; Winans v. Insurance Co., t,^ Wis. 342; Roivley v.
Insurance Co., 36 N. Y. 550; Brandup v . Insurance Co., 27 Minn. 393,
7 N. W. 735; 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
ingenious device of inserting a provision in the policy that the appli-
cation, by whomsoever made, whether by the agent of the company
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 vvords cannot be impDsed 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 instru-
ments of fraud or injustice. It wo.dd be a stretch of legal princi-
' ■' The forms and requirements of different insurers are different, and when
an agent, who at the time and place is the sole representaiive of the principal,
assumes to know what information the principal requires, and after bein§f fur-
nished with all the facts, drafts a paper which he declares satisfactory, induces
the other party to sign it, receives and retains the premium moneys, and then
delivers a contract which the other party is led to believe, and has a right to
believe, gives him the indemnity for which he paid his money, we do not think
the insurer can be heard in repudiation of the indemnity on the ground of his
agent's unskillfulness, carelessness or fraud. If this can be done it is easy to
see that community is at the mercy of these insurance agents, who will have
little difficulty in a large proportion of the cases, in giving a worthless policy
for the mDney they receive." — ^'Etna Live Stock, etc , Ins. Co. v. Olmstcad, 21
Mich. 246, 252.
522 -INSURANCE AGENTS.
pies 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 completed,
that the party with whom he had dealt should be deemed trans-
formed 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 burdens 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 applica-
tion 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 conclusion we have reached is not without authority
to sustain it, and is, as we believe, sound in principle, and in accord-
ance with public policy. Woods, Ins., § 139; May, Ins., § 140;
Insurance Co. v. Ives., 56 111. 402; Gans v. Insurance Co.., 43 Wis. 108:
Insurance Co. v. Cooper., 50 Pa. St. 331.
3. It is contended by respondent that there is a distinction in this
' " ' And it is a part of this contract that any person other than the assured,
who may have procured this insurance to be taken by this company, shall be
deemed to be the agent of the assured named in this policy, and not of this
company under any circumstances whatever, or in any transaction relating to
this insurance.' Whatever may be the true construction of the stipulation last
above quoted, it certainly does not, and in the nature of things cannot, substi-
tute the plaintiff as the principal of Latimer & Co. in respect to the contract of
insurance, in the place of the company. The contract was made, and the
defendant was undoubtedly bound by it, from the moment the policy was
delivered to the plaintiff; and if the stipulation substitutes the plaintiff for the
company as the principal of Latimer & Co., then it is competent for a person to
make a contract with his own agent which shall bind a third party who is a
stranger to it, and who never agreed to be bound by it. This would be a mani-
fest absurdity. As to the clause that a waiver of any condition of the policy
to be binding, must be indorsed upon it, it is only necessary to say it is now
settled that this requirement may be waived by parol or by acts in pais." —
Cans v. Jus. Co., 43 Wis. 108, 112.
INSURANCE AGENTS. 523
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 com-
pany the application is in effect not merely for insurance, but for
admission to membership — the applicant himself becoming a mem-
ber of the company upon the issue of the policy. By some courts a
•distinction in this respect is made between the two classes of com-
panies. 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 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 insurance is rarely aware of any. It is true
that in the case of a mutual company the insured becomes in theory
a member of the company upon the issue of the policy. But in
applying and contracting for insurance the applicant and the com-
pany are as much two distinct persons as in the case of a stock com-
pany, 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 membership does not begin until the policy is issued.
As to all previous negotiations the agent acts only for the company.
Insurance Co. v. Cooper., supra; May, Ins., § 139 et seq.
4. Verbal testimony is competent to show that the application was
filled up by the agent of the company, and that the facts were f jlly
and c'^rrectly stated t') him, but that he, without the knowledge of
the insured, misstated them in the application. This was not in
violation of the rule that verbal testimony is not admissible to vary
a written contract. It proceeds upon the ground that the contents
of the paper was not his statement, though signed by him, and that
the insurance company, by the acts of their agent in the matter, are
estopped to set up that it is the representation ot the insured.
Insurance Co. v. IVilkinson, supra; May, Ins., § 143, and cases cited,
oote 3. * * *
Order reversed.
524 INSURANCE AGENTS.
FoLGER, J., IN WHITED z: GERMANIA FIRE INSUR-
ANCE CO.
76 N. Y. 415. 41S. — 1879.
The defense against the action is: That the policy contained
certain conditions, and that they were broken by the plaintiff: First,
that if the property insured should be sold, the policy should become
void; and that it was sold. Second, that if the interest of the
assured in the property is not truly stated in it, it should become void ;
and that the interest of the plaintiff in the property became that of
a mortgagee, and was not so stated in the policy, nor in the renewal
certificates. Third, that anything less than a distinct, specific
agreement, clearly expressed, and indorsed on the policy, should not
be construed as a waiver of any condition therein.
Those conditions do appear in the policy, and it is true that the
relation of the plaintiff did change, as is alleged, and that the
change is not noted in, or indorsed in writing on, the policy, or
either of the certificates.
But the plaintiff puts in the way of that defense that the defend-
ant waived those conditions.
Upon the facts in the case, as settled by the verdict, there was a
parol waiver of the conditions rested upon by the defendant and a
parol consent to keep on foot the insurance of the plaintiff in his
new status of mortgagee; if Harmon was the agent of the defendant
in the dealing for the last renewal, and not the agent of the plaintiff.
Fi's/i V. Cotteiiet, 44 N. Y. 538; Shear f nan v. Niagara Fire Ins. Co.,
46 Id. 526; Pechner v. Phcenix Ins. Co., 65 Id. 195; Vaji Schoickv.
Niagara Fire Ins. Co., 68 Id. 434; Bidwell v. No. West Ins. Co., 24
Id. 302. That he was the agent of the defendant it would be fatuous
to deny, were it not for a clause in the policy, upon which the
defendant builds. That clause is in this wise: That any person
other than the assured, who may have procured the insurance to be
taken, shall be deemed to be the agent of the assured, and not of
the company, under any circumstances whatever, or in any transac-
tion relating to this insurance. That clause we have held to be
forceful in Rohrbach v. Germania Fire Ins. Co., 62 N. Y. 47, and
Alexander v. Same Defendant, 66 Id. 464. We have not held it so as
yet, further than the scope of the facts in those cases. The case in
66 New York hangs upon that in 62 New York. In the latter case,
it was held that as the insured had contracted that the person who
procured the insurance should be deemed his agent, he must abide
by his agreement; and that though, through fault or mistake, that
person had, in the application for a policy, misstated to the com-
INSURANCE AGENTS. 52$
pany the declarations of the assured, whereby there had been
wrought an untrue representation, yet that as he had been agreed
upon as the agent of the insured, the insured must suffer for the
error or the wrong. That case dealt with matters before the issu-
ing of the policy. It is so, that the clause in the policy is broad,
and takes into the fold of its wording any circumstances whatever,
and any transaction relating to the insurance. In its verbal scope
it has to do with acts as well after as before and at the time of the
giving out of the policy. But if the insured is to be now bound as
having thus contracted, there must be mutuality in the contract.
No man can serve iwo masters. If the procurer of the insurance is
to be deemed the agent of the insured, and Harmon is to be deemed
such procurer, he may not be taken into the service of the insurer
as its agent also; or if he is so taken, the insurer must be bound by
his acts and words, when he stands in its place and moves and speaks
as one having authority from it; Sitid pro /lac rice, at least, he does
then rightfully put off his agency for the insured, and put on that
for the insurer. Hence it was that \xi Spragiie v. Holland Pwchase
Ins. Co., 69 N. Y. 128, we held that the same clause in the policy
there put out by that defendant did not make the insured the princi-
pal. In that policy the insurer had, besides the clause just named,
put the condition hostile to it that the application must be mide out
by an authorized agent of the insurer; and we held that the latter
swallowed down the former. In the case in hand the defendant has
declared, over the hands of its president and secretary, that a
renewal certificate from it will not be valid unless countersigned by
the duly authorized agent of the company at Oswego, New York.
It had before sent two such certificates to Harmon, which he had
countersigned as such agent, and delivered to the plaintiff. The
plaintiff had paid to him the premiums for those renewals, and he
had sent them to the defendant. The defendant treated these two
certificates as valid, because countersigned by Harmon. Tiiereby
it asserted that Harmon was its duly authorized agent. It held him
up to the plaintiff as such. It knew, then, that those certificates
had been put out and taken as valid; and it must have known that
it was so, because Harmon thought, and the plaintiff thought, and
that both had reason from the conduct of the defendant to think,
that Harmon was the duly authorized agent of the defendant. It
is too late, after letting those two go out as valid and the third like
certificate has been issued and premium paid, for it to say that Har-
mon is not the agent of the defendant therein, and that he is the
agent of the plaintiff. The defendant must have some living, sen-
tient touch of those doing business with it, and when it reposes
526 INSURANCE AGENTS.
confidence in the actor therein and gives him discretionary power
to bind and loose, it is idle to say that he is not its agent thereto.
The law is too severe to brook such an absurdity. Nor will it hold
the plaintiff so strictly to the contract he made as to permit the
defendant to ignore it and take his agent as its agent, and yet make
him suffer for all the shortcomings of that person while acting
between them, and while under authority from the defendant to act
for it. Should it be granted that Harmon was the agent of the
plaintiff, ever, then comes this rule, that one employing the agent
of another cannot take advantage from the acts and omissions of
that agent to the harm of his principal It is a rule that if one
principal to a contract deal surreptitiously with the agent of the
other principal, it is a fraud upon the other principal. The defrauded
one, if he comes in time, is entitled at his option to have the
contract rescinded; or if he elects not to have it rescinded, to have
such other adequate relief as the court may think right to give him,
P. ^ S. P. Tel. Co. V. Ind. Rub., Gut. Perch, ami Tel. W. Co., lo
Chy. App. Cas. 526. The principle should be applied in the case
in hand to the aid of Whited.
The case, then, is that of the holder of a policy asking for a
renewal of it, and making known to the agent of the insurer the
facts which have made, or will make, a breach of some of the con-
ditions m it, and thereupon receiving from that agent a written
renewal certificate, after payment and receipt of the premium, and
having from him a promise that he would " make it all right." The
powers of the agent were such as that the transaction with him was
the same as if done with the defendant; it is bound as fully as if it
were so. There was thus a perfect waiver of those conditions of
the policy, and it remained a valid contract for another term. When
the loss insured against happened, the defendant became liable
to pay, and has shown no real defense against the action.'
' Upon provisions of the character in question there is now a diversity of
opinion in the intermediate appellate court? in New York. The provision is
held effective in Bernard v. Ins. Co., 14 App. D. 142, (First Department. 1897)
and in Sternaman v. Ins. Co., 49 App. D. 473, (Fourth Department, 1900); and
ineffective in O' Far r ell v. Ins. Co., 22 App. D. 495, (Second Department, 1897).
The Court of Appeals has held the provision effective where the agent was an
insurance broker. Allen v. Ins. Co., 123 N. Y. 6.
INSURANCE AGENTS. 52/
NEW YORK LIFE INSURANCE CO. v. FLETCHER.
117 U. S. 519. — 1886.
The New York Life Insurance Company, on the 22d of Decem-
ber, 1877, issued at its liome office in the city of New York to Chi-
nonda S. Alford a policy of insurance upon his life for the sum of
$10,000. The assured was a resident of Missouri, and in December,
1877, he applied to an agent of the company there for such a policy,
and submitted to an examination. He also made certain statements
and representations respecting himself, his life, and his past and
present health, to which he appended a declaration, warranting
their truthfulness and agreeing that they should be the basis of any
contract between him and the company, and that if they, or any of
them, were in any respect untrue, the policy which might be issued
thereon should be void, and that all moneys paid on account of that
insurance should be forfeited; and further agreeing, that, inasmuch
as only the officers at the home office had authority to determine
whether or not a policy should issue on any application, and as they
acted only on the written statements and representations referred
to, no statements or representations made or information given to
the persons soliciting or taking the application for the policy, should
be binding on the company or in any manner affect its rights, unless
they were reduced to writing and presented at the home office in the
application. To the policy was annexed a copy of the application,
and upon it was endorsed the following notice in red type and con-
spicuously printed:
" For the information of the assured, and in order that any unin-
tentional errors or omissions which hereafter may be found to exist
may be corrected, an abstract of the application upon which this
policy is based may be found in the third page within. If correc-
tions are desired, when satisfactory to the company, a certificate to
that effect will be issued over the signature of the president and
actuary."
Payment of the insurance money was refused on the alleged
ground of false statements and representations in the application.
Thereupon the executor brought this action in a court of Missouri,
and upon the petition of the company it was removed to the Circuit
Court of the United States. The plaintiff obtained a verdict for the
full amount of the insurance money with interest, upon which judg-
ment was rendered.
Mr. Justice Field. — It is conceded that the statements and
representations contained in the answers, as written, of the assured
to the questions propounded to him in his application, respecting
528 INSURANCE AGENTS.
his past and present health, were material to the risk to be assumed
by the company, and that the insurance was made upon the faith of
tnem, and upon his agreement accompanying them that, if they were
false in any respect, the pohcy to be issued upon them should be void.
It is souglit to meet and overcome the force of this coaceded fact
by proof that he never made the statements and representations to
which his name is signed; that he truthfully answered those ques-
tions; that false answers written by an agent of the company were
inserted in place of those actually given, and were forwarded with
the application to the home office; and it is contended that, such
proof being made, the plaintiff is not estopped from recovering.
But on the assumption that the fact as to the answers was as stated,
and that no further obligation rested upon the assured in connec-
tion with the policy, it is not easy to perceive how the company can
be precluded from setting up their falsity, or how any rights upon
the policy ever accrued to him. It is, of course, not necessary to
argue that the agent had no authority from the company to falsify
the answers, or that the assured could acquire no right by virtue ot
his falsified answers. Both he and the company were deceived
by the fraudulent conduct of the agent. The assured was placed in
the position of making false representations in order to secure a
valuable contract which, upon a truthful report of his condition,
could not have been obtained. By them the company was imposed
upon and induced to enter into the contract. la such a case, assum-
ing that both parties acted in good faith, justice would require that
the contract be cancelled and the premiums returned. As the
present action is not for such a cancellation, the only recovery whicii
the plaintiff could properly have upon the facts he asserts, taken in
connection with the limitation upon the powers of the agent, is for
the amount of the premiums paid, and to that only would he be
entitled by virtue of the statute of Missouri.
But the case as presented by the record is by no means as favor-
able to him as we have assumed. It was his duty to read the appli-
cation he signed. He knew that upon it the policy would be issued,
if issued at all. It would introduce great uncertainty in all business
transactions, if a party making written proposals for a contract,
with representations to induce its execution, should be allowed to
show, after it had been obtained, that he did not know the coatents
of his proposals, and to enforce it, notwithstanding their falsity as
to matters essential to its obligation and validity. Contracts could
not be made, or business fairly conducted, if such a rule should pre-
vail; and there is no reason why it should be applied merely to
contracts of insurance. There is nothing in their nature which dis-
INSURANCE AGENTS. 529
tinguishes them in this particular from others. But here the right
is asserted to prove not only that the assured did not make the
statements contained in his answers, but that he never read the
application, and to recover upon a contract obtained by representa-
tions admitted to be false, just as though they were true. If he
had read even the printed lines of his application, he would have
seen that it stipulated that the rights of the company could in no
respect be affected by his verbal statements, or by those of its
agents, unless the same were reduced to writing and forwarded with
his application to the home office. The company, like any other
principal, could limit the authority of its agents, and thus bind all
parties dealing with them with knowledge of the limitation. It
must be presumed that he read the application, and was cognizant
of the limitations therein expressed. \^Here folloivs a statement of
Insurance Co. v. Wolff, 95 U. S. 326;' Insurance Co. w JVorton, 96
U. S. 240; and Loehner v. Ins. Co. 17 Mo. 247.]
The present case is very different from Insurance Co. v. Wilkinson^
13 Wall. 222," and from Insurance Co. v. Mahone, 21 Wall. 152. In
neither of these cases was any limitation upon the power of the
.igent brought to the notice of the assured. Reference was made
to the interested and officious zeal of insurance agents to procure
contracts, and to the fact that parties who were induced to take
out policies rarely knew anything concerning the company or its
officers, but relied upon the agent who had persuaded thsm to effect
insurance, " as the full and complete representative of the com-
pany in all that is said or done in making the contract," and the
court held that the powers of the agent dive prima facie coextensive
with the business entrusted to his care, and would not be narrowed
by limitations not communicted to the person with whom he dealt.
Where such agents, not limited in their authority, undertake to
prepare applications and take down answers, they will be deemed
as acting for the companies. In such cases it may well be held that
the description of the risk, though nominally proceeding from the
assured, should be regarded as the act of the company. Nothing
in these views has any bearing upon the present case. Here the
power of the agent was limited, and notice of such limitation given
by being embodied in the application, which the assured was
required to make and sign, and which, as we have stated, he must
be presumed to have read. He is, therefore, bound by its state-
ments. \^Here follows a statement of Ryan v. Ins. Co. 41 Conn. 168 ]
' Reported herein at p. -1S2
' Repotted herein at o .\z\
LAW OF INSIR WCK — -- i
530 INS'JRAN'CE AGENTS.
The instruction given to the jury in the case before us is, in effect,
that the assured was b^und by his application if it was not avoided
for fraud, and that it was so avoided by reason of the false state-
ments contained in it, and that, therefore, the pl.-'intiff, as his rep-
resentative, could recover. But if the application was avoided, it
would seem to be a necessary consequence that the policy itself was
also avoided, and his right limited to recovering the premiums paid.
But such was not the conclusion of the court. It directed the jury
that if the application was avoided for fraud, he could recover. It
does not seem to have occurred to the court that had the answers
been truthfully reported, and the fact of the assured having had
diabetes within a recent period been thus disclosed, the insurance
would in all probability have been refused. If the policy can stand
with the application avoided, it must stand upon parol statements
not communicated to the company. This, of course, cannot be
seriously maintained in the face of its notice thaf only statements
in writing forwarded to its officers would be considered. A curious
result is the outcome of the instruction. If the agents committed
no fraud the plaintiff cannot recover, for the answers reported are
not true; but if they did commit the imputed fraud he may recover,
although, upon the answers actually given, if trul}'^ reported, no
policy would have issued. Such anomalous conclusions cannot be
maintained.
There is another view of this case equally fatal to a recovery.
Assuming that the answers of the assured were falsified, as alleged,
the fact would be at once disclosed by the copy of the application,
annexed to the policy, to which his attention was called. He would
have discovered by inspection that a fraud had been perpetrated,
not only upon himself but upon the company, and it would have
been his duty to make the fact known to the company. He could
not hold the policy without approving the action of the agents and
thus becoming a participant in the fraud committed. The retention
of the policy was an approval of the application and of its state-
ments. The consequences of that approval cannot after his death
be avoided. The court charged the jury that if the assured had
discovered the fraud before the policy was delivered and the first
premium paid, it would have been his duty to decline to go any
further with the transaction; but if he did not discover the fraud
until after such delivery and payment, he was not called upon to
take any steps for the cancellation of the contract. In other words,
the jury were told that the assured might take to himself the benefit
of the fraud without responsibility for it, if he did not discover it
until after it was consummated — a doctrine without authority and
i:N:5URAiNCE AGENTS. 53 I
wholly indefensible. No one can claim the benefit of an executory
contract fraudulently obtained, after the discovery of the fraud,
without approving and sanctioning it. \_Hc re follows a statement of
Amer. Ins. Co. v. JVeibergcr, 74 Mo. 167 and Richardson v. Ins. Co.
46 Me. 394.]
Reversed, and the cause remanded for a new trial.
Statutory Enactments Declaring Certain Persons to Be
Agents of the Insurance Company. — Some States have legisla-
tive acts of the general character of the following Wisconsin statute
(Rev. St. Wis., 1898, § 1977): " Whoever solicits insurance on
behalf of any insurance corporation or person desiring insurance of
any kind, or transmits an application for or a policy of insurance,
other than for himself, to or from any such corporation, or who
makes any contract for insurance, or collects any premium for insur-
ance, or in any manner aids or assists in doing either, or in trans-
acting any business of like nature for any insurance corporation, or
advertises to do any such thing, shall be held to be an agent of such
corporation, to all intents and purposes, unless it can be shown that
he receives no compensation for such services." Of this act, the
court says, in United Firemen's Ins. Co. ". Thomas, 92 Fed. 127,
133: "Under this statute it is held that the rule was changed
which required the insured at his peril to know whether the person
with whom he is dealing had the power he assumed to exercise, or
whether he was acting within the scope of his authority, and that
one who procures policies from an authorized agent, delivers them,
and collects and shares in the premium, is the agent of the company,
Schomer v Insurance Co., 50 Wis. 575, 7 N. W. 544; Knox v. Insur-
ance Co., 50 Wis. 671, 7 N. W. 776; and that one who applies for
insurance, and delivers a policy in a company not represented by
him, but by other agents, is its agent, Alkan v. Insurance Co., 53
Wis. 136, 10 N. W. 91; Body v. Insurance Co., 63 Wis. 157, 23 N,
W. 132. But it is also held that the statute does not change the
rule respecting the relations of principal and agent, and cannot be
construed to prevent an insurance broker employed to procure
insurance from another from being the agent of the assured at the
same time in procuring the policy; and the same rule applies as in
other agencies, — that the principal is bound by the acts and rep-
resentations of the agent within the scope of his authority. John
R. Davis lumber Co. v. Hartford Fire Ins. Co., 95 Wis. 226, 70 N.
W. 84. The true meaning of the statute is well expressed in Han-
kins V. Insurance Co., 70 Wis. i, 35 N. W. 34: That the word
532 INSURANCE AGENTS.
" agent " is limited lo tiie acl of the particular person doing one or
more of the things specifically designated; in other words, when-
ever an insurance company authorizes any person to do any one of
the things thus specified, it cannot disclaim the agency of such
person in the doing of anything necessarily implied in the specific
act thus authorized, and that the word " agent," as used in these
statutes, means as expressly stated in the Illinois statute, an author-
ized agent of the company. In /FiW s. Insurance Co., 126 Mass.
316, it is said of a similar statute that the statute relating to agents
of insurance companies does not change the relation of the common
law regulating the power of agents to bind their principals, and
that the statute cannot be construed so as to prevent the person
who is agent for the insurer for some purpose by virtue of the stat-
ute, from being the agent of the insured for other purposes, and
that he may well be the agent for each in matters which do not
conflict."
e. Duty to Principal.
AMERICAN STEAM-BOILER INS. CO. v. ANDERSON and
Others.
130 N. Y. 134. — 1891.
Cross-appeals from Superior Court of New York city, General
Term.
Action by the American Steam Boiler Insurance Company against
Edward C. Anderson and George S. Stanton for damages for pro-
curing the cancellation of policies of insurance. From a judgment
affirming a judgment entered on a verdict for plaintiff, both parties
appeal. Affirmed.
In June, 1884, by an instrument executed by the parties, the
plaintiff appointed the defendants as its managers and general
agents for the States of New York, New Jersey, and Connecticut,
with some local exceptions. The defendants were empowered to
issue policies, and as commissions to have thirty per cent, of the
premiums received; either of the parties to terminate the agency
at pleasure on ninety days' notice. In December, 1885, a further
arrangement was made to the effect that the agreement creating
such relation should cease and determine on January i, r886, " and
from that date be null and void," saving any claim the plaintiff
should then have against the defendants for unpaid accounts. As
such agents the defendants, in December, 18S4, made two policies
to R. Iloe & Co., insuring them to the amount of $50,000 and
INSURANCE A(JENrS. 533
$25,000, = $75,000, for three years, upon buildings, engines,
boilers, etc., against damages by explosion, for which a premium of
$1,125 was paid, of which the defendants retained $337.50 for their
commissions. Provision was made in the policies for their cancella-
tion at any time at the request of the assured, and that in such
event the plaintiff should retain the charges for inspection and the
customary short rates for the term the policies had been in force.
These policies were, at the request of the assured, canceled in
March, 1887, and $118.13 ^^ the premium were returned by the
plaintiff, as required by the contract of insurance. The cancellation
by R. Hoe & Co. was induced and procured by the solicitation of
the defendants, who had then become the agents of the Hartford
Steam-Boiler Insurance Company, and induced and procured that
firm to take, in place thereof, insurance in the last named company,
in consequence of which the plaintiff was required to refund such
portion of the premium. The purpose of this action was to recover
damages of the defendants for thus causing the cancellation of the
policies and the refunding of the amount repaid, for thirty per cent.
of which, with interest, a verdict was directed for the plaintiff.
Bradley, J. — There was upon the evidence no controversy of
fact, but the questions presented had relation to the legal conse-
quences, as between the parties, of the action of the defendants in
inducing and procuring the assured to surrender the plaintiff's poli-
cies of insurance, and to demand a rebate of the premium paid to
it. The motive of the defendants for doing this does not appear,
further than may be implied from the fact that the defendants also
induced R. Hoe & Co., the assured, to take in lieu thereof insurance
in the Hartford Steam-Boiler Insurance Company, which the defend-
ants then represented. Their relation of agency to the plaintiff had
terminated by the terms of their contract with it in that respect,
and they had rightfully become the agents of the rival company in
the business of like insurance. Their relation with the latter com-
pany required the defendants to subserve its interest faithfully and
diligently, and consistently with that relation it was in the line of
their duty to induce R. Hoe & Co. to take insurance in the company
the defendants then represented. But the question is whether any
consideration was due from them for the contracts they had, as
agents for the plaintiff, made while they held that relation to it.
They had, pursuant to such agency, and for it, insured the property
of Hoe & Co.; and that was done under a contract by which they
were entitled to and did receive thirty per centum of the premiums
paid. This was compensation for their skill and services as agents
of the plaintiff. Although their fiduciary relation to the plaintiff
534 INSURANCE AGENTS.
had ti^rminated, the contract of insurance they in that character had
made with the assured remained only partially executed, — the time
of its indemnity had not expired, — and as a consequence the pre-
miums paid were not fully earned. The defendants had, pursuant
to their contract of agency with the plaintiff, received thirty cents
of every dollar of those premiums. They received this from the
plaintiff in consideration of the services by them performed in its
business and behalf by virtue of the contract between them. The
policies of insurance were made subject to the right reserved to the
assured of surrendering them, and having a rebate and reimburse-
ment//-^ tanto of the premiums paid; and this without prejudice to
the defendants, since they had duly performed the services of
creating the relation of insurer and assured. This is all they
undertook to do for their stipulated compensation.
But, when they had accomplished this, were they at liberty to
defeat the purpose or duration of the contract of insurance, and
retain the fruits of it, to the prejudice of the plaintiff? It quite
clearly seems that they could not do so without failure to observe
their obligation arising out of the contractual relation which they
had assumed with the plaintiff, and pursuant to which they made for
it the contract of insurance. When their agency for the plaintiff
terminated, the unearned portion of the premiam upon the Hoe &
Co. policies existed in the contract executory in character, and of
which the defendants had received thirty per centum by virtue of
their contract with the plaintiff. There is no well-supported prin-
ciple which would enable them to take from the plaintiff the benefit
of the contract of insurance it had through them made, and retain
the portion of the consideration received by them, and which they
had caused the plaintiff to restore to the assured. The question
was not one of disability arising out of fiduciary relation; that
had ceased to exist between the parties. It was one founded in
contract, pursuant to which the defendants had received compen-
sation out of the proceeds of the transaction measured by the term
of indemnity; and by causing the defeat of the operation of the
contract of insurance they had created, before its stipulated period
expired, and thus requiring the plaintiff to rebate a portion of the
premium, they caused a partial failure of consideration of the con-
tract they assumed to perform, and, to the extent at least of the
amount received by them of the sum which the plaintiff was thus
required to refund, they became liable to reimburse it. The power
of an agent to create rights by contract for his principal includes an
implied duty to observe, and not to defeat or destroy, them. The
facts in the present case did not necessarily require the conclusion
INSURANCE AGENTS. 535
of bad faith, on the part of the defendants, although it may have
been permitted; nor was the action tried by the court upon the
theory that they were chargeable with that imputation; and for that
reason, if for no other, there was no error or prejudice in the exclu-
sion of certain evidence offered by the defendants. And the ques-
tion was finally treated by the parties at the trial as one of law only.
In that view the measure of damages, as founded upon the contract
between the parties, by which the defendants' agency was created
and pursuant to which they issued the policies, was that which the
court adopted in the direction of the verdict; and that amount the
plaintiff was entitled to recover. In legal contemplation the relief
of the plaintiff from its contract of insurance was of some value to
it at the time the policies were canceled, although it turned out
that no loss would have been suffered if they had continued effectual
until the end of the term for which they were issued.
The judgment should be affirmed without costs in this court to
either party. All concur. Judgment affirmed.'
' " In an action against an insurance company to recover unearned premiums
by the assignee of claims for such unearned premiums on policies issued by the
defendant, a plea alleging that the policies on which the unearned premiums
are claimed were procured by plaintiff as defendant's agent, for the procurement
of which plaintiff received a portion of the premiums paid by the policy-holders,
that plaintiff, after ceasing to be defendant's agent, induced the said policy-
holders to cancel the policies for the purpose of depriving the defendant of the
benefits thereof, and then bought the unearned premiums in violation of
defendant's rights, avers no facts which constitute a defense to the action, or
precludes a recovery by the plaintiff, and a demurrer thereto is properly sus-
tained; the policy-holders having the absolute right to cancel their policies, and
to be immediately refunded their unearned premiums, had, therefore, the right
to assign their claims to such premiums, which gave the assignee the legal
right to sue thereon." — Scottis/i Union, etc., Ins. Co. v. Dangaix, 103 Ala. 388
(Syllabus).
PART IX.
Subrogation.
a. Fire Insurance.
I. In General.
CASTELLAIN r. PRESTON and Others.'
II Q. B. D. 380. — 1883.
Appeal to the plaintiff from the judgment of Chitty, J., in favor
of the defendants. The facts are fully stated in the report of the
proceedings before Chitty, J., 8 Q. B. D. 613, and it is necessary
here only to briefly recapitulate them.
The plaintiff sued on behalf of the London. Liverpool ami Globe
Insurance Company to recover a sum of £330, wi'h interest since
the 25th of September, 1878. On the 25th of March, 1878, the
defendants, as owners of certain lands and buildings in Liverpool,
effected an insurance on the buildings against loss by fire, and they
kept the policy on foot by payment of the premiums until after the
fire hereinafter mentioned occurred. The policy was in the usual
form, giving the insurers the option of reinstating the property.
On the 31st of July, 1878. the defendants contracted to sell the land
and the buildings to their tenants, Messrs. Rayner, for the sum of
£3100, and they received a deposit. The contract provided that the
time of the completion should be such day within two years from
the date as the vendors should name. On the 15th of August in the
same year a fire occurred damaging part of the buildings. A claim
was made on behalf of the defendants, and after negotiation as to
the sum to be paid, the amount of the claim was ultimately fixed at
£330, and that sum was in fact paid on the 25th of September, 1878,
by the insurers, who were at the time ignorant of the existence of
the contract for sale. On the 25th of March, 1879, the defendants
' This case arose out of the determination of Rayner v. Preston, 18 Ch. D. I
reported herein at p. 344.
[536]
SUBROGATION. 53/
named the 5th of May as the day of completion, and on the follow-
ing 1 2th of December the conveyance was executed and the balance
of the purchase money paid.
Brett, L. J. — In this case the action is brought by the plaintiff,
as representing an insurance company, against the defendants, in
respect of money which has been paid by that company to the
defendants on account of the loss by fire of a building. The defend-
ants were the owners of property consisting partly, at all events, of
a house, and the defendants had made a contract of sale of that
property with third persons, which contract, upon the giving of a
certain notice as to the time of payment, would oblige those third
persons, if they fulfilled the contract, to pay the agreed price for
the sale of that property, a part of which was a house, and, accord-
ing to the peculiarity of such a sale and purchase of land or real
property, the vendees would have to pay the purchase money,
whether the house was, before the date of payment, burnt down or
not After the contract was made with the third persons, and
before the day of payment, the house was burnt down. The ven-
dors, the defendants, having insured the house in the ordinary form
with the plaintiff's company, it is not suggested that upon the house
being burnt down the defendants had not an insurable interest.
They had an insurable interest, as it seems to me, first, because
they were at all events the legal owners of the property; and, sec-
ondly, because the vendees or third persons might not carry out the
contract, and if for any reason they should never carr}' out the con-
tract, then the vendors, if the house was burnt down, would suffer
the loss. Upon the happening of the fire, the defendants made a
claim on the insurance company represented by the plaintiff, and
were paid a certain sum which represented the damage done to the
house. After that, the contract of sale between the defendants
and the third persons, the vendees of the property, was carried out,
and the full amount of the purchase money was paid by the third
persons to the defendants notwithstanding the fire. Under those
circumstances the plaintiff representing the insurance company
brings this action; I do not say that he brings it to recover back
the money which has been paid by the insurance company (for that
expression of opinion would rather interfere with the form of the
action), but he brings the action in respect of that money.
The question is whether this action is maintainable. The case
was tried before Chitty, J., and he, in a very careful and elaborate
judgment (8 Q. B. Div. 613, at page 615), has come to the conclu-
sion that the insurance company cannot recover against the defend-
ants in respect of the money paid by them. It seems to me that
538 SUBROGATION.
the foundation of his judgment is this, that he considers that the
doctrine of subrogation of the insurer into the position of the
assured is confined within limits, which prevent it from extending
to the present case. I must now consider whether I can agree with
him.
In order to give my opinion upon this case, I feel obhged to revert
tJ the very foundation of every rule which has been promulgated
and acted on by the courts with regard to insurance law. The very
foundation, in my opinion, of every rule which has been applied to
insurance law, is this, namely, that the contract of insurance con-
tained in a marine or fire policy is a contract of indemnity, and of
indemnity only, and that this contract means that the assured, in
case of a loss against which the policy has been made, shall be fully
indemnified, but shall never be more than fully indemnified. That
is the fundamental principle of insurance, and if ever a proposition
is brought forward which is at variance with it, that is to say, which
either will prevent the assured from obtaining a full indemnity, or
which will give to the assured more than a full indemnity, that
proposition must certainly be wrong.
In the course of this discussion many propositions and rules well
known in insurance law have been glanced at. For instance, to
speak of marine insurance, the doctrine of a constructive total loss
originated solely to carry out the fundamental rule which I have
mentioned. It was a doctrine introduced for the benefit of the
assured; for, as a matter of business, a constructive total loss is
equivalent to an actual total loss; and if a constructive total loss could
not be treated as an actual total loss, the assured would not recover
a full indemnity. But grafted upon the doctrine of constructive
total loss came the doctrine of abandonment, which is a doctrine in
favor of the insurer or underwriter, in order that the assured may
not recover more than a full indemnity. The doctrine of construc-
tive total loss and the doctrine of notice of abandonment engrafted
upon it were invented or promulgated for the purpose of making a
policy of marine insurance a contract of indemnity in the fullest
sense of the term. I may point out that the doctrine of notice of
abandonment is most difficult to justify upon principle ; it was intro-
duced, rather as a matter of justice in favor of the underwriters,
so as to prevent the assured from obtaining by fraud more than a
full indemnity. That doctrine is to a certain extent technical, that
is to say, although the assured has in reality suffered a constructive
total loss, and although he is upon general principles entitled to
recover, nevertheless he must fail unless he has given a notice of
abandonment. I suppose that the doctrine of notice of abandonment
SUBROGATION. 539
was originally introduced by merchants and underwriters, and after-
wards adopted as part of the law as to marine insurance; but at first
sight it seems a mere encroachment of the judges.
I have mentioned the doctrine of notice of abandonment for the
purpose of coming to the doctrine of subrogation. That doctrine
does not arise upon any of the terms of the contract of insurance;
it is only another proposition which has been adopted for the pur-
pose of carrying out the fundamental rule which I have mentioned,
and it is a doctrine in favor of the underwriters or insurers in
order to prevent the assured from recovering more than a full
indemnity; it has been adopted solely for that reason. It is not,
to my mind, a doctrine applied to insurance law on the ground that
underwriters are sureties. Uoderwriters are not cdways sureties.
They have rights which sometimes are similar to the rights of sure-
ties, but that again is in order to prevent the assured from recover-
ing from them more than a full indemnity. Bat it being admitted
that the doctrine of subrogation is to be applied merely for the pur-
pose of preventing the assured from obtaining more than a full
indemnity, the question is, whether that doctrine, as applied in
insurance law, can be in any way limited. Is it to be limited to
this, that the underwriter is subrogated into the place of the assured
so far as to enable the underwriter .to enforce a contract, or to
enforce a right of action? ^Vhy is it to be limited to that, if when
it IS limited to that, it will, in certain cases, enable the assured to
recover more than a full indemnity? The moment it can be shown
that such a limitation of the doctrine would have that effect, then,
as I said before, in my opinion, it is contrary to the foundation of
the law as to insurance, and must be wrong. And, with the greatest
deference to my Brother Chitty, it seems to me that that is the
fault of his judgment. He has by his judgment limited this doc-
trine of subrogation to placing the insurer in the position of the
assured only for the purpose of enforcing a right of action, to which
the assured may be entitled. In order to apply the doctrine of
subrogation, it seems to me that the full and absolute meaning of
the word must be used, that is to say, the insurer must be placed
in the position of the assured. Now it seems to me that in order to
carry out the fundam.ental rule of insurance law, this doctrine of
subrogation must be carried to the extent which I am now about
to endeavor to express, namely, that as between the underwriter and
the assured the underwriter is entitled to the advantage of every
right of the assured, whether such right consists in contract, ful-
filled or unfulfilled, or in remedy for tort capable of being insisted
on or already insisted on, or in any other right, whether by way of
540 SUBROGATION.
condition or otherwise, legal or equitable, which can be, or has been
exercised or has accrued, and whether such right could or could not
be enforced by the insurer in the name of the assured, by the exer-
cise or acquiring of which right or condition the loss against which
the assured is insured, can be, or has been diminished. That seems
to me to put this doctrine of subrogation in the largest possible
form, and if in that form, large as it is, it is short of fulfilling that
which is the fundamental condition, I must have omitted to state
something which ought to have been stated. But it will be observed
that I use the words " of every right of the assured." I think that
the rule does require that limit. In Burnand v. Rodocanachi^ 7
App. Cas. 2,7,2^, the foundation of the judgment to my mind was,
that what vvas paid by the United States government could not be
considered as salvage, but must be deemed to have been only a gift.
It was only a gift to which the assured had no right at any time
until It was place 1 in their hands. I am aware that with regard to
the case of reprisals, or that which a person whose vessel had been
captured got from the English government by a way of reprisal, the
sum received has been stated to be, and perhaps in one sense was,
a gift of his own government to himself, but it was always deemed
to be capable of being brought vvithin the range of the law as to
insurance, because the English government invariably made the
" gift," so invariably, that as a matter of business it has come to
be considered as a matter of right. This enlargement, or this
explanation, of what I consider to be the real meaning of the doc-
trine of subrogation, shows that in my opinion it goes much further
than a mere transfer of those rights which may at any time give a
cause of action either in contract or in tort, because if upon the
happening of the loss there is contract between the assured and a
third person, and if that contract is immediately fulfilled by the
third person, then there is no right of action of any kind into which
the insurer can be subrogated. The right of action is gone; the
contract is fulfilled. In like manner if upon the happening of a
tort the tort is immediately made good by the tort feasor, then the
right of action is gone ; there is no right of action existing into which
the insurer can be subrogated. It will be said that there did for a
moment exist a right of action in favor of the assured, into which
the insurer could have been subrogated. But he cannot be subro-
gated into a right of action until he has paid the sum insured and
made good the loss. Therefore innumerable cases would be taken
out of the doctrine, if it were to be confined to existing rights of
action. And I go further and hoi 1 that if a right of action in the
assured has been satisfied, and the loss has been thereby diminished,
SUBROGATION. 541
then, although there never was nor could be any right of action ini)
which the insurer could be subrogated, it would be contrary to tlie
doctrine of subrogation to say that the loss is not to be diminished
as between the assured and the insurer by reason of the satisfaction
of that right. I fail to see at present if the present defendants would
have had a right of action at any time against the purchasers, upon
which they could enforce a contract of sale of their property whether
the building was standing or not, why the insurance company
should not have been subrogated into that right of action. But I
am not prepared to say that they could be, more particularly as I
understand my learned brother, who knows much more of the law
as to specific performance than I do, is at all events not satisfied
that they could. I pass by the question vvithont soU-ing it, because
there was a right in ihe defendants t) have the contract of sale ful-
filled by the purchasers notwithstanding the loss, and it was fulfilled.
The assured have had the advantage therefore of that right, and by
that right, not by a gift which the purchasers could have declined
to make, the assured have recovered, notwithstanding the loss, from
the purchasers, the very sum of money which they were to obtain
whether this building was burnt or not. In that sense I cannot
conceive that a right, by virtue of which the assured has his loss
diminished, is not a right which, as has been said, affects the loss.
This right which was at one time merely in coaLract, but which was
afterwards fulfilled, either when it was in contract only, or after it
was fulfilled, does not affect the loss; that is to say, it affects the
loss by enabling the assured, the vendors, to get the same money
which they would have got if the loss had not happened.
While I am applying the doctrine of subrogation which I have
endeavored to enunciate, I think it due to Chitty, J., to point out
what passages in his judgment require some modification. 8 Q. B.
Div., at page 617. I find him reading this passage: " I know of
no foundation for the right of underwriters, except the well known
principle of law, that where one person has agreed to indemnify
another, he will, on making good the indemnity, be entitled to suc-
ceed to all the ways and means by which the person indemnified
might have protected himself against or reimbursed himself for the
loss." That is a quotation from Lord Cairns in Simpson v. Thom-
son, 3 App. Cas. 279, at page 284. The learned judge then goes
on, " What is the principle of subrogation? On payment the insur-
ers are entitled to enforce all the remedies, whether in contract or
in tort, which the insured has against third parties, whereby the
insured can compel such third parties to make good the loss insured
against." That is, as it seems to me, to confine this doctrine of
542 SUBROGATION.
subrogation to the principle that the insurers are entitled to enforce
all remedies, whether in contract or in tort. I should venture to
add this — "And if the assured enforces or receives the advantage
of such remedies, the insurers are entitled to receive from the
assured the advantage of such remedies." Then when we come to
this illustration, " Where the landlord insures, and he has a cove-
nant by the tenant to repair, the insurance office, on payment in
like manner, succeeds to the right of the landlord against his ten-
ant." I would add this — "And if the tenant does repair, the
insurer has the right to receive from the assured a benefit equiva-
lent to the benefit which the assured has received from such
repair." Then, dealing with the case of Burnand v.Rodocamichi^ 7
App. Cas. ^tlly the learned judge cites the opinion of Bramwell, L.
J., 8 Q. B. Div. at page 618. He says that Bramwell, L. J., in his
judgment held that it was not salvage, but " that in the circum-
stances the sum received by the shipowner was but a pure gift, and
there was no right on the part of the insurers to recover any part
of it over against him." I, for myself, venture to add this as the
reason, " Because there was no right in the assured to demand the
compensation from the American government." There was no
right to demand it, it was bestowed and received as a pure gift.
Darrell v. Tib/nits, 5 Q. B. Div. 560, seems to me to be entirely in
favor of the plaintiff in this case. I shall not retract from the
very terms which I used in that case. It seems to me that in Dar-
rell V. Tibbitts, 5 Q. B. Div. 560, the insurers were not subrogated
to a right of action or to a remedy. They were not subrogated to
a right to enforce the remedy, but what they were subrogated into
was the right to receive the advantage of the remedy which had
been applied, whether it had been enforced or voluntarily adminis-
tered by the person who was bound to administer it. That seems
to me to be the doctrine. Then with regard to the passage (5 Q.
B. Div. at page 563), " the doctrine is well established, that where
something is insured against loss, either in a marine or a fire policy,
after the assured has been paid by the insurers for the loss, the
insurers are put into the place of the assured with regard to every
right given to him by the law respecting the subject-matter
insured." I wish to explain that that was a distinct clause, and it
was so intended by me when I stated it. I then mentioned con-
tracts: "And with regard to every contract which touches the sub-
ject-matter insured, and which contract is affected by the loss or
the safety of the subject-matter insured by reason of the peril
insured against." I fail to conceive any contract which gives a
right over the thing insured, which is not affected by the loss or
SUBROGATION. 543
safety of it; and if it is necessary to bring the present case within
those terms, it seems to me that the contract of purchase and sale
was affected by that loss. I will not go further with the judgment
of Chitty, J., except to say this, that at the end my learned brother
has put it thus, that " the only principle applicable is that of sub-
rogation as understood in the full sense of that term." 8 Q. B.
Div. at page 625. There I agree with him, only my view of the
full sense is larger than that which he adopted. "And that where
the right claimed is under a contract between the insured and third
parties, it must be confined to the case of a contract relating to the
subject matter of the insurance, which entitled the insurers to have
the damages made good." I think it would be better expressed in
this way — "which entitles the assured to be put by such third
parties into as good a position as if the damage insured against had
not happened." If it is put in that sense, it seems to me to be
consistent with the proposition which I laid down at the beginning
of what I have said, and to cover this case. I will repeat it,
" which entitles the assured to be put by such third parties into
as good a position as if the damage insured against had not hap-
pened." The contract in the present case, as it seems to me, does
enable the assured to be put by the third party into as good a posi-
tion as if the fire had not happened, and that result arises from this
contract alone. Therefore, according to the true principles of
insurance law, and in order to carry out the fundamental doctrine,
namely, that the assured can recover a full indemnity, but shall
never recover more, except, perhaps, in the case of the suing and
laboring clause under certain circumstances, it is necessary that
the plaintiff in this case should succeed. The case of Darrell v.
Tibbitts, 5 Q. B. Div. 560, has cut away every technicality which
would prevent a sound decision. The doctrine of subrogation must
be carried out to the full extent, and carried out in this case by
enabling the plaintiff to recover.
Cotton, L. J. — In this case the appellant's company insured a
house belonging to the defendants, and before there was any loss
by fire the defendants sold the house to certain purchasers. After-
wards there was a fire, and an agreed sum was paid by the insur-
ance office to the defendants in respect of the loss. The appellant
apparently seeks to recover the sum which the office paid to the
defendants, and if the plaintiff's claim could be shaped only in this
form, I think my opinion would be against him. The plaintiff's
claim may be treated in substance in another way, namely, the com-
pany seek to obtain the benefit either wholly or partly of the amount
paid by them out of the purchase-money which the defendants have
544 SUHROCJATION.
rec;?ived since ihe fire from the purchasers. In my opinion, the
plaintiff is right in that contention. I think that the question turns
on the consideration of what a policy of insurance against fire is,
and on that the right of the plaintiff depends. The policy is really
a contract to indemnify the person insured for the loss which he has
sustained in co;is>;qaence of the peril insured against, which has
happened, and from that it follows, of course, that as it is only a
contract of indemnity, it is only to pay that loss which the assured
may have sustained by reason of the fire which has occurred. In
order to ascertain what that loss is, everything must be taken inio
account which is received by and comes to the hand of the assured,
and which diminishes that loss. It is only the amount of the loss,
when it is considered as a contract of indemnity, which is to be paid
after taking into account and estimating tliose benefits or sums of
money which the assured may have received in diminution of the
loss. If the proposition is stated in that manner, it is clear that
the office would be entitled to the benefit of anything received by
the assured before the time when the policy is paid, and it is estab-
lished by the case of Danell v. Tiblnils, 5 Q. B. Div. 560, that the
insurance company is entitled to that benefit, whether or not before
they pay the money they insist upon a calculation being made of
what can be recovered in diminution of the loss by the assured; if
they do not insist upon that calculation being made, and if it after-
wards turns out that in consequence of something which ought to
have been taken into account in estimating the loss, a sum of
money, or even a benefit, not being a sum of money, is received, then
the office, notwithstanding the payment made, is entitled to say that
the assured is to hold that for its benefit, and although it was not
taken into account in ascertaining the sum which was paid, yet when
it has been received it must be brought into account, and if it is not a
sum of money, but a benefit that has been received, its value must
be estimated in money.
Now Lord Blackburn, in the case of Buriiand v. Rodocanachi^ 7
App. Cas. 333, at page 339, states the principle in these words:
" The general rule of law (and it is obvious justice) is that where
there is a contract of indemnity (it matters not whether it is a
marine policy, or a policy against fire on land, or any other con-
tract of indemnity), and a loss happens, anything which reduces or
diminishes that loss reduces or diminishes the amount which the
indemnifier is bound to pay; and if the indemnifier has already paid
it, then, if anything which diminishes the loss comes into the hands
of the person to whom he has paid it, it becomes an equity that the
person who has already paid the full indemnity is entitled to be
SUBROGATION.
545
recouped by having that amount back." In Darrell v. Tibbitts, 5
Q. B. Div. 560, to which I have already referred, the question which
we had to consider was whether the insurance office was entitled to
the benefit produced in consequence of a covenant to repair if the
building should be damaged by an explosion of gas. In my opinion
it was not intended in any way to limit the right of the insurer, as
an insurer, to cases where the contract in respect of which benefit
has been received related to the same loss or damage as that
against which the contract of indemnity was created by the policy.
That was what was before this court in that case, and undoubtedly
expressions do occur as to a contract relating to the loss or affect-
ing the loss, but the principle was not limited to contracts. The
principle which I have enunciated goes further, and if there is a
money or any other benefit received which ought to be taken into
account in diminishing the loss, or in ascertaining what the real loss
is against which the contract of indemnity is given, the indemnifier
ought to be allowed to take advantage of it in order to calculate
what the real loss is, even although the benefit is not a contract or
right of suit which arises and has its birth from the accident
insured against. Of course the difficulty is to consider what ought
to be taken into account in estimating that loss against which the
insurer has agreed to indemnify, and we have been pressed in argu-
ment with many difficulties. One which possibly was put to us most
strongly, was that the contract of sale has nothing to do with
destruction by fire, and if any part of the purchase-money is to be
taken into account, why is a gift not to be taken into account?
That may be said to diminish the loss as well as a contract ot sale.
The answer is that when a gift is made afterwards in order to dimin-
ish the loss, it is bestowed in such terms as to show an intention to
benefit the assured, and to give the insurer the benefit of that would
be to divert the gift from its intended object to a different person.
That really was what was decided in Burnand v. Rodocanachi^ 7 App.
Cas. 333. There the money bestowed, not as a matter of right but
as a gift, was intended to benefit the assured beyond the amount
which they had got in consequence of any insurance. There is
another ground which may possibly exclude gifts. It may be that
the right of the insurer to have a sum brought into account in
diminution of the loss, against which he has given a contract of
indemnity, is confined to that which is a right or other incident
belonging to the person insured, as an incident of the property at
the time when the loss takes place. This definition would not
include a sum subsequently bestowed on the assured by way of gift,
for it can in no way be said to have been appertaining to him as
LAW OF INSURANCE — 35
54^ SUBROGATION.
owner of the property at the time when the loss took place. But,
:n the present case, what we have to consider is whether the con-
iract of sale is not an incident of the property belonging lo the
owners at the time of the loss in such a way, that it ought to be
brought into account in estimating the loss, against which the
insurer has undertaken to indemnify. \Vhat was the position of the
parties? The defendants' house was insured, and there was a loss
from fire, the damage caused by the fire being estimated by the par-
ties at ^330. Ultimately, the property having been already agreed
to be sold at a fixed price, the assured received the whole amount
of that price. Now they did that in respect of a contract relating
to the subject insured, the house, and, to my mind, if they received
the whole amount of the price which they previously had fixed as
the value of the house, that must of necessity be brought into
account when it was received, for the purpose of ascertaining what
was the ultimate loss against which they had concluded a contract
of indemnity with the insurance ofifice. Here the purchasers have
paid the money in full, and as the property was valued between the
vendors and the purchasers at ;,{^3ioo, the vendors got that sum in
respect of that which had been burned, but which had not been
burned at the time when the contract was entered into. They had
fixed that to be the value, and then any money which they get from
the purchasers, and which together with ^330, the sum paid by the
ofifice, exceeds the value of the property as fixed by them under the
contract to sell, must diminish, and in fact entirely extinguishes the
loss occasioned to the vendors of the property by the fire. Therefore,
though it cannot, to my mind, be said that the insurers are entitled,
because the purchase is completed, to get back the money which
they have paid, yet they are entitled to take into account the money
subsequently received under a contract for the sale of the property
existing at the time of the loss, in order to see what the ultimate
loss was against which they gave their contract of indemnity. On
the principle of Darrell v. Tibbitts, 5 Q. B. Div. 560, when the
benefit afterwards accrued by the completion of the purchase, the
insurance company were entitled to demand that the money paid
by them should be brought into account. Therefore the conclusion
at which I have arrived is, that if the purchase-money has been paid
in full, the insurance office will get back that which they have paid,
on the ground that the subsequent payment of the price which had
been before agreed upon, and the contract for payment of which
was existing at the time, must be brought into account by the
assured, because it diminishes the loss against which the insurance
office merely undertook to indemnify them. In my opinion, there-
SUBROGATION. 547
fore, the decision below was erroneous. 1 think Chitty, J, based it
upon this, that in this case there was no right of subrogation, no
contract which the ofifice could have insisted upon enforcing for
their benefit. I think it immaterial to decide that question, because
the vendors have exercised their right to insist upon the completion
of the purchase.
BowEN, L.J. — 1 am of the same opinion. \^Thcn foHoivs a con-
sideration of the nature of fire insurance as a contract of indemnity.^
Chitty, J., goes on to discuss the case on the basis of what he
calls the principle of subrogation. I will add very little to what
Brett, L. J., has said about that. It seems to me that a good deal
of confusion would be caused, if one were to suppose that insurers
are in the position of sureties. A surety is a person who answers
for the default of another, and an insurer is a person who guarantees
against loss by an event. The default or nondefault of another, as
between that other and the person who is insured, may diminish or
increase the loss; but what the insurer is guaranteeing is not the
default of that person, he is guaranteeing that no loss shall happen
by the event. And subrogation is itself only the particular appli-
cation of the principle of indemnity to a special subject-matter, and
there I think is where the learned judge has gone wrong. He has
taken the term "subrogation," and has applied it as if it were a
hard and fast line, instead of seeing that it is part of the law of
indemnity. If there are means of diminishing the loss, the insurer
may pursue them, whether he is asking for contracts to be carried
out in the name of the assured, or whether he is suing for tort. It
is said that the law only gives the underwriters the right to stand
in the assured's shoes as to rights which arise out of, or in conse-
quence of, the loss. I "enture to think there is absolutely no
authority for that proposition. The true test is, can the right to be
insisted on be deemed to be one the enforcement of which will
diminish the loss? In this case the right, whatever it be, has been
actually enforced, and all that we have to consider is whether the
fruit of that right after it is enforced does not belong to the insurers.
It is insisted that only those payments are to be taken into con-
sideration which have been made in respect of the loss. I ask why,
and where is the authority? If the payment diminishes the loss, to
my mi.id it falls within the application of the law of indemnity. On
this point I should like to pause one instant to consider the defini-
tion which Brett, L. J., has given. It does seem to me, that taking
his language in the widest sense, it substantially expresses what I
should wish to express with only one small appendage that I desire
to make. I wish to prevent the danger of his definition being sup-
548 SUBROGATION.
posed to be exhaustive by saying that if anything else occurs outside
it the general law of indemnity must be looked at.
With regard to gifts, all that is to be considered is, has there
been a loss, and what is the loss, and has that loss been in sub-
stance reduced by anything that has happened? Now I admit that
in the vast majority of cases it is difficult to conceive a voluntary
gift which does reduce the loss. I do not think that the question
of gift was the root of the decision in Bunnind v. Rodocanachi, 7
App. Cas. Ill, although it seems to me that it was a very essen-
tial matter in considering the case. I think the root of the
decision in Bumand v. Rodotanachi, was that the payment wliich
had been made did not reduce the loss, not having been intended
to do so. The truth was that the English government and the
American government agreed that the sums which were to be paid
were to be paid, not in respect of the loss, but in respect of some-
thing else, and therefore the payment could not be a reduction of
the loss. Suppose that a man who has insured his house has it
damaged by fire, and suppose that his brother offers to give him a
sum of money to assist him. The effect on the position of the
underwriters will depend on the real character of the transaction.
Did the brother mean to give the money for the benefit of the insur-
ers as well as for the. benefit of the assured? If he did, the insurers,
it seems to me, are entitled to the benefit, but if he did not, but only
gave it for the benefit of the assured, and not for the benefit of the
underwriters, then the gift was not given to reduce the loss, and it
falls within Bumand v. Rodocanachi, 7 App. Cas. 333. If it was
given to reduce the loss, and for the benefit of the insurers as well
as the assured, the case would fall on the other side of the line, and
be within Randal v. Cockran, i Ves. Sr. 98, to which allusion has
been made. In the present case the vendors have been paid the
whole of their purchase-money. Even if they had not been paid,
but had still the purchase-money outstanding, they would have had
some beneficial interest in the nature of their vendor's lien. An
unpaid vendor's lien is worth something, I suppose. I do not say
that it is necessary to decide the point, and I only mention it to
make more clear my view of this case, not as laying down the law
for future occasions. But if an unpaid vendor's lien is worth some-
thing, on what principle could a vendor keep the unpaid vendor's
lien and be paid for it by the insurers? In such a case he would be
taking with both hands. Now why should not underwriters be
entitled at all events to insist on the vendor's lien? As to specific
performance, I say nothing. I am not familiar, as Cotton, L. J.,
is with that branch of the law, and there may be some special
SUBROGATION.
549
reasons why the insurers should not be able to insist upon specific
performance; but why should not they insist upon the unpaid ven-
dor's lien? The vendor, if he did not exercise it for their benefit,
would be trying to mike the contract between himself and the
insurers more than a contract of indemnity. Chitty, J., seems to
think that in this instance, it is necessary to recollect that the con-
tract of sale was not a contract, either directly or indirectly, for the
preservation of the buildings insured; that the contract of insurance
was a collateral contract wholly distinct from, and unaffected by,
the contract of sale. What does it matter? The beneficial interest
of the vendors in the house depends on the contract being fulfilled
or not, and the fulfillment of the contract lessens the loss, its non-
fulfillment affects it. Chitty, J., indeed, says further that " the
attempt now made is to convert the insurance against loss by fire
into an insurance of the solvency of the purchaser." 8 Q. B. Div.
621. That may be answered in the same way. It is not that the
solvency of the purchaser is guaranteed, but that the vendors are
guaranteed against the loss which is diminished or increased accord-
ing as the purchaser turns out to be solvent or not. The solvency
of the purchaser affects the loss, — that is the only way in which it
touches the insurance, — it is not because the insurance is directly
an insurance of his solvency. Finally (and this is the last observa-
tion that I wish to make upon the judgment of Chitty, J.), he puts
the case of a landlord insuring, and the tenant under no obligation
to repair. He takes a case, " where under an informal agreement
evidently drawn by the parties themselves, the large rent of ^700
was reserved, and the tenant, notwithstanding the fire, was bound
to pay the rent." He says, "Assume that the building in such a
case was ruinous, and would last the length of the term only.
Could the insurers recover a proportionate part of each payment of
rent as it was made, or could they wait until the end of the term,
and then say in effect, ' You have been paid for the whole value of
the building, and therefore we can recover against you? ' " That
seems to me at first sight to look as if it were a very difficult point
but I think this difficulty diminishes, if it does not vanish, as soon
as it is considered what are the conditions of the hypothesis. Is the
learned judge supposing that the landlord, who is a person with a
limited interest, did intend to insure all other interests besides his
own? The landlord can do so if he so intended; the question is,
has he done so? If the landlord intended to insure all other inter-
ests besides his own, the diffi-^ulty dis'-;ipatris itself into thin air. If
he did not, it would be a v ry i ! cise, :r,i(l perhaps one might ride
safely at anchor by say'n^ t'lat one wo.ilJ wait till it arose. But I
550 SUBROGA'lION.
am not desirous of being over cautious, because I am satisfied to
rest on the broad principle of indemnity, and 1 say, "Apply the
broad principle of indemnity, and you have the answer." The
vendor cannot recover for greater loss than he suffers, and if he
has only a limited interest in the subject-matter, and only intends
to insure that interest, I know of no means in law or equity by
which he is entitled to obtain anything else out of the insurance
office except what is measured by the measure of his loss. As to
the form of action, I need add nothing to what has fallen already
from the other members of the court. I am so much in accord with
their views that I should not have added a judgment as long as mine
has been if it were not for the very great importance, to my mind,
of keeping clear in these insurance cases what is really the basis and
foundation of all insurance law.
Judgment reversed.
2. Tort.
CONNECTICUT FIRE INSURANCE CO. v. ERIE RAILWAY CO.
73 N. Y. 399. — 1878.
Appeal from a judgment of the General Term, affirming a judg-
ment in favor of defendant, entered upon an order setting aside a
verdict in favor of plaintiff, and dismissing the complaint. (Reported
below 10 Hun, 59 ) This action was brought to recover the amount
of a loss paid by plaintiff under a policy of insurance issued by it
which loss it alleged was occasioned by defendant's negligence.
Church C. J. — It must be assumed from the verdict of the jury
that the buildings were burned through the negligence of the
defendant's agents and servants, and it is too well settled to render
the citation of authorities necessary, that as between the plaintiff,
the insurer, and the defendant, the latter was ultimately liable
for the loss. A fire policy is a contract of indemnity, and if a loss is
occasioned by the wrongful act of another the insurer is subrogated
to the rights and remedies of the assured, and may maintain an
action against the wrongdoer. If the assured receives the damages
from the wrongdoer before payment by the insurer, the amount so
received will be applied//-^ tanto in discharge of the policy. Hart
v. Railroad Corp., 13 Mete. (Mass.) 99. If the wrong-doer pays the
assured after payment by the insurer, with knowledge of the facts,
it is regarded as a fraui upon the insurer, and he will not be pro-
tected from liability to the latter. C/ark v. Wilso/i, 103 Mass. 223;
SUBROGATION. 55 1
Insurance Co. \. Hutchinson., 21 N. J. Eq. 107; Graff y. Kip, 1 Edw.
Ch. 621.
The question is presented in this case in a somewhat novel aspect,
and unlike that of any other case to which our attention has been
called. The plaintiff paid the policy after the release by the assured
to the defendant, and by consenting to the judgment the payment
must be regarded as voluntary on its part. If the plaintiff might
have interposed the payment by the defendant to the assured, and
the release as a defense to an action by the latter upon the policy,
then the plaintiff cannot maintain this action. This question and
the liability of the defendant depend upon the construction to be
put upon the release, or rather if that construction be in favor of
the plaintiff it will be unnecessary to notice any other point. The
release is as follows:
" Loss and Damage.
" Erie Railway Company, to John Martin, Salisbury Mills, Dr.
" For settlement in full of all claims, demands and causes of
action against the Erie Railway Company for loss and damage by
fire, claimed to have been caused by sparks or coals from engine,
burning hotel building, barn, shed and contents, fences, trees, etc.,
at Salisbury station, on or about May 13, 1873, $2,100.
" This settlement is not intended to discharge the Connecticut
Fire Insurance Company from any claim which said Martin has
against them for insurance, but as a full settlement with, and dis-
charge of, the Erie Railway Company only.
" Received, September 10, 1873, of the Erie Railway Company,
through the hands of R. L. Brundage, claim agent, two thousand
one hundred dollars, in full of the above amount.
"$2,100. . John Martin."
It is proper to refer to the surrounding circumstances. The build-
ings burned were worth about $3,400. Of the consideration paid
for the release $300 was paid for a parcel of land conveyed to the
defendant, leaving $1,800 paid for the damage to the buildings.
The clause that the settlement was not intended to discharge the
plaintiff from any claim of the assured against it for insurance was
in the nature of a proviso or exception from the general purview of
the release. It must be construed so as to carry out the intent of
the parties, and that intent must be determined from the language
viewed in the light of surrounding circumstances. It is evident
that the assured did not receive the full amount of the damages
incurred. This circumstance sheds some light upon the meaning of
y-,2 SUBROGATION.
the release. The clause was intended for some purpose, and it
seems to me obvious that it was designed to present the plaintiff
from interposing the release as a defense to an action on the policy,
and it is inferable that the amount of the policy was deducted from
the am.)unt of the loss in the settlement with the defendant. The
substance of the transaction was that the assured, having a claim
against the plaintitf for $1,500, settled with and released the
defendant from liability for the balance, retaining the claim against
the plaintiff. The form of the clause is not very specific, but look-
ing at the substance it was a proviso that the release should not
operate to prevent a recovery upon the policy against the plaintiff.
With such a proviso, other portions of the release would have to
yield to enable the proviso to have effect, and as to the plaintiff it
would be the same as though no release had been given. It follows
that the plaintiff could not have interposed the release as a defense
in an action by the assured upon the policy, and if not, the logical
sequence is that the right of subrogation inures against the defendant.
It is insisted that as the assured has. settled and released all his
claim for damages, the plaintiff could acquire no right or remedy
through him by equitable subrogation, or from him by assignment.
This propositioii implies an assumption of the controverted fact
whether the assured did release all claim. The answer to it is that
the assured released only such damages as he could without inter-
fering with his claim against the plaintiff, and the legal consequences
must be regarded as a part of the exception, viz., the right of tbe
plaintiff to a remedy over. This was as mjch reserved as the right
to enforce the policy. That right could not be reserved without
reserving the remedy. The power to enforce the policy having
been expressly reserved, the parties could not take away the right
of the plaintiff to the remedy which that reservation vested in him
by law. Having made their agreement so as to prevent the plain-
tiff from interposing this defense, they cannot object to the conse-
quences which legally flow from it. The exception necessarily
embraces the right of subrogation. It is not needful to consider
whether the effect would have been different if the assured had
received the full amount of the loss. No injustice is done the
defendant by the result indicated. It was liable for the whole loss,
•and the payment to the plaintiff of the amount of the policy will,
with that already paid, not exceed that amount It did not profess
to pay the assured but a part of that amount, nor did the assured
intend to receive but a part, and the legal construction of the con-
tract accords with the principles of right and justice.
The action is properly brought in the name of the plaintiff. No
SUBROGATION. 553
Other person has any right or interest in the claim. Code, § in;
Cummings v. Morris, 25 N, Y. 627.
The judgment must be reversed and judgment ordered on verdict.
All concur, e.\cept Miller, J., absent.
JirJgiiit'nt accordingl}^
3. Carriers.
PHCENIX INSURANCE CO. v. ERIE AND WESTERN TRANS-
PORTATION CO.
117 U. S. 312. — 1886.
Libel in admiralty against a common carrier by an insurance
company which had insured the owners upon the goods carried, and
had paid them the amount of the insurance, and claimed to be sub-
rogated to their rights against the carrier. The bill of lading pro-
vided that the carrier was not to be liable for loss or damage by
fire, collision, or dangers of navigation, and that the carrier when
liable for the loss " shall have the full benefit of any insurance that
may have been effected upon, or on account of " the goods. The
policy contained no stipulation upon the subject of subrogation.
The defense relied upon was the provision in the bill of lading that
the carrier was to have the benefit of any insurance. The District
Court held the provision to be valid, and that no right of subroga-
tion accrued to the libellant. Upon appeal the Circuit Court found
as a conclusion of law that the libellant did not succeed to the
rights of action of the shippers.
Mr. Justice Gray. — * * * xhe policy of insurance contains
no e.xpress stipulation for the assignment to the insurer of the
assured's right of action against third persons. In the bills of lad-
ing, it is expressly stipulated that:- the carriers, whose railroad or
vessels form part of the line of transportation, shall not be liable
for loss or damage by fire, collision, or dangers of navigation; and
that each carrier shall be liable only for a loss of the goods while
in its custody, " and the carrier so liable shall have the full benefit
of any insurance that may have been effected upon or on account
of said goods."
The question is, whether under these circumstances the insurer,
upon payment of a loss, became subrogated to the right to recover
damages from the carrier. When goods insured are totally lost,
actually or constructively, by perils insured against, the insurer,
upon payment of the loss, doubtless becomes subrogated to all the
554 SUBROGATION.
assured's rights of action against third persons who have caused or
are responsible for the loss. No express stipulation in the policy
of insurance, or abandonment by the assured, is necessary to per-
fect the title of the insurer. From the very nature of the contract
of insurance as a contract of indemnity, the insurer, when he has
paid to the assured the amount of the indemnity agreed on between
them, is entitled, by way of salvage, to the benefit of anything that
may be received, either from the remnants of the goods, or from
damages paid by third persons for the same loss Bat the insurer
stands in no relation of contract or of privity with such persons.
His title arises out of the contract of insurance, and is derived from
the assured alone, and can only be enforced in the right of the lat-
ter. In a court of common law, it can only be asserted in his name,
and, even in a court of equity or of admiralty, it can only be
asserted in his right. In any form of remedy, the insurer can take
nothing by subrogation but the rights of the assured. Comegys v.
Vasse, I Pet. 193, 214; Fretz v. Biill^ 12 IIow. 466, 468; The Mon-
ticello, 17 How. 152, 155; Garrison v. Memphis Ins. Co., 19 How.
312, 317 ; Hall V. Railroad Cos.^ 13 Wall. 367, 370, 371 ; The Potomac,
105 U. S. 630, 634, 635 ; Mobile &• Montgomery Railway v. Jurey, iii
U. S. 584, 594; Clark v. Wilson, 103 Mass. 219; Simpson \. Thom-
son, 3 App. Cas. 279, 286, 292, 293. That the right of the assured
to recover damages against a third person is not incident to the
property in the thing insured, but only a personal right of the
assured, is clearly shown by the fact that the insurer acquires a
beneficial interest in that right of action, in proportion to the sum
paid by him, not only in the case of a total loss, but likewise in the
case of partial loss, and when no interest in the property is aban-
doned or accrues to him. Hall v. Railroad Cos., The Potomac,
Simpson v. Thomson, above cited.
The right of action against another person, the equitable interest
in which passes to the insurer, being only that which the assured
has, it follows that if the assured has no such right of action, none
passes to the insurer; and that if the assured's right of action is
limited or restricted by lawful contract between him and the person
sought to be made responsible for the loss, a suit by the insurer, in
the right of the assured, is subject to like limitations or restrictions.
For instance, if two ships, owned by the same person, come into
collision by the fault of the master and crew of the one ship and to
the injury of the other, an underwriter who has insured the injured
ship, and received an abandonment from the owner, and paid him
the amount of the insurance as and for a total loss, acquires thereby
no right to recover against the other ship, because the assured, the
SUBROGATION. 555
owner of both ships, could not sue himself. Simpson \. Thomson,
above cited; Globe Ins. Co. v. Sherlock, 25 Ohio St 50, 68.
Upon the same principle, any lawful stipulation between the
owner and the carrier of the goods, limiting the risks for which the
carrier shall be answerable, or the time of making the claim, or
the value to be recovered, applies to any suit brought in the right of
the owner, for the benefit of his insurer, against the carrier; as, for
instance, if the contract of carriage expressly exempts the carrier
from liability for losses by fire, Yo?-k Co. v. Central Railroad, 3 Wall.
107; or requires claims against the carrier to be made within three
months, Express Co. v. Caldwell, 21 Wall. 264; or fixes the value for
which the carrier shall be responsible, Ilari v. Pennsylvania Rail-
road, 112 U. S. 331. So the stipulation, not now in controversy, in
the bills of lading in the present case, making the value of the
goods at the place and time of shipment the measure of the carrier's
liability, would control, although in the absence of such a stipula-
tion the carrier would be liable for the value at the place of destina-
tion, as held in Mobile &" Montgomery Raihvay v. Jurey, 1 1 1 U.S. 584.
The stipulation in these bills of lading, that the carriers " shall
not be liable for loss or damage by fire, collision, or the dangers of
navigation," clearly does not protect them from liability for any
loss occasioned by their own negligence. By the settled doctrine of
this court, even an express stipulation in the contract of carriage,
that a common carrier shall be exempt from liability for losses
caused by the negligence of himself and his servants, is unreason-
able and contrary to public policy, and therefore void. Railroad
Co. v. Lockwood, 17 Wall. 357; Railroad Co. v. Pratt, 22 Wail. 123;
Bank of Kentucky v. Adams Express Co., 93 U. S. 174; Railway Co.
V. Stevens, 95 U. S. 655. And it may be that, as held by Judge
Wallace in a case in the Circuit Court, a stipulation that " no dam-
age that can be insured against will be paid for " would not protect the
carrier from liability for his own negligence, because that would be
to compel the owners of the goods to insure against the negligence
of the carrier The Hadji, 22 Blatchford, 235.
But the stipulation upon the subject of insurance, in the bills of
lading before us, is governed by other considerations. It does not
compel the owner of the goods to stand his own insurer, or to obtain
insurance on the goods; nor does it exempt the carrier, in case of
loss by negligence of himself or his servants, from liability to the
owner, to the same extent as if the goods were uninsured. It sim-
ply provides that the carrier, when liable for the loss, shall have
the benefit of any insurance effected upon the goods.
It is conclusively settled, in this country and in England, that a
556 SUBROGATION.
policy of insurance, taken out by the owner of a ship or goods,
covers a loss by perils of the sea or other perils insured against,
although occasioned by the negligence of the master or crew or
other persons employed by himself. Waters v. Merchants' Louisville
Ins Co., II Pet. 213; Copelandv. Neiv England Ins. Co., 2 Met. 432;
General Ins. Co. v. Sherivood, 14 How. 351, 366; Davidsons Bur-
nand, L. R. 4 C. P. 117, 121. Any one who has made himself
responsible for the safety of goods has a sufficient interest in them
to enable him to obtain insurance upon them. * * * As the
carrier might lawfully himself obtain insurance against the loss of
the goods by the usual perils, though occasioned by his own negli-
gence, he may lawfully stipulate with the owner to be allowed the
benefit of insurance voluntarily obtained by the latter. This stipu-
lation does not, in terms or in effect, prevent the owner from being
reimbursed the full value of the goods; but being valid as between
the owner and the carrier, it does prevent either the owner him-
self, or the insurer, who can only sue in his right, from main-
taining an action against the carrier upon any terms inconsistent
with this stipulation.
Nor does this conclusion impair any lawful rights of the insurer.
His fight of subrogation, arising out of the contract of insurance
and payment of the loss, is only to such rights as the assured has,
by law or contract, against third persons. The policy containing no
express stipulation upon the subject, and there being no evidence
of any fraudulent concealment or misrepresentation by the owner in
obtaining the insurance, the existence of the stipulation between the
owner and the carrier would have afforded no defense to an action
on the policy, according to two careful judgments rendered in June
last and independently of each other, the one by the English Court
of Appeal, and the other by the Supreme Judicial Court of Massa-
chusetts. Tate V. Hyslop, 15 Q. B. D. 368; Jackson Co. v. Boylston
Ins. Co., 139 Mass. 508. In Tate v. Hyslop, owners of goods, insured
against risks in crafts or lighters, had previously agreed with a
lighterman that he should not be liable for any loss in crafts except
loss caused by his own negligence, and did not disclose this agree-
ment to the underwriters at the time of procuring the insurance.
The sole ground on which it was held that the owners could not
recover on the policy was that this agreement was material to the
risk, because the underwriters, as the assured knew, had previously
established two rates of premium, depending on the question
whether they would have recourse over against the lighterman.
Lord Justice Brett observed that, hut for the two rates of premium
established by the underwriters and known to the assured, the
SUBROGATION, 557
omission of the assured to disclose their agreement with the lighter-
men could only have affected the amount of salvage which the
underwriters might have, and would have been immaterial to the
risk, and consequently to the insurance. 15 Q. B. D. 375, 376. In
Jackson Co. v. Boyhton Ins. Co.., it was adjudged that, in the absence
of any fraud or intentional concealrrent, the undisclosed existence
of a stipulation between the assured and the carrier, like that now
before us, afforded no defense to an action on the policy.
It may be added that our conclusion accords wit!i the decision of
Judge Shipman in Rintoulx. Neiv York Central Railroad, 21 Blatch-
ford, 439, as well as with those of Judge Dyer in the District Court,
and Judge Drummond in the Circuit Court, in the present case. 10
Bissell, t8, I'i. See also Car stairs v. Mechanics >S-^ Traders Ins.
Co., 18 Fed. Rep. 473; The Sidney. 23 Fed. Rep. 88; Mercantile Ins.
Co. V. Calebs, 20 N. Y. 173.
Decree affirmed.
Mr. Justice Bradlev, dissented.
FAYERVVEATHER et al. v. PHENIX INSURANCE CO.
118 N. Y. 324.— 1890.
Appeal from Superior Court of New York city, General Term
Action by Daniel B. Fayerweather and Henry S. Ladew against the
Phenix Insurance Company. A judgment dismissing the complaint
was affirmed by the General Term of the Superior Court, and plain-
tiffs appeal.
Follett, C. J. — The plaintiffs were the owneis of 211 bales of
leather, which the Old Dominion Steam-Ship Company undertook
to transport by its steamer Guyandotte from Norfolk, Va., to New
York, and deliver to the owners. The vessel reached New York
June 17, 1885, with the leather safe on board, and within twenty-
four hours after arrival she sunk at her dock through the negligence
of the employees of the steamship company. By this accident the
leather was injured, as it is agreed, to the plaintiffs' damage in the
sum of $1,295.32. In considering this case the liability of the car-
rier to the owners of the leather for this loss will be assumed.
The bill of lading under which the leather was shipped contained
this provision: " It is further stipulated and agreed that in case of
any loss, detriment, or damage to be sustained by any of the prop-
erty herein receipted for during such transportation, whereby any
legal liability or responsibility shall or may be incurred by the terms
558 ■ SUBROGATION.
of this contract, that company alone shall be held answerable
therefor in whose actual custody the same may be at the time of
happening of such loss, detriment, or damage, and the carrier so
liable shall have the full benefit of any insurance that may have been
effected upon or on account of said goods. "
The defendant insured the plaintiffs against the loss sustained by
them, by an open, time, marine policy, which contained these prcr-
visions: " In the event of loss, the assured agrees to subrogate to
tV)e insurers all their claims against the transporters of said mer-
chandise, not exceeding the amount paid by said insurers. * * *
In case of any agreement or act, past or future, by the insured,
whereby any right of recovery of the insured, against any persons
or corporations, is released or lost, which would, on acceptance of
abandonment or payment of loss by this company, belong to this
company, but for such agreenient or act, or in case this insurance is
made for the benefit of any carrier or bailee of the property insured
other than the person named as insured, the company shall not be
bound to pay any loss; but its right to retain or recover the pre-
mium shall not be affected."
This action is prosecuted' by the assured owners to recover from
the insurer their loss so sustained; and it is defended on the
ground that the owners violated the provision of the contract of
insurance above quoted by contracting with the carrier, without the
insurer's knowledge, that the carrier, in case of liability for loss,
should have the benefit of the insurance, and, in effect, that the
insurer, on paying the owners' loss, should be deprived of its right
to be subrogated to the owners' right of action against the carrier
for injury to the leather. When goods in the hands of a common
carrier for transportation are insured by the owner, and are subse-
quently lost or injured under circumstances rendering the carrier
liable to the owner for the damages, and the insurer pays the loss-
to the owner, the insurer, in the absence of stipulations between
the carrier and owner defeating the right, is entitled to be subro-
gated to the rights and remedies of the owner against the carrier.
Ifall V. Railroad Co., 13 Wall. 367; Insurance Co. v. Railway Co.., 73.
N. Y. 399; Sheld. Subr., § 329. But the struggle between carriers
and insurers to escape the liabdity imposed under the usual bills of
lading and policies, by casting the burden of the loss upon the other
by the insertion of unusual and astute provisions in their respective
contracts with the owner, has rendered this simple rule of law (juite
inapplicable to many of the cases arising under such special con-
tracts.
The provision quoted from the bill of lading cut off the insurer's
SUBROGATION.
559
right to be subrogated to the rights and remedies of the owner
against the defaulting carrier. Insurance Co. v. Calebs, 20 N. Y.
173; Piatt V. Railroad Co., 20 J. & S. 496, affirmed 108 N. Y. 358,
15 N. E. Rep. 393; Insurance Co. v. Transportation Co, 10 Biss.
18, affirmed 117 U. S. 312, 6 Sup. Ct. Rep. .750, 1176, and 118
U. S. 210, 7 Sup. Ct. Rep. 25. It has been held, {Jackson Co. v.
Insurance Co., 139 Mass 508, 2 N. E. Rep. 103), in an action by the
owner against the insurer for the recovery of a loss covered by the
policy, and caused by the actionable negligence of the carrier, that
a stipulation between the owner and carrier, giving the latter the
benefit of an insurance upon the goods, is not a defense to the
insurer, and that a provision in the policy " that this insurance shall
be void in case the policy, or the interest insured thereby, shall be
sold, assigned, transferred, or pledged without the consent in writ-
ing of the insurer," is not violated by the agreement between the
owner and carrier that the latter should have the benefit of any
insurance on the goods carried.
In Inman v. Raihvay Co , 129 U. S. 128, 9 Sap. Ct. Rep. 249, the
defendant, a common carrier, transported cotton, under a bill of
lading which contained a stipulation that the carrier incurring anv
legal liability for the loss of the cotton " shall have the benefit of
any insurance which may have been effected upon or on account of
said cotton." The owners insured the cotton under policies which
contained this stipulation: "And any act of the insured waiving or
transferring, or tending to defeat or decrease, any such [the
insurer's] claim against the carrier, or such other person or persons,
whether before or after the insurance was made under this policy,
shall be a cancellation of the liability of the said insurance company
for or on account of the risk insured for which loss is claimed. In
event of loss the assured agrees to subrogate to the insurers ail
their claims against the transporters of said cotton, not exceeding
the amount paid by said insurers." The cotton was lost by the
negligence of the carrier. The insurers adjusted the loss, but did
not pay the owner, agreeing with him that he should sue the carrier
without prejudice to his claims under the policies, and that interest
should be allowed upon the claim as adjusted until it could be col-
lected. The assured owner sued the carrier, which defended on the
ground that by the stipulation in the bill of lading it was entitled to
the insurance effected on the cotton, which the ov/ner had nullified
by accepting a policy containing the stipulation quoted. It was
held that the stipulation in the policy was not a defense. It is
unnecessary to determine whether the reasons given for the judg-
ment in the case last cited can be harmonized with the reasons given
560 SUBROGATION.
for the judgments in the previous cases hereinbefore cited, because
none of the cases determine the precise question presented in the
case at bar.
The plaintiffs in this action expressly stipulated that they would
make no agreement, nor do any act, whereby their right of action
against the carrier for losing or injuring the leather should be
released or cut off, and that, in case the carrier became liable to the
plaintiffs for losing or injuring the leather, the defendant, the
insurer, on paying the loss, should be subrogated to their right of
action against the carrier. By the contract entered into between
the plaintiffs and the carrier, the rights stipulated for by the insurer
have been wholly nullified and cut off, which defeats the plaintiffs'
right to recover on the policy. Cars/airs v. Insurance Co., 18 Fed.
Rep. 473.
The judgment should be affirmed, with costs. All concur, except
Haight, J., not voting.
Judgment affirmed.
4. Lessor and Lessee.
DARRELL v. TIBBITTS.
5 Q. B. D. 560. — 1880.
Forbes was the owner of a house in Brighton; he demised it to
certain persons named Bonner by a lease, which rendered the lessees
bound to repair, " except casualties by fire, demolition by storm or
tempest of the building or any part thereof, or destruction by
foreign enemies." Forbes insured the house in the Union Societ)'
(of which the plaintiff was secretary), by a policy against fire cover-
ing injury by explosions of gas. In 1877 the corporation of Brighton
repaired the streets by a steam roller, which owing to its weight
damaged a pipe and caused an escape of gas into the house demised
to Bonner, where it exploded and did considerable damage. Forbes
sold the house and the policy to the defendant, and after some
negotiation the Union Society paid to the defendant a sum of 750/.
The lessees received compensation from the corporation of Brighton
for the damage done to the house by the explosion, and with the sum
received reinstated the house. At the time when the Union Society
paid to the defendant the sum of 750/. they were unaware that by
the terms of the lease the lessees were bound to make good injuries
done by an explosion of gas. The Union Society, upon hearing
that the house had been reinstated by Bonner, claimed from the
defendant the sum of 750/., and upon his refusal brought the pres-
SUBROGATION. 561
ent action in the name of the plaintiff. Lush, J., gave judgment
for the defendant.
The plaintiff appealed.
Brett, L. J. — * * * j^ seems to me, according to the
principle of North British and ATercantile Insurance Co. v. London,
Liverpool, and Globe Insurance Co.., 5 Ch. Div. 569, that if the tenants
had not repaired the damage, and had declined to do so, the insur-
ance company would have been bound to pay the landlord who had
insured with them, but would ha^e had a right to bring in his name
an action against the tenants, and recover from the tenants what
they had paid to the landlord; in other words, a policy of fire insur-
ance is a contract of indemnity similar to that which is contained
in a policy of marine insurance. That case seems to me further to
shew that if the landlord had sued the tenants before he received
payment from the insurance company, he must have recovered from
them, for it would have been no answer by the tenants that the
landlord was insured. That case seems to me also to decide this,
that if the landlord had recovered damages from the tenants equiv-
alent to the injury done to him by the refusal of the tenants to
repair, he could not afterwards sue the insurance company. The
landlord was paid by the insurance company at a time when they
could not resist his demand, as they were bound by their contract
to pay. Afterwards the corporation of Brighton, by whose negli-
gence the mischief happened, paid the amjunt of damage to the
defendant's house, and this amount was expended in making good
the damage. I think, however, that the case stands in the same
position as if the tenants had executed the repairs with their own
moneys.
The question now arises whether the insurance company who paid
the money to the landlord at a time when they were obliged to pay
by virtue of their contract, can recover it back because the tenants
have done that which tney could not avoid doing; if they had not
repaired, they must have paid damages to the landlord. If the
company cannot recover the money back, it follows that the land-
lord will have the whole extent of his loss as to the building made
good by the tenants, and will also have the whole amount of the loss
paid by the insurance company. If that is so, the whole doctrine
of indemnity would be done away with; the landlord would be not
merely indemnified, he would be paid twice over. A technical diffi-
culty arises in my mind as to the ground upon which the landlord
can be held liable in this action, but it is a difficulty which ought
to be surmounted. I do not think that the money can be recov-
ered back upon the ground that the consideration for the payment of
. LAW OF INSURANCE — '^6
562 SUBROGATION.
the money has wholly failed; because the premium upon the policy is
part of the consideration and, no one supposes that the premium is
to be returned. But it seems to me that according to all rules of
law we have a right to imply a promise on the part of the landlord
to the insurance company at the time of payment by them, that if
the loss should be afterwards made good by the tenants, he would
repay the money which he received from the insurance company.
I think that the landlord is liable on another ground also. The
doctrine is well established that where something is insured against
loss either in a marine or a fire policy, after the assured has been
paid by the insurers for the loss, the insurers are put into the place
of the assured with regard to every right given to him by the law
respecting the subject-matter insured, and with regard to every
contract which touches the subject-matter insured, and which con-
tract is affected by the loss or the safety of the subject-matter
insured by reason of the peril insured against. So that immediately
after the insurance company had paid the landlord, they were put
into his place with regard to the contract to rebuild, which was a
contract respecting the subject-matter insured, that is, the build-
ing, and which contract was affected by the safety, or the loss of
that building by reason of the explosion, which was a peril insured
against, and therefore they are to be subrogated or to be put into
the place of the landlord with regard to his rights; they might have
sued in his name the tenants if the latter had not repaired, and when
the tenants have repaired, the insurance company are to have the
benefit of those repairs.
Judgment must be entered for the plaintiff.
Judgment reversed and entered for the plaintiff for 750/.
[Concurring opinions were also rendered by Cotton and Thesi-
GER, L. JJ.]
WEST OF ENGLAND FIRE INS. CO. v. ISAACS.
[1897] I Q. B. 226. — i8q6.
Appeal from the judgment of Collins, J., reported [1896] 2 Q. B.
377-
The plaintiffs, an insurance company, paid to the defendant a
sum of 100/. in respect to a claim under a policy of insurance aris-
ing under the foUo.ving circumstances Certain premises were
demised for a term to expire in December, 1894, the lease containing
covenants by the lessee to repair and leave in repair, and also to in-
sure in the Royal Exchange Assurance Corporation in the joint names
SUBROGATION. 563
of the lessors and lessee. Under this lease one Bennett became
lessee and effected a policy on the premises in the above-mentioned
office in the joint names of himself and the lessors. He then sub-
let to the defendant a warehouse, which was part of the premises,
for the residue of the term less ten days. The sub-lease contained
covenants oa the part of the defendant to repair and leave in repair,
and a covenant by Bennett, the lessor, to insure the premises, and
to lay out the moneys received under any insurance policy in mak-
ing good damage by fire, with a proviso that if such moneys proved
insufficient the defendant was to remain liable, under his covenant
to repair, to make good the deficiency. The defendant effected, in
his own name, an insurance against fire with the plaintiffs upon the
warehouse demised to him by the sub-lease. During the existence
of the sub-lease a fire happened by which the warehouse was dam-
aged. Bennett had died before the fire took place, and subse-
quently to that event Bennett's interest became vested by order
made in the Chancery Division of the High Court in one Jones.
Notice to repair, accompanied by a specification or schedule of
dilapidations, was given under the original lease by the lessors to
Jones, who in turn gave notice to repair, with a schedule of dilapi-
dations, to the defendant. Jones died shortly afterwards, and his
executors demanded payment from the Royal Exchange Office of
too/., the amount at which the fire damage to the warehouse had
been agreed by both insurance offices and the defendant. The
plaintiffs were sued by the defendant upon their policy, and paid
him 100/., the agreed amount of the damage to the warehouse. At
that time the plaintiffs admittedly knew of the existence of the
Royal Exchange policy.
Subsequently to the above proceedings and in December, 1894,
the lease expired. Later on the original lessors brought an action
against Jones' executors to recover damages for breaches of the
covenant to repair contained in the original lease, and thereupon
Jones' executors brought a similar action against the defendant for
a breach of the covenants in the sub-lease. The first mentioned
action was settled by payment of a sum of 250/., and the action by
Jones* executors against the defendant was settled by his paying
140/. to Jones' executors, who gave him a receipt for all claims
under the schedule of dilapidations, which included damage by fire.
The defendant at the same time undertook not to bring any action
against Jones' executors for breaches of covenant contained in the
sub-lease. Jones' executors pressed their claim against the Royal
Exchange office under their policy, and the company paid 100/. in
discharge of their liability.
564 SUBROGATION.
This action was brought by the plaintiffs to recover 100/. from
the defendant, upon the ground that on settling with Jones' execu-
tors the defendant had had the benefit of the payment made under
the Royal Exchange policy, or of the covenant in the sub-lease on
the part of the predecessors in title of Jones' executors, or, alterna-
tively, that the defendant was bound to make good to the plaintiffs
the full value of the rights against his lessor which, for his own
reasons, he has renounced, to which rights, but for such renuncia-
tion, the plaintiffs would have been entitled to be subrogated.
The learned judge gave judgment in favor of the plaintiffs. [1896]
2 Q. B. 377. The defendant appealed.
Channell, Q. C. , and Edicard Pollock, for the defendant. The
defendant gave up no right, or if he did give up any right it was
valueless. When Jones' executors sued the defendant both the terms
under the lease and the sub-lease had come to an end, and the
executors could not reinstate the premises. Consequently, an
action by the defendant against them could not have resulted
in more than nominal damages. In Darrell v. Tibbitts, (1880) 5 Q.
B. D. 560, Cotton, L. J., says: " If the company had known of
the covenants in the lease, and of the actual position of the parties,
it might have been said that they paid without requiring the cove-
nant to be enforced, and therefore had lost their remedy." Here
it is clear that the plaintiffs knew of the covenants in the sub-lease,
and by paying with that knowledge they lost their right to take
advantage of these covenants. The law laid down by the learned
judge is not disputed, but only its applicability to the facts.
Cohen, Q. C, and Wood Hill, for the plaintiffs. The full loss has
been paid by each of two insurers. One of them, the Royal
Exchange Office, could not avoid paying, and, consequently, the
other, the plaintiffs, are exempt, and can recover back the money
tney have paid to the defendant. The defendant got the benefit of
giving up the claim under the sub-lease, because by agreeing to do
so he paid less than he would otherwise have been obliged to pay.
That benefit is properly measured by the agreed amount of the
damage by fire — that is, 100/.
[Thej^ cited North British and Mercantile Insurance Co. v. London,
Liverpool, and Globe Insurance Co., {\'^li) 5 Ch. D. 569, and Castellain
V. Preston, (1883) 11 Q. B. D. 380.]
Channell, Q. C, in reply. The payment of 100/. by the plaintiffs
to the defendant covered his liability to his lessors, and therefore
covered their loss, so that they were not entitled to call on the Royal
Exchange Office to pay a'lything, an 1 their having paid cannot affect
the rights of the plaintitfs and the defendant between themselves.
SUBROGATION. 565
Lord Esher, M. R. — In this case there were some premises
insured against fire in two insurance offices, and there has been a
fire, and in respect of that each of the offices has paid 100/. The
question is whether that state of things can stand. For the
plaintiffs it is said that the cases show that the situation must
be got rid of, and I think it can be by the application of well known
principles.
The action is by one of the insurance companies, and the plain-
tiffs do not say that they were not bound to pay on their contract;
but thej' say that on their doing so any remedy which the defendant
has against anybody in respect of the damage is subrogated to them,
and that the defendant had no right to deal with such a claim to
the prejudice of the plaintiffs. That proposition is not disputed on
behalf of the defendant. Did he, then, deal with any rights he had
against third parties? He had a right against the person who was
in the position of being the lessor at that time arising out of a
covenant in the lease that the lessor would insure the premises
against loss by fire, and expend any money received under the
insurance as far as might be necessary in restoring the damage done
by the fire. There was some suggestion that there was no one
whom the defendant could have sued on that covenant; but the
position at the time of the fire was that Jones had taken upon him-
self the fulfillment of the covenant, and that the defendant had
agreed to be tenant upon these terms. The lessor was bound to
endeavor to recover from the Royal Insurance Company, and to
spend any money recovered in putting the premises to rights. If
that had been done before the present plaintiffs had been called on
to pay, as they were only bound to indemnify the defendant, they
would not have had to pay anything. They now say that, having
paid under their policy, they are entitled to the right which the
defendant had to insist that Jones should expend the money he had
received in repairing the damage done by the fire, and that they
ought to be in a position to force Jones to do this, or to recover
damages from him for his breach of covenant in not doing it.
Inasmuch as the damage by the fire was agreed at 100/., they say
that would be the amount of damages that they would have been
entitled to recover from Jones. The defendant has given up this
right of action against Jones, so that the plaintiffs can never recover
that amount, and the course taken by the defendant has damaged
the plaintiffs to that extent. Ttie plaintiffs claim that this gives
them a right to recover that amount in their action. This was the
view taken by the learned judge; and it seems to me that it is per-
fectly right, and in accordance with the law of insurance. I think,
566 SUBROGATION.
therefore, that the plaintiffs were entitled to succeed, and that the
appeal should be dismissed.
Lopes, L. J. — I am of the same opinion.
RiGBY, L. J. — 1 agree. I wish to say a few words about the
position of the lessor and the lessee. Under the sub-lease there
was a general covenant to repair and to yield up in repair; but a
special provision was made, for the case of damage by fire, that the
lessor should insure against such damage and should lay out all
moneys received in respect to such insurance in rebuilding or
reinstating the premises destroyed or damaged. Then came a
proviso that the lessee should remain liable to make good any dam-
age which the money received by virtue of any such insurance
should be inadequate to repair. The liability of the lessee to the
lessor was to make good any damage that the loo/., the agreed
amount in this case, would not cover, and he was entitled to insist
on the loo/. being expended on the repairs. He has so dealt with
the lessor that no one can now get the loo/., for he has already got
the full benefit of it. The substance of the thing is that he paid
140/. without requiring that diminution of liability to which he was
entitled. He may have got the full 100/. or more; but at any rate,
he so dealt with the insurance that the plaintiffs cannot obtain it
from the lessor, and they are entitled to recover it in this action.
Appeal dismissed.
5. MORTGAGOU AND MORTGAGEE. — LlENHOLDER.
HONORE 7: LAMAR FIRE INSURANCE CO.
51 Ills. 409. — 1869.
The question presented in this case arises on this state of
facts: Honore, the appellant, having executed his note to Rutter,
Endicott & Whitehouse, for $2,146.50, deposited with them, as
collateral security, seventy-four barrels of whiskey. They effected
an insurance on the whiskey, at their own expense, in their own
name, and without the authority or knowledge of Honore. The
whiskey was subsequently destroyed by fire, and the insurance
company paid the policy to Rutter, Endicott & Whitehouse, first
requiring an assignment of the note, to secure which the whiskey
was deposited.
Mr. Justice Lawrence. — The appellant executed his note to
Rutter, Endicott & Whitehouse, for $2,146.50, and deposited with
them, as collateral security, seventy-four barrels of whiskey. They
effected an insurance on the whiskey in the Lamar Fire Insurance
SUBROGATION. 567
Company," appellees herein, at their own expense, and in their own
name, and without the authority, or even knowledge, of appellant.
The whiskey was subsequently destroyed by fire, and the company
paid the policy to Rutter, Endicott & Whitehouse, first requiring
an assignment of appellant's note. The note was accompanied by
a power of attorney to confess a judgment, and the company havmg
caused a judgment to be confessed, the appellant filed a bill to
enjoin its collection. On the hearing the Circuit Court dismissed
the bill.
If the insurance had been effected at the request or by the
authority of appellant, or at his expense, or under circumstances
that would make him chargeable with the premium, vve should have
no difficulty in holding him entitled to its benefits, by applying the
money paid in extinguishment of so much of his debt. But none of
these circumstances are presented by this record. The appellant
prosecutes his appeal merely upon the ground that, in all cases where
a mortgagee insures the mortgaged property, the mortgagor is
entitled to the benefits of the policy.
This position is maintainable neither upon principle nor authority.
The contract of insurance, it has been often remarked, is one of
indemnity merely. Any person having an interest in property may,
through an insurance, indemnify himself against loss by fire. Mort-
gagor and mortgagee have each an insurable interest. The interest
of both may be covered in one policy, or each may take out a sep-
arate policy. In this case the mortgagees insured at their own
cost, without privity with the mortgagor and without his knowl-
edge, and when the company paid the debt due them from the mort-
gagor, it indemnified them against loss and was entitled to be
subrogated to their claim. The mortgagor, having had no connec-
tion with the insurance, cannot claim its benefit. As the premium
was not paid by him or chargeable to him, as he was not aware even
that an insurance had been effected until after the fire, it is difficult
to see how such insurance, even when paid, can affect his liability
upon his note. Even the case of King v. The State Mutual Fire
Insurance Co., 7 Cush. 10, on which the appellant chiefly relies,
holds that in such cases the liability of the mortgagor upon his note
remains the same, but that the mortgagee may recover it for his
own use, although already paid by the insurance company. Cer-
tainly it is much more consonant to every principle of equity to say
that the debt may be recovered for the benefit of the insurance
company, than that the mortgagee should be twice paid. The
doctrine of that case would sanction wager policies, and furnish a
dangerous temptation to incendiarism.
$68 SUBROGATION.
That the insurance company is entitled to be subrogated to the
claims of the mortgagee, in such a case as the present, is held in
Carpenter v. Providence Washington Ins. Co.^ i6 Pet. 501, Sussex Ins.
Co. v. Woodruff., 2 Dutcher, 555, and ^^tna Fire Ins. Co. v. Tyler, 16
Wend. 397. In concord. Am. Ins. Co. v. Woodbury, 45 Mc. 452,
where the assured had voluntarily assigned his claim to the insur-
ance company upon payment by it, as in the present case, the
court held the company entitled to recover. The question of the
right to subrogation against the will of the mortgagee, was not
presented in that case, nor is it in this, because the assignment
was made by the mortgagee upon payment of the loss. The only
question strictly presented here is, Whether the mortgagor has been
discharged from his debt by the payment of the mortgagee's policy,
and on this point there is no disagreement among the authorities.
The debt is still in existence, and the strong equity of the insur-
ance company has been united to the legal title.
The Circuit Court committed no error in dismissing the bill.
Decree affirmed.
NELSON ET AL. V. BOUND BROOK MUTUAL FIRE INS. CO.
43 N. J. Eq. 256. — 1887.
Knapp, J. — Mrs. Nelson, the appellant, took out from the
respondent company a policy of insurance against loss by fire on
certain buildings on the farm owned and occupied by her at the
time. The buildings were burned, and the company paid to her
the amount of the loss. Before the destruction of the buildings,
the appellant, Mrs. Nelson, by a verbal agreement with her two
sons, bargained for a sale to them of the entire property for $3,000,
one-half to be paid in cash or its equivalent, the balance to be
secured to her by bond and mortgage on the property. It was
further stipulated between them that, upon the execution of the
conveyance, the vendees should have an assignment of the policy to
them as owners, and re-assign it to her as collateral security upon
her mortgage. In the interim, the policy should remain for their
joint protection on the building, the vendees engaging to pay all
subsequent assessments on the policy. No time was appointed for
concluding the transaction, but the parties chancing to meet at the
office of a conveyancer haJ the deed and mortgage drawn. The
deed was signed and acknowledged by the vendor, and left by the
parties with the county clerk to be recorded. The mortgage was
signed and acknowledged by the vendees and the wife of one of
SUBROGATION. 569
them who was present, and its custody given to the vendor to hold
until the absent v^'ife could be brought to sign it, when the balance
of the purchase-money was to be adjusted and the insurance as
arranged for effected in completion of the bargain. Before the
parties met again after the execution of the papers the fire occurred.
Upon paying the insurance money by the company, an assignment
of this mortgage to it was formally demanded of Mrs Nelson. She
refused to assign it, and the respondents filed a bill praying subro-
gation to her rights under the mortgage, and that she be decreed to
assign it to the company. The court below so decreed, and ir:>ni
that decree the defendants below appealed.
The policy which Mrs. Nelson held was the ordinary one insuring
her as owner against loss by fire. It expressed no undertaking on
her part to assign to the underwriters, m any event, the whole or
any part of the property insured, or any interest in or security which
she might hold against it. The respondent's right to such decree,
not resting upon express contract, must be based upon special cir-
cumstances such as give it just claim to that advantage. To decree
it when not founded in conventional right is the ministration of a
pure equity, and one claiming it must show that it is ilue to him,
and is not unjust or inequitable to other parties in interest. Xgr-
nochan v. Boiucry Ins. Co., 17 N. Y. 428. The respondent does not
rely upon the terms of its contract to support its present claim
but bases it upon changes in the relation of the assured toward the
property through the contract of sale, which it alleges create
other rights and duties between the insurer and the insured, out of
which comes this resulting equity. It is said that through the sale
to her sons she ceased to be owner and became mortgagee for part
of the consideration, thereby cutting down her insurable interest
as owner to that of a lien for the payment of her debt, and reducing
the obligation of the insurer from an undertaking of absolute indem-
nity against loss on the property to a special indemnity against loss
on her mortgage debt; that as an insurer of the interest of a mort-
gagee, the right to subrogation to the security arises on payment of
the debt.
Conceding that a mortgagee, who, on his own behalf and for his
own protection solely, takes out a policy to secure his mortgage
debt, may be called upon to assign his security to the insurer who
pays his debt on the occurrence of a loss, it becomes an essential
fact for the complainant to establish in maintenance of its theory
that Mrs. Nelson had changed her character as owner to that of
mortgagee. If the treaty between herself and her sons for the con-
veyance of the property was at the time of the loss by fire m an
570 SUBROGATION.
incomplete and inchoate state, a mere executory contract, no steps
in its progress toward final execution can be seized hold of to
determine her real shrtiis. She remained, in legal contemplation,
the owner until within the intention of the parties the contract
became executed in all its essential terms. Until then, loss on the
property in risk was her loss, and under the terms of the policy the
company was bouiid to pay in discharge of its contract obligation.
The parties to the contract of sale appear to have been fully
agreed upon the terms of their bargain. Those terms have already
been recited in sufficient detail for our purposes, and they meet with
no substantial contradiction in the evidence. The transaction was
intended by the parties to be an entire one, and in their minds was
not regarded as an executed agreement when the deed and mort-
gage were exchanged, nor was it to become so until the execution
of the mortgage was perfected as stipulated for, the balance of the
consideration-money paid and adjusted, and the building protected
by insurance for the interest and benefit of both. The execution
of the papers needed in the transfer of title was for the convenience
of the parties who lived at a distance from each other; and it was
between those whose relations suggest trust aad confidence. Whit
was done respecting the conveyance was not regarded by the parties
as the conclusion of their bargain, nor was the bargain considered
by them as attaining completion until the balance of the considera-
tion should be paid and insurance effected. I think it is clear that
at the time of the fire the treaty for the sale of the property, which
on its execution would change Mrs. Nelson's rights as owner to
those of mortgagee was in Jieri, and her ownership remained. This
conclusion is not disturbed by the suggestion of counsel that the
appellant, Mrs. Nelson, has a vendor's lien for the balance of the
purchase-money which she can enforce in equity against her ven-
dees. In the contract to sell she did not contemplate any such reli-
ance for payment. She bargained for cash and the cancellation of
notes held against her, which were the equivalent of cash; and this
is a very different thing from a vendor's lien, if that be her right.
This, instead of showing an executed agreement, tenders to her a
means through litigation with her vendees for the enforcement of
unperformed stipulations.
But if it be conceded that the transfer was complete, so as to
vest the title in the grantees in the deed, and to convert her interest
in the lands to that of mortgagee, the case is not one in which sub-
rogation can be claimed. It is not a case where the insurer reserves
in the provisions of his policy the right to an assignment of the
mortgage upon payment of a loss, as in Foster v. Van Reed, 70 N.
SUBROGATION. 57 1
Y. 19. There the right resting upon express contract cannot be
defeated or impaired by any private arrangement between the
assured and the owner of the equity of redemption. Nor is it of
that class of cases where a mortgagee insures his mortgage interest
" at his own expense, upon his own motion, and for his sole benefit."
In such cases, says Judge Folger, in Excelsior Ins. Co. v. Royal Ins.
Co., 55 N. Y. 343, 359, " the insurer, in making compensation, is
entitled to an assignment of the rights of the assured." The
remarks made by the learned chancellor in Sussex Ins. Co. v. JVood-
riiff, 2 Dutch. 541, were in respect to insurance of a like interest by
the mortgagee without the knowledge or concurrence of the mort-
gagor. Under a contract of insurance made by a mortgagee,
entirely on his own behalf and at his own expense, for indem-
nity against loss by destruction of the pledge, the owner of the
equity of redemption can have no interest, and payment of the loss
does not go in satisfaction of the debt. Subrogation can in such
case harm no one. And without it the mortgagee might collect his
debt twice. The right does not rest on the relation of suretyship.
Mr. Justice Bradley says, " Where a creditor effects insurance on
property mortgaged or pledged to him as security for the payment
of his debt, the insurers do not become sureties of the debt, nor do
they acquire all the rights of sureties. Tliey are insurers of a par-
ticular building only." Insurance Co. v. Stinson, 103 U. S 25. If
such were the true character of the insurer, it would place serious
impediments in the way of contracts between mortgagor and mort-
gagee, in respect to insurance of the mortgaged premises, which
are held to be entirely legitimate. The ordinary insurance clause
in mortgages may be mentioned as an instance. A more reason-
able ground for subrogation in these cases lies in the fact that insur-
ance by the mortgagee, such as gives the debtor no benefit of money
recovered on a loss, would, without subrogation, convert what is
designed as a contract of indemnity into a wager policy. The
mortgagee could demand payment of the loss to the extent of his
mortgage without reducing the mortgage debt. Public policy con-
demns such contracts.
But there is neither reason nor good policy in compelling a mort-
gagee to assign his security where, through an arrangement between
the mortgagor and mortgagee, insurance on the mortgaged premises
is effected for their common benefit, although the policy be taken
in the name of the mortgagee. Where a policy is so taken out,
under the insurance clause in a mortgage, payment of a loss to
the mortgagee inures to the benefit of the mortgagor, and it is imma-
terial under such stipulation in whose name the policy be procured.
57J SUBROGATION.
ll\iii/i^ V. Lodfr, 53 N. Y. 5S1, and cases cited. A policy effected
under such an agreement, in the name of the mortgagee, to secure
the mortgaged premises against loss by fire will protect the mort-
gagor, and payment to the mortgagee, pro tanto, discharges the
debt. Such an agreement between the mortgagor and mortgagee
is not regarded as any infringement upon the rights of the under-
writers. The mortgagee becomes bound to give the credit to his
mortgage debtor. His right is not to withhold it, and subrogation
IS only to such rights as he has. In Sheldon on Sub., § 235, it is
said: " If the mortgagee has procured the insurance, though in his
own name, at the request and expense and for the benefit of the
mortgagor, as well as for his own protection, though this is by a
parol agreement unknown to the insurers, the mortgagor will have
the right, in case of loss, to have the avails of the policy applied for
his relief towards the discharge of his indebtedness." This state-
ment of the rule is well supported by numerous cases cited by the
author. Kemochan v. Bowery Ins. Co., 17 N. Y. 428; Hay v. Sfar
Ins. Co., 77 N. Y. 235, and Clinton v. Hope Ins. Co., 45 N. Y. 454,
fully support the rule as stated in the text. In Clinton v. Hope Ins.
Co , just cited, it was applied to a state of facts in close similarity
with the present case. The owner of the property had taken out a
policy on buildings and personalty contained therein, and while it
was running agreed to convey the property to a vendee, who paid
part of the purchase-money. The vendor agreed to hold the policy
for their mutual benefit, the vendee agreeing to return the vendor
the unearned portion of the premium on the policy. Tne case, in
one of its aspects, was considered by the court in the light jf an
executed sale, and the court denied the right of the insurer to sub-
rogation to the vendor's claim for balance of purchase-money,
because of the agreement in the contract of sale to hold the policy
for their mutual benefit. The court say: " If, as between the par-
ties to the contract of sale, the vendee was entitled to the benefit
of the insurance moneys in case of loss, the defendant, the com-
pany, can assert no equity in hostility to that arrangement. The
equity of the defendant is the equity of the vendors, and an arrange-
ment between the vendors and vendee in respect to the application
of the proceeds of the insurance did not violate any contract between
the insurer and the insured. The defendant, on payment of the
indemnity promised, simply performs his contract." The rule above
exemplified has the support of authority and is, as I think, based
upon good reason and sound policy. The principle is not that the
right of substitution arises where the underwriter pays loss on a
policy of insurance effected by a mortgagee upon the mortgaged
SUBROGATION. 573
premises. ■ The insurance contract imports no such equity in the
insurer. If it be awarded to him, it is entirely in virtue of sorae
train of circumstances that render the claim an equitable one.
The contract with Mrs. Nelson on the part of the company was
an indemnity against loss in the destruction of the buildings for
which the usual premium and obligation required by the company
for such insurance was demanded and received. On this policy,
unchanged in its terms, the loss was paid. Now, the respondent
claims a different status from that assumed in its contract, and
claims its liability to be of a different nature, because of the new
attitude which the insured assumed through her contract to sell.
Yielding that to the respondent certainly it must take its new posi-
tion, not upon a partial view or selected part of her contract.
When it puts itself on her agreement, it does and must accept it as
a whole, because her rights under that agreement, and those of her
vendees, are to be determined on the entire terms ot it. Among
these, she engaged to hold her policy for the joint protection of
herself and her vendees, and the latter assumed to pay all subse-
quent assessments upon it. She cannot, under her contract with
him., refuse to allow the proceeds of the insurance to reduce, pro
tanto, her claim against them, and her rights in this regard are the
respondent's rights.
For these reasons the decree below should be reversed, and the
bill be ordered dismissed, with costs.
Decree unanimously reversed.
SUFFOLK FIRE INSURANCE CO. and Another v. BOYDEN.
9 Allen, 123. — 1864.
Bill in Equity setting forth that the Suffolk Fire Insurance
Company and the Dorchester Fire Insurance Company insured a
building and the machinery in it, situated in Worcester, from May
ist, 1863 to May ist, 1864; that the premiums were paid by the defend-
ant, who was the mortgagee in possession, and so described in the
policies; that the premises insured were destroyed by fire during
the continuance of said policies; that the plaintiffs have offered to
pay said loss to the defendant, and also the amount due on the
mortgage above the loss, if any, and have requested the defendant
upon such payment to assign the mortgage to them, or to hold the
same for their benefit, which he has refused to do. The prayer of
the bill was for an answer, an account of the rents and profiits and
574 SUBROGATION.
the loss, that a trust might be decreed in favor of the plaintiffs as
to said mortgage, that they might be subrogated to the rights and
remedies of the defendant under the same, for an assignment and
for further relief. The policies were annexed to the bill, and each
of them contained the following provision: "And whenever this
company shall pay any loss, the assured agrees to assign over all
his rights to recover satisfaction therefor from any other person or
persons, town or other corporations." The answer of the defendant
admitted the mortgage, the possession, the insurance and the loss,
as stated in the bill; alleged, with other facts not now material, that
the policies were made for his benefit as mortgagee and not for the
mortgagor; that his loss, and also the amount due on the mortgage,
exceeded the insurance, and denied the right of the plaintiffs to an
account or to have the mortgage assigned to them. The case was
heard upon the bill and answer, and reserved by Chapman, J., for
the consideration of the whole court.
Hoar, J. — The only distinctions that are suggested between the
case at bar and King v. State Ins. Co., 7 Cush. i, are these: i. That
this is a suit in equity, and that was a suit at law; 2. That here the
insurance is expressly made upon the interest of the assured as
mortgagee, while there it was upon his interest in the property,
which was only that of a mortgagee, without disclosing its precise
character: and 3. That the decision of the question upon which
this case depends was not necessary to the judgment rendered in
the other.
We do not think it expedient or desirable to revise the case of
King V. State Ins. Co., or to restate the argument so fully presented
by the late chief justice in giving the opinion of the court. That
case was very fully considered; and although it has been subjected
to some adverse criticism, we find no reason for dissatisfaction with
its principles or conclusions. On the contrary, the objections which
have been urged against it seem to us to rest upon misapprehen-
sion, and we think that the doctrines there stated are and ought to
be the settled law of this commonwealth.'
It was decided upon the ground that an insurance by a mortgagee
of his interest in the mortgaged property is not an insurance of the
debt, although the amount of the debt is the measure of his insur-
able interest in the property. There is no privity of contract
between the insurer and the mortgagor, but each has a contract
with the mortgagee separate and independent from the other. The
' The present opinion gives ihe salient points of Chief Justice Shaw's opinion
in K'ino v. Ins. Co., 7 Cush. i.
SUBROGATION. 575
mortgagee cannot charge to the mortgagor the premiums which he
pavs for insurance; and it is conceded that, e converso, the mort-
gagor can derive no benefit from the insurance in case of loss.
White V. Brown^ 2 Cush. 416. But why should not the mortgagor
have the benefit of the insurance? The equitable argument in his
favor would seem to be at least as strong as that in favor of allow-
ing the insurer the advantage of a subrogation of the debt. The
whole interest of the mortgagee in the property, in its inception,
and while it continues, is only for the purpose of indemnity. He
takes it as a security from which he may recover what is due to
him, if the debt is not paid. If the insurer pays a loss by fire,
equal to the whole debt, the mortgagee receives, through his title
to the property held as a security, the amount of his debt, excepting
only the premium paid, which may be a very trifling proportion of
it. The mortgagor has lost the same amount. Why should not the
mortgagor pay the premium, and be entitled to treat the debt as
cancelled? The sufficient answer is, because the insurance is a wholly
collateral contract, which the law allows the mortgagee to make,
and with the result of which the mortgagor has no concern. The
whole consideration proceeds from the mortgagee. If there is no
loss by fire, he loses the whole amount of premiums paid, without
any claim upon the mortgagor for compensation. The premiums
paid are intended to be a just equivalent for the sum to be received
on the happening of the contingent event. The larger sum to be
received if the event happens, is fixed in a just proportion to the
chances that it will not happen, and that the premium will have
been paid without any return. It would be manifestly unjust that
the mortgagor should have the advantage of an indemnity, when he
has borne no part of the expense of obtaining it.
On the other hand, the insurer has received a full equivalent for
the loss which he is called on to pay. Why should he receive his
premium, and subject the mortgagee to the loss of it if no fire
occurs, giving him no corresponding advantage in case a fire hap-
pens? The debt, as between the insurer and the mortgagee, is as
purely a collateral contract as is the insurance when considered in
relation to the mortgagee and mortgagor. It is urged that insur-
ance is a contract of indemnity. But what is an indemnity must be
determined by a correct application of the word to the subject
matter. The insurance is against a loss by fire of property in which
the insured has, at the time of the insurance and at the time the
loss happens, an insurable interest. If the insurer pays no more
than the value of the property destroyed, no more than the sum
insured upon it, and no more than the interest of the insured at the
$y6 SUBROGATION.
time of the loss, he pays no more than an indemnity under his con-
tract. That the loss may, by means of other contracts of a col-
lateral character, or indirectly, give the insured an advantage, is of
no consequence. Could there be a more exact indemnity in any
case of loss by fire, than if the insurer should replace the property
burned, when its value does not exceed the sum insured, nor the
insurable interest of the holder of the policy? Yet what claim
would the insurer who should rebuild have to an assignment to him
of the mortgage d.ebt? Again, there are incidents to a mortgagee's
estate, which may give him, as the proceeds of his mortgage, a
larger value than his mere debt. He may foreclose his mortgage,
and thus acquire an absolute title to property of a far greater value
than the amount due him.
But, without extending the discussion, it is sufficient to say, that
the doctrine which we now reaffirm was one of the grounds u[)on
which the decision in A7//i,'- v. S/iife Ins. Co. was expressly made to
rest; that the conclusion, that the insurer has no interest in the
mortgage debt, is as decisive against his claim in equity as at law;
and that if the title of the insured was that of a mortgagee, it is
immaterial whether it was insured eo nomine or otherwise. The
agreement in the policies, that in case of the payment of a loss the
insured will assign to the insurers " all his rights to recover satis-
faction therefor from any other person or corporation," does not
affect this case, because the mortgage debt is not in any sense a
right to recover satisfaction for the loss by fire.
Bill dismissed with costs.
Bradley, J., ix INSURANCE CO. v. STINSON.
103 U. S. 25, 26. — 1880.
This was an action on a i)olicy of insurance against loss or dam-
age by fire. Stinson, the plaintiff below, had a contract to build a
hotel, to be called the Webster House, at Marshfield, Plymouth
County, Massachusetts, for the sum of $25,000, and had nearly com-
pleted it; but, failing to get his payments from the owner, he stopped
work and took the necessary steps for securing a mechanic's lien on
the building. For this purpose he filed the required statement with
the town clerk, and commenced an action to enforce his lien within
the period prescribed by law. Whilst that action was pending, in
July, 1875, he procured the policy in question from ihe plaintiffs in
error, the defendants below, insuring him for three months against
SUBROGATION. 577
loss or damage by fire to the amount of $5,000 on the building —
the policy stating his interest to be that of contractor and builder.
The loss occurred during the continuance of the policy, and due
notice was given. After the fire the plaintiff did not further prose-
cute his action to enforce the lien, but commenced the present action
for the amount of his insurance. When the building contract was
entered into, and until the loss occurred, the property on which the
building was erected was subject to a mortgage for a debt of $17,000,
being the purchase-money which the owner had agreed to pay to the
former owner, and which is conceded to have been a lien on the
whole property prior to that of the plaintiff. Two defenses were
made by the insurance company to the action: First, the failure of
the plaintiff to prosecute his suit for enforcing his lien. * * *'
The court overruled these defenses, and charged the jury substan-
tially as follows, namely: That if the plaintiff had a valid builder's
lien when the policy was effected, which could have been enforced
by the decree of the appropriate court against the equity of redemp-
tion of the property, and if it was a valid and subsisting- lien at the
time of the loss, it was immaterial whether he did or did not subse-
quently perform those acts, the non-performance of which as con-
ditions subsequent might have dissolved the lien. * * * To this
charge and to the refusal to give instructions to the contrary the
defendants took a bill of exceptions.
We think that the instructions were correct. As to the first point,
based on the abandonment by the plaintiff, after the destruction of
the building, of the proceedings to enforce his lien, it is apparent
from the evidence adduced by the defendants themselves that it
could not have injured them. But, aside from this consideration, if
the plaintiff had an insurable interest at the time of issuing the
policy and at the time of the loss, equal to the amount insured, he
had a complete and absolute cause of action against the defendants;
and it was no concern of theirs whether he farther prosecuted his
lien or not, unless they desired to be subrogated to his rights and
gave him notice to that effect. Whether, if they had done this, and
had offered to indemnify him against all costs and expenses, a
refusal on his part to continue the proceedings would have been a
defense to this action, it is unnecessary to inquire. No such course
was taken by the defendants. We may remark, however, that where
a creditor effects insurance on property mortgaged or pledged to
him as security for the payment of his debt, the insurers do not
become sureties of the debt, nor do they acquire all the rights of
' The omiiled oarrs of the opinion deal with insurable interest.
LAW OF INbUKA.NCF. — ^7
5/8 SUBROGATION.
such sureties. They are insurers of the particular property only,
and so long as that property is liable for the debt, so long its
destruction by fire would be a loss to the creditor within the terms
of the policy. A surety of the debt might complain if the creditor
should surrender to the debtor collateral securities; but an insurer
of property for the benefit of the mortgagee would have no just
ground of complaint. True, after a loss has occurred and the insur-
ance has been paid, sufficient to discharge the debt, the insurers
may be entitled to be subrogated to the rights of the creditor against
the debtor, and to any collateral securities which the creditor may
then hold and which are primarily liable for the debt before the
insurers. But even then we do not think that the creditor is bound
to take any active steps to realize the fruits of a collateral, or to
keep it from expiring, unless the insurance be first paid and notice
be given to him of a desire on the part of the insurers to be subro-
gated to his rights, with a tender of indemnity against expenses.
We are aware that views somewhat differing from these have been
held by respectable authority, but we think without any sound rea-
son. See May on Insurance, § 457; Insurance Company v. Woodruff,
2 Dutch. (N. J.) 541. To impose such restrictions and obligations
upon the creditor would be to add to the contract of insurance con-
ditions cever contemplated by the parties making of it a mere
shadow of security, and increasing the avenues of escape from obli-
gation to pay, already too numerous and oppressive. When a build-
ing is insured in the interest of a mortgagee, the insurance company
does not inquire what other collaterals he holds, and never reduces
its premium on any such consideration.
PHENIX INSURANCE CO. v. FIRST NATIONAL BANK.
85 Va. 765.— 1889.
Appeal from decree of the Circuit Court of Rockingham County.
rendered June 30th, 1887, in the chancery cause therein pending, in
which the Phenix Insurance Company of New York, the Fire Asso-
ciation of Philadelphia, and the Hope Insurance Company of New
Orleans were complainants, and the First National Bank of Har-
risonburg,Virginia, was defendant.
A corporation, styled the New Rawley Springs Company, issued
its bonds to the amount of ^30,000, dated July 12th, 1879, with
coupons for semi-annual interest, and executed a trust deed to secure
payment thereof. These bonds, to the amount of $7,187, were,
SUBROGATION. 579
on the loth of August, 1885, owned by the defendant bank, and that
day the bank obtained from the Phenix Insurance Company a policy
of insurance against loss by fire to the amount of $1,000 for the
term of one year, on part of the buildmgs and furniture embraced
in the trust deed. The policy was issued in the name of the Springs
Company, though the bank paid the premium, the loss, if any, being
payable to the bank as its interest might appear. On the 7th of
June, 1886, the items of property, covered by the policy, were
destroyed by fire, the loss aggregating $700, which was paid and the
policy surrendered. The bank also took out additional policies in
the Virginia Fire and Marine Insurance Company for $2,750; in the
Hope Insurance Company of New Orleans for $1,500, and in the
Fire Association of Philadelphia for $1,750, making a total insurance
of $7,000 to protect the bonds. The losses under the several poli-
cies were: Phenix, $700; Fire Association, $1,375; Hope, $1,050;
and Virginia Fire and Marine, $2,375, aggregating $5,500. When
the Phenix Insurance Company paid the bank the amount of the
loss under its policy, it demanded of the bank $700 of said bonds,
claiming that it stood in the relation of surety, and that having paid
$700 of the debt of the Springs Company represented by the bonds,
it had become entitled, on the principle of subrogation, to bonds to
that amount. This claim being denied by the bank, the Phenix
Insurance Company filed its bill for relief. The bank demurred to
and answered the bill, denying the complainant's demand. Then
the Fire Association and the Hope Insurance Company, by leave of
the court, filed their petition to the same effect. These two com-
panies had not paid the losses under their policies, declining to do
so until the bonds they claimed were turned over to them.
The court decreed that the complainants were not entitled to
demand and take of the bank the bonds, or any of them, until the
bank had received the full amount of the principal and interest of
its debt; but that the insurance companies which have or shall have
paid the bank the amount of adjusted loss due from them respec-
tively were entitled in equitable proportions to such surplus of the
dividends applicable to said bonds owned by the bank as may arise
upon the foreclosure of the trust deed and remain after the payment
of principal and interest of said bonds to the bank, and that the
prayer of the complainants be denied, and that the right of the bank
to hold and collect the bonds was firm and stable. From this decree
the Phenix Insurance Company and the other complainants appealed
to this court.
Richardson, J. — We have had no hesitancy in coming to the
conclusion that the decree complained of is without error, either
580 SUBROGATION.
o.i principle or authority. The case involves only one single ques-
tion: Does an insurer, who has paid a loss to a mortgagee that
covers only a part of the mortgage debt, acquire as against the
mo.'tgagee a right to demand aud take from the mortgagee the
evidences of the debt secured to the amount of the loss paid by the
insurer, whether the mortgagee be able or not to obtain satisfaction
of his debt from the remaining evidences of the debt? Or, in other
words, must not the creditor's debt be paid in full before the insurer
can take from him by subrogation any part of that debt?
The doctrine which is applicable to this case, and which squarely
meets this question, is clearly laid down by Mr. Justice Story in
pronouncing the opinion of the Supreme Court of the United States
in Carpenter v. The Providence Washington Insurance Co., i6th Peters,
501, where the learned judge says: " No doubt can exist that the
mortgagor and the mortgagee may each separately insure his own
distinct interest in the property. But there is this important dis-
tinction between the cases, that where the mortgagee insures solely
on his own account it is but an insurance on his debt; and if his
debt is afterwards paid or extinguished, the policy ceases from that
time to have any operation; and even if the premises insured are
subsequently destroyed by fire, he has no right to recover for the
loss, for he sustams no damage thereby; neicher can the mortgagor
take advantage of the policy, for he has no interest whatever
therein. On the other hand, if the premises are destroyed by fire
before any payment or extinguishment of the mortgage, the under-
writers are bound to pay the amount of the debt to the mortgagee, if it
does not exceed the insurance. But then upon such payment the
underwriters are entitled to an assignment of the debt from the
mortgagee, and may recover the same amount from the mortgagor,
either at law or in equity, according to circumstances." And in
Insurance Co. v. Stinson, 103 U. S. 25, Mr. Justice Bradley con-
cludes the opinion with the remark: 'After a loss has occurred
and the insurance has been paid sufficient to discharge the debt, the
insurer may be subrogated to the rights of the creditor against the
debtor." In a note to King v. State M. Fire Insurance Co., 54 Am,
Dec. 696, the learned annotator says: " The doctrine of the princi-
pal case that the insurer is not entitled to demand subrogation under
a policy which does not expressly provide for it is the established
law in Massachusetts, * * * and that doctrine seems to be
adopted in May on Ins., § 456; Wood on Fire Ins., 782, and in
later editions of Mr. Phillips' work. 2 Phil, on Ins., § 1712. But
it must be admitted that the decided preponderance of authority is
against this doctrine and in favor of the insurer's right of subroga-
SUBROGATION. 58I
tion and assignment in such cases upon paying the loss, and^ if neces-
sary^ the balance due on the mortgage.'" Citing Flanders on Ins., 400;
16 Peters, 495, and numerous other authorities.
The authorities demonstrate the correctness of the decree appealed
from, and we are therefore of opinion that the same must be
affirmed.
Decree affirmed.
6. Procedure.
Lord, J., in HOME MUT. INS. CO. v. OREGON R'Y & NAV. CO.
20 Ore. 569, 573. — 1891.
Where the insurance company has paid the owner for the destruc-
tion of his property by fire occasioned by the fault of a railroad com-
pany and afterwards the owner receives the amount from the company
in satisfaction of his damages, he holds it in trust for the insurance
company, and it may recover it from him by a suit in equity. So,
too, if the railroad company has not paid the owner his damages for
the loss, or has paid it to him, knowing that he had received the
amount of the insurance from the insurance company, the railroad
company is liable to the insurance company in an action at law,
which it has a right to bring in the name of the owner, without his
consent, to repay it the damages to the amount of the sum paid by
it, and that a release from the owner would be no defense to such
an action. Monmouth^ etc , Ins. Co. v. Hutchinson, etc., Transp. Co.,
21 N. J. Eq. 108. The subrogation of the insurer to the remedies
of the insured for the destruction of the insured property upon the
payment of the loss operates as an equitable assignment to the
insurer to the extent of the amount paid. " It is in the nature,"
said Shaw, C. J., " of an equitable assignment, which authorizes the
assignee to sue in the name of the assignor for his own benefit."
Hartv. Railroad Corp., supra [13 Met. 99].
It results, then, that the right, resting on the doctrine of subroga-
tion and not depending upon contract or privity, must be worked
out through the right of the insured or the owner of the property
destroyed; that the remedy must be prosecuted in his name, unless
the Code of Procedure, which permits an action to be brought in the
name of the real party in interest, has changed this rule. The case of
Connecticut Fire Ins. Co. v. Erie Ry. Co., 73 N Y. 399, is relied upon to
support this position. But in that case the owner had fully settled
his claim against the railroad company, but the contract showed that
582 SUBROGATION.
the amount of the policy was deducted from the amount of the loss
in the settlement, so that the insurance company was the only
remaining party in interest. The action being under the code of
that State, which requires the action to be brought in the name of
the real party in interest, by this settlement, the owner having no
interest, it was held that the insurance company might properly
bring the action. In .Etna Ins. Co. v. Hannibal., etc., Ry. Co.., 3
Dill. I, it was held by Dillon, J., that, in a case where the property
destroyed exceeded in value the amount insured, the rule of law had
long been settled that the insurance company, on payment of
the loss, cannot sue the wrongdoer in its own name, saying: "The
suit, though for the use of the insurer, must be in the name of the
person whose property was destroyed. The wrongful act was single
and indivisible, and gave rise to but one liability. If 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 ow'ner could sue for the balance. This is not per-
mitted, and so it was held nearly a hundred years ago." And
again: " But it is insisted that the provisions of the Missouri statute
that every action shall be prosecuted in the name of the real party
in interest, though it declares that the provision shall not authorize
the assignment of a thing in action not arising out of contract,
changes the rule However it might be if the amount paid by the
insurer to the assured had equaled or exceeded the value of the prop-
erty, and the assured had made a full assignment, it is plain that
this case falls within the reasons of the rule itself as expounded by
Buller and Mansfield in the Case in Douglas \^Maso7i v. Sainsbury, 3
Doug. 53], above cited, and which is the foundation of the law on
this subject."
In Mari7ie Ins. Co v. St. Louis, etc., Ry. Co., 41 Fed. Rep. 644, it
was held, under the Arkansas statute providing that " every action
must be prosecuted in the name of the real party in interest," that
an insurance company which has paid the insured the full value of
the property destroyed may maintain an action in its own name
against the wrongdoer causing the loss. Caldwell, J., said : " Under
the reformed Codes of Procedure, the action of the insurance com-
pany, in cases of this sort, may be brought in the name of the
insurer [citing Swart/iout v. Rai/icay Co., 49 Wis. 625, 6 N. W. Rep.
314; Connecticut Fire Ins. Co. v. Erie Ry. Co., 73 N. Y. 399]. But,
as it is alleged in the complaint that the plaintiff has paid the insured
the full value of the property destroyed, it is plain that the latter
have no interest in the present controversy, and hence they are not
necessary parties." Thr opinion is, however, expressed in that
SUBROGATION. 583
case, if the value of the property destroyed exceeds the insurance
money paid, that the insurer might join or be joined with the owner
in the action to recover for its loss, and would not be required, as
held by Judge Dillon, siipra^ in such case, to prosecute the action
in the name of the insured. A like view was sustained in Crandall
V. Tratisportation Co., 16 Fed. Rep. 75, where Dyer, J., held that in
an action to recover the value of a building destroyed by a fire
caused by the alleged negligence of the defendant, the owner of the
building and an insurance company that has paid the amount of
the insurance of such building, and taken an assignment of the claim
from the owner to that extent, may join as parties to the action
when the value of the house exceeds the amount for which it was
insured. In Sivarthoiit v. Raihvay Co.., several insurance companies
united with Swarthout, to whom they had paid the amount of their
policies for property destroyed by the negligence of the defendant,
in an action to recover for the value of such property. The defend-
ant demurred on the ground that the plaintiffs could not sue in one
action, but each must sue separately. The demurrer was overruled,
and the correctness of this ruling was the subject of the controversy.
The court say: " It is said, if the defendant is liable at all, it is
separately and distinctly liable to each insurance company to the
amount paid on its policy. But it seems to us that it would be an
intolerable rule to allow each insurance company to bring a separate
suit. The railroad company might well say, were this attempted:
' The claim is indivisible. There is but one wrongful act complained
of, one loss, and one liability.' It might well insist that the whole
matter should be litigated in one action. And what objection there
can be to allowing the owner to unite with the insurance companies
in bringing one action to determine the liability of the defendant,
we fail to perceive. Under the old practice the action would
probably have been brought in the name of the assured for the
benefit of all concerned; but the Code requires the action to be
brought in the name of the real party in interest. Now, it appears
that Swarthout has made an assignment in writing to each insurance
company of a part of his claim against the railroad company for the
alleged wrongful destruction of his property. It is obvious, if one
of the insurance companies may bring a separate suit for the amount
of its claim, each may; and, as the aggregate amount of the policies
falls short of the actual loss, Sv/arthout may sue for the balance.
As we have said, a rule of law which would allow this to be done
would operate most oppressively upon the railroad companies. For
a single wrongful act, which gave rise to bat one liability, it might
be harassed with a dozen different actions." In a later case (i'r(^//
584 SUBROGATION.
V. Radford, 52 Wis. 118, 8 N. W. Rep. 606), the court, after citing
the section of their statute which provides that " every action must
be prosecuted in the name of the real party in interest," and the
further section, that, " of the parties to the action, those who are
united in interest must be joined as plaintiffs or defendants; but, if
the consent of any one who should be joined as plaintiff cannot be
obtained, he may be made a defendant, the reason thereof being
stated in the complaint," says: " Under the statutes above cited the
insurance companies coj1.1 maintain an action against such wrong-
doer in their own names, or be joined with the insured as plaintiff in
such action. * * * Where the common law procedure prevails,
the action of the insurance companies would necessarily be brought
ii the name of the insured. It could be so brought without his
consent, and he would have no control over it. But under our Code
of Procedure the companies would sue in their own names, joining
the insured as plaintiff or making him defendant, according to the
exigencies of the case."
It would appear, then, from these last cases, that where the prop-
erty is insured for less than its value, and is destroyed by the negli-
gence of a third p.irty, the insurance companies, who have paid the
owner the insurance money, must be joined with him in an action to
recover damages for the destruction of such property, and that,
upon a refusal of such parties to join as plaintiffs, they must be
made defendants, The action, though, would be brought in their
own name, joining the insured as plaintiff or making him defendant,
according as he stood related to the facts. From all this the con-
clusion results that, where the wrongful act is single and indivisible,
there can be but O'nt liability or cause of action. Since the Code
the cause of action remains as before, single and indivisible; and the
insurer acquires only a rig'it or interest with the owner of the prop-
erty in the cause of action or liability, an:l not a new and separate
cause of action. Ha cannot, therefore, sue in his own name alone,
in any case, under the Code, e.Kcept where the amount paid by him
has exceeded or equaled the value of the property destroyed, and
no interest remains in the owner. When the amount of the insur-
ance money paid is less than the value of the property destroyed by
the negligent act, all the authorities agree that the insurer must
either sue in the name of the insured or join with him in bringing an
action against the wrongdoer. None allows that in such case he can
sue in his own name alone, for the reason that the wrongful act is
single and indivisible, and gives rise to but one liability or cause of
action. In that cause of action he acquires a joint ri^ ht with the
owner therein, and not a new and separate right of action, and
SUBROGATION. 585
therefore must prosecute it jointly with him. They have a joint
interest in a single liability, and, united, are the real parties in
interest. Now, the facts disclosed by this record concede that the
property destroyed by the wrongful act of the defendant greatly
exceeded in value the amount of the insurance money paid by the
plaintiff. To the extent of that payment the plaintiff became subro-
gated to the right of the owner in the property, but the cause of
action remained single and indivisible, and the plaintiff acquired
only a joint right with the owner therein, and not a new and inde-
pendent right of action, and could not, therefore, prosecute the
action in his own and separate right. Yet this is exactly what the
plaintiff has done, and claims it has a right to do. If this were so,
it would establish an intolerable rule, and expose the defendant to
be harassed by a dozen different actions, which it seems to us would
be contrary to legal principles, and be productive of mischief and
oppression. The judgment must be affirmed.
b. Life and Accident Insurance.
INSURANCE CO. ?'. BRAME.
95 U. S. 754. — 1877.
Action by the Mobile Life Insurance Company against Brame to
recover $7,000. The plaintiff had insured the life of McLemore.
Brame wilfully shot and killed McLemore. The plaintiff sues Brame
to recover as damages the amount of the policies, which amount the
plaintiff acknowledges to be due and a part of which has been paid.
Judgment for defendant.
Mr. Justice Hunt. — The argument of the insurance company is
that the killing of the deceased was an injury to or violation of a
legal right or interest of the company; that, as a consequence
thereof, it sustained a loss, which is the proximate effect of the
injury. The answer of the defendant is founded upon the theory
that the loss is the remote and indirect result merely of the act
charged, that at the common law no civil action lies for an injury
which results in the death of the party injured, and that the stat-
utes of Louisiana upon that subject do not include the present case.
The authorities are so numerous and so uniform to the proposition
that by the common law no civil action lies for an injury which
results in death, that it is impossible to speak of it as a propo-
sition open to question. It has been decided in many cases in the
586 SUBROGATION.
jLnglish courts and in many of the State courts, and no deliberate,
well-considered decision to the contrary is to be found. In Hilliard
on Torts, p. 87, sec. 10, the rule is thus laid down: " Upon a sim-
ilar ground it has been held that at common law the death of a
human being, though clearly involving pecuniary loss, is not the
ground of an action for damages." The most of the cases upon
the subject are there referred to. Baker v. Bolton et al., i Camp.
493; Connecticut Mutual Life Insurance Co. v. New York &> New
Haven Railroad Co., 25 Conn. 265; Kramer v. Market Street Rail-
road Co., 25 Cal. 434; Indianapolis, Pittsburg &' Cleveland Railroad
Co. V. Kealey, 23 Ind. 133; Hyatt v. Adams, 16 Mich. 180; Shields v.
Yonge, 15 Ga. 349; Peoria Marine c;^ Fire Ins. Co. v. Frost, 37 111. 333.
The only cases that tend to the contrary of this rule, so far as we know,
are Cross v. Gut/wry, 2 Root (Conn.) 90, Plummer v. Webb, Ware, 69,
and Ford v. Monroe, 20 Wend. (N. Y.) 210. They are considered
by the New York Court of Appeals in Green v. The Hudson River
Railroad Co., 2 Keyes (N. Y.) 294, and compared with the many
cases to the contrary, and are held not to diminish the force of the
rule as above stated. In that case, the plaintiff alleged that, on the
ninth day of January, 1856, his wife was a passenger on the defend-
ant's road, and by the gross carelessness and unskilfulness of the
defendants a collision occurred, by means of which his wife was
killed, " whereby he has lost and been deprived of all the comfort,
benefit, and assistance of his said wife in his domestic affairs, which
he might and otherwise would have had, to his damage," etc. A
demurrer to this complaint, upon the ground that the facts alleged
constituted no cause of action, was sustained by the New York
Court of Appeals. In Hubgh v. New Orleans &• Carrollton Railroad
Co., 6 La. Ann. 495, the same principle was decided, and in the
same manner. In giving its opinion, the court say: " The excep-
tion of the defendants presents the question whether the death of
a human being can be the ground of an action for damages." Not
being satisfied with this decision, Messrs. Ogden & Duncan asked
for a rehearing, the argument for which is reported in the same
volume, pp. 498-508. It was denied in an elaborate opinion deliv-
ered by Chief Justice Eustis. In Hermann v. Carrollton Railroad
Co., II Id. 5, this principle was again affirmed in an opinion by
Chief Justice Merrick.
It is only necessary to refer to one other case, involving the same
principle as those already cited, but in its facts more closely resemb-
ling the case under consideration. In Connecticut Mutual Life Insur-
ance Co. v. New York &' New Haven Railroad Co., supra, the declara-
tion alleged that on the twentieth day of March, 1850, the plaintiffs
SUBROGATION, 587
had outstanding and in force a policy of insurance for $2,000 upon
the life of Samuel Beach; that Beach was on that day a passenger on
the defendants' road; that the defendants so carelessly, negligently,
and unskilfully conducted themselves that the train on which Beach
was riding was thrown down a bank into the river; that Beach was
greatly wounded and bruised, by means whereof he then and there
died, by reason of which the plaintiffs were compelled to pay to his
administrators the sum of $2,000 upon the said policy.
The allegation of the present plaintiffs is that Brame tortiously
and illegally took the life of McLemore by shooting him. This is
open to the inference that the act of Brame was felonious. The
case in Connecticut is based upon the allegation of negligence and
carelessness, and is the more favorable to a recovery, in that it
avoids the suggestion existing in the present case, that the civil
injury is merged in the felony. The Supreme Court of Connecticut
held that the action could not be sustained. We have cited and
given references to the important cases on this question; they are
substantially uniform against the right of recovery.
Upon principle, we think, no other conclusion could be reached
than that stated. The relation between the insurance company and
McLemore, the deceased, was created by a contract between them,
to which Brame was not a party. The injury inflicted by him was
upon McLemore, against his personal rights; that it happened to
injure the plaintiff was an incidental circumstance, a remote and
indirect result, not necessarily or legitimately resulting from the act
of killing. As in Rockingham Insurance Co. v. Mosher, 39 Me. 253,
where an insurance company brought a suit against one who had
wilfully fired a store upon which it had a policy of insurance, which
it was thereby compelled to pay, it was held that the loss was
remote and indirect, and that the action could not be sustained. In
Ashley et al. v. Dixon, 48 N. Y. 430, it was held that if A. is under a
contract to convey his land to B., and C. persuades him not to do
so, no action lies by B. against C. So a witness is not liable for
evidence given by him in a suit, although false, by which another is
injured. Grove v. Brandenburg, 7 Blackf. (Ind.) 234; Diinlap v.
Gledden, 31 Me. 435. And in Anthony v. Slaid, 11 Mete. (Mass.)
290, a contractor for the support of town paupers had been sub-
jected to extra expense in consequence of personal injury inflicted
upon one of them; and he brought the action against the assailant
to recover for such expenditure. The court held the damage to
be remote and indirect, and not sustained by means of any natural
or legal relation between the plaintiff and the party injured, but
simply by means of a special contract between the plaintiff and the
588 SUBROGATION.
town. Some text-writers are referred to as holding a different
view, but we are not cited to any case in this country or Great
Britain where a diff^^rent doctrine has been held.
By the common law, actions for injuries to the person abate by
death, and cannot be revived or maintained by the executor or the
heir. By the act of Parliament of Aug. 21, 1846, 9 & 10 Vict., an
action in certain cases is giv'en to the representatives of the
deceased. This principle, in various forms and with various limita-
ti )ns, has been incorporated into the statutes of many of our
Stites, and among others into that of Louisiana. It is there given
in favor of the minor children and widow of the deceased, and, in
default of these relatives, in favor of the surviving father and
mother. Acts of La , 1855, pr. 223, p. 270. The case of a creditor,
mach less a remote claimant like the plaintiff, is not within the
statute. Li each of the briefs it is stated that the defendant was
tried for the homicide, and acquitted. In the view we take of the
case, the fact of a trial or its result is a circumstance quite imma-
terial to the present question, however important it may have been
to the defendant.
Judgment affirmed.'
' In Harding v. To7un of To7vnshend, 43 V^t. 536, which was an action for dam-
ages for personal injuries occasioned by a defective highway, the defendant
attempted to have allowed in mitigation of damages, the amount received by
the plaintiff upon an accident polic}', on account of the same injuries. The
court said: " If there is any such connection between these I wo remedies as to
have the enforcement of one operate in defense or mitigation of the other, it is
the insurer and not the town (hat should be entitled to this benefit. It would
seem to be a perversion of justice, to subrogate the wrongdoer who has caused
the loss, to the rights of the injured party as to his remedy against the insurer."
INDEX,
PACE.
»ACB.
Abandonment
236
Beneficiaries
Accident insurance
fire insurance
236
burden of proof
315
life insurance
359
nature of contract
15
nature of interest
362
subrogation
585
who may be
359
terms
270
mutual benefit insurance
381
Accident, what is
270
right to sue
380
Action
Binding slip
ICO
limitation
211
Breach of contract by insurer
410
when accrues
314
Broker
500
Adjuster
501
Burden of proof
Age
248
accident insurance
315
Agents
46S
representations and warranties
124
adjuster
501
broker
500
Carriers, subrogation
553
concealment by
106
Cause, See Proximate Cause.
duty to principal
532
Chattel morlgage as incumbrance
160
for insured or insurer 426
5f7
Collision
231
local
468
Concealment
104
scope of authority
468
Consideration
Set^ also Waiver and Estoppel.
for insurance
92
soliciting
479
for waiver 422, 445
454
sub-agents
503
Construction of contract
131
Alienation
155
Consummation of contract
93
Alterations
173
Contribution
iy8
Apportionment of loss
205
Corporations, as insurers
31
Arbitration
194
See also Stockholder.
Assignment
Creditor
of fire policy to mortgagee
396
assignment of life policy to
66
of fire policy to purchaser
389
insurable interest in life
60
of life policy
402
insurable interest in property
38
of life policy to creditor
66
life insurance by insolvent
of marine policy
401
debtor
375
Attachment of risk, marine
217
Crime, death or accident while
Aunt and niece, insurable interest
56
committing
301
Average
general
232
Damages, for breach by insurer
414
particular
241
Dangerous articles
162
Bailee, insurable interest
49
Debtor, See Creditor.
[5^
59]
590
INDEX.
Delivery of policy, See Consumma-
tion.
Deviation 220
Disability, total 310
Divisibility of loss 205
Estoppel, See Waiver.
Examination of insured 190
Execution, as alienation 157
Explosion, loss by 182
E^cposure, voluntary 284
External injury 277
Falling building 184
Fidelity insurance
nature 16
terms 323
Fire insurance
assignment 389
beneficiaries 336
insurable interest 38
nature i
subrogation 536
terms 142
Foreclosure proceedings 176
Forfeiture, waiver of 417, 444
See also NoN-FORFEiTURE Clause.
Form of contract 76
Formation of contract 22
Frauds, statute of 79
Gas, death by 290
General agents 510
General average 232
Guaranty insurance
nature 16
terms 323
Hazard, increase of 142
Health 249
Heredity 255
Husband, insurable interest in prop-
erty of wife 46
Illegal insurance 126
See also Violating Law.
Implied terms 79
Incontestability 59, 264
Increase of hazard 142
Incumbrances 158
PAGE.
Infants, capacity
23
Inhaling gas, death by
290
Injury, external
277
Insanity and suicide
26s
Insurable interest
aunt and niece
5&
bailee
49
creditor
38, Co
husband in wife's property
46
in life
50
in life of another
53
in one's own life
50
in property
38
incontestable policies
59
life tenant
44
parent and child
59
partners
60
stockholder
41
relationship
53
uncle and nephew
53
Insurance, nature of
r
Interest, change of
157
Interstate commerce, insurance as 39.
Intoxicants
295
Iron-safe clause
192
Judgment, as incumbrance
158
Lessor and lessee, subrogation
560
Liability fixed, when
314-
Lienholder, subrogation
566
Life insurance
assignment
40»
beneficiaries
359
nature of
7
subrogation
585
terms
27a
Life tenant, insurable interest
44
Lightning, loss by
184.
Limitation of time to sue
211
Limits of contract
336
Local agents
468
Location of property 170
176
Magistrate's certificate
188
Manufactory, operation of
172
Marine insurance
assignment
401
nature of
5
terms
217
INDEX.
591
PAGE.
Mechanic's lien, as incumbrance
160
Medical attendant
254
Memorandum clause
241
Misrepresentation, Sc-f Represen-
tations.
Mistake
126
Mortgage, as alienation
155
Mortgagor and mortgagee
insurance lor
349
subrogation
566
Mutual benefit insurance
beneficiaries
381
nature of
13
terms
318
Nature of insurance
I
Negligence, fire by
181
Nephew and uncle, insurable
inter-
est
53
Niece and aunt, insurable interest
56
Non-forfeiture clause
268
Non-occupancy, See Occupancy.
Notary's certificate
18S
Occupancy
165
Occupation, life and accident insur-
ance
299
Oral contract
76
Oral waiver
512
Other insurance
fire
146
life
108
Over-exertion
294
Over-valuation
150
Ownership
152
Parent and child.
insura
ble interest
59
Parol evidence ru
le and
waiver 424,
437
See also Promissory Representa-
tions.
Particular average 241
Parties to the contract 22
See also Limits of Contract.
Partner, insurable interest in life 60
Physician 254
Poison, death by 287
Premiums 135
waiver of 492
Premium notes 140
Prohibited articles 162
Promissory representations 118, 442
Proof, See Burden ok Proof.
Proofs of loss 185
waiver 459, 463, 501
Pro-rating ig8
Proximate cause
accident insurance 282
fire insurance 170
marine insurance 231
Reality of consent
104
Re-building by insurer
203
Re-insurance
71
Relationship, insurable interest
53
Remedies for insurer's breach
410
Removal for safely, loss by
184
Representations and warranties
108
burden of proof
124
effect of misrepresentation
123
promissory representations
118
statutes
120
Residence and travel
25b
Retaliatory legislation
39
Risk, increase of
142
Safe clause
n2
Seaworthiness
221
Soliciting agent
479
Standard policy
construction
133
oral waiver
518
terms implied in oral contract
Sr
State control of insurance
31
Statute of frauds
79
Statutes
agents
531
incontestability
268
non-forfeiture
269
representations and warranties
J 20
valued policies
2og
Stockholder, insurable interest
41
Sub-agents
503
Subrogation
536
accident insurance
585
carriers
553
fire insurance
536
lessor and lessee
560
lienholder
566
life insurance
585
mortgagor and mortgagee
566
p i-ty r'^'n"' iff
5?i
592
INDEX.
Subrogation, continued.
tort 550
i-endor and vendee 536
Sue and labor clause 245
Suicide, deaih by 25S
as violation of law 306
Termination of marine risk 219
Terms of insurance contract 135
accident insurance 270
fidelity and guaranty insurance 323
implied 79
life insurance 248
marine insurance 217
mutual benefit insurance 318
Tiile, change of
See Alienation, Incumbrance.
Title guaranty insurance 329
Tort, subrogation 550
Total disability 310
Total loss 236
Travel 25b
Uncle and nephew, insurable interest
53
Violating law, death or accident
while 301
\'alued policies 207
Vendor and vendee
as owners 152
insurance for 344
subrogation 536
Void or voidable for forfeiture 419
Voluntary exposure 284
Waiver and estoppel 417
after forfeiture 444
after policy issued but before
forfeiture 443
before policy issued 423
consideration for 422, 445, 454
oral 512
parol evidence rule 424, 437
when question for jury 463
what constitutes 420. 421, 459
Waiver of proofs of loss 463
Warranties, see Representations
AND Warranties.
Wife, life insurance for 375
Written contract 76
Wrongdoer, subrogation 550
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