■I The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019259377 Cornell University Library KF 1164.E4S9 1907 The law of Insurance :a treatise on the 3 1924 019 259 377 THE LAW OF INSURANCE A TREATISE ON THE LAW OF INSURANCE INCLUDING FIRE, LIFE, ACCIDENT, MARINE, CASUALTY, TITLE, CREDIT AND GUARANTEE INSURANCE IN EVERY FORM BY CHARLES B. ELLIOTT, Ph. D., LL. D., Judge of th£ btipreme Court of Minnesota Author of " Public Corporations " and " Private Corporations" INDIANAPOLIS THE BOBBS-MERRILL COMPANY IdOT COPTKIGHT 1907 BY THE BOBBS-MEEEILL COMPANY THE HOLLER-BECK PEESS INDIANAPOLIS TABLE OF CONTENTS. PART I. OF THE CONTRACT OF INSURANCE, AND THE PRIN- CIPLES BY WHICH IT IS GOVERNED. CHAPTEE I. INTEODDCTOET. Sectiow Page 1. Sources of the law of insurance 1 2. Insurance in Roman law , 4 3. Its development on the Continent 7 4. Its growth in England 7 5. Growth ol insurance other than marine ; 11 CHAPTEE II. DEFINITION, NATUEB OP CONTEACT, AND MANNEB OP MAKING. Section Page 6. Definition 14 7. Different kinds of insurance 15 8. What constitutes insurance 16 9. Reinsurance 18 10. Parties 19 11. The insured 20 12. The insurer — ^Foreign corporations — State control 21 13. Mutual companies and benevolent societies 22 14. The risk 24 15. A personal contract * 26 16. A conditional contract 26 17. An aleatory contract 27 18. Indemnity 27 19. Life insurance not a contract of indemnity 27 20. Indemnity in accident insurance 29 21. Subrogation 29 (iii) IV CONTENTS. Section Page 22. Loss caused by negligence 29 23. Form of the contract 30 24. Statutory form — Conditions Implied In oral contract 31 25. Statute of frauds 32 26. Renewal by parol 32 27. Effect of charter provisions 32 28. Revenue stamps 33 29. Enforcement of oral contract 34 30. Kinds of policies 34 31. Completion of contract — Delivery of the policy 35 32. Countersigning by agent 36 33. Contracts made by correspondence 36 PART II. OF THE SUBJECT-MATTER OF INSURANCE AND THE INTEREST NECESSARY TO SUPPORT THE CONTRACT. CHAPTBE III. INSUKABLE INTEREST IN PEOPEKTT. SECnoN Page 40. The subject-matter 38 41. Insurable interest 38 42. Definition ■ 40 43. Nature of insurable interest 40 44. Different Interests 41 45. Time of interest ^ 41 46. Continuity of interest 42 47. Nature of interest 43 48. Illustrations 45 CHAPTEE IV. INSUHABLE INTEREST IN LIVES. Section p^o^, 55. The rule at common law 50 56. The English statute— Not in force in this country 51 57. The modern rule 59 58. The amount of a creditor's insurable interest 53 59. Mere form disregarded ' 54 CONTENTS. V Section Page BO. Continuance of Interest in life 55 Bl. Interest of beneficiary designated by insured 56 82. Interest of the assignee 57 B3. Interest of the assignee, continued ." 59 B4. Interest based upon relationship 61 65. Interest based upon relationship, continued 63 86. Illustrations of insurable interest in life 64 67. Right of assignee without interest to recover premiums paid. ... 67 68. Want of interest as a defense under incontestable clause 69 70. Description of interest , 70 PART III. OF MATTERS THAT RENDER THE CONTRACT VOID OR UNAVAILABLE. CHAPTEE V. NON-DISCLOSUEE OF MATEBIAL FACTS. Sectiow Page 78. In general 71 79. Duty of applicant 72 80. Concealment — Definition 72 81. Rule as affected by the character of the insurance 72 82. Modern rule in the United States 74 83. What must be communicated 75 84. Where specific inquiries are made 76 85. Basis of the rule 77 86. Where no written application is made 78 87. Incomplete answers to inquiries 79 88. Answers calculated to mislead — Irresponsive answers 80 89. Time of concealment 80 90. Materiality 80 91. Concealment through inadvertence or negligence 81 92. Concealment or misrepresentation by algent 82 93. Knowledge of the agent, continued 83 CHAPTEE VI. REPRESENTATIONS AND WARRANTIES. Section Page 100. Statutory definitions 86 101. Representations — Definition 87 vi contents. Section Page 102. Warranties distinguished from representations 87 103. Affirmative and promissory warranties 8S 104. Effect of breach of warranty ; 89 105. Construction of statements in the application 90 106. Application made part of the policy ■ 90* 107. Construction 91 108. Oral representations 9S 108a. Mistake — Good faith answer 93 109. Statement of expectation or belief 94 110. Affirmative and promissory representations — Continuing war- ranties 95 111. Oral promissory representations .' 96 112. Conclusion ; 98 113. Misrepresentation by agent 99 114. Effect of misrepresentation 100 115. Substantial truth required 100 116. Test of materiality 100 117. Materiality — Opinion of experts 101 118. Burden of proof 102 119. Statutory provisions 104 120. The Massachusetts statute '. 105 121. The Pennsylvania statute 105 122. 'Similar provisions in other states 106 123. Controlling force of such statutes 107 PART IV. OF THE CONSIDERATION. , CHAPTER VII. THE PREMIUM. Section Page 125. In general ; 109 /. The Premium in Ordinary Insurance. 126. Nature of premium HO 127. Obligation to pay premium in 128. Payment— Condition precedent— Forfeiture 112 129. Manner, time and place of payment 114 130. The giving of a promissory note 115 131. Payment after loss or death ^^j 132. Paid-up policies H „ 133. Premium notes ' ,,„ CONTENTS. Vll Section Page 134. Notice of time when premium is due 119 135. Right to recover premiums paid 121 IT. Assessments in Mutual Companies and Benevolent Societies. 136. Dues and assessments 122 137. Liability to assessment 123 138. Effect of non-payment of assessment 123 139. Withdrawal of member 124 140. Insolvency of company 124 141. Death during period of suspension 125 142. Reinstatement 125 143. Waiver — Estoppel 126 PART V. AGENCY, WAIVER AND ESTOPPEL. CHAPTER VIII. INSURANCE AGENTS AND THE GENERAL RULES OF AGENCY. Section Page 150. In general 128 151. Statutory provisions relating to insurance agents 129 152. Construction of such statutes 130 153. Evidence of agency 131 154. Character of the agency 131 155. Various special agents 133 156. Subagents and clerks 134 157. Insurance brokers 135 158. Powers of agents 137 159. Restrictions in application or policy 138 160. Limitations on authority of agent 139 160a. Limitations on authority — Continued 140 161. Limitations contained in application — Constructive notice 142 162. Preparation of application 143 163. Provisions restricting power of officers and general agents 143 164. Notice 144 165. Notice of loss to local agent 146 166. Rights and liabilities of agent 146 Till CONTENTS. CHAPTEE IX. ETTLES OF WAIVER AND ESTOPPEL AS APPLIED TO CONTRACTS OF INSURANCE. Section Page 175. In general 148 176. Definition 148 177. Knowledge and intent ' 149 178. Basis of waiver 149 179. Effect of mere silence '. 150 180. What may be waived 150 181. Waiver of certain defenses 151 182. Power of agent to waive 152 183. Waiver by agent — Continued 152 184. Prepayment of premium 15? 185. Waiver in writing only 154 186. Limitations in policy — Prepayment of premium 154 187. Estoppel by act of agent 156 188. Facts known to company when policy issued 157 189. Oral testimony to show actual statements 161 190. Bad faith — Collusion between applicant and agent 163 PART VI. THE STANDARD POLICY AND ITS PROVISIONS. CHAPTER X. PROVISIONS, OF THE STANDARD POLICY. Section Page 200. In general 165 201. The Massachusetts standard policy 165 202. The New York standard 166 203. The binding clause 167 204. Construction of the standard policy 168 205. Effect of a breach of condition 170 A. Provisions Relating to Matters Before Loss. I. Formal Part of Contract, 172. 206. Parties jY2 207. The premium j^^^ 208. Term of insurance -j^Y^ CONTENTS. IX Section Pack 209. The amount 175 210. Description of the property — In general 175 211. Goods held in trust 175 212. May cover shifting stock • 176 213. Ambiguous descriptions — Reformation 176 214. Presumption as to nature of business 178 215. Descriptions, when warranties 179 216. Description of merchandise — What included in the description. . 179 217. Description of buildings 183 218. Location of property — In general 186 219. Location material 187 220. Illustrations 190 221. Risks insured against 193 222. Proximate cause — Electric wires 197 « II. Authorization of Agent, 199. 223. Agency 199 III. Application and Survey, 224. Application a part of the policy 201 IV. Misconduct of Insured in Procuring Policy, 201. 225. Entirety of contract 201 226. Concealment and misrepresentation 204 227. Statement of interest 204 228. Fraud and false swearing 204 T. Excluded Bisks, 206. 229. Invasion, riot, etc ; 207 230. Theft 209 231. Neglect to protect property 210 232. Explosion 210 233. Lightning 213 234. Fall of building 213 235. City ordinances 215 YI. Excluded Property, 215. 236. Exceptions and limitations 215 237. Plate glass, frescoes and decorations 217 11 — Elliott Ins. X CONTENTS. CHAPTER XI. PROVISIONS OF THE STANDARD POLICY, CONTINUED. 711. Provisions Relating to Interest in and Care of Property, 319. Section Page 245. Other insurance 219 246. Definition — Different interests 221 247. Whether valid or invalid 222 248. Where the words "valid or invalid" do not appear 223 249. Consent of the company — Waiver 226 250. Policy covering a part of the property 227 251. Operation of manufacturing establishment 229 252. Running after hours 232 253. Increase of risk 233 254. Changes in adjoining property 236 255. Effect of increase of hazard 237 256. Repairs — Employment of mechanics 238 257. Ownership 241 258. Incumbrances 244 259. Illustrations 246 260. Illustrations of breach of condition 249 261. Building on leased ground 251 262. Incumbrance by chattel mortgage 252 263. Foreclosure proceedings 255 264. Generation of illuminating gas 258 VIII. Change in Interest, Title or Possession, 258. 265. Scope of provision 259 266. Transfer of part interest 260 267. Executory contract of sale 261 268. Incumbrances 263 269. Defeasible conveyances 265 270. Invalid conveyances 265 271. Sale with purchase-money mortgage 266 272. Conveyance to the wife of insured 266 273. Transfers by and between partners 266 274. Transfers between joint owners 269 275. Legal process or judgment 269 276. By judgment 271 277. By partition 272 278. Assignment and bankruptcy proceedings 272 279. Transfer by death 9^3 • 280. Change of possession 273 283 . Lease of the property 274 CONTENTS. X) IX. Assignment, j87^. Section Pack 282. Assignment of policy 275 Z. Prohibited Articles. 878. 283. Use of property — Prohibited articles 2-79 284. Prohibited articles — Continued 283 285. Exception in favor of kerosene oil 284 XI. Vacancy, SS5. 286. in general ". 28o 287. Construction 2SC 288. "Vacant" and "unoccupied" not synonymous 287 289. Construction when applied to dwelling house 288 290. Building — Contents — Vacancy 290 291. Illustrations of construction of this provision 291 XII. Authorized Change of Location, 29S. 292. In general 293 XIII. Benewal of Contract, 293. 293. In general 294 294. Illustrations 297 295. Reformation of the policy 298 XIV. Cancellation of Policy, 298. 296. In general 299 297. The Ume 300 298. Authority of agent to cancel 300 299. Return of premium 302 200. What amounts to a cancellation 303 XV. Waiver, 305. 301. Limitations upon power to waive 30G CHAPTER XII. PROVISIONS OF THE STANDARD POLICT, CONTINUED. B. Provisions Eei-ating to Matters Subsequent to a Loss. Section Page 302. In general 30S Kll CONTEXTS. XVI. Notice and Proof of Loss, S09. Section Page 303.. Definition— Compliance 309 304. "Immediate" notice 311 305. Separation of goods "forthwith" 313 306. Excuses for failure to furnish proofs 314 307. When a condition precedent 315 308. What is a compliance with this provision 317 309. Certificate of magistrate 319 310. Plans and specifications 320 311. Waiver -. 320 312. To whom notice must be given 322 XYII. Exhibition of Property and Records — Examination of Party, 323. 313. Examination of party 324 314. Failure to produce books 326 315. The iron safe clause 327 XVIII. Arbitration of the Amount of Loss, 330. 316. Disagreement 331 317. Validity of provision 332 318. Where there is a total loss 334 319. Demand for arbitration 335 320. Condition precedent 338 321. Revocation 342 322. Invalidity of the award 342 323. Waiver 347 324. Second arbitration — Resubmission 348 325. Demand for arbitration as admission of liability 352 326. Right of mortgagee 353 XIX. Bight to Repair, Rebuild, or Replace, S53. 327. An option reserved 354 XX. Time Within Which Loss is Payable, 357. 328. In general 35g XXI. Time of Bringing Suit, 359. 329. Validity 359 330. Time when limitation begins to run 36o CONTENTS. Xlll I CHAPTEE XIIL CERTAIN GENERAL PROVISIONS OE THE STANDARD POLICY. XXII. Measure of Damages, S62. Section Page 332. In general 363 333. Valued policy legislation 363^ 334. Constitutionality of valued policy laws 36& 335. Meaning of total loss 360 336. Total loss to frame building within fire limits 368 337. Amount of recovery — Illustrations 369 XXIII. Prorating Loss with Other Insurers, S70. 338. The pro rata clause 371 XXIV. Subrogation, S72. 339. The general principle 373 XXV. Reinsurance, S76. 340. The reinsurance contract 37fr XXVI. Conditions Affecting Mortgagees, S78. 341. Special provisions 378- XXVII. Construction of Terms — Mutual Companies, S81. 342. In general 381 XXVIII. Indorsement of Other Conditions, S81. PART VII. LIFE, ACCIDENT, AND INDEMNITY INSURANCE. CHAPTER XIV. STIPULATION'S OF LIFE INSURANCE POLICY. Section Pagbt 350. General statement 382 XIT CONTENTS. I. Formal Part of Contract, S8S. Section Page 351. Parties 383 352. The beneficiary — Manner of designation — ^Rlght to fund 383 353. Transmission of interest of beneficiary 387 354. Rights of beneficiary 389 355. Reservation of a right to change beneficiary 391 356. Manner of changing beneficiary 394 357. Right to proceeds — Bankruptcy 395 77. Payment of Premium a Condition Precedent, 395. 358. Payment of premium — Illustrations 396 359. Time when premium is due — Construction by agent — ^Estoppel.. 399 777. Powers of Agent, J^Ol. 360. Agents 401 IV. Statement of Age, Jt02. 361. Age 402 v. Assignment of Policy, JfOS. 362. Assignability 403 363. Notice to company 405 364. Manner of making assignment 407 365. Assignment of policy by assignee 408 VI. Incontestable Clause, ^09. 360. Incontestable 409 F77. Special Privileges, Jfll. .367. Special privileges 411 "7777. Application a Part of Contract, Jfll. .367a. Provisions In the application 411 (a) Excepted Bisks, 411. :368. Suicide — Sane or insane 412 369. .Where there is no provision as to the effect of suicide 413 .370. Suicide — Construction 414 371. Presumption — Burden of proof ; _ 4I6 •372. Residence and occupation 1 45^7 373. Death in violation of law or at the hands of justice 41g CONTENTS. XV (b) Statements with Reference to Habits, Physical Condition, etc., Jt20. Section Page 374. Habits 420 375. Health and freedom from disease 421 376. Bodily injuries 424 377. Medical attendance 424 378. Family relationship 425 379. Other insurance , 42C 380. Rejection of former application 427 CHAPTER XV. ACCIDENT INSURANCE. Section Page 390. In general 429 391. Definition of accident 429 1. Construction of Provisions of Policy. 392. External, violent, or accidental injuries 430 393. Risks of travel 432 394. Inhaling gas — Poison 433 395. Occupation or employment 435 396. External signs 436 II. Excepted Bisks. 397. Ettect of negligence 437 398. Voluntary exposure to unnecessary dangers 437 399. Bodily infirmity or disease 440 400. Injuries intentionally inflicted by others 441 401.- Injuries received while engaged in violation of law 443 402. Injuries received while intoxicated 446 III. General Provisions. 403. Amount of recovery — Disability 447 404. Construction — Effect of existing judicial decisions 449 XVI CONTENTS. CHAPTJER XVI. employees' liability, guaranty, and title insubanob. I. Employer^ Liability Insurance. Sectioit Page 410. In general 451 411. Injuries while engaged in designated business 452 ■tl2. Violation of statute by insured 454 113. When liability accrues. 455 114. Effect of judgment against insured 457 415. Notice of injury or claim 458 77. Fidelity Insurance. 416. In general 459 417. Manner of proof 462 418. Constructive notice 463 419. Supervision of employe 463 777. Credit Insurance. 420. In general 465 421. Construction of policy — Amount of recovery 466 422. Identity of the insured 469 IV. Title Insurance. 423. Insurance of titles — Construction 469 PART VIII. MARINE INSURANCE. CHAPTER XVII. MARINE INSURANCE. Section . Page 424. General statement 474 425. Description of insured ■ 475 426. Insurable interest 473 427. Beginning of the risk — Voyage "from" or "at and from" 476 428. Termination of risk 479 CONTENTS. . XVli /. Subjects of Marine Insurance, 480. Section Page 429. In general 480 430. The ship 480 431. Cargo, goods and merchandise 481 432. Goods carried on deck 483 433. Freight 484 434. Passage money 485 435. Profits and commissions 486 436. Bottomry and respondentia bonds 487 437. Seaman's wages 487 II. Implied Warranties, Jf88. (a) Seaworthiness, ^88. 438. Definition 488 439. What constitutes seaworthiness 489 440. Implied warranty in voyage policy 491 441. Time policies — English rule 493 442. Time policies — United States rule 495 443. Different stages of voyage 496 444. Seaworthiness a relative matter 497 445. Time of seaworthiness — Continuing warranty 497 446. Knowledge and intent of insured 499 447. Exclusion of warranty by terms of policy 501 448. Presumption — Burden of proof 501 (b) Deviation, 503. 449. Definition 503 450. Departure from route 503 451. Order of visiting ports 504 452. As affected by usage 507 453. Delay 508 454. Departure to save property 509 455. Transshipment of cargo 510 456. To avoid danger 510 457. Change of voyage — Intention 511 458. Excusable deviation 512 459. Restraint justifying deviation 513 460. Entering port to refit 514 461. To recruit crew 515 462. Driven in by stress of weather 515 463. To escape capture 516 464. To join convoy • 516 465. To save life or succor distress 517 466. Effect of deviation — Increase of risk 518 XVlll CONTENTS. (c) Illegality, 519. Section Page 467. General statement 519 468. Violation of war policy of state 519 468a. Neutrality 520 469. Violation of revenue l^ws — Foreign states 522 470. Proper documents 523 CHAPTER XVIII. MARINE INSDEANCE, CONTINUED. The Risks, 525. Section Page 471. Enumeration in the policy 525 472. Perils of the sea 526 473. Foundering at sea 526 474. Stranding 527 475. Collisions 528 476. Shipwreck 531 477. Salvage 531 478. Loss by fire 532 479. Loss by thieves 532 480. Capture and seizure — Takings at sea 534 481. Arrest — Restraint — Detention 536 482. Barratry , 540 483. "All other perils, losses and misfortunes" 544 484. Proximate cause of loss 545 485. Negligence — Misconduct 548 486. The sue and labor clause 551 487. Excluded risks and limitation upon liability 553 CHAPTER XIX. MARINE INSUEANCE, CONTINUED. The Loss and Matters Subsequent Thereto, 657. Section Page 488. Character of the loss 557 (a) Actual Total Loss, 559. 489. The general rule 559 (b) Constructive Total Loss, 560. 490. In general 560 491. Insurance against "actual total loss" 560 492. Entire or severable contract 565 493. Division of cargo — Transshipment 585. CONTENTS. XIX (c) Abandonment, 567. Section Page 494. Definition 567 495. Right to abandon ; 567 496. Test of right to abandon 569 497. Apprehension of peril 570 498. For lack of funds to repair 571 499. Sale by master 572 500. Goods separately valued 573 501. Time when must be made 573 502. Must be complete 574 503. Notice, manner and character of 574 504. Basis of valuation for total loss 576 505. Acceptance of abandonment 579 506. Effect of abandonment. 579 507. The master as agetit of the underwriters 582 508. Time when right is determined — Erroneous information 584 (d) General Average and Adjustment of Losses, 586. 509. General average 586 510. Adjustment of loss 590 511. York-Antwerp rules ■ 590 ELLIOTT ON INSURANCE. Part I. OF THE CONTRACT OF INSURANCE, AND THE PRINCIPLES BY WHICH IT IS GOVERNED. CHAPTEE I. INTEODUCTOBT. SEO. SEC. 1. Sources of the law of insurance. 4. Its growth in England. 2. Insurance in Roman law. ■ 5. Growth of insurance other than 3. Its development on the continent. marine. § 1. Sources of the law of insurance. — The law of insurance has been developed from the customs of merchants and the maritime law of the Middle Ages. For many years marine insurance only was known, and it is only within recent years that the contract has been applied to risks other than those of the sea. As late as 1796 a learned English writer said that "when insurance is mentioned by profes- sional men they mean marine iasuranee." But by the beginning of the nineteenth century the general principles upon which the con- tract rests were reasonably well settled, and the later developments have been little more than their application to new conditions. It is not the intention in the limited space at command to treat of marine insurance in detail, but it must necessarily often be referred to, as historically it furnishes the broad foundation upon which the law of insurance rests. ^ As we trace its history toward its uncertain 'For the history of the practice Ins. (5th ed., 1805), Introd.; Duer and law of insurance, see Marshall Marine Ins. (1845), Introd. Disc; (1) § 1 THE CONTEACT OF INSDEANCE. 2 origin it gradually widens from judicial decision until it rests upon the broadest principles of general jurisprudence. Many distinguished writers assert that the law of insurance is a part of the law of nations, but this is true in but a very limited sense. Thus, with reference to marine insurance and maritime law, Blackstone says^ that "there is no other rule of decision but this unwritten law collected from the history and usage of such writers of all nations as are generally ap- proved and allowed of." Emerigon says^ that it belongs rather to the usages of merchants than to the civil or municipal law, and "though it did not until very late become the special object of legisla- tion, it is not the less regulated by the general principles of justice and equity that abide in the written reason of the law." In studying the law of insurance we may therefore properly follow the example of Mansfield, Story and Kent, and resort to those ancient wells of learning from which have been drawn the principles which, although established for the protection of the adventurous merchants of the Middle Ages, are every day applied by modern courts in the decision of current cases. These laws and customs are found in various collections. The most ancient is the famous Consolato del Mare, which was in force at least as early as the eleventh century, and for many years thereafter was received as law by all the states of Southern Europe. It con- tains no reference to insurance as we know it, but does show that a kind of mutual insurance was then in use.* Next in order of time come the Laws of Oleroh, which were in force by the middle of the thirteenth century. Oleron was an island on the coast of France, within the jurisdiction of the ancient province of Guienne. There has been much controversy as to the origin and value of these laws. They contain no reference to insurance, but this does not prove that it was not in use among the French merchants, as they are merely rules for the government of mariners at sea and the determination of the relations between sailors, ship-owners and merchants. Fear the close of the thirteenth century we find a collection of laws Joyce Ins. (1879), Prelim. Chap.; Life Insurance, ch. 1; 9 American Kent's Com. (13th ed.) 342, 487; Cyclopedia 314. Emerigon Trait§ des Assurance M Bl. Com. (Hammond's ed.), ch. (Boulay-Paty's ed., 1827), Preface 5, p. 89. and ch. 1; Alauzet Traits General "Emerigon Ins. (Meredith's des Assurances, early chapters of Trans.), 4. Vol. I; Richards Ins., ch. 1; Fire and * Alauzet Traitg General des As- surances, Tom. Prem., p. 42. 3 INTRODUCTORY. § 1 made by the merchants and masters of the "Magnificent City of Wis- buy." They greatly resemble the Laws of Oleron, and for many years were accepted by the states of Northern Europe. They also are laws governing navigation and not commerce, and hence we do not expect to find in them any distinct allusion to the practice of in- surance." The laws of the Hanse towns, published about 1593, are very simi- lar to those of Oleron and Wisbuy. They mention bottomry, but not insurance. Duer says' that, "The merchants of the Hanseatic league, when these laws were compiled, had been for nearly three centuries the carriers of Northern Europe, and during the whole of that period had been accustomed to meet the merchants of Italy, Spain, France and England at the sfaple towns they had established in Flanders, Antwerp and Bruges. That in 1597, and even in 1614 (for in that year their original laws were revised and enlarged, still omitting the subject of insurance), they alone were ignorant of the practice that had prevailed for centuries among the merchants of the rest of Europe, it would be irrational to believe; nor is it difficult to assign the reason for their omitting at this time to make any special regu- lations relative to insurance. An ample ordinance on that subject was published at Antwerp, under the authority of Philip II, in the year 1563, and the conjecture is more than probable that the rules of this ordinance were adopted and deemed sufficient by all the mer- chants of the north of Europe. Of the existence and provisions of such an ordinance, in a city which was then a place of common and chief resort, they could not have been ignorant." The celebrated Ordinance of Marine of Louis XIV was published under the auspices of Colbert in 1691, and was the first complete code of maritime and commercial law; and "when we consider the originality and extent of the design and the ability with which it is executed, we shall not hesitate to admit that it deserves to be ranked among the noblest works that legislative genius and learning have ever accomplished." The part which relates to insurance is the basis of the present French law upon the subject and is embodied in Na- poleon's justly famous code. The Ordinances of Barcelona are the most ancient of those which ■Marshall Ins. (5th Am. ed., 'Duer Mar. Ins., Introd. Disc, 1S05), Pre. Disc; Bmerigon Ins., 47, Pref. xiii; Duer Mar. Ins. 41, note. § 2 THE CONTRACT OF INSURANCE. 4 treat expressly of insurance. A translation of all the foreign or- dinances on this subject was published by Magens. Space will allow for little more than the names of the famous com- mentators who have by their genius thrown light upon this field of the law. The most ancient treatise is Le Guidon de la Mer, which is found in a collection published at Kouen by Cleriac in 1671, but without any account of its origin. It was doubtless written near the close of the preceding century. It is well arranged, and many of the rules have entered into the general law of the subject. The essay of Eoccus, translated by an American lawyer and published in this country, is still frequently cited. Of the famous treatises of Pothier, Valin and Emerigon, I can do no better than follow the example of Duer, and quote the language of Chancellor Kent. "Valin's copious commentary upon that part of the Ordinance of Louis XIV, which relates to insurance, is deserving of great attention, and it has uni- formly, and everywhere, received the tribute of the highest respect for the good sense, sound learning and weight of character which are at- tached to his luminous reflections. Pothier's essay on insurance is a concise, conspicuous, accurate and admirable elementary digest of the principles of insurance, and it contains the fundamental doctrines and universal law of the contract. But the treatise of Emerigon very far surpasses all preceding works in the interest, value and prac- tical application of its principles. It is the most elaborate, learned and finished production on the subject. He professedly carried his researches into the antiquities of the maritime law, and illustrated the ordinances by what he terms the jurisprudence of the tribunals; and he discussed all incidental questions, so as to bring within the compass of his work a great portion of international and commercial law connected with the doctrines of insurance. In the language of Lord Tenterden, no subject in Emerigon is discussed without being exhausted ; and the eulogy is as just as it is splendid." § 2. Insurance in Eoman law. — It is uncertain whether the con- tract of insurance was known to the Eomans, but the weight of argu- ment leads us to believe that it was in common use. The leading writers who assert the contrary, such as Parke and Marshall, are largely influenced by the fact that the Eoman law, as it has come down to us, has few, if any, references to such a contract. The contracts of bottomry and respondentia — the loan of money on a vessel or a cargo, to be paid only in the event of its safe arrival were 8 INTRODUCTOET. § 2 ■well known and in extensive use. The titles which cover these sub- jects are among the most ample and instructive, but neither the In- stitutes, Pandects, Code or Novels, nor the laws of the Emperors after Justinian, contain any trace of the existence of insurance as a dis- tinct and independent contract. Notwithstanding this, the probabilities are greatly in favor of its existence. Certain references are found, which seem to point to the practice of insurance. Emerigon cites two instances in Roman his- tory.' We are told by Livy* that during the republic the govern- ment, for the purpose of encouraging merchants who had contracted to supply the army abroad with provisions, agreed to bear all losses that might happen to the cargoes during the voyage from perils of the sea, or hostile capture. So Suetonius" says that during a period of apprehended scarcity at Rome the Emperor Claudius offered a sim- ilar immunity to those who would bring provisions to the city. This was neither more nor less than an insurance by the government, and the consideration or premium therefor was the public benefit accruing therefrom.'" It is true that it does not prove the existence of in- surance as a private contract, but it shows that merchants were familiar with the idea of such protection, and increases the probability that it was not unknown to them in their private transactions. This silence of the Code of Justinian can perhaps be satisfactorily accounted for upon the theory that it was not intended to include the entire body of what we would call the common law of the empire, such as the customs, usages and the law merchant. We know that for over a thousand years Roman merchants carried on a commerce greater in volume than that of all Europe at the close of the seventeenth century,^' and from this we infer that there must have been laws defining. the relative rights and duties of the owners, seamen and masters of vessels. But nothing of the kind is found in the Code. ' See Emerigon Ins. (Meredith's nity instead of the adoption of the ed.), ch. 1, § 1; Marshall Ins., Pref. present system of capture of pri- ' Livy, L. 23, ch. 49, L. 25, eh. 3. vate property. See address of Mr. • Suetonius, L. 25, ch. 2. Anglers, Report, p. 278. See also '° Similar plans for government article "Ought the State to Cover insurance during maritime war are Maritime War Risks?" by Sir John still urged. At the Rouen confer Glover in Contemporary Review ence, 1900, of the International Law for May, 1898. Association, it was stated that the " Cicero Epist. ad Attic IV, ch. merchants of Great Britain favored 1, 11, iii. this system of government indem- § 2 THE CONTRACT OP INSURANCE. 6 It is probable that these matters were governed entirely by the customs of merchants, which were based upon rules adopted from the famous laws of the Bhodians.,^" We know that during the Middle Ages the maritime law of Europe was a body of customs developed by the merchants and enforced by arbitration and by special tribunals existing among themselves for the purpose of deciding their contro- versies without resort to the ordinary judicial tribunals. Probably the same was true in Rome, and if so, it explains the absence of any reference to the contract of insurance in the works of the Roman jurisconsults. Duer gives aia ingenious explanation of the difficulty suggested by the full treatment of the analogous contracts of bottomry and respondentia. The Roman patricians and senators were the capi- talists of the world, and, while not directly engaged in trade, were nlways willing to loan their money at high rates of interest to the merchants at home and in the provinces. These merchants, de- siring large loans on bottomry, resorted to the gentlemen at Rome, and out of such large dealings there resulted controversies which naturally, at least after a time, came within the jurisdiction of the ordinary courts. The contract, not being subject to the usury laws, became a prime favorite with these patrician usurers, and the jurists, who belonged to the same class, soon created an elaborate body of rules for its government. Duer says:" "When Trebonian and his associates, under the auspices and orders of -Justinian, commenced their labors, an ample code of maritime law, probably embracing all the subjects which they omitted, was not only in existence, but was in actual force as law throughout the empire, and had been so for ages." These were the laws of Rhodes, framed in the days of her grandeur, when she claimed dominion over the sea. In the early years of Augustus these laws were adopted and declared a part of the laws of the empire.^^ In a subsequent age, Antoninus Pius, in a truly imperial edict, says: "The earth is subject to my dominion; the sea to that of the law. Let the ease be determined by the Rhodian law on naval affairs, the provisions of which I direct to be observed in the future " That the collection of laws pur- Cujas maintains that in all maritime porting to he the laws of Rhodes questions the Romans ought to ad- are spurious, see Johnson's transla- here to the laws of Rhodes, if there tion of Azuni. Vol. I, p. 286, note; is no particular law existing to the Duer Mar. Ins. 26. contrary, and this Is in conformity "Duer Mar. Ins. 24. with the direction of Augustus." "Azuni says: "The celebrated Maritime Law, Vol. I, p. 27L 7 INTEODUCTOET. § 3 in all cases where they are not repugnant to the laws of Eome. The same decision was formerly made by the divine Augustus." This edict was republished by Justinian and inserted in the Pan- dects. We thus find that the Ehodian sea laws were by reference and adoption incorporated into the code. They were already collected and published in an appropriate form, -and further codification was therefore not necessary. No collection of these laws has come down to us, and they are known only by name. It is thus more than probable that the Eomans were familiar with the practice of insurance. They were bold navigators, and when we consider the character of their vessels, it is safe to assume that the risks and perils of the sea to which they subjected their cargoes were greater than those ta^en by modern commerce. Insurance seems to grow naturally out of an extensive commerce, and it is almost im- possible to believe that without its protection the flourishing com- merce of Tyre, Carthage, Corinth, Athens, Ehodes and Alexandria could have been successfully carried on through so many ages. § 3. Its development on the Continent. — It was during the Middle Ages, in connection with the rise of commerce, that insurance was first fully developed, if not invented, by the merchants of northern Italy. It has been suggested that it was brought into Italy by the Jews after their expulsion from France in 1183.^° Emerigon says that the con- tract first received its name and form in Italy, although it had been known in substance in other places for many years. The common name of the contract is of Italian derivation, and means a memoran- dum in vn:iting.^' Eeference has already been made to the famous sea laws which were promulgated during this period. It is impos- sible to fix the exact date when insurance began to be used, but it was in general use as early as the twelfth century. § 4. Its growth in England. — Certain writers claim that the prac- tice of marine insurance was in use in England before it was known on the Continent. But it is practically certain that it was brought there by the Italian merchants who established themselves in Lombard street. For many years it was known only as a custom amono' merchants. By 1548 it had become so common that Lord "■See Duer Mar. Ins., Int Disc, "Policy, Italian "polizza." p. 30; Anderson History of Com. 82. § 4 THE CONTRACT OF INSUKANCE. ° Bacon, in opening Elizabeth's first parliament, said: "Doth not the wise merchant, in every adventure of danger, give part to have the rest insured?" The first reported case as referred to by Lord Coke in Dowdale's Case, was decided in 1588." It was held that "where as well the contract as the performance of it is wholly made or to be done beyond sea, it is not triable under our law, but if the promise be made in England it shall be tried." The idea still prevailed, how- ever, that this peculiar contract of merchants, and the controversies arising out of it, should be construed by special tribunals, such as the famous Tribunal of the Mercanzia, which held its sessions at Florence and heard appeals in bankruptcy and insurance cases from all parts of Europe. The first English statute relating to this subject is 43 Eliz., ch. 12, from which it is apparent that the contract was then well known in England, and also that it was customary to settle controversies arising thereunder by arbitration among merchants. The object of this stat- ute was to prevent parties from resorting to the ordinary courts. It is recited that "of late years divers persons have withdrawn themselves from that arbitrary course and have sought to draw the parties as- sured, to seek their moneys of every several assurer,^* by suits com- menced in her Majesty's courts, to their great charges and delays." Commenting on this, a well-known writer says that: "Before the passing of this act almost all disputes arising upon contracts of in- surance were settled and adjusted by arbitration without resorting to any legal proceedings, and there seems to have been a particular tribunal for such arbitrations established in London composed of persons annually appointed by the lord mayor, in imitation of some such establishments in other countries." Malynes informs us that there was an office of assurance in the west side of the Eoyal Exchange where insurances were made, and to which belonged certain commis- sioners who were annually chosen and who were probably the grave and discreet merchants alluded to in the recital. The act also, some- what inconsistently, recites: "Whereas, heretofore assurers have used to stand so justly on their credits, that few or no controversies have arisen thereupon; and if any have grown, the same have, from time to time, been ended and ordered by certain grave and discreet merchants appointed by the lord mayor of London, as men, by reason "Dowdale's Case, 6 Coke 47b, 4 "It will be remembered that 9 Inst. 142. risk might be underwritten by many Individuals. 9 INTEODUCTOET. § 4 of their experience, fittest to understand, and speedily to decide those causes." It is further said, in the archaic language of the time: "Whereas, it ever hathe bene the polieie of this realme by all good means to comforte and encourage the merchante, therebie to advance and increase the generall wealth of the realme, her Majestie's cus- tomes, and the Strength of Shippinge, which Consideracion is nowe the more requisite because trade and traffique is not at this present soe open as at other tymes it hathe bene. And, whereas it hathe bene tyme out of mynde an usage among the merchantes, both of this realme and of foraine nacyons, when they make any great adventure (especiallie into remote parts), to give some Consideration of money to other persons (which commonlie are in no small number), to have from them assurance made for their goodes, merchandize, ships and things adventured, or some parts thereof, at such rates and in such sorte as the parties assurers and the parties assured can agree, which course of dealinge is commonlie termed a polieie of assurance," etc. This court, or rather commission, was composed of a judge of ad- miralty, the recorder of London, two doctors of the civil law, two common lawyers and eight grave and discreet merchants, or any five of them. Its powers were not exclusive and its judgments were no bar to an action at law, and finally "prohibitions to restrain them were issued and the court fell into disuse."" Beginning with this statute, we find parliament, through numerous acts, regulating the contract and the manner of its making and en- forcement.*" Comparatively few cases arose, however, until the time of Lord Mansfield. This great jurist soon obtained control over such Litigation and laid the foundations of the law upon those great princi- ples by which it is still largely governed. Speaking of Mansfield's work in this respect, Marshall says:"^ "The great increase of insur- ance not only upon British commerce, but likewise upon that of other countries, produced about this time a number of causes upon this sub- ject, to which it became necessary for him to turn his particular atten- tion ; and, indeed, he seems to have taken pleasure in the discussion of questions arising upon this contract, in which more, perhaps, than upon any other subject he displayed the powers of his great and com- prehensive mind. From the books of the common law very little could be obtained, but upon the subject of marine law, and the particular "1 Smith Merc. Law (1890), Ix. " Marshall Ins. 28. ■* These statutes are collected in a note to Joyce Ins. 19. THE CONTRACT OF INSURANCE. 10 subject of insurances, the foreign authorities were numerous, and in general very satisfactory. From these, and from the information of intelligent merchants, he drew those leading principles which may be considered as the common law of the sea, and the common law of merchants, which he found prevailing throughout the commercial N7orld, and to which almost every question of insurance was easily referable. Hence the great celebrity of his judgments upon such questions, and hence the respect they commanded in foreign coun- tries."" ^ Lord Campbell thus describes Lord Mansfield's methods: "When questions necessarily arose respect- ing the buying and selling of goods, respecting the affreightment of ships, respecting marine assurances, and respecting bills of exchange and promissory notes, no one knew how they were to be determined. Not a treatise had been published upon any of these subjects, and no cases respecting them were to be found in our books of reports, which swarmed with decisions about lords and villains, about marshaling the champions upon the trial of a writ of right by birth, and about the cus- tom of manors whereby an unchaste widow might save the forfeiture of her dower by riding on a black ram and in plain language confessing her offense. Lord Hardwicke had done much to improve and system- atize equity, but proceedings were still carried on in the courts of com- mon law much in the same style as in the days of Sir Robert Tresilian and Sir William Gascoigne. Mer- cantile questions were so ignorantly treated, when they came into West- minster Hall, that they were usually settled by arbitration among the merchants themselves. If an action turning upon a mercantile question was brought in a court of law, the .iiidges submitted it to the jury, who determined it according to their own notions of what was fair, and no general rule was laid down which could afterwards be referred to for the purpose of settling simi- lar disputes. * • • He (Lord Mans- field) saw the noble field that lay before him, and he resolved to reap the rich harvest of glory which it presented to him. Instead of pro- ceeding by legislation, and attempt- ing to codify, • * » he wisely thought it more according to the genius of our institutions to intro- duce his improvements gradually, by way of judicial decision. As re- spected commerce, there were no vicious rules to be overturned — he had only to consider what was just, expedient, and sanctioned by the ex- perience of nations farther ad- vanced in the science of jurispru- dence. His plan seems to have been to avail himself, as often as oppor- tunity permitted, of his ample stores of knowledge, acquired from his study of the Roman Civil Law, and of the juridical writers produced in modern times by France. Ger- many, Holland and Italy, not only in doing justice to the parties litigat- ing before him, but in settling with precision, and upon sound princi- ples, a general rule, afterwards to be quoted and recognized as govern- ing all similar cases. Being still in the prime of life, with a vigorous constitution, he, no doubt, fondly 11 INTEODUCTORT. § 5 ITo sketch, however brief, of the rise of the law of insurance in England is complete without a reference to Lloyds. Near the be- ginning of the eighteenth century one Lloyd opened a cofEee-house in Abchurch lane, in London, which became a resort for merchants and others engaged in the maritime trade. Some of these were en- gaged in underwriting insurance, and the place soon became identified with them and their business. In 1696 the proprietor started a news- paper called "Lloyds News," which had for its object the dissemination of commercial intelligence, but departing from this field and printing certain proceedings of the house of lords, it fell under the displeasure of that body and was suppressed. In 1726 the paper was revived under the name of "Lloyds Lists," and under that name became famous in the commercial world. In 1669 the merchants who were in the habit of meeting at Lloyds for the transaction of their business, formed themselves into a society, and adopted certain rules for their government. Soon after this organization was effected the society adopted a form of policy known as Lloyds policy, which is the basis of the policy now in use in England and America. It was customary among the merchants at the coffee-house to pass around a proposed policy, and each individual who cared to do so wrote his name thereon for the amount of the risk he was willing to assume. Finally, in 1871, the "Society of Lloyds" was incorporated, and it still exists as one of the great factors in commercial life.^' § 5. Growth of insurance other than marine. — It is a remarkable fact that only insurance against the perils of the sea was practiced, at least to any great extent, until within recent years. In a standard English work, which assumed to cover the entire subject of insurance, published in 1803, we find less than fifty pages devoted to all kinds of insurance other than marine insurance. In closing his discussion of life insurance, the learned author says : "I have now gone through all that seemed to be material upon the subject of insurance upon lives, from which it appears that many of the principles which govern marine insurances are also applicable to this contract. Considering the great multiplicity of insurances which have of late years been made upon lives, the number of litigated cases that have arisen upon them is extremely small. One principal reason is that the happening of the hoped that he might live to see "See "The Past and Present of these decisions embracing the whole Lloyds." 11 Eng. 111. Mag. 143; scope of commercial transactions, "Lloyds," 5 Chambers' Journal 97. collected and methodized into a sys- tem which might bear his name." § 5 THE CONTRACT OF INSURANCE. 12 event insured against is always a fact of easy proof, which can scarcely ever afford any subject of dispute. Another is the great difficulty of practicing any fraud in such insurances. !6ut to no cause is this for- tunate circumstance more to be ascribed than to the honor, iiitegrity and liberality of the several companies engaged in this branch of in- surance." The same writer considers it necessary to discuss the desir- ability and public policy of fire insurance. He says that, "I have not been able to ascertain the period of the introduction of insurance against fire in this country, but it has certainly been in use here con- siderably more than a century. Of late years, notwithstanding the very heavy stamp duty imposed on these insurances, they have been brought into very general — I might almost have said, universal — ^use in this country."** The earliest English life insurance company was organized in 1706 under the name of the Amicable Society for a Perpetual Assurance Office. The plan was very simple. Only those between the ages of twelve and fifty-five were admitted, and all were required to make a fixed yea,rly contribution, which was divided among the representa- tives of those who died. There are some traces of life insurance to be found in very early times. It is certainly older than fire insurance. The earliest English stock company was organized in 1710, although a similar business had been carried on in London as early as 1681. The modem system of life insurance probably began with the Equi- table Assurance Society of London, which commenced business in 1762. Very soon after this, in 1769, a company was organized in Pennsylvania for the purpose of providing protection for the families of Presbyterian clergymen. The first American company was the Philadelphia Contributorship for Insuring Houses from Loss by Fire, which was incorporated by Benjamin Franklin and his associates in 1762.=" The first reported case in this country was Lord v. Dall,*^ decided by the supreme court of Massachusetts in 1809, in which it was held that life insurance eon- tracts were valid, although not authorized by statute. The principle of the mutual insurance system is of very ancient origin, and the mod- em form can well be connected with the ancient guilds and friendly societies. Similar organizations have been known since the earliest times," but it is only within recent years that they have assumed their "Marshall Ins. 679. "Fortnightly Review (N S) " 13 Enc. Brit. 161. 1864, p. 318; 9 Enc. Brit. 780 ' "12 Mass. 115. 13 INTRODUCTORY. § 5 present form. The first American life insurance case in which this kind of insurance was considered arose in Louisiana in 1871.'" The first accident company was organized in London in 1849, and the practice of insuring real estate titles began in 1876. At present a company can be foimd ready to insure against almost every conceiv- able risk — from the merchant's ever-present perils of the sea to the surgeon's equally imminent danger from actions for malpractice. "Wetmore t. Mutual, etc., Ins. Ass'n, 23 La. An. 770. CHAPTER II. DEFINITION, NATUEE OF CONTRACT, AND MANNEE OF ITS MAKING. SEC. SEC. 6. Definition. 20. Indemnity in accident insur- 7. Different kinds of insurance. ance. 8. What constitutes insurance. 21. Subrogation. 9. Reinsurance. 22. Loss caused by negligence. 10. Parties. 23. Form of contract. 11. The insured. 24. Statutory form-T-Conditions im- 12. The insurer — Foreign corpora- plied in oral contract. tlons — State control. 25. Statute of frauds, la. Mutual companies and benevo- 26. Renewal by parol. lent societies. 27. Effect of charter provisions. 14. The risk. 28. Revenue stamps. 15. A personal contract. 29. Enforcement of oral contract. 16. A conditional contract. 30. Kinds of policies. 17. An aleatory contract. 31. Completion of contract — Deliv- 18. Indemnity. ery of policy. 19. Life insurance not a contract of 32. Countersigning by agent. indemnity. 33. Contracts made by correspond- ence. § 6, Definition. — In the most general sense, insurance is a con- tract, for a consideration, to pay a sum of money upon the happening of a contemplated event. This may be an event which is certain to happen, such as death, or a mere possibility, such as j&re or disaster at sea. Originally insurance was confined to protection against the dangers of the sea, but the different kinds have now become as com- mon as the risks to which life and property are subject. If we except life insurance, which has features peculiar to itself, insurance may be defined as a contract where for a stipulated consideration one party undertakes to indemnify another against loss or damage on a desig- nated subject-matter by certain contemplated perils. The kind of in- surance is determined by the nature of the peril or of the subject- matter.^ ' Numerous definitions are quoted in People v. Rose, 174 111. 310, Wood- ruff Ins. Gas. 16 (1898). (14) 15 DEFINITION, NATURE, AND MANNER OP MAItlNQ. § 7 § 7. Different kinds of insurance. — Fire insurance is a contract whereby one party, for a consideration, agrees to indemnify another against loss or damage to property by fire. Life iusurance is a contract whereby the insurer, in consideration of a certain sum, paid in gross or in annual payments, agrees to pay the person in whose favor the insurance is made a certain sum of money or an annuity in the event of the death of the person whose life is insured. Accident insurance is a contract whereby one, for a consideration, agrees — (a) to indemnify another against personal injury resulting from accidents, and (6) to pay another a certain sum in case of the death of the in- sured, caused by accident.^* Marine insurance is a contract of indemnity against loss occurring to the subject-matter of the policy from certain perils of the sea to which the ship, merchandise or other interest may be exposed during a certain voyage or a certain period of time. Guaranty and fidelity insurance is insurance against loss arising from want of fidelity in employes, insolvency of debtors, negligence of employes resulting in personal injury to others, and many other simi- lar risks.' Casualty insurance is insurance against loss resulting in bodily in- jury or the destruction of certain kinds of property. A distinction, however, is generally made between accident and casualty insurance, by which the former is applied to injuries to the body caused by ac- cident, and the latter to accidental injuries to property, such as boilers and plate glass.* Endowment insurance is a contract to pay a certain sum to the in- 'a Healey V. Mutual Ace. Ass'n, 133 (1895); Fidelity, etc., Co. v. Gate 111. 556, 23 Am. St 637 (1890). As City Nat. Bank, 97 Ga. 634, 33 L, to boiler insurance, see Laclede, etc., R. A. 821 (1896); Mechanics' Sav Co. v. Hartford, etc., Ins. Co., 60 Bank v. Guarantee Co., 68 Fed. 459 Fed. 351, 9 C. C. A. 1 (1894). Insurance of employer from llabil 'People V. Rose, 174 111. 310, ity for negligence: See Anoka Lum Woodruff Ins. Cas. 16 (1898); State ber Co. v. Fidelity, etc., Co., 63 Minn V. Federal Inv. Co., 48 Minn. 110 286, 30 L. R. A. 689 (1895). (1892). Insurance of fidelity of em- 'Employers', etc., Corp. v. Merrill, ploye: See Fidelity, etc., Co. v. Eick- 155 Mass. 404, Woodruff Ins. Cas. 15 hoff, 63 Minn. 170, 30 L. R. A. 586 (1892). § 8 THE CONTRACT OF INSURANCE. 16 sured if he lives a certain length of time, or, if he dies before the time stated, to some person indicated in the contract* § 8. What constitutes insurance. — The courts have in recent years had frequent occasion to determine whether certain corporations were engaged in the business of insurance. Numerous bonding, ipvest- ment and gambling schemes have been organized in such a manner as to try and get the benefit of the idea of insurance and yet escape the restrictions imposed for the benefit and protection of the insured. Where the articles of incorporation provided "that the general nature of the business to be transacted by this corporation shall be to provide the means for profitably investing for certificate-holders small sums of money, to be paid in monthly installments until the sum so accu- mulated shall reach a sufiicient amount to redeem in the order of their issuance all outstanding certificates of the company in force," the organization was held not to be an insurance company.* The court said "neither the times nor the amounts of payments by the assured, nor the modes of estimating or securing the payment of the sum to be paid by the insurance, are important or controlling in de- termining whether a transaction' is a contract of insurance, but in order to render it such it must contain the essential element of indem- nity for loss in respect to some specified subject from, some specified risks ; and, to constitute a contract, one of either a life, endowment or casualty insurance, the payment of the indemnity must be contingent either upon the duration of human life or the happening of a casualty resulting in bodily injury to the insured." There are some events against which the policy of the law will not permit insurance. If the contract is in restraint of trade, or if it has a tendency to discourage matrimony, it can not be enforced. Thus, a corporation which agreed that if a member should pay an initiation fee and certain annual dues for nine years and until he was married, and also an assessment upon the marriage of any member, •As to plans of endowment In- Fed. 194 (1895); Stensgaard v. St. surance, see Fuller v. Metropolitan Paul, etc., Ins. Co., 50 Minn. 429, L. Ins. Co., 37 Fed. 163 (1889). As 17 L. R. A. 575 (1892). to tontine insurance, see Pierce v. "State v. Federal In v. Co., 48 Equitable Ass.' Soc, 145 Mass. 56 Minn. 110 (1892). Benevolent asso- (1887); Uhlman v. New York L. elation not for profit, not an Insur- Ins. Co., 109 N. Y. 421 (1888). As ance company: See Northwestern, to title Insurance, see Minnesota etc., Ass'n v. Jones, 154 Pa. St 99* Title Ins. & T, Co. v. Drexel, 70 (1893). 17 DEFINITION-, NATUHE, AND MANNER OP MAKING. § 8 and agreed not to marry within two years, it would pay $1,000 to his wife out of a fund to be collected by assessment upon the members, is not an insurance company." In North Dakota it was recently held that a corporation which contracted to guarantee a fixed revenue per acre for farming lands, and as a means of doing so agreed to pay a stipulated sum per acre for the crop grown upon the land, irrespective of its value, was an in- surance company within the meaning of the statute regulating for- eign insurance companies. The contract was said to exactly meet the requirements of an insurance contract.' So, a contract which binds a company, in consideration of a sum paid, to purchase at a fixed price the accounts which during one year a certain business firm should have against certain ascertained insolvent debtors, or judg- ment debtors against whom execution should be returned unsatisfied, is an insurance contract* In reference to this contract, the Wisconsin court said:' "We regard the contract before us as unquestionably a contract of insur- ance. An insurance contract is a contract whereby one party agrees to wholly or partially indemnify another for the loss or damage from a specified peril. The peril of loss by insolvency of customers is just as definite and real a peril to a merchant or manufacturer as the peril or loss by accident, fire, lightning or tornado, and is in fact much more frequent. No reason is perceived why a contract of indemnity against this ever-present peril is not as legitimate a contract of in- surance as a contract which indemnifies against the more familiar but less frequent peril of fire." Guaranteeing the fidelity of oflBcers and the performance of con- tracts is insurance within the meaning of a statute excepting the business of insurance from those for which corporations may be •State V. Towle, 80 Me. 287 tern Co., 92 Wis. 366, 32 L. R. A. (1888). Contracts in restraint of 383 (1896). See also Robertson v. marriage are void: See White v. U. S. Credit System Co., 57 N. J. L. Equitable, etc.. Union, 76 Ala. 251 12, 23 Ins. L. J. 717 (1894); Smith (1884); Chalfant v. Payton, 91 Ind. v. National Credit Ins. Co., 65 Minn. 202 (1883). 283, 33 L. R. A. 511 (1896); People 'State V. Hogan, 8 N. D. 301, 45 v. Fidelity, etc., Co., 153 111. 25, 26 L. R. A. 166 (1899). L- R- A. 295 (1894); Mercantile 'Claflin V. U. S. Credit System Credit Guarantee Co. v. Wood, 68 Co., 165 Mass. 501 (1896) (under Fed. 529, 25 U. S. App. 381 (1895); Mass. St. 1887, ch. 214). Tebbets v. Mercantile Credit G. Co., •Shakman v. U. S. Credit Sys- 73 Fed. 95 (1896). 2 — ^EtLiOTT Ins. § 9 THE CONTRACT OP INSURANCE. 18 formed.*' An incorporated- association for the purpose of obtaining employment for the members while living, and to render peenniary assistance to the families of deceased members through assessments upon the survivors, is an insurance company within the Minnesota statute. ^"^ So a contract guaranteeing a party against the loss of a sum of money deposited in a bank is a contract of insurance.'^ But the in- spection and certification of the sanitary condition of buildings is not insurance under the New York statute.*^' § 9. Reinsurance. — ^An insurer who has assumed risks which he does not care to carry may contract with another person to relieve him from such liability and assume it himself. Arnould says that "Ee- insurance is a contract of insurance by which the original insurer becomes himself assured in respect of the same subject upon the same risk and under the same conditions as are expressed in the original policy."** Thus A, who has insured B, enters into a contract with C, whereby the latter, for a consideration agreed upon, insures A from loss by reason of his contract with B. Such contracts were at .one time prohibited in England, but are now valid everywhere.*" As the contract is one of indemnity, the reinsurance may be for an equal or less amount than the original, but can not be for more.*' Diffi- culties arise when the original insurer becomes insolvent, is unable to pay the liability in full, or settles for a sum less than its liability. It is the reinsured. A, who is to be indemnified, and it would seem that where A settles a liability of $5,000 for $500, he should' be al- lowed to recover but $500 from C. This seems to be the correct rule,*' " People v. Rose, 174 111. 310, 44 Mar. 329; 1 Phillips Ins., ch. 3, § 13. L. R. A. 124 (1898). See § 340, infra. "■ Brown v. Balfour, 46 Minn. 68, " See note to Barnes v. Hekla P. 12 L. R. A. 373 (1891). Ins. Co., 56 Minn. 38, in 45 Am. St. "Dane v. Mortgage Ins. Corp., L. 442. R. (1894) 1 Q. B. 54. "Philadelphia Ins. Co. v. Wash- " People V. Rosendale, 142 N. Y. ington Ins. Co., 23 Pa. St. 250 126, 36 N. E. 806, rev. 25 N. Y. Supp. (1854); Illinois, etc., Ins. Co. v. 769 (1894) (under N. Y. Laws 1892, Andes Ins. Co., 67 111. 362 (1873); ch. 690, § 70). Imperial Fire Ins. Co. v. Home Ins. "1 Arnould Mar. Ins. (Maclach- Co., 68 Fed. 698, 15 C. C. A. 609 lan's ed., 1887) 103; Emerigon Ins., (1895). ch. 8, § 14; Boulay-Paty, 3 Droit- " Illinois Mut. P. Ins. Co. v. Andes Ins. Co., 67 111. 362 (1873). 19 DEFINITION, NATURE, AND MANNER OF MAKING. § 10 but where A was insolvent, and had made no settlement with B, A's receiver recovered the full amount of A's liability from C." The reinsurance creates no contractual relation between the re- insurer and the original insured. Emerigon says:" "The original contract subsists precisely as it was made without renewal or altera- tion. The reinsurance is absolutely foreign to the first insured, with whom the' reinsurer contracts no sort of obligation. The risks which the reinsurer has assumed constitute between him and the insurer a contract of reinsurance which is a new contract totally distinct from the first." The original insured has, therefore, no claim against the reinsurer, although his insurer has become insolvent.^" The reinsured recovers upon the same evidence as would have been produced against himself by the original insured,"^ and the reinsurer is entitled to the defenses which the original insurer could have as- serted against the first insured. ^^ The contract of reinsurance must apply to the subject-matter of the original insurance and to risks of the kind specified in the original policy, although the specific risks need not be identical.^' A con- tract of reinsurance of such marine risks may cover such risks as the insured had when it is made or may have during the risk. The pol- icy will attach when the interest is acquired.'^* § 10. Parties. — The parties to a contract of insurance are known as the insured and the insurer. As insurance is generally transacted by corporations, the insurer is commonly referred to as the company. The relation between the parties is one of contract merely, and their rights are measured by the terms of the written contract called the policy.^* The parties must be legally competent to make a legal and binding contract. "Cashau v. Northwestern, etc., "3 Kent's Com. (13th ed.), § 279, Ins. Co., 5 Biss. 476 (1873); Ex p. 402. parte Norwood, 3 Biss. 504 (1873); ^' See Gledstanes v. Royal Exch., Hunt V. New Hampshire P., etc., etc., Corp., 34 L. J. (Q. B.) 30 Ass'n, 68 N. H. 305, 38 Atl. 145, 38 (1864). L. R. A. 514 (1895). See 1 May Ins. ''See discussion in Imperial F. (3d ed.), § 11a. Ins. Co. v. Home Ins. Co., 68 Fed. "Emerigon Ins. (Meredith''s ed.), 698, 15 C. C. A. 609 (1895). ch. 8, § 14. "^ Boston Ins. Co. v. Globe F. Ins. "Alauzet Traitfi des Assurance Co., 174 Mass. 229, 75 Am. St. 303 152. But see cases cited at § 340, (1899). infra. "Uhlman v. N. Y. Life Ins. Co., 109 N. Y. 421, 4 Am. St. 482 (1888). § 11 THE CONTRACT OF INSUKA.NCE. 20 § 11. The insured. — A person who is under any legal disability can not make a valid contract of insurance. Insurance against loss by fire is not a contract for necessities for which an infant may be held.^' Such a contract is merely voidable at the option of the infant and is binding upon the company.''* There is a conflict as to the right of a mutual insurance company to insure the life of an infant. It is said that it can not be done, as there could not be the mutuality of obligation which is at the foundation of every contract,^' but the answer is that where there is no legal obligation to pay the dues, and a failure to do so merely results in loss of membership, the contract imposes no obligation upon the infant which he is not legally com- petent to perform.^' The courts recognize the right of an infant to repudiate a contract of life insurance, but where it is manifestly for the benefit of the infant he is allowed to recover only the unearned portion of the premium which he has paid where an attempt was made to recover the entire amount of the premiums paid. The court said:^' "Life insurance in a solvent company at the ordinary and usual rates, for an amount reasonably commensurate with the infant's estate and his financial ability to carry it, is a provident, fair and reasonable contract, and one which it is entirely proper for the insurance com- pany to make with him, assuming that it practiced no fraud or other unlawful means to secure it; and if such should prove to be the char- acter .of this contract, the plaintiff could not recover the premiums which he has paid in so' far as they were intended to cover the current annual risk assumed by the company under the policy." An alien friend may make a valid contract of insurance, although an alien enemy, that is, a citizen of the country with whom the nation of the first party is at war, has no such capacity.'" " New Hampshire Mut. F. Ins. Co. by injunction: See In re Globe Mut. V.' Noyes, 32 N. H. 345 (1855). In Ben. Ass'n, 135 N. Y. 280, 17 L. R. Colorado it is a criminal offense to A. 547 (1892). insure the life of a child under the =» Chicago Mut. Life, etc., Ass'n v. age of ten years: Laws 1893, p. Hunt, 127 111. 257 (1889). In 118. ■ Michigan an infant member of a so- =°Monaghan v. Agricultural F. ciety is made liable by statute for Ins. Co., 53 Mich. 238 (1884). the payment of fees, and otherwise "In re Globe Mut. Ben. Ass'n, 63 as if he were of full age: Howell Hun (N. Y.) 263, 135 N. Y. 280, Stat, § 7560. Woodruff Ins. Cas. 28 (1892). The "Johnson v. Northwestern Mut. receiving of an infant as a member Life Ins. Co., 56 Minn. 365, 59 N. W. of a co-operative or assessment in- 992, Woodruff Ins. Cas. 22' (1894), Burance company may be prevented " Clarke v. Morey, 10 Johns. (N. 21 DEFINITION, NATURE, AND MANNER OF MAKING. § 12 Where a loss occurs after the death of the party insured, and be- fore the appointment of an administrator, "the insured," for the pur- pose of giving notice and making proofs of loss, must be either the petson who, in the course of time, will be appointed to administer the estate, or the persons interested in the estate who expect to benefit by the insurance. The former not being in existence, it is the duty of the latter to make all reasonable efforts to see that the covenants of the policy are complied with, and to use such agencies as the law pro- vides to secure such results.'^ § 12. The insurer — Foreign corporations — State control. — Orig- inally all insurance contracts were made by individuals, but in modern times the business is conducted almost entirely by corporations organ- ized under laws which provide for their creation and control. The business of insurance is not commerce, and hence is under the control of the states and not of the general government.'^ A full consideration of these statutes does not fall vrithin the scope of this work, and it is sufficient to say that all the states have laws which authorize the creation of corporations which, upon complying with the prescribed conditions, may make contracts of insurance against the various risks and dangers to which life and property are subject. The state has full control over the business of insurance. It may permit it to be carried on by corporations only,'' and it may prescribe the conditions upon which domestic or foreign corporations may en- gage in the business.'* I^oreign corporations may be entirely ex- cluded from the state'^ or admitted upon such terms as are judged proper for the protection of the policy-holders within the state. These Y.) 69 (1813). See note to 96 Am. " As to the power to regulate and Dec. 624-630. A license to trade control the business of insurance may be granted to such alien: Me- companies already created, see Chi- Stea V. Matthews, 50 N. Y. 166 cago L. Ins. Co. v. Needles, 113 U. S. (1872). 574 (1885); State v. Eagle Ins. Co., "Matthews v. American Cent. 50 Ohio St. 252, 33 N. B. 1056 Ins. Co., 154 N. Y. 449, 39 L. R. A. (1893); State v. Ackerman, 51 Ohio 433 (1897). St. 163, 24 L. R. A. 298 (1894), an- »=Paul V. Virginia, 8 Wall. (U. notated. S.) 168 (1868); Hooper v. Califor- "Daggs v. Orient Ins. Co., 136 Mo. nia, 155 U. S. 648 (1895). 382, 58 Am. St. 638 (1896); Orient •"Com. V. Vrooman, 164 Pa. St. Ins. Co. v. Daggs, 172 U. S. 557 306, 25 L. R. A. 250 (1894). (1899). § 13 THE CONTEACT OF INSUEANOB. S3 conditions may extend to the form and legal effect of the company's policy as well as to the general manner of the transaction of its biisi- ness.^° The conditions may be reasonable or unreasonable, as they are entirely within the control of the legislative department of the state." Where the business is confined to corporations, the prohibitions ex- tend to citizens of other states as well as the home state. The busi- ness may be subjected to regulation, but when it is transacted by in- dividuals there can be no discrimination between citizens of equal standing and merit.** By the weight of authority, the failure to com- ply with the conditions imposed by the state can not be shown as a de- fense to an action on a policy issued by the company which has not complied with the law." § 13. llutual compaiiies and benevolent societies. — The original insurance companies were joint stock corporations, but in recent years many have been organized upon the mutual plan. Such companies are regulated by special statutes, but for certain purposes all are treated as insurance companies. In some states mutual companies do not =• Berry v. Knights, etc.. Indem- nity Co., 46 Fed. 439 (1891). See Com. V. Nutting, 175 Mass. 154, 78 Am. St. 483 (1900); State v. Pricke, 102 Wis. 107, 77 N. W. 732, 78 N. W. 455 (1898). " Hartford Fire Ins. Co. v. Com'r of Ins., 70 Mich. 485 (1888). As to the retaliatory statutes in force in many of the states, see Elliott Priv. Corp. (3d ed.), § 249; People v. Fidelity, etc., Co., 153 111. 25, 26 L. R. A. 295 (1894). "State V. Stone, 118 Mo. 388, 25 L. R. A. 243 (1893); Hoadley v. Purifoy, 107 Ala. 276, 30 L. R. A. 351 (1895). See further as to re- strictions upon a business of in- dividuals or unincorporated asso- ciations from another state: Com. V. Vrooman, 164 Pa. St. 306, 25 L. R. A. 250 (1894); Com. v. Reinoehl, 163 Pa. St. 287, 25 L. R. A. 247 (1894), and note in 26 L. R. A. 238. "" Ganser v. Fireman's Fund Ins. Co., 34 Minn. 372 (1885); Phenix Ins. Co. V. Pennsylvania R. Co., 134 Ind. 215, 20 L. R. A. 405 (1893), an- notated. , As to the right of a citi- zen of one state to make a contract of insurance outside of the state with a company which is not au- thorized to do business within the state, see Allgeyer v. Louisiana, 165 U. S. 578 (1897). As to the en- forcement of contracts made by companies not authorized to trans- act business in a state, see Elliott Priv. Corp. (3d ed.), § 268; State Mut. F. Ins. Co. V. Brinkley, etc., Co., 61 Ark. 1, 29 L. R. A. 712 (1895); Pennypacker v. Capital Ins. Co., 80 Iowa 56, 8 L. R. A. 236 (1890). Contract made by mail by such a company: Rose v. Kimberly, etc., Co., 89 Wis. 545, 27 L. R. A. 556 (1895); Seamans v. Temple Co., 105 Mich. 400, 28 L. R. A. 430 (1895). 23 DEFINITION, NATURE, AND MANNER OF MAKING. § 13 come under the statutes, which are intended for the general regulation of insurance companies. Another form of organization is known as the mutual benevolent associations. Certain privileges and exemptions are granted to these organizations, which, although in one sense insurance companies, are supposed to be so saturated with the spirit of benevolence and phi- lanthropy as to make them the favorites of the law,, and to Justify their exemption from the strict provisions of the law governing insurance corporations. In some instances persons have chosen this statutory livery of benevolence to serve themselves in, with the usual result. It requires close scrutiny to discover any element of benevolence in the contracts issued by many of these institutions. Of one such the court said:*" "It is apparent from an examination of the charter and its method of doing business that it is a mutual life insurance company on the assessment plan. Its business is insurance and noth- ing else. There is not a social, charitable or benevolent feature in its organization or the conduct of its business. It has no lodges, pays no sick dues, distributes no aid, and gives no attention to members in distress or poverty. It deals with its members on the strictest busi- ness principles. The policy-holders get nothing for which full value has not been paid by the assured, but the assured may pay much and the policy-holder recover nothing by reason of the forfeiture of the policy for a violation of some one of its numerous conditions." It is sometimes a question whether such organizations are engaged in the insurance business within the meaning of the law, and if so whether they should be required to comply with the statutory condi- tions imposed upon insurance .companies. When they are properly organized for benevolent and protective purposes under special stat- utes, they are not governed by the general laws regulating the busi- ness of insurance.*^ It is generally held that certificates of such associations do not constitute "other insurance" within the meaning of the question in the application.' 42 "Berry v. Knights, etc., Indem- (1889); Commercial League Ass'n nity Co., 46 Fed. 439 (1891). See v. People, 90 111. 166 (1878); State also National Union v. Marlow, 74 v. Bankers', etc., Ass'n, 23 Kan. 499 Fed. 775, 21 C. C. A. 89 (1896), and (1880). See National Union v. Mar- cases there cited. low, 74 Fed. 775, 21 C. C. A. 89 "Com. V. Equitable Ben. Ass'n, (1896) (under Mo. Stat. 1889, eh. 137 Pa. St. 412, 18 Atl. 1112 (1890); 42, art. 10). State v. Whitmore, 75 Wis. 332 " See Penn Mut. L. Ins. Co. v. § 14 THE CONTRACT OF INSURANCE. 24 These matters are now generally regulated by statute. In Iowa it was held that where the main purpose is that of life insurance, or in- surance against sickness and disability, the company is amenable to the laws of the state relating to insurance corporations, and must, therefore, comply with the statutory requirements relating to insur- ance companies organized in other states.** In Michigan it was said that as an insurance contract is an agreement by which one party, for a consideration, promises to make a certain payment of money upon the destruction or injury of something in which the other party has an interest, all mutual benefit and co-operative associations or mere voluntary associations are, strictly speaking, insurance organ- izations, whenever, ia consideration of periodical contributions, they engage to pay the member or his designated beneficiary a benefit upon the happening of a specified contingency.*^ An association organized for benevolent purposes, under the super- vision of a supreme body, which secured its members by the lodge system, on application and after a satisfactory medical examination, required an initiation fee and assessments, and which, in the case of accidental disability, paid a weekly amount, and upon the death of a member, to be shown by proper proof, returned the amount of the assessment paid, less benefits received, was held not a life insurance company within the meaning of the statutes requiring such cota- panies doing business in the state to make a deposit with the state treasurer.*" A corporation organized "to give financial aid and benefit to the ■vridows, orphans and heirs or devisees of deceased members," and de- clared by statute not to be an insurance corporation, can not contract for endowment insurance payable to a member when he reaches a certain age.*^ § 14. The risk. — ^It is essential to every contract of insurance that there should be a risk to which the subject-matter is, or may be, sub- jected, and this risk should be a real one, which neither the insured nor the company has power to avert or hasten. "It is of the very es- Mechanics', etc., Co., 43 U. S. App. " Rensenhouse v. Seeley, 72 Mich. 75, 38 L. R. A. 33 (1896), annotated. 603 (1888). "State V. Nichols, 78 Iowa 747 "Rockhold v. Canton Mas. Mut. (1888). B. Ass'n, 129 lU. 440, 2 L. R. A. 420 "Rensenhouse v. Seeley, 72 Mich. (1889). 603, 40 N. W. 765 (1888). 25 DEFINITION, NATUEE, AND MANNER OF MAKING. § 14 seilce of insurance and forms the principal founjiation of the con- tract * * * the insurer takes upon himself the peril which the property or interest of others is liable to encounter. The very life of the contract involves the presumption that the thing is or will be exposed to some danger."*' As already stated, the risks which may be insured against are too numerous to be named. , Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest or create a liability against him, may be insured against. Whatever has an appreciable pecuniary value and is subject to loss or deterioration, or of which one may be deprived, or that he may fail to realize, whereby his pecuniary interest is or may be prejudiced, may properly constitute the subject-matter of insurance. This rule, how- ever, is subject to the limitation that whatever the law discourages or disapproves of, whether by special statute or on the general principles enforced by the common law in the interest of good morals and good order and general public policy, will not be encouraged by insurance.** The contract attaches to the interest and not to the property. This interest must be in a kind of property which the law permits a person to own or in a business enterprise which is lawful and consistent with the policy of the law. Thus, a valid contract can not be made for the protection of an interest in a lottery or other gambling enterprise, as a contract insuring an illegal business is void. Thus, a contract insur- ing a person engaged in selling liquor against the danger of a fine or a forfeiture of a license is invalid. But the general rule is that an in- terest in property which the law permits a party to own and use under certain restrictions, although the property is in fact being illegally used, may be insured. A contract of insurance against a stock of liquors illegally kept for sale is generally held valid. It was said in Michigan ■.'^° "By insuring his property the insurance company had no concern with the use which he made of it, and as it is susceptible of lawful use, no one can be held to contract concerning it in an illegal manner, unless the contract itself is for a directly illegal purpose. " 1 Joyce Ins., § 16. Co., 98 Iowa 606, 40 L. R. A. 845 "1 May Ins., § 71; 1 Duer Ins., (1898), annotated; Carrlgan v. Ly- § 3. See Phenix Ins. Co. v. Clay, coming F. Ins. Ck)., 53 Vt. 418, 38 101 Ga. 331, 65 Am. St. 307 (1897^ Am. Rep. 687 (1881). In Massa- " Niagara F. Ins. Co. v. DeGrafl, chusetts an insurance upon liquors 12 Mich. 124 (1863); People's Ins. illegally kept for sale is void: Law- Co. V. Spencer, 53 Pa. St. 353 rence v. National F. Ins. Co., 127 (1866); Brb v. German-Amer. Ins. Mass. 557 (1880); but sales made § 15 THE CONTRACT OF IITSUEANCB. 26 Collateral contracts in which no illegal design enters are not afEected by an illegal transaction with which they may he remotely connected." It was recently held that an English company eonld legally insure the property of a foreigner from capture hy the government of the. insurer in contemplation of war between the countries of the insurer and the insured."*"* § 15. A personal contract. — The contract of insurance has certain characteristic features to which attention should be called. Thus, it is personal, and does not, unless expressly so provided, run with the property. It protects the person and not the thing in which he is interested. It does not pass with the title of the property,^^ but in this respect a distinction must be noted between a contract of insur- ance and a covenant to insure made between parties relative to land.^" In Sadler's Gase,^^ Lord Hardwicke said: "To whom, or for what loss are they to make satisfaction? Why, to the person insured ^nd for the loss he may have sustained, but it can not properly be called insuring the thing, for there is no possibility of it,' and, therefore, must mean insuring the person from damage." In another early case*' it was said: "These policies are no insurance on the specific things mentioned to be insured, nor do such insurances attach to the realty or in any manner go with the same as incident thereto by any conveyance or assignment, bi;it they are only special agreements with the person insuring against such loss or damage as they may sustain. The party insured must have the property at the time of the loss, or he can sustain no loss, and consequently can be entitled to no satis- faction." § 16. A conditional contract. — The contract is also conditional. Thus, it does not become binding until the subject-matter is subjected to the perils insured against. The risks "are the occasion of the con- tract being made, and without exposure to them it never applies."" during a brief period of expiration ters (U. S.) 495 (1842); Lett v. of license will not invalidate a pel- Guardian P. Ins. Co., 125 N. Y. 82 icy: Hinckley v. Germania P. Ins. (1890); McDonald v. Black, 20 Ohio Co., 140 Mass. 38 (1885). 185, 55 Am. Dec. 449 (1851). "a Drief ontein. etc.. Mines v. Jan- " Thomas v. Vankapff, 6 Gill & J. sen, L. R. (1901) 2 K. B. 419. The (Md.) 372 (1834). decision is a departure from well " Sadler Co. v. Badcock, 2 Atk. 554 settled principles. (1743). "Quarles v. Clayton, 87 Tenn. "Lynch v. Dalzel, 3 Bro. Cas. 308 (1889); Carpenter v. Provi- Pari. 497, quoted in Park. Ins. 453. dence-Washington Ins. Co., 16 Pe- "l Arnould Mar. Ins. 16. 27 DEFINITION, NATURE, AND MANNER OF MAKING. § 17 "Hence," said Lord Mansfield, "where the risk has not been mn, whether its not being run was owing to the fault, pleasure or will of the insured, or to any other cause, the premium shall be returned." Many other conditional provisions are found in insurance contracts.'" § 17. An aleatory contract. — In an ordinary contract the thing given or done by one party is considered as an equivalent of what is given or done by the other, but an element of wager enters into every insurance contract. If no loss occurs, the insurer gains the amount of the premium; if loss occurs, the insured receives the amount of his loss, which is generally much greater than the premium. By reason of this element of chance the contract is said to be aleatory. § 18. Indemnity. — The fundamental principle at the base of every contract of insurance affecting an interest in property is that of in- demnity."' This means that the object of the contract is, in the event of loss, to place the insured as nearly as possible within the terms and conditions of the policy, in the same situation as before the loss. The value of the interest may be determined after the loss, or by the contract. A policy of insurance is not a perfect contract of indemnity, and the general statement must be taken with this qualification, that the parties may agree beforehand in estimating the value of the subject or of the interest by way of liquidated damages."* Where the valua- tion is previously determined and inserted in the contract it will be taken as conclusive in the absence of gross or fraudulent overvalua- tion. Keinsurance is a contract of indemnity. ■" § 19. Life insurance not a contract of indemnity. — After much discussion it is now well settled that life insurance is not a contract of indemnity, but simply a contract in consideration of a fixed pay- ment annually or otherwise, as determined by the contract, to pay a ■"See Cooledge v. Continental Ins. Ass'n, 1887, p. 261; Wilson v. Hill, Co., 67 Vt. 14 (1894). 3 Met. (Mass.) 66, Woodruff Ins, "The principle is so well estab- Cas. 1 (1841). lished as scarcely to require the "Irving v. Manning, 1 H. L. Cas. citation of authorities. See, gen- 287 (1847). erally, Castellain v. Preston, L. R. "Eagle Ins. Co. v. Lafayette Ins. 11 Q. B. D. 380; McDonald v. Black, Co., 9 Ind. 443 (1857); Bartlett v. 20 Ohio 185, 55 Am. Dec. 448 (1851). Fireman's Fund Ins. Co., 77 Iowa See article on "Indemnity the Es- 155 (1889). sence of Insurance," Proc. Am. Bar § 19 THE CONTRACT OF INSUEANOB. 28 greater sum upon the happening of a future, certain event. It very much resembles a fire or marine valued policy, and the early decisions treated it as a contract of indemnity and held that a creditor who had insured the life of his debtor could not recover on the policy where the executors paid the debt after the. death of the debtor and before an action was brought on the policy.*" But this decision was unsatis- factory to the courts and the business community,*^ and was finally reversed in a carefully considered ease, where it was squarely decided that a contract of life insurance in no way resembled a contract of indemnity.*^ It was said that such a contract "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 the 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." It is unnecessary to discuss the reasons which have led most of our courts to accept the view that life insurance is not a contract of in- demnity, as the controversy is now practically closed and the leading decisions are cited in the notes."^ The difiiculty is in disposing of cases where creditors insure the lives of their debtors for the purpose of securing the payment of their debts. Eespectable authorities hold with much force and reason that such contracts are for indemnity only,*^ and statements are occasionally found to the effect that all insurance contracts are contracts of indemnity.*" " Godsall v. Boldero, 9 East 72 the disproportion between tlie (1807). amount of the insurance and the " See Blinyan Life Ins., § 7. debt is gross, the policy is void as " Dalby v. India, etc., Assur. Co., a wager policy. See Grant v. Kline, 15 C. B. 365 (1854). 115 Pa. St. 618 (1887), and cases at " That life insurance Is not a section 66, infra. contract of indemnity, see Dalby v. " So eminent a jurist as Mr. Jus- India, etc., Assur. Co., 15 C. B. 365 tice Mitchell recently said: "The (1854); Scott v. Dickson, 108 Pa. very essence of any definition of in- fat. 6, 56 Am. Rep. 192 (1884); Mu- surance is indemnity for loss in re- tual L. Ins. Co. v. Allen, 138 Mass. spect of a specified subject. The 24, 52 Am. Rep. 246 (1884); Emer- contract of life insurance or of in- ick v. Coakley, 35 Md. 188 (1871); surance upon a life in the ordinary Nye V. Grand Lodge, 9 Ind. App. form is a contract to pay a certain 131 (1894). sum of money on the death of tho "Exchange Bank v. Loh, 104 Ga. insured:" State v. Federal Inv. Co., 446. 44 L. R. A. 372 (1898); Miller 48 Minn. 110. See also Kennedy v. V. Eagle, etc., Ins. Co., 2 B. D. New York Life Ins. Co., 10 La. An. Smith (N. Y.) 294 (1854). In 809 (1855); Bevin v. Connecticut Cooper V. Shaeffer (Pa.), 11 Atl. Mut. L. Ins. Co., 23 Conn. 244 548 (1887), it was held that where (1854); May Ins. (3d ed.), § 7. 29 DEFINITION, NATURE, AND MANNER OP MAKING. § 20 § 20. Indemnity in accident insurance. — An accident insurance policy is a contract of indemnity in so far, at least, as it protects against personal injury resulting from accident; but it resembles an ordinary life insurance contract in so far as it provides for the pay- ment to another person of a, fixed sum in case of death by accident. Death covered by an ordinary life policy is certain to occur, but death by accident is no more liable to occur than loss by fire under a fire insurance contract. In Illinois it was recently said that "a policy of accident insurance is issued and accepted for the purpose of fur- nishing indemnity against accidents, or death caused by accidental means."'^ § 21. Subrogation. — ^As a result of the principle of indemnity, the doctrine of subrogation applies to a fire or marine insurance contract. ■"In fire insurance as well as in marine insurance," says Mr. Justice Gray,*' "the insurer, upon paying to the assured the amount of a loss on the property insured, is doubtless subrogated in a corresponding amount to the assured's right of action against any other person re- sponsible for the loss. But the right of the insurer against such other person does not arise upon any relation of contract or privity between them. It arises out of the nature of the contract o-f insur- ance as a contract of indemnity, and is derived from the assured alone and can be enforced in his right only. By the strict rules of the common law it must be asserted in the name of the assured; in a court of equity or of admiralty, or under some of the state codes, it may be asserted by the insurer in his own name, but in any form of remedy the' insurer can take nothing by subrogation but the rights of the assured, and if the assured has no right of action, none passes to the insurer." § 22. Loss caused by negligence. — A contract of insurance covers a loss occasioned by the negligence of the insured, unless the negli- gence is so gross as to show an evil intent. °° If the loss is caused by "Healey v. Mutual Ace. Ass'n, 133 10 S. D. 82, 66 Am. St. 685 (1897); 111. 556, 23 Am. St. 637 (1890). See Pool v. Milwaukee, etc., Ins. Co., Employers', etc., Corp. v. Merrill, 91 Wis. 530, 51 Am. St. 919 (1895); 155 Mass. 404 (1892). Richelieu, etc., Co. v. Boston, etc., "St. Louis, etc., R. Co. v. Com- Ins. Co., 136 U. S. 408 (1889). See mercial, etc., Ins. Co., 139 U. S. 223, Union Ins. Co. v. Smith, 124 U. S. 235 (1890). See § 339, infra. 405 (1888), "Angler v. Western Assur. Co., § 23 THE CONTRACT OF INSURANCE. 30 some one other than the insured, the wrongdoer must not he re- leased without the consent of the insurer, as such a release would bar the right of action upon the insurance contract.** So, where the wrongdoer pays the insured with knowledge of the fact that the insurer has made a payment under the policy, it is a fraud upon the insurer, and will not protect the wrongdoer.'" § 23. Form of the contract. — It is customary to reduce the eon- tract of insurance to writing, but this is not necessary unless required by statute, as a parol contract of insurance is valid. '^ An oral con- tract of insurance was good at common law. Emerigon says:'" "Valin and Pothier agree in saying that in insurance a writing is only required for the proof of the contract; that the writing is ex- trinsic to the substance of the agreement. They are reduced to writ- ing for the purpose of more easily preserving their proof. * * * But the common law rule ceases its operation in all cases where a writing is expressly required by law." It has been held that an oral contract of insurance is invalid, but at the present time "the rule is well settled that the policy is only evidence of the contract, and the latter may be shown by parol when the policy has not been writ- ten, or is withheld, unless such contract is forbidden by staitute or a provision in the company's charter which is brought to the notice of the other contracting party. And, as in other cases of parol contracts, the terms of the agreement and the assent of the parties may be " Newcomb v. Cincinnati Ins. Co., v. Fireman's Fund Ins. Co., 34 Minn. 22 Ohio St. 382 (1872); Hall v. Rail- 372 (1885), 38 Minn. 74 (1887). In road Co., 13 Wall (U. S.) 367 Cockerill v. Cincinnati, etc., Ins. Co., (1871). 16 Ohio 148 (1847), it was held that "Connecticut F. Ins. Co. v. Erie a contract of insurance must be in R. Co., 73 N. Y. 399 (1878). See writing; but the case was reversed Allen V. Chicago, etc., R. Co., 94 in Dayton Ins. Co. v. Kelly, 24 Ohio Wis. 93, 68 N. W. 873 (1896). St. 345, 15 Am. Rep. 612 (1873). "Trustees v. Brooklyn F. Ins. as to the validity of an oral con- Co., 19 N. y. 305 (1859); Fish v. tract of insurance, see Newark Cottenet, 44 N. Y. 538, 4 Am. Rep. Mach. Co. v. Kenton Ins. Co., 50 915 (1871); Ruggles v. American Ohio St. 549, 22 L. R. A. 768, and Cent. Ins. Co., 114 N. Y. 415 (1889); note (1893). In a number of states British Ins. Co. v. Lambert, 26 Ore. there are statutes providing that a 199 (1894); Croft v. Hanover F. contract of insurance need not be Ins. Co., 40 W. Va. 508, 21 S. E. 854 under seal. (1895); Emery v. Boston Mar. Ins. "Emerigon Ins. (Meredith's ed Co., 138 Mass. 398 (1885); Ganser 1850) 25. 31 DEFINITION-, NATURE, AND MANNER OF MAKING. § 34 shown by their acts and the attending circumstances as well as by the words they have employed."^^ In view of the custom of insurance companies of using written policies, there is a strong presumption where no policy has been issued and no premium paid that no contract has been entered into.'* § 24. Statutory form — Conditions implied in an oral contract. — ilany states now prescribe a form of contract known as the standard policy, but these requirements do not change the rule, and an oral contract is binding if it can be proven by satisfactory evidence. A parol contract to insure or for insurance is, unless other terms are agreed upon, construed as an agreement to insure upon the terms ex- pressed in the written policy ordinarily used by the company.'^ Where a standard policy is required an oral contract is presumed to contem- plate insurance upon the terms and subject to the conditions of such policy. Hence, the rights of one whose property is destroyed by fire ■ after an oral contract to insure, but before the policy is issued, are subject to the provisions of the standard policy, and he can recover only upon compliance with the conditions required by such policy. "The contract of insurance," says Chief Justice Parker,''® "althoiigh 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 the insured and the insurer. It is usual for the company to issue a policy evidencing the contract between the par- " Newark Mach.. Co. v. Kenton Ins. " Hicks v. British Amer. Ass. Co., Co., 50 Ohio St. 549, 22 L. R. A. 768 162 N. Y. 284, 48 L. R. A. 424 (1900). (1893), annotated. A policy issued in pursuance of an " Equitable L. Assur. Soc. v. Mc- oral contract to .insure will be pre- Elroy, 83 Fed. 631, 28 C. C. A. 365 sumed to embody all the terms of (1897); Heiman v. Phoenix, etc., the contract, and in the absence of Ins. Co., 17 Minn. 153, Gil. 127 fraud or mistake will be conclusive (1871). S'S to the terms of such contract: " Lipman v. Niagara F. Ins. Co., McLaughlin v. Equitable L. Assur. 121 N. Y. 454, 8 L. R. A. 719 (1890); Soc, 38 Neb. 725, 67 N. W. 557 Karelsen v. Sun Fire Office, 122 N. (1894). But a parol contract to is- Y. 545 (1890); Salisbury v. Hekla sue a policy is not merged in a writ- Fire Ins. Co., 32 Minn. 458 (1884); ten policy which does not cover all Barre v. Council Bluffs Ins. Co., 76 the terms of the parol contract: Iowa 609 (1889); Fames v. Home Nebraska, etc., Ins. Co. v. Seivers, 27 Ins. Co., 94 U. S. 621 (1876); New- Neb. 541, 43 N. W. 351 (1889). ark Mach. Co. v. Kenton Ins. Co., 50 Ohio St. 549 (1893). § 25 THE CONTRACT OF INSDEANCB. 32 ties, but the policy accomplishes nothing more than that, for when the contract is entered into between the agent and the owner, whether the binder be verbal or in writing, it includes within it the standard form of policy and the contract is a completed one." § 25. Statute of frauds. — ^A contract of insurance is not within the provisions of the statute of frauds which requires "every agree- ment which by its terms is not to be performed within one year from the making thereof to be in writing." The thing to be done under such a contract depends upon a contingency which may happen within one year.'^ So, an agreement to make a policy or renew a policy or a contract of reinsurance is not within the statute.'* § 26. Eenewal by parol. — An existing written policy of insurance may be renewed by parol. An insurance company can not limit its power of action by a provision in a policy that the power that made the contract can not modify it. Hence, a policy may be renewed by a parol agreement of an authorized agent of the company, although it contains a provision that it shall not be so renewed. The making of the parol agreement amounts to a waiver of the provisions in the policj'.''" § 27. Effect of charter provisions. — There are eases which hold that where the charter of an insurance company requires the contract to be in writing, it has not the power to make an oral contract of in- surance.^" Where the insured has knowledge of the limitations con- tained in the corporate charter, it is reasonable that he should be bound thereby, but it is difiBcult to state general rules applicable to all cases. Charter provisions relating to the execution of a policy should "Sanford v. Orient Ins. Co., 174 "Cohen v. Continental, etc.. Ins Mass. 416, 75 Am. St. 358 (1899); Co., 67 Tex. 325, 6 Am.' Rep. 324 Commercial, etc., Ins. Co. v. Union (1887). See Royal Ins. Co. v. Beat- M. Ins. Co., 19 How. (U. S.) 318 ty, 119 Pa. St. 6 (1888). (1858)- "Head v. Providence Ins. Co. 2 " Wiebeler V. Milwaukee, etc., Ins. Cranch (U. S.) 127, 150 (1804)- Co., 30 Minn. 464 (1883); Sanborn Spitzer v. St. Mark's Ins Co 6 V. Fireman's Ins. Co., 16 Gray Duer (N. Y.) 6 (1855); but see Ins (Mass.) 448, 77 Am. Dec. 419 (1860); Co. v. Colt, 20 Wall. (U. S) 560 Howard Ins. Co. v. Owen, 94 Ky. (1874). 197 (1893); Walker v. Metropolitan Ins. Co., 56 Me. 371 (1868). 33 DEFINITION, NATURE, AND MANNER OF MAKING. § 28 not, in the absence of words of restriction or a plain denial of such power, be construed to limit the power of the corporation or to prevent it from making parol contracts within the ordinary scope of its charter powers. ^^ A statute which requires all policies to be signed by the president and countersigned by the secretary of the corporation will not pre- vent the making of a valid oral contract to insure.*^ Although the charter limited the power of the corporation to make valid insurance by a policy not under seal and signed by the president and secretary, it was held that, before a policy was executed, a general agent of the company might make a parol agreement that a policy would be issued, and that a court of equity would compel the corporation specifically to perform such an agreement.*" § 28. Revenue stamps. — ^A statute which requires an insurance policy to bear a revenue stamp is generally held not to affect the valid- ity of the contract. If such contracts are in fact reduced to writing, they require a stamp under the federal statute, but the great majority of the state courts hold that the laws of congress in regard to the ad- mission of unstamped instruments in evidence apply only to the federal courts.'* There is certainly serious doubt as to the power of congress to declare a contract void because it does not bear a proper revenue stamp. "It has been repeatedly decided," says Judge Cooley,'" "that the act of congress which provided that certain papers not stamped should not be received in evidence must be limited in its "See 1 Joyce Ins., § 35. 915 (1901); Knox v. Rossi (Nev.), 48 "" Sanborn v. Fireman's Ins. Co., L. R. A. 305, note, 57 Pac. 179 (1900); 16 Gray (Mass.) 448, 77 Am. Dec. ' Wingert v. Zelgler (Md.), 51 L. R. 419 (1860); Commercial, etc., Ins. A. 316 (1900); Carpenter v. Snel- Co. V. Union Mut. Ins. Co., 19 How. ling, 97 Mass. 452 (1867). Unless (U. S.) 318 (1856); Hening v. U. S. stamp was omitted with intent to Ins. Co., 2 Dill. (C. C.) 26 (1872). defraud: Green v. Holway, 101 Oonira, Henning v. U. S. Ins. Co., Mass. 243 (1869); Hitchcock v. Saw- 47 Mo.' 425, 4 Am. Rep. 332 (1871). yer, 39 Vt. 412 (1867); Griffin v. "Constant v. Ins. Co., 3 Wall. Jr. Ranney, 35 Conn. 239 (1868). The (C. C.) 313 (1861); Security Fire leading case holding the contrary is Ins. Co. v. Kentucky, etc., Ins. Co., Chartlers Co. v. McNamara, 72 Pa. 7 Bush (Ky.) 81, 3 Am. Rep. 301 St 278, 13 Am. Rep. 673 (1872). (Iggg) "Cooley Const. Lim. (5th ed., " Southern Ins. Co. v. North Brit- 1883) 599, note, ish, etc., Ins. Co. (Tenn.), 52 L. R. A. 3— Elliott Ins. § 29 THE CONTRACT OF INSURANCE. 34 operation to the federal courts. Several of these cases have gone still farther and declared that congress can not preclude parties from en- tering into contracts permitted by the state laws, and that to declare them void is not the proper penalty for the enforcement of a tax law." § 29. Enforcement of oral contract. — A valid oral contract to insure may be either specifically enforced, or the court may award damages as in an action upon the policy." Where the negotiations have reached a point where nothing remains for either party but to execute what has been agreed upon, the courts will usually compel the issuance of the policy and the indemnification of the insured. Where it appeared that a voyage was undertaken with the understand- ing that the risk had been accepted by the insurer, and th"at the policy would be issued and the premium paid when demanded, it was said:^^ '^t is well established that upon clear proof to do something, the con- summation of which involves the execution of a written instrument, which is afterwards refused to be made, a court of equity will coerce the execution of the written contract which the parol evidence has shown to be agreed upon." § 30. Kinds of policies. — The various kinds of insurance policies are classified as open or valued, wager or interest, time or voyage. A valued policy is one in which the amount of the indemnity to be paid in the event of loss is fixed by the terms of the contract. An OTjen policy is one in which the sum to be paid is left to be determined in the event of a loss. Under the former the actual value of the subject-matter need not be proved, as the sum agreed upon is con- clusive unless it appears that there was fraud or such excessive over- valuation as in itself to raise the presumption of fraud. ^' A policy may be open as to certain articles and valued as to others.'* " Security Fire Ins. Co. v. Ken- v. Northwestern Ins. Co., 34 Me. tucky, etc., Ins. Co., 7 Bush (Ky.) 487 (1852); Borden y. Hingham, etc., 81, 3 Am. Rep. 301 (1869); Gerrish Ins. Co., 18 Pick. (Mass.) 523 V. German Ins. Co., 55 N. H. 355 (1836). In many states all policies (1875). are required by statute to be valued. " Phcenlx Ins. Co. v. Ryland, 69 See § 333, infra. As to the policy of Md. 437, 16 Atl. 109 (1888). See such legislation, see a paper in Proc. also Wooddy v. Old Dominion Ins. Am. Bar Ass'n, 1887, by Hervey Co., 31 Gratt (Va.) 362 (1879). Jackson, Esq. " Alsop V. Commercial Ins. Co., 1 •" Pqst v. Hampshire, etc., Ins. Co., Sumn. (C. C.) 451 (1833); Cushman 12 Mete. (Mass.) 555 (1847). 35 DEFINITION, NATUEE, AND MANNER OF MAKING. § 31 A wager policy is one in which it appears by its terms that the in- sured has no interest in the subject-matter of the insurance. It is a disputed question whether such policies were valid at the common law, but however that may have been, they are now universally pro- hibited. An interest policy is one in which it appears by its terms that the insured has an interest in the subject-matter."" A time policy is one in which the duration of the risk is fixed for a definite period of time. A voyage policy is one in which the duration of the risk is deter- mined by geographical limits. It is applicable to transportation upon land or water. "^ § 31. Completion of the contract — Delivery of the policy. — A con- tract of insurance is completed when the terms have been agreed upon between the parties. The reciprocal rights and obligations of the parties date from that time, without reference to the execution and delivery of the policy, unless these elements are embraced within the terms agreed upon, or the statute makes such a delivery a condition precedent to the validity of the contract. °' If there has been no payment of the premium and no delivery of the policy, the contract is prima facie incomplete, and the party claiming the existence of a contract must show that it was the inten- tion of the parties that there should be an operative contract." It is ordinarily necessary that the policy should be delivered before the contract is binding upon the insurance company, unless the facts are such as to entitle the party to recover upon an oral contract to in- sure or of insurance. This does not, however, require actual manual delivery, as an agreement upon all the terms and the issue and trans- mission to the agent of the company for delivery without conditions are equivalent to delivery to the insured.'* " Williams V. Smith, 2 Caines (N. 101 Mass. 279 (1869); Heiman v. Y.) 13, and note (1804); Alsop v. Phoenix M. L. Ins. Co., 17 Minn. 153, Commercial Ins. Co., 1 Sumn. (C. Gil. 127 (1871); Lightbody v. North C.) 451 (1833). Amer. Ins. Co., 23 Wend. (N. Y.) "Boehm v. Combe, 2 Maule & S. 18 (1840); Idaho, etc., Co. v. Fire- 172 (1813). man's Fund Ins. Co., S Utah 41, 29 "Western Assur. Co. v. McAlpin, Pac. 826 (1892). 23 Ind. App. 220, 77 Am. St. 423 "New England F. & M. Ins. Co. (1899)_ V. Robinson, 25 Ind. 536 (1865); •• Faunce v. State, etc., Assur. Co., Whitaker v. Farmers' Un. Ins. Co., 32 THE CONTRACT OF INSURANCE. 36 But a mere delivery of the policy to an agent, to be delivered to the insured upon the payment of the premium, is not a delivery to the insured. In a Massachusetts case it is said:"" "Previous to the time of receiving the policy he had paid no money and signed no ob- ligation other than the application. It is clear upon this statement that there was no oral contract of insurance and no contract contem- plated except upon delivery of the policy and payment of the pre- mium. The agent was the agent of the defendant to receive the pre- mium and deliver the policy for it, and there is no evidence that he had authority to deliver the policy except upon payment of the pre- mium. There was no contract of insurance until the payment of the premium and delivery of the policy." Delivery is a question of intent and may be shown by any act in- tended to signify that the instrument shall have present validity. °° The rule that a deed can not be delivered conditionally does not apply to an insurance policy. It may be conditionally delivered, and the performance of the condition is a condition precedent to the ex- istence of the contract of insurance."' The possession of the policy by the insured makes a prima facie case, but this may be overthrown by evidence that it was never actually delivered, or that it was obtained by misrepresentation and fraud.'* § 32. Countersigning by agent. — When a policy provides that it shall not be binding until countersigned by a certain agent, it is in- valid without such signature."' § 33. Contracts made by correspondence. — Contracts of insurance are frequently made by correspondence, and it is not always easy to 29 Barb. (N. Y.) 312 (1859); Insur- Ins. Co. v. Walser, 22 Ind. 73 (1864); ance Co. v. Colt, 20 Wall. (U. S.) 560 Hardie v. St. Louis, etc., Ins. Co., (1874). 26 La. An. 242 (1874); Noyes v. "• Walner v. Milford, etc, Ins. Co., Phoenix, etc., Ins. Co., 1 Mo. App. 153 Mass. 335 (1891). 584 (1876); Lynn v. Burgoyne, 13 "Commercial Ins. Co. v. Hallock, B. Mon. (Ky.) 400 (1852). Contra, 27 N. J. L. 645 (1858). Norton v. Phoenix, etc., Ins. Co., 36 "Harnickell v. New York L. Ins. Conn. 503, 4 Am. Rep. 98 (1870). Co., Ill N. Y. 390 (1888); Benton v. In Myers v. Keystone, etc., Ins. Co., Martin. 52 N. Y. 570 (1873). 27 Pa. St. 268 (1856), it is said that " Faunce v. State, etc., Assur. Co., such a provision in the policy may 101 Mass. 279 (1869). be dispensed with where the inten- " Badger v. American, etc., Ins. tion is clearly shown. Co.. 103 Mass. 244 (1869); Peoria 37 DEFINITION, NATURE, AND MANNER OF MAKING. § 33 determine whether a contract has been completed. Such contracts are governed by the following rules: 1. When an offer has been made and a letter of acceptance mailed within a reasonable time, the contract is complete. 2. The recall of an offer sent by mail, in order to be of any effect, must reach the party to whom it is addressed before the acceptance is mailed. 3. An acceptance, in order to complete the contract, must be un- conditional and in accordance with the terms of the offer. 4. The acceptance need not be by letter, but may be by any other method sufficient to show a formal determination to accept, commu- nicated or put in a way to be communicated to the party making the offer. A mere mental assent, not communicated, is insufficient, and this is also true of silence or neglect to respond, although the party has done all that is required of him. Changes or modifications made by either party after the terms of the contract are agreed upon must be accepted by the other party. Thus, if an agent agrees with the applicant upon the terms of the insurance, subject to the approval of the principal, and the principal returns the policy with certain modifi- cations, the contract is not consummated until the new terms are accepted by the applicant. ^""' DO iM Myers v. Keystone, etc., Ins. Culloch v. Eagle Ins. Co., 1 Pick. Co., 27 Pa. St. 268 (1856). As to (Mass.) 278 (1822); Thayer v. Mid- contracts by correspondence gener- dlesez, etc., Ins. Co., 10 Pick, ally, see Adams v. Lindsell, 1 Barn. (Mass.) 326 (1830); article in West- & Aid. 681 (1818); Mactier v. Frith, ern Jurist, May, 1882, p. 339. 6 Wend. (N. Y.) 103 (1830); Mc- Part II. OF THE SUBJECT-MATTER OF INSURANCE AND THE INTEREST NECESSARY TO SUPPORT THE CONTRACT. CHAPTBE III. INSUBABLE INTEREST IN PEOPEETT. SEC. SEC. 40. The subject-matter. 45. Time of interest. 41. Insurable interest. 46. Continuity of interest. 42. Definition. 47. Nature of interest. 43. Nature of insurable Interest. 48. Illustrations. 44. Different interests. § 40. The subject-matter. — The property or life in which the in- terest exists is commonly called the subject-matter of the insurance. While this is convenient, it is not strictly accurate, as the real subject of the insurance is the interest, and not the property. The person having the interest in the property is insured against loss to the ex- tent of that interest. §41. Insurable interest. — The requirement that a party shall have an interest in the property covered by the policy of insurance rests upon the fundamental principle that contracts of insurance are for indemnity, and not for profit. There can be no indemnity where there is no loss, and no loss where there is no interest. Such in.«ur- ance can have no other legitimate object than that of protection from loss which may flow directly from damage to the subject-matter. Life insurance is also more or less affected by this principle. The courts have not, in the development of this department of insurance law, been guided by any clearly defined principle. In some cases of recent (38) 39 IlTSmiABLE INTEREST IN PEOPERTT. § 41 date it is argued that life insurance contracts are simply for the in- demnification of the beneficiary, who can, therefore, recover only the actual amount of his loss caused by the death of the insured. It is also, said that the interest in life which is insurable is simply pecu- niary, and that only one who is so situated toward the life that he will suffer a money loss by the death has an insurable interest. Under this rule the amount of the policy must bear some reasonable relation to the value of the interest. By treating the policy as in the nature of a valued policy and holding that it lapses upon the loss of the in- terest, the contract is rested upon the principle of indemnity. By the weight of authdrity life insurance contracts are not for indemnity, but merely for the payment of a stipulated sum of money upon the happening of a certain event at an uncertain time in the future. Its modern forms commonly contemplate investment as well as protec- tion, and pass freely by assignment with the consent of the company. Life insurance contemplates protection and often profit, while all other insi^rance is properly for indemnification only. One purchases indemnity from loss ; the other invests in the hope of gain. The law recognizes this difference and sustains insurance upon lives because experience has shown that it is a beneficent contract and that the fears of the early courts and legislators were merely fanciful. But gambling contracts are invalid without reference to their sub- ject-matter, and a wager in the form of a life insurance contract is no exception to this rule. It was thought at first that human life was too sacred to be made the subject of a contract, but this idea passed, leaving the rule that it could be insured under conditions which were supposed to neutralize the temptation of the beneficiary to destroy the Ufe. This safeguard is found in the rule which re- quires that the beneficiary of the policy must, at least when the in- surance is effected, have such an interest in the continuation of the life as to remove the temptation to hasten the event from which he would receive a financial benefit. Ordinarily the interest is a pecu- niary one which is thus set against the financial interest in the death. But the reason of the rule does not require the interest to be of this character, as there are other conditions which experience teaches us are of equal or even greater potency. If the purpose of requiring an interest is to remove the temptation to destroy life, it is apparent that the temptation of a creditor to destroy the life of his insolvent debtor is greater than that of the father to destroy the life of his weak-minded and helplessly crippled child. The prohibition § 42 SUBJECT-MATTER AND INSUEABLE INTEEEST. 40 is against wager or speculative contracts, and when the circumstances are such as to free the contract from this implication it should be sustained, although the interest is not pecuniary. It wiU be found, however, that there are many decisions to the effect that a valid policy can only be sustained by a pecuniary interest.^ § 42. Definition.— Every interest in property or in relation thereto or liability in respect thereof, of such a nature that a contemplated peril may directly damnify the insured, is an insurable interest. In life insurance every person has an insurable interest in the life and health of himself or any person on whom he depends wholly or in part for support or education, or any person under a legal obligation to him for the payment of money, or respecting property or services of which death or illness might delay or prevent the performance, and of any person upon whose life any estate or interest in bi-m depends. "It would seem, therefore," said Mr. Justice Andrews, "that when- ever 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 in- surance 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 hav- ing a legal basis, but dependent upon the continued existence of the subject. It is well-settled that a mere hope or expectation which may be frustrated by the happening of some event is not an insurable in- terest."' § 43. Nature of insurable interest. — ^In speaking'of the nature of an insurable interest, Mr. Joyce, following the language of Mr. Jus- ^See language used in Cronin v. Trinity College v. Travelers' Ins. Vermont L. Ins. Co., 20 R. I. 570 Co., 113 N. C. 244 (1893); Lucena v. (1898); Insurance Co. v. Bailey, 13 Crauford, 3 Bos. & P. 75 (1802); Wall. (U. S.) 616 (1871). Wainer v. Milford M. F. Ins. Co., 'Riggs V. Commercial, etc., Ins. 153 Mass. 335, 11 L. R. A. 598 Co., 125 N. Y. 7, 25 N. B. 1058 (1890). (1890). A person need not hold the See also Williams v. Roger Wil- title if he is so situated that he liams Ins. Co., 107 Mass. 377 (1871); would suffer loss or damage by the Warnock v. Davis, 104 U. S. 775 destruction of the property: Home (1881); Loomls v. Eagle, etc., Ins. Ins. Co. v. Mendenhall, 164 IlL 458, Co., 6 Gray (Mass.) 396 (1856); 36 L. R. A. 374 (1897). ^1 INSURABLE INTEREST IN PKOPEKTT. 8 44 tice Story, says :' "An insurable interest is sui generis, and peculiar in its texture and operation. It sometimes exists where there is no present property or jm in re or jiis ad rem. It may cover inchoate rights or rights in expectation, such as profits or commissions. Again, a person may be so circumstanced that it may be important that a thing should have a continued existence; or he may be so related to or concerned in the same that he would almost positively derive a cer- tain benefit or advantage therefrom, but for its exposure to risks and dangers, in which case he is interested in its safety or situation." § 44. Different interests. — ^As there may be various distinct inter- ests in a subject-matter, it follows that different parties may have distinct insurable interests in the same property.* §45. Time of interest. — It was formerly held that the interest necessary to support an insurance on property must exist at the time the contract is made and at the time of the loss." It is probable that the greater number of cases announce this doctrine,^ although there is a decided tendency toward applying the same rule to fire insurance that has always been held to apply to marine and life insurance.' It ' Joyce Ins., § 888. Ins. Co., 176 Mass. 486, 57 N. E. 998, ♦Strong V. Manufacturers' Ins. 79 Am. St. 325 (1900). Co., 10 Pick. (Mass.) 40 (1830); 'In Sun Ins. Office v. Merz, 64 N. Columbian Ins. Co. v. Lawrence, 2 J. L. 301, 52 L. R. A. 330 (1900), Pet. (tJ. S.) 25 (1829); Herkimer v. the court said, with, reference to the Rice, 27 N. Y. 163 (1863). claim that the insurable interest "Lynch v. Dalzel, 3 Brown Pari, must exist at the time the contract Cas. 497 (1729); Sadler Co. v. Bad- is made: "This was formerly con- cock, 2 Atk. 554 (1743); Fowler v. sldered to be the rule with relation New York, etc., Ins. Co., 26 N. Y. 422 to' fire policies, and was so declared (1863); Hancox v. Fishing Ins. Co., both by text-writers and in decided 3 Sumn. (C. C.) 132, 142 (1837), cases, although a contrary view was Story, J. Contra, Chrisman v. State always taken in construing life and Ins. Co., 16 Ore. 283, 288, 18 Pac. marine policies. Why any such va- 466 (1888); Home Ins. Co. v. Men- riance in construction existed it is denhall, 164 111. 458, 36 L. R. A. 374 difficult to understand; for certain- (1897); Dickerman v. Vermont, etc., ly if a contract to insure after-ac- Ins. Co., 67 Vt. 99, 30 Atl. 808 (1894). quired property against fire is a The authorities on both sides are wagering contract, and therefore collected in a note to 52 L. R. A. void because against public policy, 330. a contract to Insure such property 'This is the rule in Massachu- against marine risks, or a contract setts: Clinton v. Norfolk Mut. F. to insure the life of a person in fa- § 46 SUBJECT-MATTER AND INSUKABLB INTEEEST. 42 does not appear that there ever was any reason for the distinction. It certainly is snflBcient if the insured has an interest under any status of ownership at the time the contract is made unless inquiry is made for the specific interest.' With reference to the rule in marine in- surance, a learned writer, who is quoted with approval by the supreme court of the United States, says :' "It is now clearly established that an insurable interest subsisting during the risk and at the time of the loss is sufficient, and that the assured need not also allege or prove that he was interested at the time the contract was efEected; indeed, it is an every day's practice to effect insurance in which the allegation can not be made with any degree of truth: as, for instance, where goods are insured on a return voyage long before they are bought." A fire insurance policy may cover goods purchased after a policy has gone into effect.^" So, crops not yet grown may be legally insured.^^ § 46. Continuity of interest. — ^It follows from what has been said in the preceding section that the interest need not be continuous. In those jurisdictions which hold that the interest need not exist at the time the policy is taken out, it is sufficient if it exists at some time vor of one who at the time of the taking out of the policy has no in- terest therein, are equally wagering contracts, and if such contracts are prohibited by public policy, should equally be considered void. But, although the earlier cases on fire insurance laid down the rule enun- ciated by the supreme court, experi- ence has taught that the necessities of business and the adequate protec- tion of property require the same methods of Insurance against fire as have always existed with relation to losses by the perils of the sea. And reflection has led to the con- clusion that contracts of insurance upon property in which the insured has no interest at the time of the issue of the policy are not wagers if he acquires an interest during the life of the policy and retains it at the time when the loss occurs." ' Insurance Co. v. Haven, 95 U. S. 242 (1877). '1 Arnould Mar. Ins. (Maclach- lan's ed.) 59; quoted in Hooper v. Robinson, 98 U. S. 528 (1878). See also, Boston Ins. Co. v. Globe Fire Ins. Co., 174 Mass. 229, 75 Am. St. 303 (1899); Lucena v. Craufurd, 2 Bos. & P. N. R. 295, 6 Rev. Rep. 623 (1802). "West Branch Ins. Co. v. Hel- fenstein, 40 Pa. St. 289, 80 Am. Dec. 573 (1861); Western, etc.. Pipe Lines v. Home Ins. Co., 145 Pa. St. 346 (1891); Nutts v. Farmers' Ins. Co., 37 Iowa 400 (1873). Policy held to cover a horse acquired in ex- change for the one owned when it was taken out: See Wood v. Rut- land, etc., Ins. Co., 31 Vt. 552 (1859). and note to Strong v. Manufac- turers' Ins. Co., 20 Am. Dec. 518. " Grant v. Parkinson, 3 Bos. & P. 85n. 43 INSURABLE INTEREST IN PROPERTY. § 47 during the risk and at the time of the loss. But policies now gen- erally contain a provision forbidding a change of title or the aliena- tion of the property under a penalty of forfeiture. This provision is effective/^ but in its absence the contract is merely suspended dur- ing the time the interest is gone, and revives to secure the new interest acquired before the loss.^' A condition against alienation is strictly construed and refers only to an entire and absolute divestiture of interest.^* If, at the time of the loss, a partial interest remains, recovery may be had to that ex- tent.'-' Thus, where the insured incumbered personal property con- trary to the provisions of the policy, it was held that he was neverthe- less entitled to recover if the lien had been removed before the time of the loss.^^ A life policy originally valid is generally held not to be invalidated by loss of interest.^' § 47. Nature of interest. — The interest which may be insured must be neither illegal nor immoral.^* It may be either legal or equitable,^'* but it is not necessary that the party should have either a ^% 265, infra; Home Mut. P. Ins. Co. V. Hauslein, 60 111. 521 (1871). " Worthlngton v. Bearse, 12 Allen (Mass.) 382 (lisoti); Clinton v. Nor- folk Mut. F. Ins. Co., 176 Mass. 486, 79 Am. St. 325 (1900). "Clinton v. Norfolk Mut. F. Ins. Co., 176 Mass. 486, 79 Am. St. 325 (1900); Jackson v. Massachusetts, etc., Ins. Co., 23 Pick. (Mass.) 418 (1839); Power v. Ocean Ins. Co., 19 La. 28, 36 Am. Dec. 665 (1841); Dolllver v. St. Joseph, etc., Ins. Co., ■9 Ins. Li. J. 293, and note on "aliena- tion." " Cowan V. Iowa, etc., Ins. Co., 40 Iowa 551 (1875); ^tna F. Ins. Co. v. Tyler, 16 Wend. (N. Y.) 385 (1836). See monographic note to Lane v. Maine, etc., Ins. Co., 28 Am. Dec. 155, and Ayres v. Hartford F. Ins. Co., 17 Iowa 176, 85 Am. Dec. 553. " Omaha F. Ins. Co. v. Dierks, 43 Neb. 569, 61 N. W. 745 (1895). But see Imperial F. Ins. Co. v. Coos County, 151 U. S. 452 (1893); § 262, infra. " Connecticut, etc., Ins. Co. v. Schaefer, 94 U. S. 457 (1876). In this case Mr. Justice Bradley said: "in a lucid judgment delivered by Baron Parke in the exchequer cham- ber, in the ease of Dalby v. India, etc., Assur. Co., decided in 1854, 15 C. B. 365, it was held that the true meaning of the statute is, that there must be an interest at the time that the insurance is effected, but that it need not continue until death." "Lord V. Dall, 12 Mass. 115 (1815); Carrigan v. Lycoming F. Ins. Co., 53 Vt. 418 (1881). An in- surance of liquors kept for illegal sale is invalid; but where the in- sured was a druggist, and only a small portion of the property was liquor, and nothing of illegality ap- peared in the contract, which was collateral to the occasional acts of illegal selling, the policy was held valid. See § 14, supra. " The holder of such interest may describe himself as owner: Guest V. New Hampshire F. Ins. Co., 66 § 47 STJBJECT-MATTEE AND INSURABLE INTEREST. 44 legal or equitable title to the property.^" The interest may be either conditional or contingent. Thus, Arnonld says:"^ "A vested in- terest in possession is not necessary to gite the right of insuring. An expectancy coupled with a present existing title to that out of which the expectancy arises is an insurable interest." Judge Story says:^^ "Inchoate rights founded upon titles subsisting at the time of loss, unless prohibited by the policy of the law, are insurable." An inter- est under a contract which is not enforcible either at law or equity is not insurable.^' An insurable interest does not imply ownership of the property or even a right to its possession."* A person may in- sure his interest in expected commissions,"^ or, in what seems an ex- treme case, an expected catch of fish."" But in all such cases an ex- pectation of profit or benefit must arise out of some subject in which the party is actually interested at the time of the loss, and it is not enough that he only expects to be interested in such property."' A person who is liable to others for the loss or destruction of property in which he has no actual interest may have an insurable interest therein. Thus, common carriers, warehousemen, pawnbrokers and such persons have an insurable interest in the property for which they Mich. 98 (1887) ; Elliott v. Ashland, Liberty Ins. Co., 44 Neb. 537, 48 Am. etc., Ins. Co., 117 Pa. St. 548 (1888). St. 753 (1895). " Rohrbach v. Germania, etc., Ins. *> Putnam v. Mercantile Mar. Ins. Co., 62 N. Y. 47 (1875); National, Co., 5 Mete. (Mass.) 386, 392 (1843). etc., Co. v. Citizens' Ins. Co., 106 N. " Swift v. Mercantile Mut. Ins. Y. 535, 541 (1887); Carter v. Hum- Co., 113 Mass. 287 (1873). boldt F. Ins. Co., 12 Iowa 287 (1861). " See Hayes v. Milford M. P. Ins. =* 1 Arnould Mar. Ins. 58. Co., 170 Mass. 492, 49 N. B. 754 "Hancox v. Fishing Ins. Co., 3 (1898); Warren v. Davenport F. Sumn. (C. C.) 132 (1837). Ins. Co., 31 Iowa 464 (1871); Rohr- '^ Perry v. Mechanics' Mut. Ins. bach v. Germania, etc., Ins. Co., 62 Co., 11 Fed. 478 (1879); Redfield v. N. Y. 47. In Eastern R. Co. v. Re- Holland Purchase Ins. Co.. 56 N. Y. lief Fire Ins. Co., 98 Mass. 420 354 (1874). (1868), Mr. Justice Gray said: "By "* One who has neither the legal the law of insurance any person has nor equitable title, nor the right of an insurable interest in property by possession of property, has an insur- the existence of which he receives able interest if he will derive a bene- a benefit or by the destruction of fit from its continuing to exist, or which he will suffer a loss, whether suffer a loss by its destruction: he has or has not any title in or Hanover, etc., Ins. Co. v. Bohn, 48 lien upon, or possession of the prop- Neb. 743, 58 Am. St. 719 (1896). erty itself." See note to Rochester, etc., Co. ▼. 45 INSURABLE INTEREST IN PROPERTY. § 48 are made responsible by statute or custom.^^ So, a railroad company which is liable by law for injury to property along its line, caused by fire from its engines, has an insurable interest in such property.^' The fact that the interest may possibly be defeated does not prevent it from being insurable."* § 48. Illustrations. — The following eases selected from the in- numerable number found in the books will illustrate the interest which the law recognizes as insurable: — A vendee of land in posses- sion under an executory contract of purchase, who is entitled to a deed upon payment of the purchase-money;'^ one who is in posses- sion under a parol contract and who has paid part of the purchase- money;'^ the owner of an interest in a vessel acquired under an oral contract of purchase;'' a person holding possession under a con-- tract to purchase from the equitable owner;'* a vendor who has contracted to convey;'" a purchaser at' an execution sale;'° a per- son in possession of real estate under a bona fide claim of right to the ownership of the same;'^ one in possession of the property of an- other, to whom he has advanced part of the purchase-money, and "Phoenix Ins. Co. v. Erie, etc.. Trans. Co., 117 U. S. 312 (1885). =» Eastern R. Co. v. Relief F. Ins. Co., 105 Mass. 570 (1870); Parley v. Eastern R. Co., 98 Mass. 414 (1868); Chapman v. Atlantic, etc., R. Co., 37 Me. 92 (1854). "Stirling v. Vaughan, 11 Bast 619, 629 (1809). " Loventhal v. Home Ins. Co., 112 Ala. 108, 57 Am. St. 17 (1895); Im- perial F. Ins. Co. V. Dunham, 117 Pa. St. 460 (1888); Grange Mill Co. V. Western Assur. Co., 118 111. 396 (1886); Dupreau v. Hibernia Ins. Co., 76 Mich. 615, 5 L. R. A. 671 (1889); Davidson v. Hawkeye Ins. Co., 71 Iowa 532, 60 Am. Rep. 818 (1887); Smith v. Phoenix Ins. Co., 91 Cal. 323, 25 Am. St. 191 (1891); Hartford F. Ins. Co. v. Keating, 86 Md. 130, 63 Am. St. 499 (1897). These cases consider what is meant by an "unconditional and sole" title. One in possession claiming under a deed: Sanford v. Orient Ins. Co., 174 Mass. 416, 75 Am. St. 358 (1899). " Wainer v. Milford M. F. Ins. Co., 153 Mass. 335, 11 L. R. A. 598 (1890) ; Tuckerman v. Home las. Co., 9 R. I. 414 (1870). In Oilman v. Dwelling-House Ins. Co., 81 Me. 488 (1889), the conditions of the con- tract had been broken, but no ad- vantage had been taken of it. "Amsinck v. American Ins. Co., 129 Mass. 185 (1880). " Carpenter v. German Amer. Ins. Co., 135 N. Y. 298, 31 N. E. 1015 (1892). "Wheeling, etc., Ins. Co. v. Mor- rison, 11 Leigh (Va.) 354, 36 Am. Dec. 385 (1840). "Curtis V. Home Ins. Co., 1 Biss. (C. C.) 485 (1865). " Miller v. Alliance Ins. Co., 7 Fed. 649 (1881). 48 SUBJECT-MATTER AND INSUEABLB INTEREST. 46 from whom he holds a power of attorney to sell the property;** one in possession of property under an agreement to care for, rent and keep insured ;'° contractors and builders in buildings in process of construction, for which they are to receive payment upon comple- tion ;*" the owner of land, in buildings in the process of construction upon the land;*^ one who has expended money upon another's prop- erty with the owner's consent;*^ lien creditors in the property to which the lien attaches;*' the holder of a mechanic's lien;** the mortgagor and the mortgagee in the property mortgaged;*^ a mort- "Brugger v. State Inv. Ins. Co., 5 Saw. (C. C.) 304 (1878). " Cross V. National F. Ins. Co., 132 N. Y. 133, 30 N. B. 390 (1892). See Graham v. Ins. Co., 48 S. C. 195, 59 Am. St 707 (1896). A party in possession, under an agreement with the owner to pay for the in- surance, may, as agent, insure for the owner's benefit: Schaeffer v. Anchor, etc., Ins. Co. (Iowa), 85 N. W. 985 (1901). " German Fire Ins. Co. v. Thomp- son, 43 Kan. 567, 23 Pac. 608 (1890). " In Foley v. Manufacturers' & B. F. Ins. Co., 152 N. Y. 131, 43 L. R. A. 665 (1897), it was held that the owner had an insurable interest to the extent of the value of a building being erected upon his land, under a contract requiring it to be com- pleted within a certain time, not yet expired, although the loss, in the ab- sence of insurance, would fall on the contractor. "The fact that the im- provements on the land may have cost the owner nothing, or that if destroyed by fire he may compel an- other to replace them, or that he may recoup his loss by resort to a contract liability of a third person, in no way affects the liability of the insurer, in the absence of an exemp- tion in the policy." In Santa Clara, etc., Academy v. Northwestern, etc.. Ins. Co., 98 Wis. 257, 67 Am. St. 805 (1898), the court said: "It is well settled that, in the absence of fraud or mistake, unless otherwise provided in the contract of insur- ance, if the insured has some insur- able interest in the property covered by such contract, the whole amount of damages to the property, not ex- ceeding that named in the policy, is recoverable by such person if the damages thereto reach that sum, or if, by the contract itself and the law governing the subject, the face value of the policy must be taken as liquidated damages." "Looney v. Looney, 116 Mass. 283 (1874). " Ins. Co. V. Stinson, 103 U. S. 25 (1880); Bell v. Western, etc., Ins. Co., 5 Rob. (La.) 423, 89 Am. Dec. 542 (1843); Longhurst v. Star Ins. Co., 19 Iowa 364 (1865). " Stout V. City F. Ins. Co., 12 Iowa 371, 79 Am. Dec. 539 (1861). "Carpenter v. Providence, etc., Ins. Co., 16 Pet. (U. S.) 495 (1842); Manson v. Phcenix Ins. Co., 64 Wis. 26 (1885); Traders' Ins. Co. V. Robert, 9 Wend. (N. Y.) 405 (1832); King v. State, etc., Ins. Co., 7 Cush. (Mass.) 1, 54 Am. Dec. 683 (1851); Hanover, etc., Ins. Co. v. Bohn, 48 Neb. 743, 58 Am. St. 719 (1896). 47 INSURABLE INTEREST IN PROPERTY. 48 gagor, although the mortgage debt is the full value of the property ;" a mortgagor of personal property;*' a husband in the community property;" an administrator in the property of the estate;*' com- mission merchants in property sold, but not removed ;°'' a common carrier in goods in his care;°^ a warehouseman in goods stored with him;"^ a cotton compress company in cotton received to press;"' agents, commission merchants and others having the custody of and responsibility for property;"* the trustee and the cestui que tru^t in the trust property;"" the assignee in' insolvency in the assigned property;"* the surety on a distiller's bond required by the revenue law, in whisky in store;"' a partner in the entire property of the "Owner of equity of redemption: Ins. Co. V. Stinson, 103 U. S. 25 (1880). "Kronk v. Birmingham F. Ins. Co., 91 Pa. St. 300. As to the amount for which a mortgagee or mortgagor may insure, see Guest v. New Hampshire P. Ins. Co., 66 Mich. 98 (1887); French v. Rogers, 16 N. H. 177 (1844); Smith v. Columbia Ins. Co., 17 Pa. St 253, 55 Am. Dec. 546 (1851); Excelsior F. Ins. Co. v. Royal Ins. Co., 55 N. Y. 343 (1873). Each of several mortgagees has an insurable interest to the extent of his interest: Fox v. Phenix F. Ins. Co., 52 Me. 333 (1864). Where the destruction of the property would leave the debt unpaid, the debtor in possession of the pledged property has an insurable interest to the extent of the value of the property which would have gone to pay the debt: Nussbaum v. Northern As- sur. Co., 37 Fed. 524, 1 L. R. A- 706 (1«89). "Hanover Fire Ins. Co. v. Shra- der, 11 Tex. Civ. App. 255, 31 S. W. 1100 (1895). " Sheppard v. Peabody Ins. Co., 21 W. Va. 368 (1883). "One may in his own name in- sure the property of another for the benefit of the owner without his previous authority or sanction, and it will inure to the benefit of the owner upon the subsequent adoption of it, even after a loss has occurred: Waring v. Indemnity P. Ins. Co., 45 N. Y. 606 (1871). " Phcenix Ins. Co. v. Erie, etc.. Trans. Co., 117 U. S. 312 (1885). " Pelzer Mfg. Co. v. St. Paul, etc., Ins. Co., 41 Fed. 271 (1890); Pelzer Mfg. Co. V. Sun Fire Office, 36 S. C. 213, 15 S. E. 562 (1891). " California Ins. Co. v. Union Com- press Co., 133 U. S. 387 (1890). " Waring v. Indemnity Ins. Co., 45 N. Y. 606 (1871); Western, etc., Pipe Lines v. Home Ins. Co., 145 Pa. St. 346, 27 Am. St. 703 (1891); Roberts v. Firemen's Ins. Co., 165 Pa. St. 55, 44 Am. St. 642 (1894). " Ex parte Houghton, 17 Ves. Jr. 251 (1809); Carpenter v. Provi- dence, etc., Ins. Co., 16 Pet, (U. S.) 495 (1842); Hartford F. Ins. Co. V. Keating, 86 Md. 130, 63 Am. St. 499 (1897); Young v. Union Ins. Co., 24 Fed. 279 (1885). « Herkimer v. Rice, 27 N. Y. 163 (1863). " Ins. Cos. V. Thompson, 95 U. S. 547 (1877). § 48 SUBJECT-MATTEE AND INSURABLE INTEREST. 48 firm;" a creditor in goods which he has sold under a contract by which he is to receive his pay out of the proceeds of the goods when sold by the vendee;" a simple contract creditor in the specific prop- erty in the estate of the deceased debtor where the estate may be sub- jected to a proceeding in rem for the payment of the debts and is in- sufficient for that purpose;"" an attaching creditor in the property attached or levied upon under an execution, but such creditor must insure his own interest, and can not avail himself of the debtor's insurance;"^ a judgment creditor upon the property of the debtor upon which his judgment is a lien,"" but a general judgment creditor, under ordinary circumstances, has no insurable interest in the specific property of his debtor;"' the owner in goods concealed from his creditor;"* the owner in goods which have been levied upon by his creditor and sold under execution, so long as the right to redeem remains;"" an insolvent debtor in goods which have passed to the assignee;'" a lessor in leased prpperty;"' a lessee in property leased;"" a landlord in the goods of his tenant which are liable to distress;" an officer in goods held by him under an attachment or levy;" a life tenant in the property in his possession;''^ a re- mainder-man in the property in the possession of the life tenant;'" " Manhattan Ins. Co. v. Webster, " Imperial P. Ins. Co. v. Murray, 59 Pa. St 227 (1868). 73 Pa. St. 13 (1873). As to the ** Rocs V. Merchants' Mut. Ins. amount of the interest of the les- Co., 27 La. An. 409 (1875). see, see Home Ins. Co. v. Gibson, 72 "Creed v. Sun Fire Office, 101 Miss. 58, 17 So. 13 (.1894). A ten- Ala. 522, 23 L. R. A. 177 (1893). ant who has verbally agreed to keep " Donnell v. Donnell, 86 Me. 518, the property insured has an insur- 30 Atl. 67 (1894). able interest: Berry v. American, "Rohrbach v. Germania, etc., Ins. etc.,- Ins. Co., 132 N. Y. 49, 28 Am. Co., 62 N. Y. 47 (1875). St. 548, and note, (1892). "Grevemeyer v. Southern, etc., "Columbia Ins. Co. v. Cooper, 50 Ins. Co., 62 Pa. St. 340, 1 Am. Rep. Pa. St. 331 (1865). 420 (1869). "White v. Madison, 26 N. Y. 117 ■ "Goulstone v. Royal Ins. Co., 1 (1862). The officer can not effect Post. & F. 276 (1858). insurance on property held by him "Cone V. Niagara P. Ins. Co., 60 at the expense of the parties: N. Y. 619 (1875). Burke v. Brig M. P. Rich, 1 Cliff. "Marks v. Hamilton, 16 Jur. 152 (C. C.) 509 (1860). (1852). "See Cross v. National P. Ins. " Philadelphia Tool Co. v. British- Co., 132 N. Y. 133, 30 N. E. 390 Amer. Assur. Co., 132 Pa. St. 236 (1892). (1890); Sherwood v. Harral, 39 " Redfleld v. Holland Purchase Conn. 338 (1872). Ins. Co., 56 N. Y. 354. 15 Am. Dec 424 (1874). 49 IITSUEABLE INTEREST IN PROPERTY. § 48 a tenant in common in the property;" a husband in the property in which he is a tenant by curtesy ;'* a husband in the buildings on land purchased and paid for by him but conveyed to his wife, where he has in fact possession and the beneficial use of the premises." By the weight of authority a stockholder in a private corporation has an insurable interest in the corporate property." "Annely v. De Saussure, 26 S. C. R. A. 684 (1890); Warren v. Daven- .97 (1886). port F. Ins. Co., 31 la. 464, 7 Am. "Abbott V. Hampden, etc., Ins. Rep. 160 (1871); Seaman v. Enter- Co., 30 Me. 414 (1849). prise, etc., Ins. Co., 18 Fed. 250 "Horsch V. Dwelling-House Ins. (1883). Contra, Dictum In Philips Co., 77 Wis. 4, 8 L. R. A. 806 (1890). V. Knox County Mut Ins. Co., 20 "Rlggs V. Commercial, etc., Ins. Ohio 174 (1851). Co., 125 N. Y. 7, 25 N. B. 1058, 10 I* 4— Elliott Iws. CHAPTEE IV. INSTJEABLE INTEEEST IN LIVES. 65. The rule at common law. 56. The English statute — Not in force in this country. 57. The modern rule. 58. The amount of a creditor's in- surable Interest. 59. Mere form disregarded. 60. Continuance of interest in life. 61. Interest of beneficiary desig- nated by insured. 62. Interest of the assignee. 63. Interest of the assignee, contin- ued. SEC. 64. Interest based upon relation- ship. 65. Interest based upon relationship, continued. 66. Illustrations of insurable inter- est In life. 67. Right of assignee without inter- est to recover premiums paid. 68. Want of interest as a defense under Incontestable clause. 69. Fact of insurable interest must be pleaded. 70. Description of interest. § 55. The rule at connnon law. — At compaon law a contract of life insurance was admittedly a wager, and hence required no interest to- support it, but the statute 14 Geo. Ill, chap. 48, made an interest in the life essential. Some courts have held that this statute was merely declaratory of the common law, but the tetter opinion is- otherwise, and it is certain that many such contracts were held valid before the statute was enacted.^ Baron Parke says:^ "As to insur- ance upon 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." In some of the early cases in this country it was said that life insurance contracts do not require an insurable in- terest in the absence of a statute such as had been enacted iu England. In an early ease in Missouri it was held that no interest was required ;* ' Emerigon Ins. 159 ; Asslevedo v. » Chisholm v. National, etc., Ins.. Cambridge, 10 Mod. 77 (1710); Co., 52 Mo. 213, 14 Am. Rep. 414 Depaba v. Ludlow, 1 Comyn 361 (1873); but see Whitmore v. Su- (1721); Dean v. Dicker, 2 Strange preme Lodge, 100 Mo. 36 (1889); 1250 (1746). Trenton, etc., Ins. Co. v. John- "Dalby v. India, etc., Assur. Co., son, 24 N. J. L. 577 (1854). At 15 C. B. 365 (1854). least the interest need only exist (50) 31 INSURABLE INTEREST IN LIVES. § 56 and the courts of New Jersey and Rhode Island are notably liberal in sustaining life insurance policies, although in Rhode Island some insurable interest is required.* Thus, in that state it was recently said: "A policy on another's life is just as dangerous and tempting to crime where there is an interest as where there is not." But the rule was early settled, as stated by Chancellor Kent, that "a wager contract is void if it be against the principles of public policy equally as if it contravened a positive law.'" So, in an early Pennsylvania case,' it was said that "a policy made without interest is a wager policy, and has nothing in common with insurance but name and form. It is not subservient to the true interest of fair trade and commerce, but is pregnant with as much mischief, both public and private, as can proceed from any species of gaming, which the legis- lature has hitherto found it necessary to suppress." § 56. The English statute — Not in force in this country. — In a re- cent case in Wisconsin, the court, after stating the rule that an interest in life is required, said' that the theory upon which the decisions are based is that such a contract is nothing more than a wagering or gambling contract, and hence is against public policy, and therefore void. It is very. questionable whether such a policy was void by the common law of England prior to 1774. In the year named, the stat- ute of 14 Geo. Ill, chap. 48, was enacted, which is to the effect that thereafter "no insurance shall be made by any person or persons, bodies politic or corporate, on the life or lives of any person or per- sons, or on any other event whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies when the policy is taken out: Mow- to recover the premiums paid]; ry v. Home L. Ins. Co., 9 R. I. 346 Lord v. Dall, 12 Mass. 115, 7 Am. (1869). Dec. S8 (1815) [sister in the life of ' See Cronin v. Vermont L. Ins. brother. This is the first American Co., 20 R. I. 570 (1898). life insurance case]; Ruse v. Mu- "See the following early cases: tual Ben. L. Ins. Co., 23 N. Y. 516 Amory v. Oilman, 2 Mass. 1 (1806) (1861). Lmarine case discussing wager pol- • Pritchet v. Ins. Co., 3 Yeates icies]; Mount v. Waite, 7 John. (N. (Pa.) 458 (1803). Y.) 434 (1811) [insurance on lottery ' Hurd v. Doty, 86 Wis. 1. 56 N. tickets. The contract was held void W. 371, 21 L. R. A. 746 (1893). As as against public policy; but as the to what is a wagermg policy, see plaintiff had not viojated any stat- Metropolitan L. Ins. Co. v. O'Brien, ute, and was hence not in pari de- 92 Mich. 584, 52 N. W. 1012 (1892). licto. Chancellor Kent allowed him § 57 SUBJECT-MATTER AND INSURABLE INTEREST. 52 shall be made, shall have no interest, or by way of gambling or wager- ing, and that every assurance made contrary to the true intent and meaning hereof shall be null and void, to all intents and purposes whatsoever." The court further said that this statute was never in force in Wisconsin and was never received and acted upon in this country. § 57. The modem rule. — It is now the settled rule that an interest in the continuance of the life of the insured is necessary to support a contract of life insurance? The only difficulty is in defining this interest. As said by Mr. Justice Field:' "It is not easy to define with precision what will in all eases constitute an insurable interest so as to take the contract out of the class of wager policies. It may be stated generally, however, to be such an interest, arising from the relations of the party obtaining the insurance, either as creditor of or surety for the assured, or from the ties of blood or marriage to him, as will justify a reasonable expectation, of advantage or benefit from the continuance of his life. It is not necessary that the ex- pectation of advantage or benefit should be always capable of pecu- niary estimation, for a parent has an insurable interest in the life of his child, and a child in the life of his parent, a husband in the life of his wife, and a wife in the life of her husband. The natural affec- tion in eases of this kind is considered more powerful — as operating more efficaciously — to protect the life of the insured than any other consideration. But in all cases there must be a reasonable ground, founded upon the relations of the parties to each other, either pecu- niary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Otherwise, the contract is a mere wager, by which the party taking the policy is directly in- terested in the early death of the assured. Such policies have a ten- dency to create a desire for the event. They are, therefore, inde- pendently of any statute on the subject, condemned, as being against public policy." ■ Holmes v. Gilman, 138 N. Y. 369, preme Lodge, 100 Mo. 36, 13 S. W. 34 Am. St. 463, and notes (1893); 495 (1889); Amick v. Butler, 111 Crotty V. Union, etc., Ins. Co., 144 Ind. 578 (1887); Trinity College v. U. S. 621 (1892); Ulrich v. Rein- Travelers' Ins. Co., 113 N. C. 244 oehl, 143 Pa. St. 238, 22 Atl. 862 (1893). See note to 57 Am. Dec. (1896.) [involving the question to 93-105. what extent creditor may Insure life • Warnock v. Davis, 104 U. S. 775 of his debtor]; Whitmore v. Su- (1881). 53 INSURABLE INTEREST IN LIVES. 58 § 58. The amount of a creditor's insurable interest. — In all cases the interest must be of such a nature as to take the contract out of the class of wagers. Hence, the amount of the insurance, where the interest is of a pecuniary nature, must bear some proper relation to the value of the interest.^" If the amount which a creditor takes upon the life of his debtor is grossly disproportionate as compared with the debt, the contract will be treated as a wager, and, therefore, void.^^ In the jurisdictions which permit the assignment of a valid existing policy to a person without interest, the assignee may recover the entire amount of the policy.^* But in a comparatively recent case in Pennsylvania^' the court laid down the rule for determining the amount of a creditor's insurable interest as follows: "A creditor may lawfully take out a policy of insurance on the life of his debtor in an amount sufficient to cover the debt, with interest, on the cost of such insurance, with interest thereon during the period of the debtor's expectancy of life according to the Carlisle tables. If such amount be exceeded the policy may be a wagering transaction." Where the policy is taken out by the debtor or assigned as security for his creditor, the former paying the premium, the personal rep- " Grant v. Kline, 115 Pa. St. 618, » Ati. 150 (1887) ["creditors, how- ever, hold only what is necessary for their indemnity for the debt, and the representatives of the in- sured will he entitled to the bal- ance"]; Metropolitan L. Ins. Co. v. O'Brien, 92 Mich. 584 (1892); Page V. Burnstine, 102 U. S. 664 (1880); Downey v. Hpffer, 110 Pa. St. 109, 20 Atl. 655 (1885). See note on "Insurable Interest in the Life of Another," 57 Am. Dec. 93-105. A moral claim does not constitute an insurable interest on behalf of one as a creditor: Guardian, etc., Ins. Co. V. Hogan, 80 111. 35, 22 Am. Rep. 180 (1875). " In Cammock v. Lewis, 15 Wall. (U. S.) 643 (1872), a policy for |3,000 was taken out to secure a debt of $70 owed by L to C. The latter paid the premiums for one year. L then gave C his note for J3,000 without consideration, with an agreement back that in case of the death of L, C would pay L's widow one-third of the policy. It was held that C could retain only the amount of his debt with such sums as he had advanced. See Givens t. Veeder, 9 N. Mex. 256 (1897). "See Wright v. Mutual, etc., Ass'n, 118 N. Y. 237, 16 Am. St. 749 (1890). "Ulrich V. Reinoehl, 143 Pa. St. 238, 24 'Am. St. 534, 22 Atl. 862 (1891); Wheeland v. Atwood, 192 Pa. St. 237, 73 Am. St. 803 (1899). See also Hays v. Lapeyre, 48 La. An. 749, 35 L. R. A. 647 (1895); Ex- change Bank V. Loh, 104 Ga. 446, 44 L. R. A. 372 (1898); Fisher v. Dono- van, 57 Neb. 361, 44 L. R. A. 383 (1899); Roberts v. Wlnton, 100 Tenn. 484, 41 L. R. A. 275 (1898); Carson v. Vicksburg Bank, 75 Miss. 167, 37 L. R. A. 559 (1897). § 59 SUBJECT-MATTEB AND INSURABLE INTEREST. 64 resentatives of the insured are entitled to the balance after the cred- itor's debt is paid." § 59. Mere form disregarded. — The courts will not permit, the mere form of a policy to cover and protect a wager contract.^' Thus, where the contract recited that the insured had himself paid the first premium, the insurer was allowed to show that the premium was in fact paid by the beneficiary, who had no insurable interest.'" So where it appeared that the person insured was only a nominal party to the contract, and that the beneficiary named in the policy had in reality procured the insurance and paid the premiums, it was held that, "in order that the transaction may be taken out of the cate- gory of wager contracts, the beneficiary must have had an insurable interest of a pecuniary character, or of that nature, either present or prospective, af the time the policy had its inception."^' 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 in- surer has no interest. "^^ The manner of the payment of the premium is of much importance in determining whether the policy is speculative, and the tendency is to condemn contracts where the premium is paid by the beneficiary who has no insurable interest, although the policy was taken out by the insured. Thus, a policy was held invalid, although the insured himself made the application, where it appeared that the beneficiary paid the premiums." "Morris v. Georgia Loan, etc., gan, 80 111. 35, 22 Am. Rep. 180 Ass'a, 109 Ga. 12, 46 L. R. A. 506 (1875); Whitmore v. Supreme (1899), and note: Amick v. Butler, Lodge, 100 Mo. 36 (1889). Ill Ind. 578 (1887). See Hale v. "United Brethren, . etc., Sec. v. Life Indem., etc.. Co., 65 Minn. 548 McDonald, 122 Pa. St. 324, 1 L. R. A. (1897). In Rittler v. Smith, 70 Md. 238 (1888). 261, 2 L. R. A. 844 (1889), it was "Amick v. Butler, 111 Ind. 578, 60 held that a creditor could insure the Am. Rep. 722 (1887). life of his debtor and collect the " Connecticut M. L. Ins. Co. v. amount although his debt had been Schaefer, 94 U. S. 457 (1876). paid before the death of the debtor; "Trinity College v. Travelers' Ins. but the relation between the debt Co., 113 N. C. 244, 22 L. R. A. 291 and the policy must not be grossly (1893). See Burton v. Connecticut disproportionate. As to who are M. L. Ins. Co., 119 Ind. 207 (1889); legal representatives within the Rawls v. American M. L. Ins. Co. meaning of a life Insurance policy, 27 N. Y. 282, 84 Am. Dec. 280 (1863);' see note to Rose v. Wortham, 95 Burke v. Prudential Ins. Co., 155 Tenn. 505, 30 L. R. A. 609. Pa. St. 295 (1893). "Guardian, etc., Ins. Co. v. Ho- 55 INSXJEABLE INTEREST IN LIVES. § 60 § 60. Continuaiice of interest in life. — We have found that life insurance is not a contract of indemnity and that the requirement of interest is necessary merely to prevent condemnation by the statute or common-law rule against wager contracts. In fire and marine in- surance contracts the insured is indemnified for the loss of interest existing at the time of the loss. But in life insurance it is only necessary that an interest exist at the time the contract is made. It seems to be the prevailing rule that if the contract is originally valid it is not affected by the loss of interest unless such is the necessary result of the provisions of the policy. "" Thus, where a married woman is named as the beneficiary in an ordinary policy of insurance on the life of her husband, the policy remains in force although she obtains a divorce before his death.^^ But where the insurance is in a mutual benefit association, the relation of husband and wife must, by the ordinary terms of the contract, exist at the time of the death.*'' There is, however, a line of eases which holds that the assignee of a life in- surance policy must have an insurable interest notwithstanding the fact that it was valid when issued.*' It is said by the supreme court of the United States that "if the policy of insurance be taken out by a debtor on his own life, naming a creditor as beneficiary, or with a subsequent assignment to a creditor, the general doctrine is that on payment of the debt the creditor loses all interest therein, and the policy becomes one for the benefit of the insured and collectible by his executors or administrators."** " Ins. Co. T. Bailey, 13 Wall. (U. the policy. But this case was over- S.) 616 (1871); Connecticut M. L. ruled: Mowry v. Home L. Ins. Co., Ins. Co. v. Schaefer, 94 U. S. 457 9 R. I. 346 (1869); Loomls v. Eagle, <1876); Sides v. Knickerbocker L. etc., Ins. 'Co., 6 Gray (Mass.) 396 Ins. Co., 16 Fed. 650 (1883); Appeal (1856); Rawls v. American M. L. of Corson, 113 Pa. St 438, 6 Atl. 213 Ins. Co., 27 N. Y. 282 (1863). (1886); Scott v. Dickson. 108 Pa. "Connecticut, etc., Ins. Co. v. St. 6 (1884); Rittler v. Smith, 70 Schaefer, 94 U. S. 457 (1876); Over- Md. 261 (1889) [creditor after pay- hiser v. Overhiser, 63 Ohio St. 77, ment of debt]. The well-known 5fl L. R. A. 552 (1890), annotated, case of Godsall v. Boldero, 9 Bast " Tyler v. Odd Fellows', etc., Ass'n, 72 (1807), grew out of a policy Is- 145 Mass. 134 (1887); Schonfleld v. sued on the life of England's great Turner, 75 Tex. 324, 7 L. R. A. 189 prime minister. William Pitt, taken (1889). out by a creditor. After Pitt's " See § 62, infra. death his debts were paid by the " Crotty v. Union, etc., Ins. Co., nation, and it was held that as life 144 U. S. 621 (1892). In Manhat- insurance was a contract of indem- tan L. Ins. Co. v. Hennessy, 39 C. nity there could be no recovery on C. A. 625, it was said that this case § 61 SUBJECT-MATTER AND INSURABLE INTEREST. SG § 61. Interest of beneficiary designated by insured.— Wager pol- icies are held void because it is thought contrary to public policy "that one person should have an expectation of a benefit conditioned ■ upon the happening of the death of another." It is therefore thought necessary that the temptation to destroy the life of the other in order to obtain such benefit must be balanced or counteracted by an insur- able interest in the life. A person has an insurable interest in his own life, and the rule is assumed to have no application where the original contract is made by the insured. We therefore find the rule that one who takes an insurance upon his own life and pays the pre- miums may make the insurance payable to any person he may name in the policy, and that such person need have no interest in the life of the insured.'"' As said in South Carolina,*' "It is firmly established that insurance procured by one person on the life of another in which the party efiecting the insurance has no interest is void as a wager contract, against public policy which condemns gambling speculations upon human life. But it is also well settled that a person may insure his own life and make the policy payable to whomsoever he chooses, even a beneficiary who has no insurable interest in his life, provided that IS not In its results in conflict with (1887); Mutual L. Ins. Co. v. Allen, the previous statements of the 138 Mass. 24, 52 Am. Rep. S48 court; that it is not necessary that (1884); Fitzgerald v. Hartford, etc., the interest continue to the time of Ins. Co., 56 Conn. 116, 7 Am. St. the death. 288 (1888); Eckel v. Renner, 41 " Albert V. Mutual L. Ins. Co., 122 Ohio St. 232 (1884). Contra, Mis- N. C. 92, 30 S. E. 327, 65 Am. St. souri Valley L. Ins. Co. v. Sturges, 693 (1898); Union, etc.. League v. 18 Kan. 93, 26 Am. Rep. 761 (1877); Walton, 109 Ga. 1, 52 L..R. A. 442 Helmetag v. Miller, 76 Ala. 183, 52 (1899); Olmsted v. Keyes, 85 N. Y. Am. Rep. 316 (1884); Roller v. 593 (1881); Sabin v. Phinney, 134 Moore, 86 Va. 512, 6 L. R. A. 136 N. Y. 423 (1892); Vivar v. Supreme (1889); Basye v. Adams, 81 Ky. 368 Lodge, 52 N. J. K 455, 20 Atl. 36 (1883). See note to 16 Am. St. (1890); Northwestern Masonic Aid 906. A mere friend has not an in- Ass'n V. Jones, 154 Pa. St. 99, 35 surable interest, and can not be the Am. St. 810 (1893); Martin v. Stub- beneficiary of a life insurance pol- bings, 126 111. 387, 9 Am. St 620 icy, although the insured volnn- (1889); Heinlein v. Imperial L. Ins. tarily makes it payable to him: Co., 101 Mich. 250, 45 Am. St. 409, 25 Caudell v. Woodward, 96 Ky. 646, L. R. A. 627 (1894); Clark v. Allen, 29 S. W. 614 (1895). 11 R. I. 439, 23 Am. Rep. 496 (1878); "Crosswell v. Connecticut Indem- Amlck V. Butler, 111 Ind. 578, 60 nlty Ass'n, 51 S. C. 103, 28 S. E. Am. Rep. 723 (1887); Murphy v. 200 (1897). Red, 64 Miss. 614, 60 Am. Rep. 68 37 INSURABLE INTEREST IN LIVES. § 63 the transaction is iona fide and not a mere cover to evade the law against wager policies. In such a case the interest which the insured has in his own life supports the policy and prevents it from being condemned as a wager contract." So, in Georgia it was said:^' "Beyond all controversy a man has an insurable interest in his own life, and we fail to see when, having that interest, he entered into a contract with an insurer by which, for a stipulated sum, which he periodically pays, the insurer becomes liable to pay a given sum of money at the death of the insured, why he who is most interested, whether actuated by ties of relationship, motives of friendship, gratitude, sympathy or love, may not make the object of his consid- eration the recipient of his bounty. If it be replied that a temptation is extended to the "beneficiary by improper means to hasten the time when he should receive the amount of the policy — and it is for this reason that such contracts will only be upheld when the idea of temptation is rebutted by the natural ties of blood or affinity — we might well ask ourselves why executory devises, bequests, provisions for support and maintenance provided for friends and even strangers, are not subject to the same inhibition as being against public policy. But while, as we have before said, many adjudicated cases, frequently contrary to natural justice, clearly hold that, unless the beneficiary or assignee has an insurable interest in the life of the insured, the policy or assignment is void, we shall- undertake to show by authority that such is not the law." In nearly all the cases in which this rule has been applied the insured paid the premiums, but it has been held to apply even where the premiums were paid by the beneficiary.^'^ § 62. Interest of the assignee. — The question whether a policy valid at its inception may afterwards, before the death of the insured, be assigned to one who has no insurable interest in the life of the in- sured, has been much discussed, and the authorities are in hopeless conflict.-' It is universally admitted that wager policies are void, and that it is necessary to show that the contract is supported by an interest of some character sufficient to remove the objection that on grounds of public policy it is not well that it should be to the finan- cial interest of A that B should cease to live. If no interest appears " Union Fraternal League v. Wal- ■" See notes to Morrell v. Trenton ten, 109 Ga. 1, 46 L. R. A. 424 (1899). Ins. Co., 57 Am. Dec. 103, and Cur- "a Fidelity, etc., Ass'n v. Jeffords, rier v. Continental L. Ins. Co., 52 107 Fed. 402, 46 C. 0. A. 377 (1901), Am. Eep. 143. and cases cited. § 62 BUBJECT-MATTBE AND INSUKABLE INTEEEST. 58 the law will presume that the policy was taken out for a speculative purpose.^' In ordinary property insurance the principle of indem- nity makes the question easy of solution, but this does not apply to life insurance. There it must appear that the beneficiary has an interest in the continuance of the life resulting from some relation of con- tract, affinity, consanguinity or dependence supported by a moral ob- ligation, or a reasonable expectation of benefit. Thus, if it appears that the beneficiary has such an interest as to remove the suspicion that the contract is a gambling or speculative transaction, the courts will not, as a general rule, investigate very carefully into the exact nature or value of the interest. Some courts are less liberal than others. Thus, it is held that the interest that exists when the con- tract is made must continue to the death of the insured, or, at least, must exist at that time, and that the assignee of a valid policy must also have an insurable interest in the life of the insured. It must be admitted that this doctrine is strictly logical and in accord with the reason of the rule which requires the existence of an interest. As said by Mr. Justice Field:'" "If there be any sound reason for holding a policy invalid when taken out by a party who has no interest in the life of the assured, it is difficult tc see why that interest is not as cogent and operative against a party taking out an assignment of a policy upon the life of a person in which he has no interest. The same ground which invalidates the one should invalidate the other — so far at least as to restrict the right of the assignee to the sums actually advanced by him." This rule prevails in Alabama,?^ Kansas," Kentucky,*^ North Carolina,'* Pennsylvania,'' "United Brethren Mut Aid Soc. (1887); Missouri Valley L. Ins. Co. V. McDonald, 122 Pa. St. 324 (1888). v. Sturges, IS Kan. 93, 26 Am. Rep. "Warnock v. Davis, 104 U. S. 775 761 (1877). (1881). That this is still the doc- "Basye v. Adams, 81 Ky. 368 trine of the supreme court, see Man- (1883). An assignment is valid only hattan L. Ins. Co. v. Hennessy, 39 in so far as necessary to secure ad- C. C. A. 625, 99 Fed. 64 (1900). vances made by the assignee: ■•■- Stoelker v. Thornton, 88 Ala. Beard v. Sharp, 100 Ky. 606, 38 S. U41, 6 So. 680 (1889). The dispo- W. 1057 (1897). sition may be made by will: Ala- "Powell v. Dewey, 123 N. C. 103, bama G. L. Ins. Co, v. Mobile Mut. 31 S. E. 381 (1898). Ins. Co.. 81 Ala. 329, 1 So. 561 "Hoffman v. Hoke, 122 Pa.. St (1886); Helmetag v. Miller. 76 Ala. 377. 15 Atl. 437 (1883). The orig- 183 (1884). inal beneficiary who assigned to "Missouri Valley L. Ins. Co. v. one without interest can recover: McCrum, 36 Kan. 146, 12 Pac. 517 Carpenter v. U. S. Life Ins. Co., 161 59 INSUEABLB INTEREST IN LIVES. § 63 Texas,'" Tennessee/' and tjie United States courts.'' It is not, how- ever, always followed to its logical conclusion, as all the reasons which forbid the assignment of a policy to a person without interest apply where there is a loss of interest. But an assignee without interest will be protected to the extent of the money advanced by him for the pay- ment of premiums." It is held in Texas that the beneficiary named in the policy, who has no interest, will hold the proceeds oif the policy as trustee for the legal representatives of the insured, and that the assignee without interest will only hold it to the extent of his debt." Mere want of interest in the assignee of a valid policy does not in this jurisdiction invalidate the policy. The insurer must perform his contract and leave it to the court to determine to whom the money belongs.*^ § 63. Interest of the assignee, continued. — The tendency in busi- ness life has been to liberalize the rules governing life insurance and thus to broaden its scope. It was found desirable that life insurance policies should pass freely by transfer and assignment, and so long as this was with the consent of the parties it was felt that the objec- tions on the ground of public policy were largely illusory. Thus a more liberal rule has been adopted in many states, where it is held Pa. St 9, 32 L. R. A. 571 (1894); Co., 101 Tenn. 22, 46 S. W. 561 Keystone Mut. Ben. Ass'n v. Norris, (1898) [notwithstanding incontest- 115 Pa. St. 446, 8 Atl. 638 (1886). able clause]. A took out a policy on her life and "" Connecticut, etc., Ins. Co. v. assigned it to her husband, who, Schaefer, 94 U. S. 457 (1876.) See being subsequently unable to pay New York, etc., Ins. Co. v. Arm- the premiums, assigned it absolutely strong, 117 U. S. 591 (1886); Cur- to C to pay a debt, which, had A rier v. Continental L. Ins. Co., 52 lived out her life expectancy, would Am. Rep. 134 (1885), annotated, have amounted to about the amount ^ Page v. Burnstine, 102 U. S. of the policy. This was held not a 664 (1880); Warnock v. Davis, 104 wagering policy: Wheeland v. At- U. S. 775 (1881). See § 67, infra. wood, 192 Pa. St. 237, 43 Atl. 946, "The policy is valid and collect- 73 Am. St. 803 (1899). ible; but the proceeds go to the par- "Schonfield v. Turner, 75 Tex. ties legally entitled thereto: Equi- 324, 12 S. W. 626 (1889); Price v. table Life Ins. Co. v. Hazlewood, 75 Supreme Lodge, 68 Texas 361 Tex. 338, 16 Am. St. 893 (1889); (1887). The policy in such case is Schonfield v. Turner, 75 Tex. 324, 7 for the benefit of the original bene- L. R. A. 189 (1889). ficiary. " Cheeves v. Anders, 87 Tex. 287, "Clement v. New York L. Ins. 47 Am. St. 107 (1894). 63 SUBJECT-MATTEE AND INSURABLE INTEREST. 60 tfaat a policy supported by aa interest at its inception is a mere chose in action, which may be assigned to a person who has no insurable interest in the life.*^ Such an assignment does not create a new contract, but merely continues the old contract in force. A person may thus insure his own life and either name or assign the policy to whomsoever he chooses without reference to the interest of such beneficiary in his life. The rule that the assignee of a valid policy need not have an insurable interest in the life prevails in California,^" Colorado,** Georgia,*^ Illinois,*" Indiana,*' Maryland,*' Massachu- setts,*' Mississippi," New York," Ohio,"'' Ehode Island," Ver- " See notes to 26 Am. St. 23; also, Hogiie V. Minnesota Pack., etc., Co., 59 Minn. 39 (1894). " Deering's Civil Code Cal., § 2764. See Curtiss v. ^tna, etc., Ins. Co., 90 Cal. 245. 25 Am. St. 114 (1891). " Sheets v. Sheets, 4 Colo. App. 450, 36 Pao. 310 (1894). " Union Fraternal League v. Wal- ton, 109 Ga. 1, 46 L. R. A. 424 (1899). "Martin v. Stubbings, 126 111. 387, 9 Am. St. 625 (1888); Bloom- ington Mut. B. Ass'n v. Blue, 120 111. 121, 60 Am. Rep. 558, 11 N. B. 331 (1887). " State V. Tomlinson, 16 Ind. App. 662, 59 Am. St. 335 (1897); Amick V. Butler, 111 Ind. 578 (1887). In Prudential Ins. Co. v. Hunn, 21 Ind. App. 525, 52 N. E. 772 (1899), it was held that a policy issued to one upon the life of another who has no insurable interest, is a wagering contract and void. In Franklin L. Ins. Co. V. Hazzard, 41 Ind. 116, 13 Am. Rep. 313 (1872), the court said: "In our opinion, no one should hold a policy upon the life of another, ,in whose life he has no insurable in- terest at the time he acquired the policy, whether the policy be issued to him directly from the insurer or whether he acquire the policy by purchase and assignment from an- other." In Continental L. Ins. Co. V. Volger, 89 Ind. 572 (1883), it was held that the interest must be a pe- cuniary one, and hence a mother had not an insurable interest in the life of her son. " Bonder v. Home, etc., Soc, 72 Md. 511, 20 Atl. 137 (1890). See Clogg V. McDaniel, 89 Md. 416, 43 Atl. 795 (1899). '"Dixon V. National L. Ins. Co., 168 Mass. 48, 46 N. E. 430 (1897); Mutual L. Ins. Co. v. Allen, 138 Mass. 31 (1884). "Murphy v. Red, 64 Miss. 614, 1 So. 761 (1887). » Olmsted v. Keyes, 85 N. Y. 593 (1881); Valton v. National F. L.. Ass'n, 20 N. Y. 32 (1859); Rawls v. American M. L. Ins. Co., 27 N. Y. 282 (1863); St. John v. American M. L. Ins. Co., 13 N. Y. 31, 64 Am. Dec. 529; Sabin v. Phinney, 134 N. Y. 423 (1892) [mutual benefit so- ciety certificate]. " Eckel V. Renner, 41 Ohio St. 232 (1884). "Clark V. Allen, 11 R. I. 439; Cronin v. Vermont L. Ins. Co., 20 R. I. 570, 40 Atl. 497 (1898), 61 INSURABLE INTEEESX IN LIVES. § 64 mont," Wisconsin," South Carolina," and in England" and Can- ada."' This doctrine seems to be supported by the weight of authority, but it must be noted that under either rule the essential fact is that the transaction must be bona f.de, and not a mere cover for a wager- ing or speculative insurance or a device to evade the law. In fact, many of the cases which hold an assignment without interest void will, upon close examination, be found to rest upon the fact that the transaction in question was merely colorable and an attempt to obtain speculative insurance. "" § 64. Interest based upon relationship. — Where no ties of blood or marriage exist, a person has an insurable interest in a life only when he is a creditor of, or surety for such party. Where there are ties of blood or marriage there must be a reasonable expectation of ad- vantage from the continuance of the life. There is some conflict among the decisions as to the nature of the interest which grows out of the relationship which* will support a policy of insurance. Where it is pecuniary, and the amount of the insurance bears some reasonable proportion to the interest, the contract is, of course, not a wager policy. If the reason for requiring an interest be as stated in many cases, that it is against public policy to tempt one person to deprive another of his life, it is apparent that certain ties of relationship are an ample protection. Hence, we find some decisions, and in our opinion the better ones, holding that near relationship, without any element of dependence, creates an insurable interest. A father has no direct pecuniary interest in the continuance of the life of a demented or crippled son, but it is little less than nonsense to say that public policy forbids such a father to insure the life of his child be- cause of the danger that he will be tempted to take the life of the child. The common-sense rule is that there is an insurable interest sufficient to prevent the policy being a speculative contract where there is either a pecuniary interest, the relation of dependency, or any re- "Fairchild v. Northeastern M. L. Ass'n, 51 S. C. 103, 28 S. E. 200 Ass'n, 51 Vt. 613 (1879). (1897). " Strike V. Wisconsin, etc., Ins. " Ashley v. Ashley, 3 Sim. 149 Co., 95 Wis. 583, 70 N. W. 819 (1829). (1897); Bursinger v. Bank, etc., 67 "North American L. Assur. Co. v. Wis. 75, 53 Am. Rep. 848 (1886); Craigen, 13 Can. S. C. 278 (1886). Hurd V. Doty, 86 Wis. 1, 21 L. R. A. " See Clark v. Allen, 11 R. I. 439, 746 (1893). 23 Am. Rep. 496 (1877). "Crosswell t. Connecticut Ind. § 64 SUBJECT-MATTER ASD INSTJEABI.E INTEREST. 62 lationship from which ordinary observation teaches that there is no real danger of placing temptation in the way of the beneficiary. All statements of this character must, however, be taken subject to the rule that where it is apparent that the transaction is merely a cover for a wager it will not be sustained by the courts.*" In one case the supreme court of the United States, which is very strict in requiring an insurable interest, said :°^ "The better opinion is that the decided cases which proceed upon the ground that the in- sured must necessarily have some pecuniary interest in the life of the cestui que vie are founded upon an erroneous view of the nature of the contract, that the contract of life insurance is not necessarily one merely of indemnity for a pecuniary loss, as in marine or iire policies, that it is sufficient to show that the policy is not invalid as a wager policy, if it appears that the relation, whether of affinity or con- sanguinity, was such between the person whose life was insured and the beneficiary named in the policy, as warrants the conclusion that the beneficiary had an interest, whether pecuniary or arising from dependence or mutual affection, in the life of the person insured." Mr. Joyce says:'" "The general rule, as deduced from a majority of the cases, would seem to be, however, that the interest must rest upon a purely pecuniary basis,' or, in case of consanguinity or affinity, there is a sufficient interest where they involve a reasonable claim to support or some benefit or advantage to be derived from the continu- ance of the life insured." A much narrower view is adopted in many cases. Thus, in North Carolina it was said:'* "Except in a case where there are ties of blood or marriage, the expectation of advan- tage from the continuance of the life insured, in order to be reason- able, as the law counts reasonableness, must be founded in the exist- ence of some contract between the person whose life is insured and the beneficiary, the fulfillment of which the death will prevent; it must appear that by the death there may come damage which can be esti- mated under some rule of law, for which loss or damage the insurance company has undertaken to indemnify the beneficiary under its pol- ""That insurable Interest is not ■= Joyce Ins., § 899. See United confined to any particular, class of Brethren, etc., Soc. v^ McDonald 122 persons or relationship, see Ken- Pa. St. 324, 1 L. R. A. 238 (1888) tucky, etc., Ins. Co. v. Hamilton, 63 "^Trinity College v. Travelers' Fed. 93, 11 C. C. A. 42 (1894). Ins. Co., 113 N. C. 244, 18 S. B. 175 "Ins. Co. V. Bailey, 13 Wall. (U, (1893). S.) 616 (1871). 63 INSURABLE INTEREST IN LIVES. § 65 icy. When this contractual relation does not exist, and there are no ties of blood or marriage, an insurance policy becomes what the law denominates a wagering contract, and under its rules, made and en- forced in the interest of the best public policy, all such contracts must be declared illegal and void, no matter what good object the parties may have had in view. The end will not, in the eyes of the law, jus- tify the means." § 65. Interest based upon relationship, continued. — The circuit court of appeals recently held that the mere relation of father and son is not enough to give an adult son an insurable interest in the life of his father.** After reviewing the decisions the court said : "The sum of the decisions and of text-book discussions upon the subject of insurable interest may, we think, be fairly stated thus: No person has an insurable interest in the life of another unless he would in reasonable probability suffer a pecuniary loss, or fail to make a pecuniary gain, by the other's death; or (in some jurisdictions) un- less, in the discharge of some undertaking, he has spent money, or is about to spend money, for the other's support or advantage. The extent of the insurable interest — the amount for which a policy may be taken out, or for which recovery may be had — is not now under consideration. What is often called "^relationship insurance' must be governed by this rule. It must rest upon the foundation of a pecu- niary interest, although the interest may be contingent, and need not be capable of exact estimation in dollars and cents. Sentiment or affection is not sufiBcient of itself, although it may often be influential in persuading a court or jury to reach the conclusion that a bene- ficiary had a reasonable expectation of pecuniary advantage from the continued life of the insured. In one relation only — the relation of husband and wife — ^is the actual existence of such a pecuniary interest unimportant; the reason being that a real pecuniary interest is found in so great a majority of cases that the courts conclusively presume it to exist in every case, whatever the fact may be, and therefore will not inquire into the true state of a few exceptional instances. This, we think, is essentially what is meant by the declaration of courts and text-book writers that the mere relationship of husband and wife is suflaeient to give an insurable interest. The supreme court of Ver- «Li£e Ins. Clearing Co. v. O'Neill, 106 Fed. 800, 45 C. C. A. 641, 54 L. R. A. 225, annotated (1901). § 66 SUBJECT-MATTER AND INSURABLE INTEREST. 64 monf — alone, we think, among judicial tribunals — seems disposed to hold the presumption to be rebuttable. * * * "In all other relationships there is no presumption of interest, and no insurable interest exists unless the reasonable likelihood of pecu- niary loss or gain is present in actual fact. No doubt, judicial lan- guage is to be found supporting the view that the mere relationship of parent and child is sufficient to give an insurable interest. "We think it can not be doubted that the tendency of the recent decisions is to insist upon an actual or presumed pecuniary interest in every case (although such interest may no doubt be contingent, and to some extent undefined), and to give relationship its proper place by regarding it merely as an important factor in the inquiry, whether such an interest does in reality exist. If, then, the test of pecuniary interest is to be applied to the facts of the present case, it is clear that the son had no insurable interest in his father's life. Again, lay- ing aside the effect of the poor law of Pennsylvania, it is plain that the son would lose nothing by his father's death, and would gain nothing by his father's continuance in life. His father did not support him, and he himself had not spent, nor was he a,bout to spend, any money in his father's behalf or support. Upon principle, therefore, we thinlj that the policy can not be supported." § 66. Illustrations of insurable interest in life. — The following instances will illustrate the extent and nature of the interest which will sustain a contract of life insurance. A creditor has an insurable interest in the life of his debtor, at least for the amount of his debt.°° In states which permit the assignment of a valid policy to an as- signee without interest the creditor is allowed to hold the entire in- surance," but where the stricter rule prevails, the creditor, whether named as the original beneficiary or one to whom the policy has been assigned, has no further interest after the payment of his debt, and the policy thus becomes one for the benefit of the insured, to be collected by his personal representatives.'^ This certainly is the rule where "Currier v. Continental L. Ins. 749 (1890), It was held that the as- Co., 57 Vt. 496 (1885). signee of the creditor payee could "^ See § 58, supra; Rittler v. Smith, recover the whole amount, although 70 Md. 261, 2 L. R. A. 844 (1889); the debt was less. Walker v. Larkin, 127 Ind. 100, 26 ="Ulrlch v. Reinoehl, 143 Pa. St. N. E. 684 (1890). 238, 13 L. R. A. 433 (1891); Cooper "In Wright v. Mutual Ben. L. v. ShaefCer (Pa.), 11 Atl. 548 (1887). Ass'n, 118 N. Y. 237, 16 Am. Rep. 65 INSURABLE INTEEEST IN LIVES. 66 the policy is merely assigned the creditor as a security for his debt. He should be permitted to retain out of the proceeds of the policy what is necessary to pay his debt, and be required to account for the balance to the representatives of the deceased."" In all cases a finan- cial interest, however slight, will sustain the policy. A creditor has no insurable interest in the life' of his debtor's wife.'" A corpora- tion has no insurable interest in the life of one of its stockholders who is not indebted to it.'^ A woman has an insurable interest in the life of the man to whom she is engaged to be married, although he has at the time a wife living, when he represented himself to her as a single man and she believed he was legally competent to marry her.'- A husband has an insurable interest in the life of his wife.'^ A re- ligious society suppcffted largely through voluntary contributions has no insurable interest in the life of one of its members.'* A man may take a policy on his own life and make it payable to one to whom he is engaged to be married."* This applies to the certificate of a benevo- lent society when not prohibited by the statutes or rules of the so- ciety." One partner has an insurable interest in the life of the other partner," but some cases hold that the interest ceases when the latter retires unindebted from the firm.'^ A woman to whom a man is " Barbour v. Larue, 21 Kyi L. 94, 51 S. W. 5; Roller v. Moore, 86 Va. 512, 6 L. R. A. 136 (1889); Ex- change Bank V. Loh, 104 Gi. 446, 44 L. R. A. 372 (1898). " Wheeland v. Atwood, 192 Pa. St. 237, 42 W. N. C. 178. " Tate V. Commercial, etc., Ass'n, 97 Va. 74, 33 S. B. 382 (1899). "Taylor v. Travelers' Ins. Co., 15 Tex. Civ. App. 254, 39 S. W. 185 (1897); Bogart v. Thompson, 24 Misc. (N. y.) 581 (1898) [a benevo- lent society certificate payable "to his wife"]. " Currier v. Continental L. Ins. Co., 57 Vt. 496, 52 Am. Dec. 134. See § 65, supra. " Trinity College v. Travelers' Ins. Co., 113 N. C. 244, 22 L. R. A. 291 (1893). "Lemon v. Phcenix, etc., Ins. Co., 38 Conn. 294 (1871); Chisholm T. 5 — ^Elmott Ins. National Capitol L. Ins. Co., 52 Mo. 213 (1873). '° In the absence of anything to the contrary in the charter or by- laws or certificate, a mutual benefit society contract will be controlled by the ordinary principles govern- ing other insurance: Union Fra- ternal League v. Walton, 109 Ga. 1, 46 L. R, A. 424 (1899). " Ins. Co. V. Luchs, 108 U. S. 498 (1882). See notes in 57 Am. Dec. 98, 52 Am. Rep. 140, 46 Am. Rep. 190. In Powell v. Dewey, 123 N. C. 103, 31 S. B. 381 (1898), it was held that where the pa.rtners have no money invested, and neither is indebted to the other, neither part- ner has an insurable interest in the life of his copartner. "Cheeves v. Anders, 87 Tex. 287, 25 S. W. 324, 47 Am. St. 107 (1894). § 66 BUBJECT-MATTEB AND INSURABLE INTEREST. 66 engaged to be married does not come within the meaning of a rule permitting a mutual benefit certificate to be made payable to a person "dependent" upon the deceased. "Dependence for favor, or for af- fection, or for companionship, or as servant or retainer, is excluded.'"" A sister has an insurable interest in the life of her brother who stands in loco parentis.^" A child is presumed to have an insurable interest in the life of its parent,*^ a sister in the life of her brother,*" and a father in the life of a minor son.^^ It is said that where the rela- tionship of brother and sister appears it is incumbent upon the com- pany to show that notwithstanding such fact the policy is a wager contract.** A niece has an insurable interest in the life of an uncle who has reared her and continued to contribute to her support after her marriage.*" A grandson has an insurable interest in the life of his grandfather.*' A son-in-law has no insurable interest in the life of his mother-in-law, who lives with him and is dependent upon him for support.*' But a mother-in-law has been held to have an in- surable interest in the life of her son-in-law.** A stepson has no insurable interest in the life of his stepfather,* ° but a stepfather is a "relative" who may be made the beneficiary of a benefit certificate.'" A grandfather has an insurable interest in the life of his grandson.*^ A mere assumption of parental relations, without any legal obligation, by a man toward a girl whom he has educated will sustain a policy which he procures and assigns to her. The court stated that the test was whether the circumstances were such as to justify the belief that "Alexander v. Parker (111.), 19 McDonald, 122 Pa. St. 324 (1888); L. R. A. 187, note. Contra, Mc- Equitable L. Ins. Co. v. Hazlewood, Carthy v. Supreme Lodge, 153 Mass. 75 Tex. 338, 7 L. R. A. 217 (1889). 314, 11 L. U. A. 144 (1891). ' «°McGraw v. Metropolitan L. Ins. "Lord T. Dall, 12 Mass. 115 Co., 41 W. N. C. (Pa.) 62 (1897). (1815). «■ Elkhart, etc., Ass'n v. Houghton, "Crosswell v. Connecticut Indem- 103 Ind. 286 (1885). nity Ass'n, 51 S. C. 103, 28 S. E. 200 " Stambaugh v. Blake (Pa.), 15 (1897). Atl. 705 (1888). " Hosmer v. Welch, 107 Mich. 470, " Adams v. Reed, 18 Ky. L. 858, 65 N. W. 280, 67 N. W. 504 (1895). 38 S. W. 420 (1896). " Loomis V. Eagle, etc., Ins. Co., 6 " United Brethren, etc., Soc. v. Gray (Mass.) 396 (1856). So by McDonald, 122 Pa. St. 324, 11 L. R. statute; C. L. Mass., § 7212 (1897). A. 238 (1888). ".^tna L. Ins. Co. v. France, 94 " Simcoke v. Grand Lodge, 84 U. S. 561 (1876); Crosswell v. Con- Iowa 383, 15 L. R. A. 114 (1892). necticut Indemnity Ass'n, 51 S. C. " Hilliard v. Sanford, 4 Ohio N. 103; United Brethren, etc., Soc. v. P. 363. 67 INSURABLE INTEREST IN LIVES. § 67 his death would result in a pecuniary loss to her.*^ In a recent case, where the rule was applied with much liberality, it was held that an aunt had an insurable interest in the life of her niece, who had lived with her from earliest childhood and been supported by her. After reviewing the cases, the court said:"* "The principle of these and other like cases is that the interest does not depend upon any liability for support, nor upon any pecuniary consideration, nor even upon kinship. It may be for the benefit of the old or the young, where the relation between the parties is such as to show mutual interest and to rebut the presumption of a mere wager. The contract is com- plete 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 an objectionable one 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 upon her life. This is no more specu- lation than a husband's provision for his wife in the same way." A woman living with a man as his wife, although not such, has an insurable interest in his life.** In many states the right of a wife to insure her husband's life and hold the proceeds free from the claims of his creditors is secured by statute.**^ § 67. Right of assignee without interest to recover premiums paid. — Where the assignee of a policy has no insurable interest and is free from fraud, he will ordinarily be protected to the extent of the money actually paid out by him.°° But he can retain only enough of the proceeds of the policy to reimburse him for premiums paid and expenses incurred and interest thereon. He can only properly col- lect this amount, from the company, and if the full amount of the policy is paid to him he must account for the balance to the repre- ■* Carpenter v. U. S. L. Ins. Co., interest in the man's life:" Lamp- 161 Pa. St. 9, 25 L. R. A. 571 (1894). kin v. Travelers' Ins. Co., 11 Colo. •"Cronin v. Vermont L. Ins. Co., App. 249, 52 Pac. 1040 (1898). . 20 R. I. 570, 40 Atl. 497 (1898). "a See note to Metropolitan L. Ins. ""A woman illegally married be- Co. v. Smith (Ky.), 53 L. R. A. 817 cause the husband has a lawful (1900), citing many cases, wife, or living unlawfully with a "Helmetag v. Miller, 76 Ala. 183, man as his wife, has an insurable 52 Am. Rep. 316 (1884). § 67 SUBJECT-MATTEE AND INSURABLE INTEREST. 68 sentatives of the insured. It is immaterial whether the policy is made payable directly to him or to the assured and afterwards as- signed."" In a recent case in Kentucky a benefit certificate, valid at its inception, was thereafter assigned in part to one who had no in- surable interest, but who agreed to pay the future assessments in con- sideration of receiving one-half of the proceeds of the policy upon the death of the insured. The full amount of the policy was paid to the assignee, and it was held that the legal beneficiary could col- lect from him all the money so paid less the amount of the assess- ments actually paid. The court said:°^ "It seems to us that the appellee in this case could have legally held the benefit certificate for no other purpose than as security to indemnify him for moneys advanced to pay the premiums and to be advanced ; and to this extent his claim to said policy was just; but all overplus of said fund he holds as trustee for the benefit of the appellant in this action, and under an implied obligation to pay over the same." Where the rules of the policy provide that no policy shall be issued upon the life of a person without the consent of such person indorsed upon the application, and a policy is issued in violation of such rules, a beneficiary who was a party to the procurement of the contract which was a fraud upon the company can not recover the premiums paid.^' But where the plaintiff was induced to procure such a policy by the fraudulent statement of the agent of the company he was per- mitted to recover the money paid as premiums. In this case the plaintiff had taken out the insuradee for the benefit of his daughter. The court said:'° "The plaintifE, therefore, would be entitled to recover unless he made a wagering contract or was a party to the fraud of the defendant's agent. There is nothing in the case to show that the plaintifE derived any benefit either direct or indirect, so that it could not be ruled as a matter of law that the transaction was a wager or was other than a gift for the benefit of his daughter." "Tate V. Commercial Bldg. Ass'n, Ky. 646 (1895). See Mutual L. las. 97 Va. 74, 33 S. E. 382 (1889); New Co. v. Blodgett, 8 Tex. Civ. App. 45, York L. Ins. Co. v. Davis, 96 Va. 27 S. W. 286 (1894). 737, 44 L. R. A. 305 (1899); Stam- »» Fisher v. Metropolitan L. Ins: baugh V. Blake (Pa.), 15 Atl. 705 Co., 160 Mass. 386 (1894). (1888); Riner v. Riner, 166 Pa. St. ='McCann v. Metropolitan L. Ins. 617 (1895). Co., 177 Mass. 280, 58 N. E. 1026 "Beard v. Sharp, 100 Ky. 606 (1901). (1897); Caudell v. Woodward, 96 69 INSURABLE INTEREST IN LIVES. g 68 § 68. Want of interest as a defense under incontestable clause. — A clause in a policy making it incontestable on any ground after the lapse of a specified time does not prevent the insured from defending an action to recover after loss upon the ground that the policy was a wager contract. Where this was attempted the court said'"" that "the clause by which the company stipulated that this policy should not be disputed after one year does not help the respondent's case. Private interest must give way before public interests. The stipula- tion itself is contrary to law and order. The company's defense in this case is certainly not a deserving one, but a defense like theirs to an action of this nature is allowed not for the sake of the defenclant, but of the law itself. There can be no waiver of such an objection." This seems to be about the only defense that is not covered by such a clause. Where the assignee of a policy is required to have an in- surable interest he is not enabled to recover by reason of the policy containing such a clause.^"^ By the weight of authority an incon- testable clause prevents the company from interposing the defense of fraud after the expiration of the prescribed period. It is not an agreement to condone fraud, which would be void on the grounds of public policy, but is in the nature of a statute of limitations. There is no objection to an agreement upon the part of the company that after the expiration of a reasonable time in which to investigate the facts it will thereafter waive even the defense of fraud.^"^ § 69. Fact of insurable interest must be pleaded. — In an action on an insurance contract the burden of showing an insurable interest in the beneficiary is on the plaintiff. Hence, a complaint which fails to allege such interest is bad on demurrer.^"' An insurable interest ^"Manufacturers' L. Ins. Co. t. 256, 42 L. R. A. 261, note (1898); Anctil, 28 Can. S. C. 103 (1897). Patterson v. Natural Prem. Mut. L. "1 Clement v. New York L. Ins. Ins. Co., 100 Wis. 118, 42 L. R. A. 253 Co., 101 Tenn. 22, 46 S. W. 561, 42 (1898). See article in 45 Cent. L. L. R. A. 247 (1889). J. 425. In Welch v. Union Cent. L. '"^ Murray v. Mutual, etc., L. Ass'n Ins. Co., 108 Iowa 224, 50 I>. R. A. (R. I.), 53 L. R. A. 742 (1901); 774 (1899), it was held ihat an in- Clement V. New York L. Ins. Co., contestable clause in a policy does 101 Tenn. 22, 46 S. W. 561 (1889); not prevent the insurance company Wright V. Mutual Ben. L. Ass'n, from availing itself of the defense 118 N. Y. 237, 6 L. R. A. 731 of fraud even after the time limit (1890) [limiting time to sue]; has passed. ^ Brady v. Prudential Ins. Co., 168 "= Western Assur. Co. v. McCarty, Pa. St. 645 (1895); Massachusetts 18 Ind. App. 449, 48 N. B. 265 (1897), Ben. L. Ass'n v. Robinson, 104 Ga. citing other cases. § 70 SUBJECT-MATTER AND INSURABLE INTEREST. 70 is a question of law dependent upon the facts, and if the pleading states the facts from which the conclusion of an insurable interest may be drawn, it is sufiScient.^"* I, § 70. Description of interest. — ^If the subject in which the interest exists is correctly described, it is not necessary that the particular interest of the insured be stated in the policy unless it is called for by the company. Thus, an applicant for insurance is not required to show the exact condition of his title unless requested so to do.^*"" This is the general rule, but where the interest is of such a nature as to affect the character of the risk it should be fully disclosed. Thus, profits should be insured as such.^"' Where the question was whether the applicant had correctly described his title. Chief Justice Marshall said:^°^ "The description was insuflBcient, as a precarious title de- pending for its continuance on events which might or might not hap- pen is not such a title as is generally described in the offer for insur- ance construing the words of the offer as they are fairly to be under- stood." I ""Prudential Ins. Co. v. Hunn, 21 Am. St. 745 (1895); Kenton Ins. Co. Ind. App. 525, 52 N. B. 772 (1899); v. Wigginton, 89 Ky. 330, 7 L. R. A. Northwestern, etc., Ins. Co. v. Wood- 81; Mackenzie v. WhitwOrth, L. R. ward, 18 Tex. Civ. App. 496, 45 S. 1 Ex. Div. 36, 13 Bng. R. Cas. 322 W. 185 (1898). and notes (1875). "= Prudential Ins. Co. v. Hunn, 21 ™ Niblo v. North American F. Ind. App. 525, 52 N. B. 772 (1899), Ins. Co., 1 Sandf. (N. Y. Super.) 551 and cases cited; Hall v. Niagara F. (1848). Ins. Co., 93 Mich. 184, 32 Am. St. ""Columbian Ins. Co. v. Law- 497 (1892); Riggs V. Commercial M. rence, 2 Pet. (U. S.) 25 (1829); Ins. Co., 125 N. Y. 7, 21 Am. St 717 Morrison v. Tennessee, etc., Ins. (1890); Rochester Loan & B. Co. v. Co., 18 Mo. 262, 59 Am. Dec. 299 Liberty Ins. Co., 44 Neb. 537, 48 (1853). Part III. OF MATTERS THAT RENDER THE CONTRACT VOID OR UNAVAILABLE. CHAPTEE V. NON-DISCLOSUKB OF MATERIAL FACTS. SEO. SEC. 78. In general. 86. Where no written application Is 79. Duty of applicant. made. 80. Concealment — Definition. 87. Incomplete answers to Inquiries. 81. Rule as affected by the charac- 88. Answers calculated to mislead — ter of the insurance. Irresponsive answers. 82. Modern rule in the United 89. Time of concealment. States. 90. Materiality. 83. What must be communicated. 91. Concealment through Inadvert- 84. Where specific inquiries are ence or negligence. made. 92. Concealment or misrepresenta- 85. Basis of the rule. tion by agent 93. Knowledge of agent, continued. § 78. In general. — The first step toward effecting a contract of insurance is the application. It may be oral, but it is usually made upon a printed form prepared and furnished by the insurance com- pany. The written application is always used when applying for insurance other than against loss by fire. This application, which the applicant is required to sign, contains numerous inquiries calling for specific information with reference to matters deemed material by the company. They are directed to things of which the applicant is presumed to have knowledge, and of which the company should be informed in order to determine whether it will accept the rislc, and, if so, upon what terms and conditions. This application, when duly filled out and signed by the applicant, is forwarded to the company, (71) § 79 MATTERS VOIDING CONTRACT. 'J'2 and contains the information upon which the company relies in ac- cepting the risk and issuing its written policy.^ § 79. Duty of applicant. — The person applying for insurance owes a duty to the proposed insurer, which requires that he shall put him in possession of all facts which are within his knowledge, or which it is his duty to know, and which it is material that the insurer should know. The concealment or misstatement of material matters may justify the insurer in repudiating the obligation of the contract, even after there has been a loss. This subject is commonly discussed under the heads of concealment and misrepresentation and relates simply to those matters which induce the contract. Those statements which are warranted are inserted in the contract and constitute one of the provisions or conditions of the printed pol- icy. § 80. Concealment — Definition. — In the law of insurance, the in- tentional withholding from the insurer of facts which are material and prejudicial to the risk, and which ought in good faith to be known to the insurer, is called concealmeiit. It has been said that "every fact and circumstance which can possibly influence the mind of the insurer in determining whether he will underwrite the policy, and at what premium, is material to be disclosed, and concealment thereof will vitiate the policy."^ * § 81. Rule as affected by the character of the insurance. — The English courts recognize but one rule and apply it to all insurance contracts. "I am not prepared," said Sir George Jessel,' "to lay down the law as making any difference in substance between one con- tract of insurance and another. Whether it is life, or fire, or marine ' As to the reqmrement tliat the ' London Assurance v. Mansel, L. application must Ee signed by the R. 11 Ch. Div. 363, 367 (1879); applicant, see Somers v. Kansas Liindenau v. Desborough, 8 Barn. & Prot. Union, 42 Kan. 619, 22 Pao. C. 586(1828). In the leading case 7u2 (1S89). The statements may of Carter v. Boehm, 2 Burr. 1905 tie adopted by an applicant who does (1766), the rule in marine insurance not sign the application; Pruden- is stated as it now prevails in En- tia) Ins. Co. V. Fredericks. 41 111. gland and the United States. See App. 419 (1891). Sun Mut. Ins. Co. v. Ocean Ins. Co., 'Ely V. Hallett, 'i. Calnes (N. Y.) 107 U. S. 485 (1882). 57 (1804). note. I'S NON-DISCLOSUKE OP MATEEIAI, FACTS. § 81 insurance, I take it, good faith is required in all cases, and, although there may be certain circumstances from the peculiar nature of ma- rine insurance which require to be disclosed, and do not apply to other contracts of insurance, that is rather, in my opinion, an illus- tration of the application of the principle than a distinction in prin- ciple." This rule was recently applied in the house of lords to a contract invoMng the solvency of a guarantor on a promissory note. It ap- peared that there were facts known to the applicant affecting the financial condition of the maker of the note and the guarantor, which were not known to the company ; and it was held that the concealment of such facts prevented a recovery on the policy.* This strict rule, of the English courts is applied to marine insur- ance in this country, but by the weight of authority it does not gov- ern other kinds of insurance contracts. The unusual conditions which surround the contract of marine insurance are not present when an application is made for life or fire insurance, and much impor- tance has been given to the general practice of insurance companies, which require applicants to sign written applications containing an- swers to a great number of specific inquiries. In such cases the in- ference is that the company has made ihquiry for the purpose of eliciting information with reference to all the facts of which it de- sires information, and the applicant is thus excused from volunteer- ing any statement with reference to other matters, unless of some ex- traordinary character, or the suppression of which is fraudiilent.^ In some of the earlier cases the rule of marine insurance was applied to fire insurance contracts. Thus, Mr. Justice Story said :* "The rules as to misrepresentations and concealments, or omissions to &tate facts material to the risk, are more strict in cases of marine than in fire insurance. But the differences are founded on the difference in the character of the property and of the greater facilities insurers possess for obtaining information as to conditions and surrounding circum- stances in cases of insurance on buildings, etc., than on vessels which are often insured when absent or afloat, and the distinctions are ap- plied ordinarily in cases where the insurer sets up the omission of the *Seaton v. Heath, 68 L. J. Q. B. 798 (1891); Wytheville Ins. Co. v. (N. S.) 631 (1899). • Stultz, 87 Va. 629, 13 S. E. 77 (1891). = Phoenix Ins. Co. v. Raddin, 120 "Carpenter v. American Ins. Co., U. S. 183 (1886); Vankirk v. Citi- 1 Story (C. C.) 57 (1839). zens' Ins. Co., 79 Wis. 627, 48 N. "W. § a3 MATTERS VOIDING CONTEACT. 74 insured to state material facts. In these cases there is a difference between the rules applicable to marine and fire insurance. But where the defense is a material affirmative misrepresentation as to a matter which is presumably within the knowledge of the party apply- ing for the insurance, and as to which the insurer has not the same means of knowledge, there is no ground for any distinction between eases of fire and marine insurance." § 82. Modem rule in the United States. — The question was re- cently given elaborate consideration in the circuit court of appeals, and the conclusion reached that, by the weight of authority in this country, the strict rules which govern the contract of marine insur- ance do not apply to other insurance contracts.'' After noting the practice of making full inquiry by specific questions, and the different nature of the conditions and circumstances surrounding the parties and the risk, the court said that the insured "can only be said to fail in his duty to the insurer when he withholds from him some fact, which, though not made the subject of inquiry, he nevertheless believes to be material to the risk, and actually is so, for fear it would induce a rejection of the risk, or, what is the same thing, with fraudulent intent. * * * j^qj. ^^-gg ^jjjg j^^g result in practical hardship to the insurer, for in every case where the undisclosed fact is palpably material to the risk, the mere non-disclosure is itself strong evidence of fraudulent intent. Thus, if a man about to fight a duel should obtain life insurance without disclosing his intention, it would seem that no argument or additional evidence would be needed to show the fraudulent character of the non-disclosure. On the other hand, where men may reasonably differ as to the materiality of a fact con- cerning which the insurer might have elicited further information, and did not do so, the insurer occupies no such position of disadvan- tage in judging of the risk as to make it unjust to require that before the policy is avoided it shall appear not only that the undisclosed fact was material, but also that it was withheld in bad faith. To hold that good faith is immaterial in such a case is to apply the harsh, rigorous rule of marine insurance to a class of insurance contracts differing so materially from marine policies in the circumstances under which the contracting parties agree that ,the reason for the rule ceases. The au- 'Penn Mut. Life Ins. Co. v. Mechanics', etc., Co., 72 Fed. 413, 19 C. C. A. 286 (1896). 75 NON-DISCLOSDEE OF MATERIAL FACTS. § 83 thorities are not uniform, and we are able to take that view which is more clearly founded in reason and justice." After referring to certain cases the court further said : "We think the modern ten- dency, even of Massachusetts decisions, is to require that a non-disclos- ure of a fact not inquired about shall be fraudulent before vitiating the policy, and, as already stated, this view is founded upon the better reason. The subject is by no means as clear upon the authorities as could be wished." § 83. What must be comnmnicated. — The recognized rule is that each party to a contract of insurance must communicate to the other in good faith all facts within his knowledge which are, or he believes to be, material to the risk, and which the other has not the means of ascertaining and as to wMch no warranty is made. If specific in- formation is required by the insurer on any point he deems material it must be fully and correctly communicated.* On the other hand, neither party is required to communicate information except in an- swer to inquiries of — (1) Matters which the other, or his duly authorized agent, knows. (3) Matters of which, in the exercise of ordinary care, the other, or his duly authorized agent, ought to know, and of which the appli- cant has no reason to believe he is ignorant." 'Valton V. National Fund L. As- policy is made, either as to taking sur. Co., 20 N. Y. 32 (1859); Nor- the contract of insurance, or as to wich F. Ins. Co. v. Boomer, 52 111. the premium on which he would 442 (1869). The applicant is not take it. The materiality of the fact bound to disclose the nature of his depends upon whether or no a pru- interest, unless interrogated with dent underwriter would take the reference thereto: See § 70, supra, facts into consideration in estimat- In Tate v. Hyslop, L. R. 15 Q. B. D. ing the premium or in undervaluing 368 (1885), Lord Justice Bowen the policy." See § 84, infra. said: "It is established law that a "Carter v. Boehm, 2 Burr. 1905 person dealing with underwriters (1766), Lord Mansfield; Green v. must disclose to them all the ma- Merchants' Ins. Co., 10 Pick. (Mass.) terial facts which are known to him- 402 (1830); Richards v. Washing- self and not to them, or at all events ton F. & M. Ins. Co., 60 Mich. 420 all facts which they are not bound (1886). The innocent concealment to know. What are materia! facts of matters which may be discovered has been defined by authority. It by an exa,mination of the property is tne duty of the assured to commu- has no effect: Continental Ins. Co. nlcate all facts within his knowl- v. Kasey, 25 Gratt. (Va.) 268 (1874); edge which would anect the mind of same rule under statute; Insur- the underwriters at the time the ance Co. v. Leslie, 47 Ohio St. 409 § 84 MATTERS VOIDING CONTRACT. 76 (3) Matters of which information is waived. (4) Matters which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material.^" (5) Matters which relate to a risk excepted from the policy and not otherwise material. (6) Mere matters of opinion or belief, § 84. Where specific inquiries are made. — As already stated, the strict rule governing concealment in eases of marine insurance is somewhat relaxed in the ease of fire and life insurance. From the ■ nature of the risk the insurer may fairly be presumed to have a better knowledge of the circumstances, and the practice of making specific inquiries with reference to matters of which the insurer desires in- formation may well suggest the conclusion that all material facts are called for. It has therefore been held that where there is a writ- ten application containing answers to specific questions, an innocent failure by an applicant for fire insurance to -communicate facts about which he is not asked, will not avoid the policy,^^ and the same rule undoubtedly applies to life insurance. But this must be taken in connection with the statement that actual fraud always vitiates the contract, and subject to the provision that the insured must commu- nicate all knowledge which he has, or is by law required to have, of unusual or extraordinary circumstances of peril to which the property is exposed, when the same could not with reasonable diligence be known by the insurer or reasonably anticipated by him as the founda- tion of suitable inquiries.^^ This is illustrated by a case where the applicant knew that an attempt had been made to burn the building which was the subject-matter of the insurance.^' The rule is not (1890). As to constructive knowl- Penn Mut L. Ins. Co. v. Wiler, 100 edge of facts where the insurance Ind. 92 (1884); Sibley v. Prescott company is required by its charter Ins. Co., 57 Mich. 14 (1885); Carson or by-laws to make a survey, see v. Jersey City Ins. Co., 43 N. J. L. Satterthwaite v. Mutual Ben. Ins. 300, 39 Am. Rep. 584, 44 N. J. L. Ass'n, 14 Pa. St. 393 (1850). 210 (1881); Campbell v. American "DeWoIf V. New York, etc., Ins. F. Ins. Co., 73 Wis. 100 (1888); Co., 20 John. (N. Y.) 214 (1822) Hosford v. Germania F. Ins. Co., 127 [marine case]. U. S. 399 (1887). "Washington Mills Mfg. Co. v. "Hartford, etc., Ins. Co. v. Har- Weymoutb Ins. Co., 135 Mass. 503 mer, 2 Ohio St. 452, 59 Am. Dec. 684 (1883); Browning v. Home Ins. Co., (1853); North American, etc., Ins. 71 N. Y. 508 (1887); Boggs v. Co. v. Throop, 22 Mich. 146 (1871). America Ins. Co., 30 Mo. 63 (1860); "Walden v. Louisiana Ins. Co., 12 "Hf NON-DISCLOSUEE OF MATERIAL FACTS. § 85 changed by a provision in the policy that full disclosure must be made concerning the matters to which the specific questions relate." § 85. Basis of the rule. — Language will be found in some of the books which suggests that fraud, actual or constructive, is the founda- tion of the concealment which will prevent the enforcement of a con- tract of insurance. Arnould says that the doctrine in the English courts is that, although no pretext exists for anything like actual fraud, yet the policy is to be considered void on the ground of con- structive or legal fraud. His reason for adhering to this phraseology is that, as a representation, through mistake or inadvertence, has the same effect as an intentional and literally false representation or concealment — that is, it induces the insurer to enter into a contract which he would otfierwise have declined, or to take a less premium than he would otherwise have demanded — it is at least excusable to apply the word fraud; and this brings the doctrine upon a subject nominally within the acknowledged general principles applicable to other contracts.^° But it is somewhat misleading, and it is much bet- ter to state the doctrine in direct terms — that it is an implied condi- tion of the contract of insurance that it is free from misrepresenta- tion or concealment, whether fraudulent or through mistake.^" Lord Esher thus stated the rule:^' "The freedom from misrepresentation or concealment is a condition precedent to the right of the insured to insist on the performance of the contract, so that on a failure of the performance of the condition, the assured can not enforce the con- tract." In the same case. Lord Justice Lindley said that in his opin- ion Duer and Phillips are right in concluding that fraud on the part of the assured is not essential to discharge the insurer on the ground of misrepresentation or concealment. This principle governs all cases of marine insurance in the United States as well as in England, and has been applied to many cases of other kinds of insurance. But it is inconsistent with the principle of those cases which hold that an innocent misrepresentation will not avoid the policy. La. 134, 32 Am. Dec. 116 (1838); by a refusal to answer a question: Bebee v. Hartford County M. F. American L. Ins. Co. v. Mahone, 56 Ins. Co., 25 Conn. 56, 65 Am. Dec. Miss. 180 (1878). 553 (1856). But see German-Amer. ''Arnould Mar. Ins. 514. Ins. Co. V. Norris, 100 Ky. 29, 66 '° Phillips Ins., §§ 287, 537. Am. St. 324 (1896). "Blackburn v. Vigors, 55 L. J. Q. "Dunbar v. Phenix Ins. Co., 72 B. (N. S.) 347, L. R. 17 Q. B. D. 578 Wis. 492, 40 N. W. 386 (1888). Of (1886). § 86 MATTERS VOIDING CONTRACT, 78 § 86. Where no written application is made. — Where the insurer asks no questions and the applicant makes no representations, and there is no written application, there are cases which relieve the ap- plicant from any duty to make a disclosure unless the concealment is fraudulent. Under this rule, where no inquiries are made, the in- tention of the party becomes very material. It is said that where there is no written application for fire insurance, and no representa- tions are made "concerning the situation, value or risk of the prop- erty insured, and there is no fraudulent suppression of a material fact, or in case a printed slip is furnished describing the property in the most general terms, and the insurers issue the policy upon their own examination, they can not, after a loss, avail themselves of their own negligence in failing to make proper inquiries to defeat the pol- icy."" This is sometimes carried so far as to practically destroy the rule of concealment and release the applicant from any duty except to answer questions. In the supreme court of the United States it was said:^' "But the relation of the parties seems entirely changed if the insurer asks no information and the insured makes no representa- tions. That is the chief novelty of this question, as hypothetically stated in the bill of exceptions. We think that the governing test is this: It must be presumed that the insurer has in person or by agent in such a case obtained all the information desired as to the premises insured, or ventures to take the risk without it, and that the insured, being asked nothing, has a right to presume that nothing on the risk is desired from him." This was recently followed in Washington;^" where it appeared that no questions were asked and no representations made, but that the pelicy contained a pro- vision requiring a full disclosure of certain matters. "There having been no written application," said the court, "in which questions were asked and answered concerning the status of the property, we think, under the authorities and as a question of right, that this condition which is injected into the policy among numerous other conditions, more or less technical, and hard to understand by the ordinary mind, "Joyce Ins., §1871; Pelzer Mfg. tock Ins. Co. v. Rodefer, 92 Va. 747, Co. v. Sun Fire Office, 36 S. C. 213, 53 Am. St. 846 (1896). 15 S. B. 562 (1891); Gristock v. " Clark v. Manufacturers' Ins. Co., Royal Ins. Co., 87 Mich. 428, 49 N. 8 How. (U. S.) 235 (1850). W. 634 (1891); Western, etc.. Pipe =» Dooly v. Hanover Fire Ins. Co., Lines V. Home Ins. Co., 145 Pa. St. 16 Wash. 155, 58 Am. St. 26 (1896), 846, 22 Atl. 665 (1891). See Moro- citing cases. 79 NON-DISCLOSDKE OF MATERIAL PACTS. § 87 ought not to prevent a recovery in the absence of any misrepresenta- tion on the part of the assured. The insured, as a matter of fact, ordinarily knows nothing about the policy until it is made out and returned to him after the payments for the same have been made to the agent at the time the contract was made, and the insurer, having failed to obtain the information, must be held to have done so at his peril." § 87. Incomplete answers to inquiries. — It is the duty of the ap- plicant to answer fully and fairly all inquiries made with reference to the risk, but if such questions are not answered, or are incom- pletely answered, and the insurer, without further inquiry or inves- tigation, issues the policy, he will be held to have waived his right to a more complete answer and elected to accept the risk with the in- formation actually given. As said by Mr. Justice Gray:" "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 have waived the want or imperfection in the answer and rendered the omission to answer more fully im- material." The English courts apply -a contrary rule, and in com- menting upon one of the leading cases,^^ Justice Gray says that so much of the language as "implies that an insurance company is not bound to look with the greatest attention at the answers of the appli- cant, 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 void the policy issued without further inquiry, can hardly be reconciled with tbe uniform current of American authorities." " Phoenix L. Ins. Co. v. Raddin, not Issue to him the policy as it 120 U. S. 183 (1887). See also Hig- pleased on such facts as the com- gins V. Phcenix M. L. Ins. Co., 74 N. pany had." No breach of warranty Y. 9 (1878). In Parker v. Otsego can be based upon such an answer, County, etc., P. Ins. Co., 47 N. Y. as a breach of warranty must be App. Div. 204 (1900), the court said: based upon the affirmation of some- "The failure to answer the ques- thing not true: Dilleber v. Home L. tion implied in the paragraph re- Ins. Co., 69 N. Y. 256, 2& Am. Rep. ferred to, or answering It to a cer- 182 (1877); Penn Mut. L. Ins. Co. tain point and not completing the v. Wller, 100 Ind. 92 (1884). answer, was notice to the company "'London Assur. v. Mansel, L. R. simply that he declined to divulge, 11 Ch. Dlv. 363 (1879). and the company might or might § 88 MATTERS VOIDING CONTRACT. 80 § 88. Answers calculated to mislead — ^Irresponsive answers. — Where the matters in question are open to general observation the ap- plicant need not go into details, but may make general statements and leave the insurer to make other inquiries if he desires further information.^' Although a failure to answer a question or an ap- parently incomplete answer will not avoid a policy issued without further inquiry, it is the duty of the applicant to give answers which are clear and specific, and not evasive and calculated to mislead.^* Where a disclosure is required it should be full and complete, not partial, evasive or calculated to deceive, omitting matters of impor- tance or materiality which, if disclosed, would make the answer fuU.^^ An irresponsive answer can not constitute a warranty, although it may be a representation, and thus invalidate the policy if material and also false. "The answer to a material question may be in itself wholly imma- terial and of no effect. An answer so irresponsive as to leave the fact of inquiry wholly undisclosed, the question unanswered, will not avoid the contract in the absence of fraud.'"* § 89. Time of concealment. — The concealment which will invali- date a contract of insurance refers to the time of making the con- tract, and not to the event itself. It can not be made to depend upon a subsequent event or upon facts learned by the insured after the risk has attached.*' § 90. Materiality. — A fact is material within the meaning of this rule when it would influence the mind of the insurer in determining whether he would accept the risk, or the amount of the premium charged.^* It has been said that only such facts as are material to the " Fowler v. ^tna F. Ins. Co., 6 " American L. Ins. Co. v. Mahone, Cow. (N. Y.) 673, 16 Am. Dec. 460 56 Miss. 180 (1878). See Sladden v.' (1827). New York L. Ins. Co., 86 Fed. 102, "Phoenix Ins. Co. v. Raddin, 120 2a C. C. A. 596 (1898). U. S. 183 (1SS7); Moulor v. Amer- =" Ferine v. Grand Lodge, 51 Minn, ican L. Ins. Co., Ill U. S. 335 (1884). 224, 53 N. W. 367 (1892). A mere check-mark placed after a " Lynch v. Dunsford, 14 East 494 question can not be deemed a nega- (1811). tive answer when the same kind ot " Daniels v. Hudson River F. Ins. marks appear after other questions Co., 12 Cush. (Mass.) 416, 59 Am. not answered and deemed imma- Dee. 192 (1853); Clark v. Union terial: Manhattan L. Ins. Co. v. Mut. F. Ins. Co., 40 N. H. 333, 77 Willis, 60 Fed. 236, 8 C. C. A. 594. Am. Dec. 721 (1860); Waterbury v. 81 NOX-DISCLOSCEE OP MATERIAL FACTS. § 91 risk may be availed of; but the better rule is tiiat any fact, the knowl- edge or ignorance of which would materially influence the judgment of the underwriter in making the contract or in determining the pre- mium, is material, and, subject to the limitations already stated, should be disclosed.^* Matters with reference to which inquiry has been made are always treated as material. In other cases the question of materiality is for the jury to determine.*" § 91. Concealment through inadvertence or negligence. — While the decisions are not uniform, there is high authority for the view that under modern conditions the concealment of a material fact through inadvertence or mistake, and without fraudulent intent, will not invalidate a contract of insurance.'^ This tendency also appears by the enactment of statutes providing that false representations shall not invalidate the contract unless they increase the risk or are fraudu- lently made. We have found that the concealment which will au- thorize the rescinding of a contract of insurance is not necessarily fraudulent,^^ and there are many cases which hold that a false state- ment of a material fact is sufficient to avoid a policy written on the faith thereof, although it was made through inadvertence or mistake.*' Dakota F. & M. Ins. Co., 6 Dak. 468, 43 N. W. 697 (1889). " Boggs V. American Ins. Co., 30 Mo. 63 (1860). '"Penn Mut. L. Ins. Co. v. Me- chanics', etc., Co., 19 C. C. A. 286, 305 (1896) [disapproving statement in Provident, etc., Soc. v. Llewellyn, 7 C. C. A. 579 (1893), to the effect that the materiality of insured's having had delirium tremens is a matter of law for the court in any case where inquiry is not foreclosed by express or implied stipulations]; Fidelity & Cas. Co. v. Alpert, 14 C. C. A. 474, 67 Fed. 460 (1895). In Reynolds v. Atlas Ace. Ins. Co., 69 Minn. 93, the question of materiality was taken from the jury and deter- mined as a question of law. " See § 82, supra; Penn Mut. L. Ins. Co. V. Mechanics', etc., Co., 72 Fed. 413, 19 C. C. A. 286 (1896). 6 — Elliott Ins. " If the concealment of a ma- terial fact is intentional, it is a case of actual fraud and avoids the con- tract: Daniels v. Hudson River F. Ins. Co., 12 Cush. (Mass.) 416, 59 Am. Dec. 192 (1853). See § 85, su- pra. ^ Carpenter v. American Ins. Co., 1 Story (C. C.) 57 (1839). A party is not excused from the conse- quences of concealment of material facts by the mere fact that it was due to his ignorance or mistake. He must disclose facts not only of which he has actual knowledge, but those of which the law requires him to have knowledge. Hence, if the fact is one which comes within the scope of this rule, and is not disclosed to t&e insurer, the policy can not be enforced, although the failure to disclose it was due to Ms negligence or mistake, or was a § 93 MATTERS VOIDING CONTRACT. 82: The logical rule, that which is consistent with the doctrine upon which the law of concealment rests — that of an implied condition, — is that even an innocent non-disclosure of a material fact will vitiate the policy unless there are specific inquiries under circumstances from which it will be presumed that the insured has waived further in- formation. § 92. Concealment or misrepresentation by agent. — Every prin- ciple of good faith and fair dealing forbids even an innocent principal from taking advantage of the fraud of his agent. An agent for ef- fecting insurance must, therefore, be held to bind his principal by the consequences of his misrepresentation or concealment.'* The same principle requires that the knowledge of the agent acquired in the course of the , transaction shall he treated as the knowledge of the principal.^" This rule, with its limitations, is well illustrated by ':ertain English cases dealing with marine insurance. In an early case^" an agent of the insured was employed to ship a cargo of oats, and to communicate the fact of shipment to another agent, who was- to effect an insurance on the cargo. The former neglected to notify the latter of the loss of the ship, and the insurance was held invali- dated. Ashhurst, J., said: "On general principles of policy the act of the agent ought to bind the principal, because it must be taken for granted that the principal knows whatever the agent knows; and there is no hardship on the plaintiff, for, if the fact had been known the policy could not have been effected." In another case'' it appeared that the master did not notify the owner that the ship had been lost; and the owner, in ignorance of the fact, effected an insurance on the ship by a policy "lost or not. lost." It was held that the captain was bound to communicate the- fact to the owner and that there could be no recovery on the policy, mere accident: Weigle v. Cascade 35 (1813). The loss resulted from P. & M. Ins. Co., 12 Wash. 449, 41 tl;e fact thus concealed. The pol- Fac. 53 (1895). icy was not void, as the insured " National L. Ins. Co. v, Minch, 53 was allowed to recover back the- N. Y. 144 (1873). premium. See comments on this. "Clement v. Phenix Ins. Co., 6 case in Stribley v. Imperial Mar. Blatchf. (C. C.) 481 (1«69). Ins. Co., L. R. 1 Q. B. Div. 507 "Fitzherbert v. Mather, 1 Term (1876). The case is criticised in R. 12 (1785). Blaclcburn v. Vigors, L. R. 12 App. "Gladstone v. King, 1 Maule & S. Cas. 531 (1887). 83 NON-DISCLOSURE OF MATERIAL FACTS. § 93 although there was no fraud. In a case where it appeared that at the time of the insurance the agent of the owner knew that the ship had been lost, the court said:'* "The question arises whether the plaint- iff, the assured, is so far affected by the knowledge of the agent of the loss of the vessel or damage to the cargoes that the fraud thus committed on the underwriters through the intentional concealment of the agent, though innocently committed, so far as the plaintiff is concerned, will afford a defense to the underwriter on a claim to en- force the policy." Chief Justice Cockburn said that "if an agent whose duty it is, in the ordinary course of business, to communicate information to his principal as to the state of the ship or cargo, omits to discharge such duty, or 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 conceal- ment 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 commercial world, all due information as to the subject-matter of the insurance. This condition is not com- plied 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." § 93. Knowledge of the agent, continued. — In a well-known case"" it appeared that the owner of an overdue vessel instructed A to procure insurance, but he was unable to do so and so informed the owner. The same instructions were then given to B, with the same results. Another agent then secured the insurance. The vessel had been al- ready lost, and the fact was known to B while he was attempting to secure the insurance. He did not communicate the fact to the owner or to C, and both were ignorant of the loss when the insurance was effected. The court of appeals held that there could be no recovery upon the policy, as the knowledge of the agent B must be imputed to » Proudf oot V. Monteflore, L. R. 2 " Blackburn v. Vigors, L. R. 17 Q B 511 (1867). Q- B. D. 553, 55 L. J. Q. B. (N. S.) 347 (1886J. § 93 MATTERS VOIDING CONTRACT. 84 the owner. The court below had ordered judgment for the plaintiff on the theory that as B, who had acquired the knowledge, was not the agent through whom the insurance was effected, his knowledge could not be imputed to the owner. This view was adopted by the master of the rolls in the court of appeals, who said: "I am prepared to decide this case upon the old, simple, recognized and easily justified rule that a contract of insurance is rendered void by an innocent mis- representation or concealment of a material fact known to the assured, or to an agent of his, by or through whom the contract is made, and which fact the underwriter neither knows nor is bound to know; but is not rendered abortive by the misrepresentation or concealment of any other person or agent, whether innocent or fraudulent." The majority of the court held that it was the duty of the agent who acquired the information to communicate it to his principal. Lord Justice Lindley said: "It appears to me to be established that in order to prevent fraud and willful ignorance on the part of per- sons effecting insurance, no policy can be enforced by an assured who has been deliberately kept in ignorance of material facts by some one whose moral, if not legal, duty it was to inform him of them ; and he has been kept in such ignorance purposely in order that he might be able to effect the insurance without disclosing these facts. * * * It is a condition of the contract that there is no misrepresentation or concealment either by the assured or by any one who ought, as a mat- ter of business or fair dealing, to have stated or disclosed the facts to him or to the underwriter for him." But the house of lords reversed this decision, and permitted the plaintiff to recover.*" Lord Watson said that "the responsibility of an innocent insured for the non -communication of facts which happen to be within the private knowledge of persons whom he merely employs to obtain an insurance upon a particular risk ought not to be carried beyond the person who actually makes the contract on his behalf. There is no authority whatever for enlarging his respon- sibility beyond that limit, unless it is to be found in the decisions which relate to captains and ship agents; and these do not appear to me to have any analogy to the case of agents employed to effect a policy. There is a material difference in the relations of these two classes of agents to their employers. The one class is specially em- ployed for the purpose of communicating to him the very facts which "Blackburn v. Vigors, L. R. 12 App. Cas. 531 (1887). 85 NON-DISCLOSDKE OF MATERIAL FACTS. § 93 the law requires him to divulge to his insurer ; the other is employed, not to procure or furnish information concerning the ship, but to effect an insurance. * * * n g^n not be reasonably suggested that the insurer relies to any extent upon the private information possessed by persons of whose existence he presumably knows noth- ing.» Lord Macnaughton .said that it would "he a dangerous extension of the doctrine of constructive notice to hold that persons who are themselves absolutely innocent of any concealment or misrepresenta- tion, and who have not willfully shut their eyes or closed their ears to, any means of information, are to be affected with the knowledge of matters which other persons may be morally, though not legally, bound to communicate to them." A distinction is here made between an agent to insure and an agent as the master of a ship. Mr. Justice Story held that when the owner, at the time of procuring the insurance, had no knowledge of the loss, but acted with entire good faith, he was not precluded from recover- ing, and that the policy was not rendered void by the omission of the master to communicate intelligence of the loss, although such omis- sion was willful and fraudulent.*^ "Ruggles V. General Interest Ins. Co., 4 Mason (C. C.) 74 (1825), CHAPTEE VI. REPRESENTATIONS AND WARRANTIES. SEC. 100. Statutory modifications. 101. Representations — Definition. 102. Warranties distinguished from representations. 103. Afiirmative and promissory warranties. 104. Effect of breach of warranty. 105. Construction of statements in the application. 106. Application made part of the policy. 107. Construction. 108. Oral representations. 108a. Mistake — Good faith answer. 109. Statement of expectation or be- lief. 110. Affirmative and promissory rep- resentations — Continuing warranties. SEC. 111. Or^,! promissory repreaenta- tions. 112. Conclusion. Misrepresentation by agent. Effect of misrepresentation. 115. Substantial truth required. 116. Test of materiality. Materiality — Opinion of fls- perts. Burden of proof. 119. Statutory provisions. 120. The Massachusetts statute. 121. The Pennsylvania statute. 122. Similar provisions In other states, 123. Controlling force of such stat- utes. 113. 114. 117. 118. § 100. Statutory modiflcatioiis. — The importance of technical war- ranties has been considerably diminished by the enactment of statutes that require them to be construed for all practical purposes as though they were common-law representations. Thus, in a number of states it is provided that no oral or written misrepresentation made in the negotiation of a contract or policy of insurance by the insured, or in his behalf, shall be deemed material or defeat or render void the policy or prevent its attaching unless such representation is made with actual intent to deceive, or unless such misrepresentation in- creases the risk of loss. Although such statutes in terms refer only to misrepresentations, they apply to all contracts of insurance, and to warranties as well as representations.' • See § 119, infra. (86) 87 REPRESENTATIONS AND WAKRA-NTIES. § 101 § 101. Representations — Definition. — A statement made by the ap- plicant for insurance pending the negotiations relative to some fact h&ving reference thereto, and upoii the faith of which the contract is entered into, is called a representation. It may be verbal or written, and is made before the issuance of the policy with reference to some fact which, by apparently diminishing the risk, may tend to induce the insurer to more readily assume the risk, or to assume it at a lesser rate of premium. Such representations are not, stric-% speak- ing, a part of the contract of insurance or of the essence of it, {jut are something collateral or preliminary thereto or in the nature of an inducement.'' § 102. Warranties distinguished from representations. — When a representation made by an applicant for insurance is carried into the contract and made a part thereof, it becomes a warranty, and the question of its materiality is thus settled by the contract of the. par- ties. A warranty at common law is defined as a ^ipulation or state- ment inserted or referred to in, and made a part of the insurance contract, upon the truth or performance of which the validity of the contract depends.' A representation is never a part of the contract of insurance, while a warranty must be inserted in the written contract in such a manner as to make it a part thereof.* It may be written upon the margin of the policy,^ but a mere reference therein to an- other paper, unless such paper is referred to and made a part of the policy, is not sufficient." 'Alabama Gold L. Ins. Co. v. 376, 33 N. K 105 (1892). As to Jolinston, 80 Ala. 467 (1886); Paw- what language amounts to a war- son V. Watson, 2 Cowp. 785, 13 Eng. ranty, see Daniels v. Hudson River, Rul. Cas. 540 (1778). Duer (Vol. 2 etc., Ins. Co., 12 Cush. (Mass.) 416, 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 immaterial, and would not have influenced the mind of either party in making the contract or fixing its terms." § 105. Construction of statements in the application. — The state- ments contained in the application for insurance will be regarded as representations unless they are in express terms made a part of the contract of insurance and warranted to be true. Where the ap- plication contains certain statements which are certified to be true, but are not referred to in the contract, they are considered as rep- resentations, and invalidate the contract only when false and ma- terial.^" § 106. Application made part of the policy. — ^An insurance com- pany, in taking risks upon lives or property, has the right to deter- mine the conditions upon which it will issue a policy and to insist upon their literal fulfillment. When these conditions are expressed in, and made a part of the written contract, their materiality is not open to question. In such cases the intention of the parties is to be gathered from the terms of the contract. The statements of the in- sured may be thus incorporated as the conditions on which the insur-. ance is undertaken, and when thus made the basis of the contract, if untrue, will render it invalid." Statements made in the applica- tion are primarily representations unless made warranties by' being incorporated into the contract. The modern practice, made com- pulsory by statute in some states,^^* is to attach a copy of the applica- tion to the policy and to refer thereto by appropriate language in the " Fidelity & Cas. Co. v. Alpert, 67 " Standard, etc., Ins. Co. v. Mar- Fed. 460, 14 C. C. A. 474 (1895); tin, 133 Ind. 376 (1892). McVey v. Grand Lodge, 53 N. J. L. "a See Corson v. Anclior, etc., Ins. 17, 20 Atl. 873 (1890). Co. (Iowa), 85 N. W. 806 (1901). 91 REPRESENTATIONS AND WAllEANTIES. § 107 policy. The two papers thereupon constitTite the written agreement of insurance, and must be construed together as containing the condi- tions, clauses and stipulations upon which the insurance is made. This rule was applied where the application provided that the an- swers and statements in the application were warranted to be "full, complete and true," and if there not so, the policy issued thereon shall be "null and void," and that the answers are a part of the pol- icy. In this case the application was not attached to the policy, but the policy contained a clause to the effect that, "in consideration of the answers, statements and agreements contained in the application for this policy of insurance, which are hereby made a part of this contract."^^ But a mere general reference in a policy to the applica- tion will not give its statements the effect of warranties.^* Warran- ties will not be created by implication, and if it is the intention that statements shall be warranties, there must be no ambiguity or uncertainty in the language used to express such intention.^" It has been held that a mere provision in ^ policy whereby the application is made a part of the policy is not sufficient to make its statements and representations warranties.^" § 107. Construction. — The courts do not look with favor upon a strict technical warranty, and, while recognizing the right of the parties to say that matters immaterial in fact shall be regarded as material for the purpose of a particular contract, will not assume that such was their intention unless it is made clearly to appear by the terms of the eontract.^^ The rules governing representations are " Fidelity & Cas. Co. v. Alpert, 67 truth would be for the jury to de- Fed. 460, 14 C. C. A. 474 (1895); termine, although specific inquiries Alabama Gold L. Ins. Co. v. Garner, had been made. 77 Ala. 215 (1885) ; National Bank '^ Daniels v. Hudson River F. Ins. V. Ins. Co., 95 U. S. 673 (1877). Co., 12 Cush. (Mass.) 416 (1853); " Jefferson Ins. Co. v. Cotheal, 7 National Bank v. Insurance Co., 95 Wend. (N. Y.) 72, 22 Am. Dec. 567 U. S. 673 (1877); Commonwealth (1831). Mut. F. Ins. Co. v. Huntzinger, 98 '"Moulor v. American L. Ins. Co., Pa. St. 41 (1881); Fitch v. Amer- 111 U. S. 335 (1883); Supreme ican, etc., Ins., Co., 59 N. Y. 557, 17 Council V. Brashears, 89 Md. 624, 73 Am. Rep. 372 (1875). For a state- Am. St. 244 (1899). ment of the rules of construction of "Supreme Council v. Brashears, insurance coni facts, see Alabama G. S9 Md. 624, 73 Am. St. 244 (1899). L. Ins. Co. v. Johnston, 80 Ala. 467, In this case the court said that the 2 So. 125 (1886). question of materiality as well as § 107 MATTERS VOIDING CONTRACT. 9? fair and equitable, and in all cases of ambiguity it will be presumed that the parties intended that the questions of good faith and ma- teriality shall be determined as questions of fact. Even stipulations in the policy in the form of a warranty are often given no greater effect than representations. A technical representation can not be a part of the contract, but there is no rule of law which will prevent the parties from inserting statements in the contract which shall be given the force and effect only of a representation."'' The mere use of the word warranty with reference to the statements made by the insured is not conclusive that such statements are to be treated as warranties in the strict legal sense. It is said by the supreme court of Michigan:"' "In construing warranties contained in policies of insurance it may be asserted that the prime object to be reached is the intention of the parties, and if that can be found, such intention must control. The rules in the interpretation of such warranties are the same as those which apply to the interpretation of other mercantile contracts. All written instruments, where the provisions are clear and unambiguous, are entitled to a literal interpretation; and wher- ever in a contract of insurance there is a clear breach of a warranty ^National Bank v. Union Ins. Co., 88 Cal. 497, 26 Pac. 509 (1891). ^Hoose V. Prescott Ins. Co., 84 Mich. 309, 47 N. W. 587 (1890). Warranties are never created by construction: Jefferson Ins. Co. v. Cotheal, 7 Wend. (N. Y.) 72, 22 Am. Dec. 571 (1831); Duncan v. Sun Fire Ins. Co., 6 Wend. (N. Y.) 494 (.1831). In McGannon y. Michigan, etc., Ins. Co. (Mich.), 87 N. W. 61 (1901), it was said: "On the part of the plaintiff it is said the agree- ment to keep a watchman is a prom- issory agreement, and not a war- ranty, the literal observance of which is necessary to keep the pol- icy in force, inasmuch as there is no express provision In the policy that a failure to keep a watchman at all times shall make the policy void. The authorities upon these several propositions are very conflicting. The old rule as to warranties fully sustains the contention of counsel for defendant, but there has been a tendency of late years to hold that the substantial fulfillment of an agreement like that contained in the application is sufficient. In May Ins., § 156, it is said, after the language before quoted: 'A learned judge and author declares it to be unfor- tunate that so strict a rule has been established, and intimates — what is no doubt entirely true — that courts are not at all inclined to go beyond the precedents to support a war- ranty. There are even authorities to the effect that in dealing with warranties common sense is not to be lost sight of, and that the fair, practical intent of the parties is to be sought, not the hair-splitting of a college of wit crackers, and that substantial fulfillment of a warranty is enough.' " 93 REPRESENTATIONS AND WARRANTIES. § 108 contained therein, however immaterial it may be, the' policy will be avoided. It may be said that the warranties contained in the policy are somewhat different from representations made, in this, that while a representation may be satisfied with a substantial or even an equi- table compliance, a warranty requires a strict and literal fulfillment." The language must be given a reasonable construction in view of the purposes of the provision under consideration."* A statement by the applicant, in answer to a question that he understands that untrue answers will render the contract void, will not control the construc- tion. "The statements expressing his understanding of what will be the effect of the insurance are statements, not of fact, but of law, and can not control the legal construction of the policy afterwards issued and accepted,""^ § 108. Oral representations. — A representation may be either verbal or written, but where a written application is made, it will be presumed to contain all representations which were made as an in- ducement to the contract."" § 108a. Mistake — Good faith answer. — There are a number of cases which hold that the element of good faith enters so far into the construction of statements made in the form of warranties that it is enough if they are substantially true.. In a well-known case in the supreme court of the United States the insured had warranted "that the above are fair and true answers." In fact, the application con- tained the untrue statement that the applicant had not been afflicted with a certain disease. The court, Mr. Justice Harlan, said :" "The entire argument on behalf of the company proceeds upon the too literal interpretation of those clauses in the policy and application which declare the contract null and void if the answers of the insured "See note to Fowler v. ^tna F. litowry, 96 U. S. 544 (18S7). Ex- Ins. Co., 6 Cow. (N. Y.) 673, 16 Am. ecutory verbal contract made at Dec. 466 (1827). the time written policy is issued " Accident Ins. Co. v. Crandal, 120 with reference to the future can U. S. 527 (1886). not be shown: Hartford F. Ins. "Where a written application is Co. v. Davenport. 37 Mich. 609 made the company has no right to (1877). But see McMaster v. New rely upon a verbal representation York L. Ins. Co. (U. S.), 22 Sup. Ct. made to its agent: Dolliver v. St. 10 (1901). Joseph, etc., Ins. Co., 131 Mass. 39 " Moulor v. American L. Ins. Co., (1880). Previous verbal statements 111 U. S. 335 (1883). merged in the policy: Ins. Co. v. § 109 MATTERS VOIDING CONTEACT. 94 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 with the actual state of things. In that sense a statement is untrue which does not express things exactly as they are, but in another and broader sense the word 'true' is often used as a synonym of honest, sincere, not fraudulent. Looking at all the clauses in the application in connection with thg policy, it is rea- sonably clear — certainly the contrary can not be confidently asserted — that what the company required of the applicant as a condition pre- cedent to any binding contract was that he would observe the utmost good faith toward it, and to make fair, direct and honest answers to all questions without evasion or fraud and without suppression, mis- representation 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." The effect of this reasoning was to make the answers to the questions merely representations. In a recent Illinois case''* it was held that a statement by an appli- cant for insurance that none of his brothers were dead will not, al- though false, avoid the policy, unless he knew it to be false, under a policy warranting the statements to be true, and that they shall form the basis of any contract entered into. In commenting upon the Moulor case, the court said: "In that case the untrue statements were held to be representations, and not warranties, and we think, on the same reasoning, the answer herein to the question should be so held, in the absence of proof by the com- pany of fraud or intentional misstatement on the part of the insured. The policy was not rendered invalid merely because the answer proved to be false." § 109. Statement of expectation or belief. — A statement of ex- pectation or belief, unless fraudulently made, will not avoid a policy.^* Where the statement amounts merely to an expression of opinion or "Globe, etc., Ins. Ass'n v. Wag- tains no such belief or expectation, ner, 188 111. 133, 58 N. E. 970 (1901). a representation so as to avoid the To the same effect, see Fidelity, etc., policy; and a statement as to a Ass'n V. Jeffords, 107 Fed. 402, 46 future event made by a person who C. C. A. 377 (1901). has obviously no control over the ""'The mere statement of belief event is regarded as a mere state- or expectation, which is not borne ment of an expectation." Rule as out by the event, is not, unless made stated in 13 Eng. Rul. Cas. 531. mala fide by a person who enter- 95 REPRESENTATIONS AND WARRANTIES. § 110 belief, and there is no actual fraud in inducing the insurer to enter into the contract, it will not avoid the policy. But there is a clear distinction between a case of this character and one where the insured intentionally and fraudulently states, as a matter of expectation or be- lief, that which he then knows to be actually untrue,'" or where the facts within his knowledge show to him that it is impossible that the matter stated by him as one of belief or expectation can exist or hap- pen.'^ Here the intent to deceive the insurer is apparent, and there is actual fraud, which vitiates the contract where the insurer is misled or deceived in acting to his injury when he otherwise would not have so acted.** A positive statement will bind the applicant, although it was based upon information obtained from other parties. If he does not wish to vouch for the truth of a statement it is his duty to make it in a qualified form, and disclose the fact that the information is derived from others, and that he does not vouch for its accuracy.'* § 110. Affirmative and promissory representations — Continuing warranties. — ^A representation is ordinarily of an existing fact. If an existing condition is required by the insurer to be continued during the life of the contract he should insert it in the contract and make it a condition in the nature of a warranty. But a mere statement that a certain condition exists at the time a representation is made — as that smoking is not allowed on the premises — is not a stipulation that it will continue to exist.'* So a representation by an applicant for ac- cident insurance that he is a switchman does not require him to re- main in that occupation when the policy contains no provision against a change of occupation.'' A representation that a force pump and an abundance of water exist for the extinguishing of fire is not "an agree- ment that the pump shall be kept in good condition for such use.'" So, a statement in an application that a house is occupied is descriptive "Hunt V. Fidelity & Cas. Co., 39 Union, etc., Ins. Co., 48 Me. 558, 77 C. C. A. 496 (1900); Bryant v. Am. Dec. 244 (1860). Ocean Ins. Co., 22 Pick. (Mass.) 200 "Tidmarsli v. Washington, etc., (1839). Ins. Co., 4 Mason (C. C.) 439 (1827), "Barber v. Fletcher, 1 Doug. 305, Story, J.; Williams v. Delafield, 2 13 Eng. Rul. Cas. 532 (1779); Bow- Caines (N. Y.) 329 (1805). den V. Vaughan, 10 East 415, 10 " Hosford v. Germania ^. Ins. Co., Rev. Rep. 340, 13 Eng. Rul. Cas. 127 U. S. 399 (1888). 533 (1808); Anderson v. Pacific F. ™ Provident L. Ins. Co. v. Fen- & M. Ins. Co., L. R. 7 C. P. 65 (1872). nell, 49 111. 180 (1868). "Joyce Ins., § 1904; Herrick v. ^Gilliat v. Pawtucket, etc., Ins. § 111 MATTERS VOIDING CONTRACT. 96 only and is not a warranty that it will be occupied during the existence of the risk.*^ A representation that the property insured is a private dwelling-house is not a promise that it will not be used for other pur- poses.'* A statement that a building would be occupied by a tenant is a mere statement of expectation.^' The words, "no stoves used," do not create a continuing warranty that stoves will not be used in the future.*" So, "ashes are thrown out," is not a continuing war- ranty.*^ But a statement that a watchman is kept on the premises when a mill is not in operation has been construed as a promise that the practice will be continued.*'' But a policy may contain an ex- press covenant as to the future, the breach of which will invalidate the contract.** Where an applicant for life insurance stated that he had not or would not practice any pernicious habits tending to shorten life, but there was no stipulation that a violation of this statement would void the policy, it was held to apply only to an existing state of facts, and that the statement as to the future was a mere expres- sion of intention.** The correctness of this decision is very doubtful, and a contrary decision was reached by the federal court in considering the same contract. § 111. Oral promissory representations. — The distinction between affirmative and promissory representations is generally recognized by the courts and text writers. The question has been much dis- cussed and the authorities are somewhat conflicting. Co., 8 R. I. 282, 91 Am. Dec. 229 N. W. 61, 54 L. R. A. 739 (1901); (1866). Hart v. Niagara, etc., Ins. Co. " Cumberland Valley, etc., Protec- (Wash.), 27 L. R. A. 86. tion Co. V. Douglas, 58 Pa. St. 419, "Houghton v. Manufacturers', 98 Am. Dec. 298 (1868). etc., Ins. Co., 8 Met. (Mass.) 114 »«Rafferty v. New Brunswick F. (1844). Ins. Co., 3 Harr. (N. J. L.) 480, 38 "Knecht v. Mutual L. Ins. Co., 90 Am. Dec. 525 (1842). Pa. St. 118, 35 Am. Rep. 641 (1871). " Herrick v. Union M. F. Ins. Co., The policy contained a provision . to 48 Me. 558, 77 Am. Dec. 244 (1860). the efCect that it should be void ii "Aurora F. Ins. Co. v. Eddy, 55 any of the statements and deelara- 111. 213 (1870). tions made in the application, upon "Hartford Prot. Ins. Co. v. Har- the faith of which the policy was mer, 2 Ohio St. 452, 59 Am. Dec. 684 issued, should be found in any re- (1853). spect untrue. But see contra, on "Blumer v. Phoenix Ins. Co., 45 the same policy, Sohultz v. Mutual Wis. 622 (1878). See McGannon v. L. Ins. Co., 6 Fed. 672 (1S81). Michigan, etc., Ins. Co. (Mich.), 87 97 REPRESENTATIONS AND WARRANTIES. Ill An ordinary representation is not a part of tlie contract between the insurer and the insured, and if a statement with reference to a future fact is to have force it should be inserted in the policy, or in the ap- plication and referred to in the policy, in such a manner as to make it a part thereof. To permit an oral promissory representation, made before the contract is closed, to be received for the purpose of in- validating the contract after it has gone into effect, violates well- established rules of evidence. Chancellor Walworth, after an ex- haustive review of the authorities, arrived at the conclusion that there could be no such thing as a promissory warranty.^^ The fed- eral court held*' "that an actual promise, if oral, can not be given in evidence to defeat a policy which has once attached. * * * j have seen no case isiiich holds that an oral statement of a fact could be construed into a continuing warranty or promise when the contract is in writing." Mr. Justice Gray, in a leading Massachusetts case,*' makes a clear distinction between oral and written promises, and holds that the latter are binding, but that a breach of an oral promise will not avoid the policy unless fraud is shown. The learned judge says: "The word representation has not always been confined in "Alston V. Mechanics', etc., Ins. Co., 4 Hill (N. Y.) 329 (1842). See note to Bowden v. Vaughan, 13 Eng. Rul. Cas. 534 (1808). "In Albion Lead VVorks v. Wil- liamsburg City F. Ins. Co., 2 Fed. 479 (1880), the court said: "It is impossible to reconcile the decisions upon this question of a continuing warranty. When an underwriter asks about the particulars of a risk he probably takes it for granted that things will continue as they are, but when the courts are asked to construe this Impression into a covenant, and make words in the present tense operate as a stipula- tion for the future, there is a diffi- culty, and the authorities are doubt- ful and divided. The result, as far as I can gather it. is that when the fact appears to the court to he a very important one, such as the em- 7 — Elliott Ins. ployment of a watchman, a majority of them have said that this ought to be considered a part of a continu- ing agreement. When the fact does not appear to be so Important, as that a dwelling-house is occupied, or that a clerk sleeps in the store, it is not of that character." As said by May: "It is obvious that the test here given is no test at all, and it is to be regretted that there has been any departure from the salutary- rule that the courts will not set up warranties where the par- ties have not clearly made them. It would have been fortunate if they had found more difficulty con- verting .impressions or expectations into covenants." "Kimball v. .Etna Ins. Co., 9 Al- len (Mass.) 540, 85 Am. Dec. 786 (1865). § 113 MATTERS VOIDIK^G COXTEACT. 9S use to representations of facts existing at the time of making the pol- icy, but has been sometimes extended to statements made by the as- sured 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 or contract, Such statements, when not ex- pressed in the form of a distinct and explicit warranty which must be strictly complied with, are sometimes called promissory repre- sentations, to distinguish them from those relating to facts or affirma- tive representations; and these words express the distinction: the one is an affirmation of a fact existing when the contract begins; the other, is a promise to be performed after the contract has come into existence. Falsehood in the affirmation prevents the contract from ever having any life; breach of the promise could only bring it to a premature end. A promissory representation may be inserted in the policy itself; or it may be in the form of a written application for the insurance, referred to 'in the policy in such a manner as to make it in law a part thereof ; and in either ease the whole instrument must be construed together. But this written instrument is the expression and the only evidence of the duties, obligations and promises to be per- formed by each party while the insurance continues. To make the continuance or termination of a written contract which has once taken effect dependent upon the performance or breach of an oral agree- ment would be to violate a fundamental rule of evidence. A rep- resentation 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, subse- quent disappointment will not prove that it was untrue; and if it is a mere 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."" § 112. Conclusion. — The rule deducible from the authorities is that while promissory representations are recognized and enforced ** "As to promissory representa- 120 (1844); Prudential Assur. Co. tions, see further: Prudential As- v. ^tna L. Ins. Co., 52 Conn. 575 sur. Co. V. ^tna L. Ins. Co., 23 (1885); Wytheville Ins. Co. v. Blatch. (C. C.) 223, 23 Fed. 438 Stultz, 87 Va. 629, 13 S. E. 77 (1S91)! (1885); Houghton v, Manufac- " Straker v. Phenix Ins. Co. 101 tu'rers", etc„ Ins. Co., 8 Met. (Mass.) Wis. 413, 77 N. W. 752 (1898) ; Phil- 99 REPRESENTATIONS AND WARRANTIES. § 113 it is only those that are reduced to writing and made a part of the contract in the nature of a warranty that are available. "*' An oral promissory representation made' in good faith, without an intention to mislead or deceive, can not be shown for the purpose of destroying a written contract which has already attached. But when such prom- ises are made in bad faith, with the intent to deceive and mislead the insurer, it will be given the same efEect as an afBrmative repre- sentation. The fraud, and not the agreement, is the basis of the right of the insurer. § 113. Misrepresentation by agent. — An agent who represents his principal in a certain transaction of course binds the principal by his statements in relation thereto. The question always is as to the character of the agency."^ lips Ins. (3(1 ed.), § 553; Duer Mar. Ins. (ed. 1845) 647, 749; Joyce Ins., § 1917, note. "The California Code (section 2574) provides that "a representa- tion as to the future is to be deemed a promise, unless it appears that it was merely a statement of a be- lief or expectation," and that "a rep- resentation can not be allowed to qualify an express provision of a contract of insurance, but it may qualify an implied provision." Mr. May (Ins.. § 1820) says: "Upon this distinction follows the ' impor- tant consequence that while a ma- terial falsity of an affirmative rep- resentation will be a complete de- fense to an action on a policy of in- surance, the material falsity of an oral promissory representation without fraud is no defense what- ever. And the reason of the dis- tinction is this: the falsehood of the representation of a material fact misleads the insured into a contract which he does not intend to make. He may therefore set up the fact that he was misled or deceived as proof that no agreement was ever made since there was no concur- rence of consent upon the same facts. But an oral promissory rep- resentation being an agreement prior in date to the actual contract of insurance, and in its nature such that it can not be performed until after the contract of insurance had taken effect, can not be set up to defeat the latter contract; for this would be to violate a fundamental rule of evidence, and to make the continuance or maintenance of a written contract dependent upon the performance or breach of an earlier oral agreement If the oral agree- ment be made mala fide, and with the intention to mislead and de- ceive, the fraud will have the same effect as the material falsity of an affirmative representation. But If made bona fide, and without the in- tention to deceive, it can not be set up to avoid the contract. Only those promissory representations are available for such a purpose which are reduced to writing and made a part of the contract, thus becoming substantially, if not formally, warranties." " See § 92, supra; Brown v. Met- ropolitan L. Ins.' Co., 65 Mich 306, 8 § 114 MATTERS VOIDING CONTRACT. 100 § 114. Effect of misrepresentation. — A representation, if false and material, avoids the policy. It is immaterial whether it was fraudu- lently or innocently made.''* It will be observed that a representa- tion, to avoid the contract, must be both false and material."' If the fact is actually material and untrue, it is not necessary to show that the representation was fraudulent," but where actual fraud exists — that is, where it clearly appears that the insurer was induced to issue the policy by the intentionally false statements of the insured — the materiality is conclusively presumed and need not be proven.'^ Thus, where the applicant fraudulently represented that he was the moneyed man of the firm, and thereby induced the insurer to take the risk, the policy was avoided, although the fact was immaterial to the risk.°° But there are cases that hold that undesigned and unintentional mis- statements will not avoid the policy unless made under circumstances of gross negligence."' § 115. Substantial truth required. — Where a representation is made with reference to a material fact it must be substantially true or it will avoid the contract. In this respect representations are con- strued less strictly than warranties."' § 116. Test of materiality. — The materiality of a representation is determined by the same rules which we found applicable in the case of concealment." If the representation is of such a nature as would probably induce the insurer, being governed by the rules which Am. St. 356 (1887); Grattan v. Met- "Pawson v. Watsoii,'2 Cowp. 785, ropolitan L. Ins. Co., 80 N. Y. 293, 36 13 Eng. Rul. Cas. 540 (1778). Am. St. 617. (1880). » Valton v. National, etc., Assur. "Armour v. Transatlantic F. Ins. Co., 20 N. Y. 32 (1859). Co., 90 N. Y. 450 (1882); Provident "See Penn Mut. L. Ins. Co, v. Sav., etc., Soc. v. Llewellyn, 58 Fed. Mechanics', etc., Co., 72 Fed. 413, 940, 7 C. C. A. 579 (1893). 19 C. C. A. 286 (1896); Columbia "Clason V. Smith, 3 Wash.(C. C.) Ins. Co. v. Cooper, 50 Pa. St. 331 156 (1812); Vivar v. Supreme (1865). Lodge, 52 N. J, L. 455, 20 Atl. 36 "Phffinix L. Ins. Co, v. Raddin, <1890). 120 U. S. 183 (1887); Missouri, etc.! " Lewis V. Eagle Ins. Co., 10 Gray Trust Co. v. German Nat Bank, 77 (Mass.) 508 (1858). See Wood v. Fed. 117, 40 U. S. App, 710 (1896). Firemen's F. Ins. Co., 126 Mass. 316 » § 90, supra. See Civil Code Cal (1879). § 2581. r 101 EEPRESENTATIONS AND -WAERANTIES. §\ll'!' ordinarily control intelligent, prudent underwriters, to take the risk, or to accept it at a lower premium than he otherwise would, it is ma- terial. The test is the probable effect which the statement might naturally and reasonably be expected to produce on the mind of the insurer,®" and not the fact that it actually increased the risk."^ But the parties may by express stipulation preclude inquiry into the ques- tion of materiality,'^ as where a representation is made in the form of an answer to a specific question. The parties may thus, unless re- strained by statute, make material a fact which would otherwise be immaterial.^' The question of materiality, when not thus deter- mined, is for the jury."* § 117. Materiality — Opinion of experts. — The cases which deal with the question of the right of an expert to testify as to whether a certain fact is material or not are in a bewildering state of confusion. Judge Taft, after an elaborate review of the authorities, recently held that the question of materiality is always for the jury, unless the answers in the application are" expressly made the basis of the con- tract; and even then, where the statute provides that innocent mis- representations in matters not material to the risk shall constitute no defense ; that by the weight of authority in this country an insurance expert can not be asked his opinion whether an undisclosed or mis- " Columbia Ins. Co. v. Lawrence, " § 84, supra; Phoenix Life Ins. 10 Pet. (U. S.) 507 (1836); Perine v. Co. v. Raddin, 120 U. S. 183 (1887); Grand Lodge, 51 Minn. 224 (1892); Miller v. Mut. Ben. L. Ins. Co., 31 Waterbury v. Dakota F. & M. Ins. Iowa 216 (1871). Under such cir- Co., 6 Dak. 468, 43 N. W. 697 (1889). cumstances the court must rule If the circumstances show that the whether the matter is material, and insurer did not rely upon the mis- the jury then determines Its truth, representation, and that it did not Of course, the answer may he so Induce him to make the contract, it irresponsive as to leave the ques- is immaterial: Flinn v. Headlam, tion unanswered. In the absence 9 Barn. & C. 693 (1829). of fraud, such an answer is imma- "Valton V. National, etc., Assur. terial: Perine v. Grand Lodge, 51 Co., 20 N. Y. 32 (1859). Minn. 224 (1892). , " Stensgaard v. St. Paul, etc., Ins. " § 90, supra; Caplis v. American Co., 50 Minn. 429 (1892); Cerys v. F. Ins. Co., 60 Minn. 376, 62 N. W. State Ins. Co., 71 Minn. 338 (1898). 440 (1895); Manufacturers', etc.. See language of Lord Chancellor Ins. Co. v. Zeitlnger, 168 111. 286, 61 Cranworth in Anderson v. Fitzger- Am. St. 105 (1897). aid, 4 H. of L. Cas. 513 (1853). § 118 MATTERS VOIDING CONTHACT. 102 represented fact is or is not material to the risk ; but he may be asked concerning the usages of insurance companies generally in respect to rejecting risks or charging a higher rate of premiiun when made aware of the fact in question.*' ' § 118. Burden of proof. — The burden of proof to establish the materiality of the concealment or misrepresentation, as well as the fraudulent intent, where that is necessary, is upon the defendant."" This burden is not shifted where it is admitted that the insured made an untrue answer concerning other insurance, for if there is a pre- sumption that his failure to mention it is intentional, there is also a presumption that a person does not make a fraudulent misstatement, and the question is for the jury upon all the evidence." But the rule is generally held to be otherwise in case of a warranty, which is in the nature of a condition precedent. The plaintiff must aver and prove the strict performance of such conditions."' But this rule is said not to be applicable to "representations amounting to warranties which are contained in the application only." A defendant who re- lies upon such a warranty must allege it and assume the burden of proof. In one case Judge Wallace said:"* "The rule requiring the performance of warranties to be averred and proved was engrafted into the law of insurance before it was customary for underwriters to inquire of the insured the full and detailed applications which are a feature of so much prominence in the modern contract, especially in the contract of life insurance. The policy is the evidence deliv- ered to the insured of the contract of the insurer, and, ordinarily, of "Penn Mut. L. Ins. Co. v. Me- Wood, 73 Fed. 81, 19 C. C. A. 264 chanics', etc., Co., 72 Fed. 413, 19 (1896); McLoon v. Commercial Ins. C. C. A. 286, 38 L. R. A. 233 (1896). Co., 100 Mass. 472 (1868). As to "Penn Mut. L. Ins. Co. v. Me- manner of pleading performance, chanics', etc., Co., 72 Fed. 413, 19 C. see Hart v. National Masonic, etc., C. A. 286 (1896); Piedmont, etc., Ins. Ass'n, 105 Iowa 717, 75 N. W. 508 Co. V. Swing, 92 U. S. 377 (1875); (1898). A waiver or estoppel can Grangers' L. Ins. Co. v. Brown, 57 not be shown unless pleaded: Mc- Miss. 308 (1879); Jones v. Brooklyn Coy v. Iowa State Ins. Co., 107 Iowa L. Ins. Co., 61 N. Y. 79 (1874). 80, 77 N. W. 529 (1898). "Penn Mut. L. Ins. Co. v. Me- "American Credit, etc., Co. v. chanics', etc., Co., 72 Fed. 413, 19 Wood, 73 Fed. 81, 19 C. C. A. 264 C. C. A. 286 (1896). (1896). "American Credit, etc., Co. t. 103 REPRESENTATIONS AND WARRANTIES. § 118 itself constitutes complete evidence of the contract, while the appli- cation, although it may modify the contract, is in the nature of de- fensive evidence entrusted to the insurer for his protection. As a matter of pleading, if the policy is set forth, and compliance with all conditions precedent recited in it is ayerred, there is no necessity for referring to the application, and the complaint or declaration is suffi- cient upon its face. Nothing is required to be proved which does not support some necessary allegation in the complaint, and there seems to be no good reason which requires the plaintiff to assume the bur- den of proving affirmatively the truth of the statements in an applica- tion not challenged by the defendant." In Minnesota it is held that a warranty is not a condition precedent, and that the burden of alleging and proving its falsity is upon the insurer.'" Mr. Justice Mitchell said; "A condition precedent is known in the law of insurance as one which is to be performed before the agreement of the parties be- comes operative; a condition subsequent calls for the performance of some act or happening of some fact after the contract is entered into, and upon the performance or happening of which its obligation is made to depend. In case of a mere warranty, the contract takes effect and becomes operative immediately. It is true that, where a policy of insurance so provides, if there is a breach of a warranty, the policy is void ab initio. But this does not change a 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 tiiese 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 war- ranties. 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 as- " Chambers v. Northwestern, etc., etc., Ins. Co., 17 Minn. 479, Gil. 473 Ins. Co., 64 Minn. 495, 67 N. "W. 367 (1871); Malicki v. Chicago, etc., (1896); Hale v. Life Indemnity, etc., life Soc, 119 Mich. 151, 77 N. W. Co., 65 Minn. 548, 68 N. W. 182 690 (1899); Coburn v. Travelers' (1896), overruling Price v. Phoenix, Ins. Co., 145 Mass. 226, 13 N. E. 604. § 119 MATTERS VOIDING CONTRACT. 104 sailed as false. The miniber of questions in these applications is usually very great, relating to the habits and health of ancestors, the personal habits and condition of the applicant, etc., the truth of many of which it would be impossible to prove aflBrmatively after the death of the insured. To require such proof on the part of the beneficiary would defeat more than half of the life policies ever issued. On the other hand, it is no harship 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. * * * We therefore hold that it was no part of the plaint- iff's case to either allege or prove the truth of the answers in the application, that the burden of alleging and proving their falsity was on the defendant, that it was bound to specify in its defense the par- ticular 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." A condition subsequent in the policy, as an agreement to use diligence and care for the preservation of the property, need not be pleaded, as it is matter of defense. ^^ § 119. Statutory provisions. — The manifest unfairness and injus- tice which result from making statements, whether material or not, strict warranties, has resulted in the enactment of statutes in a number of states which restrict the liberty of contract in this respect and provide a rule of construction for such provisions in insurance contracts. These statutes are remedial and are sustained as proper regulations of the business of insurance. The Ohio statute was re- cently before the supreme court of the United States, and the court said:" "It was for the legislature of Ohio to define the public pol- icy of that state in respect of life insurance, and to impose such con- ditions on the transaction of business by life insurance companies within the state as was deemed best. We do not perceive any ar- bitrary classifications or unlawful discrimination in the legislation, but, at all events, we can not say that the federal constitution has been violated in the exercise in this regard by the state of its undoubted power over corporations." "Johnston v. Northwestern, etc., "John Hancock, etc., Ins. Co. v. Ins. Co., 94 Wis. 117, 68 N. W. 868 Warren, 181 U.- S. 73 (1901), re- (1896). ferring to § 3625, Ohio Rev. Stat. 105 REPRESENTATIONS AND WARRANTIES. § 120 §120. The Massaclmsetts statute. — The Massachusetts statute contains the following provisions: "N"o oral or written misrepre- sentation made in the negotiation of a contract or policy of insur- ance by the assured or in his behalf shall be deemed material or de- feat or avoid the policy, or prevent its attaching, unless such mis- representation is made with actual intent to deceive, or unless the matter misrepresented or made a warranty increased the risk of loss.'"* This act applies to all contracts of insurance and affects strict warranties as well as representations. In a case decided before the vrords "or made a warranty" in the last line were inserted, the court said:'* "As to mere representations, the statute may well be held to be only declaratory, but as to warranties it made a new rule. In the opinion of the majority of the court, it speaks in terms neither of warranties nor of representations, tecljnically so called, but deals with all representations made in negotiating the contract or policy. Misstatements of fact, whether the statement is said to be by the par- ties either a warranty or a representation, are equally representations, and are placed in each case upon the same footing by the statute which applies to them if the statements are called warranties by the parties, no less than if they are mere representations." § 121. The Pennsylvania statute. — In this state it is provided that "whenever the application for a policy of insurance contains a war- ranty of the truth of the answers therein contained, no misrepre- sentation 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 issued upon the faith of such appli- cation, unless such misrepresentation or untrue statement relates to some matter material to the risk."'° This legislation was intended to strike down literal warranties so far as they might be resorted to for the purpose of enforcing a forfeiture based on matters actually immaterial. It provides a rule of construction for the purpose of "P. S. 119, § 181 (1895), ch. 271. (1895). See further, Ring v. Phosnlx The Minnesota statute (Laws 1895, Assur. Co., 145 Mass. 426, 14 N. E. ch. 175, § 20) is a copy of the Massa- 525; Durkee v. India Mut. Ins. Co., chusetts act, omitting the words- "or 159 Mass. 514, 34 N. E. 1133; Levie made a warranty," which were add- v. Metropolitan L. Ins. Co., 163 ed in Massachusetts in 1895. Mass. 117, 39 N. E. 792. " White v. Provident Sav., etc., " Pa. Laws 1885, p. 134, 5 1. Soc, 163 Mass. 108, 39 N. E. 771 § 122 MATTKES VOIDING CONTRACT. 106 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 effect is to leave open to judicial investigation in the ordinary way the question whether any fact concerning which inquiry was made, and an untrue answer given, was material to the risk. If found to be material, the policy will be avoided, whether the untrue answer was made in good faith or not. If not material, the breach of war- ranty will work no prejudice to the insured if the answer was given in good faith, but if in bad faith, and for the purpose of misleading the company, the policy will be avoided, notwithstanding the imma- teriality of the fact. Bad faith in this connection means with an actual intent to mislead or deceive, and does not indlude a misstate- ment honestly made through inadvertence, or even gross forgetful- ness or carelessness." § 122. Similar provisions in other states. — Similar statutes are found in other states. Thus, in Michigan, a breach of a condition in a fire policy will not render it void if the company has not been in- jured by such breach or a loss has not occurred during such breach or by reason thereof. The standard form of policy is required to contain a provision that "provided a loss shall occur on the property insured while such breach of condition continues or such breach of condition is the primary or continuing cause of the loss."'' In Mary- land, where the application for a policy of life insurance contains a warranty of the truth of the answers, "no representation 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 applica- tion, unless such misrepresentation or untrue statement relates to some matter material to the risk." In Kentucky "all statements or descrip- tions in any application for a policy of insurance shall be deemed and held representations and not warranties ; nor shall any misrepresenta- tions, unless material or fraudulent, prevent a recovery on the pol- '• Hermany v. Fidelity, etc., Ass'n, " Mich. Laws 1897; p. 214, act 167, 151 Pa. St 17, 24 Atl. 1064. Comp. Laws 1897, § 5180, applies to " Penn Mut. L. Ins. Co. v. Mechan- all policies issued after its passage, Ics", etc., Co., 72 Fed. 413, 19 C. C. A. whether Michigan standard policies 286 (1896); Penn Mut. L. Ins. Co. v. or not: McGannon v. Michigan, Mechanics', etc., Co., 73 Fed. 653, 19 etc., F. Ins. Co. (Mich.), 87 N. W. 62 C. C. A. 316. 54 L. R. A. 739 (1901).' 107 REPRESENTATIONS AND WARRANTIES. § 133 icy."^* In Maine "all statements of descriptions or value in an ap- plication or policy of insurance are representations and not warran- ties; erroneous descriptions or statements of value or title by the insured do not prevent his recovering on his policy unless the jury find that the difference between the property as described and as it really exists contributed to the loss or materially increased the risk; a change in the property insured or in its use or occupation, or a breach of any of the terms of the policy by the insured, do not affect the policy unless they increase the risk; nor shall any misrepresenta- tion of the title or interest of the insured, in the whole or any part of the property insured, real or personal, unless material or fraudulent, prevent his recovering on his policy to the extent of his insurable in- terest."*" In Iowa, subject to certain exceptions, "any condition or stipulation in any application, policy or contract of insurance making the policy void before the loss occurs shall not prevent recovery there- on by the insured, if it shall be shown by the plaintiff that the failure to observe such provision, or the violation thereof, did not' contribute to the loss."'^ Similar provisions are found in Virginia,'* Ohio," New Hampshire,'* Missouri,"* Georgia,*' and possibly in other states. Such statutes enter into and form a part of every contract of insur- ance made while they are in force." § 123. Controlling force of such statutes. — Where such statutes are in force the parties can not contract as to what statements are material, as the question is to be judicially determined in each case by the court, if the materiality is obvious, or by the jury, if it depends upon disputed facts.'* In Kentucky it was at first held that the par- " Maryland Laws 1894, ch. 662; B. "Va. Laws 1900, ch. 515, p. 550. & C. Ky. Stat, ch. 32, § 639. See "Ohio Rev. St. 1890, § 3625. Germania Ins. Co. v. Rudwlg, 80 Ky. " New Hampshire Laws 1885, ch. 223 (1882), overruling Farmers' 73. etc., Ins. Co. v. Curry, 13 Bush (Ky.) ■= Mo. Rev. St. 1889, § 5849. 312 (1877); Imperial F. Ins. Co. v. "Georgia Code 1882, §§ 2803, 2804. Kiernan, 83 Ky. 468 (1885); Kenton See Southern L. Ins. Co. v. Wilkin- Ins. Co. V. Wigginton, 89 Ky. 330 son, 53 Ga. 535 (1873); Mobile, etc., (1889). Ins. Co. v. Coleman, 58 Ga. 251 »°Rev. St Me., ch. 49, § 20. See (1876). also provision in Maine standard " Klostermann v. Germania L. Ins. form of policy, construed in Lin- Co., 6 Mo. App. 582 (1879). scott v. Orient Ins. Co., 88 Me. 497 "Fidelity Mut. L. Ass'n v. Miller, (1895); Bigelow v. Granite, etc., Ins. 92 Fed. 63, 34 C. C. A. 211 (1899); Co., 94 Me. 39 (1900). Hermany v. Fidelity, etc., Ass'n, 151 " McClain's Iowa Code, § 1743. § 123 MATTERS VOIDING CONTEACT. 108 ties could waive the benefits of the statute and by express contract de- termine the question of materiality,'" but this was so manifestly con- trary to the object of the law that the decision was reversed, and it is now held that only such statements as are material or fraudulent will avoid the policy.'" Pa. St 17 (1888); Lutz v. Metropol- itan L. Ins. Co., 186 Pa. St 527, 40 AU. 1104 (1898). " Farmers', etc., Ins. Co. v. Curry, 13 Bush (Ky.) 312, 26 Am. Rep. 194 (1877). "• Germania Ins. Co. v. Rudwig, 80 Ky. 223 (1882). For construction of such statutes, see also National Bank v. Union Ins. Co., 88 Cal. 497, 26 Pac. 509 (1891); Fidelity, etc., Ass'n V. Ficklin, 74 Md. 172 (1891). Part IV. OF THE CONSIDERATION. CHAPTEE VII. THE PREMIUM. 6E0. 125. In general. I. The Premium in Ordinary In- surance. 126. Nature of premium. 127. Obligation to pay premium. 128. Payment — Condition precedent — Forfeiture. 129. Manner, time and place of pay- ment. 130. The giving of a promissory note. 131. Payment after loss or death. 132. Paid-up policies. 133. Premium notes. 134. Notice of time when premium is due. SEC. 135. Right to recover premiums paid. //. Assessments in Mutual Com- panies and Benevolent So- cieties. 136. Dues and assessments. 137. Liability to assessment 138. Effect of non-payment of assess- ment. 139. Withdrawal of member. 140. Insolvency of company. 141. Death during period of suspen- sion. 142. Reinstatement. 143. Waiver — Estoppel. § 125. In general. — The insurance company, for an agreed con- sideration, and upon condition that certain facts exist, binds itself upon a certain contingency to pay to the insured a fixed sum, or a sum to be determined by the amount of the loss. The amount to be paid by the insured, as a consideration therefor, is called the pre- mium in ordinary insurance, and dues or assessments in mutual in- surance and benevolent societies. It is payable according to stipula- tion which determines the amount and time of such payment. In the case of fire insurance, the premium is a stipulated sum for an insur- ance for a certain specified period, at the end of which the contract (109) § 126 THE CONSIDERATION. 110 terminates. Life insurance contracts may be for fixed periods, as for one year, or for life, with a provision for payment of premiums at stated annual or semi-annual intervals, under conditions which pro- vide for forfeiture or termination of the contract if such premiums are not paid in advance upon a stipulated date.^ Life insurance policies are also issued for a certain number of years, with a provision for termination at that time by payment to the insured of a certain amount in cash or the issuance to him of a paid-up policy. The con- sideration in what is known as mutual insurance and mutual benefit associations is payable at short intervals, and is known as assess- ments and dues. These amounts may be definitely fixed, or they may be left to be determined by the necessities of the case and sub- ject to increase as the insured increases in age. I. The Premium in Ordinary Insurance. § 126. Nature of premium. — The agreed consideration for assum- ing and carrying the risk is called the premium.^ It is a stipulated sum in consideration of which the underwriter agrees to take upon himself the risk of loss and to indemnify the assured against it.* The amount or rate is generally agreed upon and inserted in the pol- icy, but it may be determined by custom and usage.' The contract may provide for an increase or reduction in the rate of premium as certain risks are added to or eliminated from the contract. The pay- ment of the premium and the assumption of the risk are correlative;' hence if the premium is not paid the insurance does not attach; if the risk does not attach the premium paid may be recovered.^ A elause in the policy of an assessment company providing that the rate of assessment may be changed each five years to correspond with the actual mortality experience of the company authorizes it to change the rates at different ages as required by the results of its experience.* " See § 358, infra. As to the dis- in tontine insurance, see Uhlman v. tinction between a policy for a short New York L. Ins. Co., 109 N. Y. 421 term and one for life, see McDougall (1888); Thompson v. Thome, 83 Mo. V. Provident, etc., Soc, 135 N. Y. 551. App. 241 (1899). 32 N. E. 251 (1892); McMaster v. ' Pollock v. Donaldson, 3 Dall. (U. New York L. Ins. Co. (U. S.), 22 S.) 510 (1799). Sup. Ct. 10 (1901). "Waller v. Northern Assur. Co.. 'Bmerigon Ins. (Meredith's ed.), 64 Iowa 101 (1884). See § 135, I'h. 3, § 1. infra. ' As to the nature of the premium " Mutual Res. Fund L. Ass'n v. Ill THE PREMIUM. § 127 In many states there are statutes which forbid discriminating against colored persons in the rates of premiums, and which require uniform rates for all persons of the same class and equal expectancy of life.' These statutes, which make it a criminal offense for an agent to re- bate a premium, do not unduly interfere with thie right to contract, and are constitutional.* § 127. Obligation to pay premium. — Whether the amount of the stipulated premium becomes a debt due from the insured to the in- surer depends entirely upon the contract and the circumstances. Taylor (Va.), 37 S. B. 854 (1901). An insurance policy contained a table of ages from 25 to 60 years, showing a gradual increase in the premium from the first age named to the last. It also contained a pro- vision that the company agreed to renew insurance during each suc- cessive year of the life of the in- sured, "from date hereof," on pay- ment on or before a certain date in each successive year of the annual premium rate for the age attained, in accordance with the table men- tioned. No figures were given be- yond the age of sixty, but the pre- miums thereafter, it was held, were to be determined by calculation on the rule of progression shown by the table, and do not continue the same as that provided for the age of sixty: Nail v. Provident Sav. L. As- sur. Soc. (Tenn. Ch.), 54 S. W. 109. ' See note to Joyce Ins., § 1091, where the statutes are collected. In Key v. National L. Ins. Co., 107 Iowa 446, 78 N. W. 68 (1899), it was held that the statute would not pre- vent a person who consented to take out a policy of insurance on the representation that the company could make her a loan, from recov- ering the premium after the loan was refused. The court said: "It is insisted that the making of the loan was a condition subsequent to the acceptance of the policy; that the contract of Insurance went into force, and the plaintiff's liability ac- crued thereon, before any obligation was incurred to make the loan; therefore, that the plaintiff's In- debtedness for the premium was entirely Independent ot any right she may have to insist on her other claim. This is not the contract disclosed by the testimony. As a matter of fact, the taking out of the insurance was but an Inci- dent; the making of the loan was the principal subject-matter ol the agreement The contract, as already said, was entire, and it was distinct- ly understood and agreed that the plaintiff was not to accept the policy unless she could s.ecure the loan. She received the policy into her pos- session upon a condition that the company refused to perform, and be- cause of this failure she refused to accept It. This she had a right to do. Upon this proposition the case of Harnickell v. New York L. Ins. Co., Ill N. Y. 390, 18 N. E. 362, is directly in point, and supports our holding." As to the right of an In- surance agent under such a statute to contribute his commission, see Quigg V. Coffiy, 18 R. I. 757, 36 Atl. 704 (1894). ' People V. Formosa, 131 N. Y. 478, 30 N. E. 4'92 (1892). § 128 THE CONSIDERATION. 112 Where the payment is made a condition precedent to the attaching of the risk, and it is not made, the insured assumes no further liability ; but if the contract goes into effect and the insured has had the benefit of the insurance, the premium becomes a debt, which may be collected in an action at law. A premium which is to become due annually or semi-annually, and is payable in advance on a contract which con- tains a stipulation that the policy shall lapse if the premium is not paid when due, is not a debt. So, an insurance contract with a benevolent association which provides for a forfeiture of all benefits if a member fails to pay his assessment at a specified time does not create an obligation which is enforceable by the association or by its receiver.' The payment in such case is optional with the insured, but if the policy attaches and the premium is earned under an agree- ment of credit, as where a note is given for the premium, a debt is created which may be recovered even after the policy has been for- feited." § 128. Payment — Condition precedent — Forfeiture. — The actual payment of the premium before the risk attaches is not necessary un- less such payment is made a condition precedent by the terms of the contract^' This is not ordinarily done in eases of marine and fire insurance, but is customary in cases of life insurance.^* When it is •Viok V. Clark, 77 111. App. 599 Co., 83 Iowa 647, 14 L. R. A. 248 <1897). (1891). See Continental Ins. Co. v. '° Goodwin v. Massachusetts, etc., Hulman, 92 111. 145, 34 Am. Rep. 122. Ins. Co., 73 N. Y. 480 (1878). A "Newark Mach. Co. v. Kenton mortgagee may, by the terms of the Ins. Co., 50 Ohio St. 549, 22 L. R. A. policy, become liable for the pre- 768 (1893); Campbell v. American mlum: See St. Paul, etc., Ins. Co. P. Ins. Co., 73 Wis. 100, 40 N. "W. 661 V. Upton, 2 N. Dak. 229. 50 N. W. 702 (1888). Where an application for a (1891). Sending a policy to the as- life insurance policy states on Its sured on his promise to remit the face that payment of its premium Is premium does not estop the com- a condition precedent to the issuing pany from denying Its validity for of the poUcy, the policy Is not in non-payment of the premium as force until it is actually paid: Or- against a mortgagee, "to whom loss, mond v. Fidelity L. Ass'n, 96 N. C. if any, is payable," although such 158 (1887). See Tomsecek v. Trav- mortgagee received the policy which elers' Ins. Co. (Wis.), 88 N. W-. 1013 acknowledged the receipt of the pre- (1902). mlum from the assured with notice " Howell v. Knickerbocker L. Ins. that the premium was not paid. Co., 44 N. Y. 276 (1871). Where Such a policy is not an Insurance payment of the premium on or upon the interest of the mortgagee: before a certain date is made a con- Union Bldg. Ass'n v. Rockford Ins. ditlon precedent to the contract re- 113 THE PREMIUM. § 128 expressly provided that the premium on a life insurance policy shall be paid on or before a certain date, and in default thereof the policy shall be void, the non-payment of the premium on the date named works a forfeiture of the contract." In such cases time is of the essence of the contract, and payment on the following day will not do. Where the policy so provides, the prompt payment of the note which has been given for the premium is necessary to save the contract.'* Equity will not release from such a forfeiture." Of course, the com- pany may extend the time of payment by an agreement express or implied, or it may be estopped by its conduct from asserting a for- feiture, or the contract may be suspended, as by the operation of war." A fraternal society doing a life insurance business may waive the provisions of the law in regard to the forfeiture of the insurance by failure to require payment of premiums as required by its by-laws.'^ It is not necessary that the insurance company expressly waive its right to insist upon a forfeiture, as a waiver may be implied from the circumstances.^' Part payment of a premium will not prevent a forfeiture.^" The contract sometimes provides that it shall be merely suspended during the period of non-payment of the premium, and subject to revival when the payment is actually made.*" In such cases the contract ordinarily contemplates that payment must be made before a loss occurs."^ In some states it is provided that there can be no forfeiture of a policy until after the company has notified the insured of the tinie when his premium is due.^^' maining in force, non-payment iB " McMahon «. Supreme Tent, etc., not excused by the fact that pay- 151 Mo. 522, 52 S. W. 384 (1899). ment is prevented by con(Jitions "Jones v. Preferred Bankers' L. over which the insured has no con- Assur. Co., 12,0 Mich. 211, 79 N. W. trol, as by act of God. 204 (1899). " Fowler v. Metropolitan L. Ins. " Willcuts v. Northwestern, etc., Co., 116 N. Y. 389, 22 N. B. 576, 5 L. Ins. Co., 81 Ind. 300 (1882). R. A. 805 (1889) and note; Bos- "Joliffe v. Madison Mut. Ins. Co., worth V. Western, etc., Soc, 75 Iowa 39 Wis. Ill, 20 Am. Rep. 35 (1875). 582, 39 N. W. 903 (1888). " Matthews v. Ins. Co.,, 40 Ohio St. "Robert v. New England, etc., 135 (1883); Miller v. Union, etc., Ins. Co., 1 Disn. (Ohio) 355 (1857), Ins. Co., 110 111. 102 (1884). 2 Disn. 106. "* See Mutual L. Ins. Co. v. Hath- " Klein v. Ins. Co., 104 U. S. 88 away, 106 Fed. 816 (1901); Mutual (1881); Attorney-General v. Conti- L. Ins. Co. v. Cohen, 179 U. S. 262 nental L. Ins. Co., 93 N. Y. 70 (1883). (1900). " Mutual, etc., Ins. Co. v. Hillyard, 37 N. J. L. 444 (1874). 8 — Elliott Ins. § 129 THE CONSIDERATION. 114 § 129. Manner, time and place of payment. — The premium may be paid to the company or its duly authorized agent,'"' and may be in cash or in any other commodity which the insurer is ■willing to ac- cept."' Presumably it is payable in cash, but if credit is given it is equally as effective as cash. If there is no provision making the pre- payment of the premium a condition precedent, the agent who ne- gotiated the insurance may give credit for the premiums,"* and even where a provision in the policy calls for the actual payment of the pre- mium as a condition precedent to its going into effect, such provision may be waived by a general agent of the company. Upon this the authorities are in substantial accord."^ Where a policy recites that it is issued in consideration of an an- nual premium, "to be paid in advance to the company," the bene- ficiary must show that the premium was paid, and it is not sufficient to show merely the execution of a promissory note for the amount, which recites that it is accepted on condition that if it is not paid at maturity the policy shall be void."" The acceptance of an order on a third person is a payment if such was the intention of the parties."' Payment may be by check when the custom and course of dealing have been such as to justify the insured in believing that it would be ac- cepted as cash."^ The payment of the premium with misappropriated funds is good as against the insurer, although the fund arising from the payment of the policy may belong to the person whose money was " Pennsylvania Ins. Co. v. Carter pany, pays or undertakes to become (Pa.), 11 Atl. 102 (1887). responsible to the company for the ^ See Anchor L. Ins. Co. v. Pease, premium, in order that credit may 44 How. Pr. (N. Y.) 385 (1873). An be extended to the insured: Pire- agent can not without express au- man's Fund Ins. Co. v. Pekor, 106 thority accept payment in personal Ga. 1, 31 S. E. 779 (1898). property: Hoffman v. Hancock, etc., " McDonald v. Provident, etc., L. Ins. Co., 92 U. S. 164 (1895). Assur. Soc, 108 Wis. 213, 84 N. W. "But an agent without authority 154 (1900). See Tomsecek v. Trav- to issue a policy can not bind the elers' Ins. Co. (Wis.), 88 N. W. 1013 company by an agreement to extend (1902). the time of payment: Critchett v. "Manhattan L. Ins. Co. v. Myers American Ins. Co., 53 Iowa 404 (Ky.), 59 S. W. 30 (1900). (1880). It is not essential to the "Lyon v. Travelers' Ins. Co., 55 validity of a fire insurance policy, Mich. 141, 54 Am. Rep. 354 (1884); issued in renewal of a previous one, National Ben. Ass'n v. Jackson, 114 that the insured should pay the re- 111. 533 (1885); McMahon v. Trav- newal premium in cash, provided elers' Ins. Co., 77 Iowa 229 (1899). the insurance agent, with the ex- '"'Kenyon v. Knights, etc., Ass'n, press or implied assent of the com- 122 N. Y. 247, 25 N. B. 299 (1890). 115 THE PREMIUM. § 130 illegally used.*' Payment may be made by any one'" to the company or its authorized agent*^ at the time'^ and place provided by the policy, or determined by special agreement or custom.'^ The date when the premium is paid, and not that written in the policy for the payment of the premium, is the time from which to reckon the period when further premiums are due. The mere acceptance of an insurance policy will not imply assent by the insured to a clause interpolated in the policy making future premiums payable in less time than is provided in the original con- tract between the parties, unless the attention of the insured was called to such provision.'* Where the course of dealing has been such as to warrant it, payment of the premium may be made by mail, and it is sufficient if the check was mailed on the' last day of payment.'^ When the insured is directed to send the money by express, delivery to the express agent is payment, although the money is embezzled by such agent.'* Premiums may be paid in part or in whole by dividends accruing according to the terms of the policy," but undeclared divi- dends can not be treated as funds applicable to such use.'* § 130. The giving of a promissory note. — The insurance company may accept a promissory note in payment of the premium, although the contract expressly provides for the payment in cash." A pro- " Holmes v. Gilman, 138 N. Y. 369 y. Continental Ins. Co., 83 Ky. 574 (1893). (1886). "Leslie v. French, L. R. 23 Ch. "McMaster v. New York L. Ins. Div. 552 (1883). Co., 99 Fed. 856 (1899). See s. c "Critchett v. American Ins. Co., in 22 S. Ct. Rep: 10 (1901). 53 Iowa 404, 36 Am. Rep. 230 (1880). '"Taylor v. Merchants' F. Ins. Co., "In determining the time of the 9 How. (U. S.) 390 (1850). notice that a premium will fall due "Whitley v. Piedmont, etc., Ins. under the New York statute provid- Co., 71 N. C. 480 (1874). ing for a notice at least thirty days, " Hull v. Northwestern, etc., Ins. and not more than sixty days, prior Co., 39 Wis. 397 (1876). Equity will to the day when the premium is compel the application of dividends payahle, the premium is to he earned to prevent a forfeiture: deemed payable on the day of its Franklin L. Ins. Co. v. Wallace, 93 maturity, and not the date to which Ind. 7 (1883), and cases cited, an extension of the time of payment " Mutual L. Ins. Co. v. Girard L. is allowed by the policy: Trimble Ins. Co., 100 Pa. St. 172, 10 Ins. Law V. New York L. Ins. Co., 20 Wash. Jour. 273-275 (1882), annotated. 386, 55 Pac. 429 (1898). "Krause v. Equitable L. Assur. "Williams v. Washington L. Ins. Co., 99 Mich. 461, 58 N. W. 496 Co., 31 Iowa 541 (1871); Blackerby (1894); Pitt v. Berkshire Ins. Co.. 100 Mass. 500 (1868). § 130 THE CONSIDERATION. 116 vision in a policy that it shall not be in force until the first payment is made in cash during the life-time and good health of the insured is complied with by the execution of a note to the insurance com- pany's agent for an amount greater than the premium, where the agent indorsed and discounted the note, gave the insured the com- pany's receipt for the amount of the preinium, reported it to the com- pany as paid, and received from the company and delivered to the insured the policy, which recited that it was given in consideration of the application and "of the first premium paid on or before the de- livery hereof."*" The delivery of the policy is a sufficient consideration for the note.*^ Such a note may be taken as payment,*" or as an extension of the time of payment, under the provision that the insurance shall terminate if the note is not paid at maturity, or it may be accepted as a condi- tional payment.*' If neither the policy nor the note contains a pro- vision for the forfeiture or suspension of the risk upon the non-pay- ment of the note, the policy continues in force although the note is not paid at maturity.** The rights of the parties are governed by the terms of the agreement. It is common to provide that the policy shall be merely suspended while the note is overdue and that the company shall not be liable for loss occurring during such suspension.*" There is a conflict of authority as to whether a note given for the premium, and containing a provision to the effect that the policy shall be for- feited if the note is not paid at maturity, must be presented for pay^ ment and demand made before the policy can be declared void.** It is said that "when the condition as to forfeiture for the non-payment at maturity of a note given for the premium is contained only in the " Jacobs V. Omaha L. Ass'n, 146 Phenix Ins. Co. v. Bachelder, 32 Mo. 523. 48 S. W. 462 (1898). Neb. 490, 29 Am. St. 443 (1891).' " Marskey v. Turner, 81 Mich. 62, " That notice and demand are nec- 45 N. W. 644 (1890). essary, see Pendleton v. Knicker- "* Michigan Mut L. Ins. Co. T. bocker L. Ins. Co., 5 Fed. 238 Bowes, 42 Mich. 19 (1879). (1881); Travelers' Ins. Co. v. Pull- *» Knickerbocker L. Ins. Co. v. ing, 159 111. 603 (1896). Contra, Pendleton, 112 U. S. 696 (1884). Roehner v. Knickerbocker L. Ins! "McAllister v. New England, etc., Co., 63 N. Y. 160 (1875); Mclntyre Ins. Co., 101 Mass. 558 (1869). The v. Michigan, etc., Ins. Co., 52 Mich, forfeiture clause was construed to 188 (1883). Protest of the note is apply to future premium payments not necessary: Knickerbocker L. only. Ins. Co. y. Pendleton, 112 U. S. 696 " Robinson v. Continental Ins. Co., (1884). 76 Mich. 641, 43 N. W. 647 (1889); 117 THE PREMIUM. § 131 note, the mere fact that the note is not paid at maturity does not of itself avoid the policy. Such a provision is a condition subsequent of which the company must avail itself by clear and unequivocal acts. It must demand payment at the proper time, and if no payment is made must declare the policy forfeited or void."*^ Such a provision in a note has been held of no effect whatever.*^ The company or its general agent may accept the note of a third party in payment of the premium.*" § 131. Payment after loss or death. — If credit is given or the time to pay the premium is extended by an agreement under which the policy remains in force, there can be a recovery if the loss or death occurs within such period of extension.*" The company is under no obligation to accept a premium tendered after the time fixed for its payment, but it may by a course of dealing, which will justify the insured in relying thereon, deprive itself of the right to refuse to accept payment and insist upon the strict adherence to the terms of the original contract. But in order to establish au- thority in an agent to receive an overdue premium after the death of the insured, an express authority to do so conferred upon him by the company must be shown.*^ The death or loss for which there can be a recovery must have oc- curred before the premium was due by the express terms of the con- tract, or within the period of extension created by the conduct of the insurer and while the policy was in force and not suspended.^' It is not uncommon for insurance companies to provide for a certain period known as days of grace within which they will accept pre- miums. Ordinarily the contract provides that during such days of grace the premium will be accepted upon a certificate that the in- sured is in good health at that time. Before the company can be " See Mutual L. Ins. Co. v. French, 110 111. 102 (1884). A premium sent 30 Ohio St. 240, 27 Am. St. 443 after a loss is presumed to be too (1876), and cases there cited. late, and the burden of proving its " Dwelling-House Ins. Co. v. Har- acceptance is on the insured : Moore die, 37 Kan. 674, 16 Pac. 92 (1887). v. Rockford Ins. Co., 90 Iowa 636, 57 See Hastings v. Brooklyn L. Ins. N. W. 597 (1894). Co., 138 N. Y. 473 (1893); Union, "Lantz v. Vermont L. Ins. Co., etc.', Ins. Co. v. Buxer, 62 Ohio St. 139 Pa. St. 546, 10 L. R. A. 577 385, 57 N. E. 66 (1900). (1891), and cases therein cited. "Franklin L. Ins. Co« v. Wallace, "'Farnum v. Phoenix Ins. Co., 83 93 Ind. 7 (1883). Cal. 246, 23 Pac. 869 (1890). " Miller V. Union Cent. L. Ins. Co., § 132 THE CONSIDEKATIOIT. 118 required to accept payment after the death of the insured it must very clearly appear that such was the intention of the parties."' It is not to be presumed that an insurer intended to accept an over- due prenjium after the death of the insured, unless such intention clearly appears from the terms of the contract."* § 132. Paid-up policies. — Many life insurance contracts provide that upon the payment of a specified number of premiums, the in- sured shall, upon certain conditions, be entitled to a paid-up policy. The rights of the parties under such policies are determined eiitirely by the provisions of the contract and the statutes in force when the policy is issued."" It is generally provided that the insured shall surrender the old policy within a specified time and receive a new policy, although this is sometimes effected by a mere indorsement upon the old policy."' By the weight of authority the right must be exercised within the time specified,"' although it has been held that it is sufficient if this is done within a reasonable time."* A paid-up policy may be subject to the same conditions as the old, or it may be absolutely non-forfeitable, depending entirely upon its terms. § 133. Premium notes. — Under some statutes premium notes are given as a part of the capital stock of the corporation. These must be distinguished from promissory notes given by the insured as a part of the premium. In some mutual companies premiums are paid partly in cash and partly in notes upon which dividends earned by the company are credited and assessments made from time to time as losses occur. Notes given as a part of the capital stock of a mu- tual company, in the absence of a statutory provision to the con- trary, are payable absolutely without reference to losses, and may be "See Howell v. Knickerbocker L. (1886); McQuitty v. Continental L. Ins. Co., 44 N. Y. 276 (1871); Trus- Ins. Co., 15 R. I. 573. 10 Atl. 635 tees V. Brooklyn P. Ins. Co., 19 N. Y. (1887). 305 (1859); Mutual Ben. L. Ins. Co. "Knapp v. Homeopathic, etc., Ins. V. Ruse, 8 Ga. 534 (1850); Pritchard Co., 117 U. S. 411 (1885). V. Merchants', etc., Assur. Soc, 3 C. "* Bruce v. Continental L. Ins. Co., B. (N. S.) 622 (1858). 58 Vt. 253 (1885). As to the right » Mobile, etc., Ins. Co. v. Pruett, 74 to a paid-up policy without paying Ala. 487 (1883). outstanding premium note, see Van "^ Mound City, etc., Ins. Co. v. Norman v. Northwestern, etc., Ins. Twining, 12 Kan. 475 (1872); Han- Co., 51 Minn. 57 (189^); Holm'an v. ley V. Life Ass'n, 69 Mo. 380 (1879). Continental _L. Ins. Co., 54 Conn. " Holman v. Continental L. Ins. 195, 1 Am. St. 97 (1886). Co., 54 Conn. 195, 1 Am. St. 97 119 THE PREMIUM. § 134 transferred and negotiated so as to pass a good title to the transferee free from equities existing between the original makers."' But the ordinary premium notes, whicli are payable only upon a contingency, are not negotiable."* Where the contract so provides, the maker of a premium note may terminate his liability thereon for future losses by rescinding his insurance contract. After his policy is canceled no liability exists except for losses which had already occurred."^ § 134. Notice of time when premium is due. — In the absence of a statute requiring notice to the insured that a premium will become due at a certain time, the company is under no obligation to give such notice, unless it has by a course of dealing established a custom upon which the insured is entitled to rely. In such a case the usage enters into and forms a part of the contract between the parties,"" and it is generally held that the company can not suddenly cease its es- tablished practice and claim a forfeiture of the policy. But the cases are not all in harmony. In some states it is held that the company may discontinue the practice of sending notice, and that a failure to give the usual notice will not prevent a forfeiture unless it is done for the purpose of misleading the insured and avoiding the policy."' Where a statute requires notice to be given, the burden is on the com- pany to show that it has complied with the statute. °* Such a re- " White V. Haight, 16 N. Y. 310 face value would subject some of (1867). them to more than the extreme limit "Hope, etc., Ins. Co. v. Weed, 28 of liability, which is fixed by N. H. Conn. 50 (1859). Laws 1847, ch. 501, at the amount of "Langworthy v. Washburn, etc., the deposit note: New Boston F. Co., 77 Minn. 256 (1899); Amer- Ins. Co. v. Saunders. 67 N. H. 249, lean Ins. Co. v. Garrett, 71 Iowa 243, 34 Atl. 670 (1892). 32 N. W. 356 (1887). The assess- " Manhattan L. Ins. Co. v. Smith, ment should be made upon the bal- 44 Ohio St. 156 (1886); Attorney- ance of the premium note remaining General v. Continental L. Ins. Co., unpaid: Davis v. Oshkosh, etc., Co., 33 Hun (N. Y.) 138 (1884); Grant 82 Wis. 488, 52 N. W. 771 (1892). v. Alabama, etc.. Ins. Co., 76 Ga. 575 An assessment by a mutual insur- (1886). ance company may be based on the " Smith v. National L. Ins. Co., balance due on the premium notes 103 Pa. St. 177 (1883); Glrard Life after the payment of previous as- Ins., etc., Co. v. Mutual L. Ins. Co., sessments, where the different 97 Pa. St. 15 (1881). See also Mu- classes of notes constituting the as- tual, etc., Ass'n v. Bssender, 59 Md. sets of the company have previously 463 (1882). paid assessments varying in amount, "Baxter v. Brooklyn L. Ins. Co.,- and another assessment upon the 44 Hun (N. Y.) 184 (1887). § 134 THE CONSIDEEATIOIT. 120 quirement must be strictly complied with. Thus, in Kew York, where the statute provides that the notice shall contain a statement that "prompt payment is necessary to keep the policy in force/' it is not sufficient to give a notice to the effect that in default of payment the policy will 'T)ecome forfeited and void."^^ The day upon which the notice was mailed should be excluded in the computation of the thirty days for which notice must be given under the New York statute.'" Where the requisite notice was not given, and the policy contained a provision for forfeiture, the court said: "The notice given before the premium fell due was insufficient, and no notice whatever was given after the non-payment of that premium. The effect of the prohibition against declaring a forfeiture of the interest of the as- sured under the contract was to keep the policy alive as a valid sub- sisting insurance, notwithstanding the stipulations of the parties to the contrary. The duration of the policy, so long as it was domi- "Phelan v. Northwestern, etc., Ins. Co., 113 N. Y. 147 (1889). The New York statute provides that "no life Insurance company doing busi- ness in the state of New York shall have power to declare forfeited or lapsed any policy hereafter issued or renewed by reason of non-pay- ment of any annual premium or in- terest, or any portion thereof, ex- cept as hereinafter provided. When- ever any premium or interest due upon any such policy shall remain unpaid when due, a written or print- ed notice stating the amount of such premium or interest due on such policy, the place where said premium or interest should be paid, and the person to whom the same is payable, shall be duly addressed and mailed to the person whose life is assured." Omitting the description of the part of the notice for the pay- ment of an unpaid premium, and declaring a forfeiture if the notice is not complied with, the final pro- viso reads: "Provided, however, that a notice stating when the pre- mium will fall due, and that if not paid the policy and all payments thereon will become forfeited and void, served in the manner herein- before provided, at least thirty and not more than sixty days prior to the day when the premium is pay- able, shall have the same effect as the service of the notice hereinbe- fore provided for." • I" Rosenplanter v. Provident, etc., Soc, 96 Fed. 721, 37 C. C. A. 566 (1899). The notice is complete on mailing a registered letter properly addressed to the insured: McKenna V. State Ins. Co., 73 Iowa 453 (1887). The "date" of a notice, served by mail, of an assessment in a mutual insurance association, when the amount of the assessment is, by the rules of the association, to be paid within a certain number of days from the "date of the notice," is not the date printed in the notice itself, but is the day on which the notice is mailed, or is or should be received by the member in due and regular course of mail: Bridges v. Nat. Union (Minn.), 77 N. W. 411 (1898). 121 THE PEEMIUir. § 135 nated by the statute, was not dependent upon tlie payment of pre- miums on the day named therein, but upon payment within thirty days after the statutory notice should be given. The only way in which the policy could be terminated under the statute was by the failure of the insured to pay his premiuin upon notice "mailed" thirty days before the premium was due, or by a notice of default and demand for payment within thirty days after mailing such notice.""' Where the statute requires certain notice before the maturity of a life insurance premium as a condition of forfeiting the policy for non-payment, notwithstanding stipulations to the contrary in the contract, it does not become a part of a policy issued while the statute is in force so as to be operative after the statute is repealed. The repeal simply permits the enforcement of the conditions of the contract according to its own terms and conditions."^ § 135. Eight to recover premiums paid. — The insurance company has no right to the consideration until the contract is consummated by the assumption of the risk. But where the risk has attached, and the contract is subsequently forfeited by the breach of a condition, the premiums which have been paid can not be recovered back."' If the policy was void ab initio, the premiums paid may be recovered, and a premium note is not enforceable.'"' Assessments paid for a series of years to a mutual insurance association by a member can not be re- covered back simply because he failed to inform himself of the pro- visions of the contract.''^ The provision in an application for a policy of life insurance that the statements and promises of the agent shall not affect the rights of the company, unless reduced to writing and presented with the application, does not entitle the company to re- tain money received in consequence of fraud practiced by the agent after its knowledge of the fraud. As the agent had practiced fraud on both parties, the contract was held voidable at the instance of either "Baxter v. Brooklyn L. Ins. Co., "Ford v. Buckeye State Ins. Co., 119 N. Y. 450, 7 L. R. A. 293 (1890). 6 Bush (Ky.) 133, 99 Am. Dec. 663 " Rosenplanter v. Provident, etc., (1869); York County, etc., Ins. Co. Soc, 96 Fed. 721, 37 C. C. A. 566 v. Turner, 63 Me. 225 (1865); Home (1899), and cases cited. Ins. Co. v. Daubenspeck, 115 Ind. •'Home Fire Ins. Co. v. Kuhlman, 306, 17 N. E. 601 (1888). 58 Neb. 488, 78 N. W. 936 (1899), "Condon v. Mutual, etc., Ass'n, and cases cited; United States L. 89 Md. 99, 42 Atl. 944 (1899), Ins. Co. V. Smith, 92 Fed. 503, 34 C. C. A. 506 (1899). § 136 THE CONSIDEKATIOIT. 122 party.''' Premiums paid- upon a void policy may be recovered, un- less the insured has been guilty of fraud/* Thus, where a daughter paid the premiums on the life of her father, with his knowledge, with the understanding that she had an insurable interest in his life, she was permitted to recover the premiums as money paid under a mis- take of law.'^ So, where a wife, without the consent of her husband, procured insurance upon his life, and paid the premiums out of money furnished by him for household expenses, the husband was permitted to recover the premiums, although the company did not know that the money belonged to him.''* II. 'Assessments in Mutual Companies and Benevolent Societies. § 136. Dues and assessments. — ^Many questions which have been before the courts relating to dues and assessments in mutual insur-r ance companies and benevolent societies can not be discussed here. These organizations are generally regarded as insurance companies.''' They are organized under special statutes, which provide in great de- tail for their methods of doing business, and these statutes, in connec- tion with their by-laws and certificates, govern the rights of the par- ties. The insured becomes a member of the organization, and, as a consideration for the insurance and other benefits, he agrees to pay certain dues and assessments, to be levied and collected in accordance with the terms of his contract. In mutual companies upon the as- sessment plan the insured is required to pay from time to time to the proper authorities such sum as shall be assessed under the by-laws for the purpose of paying losses and expenses.'" If a premium note "McKay V. New York L. Ins. Co., "See Penn Mut., etc., Co. v. Me- 124 Cal. 270, 56 Pac. 1112 (1899). chanics", etc., Co., 19 C. C. A. 286, 72 "Jones v. Insurance Co., 90 Tenn. Fed. 413 (1896). €04, 18 S. W. 260 (1891). "EUerbe v. Barney, 119 Mo. 632, "Metropolitan L. Ins. Co. v. 25 S. W. 384 (1893). As to the vari- Blesch (Ky.), 58 S. W. 436 (1900). ous plans, see Grossman v. Massa- See also Mutual L. Ins. Co. v. El- chusetts Ben. Ass'n, 143 Mass. 435, 9 liott, 93 Tex. 144, 53 S. W. 1014 N. E. 753 (1887); In re La Solidar- (1899); Stllwell v. Covenant, etc., iU, etc., Ass'n, 68 Cal. 392 (1886). Ins. Co., 83 Mo. App. 215 (1900). As to the distinction between a pre- '" Metropolitan L. Ins. Co. v. mium and an assessment, see State Smith (Ky.), 59 S. W. 24, 53 L. R. A. v. Monitor P. Ass'n, 42 Ohio St 555 817 (1900). (1885). 133 THE PREMIUM. § 137 is given, the assessment is made upon the note, and can not exceed the maximum liability as expressed thereby." The rate of assess- ment may be determined by the proper authorities according to the losses and expenses, or it may be previously determined and inserted in the contract. It may be subject to increase by vote of the stock- holders, and a member who assents to an increase in his assessment by voting therefor in a stockholders' meeting can not thereafter complain that it is unreasonable.'* § 137. liability to assessment. — The liability for assessments Tests upon those who, by becoming members of the company, assume the contractual obligation imposed by its by-laws.*" Such liability must grow out of the contract or statute,*^ and where the statute fixes it at a certain amount it can not be limited to a less amount by a special agreement. If the liability is absolute and certain, an action may be maintained against a member for its enforcement, but the rule is otherwise if the liability terminates with the forfeiture of the rights of the member.*^ § 138. Effect of non-payment of assessment. — The non-payment of an assessment may result, ipso facto, in the forfeiture of the rights of the member as a beneficiary, or merely in his suspension from the rights and privileges of membership. Where it is expressly provided that such non-payment shall result in suspension or forfeiture, no " Davis V. Oshkosli, etc., Co., 82 company and under whom the in- Wis. 488, 52 N. W. 771 (1892). sured does not claim any right, title, " Mutual, etc., Ass'n v. Taylor or interest in the property where (Va.), 37 S. B. 854 (1901). the liability for assessments is pure- "° Com. V. Massachusetts, etc., Ins. ly personal: Monger v. Rocking- Co., 112 Mass. 116 (1873); Tolford v. ham, etc.. Ins. Co., 96 Va. 442, 31 Church, 66 Mich. 431, 33 N. W. 913 S. E. 609 (1898). It is no defense (1887). to an action on a premium note " Com. v. Massachusetts, etc., Ins. given by the insured, that an agent Co., 112 Mass. 116 (1873). of the company, who had no author- *" Tolford V. Church, 66 Mich. 431, ity to bind it to pay the cash sur- 33 N. W. 913 (1887); Ellerbe v. Bar- render value of an old policy, told ney, 119 Mo. 632, 25 S. W. 384 the insured that there would be "no (1893). One to whom a certificate trouble" about getting such cash of fire insurance is issued is not surrender value, as it is the mere liable for assessments theretofore expression of an opinion: Garber made against a person in control of v. Bresee, 96 Va. 644, 32 S. E. 39 the property, who held a separate (1899). certificate of membership in the § 139 THE CONSIDERATIOIf. 121 affirmative action on the part of the association or lodge is necessary.""' But where the fundamental law provides that upon non-payment a member shall be suspended by the proper authorities, his membership is not affected until the power thus conferred is exercised.** \Yhen the annual assessment is required to be paid on a day certain, but the assured does not know the exact amount because of dividends which he is entitled to have applied, there can not be a forfeiture until no- tice has been given him.*" § 139. Withdrawal of member. — A member of a mutual or benevo- lent insurance company may generally withdraw at pleasure, and thus relieve himself from liability for assessments for further losses, but he remains liable for assessments thereafter made for the pur- pose of paying losses which had occurred while he was a member."" § 140. Insolvency of company. — ^Upon the insolvency of the com- pany, any receiver may levy assessments upon such as under the con- tract are absolutely liable for losses of the company, but not upon such as are relieved from further liability by forfeiture of their rights."^ The obligation upon a premium note is not affected by the , insolvency of the company, and the receiver may, under the authority of the court, within the terms of the contract, make such assessments '^Mandego v. Centennial, etc.. Barker (N. Dak.), 84 N. W. 369 Ass'n, 64 Iowa 134 (1884); Mueller (1900). V. Grand Grove, etc., 69 Minn. 236, " Scheufler v. Grand Lodge, 45 72 N. W. 48 (1897); Goodman v. Minn. 256, 47 N. W. 799 (1881). Jedidjah Lodge, 67 Md. 117 (1887); Effect of suspension of subordinate Hansen v. Supreme Lodge, 140 111. lodge: Young v. Grand Lodge, 173 301 (1897); Burden v. Massachu- Pa. St. 302, 33 Atl. 1038 (1896). setts, etc., Ass'n, 147 Mass. 360 ■= Phoenix Ins. Co. v. Doster, 106 (1888). Where a member of a mu- U. S. 30 (1882). tual insurance company has obli- *" Langworthy v. V/ashburn, etc., gated himself to pay such annual Co., 77 Minn. 256 (1899); Ionia, etc., assessments as shall be made, not to Ins. Co. v. Otto, 96 Mich. 558, 56 N. exceed a specified sum each year, W. 88 (1893); Detroit, etc., Ins. Co. and in anticipation of an annual as- v. Merrill, 101 Mich. 393, 59 N. "W. sessment pays to the treasurer the 661 (1894). Upon the termination amount of an annual assessment in of the contract for insurance the advance, and such assessment is not premium note becomes void: Mound in fact made, the sum so paid stands City, etc., Ins. Co. v. Curran, 42 Mo. to his credit, and he has a right to 374 (1868). apply the same on an assessment for " Bacon v. Clyne, 70 Mich. 183, 38 a succeeding year: Montgomery v. N. W. 207 (1S3S). 125 THE PREMIUM. § 141 as are necessary to meet the losses and expenses.'' The facts neces- sary to authorize the assessment must be determined, and this must be made to appear affirmatively in an action brought by the receiver to enforce the assessment." Such an assessment may include the amount necessary to cover the expenses of the receivership. "^ § 141. Death during period of suspension. — There can be no re- covery for a loss which occurs during a period of suspension from membership,'^ but a member is protected during the period allowed by the contract for the payment of the assessment"^ A payment after the death of the insured, which is accepted by the association without knowledge of the death, is of no effect.'" But if such payment is ac- cepted with full knowledge of all facts, it may render the association liable.'* § 142. Reinstatement. — Contracts which provide for forfeiture or suspension for non-payment of dues generally contain a condition for reinstatement upon making payment and complying with certain re- quirements,'^ such as producing a certificate of good health.'* The " Telford v. Church, 66 Mich. 431, 33 N. W. 913 (1887); In re Minneap- olis, etc., Ins. Co., 49 Minn. 291, 51 N. W. 921 (1892). In this case the premium notes which constituted the "contingent fund" were a part of the capital of the company re- quired hy act of 1885. " See Seamans v. Millers' Mut Ins. Co., 90 Wis. 490, 63 N. W. 1059 (1895); In re Equitable, etc., Ass'n, 131 N. Y. 354 (1892). " Davis V. Shearer, 90 Wis. 250, 62 N. W. 1050 (1895); Seamans v. Mil- lers' Mut. Ins. Co., 90 Wis. 490, 63 N. W. 1059 (1895). For a statement of the general principles -which must govern assessments on pre- mium notes, see Swing v. H. C. Ake- ley L. Co., 62 Minn. 169, 64 N. W. 97 (1895). " Blanchard v. Atlantic, etc., Ins. Co., 33 N. H. 9 (1856); Brown v. Grand Council, 81 Iowa 400, 46 N. W. 1086 (1890). " Painter v. Industrial L. Ass'n, 131 Ind. 68, 30 N. B. 876 (1891) [ordinary life policy]. " Miller V. Union Cent. L. Ins. Co., 110 111. 102 (1884). " Erdmann v. Mutual Ins. Co., 44 Wis. 376 (1878). ■" Manson v. Grand Lodge, 30 Minn. 509 (1883). A lapsed policy can only be revived, so far as the insured is concerned, by the actual payment and acceptance of the pre- mium, or by a contract based upon a sufficient consideration; Lantz v. Vermont L. Ins. Co., 139 Pa. St. 546, 10 L. R. A. 577 (1891), and cases therein cited. " French v. Mutual, etc., Ass'n, 111 N. C. 391, 32 Am. St. 803 (1892); Jones V. Preferred, etc., Assur. Co., 120 Mich. 211, 79 N. W. 204 (1899). See note, 3 Am. St. 634. § 143 THE CONSIDERATION. 126 acceptance of an assessment during the period of suspension, with a full knowledge of all facts, in itself reinstates a member.*' § 143. Waiver — Estoppel. — The insurer may expressly or by im- plication waive strict compliance with the requirement that dues and assessments shall be paid within a specified time. The tendency of the courts is to protect the members of such associations from for- feiture of their rights. As said by the supreme court of Minnesota,'^ "The defendant had by its conduct led him to suppose and believe that a default of two or three months in any one payment would not affect his standing as a member, or his right and interest in the fund out of which his beneficiary would be paid in case of his decease. The defendant could not, after long continued conduct of this nature, by which he was lulled into the conviction that his delay was unobjec- tionable and his good standing unaffected, suddenly and without no- tice insist upon a forfeiture, and that he was no longer in good stand- ing, and had forfeited all his rights and privileges." The court said that the general rule was that "if the company has, by its course of conduct, acts or declarations, misled the insured in any way in re- gard to the payment of premiums, or created a belief on the part of the insured that strict compliance with the letter of the contract as to the payment of the premiums on the day stipulated will not be exacted, and the insured, in consequence, fails to pay on the day ap- pointed, the company will be held to have waived the requirement " Sweetser v. Odd Fellows, etc., account of failure to pay according Ass'n, 117 Ind. 97, 19 N. E. 722 to the stipulations therein written. (1888). Thompson v. Insurance Co., 104 U. "Mueller v. Grand Grove, 69 8.252(1881). But such a course of Minn. 236, 72 N. W. 48 (1897). dealing may 'be shown as will estop In Sweetser v. Odd Fellows, etc., the company to show that there was Ass'n, 117 Ind. 97 (1888), the court any agreement after It has permitted said: "It is quite true that mere its policy to stand open and un can- occasional indulgence on the part celed after it has accepted payment of the insurance company, in the of overdue premiums or assessments absence of an express or implied in a specified manner, which has agreement to waive payment of been conformed to during the life- the assessments according to the time of the assured." See also Rich- conditions of the contract, can not wine v. LaCrosse, etc., Ass'n, 76 justly be construed as a permanent Minn. 417, 79 N. W. 504 (1899); waiver or as depriving the company Jones v. Preferred, etc^ Assur. Co., of the right to insist upon a for- 120 Mich. 211, 79 N. W. 204 (1899). feiture, or to cancel its policy on 137 TEE PREMIUM. § 143 and is estopped from setting up the condition as a cause of forfeit- ure." Where the constitution and by-laws of a mutual benefit association limit and define the powers of the officers and forbid the alteration or amendment of such constitution except by the governing body, in the manner therein provided, and the by-laws provide that the member must pay the assessment within a specified time, and no further or other notice need be given, it was held that the secretary could not waive such provisions."" There are numerous cases which hold that the officers of such a concern can not waive by-laws which relate to the substance of the contract.^"" "Kocher v. Supreme Council (N. Ins. Co., 152 Mass. 272, 25 N. E. 289 J.), 52 L. R. A. 861 (1901). (1890); Niblack Mut Ben. Soc (2d ™ McCoy v. Roman Cath., etc^ ed.) 195. Part V. AGENCY, WAIVER AND ESTOPPEL CHAPTEE VIII. INSUKANCB AGENTS AND THE GENERAL RULES OP AGENCY. SEC. SEC. 150. In general. 160. Limitations on authority of 151. Statutory provisions relating to agent. insurance agents. 160a. Limitations on authority — 152. Construction of such statutes. Continued. 153. Evidence of agency. 161. Limitations contained in appli- 154. Character of the agency. cation — Constructive notice. 155. Various special agents. 162. Preparation of application. 156. Sub-agents and clerks. 163. Provisions restricting power of 157. Insurance brokers. officers and general agents. 158. Powers of agents. 164. Notice. 159. Restrictions in application or 165. Notice of loss to local agent. policy. 166. Rights and liabilities of agent. § 150. In general. — In modern times almost all insurance is un- derwritten by corporations, which necessarily act through their officers and other agents. The powers and duties of the corporate officers are governed by the general law of corporations and agency, to which the reader is referred for a full discussion. In a large measure this is also true of the principles governing insurance agents ; and in a work of the scope of the present volume it is only necessary to summarize these rules and refer to the statutory and other modifications affected by the nature of the contract and the conditions under which it is en- tered into. These general rules apply to agents of all kinds of in- surance companies, and generally to individuals who are engaged in business as insurers. As the words are commonly used, an insurance agent is a person employed by an insurance company to solicit risks and effect insur- (128) 129 INSUEAXCE AGENTS AND GENERAI RULES OP AGENCY. § 151 ance, rollect and transmit premiums, and in general to represent the insurer in the solicilation, consummation and adjustment of the con- tract. It applies equally to one who represents the insured.' § 151. Statutory provisions relating to insurance agents. — The attempts of insurance companies to escape responsibility for the acts of their agents by inserting provisions in their applications and con- tracts limiting the powers of their agents, and providing that the person taking the application shall be regarded as the agent of the applicant, have led to the enactment of statutes defining who are in- surance agents and determining their powers. These statutes pro- vide that a local or traveling agent engaged in taking applications for insurance shall "be deemed the agent of the insurer and as rep- resenting it, and not the insured, in connection with all statements made in the application.' It is also common to require insurance agents to procure a license, and in some instances it is made a crim- inal offense to solicit insurance without having such a license,* or to act as agent for an insurance company which has not procured a certificate of authority to do business within the state.* The business of insurance is of such a nature that the state may impose restric- tions upon it, and, if thought advisable, prohibit individuals from engaging in it.° Where individuals are permitted to become insurers, the state may impose the same restrictions upon their agents as upon the agents of corporations engaged in the same business. It has been noted that foreign insurance corporations may be excluded from a state, or permitted to engage in business therein upon such condi- tions as the state chooses to impose. But individual citizens of other ' That the rule is the same in deal- New York L. Ins. Co., 78 Fed. 33 ing with the agents of mutual and (1897): Bankers" L. Ins. Co. v. Rob- stock insurance companies, see Kau- bins, 55 Neb. 117, 75 N. W. 585 sal V. Minnesota, etc., Ins. Co., 31 (1898); Continental L.. Ins. Co. v. Minn. 17. 47 Am. Rep. 776 (1883); Chamberlain, 132 U. S. 304 (1889). Whitney v. National, etc., Ass'n. 57 See also Continental Ins. Co. v. Minn. 472, 59 N. W. 943 (1894); Ruckman, 127 111. 364, 11 Am. St. Cumberland Valley, etc., Co. v. 121 (1889). Schell, 29 Pa. St. 31 (1857) ; Frank- » See State v. Hosmer, 81 Me. 506 lin F. Ins. Co. v. Martin, 40 N. J. L. (1889). 568, 579 (1878). ' In re Hogan (N. Dak.), 78 N. W. •Vermont Rev. Laws 1880. § 3620; 1051, 45 L. R. A. 166 (1899). Iowa Rev. St. 1888, § 1732, quoted • Com. v. Vrooman, 164 Pa. St. 306, and commented on in McMaster v. 25 L. R. A. 250 (1894). 9 — Elliott Ins. § 152 AGENCY, WAIVER AND ESTOPPEL. 130 states who are permitted to engage in the business of insurers may only be subjected to such restrictions and conditions as are imposed upon citizens of the same state of equal standing and merit." An insurance solicitor who places a risk through brokers in another state, without knowing by what company it was taken, is not relieved from liability under the statute authorizing the recovery of the loss from persons who act as agents of unlicensed foreign companies.' § 152. Constmction of such statutes. — In Iowa it is provided that "any person who shall hereafter solicit insurance, or procure appli- cations therefor, shall be held to be the soliciting agent of the insur- ance company or association issuing the policy on such application, or, on a renewal thereof, anything in the application or policy to the contrary notwithstanding."* This act was held to apply to all kinds of insurance," and to be intended to settle, as between the parties to the contract, the status of the party through whom negotiations are conducted. Its object was to cut out the class of defenses interposed under the provisions which many companies inserted in their appli- cations and policies, to the effect that the agent by whom the appli- cation was procured should be regarded as the agent of the insured."* The supreme court of the United States held" that by force of this statute a person procuring an application for life insurance is the agent of the company, and can not be converted into the agent of the insured by any provision in the application. Such an agent is under no obligation to aid in filling out an application, and if he does so and gives advice as to the character of the answers given, his acts are the acts of the company. » State v. Stone, 118 Mo. 338, 25 therefor shall be held to be the L. R. A. 243 (1893). As to restric- agent of the party thereafter Issu- tions upon insurance by unincor- Ing the policy upon such applica- porated associations from another tlon, or a renewal thereof, anything state, see note, 25 L. R. A. 238. in the application or policy to the ' Noble V. Mitchell, 100 Ala. 519, contrary notwithstanding." Similar 25 L. R. A. 238 (1893). provisions are found in other states. ' Iowa Laws 1880, ch. 211. By • Cook v. Federal Life Ass'n, 74 Minn. Laws 1895, ch. 175, § 88. such Iowa 746 (1887). agent is made the agent of the com- "' St. Paul, etc., Ins. Co. v. Sharer, pany for the purpose of receiving 76 Iowa 282 (1888). the premium. Section 25 provides " Continental Ins. Co. v. Chamber- that "any person who solicits insur- Iain, 132 U. S. 304 (1889). ance and procures the application 131 INSDIIANCR AOENTS AND GENERAL RULES OF AGENCY. § 153 § 153. Evidence of agency. — The fact and character of the agency may be shown by any competent evidence; such as an express contract between the agent and his principal, the holding out or recognition of the party as his agent,'" the possession of papers such as policies ex- ecuted in blank, which an insurance company would furnish ordinarily only to its agents;" and generally by the existence of a state of facts from which agency would be inferred as a matter of law," or as a mixed question of law and fact.'" Thus, a person soliciting insurance and taking the application, in the absence of notice to the insured of limitations upon his authority, will be deemed the agent of the com- pany which accepts the application, issues the policy and retains the premium." But an agent's apparent authority to bind his principal must be based on something tangible; such as the possession by the agent of blank policies signed by the officers of the company, or some other act of the company, such as permitting the party to continue business after it has notice that he is representing himself as its agent.^^ § 154. Character of the agency. — The nature of the agency in each case depends upon the terms of the employment and the charac- ter of the business to be transacted. As between the principal and the agent, or the principal and persons dealing with the agent, with "List V. Commonwealth, 118 Pa. don, etc., Ins. Co. v. Gert&isen (Ky.), St. 322. 328 (1888); Enos v. St. Paul, 51 S. W. 617 (1899). etc., Ins. Co., 4 S. Dak. 639, 46 Am. " Possession of blanks as evi- St. 796 (1894); Parker v. Citizens" dence, see Dickerman v. Qulncy, Ins. Co., 129 Pa. St. 583 (1889) [affl- etc.. Ins. Co., 67 Vt. 609 (1895). davit of alleged agent used in liti- " Sellers v. Commercial P. Ins. gation]; Schreiber v. German-Amer., Co., 105 Ala. 282 (1894); Indiana etc.. Ins. Co., 43 Minn, 367 (1890) Ins. Co. v. Hartwell, 123 Ind. 177 [admission by president of com- (1889); Duluth Nat. Bank v. Knox- pany]. A company which has rati; ville F. Ins. Co., 85 Tenn. 76, 4 Am. fied the acts of a person in writing St. 744 (1886); Allen v. German- an application for insurance, by ac- Amer. Ins. Co., 123 N. Y. 6 (1890). cepting it and issuing a policy there- " Lumbermen's Mut. Ins. Co. v. on, can not thereafter repudiate Bell, 166 III. 400, 57 Am. St. 140 such acts because the agent had not (1897). See Davis v. .(Etna, etc., a written certificate of appointment: Ins. Co,., 67 N. H. 335 (1892). Landes v. Safety, etc., Ins. Co., 190 " London, etc., Ins. Co. v. Gertei- Pa. St. 536, 42 Atl. 961 (1899). When sen (Ky.), 51 S. W. 617 (1899). See the company issues a policy upon an § 160, infra. ripplication taken by a solicitor, it is "Bell v. Peabody Ins. Co. (W. f-?topped to deny hi?, agency: Lon- Va.), 38 S. E. 541 (1901). § 154 AGENCY, WAIVER AND ESTOPPEL. 132 knowledge of the terms of employment, such terms are conclusive. But the agent may exceed his actual authority under such circum- stances as will justify persons dealing with him H^ithout knowledge of limitations on his authority in assuming that he has greater author- ity than is in fact the case as between the agent eind his principal. One who has no knowledge of limitations may assume that an agent has power to bind his principal within the scope of his apparent authority. Insurance agents are known by various designations, such as gen- eral, special and soliciting, which in a rough way describe the powers which are conferred upon them. Lord Ellenborough defined a gen- eral agency as one which arises from general employment, while a special agency is coafined to and constituted by the authority dele- gated in that particular instance. Judge Story said that "a special agency properly exists when there is a delegation of authority to do a single act, and a geperal agency, where there is a delegation to all acts connected with a particular trade, business or employment. Hence, a general agent is one who is employed to transact all the business of his principal of a particular kind or in a particular place, while a special agent is one authorized to act only in a specific transaction.'"" It is doubtful whether the distinction is of much practical value, as the relation of the agent to third parties is controlled ordinarily by what the person dealing with the agent has a right under the circumstances to assume from the nature and scope of the agent's employment.'* The distinction between general and special insurance agents has been abolished by the statutes of .some states. Thus, in Wisconsin, the agents of insurance companies, without reference to attempted limita- tions, have power to do almost anything that their companies could do. The statute gives all insurance agents general powers; and it was held that an agent might make a valid oral agreement for imme- diate insurance, notwithstanding a stipulation in the application, >' See Whitehead v. Tuckett. 15 and S, though representing their East 400 (1812); Story Agency principal in a particular locality, or (1882), § 17; Ewell's Evans Agency within a limited territory, and 2; Dunlop's Paley Agency (1856) 2. therefore called loCal agents, were That the nature of the agency is not in fact general agents of the detend- affected by the fact that it is re- ant in the matter of issuing poll- stricted to a particular locality, see cies." Continental, etc., Ins. Co. v. Ruck- "See Gore v.- Canada L Assur. man. 127 (U. 364. 11 Am. St. 21 Co., 119 Mich. 136, 77 N. W. 650 (1889), where the court said: "W (1898). 133 INSXniANCB AGENTS AND GENERAL KULES OF AGENCY. 15S which was subsequently signed by the applicant without actual knowl- edge of its contents, that the insurer should not be liable until the application and premium were received by the secretary. The court said : "All the insurance companies understand that all their agents doing business in this state are general agents, however restricted their powers may be by the rules of the companies, or by the stipula- tions of their policies, or by the applications for insurance."^" § 155. Various special agents. — A person who deals with a gen- eral agent may assume that he has authority co-extensive with his apparent authority. But if the circumstances are such as to show that the authority is limited and special, the person dealing with him is under obligation to learn the extent of such limitations."^ There is considerable conflict of authority as to the powers of a soliciting agent who has actual authority merely to receive applications and forward them to the company for approval. It has been held that such an agent can not bind the company by an oral contract of in- surance,''^ or for the renewal of a policy,^' or for additional insur- ance,^* or by his construction of the policy;^" nor can he consent to "Wis. Rev. Stat., § 1977; Mathers V. Union, etc., Ass'n, 78 Wis. 588, 11 L. R. A. 83 (1891). " As to the circumstances under which the applicant must ascertain the agent's authority, see Sun Fire Office V. Wlch, 6 Colo. App. 103, 39 Pac. 587 (1894). The mere fact that a person is the representative of the insurer for a certain purpose, such as the making of a medical ex- amination, does not justify the in- ference that he has authority to represent the company in other mat- ters, such as the filling out of the application for insurance: Flynn V. Equitable L. Assur. Soc, 67 N. Y. 500 (1876). The medical examiner is the agent of the company in mak- ing the examination, although the application recites that he shall be regarded as the agent of the appli- cant: Knights of Pythias v. Cog- bill, 99 Tenn. 28 (1887). The local agent of a life insurance company is in the discharge of no duty which he owes his company when he is present at the medical examination of an applicant. He can not there- fore bind the company by his ad- vice as to the proper answer to a question as to whether the applicant has ever been rejected as an appli- cant for insurance in other com- panies: U. S. L. Ins. Co. V. Smith, 92 Fed. 503, 34 C. C. A. 506 (1899). " O'Brien v. New Zealand Ins. Co., 108 Cal. 227 (1895); Fleming v. Hartford F. Ins. Co., 42 Wis. 616 (1877). "^ Shank v. Glens Falls Ins. Co., 4 N. Y. App. Div. 516 (1896). In this case the powers of the agent were clearly limited by the policy. "Heath v. Springfield, etc., Ins. Co., 58 N. H. 414 (1878). " Dryer v. Security F. Ins. Co., 94 Iowa 471 (1895). § 156 AGENCY, WAIVER AND ESTOPPEL. 134 the assignmeilt of the policy,"' or waive a condition therein."' A mere collecting agent can not bind the company by an agreement to waive any of the terms of the policy.''* So, it has been held that an agent with authority to adjust a loss can not waive a forfeiture of the pol- icy,"" although he may waive the making of preliminary proofs of § 156. Sub-agents and clerks. — ^Although the recent authorities upon the power to delegate authority to sub-agents and clerks have been subjected to some criticism, the rule is well established that the insurer is liable not only for the acts of his general agent, but also for the acts of the clerks and employes of such 'agent to whom he has delegated authority to discharge his functions within the scope of his agency.'^ It was said in a recent case'" that "insurance companies know, or ought to know, when they appoint general agents, that, ac- cording to the ordinary course of business, they have clerks and other persons who assist them, and that their agents in many instances could not transact the business intrusted to them if they were required to give their personal attention to all its details. It being necessary, therefore, and according to the usual course of business, for their agents to employ others to aid them in doing the work, it is just and " Strickland v. Council Bluffs Ins. » Steele v. German Ins. Co., 93 Co., 66 Iowa 466 (1885). Mich. 81, 18 L. R. A. 85 (1892); "As to proof of loss, see Lohnes Swain v. Agricultural Ins. Co., 37 V. Ins. Co., 121 Mass. 439 (1877); Minn. 390 (1887); Indiana Ins. Co. Bowlin V. Hekla F. Ins. Co., 36 v. Hartwell, 123 Ind. 177 (1889). Minn. 433 (1887). In some cases it is said that the " Bryan v. National L. Ins. Ass'n, power of the principal can not be 21 R. I. 149, 42 Atl. 513 (1899). delegated to a sub-agent without ac- » Hollis V. State Ins. Co., 65 Iowa tual or implied authority. See 454 (1884). Phcenix Ins. Co. v. Spiers, 87 Ky. "•.^tna Ins. Co. v. Shryer, 85 Ind. 285 (1888); Waldman v. North Brit- 362 (1882). The contract of an ish, etc., Ins. Co., 91 Ala. 170, 24 Am. agent sent to adjust a loss is bind- St. 883 (1890). But, as stated in ing upon the company in the ab- the cases above cited, the authority sence of notice to the insured of any may easily be implied from the cir- limitation upon the authority of cumstances. such adjuster: Slater v. Capital ° Goode v. Georgia Home Ins. Co., Ins. Co., 89 Iowa 628, 23 L. R. A. 181 92 Va, 392, 30 L. R, A. 842 (1895); (1894). See also Faust v. American Deitz v. Providence Wash. Ins. Co.. F. Ins. Co., 91 Wis. 158, 30 L. R. A. 33 W. Va. 526 (1890), 783 (1895); Dick v. Merchants' Ins. Co., 92 Wis. 46, 65 N. W. 742 (1896). 135 INSURANCE AGENTS AND GENEKAL RULES OE AGENCY. § 157 reasonable that insurance companies should be held responsible not only for the acts of the agents, but also for the acts of their agents' employes within the scope of the agents' authority. It is no sufB- cient answer to this view to say that the insurers did not authorize their agents to delegate their authority to others. It may be that they did not do so expressly, but they appointed agents whom they knew, or ought to have known, would, according to the usage or the necessities of the business, engage the services of others in doing the work intrusted to them; and, having this knowledge, they will be held to have impliedly authorized their agents to do what was usual or necessary in the business." An insurance agent may, therefore, employ a clerk and authorize him to contract for risks, to deliver policies and make renewals, collect premiums and give credit therefor by waiving prepayment.^* Where a policy contained a provision that "only such persons as shall hold a commission from this company shall be considered as its agents in any transaction relating to this insurance," it was held that notice of other insurance given a clerk or employe of a commissioned agent was notice to the company.'* So, notice to a clerk of the insurer's agent of the condition of the insured's title is notice to the company.'^ § 157. Insurance brokers. — An insurance broker must be dis- tinguished from an ordinary agent.*' He is generally the agent of the insured, and may hence bind him by his concealments and rep- resentations made in the course of the negotiation.'^ A broker is "" Bodine v. Exchange F. Ins. Co., He is the agent for the assured, ac- 51 N. y. 117, 10 Am. Rep. 566 (1872). cording to all the authorities on the " Arff V. Star F. Ins. Co., 125 N. Y. suhject, though at the same time, 57, 10 L. R. A. 609 (1890). for some purposes, he may be the ^ Carpenter v. German-Amer. Ins. agent for the insurer, and his acts Co., 135 N. Y. 298 (1892). and representations within the =» Gude v. Exchange F. Ins. Co., 53 scope of his authority as such agent Minn. 220 (1893); Bernheimer v. are binding upon the insured: City of Leadville, 14 Colo. 518 Mechem Agency, § 931; Hartford F. (1890). ' Ins. Co. V. Reynolds, 36 Mich. 502 " In John R. Davis L. Co. V. Hart- (1877); Standard Oil Co. v. Trl- ford P. Ins. Co., 95 Wis. 226, 37 L. umph Ins. Co., 64 N. Y. 85 (1876); R. A. 131 (1897), Mr. Justice Mar- Hamblet v. City Ins. Co., 36 Fed. 118 shall said: "Leaving out of view (1888); American F. Ins. Co. v. the statute, what the powers of an Brooks, 83 Md. 22 (1896). Ques- insurance broker are can hardly be tions involving the scope of the a subject for serious controversy, powers of an insurance broker to § 157 AGENCY, WAIVER AND ESTOPPEL. 136 defined as a person who, "for compensation, acts or aids in any man- ner in the negotiation of contracts of insurance or reinsurance, or placing risks or effecting insurance or reinsurance, for a person other than himself, and not being the appointed agent or officer of the com- pany in which such insurance or reinsurance is effected."'^ It must be determined from the facts of each case whether the broker repre- sents the insured or the insurer, or each for certain purposes. If he is employed by the insurer he is, of course, its agent.'' But the mere fact that he solicits the insurance from the insured, and receives a commission from the company which delivers the policy to the in- sured, does not make him the agent of the company.*" The broker may be the agent of one party for one purpose and of the other for another purpose. In Indiana he is said to be the agent of the com- pany for the purpose of delivering the policy and receiving the pre- mium.*^ In Texas he is its agent to collect premiums only;*^ and this is the rule by statute in Massachusetts.*' In Pennsylvania** he is not the agent of the insurer even for this purpose. A broker who is employed only to secure a policy can not, by virtue of such employ- ment, represent his employer in other matters relating to the in- surance. His agency ceases when the policy is procured, and he can not thereafter cancel the policy, and his principal is not affected by represent the Insured arise most fre- stands in the place of the principal, quently where notice of cancellation and the latter is bound by whatever, is served by the insurer on such within such scope, such agent may broker when the contract of insur- do, to the same extent as if It was ance requires it to be served upon done by the principal." the insured. In such casp the ques- " Mass. Laws 1887, ch. 214, § 93. tion turns on whether the employ- " See Newark F. Ins. Co. v. Sam- ment of the broker extended beyond mons, 110 111. 166 (1884). the mere procurement of the insur- " Seamans v. Knapp, 89 Wis. 171, ance. If not, it is held that his 27 L. R. A. 362 (1895). agency ceased upon the delivery and " Indiana Ins. Co. v. Hartwell, 123 acceptance of the policy, so that the Ind. 177 (1889). To same effect Is service of notice of cancellation Hermann v. Niagara F. Ins. Co., 100 upon him was ineffectual. But the N. Y. 411 (1885). broker may be so clothed with au- "East Texas F. Ins. Co. v. Blum, thority as to have fuU power to act 76 Tex. 653 (1890). for the insured in canceling, as well " See Davis v. ^tna, etc., Ins. Co., as procuring policies. In all cases 67 N. H. 335 (1892). the familiar rule respecting the re- "Pottsville, etc., Ins. Co. v. Min- lation of principal and agent ap- nequa Springs, etc., Co., 100 Pa. St plies, — that within the scope of his 137 (1882). authority to procure insurance he 137 INSURANCE AGENTS AND GENERAL RULES OF AGENCY. § 158 notice of cancellation or of other matters relating to the risk.*" The delivery of the policy to a broker, employed by the insured to procure it, is a delivery to the insured.*' Where a company issues policies upon representations of brokers assuming to act for it, and, in pur- suance of business methods customary between them, without any communication with the insured, the broker will be held to be the agent of the insurer, although the policy provides that no person, un- less duly authorized in writing, shall be deemed its agent.*^ § 158. Powers of agents. — An agent may bind his principal when acting within the scope of his authority, and his power is determined not alone by the actual, but also by the apparent or ostensible author- ity. The latter is .such as a principal, intentionally or by want of ordinary care, allows a third person to believe the agent to possess.*' A general agent can bind his principal by any act within the ordinary scope of the business.*" His acts are the act's of the principal, and he may hence waive a condition in a policy which his principal could waive,^* correct a misdescription of the property in the policy,^^ and do other such things, subject always to the provision that his powers may legally be limited, if such limitations are known to the persons who deal with him. But secret instructions, in derogation of the ordinary powers which the public may properly assume to be pos- sessed by such agents, are ineffectual."'' « Hermann v. Niagara F. Ins. Co., » Ins. Co. v. Norton, 96 U. S. 234 100 N. Y. 411, 53 Am. Rep. 303 (1877). An agent of an Insurance (1885). company acting witliin the scope of *" Holmes v. Thomason (Tex. Civ. his authority may, upon notice of a App.), 61 S. W. 504 (1901). breach of condition contained in a " The insured had no knowledge policy of insurance, waive the com- of the actual relations between the pany's right to take advantage of a company and the broker: McBlroy forfeiture: Home F. Ins. Co. v. V. British Amer. Assur. Co., 94 Fed. Kuhlman, 58 Neb. 488, 78 N. W. 936 990, 36 C. C; A. 615 (1899). (1899). It is immaterial what the " Ins. Co. V. Wilkinson, 13 Wall, agent is called so long as he is act- (U. S.) 222 (1871); O'Brien v. New ing within the scope of his au- Zealand Ins. Co., 108 Cal. 227(1895); thority. Viele V. Germania Ins. Co., 26 Iowa " Taylor v. State Ins. Co., 98 Iowa 9 (1868); California Ins. Co. v. 521, 60 Am. St. 210 (1896). Gracey, 15 Colo. 70, 22 Am. St. 376 "Hall v. Union, etc., Ins. Co. (1890). (Wash.), 51 L. R. A. 288 (1900). " Croft V. Hanover F. Ins. Co., 40 W. Va. 508, 52 Am. St. 902 (1895). § 159 AGENCY, WAIVER AND ESTOPPEL. 138 § 159. Kestrictions in application or policy. — The early cases holding the insurance companies to strict responsibility for acts of their soliciting agents led to the insertion in applications and pol- icies of numerous provisions whereby it was sought to make the in- sured bear the burden of the agent's misconduct. As a result, their policies became shingled over with stipulations that were practically deceptions.'^ Had full force and effect been given to all these pro- visions, a policy of insurance would have been simply a unilateral contract, with an option to perform on the part of the company. But as the companies became astute in contriving such provisions, courts were careful to see that they were not used as the instruments of fraud and injustice. Out of this condition there grew a mass of hopelessly conflicting decisions which can not be reconciled on any theory other than the desire of the courts to do justice in the par- ticular case. In many states this has been remedied by the enact- ment of statutes declaring the powers and duties of agents of insur- ance companies and prescribing the form of policy which must be used. Where these statutes exist, they are, of course, controlling. The effectiveness of such restrictive provisions depends largely upon whether the applicant for insurance has knowledge of their ex- istence. Where the limitation is inserted in the application, which is signed by the applicant, he is generally held bound by notice of its existence,'* although in some cases this is held not conclusive.'' Such limitations may be ineffectual in the particular case because not regarded as notice to the applicant, or because waived by the com- pany or its authorized agent, or because by its conduct the company has estopped itself from asserting the defense. In considering the power of an agent it is necessary to bear in mind the distinction be- tween acts which are connected with the procuring of the insurance and those which relate to the modification or waiver of conditions in the policy which relate to the future. Where the policy contained a provision that the company "shall not be bound * * * ^y ^jjy ^^^ ^j. statement made * * * by any agent * * * which is not authorized by this policy or con- '= See the tirade against insurance "World, etc., Ins. Co., 41 Conn. 168, companies by Cliief Justice Doe of 16 Am. Rep. 490 (1874). New Hampsliire in DeLancey v. Ins. " See State Ins. Co. v. Gray, 44 Co., 52 N. H. 581 (1873). Kan. 731 (1890); Tubbs v. Dwell'ing- "New York L. Ins. Co. v. Fletcb- House Ins. Co., 84 Mich. 646 (1891) er, 117 U. S. 531 (1886); Ryan v. 139 INSURANCE AGENTS AND GENERAL RULES OF AGENCY. § 160 tained therein, or in any written paper mentioned herein/' the power can only be exercised in the mode prescribed, "unless it is shown that the agent possessed actually or apparently the power of his principal in respect to the provisions alleged to have been waived.'"" In line with this it was said in a case where it was claimed that the agent had waived a provision requiring prompt payment of a premium note, that "the written agreement of the parties, as embodied in the policy and the indorsement thereon, as well as the notes and the receipts given therefor, was undoubtedly to the express purport that a failure to pay the note at maturity would incur a forfeiture of the policy. It also contained an express declaration that the agents of the company were not authorized to make, alter or abrogate contracts or waive forfeitures. And jthese terms, had the company so chosen, it could have insisted on. But a party always has the option to waive a con- dition or stipulation made in his own favor. The company was not bound to insist upon a forfeiture, though incurred, but might waive it. It was not bound to act upon the declaration that its agent had not power to make agreements or waive forfeitures, but might at any time give them such power. The declaration was only tantamount to a notice to the assured, which the company could waive and disregard at pleasure. In either case, both with regard to the forfeiture and the powers of its agent, a waiver of the stipulation or notice would not be repugnant to the written agreement, because it would only be the exercise of an option which the agreement left in it. And whether it did exercise such option or not was a fact provable by parol evi- dence as well as by writing, for the obvious reason that it could be done without writing."^^ § 160. Limitations on authority of agent. — As bfetween the prin- cipal and the agent, the authority of the agent may be limited in any manner thought desirable by the principal, and such limitations will be given full force and effect as against all persons who have knowledge of their existence. But undisclosed instructions which are contrary to the natural, ordinary and ostensible powers possessed by such agent are not binding upon those who have neither actual nor constructive notice of their existence. It is generally held that the " Messelback v. Norman, 122 N. Y. " Insurance Co. v. Norton, 96 U. S. 578 (1890). 234 (1877). § 160a AGENCY, WAIVER AND ESTOPPEL. 140 insured will be deemed to have notice of limitations which are con- tained in the application which he signs."'* § 160a. Limitations on authority — Continued. — Soine courts re- fuse to give effect to a provision in the policy limiting the power of the company's agent,"* while others treat it as a stipulation by which the assured, by accepting the policy, agrees to be bound."" In Wis- consin it was said"" that "when the assured has accepted a policy con- taining a clause prohibiting the waiver of any of its provisions by the local agent he is bound by such inhibition, and that any subsequently attempted waiver merely by virtue of such agency is a nullity. This proposition seems to be supported by the weight as well as the logic of the adjudicated cases." Provisions in a policy which restrict the future power of the agent by prescribing the manner in which he can act are generally sustained."^ The tendency is to hold that such "a New York L. Ins. Co. v. Fletch- er, 117 U. S. 531 (1886), and cases cited; Ruggles v. American Cent. Ins. Co., 114 N. Y. 415 (1889); Hall V. Union, etc., Ins. Co. (Wash.), 51 L. R. A. 288 (1900). " The local agent of an insurance company, w}io is authorized to make contracts of insurance, issue poli- cies, and receive premiums there- for, and is clothed with all the au- thority of his principal with respect thereto, may waive a forfeiture of a policy under a provision that it shall he void if foreclosure proceed- ings are commenced, notwithstand- ing that the policy provides that the agent who issues the policy shall not have power to waive, modify, or revive the same: Springfield, etc., Co. V. Traders' Ins. Co., 151 Mo. 90, 52 S. W. 238 (1899). " Enos V. Sun Ins. Co., 67 Cal. 621 (1885); Cleaver v. Traders' Ins. Co., 65 Mich. 527, 32 N. W. 660 (1887); Burlington Ins. Co. v. Gibbons, 43 Kan. 15, 22 Pac. 1010 (1890); Wei- dert V. State Ins. Co., 19 Ore. 261, 24 Pac. 242 (1890); Greene v. Lycom- ing F. Ins. Co., 91 Pa. St. 387 (1879) ; Greenwood v. New York L. Ins. Co., 27 Mo. App. 401 (1887); Equitable Ins. Co. V. Cooper, 60 111. 509 (1871); Zimmerman v. Home Ins. Co., 77 Iowa 685, 42 N. W. 462 (1889); Clevenger v. Mutual L. Ins. Co., 2 Dak. 114 (1878); Walsh v. Hartford F. Ins. Co., 73 N. Y. 5 (1878). An agent of an insurance company who is only authorized to solicit and take applications for Insurance, re- ceive the premiums, and deliver the policies, which have been signed by the proper officers, has no authority, either express or implied, to waive a breach of the stipulation in the policy that subsequent addition- al insurance shall not be effected on the property without the consent of the underwriter: Alabama, etc., Assur. Co. V. Long, etc., Co. (Ala.), 26 So. 655 (1899). " Hanklns v. Rockford Ins. Co., 70 Wis. 1, 35 N. W. 34 (1878), citing many cases. "Kyte V. Commercial U. Assur. Co., 144 Mass. 43 (1887); Behler v. German, etc., Ins. Co., 68 Ind. 347 141 INSURANCE AGENTS AND GENERAL RULES OF AGENCY. § 160a provisions are binding on the assured only in respect to such matters as occur after the delivery of the policy. In a leading case Mr. Jus- tice Mitchell forcibly said:*'' "It would be a stretch of legal prin- ciples 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 transformed from the agent of one party into the agent of the other. To be effica- cious, such notice should be given before the negotiations are com- pleted. The application precedes the policy, and the insured can not 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 re- ceiving the application, he can not be converted into tlie 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 per- taining to the application at the time it was made. We are aware that in so holding we are placing ourselves in conflict with the views (1879); Wllkins v. State Ins. Co., 43 clause in a policy withholding from Minn. 177 (1890); O'Brien v. Pres- agents authority "to make, alter or cott Ins. Co., 134 N. Y. 28, 31 N. E. discharge this or any other contract 265 (1S92) ; Hartford F. Ins. Co. v. in relation to the matter of this in- Small, 66 Fed. 490, 14 C. C. A. 33 surance" has no relation to the ap- (1895); Gould v. Dwelling-House plication which precedes the policy. Ins. Co., 90 Mich. 302, 51 N. W. 455 "This provision of the policy does (1892); Marvin v. Universal L. Ins. not take effect until the application €o., 85 N. Y. 278 (1881); Smith v. Is made and accepted and the policy Niagara F. Ins. Co., 60 Vt 682, 1 L. is issued. Its relation to the policy R. A. 216 (1888) ; Knudson v. Hekla and other completed contracts con- F. Ins. Co., 75 Wis. 198, 43 N. W. cerning the insurance has no refer- ?54 (1889); Quinlan v. Providence ence to the application which pre- Wash. Ins. Co., 133 N. Y. 356, 31 N. cedes the policy, and which, until it E. 31 (1892). is accepted and the policy Issued, is "Kausal v. Minnesota, etc., Ins. a mere offer or proposition for a Ass'n, 31 Minn. 17, 47 Am. Rep. 776 contract of insurance:" Mutual, (1883). See also Boetcher v. Hawk- etc., Ins. Co. v. Robison, 58 Fed. 723, eye Ins. Co., 47 Iowa 253 (1877). A 22 L. R. A. 325, 7 C. C. A. 444 (1893). § 161 AGENCY, WAIVER AKD ESTOPPEL. 143 of some eminent courts. But the conclusion we have reached is not without authority to sustain it, and is, as we helieve, sound in prin- ciple and in accordance with public policy." § 161. limitations contained in application — Constructive no- tice. — While the courts should not give effect to a provision in the ap- plication which attempts to limit the authority of the agent, when it , appears that the applicant was in any way misled, there seems to be no good reason why the company should not be permitted to prohibit its agent from acting as the amanuensis of the applicant. When there is no statute regulating the matter, and the applicant has knowl- edge of the limitations, he is bound thereby. A person who signs a written statement should know its contents or be able to give an ex- cuse for his ignorance other than his own negligence. The applica- tion signed by the applicant is ordinarily, and often by statute re- quired to be, attached to the policy,"^ and thus is delivered to the in- sured, who has an opportunity to become acquainted with its con- tents. If the statements in the application are incorrect, he should make the fact known to the company within a reasonable time, or be estopped from thereafter asserting it.°* But some courts do not hold the applicant bound to know the contents of the application and policy. In Pennsylvania it was said°° that the law does not, in anticipation of a fraud upon the part of the company, impose upon the assured an absolute duty to read its policy when he receives it, although it was suggested that it would certainly have been an act of prudence on his part to do so. Notwithstanding this, "one thing is certain, however — the company can not repudiate the fraud of its agent and thus escape the obligations, of a contract consummated thereby, merely because the insured accepted in good faith the act of the agent without examina- tion." The supreme court of the United States recognizes the doc- trine that when an insurance agent who is not limited in his authority, or when such limitation is not known to the insured, undertakes to prepare an application and writes the answers for the applicant, he is acting for the company. But when such limitation is embodied in "As by Mass. Laws 1894, cli. 120; "Ryan v. World, etc., Ins. Co., 41 Iowa Code, §§ 1741, 1819, 1826. In Conn. 168 (1874); Reynolds v. Atlas Michigan a copy of the application Ace. Ins. Co., 69 Minn. 93, 71 N. W. must be attached to the policy when 831 (1897). requested by insured: Laws 1899, "Kister v. Lebanon, etc., Ins. Co., ch. 87. 128 Pa. St. 553, 5 L. R. A. 646 (1889)! 143 INSURANCE AGENTS AND GENERAL RULES OP AGENCY. § 163 the application, which is signed by the insured, he must be presumed to have read it, and is therefore bound by its contents."* When the application is prepared by a general agent having no superior in the state, the question of limitations upon the agent's authority does not arise; and the company is bound by all answers written by the agent, although the application is attached to the policy and delivered to the insured."' § 162. Preparation of application. — ^An agent who is authorized to receive applications for insurance represents the insurance com- pany in all he does in connection with the preparation of the applica- tion, and if he receives truthful information from the insured, and undertakes to fill out the application and inserts false or incorrect answers, his act is that of the company and not of the applicant. This rule is established by statute in many states, and is generally adopted even where no statutes are in existence."* § 163. Provisions restricting power of officers and general agents. — A company can not, by a provision in its policy, restrict its power to act through its ofiBcers or general agents. Thus, a pro- vision that the terms of the policy can not be waived or changed by any "ofBcer or agent of the company" except in writing is invalid in so far as it attempts to restrict the power of the company as well as its agent."' This principle applies to a general agent as well as an "New York L. Ins. Co. v. Fletch- nesota, etc., Ins. Ass'n, 31 Minn. 17, er, 117 U. S. 519 (1886); Maier v. 47 Am. Rep. 776, and note, 20 L. R. Fidelity, etc., Ass'n, 47 U. S. App. A. 277 (1883); Messelback v. Nor- 322 (1897), per Harlan, J. See Fire- man, 122 N. Y. 578 (1890). "In man's Fund Ins. Co. v. Norwood, 69 writing the application, and in ex- Fed. 71, 16 C. C. A. 136 (1895). That plaining the interrogatories and the the insured may, under certain cir- meaning of the terms used, he is to cumstances, be excused from read- be regarded as the agent of the com- ing the policy, — see McMaster v. pany:" Ryan v. "World, etc., Ins. New York L. Ins. Co. (U. S.), 22 Co., 41 Conn. 168 (1874). But the Sup. Ct. 10 (1901). court refused to go further and " Michigan, etc., Ins. Co. v. Leon, hold the company responsible for 138 Ind. 636, 37 N. B. 584 (1894). false statements written by the "Bartholomew v. Merchants' Ins. agent, as such authority could not Co.. 25 Iowa 507, 96 Am. Dec. 68 by any possibility have been con- (1868), per Dillon, C. J.; Ins. Co. v. templated as within the scope of the Wilkinson, 13 "Wall. (U. S.) 222 agency. But see Allen v. German- (1871); Ins. Co. v. Mahone, 21 "Wall. Amer. Ins. Co., 123 N. Y. 6 (1890). (U. S.) 152 (1874); Kausal v. Min- »■' Lamberton v. Connecticut F. § 164 AGENCY, WAIVER AND ESTOPPEL. 144 officer of the corporation; as whatever the company can lawfully do can be done by its duly authorized agent. Where a policy provided that its provisions could not be waived by the president and secretary, the court said:'" "This provision may be modified by the company to the same extent as any other, and whatever the company can do can be done by the general agent." In Wisconsin it was said:'^ "We must hold, however, that such attempted restrictions upon the power of the company or its general officers or agents, acting without the scope of their general authority, to subsequently modify the con- tract and bind the company in a manner contrary to such previous conditions in the policy, are ineffectual." So, in New York it is said:'^ "Notwithstanding the provisions of the policy, that any- thing less than a specific agreement clearly expressed and indorsed on the policy should not be considered as a waiver of any printed or written conditions therein, the court recognized and affirmed the law, as settled in this state, that such condition can be dispensed with by the company or its general agent by oral consent as well as by writ- ing." § 164. Notice. — The doctrine by which a principal is charged with knowledge of facts of which his agent has notice is thus stated by Mr. Justice Story:'* "Notice of facts to an agent is constructive notice thereof to the principal . himself when it arises from or is connected with the subject-matter of his agency; for, upon general principles of public policy, it is presumed that the agent has com- municated such facts to jhis principal, and if he has not, still, the prin- cipal having intrusted the agent with the particular business, the other party has the right to deeni his acts and knowledge obligatory upon the principal; otherwise the neglect of the agent, whether de- signed or undesigned, might operate most injuriously to the rights and interests of such party." Ins. Co., 39 Minn. 129 (1888); Rutli- "Story Agency, § 140. See also Ten V. American P. Ins. Co., 92 Iowa Eagle Fire Co. v. Globe, etc., Co., 44 316, 60 N. W. 663 (1894). Neb. 380, 62 N. W. 895 (1895); Cans "German Ins. Co. v. Gray, 43 v. St. Paul, etc., Ins. Co., 43 Wis. Kan. 497, 8 L. R. A. 70 (1890). 108 (1877); Forward v. Continental "Renier v. Dwelling-House Ins. Ins. Co., 142 N. Y. 382 (1894)- Co., 74 Wis. 89 (1889), and cases Phenix Ins. Co. v. Stocks, 149 111. therein cited. 319 (1894); Mesterman v. Home., "Weed v. London, etc., Ins. Co., etc., Ins. Co., 5 Wash. 524, 34 Am. U6 N. Y. 117 (1889). St. 877 (1893). 145 INSUEAXCE AGEITTS AND GENERAL RULES OF AGENCY. § 164 i I In some states the statute provides that where a company issues a policy "upon an application prepared by a third person, assuming to act as its agent or otherwise, it shall be charged with his knowledge of facts relating to the property insured, as they were stated in the application."^* Hence, where a policy is issued by an agent who has knowledge of other insurance on the property, his knowledge is the knowledge of the company, and it is estopped to assert that consent to the concurrent insurance was not given in writing.''^ So, where true information is given to the agent with reference to matters in- quired about, his knowledge is the knowledge of the company, and it is immaterial that the agent did not correctly write the answers.'^" So, the knowledge of the agent that the applicant for life insurance has made a false statement,'^ or that he is intemperate, or has some disease, has been held to be the knowledge of the company and made the basis of waiver or estoppel.''' Generally, where there is no written application containing representations and warranties, the company is charged with a knowledge of the risk obtained by its agent through his own inquiries and investigations.'" A company which gives to an agent the supervision and inspection of its risks is charged with knowledge of all the facts with reference to the risk learned by the agent while engaged in the performance of his duties.'" But a person who is employed to procure insurance upon certain property, and who applies to the general agents of several com- panies for policies, and, after receiving them, collects the premiums and pays the general agents the amounts claimed by them, is not the agent of the insurers, so as to charge them with his knowledge as to the existence of other policies.'^ So, an insurance company, by mak- i Qg a person its agent to deliver a policy, does not become chargeable with knowledge obtained by him while acting as agent of the insured " See New Hampshire Laws 1885, " McGurk v. Metropolitan L. Ins. cU. 170. Co., 56 Conn. 528, 16 Atl. 263 (1888). " Phenlx Ins. Co. v. Covey, 41 Neb. " Newman v. Covenant, etc., Ins. 724, 60 N. W. 12 (1894); Home F. Ass'n, 76 Iowa 56, 40 N. W. 87 Ins. Co. V. Hammang, 44 Neb. 566, (1888). 62 N. W. 883 (1895), citing many "Cumberland Valley, etc., Co. v. cases. Schell, 29 Pa. St. 31 (1857). " Ins. Co. V. Wilkinson, 13 Wall. *" Phenix Ins. Co. v. Holcombe, 57 (U. S.) 232 (1871); Mutual Ben. L. Neb. 622, 78 N. W. 300 (1899). Ins. Co. V. Robison, 58 Fed. 723, 7 "United Firemen's Ins. Co. v. C. C. A. 444 (1893). Thomas, 92 Fed. 127, 34 C. C. A. 240 (1899). 10 — Elliott Ins. § 165 AGENCY, WAIVER AND ESTOPPEL. 14.& in procuring the insurance.*^ The general rule is that the principal is not chargeable with notice of facts learned by the agent in the course of an employment in no way connected with the agency.^' But there are cases which do not admit this limitation ;'* and others hold the principal bound by knowledge acquired by the agent in another business, acquired at such a time with reference to the issuance of the policy as to justify the assumption that he had it in mind when the policy was issued.^" § 165. Notice of loss to local agent. — The local agent of a fire: insurance company had actual authority to accept applications for insurance, fix the premium or rate of insurance, and fill up, counter- sign and issue policies thereon, which he received from the company, already signed by its president and secretary. This was the extent of the agent's actual authority, and there was no evidence tending ta show that his apparent authority was other or greater than his actual authority. The policy required written notice of loss to be given tO' the company. It was held that the agent had no authority to receive or waive notice of loss, and, hence, notice to him was not notice to- the company." § 166. Rights and liabilities of agent. — As between the principal and agent, their rights and liabilities are determined by the express or implied provisions of the contract of employment. The agent i& entitled to his compensation for services performed, and the com- pany can not refuse to pay his commissions on the ground that it had "" United Firemen's Ins. Co. v. present in his mind, issued the pol- Thomas, 92 Fed. 127 (1899). icy or did some act in the course of "St. Paul, etc., Ins. Co. v. Par- his duties as agent recognizing the- sons, 47 Minn. 352 (1891). continuing validity of the policy:" " See Hartford F. Ins. Co. v. Haas, Phoenix Ins. Co. v. Flemming, 65 87 Ky. 531, 2 L. R. A. 64 (1888). Ark. 54, 39 L. R. A. 789 (1898). "^ Stennett v. Pennsylvania F. Ins. "• Ermentrout v. Girard, etc., Ins. Co., 68 Iowa 674 (1886). "The Co., 63 Minn. 305, 30 L. R. A. 346 knowledge of the fire-works shown (1895), citing Lohnes v. Ins. Co., here was acquired by the agent, not 121 Mass. 439 (1877); Smith v. while acting for the company or for Niagara F. Ins. Co., 60 Vt. 682- his firm, but casually while attend- (1888); Bush v. Westchester F. Ins. ing to his own affairs. To make Co., 63 N. Y. 531 (1876). See Ruth- this knowledge affect the company ven v. American F. Ins. Co., 92 Iowa It must be shown that the agent 316, 60 N. W. 663 (1894). See- afterwards, with this information § 188, infra. 147 INSURANCE AGENTS AND GENERAL RULES OF AGENCY. § 166 decided to change its rates and charge a higher rate after the serv- ices were performed. An agent procured applications for insur- ance in. accordance with his instructions and the rules and regula- tions of the company, and forwarded them to the home office of the defendant for its action upon them. The applications were in due form, and the court said that it is to be presumed that the applicants were insurable risks, and that the risks were satisfactory to the com- pany. No objection to them was pointed out, and the presumption is that none existed. The only objection made to delivering the policies was that the rate of premium on them was too low. It was held that while an agent is not usually entitled to his commissions until the transaction is complete, yet, if he has faithfully performed his part of the transaction, and from no fault of his own, but by the re- fusal of the principal to complete the contract, it is not consummated, he is entitled to his commissi »ns.*' The agent is responsible to the company for damages caused by his neglect to cancel a policy within a reasonable time after being in- structed to do so,*' or by accepting a risk and issuing a policy contrary to instructions,'* or by wrongfully and without authority canceling a policy.'" Acceptance of a premium by an insurance company is not a ratifica- tion, an between it and its agent, of the latter's unauthorized issuance of a policy, since, the policy being binding on the company, the pre- mium became its- property, as an incident to the policy, and did not prevent its seeking recourse over against its agent; and this though the agent had first deducted his commission from the premium.®^ " Currier v. Mutual, etc., Ass'n, "■ Hanover F. Ins. Co. v. Amee, 39 108 Fed. 737 (1901). As to the Minn. 150 (1888). agent's right to damages for breach " American, etc., Ins. Co. v. An- of contract, see Pellet v. Manufac- derson,.130 N. Y. 134 (1891). As to turers', etc., Ins. Co., 104 Fed. 502, the liability of sureties on agent's 43 C. C. A. 669 (1900). bond, see Royal Ins. Co. v. Clark, 61 "» Phoenix Ins. Co. v. Pratt, 36 Minn. 476 (1895). Minn. 409 (1887); Franklin Ins. Co. "Mechanics', etc., Ins. Co. v. Rion, V. Sears, 21 Fed. 290 (1884). (Tenn. Ch.), 62 S. W. 44 (1901). CHAPTEE IX. THE RULES OF WAIVER AND ESTOPPEL AS APPLIED TO CONTRACTS OF INSURANCE. SEC. 175. In general. 176. Definition. 177. Knowledge and intent. 178. Basis of waiver. 179. Effect of mere silence. 180. What may be waived. 181. Waiver of certain defenses. 182. Power of agent to waive. 183. Waiver by agent — Continued. 184. Prepayment of premium. SEC. 185. Waiver in writing only. 186. Limitations in policy — Prepay- ment of premium. 187. Estoppel by act of agent 188. Facts known to company when policy issued. 189. Oral testimony to show actual statements. 190. Bad faith — Collusion between applicant and agent. § 175. In general. — The doctrines of waiver and estoppel are so commingled in the cases that the underlying distinctions are fre- quently disregarded. Waiver implies an intent not to assert a known right by one who has full knowledge of the circumstances. It is the result of a mental conclusion arrived at by the party, while an estop- pel is a conclusion drawn by the law from something said or done by a party upon which another has relied to his prejudice. Estoppel may thus exist where there is no technical vaiver. It is often said that a party has wai y.J certain rights, and, therefore, is estopped from there- after asserting tiem.^ § 176. Definition, — ^A waiver is the voluntary relinquishment of a known right. It may be by express language or by acts from which an intention to waive may be inferred or from which a waiver follows as a legal result.* * Spoerl v. Massachusetts, etc., In=j. Co., 39 Fed. 752 (1872). There can be no estoppel where the in- sured has not be6n misled to his prejudice: Boyd v. Ins. Co., 90 Tenn. 212, 16 g. W. 470 (1891). 'German Ins. Co. v. Gibson, 53 Ark. 494, 14 S. W. 672 (1890). The (148) 149 WAIVER AND ESTOPPEL IN CONTRACTS OF INSURANCE. § 177 § 177. Knowledge and intent. — As a waiver is the intentional relinquishment of a right, both intent and knowledge of the facty are essential elements.^ Hence, to establish a waiver of any of the rights of the insurer it must be shown that there was "knowledge on the part of the insurer of the act or omission on the part of the in- sured which it claimed to have dispensed with or waived. The knowl- edge on a waiver need not be expressly shown, but may be implied, when the act of commission or omission is of such a character as fairly to preclude the idea of ignorance."* § 178. Basis of waiver. — It has been held that a waiver, to be operative, must be supported by an agreement founded upon a val- uable consideration, or the acts relied upon must be such as to estop a party from insisting upon a performance of the contract, or the forfeiture of the conditions.' This rule was at one time declared in N"ew York, but it was subsequently held that such a waiver need not be based upon a new consideration or upon facts sufficient to establish an estoppel,^ and this is now the prevailing rule.'' As said in a New York case : "While the later decisions all hold that such waivers need not be based upon a technical estoppel in all the cases where this question is presented, where there has been no express waiver, the fact is recognized that there exist the elements of an estoppel."* waiver of a forfeiture gives the pol- 120 N. Y. 510 (1890); Titus v. Glens icy the same force and effect as it Falls Ins. Co., 81 N. Y. 410 (1880). originally possessed : Siltz v. Hawk- ' Carpenter v. Continental Ins. Co., eye Ins. Co., 71 Iowa 710, 29 N. W. 61 Mich. 635 (1886); HoUis v. State 605 (1886). Ins. Co., 65 Iowa 254 (1884); Schimp " Ryan v. Springfield, etc., Ins. Co., v. Cedar Rapids Ins. Co., 124 111. 354 46 Wis. 671 (1879); Findeisen v. (1888); Grubbs v. North Carolina, Metropole F. Ins. Co., 57 Vt. 520 etc., Ins. Co., 108 N. C. 472 (1891). (1885); Diehl v. Adams, etc., Ins. "Armstrong v. Agricultural Ins. Co., 58 Pa. St. 443, 98 Am. Dec. 302 Co., 130 N. Y. 560 (1892); German (1868). Ins. Co. v. Gibson, 53 Ark. 494 '2 Biddle Ins., § 1053. (ibdO). "Nor in general, where the ■Merchants', etc., Co. v. Lacroix, facts do not constitute an estoppel, 45 Tex. 158 (1876); "Weidert v. State should one who neither knows the Ins. Co., 19 Ore. 261, 24 Pac. 242 fact of the forfeiture, nor is charge- (1890). See Equitable L. Assur. Soc. able with fault in not knowing it, v. McElroy, 83 Fed. 631, 28 C. C. A. be held to have waived the same by 365 (1897). acts or conduct not intended to have 'Roby V. American Cent. Ins. Co., such effect:" St. Paul, etc., Ins. Co. V. Parsons, 47 Minn. 352 (1891). § 179 AGENCY, WAIVER AND ESTOPPEL. 150 § 179. Effect of mere silence. — ^A waiver can not be inferred from mere silence. Where no word or act has been said or done to mislead the insured or throw him o£E his guard, mere silence will aot sustain a waiver.' § 180. What may be waived. — The provisions of an insurance contract are, almost without exception, intended for the benefit of the insured, and upon their breach it is optional with the insurer to claim a forfeit. Such conditions may, hence, be waived. '"^ As above stated, mere silence will not amount to a waiver, but in some states it is held that the company can not "sleep upon its intention" to avoid a policy to the prejudice of the insured.^^ Where the laws of the state or the charter of a corporation pro- vides that an act shall be done, and prescribes the manner in which it shall be done, and declares the act void if done otherwise, the insurer can not waive the performance of the act in the prescribed manner.^^ Statutory provisions affecting the form of the contract can not be waived by the parties.^* •Titus V. Glenb I'alls Ins. Co., 81 N. Y. 410 (1880); More v. New York, etc., Ins. Co., 130 N. Y. 537 (1892); Mueller v. South Side F. Ins. Co., 87 Pa. St. 399 (1878); McAllaster v. Niagara P. Ins. Co., 156 N. Y. 80, 5 .' N. E. 502 (1898). "Coursin v. Pennsylvania Ins. Co., 46 Pa. St. 323 (1863); Ellis v. Massachusetts, etc., Ins. Co., 113 Cal. 612, 54 Am. St. 373 (1895). The furnishing of proofs of death within a definite time is waived by a letter from the company asking that the claim be allowed to rest until the adjuster of the company can see the claimant: Turner v. Fidelity, etc., Co., 112 Mich. 425, 38 L. R. A. 529 (1897). The company waives the provision requiring the certifi- cate of the nearest notary public where it retains the one furnished for twenty-three days, and then ob- jects to it on the ground that there is a nearer notary, but does not give his name or address: Paltro- vitch V. Phoenix Ins. Co., 143 N. Y, 73, 25 L. R. A. 198 (1894). "Appleton Iron Co. v. British Amer. Assur. Co.. 46 Wis. 23 (1879). " Cravens v. New York L. Ins. Co., 148 Mo. 583, 71 Am. St. 628 (1898); Leonard v. American Ins. Co., 97 Ind. 299 (1884). "Anderson v. Manchester F. As- sur. Co., 59 Minn. 182 (1894); N. H. Pub. St. 1891, § 18. An insurance company waives the right to re- build, although the thirty days pro- vided in the policy within which to exercise the option has not expired, where it has expressly refused to re- build and given notice that it would pay the amount of the loss which might be fixed by arbitrators: Piatt v. ^tna Ins. Co., 153 111. 113, 26 L. R. A. 853 (1894). 151 WAIVER AKD ESTOPPEL IN CONTRACTS OF INSURANCE. § 181 § 181. Waiver of certain defenses. — The insurer may refuse to pay a loss withont specifying the ground of its refusal and there- after insist upon any defense it may have under the contract.^* It should not be deprived of a defense merely because it failed to dis- close it to the other party. It is under no obligation to do this, but where it states that the policy will not be paid for a specified reason it is estopped to assert other reasons when the previous statement showed an intention to abandon other defenses or resulted in injury to the insured. Thus, where the company, with knowledge of the forfeiture, remains silent and puts the insured to the inconvenience and expense of preparing proofs of loss which, under the defense of forfeiture, was wholly unnecessary, it was held to have waived the forfeiture.^" "It is well settled that such defenses are waived when the com- pany, with knowledge of all the facts, requires the assured, by virtue of the contract, to do some act or incur some expense or trouble in- consistent with the claim that the contract had become inoperative in consequence of the breach of some of the conditions."^* " Devens v. Mechanics', etc., Ins. Co., 83 N. Y. 168 (1880). >» Thompson v. Phenlx Ins. Co., 136 U. S. 287 (1890); Fireman's Fund Ins. Co. v. Norwood, 69 Fed. 71, 16 C. C. A. 136 (1895); Marthin- son V. North British, etc., Ins. Co., 64 Mich. 372 (1887); Phoenix Ins. Co. V. Flemming, 65 Ark. 54, 39 L. K. A. 789 (1898). A general state- ment in a letter calling for the proofs of the loss, that the company did not waive any manner of de- fense, was held insufficient: Mar- thinson v. North British, etc., Ins. Co., 64 Mich. 372 (1887). It has been held that the company waives a cause of forfeiture of the policy by failure to mention it when it un- dertakes to state definitely its rea- sons for denying liability. "Good faith requires that the company shall apprise the plaintiff of its po- sition, and, failing to do this, i. estops itself from asserting any de- fense other than that brought to the notice of the plaintiff:" Smith v. German Ins. Co., 107 Mich. 270, 30 L. R. A., 368 (1895); Towle v. Ionia, etc., Ins. Co., 91 Mich. 225, 51 N. W. 987 (1892), and cases there cited. "Trippe v. Provident Fund Soc, 140 N. Y. 23, 22 L. R. A. 432 (1893); McNally v. Phoenix Ins. Co., 137 N. Y. 389 (1893); Granger v. Manches- ter F. Assur Co., 119 Mich. 177, 77 N. W. 693 (1899). In Corson v. An- chor, etc., Ins. Co. (Iowa), 85 N. W. 806 (1901), McClain, J., said: "Ap- pellant contends, however, that by signing what is called a 'non-waiver agreement' the insured cut himself off from relying on these acts of the adjuster as constituting a waiver of the forfeiture. It appears that the adjuster, after having acquired knowledge of how the books had been kept, insisted that before he would proceed with the adjustment of the loss the insured should sign § 182 AGENCY, WAIVEE AND ESTOPPEL. 152 § 182. Power of agent to waive. — If the authority of the agent is general, so that his acts are the acts of the company, he can waive a provision of the policy if it is of such a character that it could have been waived by the eompany.^^ He can, of course, waive only pro- visions which are in respect to matter within the scope of his agency.** § 183. Waiver by agent — Continued. — The insured may rely upon the representations of an agent who issues the policy and upon hi.5 assumed authority to waive provisions in the policy when there are no restrictions upon the agent's authority which are brought to his knowledge.*" Where the policy provided that additional insurance, without the written assent of the company indorsed thereon, would render the policy void, and that its agents had no power to waive such condition, the court said:^" "It can not be successfully main- tained but that the company has the right and the power to restrict as it may choose the powers and duties of its agents, and when the authority is expressly limited and restricted by the policy which the this agreement, by which it was stipulated that 'nothing said adjust- er may do or say or write shall in any way be construed as waiving any of the rights or defenses of said company, or any conditions or re- quirements of said policy as to proofs of loss or otherwise.' With reference to the forfeiture in ques- tion, it seems to us that this agree- ment was wholly immaterial. The adjuster must be presumed to have had the power to waive a forfeiture. Brown v. State Ins. Co., 74 Iowa 428, 38 N. W. 135; Ruthven v. American F. Ins. Co., 102 Iowa 550, 560, 71 N. "W. 574; Brock v. Des Moines Ins. Co., 106 Iowa 30, 75 N. W. 683. He did proceed to adjust the loss, and required the insured to furnish proofs, including the procurement of the duplicate invoices, notwith- standing his knowledge of the facts amounting to a forfeiture. The non- waiver clause was in itself a part upheld and enforced. It clearly re- lates to future transactions, and the agent had no power to waive the condition when he took the applica- tion." But a failure to give notice of loss as required by the policy is not waived by retaining the proofs of loss sent after the policy was dead and all liability on it had ceased, where the insurer gave no- tice of the denial of any liability on the policy: Ermentrout v. Girard, etc., Ins. Co., 63 Minn. 305, 30 L. R. A. 346 (1896). " Kruger v. Western, etc., Ins. Co., 72 Cal. 91 (1887); Alexander v. Con- Unental Ins. Co., 67 Wis. 422 (1886). " Imperial P. Ins. Co. v. Dunham, 117 Pa. St. 460, 12 Atl. 668 (1888). "Kitchen v. Hartford F. Ins. Co., 57 Mich. 135 (1885). ""Cleaver v. Traders' Ins. Co., 65 Mich. 527' (1887). To the same ef- fect is New York L. Ins. Co. v. Fletcher, 117 U. S. 519 (1886), and Maier v. Fidelity, etc., Ass'n, 47 U. S. App. 322 (1897). 153 WAIVER AND ESTOPPEL IN CONTRACTS OF INSURANCE. § 184 insured receives there can be no good reason either in law or equity why such limitations and restrictions shall not be considered as known to the insured and binding upon him. * * * The fact that the plaintiff may not have read the printed conditions of his policy and relied in ignorance of them upon the implied or assumed powers of the agent can not help him. It was his business to know what his contract of insurance was, and there can be no difference in this re- spect between an insurance policy and any other contract. In the absence of any fraud in making the same, and none is claimed in this ease, the insured must be held to a knowledge of the terms of this policy as he would be in case of any other contract or agreement. When the policy of insurance, as in this case, contains an express limitation upon the power of the agent, such agent has no legal right to contract as agent of the company with the insured so as to change the conditions of the policy or to dispense with the performance of any essential requisite contained therein either by parol or writing; and the holder of the policy is estopped by accepting the policy from setting up or relying upon powers in the agent in opposition to con- ditions and restrictions in the policy."^^ Where a policy provides that no conditions thereof shall be waived or altered unless consent thereto is indorsed on the policy, and the company's agent consented to a removal of the insured stock to other premises, and continued to accept premiums, the insurer can not successfully defend an action on the policy on the ground that the consent was not binding because not indorsed on the policy.^^ , § 184. Prepa3rment of premium. — An agent authorized to make contracts of fire insurance and issue policies has authority to waive payment in cash of premiums, and to give credit therefor, unless there are restrictions upon his authority of which the insured has notice. If the agent collects the premium and fails to pay it over to the in- surance company, tte rights of the assured are not affected thereby. "By the weight of authority the agent is held to have this discretionary power, although the policy in terms denies it. The waiver of the pay- ment of the premium in cash is an act within the exercise of the ^ See also Merserau v. Phcenix, Bank v. Lancashire Ins. Co., 62 Tex. etc., Ins. Co., 66 N. Y. 274 (1876); 461 (1884). Catoir v. American L. Ins., etc., Co., "^ Pollock v. German P. Ins. Co. 33 N. J. L. 487 (1886); First Nat. (Mich.), 86 N. W. 1016 (1901). § 185 AGENCY, WAIVER AND ESTOPPEL. . 154 general authority to issue policies and collect the premiums, and such waiver may be either express or implied.""' § 185. Waiver in writing only. — Insurance policies ordinarily provide that their terms and conditions can only be _ waived or changed by an indorsement in writing upon the policy. These provisions are construed tp apply only to conditions which enter into and form part of the contract, and which are essential to make it binding, and not those which refer to what is to be done after a loss."* Such provisions are given full force and efEect by some courts;"^ while others limit their binding force to sub- or special agents, and hold that general officers and agents of the company, when acting within the scope of their authority, may waive this provision by an oral stipulation."* So, the company may, by its conduct, be estopped to assert that a waiver in a manner other than that provided in the policy is binding."' Where an agent had general authority the court said :"* "He had power to bind the company by consenting that the policy remain in force notwithstanding the transfer of title and the sale on mortgage foreclosure; and, notwithstanding the condition of the contract, that such consent should be indorsed on the policy, it might be given otherwise. The company could not by such a pro- vision in its policy divest itself of the power to afterward enter into another agreement and stipulations through its proper agent con- cerning the risk." § 186. Limitations in policj^ — ^Prepayment of premium. — An agent whose duties were to solicit insurance, fill up blanks and printed '^ Newark Mach. Co. v. Kenton Ins. Morrison v. Nortli Amer. Ins. Co., 69 Co., 50 Ohio St. 549, 22 L. R. A. 768 Tex. 353, 5 Am. St. 63 (1887); Bar- (1893); Bodine v. Exchange F. Ins. nard v. National F. Ins. Co., 38 Mo. Co., 51 N. Y. 117, 10 Am. Rep. 566 App. 106 (1889). (1872); Stewart v. Union, etc., Ina. ""Renier v. Dwelling-House Ins. Co., 155 N. Y. 257, 42 L. R. A. 147 Co., 74 Wis. 89, 42 N. W. 208 (1889). (1898). " See, generally. Cans v. St. Paul, "Carson v. Jersey City Ins. Co., etc., Ins. Co., 43 Wis. 108 (1877); 43 N. J. L. 300 (1881). McFarland v. Kittanning Ins. Co., "Northern Assur. Co. v. Grand 134 Pa. St. 590, 19 Atl. 796 (1890); View Bldg. Ass'n (U. S.), 22 Sup. Ct. Gould v. Dwelling-House Ins. Co., 90 133 (1902); Gfiuld v. Dwelling-House Mich. 302 (1892). Ins. Co., 90 Mich. 302, 51 N. W. 455 " St. Paul, etc., Ins. Co. v. Parsons, (1892); Gladding v. California, etc., 47 Minn. 352 (1891); Anderson v. Ins. Ass'n, 66 Cal. 6 (1884); Enos v. Manchester F. Assur. Co., 59 Minn. Sun Ins. Co., 67 Cal. 621 (1885); 182 (1894). 155 WAIVER AND ESTOPPEL IN CONTRACTS OJ? INSURANCE. § 186 policies already signed by the general ofiBcers of the company and left in his possession, countersigned and delivered a policy to the assured and gave him temporary credit for the premium. Before it was paid the property was destroyed, and the question was whether the company was bound by the act of the agent in waiving immedi- ate payment of the premium and giving credit. The policy con- tained a provision that "no insurance shall be considered as bind- ing until actual payment of the premium." The court said:^' "It would ssem well settled by the great weight of authority that, at least in the case of stock companies, a person dealing with an agent possessing the powers exercised 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 agent. 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. The policy also contained a provision that '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 represent- ing it in its corporate capacity, from waiving any of the terms or con- ditions of the policy, yet it is a plain declaration that no representa- tive of the company but the secretary can do so, and h^nce that no local agent can do it. This, being in the policy itself, was notice to plaintiff that this agent had no authority to waive the condition that no insurance would be binding till 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." "Wilkins v. State Ins. Co., 43 Ins. Co. v. Hoover, 113 Pa. St. 591, Minn. 177, 45 N. W. 1 (1890). That 15 Am. Rep. 511 (18^6); Michigan an agent with power to solicit in- Pipe Co. v. Michigan, etc., Ins. Co., surance and issue a policy has im- 92 Mich. 482, 20 L. R. A. 277 (1893). plipil power to waive prepayment of But see Tomsecek v. Travelers' Ins. (.he first premium, see Lebanon Mut. Co. (Wis.), 88 N. W. 1013 (1902). § 187 AGENCY, WAIVER AND ESTOPPEL. 156 § 187. Estoppel by act of agent. — In order to prevent fraud and injustice, the doctrine of estoppel is applied where the insured has been misled to his prejudice by the agent of the insurance company. The cases in which this rule has been applied may be classified as follows : 1. Where there were misrepresentations by the agent with refer- ence to some facts material to the risks, or made so by the terms of the contract contained in an application prepared by the agent in the name of the insured, but without his authority, and upon which the company acted in issuing the policy.^" 2. Where the agent, having been authorized by the insured to fill out the application in his name, misstates by a mistake or inadver- tence the information given by the insured and thereby misleads the company.'^ 3. Where the policy declares that certain facts or conditions will invalidate the policy unless disclosed to the insurer and indorsed on * Benninghoft v. Agricultural Ins. Co., 93 N. Y. 495 (1883); Sprague v. Holland, etc., Ins. Co., 69 N. Y. 128 (1877); Vilas v. New York, etc., Ins. Co., 72 N. Y. 590 (1878); Ames v. New York, etc., Ins. Co., 14 N. Y. 253 (1856); Combs v. Hannibal, etc., Ins. Co., 43 Mo. 148, 97 Am. Dec. 383 (1869); Kister v. Lebanon Mut. Ins. Co., 128 Pa. St. 553, 5 L. R. A. 646 (1889). "^Rowley v. Empire Ins. Co., 36 N. Y. 550 (1867); Baker v. Home L. Ins. Co., 64 "N. Y. 648 (1876); Grat- tan V. Metropolitan L. Ins. Co., 92 N. Y. 274 (1883); Bennett v. Agri- cultural Ins. Co., 106 N. Y. 243 (1887); Home P. Ins. Co. v. Fallon, 45 Neb. 554, 63 N. W. 860 (1895); Home Ins. Co. v. Hancock (Tenn.), 52 L. R. A. 665 (1901), and cases cited in note; Stone v. Hawkeye Ins. Co., 68 Iowa 737, 56 Am. Rep. 870 (1886); Creed v. Sun Fire Office, 101 Ala. 522, 23 L. R. A. 177, Woodruff Ins. Cas. 38 (1893). In some cases this rule is carried almost far enough to permit estoppel where the agent is in collusion with the ap- plicant: See Whitney v. National, etc.,' Ass'n, 57 Minn. 472, 59 N. W. 943 (1894); Schwarzbach v. Ohio Valley, etc.. Union, 25 W. Va. 622, 52 Am. Rep. 227 (1885); Germania L. Ins. Co. V. Lunkenheimer, 127 Ind. 536 (1890). The rule that a breach of warranty of the truth of the ap- plicant's answers avoids the insur- ance policy without reference to his good faith or the materiality of the answer does not apply where the falsity of the answer resulted from a mistake In judgment or a blunder of the company's agent, who was charged by the company with the preparation of the application, and who made the answers upon a full and truthful statement of the facts by the applicant: Mutual, etc., Ins. Co. V. Robison, 58 Fed. 723, 22 L. R. A. 325, 7 C. C. A. 444 (1893). See statement of rule by Judge Cooley in ^tna, etc.,. Ins. Co. v. Olmstead. 21 Mich. 251, 4 Am. Rep. 483 (1870). 157 "WAIVER AND ESTOPPEL IN CONTRACTS OF INSURANCE. § 188' the policy, and the company issues the policy although it has knowl- edge through its agent of the facts relied upon to defeat the policy.'* All of these cases relate to transactions prior to the completion of the contract. In the New York case"* in which the above classification was made it was held that "the principle which relieves the party insured from responsibility for unauthorized representations made by the agent of the insurer in respect of some incident of the risk, and permits them to be disregarded in an action to enforce the contract, has no applica- tion where the point in issue is as to the subject of the insurance, and the contract is explicit upon that point. If the contract of in- surance relates to one definite and distinct subject it can not be turned into a contract for the insurance of another and different subject on proof that the agent of the company, by mistake, described the wrong property in his application." § 188. Facts known to company when policy issued. — ^By the weight of authority, although the supreme court of the United States, under a contract which required a waiver to be indorsed on the policy, recently held to the contrary,** an insurance company will not be per- mitted to take advantage of a condition contained in the policy to avoid payment of a loss when the facts rendering the policy void by its terms were known to the insurer at the time it issued the policy and ac- cepted tlie premium. Such a policy, if void, is void from the mo- ment of its delivery. This doctrine rests upon the ground that facts made known to the agent of the company, who is empowered by it to solicit insurance, countersign and issue policies and collect premiums, are known to the principal, and that a fraud would be perpetrated if an insurer, through the medium of its agents, were allowed to deliver its policy and accept the premium with knowledge of facts which under its provisions rendered it void ab initio, and thereafter assert its invalidity.*" Thus, where the insured warranted that "a " Van Schoick v. Niagara F. Ins. was estopped to assert a forfeiture : Co., 68 N. Y. 434 (1877); Richmond Goode v. Georgia, etc., InS. Co., 92 v. Niagara F. Ins. Co., 79 N. Y. 230^ Va. 392, 30 L. R. A. 842 (1895). (1879); Short v. Home Ins. Co., 90* "Sanders v. Cooper, 115 N. Y. 279 N. Y. 16 (1882). Where the omis- (1889). sion to mention incumbrance and "Northern Assur. Co. v. Grand other insurance in an application View Bldg. Ass'n, 22 Sup. Ct. 133 was by the advice of the solicitor (1902). who issued the policy in the name "Fireman's Fund Ins. Co. v. Nor- of the agent, and who had full wood, 16 C. C. A. 136 (1895); knowledge of the facts, the company Northern Assur. Co. v. Grancl § 188 AGENCY, WAIVES AND ESTOPPEL. 158 continuous clear space of one hundred and fifty feet shall hereafter be maintained" between the property insured and a certain building. View B. Ass'n, 101 Fed. 77, 41 C. C. A. 207 (1900) [but this case was reversed in 22 Sup. Ct. 133 (1902)]. These cases present a very full review of the authorities on both sides of the question, as Judge Sanborn filed dissenting opinions in each case. See also Home Ins. Co. V. Mendenhall, 164 111. 458, 36 L. R. A. 374 (1897); Mesterman v. Home Mut. Ins. Co., 5 Wash. 524, 34 Am. St. 877 (1893); Independent School Dist. V. Fidelity Ins. Co. (Iowa), 84 N. W. 956 (1901). Where the agent of the company knew at the time that the policy was issued that fire- works were Intended to be kept on the premises, the issuance of the policy under such circumstances is a waiver of a condition therein for- bidding the keeping of fire-works. "It is now too well settled to require discussion that the issuance of a policy of insurance with a knowl- edge of facts, which by the terms of the policy render it void, will be treated as a waiver of such ground of forfeiture. This is true even though the policy contains a stipu- lation that the conditions of the policy shall not be waived by any ofDcer or agent of the company un- less such waiver be indorsed upon the policy. It is a general rule of law that the parties to a written con- tract may afterward change or alter such contract by a parol agreement to that effect, and contracts with in- surance companies furnish no excep- tion to this rule:" Phoenix Ins. Co. V. Flemming, 65 Ark. 54, 39 L. R. A. 789 (1898); Dwelling-House Ins. Co. V. Brodle, 52 Ark. 11, 4 L. R. A. 458 (1889). "It has uniformly been held by this court that a condition of this character in a contract of insurance will not operate to avoid it after a loss, providing the company before the delivery of the policy had knowl- edge of the fact that the insured, notwithstanding the warranty or a statement to that effect, was not the owner, or that it was incumbered. In such cases the company is deemed to have waived the condi- tion by the delivery of the policy, with a condition avoiding it in case the insured is not the sole owner, or that the property is incumbered, and accepting the premium, and is held to be estopped from setting up the condition as a defense. It was never supposed that such a condi- ' tion was iiitended to apply to a state of facts in regard to which the com- pany had been fully informed when it accepted the risk:" Forward v. Continental Ins. Co., 142 N. Y. 382, 25 L. R. A. 635 (1895). The knowl- edge of the agent that the insured had made a contract for the sale of the property covered by the policy estops the company from denying that he had the sole and uncondi- tional ownership required by the policy: Hamilton v. Dwelling-House Ins. Co., 98 Mich. 535, 22 L. R. A. 527 (1894). The knowledge of the secretary of the company when is- suing the policy that there is other insurance, which the insured agrees to let expire, prevents the forfeiture of the policy for a false statement in the application that there is no other insurance: Dailey v. Preferred, etc., Ass'n, 102 Mich. 289, 26 L. R. A. 171. Bee also Reed v. Equitable, etc., Ins. Co., 17 R. I. 785, 18 L. R. A. 496 (1892). As to the effect of knowl- edge by the company's agent of the falsity of statements in the applica- tion, see Clemans v. Supreme Assem- 159 WAIVER AND ESTOPPEL IN CONTRACTS OF INSURANCE. § 188 and the agent of the insurer knew that the existing facts were other- wise, and that it was not within the power of the insured to change them, the policy was held valid. The court said :" "The defendant insists that the clause must be rendered literally and without reference to the knowledge of the agent as to what the actual distance was, thereby asserting that it has the right to accept the money of the in- sured, issue its policy therefor and lead it to understand that it has a valid insurance until a loss occurs, and then to repudiate its liability. Such a rule as this would enable it to affirm a contract entered into by it with full knowledge of all the facts, in so far as said contract might be of advantage to it, and to repudiate it the moment it ceased to be advantageous. This is inequitable and contrary to the well- established rule in reference to when and how the repudiation of a contract shall be made. The knowledge of the agent is the knowl- edge of the company. If the insurer receives the premium with full knowledge of facts constituting a breach of one of the conditions of the policy, the right to insist that the policy is forfeited for that cause is gone." In Kentucky it was recently held^'' that the rule which charges the insurer with the knowledge of its agent of errors or misstatements in the application is not affected by a condition in the policy that the insured shall be responsible for the acts of the agent who makes out the application. A renewal policy of fire in- surance was issued to an ignorant and illiterate person without a written application, by an agent who had full power to write insur- ance and deliver the policy without reference to the home office. It was held that the insurer was bound by the knowledge of the con- dition of the title of the insured, although he may have acquired such knowledge in business having no connection with the insurance.^* With reference to the conditions in the policy aforesaid, "the sub- agent, or the agent of the principal agent, appeared and solicited a renewal of the policy; and it was then signed and filled up at the agent's office and delivered to the appellee. We are not disposed to adjudge that such contracts, shingled over with stipulations that are practically deceptive, if not inserted for that purpose, are binding on the ignorant and illiterate when guilty of no fraud or misrepre- bly, 131 N. Y. 485, 16 L. R. A. 33 Ins. Co., 94 Mich. 389, 53 N. W. 945 (1892), annotated. To the same ef- (1892). feet, see Bowling v. Lancashire Ins. " Hartford F. Ins. Co. v. Haas, 87 Co., 92 Wis. 63, 31 L. R. A. 112 Ky. 531, 2 L. R. A. 64 (1888). (1900). "But see § 164, supra, " Michigan, etc., Co. v. State, etc.. § 188 AGENCY, WAIVEE AND ESTOPPEL, 160 sentation; but had trusted alone to the superior knowledge of the agent, who undertakes to make such an application or to issue such a policy as will meet the requirements of the company he represents. The statements embodied in a policy issued under such circumstances, if false or erroneous, should be regarded as the act of the insurer." This rule has been adopted by the statutes of some of the states. A provision in the policy that the knowledge of the agent of matters not stated in the application shall not bind the company does not pre- vent the insured from showing that he made true answers, but that they were wrongfully recorded by the agent of the company.'" Nor will a similar provision prevent the insured from having the con- tract rescinded where he was induced to enter into it by the fraudu- lent representations of the agent of the company.*^ But the doctrine of estoppel which, as a general rule, is applicable when the policy is issued with knowledge of the facts does not apply when the policy, as a contract, is contrary to law.** It is said that the Imowledge of the agent of facts which will defeat the policy estops the company only when there is no application signed by the assured.*' The court said : "The eases in which knowledge of the agent through whom insurance is taken may operate to defeat the right of the eom- " Parno v. Iowa, etc., Ins. Co. take the statement, and acted under (Iowa), 86 N. "W. 210 (1901). The that authority when he wrote It, court said: "It is sought to distin- plaintiff was not charged with the guish these cases on the ground that duty of seeing to it that it was cor- in the policy in suit the answers of rectly taken. He had the right to the applicant were made warranties, assume that this was done. It would But that was also the fact in a num- be manifestly unjust to hold that he ber of the cases in which the rule was bound absolutely by a state- stated has been indorsed by this ment which was wrongfully inter- court. In Stone v. Hawkeye Ins. polated into the application by de- Co., 68 Iowa 737, 28 N. W. 47, in fendant, and which he did not know which the facts were similar to was there when he consented to the those before us, it is said: 'It makes agreement.'" But see U. S. Life no difference, we think, that plaint- Ins. Co. v. Smith, 92 Fed. 503 (1899). iff agreed that the representations " McCarty v. New York L. Ins. Co., in the application should be regard- 74 Minn. 530, 77 N. W. 426 (1898). ed as warranties by him. He con- " Spare v. Home Mut. Ins. Co., 17 sented to that agreement in the be- Fed. 568 (1883). lief that the agent had written down "Kenyon v. Knights, etc., Ass'n, in the application the very state- 122 N. Y. 247 (1890). See note to ment he had made. As the agent Hoose v. Prescott Ins. Co. (Mich.), was empowered by the company to 11 L. R. A. 340 (1890). 161 WAIVER AND ESTOPPEL IN CONTEACTS OF INSURANCE. § 189' pany to avail itself of the fact so known at the time it is taken are those in which there is no application signed by the assured stating to the contrary of such existing facts, but rests upon a condition ex- pressed in the policy merely. Then it may be presumed that the state- ment of it in the policy as required by the condition was omitted by mistake or waived." But there are cases which go much farther than this and apply the rule where the statements are inserted in an appli- cation and warranted. But the company is not estopped by the knowledge of the agent that the insured intends to violate one of the conditions of the policy. Thus, knowledge on the part of a fire insurance company's soliciting agent at the time of the issuance of the policy that the insured does not intend to comply with the condition requiring him to keep a set of books, and to take and preserve an inventory, to be produced in case of loss, does not estop the company from setting up the insured's non- compliance with the condition as a defense to a claim for loss. The effect of future conduct is determined by the terms of the contract.** § 189, Oral testimony to show actual statements. — Where the agent writes erroneous statements in the application, the prevailing rule is that oral testimony may be received to show the fact. It was said in the supreme court of the United States: "The testimony was admitted, not to contradict the written warranty, but to show that it was not the warranty of D, though signed by him, prepared as it was by the company's agent, and the answers having been made by the agent, the proposal, both questions and answers, must be regarded as the act of the company, which it can not be permitted to set up as a warranty by the assured."*' So, in Pennsylvania it was said, with "Sowers v. Mutual F. las. Co. 86 N. W. 210 (1901), it was said: (Iowa), 85 N. W. 763 (1901); Gray "Appellant's next contention is that V. Germania F. Ins. Co., 155 N. Y. the matter of estoppel is not suscep- 180, 49 N. B. 675 (1898). tible of proof, because it would ne- *= Insurance Co. v. Mahone, 21 cessitate the contradiction of the Wall. (U. S.) 152 (1874); Insur- terms of a writing by parol evi- ance Co. v. Wilkinson, 13 Wall, dence. It is the rule in this state (U. S.) 222 (1871); Fireman's that where the assured has returned Fund Ins. Co. v. Norwood, 69 Fed. truthful answers to the agent of the 71, 16 C. C. A. 136 (1895), where company, who has recorded them the authorities are cited and incorrectly in the application, the reviewed by ' Judge Caldwell. In facts may be shown by oral evl- Parno v. Iowa, etc., Ins. Co. (Iowa), dence, to estop the company from 11— Elliott Ins. § 189 AGENCY, WAIVER AND ESTOPPEL. 162 reference to certain cases: "In each there was no question but that the warranty was made, and it was conceded that if there were a mutual mistake between the contracting parties, parol evidence is ad- missible to reform the policy. None declares that the fraud or mis- take of a knavish or blundering agent, done within the scope of the powers given him by the company, will enable the latter to avoid a policy to the injury of the assured, who innocently became a party to the contract. The authorities go far, — ^very likely not too far, — in holding the assured responsible for his warranty, and in excluding oral evidence to contradict or vary it; but they do not establish that where an agent of the assurer has cheated the assured into signing the warranty and paying the premium, and the policy was issued upon the false statements of the agent himself, the assured shall not prove the fact and hold the prin9ipal to the contract as if he had committed the wrong."*' Massachusetts, New Jersey and Ehode Island refuse to recognize this rule, and hold that a waiver of the forfeiture existing at the in- ception of the contract can not be shown by oral testimony of what occurred at or before the closing of the contract.*^ Even in these states, a waiver occurring after the inception of the contract may be shown by parol.*' setting up the statements in the ap- Protective, etc., Ins. Co., 89 Pa. St. plication as a defense. Warshawky 464 (1879), quoted in Kister v. Leb- V. Anchor, etc., Ins. Co., 98 Iowa 221, anon Mut. Ins. Co., 128 Pa. St. 553, 67 N. W. 237; Carey v. Home Ins. 5 L. R. A. 646 (1889). Co., 97 Iowa 619, 66 N. W. 920; Mc- "Batchelder v. Queen Ins. Co., 135 Comb V. Council BluSs Ins. Co., 83 Mass. 449 (1883); Dewees v. Man- Iowa 247, 48 N. W. 1038; Jamison v. hattan Ins. Co., 35 N. J. L. 366 State Ins. Co., 85 Iowa 229, 52 N. W. (1872); Reed v. Equitable, etc., Ins. 185; Reynolds v. Iowa, etc., Ins. Co., Co., 17 R. I. 785, 24 Atl. 833 (1892). 80 Iowa 563, 46 N. W. 659; Key v. In the last case it was said: "We Des Moines Ins. Co., 77 Iowa 174, 41 recognize the tendency of the de- N. W. 614. In Donnelly v. Cedar Rap- cisions in favor of the assured, and ids Ins. Co., 70 Iowa 692, 28 N. W. if this were a new question in this 607, the court says that the parol state, we might feel compelled to evidence in such a case is not intro- yield to the weight of authority, duced for the purpose of contradict- Opposed to this line of decisions ing the written contract, but only to Massachusetts has stood almost estop the company from setting up alone, with a sturdiness character- as a defense the falsity of the state- Istic of that old commonwealth." ments in the application." " Oakes v. Manufacturers' Ins. Co., "Trunkey, J., in Eilenberger v. 135 Mass. 248 (1883); Metropolitan 163 WAIVER AND ESTOPPEL IN CONTRACTS OF INSURANCE. § 190 § 190. Bad faith — Collusion between applicant and agent. — Where there is collusion between the applicant and the agent of the company, knowledge of the fraud attempted by thp applicant can not be imputed to the company, and made the basis of an estoppel.*" ' The principal is bound by the acts of his agent while he acts within the scope of his reputed authority, but if he commits a fraud upon his principal, an applicant who is particeps criminis will not be allowed to profit by the fraud." L. Ins. Co. V. McTague, 49 N. J. li. Blooming Grove, etc., Ins. Co. v. 587 (1887). McAnerney, 102 Pa. St 335, 48 Am. "Centennial, etc., Ass'n v. Par- Rep. 209 (1883). ham, 80 Tex. 518. 16 S. W. 316 "Hanf v. Northwestern, etc., (1891). "Where an untrue answer is Ass'n, 76 Wis. 450, 45 N. W. 315 written with the consent of the ap- (1890); Eilenberger v. Protective, plicant, there can he no recovery: etc., Ins. Co., 89 Pa. St 464 (1879). Part VI. THE STANDARD POLICY AND ITS PROVISIONS. CHAPTEE X. PROVISIONS OS THE STANDARD POLICY. SEa 200. In general. 201. The Massachusetts standard policy. 202. The New York standard. SEC. 203. The binding clause. 204. Construction of the standard policy. 205. Effect of breach of condition. A. Provisions Eelating to Matters Before Loss. I. SEC. 206. 207. 208. 209. Formal Part of Contract. -In Parties. The premium'. Term of insurance. The amount. 210. Description of the property- general. Goods held in trust. May cover shifting stock. Ambiguous descriptions — Ref- ormation. Presumption as to nature of business. Descriptions, when warranties. Description of merchandise — What Included in the descrip- tion. Description of buildings. 218. Location of property — In gen- eral. 219. Location material. " 220. Illustrations. 221. Risks Insured against. 222. Proximate cause — E31ectric wires. (164) 211. 212. 213. 214. 215. 216. 217. II. Authorization of Agent. SEC. 223 III. 224, IV. 225. 226. 227. 228. V. 229. 230, 231, 232. 233, 234. 235, VI. 236. 237. Agency. Application and Survey. Application a part of the policy. Misconduct of Insured in Pro- curing Policy. Entirety of contract. Concealment and misrepresen- tation. Statement of Interest. Fraud and false swearing. Excluded Risks. Invasion, riot, etc. Theft. Neglect to protect property. Explosion. Lightning. Pall of building. City ordinances. Excluded Property. Exceptions and limitations. Plate glass, frescoes and decora- tions. 165 IN GENERAL. § 200 § 200. In general. — A common form of marine policy has been in use since the adoption of Lloyds' policy in 1779. This instrument was characterized by Mr. Justice BuUer as "absurd and incoherent," but the meaning of its language has become fixed by custom and judicial decision. The movement toward a standard form of policy for fire insurance began as early as 1821, when a form was adopted by a committee of New York underwriters which gradually came into use by the different companies. In 1867 the legislature of Connecticut passed a law which required the use of a common form in that state, but it met with so much opposition on the part of the insurance companies that the statute was repealed the following year.^ Standard forms are now required by the statutes of fourteen states, and it is very probable that similar laws will soon be enacted in the other states of the Union. §201. The Massachusetts standard policy. — In 1873 the legisla- ture of Massachusetts provided for a form which, after various modi- fications, became the present standard policy, which went into effect in 1887. The principal difference between this policy and what has since become known as the New York standard policy is the provision which permits the parties to modify its language by riders attached to the policy. The New Hampshire form was adopted in 1885, and is modeled after that of Massachusetts, with such changes as were rendered necessary by the New Hampshire statutes, portions of which are re- quired to be printed upon the back of the policy and form part of the contract. Maine also followed Massachusetts, and in 1895 provided for a standard form which should be as nearly as practicable the same as that of Massachusetts. * The Minnesota act of 1889^ imposed upon the insurance com- missioner the duty of preparing a form which should become obliga- tory after that year. The New York form was prepared and went into use, but the statute was held unconstitutional because it was attempted to delegate legislative powers to the insurance commis- » Conn. Laws 1867, ch. 121. 'Minn. Gen. Stat. 1894, §3200 (Gen. Laws 1889, ch. 217). § 202 THE STANDABD POLICY. 166 sioner.' In 1895* the legislature adopted the Massachusetts instead of the New York form, with such modifications as were necessary to prevent conflict with the valued-policy law then in force. Eiders were permitted to explain or modify the policy. The insurance companies adopted a general rider, which embraced substantially the provisions of the New York standard policy, but the legislature of 1897 prohibited the use of the co-insurance rider, and the making of changes of any kind except as specifically authorized by the act. § 202. The New York standard. — ^What is known as the New York standard form of policy went into efEect on the first day of May, 1887." It does not permit riders which change any of its conditions, like the Massachusetts and New Hampshire forms. All variations from the prescribed form are provided for by "clauses" which may be attached to the policy, and which are known as the Application and Survey Clause, Assessment, Installment or Credit Clause, Co-insurance Clause, Conditions as to Incumbrances, Lightning Clause, Mortgage Clauses, Percentage, Limitation and Value Clauses. Most of the states have followed this form. It was adopted by Michigan in 1889, by North Dakota in 1890, New Jersey in 1892, North Carolina in 1893, South Dakota in 1893, Connecticut in 1894, Ehode Island in 1895, Iowa in 1897,' and Louisiana in 1898. In 1891 Wisconsin passed a law which directed the insurance com- missioner to prepare a form which should conform to the New York standard policy, and provided that five days' notice of cancellation by the company should be given, and provided also that proof of loss should be made within sixty days after the fire. This policy went into efEect in 1891. In 1895, the question having arisen as to the constitutionality of the legislation, the standard policy was enacted in the form of a statute. Some import^t changes were made at ■Anderson v. Manchester F. As- The Wisconsin statute of 1891 was sur. Co., 59 Minn. 182, 60 N. W. subject to the same objections, but 1095, 63 N. W. 241 (1894). The it was cured in 1895. Pennsylvania act of 1891 has been * Minn. Laws 1895, ch. 175. held unconstitutional by the su- "Provided for by N. Y. Laws preme court of the state in O'Nell 1886, ch. 488. V. American F. Ins. Co., 166 Pa. St. "Iowa has not prescribed a com- 72 (1894). An attempt to cure the plete form of policy; but a common defect was defeated in 1895. The form is in use, and the statute re- New York form Is in common use. quires it to contain certain matters. 167 IN GENEEAL. § 203 that time, but it is still, in effect, the New York standard. The New York form has been generally adopted by the insurance companies and is in common use in states which have not yet adopted a standard form. § 203. The binding clause. — All the states which require the use of a standard form, except North Carolina, prescribe penalties for using another form, !ind all but New York, New Hampshire and North Carolina make a policy issued in violation of the law binding on the company. The Massachusetts, Ehode Island and Utah stat- utes prescribe penalties for using other forms, "but said policy shall nevertheless be binding on the company using the same." Minne- sota, North Dakota .and South Dakota also provide, — "and such company shall thereafter be disqualified from doing business in the state." Although the legislature requires insurance companies to use the standard form and provides that any contracts made contrary to its provisions shall be void, liability can not be escaped by the use of a form which in some slight respect departs from the standard. In Michigan it was said :' "Contracts of insurance, so far as the public are concerned, stand upon no different basis than other contracts. The object was to protect policy-holders, and to provide a policy fair to the insured and to the insurer and avoid litigation. It was undoubtedly well known to the legislature that policy-holders do not usually examine and scrutinize their policies with the same care that they do other contracts which they make involving their or- dinary business transactions. The statute imposes a penalty upon the insurance company for issuing such a policy, but imposes none on the insured. In using the word 'void,' the legislature certainly did not contemplate that an insurance company might insert a clause not provided for in the standard policy, receive premiums year after year upon it, and, when the loss occurs, say to the insured, 'Your policy is void because we inserted a clause in it contrary to the laws of Michigan.' Such a result would be a reproach upon the legislature and the law. The law so construed, instead of operating to protect the insured, would afford the surest means to oppress and defraud them, and thus defeat the very object the legislature had in view. This statute comes clearly within that class of cases which holds the word 'void' to mean voidable." 'Armstrong v. Western, etc., Ins. Co., 95 Mich. 137 (1893). § 204 THE STANDARD POLICT. 168 §204. Construction of the standard policy. — The rale for the construction of the contract of insurance was established before the compulsory adoption of the standard form of policy. The theory is that as the policy is prepared by the insurance company it should be strictly construed in favor of the insured. When there is doubt as to the true construction to be given to the language, the court should lean against a construetitn which would limit the liability of the insurer.* It was said in a recent ease, that conditions for the forfeiture of an insurance policy will be strictly construed against the insurer, where it retains the premium and seeks by such condition to escape liability after loss occurs." It is well settled that written parts of the contract control the printed parts where there is a con- flict, but this is also subject to the rule that words of exception in an insurance policy, if doubtful, are to be construed most strictly against the party for whose benefit they are intended.^" An insurance policy is an original independent agreement taking effect from its date, and its interpretation is not to be controlled or affected by prior policies of which it is technically the renewal.^^ The standard policy is a statutory law as well as a contract, and its provisions are therefore binding upon all the parties. In a recent case in Michigan^ ^ it was claimed that as the standard policy is pre- scribed by state authority, it should not be subject to the rule that such contracts are to be construed most favorably to the insured. The question was not determined, as if was said that the terms em- ployed in the policy under consideration had been in previous use in insurance contracts and had received judicial construction. It is to be presumed that the terms used in the standard policy are used in the sense in which they were previously used and defined. In New York it was said:^' "The policy, although of the standard ' Liverpool, etc., Ins. Co. v. Kear- See note to Lancaster P. Ins. Co. v. ney, 180 U. S. 132 (1901); Home Ins. Lenheim, 33 Am. Rep. 783 (1879). Co. V. Peyerabend, 7 Kan. App. 231, ^° Monroe, etc., Assn. v. Liverpool, 52 Pac. 899 (1898); Georgia, etc., etc., Ins. Co., 50 La. Ann. 1243, 24 Ins. Co. V. Allen, 119 Ala. 436, 24 So. 238 (1898). So. 399 (1898). A contract of in- "Temple v. Niagara P. Ins. Co., surance will, if possible, be con- 109 Wis. 372, 85 N. W. 361 (1901)! strued to prevent a forfeiture: '=John Davis & Co. v. Insurance Bridges v. National Union, 73 Minn. Co., 115 Mich. 382, 73 N. W 393 486, 77 N. W. 270, 409 (1898). (1897). • Canton Ins. Office v. Woodslde, " Matthews v. American, etc Ins 90 Ped. 301, 33 C. C. A. 63 (1898). Co., 154 N. Y. 449, 39 L. R. A. 433 169 IN GENEEAl. § 204 form, was prepared by the insurers, who are presumed to have had their own interests primarily ia view ; and hence, when the meaning is doubtful it should be construed most favorably to the insured, who had nothing to do with the preparation thereof. Moreover, when a literal construction would lead to a manifest injustice to the insured, and a liberal but still reasonable construction would prevent injustice by not requiring an impossibility, the latter should be adopted, because the parties are presumed, when the language used by them permits, to have intended a reasonable and not an unreasonable result." In another recent case, commenting upon the standard policy, the N"ew York court of appeals said:^* "The act providing for a uni- form policy, known as the standard policy, and which makes its use compulsory upon insurance companies, marks a most important and useful advance in legislation relating to contracts of insurance. The practice which prevailed before this enactment, whereby each company prescribed the form of its contract, led to great diversity in the pro- visions and conditions of insurance policies, and frequently to great abuse. . Parties taking insurance were often misled by unusual clauses or obscure phrases concealed in a mass of verbiage, and often so printed as to almost elude discovery. Unconscionable defenses, based upon such conditions, were not infrequent, and courts seem sometimes to have been embarrassed in the attempt to reconcile the claims of justice with the laws of contracts. Under the law of 1886, com-- panies are not permitted to insert conditions ia policies at their will. The policies they now issue must be unifrom in their provisions, ar- rangement and type. Persons seeking insurance will come to un- derstand to a greater extent than heretofore the contract into which they enter. Now, as heretofore, it is competent for the parties to a contract of insurance, by agreement in writing or parol, to modify the contract after the policy has been issued, or to waive conditions or forfeitures. The power of agents, as expressed in the policy, may be enlarged by usage of the company, its course of business, or by its consent, express or implied. The principle that courts lean against forfeitures is unimpaired; and in weighing evidence tending to show a waiver of conditions or forfeitures, the court may take into con- sideration the nature of the particular condition in question, whether (1897); Rickerson v. Hartford, etc., "Quinlan v. Providence, etc., Ins. Ins. Co., 149 N. Y. 307, 313 (1896) Co., 133 N. Y. 356, 31 N. E. 31 (construing Laws 1892, ch. 69, (1892). § 121). § 205 , THE STANDARD POLICY. 170 a condition precedent to any liability, or one relating to the remedy merely, after a loss has been incurred. But where the restrictions upon an agent's authority appear in the policy, and there is no evi- dence 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." § 205. Effect of a breach of condition. — The decisions are con- flicting upon the question of the effect of a violation of a condition in a fire insurance policy. The weight of authority seems to support the view that a violation of a condition that works a forfeiture of the policy merely suspends the insurance during the violation, and if the violation is discontinued during the life of the policy and does not exist at the time of the loss, the policy revives and the company is liable, although it had never consented to the violation of the condi- tions in the policy, and such violation has been such that the com- pany could, had it known of it at the time, have declared a for- feiture therefor.*' But the decisions are not uniform; and a num- " As sustaining the view that the Dowell, 60 111. 120, 99 Am. Dec. 497 policy is merely suspended, see (1869); Insurance Co. v. Garland, Born V. Home Ins. Co., 110 Iowa 108 111. 220-226 (1883); Traders' 379, 81 N. W. 676, 80 Am. St. 300 Ins. Co. v. Catlln, 163 111. 256, 45 N. (1900), annotated, where many of E. 255 (1896); Lounsbury v. Protec- the following cases are cited: tion Ins. Co., 8 Conn. 459 (1831); Breach of condition as to mort- Phoenix Ins. Co. v. Lawrence, 4 gages: State Ins. Co. v. Schreok, Met. (Ky.) 9, 81 Am. Dec. 521 27 Neb. 527, 20 Am. St. 696, 43 N. W. (1862); Joyce v. Maine Ins. Co., 45 340 (1889); Omaha P. Ins. Co. v. Me. 168, 71 Am. Dec. 536 (1858); Dierks, 43 Neb. 473, 61 N. W. 740 United States, etc., Ics. Co. v. Kim- (1895); Johansen v. Home F. Ins. berly, 34 Md. 224, 8 Am. Rep. 325 Co., 54 Neb. 548, 74 N. W. 866 (1870); Garrison v. Farmers', etc., (1898); Home F. Ins. Co. v. Johan- Ins. Co.; 56 N. J. L. 235, 28 Atl. 8 sen, 59 Neb. 349, 80 N. W. 1047 (1893); Cumberland Valley Mut. (1899); Tompkins v. Hartford F. Protection Co. v. Schell, 29 Pa. St. Ins. Co., 22 App. Div. (N. Y.) 380, 31 (1857); Mutual F. Ins. Co. v. 49 N. Y. Supp. 184 (1897). Coatesville Shoe Factory, 80 Pa. St. Breach of condition as to use of 407 (1876); Krug v. German P. Ins. premises: New England, etc.. Ins. Co., 147 Pa. St. 272, 30 Am. St. 729, Co. V. Wetmore, 32 111. 221 (1863); 23 Atl. 572 (1892); Hinckley v. Ger- Schmidt v. Peoria, etc., Ins. Co., 41 mania P. Ins. Co., 140 Mass. 38, 54 111. 295 (1866); Insurance Co. v. Mc- Am. Rep. 445, 1 N. B. 737 (1885); 171 IN GENERAL. § 205 ber hold that upon breach of a condition by which a forfeiture of the insurance may be declared, the policy becomes void and can never be restored to validity except with the consent of the insurer." In Wilkins v. Tobacco Ins. Co., 30 Ohio St. 317, 27 Am. Rep. 455 (1876); Hennessey v. Manhattan F. Ins. Co., 28 Hun (N. Y.) 98 (1882); Green- leaf V. St. Louis Ins. Co., 37 Mo. 25 (1865). Breach of condition as to other insurance: New England, etc., Ins. Co. V. SchetUer, 38 111. 167 (1865); Germania F. Ins. Co. v. Klewer, 129 111. 599 (1889); Western Assur. Co. V. Mason, 5 111. App. 141 (1879); Phenix Ins. Co. v. Johnston, 42 111. App. 66 (1891); Obermeyer v. Globe, etc., Ins. Co., 43 Mo. 573 (1869); Jacobs V. Equitable Ins. Co., 19 U. C. Q. B. 250 (1860). Breach of condition as to occu- pancy: Insurance Co. v. Garland, 108 111. 220 (1883); Schuermann v. Dwelling House Ins. Co., 57 111. App. 200 (1894); Laselle v. Hoboken F. Ins. Co., 43 N. J. L. 468 (1881); Ring v. Phoenix Assur. Co., 145 Mass. 426, 14 N. E. 525 (1888); .(Etna Ins. Co. v. Meyers, 63 Ind. 238 (1878); Whitney v. Black River Ins. Co., 72 N. Y. 117, 28 Am. Rep. 116 (1878). By temporary alienation: Power V. Ocean Ins. Co., 19 La. 28, 36 Am. Dec. 665 (1841); Hitchcock v. Northwestern Ins. Co., 26 N. Y. b8 (1862); Lane v. Maine, etc., Ins. Co., 12 Me. 44, 28 Am. Dec. 150 (1835); Worthingham v. Hearse, 12 Allen (Mass.) 382, 90 Am. Dec. 152 (1866); Shearman v. Niagara F. Ins. Co., 46 N. Y. 526, 7 Am. Rep. 380 (1871). "As to mortgages: German, etc., ins. Co. V. Humphrey, 62 Ark. 348, 54 Am. St. 297, 35 S. W. 428 (1896); Insurance Co. v. Wicker, 93 Tex. 390, 54 S. W. 300, 55 S. W. 740 (1900). As to use of premises: Fernandez V. Great Western Ins. vCo., 48 N. Y. 571, 8 Am. Rep. 571 (1872); Burgess V. Equitable, etc., ins. Co., 126 Mass. 70, 30 Am. Rep. 654 (1878); Carey V. German, etc.. Ins. Co., 84 Wis. 80, 36 Am. St. 907, 54 N. W. 18 (1893); Mead v. Northwestern ins. Co., 7 N. Y. 530 (1852); Jennings v. Chenan- go Ins. Co., 2 Den. (N. Y.) 75 (1846); Wheeler v. Traders' Ins. Co., 62 N. H. 450, 13 Am. St. 582 (1883); Kyte v. Commercial,! etc., Assur. Co., 149 Mass. 116, 21 N. E. 361 (1888); Lyman v. State, etc., Ins. Co., 14 Allen (Mass.) 329 (1867); Hill v. Middlesex, etc., Assur. Co., 174 Mass. 542, 55 N. E. 319 (1899); Frost's, etc.. Works v. Millers', etc., Ins. Co., 37 Minn. 300, 5 Am. St. 846, 34 N. W. 35 (1887); Imperial F. Ins. Co. v. Coos County, 151 U. S. 452, 14 Sup. Ct. 379 (1893). By other insurance: Georgia Home Ins. Co. v. Rosenfleld, 95 Fed. 358 (1899); Fabyan v. Union, etc., Ins. Co., 33 N. H. 203 (1856). As to vacancy: Moore v. Phoenix Ins. Co., 62 N. H. 240, 13 Am. St. 556 (1882); East Texas F. Ins. Co. V. Kempner, 87 Tex. 229, 47 Am. St. 99, 27 S. W. 122 (1894). The Michigan policy provides that the policy shall be void "if a loss shall occur on the property in- sured while such breach of condi- tion continues or such breach of condition is the primary or con- tributory cause of the loss." The New Hampshire statute pro-\'ides that "a change in the property in- § 206 THE STANDARD POLICY. 172 some states the insurance company is required, upon notice of a breach of a condition in the policy, to take some affirmative action to show that it does not intend to waive the forfeiture.^' ■ A. Peovisions Relating to Matters Before Loss. I. Formal Part of Contract. The Insurance Company, in consideration of the stipula- tions herein named and of dollars premium, does insure for the term of from the day of , 19 — , at noon, to the day of . , 19 — , at noon, against all direct loss or damage by fire, except as herein provided, to an amount not exceeding dollars, to the following described property while located and contained as described herein, and not elsewhere,- to wit, ." § 206. Parties. — The capacity of individuals and corporations to become parties to contracts of insurance has already been considered.^* If the wrong person is named as the insured, the policy may be re- formed in equity.^" The contract is personal, and refers to the per- son, and not to the thing out of which the interest arises."^ Only the interest of the person named in the policy is covered by the eon- sured or in its use or occupation, or after named, the receipt whereof is a breach of any of the terms of the hereby acknowledged, does insure policy by the insured, shall not af- and legal representatives feet the policy except while the against loss or damage by fire, change or breach continues." to the amount of dollars. " See Alabama, etc., Assur. Co. v. (Description of property insured.) Long, etc., Co., 123 Ala. 667, 26 So. * * * Said property is insured 655 (1899); Appleton Iron Co. v. for the term of , beginning on British, etc., Co., 46 Wis. 23 (1879). the day of in the year "This form has been followed in at noon, and continuing until the the standard policies of New York, day of in the year New Jersey, Rhode Island, Connecti- at noon, against all loss or damage cut, Louisiana, Iowa, Michigan, Wis- by lire originating from any CEiuse cousin. South Dakota, North Da- except « * * " kota and North Carolina. The fol- " § 10 et seq., supra. lowing is found in the standard " Spare v. Home, etc., Ins. Co., 15 policies of Massachusetts, Minne- Fed. 707, 19 Fed. 14 (1884). sota, Maine and New Hampshire: " Cummings v. Cheshire, etc., Ins. "In consideration of dollars Co., 55 N. H. 457 (1875). to it paid by the insured, herein- 173 FORMAL PAET OF CONTRACT. § 206 tract, unless some form of words is used to express the contrary in- tention. This is not changed by an oral agreement with the agent at the time the policy is issued that it shall also cover interests of another person.'" But where the person named as the insured knows that the company issued the policy under a mistaken idea that another person was being insured, the person named in the policy is not pro- tected.'" The mere fact that the name of the insured is misspelled, as Connor for O'Connor, is immaterial where the identity of the party is fairly shown.'* Keference to the interest as "his," where the in- sured is a woman, is immaterial.'" A policy procured by contractors issued in the name of the owner, with the clause "Contractors' insur- ance for thirty days," covers the interest of the contractors, and may be enforced for their 4Denefit.'® An unauthorized change of the name of an insured party will not, as a general proposition, afEect the rights of the insured, but whenever "the insurer, in issuing a policy, deals with a party who remains in possession of the instrument after execution, and is alone entitled to recover the amount thereof in case of loss, he is authorized to assume that such party has the power to consent to such changes in it before breach as will inure to the benefit of the insured and tend to perfect the validity of the con- tract."'^ In this case the alteration neither injuriously affected the right of enforcing the policy nor changed the disposition of the money collectible thereon. The name of the party insured is sometimes omitted from the policy and a general phrase, such as "for the account of whom it may concern," is used. So the insured is often described as agent, execu- tor or trustee. The right of an appointee under a policy payable to him as his interest may appear is not an independent right on which such person is entitled to sue, but is a mere right to receive the whole or part of the money to which the insured may be entitled, and hence such a provision does not effect the insurer's discharge for breach of condition by the assured.'* "Fuller v. Phcenix Ins. Co., 61 "German F. Ins. Co. v. Thomp- lowa 350 (1883). son, 43 Kan. 567, 23 Pac. 608 (1890). "Travis v. Peabody Ins. Co., 28 "Martin v. Tradesmen's Ins. Co., W. Va. 583 (1886). 101 N. Y. 498 (1886). " Hibernia Ins. Co. v. O'Connor, 29 " Wiinderlich v. Palatine F. Ins. Micb. 241 (1874) ; Clark v. German, Co., 104 Wis. 395, 80 N. W. 471 etc., Ins. Co., 7 Mo. App. 77 (1879). (1899). "Simon v. Home Ins. Co., 58 Mich. 278 (1885). § 207 THE STANDARD POLICY. 174 §207. The premium. — The standard form provides that the amount of the premium shall be stated in the written contract. The necessity for the payment of this amount and the facts which con- stitute a waiver thereof have been already considered.*' § 208. Term of insurance. — The standard form contemplates that dates which limit the term shall be inserted, but where this is not done, the insurance is nevertheless good for a reasonable time, and the burden is on the company to show that the policy was not in force at the time of the fire.°° It may be shown by oral evidence that the policy was to take effect at a time other than its date.*^ The insurance begins when the policy is applied for and dated, although it is not delivered for some days thereafter.^* The parties may agree that the termination of the insurance shall be at the option of the insured, and leave the date blank.'' So, a contract may be given a retrospective operation and be made to cover property at a distance, although it has already been destroyed, where neither party has knowledge of the fact.'* A policy "from the 14th day of February, 1868, until the 14th day of August, 1868," was held to cover a loss which occurred on the 14th day of August.'" In the absence of an invariable custom to the contrary, a contract does not expire until . midnight of the last day named." The period may be limited by some other part of the policy. Thus, the policy covered a "frame shingle-roof hop house" while drying hops "from loss or damage by fire to the property so specified from the 15th day of October, 1875." Within the term, but after the insured had ceased drying hops, a fire occurred, and it was held that the company was not liable for dam- ages caused thereby." The party alleging a change in the date of the expiration of the policy after it was issued has the burden of proof." " See § 127, supra. tucky, etc., Ins. Co., 7 Bush (Ky.) •» Schroeder v. Trade Ins. Co.. 109 81 (1869). 111. 157 (1883). "Isaacs v. Royal Ins. Co., L. R. "Atlantic Ins. Co. v. Goodall, 35 5 Exch. 296 (1870). N. H. 328 (1857). "Herald Co. y. Northern Assur. ■» Hubbard V. Hartford F. Ins. Co., Co., 4 Mont L, Rep. (Can.) 254 33 .Iowa 325 (1871). (1888). "Imboden v. Detroit, etc., Ins. "Langworthy v. Oswego, etc., Co., 31 Mo. App. 321 (1888). Ins. Co., 85 N. Y. 632 (1881). "Security P. Ins. Co. v. Ken- ^Insurance Co. v. Brim, 111 Ind. 281, 12 N. E. 015 (1887), [175 FORMAL PART OF CONTRACT. § 209 §209. The amount. — There are but few opportunities for con- troversy as to the maximum amount of insurance, as this clearly appears in the policy. The measure of damages under special pro- visions of the contract and the valued-policy laws of the different states will be referred to elsewhere. If the policy is valued, the full amount named therein is recoverable in event of a total loss. This may result by force of a statutory provision, or from the express lan- guage of the policy in the absence of such a statute. § 210. Description of the property — ^In general. — The object of the descriptive clause is the identification of the property, and where this is clear parts which are false or erroneous may be disregarded.'* Thus, where the property is erroneously described as a building of three stories instead of one and a half stories, it is sufficient if the building is identified by reference to the street and number so that the company can not have been misled.*" Any ambiguity in the description written in the policy will be construed liberally in favor of the insured. It will cover not only what is specifically enumerated, but also what is necessarily appurtenant thereto.*^ § 211. Goods held in trust. — The word trust in this connection is to be given its ordinary popular and not its technical meaning.*^ Property described as "his own or held in trust" covers a piano left for sale or rent.** A policy "on his goods, stock in trade, etc., whether on commission or held in trust," covers goods in store or on joint account and sold for mutual profit of the insured and an- other party.** "The property of the insured or held in trust" in- cludes cloth left with the insured to be manufactured into clothing.*'' So, an insurance on "merchandise generally and without exception either owned or held in trust, or on consignment in the warehouse of a commission or forwarding merchant," covers household furni- •" Hatch v. New Zealand Ins. Co., "Phoenix Ins. Co. v. Favorite, 49 67 Cal. 122 (1885). 111. 259 (1868). "Massell v. Protective, etc., Ins. "Snow v. Carr, 61 Ala. 363 Co., 19 R. I. 565, 35 Atl. 209 (1896). (1878). *■ Buchanan v. Exchange F. Ins. ** Millaudon v. Atlantic Ins. Co., 8 Co., 61 N, Y. 26 (1874); Lovewell v. La. 561 (1834). Westchester F. Ins. Co., 124 Mass. « Stillwell v. Staples, 19 N. Y. 401 418, 26 Am. Rep. 671 (1878); Han- (1859). nan v. ■WlUiamsburgh, etc., Ins. Co., 81 Mich. 556 (1890). § 313 THE STANDARD POLICY. 176 ture and .wearing apparel and books received and held on deposit sub- ject to the order of the owner.*" § 212. May cover shifting stock. — A policy upon a stock of goods covers as well additions made from time to time after the insurance was effected as those on hand when the policy was issued.*^ So, in- surance upon merchandise in a store covers the stock as diminished and increased from time to time in the ordinary course of business.** As said in one case,*' "Any other construction of a policy of insurance upon a stock in trade continually changing would render it worthless as an indemnity. It is a primary principle in the construction of the contract of insurance to give it effect as an indemnity which the parties to it designed." Thus, it was held that a policy on a stock of goods in a saloon which was being operated at the time the policy was issued covers newly purchased goods of the same character, not exceeding in value the amount insured."" § 213. Ambiguous descriptions — ^Reformation. — Where a misde- scription of the property insured in a policy occurred through the mu- tual mistake of the parties, the policy may be reformed in equity f^ but where a party accepts a policy without objection and makes no at- tempt to have the description corrected, he can not recover if the de- scription can not be applied to the property destroyed."^ Parol evi- dence is admissible to establish the identity and extent of the prop- erty covered by the policy of insurance and to explain any latent am- biguity in the description,"* but a party can not by such evidence es- « Siter v. Morrs, 13 Pa. St. 218 " Hooper v. Hudson River F. Ins. (1850). Co., 17 N. Y. 424 (1858). " American, etc., Ins. Co. v. Roth- ■" Manchester F. Assur. Co. v. Fei- child, 82 111. 166 (1876). belman, 118 Ala. 308, 23 So. 759 "Peoria, etc., Ins. Co. v. Anapow, (1897). 51 111. 283 (1869); American, etc., "Carey v. Home Ins. Co., 97 Ins. Co. V. Rothchlld, 82 111. 166 Iowa 619, 66 N. W. 920 (1896). (1876); Planters' Mut. Ins. Co. v. "" Goddard v. Monitor Ins. Co., 108 Engle, 52 Md. 468 (1879); Kunzze v. Mass. 56 (1871). American, etc., Ins. Co., 41 N. Y. "Storer v. Ellliot F. Ins. Co., 45 412 (1869); Sharpless v. Hartford Me. 175 (1858); Bowman v. Agricul- F. Ins. Co., 140 Pa. St. 437 (1891); tural Ins. Co., 59 N. Y. 521 (1875); American, etc., Ins. Co. v. Roth- Snow v. Carr, 61 Ala. 363 (1878); child, 82 111. 166 (1876). Wheeler v. Traders' Ins. Co., 62 N. H. 326 (1882). l'i'7 FORMAL PAET OF CONTRACT. § 313 tablish a new and different contract."'' Thus, a contract relating to one subject can not be turned into a contract for a different subject by evidence that the agent of the company by mistake described the wrong property,"" nor can a policy which in plain terms describes certain property be varied by parol evidence so as to show that only a particular interest was to be insured."" As a general proposition, there can be no recovery for property not described in the policy, un- less it is shown that there was a mutual mistake or that the company is estopped to deny that the property claimed to be covered was not in fact that which is described in the policy."'' Where it was contended that the policy covered only the warehouse company's interest in the goods contained in the warehouse, the Su- preme Court of the Un»ited States said:"* "Blanket or floating pol- icies are sometimes issued to factors or to warehousemen, intended only to cover margins uninsured by other policies, or to cover nothing more than the limited interest which a factor or warehouseman may have in the property which he has in charge. In those cases, as in all others, the subject of the insurance, its nature, and its extent are to be ascer- tained from the words of the contract which the parties have made. It is as true of policies of insurance as it is of other contracts, that, except when the language is ambiguous, the intention of the parties is to be gathered from the policies alone. There are cases in which resort may be had to parol evidence to ascertain the subject insured ; but they are cases of latent ambiguity. * * * It is no exception to the rule that when a policy is taken out expressly 'for or on ac- count of the owner' of the subject insured, or 'on account of whom- soever it may concern,' evidence beyond the policy is received to show who are the owners or who were intended to be insured thereby. In such cases the words of the policy fail to designate the real party to- the contract, and, therefore, unless resort is had to extrinsic evidence, there it no contract at all. Turning, then, to the contract issued to the plaintiff below and construing it by the language used and the in- tention of the parties as plainly exhibited. Its words are, 'The Home Insurance Company insure Baltimore Warehouse Company " Holmes v. Charlestown, etc., Ins. etc., Co., 89 Tenn. 1, 14 S. W. 317 Co., 10 Mete. (Mass.) 211 (1845). (1890). " Sanders v. Cooper, 115 N. Y. 279, " Martin v. Farmers' Ins. Co., 84 22 N. E. 212 (sm6 nom. Landers v. Iowa 516, 51 N. W. 29 (1892). Cooper), 5 L. R. A. 638 (1889). "Home Ins. Co. v. Baltimore ••Lancaster Mills v. Merchants', Warehouse Co., 93 U. S. 527 (1876). 12 — ^Elliott Ins. § 214 THE STANDARD POLICY. l'i'8 against loss or damage by fire to the amount of $20,000, on merchan- dise hazardous or extra hazardous, their own or held by them in trust, or in which they have an interest or liability, contained in' a certain described warehouse. There is nothing ambiguous in this description of the subject insured. It is as broad as possible. The subject was merchandise stored or contained in a warehouse. It was not merely an interest in that merchandise." The court further said : "The parties to whom the policy was issued were warehouse keepers, receiving from various persons cotton and other merchandise on de- posit. They were empowered by their charter to receive bailments, and to make charges against the bailors for handling, labor and cus- tody. They were also authorized to make advances upon the goods de- posited with them, and their charges, expenses, -advances, and commis- sions were made liens on the property. They had, therefore, an inter- est in the merchandise deposited with them, which they might have caused to be specifically insured. It was also at their option to obtain insurance upon the entire interest in the merchandise, whether held by them or by the depositors. Nothing in their charter forbids such in- surance. It is undoubtedly the law that wharfingers, warehousemen and commission merchants, having goods in their possession, may in- sure them in their own names, and in case of loss may recover the full amount of insurance, for the satisfaction of their own claims first, and hold the residue for the owners. Such insurance is not unusual, even when not ordered by the owners of the goods, and wlien so made it inures to their benefit. And such insurance, we must hold, the waie- house company sought and obtained by the policy of the plaintiff in error. The words 'merchandise held in trust' aptly describe the property of the depositors. The warehouse company held the mer- chandise in trust for their customers, — ^not, it is true, as technical trustees, but as trustees in the sense that the goods had been intrusted to them." § 214. Presumption as to nature of business. — An insurance com- pany is presumed to know the nature of the goods ordinarily kept by those engaged in a certain business," ° and to have this, as well as the usual methods of carrying on the business, in mind when it issues the policy."* So, an agent of the company is presumed to be familiar ■»Hall V. Insurance Co., 58 N. Y. N. H. 326, 415 (1882), citing au- 292 (1874). tliorities. •"Wlieeler v. Traders' Ins. Co., 62 179 FORMAL PART OF CONTRACT. § 215 with the construction of the building insured and the company is charged with such knowledge.'^ § 215. descriptions, when warranties. — Whether descriptions of the character and use of the insured property constitute a warranty will depend on the language of the contract. Unless the contrary in- tention clearly appears, the word "dwelling" in a policy will be con- strued as descriptive of the property, and not as a warranty that the building is then being occupied as a dwelling house.^^ So, a descrip- tion of the property as a brick building is not a warranty that it is entirely constructed of brick.^' Describing a building as a storehouse is not a warranty that it shall be used for no other purpose."* On the contrary, however, it has been held that a misdescription in a material respect is a breach of warranty without reference to the intention of the parties,*^ and that description of the use and occupation is a war- ranty.°® Merely describing a house as a dwelling is not a warranty that it is occupied as such.°^ So, a statement that the building in- sured is used for the storage of ice is not a warranty that ice was stored there when the policy was issued.'^ § 216. Description of merchandise — ^What included in the descrip- tion. — There are many cases from which we may determine what is in- cluded within particular descriptions. Thus, a policy on "a stock manufactured or in the process of manufacture" is held to cover un- manufactured stock."* A policy on "merchandise," such as is usually kept in country stores, covers hardware, china, glassware, etc., if such articles are commonly kept in such places.'"' A policy on a stock of "^ Pettit V. State Ins. Co., 41 Minn. " Texas Ins. Co. v. Stone, 49 Tex. 299, 43 N. W. 378 (1889). 4 (1878); Franklin F. Ins. Co. v. »' Niagara F. Ins. Co. v. Johnson, Martin, 40 N. J. L. 568 (1878). 4 Kan. App. 16, 45 Pac. 789 (1896). "Browning v. Home Ins. Co., 71 Contra, Merwin v. Star F. Ins. Co., N. Y. 508 (1877). But see Boyd v. 72 N. Y. 603, 7 Hun (N. Y.) 659 Insurance Co., 90 Tenn. 212, 16 S. (1878). W. 470 (1891). •^ Gerhauser v. North British, etc., " Dolliver v. St. Joseph, etc., Ins. Ins. Co., 7 Nev. 174 (1871). Co., 131 Mass. 39 (1881). •* Franklin F. Ins. Co. v. Brock, " Spratley v. Hartford Ins. Co., 1 57 Pa. St. 74 (1868). Dillon (C. C.) 392 (1870). « Tesson V. Atlantic, etc., Ins. Co., " Franklin F. Ins. Co. v. TJpde- 40 Mo. 33 (1867). graff, 43 Pa. St. 350 (1862). § 216 THE STANDARD POLICY. ISO clothing, manufactured or in the process of manufacture, which con- tains a provision excluding liability "for loss for property owned by another party" does not include clothing belonging to another person taken to be manufactured under a contract by which it was to be at the manufacturer's risk.''^ A policy "on their stock ,of watches, watch trimmings, etc.," covers the entire stock, including plate, sil- verware, tools of the trade and such other goods as form part of similar stocks in the same city.'"' The words "stock in trade," as applied to the business of a baker, have a more extended meaning than when applied to the business of a merchant, and cover tools and implements necessary for the carrying on of the business, including a horse and cart.''' Where the policy covered "rags and old metals," it was held that evidence was admissible to show that by the usage of the trade the terms had acquired a broader signification than applied to those words as commonly used.''* Underwriters insuring by cer- tain words may fairly be presumed to know the mercantile meaning of these words, and the fact of a widespread established use has at least a tendency to show that they had such knowledge. A policy upon a stock of "hair, wrought and in process, as a retail hair store," does not cover fancy goods made of other materials, although usually kept and sold in a retail hair store.^^ Insurance on jewelry and clothing constituting a stock in trade does not include such articles as musical instruments, surgical instruments, guns and books.'^ A policy on "English, American and West India goods" does not in- clude teas and nutmegs.''^ Insurance on "a wholesale stock of drugs, paints, oils and dyestuffs and other goods not more hazardous, while contained in the three-story brick building," covers the entire stock of goods contained in such building.''* A policy which insures the party as "a manufacturer of brass clockworks" covers all the articles ordinarily employed in such manufacture, although the keeping and use of certain articles is prohibited by the printed terms of the pol- "Getchell v. ^tna Ins. Co., 14 "Medina v. Builders', etc., Ins. Allen (Mass.) 325 (1867). Co., 120 Mass. 225 (1876). " Crosby v. Franklin Ins. Co., 5 " Rafel v. Nashville, etc., Ins. Co., Gray (Mass.) 504 (1855). 7 La. Ann. 244 (1852). " Moadinger v. Mechanics' F. Ins. " Huckins v. People's, etc., Ins. Co., 2 Hall (N. Y.) 490 (1829). Co., 11 Fost. (N. H.) 238 (1855). " Mooney v. Howard Ins. Co., 138 " Wilson Drug Co. v. Phoenix Mass. 375, 52 Am. Rep. 377 (1885). Assur. Co., 110 N. C. 350, 14 S. B. 790 (1892). 181 FORMAL PART OF CONTRACT. § 216 icy.'" So, a policy on "all the articles making up the stock of a pork house and all within the building and appurtenant thereto," covers whatever belongs to the stock without reference to ownership of par- ticular articles, notwithstanding the fact that there is a provision in the policy requiring goods on commission to be insured as such.*" A policy insuring a railroad company on its wood and logs cut and piled along its line does not cover property belonging to other parties which is destroyed by sparks from the company's locomotives and for which it is responsible in damages.'^ The word "guano" includes fertilizer.** Whether flax is included in the term grain is for the jury to determine.*' A policy on "freight cars owned or used by a railroad company" protects the cars of another road while in the possession of and used by the insured.** The word "machinery" in- cludes all instruments intended to be operated exclusively by ma- chinery in the business of the insured which are so used from time to time in the regular and ordinary prosecution of the business re- ferred to in the policy, and covers movable dies worked by a press, which, when not in use, were deposited and kept on slielves.*^ Where the insured is permitted to occupy a portion of a warehouse for the purpose of rehandling tobacco, he may, on the destruction of the premises by fire, recover for the tobacco which was on hand and for sale.*' A policy on a creamery building and merchandise, which con- sisted chiefly of butter and cheese, manufactured and in the process of manufacture, covers milk cans used in the business.*' Millet hay is included in an insurance policy on "grain."** Carpets and bed cloth- ing are covered by the term "household furniture."*" Stationery and boxes of a glove manufacturer are not included in the term "all other kinds of implements.''^" A policy on "live stock" covers a horse I I " Bryant v. Poughkeepsie, etc., " Seavey v. Central, etc., Ins. Co., Ins. Co., 17 N. Y. 200 (1858). Ill Mass. 540 (1873). ™jEtna Ins. Co. v. Jackson, 16 B. *■ Western Assur. Co. v. Ray, 20 Men. (Ky.) 242 (1855). Ky. L. 1360, 49 S. W. 326 (1899). ■^ Monadnock R. Co. v. Manufac- " Cronln v. Fire Ass'n, 112 Mich, turers' Ins. Co., 113 Mass. 77 (1873). 106, 70 N. W. 448 (1897). »" Planters', etc., Ins. Co. v. Engle, " Norris v. Farmers', etc., Ins. Co., 52 Md. 468 (1879). 65 Mo. App. 632 (1896). "^ Hewitt V. Watertown F. Ins. Co., " Patrons', etc.. See. v. Hall, 19 55 Iowa 323 (1880). Ind. App. 118, 49 N. B. 279 (1898). " Commonwealth v. Hide, etc., " Stemmer v. Scottish, etc., Ins. Ins. Co., 112 Mass. 136 (1873). Co., 33 Ore. 65, 49 Pac. 588, 53 Pac. 498 (1898). § 216 THE STANDAED POLICY. 183 aequirea after the date of the policy."^ A policy on the machinery of a paper mill was held to cover all machinery, tools and implements used in connection therewith in the manufacture of paper.'^ A policy on tools used "in the manufacture of boots and shoes" includes pat- terns for making tools."' A policy on eggs "in pickle" covers the eggs at any timb while in store undergoing the process of pickling.'* The insured were manufacturers of machinery, parts of which were made of cast iron, and the policy covered "their fixed and movable machin- ery, engines, lathes and tools." They were obliged to keep themselves supplied with wooden patterns in order to make the iron castings necessary to the completion of their machinery, and their practice was to send these patterns to various foundries from which they pro- cured castings. It was held that it could not be shown by parol evi- dence that the parties intended to include patterns under the general term of tools. The court said: "The usual meaning of the word 'tool' is an instrument of manual operation — ^that is, an instrument to be used and managed by hand instead of being moved and eon- trolled by machinery. We see no grounds for holding that these patterns are machines or parts of machines. As we understand the case presented, they, or some of them at least, were not raised or lowered by machinery, but were of such size and shape that they were applied and removed by hand. * * * ^Ve think, therefore, that, without doing any violence to the language of the policy, it may be interpreted as covering all patterns which from their size and shape admitted of being applied and managed by the hands of one man."°^ A policy covered "merchandise in a store and furniture and fixtures in a building" to be used by the assured as a "fancy goods and Yankee notion store." It contained provisions against certain hazardous and extra hazardous articles, but plaintiff was permitted to show that fireworks and firecrackers constituted an ordinary, usual, and recog- nized portion of a stock of fancy goods and Yankee notions, and were therefore covered by the policy."' A policy "on a stock in trade, being mostly chamber furniture in sets and other articles usually kept by " Mills V. Farmers' Ins. Co., 37 •* Hall v. Concordia F. Ins. Co., 90 Iowa 400 (1873). Mich. 403, 51 N. W. 524 (1892). ""Buchanan v. Exchange F. Ins. ""Lovewell v. Westchester F. Ins. Co.. 61 N. Y. 26 (1874). Co., 124 Mass. 418, 26 Am. Rep. 671 '= Adams v. New York, etc., Ins. (1878). Co., 85 Iowa 6, 51 N. W, 1149 ■» Barnum v. Merchants' F. Ins (1892). Co., 97 N. Y. 188 (1884). 183 FORMAL PAET OF CONTEACT. § 217 furniture dealers," based on an application which is made a part o;C the contract, which described it as "household furniture, being my stock in trade, mostly chamber furniture in sets," covers paints and var- nishes used in finishing furniture, although applicant, in answer to the question as to whether any highly inflammable matter was kept in or on the premises, answered "Not to my knowledge.""^ A policy on a stock of "paints, oils, brushes, blinds, and such other merchandise while contained in the second story of the frame building, etc.," was held to cover such articles as set tackle and fall, ropes, knives, cans, scales^ etc., which were kept for use and not for sale.'' The court said: "We think the term 'merchandise' not only may be, but often is, used as a synonym of goods, wares and commodities. * * * If used in an insurance policy to describe the goods of a merchant, it might, perhaps, be very properly limited to the goods intended for sale ; if used for the same purpose to describe the goods of a painter, it might be held to cover property intended for use and not for sale." A policy on all the furniture contained in a brick building and addi- tions attached covers furniture in a frame building on the next lot extending over against the rear of the brick building, and used in connection therewith as a storehouse."' A policy on lumber in a "yard" does not protect lumber in a clearing in a forest.^"" § 217. Description of buildings. — "The three-story granite build- ing" is a proper description of a building with a granite front three stories in front and rear, although but one story in the middle."^ "The frame building occupied as a tannery" does not include an engine and machinery.^"^ A building twenty-five feet from a detached dwelling is not contiguous to it.^"' A policy describing the property as "buildings adjoined, and communicating, occupied * * * sit- uated detached," does not mean that they are detached from each other, but that the whole house is detached from other buildings.^"* A "Haley v. Dorchester, etc., Ins. "'Medina v. Builders', etc., Ins. Co., 12 Gray (Mass.) 545 (1859). Co., 120 Mass. 225 (1876). " Hartwell v. California Ins. Co., ™ Sunderlin v. .^tna Ins. do., 18 84 Me. 524, 24 Atl. 954 (1892). Hun (N. Y.) 522 (1879). "■ Maisel v. Fire Ass'n, 69 N. Y. "' Olson v. St. Paul, etc., Ins. Co., Supp. 181, 59 App. Div. (N. Y.) 461 35 Minn. 432 (1886). (X901). '"Broadwater v. Lion F. Ins. Co., ""Cook V. Loew, 69 N. Y. Supp. 34 Minn. 465 (1886). 614, 34 Misc. (N. Y.) 276 (1901). § 317 THE STANDARD POLICY. 184 policy on an "elevator building and additions" covers a warehouse standing two and one-half feet from the elevator building attached thereto by boards nailed to both buildings.^"* Whether counters and shelving are included in insurance upon a building depends, upon whether they are movables or fixtures.^"^ A policy on a building while in the process of construction covers the building after it is com- pleted."* Where the property is described as "the Wolfe house," it may be shown by parol evidence that the parties intended to include a certain barn."' A "starch manufactory" includes machinery and fix- tures necessary for the manufacture of starch.^^" A policy on a steam saw mill covers not only the building, but the machinery necessary to make it a steam saw mill in all its parts.^^^ A policy on "an unfin- ished house" does not cover material which has been prepared for the house and deposited in an adjoining building,^^" but the word "house" in a policy includes whatever is appurtenant and necessary to a house as a building.^" A policy on a barn, which, although an agricultural building, should not strictly have been described as a barn, but which, had there been a correct description, would have been insured at the same rate, is valid.^^* Machinery placed in a mill building and de- signed for a portion of the mill is real property within the meaning of a valued policy law.^^^ ■ A policy on a frame steam saw mill, with a specific amount on the "boiler, engine, machinery and belting con- tained therein," covers a planing mill in a shed on the same floor with the machinery proper and connected with it by belting.^^° Fix- tures built into and forming a part of a building are covered by the policy, although such fixtures are included among others in a separate item covered by other insurance, where the indemnity on the latter "'Cargill V. Millers', etc., Ins. ^Bllmaker v. Franklin F. Ins. Co., 33 Minn. 90 (1885). Co., 5 Pa. St. 183 (1847). "" Capital City Ins. Co. v. Cald- ™ Workman v. Insurance Co., 2 well, 95 Ala. 77, 10 So. 355 '(1892). La. 507 (1830). 108 Frost's, etc.. Works v. Millers', "• Dobson v. Sotheby, Moody & M. etc., Ins. Co., 37 Minn. 300, 5 Am. 90 (1827). St. 846 (1887). ""British, etc., Assur. Co. v. Brad- "» Claffey v. Hartford F. Ins. Co., ford, 60 Kan. 82, 55 Pac. 335 (1898) 68 Cal. 169 (1885). (under ch. 102, Laws 1893). ^'° Peoria, etc., Ins. Co. v. Lewis, "" James River Ins. Co. v. Merritt, 18 111. 553 (1857). 47 Ala. 387 (1872). "" Bigler v. New York, etc., Ins. Co., 22 N. Y. 402 (1800). 185 FOKMAL PART OF CONTRACT. § 217 item is not sufficient to cover the loss on the fixtures.*" A policy describing a building as used for the manufacture of lead pipe cov- ers wooden reels on which the pipe is coiled.**' The words "pottery building," as descriptive of the property, do not cover a two-story brick boiler house, built at the end of but not connected by a door with a three-story brick building in which pottery is manufactured, where the lower part of the boiler house is used exclusively in con- nection with another and distinct business in a different building, although the second story is used for storing pottery.**" The word "store" is equivalent to the word "shop," and properly describes a bakery and restaurant.*'" A structure which has been injured by fire may, while in its injured condition, be insured as a "building."*^* Permission to use a-building for "mercantile purposes" does not per- mit its use as a restaurant.*'" The word "school-house" means a house or building in which school is kept, and is not restricted to a district school-house.*'^ A cellar wall is a part of a building,*'* and in describing the building it is not necessary to refer to the cellar underneath the same.*'" The words "the two-story brick build- ing" are sufficient to describe a building which is two stories in front and one in the rear.*'" A policy on a planing mill building and addition, and machinery, including shafting, gearing, belting, saws, tools, force pump and hose therein, covers an engine room from which motive power was furnished, which was situated twenty-two feet from the mill building and connected therewith by shafting for the transmission of power, and by a spout through which shavings were forced into the engine room.*'' The court said: "It conclu- sively appears that the engine in the engine room was the only mo- "' Niagara F. Ins. Co. r. Heenan, "' Luthe v. Farmers', etc., Ins. Co., 181 111. 575, 54 N. E. 1052 (1899). 55 Wis. 543 (1882). "« Collins V. Charlestown, etc., Ins. ™ Ervin v. New York, etc., Ins. Co., 10 Gray (Mass.) 155 (1857). Co., 3 T. & C. (N. Y.) 213 (1874). "'Forbes v. American Ins. Co., ™ Benedict v. Ocean Ins. Co., 31 164 Mass. 402, 41 N. E. 656 (1895). N. Y. 389 (1865). See Ohage v. ""Richards v. Washington, etc., Union Ins. Co., 82 Minn. 426 (1901). Ins. Co., 60 Mich. 420 (1886). ""Carr t. Hibernia Ins. Co., 2 ™ Hamburg, etc., Ins. Co. v. Gar- Mo. App. 466 (1876). lington, 66 Tex. 103 (1886). "'Home, etc., Ins. Co. v. Roe, 71 "^Garretson v. Merchants', etc.. Wis. 33 (1888). Ins. Co., 81 Iowa 727, 45 N. W. 1047 (1890). § 218 THE STANDARD POLICY. 186 tive power for propelling any of the machinery in either of the buildings. The engine was used for no other purpose. It was therefore an essential part of the mill. Without it there would have been no complete mill. * * * Stress is laid upon the fact that the engine, which was the principal machine, was not specially men- tioned in the policy, but we are inclined to think it was covered by the word machinery, and that other things were specifically enumer- ated for fear that they might not otherwise be included." A policy which covered "one two-story frame dwelling and additions thereto, occupied by the assured as a dwelling house," was held to cover a car- riage house and stable under the same roof and in the rear of the portion occupied for dwelling purposes, but attached thereto.^^' § 218. Location of property — In general. — Under this provision, which is not found in the Massachusetts form, the property is insured while located as described "and not elsewhere." This is so definite that it would seem that there could be but little controversy as to its proper construction.^^' In a recent case it appeared that the policy was issued to a judge who was in the habit, while holding court in neighboring counties, of taking the insured property along with him for ase in such other places. The court recognized the fact that a ^" Hannan v. Wllllamsburgh, etc., from the dwelling, and there was In Ins. Co., 81 Mich. 556 (1890). The the policy that which made it clear court said: "I am not prepared to to the learned judge who wrote the say that the words 'occupied as a, opinion that the barn was not in- dwelling house' as used in the pol- tended to he included in the general icy of insurance necessarily exclude term 'dwelling house.' " the idea that some part of the build- "° "The general doctrine Is fully ing may be used as a stable. If the established that insurance of prop- family lived in the building it is erty in a certain place will not fol- not deprived of its character as a low the property on its removal to dwelling house because domestic a place different from that in which animals were also housed there, it was insured. Some courts have Nor does this view conflict with the In some particulars qualified this doctrine in English v. Franklin F. general proposition, * • * but the Ins. Co., 55 Mich. 273, cited by de- general doctrine is recognized in fendant's counsel. In that case the all the cases." See extensive note barn which it was sought to bring to Benton v. Farmers' Mut. Ins. Co., within the term 'dwelling house and 26 L. R. A. 237 (1894), on "I,ocation additions thereto' was a separate of Movable Property as Affecting building detached about forty feet Fire Insurance Thereon." 1S7 FORMAL PART OF CONTRACT. § 219 number of cases construed somewhat similar language as being merely descriptive of the place at which the property is located at the time the insurance was obtained, and that others hold that such language must be construed with reference to the use of the property, and if this ordinarily causes it to be absent from such place, the com- pany is liable. It was said : "However, in this policy the insurance company so definitely and unequivocally expresses a contract by which it is not bound for the loss of the property when absent from the place named that there is no room for construction. The protection afforded by the policy is expressly limited to the time that the sub- ject of the insurance shall be in the house described, and when- ever it was taken therefrom it was removed beyond the protection of the contract.""" - § 219. Location material. — ^A mere description of the place where the insured property is located, as a general rule, renders the loca- tion material to the risk, although it may be inferred that it is the intention of the parties that property of a certain character should be covered by the insurance while in ordinary use at other places. "Ag a rule," says Mr. Joyce,^'^ "locality and place are essential, but in determining how far locality is important in describing property in- sured, reference must be had to the character of the property, to a consideration of what is the primary object in effecting insurance, and also to the fact to what uses the property insured would in all rea- sonable probability be put. So usage may be a controlling factor in the matter, as may also be the fact in the case of certain kinds of prop- erty, whether removal thereof is permanent or temporary. Where the policy is upon a class of property, the risk upon which from its par- ticular character depends so much upon place or location, that the same constitutes an essential element of the contract, as in the case of a stock of goods or furniture 'contained in' a specified building, then such property will, as a rule, not be covered if changed or removed to another place or locality. The insurer, for various rea- >" British, etc., Assur. Co. v. Mil- Ass'n, 119 Mich. 427, 75 Am. St. 410 le', 91 Tex. 414, 66 Am. St. 901, 29 (1899). !•. R. A. 545 (1898); Green v. Liver- "'2 Joyce Ins., § 1742. See Brad- pool, etc., Ins. Co., 91 Iowa 615 bury v. Fire Ins. Ass'n, 80 Me. 396 (1894); Mawhinney v. Southern (1888); Lyons v. Providence, etc., Ins. Co., 98 Cal. 184 (1893); Haws Ins. Co., 14 R. I. 109, 51 Am. Rep. V. St. Paul, etc., Ins. Co. (Pa.), 15 362 (1883). Atl. 915 (1888); L'Anse v. Fire § 219 THE STANDARD POLICY. 188 sons in cases of this character, might refuse to accept the risk al- together, or might accept it at an enhanced premium if he had known that its location was other than that designated, and the right of the insurer to know exactly what risk he is undertaking can not be denied. But if the primary object is to insure the property described, and the character of the property is such as to warrant that presump- tion, then its exact location may be a subordinate matter of more or less importance." There is a line of cases which construe the statement that the insured property is "contained in" a certain place as descriptive mere- ly of its location at the time the insurance Was obtained. The de- scriptive words are construed with reference to the use of the prop- erty, and if this ordinarily causes it to be absent from such place, and while so absent it is destroyed, the property is nevertheless pro- tected by the policy.^'* Such descriptive words are thus held to amount merely to a warranty that the property is at the place desig- nated at the time the policy is executed, but not that it will remain there. The insured thus has the right to the use of the property in the usual maimer without losing his protection, and he niay remove it temporarily if it be necessary in making such use of it.^'^ Thus, where the policy was upon a house, grain, hay and horses situated on section 22, it was held to cover the horses while in ordinary use on the farm or temporarily away from home.^'* So, a sealskin coat "contained in a frame dwelling," etc., was held covered by the policy while in a fur store, where it had been sent for repairs.^" So, it was held that where the company insured farm horses, it assumed any risk arising from the ordinary use of the animals for farm pur- poses, although the risk was greater than that assumed while the ani- mals were in the barn.^'° Insurance upon carriages "contained in" a described building "occupied as a livery and sales stable" covers a ^" McCluer v. Girard, etc., Ins. ■" Peterson v. Mississippi Valley Co., 43 Iowa 349, 22 Am. Rep. 249 Ins. Co., 24 Iowa 494 (1868). To (.1876) ; Mills v. Farmers' Ins. Co., the same effect, see Mills v. Farm- 37 Iowa 400 (1873); American, etc., ers' Ins. Co., 37 Iowa 400 (1873), Ins. Co. V. Haws (Pa.), 11 Atl. 107 where the horses were killed by (1887). lightning when six miles from 12= Farmers', etc., Ins. Ass'n v. home. Kryder, 5 Ind. App. 430, 51 Am. St. '" Noyes v. Northwestern, etc., 284 (1892). See, also, Bradbury v. Ins. Co., 64 Wis. 415 (1885). Westchester F. Ins. Co., 80 Me. 396, »" Holbrook v. St. Paul, etc., Ins. 6 Am. St. 219 (1888). Co., 25 Minn. 229 (1878). 189 FORMAL PAKT OF CONTRACT. § 219 carriage while trndergoing repairs at a repair shop.^'^ But the de- cisions are not vmiform upon this question, as some courts construe the provision more strictly. Thus, where the policy insured plain- tiffs "frame stable buUding, occupied by the assured as a hack, livery and boarding stable, situated on the north side of Court street, Au- burn, Me.," it was held not to cover the loss of a hack while in a re- pair shop on another street, to which it had been removed before the fire without the knowledge and consent of the company.^^' So, a policy on a fire engine, hose, hose-cart, while located and contained in the engine-house, "and not elsewhere," does not cover '"Niagara P. Ins. Co. v. Elliott, S5 Va. 962. 9 S. E. 694 (1889). i» Bradbury v. Fire Ins. Ass'n, 80 Me. 396, 15 Atl. 34, Woodruff's Ins. Cas. 170 (1888). The court said: "The general rule stated by text writers and held by the general current of decided cases, is that the place where the personal property insured is kept is of the essence of the contract, as by that the charac- ter of the risk is largely determined, and the property is covered by the policy only while in the place de- scribed: Wood Ins., p. 110; Blodg- ett Fire Ins., p. 22; Eddy Street Iron Foundry v. Hampden, etc., Ins. Co., 1 Cliff. (C. C.) 300 (1859); Mary- land F. Ins. Co. V. Gusdorf, 43 Md. 506 (1875); Fitchburg R. Co. v. Charlestown, etc., Ins. Co., 7 Gray (Mass.) 64 (1856). The following cases are cited as an exception to the general rule and as sustaining the plaintiff's contention: Everett V. Continental Ins. Co., 21 Minn. 76 (1874); Holbrook v. St Paul, etc., Ins. Co., 25 Minn. 229 (1878); Mc- Cluer V. Girard, etc., Ins. Co., 43 Iowa 349 (1876); Longueville v. Western Assur. Co., 51 Iowa 553 (1879); Ly- ons V. Providence, etc, Ins. Co., 13 R. I. 317 (1881). We think a careful examination of all these cases will show that the chattels in- sured were so described in the pol- icy that they can be identified with- out reference to the building or place where they were kept, and the courts held that the words 'con- tained 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 or character or ordinary use, the par- ties 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 to the 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 are similar to an insurance of a shop- keeper on his stock of goods in his shop, or of a railroad company 6n its rolling stock on its road, con- stantly changing. In such cases the property insured can be ascertained only from the place of business named: Lyons v. Providence, etc., Ins. Co., 13 R. I. 347 (1881). The policies insure such of the plain- tiff's carriages, hacks, etc., as are contained in his stable at the time of the loss." § 320 THE STANDARD POLICY. 190 a loss, on the property which was being used at the time to extinguish a fire several hundred feet from the fire-engine house.^^' So, where the application requests insurance upon property "while on the premises only," and the policy covers farming utensils, and live stock on the described premises, and hay in stacks, it does not cover property taken temporarily for the purpose of plowing to a place twenty miles distant."" This case recognizes the rule that the property insured may sometimes be taken from the place described in the policy where it is of such a character that the use must have been within the contemplation of the parties, but holds that the language of this policy takes it out of the operation of the rule. A harvesting machine which is insured "while operating in the grain fields, and in transit from place to place in connection with harvest- ing," was held not protected while in a blacksmith's shop for the pur- pose of being repaired. ^^'^ Where the property is removed the policy is merely suspended, and if there is no loss and the property is returned it re-attaches.^*" The right of the company to deny liability where the property in- sured is specifically located in a given building, on the ground that it has been removed and was destroyed at a different place, may be waived by acts and declarations of the company after the loss show- ing an intention to relinquish such right after knowledge of re- moval.^*' § 220. IllTistrations. — Where the policy insured household goods contained in a dwelling house, and they were burned while stored in a barn on the same premises, it was held that the knowledge of the company that the goods were so stored did not amount to a waiver of the provision in the policy.^** Mr. Justice Cdoley said: "The defendant merely undertook, for a certain consideration, the respon- "• L'Anse v. Fire Ass'n, 119 Mich. Ins. Co., 97 Cal. 468, 32 Pac. B12 427, 75 Am. St 410 (1899); British, (1893). etc., Assur. Co. v. Miller, 91 Tex. '"British, etc., Assur. Co. v. Mil- 414, 66 Am. St. 901 (1898). ler, 91 Tex. 414, 66 Am. St. 901 '"Lakings v. Phoenix Ins. Co., 94 (1898). Iowa 476, 28 L. R. A. 70 (1895). '"Montgomery v. Delaware Ins. '"Mawhinney v. Southern Ins. Co., 55 S. C. 1, 32 S. E. 723 (1898). Co., 98 Cal. 184, 32 Pac. 945 (1893); '"English v. Franklin F. Ins. Co., Benicia Agri. Works v. Germania 55 Mich. 273, 54 Am. Rep. 377 (1884). 191 FORMAL PART OF OOXTRACT. § 320 sibility while the goods were in the house, and it was at the plaintifE's option to have them there or elsewhere as he pleased. If they were lost by fire while elsewhere, the loss was not one against which the defendant had undertaken to insure him, nor was the defendant called upon to cancel the policy by reason of the goods being removed from the building where they were insured. If the dwelling house had been repaired and the goods restored to it, the policy would again have covered them ; and this, for anything that appears to the contrary, may have been what both parties desired. At any rate, it does not appear that the plaintiff desired the policy canceled, and if it had desired it the cancellation would have been optional with the defendant." A policy upon the contents of a building, described in no other way, will not cover articles then contained in the building after they are removed and stored elsewhere.'^** A policy covering "oil while con- tained in a tank" in a certain location was held binding, although the tank had been swept away from such location by a flood.'*^ A policy upon horses and colts "while in a barn, and by lightning only while in use or running in the pasture, while on his farm in the town of Le Seur, Minn.," covers loss by lightning at any place in the town.^*^ Where a horse is insured "while in the barn or in the fields," it was held to be covered while in a barn built on the farm after the policy was issued.^°° A vessel insured while lying at a certain dock is not covered by the policy while moored outside in the river some 700 yards distant for the purpose of being refitted. ^°^ Where the policy described the goods as being "in the store part of the building," it was held not to cover loss of goods which had been removed to the second or third stories, which were not used for ordinary store pur- poses. ^'^ A p"» Titus V. Glens Falls, etc., Ins. v. Coombs, 19 Ind. App. 331, 49 N. Co., 81 N. Y. 410 (1880). B. 471 (1898). >« Baker v. State Ins. Co., 31 Ore. ™ Petty v. Mutual F. Ins. Co., Ill 41, 48 Pac. 699 (1897); Phenix Ins. Iowa 358, 82 N. W. 767 (1900). Co V. Pickel, 119 Ind. 155, 21 N. B. '"' Fowler v. ^tna F. Ins. Co., 6 546 (1889). Cow. (N. Y.) 673 (1827), 16 Am. "» Insurance Co. v. Osborn, 26 Ind. Dec. 460 and note; Boutelle v. West- App. 88, 59 N. E. 181 (1901). Chester F. Ins. Co., 51 Vt. 4, 31 Am. '" Sturm V. Atlantic, etc., Ins. Co., Rep. 666 (1878); Carson v. Jersey 63 N. r. 77 (1875); Insurance Co. City F. Ins. Co., 14 Vroom (N. J.) 300, 39 Am. Rep. 584 (1881). § 228 THE STANDARD POLICY. 206 value, it would not render the policy void, although larger than the value of the property as estimated by others. Doubtless a very slight variation should be disregarded, but I think the applicant must be held responsible for any substantial excess when he thus warrants the value." Under this provision of the standard policy it is held in Michigan that the contract is not necessarily avoided because of a false statement in the affidavit, given by the assured after the loss, that a sewing machine was burned, which he explained by saying that he thought it was burned at the time he made the affidavit, but subse- quently found it was not in the buil(^ing.^°^ Where the policy con- tained a provision that any fraud or false swearing should forfeit all claims under it, and the plaintiff in his proofs of loss stated under oath that the building was occupied as a dwelling house and for no other purpose, the words were held to mean a verified false assertion, fitted and likely to, and which does, deceive.^"' But it appeared that the defendant, through its agents and secretary, knew the facts ; and as the words used, when charged with the meaning given them by the par- ties, were not true as between them, there was no breach of the condi- tion. The defendant could not be deceived by an assertion which to its own knowledge was false. Under this provision, false swearing in the proofs of loss in regard to the burning of wearing apparel, which has been removed from the building insured before the loss, renders the policy void as to insurance on the house and household furniture as well as that on the wearing apparel.^"* Y. Excluded Risks. This company shall not he liable for loss caused directly or in- directly by invasion, insurrection, riot, civil war or commotion, or military or usurped power, or by order of any civil authority, or by theft; or by neglect of the insured to use all reasonable means to save and preserve the property at and after a fire or when the prop- erty is endangered by fire in neighboring premises; or (unless fire ensues, and, in that event, for the damage by fire only) by explosion of any kind, or lightning; but liability for direct damage by light- ning may be assumed by specific agreement hereon. If a building or any part thereof fall, except as the result of fire, "»Knop v. National P. Ins. Co., =" Fowler v. Phoenix Ins. Co., 35 107 Mich. 323, 65 N. W. 228 (1895). Ore. 559, 57 Pac. 421 (1899). ^ Maher v. Hibernia P. Ins. Co., 67 N. Y. 283 (1876). 207 EXCLUDED RISKS. § 229 all insurance ly this policy on such iuilding or its contents shall im- mediately cease. * * * , -Yor, beyond the actual value destroyed iy fire, for loss occasioned by ordinance or law regulating construction or repair of buildings, or by interruption of business, manufacturing processes, or other- wise.^'^' I § 229. Invasion, riot, etc. — An invasion is the hostile entrance of an armed force into a certain territory, and any loss to the insured property of which the invasion is the efficient cause is not within the protection of the policy.^"" There can be no recovery in such case, although the commanding officer of the invading party did not order the property destroyed.'"'^ An insurrection is a "seditious rising against the government; a rebellion; a revolt.'""' A riot is an unlawful act done or attempted to be done by three or more persons, either with or without common cause, or it may be a lawful act done in a violent or tumultous manner. It is immaterial whether or not there is a previous unlawful assembly, or whether the rioters originally assembled for a lawful purpose. Force or violence, or some acts tending thereto, calculated to cause terror to one or more, are neces- sary in criminal law, although there may be a riot without actual violence. In insurance cases it is not necessary to first establish the fact of a riot by a judgment of a criminal court.""* *» These provisions are found in explosions of any bind unless fire the standard policies of New York, ensues, and then that caused by New Jersey, Connecticut, Rhode fire only." They also provide that Island, Wisconsin, Louisiana, Iowa, if "the insured property be exposed North Dakota, South Dakota, Mich- to loss or damage by fire, the in- igan, and North Carolina. The sured shall make all reasonable ef- standard policies of Massachusetts, forts to save and protect the same." Minnesota, Maine and New Hamp- "" ^tna F. Ins. Co. v. Boon, 95 shire insure against all loss or dam- U. S. 117 (1877); Portsmouth Ins. age by fire originating from any Co. v. Reynolds, 32 Gratt. (Va.) cause except "invasion, foreign ene- 613 (1880). mies, civil commotions, riots or any "" Barton v. Home Ins. Co., 42 military or usurped power what- Mo. 156, 97 Am. Dec. 329 (1868). ever; the amount of said loss or ^'Spruill v. North Carolina, etc., damage to be estimated according Ins. Co., 1 Jones (N. C.) 126 (1853). to the actual value of the insured «'» Joyce Ins., § 2581; Lycoming F. property at the time when such Ins. Co. v. Schwenk, 95 Pa. St. 89, loss or damage happens, but not to 40 Am. Rep. 629 (1880); Germania Include loss or damage caused by F. Ins. Co. v. Deckard, 3 Ind. App. § 229 THE STANDAED POLICY. 208 The form of policy excepts the risks of civil war or commotion. Lord Mansfield says that the words "civil commotion" were intro- duced in 1727, and are as general and untechnical as any that can possibly be used. He distinguishes between civil commotion and invasion by usurped military power and says : "I think a civil com- motion is this: an insurrection of the people for a general purpose, though it may not amount to a rebellion while there is usurped power."''^" "Usurped power" may mean an invasion from abroad or internal authority conducted by authority, and not the power of a common mob.=" A loss caused by the burning of a bridge by the order of the mili- tary authorities to prevent the advance of an armed force of rebels is not excepte'd by the clause, "loss by fire occasioned by mobs or riots," although it would be within other clauses of this provision.^^^ A policy contained a provision that the company "shall not be liable to make good any loss or damage by fire which may happen or take place by means of any invasion, insurrection, riot, or civil com- motion, or of a military or usurped power." A certain town in Mis- souri was attacked by a Confederate military force; and an ofiBcer in command of the United States forces, after a battle had been in progress for some time, being unable to successfully defend the city, set fire to some military stores to prevent them from falling into the hands of the enemy. The fire spread through two. intermediate buildings to the store containing the insured goods, and they were destroyed. The Connecticut court held that the clause did not refer to the lawful acts of military authorities, but only to acts of persons in hostility to the lawful authorities, and that the act of the com- mander in ordering the firing of the building was a lawful act and 361, 28 N. E. 868 (1891); State v. .Boon, 95 U. S. 117 (1877). In Dean, 71 Wis. 678, 38 N. W. 341 Strauss v. Imperial F. Ins. Co., 94 (1888). Mo. 182, 4 Am. St. 368 (1887), the "" Langdale v. Mason, reported in words "notorious resistance to law- 2 Marsh. Ins. (ed. 1810) 791. ful authority" were held to mean «i Drinkwater v. London Assur. such an unusual and extraordinary , Corp., 2 Wilson 363 (1767); City F. state of aflfairs that the ordinary Ins. Co. v. Corlies, 21 Wend. (N. civil authorities were overpowered. Y.) 367 (1839); Barton v. Home ='= Harris v. York, etc., Ins. Co., Ins. Co., 42 Mo. 156, 97 Am. Dec. 50 Pa. St. 341 (1865). 329 (1868); .^tna F. Ins. Co. v. 309 EXCLUDED RISKS. § 230 not within the exception of the policy.''^' But the Supreme Court of the United States held that the fire which destroyed the goods was excepted from the risk assumed. Mr. Justice Strong said:"" "The general purpose of this proviso is clear enough, but there is a contro- versy respecting the extent of the exemption made by it. It has been very strenuously argued that the words 'military or usurped power' must be construed as meaning military and usurped power; that they do not refer to military power of the government, lawfully exercised, but to usurped military power, either that exerted by an invading for- eign enemy or by an internal armed force in rebellion, sufficient to sup- plant the laws of the land and displace the constituted authorities. There is, it must be ^admitted, considerable authority and no less reason in support of this interpretation. In our view of the present case, however, we are not called upon to affirm positively that such is the true meaning of the words in the connection in which they were used in the policy now under review; for if it be conceded that it is, we are still of opinion that the fire which destroyed the premises of the plaintiffs below ^happened,' 'took place,' or occurred by means of a risk excepted in the policy. In other words, it was caused by 'invasion,' and the usurped military power of a rebellion against the government of the United States, as the contracting parties understood the terms 'invasion' and 'military or usurped power.' " § 230. Theft. — This provision, which excepts loss by theft, is bind- ing."^^ Where there is no such provision an insurer against fire only is liable for goods stolen during their removal to avoid impending loss by an adjoining fire. A clause to the effect that the company "will not be liable for damage to goods contained in show windows, when the damage is caused by a light in the window, nor shall the company be liable for loss by theft," applies only to theft from the windows, and not theft occurring while the property is necessarily being removed to avoid fire."° Where it was provided that "in case of fire or of loss or damage thereby it should be the duty of the assured to use his best endeavors "■Boon V. .ffitna F. Ins. Co., 40 "'Liverpool, etc., Ins. Co. v, Conn. 575 (1874). Creighton, 51 Ga. 95 (1874). "'.(Etna F. Ins. Co. v. Boon, 95 "" Lei bar v. Liverpool, etc., Ins U. S. 117 (1877). Co.. 6 Bush (Ky.) 639 (1869). 14— Elliott Iks. § 231 THE STANDARD POLICY. 210 for saving and preserving the property," it was held that the com- pany vras liable for the value of the goods lost or stolen in the process of removal in accordance with this provision."^' Where the policy made it the duty of the insured to "use all diligence in the removal and preservation of the property, and, in case of failure on his part so to do, the company would not be liable for loss or damage sus- tained in consequence of such neglect," and while complying with this provision there was a loss by theft, it was held that there was no liability on the part of the company for the loss under the provision that "this company shall not be liable to make good any loss by theft; or any loss or damage by fire which may happen or take place by means of any invasion, insurrection, riot, or civil commotion, or any military or usurped power." The clause relating to theft was treated as an independent provision."^* § 231. Neglect to protect property. — Unless expressly provided to the contrary, a policy covers damage occasioned by the negligence of the insured or his representatives. This provision imposes upon him the duty to use reasonable care to save and preserve the property at and after a fire, or when the property is endangered by fire existing in the neighborhood. In a case where the policy contained a similar provision, and it was alleged that the loss was occasioned by the "neglect to use all possible efforts by the plaintiff to save and pre- serve the property when exposed to fire," it was held error to refuse a request that plaintifis could not recover for any loss or damage oc- casioned by their or either of their neglect to use all possible 'efforts to save or preserve the property when on fire or exposed thereto. It was said that the request "was almost in the precise words of the condition, and although the condition was not set up in the answer as a defense, the issue had been tendered in the complaint as to its breach and the question was one which affected the amount of dam- ages to be recovered even if the defendant failed to sustain his de- fense to the action.""" § 232. Explosion. — In the absence of a provision imposing liability there has been much conflict of authority as to the liability of the "' Independent, etc., Ins. Co. v. Co., 14 Mo. 3 (1851). See, also, Agnew, 34 Pa. St 96 (1859). See, Witherell v. Maine Ins. Co.,' 49 Me. also, Tilton v. Hamilton F. Ins. Co., 200 (1861); Fernandez v. Mer- 14 How. Pr. (N. Y.) 363 (1857); chants', etc., Ins. Co., 17 La. Ann. Newmark v. Liverpool, etc., Ins. 131 (1865).- Co., 30 Mo. 160 (1860). »" Ellsworth v. ^tna Ins. Co., 89 '"Webb V. Protection, etc., Ins. N. Y. 186 (1882). 211 EXCLUDED RISKS. § 232 insurer for loss caused by a fire which results from an explosion. In the leading early case in New York the policy contained a condi- tion that the insurer should not be liable for loss caused by the ex- plosion of a steam boiler. As a result of explosion fire was brought in contact with the insured property, which was consumed. It was held that the loss was within the exception and that the company was not liable.^^" The same conclusion was reached in Ohio' under slightly different form of policy. It appeared that an inflammable vapor was formed in the course of the business of rectifying spirits, which came in contact with an ordinary gas jet and resulted in an explosion, which was followed by fire.^^"^ A later' case in the same state would seem to be in conflict, but the court attempts to make a distinction between the two cases.^"^ So, the United States Supreme Court held that under a similar exemption there was no liability where the explosion took place in a building, across the street which resulted in an extensive fire, which destroyed several blocks of buildings, including the warehouse in which the insured . property was stored. The court said:^-^ "The only question was whether the fire happened or took place by means of the explosion, for -if it did the defendant was not liable by the express terms of the policy." The contrary rule has been established in Illinois''^' and Penn- =" St. John V. American, etc., Ins. fire and an explosion had occurred Co., 11 N. Y. 516 (1854). In Hay- in the course of the conflagration, ward V. Liverpool, etc., Ins. Co., 3 the rule might have been different. Keyes (N. Y.) 456 (1867), the policy So in Mitchell v. Potomac Ins. Co. expressly excepted liability for sub- (U. S.), 22 Sup. Ct. 22 (1901), a sequent Are. In Briggs v. North lighted match which came in con- American, etc., Ins. Co., 53 N. Y. tact with a vapor and caused an 446 (1873), under a policy which explosion was not a "fire" within contained the standard clause, it ap- the meaning of a policy which ex- peared that vapor from the works eludes liability for explosion, came in contact with the flame of "=°a United, etc., Ins. Co. v. Foote, a lamp, and an explosion ensued 22 Ohio St. 340 (1872). which nearly destroyed the build- ^' Boatman's, etc., Ins. Co. v. Par- ing and machinery. A fire resulted ker, 23 Ohio St. 85 (1872). which caused some damage, slight =^ Insurance Co. v. Tweed, 7 Wall, when compared with that caused (U. S.) 44 (1868). by the explosion, and it was held "= Commercial Ins. Co. v. Robin- that the company was not liable son, 64 111. 265 (1872); Heuer v. for the loss caused by the explo- North-Western, etc., Ins. Co., 144 si on. It was suggested, however. 111. 393 (1893). that if the building had been on § 232 THE STANDARD POLICY. 213 sylvania.=" In the latter state it was said: "Careful examination of the question convinces me that the exception covered by this section is to be restricted to losses arising from explosions rather than ex- tended to the much broader ground of losses by fire originating from explosions." Where the policy excluded liability for damage caused by explo- sion, it was held that there was no liability where powder in another building was struck by lightning and the insured house was de- stroyed."= "The conclusions stated," said the court, "are sustained by abundant authority. True it is that cases are to be found which declare principles of construction which, if applied here, would make the company liable for this loss if its liability were measured wholly by the lightning clause, but in no case which has come under our observation, and we have examined a great many, has liability been found to attach where there was a provision excluding liability for loss by explosion and the loss was caused by fire, or as here by light- ning taking eifect in a distant building, and the damage being wrought to the insured property by an explosion produced by the fire or light- ning without either of the latter agencies coming in contact with the property." The standard form provides for liability for damages occasioned by fire which results from explosion, and exempts the insurer from liability for damages caused by the explosion itself. The loss by explosion must be distinguished from that caused by the subsequent fire.--" Under this provision the insurer is liable for the loss where the explosion is the result of an antecedent fire.^^^ Damage to prop- erty resulting immediately from an explosion of gunpowder caused by the application of fire is within the provision of the policy which exempts the company from liability for loss caused by explosion unless fire ensues, and then only for loss or damage by fire.^^^ '"•Heffron v. Kittannlng Ins. Co., field, etc., Ins. Co., 53 Wis. 129 132 Pa. St. 580, 20 Atl. 698 (1890), (1881), 56 Wis. 96 (1882); Smiley "" German P. Ins. Co. v. Roost, 55 v. Citizens' Ins. Co., 14 W. Va. 33 Ohio St. 581, 45 N. E. 1097, 60 Am. (1878). St. 711 (1897). ^"Washburn v. Miami Valley Ins. ^^Briggs V. North British, etc., Co., 2 Fed. 633 (1880). See Waters Ins. Co., 66 Barb. (N. Y.) 325 v. Merchants', etc., Ins. Co., 11 Pet. (1872); Briggs v. North American, (U. S.) 213 (1837). etc., Ins. Co., 53 N. Y. 446 (1873). ==« Phoenix Ins. Co. v. Greer, 61 See generally, Transatlantic F. Ins. Ark. 509, 33 S. W. 840 (1896). See Co. V. Dorsey, 56 Md. 70, 40 Am. Mitchell v. Potomac Ins. Co. (U. S.), Rep. 403 (1880); Waldeck v. Spring- 22 Sup. Ct. 22 (1901). 313 EXCLUDED RISKS. § 233 § 233. Lightning. — Under the standard policy a company is not responsible for damages caused by lightning when not assumed by specific agreement attached to or indorsed on the policy, unless fire results from the lightning, and then the responsibility is limited to the damages occasioned by the fire. Under a policy which insured a building generally against loss by fire, which contained a separate clause declaring the insurer should be liable for tire by lightning, the company was held not liable where it appeared that the building was struck by lightning and destroyed but there was no ignition or com- bustion.^^' § 234. Fall of building. — The object of this clause is thus stated by Mr. Justice Gray:^^" "The manifest intent and purpose of the clause inserted in each of these policies, by which it is provided that 'if the building shall fall, except as the result of a fire, all insurance by this corporation on it or its contents shall immediately cease and determine,' is that the insurance, whether upon the building or upon its contents, should continue' only while the building remains stand- ing as a building, and shall cease when the building has fallen and become a ruin. When substantially all the floors and the roof of a building used as a store-house fall, leaving nothing standing but the outer walls and perhaps a staircase, the building must be deemed to have fallen. When several buildings or the goods therein are insured by the same policy, the fall of one biiilding terminates the policy, at least on that building or its contents." Before the com- pany can be held liable it must appear that the building fell as a result of fire, not that the fire resulted from the fall of the building.^" ^iFor an elaborate discussion of (1880). But the company was held the subject of liability for damage liable where only about three- caused by lightning, see Babcock v. fourths of the building fell, and Montgomery, etc., Ins. Co., 4 N. Y. what was left was afterwards de 326 (1850). Where the policy in- stroyed by fire which was commu demnified against loss from any ac- nicated from the adjoining build cidental damage "excepting only ing: Breuner v. Liverpool, etc. damage by fire or lightning," it was Ins. Co., 51 Cal. 101, 21 Am. Rep held to cover damage resulting 703 (1875). See Ermentrout v from a "sudden rise of water" or a Girard, etc., Ins. Co., 63 Minn. 305 flood: Hey V. Guarantors', etc., Co., (1895). See; also. Fireman's Fund 181 Pa. St. 220, 59 Am. St. 644 Ins. Co. v. Sholom, 80 111. 558 (1897). (1875), where it was held thj-t the ""Huck y. Globe Ins. Co., 127 building had not fallen when by Mass. 306 (1879). a windstorm it had been moved "'Transatlantic F. Ins. Co. v. partly from the posts upon which Dorsey, 56 Md. 70, 40 Am. Rep. 403 it had rested and so far rendered § 234 THE STANDARD POLICY. 214 A policy covered loss or damage on a building by fire originating from any cause, with the reservation that "if the building shall -fall ex- cept as a result of fire all insurance by this company on it or its con- tents shall, immediately cease and determine." The insured claimed that the explosion was caused by an antecedent fire, and the company that the explosion was the destroying agency, followed by fire. It was held that whether ignition of the explosive substance was by a negligent or unlawful fire, or by an innocent fire not having in itself a destructive tendency, the scientific fact must be recognized that such explosions are preceded by ignition and accompanied by intense heat, and that it could not be said as a matter of law that the loss was not covered by the policy.^'^ There is no liability for loss in case the building is blown down by wind before the fire has reached the insured goods, although the building is on fire at the time.^'' Where the policy describes the premises as a "two-story and basement frame, gravel roof, ironclad building, foundations, and all permanent fix- tures," and provides that if the building or any part thereof fall except as a result of fire, all insurance shall immediately cease, the insured can not recover for the destruction of the basement by fire after the building was blown down by a wind storm, on the the- ory that the basement or any part of it did not fall except as a result of fire.^'< Under this provision there can be no recovery where fire breaks out in the debris after the collapse of the structure.''^'' In a case where, after the fall of a part of the building, the remainder was destroyed by fire, the court said i^'" "We can not say that the fall of two-fifths of the ice-house, leaving the other three separate compart- ments standing intact, was a fall of the building within the terms unfit for occupancy that the most "* Teutonia Ins. Co. v. Beard, 74 of the furniture had been removed. 111. App. 496 (1897). In Huck V. Globe Ins. Co., 127 Mass. ™ Liverpool, etc., Ins. Co. v. Ende, 306 (1879), it was held that the 65 Tex. 118 (1885); Nave v. Home, building had fallen; since nothing etc., Ins. Co., 37 Mo. 430, 90 Am. remained standing but the outer Dec. 394 (1866); Huck v. Globe Ins. walls, and an elevator five feet Co., 12.7 Mass. 306, 34 Am. Rep. 373 square in one corner. (1879). '^'Renshaw v. Fireman's Ins. Co., ™ Security Ins. Co. v. Mette, 27 33 Mo. App. 394 (1889). 111. App. 324 (1888). See, also, »» Fred J. Kiesel & Co. v. Sun Ins. Breuner v. Liverpool, etc., Ins. Co., Office, 88 Fed. 243, 31 C. C. A. 515 51 Cal. 101 (1875); Leonard v. Ori- (1898). ent Ins. Co., 109 Fed. 286, 48 C. C. A. 369, 54 L. R. A. 706 (1901). 215 EXCLUDED PROPERTY. § 235 of the condition; otherwise there is no halting point short of the proposition that the fall of any substantial part of the building puts the condition in operation and terminates the risk." § 235. City ordinances. — The parties are presumed to contract in view of city ordinances, and where a building is partly destroyed, and the application to repair is refused by the city authorities, it will be deemed a total loss.^*' TI. Excluded Property, I Tills company shall not he liable for loss to accounts, hills, cur- rency, deeds, evidences of deht, money, notes, or securities; nor, un- less liability is specifically assumed hereon, for loss to awnings, bul- lion, casts, curiosities, drawings, dies, implements, jewels, manu- scripts, medals, models, patterns, pictures, scientific apparatus, signs, store or office furniture or fixtures, sculpture, toolSj or property held on storage or for repairs; * * * nor for any greater proportion of the value of plate glass, frescoes, and decorations than that which this policy shall hear to the whole insurance on the building de- scrihed.^^^ § 236. Exceptions and limitations. — Certain articles are expressly excepted from the contract of insurance, and the only questions left are those of construction.^^* After it appears that there has been a loss by fire, the burden is upon the insurer to show that certain ar- ticles fall within the exceptions.^*" If the articles thus excepted are included in the description of the property insured, the written pro- vision controls. Thus, "patterns" are excluded by this clause, but under a policy insuring "fixed and movable machinery, engines, lathes and tools," wooden patterns which from their size and shape '" Hamburg, etc., F. Ins. Co. v. evidences and securities ol prop- Garllngton, 66 Tex. 103 (1886). erty of every kind, books, wearing ^Mipjiig provision is found in the apparel, plate, money, jewels, med- standard policies of New York, New als, patterns, models, scientific cab- Jersey, Connecticut, Rhode Island, inets and collections, paintings, Wisconsin, Louisiana, Iowa, North sculpture and curiosities are not in- Dakota, South Dakota, Michigan, eluded in said insured property un- and North Carolina. The following less specially mentioned:" provision appears in the standard ^^The articles enumerated differ policies of Massachusetts, Minne- in different standard forms, sota, Maine, and New Hampshire: '"Portsmouth Ins. Co. v. Reyn- "Bills of exchange, notes, accounts, olds, 32 Gratt. (Va.) 613 (1880). § 236 THE STANDARD POLICY. 216 admitted of being managed and applied by the hands of one man were covered."^ Eumiture and movables are not "fixtures/"'''^ but it may be shown that there is a well-settled custom by which the words "store fixtures" in a policy are understood to include tools, furniture and all movable articles in shops which are necessary and used in the ordinary course of trade.^*' The words "store fixtures" in a policy insuring buildings and additions occupied as stores and shoe factory should be given their popular meaning of fixed furniture peculiarly adapted to a room or store. They were thus held not to refer to the fixtures of a factory, and not to include partitions, doors, windows, boiler fixtures, elevator, machinery, steam heating apparatus, gas- piping and speaking tubes.^** Where the exception was of "fences and other yard fixtures, sidewalks and store furniture and fixtures," it was held that the shelving in a house and office inclosed in a rail- ing in one comer of the interior were store fixtures within the mean- ing of the exception.^*' Furniture stored in a hotel to be used in the business of a hotel is not within this exception.^*^ The word "storage" means safe custody, and as here used applies only to the storing of merchandise for trade purposes, and when storing is the principal object of the deposit.^*' Thus, it does not apply to goods kept merely for sale, raw material kept on hand for the purpose of being manufactured,^*^ or to goods temporarily left in a storeroom.^*' Silver forks and tea and table spoons are not "plate," and are not excluded by a clause excluding "plate" and other articles.^'"' '" Lovewell v. Westchester F. Ins. v. Gwathmey, 82 Va. 923, 1 S. E. Co., 124 Mass. 418, 26 Am. Rep. 671 209 (1887). As to plate and paint- (1878). ings, see Moadinger v. Mechanics' ™ Holmes v. Charlestown, etc., F. Ins. Co., 2 Hall (N. Y.) 490 Ins. Co., 10 Mete. (Mass.) 211 (1829). (1845). "'New York, etc., Ins. Co. v. "'Whltmarsh v. Conway F. Ins. Langdon, 6 Wend. (N. Y.) 623 Co., 16 Gray (Mass.) 359 (1860). (1831). '" Thurston v. Union Ins. Co., 17 '" Vogel v. People's, etc., Ins. Co., Fed. 127 (1883). 9 Gray (Mass.) 23 (1857). '"Commercial F. Ins. Co. v. Al- ^"Hynds v. Schenectady, etc., len, 80 Ala. 571 (1886). Ins. Co., 11 N. Y. 554 (1854). "' Continental Ins. Co. v. Pruitt, ™ Hanover F. Ins. Co. v. Mannas- 65 Tex. 125 (1885); Home Ins. Co. son, 29 Mich. 316 (1874). Zl? EXCLUDED PEOPEUTT. § 337 § 237. Plate glass, frescoes and decorations. — These articles are not excepted from the contract of insurance, as this clause merely provides that in case of loss the amount of recovery shall not be any greater proportion of their value than the policy bears to the whole insurance on the building described.'"'^ "oMoadinger v. Mechanics' P. Ins. Co., 2 Hall (N. Y.) 490 (1829). CHAPTEE XI. PHOVISIONS OF THE STANDAED POLICTj CONTINUED. VII. Provisions Relating to Inter- est in and Care of Property. SEC. 245. Other insurance. 246. Definition — Different Interests. 247. Whether valid or invalid. 248. Where the words valid or in- valid do not appear. 249. Consent of the company — Waiver. 250. Policy covering part of the property. 251. Operation of manufacturing es- tablishment. 252. Running over-hours. 253. Increase of risk. 254. Changes in adjoining property. 255. Effect of increase of hazard. 256. Repairs — Employment of me- chanics. 257. Ownership. 258. Incumbrances. 259. Illustrations. 260. Illustrations of breach of con- dition. 261. Building on leased ground. 262. Incumbrance by chattel mort- gage. 263. Foreclosure proceedings. 264. Generation of illuminating gas. VIII. Change in Interest, Title or Possession. 265. Scope of provision. 266. Transfer of part interest. 267. Executory contract of sale. 268. Incumbrances. 269. Defeasible conveyances. 270. Invalid conveyances. 271. Sale with purchase-money mort- gage. SEC. 272. Conveyance to wife of insured. 273. Transfers by and between part- ners. 274. Transfers between joint own- ers. 275. Legal process or judgment. 276. By judgment. 277. By partition. 278. Assignment and bankruptcy proceedings. 279. Transfer by death. 280. Change of possession. 281. Lease of property. IX. Assignment. 282. Assignment of policy. X. Prohibited Articles. 283. Use of property — Prohibited articles. 284. Prohibited articles, continued. 285. Exception in favor of kerosene oil. XI. Vacancy. 286. In general. 287. Construction. 288. Vacant and unoccupied not synonymous. 289. Construction when applied to dwelling house. 290. Building — Contents — ^Vacancy. 291. Illustrations of construction of this provision. XII. Authorized Change of Loc^ction. 292. In general. XIII. Renewal of Contract. 293. In general. 294. Illustrations. 295. Reformation of policy. (218) 219 INTEREST — CARE OF PROPERTY. § 245* XIV. Cancellation of Policy. sec. SEC. 300. What amounts to a cancella- 296. In general. tlon. 297. The Ume. ^y ypaiver. 298. Authority of agent to cancel. sqi] Limitations upon the power to 299. Return of premium. -waive. VII. Provisions Relating to Interest in and Care of Property. This entire policy, unless otherwise provided hy agreement indorsed hereon or added hereto, shall be void if the insured now has or shall hereafter make or procure any other contract of insurance, whether valid or not, on pi-operty covered in whole or in part by this policy; or if the subject of insurance be a manufacturing establishment, and it be operated in whole or in part at night later than ten o'cloch, or if it cease to be operated for more than ten consecutive days; or if the hazard be increased by any means within the control or knowledge of the insured; or if mechanics be employed in building, altering or re- pairing the within described premises for more than fifteen days at any one time; or if the interest of the insured be other than un- conditional and sole ownership; or if the subject of insurance be a building on ground not owned by the insured in fee-simple; or if the subject of insurance be personal property and be or become in- cumbered by a chattel mortgage; or if, with the knowleidge of the insured, foreclosure proceedings be commenced or notice given of sale of any property covered by this policy by virtue of any mortgage or trust deed; * * * or if illuminating gas or vapor be generated in the described building {or adjacent thereto) for use therein. , § 245. Other insurance, — The entire policy shall be void if the insured at the time of the execution of the policy has, or shall there- after make or procure, any other contract of insurance, whether valid or not, on the property covered in whole or in part by the policy.^ "This clause is found in the shall hereafter make any other in- standard policies of New York, New surance' on the said property with- Jersey, Connecticut, Rhode Island, out the assent of the company." The Wisconsin, Louisiana, Iowa, North New Hampshire policy provides Dakota, South Dakota, Michigan, that: "The policy shall be void if and North Carolina. The following the insured at the time of any loss provision is found in the standard has any other insurance on said policies of Massachusetts, Minne- property, without the assent in writ- sota and Maine: "The policy shall Ing or in print of the company," be void if the assured now has or § 245 THE STANDARD- POLICY. 220 A provision rendering the policy void if tte insured has, or shall make or procure other insurance, is reasonable and valid,^ and has for its object the prevention of an increase of the moral hazard without knowledge of the company.' "Those insurance policies which pro- vide for the nullity of the contract in the event of other insurance being effected upon the same property, without the assent of the company, have never been held to be absolutely null when the contract was all regular upon its face but merely voidable at the option of the insurer. The object of such clauses in an insurance policy is to pre- vent other insurance and the consequent temptation to bum or lessen protection against fire."* The provision in the policy is effective, al- though not referred to by the parties before the policy is issued. A party accepting a policy is bound by its terms, conditions and limi- tations, and in the absence of fraud or mistake is conclusively pre- sumed to know its contents. In a recent case, which arose under the standard form of policy, the court said:^ "The clause of the policy quoted declares, in effect, that the entire policy shall be void in case the assured had or should procure any other insurance on the prop- erty covered by the policy, or incumbered the same by a chattel mort- gage, 'unless otherwise provided by agreement indorsed thereon or =■ Commercial Union Assur. Co. v. Young, 86 Ala. 424, 11 Am. St. 51 Norwood, 57 Kan. 610, 47 Pac. 529 (1888). Concealment of the exist- (1897) [citing Allen v. German, etc., ence of other insurance In no way- Ins. Co., 123 N. Y. 6, 25 N. E. 309 tends to show fraud: German, etc., (1890); Union Nat'l Bank v. Ger- Ins. Co. v. Paul (Ind. Ter.), 53 S. man Ins. Co., 18 C. C. A. 203, 71 Fed. W. 442 (1899). 473 (1896); Punke v. Minnesota, * Saville v. . German Ins. Co. v. Wright, 6 Kan. App. 611, 49 Pac. 704 (1897). 237 INTEREST CARE OP PROPERTY. § 255 dered the policy void. The clause in the mortgage protecting the mortgagee against any act or neglect of the mortgagor or owner did not apply, as it was the mortgagee's own act which rendered the policy void.^' § 255. Effect of increase of hazard. — In some states it is held that a violation of the condition against an increase of hazard renders the policy void, while others hold that the effect is merely to suspend the contract during the time the risk is increased.'* Thus, in Illinois it is said to he the settled law that, under a provision that the policy shall be void in case of a change made in the property increasing the hazard, if such changes are made, and the policy has not been de- clared forfeited, and "the changed conditions cease to exist, leaving the risk no more hazardous than before, the policy again becomes in force.*' A recovery may thus be had for loss subsequently occurring to which the more hazardous use did not .contribute. But many courts hold that a violation of this condition renders the policy void. In a Massachusetts ease it appeared that the hazard had been increased by the use of the building for the illegal sale of intoxicating liquors with the knowledge and consent of the insured. The court said:'" "The question is thus presented whether the provision of the policy that it shall be void in case of an increase of the 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 the 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 dif- ferent degrees of importance, some of them going to essential matters of the contract and others being comparatively trivial in character. " Cole v. Germania F. Ins. Co., Assur. Co., 149 Mass. 116, Woodruff 99 N. Y. 36 (1885); Mechanics' Ins. Ins. Cas. 142 (1889). See Concordia Co. V. Hodge, 149 III. 298, 37 N. B. F. Ins. Co. v. Johnson, 4 Kan. App. 51 (1894). 7, 45 Pac. 722 (1896). As to the ef- "As to effect of breach of condi- feet of the temporary use of the tions, see § 205, supra. premises, see Hinckley v. Germania " Traders' Ins. Co. v. Catlin, 163 F. Ins. Co., 140 Mass. 38, 1' N. E. 737, 111. 256, 35 L. R. A. 595 (1895); New 54 Am. Rep. 445 (1885); Jennings v. England, etc., Ins. Co. v. Wetmore, Chenango, etc., Ins. Co., 2 Denio 32 111. 222 (1863). (N. Y.) 75 (1846). "Kyte V. Commercial Union § 256 THE STANDAED POLICY. 238 The language of the policy is the same with respect to them all, that the policy shall be void. * * * We think an increase of risk en- titles the insurer to avoid the policy absolutely. A contract of in- surance depends essentially upon the 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 misrepresentation of the condition of the prop- erty. If the provision stood alone, that in case of any material mis- representation as to the risjs or any voluntary increase of the risk afterwards, the policy should be void, it could hardly be doubted that the 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 the risk. An increase of risk which is substantial, and which 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 a risk which is consented to or known by the insured, and not disclosed and the assent of the assurer obtained, the policy shall become void, we do not feel at liberty to qualify the mean- ing of these words by holding that the policy is only suspended dur- ing the continuance of such increase of risk." Expert evidence can not be received for the purpose of showing that leaving a dwelling house unoccupied for a considerable length of time increases its liability to be destroyed or injured by fire, but per- sons who are familiar with the business of insurance may testify whether such conditions affect the rate of premium.'^ § 256. Repairs — Employment of mechanics. — The entire policy, unless otherwise provided by agreement indorsed thereon, shall be void if mechanics be employed in building, altering or repairing the described premises more than fifteen days at any one time.'^ When a building is insured it is implied that it will be used in the " Luce V. Dorchester, etc., Ins. Co., Iowa, Wisconsin, Michigan, North 105 Mass. 297 (1870). Dakota, South Dakota, and North " This provision is found in the Carolina. It is not found in the standard policies of the following standard policies in use in Maine, states: New York, New Jersey, Con- Massachusetts, New Hampshire and necticut, Rhode Island, Louisiana, Minnesota. 239 ISTTEEEST CAKE OF PROPERTY. § 356 ordinary way in whicli similar buildings are used and not set apart and wholly devoted to being kept safely. One of the incidents of such use is that of making ordinary repairs, and the general right to make such repairs is not questioned when the policy contains no special provision upon the subject.®* A clause similar to that in the stand- ard policy was held not to apply to ordinary and necessary repairs, as it would be unreasonable to assume that in order to protect a build- ing from fire it was the intention to provide for its destruction by the other elements."* The limitation is rendered more definite and reasonable by a time limit, and when it appears that mechanics have been employed in making repairs for more than fifteen days the policy is invalid with- out reference to whether such changes contributed to the loss.*° Painters employed in repainting a building are not mechanics within this provision.'' A similar provision was given full force and effect by the Supreme Court of the United States. The policy was to be void and of no effect if, without notice to the company and permission in writing indorsed thereon, "mechanics are employed in building, altering or repairing the premises named herein, except in dwelling houses, where not exceeding five days in any one year are allowed for repairs." The insurance was upon a courthouse, and it was held invalidated by the employment of mechanics altering or repair- ing the building, although the fire did not occur in consequence of such alterations and repairs. The court said:'^ "These provisions are not unreasonable. The insurer may have been willing to carry the risk at the rate charged and paid, so long as the premises con- tinued in the condition in which they were at the dat^ of the con- tract; but the company may have been unwilling to continue the con- tract under other and different conditions, and so it had the right to make the above stipulations and conditions on which the policy or the contract should terminate. These terms and conditions of the policy present no ambiguity whatever. The several conditions " Townsend v. Northwestern Ins. '" Smith v. German Ins. Co., 107 Co., 18 N. Y. 168 (1858). Mich. 270, 30 L. R. A. 368 (1895). "Franklin P. Ins. Co. v. Chicago See First Cong. Church v. Holyoke, Ice Co., 36 Md. 102 (1872). etc., Ins. Co., 158 Mass. 475, 19 L. R. "Newport Improvement Co. v. A. 587 (1893). Home Ins. Co., 163 N. Y. 237, 57 N. " Imperial F. Ins. Co. v. Coos E. 475 (1900); Chamberlain v. Brit- County, 151 U. S. 452 (1893). Ish, etc., Assur. Co., 80 Mo. App. 589 (1899), § 256 THE STANDAED POLICY. 240 ■were separate and distinct, and wholly independent of each other. The first three of the above conditions depend npon an actual in- crease of the risk by some act or conduct on the part of the insured ; but the last condition is disconnected entirely from the former, whether the risk be increased or not [this last condition refers to mechanics employed in the building]. This last condition may properly be construed as if it stood alone, and a material alteration and repair of the building beyond what was incidental to the ordi- nary repairing necessary for its preservation, without the consent of the insurer, would be a violation of the condition of the policy, even though the risk might not have been in fact increased thereby. * * * Being a separate and valid stipulation of the parties, its violation by the assured terminated the contract of the insurer, and it could not thereafter be made liable on the contract without having waived that condition, merely because, in the opinion of the court and the jury, the alterations and repairs of the building did not in fact increase the risk. The specific thing described in the last cQndition as avoiding the policy if done without consent was one which the insurer had the right in its own judgment to make a material element of the contract, and, being assented to by the assured, it did not rest, in the opinion of other parties, the court or the jury, to say that it was immaterial unless it actually increased the risk." A policy contained a provision that the "working of carpenters, roofers, gas-fitters, plumbers and other mechanics in building, alter- ing or repairing, in the building or buildings covered by this policy, will cause a forfeiture of all claims under this policy, without the written consent of this company indorsed hereon;" also, that the policy should be void if the risk were increased by any means within the control of the insured. At the time the policy was issued the building was occupied as a grocery store by a tenant. Some time thereafter the insured executed a lease to other tenants, who con- templated changing the business to that of drying fruit. This re- quired extensive alterations in the character of the building, and it was held that there was a deliberate attempt to change the character and occupation of the insured building from a comparatively safe to a hazardous one, and that such substantial alterations by carpenters invalidated the policy."* In this case the fire which destroyed the building occurred while the alterations were being made. " Mack V. Rocliester, etc., Ins. Co., 106 N. Y. 560, Woodruff Ins. Cas. 173 (1887). 241 INTEREST — CARE OF PROPERTY. § 257 This proyision is not found in the Massachusetts form, and the subject of repairs falls under the general clause relating to the in- crease of the risk. In that state it is not necessary for the risk to be permanently increased. Where the lower floors of the premises were changed from two tenements into flats, new floors laid, doors changed and the stairs removed to the outside of the building, it was held that the fact that the alterations were completed before the loss occurred did not prevent the company from avoiding the policy because of such breach.®* Where a condition of the policy was that it should be void "if the building shall be altered, enlarged, or ap- propriated to any other purpose than that herein mentioned, or the risk otherwise increased," it was held that a deliberate and consider- able alteration of the building, "not incidental to the ordinary use of the property, made by thei tenant with the knowledge of the insured extending over three weeks, which, while it lasted, increased the risk, invalidated the policy, although it did not permanently increase the risk or cause the fire.^"" Where the policy was upon a "mill btiild- ing and additions, including flumes, * * * and an automatic sprinkler equipment complete," and permission was given to make alterations, additions and repairs to the building and machinery, it was held that the insured might remove the sprinkler equipment for the purpose of putting in a more complete one, without violating this condition of the policy.^"^ Placing and operating an engine fifty feet away from the insured building is not an alteration of the insured property, nor does it violate the condition against an increase of the risk unless expressly so provided in the policy.^"* § 257. Ownership. — If the interest of the insured is other than unconditional and sole ownership of the property, the fact must be disclosed to the company.^"* This is a reasonable provision and is "Hill v. Middlesex, etc., Assur. "'This is found in the standard Co., 174 Mass. 542, 55 N. E. 319 policies of New Jersey, Connecticut, (1899). Rhode Island, North Carolina, Lou- "" Lyman v. State, etc., Ins. Co., 14 isiana, Iowa, North Dakota, New Allen (Mass.) 329 (1867). York, South Dakota, Wisconsin, and ""Firemen's Ins. Co. v. Appleton, Michigan. It is not found In the etc., Co., 161 111. 9, 43 N. E. 713 standard policies of Massachusetts, (1896). Minnesota, Maine and New Hamp- ^"Schaeffer v. Farmers', etc., Ins. shire. Co., 80 Md. 563, 45 Am. St. 361 (1895). 16 — ^Elliott Ins. § 257 THE STANDAKD POLICY. 242 binding upon the insured.^"* In discussing this provision it was said:^°° "The nature and extent of the interest of the insured are matters which are largely influential with uudepwriters in taking or rejecting risks and estimating premiums, and for that reason any con- dition respecting them in a contract is material and must be con- strued so as to effectuate the purposes of the parties. But while this must be done, the law assumes that the parties understood the words •they have used; therefore, -unless there are potential reasons to the contrary, they are bound by the legitimate and usual meaning of the phrases they employ. Now it must be observed that it is not title, ■ but interest, that is spoken of in the clause. Title and interest are en- tirely different things. It was undoubtedly competent for the parties to have contracted as to title, * * * but in this ease they have chosen to limit the provision to a condition of the interest, either legal or equitable. The question presented, therefore, to us now is. Was the 'interest,' legal or equitable, of D, 'unconditional and sole ?' As to the meaning of these words, when used in the present connection, there seems to be a concurrence of authority. To be 'unconditional and sole' the interest must be completely vested^ in the assured, not con- tingent or conditional, nor for life or years only, nor in common, but of such a nature that the insured must stand the entire loss if the property is destroyed, and this is so whether the title was legal or equitable." This pirovision of the policy does not necessarily dis- tinguish between the legal and equitable title. If the title is con- ditional or contingent, if it is for years only or for life, or in com- mon, it is not an entire, unconditional and sole ownership; but the interest is the same as it affects the contract of insurance, whether the title of the insured 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 or crime. For without this a person might be able to exceed the measure of an actual in- '" Barnard v. National, etc., Ins. Dougherty, 102 Pa. St. 568 (1883); Co., 27 Mo. App. 26 (1887). Dupreau v. Hibernia Ins. Co., 76 "» Hartford F. Ins. Co. v. Keating, Mich. 615 (1889); u3E3tna F. Ins. Co. 86 Md. 130 (1897); Imperial F. Ins. v. Tyler, 16 Wend. (N. Y.) 396 Co. V. Dunham, 117 Pa. St. 460, 2 (1836); Oshkosh, etc., Co. v. Ger- Am. St. 686, Woodruff Ins. Cas. 153 mania F. Ins. Co., 71 Wis. 454, 5 (1888); Pennsylvania F. Ins. Co. v. Am. St. 233 (1888). 343 INTEREST CARE OF PROPERTY. § 257 demnity. But where the 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 par- ticular 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 available to secure the entire, unconditional and sole ownership, the provision referred to can, we think, have no force to defeat the plaintiff's recovery in this case."^"" It is enough if the insured be the substantial equitable owner of the property insured.^"^ Where the reason for such a general condition in a printed form of a policy of insurance does not exist in a particular case, the con- dition itself becomes meaningless and inoperative. Hence, where a form of policy is us6d by the company for a particular kind of prop- erty peculiarly situated, and the policy contains conditions which are inapplicable to the subject-matter of the insurance, the conditions will be ignored in construing the contract. Thus, a person owned individually and in common with others a certain number of barrels of petroleum, which had been placed for transportation and storage in a certain pipe line. To protect Kimself from loss in case of fire, he took out a policy of insurance for a fixed sum on the petroleum "his own or held by him in trust for others ;" and a condition in the pol- icy provided that "if the insured is not the absolute and uncondi- tional owner of the property insured, then this policy to be void." It was held that the condition was not, under the circumstances, applicable, and that the company was liable to the extent of the policy upon all the oil destroyed in which the insured had any interest what- ever, but not foi: the loss of oil in which he had no interest and which the owners had in writing requested him to insure before the issuing of the policy.^"' , This provision must not be construed in a technical sense. It mere- ly requires that the insured shall be the actual and substantial owner. Where the interest of the insured was acquired by devise "to be his forever for his own proper use, subject only to restriction and aliena- tion until he attains a certain age, having yet thirteen years to run," it was held that he was the owner of the property within the meaning of the policy.^"' »" Imperial F. Ins. Co. v. Dunham, State Ins. Co., 44 N. J. L. 485, 43 Am. 117 Pa. St. 460 (1888). Rep. 397 (1882). ""Lebanon, etc., Ins. Co. v. Brb, ""Grandin v. Rochester, etc., Ins. 112 Pa. St. 149 (1886); Martin v. Co., 107 Pa. St. 26 (1884). ™yost V. McKee, 179 Pa. St 381, § 258 THE STANDARD POLICY. 244 There is some conflict of authority on the question of the binding effect of provisions of this character in a policy issued without a written application. The weight of authority doubtless supports the view that the insured, by accepting the policy, is charged with knowledge of its contents. Thus, it was held in Missouri that the acceptance of a policy which contained this provision, although is- sued on an oral application which made no statement as to title, amounts to a declaration that the title is absolute,^^" while in Michi- gan this is not regarded as conclusive upon the insured.^^^ Where there are no special provisions in the policy requiring an exact dis- closure of the entire quantity and quality of title, it is sufficient to describe it in general terms. Thus, where the true title was called for, it was held sufficient where the property was described as 'Tiis" and unincumbered, although it appeared that two mortgages had been given upon the property by previous owners, and the former owner's equity of redemption had been sold on execution to another person before the plaintiff acquired his title. But as the plaintiff at the time of the insurance had the right to redeem the equity of redemp- tion and then to remove the other incumbrances and thus make his title absolute, there was no misrepresentation of title. "The assured had an estate in the land subject to mortgages and sales on execution, deeply incumbered but still redeemable, and therefore he had an estate to which the lien of the company would attach, and that such an interest is insurable is well settled by many cases."^^^ ' § 258. Incumbrances. — A condition in a policy that it shall be void in case the interest of the insured be other than sole and uncon- ditional ownership refers to the quality of the estate or interest, and is not broken by incumbrances existing on the property when the insurance is eflected.^^' The insured is therefore under no obliga- tion to disclose the fact that there are mortgages or other incum- brances upon the property unless it is required by some other pro- vision of the policy.^^* A vendor's lien for part of the purchase- 57 Am. St. 604 (1897); Barnard v. "'BufEum v. Bowditch, etc., Ins. National F. Ins. Co., 27 Mo. App. 26 Co., 10 Cush. (Mass.) 540 (1852). (1S87). ""Morotock Ins. Co. v. Rodefer, 92 ""Overton v. American, etc., Ins. Va. 747, 53 Am. St. 846 (1896); Cap- Co., 79 Mo. App. 1 (1898). lis v. American F. Ins. Co., 60 Minn. >»'Miotke V. Milwaukee, etc., Ins. 376, 51 Am. St. 535 (1895). Co., 113 Mich. 166, 71 N. W. 463 "* Dolliver v. St. Joseph, etc., Ins. (1897). Co., 128 Mass. 315, 35 Am. Rep. 378 245 INTEREST CARE OF PEOPEETT. § 258 money of land is not inconsistent with the entire unconditional and sole ownership within the meaning of the provision avoiding the in- (1880); Judge v. Connecticut P. Ins. Co., 132 Mass. 521 (1882); Clay, etc., Ins. Co. V. Beck, 43 Md. 358 (1875); Ellis V. Ins. Co., 32 Fed. 646 (1887); Bowditch, etc., Ins. Co. v. Winslow, 3 Gray (Mass.) 415 (1855). Policies often contain provisions requiring the insured to disclose existing in- cumbrances. In Seal v. Farmers', etc., Ins. Co., 59 Neb. 253, 80 N. W. 807 (1899), it was held that a mis- representation as to the amount of the incumbrance upon the property insured, where the policy is condi- tioned that it will be void if the prop- erty be mortgaged or otherwise in- cumbered without notice to and con- sent of the company indorsed there- on, will, in the absence of a waiver, avoid the policy. The fact that such mortgage was paid before the loss occurred, does not alter the legal ef- fect of a breach of the requirement: Insurance Co. v. Wicker (Tex.), 54 S. W. 300; affirmed '93 Tex. 390, 55 S. W. 740 (1900). In Collins v. Mer- chants', etc., Ins. Co., 95 Iowa 540, 58 Am. St. 438 (1895), it was held that the provision that the policy should be void if the property be in any manner incumbered, "and such fact be not stated in this policy or the insured's application for insur- ance," is a stipulation against an incumbrance existing when the con- tract is made and not against fu- ture incumbrances. The court said: "If the statement was that it should be void if the property be in any manner incumbered or in litigation, there is no dou\)t it should be con- strued as covering future as well as existing incumbrances: Mallory V. Farmers' Ins. Co., 65 Iowa 450; but the policy contains more than this. It says it shall be void under these circumstances unless the fact is stated in this policy or in the in- sured's application for insurance. * * * Manifestly this is an existing or present one and not one created in the future. The words used are certainly open to this con- struction, and if so, we should adopt that most favorable to the insured under all the established tenets." In Insurance Co. v. Saindon, 53 Kan. 623, 36 Pac..983 (1894), it was held that where the insurance policy provides against future incum- brances, the policy will be avoided if a subsequent incumbrance is cre- ated, or if an incumbrance existing at the time of the application for in- surance be materially increased by a new or additional debt. But the mere subsequent renewal of a prior lien or mortgage with the accrued interest, is not an increase of such pre-existing indebtedness or the cre- ation of a new or additional incum- brance. In Koshland v. Home, etc., Ins. Co., 31 Ore. 321, 49 Pac. 864, 50 Pac. 567 (1897), it appeared that the policy was issued with the knowl- edge that there was an incumbrance upon the property. The policy con- tained a clause rendering it invalid if the property should be Incum- bered in the future without the knowledge and consent of the com- pany, and it was held that the pro- vision was not invalidated by the making of a new mortgage for the purpose of discharging the old. In Cagle V. Chillicothe, etc., Ins. Co., 78 Mo. App. 215 (1899), where the pol- icy contained a stipulation that "any incumbrance shall avoid the policy unless the written consent of § 359 THE STANDARD POLICY. 246 suranee if the interest of the insured be other than such sole owner- ship.^^° A lease of the premises is not an incumbrance within the meaning of a condition rendering the policy void if the property is incumbered by a future mortgage or lien.^^° § 259. Illustrations. — As already noted, there is a distinction be- tween the words title and interest as used in insurance policies. Thus, a provision that a policy shall be void if the interest of the insured the company is obtained," and the application, which was a part of the contract, did not mention certain unsatisfied mortgages, it was held that the policy was void, although the local agent knew of the exist- ence of the mortgages; since the sec- retary alone could consent to the in- cumbrances. But in Seal v. Farm- ers', etc., Ins. Co., 59 Neb. 253, 80 N. "W. 807 (1899), it was held that where the application was oral and no inquiry was made as to the char- acter and condition of the title, a failure to disclose the existence of incumbrances would not, in the ab- sence of fraud, avoid the policy. In ipiournoy v. Traders' Ins. Co., 80 Mo. App. 655 (1899), the agent is- sued the policy knowing of the in- cumbrances nn the property, and it was held that the company thereby waived the stipulation against such incumbrance, notwithstanding the further stipulation that such agent was not authorized to waive, as such stipulation applied only to acts subsequent to the issuing of the pol- icy and not to those preceding it. In Arthur v. Palatine Ins. Co., 35 Ore. 27, 57 Pac. 62 (1899), it was held that where the policy was is- sued on an oral application and no inquiry was made as to incum- brances, and representations were made with reference thereto, and the insured did not know that if a mortgage existed the com- pany would not take the risk, or that the policy contained a pro- vision making it void if there were existing incumbrances, the insurer was held to assume the risk of in- cumbrances. In Insurance Co. v. Wicker, 93 Tex. 390, 54 S. "W. 30, 55 S. W. 74 (1900), it was held that a fail- ure to give notice of the existence of a mortgage on the property insured when required by the terms of the policy is not waived by the insurer's knowledge of a mortgage subse- quently given on the property . to secure money- with which to pay a mortgage existing at the time the policy was issued. See, also, Mc- Kibban v. Des Moines Ins. Co. (Iowa), 86 N. W. 38 (1901). In Parker v. Otsego, etc., Ins. Co., 47 App. Div. (N. Y.) 204 (1900), it ap- peared that the application was made upon a printed form furnished by the company, and that the para- graph reading, "The aforesaid prem- ises are not incumbered by mort- gage or otherwise to exceed the sum of ? ," was not completed by the applicant's filling out the blank, and it was held neither an assent nor dissent to the fact of the existence of a mortgage. "• Boulden y. Phoenix Ins. Co., 112 Ala. 422, 20 So. 587 (1895). "» Read v. State Ins. Co., 103 Iowa 307, 64 Am. St. 181 (1897). 247 INTEREST — CARE OF PROPERTY. §, 259 is not an entire, unconditional and sole ownership of the property means, where the interest of a mortgagee is insured, that the interest insured, namely, the mortgage lien, is an unconditional interest be- longing to the mortgagee, and not a conditional or speculative one.^^'' A person in whom the entire legal title is vested is the sole and un- conditional owner within the meaning of the policy, although he has made a lease or bill of sale of the property, reserving title until the consideration is fully paid.^^' A person who owns the fee of prop- erty subject to a mortgage and lease for a term of years has the en- tire, unconditional and sole ownership of the property.^^° It is well settled that an outstanding lease does not affect the matter of owner- ship within this provision.^^" Where no written application was made and no questions were asked concerning the title, it was held that the insurance was valid, although the policy contained a condition declaring it to be void if the interest of the insured was other than unconditional and sole ownership, although it appeared that he did not own. the legal title and had merely purchased the property and paid therefor without having received a conveyance.^^^ A vendee in possession without a ■deed, with an equitable right to the entire, unincumbered title is the owner of- the property.^^^ So, the owner of an estate in fee on a condition subsequent, who is in possession with no conditions broken, is the sole and unconditional owner of the property.^^' One who has received a deed from a married man in which his wife has not joined is the owner of the property; as the wife has no claim on the realty before the death of the husband.^^* Where the plaintiff paid a portion of the purchase-price and took possession of certain personal property under an agreement that after a certain time he would either pay the balance or resell or convey the property to the vendor, it was held that he took an absolute title, and in case of fire was entitled to collect the insurance on a policy conditioned that it was void if "' Hanover F. Ins. Co. v. Bohn, 48 ™ Insurance Co. v. Haven, 95 U. S. Neb. 743, 58 Am. St. 719 (1896). 242 (1877). "' Burson v. Fire Ass'n, 136 Pa. ™ Dooly v. Hanover F. Ins. Co., 16 St. 267, 20 Am. St. 919 and note Wash. 155, 58 Am. St. 26 (1896). (1890); Johannes v. Standard Fire '"Bonham v. Iowa, etc., Ins. Co., Office, 70 Wis. 196, 5 Am. St. 159 and 25 Iowa 328 (1868). note (1887). "'Davis v. Pioneer Furniture Co., '"DoUiver v. St. Joseph, etc., Ins. 102 Wis. 394 (1899). Co., 128 Mass. 315, 35 Am. Rep. 378 "* Ohio, etc., Ins. Co. v. Bevis, 18 <1880). Ind. App. 17, 46 N. B. 928 (1897). § 259 THE STANDARD POLICY. 248 the interest of the insured was other than sole and unconditional.^" The fact that the property was conveyed to the insured without con- sideration for the purpose of placing it beyond the reach of the grantor's creditors is not a defense under this provision.^^* A mar- ried man has such an interest in the household furniture owned by his wife before marriage as constitutes him its sole and unconditional owner."' The fact that the legal title to the property was in an- other will not defeat a recovery where the insured was the beneficial owner at the time the policy was issued.^^^ A married woman is the owner of her property, although her husband has a homestead in- terest therein.^^^ So, the owner of a farm is the sole and uncondi- tional owner of hay produced on the farm, where the hay is pro- duced at his expense, and he owns two-thirds of it absolutely, and under a contract with a laborer is to credit him with the proceeds of the other one-third and charge him with the cost of production."" Where the property was insured in the name of a firm of which the insured was a member, but which had been dissolved before the is- suance of the policy, it was held that the policy was valid although it contained the condition under consideration.^*^ The words "as his interest may appear" in a policy indicate un- certainty not only as to the extent, but as to the quality and character of the interest ; and where it appeared that the insured, although not the owner, had an insurable interest, it was held that there was no breach of condition in the policy forfeiting it in case the interest of the insured is not truly stated in the policy, or if the interest is less than an absolute ownership.^*^ A condition in a policy issued to a husband and wife that it shall be void if the subject of the in- surance is a building on ground not owned by the insured in fee- simple is not broken by the fact that the fee-simple of the land is in the wife alone, as there must be an ownership ia some other person "° Stowell V. Clark, 47 App. Div. ™ Sun Ins. Office v. Beneke (Tex. (N. Y.) 626 (1900). Civ. App.), 53 S. W. 98 (1899). "" Rochester Loan, etc., Co. v. Lib- "^ Manchester P. Assur. Co. v. erty Ins. Co., 44 Neb. 537, 48 Am. St. Abrams, 89 Fed. 932, 32 C. C. A. 426 745 and note (1895). (1898). ^" Georgia Home Ins. Co. v. Brady "" Delaware Ins. Co. v. Bonnet, 20 (Tex. Civ. App.), 41 S. W. 513 Tex. Civ. App. 107, 48 S. W. 1104 (1897). (1898). "* McCoy V. Iowa, etc., Ins. Co., "=Dakin v. Liverpool, etc., Ins. 107 Iowa 8t, 77 N. W. 529 (1898). Co., 77 N. Y. 600 (1879). 249 INTEREST CAKE OF PKOPEETT. § 260 than the insured to violate the condition."" A policy declared that the application was a part of the contract of insurance and was made subject to the rules of the company, which provided that the policy should be void if the application should not contain a full, fair, sub- stantial and true representation of all the facts and circumstances respecting the property so far as within the knowledge of the insured and material to the risk. The applicant stated that she was the owner of the land upon which the building stood, and it appeared that she was a widow, and that her only title was a life estate under the will of her husband, which contained no disposition of the re- mainder. Her husband left two children not named in the will, and they had not during the twelve years that had elapsed since the pro- bate of the will, of which six had passed before the application for the insurance was made, claimed the share to which they would have been entitled if he had died intestate. It -was held that the answer was a sufiScient description of her interest.^'* § 260. Illustrations of breach of condition. — One who owns an un- divided one-half of the insured property has not the entire, uncon- ditional and sole ownership.^'" Nor has one who has purchased property on the installment plan, the title remaining in the vendor.^^" Where the insured states in his application that he is the sole owner of the property, and it is stipulated that if his answer is untrue, or his interest other than a perfect legal and equitable ownership, the policy shall be void, there is a breach of condition where the property is dwned by his wife.^"' The holder of a quitclaim deed from a second mortgagee is not the unconditional and sole owner of the property,^** nor is a vendor after the vendee has gone into posses- sion and paid the purchase-price;^*' nor is a surviving partner the sole owner of property belonging to the undivided partnership es- tate.^*" A partnership does not, within the meaning of this pro- "" Mascott V. First Nat'l F. Ins. '" Planters' Mut. Ins. Co. v. Loyd, Co., 69 Vt. 116, 37 Atl. 255 (1896). 67 Ark. 584, 77 Am. St. 136 (1900); ^ Allen V. Charlestown, etc., Ins. Trott v. Woolwich, etc., Ins. Co., 83 Co., 5 Gray (Mass.) 384 (1855). Me. 362, 22 Atl. 245 (1891). ™ Sisk V. Citizens' Ins. Co., 16 ^^ Southwick v. Atlantic, etc., Ins. Ind. App. 565, 45 N. E. 804 (1897). Co., 133 Mass. 457 (1882). '*• Dumas v. Northwestern, etc., "' Clay, etc., Ins. Co. v. Huron, etc., Ins. Co., 12 App. Cas. (D. C.) 245, 40 Co., 31 Mich. 346 (1875). L. R. A. 358 (1898) ; Geiss v. Frank- "° Crescent Ins. Co. v. Camp, 64 lln Ins. Co., 123 Ind. 172 (1889). Tex. 521 (1885). § 260 THE STANDARD POLICY. 250 vision, own property contributed as a partner's share of the capital,- but which has not been deeded to the partnership.^*^ This condition is broken where the insured is the owner only of an undivided one- half interest in the property, although at the time the insurance was issued he thought he was the sole owner by virtue of an executory contract of the other owners to convey to him.^*^ A person who has purchased property at a judicial sale, but whose bid has not been ratified, or the sale confirmed by the court, has not an unconditional and sole ownership of the property. In one case the court said:^*^ "We have been referred to cases where it is held that when the insured is in possession under a contract of purchase, and the legal title has not passed by conveyance, the ownership is not un- conditional until the purchase-money has been wholly paid;^** but it may be doubted whether such cases are in line with the current of authority." Where the insured had received a deed of the property, upon which there was a mortgage, from her son, but failed to record it, and the mortgage had been foreclosed and the property sold, and she, was not made a party to the foreclosure suit, and failed to re- deem from the sale under the judgment within the time allowed by statute, it was held that she was not the sole and unconditional owner of the property within the meaning of the policy.^*^ So, one who has given his bond for a debt secured by a mortgage on the premises, and is the holder of another mortgage, is not the sole and uncon- ditional owner of the property.^*' A person who owns all the stock of a corporation is not the owner of the property of the corporation within the meaning of this provision.^*' A tenant for life can not recover on a policy which provides that there shall be no liability ''if the interest of the assured is not one of absolute and sole owner- ship.""* A policy of insurance issued to one whose only interest in the property is by virtue of a land contract which he holds as col- ^" Citizens' P. Ins., etc., Co. v. Sec, 124 Cal. 164, 56 Pac. 770 (1899). Doll, 35 Md. 89, 6 Am. Rep. 360 '"Ordway v. Chace, 57 N. J. Eq! (1871). ■ 478, 42 Atl. 149 (1899). '" Liverpool, etc., Ins. Co. v. Coch- "' Syndicate Ins! Co. v. Bohn, 65 ran, 77 Miss. 348, 26 So. 932 (1899). Fed. 165, 12 C. C. A. 531 (1894). ' '« Hartford F. Ins. Co. v. Keating, '« Collins v. St. Paul, etc., Ins. Co., 86 Md. 130, 63 Am. St. 499 (1897). 44 Minn. 440,-46 N. W. 906 (1890)"! '" Farmers', etc., Ins. Co. v. Curry, See, also, Davis v. Iowa State Ins! 13 Bush (Ky.) 312, 26 Am. Rep. 194 Co., 67 Iowa 494, 25 N. W. 745 (1877). (1885); Carver v. Hawkeye Ins. Co., '"Breedlove v. Norwich, etc., Ins. 69 Iowa 202, 28 N. W. 555 (1886). 251 INTEREST — OAEE OF PEOPERTT. § 361 lateral security for money advanced to the purchaser is void hx its inception where it provides that it shall be void unless otherwise pro- vided, if the interest of the insured be other than unconditional and sole ownership, or if the subject of the insurance be a building on ground not owned by the insured in fee-simple, although the recitals that the insured held the property under a land contract might protect him if he had been the absolute owner of the contract.^*" This provision, like all others inserted for its benefit, may be waived by the company, and it is generally held that it can not dispute the validity of the policy on the ground that the insured's interest in the property was not an unconditional and sole ownership when the limited interest was fully and correctly disclosed to the agent of the company when the poilicy was taken out.^'"' § 261. Building on leased ground. — "The entire policy, unless otherwise provided by agreement indorsed thereon, is void if the sub- ject of the insurance be a building on ground not owned by the in- sured in fee-simple."^^^ This provision is valid, and its breach will invalidate the policy.^^^ It is violated where the applicant is the "° Gettelman v. Commercial, etc., Assur. Co., 97 Wis. 237, 72 N. W. 627 (1897). ™ Clapp V. Farmers', etc., Ins. Ass'n, 126 N. C. 388, 35 S. B. 617 (1900); Westchester F. Ins. Co. v. Wagner (Tex. Civ. App.), 57 S. W. 876 (1900); London, etc., Ins. Co. v. Gerteson, 21 Ky. L. 471, 51 S. W. 617 (1899); Teutonic, etc., Ins. Co. v. Howell, 21 Ky. L. 1245, 54 S. W. 852 (1900); Porter v. Orient Ins. Co., 72 Conn. 519, 45 Atl. 7 (1900). An In- surer, which, knowing that the title of the insured is less than a fee simple, issues a policy providing that it shall be void if the title of the insured is less than a fee-simple, unless otherwise provided by agree- ment indorsed on or annexed to the policy, thereby waives such provi- sion, whether or not it intended to do so; Schultz v. Caledonian Ins. Co., 94 Wis. 42, 68 N. W. 414 (1896). "' This clause is found in the standard forms in use In New York, New Jersey, North Carolina, Con- necticut, Rhode Island, Wisconsin, Louisiana, North Dakota, South Da- kota, and Michigan. The Iowa form adds the words, "and the title be not evidenced by deed." It is not found in the Massachusetts, Minnesota, Maine and New Hampshire stand- ard forms. "2 Dowd V. American P. Ins. Co., 41 Hun (N. Y.) 139, Woodruff Ins. Cas. 176 (1886); Ben Franklin Ins. Co. V. Weary, 4 111. App. 74 (1879). As to buildings on leased ground generally, see Fletcher v. Common- wealth Ins. Co., 18 Pick. (Mass.) 419 (1836); Fowle v. Springfield, etc., Ins. Co., 122 Mass. 191, 23 Am. Rep. 308 (1877); Insurance Co. v. Haven, 5 Otto (U. S.) 242 (1877). Such a provision is a warranty and can not be disregarded: East Texas F. Ins. § 262 THE STANDARD POLICY. 252 owner in fee of only an undivided interest in the land."' The pos- session of a life estate in real estate is not a compliance with this provision."* It has been held that one who has the equitable right to a fee-simple title is within the provision.^^' Where no questions were asked and no representations made, it was held that one who had paid the full purchase-price for the property, but had not received his deed, was the owner of the ground in fee-simple within th^ mean- ing of this provision. ^^® So, a provision avoiding the policy, if the subject of the insurance is a building on "ground not owned by the insured," is not broken if a part of the building stands on ground not owned by the insured."^^' The provision does not apply where the policy is issued on a leasehold interest.^°* Where the company knew that the building was on leased property when the policy was issued, and no indorsement showing such fact was made on the policy, it was held that it could not defeat a recovery for breach of this condi- tion.^'® The condition is broken where the deed is delivered to a third person to hold until certain conditions are performed.^'" § 262. Incumbrance by chattel mortgage. — The policy is rendered void if a chattel mortgage is placed upon the property without the consent of the insurer.^"^ In the absence of this provision the exeeu- Co. V. Brown, 82 Tex. 631, 18 S. W. "" Dooly v. Hanover i\ Ins. Co., 16 713 (1891). When the Insured Wash. 155, 47 Eac. 507 (1895). property Is described as located on a ™ Haider v. St. Paul, etc., Ins. Co., military reservation it is sufficient 67 Minn. 514, 70 N. W. 805 (1897). notice to the company that the in- ^ Philadelphia Tool Co. v. Brit- sured does not own the title in fee; ish, etc., Assur. Co., 132 Pa. St. 236, and the provision is inoperative: 19 Atl. 77 (1890). Broadwater V. Lion P. Ins. Co., 34 "^Cowell v. Phoenix Ins. Co., 126 Minn. 465 (1886). N. C. 684, 36 S. E. 184 (1900). See, '"= Scottish, etc., Ins. Co. v. Petty, also, Clawson v. Citizens', etc., Ins. 21 Fla. 399 (1885). Co., 121 Mich. 591, 80 N. W. 573 '"Carver v. Hawkeye Ins. Co., 69 (1899); Berry v. American, etc., Ins. Iowa 202 (1886). But see Haden v. Co., 132 N. Y. 49 (1892). Farmers', etc., Ass'n, 80 Va. 683 ""Pangborn v. Continental Ins. (1885). Co., 62 Mich. 638 (1886). '=" Swift V. Vermont, etc., Ins. Co., ^^ This clause is found in the 18 Vt. 305 (1846); Pennsylvania P. standard forms of the following Ins. Co. V. Dougherty, 102 Pa. St. states: New Jersey, Connecticut, 568 (1883); Elliott v. Ashland, etc., Rhode Island, Wisconsin, Louisiana, Ins. Co., 117 Pa. St. 548, 12 Atl. 676 North Dakota, South Dakota, New U888); Lewis v. New England F. York, North Carolina," and Michigan. Ins. Co., 29 Fed. 496 (188G), The Iowa form adds the words, SS3 INTEREST — CARE OP PROPERTY. § 263 tion of a chattel mortgage is not a violation of the provision relating to an increase of the risk, or a change in the title, interest or posses- sion of the property.^"^ But there are some authorities to the con- trary. Thus, it was held that a chattel mortgage was a violation of the clause relating to the "alteration of the ownership,"^'' and that it was an "alienation in part."^'* So, in Michigan it was recently held that the execution of a chattel mortgage by a partner on the partnership chattels insured for the benefit of the firm, is such a change in the subject of the insurance as will render the policy void.^"^ This provision in the standard policy is valid and binding,^"' and the same is true of one which provides that the policy shall be void if, at the time of the execution of the policy, the property is covered by a chattel mortgage.^*^ Such conditions prohibiting incumbrances upon insured property are legal, reasonable and proper, and in line with public policy. They apply, however, only to voluntary liens and levies and not to invol- untary incumbrances, such as tax liens and payments procured in invitum. It is said, however, that a violation of such a condition does not render a policy absolutely void, but merely voidable at the election of the insurer.^^' The provision in the standard policy refers only to the common, ordinary chattel mortgage and instruments of that general nature, use and purpose. It does not, therefore, apply to a covenant in a lease whith provides that the lessor shall have a first lien on all the buildings for any unpaid rents or taxes, as such a covenant is not a chattel mortgage in the ordinary sense of the term."= "judgment, mechanic's lien, or any "" Webster v. Dwelling House Ins. other lien, or be or become liable in Co., 53 Ohio St. 558, 30 L. R. A. 719 any way to any lien-holder." The (1895); Brown v. Westchester F. clause does not appear in the stand- Ins. Co., 9 Kan. App. 526, 58 Pac. ard forms of Massachusetts, Minne- 276 (1899). sota, Maine, and New Hampshire. ""Crikelair v. Citizens' Ins. Co., '"Wytheville Ins. Co. v. Stultz, 87 168 111. 309, 61 Am. St. 119 (1897). Va. 629 (1891). See, also, Wilcox v. Continental Ins. M'Bdmands v. Mutual, etc., Ins. Co., 85 Wis. 193 (1893); Wierengo Co., 1 Allen (Mass.) 311 (1861). v. American F. Ins. Co., 98 Mich. •"Abbott V. Hampden, etc., Ins. 621 (1894). Co., 30 Me. 414 (1849); Judge v. Con- '«» Dover Glass Works Co. v. Amer- necticut F. Ins. Co., 132 Mass. 521 ican F. Ins. Co., 1 Marvel (Del.) 32, (1882). 65 Am. St. 264 (1895). »"°01ney v. German Ins. Co., 88 ""Caplis v. American F. Ins. Co., Mich. 94, 26 Am. St. 281 and note 60 Minn. 376, 51 Am. Rep. 535 (1891). (1895)- § 263 THE STANDARD POLICY. 254 In Nebraska and Iowa the cancellation or discharge of a mortgage on the insured chattels, given in violation of this condition before the loss occurs, revives the contract from the date of the cancellation or discharge.^'" But in Arkansas such an incumbrance avoids the con- tract, although it is paid before the loss occurs. The court said:^^' "The language of the clause, in its plain, ordinary and popular sense, indicates a total extinction of the policy if the property be incum- bered, and not a suspended animation thereof, subject to be revived upon the payment of the mortgage debt. Courts, by interpretation, can not engraft on an insurance contract any more than on any other, a meaning foreign to that which the plain terms employed by the parties themselves convey. It is undoubtedly true that where the contract, on account of any ambiguity of the language used, is reason- ably susceptible of different constructions, that construction should be adopted which is most favorable to the insured. The insurer had the' right to contract against any possible risk of loss or embarrass- ment incident to incumbering the property insured. * * * The clause is reasonable and clear and the parties had the right to so contract." A policy insuring both real and personal property provided that if "the property should thereafter become mortgaged or incum- bered," the policy should be void, and also declared it would be for- feited if other insurance was taken out on any of such property. It was held that since the provision for forfeiture for mortgaging did ""Home F. Ins. Co. v. Johansen, not be settled without expensive 59 Neb. 349, 80 N. W. 1047 (1899); litigation. Tbe insured mortgagor btate Ins. Co. v. Schreck, 27 Neb. might enter into collusion with the 527, Woodruff Ins. Cas. 160 (1899); mortgagee todefraud the insurance Born V. Home Ins. Co., 110 Iowa 379, company after the loss occurred by 81 N. W. 676 (1900); Kimball v. claiming that the mortgage had been Monarch Ins. Co., 70 Iowa 513 paid off and discharged, when in (1886). fact it had not. Unfortunately all "' German, etc., Ins. Co. v. men are not honest. "Without some Humphrey, 62 Ark. 348, 54 Am. St. such provision in the policy, the un- 297 (1896). The court said: "If scrupulous would have an inviting it be said that where the mortgage opportunity, after a loss, to divide is paid off, there is no longer an in- the spoils, at the expense of the in- cumbrance and increase of risk, surer. Doubtless some such consid- still, as to whether or not the mort- erations as these prompted the gage had been paid off would be the clause in the policy under consider- Question, and one that often could ation.'' ,255 INTEREST — CAEE OF PEOPERTT. § 263 I not provide a forfeiture for mortgaging "any" of the property, but treated "the property" as a whole, the policy would not be forfeited by a mortgage given on part of the property only.^^'' A statute requir- ing every insurer, before issuing a policy, to examine the building or ' structure to be insured and fix the insurable value thereof, and provid- ing that recovery may be had notwithstanding any subsequent change not affecting the risk, applies only to the condition of the building and structure, and does not impair or affect any condition in the policy against the making of any subsequent incumbrance without notice to and consent of the company.^^* Where the policy provided that it should become void "if the property be or become incumbered by a chattel mortgage," and no written application was made and no questions asked regarding incumbrances, it was held that the condi- tion was broken by the existence of a chattel mortgage, although it was of record at the time the policy was issued. It was said that the great weight of authority is to the effect that where the policy con- tains such a stipulation, and the property at the time of the execution of the policy is covered by a mortgage, no recovery can be had unless it appears that there was a waiver or estoppel by which the company is precluded from relying on the contract.^'* A mortgage which has been paid, but not satisfied, at the time the policy is issued, is not within this provision.^'° § 263. Foreclosure proceedings. — The policy is void if, with the knowledge of the insured, foreclosure proceedings are commenced or notice given of , the sale of the property covered by the policy by virtue of any mortgage or trust deed.^''" This clause is peculiar to the New "=Born V. Home Ins. Co., 110 Iowa Co., 17 Pa. St. 253 (1851); Pennsyl- 379, 81 N. W. 676 (1900). vania Ins. Co. v. Gottsman's Admrs., '"Webster v. Dwelling House Ins. 48 Pa. St. 151 (1864). The principle Co., 53 OMo St. 558, 53 Am. St. 658 upon which these decisions rest was (1895). See, also. Sun Fire Office v. recognized and applied in Reaper Clark, 53 Ohio St. 414 (1895). City Ins. Co. v. Brennan, 58 111. 158 "'Crikelair v. Citizens' Ins. Co., (1871), and Hebner v. Sun Ins. Co., 168 111. 309, 48 N. E. 167 (1897). It 157 111. 144, 41 N. B. 627 (1895). was so expressly held in Wilcox v. ""Laird v. Littlefield, 164 N. Y. Continental Ins. Co., 85 Wis. 193, 597, 58 N. E. 1089 (1900). 55 N. W. 188 (1893); Wierengo v. ""This clause is found in the American F. Ins. Co., 98 Mich. 621, standard policies in use in the states 57 N. W. 833 (1894); Fitchburg, etc., of New Jersey, Connecticut, Rhode Bank v. Amazon Ins. Co., 125 Mass. Island, Wisconsin, Louisiana, North 431 (1878); Smith v. Columbia Ins. Dakota, New York, North Carolina, § 263 THE STANDARD POLICY. 256 York form and would seem to indicate that the giving of a mortgage need not be communicated to the insurer until foreclosure proceedings are commenced.'^^ As said in New York:^'' "A provision that a policy shall be void in case of foreclosure proceedings is common in insurance policies, and we must assume that experience has shown to the underwriters that such proceedings increase the risk to the in- surer. The defendant might have been willing for the premium charged to insure this bam 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 mortgage and agree that loss, if any, should 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 mort- gage. Before commencing 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 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 can not take it out of the policy by construction." This provision relates only to the future, and therefore the policy is not rendered void by the fact that foreclosure proceedings are pending when the policy is issued, which fact was not disclosed to the insurer.^'* If a policy upon mortgaged property expressly provides South Dakota, and Michigan. The Co., 45 Conn. 430 (1878); Shepherd Iowa clause is as follows: "Or if v. Union, etc., Ins. Co., 38 N. H. 232 foreclosure proceedings be com- (1859); Smith v. Monmouth, etc., menced or a suit begun in which Ins. Co., 50 Me. 96 (1863); Byers v. ownership, title or possession is in- Farmers' Ins. Co., 35 Ohio St. 606, volved or disputed, or notice given 35 Am. Rep. 623 (1880)]. But see of sale of any property covered in Western, etc., Ins. Co. v. Riker, 10 whole or in part by this policy." Mich. 279 (1862). The clause is not found in the stand- "' Titus v. Glens Falls Ins. Co., ard policies of Massachusetts, Min- 81 N. Y. 410, "Woodruff Ins. Cas. 176 nesota, Maine or New Hampshire. (1880); Quinlan v. Providence, etc., "'Richards Ins., § 146 [citing Ins. Co., 133 N. Y. 356, 31 N. E. 31 Conover v. Mutual Ins. Co., 1 Comst. (1892). (N. Y.) 290 (1848); Judge v. Con- "' Orient Ins. Co. v. Burrus (Ky.), nectlcut F. Ins. Co., 132 Mass. 521 63 S. W. 453 (1901). (1882); Bishop v. Clay, etc., Ins. 257 INTEREST CARE OE PROPERTT. § 263 that it shall become absolutely void upon the commencing of proceed- ings for foreclosure of the mortgage without the written consent of the insurer, and the mortgage by its terms is subject to foreclosure if the taxes upon the property are permitted to become delinquent, it is invalidated when the property is advertised for sale on account of such default.^*" To render the policy void for violation of this pro- vision it is not necessary to restore any part of the premium, as this is to be done only when the policy is returned for cancellation.^*^ Under a provision in the policy that it shall be void unless otherwise provided by agreement thereon, if, with the knowledge of the iilsured, proceedings be commenced to foreclose a mortgage on the property, and that no condition of the policy can be waived except by writing thereon, such foreclosure, without an indorsement on the policy, avoids it, although notice of the foreclosure is given to the agent who issued the policy.^''' Where a policy insuring a mortgagee's in- terest was excepted from the condition that it should be void if fore- closure proceedings should be commenced against the property with- out the knowledge of the mortgagee, it was held that the policy was not invalidated as to him by the foreclosure of a judgment lien against the property by a third party .^** A provision to the effect that the "entry of a foreclosure of a mort- gage should be deemed an alienation of the property" does not import a complete foreclosure.^'* Where the policy contained a provision that it should be void "if, with the insured's knowledge, foreclosure proceedings be commenced or notice of sale given of any property covered by this policy by virtue of any mortgage," it was held that where the mortgagors and another party gave the assignee of the mort- gage a personal judgment note for the balance due on the mortgage, a judgment thereafter entered on the note was not a foreclosure of the mortgage within the meaning of the provision.^'" ""Springfield, etc., Co. v. Traders' '»" Sun Ins. Office v. Beneke (Tex. Ins. Co., 151 Mo. 90, 74 Am. St. 521 Civ. App.), 53 S. W. 98 (1899). (1899). See, also, Horton v. Home '"Mclntire v. Norwich F. Ins. Co., Ins. Co., 122 N. C. 498, 65 Am. St. 102 Mass. 230, 3 Am. Rep. 458 (1869). 724 and note (1898). In Pennsylvania the mere issuance »si Norrls v. Hartford F. Ins. Co., of a scire facias on the property does 65 S. C. 450, 33 S. E. 566 (1899). not invalidate the policy: Weiss v. »« Woodside Brewing Co. v. Pa- American F. Ins. Co., 148 Pa. St. 349, cific P. Ins. Co., 159 N. Y. 549, 54 23 Atl. 991 (1892). N. E. 1095 (1899). "° Collins v. London Assur. Corp., 165 Pa. St. 298, 30 Atl. 924 (1895). 17 — Elliott Ins. § 364 THE STANDARD POLICY. 258 An illegal foreclosure sale made without the consent of tlie insured will not cause a forfeiture of the policy.^*" Where there is a fore- closure sale, and the order of confirmation is thereafter set aside for irregularity, the interest of the mortgagor remains and is protected by the policy.^*' § 264. Generation of illuminating gas. — "The policy is rendered void if illuminating gas or vapor is generated in or adjacent to the insured buildings for use therein."^" The prohibition is upon the generation of gas or vapor, and not upon its use for lighting the build- ing. Where the policy contained a clause prohibiting, unless by special agreement indorsed on the policy, "the generating or evaporat- ing within the building or contiguous thereto of any substance for a burning gas or the use of gasoline for lighting," and the plaintiffs constructed works fifty feet from the building for the manufacture of gas from gasoline which was conducted to the building through pipes, it was held that the gas works were not contiguous to the build- ing within the meaning of the policy.^** YIIl. Change in Interest, Title or Possession. This entire policy shall be void * * * if any change, other than hy the death of an insured, take place in the interest, title, or "' Niagara P. Ins. Co. v. Scammon, iana. North Dakota, South Dakota, 144 111. 490, 28 N. B. 919, 32 N. B. Michigan, North Carolina, Iowa, and 914, 19 L. R. A. 118 (1893); Rich- Wisconsin. It is not found in the land, etc., Ins. Co. v. Sampson, 38 standard policies of Massachusetts, Ohio St. 672 (1883); Georgia, etc., Minnesota, Maine or New Hamp- Ins. Co. V. Kinnier, 28 Gratt. (Va.) shire. 88 (1877). ""Arkell v. Commerce Ins. Co., 6» '"Richland, etc., Ins. Co. v. Samp- N. Y. 191, 25 Am. Rep. 168 (1877). son, 38 Ohio St. 672 (1883). In this A condition in a policy of insur- case the insured retained an insura- ance upon goods "contained in a hie interest at the time of the fire, brick building situate, etc.," against There was no provision in the policy "lighting the premises insured, by relating to a change of interest in camphine or spirit gas," held to be the property, and the question was good and to preclude the use of whether before the fire the insured spirit gas as a means of lighting in had lost all insurable interest. and about the goods at the place ""This clause is found in the where they were described to be: standard policies in use in the Stettlner v. Granite Ins; Co., 5 states of New York, New Jersey, Duer (N. Y.) 594 (1856). Connecticut, Rhode Island, Louis- 259 CHANGE IS INTEREST, TITLE OK POSSESSION. § 265 possession of the subject of insurance (except change of occupants without increase of hazard), whether by legal process or judgment, or by voluntary act of the insured or otherwise.^"" § 265. Scope of provisioii. — This provision is very broad, and pro- vides that notice of all such changes must be given to the company in order that it may cancel the policy if it desires so to do. But under it only material changes in the title avoid the policy."^ The appointment of a receiver is not such a change in the title or possession of the property as to avoid a policy which contains the provision that "if any change takes place in the title or posses- sion of the property, whether by sale or judicial decree, without notice to the compaity, and its consent indorsed thereon, then the policy shaU be void;"^"^ nor is a change of receivers such a change '""This clause Is found In the standard policies of New York, New Jersey, Connecticut, Rhode Island, Wisconsin, Louisiana, North Dakota, South Dakota, Michigan and North Carolina. The Iowa form is as fol- lows: "Or if any change or diminu- tion other than hy the death of the insured take place in the interest, title or possession of the subject of the insurance (except change of oc- cupants without increase of haz- ard); or if any other person than the insured now have or shall here- after acquire any interest in or lien on the property insured, or any part thereof; or if this policy be assigned before a loss." The standard forms of Massachusetts, Minnesota and Maine provide that the policy shall he void if "without such assent the said property he sold or the policy assigned." The New Hampshire pol- icy provides that the policy shall be "void and inoperative during the ex- istence or continuance of the acts or conditions of things stipulated against as follows: * * * or if, without such assent, the said proper- ty shall be sold, or this policy as- signed." ""Barnes v. Union, etc., Ins. Co., 51 Me. 110, 81 Am. Dec. 562, and note (1863). See notes in 59 Am. Dec. 307 and 28 Am. Dec. 154. As to the effect of a temporary aliena- tion, see Hill v. Middlesex, etc., As- sur. Co., 174 Mass. 542 (1899). Where the insurer consented to the transfer it was held that the pro- vision was violated by a retransfer without the consent of the company: St. Onge V. Westchester P. Ins. Co., 80 Fed. 703 (1897). A change which increases the interest of the Insured is not such a change of ownership as requires notice to be given to the company, under the terms of a sub- rogation contract which provides that the mortgagee shall notify the company of any change in the inter- est: Dodge V. Hamburg, etc., Ins. Co., 4 Kan. App. 415, 46 Pac. 25 (1896). See § 46, supra. "^Georgia, etc., Ins. Co. v. Bart- lett, 91 Va. 305, 50 Am. St. 832 (1895). See also. Union Bank of Chicago V. Kansas City Bank, 136 U. S. 223 (1890). § 2G6 THE STANDARD POLICY. 360 of possession or title as will invalidate the policy.^" Where, after the sale of property under foreclosure and before the expiration of the time to redeem, property is insured for the benefit of a mortgagee, as its interest may appear, and the mortgagee pays the premium, the non-redemption from the mortgage sale by the owner of the property does not work an alienation of the property so as to defeat the policy.^"* An agreement between the owner of the property and another per- son to represent to the creditors of the owner, for the purpose of pre- venting a levy and attachment, that the property had been sold to such other person, does not avoid the poliey.^'^ Like other provisions for the benefit of the insurer, this provision against alienation may be waived.^"" The notice may be given to the person who signed the policy, as the agent of the company, when the insured has no notice that such person has ceased to be an agent.^"^ § 266. Transfer of part interest. — Whether a transfer of a part interest in the insured property invalidates a policy depends upon the particular language of the provision. Where the prohibition is mere- ly upon the sale or conveyance of the property it is held that it is not violated by the sale of anything less than the entire interest of the insured.^"^ Conditions restricting the right of alienation are strictly construed against the insurer. The general rule is that such a condition refers only to an absolute transfer of the entire interest of the insured which completely divests him of his insurable interest. Any sale or transfer short of this is not within the scope of such a condition.^'" But a provision to the effect that the policy shall be "'Thompson v. Phenix Ins. Co., some states the effect is to suspend 136 V. S. 287 (1890). the policy. Provisions forbidding "' Washburn Mill Co. v. Fire a change of title without the consent Ass'n, 60 Minn. •68, 51 Am. St. 500 of the insurer are reasonable and (1895). have always been enforced: Cum- ™ Orrell v. Hampden F. Ins. Co., mins v. National F. Ins. Co., 81 Mo. 13 Gray (Mass.) 431 (1859). App. 291 (1899). '=« Stuart V. Reliance F. Ins. Co. "' Cowan v. Iowa State Ins. Co., (Mass.), 60 N. E. 929 (1901). 40 Iowa 551, 20 Am. Rep. 583 (1875); "" Whitney v. American Ins. Co. Scanlon v. Union P. Ins. Co., 4 Biss. (Cal.), 56 Pac. 50 (1899). A breach (C. C.) 511 (1869). See also, Stet- of this condition renders the policy son v. Massachusetts, etc., Ins. Co., ipso facto void: Farmers', etc., Ins. 4 Mass. 330, 3 Am. Dec. 217 (1808). Ass'n V. Price, 112 Ga. 264, 37 S. E. "" Clinton v. Norfolk, etc., Ins. Co., i^l (1900). As elsewhere noted, in 176 Mass. 486, 57 N. E. 998, 79 Am. 261 CHANGE IN INTEREST, TITLE OR POSSESSION. § 267 void if there is a sale, transfer or change of title of the insured prop- erty, is broken by a conveyance of an undivided interest in the prop- erty, although the remaining interest of the insured exceeds in value the amount of the policy.""" A conveyance of an undivided one-half interest in the property violates a condition which forbids a change in the title or possession of the property, whether by sale, lease, legal process, judicial decree, or voluntary transfer without the consent of the company. § 267. Executory contract of sale. — The execution of a contract of sale, by the terms of which the title is to remain in the vendor until the purchaser pays the deferred payments, is not a violation of the condition which forbids any change in the title of the insured prop- erty.""^ So, the condition is not broken by a contract of sale and the part payment of the purchase-money with a provision for the giving of possession at a future date, where the loss occurs before that time.""" But where, under a contract for the sale of real estate, the purchaser has taken possession, and nothing remains to be done but to make the deed and pay tlie balance of the purchase price, there is a breach of condition, although the contract provides that it is to be- come of no effect if default is made in the payments at the stipulated time.""^ It was held that the condition was broken by the execu- tion of a written contract of sale which passed the equitable title and beneficial interest.""* In this case the court said: "The rule seems to be general that if the insured, in making a transfer of the title, St. 325 (1900), and cases there cited. 27 Am. Rep. 86 (1878); Forward v. See note to Lane v. Maine, etc., Ins. Continental Ins. Co., 142 N. Y. 382, Co., 28 Am. Dec. 150 (1835). 25 L. R. A. 637 (1894). ^"■Western, etc., Ins. Co. v. Riker, ""Kempton v. State Ins. Co., 62 10 Mich. 279 (1862). Iowa 83, 17 N. W. 194 (1883). "' Home Ins. Co. v. Bethel, 142 111. '" Davidson v. Hawlteye Ins. Co., t)37, 32 N. E. 510 (1892). See also, 71 Iowa 532, 32 N. W. 514, 60 Am. Grable v. German Ins. Co., 32 Neb. Rep. 818 (1887). A transfer from 645, 49 N. W. 713 (1891). Contra: a mortgagor to a mortgagee before Skinner v. Houghton, 92 Md. 68, 48 the Are, Which is not accepted until Atl. 85 (1900). A condition pro- the day after the fire, will not avoid hibiting any sale or transfer, or the policy: Pioneer Sav., etc., Co. any change in the possession of the v. Providence, etc., Ins. Co., 17 Wash, property, does not apply to a mere 175, 38 L. R. A. 397 (1897). executory contract for a sale with- '°* Cottlngham v. Fireman's Fund out change of possession: Brown- Ins.' Co., 90 Ky. 439, 14 S. W. 417, ing V. Home Ins. Co., 71 N. Y. 508, 9 L. R. A. 627 (1890). § 267 THE STANDARD POLICY. 262 retains an interest in any of the insured property, the policy is not vacated by a sale. Pursuant to this rule, it has been held in a num- ber of cases, and by elementary writers, that the sale, in order to vacate the policy, must be of the legal title; that the sale of a mere equity, the vendor holding the legal title, will not suffice to va- cate the insurance. It is believed that the rationale of this rule is that the vendor in such cases, as the owner of the legal title, he not having parted with it, retains the risk of the property — that is, the risk of the property remains with the legal title and the loss or destruction of the property falls upon the owner of the legal title; and under that view it is believed that if the owner has sold the equitable, but not the legal title, he has not parted with his insurable interest in the property. But in this state the purchaser of real estate by a title bond takes the risk of the property. He is the bene- ficial owner of it, and its loss or destruction falls upon him and not the vendor. It is the vendor's parting with the beneficial interest in the property that vacates his contract of insurance, and where the sale of the legal title is necessary to deprive the owner of such interest, the sale of the equitable title only will not be sufficient for that pur- pose. But where, as in this state, the beneficial interest is passed to the vendee of the equitable title, the contract of insurance is vacated by such sale. The vendee in such eases assumes all risk of loss or de- struction of the property." I Where the policy contains a provision invalidating it "if any change take place in the interest, title or possession of the subject of insurance," it is not invalidated by an agreement to exchange the insured property, which was to take effect on a specified date in the future, but which was never in fact executed. The court said that "it was simply an agreement to in the future make such a change, which was never done. It is true that the policy stipulates against a change of interest, or change of title, or change of possession, but there was no change of either.=°= A contract for the sale of the in- sured property does not violate this condition where the property is not passed to the purchaser, although a portion of the purchase-money is paid.^"" The word "interest" is broader than the word "title," «» Erb V. German, etc., Ins. Co., ™ Boston Ice Co. v. Royal Ins. Co., 98 Iowa 606, 67 N. W. 583, 40 L. R. 12 Allen (Mass.) 381, 90 Am. Dec'. A. SiZ (1896). See also. Washing- 151 (1866). ton F. Ins. Co. v. Kelly, 32 Md..421, 3 Am. Rep. 149 (1870). 263 CHANGE IN INTEREST, TITLE OR POSSESSION. § 268 and includes bath legal and equitable rights. Hence, where the pol- icy provides that it shall be void if any change taJies place in the interest of the insured, whether by voluntary act of the insured or otherwise, an executory agreement to convey the insured premises under which the vendee takes possession and pays part of the pur- chase price is a breach of the condition.^"^ § 268. Incumbrances. — The weight of authority supports the view that the execution of a mortgage on the insured premises is not a breach of the condition against a change of title, interest or posses- sion.^** Nor is this provision violated by the existence of a mortgage on the property at the time the policy was issued, as the condition re- fers only to subsequent changes.^"' Policies sometimes contain con- ditions requiring the disclosure of existing incumbrances, and render- ing the contract void if this is not done. No such provision appears in the standard form under consideration.^^" Of course the execution of a mortgage for the purpose of paying off a mortgage which was in existence at the time the policy was *" Glbb v. Philadelphia F. Ins. Co., 59 Minn. 267, 61 N. W. 137, 50 Am. St. 405 (1894); Trumbull v. Portage, etc., Ins. Co., 12 Ohio 305 (1843). As to the meaning of the word "in- terest," see Walradt v. Phoenix Ins. Co., 136 N. Y. 375, 32 N. E. 1063, 32 Am. St. 752 (1893). ,In Skinner & Sons' Co. V. Houghtpn, 92 Md. 68, 48 Atl. 85 (1900), it was held that a contract for the sale of the insured premises was a breach of a con- dition which provided that the pol- icy should be void if any change take place in the Interest, title or possession of the property, whether by legal process or by voluntary act pf the insured. =" Judge V. Connecticut F. Ins. Co., 132 Mass. 521 (1882); Commercial Ins. Co. V. Spankneble, 52 111. 53 (1869); Peck v. Girard, etc., Ins. Co., 16 Utah 121, 67 Am. St. 600 (1897); Barry v. Hamburg, etc., Ins. Co., 110 N. Y. 1 (1888); Conover v. Mutual Ins. Co., 1 N. Y. 290 (1848); Hart- ford, etc., Ins. Co. v. Lasher Stock- ing Co., 66 Vt. 439, 29 Atl. 629, 44 Am. St. 859 (1894); Rice v. Tower, 67 Mass. 426 (1854); Loy v. Home Ins. Co., 24 Minn. 315, 31 Am. Rep. 346 (1877); Byers v. Farmers' Ins, Co., 35 Ohio St. 606, 35 Am. Rep. 623 (1880); Sun Fire Office v. Clark, 53 Ohio St. 414, 42 N. B. 248, 38 L. R. A. 562 (1895); Smith v. Monmouth, etc., Ins. Co., 50 Me. 96 (1863); Taylor v. Merchants', etc., Ins. Co., 83 Iowa 402, 49 N. W. 994 (1891); Germania F. Ins. Co. v. Stewart, 13 Ind. App. 627, 42 N. E. 286 (1895); Forehand v. Niagara Ins. Co., 58 111. App. 161 (1894). See also, Nussbaum v. Northern Ins. Co., 37 Fed. 524, 1 L. R. A. 704 (1889). '" Morotock Ins. Co. v. Rodefer, 92 Va. 747, 53 Am. St. 846 (1896). '}" See note to § 258, supra. § 268 THE STANDARD POLICY. 264 executed is not a breach of this provision against the creation of a future incumbrance. ^'^ But there are some authorities which hold that the execution of a mortgage results in a change of the title or interest of the mort- gagor. Thus, in Texas it was held that the execution of a mortgage on the insured property is a breach of the condition against any "change in the interest of the insured, whether by sale, transfer or conveyance."^" So, the giving of a mortgage with a power of sale has been held a violation of the condition against alienation."^ The execution of a chattel mortgage on partnership property by one of the p^tners to secure a personal debt violates a condition which provides that if any change takes place in the interest, title, or pos- session of the property, the policy shall be void.''^* A mortgage on the insured property by a person' who holds the legal title will not avoid a policy under a prohibition against changes in the title without the consent of the company indorsed upon the .policy, if such mortgage is merely the obligation of the mortgagor and not of the insured.^^° The giving of a mortgage is a material alteration of- the ownership of the property insured, under a policy which provides that "all alienations and alterations in the ownership, situation or state of the property" shall invalidate the policy.^^" Where the policy contains a condition against a change of title and the creation of incumbrances, a mere paper transfer, without a bill of sale and without consideration, and without a delivery of the posses- sion of the property, is not a breach of the condition.^^^ Where the policy contains a condition that it shall be void if there is any change in the title, or the creation of an incumbrance, and to which is attached a mortgage slip protecting the rights of a mortgagee against a breach of condition by the mortgagor, the rights of such mortgagee are not '" McKibban v. Des Moines, etc., '" Olney v. German Ins. Co., 88 Ins. Co. (Iowa), 86 N. W. 38 (1901); Mich. 94, 50 N. W. 100, 13 L. R. A. Aurora F. Ins. Co. v. Eddy, 55 111. 684 (1891). 213 (1870); KosWand V. Home, etc., '"Hoose v. Prescott Ins. Co., 84 Ins. Co.. 31 Ore. 321, 49 Pac. 864, 50 Micb. 309, 47 N. W. 587, 11 L. R. A. Pac. 567 (1897). 340 (1890). "» Bast Texas F. Ins. Co. V. Clarke, ""Edmands v. Mutual, etc., Ins. 79 Tex. 23, 15 S. W. 166, 11 L. R. A. Co., 1 Allen (Mass.) 311 (1861). 293 (1890). "" Forward v. Continental Ins. Co., ""Sossaman v. Pamlico, etc., Ins. 142 N. Y. 382. 25 L. R. A. 637 Co., 78 N. C. 145 (1878). (1894). 365 CHANGE IN INTEREST, TITLE OR POSSESSION. § 269 affected by a transfer of the title or the creation of an incumbrance by the mortgagor.^^* § 269. Defeasible conveyances. — A deed absolute in form, but in- tended as a mortgage, is not a breach of the condition that the policy will be void if there is any change in the title or possession.^'' Such conveyances are treated as simply incumbrances, and hence come within the rule stated in the preceding section. The fact that a deed absolute in form is recorded, and the defeasance is not, does not change the rule, although a statute provides that persons having no notice of aji unrecorded instrument of defeasance shall not be affected thereby.^*" A conveyance of real estate by a debtor to a cred- itor under the provisibns of the Georgia code is not an alienation of the property within the prohibition against a change of title.*^' § 270. Invalid conveyances. — A deed to the property covered by the policy, executed by the insured while insane, is not a violation of the condition .^^^ So, the rights of the insured are not affected by a sale of the property made by her husband without her consent. ^"^ But a voluntary conveyance is a breach of the condition against alienation, although it is without consideration.''^* "» Phenix Ins. Co. v. Omaha Loan, ™ Bryan v. Traders' Ins. Co., 145 etc., Co., 41 Neb. 834, 60 N. W. 133, Mass. 389, 14 N. E. 454 (1887). See 25 L. R. A. 679 (1894); Boyd v. Foote v. Hartford F. Ins. Co., 119 Thuringia Ins. Co. (Wash.), 65 Pao. Mass. 259 (1876); Dailey v. West- 785 (1901). Chester F. Ins. Co., 131 Mass. 173 ^» German Ins. Co. v. Gibe) 162 III. (1881). 251, 44 N. B. 490 (1896); Barry v. =" Phoenix Ins. Co. v. Asberry, 95 Hamburg, etc., Ins. Co., 110 N. Y. Ga. 792, 22 S. B. 717 (1895). 1, 17 N. B. 405 (1888). Contra: "' Gerling v. Agricultural Ins. Co., Western, etc., Ins. Co. v. Riker, 10 39 W. Va. 689, 20 S. B. 691 (1894). Mich. 279 (1862); Adams v. Rocking- '"'Commercial Ins. Co. v. Spank- ham, etc., Ins. Co., 29 Me. 292 neble, 52 111. 53, 4 Am. Rep. 582 (1849); Tomlinson v. Monmouth, (1869); German Ins. Co. v. York, 48 etc., Ins. Co., 47 Me. 232 (1859). But Kan. 488, 29 Pac. 586, 30 Am. St. in Bemis v. Harbor Creek, etc., Ins. 313 (1892). Co. (Pa.), 49 Atl. 769 (1901), it was »< Home F. Ins. Co. v. Collins held that a deed absolute in form, (Neb.), 85 N. W. 54 (1901); Brown and containing no intimation that it v. Cotton, etc., Ins. Co., 156 Mass. Is not an absolute conveyance, is a 587, 31 N. B. 691 (1892), breach of the condition. § 371 THE STANDARD POLICY. 266 § 271. Sale with purchase-money mortgage. — A condition pro- hibiting a change of title, interest or possession is broken by the exe- cution and delivery of a deed and the taking back of a mortgage to secure the payment of the purchase-money.^^' The contrary is held in Ohio on the theory that only a transfer of the entire interest of the insured violates this condition.^"" § 272. Conveyance to the wife of insured. — ^A transfer of the in- sured property to a third party, and by such party to the wife of the insured, is a breach of this condition and renders the policy void.^^' A marriage contract conveying land to the wife, but pro- viding for a reversion should she prove unfaithful or fail to survive the grantor, vests such a title in the wife as to come within the pro- hibition against change of title, and the fact that after the loss the husband secured a divorce can not authorize a recovery by the husband on the policy.^^' Under the Illinois statute, which pro- vides that no conveyance of a homestead estate shall be valid unless signed and acknowledged by the wife, it is held that a eonveyam^e by the insured to his wife does not constitute such a change of title as would avoid the policy, where the wife does not join in the execu- tion and acknowledgment of the deed.^'" § 273. Transfers by and between partners. — A condition making the policy void if there is any change in the title or interest of the insured without the consent of the company is not violated by the ™ Savage v. Howard Ins. Co., 52 Co., 48 Ohio St. 533, 29 N. E3. 278, 14 N. Y. 502, 11 Am. Rep. 741 (1873); L. R. A. 431 (1891). Kitts v. Massasoit Ins. Co., 56 Barb. =" Walton v. Agricultural Ins. Co., (N. Y.) 177 (1867); Tittemore v. 116 N. Y. 317, 22 N. B. 443, 5 L. R. Vermont, etc., Ins. Co., 20 Vt. 546 A. 677 (1899); Baldwin v. Phcenix (1848). In Sanders v. Hillsborough, Ins. Co., 60 N. H. 164 (1880); Lang- etc, Ins. Co., 44 N. H. 238 (1862), don v. Minnesota, etc., Ass'n, 22 notice of the transaction was given Minn. 193 (1875). See also, Oakes to the company and consent to the v. Manufacturers', etc., Ins. Co., 131 continuance of the insurance was in- Mass. 164 (1881); Glaze v. Three dorsed on the policy. See also, Rivers, etc., Ins. Co., 87 Mich. 349,. Farmers' Ins. Co. v. Archer, 36 Ohio 49 N. W. 595 (1891). St. 608 (1881); California State ""Cummins v. National P. Ins. Bank v. Hamburg, etc., Ins. Co., 71 Co., 81 Mo. App. 291 (1899). Cal. 11, 11 Pac. 798 (1886). • «• Kitterlin v. Milwaukee, etc., Ins. "Blackwell v. Miami, etc., Ins. Co., 134 111. 647, 25 N. E. 772 10 L. R. A. 220 (1890). 267 CHANGE IN INTEKEST, TITLE OR' POSSESSION. § 273 sale by one partner to another of his interest in the property, as this provision has no reference to a transfer of interest between partners.^^" This is the general rule, but in Iowa, under an in- surance policy on partnership property, which provided that it should be void, "if the title of the property is transferred, incumbered or changed," a sale by one partner of his interest to another partner will avoid the policy. It was held that the condition was broken where two of the partners sold and delivered their interests to the other partner. The court said: "This policy is conditioned against the property being sold or transferred, or any change taking place in the title and possession. I|rior to the sale and delivery to the plaintiff the title and possession were in the firm, consequently there was not only a change and transfer in the title but also in the pos- session. If it should be said that the title was in the individuals, and not in the firm, still there was a change in the possession, for un- questionably it was the firm that was using and had possession of the property."^*^ So, it was held that the retiring of one partner from participation in the business management or control of the partnership business, reserving to himself simply the right to see that the stock of goods is kept up to its value at the time of re- »°Wood V. American F. Ins. Co., Vaughan, 88 Va. 832, 14 S. E. 754 149 N. Y. 382, 52 Am. St. 733 (1896); (1892). Agreement of one partner Phenix Ins. Co. v. Holcombe, 57 Neb. to sell his interest to another: 622, 73 Am. St. 532 (1899); Drennen Georgia, etc., Ins. Co. v. Hall, 94 V. London Assur. Corp., 20 Fed. 657 Ga. 630, 21 S. B. 828 (1894); (1884); Burnett V. Bufaula, etc., Ins. Allemania F. Ins. Co. v. Peck, 133 Co., 46 Ala. 11 (1871); Sun Fire 111. 220, 24 N. B. 538, 23 Am. St. Office V. Wich, 6 Colo. App. 103, 39 610 (1890). Pac. 587 (1895); Powers v. Guard- ™ Oldham v. Anchor, etc., Ins. Co., ian, etc., Ins. Co., 136 Mass. 108, 49 90 Iowa 225, 57 N. W. 861 (1894). Am. Rep. 20 (1883); New Orleans As supporting the rule that a -trans- Ins. Ass'n v. Holberg, 64 Miss. 51, fer from one partner to another is 8 So. 175 (1886); Wilson v. Genesee, within this provision, see Buckley etc., Ins. Co., 16 Barb. (N. Y.) 511 v. Garrett, 47 Pa. St. 204 (1864); (1853); Hoffman v. ^Etna F. Ins. Keeler v. Niagara F. Ins. Co., 16 Co., 32 N. Y. 405, 88 Am. Dec. 337 Wis. 550, 84 Am. Dec. 714 (1863); (1865); Tallman v. Atlantic, etc., Flnley v. Lycoming, etc., Ins. Co., Ins. Co., 29 How. Pr. (N. Y.) 71 30 Pa. St. 311, 72 Am. Dec. 705 (1865); West v. Citizens' Ins. Co., (1858); Hartford F. Ins. Co. v. Ross, 27 Ohio St. 1, 22 Am. Rep. 294 23 Ind. 179, 85 Am. Dec. 452 (1864); (1875); Texas, etc., Ins. Co. v. Co- Tillou v. Kingston, etc., Ins. Co., 5 hen, 47 Tex. 406, 26 Am. Rep. i298 N. Y. 405 (1851). (3877); Virginia, etc., Ins. Co. v. § 273 THJE STANDARD POLICY. __ 2GS tiring as security for the payment of the amount allowed by the other partner for his interest, is such a change of possession, if not of title, as to avoid the policy on the goods, under a policy which provides that it shall be void if the title or possession of the property is changed."" So, a change in the firm by which a third party becomes a member of the firm is a violation of the condition and renders the policy void.^'' In a recent New York case, where the policy contained a pro- vision that it should be void "if the property be sold or transferred^ or any change takes place in the title or possession," the court said :^^* "The contract of insurance is peculiarly personal in its nature, and the success of the business of underwriting depends largely upon what is Icnown as the moral hazard. It is a well established principle of the common law' that every man has the right to determine with whom he will enter into contract obligations. The insurer is induced to issue or withhold its policy after carefully scrutinizing the char- acter of the applicant for insurance. It is of the utmost importance to the company to ascertain who is to be vested with the title and pos- session of the property sought to be insured. It would be a harsh and indefensible rule that required an underwriter who had insured an in- dividual on a stock of goods in a store to continue the insurance after the insured had taken in two partners and formed a firm wherein each partner was vested with an undivided one-third interest of the ''^ Jones V. Phoenix Ins. Co., 97 lantic, etc., Ins. Co., 51 Conn. 222, Iowa 275, 66 N. W. 169 (1896). 250 (1883). The mere dissolution =™ Drennen v. London Assur. of a firm does not destroy the joint Corp., 20 Fed. 657 (1884); Firemen's interest of the copartners in the Ins. Co. v. Floss, 67 Md. 403, 10 Atl. partnership property or make them 139 (1887). See also, Virginia, etc., tenants in common. The property Ins. Co. v. Thomas, 90 Va. 658, 19 S. continues as partnership property E. 454 (1894); Card v. Phoenix Ins. until it is disposed of. Until this Co., 4 Mo. App. 424 (1877). is done there is no violation of the ^Germania F. Ins. Co. v. Home condition against a change in the Ins. Co., 144 N. Y. 195, 26 L. R. A. title. But a dissolution of the part- 591, 43 Am. St. 749, 39 N. E. 77 nership and a division of the part- (1894). See cases cited in Beebe nership property prior to the fire is a V. Ohio, etc., Ins. Co., 93 Mich. 514, violation of the condition: Roby 18 L. R. A. 481 (1892). See also, v. American, etc., Assur. Co., 120 as sustaining this doctrine, Dren- N. Y. 510, 24 N. B. 808 (1890); nen v. London Assur. Corp., 20 Fed. Dreher v. .ffitna Insi Co., 18 Mo. 128 657 (1884); Card v. Phoenix Ins. Co., (1853). 4 Mo. App. 424 (1877); Malley v. At- 269 CHANGE IK INTEREST, TITLE OR POSSESSION. § 274 property covered by the policy without having been ofEered an oppor- tunity to examine into the moral and business character of the two strangers to the original contract. This right of the insurance com- pany was in no wise invaded when this court held that a sale by one partner to another of his interest, where both were insured, did not avoid the policy. It is only when a stranger is to be brought into contractual relations v/ith the insurance company that the consent of the latter is essential." § 274. Transfers between joint owners. — The provision prohibiting the sale of insured property does not prevent sales and transfers of interests as between joint owners. '''° Thus, a transfer from one joint tenant to another such tenant is not an alienation of the property.^'"' But a transfer from one tenant in common to another is within the provision against "alienation by sale or otherwise.'"''^ § 275. Legal process or judgment. — The clause in the standard pol- icy forbids alienation or change of interest by legal process or judg- ment as well as by voluntary acts of the insured. This provision is valid; and its violation, as by confessing judgment, will render the insurance void.^'^ It is not, however, broken by the seizure of the goods on execution,^^" as the mere levy of an execution is not an alien- ation of the property so long as the right of redemption remains."*" A change of title or interest is not effected by a delivery of an execution to an officer and a levy thereunder. As said in New York:^*'- "The interest which a person may have in property is affected in many ways without producing a change in such interest ==» Hoffman v. JEtna. P. Ins. Co., 32 Pennsylvania, etc., Ins. Co. v. N. Y. 405, 88 Am. Dec. 337 (1865). Schmidt, 119 Pa. St. 449 (1889). "•Lockwood V. Middlesex, etc., '"Rice v. Tower, 1 Gray (Mass.) Assur. Co., 47 Conn. 553 (1880); 426 (1854). Tillou V. Kingston, etc., Ins. Co., 7 "" Clark v. New England, etc., Co., Barb. (N. Y.) 570 (1850). 6 Cush. (Mass.) 342, 53 Am. Rep. '^Buckley v. Garrett, 47 Pa. St. 44 (1850); Greenlee v. North Brit- 204 (1864). ish, etc., Ins. Co., 102 Iowa 427, 63 ''^ Dover Glass Works v. American Am. St. 455 (1897). See, also. Wood Y. Ins. Co., 1 Marvel (Del.) 32, 29 v. American F. Ins. Co., 149 N. Y. Atl. 1039, 65 Am. St. 264 (1894). 382, 52 Am. St. 733, and note (1896). See Olney v. German Ins. Co., 88 '" Walradt v. Phoenix Ins. Co., 136 Mich. 94, 26 Am. St. 281 (1891). A N. Y. 375, 32 N. E. 1063, 32 Am. St. judgment entered on a warrant of 752 (1893). an attorney is an incumbrance: § 275 THE STANDARD POLICY. 270 as that term is generally understood; when he contracts a debt or incurs an obligation this, in a broad sense, may affect such interest, as the property constitutes the means of payment ; and his pecuniary condition, in a general sense, depends upon what he has left after the discharge of all his debts and obligations. The debt assumes an- other form by the recovery of a judgment, and the execution is a pro- cess which^ when delivered to an oflScer, clothes him with authority to enforce the collection of the debt. That is the foundation of all the subsequent steps. While each event in the progress of the proceedings for collection may bring the debtor and creditor into closer relations and press nearer upon the property of the debtor, yet his title or interest in the property is not divested or transferred until the sale is made which operates in law to transfer his interest to another. By the delivery of the execution and levy thereunder the officer has simply obtained authority at some future time and in the mode prescribed by law to expose the property of the debtor for sale, and that is the final act which changes the title and interest of the debtor. An officer has, no doubt, in law and from the necessities of the case, a sufficient interest in the property levied upon to enable him to protect it by insurance or against the acts of wrongdoers, other- wise the proceedings for the collection of the debt may be defeated, but still the owner retains the title in the same sense that he did after he made default in the payment of the debt, which as we have seen is the basis of every step in the process of enforcement. His interest is, no doubt, affected by the issuing of the execution and the levy, but that is also true, though perhaps in a remote sense, by contracting the debt. The words 'change of interest/ as used in the policy, are substantially synonymous with the words 'change of title,' and neither event occurs until the sale upon the execution. It may be asked what effect is, under such' a construction, to be given to the word 'interest' as used in the condition. It must be borne in mind that the standard policy now in use is so framed as to contain words suitable and applicable to every subject of insurance; but all the provisions are not necessarily applicable to every ease. That must always be so whenever a contract in the same form and expressed in the same language is sought to be applied to different things or classes of property. The subject of the insurance, its condition and situation, and the surrounding circumstances, may vary so as to render words and phrases contained in the policy not strictly applicable. There is a large class of risks, however, to which the word 'interest,' as used 271 CHANGE IN INTEREST, TITLE OR POSSESSION. § 27Q in the condition under consideration, is no doubt applicable. Policies are frequently written in favor of parties who have a claim on the property in the nature of a lien, to secure payment of a debt and, perhaps, for other purposes." Where the policy provided that it should be rendered void by the "levying of an execution," it was held that the mere issuance of an execution and the advertisement of the property for sale by the sheriff, was not a violation of the provision. ''^^ This provision is limited to acts of omission or commission by the insured, or to a change of possession by process under his order or control.^*^ Where the policy contained a condition that it should be void "if any change takes place in the title or possession of the property, ex- cept in case of succession by reason of the death of the insured, whether by sale, transfer, conveyance, legal process or judicial de- cree," it was held that a writ of attachment was, under the Wis- consin statute, process, and that therefore the policy was rendered invalid by the levy of the attachment on the insured property. "There can be no question," said the court, "but that the deputy sheriff took exclusive possession of the property under the vnrit and that a change of possession of the property took place by legal process under the language of the condition."^** An illegal levy, assessment, seizure and sale of the insured prop- erty do not violate this condition."** § 276. By judgment. — ^A change of title by "judgment" means change of title through judicial sale. Where the provision merely referred to a change of title, ownership or possession of the property, it was not broken by a sale under execution where, before the time for redemption had expired, the husband of the insxired paid the money to redeem the property under an agreement that the pur- chaser would convey to him, and the property was destroyed before the conveyance was actually made. It appeared that the insured remained in undisputed possession until the loss, and never agreed that the property should be conveyed.''** There is no change of title until =^ Caraher v. Royal Ins. Co., 63 84 Wis. 80, 54 N. W. 18, 36 Am. St. Hun (N. y.) 82 (1892). 907, 20 L. R. A. 267 (1893). ^^ Carey v. German, etc., Ins. Co., ^"Runkle v. Citizens' Ins. Co., ft 84 "Wis. 80, 54 N. W. 18, 36 Am. St. Fed. 143 (1881). 907, 20 L. R. A. 267 (1893). ""Lodge v. Capital Ins. Co., 91 "* Carey v. German; etc., Ins. Co., Iowa 103, 58 N. W. 1089 (1894). § 277 THE STANDARD POLICY. 272 the period of redemption expires.^*^ So, a sale by the sheriff does not pass title until his deed is acknowledged and delivered.^** § 277. By partition. — The condition prohibiting a change in the interest, title or possession of the property is broken by the setting aside of the insured property to the widow of the insured in par- tition proceedings after his death. The partition of the property, whether it is inter se or by judgment or decree, effects "a change in the interest, title or possession of the property .'"*° § 278. Assignment and bankruptcy proceedings. — A general as- signment of the property of the insured for the benefit of his creditors violates the clause which provides that the policy shall be void, "if the property or any interest therein be sold or transf erred."^°° This is true under a policy which provides that "when any property insured by this company shall be taken possession of by a mortgagee, or in any way be alienated, the policy shall be void."^^^ A condition against alienation is broken by a transfer of the property by the wife of the insured, who held the title as security for a debt to the husband's assignee in insolvency.^"^ It was held in Kentucky that a transfer of goods to an assignee in trust to pay the creditors of the insured, the insured remaining in actual possession, did not violate" the clause prohibiting a "transfer of the interest of the insured by sale or otherwise," without the consent of the company. ^°^ So, an assignment for the benefit of creditors by one member of a firm does not affect the "'Wood V. American F. Ins. Co., ="°Ohio, etc., Ins. Co. v. Waters 149 N. Y. 382, 44 N. E. 80, 52 Am. (Ohio),- 61 N. B. 711 (1901); Orr St. 733 (1894). V. Hanover F. Ins. Co., 158 111. 149, =« Collins V. London Assur. Corp., 41 N. E. 854 (1895). See also. Small 165 Pa. St. 298, 30 Atl. 924 (1895). v. Westchester F. Ins. Co., 51 Fed. ""Trabue v. Dwelling House Ins. 789 (1892); Campbell v. German Ins. €o., 121 Mo. 75, 25 S. W. 848, 23 L. Co. (Tex. Civ. App.), 31 S. W. 310 R. A. 719 (1894). See, also, Sher- (1895). wood v. Agricultural Ins. Co., 73 N. ""Young v. Eagle F. Ins. Co., 14 Y. 447, 29 Am. Rep. 180 (1878); Gray (Mass.) 150, 74 Am; Dec. 673 Burbank v. Rockingham, etc., Ins. (1860). Co., 24 N. H. 550, 57 Am. Dec. 300 '•"Brown v. Cotton, etc., Ins. Co., (1852); Barnes v. Union, etc., Ins. 156 Mass. 587, 31 N. B. 691 (1892). €o., 51 Me. 110, 81 Am. Dec. 562 "»» Phoenix Iris. Co. v. Lawrence, 4 (1863); Finley v. Lycoming, etc.. Mete. (Ky.) 9, 81 Am. Dec. 521 Ins. Co., 30 Pa. St. 311, 72 Am. Dec. (1862). 705 (1858). 273 CHANGE IN INTEEEST, TITLE OR POSSESSIOK. § S79 sole and undivided ownership by the firm of the partnership prop- erty.*"* A similar provision to that in the standard policy is violated by a transfer by a registrar under and in pursuance of the bankruptcy act.*''* § 279. Transfer by death.— The clause in the New York form of policy refers to any change in the title "other than by the death of the insured." By the weight of authority, even in the absence of this exception, a general provision forbidding a transfer of the property will be construed as referring to a voluntary transfer, and not to a transfer as a result of the death of the insured.^^" Such cases distin- guish between alienation and devolution, one being the act of the party and the other the act of the law. But some decisions hold that un- der the language of the policy there under consideration the pass- ing of the title by devolution upon the death of the insured terminates the policy.^"' This was the effect where the prohibition was against "a change of title."^°* Where, after the death of the insured, his wife rents the premises to tenants without the consent of the com- pany, the provision forbidding a change of occupancy and posses- sion is violated.*"' § 280. Change of possession. — The prohibition against a change of possession does not apply where the property is insured for the joint benefit of partners, and is transferred from one partner to another.*"" There is no change of possession within the meaning of this pro- vision where the insured enters into an oral contract to lease the prop- erty and the intended lessee enters into actual possession under a =»*Wood V. American F. Ins. Co., N. B. 139, 74 Am. St. 161 (1899); 149 N. y. 382, 44 N. B. 80 (1897). Planters', etc., Ins. Ass'n v. Dew- =» Perry v. Lorlllard Ins. Co., 61 berry (Ark.), 62 S. W. 1047 (1901). N. Y. 214, 19 Am. Rep. 272 (1874); ^'Sherwood v. Agricultural Ins. Adams v. Rockingham, etc., Ins. Co., Co., 73 N. Y. 447, 29 Am. Rep. 180 29 Me. 292 (1849). (1878). ^Pfister V. Gerwig, 122 Ind. 567, =** Miller v. German Ins. Co., 54 23 N. B. 1041 (1890); Richardson v. 111. App. 53 (1894). German Ins. Co., 89 Ky. 571, 13 S. W. "' Planters', etc., Ins. Ass'n v. 1, 8 L. R. A. 800 (1890); Burbank v. Dewberry (Ark.), 62 S. W. 1047 Rockingham, etc., Ins. Co., 24 N. H. (1901). 550, 57 Am. Dec. 300 (1852); Geor- """Allemania F. Ins. Co. v. Peck, gia Home Ins. Co. v. Kinnier, 28 133 111. 220, 24 N. B. 538 (1890). But Gratt. (Va.) 88 (1877); Forest City see cases cited at § 273, supra. Ins. Co. V. Hardesty, 182 111. 39, 55 18 — Elliott Ins. § 381 THE STANDARD POLICY. 274 parol license from the insured for the mere purpose of making re- pairs.^^^ Leaving the property in charge of a person as agent of the owner is not a change of the possession of the property.^"^ Nor is there a change of possession under a policy which is payable to a chat- tel mortgagee, where he takes possession on default by the mort- gagor.^^' But the execution of a lease, where the lessee goes into pos- session, is a violation of the condition against a change of posses- sion.""* A policy was issued upon cotton "owned by the insured or held . by it in trust or on commission." The insured gave its receipts to the owners and thereafter the receipts were transferred to certain rail- road companies, which received bills of lading therefor from the insured. It was held that this did not effect a change of posses- sion. =«" § 281. lease of the property. — The leasing of the insured prop- erty does not violate a condition that the policy shall be void if the property be sold or transferred, or any change take place in the title or possession, "whether by legal process, judicial decree, voluntary transfer or conveyance.""® Of course, a lease with the privilege of purchase at any time during the term does not violate the provision where the privilege is not exercised.""^ IX. Assignment. This entire policy shall be void * * * if this policy he as- signed before a loss.^^^ ="Alkan v. New Hampshire Ins. =" Planters', etc., Ins. Co. v. Row- Co., 53 Wis. 136, 10 N. W. 91 land, 66 Md. 236, 7 Atl. 257 (1886). (1881). ^This provision is found in the ^ Shearman v. Niagara F. Ins. standard policies of New York, New Co., 46 N. Y. 526(1871). Jersey, Connecticut, Rhode Island, '" Getman v. Guardian F. Ins. Co., Wisconsin, Louisiana, North Dakota, 46 111. App. 489 (1892). South Dakota, Michigan, North Car- ^"Wenzel v. Commercial Ins. Co., olina, Iowa, Massachusetts, Minne-' 67 Cal. 438, 7 Pac. 817 (1885); Smith sota and Maine. The New Hamp- V. Phenix Ins. Co. (Cal.), 23 Pac. shire policy provides that the policy 383 (1890). See Fire Ass'n v. shall be "void and inoperative dur- Flournoy, 84 Tex. 632, 19 S. W. 793, ing the continuance or existence of 31 Am. St. 89 (1892). the acts or conditions of things stip- ^ California Ins. Co. v. Union ulated against as follows: * * * Compress Co., 133 U. S. 387 (1890). or if, without such assent, the said '" Rumsey v. Phoenix Ins. Co., 1 property shall be sold, or this policy Fed. 396 (1880). assigned." 275 ASSIGNMENT. § 282 § 282. Assignment of policy. — This form prohibits an assignment of the policy before loss. The provision is reasonable and valid,'°° and is not an unlawful restraint upon the right to transfer prop- erty."" Fire insurance contracts are personal in their nature, and are therefore not assignable without the consent of the insurer. ^^^ A transfer of the insured property does not of itself effect an assign- ment of the policy.''''' The clause does not apply to a deposit by way of pledge which gives a creditor a lien upon the proceeds.""' An equitable assignment of the insured's interest in the policy will not defeat the insurance under this general clause.^'* Where the policy is assigned with the consent of the company, and the property is transferred to the assignee, a new contract is created between such assignee and the insurance company, which is not affected by sub- sequent breaches of conditions of the policy by the assignor.'"" But it is otherwise where the policy is merely assigned as collateral secur- ity, as the insurance is still upon the interest of the assignor."'' This is true where the policy is assigned with the consent of the company as collateral security to a mortgagee, and unless there is an agree- ment to the contrary,"'' the policy will be rendered invalid by sub- =°° Biggs V. North Carolina, etc., *" Ellis v. Kreutzinger, 27 Mo. 311, Ins. Co., 88 N. C. 141 (1883); Water- 72 Am. Dec. 270 (1858). house v. Gloucester F. Ins. Co., 69 "' Bergson v. Builders' Ins. Co., 38 Me. 409 (1879); Spare v. Home, etc., Cal. 541 (1869); Hall v. Dorchester, Ins. Co., 19 Fed. 14 (1884). ■ See Car- etc., Ins. Co., Ill Mass. 53, 15 Am. R. roll V. Boston, etc., Ins. Co., 8 Mass. 1 (1872). 515 (1812); StoUe v. ^tna, etc., Ins. ^°Fogg v. Middlesex, etc., Ins. Co., Co., 10 W. Va. 546 (1877). An as- 10 Cush. (Mass.) 337 (1852); Don- signment of a fire insurance policy nell v. Donnell, 86 Me. 518, 30 Atl. must be in writing: St. Paul, etc., 67 (1894); Bonefant v. American Ins. Co. v. Brunswick Grocery Co., Ins. Co., 76 Mich. 653, 43 N. W. 682 113 Ga. 786, 39 S. E. 483 (1901). (1889); Cummings v. Cheshire, etc., "° Lazarus v. Commonwealth Ins. Ins. Co., 55 N. H. 457 (1875); Co., 5 Pick. (Mass.) 76 (1827). Buckley v. Garrett, 47 Pa. St. 204 "'Rayner v. Preston, L. R. 18 Ch. (1864); Commonwealth v. National Div. 1 (1881); Simeral v. Dubuque, Ins. Co., 113 Mass. 514 (1873); Ellis etc., Ins. Co., 18 Iowa 319 (1865); v. Insurance Co., 32 Fed. 646 (1887). Jecko V. St. Louis, etc., Ins. Co., 7 ""Birdsey v. City F. Ins. Co., 26 Mo. App. 308 (1879); Lett v. Guard- Conn. 165 (1857); Pupke v. Resolute ian F. Ins. Co., 125 N. Y. 82, 25 N. B. F. Ins. Co., 17 Wis. 378, 84 Am. Dec. 1088 (1890). 754 (1863); Reed v. Windsor, etc., "'Lett V. Guardian F. Ins. Co., 125 Ins. Co., 54 Vt. 413 (1882). N. y. 82, 25 N. E. 1088 (1890), "'Hartford F. Ins. Co. v. Wil- liams, 63 Fed. 925 (1894). § 283 THE STAKDAED POLICY. 276 sequent breaches of condition by the assignor."'* Where a mort- gagee to whom such an assignment is made assumes the payment of future premiums the transaction will be construed so as to protect him from the results of future breaches of conditions by the as- signor."'' But the assignee takes subject to the conditions of the policy, and if the assignor has lost his right to recover thereon by reason of a breach of condition, he can transfer nothing to the as- signee."*" This clause does not affect the right of the insured to transfer his interest after a loss."*^ It is, then, a mere chose ia action, and is assignable like any other claim, without the consent of the company, subject, of course, to such defenses as would have been available against the original insured."*" The transfer and assignment of a claim after loss is not void as against public policy."** An executory contract for the sale of property does not violate the provision against sale or assignment."** Nor is it violated by a transfer of an interest in the insured property from one partner to another."*" This pro- vision does not apply to the assignment of the interest of a mort- gagee to whom the policy is made payable as his interest may ap- pear. Where this was done the court said:"*° "The object of that provision (coupled with the provision declaring the policy void if the property insured is sold) is to prevent the company becoming "» Illinois, etc., Ins. Co. V. Fix, 53 111' Mass. 53 (1872); Imperial F. 111. 151, 5 Am. Rep. 38 (1870); Tom- Ins. Co. v. Dunham, 117 Pa. St. 460 linson v. Monmouth, etc., Ins. Co., (1888). 47 Me. 232 (1859); Grosvenor v. At- '''"Imperial F. Ins. Co. v. Dunham, lantlc F. Ins. Co., 17 N. Y. 391 117 Pa. St. 460 (1888); Dogge v. (1858). Northwestern, etc., Ins. Co., 49 Wis. ""Francis v. Butler, etc., Ins. Co., 501 (1880). 7 R. 1. 159 (1862); Brannin v. Mer- ^Goit v. National, etc., Ins. Co., cer, etc., Ins., 28 N. J. L. 92 (1859). 25 Barb. (N. Y.) 189 (1855); West ™ Home, etc., Ins. Co. v. Hauslein, Branch Ins. Co. v. Helfenstein, 40 60 111. 521 (1871); Eastman v. Car- Pa. St. 289, 80 Am. Dec. 573 (1861); rol, etc., Ins. Co., 45 Me. 307 (1858); Alkan v. New Hampshire Ins. Co., Citizens', etc., Ins. Co. v. Doll, 35 53 Wis. 136 (1881). Md. 89, 6 Am. Rep. 360 (1871). In =»• Washington, etc., Ins. Co. v. Ellis V. Council Bluffs Ins. Co., 64 Kelly, 32 Md. 421, 3 Am. Rep. 149 Iowa 507 (1884), it was held that (1870). by consenting to an assignment the "™ Hoffman v. ..^tna F. Ins. Co., 32 company, as against the assignee, N. Y. 405 (1865); West v. Citizens' could not defend on the ground of Ins. Co., 27 Ohio St. 1, 22 Am. Rep. the fraud of the assignor in. obtain- 294 (1875). ing the insurance. »*■ Whiting v. Burkhardt (Mass.), "" Hall V. Dorcester, etc., Ins. Co., 60 N. B. 1 (1901). 277 ASSIGNMENT. § 283 the insurer of property of a person who is not acceptable to it. An insurance company has the right to refuse to insure a person whose character is such that the moral risk, to use the term employed in the insurance business, is greater than it is where the same property is owned by an honest man, and is one which they do not care to assume. The transfer prohibited by this provision is a transfer of the contract of insurance, — ^that is to say, a transfer by * * * the persons insured, not a transfer by J., who was the person desig- nated as the person entitled to receive the proceeds of the insurance, if any, due under the contract between the company on the one hand and the insured on the 'other. * * * What J. did by assigning his 'right and interest in this polic/ was not to transfer thQ policy, but to assign to another his right to receive the proceeds, if any, under irt;, the policy remaining, after this assignment, as before, the policy of G." A policy was made payable to a mortgagee, and provided that no act or default of any person but the mortgagee, his agents or those claiming under him, should affect his right to recover in case of loss ; and it was held that the assignee of such mortgagee might recover on the policy, although a part owner of the property had sold his interest therein before loss, and that the provision against assign- ment did not apply to an assignment by such mortgagee.^*' The assent of the company to an assignment of the policy may be given after an unauthorized assignment as well as before."^* Where a policy which had been assigned was presented to the agent of the company for the purpose of having its consent indorsed thereon, and the agent, instead of making this indorsement, signed and at- tached to the policy a slip which provided that loss, if any, there- under, should be payable to the assignee, as his interest might ap- pear, it was held tha:t there was a substantial consent to the assign- ment.^^* Where, at the instance of the insured, an entry was made in the policy register of the company, "transferred to G.," it was held sufficient to show acceptance by the company of G. instead of the original insured.^'" It has been held that an indorsement, "in case =" Whiting V. Burkhardt (Mass.), =™ Queen Ins. Co. v. Block (Ky), 60 N. E. 1 (1901). . 58 S. W. 471 (1900). See, also, "^ Gould v. Dwelling House Ins. Southern Fertilizer Co. v. Reams, Co., 134 Pa. St. 570, 19 Atl. 793, 19 105 N. C. 283, 11 S. E. 467 (1890); Am. St. 717 (1890); Shearman v. Buchanan v. Exchange F. Ins. Co., Niagara F. Ins. Co., 46 N. Y. 526 61 N. Y. 26 (1874). (1871). ""Griswold v. American, etc., Ins. § 283 THE STANDARD POLICY. 378 of loss, pay to A.," is not an assignment of tlie poliey.^'^ Generally the insertion of a clause in the policy making the loss payable to a third party does not operate as an assignment of the policy.^'^ Thus, where the policy is payable to a mortgagee as his interest may appear, there is no assignment of the policy by a mere designation of one to whom the fund, or a portion thereof, is to be paid with the com- pany's consent. The right of action is still in the original insured.^"^ A mortgagee to whom a policy is made payable as his interest may ap- pear need not obtain the further consent of the company as upon a formal assignment of the policy.^"* An unsuccessful attempt to as- sign the policy where the interest in the insured property is not transferred will not render the policy void under this provision.^*'' The consent to an assignment may be given by any duly authorized agent of the company.^'^ No one but the company can object to an assignment of the policy.^^^ X. Prohibited Articles. This entire policy shall be void * * * if fany usage or custom of trade or manufacture to the contrary notwithstanding) there be Tcept, used, or allowed on the above described premises, benzine, ben- zole, dynamite, ether, fireworlcs, gasoline, greek fire, gunpowder ex- ceeding twenty-five pounds in quantity, naphtha, nitroglycerine, or Co., 70 Mo. 654 (1879). See Min- ^'^ Smith v. Monmouth, etc., Ins. turn V. Manufacturers' Ins. Co., 10 Co., 50 Me. 96 (1863). In Bursinger Gray (Mass.) 501 (1858). As to the v. Watertown Bank, 67 Wis. 75, 58 meaning of "indorsement" when re- Am. Rep. 848 (1886), it appeared quired to he on the policy, see Penn- that the insured attempted to assign sylvania Ins. Co. v. Bowman, 44 the policy while intoxicated. Pa. St. 89t(1862); Reynolds v. Atlas, ""Breckinridge v. American, etc., etc., Ins. Co., 69 Minn. 93, 71 N. W. Ins. Co., 87 Mo. 62 (1885); Imperial 831 (1897). F. Ins. Co. v. Dunham, 117 Pa. St. ="Russ v. Waldo, etc., Ins. Co., 52 460, 12 Atl. 668 (1888). As to man- Me. 187 (1863). ner in which assent may he made, »» Martin v. Franklin F. Ins. Co., see Durar v. Hudson, etc., Ins. Co., 9Vroom (N.J.) 140 (1875); Froehly 24 N. J. L. 171 (1853); Boynton v. V. North St. Louis, etc., Ins. Co., 32 Farmers', etc., Ins. Co., 43 Vt. 256, 5 Mo. App. 302 (1888). Am. Rep. 276 (1870); Grant v. Eliot, ""Williamson v. Michigan, etc., etc., Ins. Co., 75 Me. 196 (1883). Ins. Co., 86 Wis. 393, 39 Am. St. 906 "" Leinkauf v. Caiman, 110 N; Y. (1893). 50 (1888). =^ National F. Ins. Co. v. Crane, 16 Md. 260, 77 Am. Dec. 289 (1860). 279 PROHIBITED ARTICLES. § 283 other explosives, phosphorus, or petroleum or any of its products of greater inflammability than kerosene oil of the linked States standard (which last may be used for lights and kept for sale according to law, but in quantities not exceeding five barrels, provided it be drawn and lamps filled by daylight or at a distance not less than ten feet from artificial light)'"'^ § 283. ITse of property — ProMbited articles. — This section con- tains a proper restriction upon the use of the property, and must be observed by the insured.^"' The language, "any use or custom of trade or manufacture to the contrary" was inserted in the standard form for the purpose of avoiding the rule of construction which permits the use of the articles named in the printed slip, where they constitute an ordinary part of the stock of goods described in the policy or are necessary and commonly used as incident to the busi- ness. But the rule still prevails, and the only effect of the clause is "to impose on the insured the burden of showing with perhaps greater clearness that the written description clearly covers the pro- hibited articles in question."^"" Operating a laundry is not a trade or manufacture within this ^' This clause is found in tbe may be used for domestic purposes standard policies in use in the to be filled when cold by daylight, states of New York, New Jersey, and with oil of lawful test only." Connecticut, Rhode Island, Louisi- The New Hampshire clause makes ana. North Dakota, South Dakota, no reference to the use of kerosene Michigan, North Carolina, and Iowa, oil stoves for domestic purposes, Wisconsin substitutes the words otherwise it is the same as the pre- ^'Wisconsin standard" for "United ceding clause. States standard" in referring to ker- '"^ United, etc., Ins. Co. v. Poote, osene oil. Massachusetts, Maine and 22 Ohio St. 340, 10 Am. Rep. 735 Minnesota have the following clause (1872); Liverpool, etc., Ins. Co. v. in their standard policies: "Or if Gunther, 116 U. S. 113 (1885). In gunpowder or other articles subject Yoch v. Home, etc., Ins. Co., Ill Cal. to legal restrictions shall be kept 503, 44 Pac. 189 (1896), it was held in quantities or manner different that "an agreement indorsed" per- from those allowed or prescribed by mitting otherwise prohibited artl- law, or if camphine, benzine, naph- cles to be kept on the insured prem- tha or other chemical oils or burn- ises is made where the articles are ing fluids shall be kept or used by included in the written description the insured on the premises insured, of the insured property, except that what is known as re- *'° Richards Ins., § 149; Birming- fined petroleum, kerosene or coal oil, ham P. Ins. Co. v. Kroegher, 83 Pa. may be used for lighting, and in St. 64, 24 Am. Rep. 147 (1876). dwelling houses kerosene oil stoves § 283 THE STANDARD POLICY. 280 clause so as to preclude proof of a custom of asing gasoline by the residents of a community at the time the policy was issued.^"^ The general rule of construction is that the written part of a contract will prevail over what is printed ; and therefore, where the writing de- scribes a certain kind or stock of goods or property used in a certain business it is presumed that the intention was to insure all that is commonly carried in such a stock, and to permit the property to be used in the ordinary and customary way. Hence, a policy covering materials of a certain business, which contained a printed condition prohibiting the keeping or using of certain inflammable substances, is valid where the business is of such a character that the substances constitute a component part of the stock of materials used in the business. In a case where the question received full consideration it was said:'°^ "The contrary doctrine would present the strange anomaly of issuing a policy of insurance containing such conditions that under no circumstances could payment of the loss thereunder be legally demanded. A rule which permitted the printed con- ditions to control the written statement of the subject on which the insurance was issued would place the insurance company in the pe- culiar position of saying in efEect: 'I issue you this policy; I accept your money in satisfaction of my demands for premiums; I insure your property to be used in your business, but if you use it your policy is void.' " Where the policy covered property described as a stock such as is usually kept in a general retail store, and the keeping of gunpowder was prohibited by the printed portions of the policy, it was held that if the gunpowder was a part of the stock usually kept in a retail store it might be kept without violating the condition of the policy.^*" So, a policy insuring a stock of hardware provided that the keeping or using or allowing of dynamite on the premises would render the policy void unless otherwise provided by agreement on the policy. ""Northern Assur. Co. v. Craw- by an Indulgent but apprehensive ford (Tex. Civ. App.), 59 S. W. 916 matron to her daughter: (1900). "'Mother, may I go out to swim?' '" Maril v. Connecticut F. Ins. Co., 'Yes, my darling daughter; 95 Ga. 604, 51 Am. St. 102 (1895). Hang your clothes on a hickory In this case the learned judge sug- limb, gests that the doctrine asserted by But don't go near the water.'" the insurance company is well illus- '" Peoria, etc., Ins. Co. v. Hall, 12 trated by the poetical advice offered Mich. 202 (1864); Pindar v. Kings, etc., Ins. Co., 36 N. Y. 648 (1867). 281 PROHIBITED ARTICLES. § 283 An attached slip provided that the insurance should cover merchan- dise usually kept for sale in a hardware store, and it was held that the policy covered dynamite when it was shown that it was usual to keep dynamite in such stores.'"* So, where the policy covered a stock of goods- such as is usually kept in country stores, and contained a printed condition that it should be void if certain articles, including gasoline, were kept, used, or allowed on the premises, it was held valid, where gasoline was kept as a part of the usual stock of merchandise. After discussing the various rules, the court said: "Applying these rules to the con- tract in the present case, it must be held that it was the intention of the defendant to insure gasoline if it was an article usually kept in country stores, and that if such was its intention, it was no viola- tion of the policy that the insured did keep gasoline on the premises as a part of the stock of merchandise."'"" Benzine kept in small quantities as part of a stock of drugs and chemicals does not avoid a policy on such stock, although there is a stipulation against the keeping of benzine in the store. "The court will not presume that the parties intended to make such an absolute agreement, but in such cases will presume that the intention was that the printed portions of the policy forbidding the keeping of benzine should not apply to the keeping of it bottled in small quantities, as customary with druggists, but only to storing and keeping it in large quantities."'"" An insurance company must be presumed to be familiar with the materials necessary to carry on a trade or business and to know what is commonly included in a stock of goods such as that insured, and in issuing the policy it must be deemed to have intended to include all such materials in the risk.'"' Hence, where the policy was issued upon the materials used in the business of photography, it was held to cover all such articles, such as kerosene, as were in common use, although some other things might have been substituted therefor.'"* A policy upon a stock of fancy goods, toys and other articles used »"Phenix Ins. Co. v. Walters, 24 ""Lancaster F. Ins. Co. v. Len- Ind. App. 87, 56 N. B. 257 (1900), heim, 89 Pa. St. 497, 33 Am. Rep. citing many cases. 778 (1879), annotated. ""' Yocli V. Home, etc., Ins. Co., Ill "' Hall v. Insurance Co., 58 N. Y. Cal. 503, 34 L. R. A. 857 (1896). 292, 17 Am. Rep. 255 (1874); Amer- ""Phcenlx Ins. Co. v. Flemming, ican, etc., Ins. Co. v. Green, 16 Tex. 65 Ark. 54, 39 L. R. A. 789 (1898). Civ. App. 531, 41 S. W. 74 (1897). § 283 . THE STANDARD POLICY. 282 in 'the business of the defendant as a German jobber and importer, with the privilege of keeping fireworks, which contained a pro- vision requiring hazardous articles, such as fireworks, if kept, to be specially written in the policy, is avoided by the storing of fireworks on the premises without such permission. Where a dealer was permit- ted to keep firecrackers, it was held not to include fireworks; nor were they within the phrase, "other articles in his line of business," in view of the express provisions of the policy.*"' The use of an inflammable substance, which is a necessary, usual and customary incident to the business in which the insured property is used, will be held to have been within the contemplation of the parties at the time of issuing the policy.*^" Where the printed con- ditions exempt the insurer from liability for loss occasioned by the use of camphine, and there was a written provision granting the privi- lege for a printing ofiice, bindery, bookstore and steam boiler in the yard, it was held that the use of camphine as one of the necessary articles for use in a printing office did not invalidate the policy.'^^ The provision will be given a liberal construction where the pro- hibited articles are used incidentally and for temporary purposes only, such as for cleaning machinery .'^^ It is not broken by the keep- ing in a store of a jug containing crude petroleum, which i^ used by the insured for medicinal purposes, if the risk is not thereby increased, and this is a question for the jury.*^* Gasoline is not kept, used, or allowed on the premises within the meaning of the policy by leaving a five-gallon can containing gasoline in a building for a number of days for use in burning off paint preparatory to painting the building. The prohibition refers to the habitual keeping, using or allowing of any of these articles on the premises, and not to the cas- ual introduction of the articles for some temporary purpose con- nected with their occupation.*^* So, there is no breach of the condi- '" Steinbach v. Relief F. Ins. Co., ™ Harper v. New York, etc., Ins. 13 Wall. (U. S.) 183 (1871). In Co., 22 N. T. 441 (1860). Steinbacli v. Lafayette F. Ins. Co., "" Wheeler v. Traders' Ins. Co., 62 54 N. Y. 90 (1873), upon the same N. H. 450, 13 Am. St. 582 (1883), facts, it was held that if, as a matter note. of fact, the keeping of fireworks was *" Williams v. People's F. Ins. Co., in the plaintiff's line of business, 57 N. Y. 274 (1874). they were embraced in the descrip- ""Smith v. German Ins. Co., 107 tlon of the property covered by the Mich. 270, 30 L. R. A. 368 (1895). policy. Contra, see First Cong. Church v. "» Maril v. Connecticut F. Ins. Co., Holyoke, etc., Ins. Co., 158 Mass. 475 95 Ga. 604, 30 L. R. A. 835 (1894). 33 N. E. 572, 35 Am. St 508, 19 L. H. 283 PROHIBITED ARTICLES. § 284 tion where the policy prohibits the use of eamphine, spirit gas, burn- ing fluid, or chemical oils, but permits the use of refined coal oil, kero- sene or other carbon oils for lights, if drawn and the lamps filled by- daylight, and the insured uses lard oil and candles for lights and filled the lamps at night.'^" § 284. Prohibited articles, continued. — A much narrower rule of construction than that stated in the preceding section is adopted in some states. Thus, in New Hampshire, a violation of the provision against the keeping and use of benzine and other enumerated articles of similar character was held to render the policy void. The court said: "Cases in which a disregard of the prohibition of the keeping or using of extraordiaarily 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 cus- tom, and recognized by the insurer so that a waiver of the prohibitory clause followed." In reference to the claim that the provision was not violated because the use was merely temporary, the court said: "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 provision in general terms against the keeping of hazard- ous things on the premises, or of carrying on a different or more dangerous trade. But where there is a stipulation that the policy shall be avoided on the use of the article expressly named, and there is nothing in the policy from which permission to use the article in a limited, partial or temporary ^ay can be inferred, full efEect is usually given to the prohibitive clause by a forfeiture of the policy for its violation.""' So, in Pennsylvania, under a policy which provided that it should be void if the hazard be increased by any means within the control or knowledge of the insured, or if .there be kept, used or allowed on the premises fireworks or other named explosives, it was held that the temporary storing of an assorted lot of fireworks upon the premises A. 587 (1893), where it was held Compare 'Wheeler v. Traders' Ins. that the policy was avoided by the Co., 62 N. H. 450, 13 Am. St. 582 use of a naphtha torch for burning (1883). off old paint on the building. "" Wheeler v. Traders' Ins. Co., »' Carlin v. Western Assur. Co., 62 N. H. 450, Woodruff Ins. Cas. 162 67 Md. 515, 40 Am. Rep. 440 (1881). (1883), § 385 THE STANDAED POLICY, SS'i for celebration purposes, with the knowledge and consent of the in- sured, was a breach of the condition and prevented a recovery for loss arising from the accidental explosion of such fireworks. The court said: "We have never gone to the length that other courts have in construing away express provisions or stipulations as to for- feiture. While some hold that it is permissible to use the articles prohibited by the general printed clause, provided they are such as naturally appertain to the stock of goods or property described in the written part of the policy, this court has refused to go so faT."=" But even in Pennsylvania it has been held that where the use of the prohibited article is a necessary one in connection with the business, it must be presumed that the intent of the parties was to insure the subject of the insurance as it would continue to be during the life of the policy, notwithstanding the printed provision.'^* § 285. Exception in favor of kerosene oil. — '^Kerosene oil of the United States standard may be used for lights and kept for sale according to law, but in quantities not exceeding five barrels, pro- vided that it be drawn and lamps filled by daylight at a distance not less than ten feet from artificial light."^^° The policy is not avoided by the use of kerosene oil otherwise than in lamps for illu- minating purposes where the policy provides that "kerosene oil of the *" Heron v. Phcenix las. Co., 180 of New York, New Jersey, Connectl- Pa. St. 257, 57 Am. St. 638 (1897), cut, Rhode Island, Louisiana, North reviewing Pennsylvania cases. In Dakota, South Dakota, Michigan, this case fireworks were placed in North Carolina, and Iowa. Wiscon- the parlor of a residence on the sin substitutes the words "Wiscon- third of July for the purpose of sin standard" for "United States using them in a celebration on the standard." The standard policies of evening of the fourth, and the policy Massachusetts, Minnesota and Maine contained a clause that it should provide that: "Kerosene or coal oil be void if fireworks or other such may be used for lighting, and in articles "were kept, used, or allowed dwelling houses oil stoves may be on the premises, any usage or cus- used for domestic purposes, to be torn of trade or manufacture to the filled when cold by daylight, and contrary notwithstanding." yfith oil of lawful test only." The '^ Praim v. National P. Ins. Co., New Hampshire policy makes no ref- 170 Pa. St. 151, 50 Am. St. 753 erence to the use of kerosene for (1895). domestic purposes; otherwise it is " This provision is found in the the same as the Massachusetts, Min- standard policies in use in the states nesota and Maine policies. 285 VACANCY. § 286 legal standard may be used for lights only, provided the oil be drawn and the lamps filled and trimmed solely by daylight," as this restriction is merely a regulation of the use of kerosene when used for lighting purposes, and will not be construed to prohibit its use for any other purpose than for lights.'^" XI. Yacancy. This entire policy shall he void * * * if a luilding herein described^ whether intended for occupancy iy owner or tenant, ie or become vacant or unoccupied and so remain for ten days.'^^ § 286. In general. — The standard form permits the insured prem- ises to become vacant for ten days or less without notice to the in- surer. The question of the effect of a temporary vacancy is thus elim- inated. A vacancy beyond the prescribed period is a breach of the condition.^^^ Under a general provision rendering a policy void if the insured buildings become vacant and unoccupied, it is held by the weight of authority that a mere temporary vacancy will not affect a recovery,'^* although there are authorities to the contrary. Thus, ^° Snyder v. Dwelling House Ins. premium be not paid when due." Co., 59 N. J. L. 544, 59 Am. St. 625 (1896). The New York court de- clined, in view of the fact that the legislature has declared certain grades and qualities of kerosene proper and safe to use, to take ju- dicial notice of the explosive quali- ties of kerosene. It was incumbent on the defendant to show that the kerosene used was In fact inflam- mable: Wood V. North Western Ins. Co., 46 N. Y. 421 (1871). See, also. Hears v. Humboldt Ins. Co., 92 Pa. St. 1 (1879). '^ This provision is found in the standard policies of New York, New Jersey, Connecticut, North Carolina, Rhode Island, Wisconsin, Louisiana, Michigan, North Dakota, and South Dakota. The Iowa clause reads, "or if a building herein described, whether intended for occupancy by the owner or tenant, be or become vacant or unoccupied, or if the The standard policies of Massachu- setts, Minnesota, Maine, and New Hampshire read, "or if the premises hereby insured shall become vacant by the removal of the owner or oc- cupant, and so remain vacant for more than thirty days without per- mission in writing indorsed hereon." ■^ Thompson v. Caledonia F. Ins. Co., 92 Wis. 664, 66 N. W. 801 (1896); Burner v. German, etc., Ins. Co., 20 Ky. L. 71, 45 S. W. 109 (1898). As to statutory provision that vacancy will avoid the policy only when there is an increase of risk, see Moody v. Amazon Ins. Co., 52 Ohio St. 12, 38 N. E. 1011, 26 L. R. A. 313, 49 Am. St. 699 (1894). =" Liverpool, etc., Ins. Co. v. Buck- staff, 38 Neb. 146, 41 Am. St. 725 (1893); Johnson v. Norwalk P. Ins. Co., 175 Mass. 529, 56 N. B. 569 (1900). § 287 THE STANDARD POLICY. 286 in Texas it is held that where the policy provides that if the buildings become vacant and unoccupied without the consent of the company indorsed upon the policy, it shall be null and void, it is invalidated by a temporary vacancy of the property, although without the knowl- edge of the owner, and a subsequent re-occupancy does not revive the policy unless the forfeiture has been waived by the insurer.'^* It has been held that a reasonable time elapsing between a change of tenants does not render the policy void under this clause.'"' Vacancy of the house alone does not avoid the policy where it prohibits vacancy of the premises and covers both a house and a barn.'"° § 287. Construction. — This condition against a building becoming vacant or unoccupied must be construed in the light of the situation and character of the property and the ordinary incidents and contin- gencies affecting the use to which it and other property of similar character in the same use is subject.'^' In construing the provision the Supreme Court of Wisconsin said:'"' "Under certain circum- stances premises may be vacant or unoccupied when under other cir- cumstances premises in like situation may not be so within the meaning of that term in insurance policies. Thus, if one insures his dwelling house described in the policy as occupied by himself as his residence, and moves out of it, leaving no person in occupation thereof, it thereby becomes 'vacant or unoccupied.' But if he in- sures it as a tenement house or as occupied by a tenant it may fairly be presumed, nothing appearing to the contrary, that the parties to ^'East Texas F. Ins. Co. v. Kemp- and note (1878); Carr v. Williams' ner, 87 Tex. 229, 47 Am. St. 99 Ins. Co., 60 N. H. 513 (1881). (1894). Contra, ^tna Ins. Co. v. ""Hotchkiss v. Phoenix Ins. Co., Meyers, 63 Ind. 238 (1878). 76 Wis. 269, 20 Am. St. 69 (1890). ■"= Worley v. State Ins. Co., 91 To the same eftect, see Lockwood v. Iowa 150, 51 Am. St. 334 (1894). Middlesex, etc., Assur. Co., 47 Conn. =^» Worley v. State Ins. Co., 91 553 (1880); Traders', etc., Ins. Co. Iowa 150, 51 Am. St. 334 (1894), v. Race, 142 111. 338 (1892); Home commenting on Connecticut F. Ins. Ins. Co. v. Wood, 47 Kan. 521 Co. V. Tilley, 88 Va. 1024, 29 Am. St. (1891); Doud v. Citizens' Ins. Co., 770 (1892). 141 Pa. St. 47, 23 Am. St. 263 ^^'Limhurg v. German F. Ins. Co., (1891); Roe v. Dwelling House Ins. 90 Iowa 709, 48 Am. St. 468 (1894); Co., 149 Pa. St. 94, 34 Am. St. 595 Continental Ins. Co. v. Kyle, 124 (1892); City Planing, etc., Co. v. Ind. 132, 19 Am. St. 77, and note Merchants', etc., Ins. Co., 72 Mich. (1890); Whitney V. Black River Ins. 654, 16 Am. St. 552 (1888); Cum- Oo., 72 N. T. 117, 28 Am. Rep. 116. mins v. Agricultural Ins. Co.', 67 N. Y. 260, 23 Am. Rep. Ill (1876). 287 VACANCY. § 288 the contract of insurance contemplated that the tenant was liable to leave the premises and that more or less time might elapse before the owner could procure another tenant to occupy it, and hence that the parties did not understand that the house should be con- sidered vacant and the policy forfeited or suspended (according to its terms) immediately upon the tenant's leaving it." The condi- tion against non-occupancy must therefore be construed and applied with reference to the subject-matter of the contract, and the ordinary incidents attending the use of such property.^''' § 288. Vacant and unoccupied not synonymous. — The word "va- cant" does not necessarily mean the same thing as "unoccupied." In the New York standard form of policy the words are connected by the conjunction "or," and it follows that a breach of either condition in- validates the policy. It would seem, however, that unoccupied in this sense must be intended to guard against the same condition as the word vacant. Where it is evident from the connection that the words are used to protect the company against the extra risk involved in the absence of persons from the premises, they should be construed as if they meant the same thing. Thus, it was held in New Hampshire that a house from which the insured had removed was both vacant and unoccupied, although certain articles of furniture remained in the house.''" Where the condition was that the policy should be void if the house become vacant and unoccupied, it was held that there was no breach unless the building was both empty and unused as a place of abode. The buildings must not only be unoccupied, but also vacant, and a dwelling house furnished through- out, from which the owner had removed for the season, intending to re- turn and resume possession, was not vacant. It appeared that the defendant issued a policy containing this condition on the plaintiff's summer residence, from which he removed in November, leaving it furnished and in charge of a person living near, and intending to re- turn again the following spring. The court said : "A dwelling house is unoccupied when no one lives therein, but' is not then necessarily °" Halpin v. Phenix Ins. Co., 118 Ashworth v. Builders', etc., Ins. Co., N. Y. 165 (1890). To the same ef- 112 Mass. 422 (1873). feet, see Albion Lead Works v. Wil- ™ Moore v. Phoenix Ins. Co., 62 N. liamsburg, etc., Ins. Co., 2 Fed. 479 H. 240, 10 Am. St. 384 (1882), anno- (1880); Keith v. Quincy, etc., Ins. tated. Co., 10 Allen (Mass.) 228 (1865); § 289 — • THE STANDARD POLICY. 288 vacant. A house filled with furniture throughout can not be said to be vacant, the primary and ordinary meaning of which is empty. To avoid the policy the premises must not only be unoccupied, but also vacant. Force should be given to both words."' ^^ The same court in a subsequent ease recognized the fact that the words may have different meanings, and said :''" "The plaintiff contends that the two words, 'vacant' and 'unoccupied,' are synonyms and are to be inter- preted as having the same meaning, and that meaning is empty, and then argues that as the dwelling house was not empty there was no breach of 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, how- ever, states of it when that will not be the case. It is so because the different things which are receptive of the epithets of vacant and unoccupied are different in their capability and susceptibility of being filled or occupied. Some can not have one of those terms applicable to them without the other at the same time being also applicable. * * * ^jj^ j^ jg because, in our experience of the purpose and use of a dwelling house, we have come to associate our no- tion of the occupation of it with the habitual presence and continued abode of human beings within it, that the 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 no- tion that there is no dweller therein, and we would not be sure always to 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. * * * 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." § 289. Construction when applied to dwelling house. — When the insurance is upon a dwelling house the condition must be con- strued in the light of the ordinary use of such premises. The evi- ==" Herrman v. Merchants' Ins. Co., »= Herrman v. Adriatic F. Ins. 81 N. Y. 184, 37 Am. Rep. 488 Co., 85 N. Y. 162, Woodruff Ins. Cas. (1880). 165 (1881). 2Sd ' VACANCY. § 289 dent intent of the insurer is that the house shall be used as a place of abode for human beings,'^' and when this is not the ease there is added a risk which is not assumed under the contract. A dwelling house should therefore be deemed vacant and unoccupied when it is no longer used as a place of abode.'** Hence, the casual sleeping in a house does not constitute occupany of it. A policy was held in- validated where it appeared that the insured moved his family to an- other building, taking all the furniture except a few beds and trifling household articles, trunks containing clothing and some provisions in the pantry, and that the only occupation of the house was by laborers in the employment of the insured, sleeping therein part of the time, and his wife going there every day to get provisions. '*'' The occupation of a dwelling house as a mere storehouse is not a com- pliance with this condition. *'° Where a tenant removed a week be- fore the fire, and the furniture was all stored in one of the rooms for the purpose of being removed, and no one had slept in the house for more than a month, the house was held to be "vacant, unoccupied or uninhabited," although a person went there occasionally to see if the goods were all right.'^' But to constitute occupancy of a dwell- ing house it need not be used continuously. The family may be ab- sent for health, business or convenience for reasonable periods. A dwelling is not vacant within this provision, although it has ceased to be used as the family residence, if household goods remain in it ready »="WeIdert v. State Ins. Co., 19 ton, 82 Md. 88, 51 Am. St. 457 Ore. 261, 20 Am. St. 809, and note (1895). (1890); Bonefant v. American F. "»" Halpin v. .S^tna F. Ins. Co., 120 Ins. Co., 76 Mich. 653, 43 N. W. 682 N.Y. 70 (1890); Limburg v. German (1889). See note ii> Moore v. F. Ins. Co., 90 Iowa 709, 48 Am. St. Phoenix Ins. Co., 10 Am. St. 392 468 (1894), reviewing many cases; (1886). Agricultural Ins. Co. v. Hamilton, 82 ■"North American F. Ins. Co. v. Md. 88, 51 Am. St. 457 (1895). A Zaenger, 63 111. 464 (1872); Ameri- house is unoccupied when no one is can Ins. Co. v. Padfleld, 78 111. 167 living in it: Cook v. Continental (1875); Fitzgerald v. Connecticut F. Ins. Co., 70 Mo. 610, 35 Am. Rep. 438 Ins. Co., 64 Wis. 463 (1885); Alston (1879); Herrman v. Adriatic F. Ins. V. Old North, etc., Ins. Co., 80 N. C. Co., 85 N. Y. 162, 39 Am. Rep. 644 326 (1879); Agricultural Ins. Co. v. (1881); Stoltenberg v. Continental Hamilton, 82 Md. 88, 51 Am. St. 457 Ins. Co., 106 Iowa 565, 68 Am. St. (1895). 323 (1898). •"Agricultural Ins. Co. v. Hamil- ""Home Ins. Co. v. Boyd, 19 Ind. App. 173, 49 N. E. 285 (1898). 19 — ^EuJOTT Ins. § 290 THE STANDARD POLICY. 290 to be used and it continues to be oeeupied by one or more members of the family or a tenant having access to the entire building for the purpose of caring for it, and it is cared for and some use made of it as a place of abode.'^^ So, a policy is not invalidated where it appears that the occupant and his wife absented themselves from the house for a considerable period, but for a temporary and special purpose, and retained it as a residence, intending to return to it, leaving his family clothing there, and his wife going once a week to the house for the purpose of caring for and cleansing it, and from time to time for other purposes. ^^' Where the policy covered the house and bam the court said: "Oc- cupancy, as applied to such buildings, implies the actual use of the house as a dwelling house, and such use of the bam as is ordinarily incident to a bam belonging to an occupied house, or at least more than the use of it for mere storage. The insurer had the right by the terms of the policy to the care and supervision which is in- volved in such occupancy."'*" § 290. Building — Contents — ^Vacancy. — The insurance upon a building may be invalidated by reason of a breach of this condition without affecting the insurance upon the personal property in the building. A manufacturing establishment is an establishment for the manufacture of raw material, and the idea excludes the material upon which it operates. "The same form of policy is prescribed for insur- ance upon all kinds of property, and general provisions would nat- urally be inserted which are applicable to some kinds of property and not to other kinds. The provision in regard to the removal of the property insured is evidently intended for movable properly; the provision in regard to the premises being vacant by the removal of the owner or occupant, and the provision in regard to dangerous materials being kept or used upon the premises, evidently relate only to buildings insured. There is more reason for holding that those provisions apply to furniture, and that an insurance on furniture or any personal property in a house would be made void by the vacancy of the house or by the keeping in it of the dangerous articles men- tioned, than that the insurance upon a stock in a manufacturing es- '^ Moody V. Amazon Ins. Co., 52 »" Ashworth v. Builders', etc., Ins. Ohio St. 12, 49 Am. St. 699 (1894). Co., 112 Mass. 422, 17 Am. Rep. 117 »=» Cummins v. Agricultural Ins. (1873). Co., 67 N. Y. 260 (1876), 291 VACANCY. § 291 tablishment would be made void if the factory should cease operation. All these provisions have full meaning and effect when applied, ac- cording to their terms, to an insurance of property to which they can be applied. To extend them to an insurance of property to which they do not apply, because the destruction of such property not in- sured may cause the destruction of property insured, is against all rules of construetioii and seems to be a plain interpolation of what is not in the contract. The building, and the machinery, fixtures and appliances, constitute the manufacturing establishment. It is going far enough to hold that in one insurance of machinery the premises insured are a manufacturing establishment of which the machinery constitutes a part."**^ § 291. lUustrations of construction of this provision. — A building is unoccupied where a tenant who occupies the same as a store aban- dons it before the end of the term and leaves therein only a small amount of merchandise of a nominal value, although he retains the key to the building at the request of the insured.**^ So, a dwelling or tenement house is vacant and unoccupied if the occupant has left it, although some trifling articles of furniture of little value are left in one of the rooms.^^^ The fact that a tenant intending to remove goes away to meet his wife, leaving two of his children in the house, with instructions to remain there until he returned, and that a small portion of the furniture has been removed, does not constitute a breach of this condition.^** A building was not occupied by a tenant as a dwelling house where the tenant had moved out and the son of the owner slept in the house during the day and worked nights, having only a cot, chair and alarm clock in the house, and the family of the owner resided next door and obtained water from a cistern in the kitchen of this house, and the owner went through the house every ^gy 345 rpjjg fa^Q^ ^iiat a tenant and his servants had for two days before the fire been cleaning the house preparatory to its occupation does not constitute occupation.'*" So, a house was not occupied al- "' Stone V. Howard Ins. Co., 153 "" Eureka.i etc., Ins. Co. v. Bald- Mass. 475, 27 N. B. 6 (1891). win, 62 Ohio St. 368, 57 N. E. 57 ■« Home Ins. Co. v. Scales, 71 Miss. (1900). 975, 42 Am. St. 512 (1894). ""Thomas v. Hartford F. Ins. Co., "' Schuermann v. Dwelling House 21 Ky. L. 914, 53 S. W. 297, rehear- [ns. Co., 161 111. 437, 52 Am. St. 377 ing denied (1899) 21 Ky. L. 1139. (1896). 56 S. W. 264. ""Burlington Ins. Co. v. Lowery, 61 Ark. 108, 54 Am. St. 196 (1895). § 291 THE STANDARD POLICY. 292 though two workmen took their meals there and kept their trunks and clothing in the building and slept at niglit in one of the rooms, but were employed elsewhere during the day.**'' So, a dwelling house is unoccupied where the house remains vacant for three months and is then let to a tenant, who, up to the time of the loss, has placed therein implements for cleaning it, but not otherwise occupied the premises.^*' A church used by a congregation in ihe ordinary manner that such buildings are used, and which is occasionally visited by the sexton at times when the congregation is not in session, is occupied, although there was no church meeting in the building for a period of six weeks, during which time there was no minister of the church and the con- gregation was awaiting the arrival of a new minister.'*' A house was not vacant where a part of the tenant's goods were in the house the night of the fire, and the tenant had retained the key to enable him to remove the same the next day, although he had already removed a part of the goods and the house was not occupied- that night.'^° An ice house is not, as a matter of law, vacant and unoccupied be- cause there is nothing therein at the time it was burned, in October, except the tools used in putting up ice and a small quantity of unmer- chantable ice.'^'- The premises are not vacated by a tenant leaving the premises when threatened by a forest fire in order to remove his sick wife to a place of safety, leaving several people to defend the property against fire.''^ So, occupation by one tenant is within the provision tliat it shall become void if the premises be occupied by tenants.^^^ A house is not vacant where it appears that the occupant of the house commenced to move out at nine o'clock in the morning and intended to complete the removal of the goods in the afternoon, and the house was destroyed by fire at noon.'°* So, a building de- scribed as "a ten tenement frame block" is not unoccupied if two of the tenements are in actual use and occupancy as residences.'"" Where •"Poor V. Humboldt Ins. Co., 125 F. Ins. Co., 99 Iowa 193, 68 N. W. Mass. 274 (1878). 600 (1896). "• Litch V. North British, etc., Ins. '^^ Raymond v. Farmers', etc., Ins. Co., 136 Mass. 491 (1884). Co., 114 Mich. 386, 72 N. W. 254 »» Hampton v. Hartford F. Ins. (1897). Co., 65 N. J. L. 265, 47 Atl. 433, 52 '^ Elliott v. Farmers' Ins. Co. L. R. A. 344 (1900). (Iowa), 86 N. W. S24 (1901). ™ Norman v. Missouri, etc., Ins. *" Insurance Co. v. Coombs, 19 Co., 74Mo.'App. 456 (1898). Ind. App. 331, 49 N. B. 471 (1898). "'Des Moines Ice Co. v. Niagara "== Harrington v. Fitchburg, etc., Ins. Co., 124 Mass. 126 (1878). 293 CHANGE OF LOCATIOKT — RENEWAL OF OONTEACT. § 29f? the former occupant of a house had moved with his family -into an- other house, where they slept and took their meals, the house was vacant, although some furniture remained in the house and the keys had not been surrendered to the landlord.'"* XII. Authorized Change of Location. If the property covered hy this policy is so endangered ty fire as to require removal to a place of safety, and is so removed, that part of this policy in excess of its proportion of any loss and of the value of property remaining in the original location, shall, for the ensuing five days only, cover the property so removed in the new location; if removed to more than one location, such excess of this policy shall cover therein for such five days in the proportion that the value of any one such new location bears to the value in all such new locations; iut this company shall not, in any case of removal, whether to one or more locations, ie liable beyond the proportion that th6 amount hereby insured shall bear to the total insurance on the whole property at the time of fire, whether the same cover in new location or not.^" § 292. In general. — This provision authorizes the removal of the property when endangered by fire and provides that the policy shall remain in force for five days after such removal. It also provides for the amount of recovery whether the property is in the new location or not. It does not seem to have been construed by the courts. There are, however, numerous cases which determine the liability of the company for damage occasioned while the property is being removed from a building which is on fire or threatened with de- struction.'"' XIII. Renewal of Contract. ' — This policy may by a renewal be continued under the original stipu- lations, in consideration of premium for the renewed term, pro^- ■"Corrlgan v. Connecticut F. Ins. policies of Massachusetts, Minne- Co., 122 Mass. 298 (1877). sota, Maine and New Hampshire '"This provision is found in the provide that: "If such removal shall standard policies of New York, New be necessary for the preservation of Jersey, Connecticut, Rhode Island, the property from fire, this policy Wisconsin, Louisiana, Michigan, shall he valid without such assent North Dakota, South Dakota, Iowa, for five days thereafter." and North Carolina. The standard "" See § 218, supra. v^ 293 THE STANDARD POLICT. 294- vided that any increase of hazard must be made known to this com- pany at the time of renewal or this policy shall ie uoid.^"" § 293. In general. — ^Whether a renewal creates a new contract de- pends upon its terms. It has been held that every renewal of a policy of insurance, being upon a new consideration and optional with both parties, creates a new contract, and is, unless otherwise expressed, subject to the terms and conditions which are contained in the original policy.'®" Where the contract is renewed from year to year the descrip- tion of the insured property in the original policy must be applied to the condition of the property at the date of the last renewal.*®^ The clause quoted from the standard form does not provide that the pre- mium must be paid at the time of the renewal. In Maryland it was held that where, under a policy of insurance, an option was given to renew the same at its expiration, and the insured elected to renew, and notified the company of its election, such notification did not bind the company unless accompanied by payment or tender of payment of the premium.'"^ Where an application for renewal was made, and the company's agent filled out, signed and delivered the policy without asking for payment of the premium, it was held that there was a valid contract.'"' But where the company provided that it should not be liable by virtue of the policy or any renewal thereof until the premium had been actually paid, and it had been the custom of the agent to make renewals, deliver them and collect the premium, and ten days before the original contract expired the insured asked the agent to attend to its renewal, and he promised to do so, but noth- ing was done and the property was burned six months thereafter, it was held that the agent had not waived prepayment of the pre- ™This provision is found in the Co. v. Kranich, 36 Mich. 289 (1877). standard policies of New York, New Contra, New England, etc., Ins. Co. Jersey, Connecticut, Rhode Island, v. Wetmore, 32 111. 221 (1863). Wisconsin, South Dakota, Iowa, "' Garrison v. Farmers', etc., Ins. Michigan, North Dakota, Louisiana, Co., 56 N. J. L. 235, 28 Atl. 8 and North Carolina. It is not found (1893). in the standard policies of Massa- ""^American Casualty Co.'s Case, chusetts, Minnesota, Maine and New 82 Md. 535;' s. c. sub nom. Boston, Hampshire. etc., Co. v. Mercantile, etc., Co., 34 ""Hartford P. Ins. Co. v. Walsh, Atl. 778, 38 L. R. A. 97 (1896). . 54 111. 164, 5 Am. Rep. 115 (1870); »»Lum v. United States F. Ins. Brady v. Northwestern Ins. Co., 11 Co., 104 Mich. 397, 62 N. W. 562 Mich. 425 (1863); Aurora, etc., Ins. (1895). 295 RENEWAL OF CONTRACT. § 293 miima and that the company was not liable on the policy.'" Where there was a verbal agreement to renew the risk, and payment of the premium was to be made on the first day of the succeeding month, which fell on Sunday, an offer to pay on Monday was sufficient, al- though the building was burned on Sunday.'"" The authorized agent of the company may renew a policy by parol, although the policy provides that it can be done only in writing.'"" A renewal need not be under seal, although the policy is under seal."" An agent of the company has power to make a valid parol agreement to renew a contract of insurance, although the policy and certificates of renewal issued by the company provide that it shall not be valid unless countersigned by the agent."" An agreement to renew must have all the elements of a contract."" Where the authority of the agent was limited by the policy so that he could only renew on the same policy, "provided the premium be paid or indorsed on the policy or a receipt given," it was held that the company was not liablfe where the evidence merely showed a con- versation between the insured and the agent which took place four *»Zigler V. Phoenix Ins. Co., 82 Iowa 569, 48 N. W. 987 (1891). a» Taylor v. Germania Ins. Co., 2 Dill. (C. C.) 282, Fed. Cas. No. 13,793 (1872). An insurance com- pany agreed that a policy for one year should be a permanent risk, and that its officers should call for the premiums as they became due, and leave the certificates of pay- ment and renewal. The assured party relying on this arrangement, did not call and pay the renewal premium, or get a renewal certifi- cate. Before any of the officers called for the renewal premium, the property was destroyed by fire. Held, that the company was liable for the loss: Trustees, etc., v. Brooklyn P. Ins. Co., 18 Barb. (N. Y.) 69 (1854). *" Cohen v. Continental F. Ins. Co., 67 Tex. 325, 3 S. W. 296, 60 Am. Rep. 24 (1887). See Royal Ins. Co. v. Beatty, 119 Pa. St. 6, 12 Atl. 607 (1888). "" Lockwood V. Middlesex, etc., Assur. Co., 47 Conn. 553 (1880). *» Post V. ^tna Ins. Co., 43 Barb. (N. Y.) 351 (1864). See, also, Co- hen V. Continental F. Ins. Co., 67 Tex. 325, 3 S. W. 296, 60 Am. Rep. 24 (1887). °°' O'Reilly v. London Assur. Corp., 101 N. Y. 575, 5 N. E. 568 (1886); Johnson v. Connecticut F. Ins. Co., 84 Ky. 470 (1886). Mere silence of the agent when asked if the com- pany would renew is not a renewal: Royal Ins. Co. v. Beatty, 119 Pa. St. 6, 12 Atl. 607 (1888). As to the au- thority of the agent to renew, see Carroll v. Charter Oak Ins. Co., 40 Barb. (N. Y.) 292 (1863); Bauble v. ^tna Ins. Co., 2 Dill. (C. C.) 156 (1873). A contract to "hold" certain expiring policies is a renewal: Baker v. Westchester F. Ins. Co., 162 Mass. 358, 38 N. E. 1124 (1894). § 293 THE STANDARD POLICY. 296 ■weeks before a renewal was necessary, of which the agent made no entry on the policy or in his books, gave no renewal receipt, and on which the insured never paid any premium or made any arrange- ment therefor.*^" When a policy is renewed it is the duty of the insured to inform the company of any change in the nature or use of the property which increases the hazard. Where the insured made representations as to the nature of the occjipancy of the premises, and stipulated that, should they be used and occupied so as to increase the risk without the notice and consent of the insurer in writing, the policy should be void, and that the insurance might be continued for such time as might be agreed upon, the performance of such conditions, unless otherwise specified in writing, should be construed as continued under the original representations, and an omission to give notice of a change of occupancy, increasing the risk, rendered a subsequent re- newal invalid.'^^ So, where a fire policy provided that "this insur- ance, the risk not being changed, may be continued for such further time as shall be agreed on * * * under the original representar tion, * * * tut in case there shall have been a change in the risk, either within itself or of the neighboring buildings, not made known to the company by the assured at the time of renewal, this policy and renewal shall be void," it was held that if, after the first insurance and before the renewal policy was delivered, there was any change in the risk increasing the hazard, whether known to the in- sured or not, and it was not made known to the company at the time of the renewal, the policy and the renewal were void.^'^ There is no increase of hazard under a policy which contains no provision against alienation, where the insured sells the property and takes back a mortgage as security for the purchase-money, and it is not necessary to give ndtice of this change in the nature of the interest at the time of the renewal.^" Although by the terms of a mortgage clause in the policy the rights of a mortgagee were not to be afEected by any act of the mortgagor in increasing the hazard during the life of the policy, it is necessary upon a renewal of the policy to inform the company of any facts which increase the hazard.'^* Like other provisions, this "" O'Reilly v. London Assur. Corp., "» Phelps v. Gebhard F. Ins. Co., 101 N. Y. 575, 5 N. E. 568 (1886). 9 Bosw. (N. Y.) 404 (1862). "' WolfE V. Oswego, etc., Ins. Co., "* Cole v. Germania F. Ins. Co., 99 6 N. Y. St. Rep. 548 (1887). N. Y. 36, 1 N. B. 38 (1885). ™ Brueck v. Phoenix Ins." Co., 21 Hun (N. Y.) 542 (1880). 297 RENEWAL OF CONTRACT. § 294 requirement may be waived. Where the president of the company often stopped at a hotel which was the subject of the insurance, while additions were being made which were claimed to increase the risk, and gave his consent to the making of such changes, it was held that there was a waiver of a breach of the conditions, and upon re- newal of the policy it was not necessary to make representations in writing as to the changes.''" § 294. lUustriations. — Where the policy does not state the pro- cedure necessary to effect such renewal, the company can not show that there were secret limitations upon the authority of its agent to contract for renewal.''^" Where a policy upon a building was re- newed it was held that an ordinance passed during the life of the original policy forbidding the rebuilding or repairing of wooden buildings within certaiu limits entered into the new contract cre- ated by renewal.'^' A policy covered the plaintiff's property gen- erally, and an indorsement apportioned it among several items. Be- fore the term expired plaintiff took the policy to defendant's agent and requested a renewal. Nothing was said in reference to a differ- ent policy, or to any alteration of the terms of the existing one, and it was held that it was the intention of the parties that the new policy should contain the same provisions as those indorsed on the old policy.'^' Where the policy covered a specified sum on a grist mill, and another sum on the machinery therein, and was renewed in general terms for an amount equal to the entire insurance, without any distribution of the risk, it was held that the insurance should thereafter be without distribution and apply generally to both build- ing and machinery.^'' The owner of an insured building sold one- half of it to a partner, and at the expiration of the original policy a renewal certificate was issued reciting the receipt of the premium from the firm and the continuation of the policy, and that "the renewal is made upon condition that the original policy continues in force, and that there has been no change in the risk since first insured not noticed on the books of this company, otherwise this ""Martin v. Jersey City Ins. Co., "'Cochran Cotton Seed Oil Co. v. 44 N. J. L. 273 (1882). Phoenix Ins. Co., 7 Misc. (N. Y.) ""McCullough V. Hartford F. Ins. 695, 28 N. Y. Supp. 45 (1894). Co., 2 Pa. Super. Ct. 233 (1896). "=Driggs v. Albany Ins. Co., 10 ""Brady v. Northwestern Ins. Co., Barb. (N. Y.) 440 (1851). 11 Mich. 425 (1863). § 395 THE STANDARD POLI.CT. " 398 renewal is not binding." It was held that the insurers intended to continue the insurance on the property on the terms and conditions expressed in the polieyj for the benefit of the parties who paid the premium.'^" § 295. Reformation of the policy. — A renewal policy containing a coinsurance clause which was not in the original policy will be reformed where it appears that the renewal was solicited by the com- pany with the understanding that the two policies were to be the same, and that the insured, relying upon the agreement and good faith of the company, did not read the policy and discover the ma- terial changes until after the loss had occurred.*^^ A mortgagee applied to the company for a renewal with an increase of the insur- ance, which was agreed to, and the new policy contained a clause not in the first, that in case of loss the mortgagee should assign to the company all her right to receive satisfaction from any other person, and that the loss should not be payable until after the enforcement of the original security, and that the company should only be liable for so much as could not be, collected. The mortgagee did not dis- cover the change until after loss, and it was held that he might maintain an action to reform 'the policy and recover thereon as re- formed, but that it was discretionary with the court to refuse relief on the ground of his neglect to discover the change within a reason- able time.^^'' ZIV. Cancellation of Policy. This policy shall he canceled at any time at the request of the in- sured; or by the company by giving five days' notice of su^h cancel- lation. If this policy shall be canceled as hereinbefore provided, or become void or cease, the premium having been actually paid, the un- earned portion shall be returned on surrender of this policy or last renewal, this company retaining the customary short rate, except that when this policy is canceled by. this company by giving notice it shall retain only the pro rata premium.^^^ ™Lancey v. Phoenix F. Ins. Co., ""This provision Is found in the 56 Me. 562 (1869). standard policies of New York, New =" Palmer v. Hartford Ins. Co., 54 Jersey, Connecticut, Rhode Island, Conn. 488, .9 Atl. 248 (1887). Louisiana, South Dakota, Iowa, •^ Hay V. Star F. Ins. Co., 77 N. Y. Michigan, North Dakota, and North 235, 33 Am. Rep. 607 (1879). Carolina. The Wisconsin provision 299 CANCELLATION OF POLICY. § 296 § 296. In general. — In a number of states there are statutes which secure to the parties the right to cancel a contract of insurance upon proper notice. Unless there is such a statute or stipulation in the contract of insurance, the policy can not be canceled without the consent of the insured.*'* The right does not exist unless reserved, and the clause conferring the right is in the nature of a condition precedent which must be strictly complied with in order to make an efEort to cancel efEeetive.**^ Where the policy provides that "the insurance may be terminated at any time at the request of the in- sured," a surrender of the policy, with the request that it be ter- minated, operates ipso facto as a cancellation.*'" Where the con- tract is intenderi ^-g jjj^^j ^j^g insurer only so long as it chooses, it is as follows: '"li-xS policy shall be canceled at any time at the request of the insured; or by the company by giving five days' notice of such cancellation; unless during a time in which the hazard shall be in- creased solely by the act of God, and in such case and during such time of such increase of hazard the company shall not cancel this policy except upon sixty days' notice of such cancellation, without the con- sent of the assured." The standard policies of Massachusetts, Minne- sota, Maine and New Hampshire have the following provision: "This policy may be canceled at any time at the request of the insured, who shall thereafter be entitled to a re- turn of the portion of the premium remaining, after deducting the cus- tomary monthly short rates for the time this policy shall have been in force. The company also reserves the right after giving written no- tice to the insured, and to any mortgagee to whom this policy is made payable, and tendering to the insured a ratable proportion of the premium, to cancel this policy as to all risks subsequent to the expira- tion of ten days from such notice, and no mortgagee shall then have the right to recover as to such risks." '"Alliance, etc., Ins. Co. v. Swift, 10 Cush. (Mass.) 433 (1852). "* Wicks V. Scottish, etc., Ins. Co., 107 Wis. 606, 83 N. -W. 781 (1900); Van Valkenburgh v. Lenox F. Ins. Co., 51 N. Y. 465 (1873). Provisions for cancellation in an insurance pol- icy must be strictly followed to ef- fect that result: John R. Davis Lumber Co. v. Hartford F. Ins. Co., 95 Wis. 226, 37 L. R. A. 131 (1897). Transactions with reference to the cancellation of an insurance policy must be construed reasonably and fairly, and in accordance with the evident understanding of the par- ties at the time: Bingham v. Fire Ins. Co., 74 Wis. 498 (1889). The cancellation of a policy and the retention of the pro rata pre- mium is a confirmation of the va- lidity of the policy: Commercial Assur. Co. V. New Jersey Rubber Co. (N. J.), 49 Atl. 155 (1901). "' Crown Point Iron Co. v. . Healy v. Insurance Co., 63 N. "' Manchester F. Assur. Co. v. In- Y. Supp. 1055, 50 App. Div. (N. Y.) surance Co., 91 111. App. 609 (1900). 327 (1900). "'Partridge v. Milwaukee, etc., "» Greenwich Ins. Co. v. Provi- Ins. Co., 162 N. Y. 597, 13 App. Div. dence, etc., Co., 119 U. S. 481 (1886). (N. Y.) 519, 57 N. B. 1119 (1900). 305 WAIVER. § 300 by mutual consent.*^* Where a policy contained a provision for cancellation by the insurance company upon giving five days' notice of a surrender by the holder, the company was held liable for a loss occurring within the five days. The court said:*^" "The assump- tion that it was M.'s intention to assent to an immediate cancellation does violence to his business judgment. He is presumed to know of plaintiff's rights under the policy, and under the circumstances it is quite reasonable to assume that by sending the policy to them- he intended nothing more than that they should hold it for cancellation under its terms. There is a lack of any circumstances to show an intent to surrender for instant cancellation. Every probability tends the other way. * * * The absence of any showing of an inten- tion to consent to immediate cancellation is fatal to the defendant's contention. Without such showing the acts of the plaintiff's agent must be construed as being in harmony with the continuance of the insurance contract until canceled pursuant to its terms. The right of cancellation does not exist at all except by contract, and stipula- tions to that effect are construed with reasonable strictness." XY. Waiver. No officer, agent or other representati/ve of this company shall have power to waive any provision or condition of this policy except such as by the terms of this policy may be the subject of agreement in- dorsed hereon or added hereto, and as to such provisions and condi- tions no officer, agent, or representative shall have such power or be deemed or held to have waived such provisions or conditions unless such waiver, if any, shall be written upon or attached hereto, nor shall any privilege or permission affecting the insurance under this policy exist or be claimed by the insured unless so written or attached. This company shall not be held to have 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 ex- amination herein provided for.*''^ "' Sea Ins. Co. v. Johnston, 105 Jersey, Connecticut, Rhode Island, Fed. 286, 44 C. C. A. 477 (1900). South Dakota, Iowa, Louisiana, *™ Wicks V. Scottish Union, etc.. North Dakota, Michigan, and North Ins. Co., 107 Wis. 606, 83 N. W. 781 Carolina. Wisconsin adds the (1900). words: "Up to the time of the de- '^ This provision is found in the livery of this policy to assured, in standard policies of New York, New all transactions relating to this pol- 20 — ^Elliott Ins. § 301 THE STANDARD POLICY. 306 § 301. Limitations upon power to waive. — This provision limits the authority of officers and agents of the insurer to such matters as they are expressly authorized to waive by the terms of the policy. The general subject of waiver has been discussed elsewhere and but little need be added at this time.*" The prevailing rule seems to be that, notwithstanding this provision^ a general agent of the company may waive this as well as other provisions of the policy.*^' Thus, the provision requiring the insured to keep books showing purchases and sales in an iron safe, in a policy which eon- tains a provision that no officer or agent of the company shall have power to waive any condition or provision, unless in writing, may be waived by parol by an agent having general authority to make contracts of insurance.*^* It is the settled rule that an agent of a fire insurance company may, by issuing a policy with knowledge of facts, waive a condition that the policy shall be void if the property insured be incumbered and the fact of incupibrance be not indorsed on the policy, notwithstanding the provision in the policy that no agent of the compaiiy shall have power to waive any such condition except by written indorsement.*^' Under this provision the policy was held void on the ground that the property had been removed ley or the property herein Insured, 565, 59 N. E. 309 (1901); London, between the assured and any agent etc., Ins. Co. v. Fischer, 92 Fed. 500 of the company, knowledge of the (1899). In German Ins. Co. v. Ams- agent shall be knowledge of the baugh, 8 Kan. App. 197, 55 Pac. 481 company; and in all transactions (1898), the rule announced In relating to the subject of the insur- American Central Ins. Co. v. Mc- ance, between the insured and any Lanathan, 11 Kan. 533 (1873), and agent of the company after loss, Phenix Ins. Co. v. Hunger, 49 Kan. knowledge of the agent shall be 178, 30 Pac. 120 (1892), as to the knowledge of the company." The authority of insurance agents to provision is not found in the stand- waive conditions of the policy, was ard policies in use in Massachu- applied, and it was held that the setts, Minnesota, Maine, and New agent of the company which issued Hampshire. the policy sued on had authority '^ See ch. ix. to waive the provision of the policy '^ Langan v. ^tna Ins. Co., 96 limiting the time within which suit Fed. 705 (1899). But see Northern should be brought to recover for Assur. Co. V. Grand View Bldg. the loss. In Ordway v. Continental Ass'n (U. S.), 22 Sup. Ct. 133 (1902), Ins. Co., 35 Mo. App. 426 (1889), it reversing 41 C. C. A. 207. was said that the settled policy of «' Hanover F. Ins. Co. v. Dole, 20 the state was that an agent might Ind. App. 333, 50 N. E. 772 (1898). waive a stipulation In the policy *^ Skinner v. Norman, 165 N. Y. against concurrent insurance. 307 WAIVER. § 301 without the consisnt of the company, although it appeared that the insured had informed the agent of the company that he was about to remove it to another place of residence, and requested the agent to procure the consent of the company in due form. It also^ ap- peared that the agent thereafter returned the policy to the insured and informed him that all the formalities had been complied with and that the policy would cover the property in the new location.*"" The provision to the effect that the company shall not be held to have waived any forfeiture by any requirement, act or proceeding relating to appraisal is valid.*"'' Hence, where the policy provided that proofs of loss should be made within sixty days after loss on penalty of forfeiture, it was held that this provision was not waived by submitting the quesidon of the amount of loss to appraisers within sixty days after loss.*"* , *"Hill V. London Assur. Corp., 9 Bass, 90 Tex. 380, 38 S. W. 1119 N. Y. Supp. 500 (1890), s. c. 12 N. Y. (1897). Supp. 86 (1890). ""Fournier v. German, etc., Ins. "^ See American, etc., Ins. Co. v. Co. (R. I.), 49 Atl. 98 (1901). CHAPTBE XII. PROVISIONS OF THE STANDARD POLICY, CONTINUED. B. Provisions Eelating to Matters Subsequent to a Loss. SEC. 302. In general. XYI. Notice and Proof of Loss. 303. Definition — Compliance. 304. "Immediate" notice. Separation of goods "forth- with." Excuses for failure to furnish proofs. When a condition precedent. What is compliance with this provision. 309. Certificate of magistrate. 310. Plans and specifications. 311. Waiver. 312. To whom notice must be given. 305. 306. 307. 308. XVIII. ArMtration of Loss. SEC. 316. 317. 318. 319. 320. of the Amount Disagreement. Validity of provision. Where there is a total loss. Demand for arbitration. Condition precedent. 321. Revocation. 322. Invalidity of the award. 323. Waiver. 324. Second arbitration — Resubmis- sion. 325. Demand for arbitration as ad- mission of liability. 326. Right of mortgagee. XIX. Bight to Repair, Reiuild, or Replace. 327. An option reserved. XX. Time Within Which Loss is Payable. 328. In general. XXI. Time of Bringing Suit. 329. Validity. 330. Time when limitation begins to run. § 302. In general. — The provisions of the insurance contract fall naturally into two classes separated by the fact of loss. While all provisions are valid and binding upon the parties, they are not for purposes of construction treated as of equal importance. It is ap- parent that matters required to be done by the insured after the capital fact of loss should not be construed with the same strictness as those which define and limit the terms of the contract itself. Hence, we find that the stipulations treated of in this chapter are more liberally construed in favor of the insured, and that the courts are more easily satisfied of the fact of a waiver. (308) XVII. Exhibition of Property and Records — Examination of Party. 313. Examination of party. 314. Failure to produce books. 315. The iron safe clauee. 309 NOTICE AND PROOF" OF LOSS. § 303 XVI. Notice and Proof of Loss. If fire occur the insured shall give immediate notice of any loss thereby in writing to this company, protect the property from further damage, ^forthwith separate the damaged and undamaged personal property, put it in the best possible order, make a complete inventory of the same, stating the quantity and cost of each article and the amount claimed thereon; and, within sixty days after the fire, unless such time is extended in writing by this company, shall render a statement to this company, signed and sworn to by said insured, stating the knowledge and belief of the insured as to the time and origin of the fire; the interest of the insured and of all others in the property; the cash val^e of each item thereof and the amount of the loss thereon; all incumbrances thereon; all other insurance, whether valid or not, covering any of the said property; and a copy of all the descriptions and schedules in all policies; any changes in the title, use, occupation, location, possession, or exposures of said property since the issuing of this policy; by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of fire; and shall furnish, if required, verified plans and specifica- tions of any building, fixtures, or machinery destroyed or damaged; and shall also, 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 hon- estly sustained loss to the amount that such magistrate or notary pub- lic shall certify.^ § 303. Definition — Compliance. — ^By proof of loss is meant such a statement of facts, reasonably verified, as, if established in court, ^This provision is found in the of the insured therein, all other in- standard policies of New York, New surance thereon, in detail, the pur- Jersey, Rhode Island, Connecticut, poses for which and the persons by- Michigan, Louisiana, Iowa, Wiscon- whom the building insured, or con- sin. South Dakota, North Dakota, taining the property insured, was and North Carolina. Massachusetts, used, and the time at which and Maine and New Hampshire have the manner in which the fire originated, following provision: "In case of so far as known to the insured." any loss or damage under this pol- The Minnesota provision is similar icy, a statement in writing, signed to that of Massachusetts except and sworn to by the insured, shall that "in total loss on buildings, the be forthwith rendered to the com- value of the said buildings need not pany, setting forth the value of the be stated." property insured, and the interest § 303 THE STANDARD POLICY. 310 will prima facie require the payment of the loss. It does not mean some particular form of proofs which the insurer arbitrarily demands.^ The proofs do not form part of the contract of insurance; and the insured is not estopped from showing that statements in his proofs of loss were erroneous in so far as they state facts tending to annul the policy.^ Nor is the insured concluded as to the amount of loss by a statement in the proofs when the company refuses to pay on the basis of that amount.' A misstatement made by the owner in his proofs of loss, through mistake and without intent to defraud, with an understanding with the adjuster that it may be subsequently cor- rected, will not prevent a recovery.^ It is sufficient if this requirement of the policy is substantially com- plied with." An affidavit describing the premises, stating the loss and the date thereof, the amount of damage and the insurance, and that the cause of the fire is -unknown, is a substantial compliance with the provision requiring proofs of loss.^ Under the Minnesota form, proofs of loss need not contain a specific demand or claim of a -par- ticular amount. "This contention," said the court,* "is based on the theory that, as the company has the right to have the amount of its liability determined by arbitration in case the parties do not agree upon that subject, unless the insured makes some specific claim 'Jarvis v. Northwestern, etc., binding, but tliat ttiey should be Ass'n, 102 Wis. 546, 72 Am. St. 896 given a fair and reasonable con- (1899). See, also, Insurance Co. v. struction. A particular account of Rodel, 95 U. S. 232 (1877). the loss or damage, etc., requires the ' Fowle V. Springfield, etc., Ins. party only to furnish a statement as Co., 122 Mass. 191, 23 Am. Rep. 308 particular and full as he can, under (1877); McMaster v. Insurance Co., the circumstances, make. Hence, 55 N. Y. 222, 14 Am. Rep. 239 where his books and papers were de- (1873). stroyed by the same fire that de- *Corkery v. Security F. Ins. Co., stroyed the insured property, and 99 Iowa 382, 68 N.W. 792 (1896). he is thus deprived of the only 'Garner v. Mutual F. Ins. Co. means by which he can comply lit- (lowa), 86 N. W. 289 (1901). erally with the conditions of the "Robinson v. Palatine Ins. Co. (N. policy, a less particular statement is M.), 66 Pac. 535 (1901); Georgia, sufficient. See, also. People's F. Ins. etc., Ins. Co. v. Goode, 95 Va. 751, Co. v. Pulver, 127 111. 246 (1889). 30 S. E. 366 (1898). In Bumstead v. 'Rochester Loan, etc., Co. v. Lib- Dividend, etc., Ins. Co., 12 N. Y. 81, erty Ins. Co., 44 Neb. 537, 48 Am. Woodrufi Ins. Cas. 185 (1854), it is St. 745 (1895). held that the provisions requiring 'DeRaiche v. Liverpool, etc., Ins. proofs of loss and notice within any Co. (Minn.), 86 N. W. 425 (1901). designated time', are reasonable and 311' NOTICE AND PHOOF OF LOSS. § 304 against the company, no controversy or dispute as to the amount can arise, and therefore the terms of the policy with reference to arbitra- tion become inoperative and of no effect. The position can not be sustained. As stated, the proof of loss is in literal compliance with the terms of the policy and contains every fact required to be stated therein, and can only be held insufficient by judicially reading into the terms of the policy a provision that the insured must, in addition to the matters required to be stated, also make a specific claim as to the amount of the loss. A substantial compliance with the terms of the policy with respect to proof of loss is uniformly held sufficient. If the matters and information required to be stated and given therein are set out in substance and effect, the proof is sufficient. We have found no case requiring the insured to go beyond this, or to state or set forth any matters not specially provided for. So the full answer to the defendant's contention is found in the fact that the policy does not require proof of loss to contain a statement of the amount claimed by the insured. It is not a question to be reasoned out by analogy, but rather to be determined from a reasonable inter- pretation of the policy. The fact that the presentation of a specific claim by the insured would enable the company to refuse payment if deemed excessive, and thus bring into operation the arbitration pro- visions of the policy, is no reason why the court should read into the contract a requirement not made a part thereof by the parties. The right to have the amount of the loss determined by arbitration is in no measure obstructed or prevented by a failure on the part of the insured to demand a specific sum. The company may, upon notice of loss, investigate the fire, the extent of the damage and loss, and make such offer of settlement as it may deem fair and just; and, if the in- sured declines to accept the same, an arbitration may then be had." Whether notice is given or proof served within the time is ordinarily a question to be determined by the jury, but the sufficiency of the proofs is a question for the court." § 304. "Immediate" notice. — The word "immediate" in this con- nection means such convenient time as is necessary under the cir- cumstances to do the thing required.^* It must not be given a literal • Travelers'. Ins. Co. v. Sheppard, " Kentzler v. American, etc., 85 Ga. 751 (1890). Aco. Ass'n, 88 Wis. 589 (1894). § 304 THE STANDARD POLICY. 312 construction.^* Notice must be given within a reasonable time — with due diligence.*" A notice given two days after the loss is given im- mediately within the meaning of this provision.** Whether proofs of loss are furnished within a reasonable time is for the Jury to de- termine.** Where the plaintiff omitted to give immediate notice of loss as required, and it appeared that the policy was transferred be- fore the fire to the plaintiff, and that he had no knowledge of its con- tents, and that he used due diligence to discover the policy, which had accidentally fallen behind a case of pigeonholes in his ofiiee, to ascertain what it required, and that, notwithstanding such diligence, he obtained neither the policy nor any information as to the notice until fifty days after the fire, and that notice, dated three days after obtaining possession of the policy, was prepared and served with due diligence, the company receiving it three days after its date, it can not be held, as a matter of law, that the service of the notice was not within a reasonable time.*' An unexcused delay of eleven days,*® and, in another case, of forty-eight days, has been held fatal.*' So, a failure for nearly sixty days after a fire to give notice of loss is, as a matter of law, a breach of the condition.*' But in one case a delay of thirty-five days in making proof of loss was excused under the cir- cumstances.*° When loss occurs on October 3, proofs of loss sent the company on December 8 are not "forthwith rendered.'"" The " Matthews v. American, etc., Ins. zon Ins. Co., 51 Md. 512, 34 Am. Co., 154 N. y. 449, 39 L. R. A. 433, Rep. 323 (1879). 48 N. E. 751 (1897); Pennypacker v. "Taber v. Royal Ins. Co., 124 Ala. Capital Ins. Co., 80 Iowa 56, 8 L. R. 681, 26 So. 252 (1899). A. 236 (1890). "Fletcher v. German, etc., Ins. " Solomon v. Continental F. Ins.. Co., 79 Minn. 337, 82 N. W. G47 Co.. 160 N. Y. 595, 73 Am. St. 707, (1900). 46 L. R. A. 682 (1899). As to what "Solomon v. Continental F. Ins. constitutes compliance with a pro- Co., 160 N. T. 595, 73 Am. St. 707 vision requiring "immediate no- (1899). tice," see cases collected In note to " Trask v. State, etc., Ins. Co., 29 Phenix Ins. Co. v. Pickel, 12 Am. St. Pa. St. 198, 72 Am. Dec. 622 (1858). 404 (1889). See, also, Bennett v. "Brown v. London Assur. Corp., Lycoming, etc., Ins. Co., 67 N. Y. 40 Hun (N. Y.) 101 (1886). 274 (1876); Kimball v. Howard F. "Ermentrout v. Girard, etc., Ins. Ins. Co., 8 Gray (Mass.) 33 (1857); Co., 63 Minn. 305, 56 Am. St 481 Kingsley v. New England, etc., Ins. (1895). Co., 8 Cush. (Mass.) 393 (1851); ""Knickerbocker Ins. Co. v. Mc- People'B Ace. Ass'n v. Smith, 126 Ginnis, 87 111. 70 (1877). Pa. St. 317 (1889); Rokes v. Ama- =° Parker v. Farmers', etc., Ins. Co. (Mass.), 61 N. E. 215 (1901). 313 NOTICE AND PROOF OF LOSS. ' § 303 company was held to have received timely notice of loss, where the policy required immediate written notice, where its local agent knew of the fire and had several conversations with the insured, who made a verbal claim of loss, and thereafter the agent wrote the company, which, ten days after the fire, sent out an adjuster, and final proofs of loss were sent to the defendant, who retained them without com- ment.^^ So, where a general agent of the company, on the day of the loss, notified the company of the loss, and within a few days there- after the company sent an adjuster with power to investigate, adjust and settle the loss, it was held that the requirement of immediate notice had been complied with.^^ It has been held that notice by- parol to an agent of the insurance company is of no effect where the charter contains a condition that notice must be given in writing to the secretary or one of the directors.^* The policy sometimes requires that notice shall be given "forthwith." This word is given the same construction as "immediate," and requires that the notice be given with due diligence — within a reasonable time and without unnecessary delay.^* Hence, whether a statement is rendered "forthwith" depends upon all the circumstances, and is for the jury to determine.^' A failure to render such statement until about two months after the fire is not necessarily a failure to render it "forthwith," if the delay is accounted for by the ill health of the assured, the confusion at- tending the fire, and other such obstructions.^' § 305. Separation of goods "forthwith." — After giving immediate notice of the loss to the company the insured must proceed "forth- =1 Partridge V. Milwaukee, etc., Ins. (1890); St. Louis Ins. Co. v. Kyle, Co., 13 App. Div. (N. Y.) 519, 162 11 "Mo. 278,. 49 Am. Dec. 74 (1848); N. Y. 587, 57 N. B. 1119 (1900). Griffey v. New York, etc., Ins. Co., « Kahn V. Traders' Ins. Co., 4 Wyo. 100 N. Y. 417 (1885); Mason v. St. 419, 62 Am. St. 47 (1893). Paul, etc., Ins. Co., 82 Minn. 336, 85 »» Patrick V. Farmers' Ins. Co., 43 N. W. 13 (1901); Whiteliurst v. N. H. 621, 80 Am. Dec. 197 (1862). North Carolina, etc., Ins. Co., 7 In Ermentrout v. Girard, etc., Ins. Jones (N. C.) 433, 78 Am. Dec. 246 Co., 63 Minn. 305, 56 Am. St. 481 (1860). (1895), it was held that notice to "= Harnden v. Milwaukee, etc.. Ins, the local agent was not notice to Co., 164 Mass. 382, 49 Am. St. 467 the company. (1895). " Central City Ins. Co. v. Gates, 86 =° Harnden v. Milwaukee, etc., Ins. Ala. 558, 11 Am. St. 67 (1888). See Co., 164 Mass. 382,' 49 Am. St. 467 alfio, Pennypacker v. Capital Ins. (1895). Co., 80 Iowa 56, 20 Am. St. 395 § 306 THE STANDAED POLICY. 314 with" to separate the damaged from the undamaged personal prop- erty. "Forthwith," like immediate, means with due diligence under all the circumstances.^' § 306. Excuses for failure to furnish proofs. — The courts recog- nize the fact that these stipulations with relation to what should be done after loss should not be construed with the same strictness as those which constitute the essential conditions of the contract. Hence, there may be circumstances which will excuse a failure to make proofs of loss as required by the policy. Thus, the insanity of the •insured is a sufficient excuse for not making proofs of loss within the specified time.^' As said in a recent case in New York :^* "It is 'well settled that when the liability has become fixed by the capital fact of loss within the range of the responsibility assumed in the contract, the courts are reluctant to deprive the insured of the benefit of the liability by any narrow or technical construction of the condi- tions and stipulations which prescribe the formal requisites by means of which this accrued right is to be made available for his indemnifica- tion. 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 condition thereof, except by a 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 possesses, oi: whom he has held out to possess, this power in respect to the provision." Failure to comply with this provision does not defeat. the claim of a beneficiary when he does not know of the existence of the policy, or of the death of the insured, until more than a year thereafter, and then notifies the company at once after acquiring such knowledge."" The policy requires that the proof shall be made and signed by the "Fletcher v. German, etc., Ins. » Sergent v. Liverpool, etc., Ins. Co., 79 Minn. 337, 82 N. W.. 647 Co., 155 N. Y. 349, 49 N. B. 935 (1900). See cases cited in previous (1898); McNally v. Phoenix Ins. Co., section. 137 N. Y. 389, 33 N. E. 475 (1893); =" Insurance Companies v. Boykin, Bishop v. Agricultural Ins. Co., 130 12 Wall. (U.^ S.) 433 (1870); N. Y. 488, 29 N. E. 844 (1891). "Wheeler v. Connecticut, etc., Ins. ^'McElroy v. John Hancock, etc., Cp., 82 N. Y. 543, 37 Am. Rep. 594 Ins. Co., 88 Md. 137, 71 Am. St. 400 (1880). (1898). 313 XOTICE AND PROOF OF LOSS. § 307 insured, but when he is not in a position personally to comply with this requirement it may be done by his agent.'^ Thus, where the in- sured at the time is out of the state, the proofs may be signed by his agent.^^ The provision must be given a reasonable construction. So, where the insured dies, the right to indemnity is not lost by a failure to comply with the provision literally, owing to such death and the absence of persons qualified to give such notice and make such proofs. Upon the death of the insured it is the duty of those interested to use every reasonable effort to comply with the provision. Where no ex- ecutor has been appointed because of the contest of a will, the heirs or next of kin should, within a reasonable thne, give notice of the loss and make the proof provided for in the policy, or procure the appoint- ment of a special or teniporary administrator to do so. Where this was not done, and where no notice of iQgs was given until more than two years after the death of the insured, the company was held to have been relieved from liability'.^^ Where the insured returned the proofs of loss, signed and sworn to by his attorney in fact, and gave as a reason therefor the fact that such attorney negotiated the policy and lived in the property, and that the insured was sick and not able to execute the power of attorney before a justice, it was held that the insured had not shown a sufficient excuse for not signing and swearing to the proofs him- self, and that therefore he could not maintain an action on the policy.^* The fact that the insured was occupied with other business and forgot to give notice is not a sufficient excuse.^' § 307. When a condition precedent. — Where the policy does not provide that a failure to furnish proofs of loss within the stipulated time shall operate as a forfeiture, it is generally held that the policy is not invalidated by such failure.'* In such case a failure to furnish »■ Lumbermen's, etc., Ins. Co. v. ^ Smith, etc., Co. v. Travelers' Ins. Bell, 166 111. 400, 57 Am. St. 140 Co., 171 Mass. 357, 50 N. E. 516 (1897). (1898). See also, Harnden v. Mil- '^ Walsh V. Vermont, etc., Ins. Co., waukee, etc., Ins. Co., 164 Mass. 382. 54 Vt. 351 (1882). 41 N. B. 658 (1895). " Matthews v. American, etc., Ins.. *■ Orient Ins. Co. v. Clark, 22 Ky. Co., 154 N. Y. 449, 61 Am. St. 627 L. 1066, 59 S. W. 863 (1900); North- (1897). ^'■'1 Assur. Co. v. Hanna, 60 Neb. "Kowicz v. Teutonia Ins. Co. 29, 82 N. W. 97 (1900); Flatley v. (Pa. Com. PL). 30 Pittsb. Leg. J. Phenix Ins. Co., 95 Wis. 618, 70 N. 140. W. 828 (1897). § 307 THE STANDARD POLICY. ' 31 G proof of loss within the required time does not forfeit the policy if the proofs are furnished before the expiration of the time for bringing an action.'^ The supreme court of Minnesota, in a recent case, said :^' "It is very generally held by the authorities, in cases where this ques- tion has been presented, that unless the policy provides for a forfeiture, or makes the service of proofs of loss within the time specified therein a condition precedent to the liability of the company, the time within which such proofs are required to be furnished is not of the essence of the contract. Where no forfeiture is provided by the terms of the contract, and the service of the proofs of loss within the specified time is not made a condition precedent to the liability of the company, the effect of such failure is simply to postpone the day of payment. No liability attaches to the company, however, until such proofs are fur- nished; but, unless otherwise provided, expressly or by fair implica- tion, it is not important that proofs be not in fact served within the time stated in the policy.^' It has been held by this court that a fail- ure of strict compliance with similar provisions in the policies there under consideration was a condition precedent to the company's liabil- ity, but such policies contained express provisions to that effect, and the decisions there made are based on that fact."*" Where the policy provides that the loss shall not be payable until sixty days after proofs of loss have been furnished, and that no suit on the policy can be commenced within twelve months after the fire, the insured must submit his proofs of loss in time for sixty days to elapse between the time when they were furnished and the expiration of the twelve "American, etc., Ins. Co. v. Heav- (1892); Kenton Ins. Co. v. Downs, erln, 18 Ky. L. 190, 35 S. W. 922 90 Ky. 236, 13 S. W. 882 (1890); (1896). Sun Mut. Ins. Co. v. Mattingly, 77 " Mason v. St. Paul, etc., Ins. Co., Tex. 162, 13 S. W. 1016 (1890); Kahn- 82 Minn. 336, 85 N. W. 13 (1901).' weiler v. Phoenix Ins. Co., 57 Fed. 562 "2 May Ins. (4th ed.) 1097, note (1893); Southern F. Ins. Co. v. a; Coventry v. Evans, 102 Pa. St. Knight, 111 Ga. 622, 36 S. E. 821 281 (1883); Carpenter v. German, (1900). etc., Ins. Co., 52 Hun (N. Y.) 249, "See Bowlin v. Hekia F. Ins. Co., 4 N. Y. Supp. 925 (1889); Van- 36 Minn. 433, 31 N. W. 859 (1887); gindertaelen v. Phenix Ins. Co., 82 Shapiro v. Western, etc., Ins. Co., Wis. 112, 51 N. W. 1122 (1892); 51 Minn. 239, 53 N. W. 463 (1892)? Rynalski v. Insurance Co., 96 Mich. Shapiro v. St. Paul, etc., Ins. Co., 395, 55 N. W. 981 (1893); Northern 61 Minn. 135, 63 N. W. 614 (1895)1 Assur. Co. V. Hanna, 60 Neb. 29, 82 Ermentrout v. Girard, etc., Ins. Co., N. W. 97 (1900); Steele v. German 63 Minn. 305, 65 N. W. 635 (1895)! Ins. Co.. 93 Mich. 81, 53 N. W. 514 '317 NOTICE AND PEOOF OF LOSS. § 308 months' limitation.*^ Where the policy contained this provision and a further statement that no suit or action on the policy for the recovery of any claim should be sustainable in any court of law or equity until full compliance by the assured with this requirement, liie court said:*^ 'TJnder the stipulations in the policy there can be no question that, as a condition precedent to the payment of the loss, the proofs of loss should be submitted to the company within the time prescribed. The sufficiency of the proofs on the trial of the case is a question for the court, and to be sufficient they should show a loss within the terms of the policy." Although a failure to make proofs of loss within the stipulated time does not cause a forfeiture of the policy, it is necessary that proofs be submitted before an action can be maintained.*' * § 308. What is compliance with this provision. — Notice to an agent of the company a day or so after the loss occurs, with a request that he notify his principal, is immediate notice.** The requirement that a statement shall be "rendered" to the company within a speci- fied time is complied with by mailing a statement to the company within the time.*' Where there was proof of mailing the notice and proofs of loss, properly stamped and addressed, to the insured, which was opposed by declarations of the eompany^s officers and clerks to the effect that the documents were never received, it was held that there was a question for the jury to determiae.*' It is sufficient if the " Southern F. Ins. Co. v. Knight, Co. v. Zeitinger, 168 111. 286, 61 Am. Ill Ga. 622, 36 S. E. 821, 78 Am. St. St. 105 (1897); Whltmore v. Dwell- 216 (1900). ing House Ins. Co., 33 Am. St. 842 *" Cannon v. Phoenix Ins. Co., 110 (1892), note. Under Iowa code, Ga. 563, 78 Am. St. 124 (1900). par. 23, § 48, providing that in com- " German Ins. Co. v. Fairbank, 32 puting time, if the last day falls on Neb. 750, 29 Am. St. 459 (1891); Sunday, the prescribed time shall Western, etc., Ins. Co. v. Thorp, 48 be extended so as to include the Kan. 239, 28 Pac. 991 (1892). whole of the following Monday, a "Burlington Ins. Co. v. Lowery, proof of loss mailed on Saturday, 61 Ark. 108, 54 Am. St. 196 (1895); the last day for making the same Hoffecker v. New Castle, etc., Ins. being Sunday, and received by the Co., 5 Houst. (Del.) 101 (1875). insurance company on Monday, was " Susquehanna, etc., Ins. Co. v. in time : McKibban v. Des Moines Tunkhannock Toy Co., 97 Pa. St. Ins. Co. (Iowa), 86 N. W. 38 424, 39 Am. Rep. 816 (1881); Badger (1901). V. Glens Falls Ins. Co., 49 Wis. 389 " Pennypacker v. Capital Ins. Co., (1880); Manufacturers', etc., Ins. 80 Iowa 56, 8 L. R. A. 236 (1S90). § 308 THE STANDARD POLICY. 318 proofs are mailed within the time, although they are not received by the company until after the expiration of the period. "It is said that the clause in the policy, 'shall render a statement to the company,' means, shall render a statement to the company at its office ; that the word 'render' has a different signification from 'forward' or 'mail;' and that the policy required the proofs to be actually delivered to the company at its own office within sixty days. We think such an inter- pretation of this provision too narrow and strained."*' But in New York it is held that the proofs of loss must be mailed so that they may be received by the insurer within the time fixed by the policy.*^ Send- " Manufacturers', etc., Ins. Co. v. Zeltinger, 168 111. 286, 48 N. E. 179 (1897); Pennypacker v. Capital Ins. Co., 80 Iowa 56, 8 L. R. A. 236 (1890). "In Peabody v. Satterlee, 166 N. Y. 174, 59 N. E. 818, 52 L. R. A. 956 (1901), the court said: "A proper reading of the provision of the policy is that the insured is to furnish or deliver to the defendants these proofs of loss, and this clearly means that the papers shall be so furnished to the defendants person- ally, or to their duly authorized agent, if they nave one. In cases of this kind substituted service, or service by mail, is either matter of statute or contract. In this case the contract is silent, and the de- positing of the proofs of loss in the mail at Buffalo on the sixtieth day after the fire occurred can not be held a compliance with the pro- visions of the policy. This view was adopted by the trial court, but the appellate division reversed the judgment and ordered a new trial. The opinion of the appellate di- vision, in part, is as follows: 'While there are numerous cases re- ported In which it Is held that it is necessary to comply with the pro- visions of the clause requiring that proofs of loss shall be rendered to the attorneys of the underwriters within sixty days of a Are as a condition precedent to the right of recovery, we are unwilling to say as a matter of law that, where the plaintiff has complied with all the requirements of the policy within the time given him by its terms to act, and deposited it in the mails, he has forfeited his right to main- tain an action for the recovery of the insurance for which he has paid the premiums.' The very question to be decided at this time is whether the plaintiff has complied with all the requirements of the policy with- in, the time given him by its terms. If he has, he should recover; and, if he has not, this court, in decid- ing against him, declares no for- feiture of his legal rights, but con- strues a written contract according to its plain provisions. Policies of fire insurance have been before us many times for construction, and we have given effect to their pro- visions without regard to the fact that in the particular case it seemed to impose hardship and loss upon either the insurer or the insured: Blossom V. Lycoming F. Ins. Co., 64 N. Y. 162; Quinlan v. Providence, etc., Ins. Co., 133 N. Y. 353, 364, 365, 31 N. E. 31; McAllaster v. Niagara F. Ins. Co., 156 N. Y. 80, 50 N. E. 319 NOTICE AND PROOF OF LOSS. 809 ing'the estimates of carpenters as to what the building destroyed would cost is not furnishing proofs of loss.** A statement which describes in general terms the merchandise destroyed, and alleges that it was owned by the insured, and was of a specified value, and further states that the origin of the fire is unknown, but is supposed to have been caused by a flue, sufficiently complies with a statute which requires the insured to state the facts as to how the loss occurred so far as within his knowledge, and the extent of the loss, although such proof does not meet the requirements of the policy.^" So, a written notice, accompanied by an affidavit stating that the origin of the fire is un- known to the insured, and that the loss is total, entire and complete, satisfies the provision in the policy which requires "satisfactory^' proofs of loss, as well as. this statute.^^ § 309. Certificate of magistrate. — The courts have generally sus- tained the validity of the requirement that the insured shall furnish, when required, a certificate of a magistrate or notary public living nearest the place of the fire stating that he has examined the cir- cumstances and believes the insured has honestly sustained loss to the amount certified.^^ But the insured is under no obligation to 502. The use of the standard pol- icy in this state was made compul- sory in order to protect both parties to the contract of insurance from unnecessary and wasting litigations over questions having their origin in the varying forms of policies is- sued by the different companies. It is important alike to the insurer and insured that the standard policy should be fairly construed, in order that an instrument which came from the hands of its creators presenting many questions for construction be rendered clear and easily under- stood. In the case at bar the in- sured had nearly three weeks in which to correct his proofs after they were returned by the defend- ■ ants, and it Is due solely to his own negligence that they did not reach the company in time. It is far more important that there should be a clear and settled rule as to the manner of rendering proofs of loss than that plaintiff should recover in this particular case. The duty of the court in the premises is in no way affected by the fact that the de- fendants have seen fit to avail themselves of a technical defense." " Heusinkveld v. St. Paul, etc., Ins. Co., 96 Iowa 224, 64 N. W. 769 (1895). M Warshawky v. Anchor, etc., Ins. Co., 98 Iowa 221, 67 N. W. 237 (1896). . " Parks V. Anchor, etc., Ins. Co., 106 Iowa 402, 76 N. W. 743 (1898). "Lane v. St. Paul, etc., Ins. Co., 50 Minn. 227, Woodruff Ins. Cas. 188 (1892). The Minnesota statute now forbids the insertion of this clause in a policy. See, also, Wors- ley V. Wood, 6 Term R. 710 (1796) ; London Guarantee Co. v. Fearnley, L. R. 5 App. Cas. 916 (1880). § 310 THE STANDARD POLICY. 320 furnish the certificate unless requested to do- so, and a mere notice to him to comply with the conditions of the policy is not notice to fur- nish this certificate. The request must be made before suit is brought to recover the amount of the loss.°^ Courts will not attach much importance to slight differences in distance between different no- taries."* Where the certificate furnished was that of a notary re- siding within four hundred feet of the fire, and it appeared that there was another notary who lived nearer, and the defect was not pointed out by the defendant until after the commencement of the suit, it was held that it was too late to make the objection.^" It was held in Illinois that the certificate of a magistrate as to the amount of the loss is not conclusive on the insured, and that a party may, notwith- standing such certificate, show the true amount of the loss."' In some states the insertion of this provision in the policy is forbidden by statute, and in others it is held void and unenforceable."' § 310. Plans and specifications. — The requirement that the in- sured shall, if required, furnish verified plans and specifications of any buildings or fixtures destroyed or damaged is reasonable and must be complied with. Where the company requests the insured to make out plans and specifications and hold and deliver the same to a com- mon adjuster of itself and other companies, it thereby waives the presentation of the plans and specifications to itself."* § 311. Waiver. — If the company objects to the proofs of loss on technical grounds it must specify the particular defect, if it is one which may be remedied, or it will be held to have waived the defect. Where a party in good faith attempts to make proofs of loss, the failure of the company to make any objection to the proofs is suffi- cient to constitute a waiver."' "The law is settled that where the assured, in attempting .in good faith to comply with the terms " Moyer v. Sun Ins. Office, 176 Pa. " Birmingham F. Ins. Co. v. Pul- St. 579, 53 Am. St. 690 (1896); John- ver, 126 111. 329, 9 Am. St. 598 son V. Phoenix ins. Co., 112 Mass. (1888); Kelly v. Sun Fire Office, 141 49, 17 Am. Rep. 65 (1873); Lead- Pa. St. 10, 23 Am. St. 254 (1891). better v. Etna Ins. Co., 13 Me. 265, " German, etc., Ins. Co. v. Norris, 29 Am. Dec. 505 (1836). 100 Ky. 29 (1896). » Williams v. Niagara F. Ins. Co., ^ Brownfleld v. Mercantile, etc., 50 Iowa 561 (1879). Ins. Co., 84 Mo. App. 134 (1900). " Barlium v. Merchants' F.' Ins. "' Moyer v. Sun Ins. Office, 176 Pa. Co., 97 N. Y. 188 (1884). St 579, 53 Am. St. 690 (1896). 321' NOTICE AND PKOOF OF LOSS. § 311 of the policy, furnishes to the insurance company within the time stipulated what purports and is intended to be proofs of loss, the com- pany must point out particularly any defects therein if it intends to rely upon them. If it fails to do so, objection can not thereafter be made to its sufficiency."*" The mere silence of an agent or manager of the company after receiving proofs of loss is a waiver of the right to require further proofs.'^ The compajiy waives compliance with this provision of the policy by waiting until but two or three days are left within the limit, and then demanding of the insured, indiscriminately, proofs which he was unconditionally required to furnish, and those which he was not re- quired to furnish unless demanded, and failing to state that he had less time to furnish the former than the latter, and that a failure to furnish the former within the time limited would result in a forfeit- ure."^ Where the company denies all liability it is not necessary to furnish proofs of loss.*' This is true where the denial is made to a third person during the period prescribed for malting the proofs, if the fact of such denial comes to the knowledge of the insured.** But the fact that the insurer, when denying its liability on the policy and-insisting that it was void, at the same time objected to the proofs of loss, does not amount to a waiver of the forfeiture.*^ An ad- juster, by agreeing to accept the estimate of a third person as to the amount of the loss, waives the proofs of loss required under the policy.** Where the company holds the proofs without objection until forty-three days after receiving them, and until the time al- lowed by the policy for furnishing proofs has expired, it can not thereafter object to their sufficiency.*'^ The refusal of an adjuster for the company to pay the amount of the loss on the ground that the insured had made false representations in the application for ■"Schmurr v. State Ins. Co., 30 (1899); American, etc., Ins. Co. v. Ore. 29, 46 Pac. 363 (1896). Henninger, 87 111. App. 440 (1899). "Morotocli Ins. Co. v. Cheek, 93 "Merchants' Ins. Co. v. Nowlin Va. 8, 57 Am. St. 782 (1896); Me- (Tex.), 56 S. W. 198 (1900). Bryde v. South Carolina, etc., Ins. "Batcher v. Capital F. Ins. Co., Co., 55 S. C. 589, 74 Am. ' St. 769 78 Minn. 240, 80 N. W. 971 (1899). (1899). "Wholley v. Western Assur. Co., <=McCarvel v. Phenix Ins. Co., 64 174 Mass. 263, 54 N. B. 548 (1899). Minn. 193, 66 N. W. 367 (1896). "Fort Wayne Ins. Co. v. Irwin, "Soorholtz V. Marshall, etc., Ins. 23 Ind. App. 53, 54 N. B. 817 (1899). Co., 109 Iowa 522, 80 N. W. 542 21 — ELiiioTT Ins, § 313 THE STANDAED POLICY. 322 insurance, and that lie was guilty of burning the house, is not a waiver of a condition requiring proofs of loss."* It is said in New York that an insurance agent can not waive the terms of the New York standard policy, and that where a party agrees to insure another and to issue a New York standard policy, but fails to do so, and after loss denies that any contract existed, it is not a waiver of proofs of loss.*° The company was held to have waived proofs of loss where the local agent told the insured, at the time the general agent ap- praised the property after loss, that he need not make any proofs of loss, and that if he was not satisfied with the appraisement the company would make a new one.''" The fact that the policy prohibits a waiver of the proofs of loss, either by the adjuster or the president of the company, does not prevent their acts after the loss from amounting to a waiver. '^^ An agent with full power to adjust and pay claims against the company has authority to waive the provisions in the policy requiring the service of notice and proofs of loss, and the ap- pointment of appraisers.''^ The company waives proofs of loss where the adjuster, after having a personal interview with the insured, who answers questions respecting the origin of the fire, refuses to pay the amount of the loss to an assignee of the policy because the property was mortgaged.'^ Where there is a waiver of proofs of loss by the company it inures to the benefit of the mortgagee where the policy is payable to him as his interest may appear.'^* § 312. To whom notice must be given. — The policy provides that notice and statement of loss shall be given to the company. This pro- vision is complied with by giving notice and furnishing a statement to a duly authorized agent of the company. '^ It is held in Minnesota that it is not sufficient to give notice of loss to a local agent;'" but where the notice is given to a local agent, who transmits it to his I "Phoenix Ins. Co. v. Minner, 64 "Western Assur. Co. v. McCarty, Ark. 590, 44 S. W. 75 (1898). 18 Xnd. App. 449, 48 N. B. 265 " Hicks V. British, etc., Assur. Co., (1897). 162 N. Y. 284, 56 N. E. 743 (1900). "State Ins. Co. v. Ketcham, 9 '"McCoubray v. St. Paul, etc., Ins. Kan. App. 552, 58 Pac. 229 (1899). Co., 64 N. Y. Supp. 112, 50 App. Div. " Burlington Ins. Co. v. Lowery, (N. Y.) 416 (1900). 61 Ark. 108, 54 Am. St. 196 (1895). " Lake v. Farmers' Ins. Co., 110 " Ermentrout v. Girard, etc., Ins. Iowa 473, 81 N. W. 710 (1900). Co., 63 Minn. 305. 56 Am. St. 481 "Smaldone v. President, etc., 162 (1895). / N. Y. 580, 57 N. E. 168 (1900). 333 EXHIBITION OP PROPERTY EXAMINATION OF PARTY. § 313 principal, it is a substantial compliance. In Iowa, evidence that notice and proofs of loss were sent to the firm through which the policy was procured, although not agents of the company, and that they forwarded the papers by mail to the company, is admissible for the purpose of showing that the company actually received the same.'^ Where the risks of the insuring company are reinsured under a contract whereby the reinsuring company assumes the man- agement and control of the business of the original insurer, and agrees to assume, adjust and promptly pay its losses, proofs of loss under a policy issued by the original insurer may be made to the re- insuring company.'^ 'Apparent authority on the part of the local agent to receive proofs of loss is implied from a custom among in- surance corporation? to* prepare proofs of loss and to send them to ofiBeers. "This policy," said Mr. Justice Morton,^" "contained no provision as to the manner in which proofs of loss should be delivered to the eompany. If, therefore, the local agents had apparent author- ity, by custom or otherwise, to receive proofs of loss, we think that delivery to them would constitute delivery to the company, even if they had not authority from the nature of their agency to receive them, or if, also, in the absence of custom, a delivery to them under the circumstances would not have been a reasonable mode of sending proofs of loss to the company, on neither of which do we pass ani opinion." In the same case it was held that a delivery of the proofs ' to a local agent is delivery to the company where the commission of the agent gives him "full power to receive, proposals for insurance against loss or damage by fire, to receive moneys, countersign, issue, renew and consent to the transfer of policies subject to the rules and regulations of the company, and to such of their instructions as may from time to time be given by ofBcers of the company." In Illinois a delivery of proofs of loss to a local agent of the insurer, in the absence of any provision in the policy to the contrary, is a delivery to the company for all the purposes of the policy.*" XVII. Exhibition of Property and Records — Examination of Party. ■The insured, as often as required, shall exhibit to any person desig- nated by this company all that remains of any property herein de- " Pennypacker v. Capital Ins. Co., Co., 164 Mass. 382, 49 Am. St. 467 80 Iowa 56, 8 L. R. A. 236 (1890). (1895). " Whitney v. American Ins. Co., ■" Insurance Co. v. Hope, 58 111. 127 Cal. 464, 59 Pac. 897 (1900). 75, 11 Am. Rep. 48 (1871). "Hamden v. Milwaukee, etc., Ins. § 313 " THE STANDAKD POLICY. 324 scribed, and submit to examinations under oath by any person named by this company, and subscribe the same; and, as often as required, shall produce for examination all books of account, bills, invoices, and other vouchers, or certified copies thereof if originals be lost, at such reasonable place as may be- designated by this company or its representative, and shall permit extracts and copies thereof to be made.^^ § 313. Examination of party. — After a loss it is made the duty of the insured, as often as required, to exhibit to any person designated by the company all that remains of the insured property and to sub- mit to examination under oath, by any person named by the company. A general provision requiring the insured to submit to examination is valid,'^ although certain requirements in connection therewith, such as that the examination shall be held apart from all persons except the magistrate, have been questioned.^' In one case the ques- tion whether the insured was, under the circumstances, required to submit to an examination was said to be a mixed question of law and fact, which would not be reviewed by a court of appeals.** This provision is generally treated as a condition precedent to a recovery. In some cases a refusal 'is said to result in a forfeitures^ while others hold that it merely prevents a recovery upon the policy until there is a substantial compliance.** The demand for an examination of the insured must be of such a character as to show that -the company intends to require com- *" This provision is found in ttie v. Simmons, 49 Neb. 811, 69 N. W. standard policies of New Yorli, New 125 (1896). Jersey, Connecticut, Rhode Island, ^ McGraw v. Germania P. Ins. Co., Michigan, Louisiana, Iowa, South 54 Mich. 145, 19 N. W. 927 (1884). Dakota, North Dakota, Wisconsin "Porter v. Traders' Ins. Co., 164 and North Carolina. The following N. Y. 504, 52 L. R. A. 424 (1900), provision is found in the standard annotated. policies of Massachusetts, Minne- "Fleisch v. Insurance Co., 58 Mo. sota and Maine: "The company App. 596 (1894); Gross v. St. Paul, may also examine the books of ac- etc., Ins. Co., 22 Fed. 74 (1884); count and vouchers of the insured. Fire Ins. Co. v. Felrath, 77 Ala. 194, and make extracts from the same." 54 Am. Rep. 58 (1894). New Hampshire adds the words, "Weide v. Germania Ins. Co., 1 "and shall have access to the prem- Dill. (C. C.) 441 (1870); Commer- ises and property damaged." cial Bank v. Fire Ins. Co., 84 Wis. ''Gross v. St. Paul, etc., Ina. ■Co., 12, 54 N. W. 109 (1893). 22 Fed. 74 (1884); .ffitna Ins. Co. 325 ESHIBITIOlSr of property EXAMINATION' OF PAETY. § 313 pliance with the provision; and, therefore, a mere expression of a "desire" that the insured be examined is not sufficiently explicit.*' In a case where compliance with the condition was held to be a con- dition precedent to the right of recovery, tht court said:*' "Hav- ing used due diligence to notify the insured that they required the performance of this stipulation, they certainly ought not to be held to have waived its performance. If the insured has intentionally absented himself so that he can not be notified that the performance of the stipulation is required, he should be held to have had due notice. And if for any cause, whether by his fault or otherwise, he can not be notified, that may be his misfortune or the misfortune of those claiming under or through him, but is no reason for treating as inoperative an important 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 the loss." Where the policy provides that the time and place of the examina- tion shall be designated by the company, a statement by the company to the insured that it wanted an examination at a time and place convenient to him is not such a demand as to put him in default.*" The insured need not submit to an examination by an adjuster who has not to his knowledge been authorized to represent the company."" The examination must be held at the place where the loss occurred, and neither party can require that it shall be held elsewhere."' The insured need submit to but one complete examination,"^ and can be I I " McGraw v. Germanla P. Ins. Co., Harris v. Phcenix Ins. Co., 35 Conn. 54 Mich. 145 (1884); State Ins. Co. 310 (1868). v. Maackens, 38 N. J. L. 564 (1876). "American, etc., Ins. Co. v. Simp- «« Harris v. Phoenix Ins. Co., 35 son, 43 111. App. 98 (1890); Fleisch Conn. 310, WoodrufE Ins. Cas. 190 v. Insurance Co., 58 Mo. App. 596 (1868); Niagara F. Ins. Co. v. Fore- (1894). Even where the stipulation hand, 169 111. 626 (1897), and cases is that the examination shall be at therein cited. "such reasonable place as shall be «» ^tna Ins. Co. v. Simmons, 49 designated" by the company, the ex- Neb. 811, 69 N. "W. 125 (1896). amination must be at the place of " Scottish, etc., Ins. Co. v. Keene, the loss when that is as convenient 85 Md. 263, 37 Atl. 33 (1897). For for the company as elsewhere: further illustrations, see Aurora F. Murphy v. Northern British, etc., Ins. Co. V. Johnson, 46 Ind. 315 Co., 61 Mo. App. 323 (1895). (1874); Dougherty v. German, etc., '"Moore v. Protection Ins. Co., 29 Ins. Co., 67 Mo. App. 526 (1896); Me. 97, 48 Am. Dec. 514 (1848). § 314 THE STANDARD POLICY. 326 required to answer only material questions." He is also entitled to have an attorney present at the examination.** Where the policy provided that the insured should submit to an examination under oath by the agent of the company, and that fraud or false swearing would forfeit the policy, it was held that the policy was void, where, although the insured swore truthfully as to the actual loss, he swore falsely as to the persons from whom he had purchased the property, or as to the value of goods purchased from a certain iirm, even though the false swearing was with no intent to deceive the defendant, but was for the purpose of deceiving other persons." ' § 314. Failure to produce books. — The standard form contemplates the possible loss of books or other papers, and provides for the use of copies. In a recent case jt appeared that the insured agreed to keep a set of books showing a complete record of the business transactions, including all purchases and sales both for cash and credit, together with the last inventory of said business, and in case of loss agreed and covenanted to produce said books and inventory, — "and in the event of failure to produce the same this policy shall be deemed null and void, and no suit or action at law shall be maintained thereon for any loss." It was held, imder this provision, that a failure to pro- duce the books and inventory means a failure to produce them if they are in existence when called for, or if they have been lost or destroyed by the fault, negligence or design of the insured.'" "Un- der any other interpretation of the policies," said Mr. Justice Harlan, "the insured could not recover if the books and inventory had been stolen, or had been destroyed in some other manner than by fire, although they had been placed 'in some secure place not exposed to a fire' that would reach the store. If the plaintiffs had the right, under the terms of the policy, as undoubtedly they had, to remove their "» Titus, V. Glens Palls Ins. Co., 81 ■ ""Claflin v. Franklin Ins. Co., 110 N. Y. 410 (1880); Insurance Co. v. U. S. 81, 3 Sup. Ct. 507 (1883).' Weides, 14 Wall. (U. S.) 375 (1871); "Liverpool, etc., Ins. Co. v. Kear- Porter v. Traders' Ins. Co., 164 N. Y. ney, 180 U. S. 132, 21 Sup. Ct. 326 504, 52 L. R. A. 424 (1900). (1901), s. c. 94 Fed. 314, 36 C. C. A. "American, etc., Ins. Co. v. Simp- 265 (1899); Sneed v. British, etc., son, 43 111. App. 98 (1891); Thomas Assur. Co., 73 Miss. 279, 18 So. 928 V. Burlington liis. Co., 47 Mo. App. (1895). 169 (1891); Grigsby v. German Ins. Co., 40 Mo. App. 276 (1890). 327 EXHIBITION- OP PEOPEETT — EXAMIlTATIOlSr OF PAETT. § 315 books and inventory from the safe to some secure place not exposed to a fire which might destroy the building in which they carried on business, surely it was never contemplated that they should lose the benefit of the policies if, in so reinoving their books and inventory, they were lost or destroyed, they using such care on the occasion as a prudent man acting in good faith would exercise. A literal interpretation of the contracts of insurance might sustain a contrary view, but the law does not require such an interpretation. In so hold- ing the court does not make for the parties a contract which they did not make for themselves. It only interprets the contract so as to do no violence to the words used and yet to meet the ends of justice." § 315. The iron safe* clause. — The New York form of standard policy does not contain a provision requiring the insured to keep his books of account in a fireproof safe. Many policies, however, con- tain this provision, and a failure to comply with it precludes a re- covery.®'' It must, however, be given a reasonable construction. The supreme court of the United States"* recently considered a policy which contained the following provision: "The assured, under this policy, hereby covenants and agrees to keep a set of books showing a complete record of all business transacted, including all purchases and sales both for cash and credit, together with the last inventory of said business, and further covenants and agrees to keep such books securely locked in a fireproof safe at night and at all times when the store mentioned in this policy is not actually open for business, or in some secure place not exposed to a fire which would destroy the house where such business is carried on." While the building was threatened by fire one of the insured parties entered the building for the purpose of removing the books of the firm to a safe place. He opened the iron safe in the store in which they had been deposited for the night and took them to his residence, some distance away. In " Gitson V. Missouri, etc., Ins. Co., a set of books and an inventory will 82 Mo. App. 515 (1900); Western not work a forfeiture of the policy, ABSur. Co. v. Redding, 68 Fed. 708 since such a provision is without (1895); Niagara F. Ins. Co. v. Fore- consideration, does not decrease the hand, 169 111. 626, 48 N. E. 830 risk, and, at the most, only tends (1897). In Mechanics', et;., Ins. Co. to the better preservation of the evi- v. Koyd, 20 Ky. L. 1538, 49 S. W. dence to show the amount of the 543 (1899), it is held that a failure loss sustained in case of fire, to comply with a provision in a pol- " Liverpool, etc., Ins. Co. v. Kear- icy in regard to the safe-keeping of ney, 180 U. S. 132 (1901). § 315 THE SXANDARD POLICT. 328 the hurry aad confusion incident to removing the books the inventory was either left in the safe and destroyed, or was otherwise lost, and could not be produced after the fire. The other books were saved and exhibited to the insurer as required. It was not claimed that the loss of the inventory was due to fraud or bad faith, and the court charged the jury that the books which had been kept and which were produced on the trial were a substantial compliance with the terms of the policy. The company claimed a literal compliance with the words of the policy, and the court said: "It will be observed that the insured had the right to keep the books and inventory either in a fireproof safe or in some secure place not exposed to a fire that would destroy the house in which their business was conducted. But was it intended by the parties that the policy should become void unless the fireproof safe was one that was absolutely sufficient against every 'fire that might occur? We think not. If the safe was one such as was commonly used, and such as, in the judgment of prudent men in the locality of the property insured, was sufficient,, that was enough within the fair meaning of the words of the policy. It can not be supposed that more was intended. If the company contemplated the use of a perfect safe in all respects and capable of withstanding any fire, how- ever extensive and fierce, it should have used words expressing that thought. Nor do the words 'in some secure place not exposed to a fire which would destroy the house where said business is carried on' nec- essarily mean that the place must be absolutely secure against every fire that would destroy such house. If, in selecting a place in which to keep their books and last inventory, the insured acted in good faith and with such care as prudent men ought to exercise under like cir- cumstances, it could not be reasonably said that the terms of the policy relating to that matter were violated." "A 'fireproof safe, in view of the situation of a small country mer- chant, and his needs for and employment of a safe, can only mean the usual fireproof safe used by the country generally, — a safe com- posed of incombustible materials and fitted to protect to the usual extent and in the ordinary way, books and papers deposited therein, and not that rare and costly structure, if, indeed, such there be, which is capable of withstanding successfiilly the action of fire altogether, and of preserving its contents from harm absolutely ."°° Where the insured kept a complete set of books and inventories at " Sneed v. British, etc., Assur. Co., 73 Miss. 279 (1895). 329 EXHIBITION OF PROPERTY — EXAMINATION 01" PARTY. § 315 his dwelling house, located about seventy yards from the insured storehouse, all of which were produced for inspection, except a small cashbook which was accidentally left in the storehouse on the night of the fire, it was held that there was not a forfeiture of the policy, although it provided that he should keep his books, including his cash- book, in a place not exposed to a fire which would destroy the build- ing."" A policy contained a provision that the insured "shall take an inventory of stock hereby insured at least once a year during the life of this policy, and shall keep books of account, strictly detailing purchases and sales of said stock, and shall keep such inventory securely locked in an iron safe during the hours that the said store is closed for business. Failure to observe these conditions shall work a forfeiture of all claims under this policy." Keference was also made to the application, which was made a part of the policy. It was held that these provisions, which should be construed together, required the insured to take an inventory some time within a year after the policy was issued and thereafter to keep books as provided. The agreement to keep books was a promissory warranty, and failure to observe it rendered the policy voidable; and if the company knew that the condition was not being complied with, and took no steps to forfeit the policy, it could not, after the loss, be heard to say that by reason of the failure to observe the condition the policy was void."i Where the insured agreed to keep the books connected with his sa- loon business in a fireproof safe or other secure place "at night," and at all times when the place was not actually open for business, he can not recover on the policy where the books were kept under the counter instead of in the safe, although the place was open all night.^"^ The provision requiring the books to be kept in a fireproof safe is waived by the statement of an adjuster that the insured would have to get duplicates for certain invoices in order to make the required proofs of loss, whereby the insured was induced, at considerable expense and trouble, to secure such duplicates.^"* ""Niagara F. Ins. Co. v. Heflin ''" Corson v. Anchor, etc.', Ins. Co. (Ky.), 60 S. W. 393 (1901). (Iowa), 85 N. W. 806 (J.901). In M> Hanover P. Ins. Co. v. Dole, 20 Northwestern, etc., Ins. Co. v. Mize Ind. App. 333, 50 N. E. 772 (1898). (Tex. Civ. App.), 34 S. W. 670 ""Southern Ins. Co. v. Parker, (1896), it was held that the knowl- 61 Ark. 207, 32 S. W. 507 (1895). edge of an agent who states to the § 316 THE STANDAED POLICY. 330 XVIII. Arbitration of the Amount of Loss. In the event of disagreement as to the amount of loss the same shall, as above provided, be ascertained by two competent and disin- terested appraisers, the insured and this company each selecting one, and the two so chosen shall first select a competent and disinterested umpire; the appraisers together shall then estimate and appraise the loss, stating separately sound value and damage, and, failing to agree, shall submit their differences to the umpire; and the award in writing of any two shall determine the amount of such loss; the parties thereto shall pay the appraiser respectively selected by them and shall bear equally the expenses of the appraisal and umpire.'^"* amount of such loss." Iowa adds, "and unless such proofs, declara- tions and certificates are produced, and examinations had and apprais- als permitted, and an award made, when this company has elected to appraise, the loss shall not be pay- able," it being also provided that an appraisal shall be had "upon written notice to the insured of the company's election to determine the amount of the loss by appraisal." The Wisconsin clause is as follows: "In the event of disagreement in the amount of the loss the same shall, as above provided, be ascer- tained by two competent and dis- interested appraisers, who shall be residents of this state, unless otherwise agreed by the parties hereto, the insured and this com- pany each selecting one within thirty-five days after the mailing of proof of loss to the company, as herein stated, and in case either party fails to select an appraiser within such time the other ap- praiser and the umpire selected, as hereinbefore provided, may act as a board of appraisers, and whatever award they shall find shall be as binding as though the two ap- praisers had been chosen, and the two so chosen shall first select a insured that it will not be necessary for him to have an iron safe, or to keep a set of books, although the policy contained such a provision, is not binding on the company where the policy also provides that no agent shall have power to waive any of the provisions of the policy except in writing attached to the policy. In German Ins. Co. v. Ams- baugh, 8 Kan. App. 197, 55 Pac. 481 (1898), it was held that an inven- tory of goods taken six and one- half years before the fire, shown to be a correct inventory as to quanti- ties and values, is competent evi- dence in connection with books of account duly kept and proven to show purchases and sales of goods made from the day of the inventory to the fire. It further appeared that other evidence tending to show the value of the stock had been de- stroyed by the fire. •"See also, XX. Time Within 'Which Loss is Payable, p. 357. This provision is found in the standard policies of New York, New Jersey, Rhode Island, Connecticut, Louisiana,. South Dakota, North Dakota and North Carolina. The Michigan provision provides that the award of the appraisers shall be "prima facie evidence of the 331 AEBITKATION. § 316 § 316. Disagreement. — ^Before this provision of the policy can be invoked it must appear that there is a real disagreement between the Insurer and the insured.^"^ Hence, a mere general objection to a state- ment of the loss without pointing out the items excepted to will not constitute a failure to agree, and will not make a case for arbitra- tion.'-"" A provision making an award a condition precedent to the commencement of an action upon the policy presupposes a failure to agree and consequent arbitration.^"^ Where the company, after competent and disinterested um- pire, provided that if after five days the two appraisers can not agree on such umpire, the presiding judge of the circuit court wherein the loss occurs may appoint such an umpire upon application of either party in writing by giving five days' notice thereof in writing to the other party. Unless within thirty days after proof of the loss has been mailed to the company, either party, the assured or the company, shall have notified the other in writing that such party demands an ap- praisal, such right of appraisal shall be waived." The remainder of the clause follows the New York form. The Massachusetts and Maine poli- cies provide that: "In case of loss under this policy, and a failure of the parties to agree as to the amount of the loss, it is mutually agreed that the amount of such loss shall be referred to three disinter- ested men, the company and the as- sured each choosing one out of three persons, to be named by the other, and the third being selected by the two so chosen; the award in writ- ing by a majority of the referees shall, be conclusive and final upon the parties as to the amount of the loss or damage, and such reference, unless waived by the parties, shall be a condition precedent to any right of action in law or equity to recover for such loss; but no per- son shall be chosen or act as referee against the objection of the other party, who has acted in like capac- ity within four months." The provision in the Minnesota standard policy is similar to the above, but does not permit an appraisement in cases of total loss on buildings. The New Hampshire policy provides that: "In case difference of opin- ion shall arise as to the amount of any loss under this policy other than on buildings totally destroyed, un- less the company and the assured shall, within fifteen days after no- tice of loss, mutually agree upon referees to adjust the same, either party may, upon giving written no- tice to the other, apply to a justice of the supreme court, who shall ap- point three referees, one of whom shall be thoroughly acquainted with the kind of property to be con- sidered, and their award in writing, after proper notice and hearing, shall be final and binding on the parties. The referees' fees shall be equally divided between the com- pany and the insured." ''» American P. Ins. Co. v. Stuart (Tex.), 38 S. W. 395 (1896). '"Hickerson v. German, etc., Ins. Co., 96 Tenn. 193, 32 L. R. A. 172 (1896). "" Vangindertaelen v. Phenix Ins. Co., 82 Wis. 112 (1892); Boyle v. § 317 THE STANDARD POLICY. 332 receiving proofs of loss, disputes the amount and demands an arbitra- tion, there is a disagreement within the meaning of the provision.^"^ A disagreement merely as to the basis of estimating the loss does not bring the arbitration provision into effect.^"' § 317. Validity of provision. — This form of policy provides for the determination of the amount of the loss by arbitrators. As thus re- stricted it is almost universally held valid and binding upon the par- ties. ^^^ Nebraska seems to be the only state in which a provision for arbitration of this character is not sustained.^^^ The effect of an arbitration under this provision does not determine the liability of the eompany.^^^ It is equally well settled that the parties can not, by contract, oust the jurisdiction of the courts; and a provision which requires the submission of any and all differences between the parties to arbitration is invalid and unenforceable.^^* A provision for arbitration as thus limited furnishes a speedy, convenient and inexpensive mode of ascertaining the loss or damage of the insureH if he is entitled to recover; and it is not open to the objection that it tends to oust the courts of their rightful jurisdiction. Under it the right of recovery is left open, and the appraisal serves only to liquidate and determine the Eimount of the loss or damage. Provisions for arbitration should not be subjected to a narrow or technical construction, but should be construed liberally in favor of Hamburg, etc., Ins. Co., 169 Pa. St. etc., Ins. Co., 138 Mass. 572 (1885); 349 (1895); Farnum v. Phoenix Ins. Straker v. Phenix Ins. Co., 101 Wis. Co., 83 Cal. 246 (1890); Chapman v. 413, 77 N. W. 752 (1898); Hobklrk Rockford Ins. Co., 89 Wis. 572, 28 v. Phcenlx Ins. Co., 102 Wis. 13, 78 L, R. A. 405 (1895). N. W. 160 (1899). "sphcEnix Ins. Co. v. Carnahan, '"National, etc.. Ace. Ass'n v. 63 Ohio St. 258, 58 N. E. 805 (1900). Burr, 44 Neb. 256 (1895). See ^tna F. Ins. Co. v. Davis (Ky.), "= Smith v. Herd (Ky.), 60 S. W. 55 S. W. 705 (1900). 841, 1121 (1901). *™ Virginia, etc., Ins. Co. v. Can- "= Supreme Council v. Forsinger, non, 18 Tex. Civ. App. 588, 45 S. W. 125 Ind. 52, 9 L. R. A. 501 (1890); 945 (1898).- Fox v. Masons', etc., Ace. Ass'n, ™ Scott V. Avery, 5 H. L. Cas. 96 Wis. 390, Woodruff Ins. Cas. 811 (1856); Fischer v. Merchants' 197 (1897); Raymond v. Farmers', Ins. Co.. (Me.), 50 Atl. 282 (1901); etc., Ins. Co., 114 Mich. 386 (1897); Phoenix Ins. Co. v. Carnahan, 63 Scott v. Avery, 5 H. L. Cas. 811 Ohio St. 258, 58 N. B. 805 (1900); (1856); Chapman v. Rockford Ins. Hamilton v. Home Ins. Co., 137 IT. Co., 89 Wis. 572, 62 N. W. 422 S. 370 (1890); Reed v. Washington, (1895). 333 AEBITEATION. § 317 the insured. "It should be noted that the condition alleged to be violated in this ease applies only after the capital fact of a loss. The object of the provision was to prescribe the manner in which an ac- crued loss was to be adjusted and ascertained. The liability of the de- fendant having become fixed by the happening of the event upon which the contract was to mature, conditions which prescribe meth- ods and formalities for ascertaining the extent of it or for adjust- ing it, are not to be subjected to any narrow or technical construc- tion, but construed liberally in favor of the insured."^^* The rules governing arbitration apply to mutual as well as other insurance companies.^^*^ A by-law of a mutual insurance association which requires the presentation of claims to^ certain officers of the company, and, if their decision is adverse to the claimant, that an appeal must be taken to the governing body, whose decision shall be final, is valid in so far as the provision for appeal is concerned, and void so far as it attempts to oust the jurisdiction of the courts. The claimant, after having taken the required appeal to the governing body, may maintain an action in the courts to enforce his claim.^'^' Where the constitution of a mutual benefit association provided that "all questions, whether of law or of ■ fact, appertain to the sole jurisdiction of this lodge and the authorities of this order, and their decision in the premises shall be binding," the supreme court of California said:^^° "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 strict- ness with which they have been applied to corporations organized for profit.^" In an ordinary case I should be loath to hold that a man can effectually waive his right to sue in a court of law before his right of action has arisen, or that he can in advance agree to an ^* Porter v. Traders' Ins. Co., 164 "' Supreme Council v. Forslnger, N. Y. 504, 52 L. R. A. 424 (1900). 125 Ind. 52, 9 L. R. A. 501 (1890). See Montgomery v. American, etc., "° Robinson f. Templar Lodge, 117 Ins. Co., 108 Wis. 146, 84 N. W. 175 Cal. 370, 49 Pac. 170 (1897). (1900), and Meyer v. Sun Ins. Office, "'Rood v. Railway, etc., Ass'n, 31 176 Pa. St. 579 (1896) [different Fed. 62 (1887); Van Poucke v. provisions relating to arbitration Netherland, etc., Soc, 63 Mich. 378 and appraisal construed]. (1886); Canfield v. Great Camp, etc., "*aFox V. Masons', etc.. Ace. 87 Mich. 626, 24 Am. St. 186 (1891). Ass'n, 96 Wis. 390, 71 N. W. 363, Woodruff Ins. Cas. 197 (1897). § 318 THE STANDAED POLICY. 334 arbitration, but it has been so held with reference to these mutual benefit societies, and, with reference to them, I think the regulation reasonable. But, even if this view were not correct, there can be no doubt of the proposition that he must first exhaust all the remedies afforded within the order before he can maintain an action at law. No such fact is averred in the complaint, and, as I understand the record, although previous application had been made for the benefits 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."^^* § 318. Where there is a total loss. — All provisions in a policy in conflict with a valued policy statute are void,. and hence a provision for the appointment of arbitrators in case of loss is ineffective where the property is wholly destroyed. In such case there can be nothing which can properly be submitted to arbitjration.^^' Where the total insurance, exclusive of the foundation of the building, is less than its insurable value as designated by the insurer in the policy, it is hot, under the provision of the Minnesota valued policy law, necessary for the insured to submit to arbitration, although the foundation is included in the description of the property.^"" By consenting to arbitrate the amount of the loss in pursuance of a provision in a policy, the insured is not precluded in a subse- quent suit on the policy from claiming to recover for a total loss if the evidence sustains the claim. In a recent case in Ohio it appeared that the question of loss was submitted to arbitrators, and the insured being dissatisfied with the award, and claiming that there was a total loss, refused to accept the amount awarded and brought suit upon the policy. The company denied that there was a total loss, and insisted upon the provisions of the arbitration. The court .said:^^^ "The ""Levy V. Magnolia Lodge, 110 Seyk v. Millers', etc., Ins. Co., 74 Cal. 297 (1895);" Robinson v. Irish, Wis. 67, 3 L. R. A. 523 (1889); etc.. See, 67 Cal. 135 (1885). Merchants' Ins. Co. v. Stephens, 22 "•German Ins. Co. v. Eddy, 37 Ky. L. 999, 59 S. W. 511 (1900). Neb. 461, 19 L. R. A. 707 (1893). ""Ohage v. Union Ins. Co., 82 The submission to arbitration of Minn. 426, 85 N. W. 212 (1901). the amount of the loss is not a "^ Pennsylvania P. Ins. Co. v. waiver of the benefits of the statute Drackett, 63 Ohio St. 41, 57 N. E. making the amounts stated in the 962 (1900). policy the measure of damages: 335 ARBITRATIOIT. § 319 section referred to requires a company insuring any building or struc- ture against fire to cause such structure or building to be examined by an agent, who is required to make a full description of the building or structure and fix its insurable value, and then provides that in the ab- sence of any change increasing the risk without its consent, or any intentional fraud on the part of the insured, in case of total loss, the whole amount stated in the policy on which it receives premiums shall be paid by the company, and in case of a partial loss, the full amount of such loss shall be paid. Statutes similar in their pro- visions are common to many of the states of the Union, and it is gen- erally agreed that they rest on grounds of public policy — the pre- vention of the mischief incident to overinsurance, — and that the insured can not be held to a waiver of them.^^* It does not neces- sarily follow from this that where there is a partial loss it may not be ascertained by arbitrators; and where there is a clause in a policy requiring arbitration the parties may be required to conform to it. But, where the insured insists that the loss is total, the agreement to arbitrate, or an arbitration had fixing the amount, will not preclude him from bringing a suit as for a total one; and in such cases, if he establishes that there was a total one, he is entitled to recover the full amount of the policy, notwithstanding the award of the arbitrators was to the contrary, and fixed a less amount as the measure of the loss. But, on the other hand, should he fail in establishing a total loss, the amount of the recovery will be limited to the amount of the award where there was no fraud in obtaining it." § 319. Demand for arbitration, — Where arbitration is provided for on the request of one of the parties, it becomes imperative only after such request is made.^^° If neither party avails himself of the right to arbitrate, it is waived, and an action may be maintained upon the "* Insurance Co. v. Leslie, 47 Ohio ™ In Davis v. Anchor, etc., Ins. St. 409, 24 N. E. 1072 (1890); Seyk Co., 96 Iowa 70, 64 N. W. 687 (1895), V. Millers', etc., Ins. Co., 74 Wis. 67, the policy provided for arbitration 41 N. W. 443 (1889); St. Clara, etc., at the "written request of either Academy v. Delaware Ins. Co., 98 party," and that no action should Wis. 257, 73 N. W. 767 (1898); be brought until after the award. Havens v. Germanla F. Ins. Co., 123 Ii was held that arbitration was not Mo. 403, 27 S. W. 718, 26 L. R. A. a condition precedent to an action 107 (1894); White v. Connecticut, in the absence of a request. But etc.,. Ins. Co., 4 Dill. (C. C.) 177 see Probst v. Insurance Co., 64 Mo. (1877); German P. Ins. Co. v. Eddy, App. 484 (1896); Murphy v. North 3 i Neb. 461, 54 N. W. 856, 19 L. R. A. British, etc., Ins. Co., 61 Mo. App. 707 (1893); Reilly v. Franklin Ins. 323 (1895). Co., 43 Wis. 449 (1877). § 319 THE STANDAED POLICY- 33G poliey.^^^ Policies contain different provisions in this respect. Un- der the New York form either party has the right to require an ap- praisal when there is a disagreement as to the amount of the loss. It is not the duty of the insured to initiate an appraisal, as an appraisal is a condition precedent to recovery only when one "has been re- quired" by the insurer.^^^* In Kentucky it was said that the in- sured need not plead or prove performance of the provision for arbitration, as it is the duty of the company to propose arbitra- tion in case of disagreement.^"^ In Iowa, provisions in a policy that an appraisal by arbitrators shall be made if there be a disagree- ment as to the loss, and "that the loss shall not be payable until sixty days after notice and satisfactory proofs of loss have been given, including an award by appraisers when an appraisal has been re- quired, and that no action on the policy can be maintained without full compliance by the assured with all the foregoing requirements," does not make an appraisal a condition precedent to the right to sue where the company makes no demand therefor.^^^ In a Massachu- setts case it appeared that the policy provided for a submission to ar- bitrators, in case of a loss, "at the written request of either party," and that no suit or action could be maintained until after such award. It was held that no right of action existed prior to an arbi- tration or its waiver, and that the policy could not be construed as making a written request for arbitration necessary, in case of a dif- ference as to the amount of the loss, in order to prevent the immediate institution of an action. The court recognized the right of either party to an arbitration, but, on the facts and the language of the pol- icy, held that an arbitration, not having been demanded, must be held to have been waived.^"' ■M Nurney v. Fireman's Fund Ins. Germania F. Ins. Co. v. Stewart, 13 Co., 63 Mich. 633, 6 Am. St. 338 Ind. App. 627, 42 K. E. 286 (1895); (1§86); Garrettson v. Merchants', National Home, etc., Ass'n v. Dwell- etc, Ins. Co. (Iowa), 86 N. W. 32 ing House Ins. Co., 106 Mich. 236, (1901). 64 N. W. 21 (1895); Davis v. Atlas ^a. Chainless Cycle Mfg. Co. v. Se- Assur. Co., 16 Wash. 232, 47 Pac. curity Ins. Co. (N. Y.), 62 N. B. 392 436, 885 (1896); Sun, etc.! Ins. Co. (1901) ; Silver v. Assurance Co., 164 v. Crist, 19 Ky. L. 305, 39 S. W. 837 N. Y. 381, 58 N. E. 284 (1900). (1897); Stephens v. Union Assur. "'Sun, etc., Ins. Co. v. Crist, 19 Soc, 16 Utah 22, 67 Am. St. 595 Ky. L. 305, 39 S. W. 837 (1897). (1897). ^Lesure Lumber Co. v. Mutual '^Hutchinson v. Liverpool, etc., F. Ins. Co., 101 Iowa 514, 70 N. W. Ins. Co., 153 Mass. 143, 10 L.R. a! 761 (1897). To the same effect, see 558 (1891). annotated. 337 AEBITEATIOIT. § 319 In a well considered ease in the circuit court of appeals"" the insur- ance company contended that it was the duty of the insured to take the initiative and demand an arbitration ; but the court said : "Bach party is entitled to demand a reference, but neither can compel it, and neither has the right to insist that the other shall first demand it, and shall forfeit any right by not doing so. If the company demands it, and the insured refuses to arbitrate, his right of action is suspended until he consents to an arbitration; and if the insured demands an arbitration, and the company refuses to accede to the demand, the insured may maintain a suit on the policy notwithstanding the language of the twelfth section of the policy; where neither party demands an arbitration, both parties thereby waive it. The clause is to be construed the same as if it read, 'upon the request of either party.' These words, or their equivalent, are eommionly found in similar clauses in policies of fire insurance, and they are necessarily and plainly implied in this policy. This is the interpretation placed upon the policy of a defendant in error, identical with the one here in suit, by the supreme court of Montana. That court, constru- ing a clause in a policy declaring that no suit thereon should be sustainable until after an award, says this provision 'will come into action to bar the plaintiff's recovery where he has refused to arbitrate after a matter for arbitration arose, and the same was seasonably sought in conformity with the terms of the policy.' " Where the policy provided that, in the event of a disagreement as to the amount of damages, the matter should, "at the written request of either party, be submitted to the judgment of two competent per- sons, to be mutually appointed by the assured and the company," and further, that no suit should be sustainable in a court of law or chan- cery until after an award should have been obtained in the manner provided, the court said : "Arbitration becomes imperative only after a written request for one has been made. The request, as it stands in this policy, is optional with either party, and, neither of them having availed themselves of the right to arbitrate, it must be deemed waived by both, and in such case the plaintiff was left to the mode of redress provided by law.""^ So, where the policy provided for ""Kahnweiler v. Phenix Ins. Co., "•Nurney v. Fireman's Fund Ins. 67 Fed. 483, 14 C. C. A. 485 (1895); Co., 63 Mich. 633, 30 N. W. 350 approved in Western Assur. Co. v. (1886). Decker, 98 Fed. 381, 39 C. C. A. 383 (1899). 22— Elliott Ins. § 330 THE STANDARD POLICY. 338 arbitration "at the written request of either party," the court said i'-'^ "It is either optional and voluntary, or the duty rests upon each alike to make such written request, and in this case both parties have neglected such duty alike, and neither party can complain of the neglect of the other." So, in Pennsylvania, it was said:^'' "It was the right of either party to demand an arbitration, and it was the right of either party to waive it; and the defendant, having made no such demand, must be presumed to have waived it." The party entitled to arbitration must make his demand within a reasonable time. Where no demand was made within five months after loss, the right was held to have been waived.^'* In Ohio, it was said:^^^ "It will be observed that this policy imposes no obligation on the insured to furnish an award of appraisers except 'when appraisal has been re- quired.' That requirement certainly should be made within a rea- sonable time after proof of loss, and, if not so made before suit, is no obstacle to the maintenance of the action. In other words, a de- mand by the insurer for an appraisal within a reasonable time after proof of the loss has been furnished is, under such a policy, a condi- tion precedent to the right to require the insured to furnish an award of appraisers." Where either party is entitled to arbitration upon de- mand, the presentation of a builder's affidavit as to the amount of the loss, and a waiver by the company of formal proofs, does not constitute such a demand.^^' § 320. Condition precedent. — The parties may agree that no right of action shall arise against the insurer until the amount of the loss has been determined by arbitrators. Hence, where the policy con- tains a provision to the effect that "such reference, unless waived by the parties, shall be a condition precedent to any right of action in ™ Phoenix Ins. Co. v. Badger, 53 Stewart, 13 Ind. App. 627, 42" N. E. Wis. 283, ,10 N. W. 504 (1881). 286 (1895); National Home, etc., '»^ Wright V. Susquehanna, etc., Ass'n v. Dwelling House Ins. Co., Ins. Co., 110 Pa. St. 29, 20 Atl. 716 106 Mich. 236, 64 N. W. 21 (1895); (1885). Davis v. Atlas Assur. Co., 16 Wash. •"Gere v. Council Bluffs Ins. Co., 232, 47 Pac. 436 (1897); Sun, etc., 67 Iowa 272 (1885). Ins. Co. v. Crist, 19 Ky. L. 305, 39 ™(Jrand Rapids F. Ins. Co. v. S. W. 837 (1899). Finn, 60 Ohio St. 513, 54 N. B. 545 »=° Hutchinson v. Liverpool, etc., (1899); Lesure Lumber Co. v. Mu- Ins. Co., 153 Mass. 143, 10 L. R. A. tual F. Ins. Co., 101 Iowa 514 558 (1890). (1897); Germanla P. Ins. Co. v. 339 ARBITRATIOIT. § 320 law or in equity to recover for such loss," no right of action exists until the condition has been complied with.^*^ But a provision for arbitration is not a condition precedent to the right to maintain an action on a policy to recover for loss thereunder, unless clearly made so by the terms of the policy.^'' If this intention does not appear the provision is simply a collateral agreement, and compliance therewith is not necessary before the bringing of an action. Arbitration under such circumstances is optional with the parties, and either may decline to arbitrate.^'' In a recent case in Iowa, Mr. Justice Ladd said:^*" "There is nothing in the policy making submission to arbitration a condition precedent to the pay- ment of the loss or to the maintenance of an action, nor can such a condition be inferred from its terms. The authorities recognize the rule, as stated by Sir George Jessel, M. E., '(1) where the action can "'Hamilton v. Liverpool, etc., Ins. Co., 136 TJ. S. 242 (1890); Gas- ser V. Sun Fire Office, 42 Minn. 315 (1890); Levlne v. Lancashire Ins. Co., 66 Minn. 138, 68 N. W. 855 (1896); Mosness v. German, etc., Ins. Co., 50 Minn. 341 (1892); Fischer v. Merchants' Ins. Co. (Me.), 50 AU. 282 (1901). "" Hamilton v. Home Ins. Co., 137 U. S. 370, Woodruff Ins. Cas. 194 (1890). ^» Grand Rapids F. Ins. Co. v. Finn, 60 Ohio St 513, 71 Am. St 736 (1899); Birmingham F. Ins. Co. V. Pulver, 126 111. 329, 9 Am. St 598 (1888); Sergent v. Liverpool, etc., Ins. Co., 155 N. Y. 349 (1898); McNally v. Phoenix Ins. Co., 137 N. Y. 389 (1893); Davis v. Atlas Assur. Co., 16 Wash. 232 (1896); National Home, etc., Ass'n"v. Dwelling House Ins. Co., 106 Mich. 236 (1895); Conti- nental Ins. Co. V. Wilson, 45 Kan. 250, 23 Am. St 720 (1891); Garrett- son V. Merchants', etc., Ins. Co. (Iowa), 86 N. W. 32 (1901); Chap- man v. Rockford Ins. Co., 89 Wis. 572, 62 N. W. 422, 28 L. R. A. 405 (1895): Phoenix Ins. Co. v. Carna- han, 63 Ohio St 258, 58 N. B. 805 (1900) [citing Old Saucellto, etc., Co. V. Commercial, etc., Assur. Co., 66 Cal. 253, 5 Pac. 232 (1884); Uhrig V. Williamsburgh, etc., Ins. Co., 101 N. Y. 362, 4 N. E. 745 (1886); Hamilton v. Home Ins. Co., 137 U. S. 370 (1890)]; Randall v. American F. Ins. Co., 10 Mont. 340, 24 Am. St 50 (1891). "" Read v. State Ins. Co., 103 Iowa 307, 72 N. W. 665, 64 Am. St 180 (1897). In Zalesky v. Home Ins. Co., 102 Iowa 613, 71 N. W. 566 (1897), the policy, after providing for arbitration, provided that "no suit or action on this policy for the recovery of any claim shall be sus- tainable in any court of law or equity until after full compliance by the insured with all the forego- ing requirements." The court said: "Nor, in the absence of statute pro- visions to the contrary, can it be doubted that, under a policy con- taining provisions like the one In- volved In this action, an appraise- ment is a condition precedent to the bringing of an action on the policy." (Citing numerous cases.) § 320 THE STANDARD POLICY. 340 only be brought for the sum named by the arbitrator; (2) where it is agreed that no action shall be brought until there has been an arbitration, or that arbitration 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 de- fendant to bring an action for not referring.' This court has recog- nized the right of parties to bind themselves to make payment of a sum to be fixed or estimated by an arbitrator or third person. Also, the right to make arbitration a condition precedent to the maintenance of an action. ' A mere provision in the policy, however, that, in event of a disagreement, the amount of the damage shall be ascertained by arbitrators, will not prevent the assured from main- taining an action, unless arbitration is made by the terms of the policy or necessary inference therefrom a condition precedent. In such a ease the agreement to arbitrate is collateral to the main pur- poses of the policy, — an independent agreement, — a breach of which, while it will support a separate action, can not be pleaded in bar to a suit on the principal contract." In a later case, the same court said :^*^ "This policy does not in express terms prohibit the bringing of an action until an arbitration is had; but it does provide that, when the parties can not agree, the loss shall be determined by arbitration, and that the sum for which the company is liable 'shall be payable sixty days' thereafter; and in another place it provides that 'until sixty days after the * * * award and appraisal herein required shall have been rendered, the loss shall not be payable.' These provisions of the policy clearly imply that the loss is not due or payable until sixty days after the appraisement or award is returned. If the loss is not payable until such time, it is equally clear that suit can not be maintained until sixty days after the award is returned. Under the wording of this policy, we think that an appraisement and an award was a prerequisite to the main- tenance of an action unless it was waived, or submission and award was prevented by the acts of the defendant." In a leading case in the supreme court of the United States, it was held that a provision in a policy, that "in case differences shall arise touching any loss or damage after proof thereof has been re- >" George Dee & Sons Co. v. Key City F. Ins. Co., 104 Iowa 167, 73 N. W. 594 (1897). 341 AEBITRATION. § 330 eeived in due form, the matter shall, at the written request of either party, be submitted to arbitrators, whose award in writing shall be binding on the parties as to the amount of such loss or damage, but shall not decide the liability of the company under this policy," can not be pleaded in bar of an action on the policy unless it is fur- ther provided that no such action shall be brought until after the award.^*' Where the provision was that "no suit or proceeding at law or in equity shall be brought to recover any sum herein, unless the same has been referred to the arbitration of just and competent men," and there was no reference and no request for the same, it was said:'" "The promise is not to pay the award, but a sum named, and the proviso does not make- an award a condition precedent to the promise to pay, but to the mode of enforcing that promise. It is well settled that such an agreement is not a bar to an action on the promise." The Kew Hampshire form, which provides for a compulsory refer- ence, does not require arbitration as a condition precedent to an action on the policy, although a statute permits a suit to be brought by the insured if not satisfied with the adjustment made by the in- surer.^** Even though the provision for arbitration is made a condition prece- dent to the bringing of an action by the insured, he can not be deprived of his right of action by the misconduct of the insurance company. Thus, a refusal by the arbitrator appointed by the company to appoint an umpire, which virtually amounts to a refusal to proceed with the appraisal, will prevent the company from objecting that the action was brought before the appraisement was concluded.^*' So, a party whose duty it is to choose an arbitrator must choose one who will act with reasonable promptness in naming an umpire, or, on his failure to do so, replace him with another; A party to a controversy who is without fault can not be made to suffer through the inaction of the other party.'** '" Hamilton v. Home Ins. Co., 137 F. Ins. Co., 70 N. H. 251, 47 Atl. 91 U. S. 370 (1890). (1900). '" Badenfeld v. Massachusetts, etc., '" Brock v. Dwelling House Ins. Ace. Ass'n, 154 Mass. 77, 13 L. R. A. Co., 102 Mich. 583, 26 L. R. A. 623 263 (1891); Reed v. Washington, (1894). etc., Ins. Co., 138 Mass. 572 (1885), ""Read v. State Ins. Co., 103 Iowa and cases cited. 3u7, 64 Am. St. 180 (1897). '"Franklin v. New Hampshire § 321 THE STANDARD POLICY. 341' § 321. Revocation. — ^A party may not at his own option or volition revoke an arbitration or submission clause any more than he may the other provisions of the contraet.^*^ But a contrary view obtains in Pennsylvania in eases where the persons who are to make the ap- praisal or award are not named in the contract, but are to be chosen thereafter by the parties.^** § 322. Invalidity of the award. — ^An award is binding upon the parties, unless it is invalid, and the burden of proof is upon the party asserting its invalidity.^*' Before an award made by arbitra- tors can be set aside and declared null and void, it must clearly appear that the arbitrators who made the award were guilty of misconduct, partiality or fraud.^^" In an action brought to set aside an award and appraisement, made under the usual provision in the policy, it was said:^^^ "An agree- ment of appraisal is a contract. Appraisers who make an award un- der such an agreement are presumed to have acted in accordance with all the terms of the contract, and the burden of proof is on those who attack their award to establish the contrary by. convincing evidence. Every reasonable intendment and presumption is in favor of the award, and it should not be vacated unless it clearly appears that it was without authority, or was the result of fraud or mistake, or of the misfeasance or malfeasance of the appraisers." Hence, where there are two methods by which a result may have btien reached by arbitrators, one of which was legal and . authorized, and the other illegal and unauthorized, the presumption is that the legal method was foUowed.^^^ "' Chapman v. Rockford Ins. Co., "" Barnard v. Lancashire Ins. Co., 89 Wis. 572, 62 N. W. 422, 28 L. R. 101 Fed. 36, 41 C. C. A. 170 (1900); A. 405 (1895); American, etc., Ins. Karthaus v. Ferrer, 1 Pet. (U. S.) Co. V. Landau (N. J. Bq.), 49 Atl. 22' (1828); Hartford F. Ins. Co. v. 738 (1901). Bonner Merc. Co., 15 U. S. App. 134, i« Commercial, etc., Assur. Co. v. 5 C. C. A. 524, 56 Fed. 378 (1893); Hocking, 115 Pa. St. 407 (1886); Blood v. Shine, 2 Fla. 127 (1848); Mentz V. Armenia F. Ins. Co., 79 Liverpool, etc., Ins. Co. v. Goehring, Pa. St. 478, 21 Am. Rep. 80 (1875). 99 Pa. St. 13 (1881); Tank v. Roh- "" Springfield, etc., Ins. Co. v. weder, 98 Iowa 154, 67 N. W. 106 Payne, 57 Kan. 291, 46 Pac. 315 (1896); McDonald v. Arnout, 14 (1896). III. 58 (1852); Colder v. Mueller, 22 "«' Hartford F. Ins: Co. v. Bonner 111. App. 527 (1887). Merc. Co., 44 Fed. 151, 11 L. R. A. «= Barnard v. Lancashire Ins. Co., 623 (1890). 101 Fed. 36, 41 C. C. A. 170.(1900). 343 ARBITRATION'. § 323 It is the duty of eacli party to act in good faith to accomplish the appraisement in the way provided by the policy. If either acts in bad faith, so as to defeat the real object of the clause, it absolves the other from compliance therewith.^^* Where, after the arbitrators disagree, '"Uhrig V. Williamsburgh, etc., Ins. Co., 101 N. Y. 362 (1886); Chainless Cycle Mfg. Co. v. Security Ins. Co. (N. Y.), 62 N. B. 392 (1901) ; Stemmer v. Scottish Ins. Co., 33 Ore. 65, 53 Pac. 498 (1898), contains a full discussion of the matter of mis- conduct of arbitrators. In the course of the decision the court said: "Plaintiff at the time of Fisher's appointment knew that he resided in California, and if his residence tended to render him in- eligible, a failure to except to him must necessarily be deemed a waiver of any objection on that ground. * * * It is maintained that the inadequacy of the award is so gross as to warrant the court in setting it aside. In Bradshaw v. Agri- cultural Ins. Co., 137 N. Y. 137, 32 N. E. 1055 (1893), the court having found that an award made by ap- praisers was $989.61 less than the amount of the damage sustained by a fire, and that an appraiser selected hy the insurance company, whom it falsely represented to the insured as an impartial person, was not dis- interested, set aside the award; but this result must have been reached as a consequence of the prejudice of the appraiser instead of the in- adequacy of the award, or perhaps the combined elements of prejudice and inadequacy afforded the reason for the decree rendered. If an award is adequate, the assured could not be injured thereby, and hence it would seem that a court of equity would be powerless to set it aside, however prejudiced the appraisers may have been. In the absence of fraud or misconduct on the part of the appraisers in the discharge of their duties, their determination is final and conclusive, the rule being that an award deliberately and hon- estly made will not be set aside merely for excess: Nutter v. Tay- lor, 78 Me. 424, 6 Atl. 835 (1886); Port Huron, etc., R. Co. v. CaUanan, 61 Mich. 22, 34 N. W. 678 (1886); Goddard v. King, 40 Minn. 164, 41 N. W. 659 (1889); Ellicott v. Coffin, 106 Mass. 365 (1871); Davis v. Henry, 121 Mass. 150 (1876); Un- derbill V. Van Cortlandt, 2 Johns. Ch. (N. Y.) 339 (1817). The rule is quite general that the. exclusion of pertinent and material testimony by the appraisers is usually fatal to the award: Mosness v. German, etc., Ins. Co., 50 Minn. 341, 52 N. W. 932 (1892); Van Cortlandt v. Under- bill, 17 Johns. (N. Y.) 405 (1819); Canfield v. Watertown F. Ins. Co., 55 Wis. 419, 13 N. W. 252 (1862); Citizens' Ins. Co. v. Hamilton, 48 111. App. 593 (1892); Hart v. Ken- nedy, 47 N. J. Eq. 51, 20 Atl. 29 (1890). An exception to this rule seems to be that, if the persons se- lected' as appraisers possess pecul- iar skill or knowledge concerning the subject-matter, and it appears that the parties to the submission intended to rely on such skill or knowledge, the appraisers will be justified in refusing to hear evi- dence: Hall V. Norwalk F. Ins. Co., 57 Conn. 105, 17 Atl. 356 (1889); but however this may be, it is ad- mitted that neither of said apprais- ers possessed any peculiar skill or knowledge." § 323' THE STANDARD POLICY. 344 the one appointed by the insured refuses to act further, the insured should at once appoint another, and if he fails to do so, he is bound by the award of the umpire and the other appraiser.^^* The tribunals provided for by the different forms of policies differ in their organ- ization, and hence permit different methods of procedure. The New York form provides that two disinterested appraisers be selected by the parties and a competent and disinterested umpire be selected by the appraisers. The umpire takes no part in the matter until the issue with reference to which there is a disagreement is submitted to him by the appraisers. Under the Massachusetts forni, the company and the insured each choose one out of three persons to be named by the other, and the third is selected by the two so chosen. The three are known as referees, and act together in the considera- tion of all matters submitted to them. An umpire may or may not be an arbitrator, depending upon the language of the provision, A technical umpire is one who determines the whole dispute as if he had been originally appointed sole arbitrator. A third arbitrator must act with the others throughout the hearing and simply be. one of a majority. The Minnesota form contempilates and provides for a board of referees, to be made up of disinterested and impartial men, chosen for their ability and fairness. Such a board is a qiLasi-caait and is governed by the rules applicable to common law arbitrations. Where two of the referees proceed to act together privately, col- lecting information and examining witnesses without regard to the third referee, and finally making up the award without reference to him, and where evidence is received by the full board without afford- ing the parties sworn an opportunity to be present in person or by counsel, such conduct will invalidate the award. "While allowed rea- sonable freedom personally to inspect the ruins of the fire and the debris and remnants, and the damaged goods, for the purpose of apply- ing their knowledge in considering the evidence, the inquiry must be conducted by the board in the usual manner of receiving evidence, and the examination of witnesses must be conducted in the presence of the interested parties and their counsel, subject to the tests of cross- examination.^°° "" American, etc., Ins. Co. v. Lan- capacity, and must be free from bias dau (N. J. Eg.), 49 Atl. 738 (1901). in favor of either party: Hickerson ^ Christiansen v. Norwich F. Ins. v. German, etc., Ins. Co., 96 Tenn. Co. (Minn.), 88 N. W. 16 (1901). An 193, 32 L. R. A. 172 (1896). As to appraisal* acts in a ffMosi-judicial what is meant by the term "dis- 3i5 AEBITEATION. § 322 In a recent case in Maryland the court said :"' "Independently of the distinct requirement of the policy, the law would require com- bined action by the appraisers who were selected by the parties. They occupied the position of arbitrators, and with respect to the duties of arbitrators the law is fully settled. 'AH must be present through- out each and every meeting, equally whether the meeting be for the hearing of evidence, or arguments of the parties, or for consultation or determination upon the award. The disputants are entitled to the exercise of the judgment and discretion, and to the benefit of the views, arguments, and influence of each one of the persons whom they have chosen to judge between them; and they are entitled to these not only in the award, but at every stage of the arbitration, even where a majority are empowered to decide.' The fact that the umpire was not chosen imtil after the appraisement had been begun would not have invalidated the award. The substantial requirement was that he should decide the differences of judgment between the appraisers. The time at which he was appointed could not injure any one's rights, provided he was on hand to decide the differences between the other two. Although the direction as to appointment was not strictly followed in this particular, the variation did not interfere with any of the duties which he was appointed to perform, and was not of essential importance." An umpire who is not an arbitrator may obtain information as to certain matters from the experience of disinterested persons if his re- port correctly expresses his own judgment. Where the policy provided for an award by appraisers, and the parties subsequently, by a written instrument, provided a method of procedure for the umpire, the court said:^^^ "It is obviously competent for the parties to modify or waive any provisions of their written contract by a subsequent mutual agreement not in writing." As said by a learned author, "the cases are numerous to show that an arbitrator may submit a material question affecting the merits of the case to another, and, after hear- ing his opinion, adopt it as his own upon the credit that he gives to the credit and skill of the person to whom he refers."^"' In a leading case, where it was claimed that an arbitrator had not exercised his own interested," see Brock v. Dwelling "'Bangor Sav. Bank v. Niagara House Ins. Co., 102 Mich. 583, 26 F. Ins. Co., 85 Me. 68, 20 L. E. A. L. R. A. 623 (1894). 650 (1892). '"Caledonia Ins. Co. v. Traub, S3 •»* Russell Arbitration & Award Md. 524, 35 Atl. 13 (1896). (3d ed.) 199. § 333 THE STANDAED POLICY. 346 judgment, it was said: "That alone is not sufficient to prove the award bad, for a man may make use of the judgment of another upon whom he can depend, and the valuation of that person is his own if he chooses to adopt it."^^* But an award is avoided where the ax- hitrators act not upon their own volition and investigation, but under the direction of one of the parties.^"" A distinction is here made between an umpire and a third arbitrator. The latter must act in consultation with the other arbitrators, while an umpire may act and make up his decision alone.^°^ Where it is provided that, in the event of a disagreement between the appraisers, they shall submit their differences to an umpire chosen by them, there is implied a duty on the part of the umpire to examine and consider the appraisement of each party in arriving at his own decision, and the appraisement will be set aside where he refused to examine the estimate made by an appraiser selected by the insured, and perfunctorily accepted that of the appraiser selected by the insurer.^'^ An appraisement and estimate under the standard form of fire insurance can not be set aside for mere inadequaty.^*' The fact that an award was not made under oath, as provided in the policy, is not sufficient to justify setting -it aside.^°* So, an "'Emery v. Wase, 5 Ves. Jr. 846 then, I say, the court can not in- (1801). quire Into the charge of an over "° Hartford F. Ins. Co. v. Bonner or undervaluation, or of the reason- Merc. Co., 44 Fed. 151, 11 L. R. A. ableness or unreasonableness of the 623 (1890). award, hut it is binding and con- "' Hartford F. Ins. Co. v. Bonner elusive. • * * It is a popular, Merc. Co., 44 Fed. 151, 11 L. R. A. cheap, convenient and domestic • 623 (1890), note on Arbitration and mode of trial which the courts Award. have always regarded with liberal '"" Strome v. London Assur. Corp., Indulgence. They have never ex- 20 App. Div. (N. Y.) 571, 162 N. Y. acted from these unlettered tribu- 627, 57 N. E. 1125 (1897). nals, this rusUcum forum, the ob- "° Strome v. London Assur. Corp., servance of technical rule and for- 162 N. Y. 627, 57 N. E. 1125 (1900). mality. They have only looked to In Underbill v. Van Cortlandt, 2 see if the proceedings were honestly John. Ch. 339 (1817), Chancellor and fairly conducted, and if that Kent said: "Admitting that there appear to be the case, they have was no corruption or partiality in uniformly and universally refused the arbitrators, and admitting that to interfere with the judgment of there was no misconduct in them arbitrators." during the course of the hearing, "" Barnard v. Lancashire Ins. Co.. nor of fraud in the opposite party, 101 Fed. 36, 41 C. C. A. 170 (1900). 3-i7 AKBITKATION. § 323 award will not be disturbed because the arbitrators considered a fact which was not a proper element of damage; as, that the knowl- edge of the public that the goods had been in a fire would affect their value.^'^ So, a refusal of the arbitrators to allow the owner to fur- nish any information, under the mistaken impression that he had waived his right to be present, does not constitute a ground for setting aside the award.^*^ Where each of the two arbitrators and the umpire, pursuant to agreement, wrote on a slip~of paper his estimate of the damages, and divided the aggregate of the estimates by three, it was held that the insurer could not complain where the result was the exact estimate made by the umpire, without any knowledge on his part of the opin- ion of the other two arbiteators.^*' As already noted, the proper proceeding before a tribunal of ar- bitration is determined by the character of the tribunal created by the terms of the policy in controversy. It is apparent that a very different procedure may be proper where the controversy is left to an umpire from that which would be legal and regular before a quasi- judicial tribunal such as is provided for by the Minnesota form of policy. § 323. Waiver. — The courts are not loath to find grounds for sup- porting a waiver of the right to arbitrate on the part of the insurance company. Thus, the right to have the amount of damages determined by arbitration is waived by failing to respond to a letter of the in- sured demanding an appraisal ;^°' or by an unreasonable demand by an appraiser for the coiapany that an umpire be chosen who does not live in the vicinity ;^°* or by neglect to demand an arbitration within a reasonable time;^''" or by a refusal to permit an agreement of sub- mission to arbitrators to be changed so as to embrace certain prop- ^'^Mtna, F. Ins. Co. v. Davis, 21 '" Hickerson v. German, etc., Ins. Ky. L. 1456, 55 S. W. 705 (1900). Co., 96 Tenn. 193, 33 S. W. 1041, 32 ""Stemmer v. Scottish, etc., Ins. L. R. A. 172 (1896); Brock v. Dwell- Cc, 33 Ore. 65, 53 Pac. 498 (1898). ing House Ins. Co., 102 Mich. 583, But see Christiansen v. Norwich F. 26 L. R. A. 623, 61 N. W. 67 (1894). Ins. Co. (Minn.),88N. W. 16 (1901). "» Vangindertaelen v. Phenlx Ins. "".^tna F. Ins. Co. v. Davis, 21 Co., 82 Wis. 112, 33 Am. St. 32 Ky. L. 1456, 55 S. W. 705 (1900). (1892); Hayes v. Mllford, etc., F. '" Milwaukee, etc., Ins. Co. v. Ins. Co., 170 Mass. 492, 49 N. E. Schallman, 188 111. 213, 59 N. E. 12 754 (1898). (1900). § 334 THE STANDAED POLICY. 348 erty claimed by the insured to be covered by the policy, although the company denied that such property was within the policy ;^'^ or where, after a failure of the arbitrators to agree, the company re- quests the insured to make out proofs of loss in a certain amount, which is complied with;^'^ or by a refusal to submit to an appraisal upon an offer by the insured after a previous refusal by the insured to enter into an arbitration;^'* or by accepting proofs of loss;^'* or by a denial of all liability;^'" or by an admission of liability, except for goods which it claims were not covered by the policy.^'" Where the insured made and submitted proofs of loss and notified the com- pany that, unless it adjusted the loss or agreed to an appraisal by a named date, it would be deemed to have waived such appraisal, and the damaged property would be sold, and an agent of the company stated that he did not demand an appraisal by which to settle the controversy, and the plaintiff, relying on such refusal, sold the prop- erty and thereafter the company demanded an appraisal, it was held that the matter of waiver should be submitted to the jury.' ■ 177 § 324, Second arbitration — Resubmission. — ^Where the policy pro- vides that an offer to arbitrate the amount of the damages is a con- "' George Dee & Sons Co. v. Key Manchester F. Assur. Co. v. Koer- City F. Ins. Co., 104 Iowa 167, 73 N. ner, 13 Ind. App. 372, 40 N. E. 1110, W. 594 (1897). 41 N. B. 848 (1895); American F. "2 Manchester F. Assur. Co. v. ins. Co. v. Stuart (Tex.), 38 S. W. Koerner, 13 Ind. App. 372, 40 N. E. 395 (1896). 1110, 41 N. E. 848 (1895). "= Hamberg v. St. Paul, etc., Ins. "'Schrepfer v. Rockford Ins. Co., Co., 68 Minn. 335, 71 N. W. 388 77 Minn. 291, 79 N. W. 1005 (1899). (1897); ^tna Ins.' Co. v. Simmons, In this case it, was held that a re- 49 Neb. 811, 69 N. W. 125 (1896); fusal of the insured to enter into Baldwin v. Fraternal, etc., Ass'n, 46 arbitration, which was a condition N. Y. Supp. 1016 (1897); Stephens precedent to any right of action on v. Union Assur. Soc, 16 Utah 22, the policy, was a waiver of her 50 Pac. 626 (1897). But see Mur- right to an appraisal, but not an ex- phy v. Northern British, etc., Co, tinguishment of her right to re- 61 Mo. App. 323 (1895). cover on the policy, where the "'Westfield Cigar Co. v. Insur- insurer had not been deprived of ance Co., 169 Mass. 382, 47 N. E, any legal right or suffered any dam- 1026 (1897). age by the delay. '"Chalnless Cycle Mfg. Co. v, 174 Virginia, etc., Ins. Co. v. Can- Security Ins. Co., 64 N. Y. Supp. non, 18 Tex. Civ. App. 588, 45 S. W. 1060, 52 App. Div. (N. Y.) 104 945 (1898); Hartford F. Ins. Co. v. (1900), affirmed in Ct. of App., 62 Cannon, 19 Tex. Civ. App. 305; N. E. 392 (1901). 349 ' AEBITEATIOIT. § 324, dition precedent to the right to maintain an action on the policy, a failure of the arbitrators selected by the parties to agree on an um- pire or to arrive at a conclusion, without the fault of either party, does not justify the insured in refusing to proceed with the arbitra- tion by the selection of a new arbitrator. In such cases the provision for arbitration is still in force, and the necessary steps should be taken to secure a new appraisal.^'* There is some conflict of au- thority as to the right to resubmission. Courts which construe the provision strictly as an attempt to restrict the general right of a party to resort to the courts, hold that the condition has been com- plied with when the arbitrators are appointed as provided in the policy. "One of the fundamental and essential constitutional rights of a citizen," says Mr. Justice Caldwell, "is the right to appeal to a court of justice for a redress of his grievances. One of the chief ends of government is to secure this right to the citizen. While some courts hold that a citizen may by contract bargain away this right, the agreement to do so will not be extended by construction or implica- tion.""» But "the law undoubtedly is," said Mr. Justice Mitchell,^'" "that, under such a provision, if the award is set aside for misconduct of the arbitrators not participated in or caused by the insured, the agree- ment for an appraisement still remains in force, and a new appraise- ment, unless it had become impossible, would still be a condition precedent to a right of action on the policy, unless waived." But apparently an insurance company must accept the insured's claim that the award is invalid or take the risk of being compelled to sustain the contrary view. It stands by the award at its peril. In the case from which the rule was just quoted, the learned judge said: "Its conduct after plaintifEs rejected the award clearly con- stituted a waiver of the right to a new appraisement. Not only did it never ask for or even suggest a new appraisement, but in its com- munications with the plaintiffs it expressly insisted upon the award '" Westenhaver v. German, etc., Hood v. Hartshorn, 100 Mass. 117 Ins. Co. (Iowa), 84 N. W. 717 (1900). (1868); Thorndike v. Wells Memo- »" Western Assur. Co. v. Decker, rial Ass'n, 146 Mass. 619, 16 N. E. 98 Fed. 381, 39 C. C. A. 383 (1899). 747 (1888); Davenport v. Long Is- ""Levlne v. Lancashire Ins. Co., land Ins. Co., 10 Daly (N. Y.) 535 66 Minn. 138, 68 N. W. 855 (1896) (1882); Uhrig v. Williamsburgh, [citing Hlscock v. Harris, 80 N. Y. etc., Ins. Co., 101 N. Y. 362, 4 N. B. 402 (1880); Carrol v. Girard F. Ins. 745 (1886)]. Co., 72 Cal. 297, 13 Pac. 863 (1887); § 324 THE STANDARD POLICY. ' 350 already made, and notified them that any claim under the policy must be on that basis and no other. It took the same position in its answer." In a later ease/*^ the same court held that when one of the parties to such a controversy refuses to abide by the award on the ground of misconduct of the referees, and notifies the other party of that fact, stating the grounds of the objection and demanding a resubmission, the party so notified has the option to stand by the award or submit to a reappraisement, and if he so elects to abide by the award, and the same is adjudged illegal for the cause assigned, then there can be no resubmission to other referees, but the damages may be determined in an action brought to set aside the award. The insurance company attempted to avoid a waiver by inserting in its answer a demand for a resubmission of the controversy to ar- bitrators if, for any reason unknown to it, the award should be held invalid. In reference to the Levine ease,^*^^ the court said : "In that case the court did not base its decision upon the fact that the defend- ant company was connected with the fraud of the referees, but held that the insurer was not entitled to a resubmission to another board of arbitration for the reason that the defendant, by its conduct, had waived such right by not suggesting a new appraisement and in ex- pressly insisting upon the award as made and notifying the insured that any claim under the policy must be on the basis of that award and no other. In the answer in that case defendant made no sug- gestion of reappraisement, but insisted from first to last upon the validity of the award ; whereas, in the case before us, appellant, in its answer, after denying the allegations of the complaint as to the in- validity of the award, asserted that it was valid and binding, and alleged that if such award should be declared invalid, then that ques- tion should be resubmitted. The demand for resubmission was con- ditioned on the result of the action and was of no importance. In our opinion, the Levine case lays down a sound principle, and one which is controlling in this case, which is to the effect that where the award is attacked on the ground of fraud and misconduct by a referee; and one party to the controversy notifies the other of that fact, demanding a reappraisement on account of such misconduct, it then becomes the duty of the other party to investigate the validity of the charges and deteriliine whether or not it will abide by it or submit to a reappraisement, and if it shall determine to abide by the award and '» Chrlstianson v. Norwich F. Ins. «a Levine v. Lancashire Ins. Co., Co. (Miiin.), 88 N. W. 16 (1901). 66 Minn. 138, 68 N. W. 855 (1896). 351 AEBITRATIOK. , § 334 refuse to submit to a reappraisement, such party is thereby estopped from thereafter demanding- another appraisement in case the charges so made shall be sustained." Not only is a party who is not at fault and who has not waived his right entitled to a resubmission of the amount of his damages to arbi- trators, but, after an unsuccessful attempt, arbitration or excuse for not arbitrating is still a condition precedent to the right of the insured to maintain an action on the policy. This is on the theory that until an offer has been made, the plaintiff has not in good faith done all that is reasonably within his power to have the agreement carried into effect, and the damages ascertained in the mode provided for in the contract. Hence, where the determination by arbitration of the amount of the loss is a condition precedent to a right of action, the plaintiff in an action on the policy must prove performance or a valid excuse for non-performance. If the award is invalid it is the duty of the insured to seek a new determination of the amount of the loss in the manner provided by the contract. He must, therefore, ^ allege and prove either that the amount of the plaintiff's loss has been determined by arbitrators chosen in the manner stipulated by ttie parties or some sufficient reason why such determination has become unnecessary or impossible.^** But in a case in the circuit court of appeals the policy provided that in ease of loss and disagreement as to the amount thereof, each party should appoint an appraiser, and the two should select an umpire, who should appraise the loss, and that no action should be maintained on the policy until after the insured should have fully complied with such provision. It was held that the insured dis- charged his obligations when he appointed an appraiser in good faith ; and if the appraisement failed without his fault, he was not required to propose the selection of other- appraisers, but might resort to the courts to have his damages assessed.^*^ So, it was said in Maryland that "if the appraisement fail without the fault of the insured, the failure would not be an impediment to their right to recovery if they could maintain their suit on other grounds."^'* So, in North Carolina it was said: "Where the arbitrators, or a ma- jority of them, fail to agree upon an award, the plaintiff, unless he is shown to have acted in bad faith in selecting his arbitrator, is not '"Fischer v. Merchants' Ins. Co. Caledonia Ips. Co. v. Traub, 83 Md. (Me.), 50 Atl. 282 (1901). 524, 35 Atl. 13 (1896). ""Western Assur. Co. v. Decker, '"Caledonia Ins. Co. v. Traub, 83 98 Fed. 381, 39 C. C. A. 383 (1899); Md. 524, 35 Atl. 13 (1896). I 335 THE STANDARD POLICY. 353 compelled to submit to another arbitration and another delay, but may forthwith bring his action in the courts."^'** But where the arbitration fails through the misconduct of one of the parties, he is not, after the award is set aside, entitled to a resub- mission. This is recognized by all the courts.^'" Where the policy provides that the loss shall be ascertained by ar- bitration, and that any proceeding relative to such arbitration shall not be deemed a waiver of any condition of the policy, the company, by denying liability after an appraisement of the loss, does not waive its right to insist upon the appraisement as conclusive of the amount of the loss.^'° § 325. Demand for arbitration as admission of liability. — ^An in- surance company can not demand an appraisal and arbitration of the amount of the loss, and at the same time deny all liability imder its policy. Therefore, as there can be nothing to arbitrate where there is no liability, a demand for an appraisal by the insurer, unless the contract provides to the contrary, is a waiver of all defenses going to the question of liability.^'^ But the standard form provides that the company shall not be held to have waived any condition or con- iMa Pretzfelder v. Merchants' Ins. Co., 116 N. C. 491, 21 S. B. 302 (1895). '" "Any attempt on the part of either party to misuse or pervert the provisions of the standard pol- icy for an appraisal so as unrea- sonably to delay an adjustment, or to secure an unjust abatement of an honest loss, is a breach of good faith and should be treated as a waiver of the condition and as dispensing with the necessity of an appraisal, or warranting a resort to an action without one, if the party thus prejudiced has used all fair and reasonable means and diligence on his part to secure it. To hold otherwise would be to permit the party in fault to profit by his own wrong:" Chapman v. Rockford Ins. Co., 89 Wis. 572, 28 L. R. A. 405 (1895); Hickerson v. German, etc., Ins. Co., 96 Tenn. 193, 32 L. R. A. 172 (1896); McCuUough v. Phcsnix Ins. Co., 113 Mo. 606 (1893). ""Pretzfelder v. Merchants' Ins. Co., 116 N. C. 491, 21 S. E. 302 (1895); citing Howard Ins. Co. v. Hocking, 115 Pa. St. 415, 8 Atl. 592 (1886). '"Hickerson v. German, etc., Ins. Co., 96 Tenn. 193, 32 L. R. A. 172 (1896) [citing Lasher v. Northwest- ern, etc., Ins. Co., 18 Hun (N. Y.) 98 (1879); Rosenwald v. Phoenix Ins. Co., 50 Hun (N. Y.) 172 (1888) ; Western, etc., Ins. Co. v. Putnam, 20 Neb. 331 (1886); Bailey v. ^tna Ins. Co., 77 Wis. 336 (1890); Ger- man, etc., Ins. Co. v. Etherton, 25 Neb. 505 (1889) ; Wainer v. Milford, etc., Ins. Co., 153 Mass. 335, 11 L. R. A. 599 (1891), and note; Farnum v. PhcBuix Ins. Co., 83 Cal. 246 (1890); Savage v. Phoenix Ins. Co., 12 Mont. 458, 33 Am. St. 591 (1892), and note]. 353 EIGHT TO EEPAIE, EEBUILD, OK REPLACE. § 326 ditions of the policy, or any forfeiture thereof, by any requirement, act or proceeding on its part relating to the appraisal.^*''* § 326. Bight of mortgagee. — Where a policy is taken out by a mortgagor and delivered to a mortgagee, with an indorsement to the effect that loss, if any, should be payable to the mortgagee, the mort- gagee need not be a party to the arbitration. The contract is be- tween the mortgagor and the insurance company, and, unless it con- tains provisions to the contrary, is under the control of the mort- gagor.^ XIX. Right to Repair^ Rebuild, or Replace. It shall be optional, however, with this company to take all, or any part, of the articles at such ascertained or appraised value, and also to repair, rebuild, or replace the property lost or damaged' with other of like kind and quality within a reasonable time on giving notice, within thirty days after the receipt of the proof herein required, of its intention so to do; but there can be no abandonment to this com- pany of the property described.^^" ^a. See § 301, supra. '^ Chandos v. American P. Ins. Co., 84 Wis. 184, 19 L. R. A. 321 <1893). In Hathaway v. Orient Ins. Ck)., 134 N. Y. 409, 17 L. R. A. 514 York, New Jersey, Connecticut, Rhode Island, Michigan, South Da- kota, Louisiana, North Dakota, Wisconsin and North Carolina. The Iowa clause is similar to that of (1892), it was held that the rights New York, except that the company of a mortgagee could not be de- feated by an accord and satisfaction between the insurer and the owner of the premises, who took out the policy in his own name. See gen- erally, as to the question of the is not authorized to repair, or re- build in case of the total loss of the building. The following pro- vision is found in the standard policies of the states of Massachu- setts, Minnesota and Maine: "In «fifect, upon an assignee of an in- case of loss or damage, the com- surance policy, of acts of forfeiture pany, within sixty days, * • « by the assignor, note to Hall v. shall either pay the amount * • • Niagara F. Ins. Co., 93 Mich. 184, in or replace the property with other 18 L. R. A. 135 (1892). Contra, of the same kind and goodness, or Bergman v. Commercial Assur. Co., it may within fifteen days after 92 Ky. 494, 15 L- R- A. 270 (1892).. such statement has been submitted. See Brown v. Hartford Ins. Co., 5 notify the insured of its intention E. I. 394 (1858); Harrington v. to rebuild or repair the premises, Fitchburg, etc., Ins. Co., 124 Mass. or any portion thereof separately 126 (1878). insured by this policy, and shall ""This provision is found in the thereupon enter upon said premises standard policies in use in New and proceed to repair or rebuild 23— Eixiorr Ins. g 327 THE STANDARD POLICY. 354 § 327. An option reserved. — ^After the damaged property is ap- praised as provided by statute, the company reserves the right to take the articles or any part thereof at such appraised value. It also reserves an option to repair, rebuild or replace the property lost or damaged with other of like kind and quality within a reasonable time on giving notice, within thirty days after receipt of proofs, of its in- tention so to do. The right to rebuild does not exist unless reserved by the terms of the contract.^'" The insurer can elect either of the privileges reserved to it by this provision of the policy, but by the selection of one it abandons the others. Thus, where the policy con- tained a provision for the submission of certain matters to arbitration, and provided that it "should be optional with the company to repair, rebuild or replace the property with other of like kind and quality within a reasonable time," the company elected to repair the injury and restore the house to its former condition. After some work was done, defendant was informed that the repairs were completed. The insured claimed that the repairs were insufficient, but declined to specify in what particular. The company made several attempts to complete the repairs, which were unsatisfactory to the defendant, who made and served proofs of loss and claimed payment of the money. The defendant then requested that the matter of damages be submitted to arbitration. The court said:^'^ "The insurers had the right to determine the manner in which they would perform their contract, and this right did not depend upon the assent of the insured. IsTeither his assent nor dissent could affect the power of the defendant under the contract. The rights of the parties rested alto- gether 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. * * * One mode looked to the compensation of the insured by the payment of the same with reasonable expedi- cept that it limits the time within tion. It is moreover understood which the company can give notice that there can be no abandonment of its intention to rebuild to ten of the property insured to the com- days. pany, and that the company shall ""Wynkoop v. Niagara F. Ins. not, in any case, be liable for more Co., 91 N. Y. 478, Woodruff Ins. than the sum insured, with interest Cas. 203 (1883). See Wallace v. Ins. thereon from the time when the loss Co., 4 La. 289 (1832). shall become payable, as above pro- "' Wynkoop v. Niagara F. Ins. Co., vided." The New Hampshire pro- 91 N. Y. 478 (1883). vision is similar %o the above ex- 355 EIGHT TO EEPAIEj EEBUILD, OR EEPLAOE. § 337 damages for his loss, and the other to the restoration of the subject of the insurance to its former condition. It could not have been con- templated by the parties that botii methods of performance were to be pursued. The selection by the defendant of one of these alterna- tives necessarily constituted an abandonment of the other. The election of the privilege 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 contract 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 me peril insured against." After the company elects to rebuild the contract becomes one for rebuilding, and the obligation which looks to the payment of money becomes obsolete and inapplicable, and the case then becomes what it would have been if the contract had simply obligated the defendant to rebuild in case of loss.^^'' The option must be exercised within a reasonable time, and notice must be given within thirty days after the receipt of the proofs. An offer by the company, more than a year after the proofs of loss were furnished, to rebuild, is too late.^'^ Where two separate companies elect to rebuild, and there is a breach of the new contract to rebuild, the owner may recover his full damages against either of them, leaving the one which pays to secure contribution from the other in a separate action.^** Where separate companies have separate policies on a single building, a general elec- tion to repair and rebuild makes the obligation to repair and rebuild joint or several at the option of the insured.^'" There is some doubt as to whether the insurer is deprived of the right to rebuild reserved in the policy by the fact that there is a statute requiring the use of a valued policy. In Wisconsin the standard form limits the liability of the insured to the "actual cash value of the property at the time any loss or damage occurs," except "as other- wise provided by statute," and provides that such liability "shall in no »»=Morrell v. Irving F. Ins. Co., 33 mel, 89 Md. 437, 43 Atl. 764 (1899). N. Y. 429 (1865). See, also. Seals v. »* Morrell v. Irving F. Ins. Co., 33 Home Ins. Co., 36 N. Y. 522 (1867); N. Y. 429 (1865). Heilmann v. Westchester Ins. Co., '"Hartford F. Ins. Co. v. Peebles 75 N. Y. 7 (1878). Hotel Co., 82 Fed. 546, 27 C. C. A. ""Maryland, etc., Ins. Co. v. Kim- 223 (1897). § 327 THE STANDARD POLICY. 356 event exceed what it would then cost the insurer to repair and replace the same with other of like kind and quality," and that "it shall be optional, however, with the insurer to rebuild or replace the property lost or damaged with other of like kind and quality." When the policy was issued there was in force a statute which declared that the amount of insurance written in the policy on real estate which has been wholly destroyed "shall be taken conclusively to be the true value of the property when insured, and the true measure of damages when destroyed." It was held that these acts should be construed together, and that the provision for a valued policy was not in conflict with the provision giving the insured the right to rebuild although the building was wholly destroyed.^^' But in Ohio the right to rebuild is regarded as inconsistent with the valued policy statute, as it changes the meas- ure of liability from the amoiAt named in the policy to the cost of rebuilding.^^"^ Where there was a controversy between the insured and insurer as to whether the latter had lost its right to elect to rebuild, the former brought an action to recover a money indemnity, and the insurer set up its election and alleged its willingness to rebuild. It was held that the company had not lost its right, and could not thereafter rescind the position assumed in the pleading and deny liability on its contract of insurance because pending the controversy the cost of building had increased.^*'' In the same case it appeared that the policy contained provisions relating to both personal property and buildings, and provided that if there was loss or damage the amount of the same should be ascertained or estimated by the parties or by appraisers, and tRat when so estimated and the proofs of loss made, the same should be payable sixty days after receipt of these proofs, but that it should be "optional, however, with this company to take all or any part of the articles at such ascertained or appraised value, and also to repair, rebuild or replace the property lost or damaged * * * within a reasonable time on the giving of notice within thirty days after the receipt of proofs of loss herein required, of its intention so to do." It was further provided that the company should be held to have waived any provision or condition of the policy by any act or requirement or proceeding relative to appraisement. It was held that the estimate and the appraisal was preliminary to or a "» Temple v. Niagara F. Ins. Co., '"Langan v. JEtna Ins. Co., 99 109 Wis. 372, 85 N. W. 361 (1901). Fed. 374 (1900). 10% Milwaukee, etc., Ins. Co. v. Russell (Ohio), 62 N. E. 338 (1901). 357 TIME WITHIK WHICH LOSS IS PAYABLE. § 328 part of the final proof of loss required, and that participation by the company ia the appraisal to ascertain the damage done to the insured building did not constitute an election on its part to pay the dam- ages in money, which precluded it from thereafter exefcising its option to rebuild or repair upon the giving of proper notice.^*' No deduction can be made for difference in VEilue between th? old and the new building constructed by the company under the option reserved in this policy. Where the company elected to rebuild, it was claimed that as a new store of similar dimensions and plan as the old, of new materials, would be worth more than the old one, a deduc- tion ought to be made from the estimate of the cost of the new store for the difference in value between the old and the new store, anal- ogous to the deduction of new for the old in the adjustment of losses on marine policies. "Such a rule," said the- court,^°* "is not sup- ported by any principle of justice or by the authority of any adjudged cases. It is founded upon an erroneous construction of the con- tract. It supposes that the insurers are bound to repair the build- ing or to pay the expenses of the repairs. But no such obligation is imposed upon them by the policy. They have the privilege to make requisite repairs, if they see fit, to protect themselves against the recovery of excessive damages, or for any other reason. But if they elect not to make repairs, they are liable only to pay a fair indem- nity for the loss. But whatever may be the rule when the building insured is partially injured by the peril insured against, it has no application to cases like the present, where the building is totally destroyed and is to be replaced by a new one. * * * ^q are therefore of the opinion that there is no rule of damages applicable to the present case; and that in all cases where no rule of damages is established by law, the jury are to decide upon the question, and that to their decision there can be no legal exception." XX. Time Within Which Loss is Payable. • And the loss shall not hecome payable until sixty days after the notice, ascertainment, estimate, and satisfactory proof of the loss herein required have been received by this company, including an award by appraisers when appraisal has been required.'"" "•Langan v. .(Etna Ins. Co., 96 ^ This provision Is found In the Fed. 705 (1899). standard, policies of New' York, New ""Brinley v. National Ins. Co., 11 Jersey, Rhode Island, Connecticut, Mete. (Mass.) 195 (1846). Iowa, South Dakota, North Dakota, § 328 THE STANDARD POLICY. 358 § 328. In general. — The insurance company has sixty days after due proof of loss and award by appraisers, when appraisal has been required, within which to pay the amount found due, and a suit commenced before the expiration of the sixty days is prematurely brought.""^ The Michigan statute provides that suits at law may be maintained against the insurer for claims which may have accrued, if payments are withheld more than sixty days after such claims be- come due. Where the sum for which the company might be liable was payable sixty days after due notice, it was held that an action commenced on November 24 for a loss by fire, proofs of which were furnished on September 9, was premature, as the action did not lie until the expiration of one hundred and twenty days from the time the proofs of loss were filed.''"" ' Where the policy provided that the loss should be paid within sixty days after receiving proofs of loss, and a complaint was filed August 30, which alleged that the plaintiff notified the company of the loss on June 33, and that its adjuster two or three days thereafter made inquiry into the facts and notified the plaintiff that the loss could not be paid, it was held that the action was not prematurely brought.'"* i; Where the policy contains no reference to the charter of a mutual company, the rights of the parties are determined by this provision in the policy, and not by some charter provision which provides for a different procedure.""* An action may be brought without waiting for the expiration of the sixty days after proofs of loss where the company denies all liability, and refuses to ascertain or adjust the loss, and its ofiBcer states that the only way a settlement can be ob- tained is "at the end of a lawsuit.""'"' Michigan, Louisiana and North Car- pay the amount for which it shall olina. The Wisconsin clause reads, he liable or replace," etc. "and the loss shall become payable "' Gillon v. Northern Assur. Co., sixty days after the notice and proof 127 Cal. 480, 59 Pac. 901 (1900). of loss herein required have been "= Putze v. Saginaw, etc., Ins. Co. received hy this company." Massa- (Mich.), 86 N. W. 814 (1901). chusetts, Minnesota, Maine and New '"' Home Ins. Co. v. Sylvester, 25 Hampshire have the following pro- Ind. App. 207, 57 N. E. 991 (1900). vision : "In case of any loss or "* First Baptist Church v. Clti- damage, the company, within sixty zens', etc., Ins. Co., 119 Mich. 203, 77 days after the insured shall have N. W. 702 (1899). submitted a statement, as provided "»Hosmer v. St. Joseph, etc., Ins. In the preceding clause, shall either Co., 80 Mo. App. 419 (1899). 359 TIME OF BRINGING SUIT. § 329 XXI. Time of Bringing Suit. No suit of action on this policy^ for the recovery of any claim, shall be siistainable in any court of law or equity until after full compliance by the insured with all the foregoing requirements, nor unless com- menced within twelve months next after the fire.^"^ § 329. Validity.— It is generally held that a provision in a policy of insurance limiting the time for an action thereon to a period less than that prescrihed by the statute of limitations is valid and en- forceable/"^ although in a few instances such provisions have been held void as against public policy.'"'*' ^This provision Is found in the standard policies of New York, New Jersey, Rhode Island, Connecticut, Michigan, Louisiana, South Dakota and North Carolina. The clause does not appear in the Wisconsin standard policy, and North Dakota has no time limit other than the statute of limitations within which suit must be brought. The Iowa form Is as follows: "No suit or action on this policy for the recov- ery 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, including appraisal, and until after an award shall have been obtained fixing the amount of such claim in the manner above provided, when the company has elected to appraise, nor unless commenced not later than one year next after the time when a cause of action accrues." The Massachusetts, Minnesota and Maine policies provide that: "No suit or action against this company for the recovery of any claim by virtue of this policy shall be sus- tained in any court of law or equity in this state unless commenced within two years from the time the loss occurs." New Hampshire lim- its the time for bringing the ac- tion to one year. "' Riddlesbarger v. Hartford Ins. Co., 7 Wall. (U. S.) 386, Woodruff Ins. Cas. 211 (1?68); Morrill & Co. V. New England P. Ins. Co., 71 Vt. 281, 44 Atl. 358 (1899); Guthrie v. Connecticut Indem. Ass'n, 101 Tenn. 643, 49 S. W. 829 (1898); Peoria, etc., Ins. Co. v. Whitehill, 25 111. 382 (1861); Williams v. Vermont, etc., Ins. Co., 20 Vt. 222 (1848); Wilson V. ^tna Ins. Co., 27 Vt. 99 (1854); North Western Ins. Co. v. -Phoenix, etc., Co., 31 Pa. St 448 (1858); Brown v. Savannah, etc., Ins. Co., 24 Ga. 101 (1858); Portage, etc., Ins. Co. V. West, 6 Ohio St. 599 (1856); Amesbury v. Bowditch, etc., Ins. Co., 6 Gray (Mass.) 596 (1856); Fullam V. New York Ins. Co., 7 Gray (Mass.) 61 (1856); Carter v. Hum- boldt F. Ins. Co., 12 Iowa 287 (1861); Stout V. City F. Ins. Co., 12 Iowa 371 (1861); Ripley v. .^tna Ins. Co., 29 Barb. (N. Y.) 552 (1859); Gooden v. Amoskeag F. Ins. Co., 20 N. H. 73 (1849); Brown v. Roger Williams Ins. Co., 5 R. I. 394 (1858); Ames v. New York, etc., Ins. Co., 14 N. Y. 253 (1856). Contra, Eagle Ins. Co. v. Lafayette Ins. Co., 9 Ind. 443 (1857); French v. La- fayette Ins. Co., 5 McLean (U. S.) 461 (1853); Shawnee F. Ins. Co. v. Bayha, 8 Kan. App. 169, 55 Pac. 474 (1898). '^ Omaha F. Ins. Co. v. Drennan, 56 Neb. 623, 77 N. W. 67 (1898). § 330 THE STANDARD POLICY. 360 The provision does not apply to an action to enforce a compromise agreement made between the parties after the property is destroyed."' The failure of a mortgagee to bring an action within the time lim- ited by the mortgage clause is not a bar to an action brought by the mortgagor within the time.^^° The statute of limitations in contracts of insurance will not be applied with the same degree of rigidity as ordinary statutes of lim- itation, and is not applicable where the performance of the condi- tions precedent is, without fault or laches on the part of the in- sured, rendered impossible by the acts of the insurer, or by the act of God, or of the- government, or of the courts.''^^ The rule of the New York code, that an attempt to commence an action is equivalent to its actual commencement so far as the statute of limitations is concerned, applies to limitations created by contract as well as those imposed by statute. This provision of the standard policy, being specifically prescribed by law, is not properly a con- tractual limitation. "The law establishes the period of limitation, and forbids the parties from disregarding it. The law as effectually established the period of limitation as if it had declared in express terms that the limitation of time for the commencement of an action upon a fire insurance policy should be the period of one year. Prac- tically, then, this limitation was specially prescribed by law, and hence falls directly within the principle of the [earlier] decisions of this court.""=' This provision is waived by a representation of an. agent that the company will pay without suit.^^^ So, where the conduct of the in- sured is such as to mislead the insured and prevent him from prose- cuting his claim within the time limited in the policy, the limitation is waived.^^* § 330. Time when limitation begins to run. — This form of policy provides that an action must be brought within twelve months next after a fire. Formerly it was customary to use the expression, after =™ Hanover F. Ins. Co. v. Hatton, den v. Pierce, 144 N. Y. 512, 39 N. E. 21 Ky. L. 1533, 55 S. W. 681 (1900). 638 (1895); Titus v. Poole, 145 N. Y. ""Shawnee F. Ins. Co. v. Bayha, 414, 40 N. E. 228 (1895). 8 Kan. App. 169, 55 Pac. 474 (1898). «'■ Scottish Union, etc., Ins. Co. v. "'Jackson v. Fidelity, etc., Co., Enslie, 78 Miss. 157, 28 So. 822 75 Fed. 359, 41 U. S. App. 552 (1900). (1896). ""De Farconnet v. Western Ins. "^ Hamilton v. Royal Ins. Co., 156 Co., 110 Fed. 405 (1901). N. Y. 327, 50 N. E. 863 (1898); Hay- 361 TIME OF BRINGING SUIT. § 330 a loss occurs. There are two directly opposing lines of authorities upon the question whether, under such a policy, the year of limitation begins to run from the time of the fire, or from the time when the loss is ascertained and established and the right to bring an action exists.^^^ As said by the supreme court of Wisconsin,''^' "doubtless the tendency of so many courts to construe loss' as meaning the time when the liability was fixed induced many insurance companies to substitute the word 'fire,' as in the policy before 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. Some of the decisions are to the effect that the word 'fire' is to be construed as meaning not the date of the fire, but the time when the liability is fixed and ah aotion accrues to the insured. But the better authorities seem to hold that the limitation begins to run from the day of the fire."=" Under the Minnesota form of policy, which provides that no suit shall be sustained unless commenced within two years from the time the loss occurs, it is held that the limitation begins to run from the time of the fire or actual destruction of the property."^* =^That the time begins to run from the date when a right to bring an action exists, see Steen v. Ni- agara F. Ins. Co., 89 N. Y. 315 (1882); Spare v. Home, etc., Ins. Co., 17 Fed. 568 (1883); Chandler v. St Paul, etc., Ins. Co., 21 Minn. 85 (1874); Ellis v. Council Bluffs Ins. Co., 64 Iowa 507 (1884); Miller v. Hartford F. Ins. Co., 70 Iowa 704 (1886); German Ins. Co. v. Fair- bank, 32 Neb. 750 (1891); Barber V. Fire & M. Ins. Co., 16 W. Va. 658 (1880). To the contrary, see Cham- bers V. Atlas Ins. Co., 51 Conn. 17 (1883); Johnson v. Humboldt Ins. Co., 91 111. 92 (1878); FuUam v. New York, etc., Ins. Co., 7 Gray (Mass.) 61 (1856); Glass v. Walker, 66 Mo. 32 (1877); Bradley v. Phoe- nix Ins. Co., 28 Mo. App. 7 (1887); Virginia, etc., Ins. Co. v. Wells, 83 Va. 736 (1887); Peoria Sugar Re- fining Co. V. Canada, etc., Ins. Co., 12 Ont. App. 418 (1885); Blair v. Sovereign F. Ins. Co., 19 N. S. (7 Russell & G.) 372; Travelers' Ins. Co. V. California Ins. Co., 1 N. Dak. 151 (1890); Schroeder v. Keystone Ins. Co., 2 Phlla. (Pa.) 286 (1857). See authorities In note to 27 L. R. A. 48. ^I'Hart V. Citizens' Ins. Co., 86 Wis. 77 (1893); Frlezen v. Allema- nia F. Ins. Co., 30 Fed. 352 (1887); Hong Sling v. Insurance Co., 7 Utah 441 (1891) ; Case v. Sun Ins. Co., 83 Cal. 473 (1890). "'Hart V. Citizens' Ins. Co., 86 Wis. 77, 56 N. W. 332, Woodruff Ins. Cas. 213 (1893); Steel v. Phenix Ins. Co., 47 Fed. 863 (1891); State Ins. Co. V. Meesman, 2 Wash. 459 (1891); McEIroy v. Continental Ins. Co., 48 Kan. 200 (1892) ; Travelers' Ins. Co. V. CaUfornia Ins. Co., 1 N. Dak. 151 (1890); King v. Water- town F. Ins. Co., 47 Hun (N. Y.) 1 (1888). "'Rottler V. German Ins. Co. (Minn.), 86 N. W. 888 (1901). CHAPTER XIII. CEETATN GENERAL PROVISIONS OF THE STANDARD POLICY. XXII. Measure of Damages. XXI7. Subrogation. SEO. SEC. 332. In general. • 339. The general principle. 333. Valued policy legislation. -^-^y Reinsurance 334. Cor,stitutionality of valued pol- g^g Ij.^^ reinsurance contract. icy laws. 335. Meaning of total loss. XXVI. Conditions Affecting Mart- 336. Total loss to frame building gagees. within fire limits. 341. Special provisions. 337. Amount of recovery — Illustra- XXTII. Construction of Terms — Mu- tions. tua% Companies. XXIII. Prorating Loss with Other 342. In general. Insurers. XXTIII. Indorsement of Other Con- 338. The pro rata clause. ditions. XXII. Measure of Damages. This company sJiall not ie liable beyond the actual cash value of the property at the time any loss or damage occurs^ and the loss or damage shall be ascertained or estimated according to such actual cash value, with proper deduction for depreciation however caused, and shall in no event exceed what it would then cost the insured to repair or replace the same with material of like hind and quality; said ascertainment or estimate shall be made by the insured and this com- pany, or, if they differ, then by appraisers, as hereinafter provided; and, the amount of loss or damage having been thus determined, the sum for which this company is liable pursuant to this policy shall be payable sixty days after due notice, ascertainment, estimate, and sat- isfactory proof of the loss have been received by this company, in accordance with the terms of this policy.^ 'This provision is found in the Carolina. Wisconsin inserts, "ex- standard policies of New York, New cept when otherwise provided by Jersey, Connecticut, Rhode Island, statute," in referring to liability Michigan, South Dakota, Iowa, beyond the actual cash value of the North Dakota, Louisiana and North property. Massachusetts and Maine 363 MEASURE OF DAMAGES. § 333 § 332. In general. — This method of providing for the amount of recovery is in some respects in conflict with the valued policy laws in force in ma,ny states, an4»it must be construed in connection with such statutes. § 333. Valued policy legislation. — Where the policy is valued and there is a total loss, the amount of recovery is determined by the face of the policy." Whether it is a valued one must be determined by the language of the contract and by existing statutes. The policy vn\l be regarded as an open one, unless it appears to be 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 contract the amount of the recovery. The question must be determined by the intention of the parties gathered from the whole instrument.' But where a statute requires all policies to be valued, the language of the policy becomes immaterial,* and the amount written in the policy must be have the following clause: "This company shall not be liable beyond the actual value of the insured property at the time any loss or damage occurs. In case of any loss or damage the company, within six- ty days after the insured shall have submitted a statement, as provided in the preceding clause, shall either pay the amount for which it shall be liable, which amount if not agreed upon shall be ascertained by award of referees as hereinafter provided, or replace the property with other of the same kind and goodness • * * and that the company shall not in any case be liable for more than the sum insured, with interest there- on from the time when the loss shall become payable, as above pro- vided." The Minnesota clause is similar to the above except that the first paragraph, relieving the com- pany from liability beyond the ac- tual value of the insured property at the time any loB» or damage hap- pens, is omitted. The New Hamp- shire clause provides that: "This company shall not be liable beyond the actual value of the insured prop- erty at the time any loss or damage happens, except on buildings totally destroyed, in which case the full amount of the limitation shall be paid * * • and that the company shall not in any case be liable for more than the sum insured, with interest thereon from the time when the loss shall become payable as hereinafter provided. * * * In case of any loss or damage the com- pany, within sixty days after the insured shall have submitted a statement, * • • shall either pay the amount for which it shall be lia- ble or replace the property with other of like kind and goodness." "Phoenix Ins. Co. v. McLoon, 100 Mass. 475 (1868). " Insurance Co. v. Butler, 38 Ohio St. 128, Woodruff Ins. Cas. 207 (1882). •Oshkosh Gas-Light Co. v. Ger- mania P. Ins. Co., 71 Wis. 454, Woodruff Ins. Cas. 209 (1888); Mil- waukee, etc., Ins. Co. v. Russell (Ohio), 62 N. E. 338 (1901). and cases cited. § 333 THE STANDARD POLICY. 364 taken conclusively to be the true ^value of the property, and the amount of the recovery Avhere there is a total loss.'* Thus, a fire in- surance company is liable, in case of a totat'loss, for the full amount of the policy, notwithstanding the provision in the policy by which it agrees to pay only three-fourths of the value in case of loss, where a statute provides that such company shall be liable for the full es- timated value of the property insured, as the same is fixed on the face of the policy.* Valued policy laws are now in force in twenty-one states, having been adopted by Wisconsin in 1874, Ohio and Tezas in 1879, New Hampshire in 1885, Arkansas, Delaware and Nebraska in 1889, Oklahoma in 1890, Mississippi in 1892, Kansas, Kentucky and Oregon in 1893, Minnesota in 1895, South Carolina in 1896, Florida, Iowa and Washington in 1897, West Virginia in 1899, and California in 1901. These statutes vary in phraseology, but that of Wisconsin, which was the first enacted, may be used as an illustration. It pro- vides that "whenever any policy of insurance shall be written to in- sure any real property, and if the property insured shall be wholly destroyed without criminal fault on the part of the insured or his assigns, the amount of insurance written in such policy shall be taken conclusively to be the true value of the property when insured, and the true amount of loss and the measure of damages when destroyed." This provision of the standard policy must be construed in con- nection with the valued policy law, which, in the event of a total loss, determines conclusively that the amount named in the policy is the "actual cash value of the property.'" Overvaluation under a valued policy, unless fraudulent, does not affect the right to recover. The valued policy laws do not as a rule apply to personal property.' 'Temple v. Niagara F. Ins. Co., 3 L. R. A. 523 (1889); Oshkosh 109 Wis. 872, 85 N. W. 361 (1901). Gas-Light Co. v. Germania F. Ins. • Caledonian Ins. Co. v. Cooke, 101 Co., 71 Wis. 454, 37 N. W. 819 Ky. 412, 41 S. W. 279 (1897); Ph(E- (1888). nix -Ins. Co. v. Peak, 20 Ky. L. 1035, « Cushman v. Northwestern Ins. 47 S. W. 1089 (1898). Co., 34 Me. 487 (1852); Havens v. 'Temple v. Niagara F. Ins. Co., Germania F. Ins. Co., 123 Mo. 403, 109 Wis. 372, 85 N. W. 361 (1901); 27 S. W. 718, 26 L. R. A. 107 (1894); Rellly V. Franklin Ins. Co., 43 Wis. German Ins. Co. v. Jansen, 18 Tex. 449 (1877); Thompson v. Insurance Civ. App. 190, 45 S. W. 220 (1898); Co., 45 Wis. 388 (1878); Seyk v. Vergeront v. German Ins. Co., 86 Millers', etc., Ins. Co., 74 Wis. 67, Wis. 425 (1893). 365 IIEASUEE OF D.V:\rAGES. § 33'1 . § 334. Constitutionality of valued policy laws. — The insurance companies have strenuously opposed such legislation, and in several states vigorous executive vetoes have been interposed to acts passed by the legislatures. Such questions have now been settled by a de- cision of the supreme court of the United States. In aflBrming the constitutionality of such a statute, Mr. Justice McKenna said :' "The specific objections which, it is claimed, bring the statute within the prohibition of the constitution in the last analysis may be reduced to the following: That the statute talces away a fundamental right and precludes a judicial inquiry of liability on policies of fire insur- ance by a conclusive presumption of fact. "The right claimed is to make contracts of insurance. The essence of these, it is said, is indemnity, and that the statute converts them into wager policies — into contracts (to quote counsel) having for their bases speculation and profit, '^contrary to the course of the com- mon law.' The statement is broad, and counsel, in making it, ig- nores many things. The statute tends to assure, not to detract from, the indemnity of the contracts, and if elements of chance or specula- tion intrude it will be on account of carelessness or fraud. It is ad- mitted that the effect of the statute is to make valued policies of those issued; and the conclusive effect which has been ascribed to their valuation has never been condemned as making them wager policies or as introducing elements of speculation into them. "The statute, then, does not present the alternative of»wager pol- icies to indemnity policies. The change is from one kind of indem- nity policy to another kind, from open policies to valued policies, both of which are sanctioned by the practice and law of insurance, and this change is the only compulsion of the law. It makes no con- tract for the parties. In this it permits absolute freedom. It leaves them to fix the valuation of the property upon such prudence and inquiry as they choose. It only ascribes estoppel after this is done — estoppel, it must be observed, to the acts of the parties, and only to their acts in open and honest dealing. ^Its presumptions can not be ttrged against fraud, and it permits the subsequent depreciation of the property to be shown. "We see no risk to insurance companies in this statute. How can it come ? Not from fraud and not from change, because, as we have •Orient Ins. Co. v. Daggs, 172 U. S. 557 (1899), affirming 136 Mo. 382 (1896). § 335 - THE STANDARD POLICY. 366 seen, the presumptions of the statute do not obtain against fraud or, change in the valuation of the property. Eisk, then, can only come from the failure to observe care — ^the care which it might be su^- posed, without any prompting from the law, underwriters would observe, and which, if observed, would make their policies true con- tracts of assurance, not seemingly so, but really so; not only when premiums are paying, but when the loss is to be paid. The state surely has the power to determine that this result is desirable, and to accomplish it even by a limitation of the right of contract claimed by the plaintiff in error. "It would be idle and trite to say that no right is absolute. Sic utere tuo ut alienum non loedas is of universal and pervading obliga- tion. It is a condition upon which all property is held. Its applica- tion to particular conditions must necessarily be within the reason- able discretion of the legislative power. When such discretion is exercised in a given case by means appropriate, and which are reason- able, not oppressive or discriminatory, it is not' subject to constitu- tional objection." § 335. Meaning of total loss. — ^Under a valued policy, the amount named therein is recoverable when there is a total loss. A building is totally destroyed within the meaning of such policy when it no longer exists as a building, although some of the material may have value as mmterial. The New York- court of appeals recently said :'" "A total destruction within the meaning of the policy must mean the complete destruction of the insured property by fire so that nothing ""Cortett V. Spring Garden Ins. character as a tuilding, the insur- Co., 155 N. y. 389, 50 N. B. 282 ance not being upon the material (1898). See, also, Hamburg, etc., composing the building but upon the Ins. Co. V. Garlington, 66 Tex. 103, building as such. When the loss by 18 S. W. 337 (1886); Oshkosh Pack- fire is such that its character as a ing, etc., Co. v. Mercantile Ins. Co., building is destroyed, and it remains 31 Fed. 200 (1887). In Penn^j^lva- simply as a mass of ruins, parts of nia F. Ins. Co. v. Drackett, 63''Ohio which may remain standing, but of St. 41, 57 N. E. 962 (1900), the court no value in repairing or rebuilding said : "It seems to be agreed that it the structure, though something Is not necessary to constitute a total might be realized from the material loss that all the material composing by removing it, the loss is regarded the building should be destroyed, as total." See, also, Williams v. It Is sufficient, though some parts of Hartford Ins. Co., 54 Cal. 442 it remain standing, if the building (1880). has lost its identity and specific 367 MEASURE OF DAMAGES. § 335 of value remains of it, as distinguished from a partial loss, where the property is damaged but not entirely destroyed. This does not mean that the materials of which the building was composed were all utterly destroyed or obliterated, but that the building, though some part of it may be left standing, has lost its character as a build- ing, and instead thereof has become a broken mass, or so far in that condition that it can not properly any longer be designated as a building. When that has occurred, then there is total destruction or loss. A total loss does not mean absolute extinction ; it does not mean that all the parts composing the building are absolutely and physically destroyed, but the inquiry always is whether after a fire, the thing insured still exists as a building." A building is a total loss where the remnant is iuconsiderable com- pared with the part entirely destroyed, and does not constitute a sufficient basis to restore the burnt building.^^ Thus, a building is a total loss where three of the walls are entirely destroyed, and none of the joists, floor and window sills are left, although the other wall was used in erecting a new building after being condemned as unfit for use.^^ The foimdation of the building is not within the con- templation of the parties, and. hence the question of injury to the foundation should not be considered in reaching a conclusion as to a total loss." There is a total loss, although the building was not sound when it was insured, where it is so injured by fire as to be rendered inse- cure and a menace to life, and for that reason is condemned by the proper authorities.^* TJnder the Minnesota standard policy, total loss is to be ascer- tained as of the date of its occxtrrence, and is determined by the fol- lowing tests: A building is not a total loss unless it has been so far destroyed by the fire that no substantial part of it above the foundation remains in place capable of being safely utilized in restoring the building to the condition in which it was before the fire. "Murphy v. American Ins. Co. Ins. Co., 74 Wis. 67, 3 L. R. A. 523, (Tex. Civ. App.), 54 S. W. 407 41 N. W. 443 (1889). (1899). "Murphy v. American, etc., Ins. "American, etc., Ins. Co. v. Mur- Co. (Tex. Civ. App.), 54 S. W. 407 phy (Tex. av. App.), 61 S. W. 956 (1899). (1901). See, also, German F. Ins. "Monteleone v. Royal Ins. Co., 47 Co. V. Eddy, 36 Neb. 461, 19 L. R. A. La. Ann. 1563, 18 So. 472 (1895). 707 (1893); Seyk v. Millers', etc.. § 336 THE STANDAED POLICY. 368 The words "total loss/' when applied to a building, mean totally destroyed as a building — ^that is, that the walls, although some por- tion of them remain standing, are unsafe to use for the purpose of re- building and would have to be torn down and a new building erected throughout. There can be no total loss of a building so long as the remnant of the structure left standing above the foundation is reasonably and safely adapted for use (without being taken down) as a basis upon which to restore the building to the condition in which it was imme- diately before the fire; and whether it is so adapted depends upon the question whether a reasonably prudent owner of a building unin- sured, desiring such a structure as the one in question was before the fire, would, in proceeding to restore the building, utilize such stand- ing remnant as such basis. If he would, then the loss is not total. A cold storage plant was insured under the following description: "Four-story and basement brick building, with composition roof, and a brick engine and boiler house attached, including steam heating and hoisting apparatus, steam, brine, water and gas pipe fixtures, and all other permanent fixtures, occupied for warehouse purposes." The engine house consisted of a small one-story brick structure at- tached to the main building, and the whole was considered and oper- ated as an entirety. It was held that, conceding the engine house was but slightly damaged by the fire, the question of total loss must be ap- plied to the structure as a whole." § 336. Total loss to frame building within fire limits. — Where a policy covers a building located within the fire limits of a city, of a class which, under certain conditions, can not be repaired without violating the city ordinances, there is a total loss when the repairing of the building insured and damaged is prevented by reason of such ordinances. But the value of what remains of the building after a fire, over and above the cost of removing it from the premises, should be deducted from the face of the policy." "There is no question in this case," said the eourt,^* "but that the insured building was within "Northwestern, etc., L. Ins. Co. v. (1886); Brady v. Northwestern Ins. Rochester, etc., Ins. Co. (Minn.), 88 Co., 11 Mich. 425 (1863); Fire Ass'n N. W. 265 (1901). V. Rosenthal, 108 Pa. St 474, 1 Atl. "Larkin'v. Glens Falls Ins. Co., 303 (1885); Monteleone v. Royal Ins. 80 Minn. 527, 83 N. W. 409 (1900); Co., 47 La. Ann. 1563, 18 So. 472 Hamburg, etc., Ins. Co. v. Garling- (1895). ton, 66 Tex. 103, 18 S. W. 337 369 MEASUEE OF DAMAGES. § 337 such fire limits, and no question but that the building inspector re- fused a permit to repair the same after the fire. Nor is there any question but that, without proper and suitable repairs, the building was rendered practically worthless by the fire. So we are confronted with the question as to the effect of such ordinances and the action of the inspector thereunder, on the contract of insurance. The ques- tion is a new one in this state, and an examination of the books dis- closes very few adjudged cases on the subject in other states. * * * These authorities lay down the rule that such ordinances are a part of the contract of insurance, and that the insurer is bound thereby. This is in line with the general doctrine that, where the parties con- tract upon a subject which is surrounded by statutory liniitations and requirements, they are presumed to have entered into their engage- ments with reference to such statute, and the same enters into and becomes a part of the contraqt." After quoting the statement of Mr. Joyce that under such circumstances a recovery may be had for a total loss, the court said : "To this may be added the qualification that, if what remains of the building after the fire be of any value over and above the cost and expense of removing it, such excess value must be deducted from the recovery." The court declined to pass upon the question whether the determination of the building in- spector, or of the board of arbitration, on appeal from his decision, that the building had been damaged to the extent of fifty per cent. of its value, and therefore was not subject to repair under the or- dinance, was final and conclusive. § 337. Amount of recovery — ^Illustrations. — There are numerous cases which construe provisions similar to that of the standard policy. The purpose of the clause providing that "the company shall not be liable beyond the actual cash value of the property at the time the loss or damage occurs" is to prevent a recovery of damages beyond the prescribed limitation. It does not affect the right of the plaintiff to prove and recover damages in an amount less than the actual cash value of the property destroyed or injured. The value at the date of the loss is the limit of recovery, but it is not a constituent element of a cause of action on the policy, and need not be stated in the eomplaint.^^ Where the policy provided that the company should not "Osbome v. Phenix Ins. Co. (Utah), 64 Pac. 1103 (1901). 24r— EuuoTT Ins. § 338 THE STANDARD POLICY. • 370 be liable beyond the actual cash value of the property at the time of the loss or damage, which should be ascertained according to such actual cash Talue, with proper deduction for depreciation, however caused, but in no event to exceed what it would cost the insured to repair or replace the same with material of like kind and quality, it was held that the measure of damages was the sum it would cost the insured to repair or replace the building with one of like kind and quality.^' The insurance company is not bound by the value placed on the property in the application.^" A company which, upon an ap- plication for additional insurance, increases the amount of the risk, can not, after a loss, restrict its liability to three-fifths of the addi- tional insurance because a stipulation in the original policy provides that it shall cover but a three-fifths' interest in the property desig- nated.''" The amount of the government tax on whisky destroyed by fire in a bonded warehouse can not be deducted from the amount of the loss in an action by the owner, upon a policy of insurance against all direct loss or damage by fire to the whisky.^^ Where a part of the property was removed to other premises and was there destroyed by fire, and the loss amounts to the face of the policy, the company is not entitled to reduce the loss in the proportion that the value of the property remaining bears to that destroyed, but must indemnify the insured for the whole loss.^^ XXIII. Prorating Loss with Other Insurers. This company shall not ie liable under this policy for a greater proportion of any loss on the described property, or for loss by and ex- pense of removal from premises endangered by fire, than the amount "MoCready v. Hartford F. Ins. struction of the building caused by Co., 70 N. Y. Supp. 778, 61 App. Div. the legislation does not increase its (N. Y.) 583 (1901). In computing market value: Pennsylvania, etc., the loss sustained by the insured Co. v. Philadelphia, etc., Co. (Pa. ■ and chargeable to the insurer under Com. PI.), 10 Pa. Dist R. 181 a fire policy, the cost of rebuilding (1900). up to the amount to be designated in " Brown v. Quincy, etc., Ins. Co., the policy is to be included, though 105 Mass. 396 (1870). increased beyond the original cost ""London Assur. Corp. v. Pater- of construction by reason of an act son, 106 Ga. 538, 32 S. E. 650 (1899). of the assembly regulating the con- '^ Queen Ins. Co. v. McCoin, 20 Ky. struction of buildings, passed before L. 1633, 49 S. W. 800 (1899). the fire, but after the policy was ^Westchester P. Ins. Co, v. Mc- issued, where the improved con- Adoo (Tenn.), 57 S. W. 409 (1899). 371 PRORATING LOSS. § 338 hereby insured shall hear to the whole insurance^ whether valid or not, or by solvent or insolvent insurers, covering such property, and the extent of the application of the insurance under this policy or of the contribution to be made by this company in case of loss, may be pro- vided for by agreement or condition written hereon or attached or appended hereto.^' § 338. The pro rata clause. — In the absence of a clause of this character, the insured may recover either a proportionate part of the loss from each insurer or the' entire amount from one insurer.''* An insurer who pays the entire amount is entitled to contribution from the other insurers. As said by Lord Mansfield in an early case:"^ "As between the insurer and the insured, upon the foot of commuta- tive justice merely, there is no colour why the insurers should not pay the insured the whole. For they have received a premium for the whole risque. * * * If the insured is to receive but one satis- faction, natural justice says that the several insurers should all of them contribute pro rata to satisfy that loss against which they have all insured, * * * and if the whole should be recovered from one, he ought to stand in the place of the insured to receive contribu- tion from the other, who was equally liable to pay the whole." This provision of the standard policy is new in form and arrange- ment. It relates to double or other insurance, and not to insurance upon different interests. ''^ The object of the clause is to prevent a multiplicity of actions. Under it there is no right of contribution between companies, as the insured can recover from each only its "This provision is found in the it shall not apply in case of total standard policies of New York, New loss on buildings. Jersey, Connecticut, Rhode Island, " See Norwich, etc., Ins. Co. v. Louisiana, Wisconsin, North Dakota, Wellhouse (Ga.), 39 S. B. 397 South Dakota, Michigan and North (1901). Carolina. Massachusetts, Maine and " Godin v. London Assur. Co., 1 Nerw Hampshire have the following Burr. 489 (1758). clause: "If there shall be any other ^ See § 245, sMpro; Fire Ins. Ass'n insurance 'on the property insured, v. Merchants', etc., Transp. Co., 66 whether prior or subsequent, the in- Md. 339 (1886), 7 Atl. 905; McMas- sured shall recover on this policy ter v. Insurance Co., 55 N. Y. 222, no greater proportion of the loss 14 Am. Rep. 239 (1873). See note sustained than the sum hereby in- to 15 L. R. A. 127, for cases as to sured bears to the whole amount in- what constitutes double insurance sured thereon." The Minnesota for the purpose of the apportion- clause is similar, but provides that ment of the loss. § 339 THE STANDARD POLICY. 372 full pro rata share. Where there are several policies which cover in part the same and in part different property, and contain different and inconsistent provisions, it is practically impossible ' to prorate the loss by this or by any other rule. Mr. Eichards, after referring to the fact that these matters are generally settled by the companies out- of court, says that the courts hav^ endeavored to apply the fol- lowing principles: 1. The different policies are placed as far as possible upon an equality, and special conditions and limitations in one policy are not brought over into another policy. 2. The object of the contribution clause is construed to be a re- striction of the amount recovered from each insurer to its equitable contributory share, and must not be permitted to operate so as to reduce the aggregate amount of indemnity which the insured might otherwise recover. 'No arrangement of the clauses in the policy should be used to the disadvantage of the insured. He must be paid, and the dispute, if any, settled among the imderwriters."' Liability is reduced pro rata by insurance, whether valid or not, "or by solvent or insolvent insurers.'"'' The provision with reference to valid or invalid insurance refers only to other insurance obtained with the consent of the company, and has no application to other policies.^" Where there is double insurance, and the total loss exceeds the total insurance, there can be no apportionment, and each insurer must pay in full the amount for which he is individually liable.^" XXIV. Subrogation. If this company shall claim that the fire was caused by the act or neglect of any person or corporation, private or municipal, this com- pany shall, on payment of the loss, be subrogated to the extent of such payment to all the right of recovery by the^ insured for the loss resulting therefrom, and such right shall be assigned to this com- pany by the insured on receiving such payment.^^ " Richards Ins., § 164, citing Lu- " London, etc., Ins. Co. v. Turn- cas V. Jefferson Ins. Co., 6 Cowen bull, 86 Ky. 230, 5 S. W. 542 (1887). (N. Y.) 635, Woodruff Ins. Cas. 198 "Lebanon, etc., Ins. Co. v. Kepler, (1827). This case contains a gen- 106 Pa. St. 28 (1884). eral discussion 'of the rules which "This provision is found in the govern prorating and contribution, standard policies of New York, New " Cassity v. New Orleans Ins. Jersey, Rhode Island, Connecticut, Ass'n, 65 Miss. 49 (1887). Michigan, Louisiana, Wisconsin, 373 SUBROGATION. § 339 § 339. The general principle. — The common-law right of subro- gation has been referred to elsewhere. The insurer is treated as a surety, and is entitled to all the remedies of the insured against a per- son who by his wrongdoing causes the destruction of the insured property. "It is well settled that, if a loss under a policy of insur- ance is occasioned by the wrongful act of a third party, the insurer occupies the position of a mere surety, and the wrongdoer that of a principal debtor; and all the incidents of suretyship attach to the position of the underwriter in such eases, including the right of subrogation. * * * The same principle is applicable to the con- tract of insurance if the suretj' [assured] destroys the remedy of subrogation, and relieves the assurer to the full extent to which the wrongdoer could have been made liable for the loss."^^ The right of subrogation is expressly declared by the standard policy, which also provides for a formal assignment to the company of the insured's right of action against the wrongdoer. If the insured destroys the insurer's right of subrogation to a claim against the person causing the loss, he can not recover against the insurance company.- Thus, where the insured consented to exclude a claim for certain fixtures covered by the policy from the considera- tion of the jury, in an action against the wrongdoer to recover dam- ages to other larger interests than the fixtures, it was held that he thereby lost his right of action against the insurer on account of the fixtures under a policy which provided that upon payment of tlie loss the assured should assign his claim against the wrongdoer to the insurer, or prosecute it at the request and expense, and for the South Dakota, North Dakota, Iowa " Dilling v. Draemel, 9 N. Y. Supp. and North Carolina. The standard 497 (1890); quoted in Packham v. policies of Massachusetts, Minne- German F. Ins. Co., 91 Md. 515, 50 sota, Maine and New Hampshire L. R. A. 828 (1900). See. also, Chi- contain the following clause: "And cago, etc., R. Co. v. Glenny, 175 111. whenever the company shall pay 238, 51 N. E. 896 (1898); Phoenix any loss the assured shall assign to Ins. Co. v. Erie, etc., Transp. Co., it, to the extent of the amount so 117 U. S. 312 (1886), 118 U. S. 210 paid all rights to recover satisfac- (1886). In Leavitt v. Canadian, tion for the loss or damage from etc., R. Co., 90 Me. 153, 37 Atl. 886, any person, town, or other corpora- 38 L. R. A. 152 (1897), it was held tion, excepting other insurers; or that the right of recovery against a the insured, if requested, shall pros- person causing a loss, which is thus ecute therefor at the charge and for reserved, depends upon the law ex- the account of the company." isting at the time of the fire. § 339 THE STANDARD POLICY. 374 benefit of such insurer. In this case the court said:'' "It remains for us to determine whether the proceedings resulting in the judg- ment against the gas company released the wrongdoer and destroyed the defendant's right of subrogation. Now, there was in this case but one tortious and negligent act of the' gas company, resulting in one fire, which occurred at one and the same time, as well the loss incurred under this policy as the loss incurred under the other policies for which recovery was had against the gas company. This is admit- ted by the demurrer, as well as the further facts that that suit was for the whole loss occasioned by the fire; that there was no reserva- tion of any right by the plaintiff for the protection of this defendant, and no agreement qualifying the effect of the verdict ; and that by the direction of the plaintiff the recovery did not include any compensa- tion for loss incurred under this policy ; and the defendant has no in- terest in the recovery as to the policy with which we are now con- cerned. For a single indivisible tort but one suit can be brought. The plaintiff in this case could not now bring another siiit against the gas company for his own benefit to recover the loss incurred un- der this policy, nor could such suit be brought in his name for the benefit of the defendant. * * * rpj^g plaintiff had one indivisible cause of action against the gas company, and that cause of action has been merged in the judgment he obtained. When he excluded from that judgment so much of that cause of action as relates to this pol- icy, he as effectually released so much of his right of action as if he had executed and delivered a release under a seal therefor, and as clearly and unequivocally destroyed the defendant's right of subroga- tion as he would have destroyed it by such release. Any act which makes performance of the agreement to assign either impossible or useless must relieve the insurance company from its concurrent ob- ligation to pay. The plaintiff, in the present case, in order to pro- tect his larger interests under the other policies, and his interest in recovery for loss of profits which were uninsured, has seen fit, for reasons doubtless satisfactory to him, to sacrifice his own and the de- fendant's interest under the policy in question, and can not now be heard to complain of the result of his own course of conduct." In a subsequent case in the same state it was held that the settle- ment of a suit fbr unliquidated damages, brought by the insured against the wrongdoer, when made with the approval of the major- "Packham v. German, etc., Ins. Co., 91 Md. 515, 50 L. R. A. 828 (1900). 375 SUBROGATION. § 339 ity of the insurance companies interested in the matter, can not be complained of by the other companies that refused to come into the suit. The court said :** "It may be conceded that the insured can not fritter away the rights of the insurer entitled to be subrogated, and that he can not ordinarily make a compromise without being re- sponsible to the insurer for the amount paid by him; but under such circumstances as we have stated there can, in our opinion, be no ques- tion about his right to thus settle a suit for unliquidated damages, when the majority of those interested not only approved, but urged it. * * * Where a compromise is made, the insured may retain out of the fund his costs and reasonable expenses incurred in the litigation, and this may include a contingent fee to attorneys." The company is entitled to Jhe benefit of the money received from the wrongdoer for damage done to the insured property' only. Hence, where one who had suffered loss by fire recovered from the wrongdoer the sum of $9,000 for the loss of goods, and a certain other sum for the interruption of his business, the insurance companies, which had previously settled with the insured for a sum equal to the entire amount recovered for both items, could hold the insured only for pro rata shares of the $9,000. But the fact that the insurance company has paid the amount of the policy to the insured is no defense to an action by the insured against the wrongdoer for damages.^" It results from the prin- ciple of indemnity that the insured can not recover compensation for his loss from both the insurance company and the wrongdoer; hence, where the property is destroyed by fire negligently set by a railroad company, and the owner settles with the company, and afterwards, without informing the insurer of such fact, receives from it payment for the loss, the insurance company may recover back the money so paid.'" A common carrier may, by agreement with the owner of the prop- •* Svea Assur. Co. v. Packham railroad company to recover dam- (Md.), 48 Atl. 359, 52 Ij. R. A. 95 ages for the destruction of the in- (1901). sured property by fire, and that in "Anderson v. Miller, 96 Tenn. 35, the action the amount recovered 31 L. R. A. 604 (1896). In Lake should be adjudged to the owner and Erie, etc., R. Co. v. Falk, 62 Ohio the insurer according to their re- st 297, 56 N. E. 1020 (1900), it was spective interests, held that the insurance company "Chickasaw, etc., Ins. Co. v. Wel- should intervene in an action ler, 98 Iowa 731, 68 N. W. 443 brought by the owner against the (1896). § 340 THE STANDARD POLICY, 376 erty, secure to himself the benefit of the insurance procured by such owner. Thus, where the bill of lading provides that the carrier, when liable for a loss, shall have the full benefit of any insurance upon the goods, the payment of the loss by the company extinguishes the shipper's right of action against the carrier and destroys the in- surance company's right to subrogation.'' XXV. Reinsurance. Liability for reinsurance shall he as specifically agreed upon?^ § 340. The reinsurance contract. — The liability on a contract of reinsurance is to be provided for by special agreement. Unless an obligation in favor of the original insured is specifically created by the contract of reinsurance, he is generally regarded as a stranger to such a contract, and has, therefore, no claim on the reinsurer. This is the rule declared by the older authorities, and is based strictly on the principle of indemnity.^' But some recent cases regard the contract as made for the benefit of the original insured. In New Hampshire it is held that when the original insurer is insolvent the reinsurer must pay the amount for which it is liable directly to the party ultimately entitled to the money. In an action brought by the receiver of an insolvent company against the reinsurer, the court said:*" "The defendants received the full consideration for the risk against which they insured, and there is no reason why they should not be required to pay the full amount of the loss. The pre- miums received by them and the sum to be paid by them in case of loss were intended to be, and in theory of law are, precisely equiva- lent." So, in a recent case in Forth Carolina, it was held that the insured had an interest in the contract of reinsurance and could sue the reinsurer, notwithstanding the fact that he was not a party to the contract of reinsurance, ^ which expressly provided that no such "Phoenix Ins. Co. v. Brie, etc., Iowa, South Dakota, North Dakota Transp. Co., 117 U. S. 312 (1886); and North Carolina. No such pro- Rods v. Philadelphia, etc., Ins. Co., vision is found in the standard pol- ls Pa. Super. Ct. 563 (1899); Mer- icies of Massachusetts, Minnesota, cantile F. Ins. Co. v. Calebs, 20 N. Maine and New Hampshire. Y. 173 (1859). «• See § 9, supra. »« This provision is found in the " Hunt v. New Hampshire, etc., standard policies of New York, New Ass'n, 68 N. H. 305, 38 Atl. 145, 38 Jersey, Rhode Island, Connecticut, L. R. A. 514 (1895), Michigan, Wisconsin, Louisiana, 3T7 REIXSURAXCE. § 340 action could be maintained. The court said:*^ "There is some diversity of opinion in the decisions of the courts in our sister states and the general authorities. There is no question raised as to the validity of the insuring and the reinsuring contracts, each being in due form, and supported by a valuable consideration. A policy of fire insurance is a contract of indemnity; and such contract gives the insurer an insurable interest in the property insured, coextensive with its liability. A contract of reinsurance seems to be a union and blending of the business of the two companies, presumably for the advantage of each party. The reinsurer absorbed the estate and rights of the reinsured, and assumed the risks and liabilities of the reinsured, with the privilege of the reinsured, in the present case, to continue issuing new policies for a time specified, with the . McMaster v. New York L. Ins. surance on his life. He was in fact Co. (U. S.), 22 Sup. Ct. 10 (1901). a member of several co-operative For the earlier course of this associations, and therefore did have litigation, see McMaster v. New other insurance; but the soliciting York, etc., Ins. Co., 78 Fed. 33 agent of the company, to whom he (1897); New York, etc., Ins. Co. v. stated the facts, believing that in- McMaster, 87 Fed 63, 30 C. C. A. surance of that kind was not in- 532" (1898); Central Trust Co. v. surance within the meaning of the Continental Trust Co., 171 U. S. 687 question, wrote 'No other' as the (1898); McMaster V. New York, etc., proper answer, at the same time Ins. Co., 90 Fed. 40 (1898). As to assuring the applicant that it was the construction of contract by such. And this court held that the agent, the court said: "In Conti- company was bound by the inter- nental L. Ins. Co. v. Chamberlain, pretatlon put upon the question by 132 U. S. 304, 33 L. ed. 341, 10 Sup. its soliciting agent. When; then, Ct. 87 (1889), it was decided that a McMaster signed these applications person procuring an application for he understood, and the company by life insurance in Iowa became by its agent understood, that if the force of the statute the agent risks were accepted at the home of- of the company in so doing, and lice he would, by paying one year's could not be converted into the premium in full, obtain contracts agent of the assured by any provl- of insurance which could not be tor- sion in the application. In that felted until after the expiration of case the applicant was required to thirteen months." state whether he had any other in- 401" ^ STIPULATIONS OF LIFE INSURANCE POLICY. § 3G0 ing, and on the findings must be held to have assumed, that if he paid the first annual premium in full he would be entitled to one year's protection, and to one month of grace in addition — that is, to thirteen months' immunity from forfeiture. And the findings show that the company, by its agent, gave that meaning to the clause, and that McMaster was induced to apply for the insurance by reason of the protection he supposed would be thus obtained. Bearing in mind that McMaster had made no request of the company in respect of antedating the policies, and was ignorant of the interpolation of the agent, and ignorant in fact, and not informed or notified in any way, of the insertion of December 12 as the date for subsequent pay- ments, he had the right to suppose that the policies accorded with the applications as they had left his hands, and that they secured to him, on payment of the first annual premiums in advance, im- munitj' from forfeiture for thirteen months. And the agent as- sured him that this was so. "The situation being thus, we are unable to concur in the view that McMaster's omission to read the policies when delivered to him and the payment of the premiums made, constituted such negligence as to estop the plaintiff from denying that McMaster, by accepting the policies, agreed that the insurance might be forfeited within thirteen months from December 12, 1893."^* III. ' Powers of Agent. Nor are agents authorized to make, alter, or discharge this or any other contract in relation to the matter of this insurance, or to waive any forfeiture hereof, or to grant permits. § 360. Agents. — The effect of this provision in a policy has been already considered. It was recently held in Missouri that an agent of a life insurance company may waive a forfeiture for non-payment of the premium, although the policy provided that there could only be a waiver of forfeiture for a breach of conditions in writing, signed "Citing Supreme Lodge v. With- Iowa 276, 72 N. "W. 530 (1897); ers, 177 U. S. 260, 44 L. ed. 762, 20 Hartford Steam Boiler, etc., Co. v. Sup. Ct 611 (1900), and cases cited; Cartler, 89 Mich. 41, 50 N. W. 747 Fitchner v. Fidelity, etc.. Ass'n, 103 (1891). 26— EixioiT Ins. § 361 LIFE, ACCIDENT AND INDEMNITY INSURANCE. -, 402 by the president or vice-president and one of the other officers of the company, where the receipts which were given by an agent pro- vided on their face that they should not be valid unless countersigned by the agent.''' Where a company whose general manager is also a director re- ceives proofs of loss which show that the condition of the policy as to residence of the insured has been violated, and returns the proofs for minor corrections without claiming a forfeiture on account of such violation, the company is estopped from claiming a forfeiture on account thereof J' So, where a general agent modified a condi- tion of the application for insurance, and the policy subsequently issued required full prepayment of the premium, by accepting a por- tion of the premium and giving sixty days' credit for the balance, in violation of the terms of the policy, it was held that the company was estopped to assert the invalidity of the contract, notwithstanding the fact that the policy which was issued contained a provision pro- hibiting the' modification of its terms other than by a written agree- ment signed by its president or secretary. This condition appeared in the policy, but the insured was not informed of the fact that it would be in the policy when he made the application." IV. Statement of Age. Any error made in understating the age of the insured will he adjusted by paying such amount as the premiums paid would pur- chase at the table rate. § 361. Age. — This liberal provision of the policy relieves the in- sured from a forfeiture which would otherwise result from a mis- statement of his age. In its absence, the understatemeat of his age by an applicant for life insurance increases the risk as a matter of law.^° Thus, it was held that a statement by an applicant that his age was fifty-nine, when in fact it was sixty-four, avoided the pol- icy.*^ A statement that the age of the applicant is thirty, when in " James v. Mutual, etc., Ass'n, 148 Wash. 26, 60 Pao. 68, 47 L. R. A. Mo. 1, 49 S. "W. 978 (1898). 201 (1900). " Kidder v. Knights Templars, " Dolan v. Mutual, etc., Ass'n, 173 etc., Co., 94 'Wis. 538, 69 N. W. 364 Mass. 197, 53 N. E. 398 (1899). (1896). "Swett V. Citizens', etc., Soc, 78 "Cole V. Union, etc., Ins. Co., 22 Me. 541 (1886). 403 STIPULATIONS OF LIFE INSURANCE POLICY. § 362 fact it is thirty-five, is a material variation.'^ A misrepresentation by a member of a benefit society as to" his age invalidates the insur- ance contract, although the applicant entered the society before its constitution and regulations as to age were finally adopted.^' But where the applicant states his age "to the best of his knowl- edge and belief," and stipulates that any untrue or fraudulent state- ment will forfeit his right to recovery, the contract is not invalidated by the fact that he was three or four years older than he stated unless there is evidence of fraud or knowledge on his part that his state- ment was untrue.** y. Assignment of Policy. No assignment of this policy shall take effect until written notice thereof shall he given to the company. § 362. Assignability. — The ordinary fire insurance contract, being of a personal nature, is not assignable without the consent of the in- surer, but a life' insurance contract, being in the nature of a chose in action, is assignable in the absence of restrictive provisions. The accepted rule is that a policy of life insurance without restrictive words is assignable by the assured for a valuable consideration like any other chose in action where the assignment is not made to cover a mere speculative risk and thus evade the law against wager pol- icies."' Payment of a policy thus assigned may be enforced by or for the benefit of the assignee. "^tna L. Ins. Co. v. France, 91 v. Bushnell, 92 Ind. 503 (1883); TJ. S. 510 (1875). New York, etc., Ins. Co. v. Flack, 3 "Marcoux v. Society, etc.. 91 Me. Md. 341, 56 Am. Dec. 742 (1852); 250, 39 AU. 1027 (1898). Hewlett v. Home, etc., 74 Md. 350, "Egan V. Supreme Council, 32 17 L. R. A. 447 (1892); Bursinger v. App. Div. (N. Y.) 245, 161 N. Y. 650, Bank, 67 Wis. 75 (1886); Olmsted 57 N. E. 1109 (1900). v. Keyes, 85 N. Y. 593 (1881); Stein- ■New York, etc., Ins. Co. v. Arm- back v. Diepenbrock, 158 N. Y. 24, strong, 117 U. S. 591 (1886); Fitz- Woodruff Ins. Cas. 402 (1899); gerald v. Hartford, etc., Ins. Co., 56 Clark v. Allen, 11 R. I. 439 (1877); Conn. 116 (1888); Mutual, etc., Ins. Falk v. Janes, 49 N. J. Eq. 484 Co. v. Allen, 138 Mass. 24 (1884); (1892); Eckel v. Renner, 41 Ohio Pingrey v. National L. Ins. Co., 144 St 232 (1884); Roller v. Beam, 86 Mass. 374 (1887); Martin v. Stub- Va. 512, 6 L. R. A. 136 (1899), an- bings, 126 111. 387 (1888); Busbnell notated. See §§ 62, 63, supra. § 363 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 404 This restriction upon the assignability of such a policy is neces- sary not only for the protection of the company, but for the purpose of protecting the rights of the beneficiary ; and hence, if the company does not by the terms of the contract require that its consent must be given to an assignment, the beneficiary or the insured, if the right is reserved, may dispose of the policy at will. The parties may place such restrictions upon the right to transfer the policy as they choose. A policy required the consent of the com- pany to an assignment and provided that with such consent a policy so assigned as security for the claim of a creditor, as beneficiary, should not exceed the amount of the actual bona fide indebtedness of the member to him existing at the time of the death of the in- sured, together with any payments made to the association upon the certificate or policy of insurance by such creditor, with interest thereon, and "this certificate or policy of insurance as to all amounts in excess thereof shall be null and void." It was held that the original beneficiary had parted with all his interest in the policy by the assignment.'" "The condition in that regard may be considered harsh," said Marshall, J., "but courts must enforce contracts as they find them. If a person sees fit to make an insurance contract so that an assignment thereof to one of his creditors will have the effect of limiting all liability thereon to the amount due such creditor from him at the time of his death, there is no law to prevent it, and he and those who come after him must abide thereby. There can be no question but that an insurance company may, by contract, place such restraints upon the assignment of its insurance policies as it sees fit, not inconsistent with its own laws or some statute. We can not escape the conclusion that, by the terms of the contract be- fore us, respondent must suffer, as the penalty for the assignment of the policy, the loss of all interest therein. This is as plainly stipu- lated in the policy as language can make it. The effect thereof, and of the assignment, was to substitute a new contract for the policy as originally written, with like conditions, excepf that the liability of the insurer was limited solely to the 'assignee,' and to the amount due the assignee from M. at the time of his death, including pay- ments by it to keep up the policy, and interest thereon, not exceeding in all the amount payable under the contract in the absence of the assignment." "McQuillan T. Mutual, etc., Ass'n as collateral security: McQuillan v. (Wis.), 87 N. W. 1069 (1901). The Mutual, etc., Ass'n (Wis.), 88 N. W. limitation applies to an assignment 925 (1902). 405 STIPULATIONS OP LIFE INSURANCE POLICY. § 363 § 363. Notice to company.— ^The provision above quoted does not prohibit the assignment of the contract, but provides that no assign- ment thereof shall take effect until written notice thereof shall be given to the company. It is sometimes held to be merely directory and not to affect the legality of the transfer as between the insurer and the assignee of the policy. Certainly no one but the insurer can question the validity of the assignment where no notice is given.*' The clause does not, like that contained in many policies, provide that an assignment without the consent of the company shall be void. As said ia a Minnesota ease,** where the policy contained a somewhat similar provision, "the consent of the company to an as- signment is not necessary. All that is required is that the assign- ment be in writing on the policy and a copy of it furnished to the company within thirty days. This provision is not one which is in- tended to guard against an increase of risk, and does not go to or infuse itself into the essence of the contract. Its sole purpose is to protect the company against the danger of having to pay the policy twice, by requiring written evidence of any change of beneficiaries to be put in reliable form and promptly furnished to the company. All that could, at the very most, be claimed as the effect of non-com- pliance with this stipulation is that the company might disregard an attempted assignment and pay the money to the original beneficiary; ia other words, such attempted assignment would be merely voidable at the option of the company." The clause will not prevent the vesting of an equitable interest in the proceeds of the policy in an assignee who has an interest in the continuance of the life of the insured.*' In Tennessee the court said:"" "The question as to the necessity of the knowledge and assent of the underwriters to an assignment of the policy is very different with reference to fire policies from life and marine policies. The assent of the company to an assignment, iu order to give it validity as against the office in case of a fire policy, is generally admitted; and notice of assignment must, therefore, be "Embry's Adm'rs v. Harris, 21 "Mutual, etc., Ins. Co. v. Hamil- Ky. L.. 714, 52 S. W. 958 (1899). ton, 5 Sneed (Tenn.) 269 (1857); "Hogue V. Minnesota Pack., etc., Robinson v. Cator, 78 Md. 72 Co., 59 Minn. 39, 60 N. W. 812 (1893); New York, etc., Ins. Co. v. (1894). Flack, 3 Md. 341, 56 Am. Dec. 742 "Travelers" Ins. Co. v. Grant, 54 (1852), N. J. Eq. 208, 33 Atl. 1060 (1896). § 363 LIFE, ACCIDENT AND INDEMNITY INSUKANCE. 406 giveB or the assignee will not be entitled to demand the insurance money. The reason for this requirement in fire policies is obvious. In such cases the personal character of the insured for integrity and prudence is a most important consideration. In the language of the books, there is infused into the contract of fire insurance something of the nature of a choice of persons. The insurer might be quite willing to underwrite a policy for one person, but not that of another of different character and habits. The known reputation of the in- sured might be a guarantee that he would not secretly destroy his own property with a view to recover the insurance money, while that of the assignee might furnish no such assurance. But no such risk exists in case of an insurance on the life of an individual, nor in case of marine policies. In the latter case the assent of the insurer to an assignment of the policy or notice of such assignment is not indispensable, in order to entitle the assignee of the policy to recover the money of the insurer. We are of the opinion, therefore, that, as between the insurer and the assignee of a life policy, notice of as- signment is not required to complete the right of the latter to re- ceive the insurance money from the former." There are decisions, however, to the effect that the company is entitled to the full benefit of this provision of the contract on the theory that it is intended to prevent speculative insurance.'^ Thus, it was said in Massachusetts that, "as the policy of the law accords with its purpose, the court will not regard with favor any rights sought to be acquired in contradistinction to the provision."'^ At the most, a failure to give the required notice invalidates an attempted assignment, but does not avoid the policy."' A notice given within a reasonable time after an assignment is sufficient, al- though the insured may have died in the meantime.'* The provision requiring the consent of the company, "in case of an assignment" of a benefit certificate, does not apply to a change of beneficiaries."' Such a provision' in a policy, which is payable to the " Stevens v. Warren, 101 Mass. The requirement that notice shall 564 (1869); Moise v. Mutual, etd., be given the company and its con- Ass'n, 45 La. Ann. 736 (1893). sent obtained may, of course, be " Stevens v. Warren, 101 Mass. waived by the company: Anthony 564 (1869). V. Massachusetts Ben. Ass'n, 158 "Marcus v. St. Louis, etd., Ins. Mass. 322 (1893). Co., 68 N. Y. 625 (1877). "Carpenter v. Knapp, 101 Iowa " New York, etc., Ins. Co. v. Flack, 712, 38 L. R. A. 128 (1897). 3 M(i. 341, 56 Am. Dec. 742 (1852). 4:07 STIPULATIONS OF IIFB INSURANCE POLICY. ' § 3G4 executor or administrator of the insured, with the right to the com- pany at its option to pay the benefit to any of a certain class of persons who should be equitably entitled thereto by reason of having incurred expenses for the benefit of the insured, does not prevent the assignment of a policy by the insured in the absence of its exercise of the option thus reserved."* Under the New York statute, which authorizes a married woman to insure her husband's life for her sole use, a policy was held not assignable. The court said: "Policies of life insurance in favor of the wife on the life of the husband we have persistently held to be unassignable. We determined that their peculiar character and purpose necessarily took from them the chief and most important characteristic of propesty in general.""^ But a subsequent law au- thorizes the assignment of such a policy with the written consent of the husband."* Under this statute it was held that an assignment was valid where it appeared that the husband gave his oral consent and the assignment was for a consideration received by him for the purpose of enabling biTn to maintain his business and support a family.'* Where a statute authorizes a married woman to sell and convey any of her personal property, she may sell and convey her right to recover upon a policy of life insurance in which she is the bene- ficiary."" § 364. Manner of making assignment. — As the intention of the parties must govern, a transfer of the policy by delivery, with verbal directions as to the disposition of the proceeds, is a good assign- ment,^"^ notwithstanding the fact that the policy requires the trans- "• Prudential Ins. Co. v. Young, 14 (N. Y.) 312 (1900), under taws Ind. App. 560, 43 N. B. 253 (1896). 1879, ch. 248. "Eadie v. Slimmon, 26 N. Y. 9 "Dannhauser v. Wallenstein, 60 (1862); Baron v. Brummer, 100 N. Y. Supp. 50 (1899). N. Y. 372 (1885); Dannhauser v. ™ Supreme Assembly v. Campbell, Wallenstein, 65 N. Y. Supp. 219, 52 17 R. I. 402, 13 L. R. A. 601 (1891). App. Div. (N. Y.) 312 (1900). A ™New York, etc., Ins. Co. v. contrary conclusion was reached un- Flack, 3 Md. 341, 56 Am. Dec. 742 der similar statutes In Maryland in (1852); Chapman v. Mcllwrath, 77 Bmerick v. Coakley, 35 Md. 188 Mo. 38, 46 Am. Rep. 1 (1882); (1871). Hewins v. Baker, 161 Mass. 320 "• See Dannhauser v. Wallenstein, (1894), and cases there cited. 65 N. Y. Supp. 219, 52 App. Div. § 365 -LIFE, ACCIDENT AND INDEMNITY INSUEANCE. 408 fer to be in writing.^'"' Even delivery of the policy is not always necessary,"" as where a written assignment is executed and delivered to the assignee, and the policy is retained by the insured.^"* A life insurance policy is assignable by parol when accompanied by a de- livery.^°° A letter from the insured to the insurer, requesting that the insurance be made payable, in case of his death, to his son, is not an assignment of the contract, as under the circumstances the insured retained dominion over it, and could cancel, or, with the consent of the company, modify the same.^°° The execution by the insured of an assignment of a policy to his mother as a gift, he retaining possession of it and notifying her that he had made the assignment, and "would keep it for her," is not a complete delivery, and the insured retains the power to make an- other assignment of the policy.^"' Where the policy was made pay- able to the administrator or executor of the insured, and the insured immediately delivered it to a creditor, saying that it was an overr sight that such creditor was not named as beneficiary, and the cred- itor held the policy until after the death of the insured, it was held that there was a valid assignment of the policy.^"* Even where a writing is required it is not necessary that any par- ticular form of words be used.^°* The language must, however, be sufficient to show an intention to make the assignment, and it seems that written directions as to the manner of the disposition of the fund are not suflBcient.^^" § 365. Assignment of policy by assignee. — The assignee of a policy held as collateral security for the debt of the insured can not, in the absence of a provision therefor in the instrument of assign- ment, either sell or surrender up the policy to the company for its cash value until he has given the insured a reasonable time to re- «" Hewins v. Baker, 161 Mass. ^^ Alvord v. Luckenbach, 106 Wis. 320 (1894). 537, 82 N. W. 535 (1900). "= Surges V. New York, etc., Ins. '" "Weaver v. Weaver, 182 111. 287, Co. (Tex.), 53 S. W. 602 (1899). 55 N. E. 338 (1899). Mailing th? policy is a sufficient de- "" Hancock v. Fidelity, etc., Ins. livery: 76. Co. (Tenn.), 53 S. W. 181 (1899). '" Scott V. Dickson, 108 Pa. St. 6, «» Swift v. Railway, etc., Ass'n, 56 Am. Rep. 192 (1884). 96 111. 309 (1880). '"Hancock v. Fidelity, etc., Ins. ""St. Clair, etc., Soc. v. Fietsam, Co. (Tenn.). 53 S. W. 181 (1899). 97 111. 474 (1881). 409 STIPULATIONS OP LIFE INSUKANCE POLICY. § 366 deem it.**^ But such an assignee has the right, under proper cir- cumstances, to assign the policy to another party. Thus, one who holds a policy as collateral security for the payment of a note may assign the same to an indorsee of the note and confer on such as- signee the right to hold the policy as collateral security for the note.^^^ A policy of life insurance is not a negotiable instrument. Where the insured assigned a policy to H. as security for a debt, and H. subsequently assigned it to a bank as security for money borrowed, it was held that the bank took the policy subject to the equities ex- isting in favor of the insured, unless the conduct of the latter was such as to create an estoppel, and the fact that the assignment from the insured to H. was absolute in form would not create such an es- toppel. It was held, htwever, that the laches of the insured and his practical abandonment of the policy for eleven years by neglecting to take any active measures to recover it from H., and neglecting during all that time to pay the premiums necessary to keep it from lapsing, would estop him from asserting any rights under the policy or attempting to avail himself of its benefits as against H. or his assignee, the bank, who had kept it alive by paying the premiums at its own ezpense.^^" yi. Incontestable Clause. This policy, after two years, will be incontestable, except for non- payment of premiums. § 366. Incontestable. — This provision is neither unreasonable nor contrary to public policy.^^* There is some controversy as to whether under it the insurer can raise the question of fraud after the expira- tion of the period. It was recently held in Iowa that a provision making a policy absolutely incontestable from date on any ground is unlawful and invalid in so far as it relates to fraud in the pro- curement of the policy.^^" But the weight of authority is to the effect that such stipulation is merely in the nature of a statute of limitations, and is valid even as against the defense of fraud.^^° An ™Manton v. Robinson, 19 R. I. "•Clement v. New York L. Ins. 405, 34 Atl. 148. 37 Atl. 148 (1896). Co., 101 Tenn. 22, 46 S. W. 561, 42 »» Corcoran v. Mutual L. Ins. Co., L. R. A. 247 (1898). 183 Pa. 443, 39 Atl. 50 (1898). ™ Welch v. Union, etc., Ins. Co., ™ Brown v. Equitable L. Assur. 108 Iowa 224, 78 N. W. 853 (1899). Soc, 75 Minn. 412 (1899). "'Clement v. New York L. Ins. § 366 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 410 exception is made in cases where the insured or the beneficiary has no insurable interest, and that defense, being founded on public policy, is always open to the company. ^^^ The clause controls all matters which would have the effect of defeating or destroying the contract of life insurance, such as those relating to the cause of death or the habits of the insured, although it will not control matters which affect the remedy merely.^^* A policy containing this provision is not avoided although the insured commits suicide after the expiration of the period, notwith- standing an agreement in the application that suicide is not one of the risks assumed under the policy. ^^° ' It applies where the company seeks to avoid liability by virtue of a clause to the effect that the policy shall be void "if the insured dies in consequence of his own criminal action."^^" In a recent Wiscon- sin case, it was held that the incontestable clause covered misstate- ments or admissions of the insitred respecting his health. The court said:^^^ "The incontestable clause would seem to effectually bar this defense. If this clause be not altogether a glittering generality put in for no purpose except to induce men to insure, it would seem that it must cover such misstatements or admissions as are here al- leged." In Texas it was held that a clause which provided that if the terms of the policy were complied with, it should be incontestable after one year from its date, rendered the policy incontestable for false warranties after the expiration of one year, although its language was of uncertain and doubtful meaning.^^^ Co., 101 Tenn. 22, 42 L. R. A. 247, "» Patterson v. Natural Premium, 46 S. "W. 561 (1898). See § GS, supra, etc., Ins. Co., 100 Wis. 118, 42 L. R. "'Manufacturers' L. Ins. Co. v. A. 253, 75 N. W. 980 (1898); citing Anctll, 28 Can. S. C. 103 (1897). Wright v. Mutual, etc., Ass'n, 118 "» Massacliusetts, etc., Ass'n v. N. Y. 237, 23 N. E. 186 (1890); Robinson, 104 Ga. 256, 30 S. E. 918, Simpson v. Life Ins. Co., 115 N. C. 42 L. R. A. 261 (1898). 393, 20 S. E. 517 (1894); Goodwin ""Goodwin v. Provident, etc., v. Provident, etc., Ass'n, 97 Iowa Ass'n, 97 Iowa 226, 66 N. W. 157, 226, 66 N. W. 157 (1896); Kline v. 32 L. R. A. 473 (1896); Mutual Re- National Ben. Ass'n, 111 Ind. 462, serve, etc., Ass'n v. Payne (Tex.), 11 N. E. 620 (1887). 32 S. W. 1063 (1895). "^Franklin Ins. Co. v. Villeneuve ""Sun L. Ins. Co. v. Taylor, 22 (Tex. Civ. App.), 60 S. W. 1014 Ky. L. 37, 56 S. W. 668 (1900). (1901). 411 STIPULATIONS OP LIFE INSURANCE POLICY. § 367 YII. Special Privileges. ! This policy, while in force, will participate annually in the com- pany's distribution of surplus as ordered hy the directors, and the special privileges printed on the third page hereof are hereby made a part of the policy contract. § 367. Special privileges. — Almost all of the policies now in use contain some such provision as that quoted above. The special privi- leges thus provided for, of course, differ in each policy, and, there- fore, require no special consideration at this time. Till. Application a Part of Contract. In consideration of the statements and agreements in the applica- tion for this policy, which are hereby made a part of this contract. § 367a. Provisions in the application. — The application upon which a policy of life insurance issues is by virtue of this clause in- corporated into and made a part of the contract of insurance. State- ments therein contained in answer to questions of the agent of the company and its medical examiner are generally, in express words, made warranties, and, in the absence of a statute requiring a certain construction, they will be construed as warranties under the general rules already stated. The form of application used by the com- pany whose policy we have been considering contaias the following provision in addition to the answers to the specific questions: (a) Excepted Bisks. I further agree that the policy hereby applied for shall become and be null and void if, within two years from date hereof, I shall commit suicide while sane or insane; or within such period, and without the written consent of the company, shall reside in or travel to the Philippine Archipelago or the Klondike region, or reside or travel elsewhere than in the remaining portions of the United States and Canada, or in or to Europe, or be personally engaged in blasting, mining, submarine operations, or in the making of explosives, or in the service of any railway train, or on a steam or sailing vessel, or in naval or army service in times of war. § 368 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 412 § 368. Suicide — Sane or insane. — In order to avoid the contro- versy which has arisen over the meaning of the word "suicide," the insurance companies now generally protect themselves by providing that the policy shall be void if the insured die by suicide, while sane or insane.^^' In some states this defense is forbidden unless it is made to appfear that the insured Contemplated suicide at the time he took out the policy.^''* The provision, is an exact and reasonable limitation upon the liabil- ity of the company, and under it the insurer is not liable, although the insured kills himself while in a condition which renders him wholly unconscious of the moral nature of the act.^^' It covers a case where the person who commits suicide is entirely bereft of reason.^^^ This rule is recognized to its fullest extent by the supreme court of the United States, which, in a leading case, said:''" "For the purposes of this suit it is enough to say that the policy was rendered void, if the insured was conscious of the physical nature of his act, and intended by it to cause his death, although, at the time, he was incapable of judging between right 180 Fa. St. 205, 36 Atl. 734 (1897); SprulU V. Northwestern, etc., Ins. Co., 120 N. C. 141, 27 S. E. 39 (1897) ; Zimmerman v. Masonic Aid Ass'n, 75 Fed. 236 (1896); Kel- ley V. Mutual L. Ins. Co., 75 Fed. 637 (1896); Insurance Co. v. Fox, 106 Tenn. 347, 61 S. W. 63 (1901); Hart V. Modern Woodmen, 60 Kan. 678, 57 Pac. 936 (1899); Wolten v. American, etc., Ins. Co. (Tex.), 51 S. W. 1105 (1899); Scarth v. Se- curity, etc., Soc, 75 Iowa 346, 39 N. W. 658 (1888); Leman v. Manhattan L. Ins. Co., 46 La. Ann. 1189, 15 So. 388 (1894). For some lim- itations, see Mutual, etc., Ins. Co. V. Daviess, 87 Ky. 541, 9 S. W. 812 (1888); Sabin v. Senate, etc., 90 Mich. 177, 51 N. W. 202 (1892). ™De Gogorza v. Knickerbocker, etc., Ins. Co., 65 N. Y. 232 (1875). ""Bigelow V. Berkshire, etc., Ins. Co., 93 U. S. 284 (1876). See, also, Connecticut, etc., Ins. Co. v. Akens, 150 U. S. 468 (1893). '""Ad examination of the policies and applications now in use shows that almost all the leading com- panies now insert the words "sane or Insane." ^Rev. St. Mo. 1879, § 5982; Rev. St. Mo. 1889., § 5855; ^tna L. Ins. Co. V. Florida, 69 Fed. 932, 16 C. C. A. 618 (1895), note; Knights Tem- plars, etc., Co. V. Jarman, 104 Fed. 638, 44 C. C. A. 93 (1900); Wallace v. Bankers' L. Ass'n, 80 Mo. App. 102 (1899). See, also, Haynie v. Knights Templars, etc., Co., 139 Mo. 416, 41 S. W. 461 (1897). The Ohio statute providing that the company Is estopped to set up certain de- fenses, after the lapse of three years (Rev. St., § 3626), does not estop the insurer from defending on the ground of suicide: Starck v. Union, " etc., Ins. Co., 134 Pa. St. 45, 19 Atl. 703 (1890). ™ Scherar v. Prudential Ins. Co. (Neb.), 88 N. , W. 687 (1902); Tritschler v. Keystone, etc., Ass'n, 413 STIPDLATIOITS OF LIFE INSURANCE POLICY. § 369 and wrong and of understanding the moral consequences of what he was doing." So, it was held in Michigan that such a proviso "covers all conscious acts of the insured by which death by his own hand is compassed, whether he was at the time sane or insane. If the act was done for the purpose of self-destruction, it matters not that the insured had no conception of the wrong involved in its commission."^''* It is immaterial whether the act was deliberate or otherwise.^^' The policy is void, although the insured acts under an insane impulse which overcomes his will power.^'" § 369. Where there is no provision as to the effect of suicide. — The supreme court of the "United States has recently held that in- tentional self-destruction by the assured when sane is not a risk cov- ered by a life insurance policy even when the policy does not except such a death. It was further said that a contract of life insurance which expressly provided for payment if the insured, while sane, took his own life, would be against public policy, as it would have a tendency to tempt persons to commit suicide for the purpose of pay- ing their debts or providing for those who are dependent upon them.^^^ Before this decision, the weight of authority sustained the rule that where the contract contains no provision to the effect that suicide ^hall invalidate the contract, it is no defense to an action on the policy that the insured took his own life.^'^ But a distinction should be made between cases where the insured kills himself for the purpose of obtaining the money for the use of his own estate, and where the money is payable to a third person as beneficiary. Thus, it was said :^'* "In the law of insurance, suicide is not as a rule recognized "• Streeter V. Western Union, etc., 332 (1882); Hartman v. Keystone See, 65 Mich. 199, 31 N. W. 779, Ins. Co., 21 Pa. St. 466 (1853). See 9 Am. St 882 (1887). See, also, note in 59 Am. Dec. 487. Sabin v. Senate, etc., 90 Mich. 177, ""Campbell v. Supreme Conclave 51 N. W. 202 (1890). (N. J.), 54 L. R. A. 576 (1902); "•Union, etc., Ins. Co. v. Hoi- Seiler v. Economic L. Ass'n, 105 lowell, 14'lnd. App. 611, 43 N. B. Iowa 87, 43 L. R. A. 537 (1898); 277 (1896). Darrow v. Family Fund Soc, 116 N. ■» Billings V. Accident Ins. Co., Y. 537, 15 Am. St. 430, 22 N. B. 1093, 64 Vt. 78, 24 Atl. 656, 17 L. R. A. 89 6 L. R. A. 495 (1889). (1892), annotated. "»Kerr v. Minnesota, etc., Soc, "■ Ritter v. Mutual L. Ins. Co., 39 Minn. 174, 12 Am. St. 631, 39 N. 169 U. S. 139 (1897). See s. c. in W. 312 (1888). See Mills v. Reb- 70 Fed. 954; 17 C. C. A. 537 (1895). stock, 29 Minn. 380, 13 N. W. 162 See, also, Supreme Commandery v. (1882); Fitch v. American, etc.. Ins. Ain'sworth, 71 Ala. 436, 46 Am. Rep. Co., 59 N. Y. 557 (1875). § 370 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 414 as a ground of exemption from liability or for forfeiture of a policy issued for the benefit of a third person." In Pennsylvania it was recently held that suicide by the insured under a policy payable to Ms wife does not, in the absence -of any provision on the subject, avoid the policy as against the wife."* This rule prevails in lowa^" and Illinois,"" -although it is held that suicide will avoid a policy which is payable to the assured or his personal representatives. This dis- tinction is recognized in most of the cases.^^^ Hence a policy which contains no provision with reference to forfeiture if the insured com- mits suicide is void, where the insured delibejately kills himself in order to secure the money for the benefit of his estate.^^' If, how- ever, the policy is taken out with the preconceived intention, then entertained by the insured, of taking his own life for the purpose of obtaining the insurance money, the contract is void by reason of such fraud, .although it contains no provision with reference to the effect of suicide."" § 370. Suicide — Constructioii. — There has been so much contro- versy and resulting confusion over the meaning of these words, as used without other descriptive words, that it is a relief to find the insurance companies inserting the clear and definite clause which has been quoted. Where the policy simply provides that suicide by the insured shall render it invalid, the weight of authority supports the rule established by the supreme court of the United States in the well-known Terry case.^*° The policy there under consideration required the interpretation of the phrase "death by his own hand." The court charged the jury that "if he was impelled to the act by an insane impulse which the reason that was left him did not enable him to resist, or, if his reasoning powers were so far overthrown by >M Morris v. State, etc., Assur. Co., •»" Parker v.. Des Moines L. Ass'n, 183 Pa. St. 563, 39 Atl. 52 (1897). 108 Iowa 117, 78 N. W. 826 (1899); Contra, Hopkins v. Northwestern Smith v. National Ben. See, 123 L. Assur. Co., 94 Fed. 729 (1899). N. Y. 85 (1890). i=» Parker v. Des Moines L. Ass'n, "° Life Ins. Co. v. Terry, 15 Wall. 108 Iowa 117, 78 N. W. 826 (1899). (U. S.) 580 (1872). See, also, '"' Supreme Lodge v. Kutscher, 72 Mutual L. Ins. Co. v. Leubrie, 71 111. App. 463 (1897). Fed. 843, 18 C. C. A. 332 (1895). 1" See Patterson v. Natural Prem., The words "die by his own hand," etc., Ins. Co., 100 Wis. 118, 75 N. W. or "by his own act," mean suicide: 980 (1898), and cases there cited. Mutual L. Ins. Co. v. Wiswell, 56 '■"Ritter v. Mutual L. Ins. Co., 70 Kan. 765, 44 Pac. 996 (1896). Fed. 954, 17 C. C. A. 537 (1895). 415 STIPULATIONS OF LIFE INSDRAXCE POLICY. § 370 his mental condition that he could not exercise his reasoning facul- ties on the act he was ahout to do, the company is liable." In affirm- ing the decision of Mr. Justice Miller at circuit, the supreme court, through Mr. Justice Hunt, said: "We hold the rule in question to be this: If the assured, being in the possession of his ordinary reasoning faculties, from anger, pride, jealousy, or a desire to escape from the ills of life, intentionally takes his own life, the proviso attaches and there can be no recovery. If the death is caused by the voluntary act of the insured, he knowing and intending that his death shall be the result of his act, but when his reasoning faculties are so fax impaired that he is not able to understand the moral char- acter, the general nature, consequences and effect of the act he is about to commit, or when he is impelled thereto by an insane im- pulse, which he has not the power to resist, such death is not within the contemplation of the parties to the contract, and the insurer is liable." In a subsequent case in the same court,^*^ where the policy con- tained a provision to the effect that "the self-destruction of the in- sured in any form, except upon proof that the same is the direct result of disease or accident occurring without the voluntary act of the insured" should avoid the policy, Mr. Justice Gray said: "Tliis ease is governed by a uniform series of decisions establishing the fact that if one whose life is insured intentionally kills himself when his reasoning faculties are so far impaired by insanity that he is unable to understand the moral character of his act, even if he does under- stand its physical nature, consequence and effect, it is not 'suicide' or 'self-destruction,' or 'dying by his own hand,' within the meaning of those words in a clause excepting such risks out of a policy and con- taining no further words expressly extending the exemption to such case."^*^ It was held that the clause under consideration covered a case of the insured's death as the result of taking poison when his mind was so far deranged as to be unable to understand the moral character of his act, although he did understand its physical conse- quences. Of course, accidental self-destruction is not suicide or self-destruc- »" Connecticut, etc., Ins. Co. v. U. S. 232 (1877); Manhattan L. Ins. Akens, 150 U; S. 468 (1893). Co. v. Broughton, 109 U. S. 121 '"Life Ins. Co. v. Terry, 15 Wall. (1883); Connecticut, etc., Ins. Co. (U. S.) 580 (1872); Bigelowv. Berk- V. Lathrop, 111 U. S. 612 (1884); shire, etc., Ins. Co., 93 U. S. 284 Accident Ins. Co. v. Crandall, 120 (1876); Insurance Co. v. Rodel, 95 U. S. 527 (1887). § 371 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 416 tion within the meaning of such provision in an insul-ance contract.^** A provision in a policy that "self-destruction, sane or insane," is a risk not assumed by the company under the contract, applies only to sui- cide intentionally committed.^** So, the phrase, "die by his own hand or act, voluntary or otherwise," does not include the innocent or accidental taking of an overdose of medicine.^*° § 371. Presumption — ^Burden of proof. — The presumption is al- ways against the fact of suicide, and therefore, where there is a reasonable doubt whether death was due to suicide or acei(}ent, the presumption is in favor of accident.^*" "It is a proposition of law, supported by authority as well as reason, that this and similar clauses in policies of insurance, con- ceding them to be valid, are not infracted by the accidental and mis- taken taking of an overdose of medicine or poison or by any unin- tentional taking of his life by the insured.^*' The principle or rule in cases of this character is equally supported that suicide or inten- tional destruction by one's own hand is not presumed. The pre- sumption is otherwise. A company interposing a defense of suicide, whether sane or insane, must overcome this presumption, and must satisfy the jury or court trying the case by a preponderance of the evidence that the self-destruction was intentional."^** The presump- "" Pierce v. Travelers', etc., Ins. U. S. 468 (1893); Ingersoll v. Co., 34 Wis. 389 (1874); Edwards v. Knights, etc., 47 Fed. 272 (1891); Travelers' L. Ins. Co., 20 Fed. 661 Travellers' Ins. Co. v. Sheppard, 85 (1884); note to Breasted v. Farm- Ga. 751 (1890); Fidelity & C. Co. v. ers", etc., Co., 8 N. Y. 299, 59 Am. Freeman, 109 Fed. 847, 48 C. C. A. Dec. 489 (1853). 692 (1901). '" Union, etc., Ins. Co. v. Payne, "' Penfold v. Universal, etc., Ins. 105 Fed. 172, 45 C. C. A. 193 (1900). Co., 85 N. Y. 317, 39 Am. Rep. 660 "'Penfold V. Universal, etc., Ins. (1881); Walcott v. Metropolitan L. Co., 85 N. Y. 317, 39 Am. Rep. 660 Ins. Co.. 64 Vt. 221, 24 Atl. 992 (1881); Bachmeyer v. Mutual, etc., (1891); Phadenhauer v. Germania, Ass'n, 82 Wis. 255, 52 N. W. 101 etc., Ins. Co., 7 Heisk. (Tenn.) 567, (1892); Northwestern, etc., Ins. Co. 19 Am. Rep. 623 (1872). V. Hazelett, 105 Ind. 212, 4 N. B. 582 "' Brown v. Sun, etc., Ins. Co. (1885); Burkhard v. Travelers' Ins. (Tenn.), 51 L. R. A. 252 (1899); Co., 102 Pa. St. 262 (1883). See, citing Mallory v. Travelers' Ins. Co., also, Equitable, etc., Soc. v. Patter- 47 N. Y. 52, 7 Am. Rep. 410 (1871); son, 41 Ga. 338, 5 Am. Rep. 535 Cronkhite v. Travelers' Ins. Co., 75 (1870). Wis. 116, 43 N. W. 731 (1889); Wal- '"Travelers' Ins. Co. v. Mc- cott v. Metropolitan L. Ins. Co., 64 Conkey, 127 U. S. 661 (1887); Con- Vt. 221, 24 Atl. 992 (1891); Free- necticut, etc., Ins. Co. v. Akens, 150 man v. Travelers' Ins. Co., 144 Mass. 417 6TIPULATI0KS OF LIFE INSURANCE POLICY. § 373 tion against suicide is sometimes said to exist only when tlie insured was sane.^*" The rule that the hurden rests upon the insurance Qompany to establish such defense affirmatively is not changed by the fact that the proofs of death furnished by the plaintiff stated the cause of death as suicide.^'*'' But it is incumbent on the plaintiff to show that he was mistaken when he made the statement in the proofs.^^^ So, where it appeared that the death of the insured was caused by the taking of an overdose of morphine, the plaintiff prevailed because the defendant failed to prove by a preponderance of the evidence that the insured in taking the drug intended to end his own life.^°^ § 372. Residence and occupation. — The provisions above quoted with reference to residence, occupation and travel are clear and spe- cific. Where the policy prohibited residence south of a certain de- gree of latitude, but gave permission to pass "as a passenger by the usual routes of public conveyance to and from any port or place within the limits," it was held not to be invalidated by the fact that the insured was compelled by sickness to interrupt his journey while in a place ia which travel was permitted but residence prohibited.^^' The provision with reference to residence is waived by the recep- tion and retention by the company of the premium after notice of a breach of the condition to an agent authorized to receive, and who did receive and retain the j5remium.^^* 572 (1887); Persons v. State, 90 Ins. Co. v. Akens, 150 U. S. 468 Tenn. 291, 16 S. W. 726 (1891); (1893). Accident Ins. Co. v. Bennett, 90 ""Home Ben. Ass'n v. Sargent, Tenn. 256, 16 S. W. 723 (1891). 142 U. S. 691 (1891); Union, etc.. See further, as to the presumption Ins. Co. v. Payne, 105 Fed. 172, 45 with reference to death hy suicide, C. C. A. 193 (1900); Leman v. Man- Mutual L. Ins. Co. v. Wiswell, 56 hattan L. Ins. Co., 46 La. Ann. 1189, Kan. 765, 35 L. R. A. 258 (1896); 15 So. 388 (1894). Johns V. Northwestern, etc., Ass'n, ""Keels v. Mutual, etc., Ass'n, 29 90 Wis. 332, 41 L. R. A. 547 (1895); Fed. 198 (1886); Dennis v. Union, Standard, etc., Ins. Co. v. Thornton, etc., Ins. Co., 84 Cal. 570, 24 Pac. 100 Fed. 582, 40 C. C. A. 564, 49 L. 120 (1890). R. A. 116 (1900); Connecticut, etc., """Brown v. Sun L. Ins. Co. Ins. Co. V. McWhirter, 73 Fed. 444, (Tenn.), 57 S. W. 415 (1899). 19 C. C. A. 519 (1896). ""Converse v. Knights Templars', •"Mutual, etc., Ins. Co. v. Dayjess, etc., Co., 60 U. S. App. 288 (1898). 87 Ky. 541, 9 S. W. 812 (1888). See ""Germanla L. Ins. Co. v. language used in Connecticut, etc., Koehler, 168 111. 293, 48 N. E. 297 (1897). 27— Eluott Ims. § 373 LIFE, ACCIDENT AND INDEMNITY INSUEANOE. 418 The policy also requires the applicant, in response to a question, to state his occupation — kind of business and position. The state- ment with reference to occupation must be substantially true or the policy will be rendered void.^°' But a statement that the applicant is a soda-water maker, when he is in fact a soda-water seller, is not a breach of warranty. ^°° Where the insured in his application stated that his occupation was that of a dry goods store-keeper, it was held that a failure to disclose that he was occasionally employed as a bevel-smoother of plate glass did not, in the absence of a fraudulent intent to mislead, invalidate the policy.^"^ § 373. Death in violation of law or at the hands of justice. — Many insurance contracts provide that the insure:- shall not be liable if the insured comes to his death at the hands of justice, or while en- gaged in the violation of law. The death of a woman which results from her voluntary submission to an illegal operation for abortion results from a violation of law within the meaning of this provision, and invalidates the policy.^^' So, the fact that the insured was shot by a police officer a few minutes after he had committed a robbery, and while he was attempting to escape, prevents a recovery on the policy, as the insured died in consequence of his own criminal ac- tion.^°' A by-law of an insurance company which provides that there can be no recovery should a member come to his death in consequence of a violation of a criminal law emhraces any act of the insured which may be denominated a crime, although it is not a felony. But it was held that where the insured struck another with his hand, and the latter, after throwing him down, inflicted injuries from which the insured died, such death wa^ not in consequence of a viola- tion of a criminal law within the contemplation of the parties.^''" When suicide is not a crime under the laWs of the state, a pol- icy which contains a clause to the effect that "it is to be void if the member herein shall die in consequence of a duel or at the hands of ™Dwight V. Germania L. Ins. Co., 720 (1900). See illustrations, § 395, 103 N. Y. 341 (1886). infra. •" Grattan v. Metropolitan L. Ins. "" Wells v. New England, etc., Ins. Co., 80 N. Y. 281, 36 Am. Rep. 617 Co., 191 Pa. St. 207, 43 AU. 126 (1880); Kenyon v. Knights Tern- (1898). plar, etc., Ass'n, 122 N. Y. 247 "' Prudential Ins. Co. v. Haley, 91 (1890). 111. App. 363 (1900). ""Perrin v. Prudential Ins. Co., ""Brown v. Supreme Lodge, 83 30 Misc. (N. Y.) 608, 62 N. Y. Supp. Mo. App. 633 (1900). 419 STIPULATIONS OF LIFE INSUKANCE POLICY. § 373 justice, or by any violation of or an attempt to violate any criminal law of the United States, or of any state or country in which the member herein named may be," is not invalidated although the laws of the state make an attempt to commit suicide a crime. The court said:^*^ "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 ascer- tained, of the party doing it, or by its result. If the act fails to ac- complish its purpose, it constitutes an attempt; but if the result of it is the consummation of the purpose, the act is not commonly desig- nated an attempt." Although suicide is still technically a crime, if there is no pun- ishment provided for either an attempted or an accomplished sui- cide, it is not within such a provision. Especially should this be held where the company has stricken out the usual suicide clause.^^^ A suicide committed by an alleged fugitive from justice to avoid arrest and trial for a crime is not the proximate result of the alleged crime, and hence is not within the proper meaning of the provision that "if the assured shall die in, or in consequence of, the violation of any criminal law of any country, state or territory in which the assured may be," the policy shall be void.^*' Even though a policy contains no provision for forfeiture in the event of the execution of the insured for a crime, there can be no recovery when the insured is executed. In the oft-cited Fauntleroy case,^°* Lord Lyndhurt held that a policy assuming to insure against such a risk would be void as against public policy. This rule applies where it is alleged that the conviction was erroneous and the insured in fact innocent, as it would be equally against public policy to allow insurance against the miscarriage of justice. "A contract of life in- surance, written to insure against a capital conviction in the estab- lished courts of competent jurisdiction, in the event that such con- viction is unjust and unwarranted by the evidence, is void, as against public poUcy."^*" «» Darrow v. Family Fund Soc, Ins. Co., 100 Wis. 118, 75 N. W. 980, 116 N. Y. 537, 22 N. E. 1093, 6 L. R. 42 L. R. A. 253 (1898). A. 495, 15 Am. St 430 (1889); ""Kerr v. Minnesota, etc., Ass'n, Meachem v. New York, etc., Ass'n, 39 Minn. 174, 39 N. W. 312 (1888). 120 N. Y. 237, 24 N. E. 283 (1890). '"Amicable Society v. BoUand, 4 See also, § 401, infra. Bligh (N. S.) 194, 211 (1830). •«■ Patterson v. Natural Prem., etc., '" Burt v. Union, etc., Ins. Co., 105 Fed. 419, 44 C. C. A. 548 (1900). § 374 LIFE, ACCIDENT AND INDEMNITY INSUEANCB. 420 (b) Statements with Reference to Habits, Physical Condition, Etc. § 374. Habits. — ^A false statement to the effect that the applicant does not drink spirituous liquors will avoid the policy.^'" Such a statement precludes a recovery although he does not use liquor ex- cessively or intemperately, notwithstanding a statute which pro- vides that all statements in the application shall be deemed repre- sentations and not warranties. ^°' A statement that the applicant is of temperate habits does not mean that he is a total abstainer,^"* and the supreme court of the United States has held that a man may be of temperate habits although he has once had delirium tremens.'"" Where the applicant stated that he had never used narcotics, it was held that the company could not defeat liability by showing a use of narcotics which did not amount to a custom or habit.'"" Where the applicant stated that he had always been temperate, and that the last time he had consulted a physician was about a year before for influenza, and he died of influenza four months after the policy was issued, and it appeared that before the application was made he had been frequently drunk and had consulted a physician within four months for vomiting and nausea caused by drunkenness, it was held that there was a breach of a material warranty, and there could be no recovery on the policy."' An applicant for insurance stated that he had never been intem- perate in the use of intoxicating liquors, and in construing the state- ment the court said :"^ "An occasional excess in the use of intoxicat- ing liquor does not of itself constitute a habit, and make a man in- temperate within the meaning of this policy; but if the habit has been formed and is indulged in of drinking to excess and becoming '"'Malicki v. Chicago, etc., Soc, import abstemiousness, or at least 119 Mich. 151, 77 N. W. 690 (1899). moderation- bunion, etc., Ins. Co. v. Lee, 20 "The rule of not too much, Ky. L. 839, 47 S. "W. 614 (1898). But by temperance taught." '°=Van Valkenburgh v. American ""National Fraternity v. Karnes Ins. Co., 70 N. Y. 605 (1877). (Tex. Civ. App.), 60 S. W. 576 '™ Insurance Co. v. Foley, 105 U. (1901). S. 350 (1881); disapproving Thorn- '"Mengel v. Northwestern, etc., son V. Weems, L. R. 9 App. Cas. Ins. Co., 176 Pa. St. 280, 36 Atl. 197 671 (1884), where it was said that (1896). "temperate in habits" is a phrase "'Union, etc., Ins. Co. v. Relf, 36 to be interpreted, and though not Ohio St. 596, Woodruff Ins. Cas. 295 to be taken in a Pythagorean sense (1881). as total abstinence, yet seems to 421 STIPULATIOXS 0? LIFE IXSUHAXCE POLICY. § 375 intoxicated, whether daily and continuously or periodically, with sober intervals of greater or less length, a person addicted to such habit can not be said to be of temperate habits within the meaning of this policy. * * * The habit of using intoxicating Hqnors to excess is the result of indulging a natural or acquired appetite by continued use nntU. 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. It is not essential to its existence that it should be continuously prac- ticed, or that the insured should be daily and habitually under the influence of liquor. Where the general habits of the man are either abstemious or temperate* an occasional indulgence to excess does not make him a man of intemperate habits, but if the habit is formed of drinkifig to excess, and the appetite for liquor is indulged to in- toxication, either constantly or periodically, no one may claim that his habits are temperate though he may be sober for longer or shorter periods in the intervals between the times of his debauches." § 375. Health and freedom from disease. — ^A statement that the applicant is in "good health" means that he is free from disease or aUments which affect the general healthfulness of his system, and not from mere indisposition, which does not tend to undermine or weaken his constitution."* The applicant is not required to know and state with absolute certainty his physical condition or his predis- position to different diseases, and it is sufficient that he in good faith discloses fully all that he knows about his past and present health.^^* Hence, a statement that a person is in good health, made in an application for reinstatement of a lapsed policy, does not mean that his health is absolutely perfect; but means that it was practically the same as it was when the policy was issued.'^^ Sound health means freedom from disease or ailment which affects the general soundness or healthfulness of the system seriously, and the word "serious" is not generally used to describe a dangerous condi- tion, but rather a grave, important or weighty trouble."* "•Plumb V. Penn, etc., Ins. Co., '"Massachusetts, etc., Ass'n v. 108 Mich. 94, 65 N. W. 611 (1895). Robinson, 104 Ga. 256, 30 S. B. 918, "'Endowment Rank v. Cogbill, 99 42 L. R. A. 261 (1898). Tenn. 28, 41 S. W. 340 (1897); ""Brown v. Metropolitan L. Ins. Moulor V. American L. Ins. Co., Ill Co., 65 Mich. 306, 32 X. W. 610 U. S. 335 (1884). (1887); Metropolitan L. Ins. Co. v. § 375 LIFE, ACCIDEIJT AND INDEMNITT INSURANCE. 422 A temporary indisposition such as an ordinary cold is not an ill- ness within the meaning of that word as used in an application for a policy.^'^ A man who has a cold, on account of which he is in bed, may he in good health within the meaning of such a clause, and this is not afPected by the fact that he was taken with pneumonia and died a few days after the premium was paid.^^* Where the applicant, in answer to a question whether he had ever had any "illness, local dis- ease, injury, mental or nervous disease, or infirmity, or ever had any disease or weakness of the head, throat, heart, lungs, stomach, kidneys, bladder, or any disease or infirmity whatever," answered "No," it was held not untrue, although a year before he had been treated by a physician while insensible from the infiuence of chloroform, pre- sumably taken with suicidal intent.^^' A failure of the applicant to state, in reply to a question as to when and for what diseases he has consulted a physician, that he had taken the Keeley cure for alcoholism is not a misrepresentation, as drunkenness is not a disease within the meaning of this inquiry.^^" i A statement in the application that the applicant since childhood had not had the disease or disorder of spitting of blood is material, and invalidates the policy where it appears that within a year prior to the application he had a hemorrhage, in regard to which he con- sulted a physieian.^'^ So, where the applicant stated that he had never had kidney disease and had not been attended by a physician within two years, and proofs of death were made by a physician, wherein it was stated that he had attended the assured for acute kidney disease and that he had died of Bright's disease, and the proofs were by the contract made evidence against the insured, it was held that the falsity of the answers was established, and that there could be no recovery."" So, where the applicant stated that he had been in good health, with the exception of having had yellow fever seven or eight years before, and that he had no physician and had Howie, 62 Ohio St. 204, 56 N. B. ""Supreme Lodge v. Taylor 908 (1900). (Ala.), 24 So. 247 (1898). '" Billings V. Metropolitan L. Ins. "' Smith v. Northwestern, etc., Co., 70 Vt. 477, 41 Atl. 516 (1898). Ins. Co., 196 Pa. St. 314, 46 Atl. 426 "'Barnes v. Fidelity, etc., Ass'n, (1900). 191 Pa. St. 618, 45 L. R. A. 264, 43 >«= Trudden v. Metropolitan L. Ins. Atl. 341 (1899). Co., 64 N. Y. Supp. 183, 50 App. DiT. "•Mutual, etc., Ass'n v. Parmer, (N. Y.) 473 (1900). 65 Ark. 581, 47 S. W. 850 (1898). 423 STIPULATIONS OF LIFE INSUKAXCZ POLICY. § 3T5 never been an inmate of any infirmary or hospital, and that he had never had any illness or ailment of any kind, it was held that there conld be no recovery where it appeared that prior to the application the applicant was subject to fits, that he had been an inmate of two different hospitals, and had suffered from a severe gunshot wound.^'' So, where the applicant stated that he had never had any serious ill- ness, and it appeared that two months before he made the applica- tion he had a severe attack of typhoid fever, the policy was held in- valid, although there was opinion evidence to the effect that for "life insurance purposes typhoid fever is not a dangerous disease."^** It is difficult to give any precise definition of the word "health." As said in N«w York : "It is a relative term. It refers to the condition of the body. Thus, it is frequently characterized as perfect, as good, as indifferent, and as bad. The epithet 'good' is comparative. It does not require absolute perfection. When, therefore, one is de- scribed as being in good health, that does not necessarily or ordinarily mean that he is absolutely free from all and every ill that flesh is heir to. If the phrase should be so interpreted as to require entire exemption from physical iUs, the number to whom it would be strictly applicable would be very inconsiderable. In applying terms somewhat indefinite, reference should be had to the business to which they relate. This rule is very necessary when construing a language which like ours is defective in precision. The most important ques- tion on applications for life insurance is whether the proponent is exempt from any dangerous disease, one which frequently terminates fatally. It is not usually deemed an objection that one has some slight physical disturbance of which in all human probability he will soon be relieved, although it might possibly lead to a fatal disease. A slight difficulty, such as the sting of a bee, a boil, or a common cold, has sometimes induced complaints which have shortened human life; but this result is so infrequent and improbable that the mere pos- sibility is disregarded in the business of life insurance."^" A person may be in good health although he has a touch of dys- pepsia."' A disorder or congestion of the liver is not necessarily a "■Petitpain v. Mutual Ass"!!, 52 ""Peacock v. New York L. Ins. La. Ann. 503, 27 So. 113 (1900). Ck>., 20 N. T. 293 (1859). "•Meyers v. Woodmeii, etc., 193 "•Morrison v. Wisconsm, etc.. Pa. St. 470, 44 AU. 563 (1899). Ins. Co., 59 Wis. 162 (1884). § 376 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 434 disease of the liver.^'^ Questions of this character should be left for the jury to determine.^'* A policy is invalid where it appears that it was issued while the insured was dangerously ill from appendicitis, and the premium was paid by his private secretary, who intentionally concealed the fact of such illness from the officers of the company and stated that the insured was away and had left funds with which to pay the pre- § 376. Bodily injuries. — ^Where the applicant stated : "I have never been physically injured," the court said : "The reasonable in- terpretation of the clause is that the decedent was at the time free from serious physical injury, and that any injuries he may have suf- fered from in the course of his previous life had disappeared and left no trace behind that would _render him an unfit subject for accident insurance; that he was, as to such accidents and their results, free from bodily ailments."^"" Where the applicant falsely stated that there was nothing in his physical condition tending to shorten life which was not in the ap- plication, while as a matter of fact his shoulder was in a serious condition as a result of a gunshot wound and an operation, which had not been disclosed, the company was held not estopped from relying upon this false statement by the fact that the applicant called the agent's attention to the arm and showed his use thereof .^'^ Where the applicant was asked, "Have you ever had any difficulty with your head or brain ?" and answered, "Fo," it was held that the question called for a functional or organic derangement, and did not require the disclosure of the fact that he had been subject to periodic headaches.^'^ § 377. Medical attendance. — A false statement with reference to having consulted a medical attendant invalidates the policy.^"' If ^''Cushman v. United States L. tin, 133 Ind. 376, 33 N. B. 105 Ins. Co., 70 N. Y. 72 (1877). (1893). ™ Mutual, etc., Ins. Co. v. Daviess, '» National Fraternity v. Karnes 87 Ky. 541 (1888). (Tex. Civ. App.), 60 S. W. 576 "° Equitable L. Assur. Sec. v. Mc- (1901). Elroy, 83 Fed. 631, 28 C. C. A. 365 ™Higbie v. Guardian, etc., Ins. (1897). Co., 53 N. Y. 603 (1873). ""Standard, etc., Ins. Co. v. Mar- ""Phillips v. New York, etc., Ins. Co., 9 N. Y. Supp. 836 (1890). 455 STIPULATIONS OF LIFE IXSUKAXCE POLICY. § 378 the insured has heen attended hy a physician within the prescribed time it is his duty to state the fact to the company., as it is entitled to know for what cause he had medical advice, and the name and address of the phydcian consulted in order that it may make further inquiries from him with reference to the physical condition of the applicant.^** A statement with reference to having consulted a ph3^cian is material to the risk within the meaning of a stamte which provides tiiat the falsity of a statement in the application for life insurance shall be no defense to an action on the policy unless it is material to the risk.*** The question refers to a consultation about some substantial injury or ailment, and not concerning a slight and temporary indisposi- tion.^** Thus, consulting a physician for a cold is not a breach of the condition that the insured has not been under the care of a physi- cian for two years.*" So, calling at a physicians office for medicine to relieve a temporary indisposition, or calling at the house of a physician for the same purpose, is not a breach of a warranty that the applicant has not consulted a physician since childhood except for xhe measles.*^* "If the insured went to a physician for the purpose of getting his aid, advice or assistance as a physician for a difficulty under which he was then suffering, or supposed himself to be suffering, and the physician, hearing what the insured had to say, as a physi- cian, for the purpose of relief or aid or cure or assistance, gave to the insured medicine, then it might be said that the said physician prescribed for him."*** An applicant was asked, "How long since you have consulted a physician r' and answered, "Tive years." It appeared that he had consulted a physician the previous year, and it was held insufficient to establish the falsity of the answer, as the question was ambiguous-^™" § 378. l^unily Telationship. — ^The insurance company is entitled to have correct answers given to questions with reference to the family "•United Brethren, etc Soc v. " Metropolitan L. Ins. Co. t. (yHaia, 120 Pa. St. 256, 13 AtL 932 Larson, 85 IlL App. 143 (1899). (18S8). "" Billings v. Metropolitan L. Ins. "•FldeUty. etc Ass-n v. Mc- Co.. 70 Vt 477, 41 AtL 516 (1898). Daniel. ?5 Ind. App. 608, 57 X. R "Cobb v. Covenant, etc Ass'n, 645 (1900). 153 Mass. 176 (1S91). "Hubbard v. Mutual, etc AssX "Stewart t. Eqnitable, etc 100 Fed. 719. 40 a a A 665 (1900). AssX 110 Iowa 52S, 81 N. W. 7S2 (1S99). § 379 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 426 relationships of the applicant, and a false statement with reference thereto will invalidate the policy. Thus, a false statement that the applicant is a widower,°°^ or that he is a single man,^"^ will render the policy void, although a statement that the person named as bene- ficiary is a cousin of the applicant is immaterial.^"' The applicant is often asked as to the cause of the death of deceased members of his family, and as the cause of death is often a mere matter of opin- ion, about which even physicians may differ, an untrue statement with reference to the same will not invalidate the policy when made in good faith.^°* So, a statement by the applicant to a medical ex- aminer of the insurance company that he had no dead brother was construed to be a representation which would not invalidate the policy in the absence of fraud or intentional misstatement, although the application signed by him stated that the answers were warranted to be true-^o^ § 379. Other insurance. — A false answer in response to a question as to other insurance will invalidate a policy.^"" The only ques- tion which is liable to arise in reference to other insurance in con- nection with life insurance contracts is whether it includes certifi- cates in mutual benefit associations. On this the authorities are conflicting. In some states it has been held that such associations are insurance companies, and their contracts are properly termed policies, and hence constitute other insurance.^"^ In others such associations are not treated as insurance companies, but belong to a recognized class of organizations known as benevolent associations.'"'* "'United Brethren, etc., See. v. N. W. 4 (1888); Co-operative, etc.. White, 100 Pa. St. 12 (1882). Ins. Order v. Lewis, 12 Lea (Tenn.) »« Jeffries V. Life Ins. Co., 22 Wall. 136 (1883); Presbyterian, etc., As- (U. S.) 47 (1874). sur. Fund v. Allen, 106 Ind. 593, 7 ^Britton v. Supreme Council, 46 N. E. 317 (1886); Sherman v. Com., N. J. Eq. 102 (1889). 82 Ky. 102 (1884); Commonwealth =" Knights of Honor v. Dickson, v. Wetberbee, 105 Mass. 149 (1870). 102 Tenn. 255, 52 S. W. 862 (1899). '» Masonic Aid Ass'n v. Jones, 154 '"'Globe, etc., Ins. Co. v. Wagner, Pa. St. 99, 26 Atl. 253 (1893); Com- 188 111. 133, 58 N. E. 970 (1900). monwealth v. Equitable Beii. Ass'n, See § 108a, supra. 137 Pa. St 412, 18 Atl. 1112 (1890); '"Clapp' V. Massachusetts Ben. Lithgow v. Supreme Tent, etc., 165 Ass'n, 146 Mass. 519 (1888); Bruce Pa. St. 292, 30 Atl. 830 (1895); V. Connecticut, etc., Ins. Co., 74 Theobald v. Supreme Lodge, etc., 59 Minn. 310 (1898). Mo. App. 87 (1894). «" State V. Nichols, 78 Iowa 747, 41 427 . STIPULATIONS OF LIFE INSUEANCB POLICY. § 3SC The circuit court of appeals, in considering this question, said:""" "It will be conceded that these associations, which are primarily for social and charitable purposes and for securing efficient mutual aid among their members, are not usually described as insurance com- panies. That the certificate which they issue to a member, insuring upon certain conditions the payment of a sum certain to a member's representatives on his death, has much resemblance in form, purpose and efEect to an insurance policy is true ; and if we were called upon to give the application a wide and liberal construction in favor of the insurance company, we might properly hold that the language em- braces in its scope every association or individual contracting to pay money to one's representatives in the event of his death. Such con- struction might be warranted by the probable purpose of the question to enable the company to judge how great a motive his life insurance would furnish the applicant for self-destruction or fraudulent simu- lation of death. But we are considering a contract and application drawn with great nicety by an insurance company and framed with the sole purpose of eliciting from the insured full information of all circumstances which the company's long experience has led it to be- lieve to be valuable in calculating the risk. We can not presume the company to have been ignorant of the fact that large numbers of per- sons have taken out life insurance in mutual benefit associations which are not ordinarily described as insurance companies, and that doubt has often arisen whether the contracts they issue are properly or technically described as life insurance at all.''^'' Having in view the well established rule that insurance contracts are to be construed against those who frame them and that any doubt or ambiguity in them is to be resolved in favor of the insured, we conclude that a certificate in a mutual benefit and social society was not within the description 'policy of life insurance in any other company.' " § 380. Rejection of former application. — Insurance companies often ask whether the applicant has previously applied for insurance in any other company and been rejected. A party signed an appli- cation for life insurance, and after the medical examination was sub- stantially completed refused to comply with certain physical tests which were required. The company thereupon rejected his applica- '" Penn, etc., Ins. Co. v. Mechanics' "° Continental L. Ins. Co. v. Cham- Sav., etc., Co., 72 Fed. 413, 19 C. C. berlain, 132 U. S. 304 (1889). A. 286 (1896). § 380 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 428 tion and notified him of the fact by mail. Subsequently he applied to another company for insurance, and, in answer to a question, stated that he had not formally ma'de a proposal or application to any com- pany, agent, or association, on which a policy had not been issued. It was held that this answer was substantially and technically false and avoided the policy.^^^ A person applied to an agent of an insurance company for insur- ance upon his life, filled up and signed an application which the agent was authorized to reduce to writing. The agent and the appli- cant then went to the ofSce of the medical examiner, but, not finding him in, no examination was made. The agent subsequently went to the medical examiner alone with the application, which had been delivered to him, and was advised by the examiner that, having at- tended the applicant professionally, he was aware that the applicant was not insurable, and that it was useless to examine him. The ap- plication, which had been reduced to writing by the agent, was there- upon destroyed. It was held that these facts established conclusively that an application for insurance had been made within the purview of a question propounded by another company to the same person subsequently applying for insurance, as to whether an application for insurance had ever been made by him to any other company.^^^ The organization known as the Royal Arcanum is an "association" within the meaning of the word as used in the question, "Has any company or association ever declined or postponed granting or re- viving insurance on your life, either for any particular amount or in any particular form?"^^' Where the applicant was asked the question, "Has an examining physician for a life insurance company or order declined to recom- mend your application?" and answered, "No," it wa? held that the false statement invalidated the policy."^* 2" Security, etc., Ins. Co. v. Webb, "' Bruce v. Connecticut, etc., Ins. 106 Fed. 808, 45 C. C. A. 648 Co., 74 Min^. 310, 77 N. W. 210 (1901). (1899), and cases therein cited. "^ Edington v. .^tna L. Ins. Co., "* Finch v. Modern Woodmen, 113 77 N. Y. 564 (1879), 100 N. Y. 536, Mich. 646, 71 N. W. 1104 (1897). 3 N. E. 315 (1885). CHAPTER XV. ACOmSNT INSURANCE. SEC. 390. In general. 391. Definition of accident I. Gonstruction of Provisions of Policy. 392. External, violent, or accidental injuries. 393. Risks of travel. 394. Inhaling gas — Poison. 395. Occupation or employment. 396. External signs. 77. Excepted Risks. 397. Effect of negligence. 398. Voluntary exposure to unneces- sary dangers. 399. Bodily infirmity or disease. 400. Injuries intentionally inflicted by others. 401. Injuries received while engaged in violation of law. 402. Injuries received while intoxi- cated. J77. General Provisions. 403. Amount of recovery — Disabil- ity. 404. Construction — Effect of existing judicial decisions. § 390. In general. — The lack of uniformity in accident insurance policies and the great number of conditions and limitations with which they are at present incumbered renders it impracticable to arrange the matter of this chapter under the provisions of a model form. § 391. Definition of accident. — "Accidental" means happening by chance; unexpectedly taking place; not according to the usual course of things, of not as expected.^ It includes any unusual or unexpected result which attends the performance of a usual act.'' Thus, within 'Lovelace v. Travelers' Protect. Ass'n, 126 Mo. 104, 28 S. W. 877, 30 L. R. A. 209, Woodruff Ins. Cas. 270 (1894); United States, etc., Ass'n v. Barry, 131 U. S. 100 (1888); Paul v. Travelers' Ins. Co., 112 N. Y. 472, 8 Am. St. 766 (1889), and note; Richards V. Travelers' Ins. Co., 89 Cal. 170 (1891); North American, etc., Ins. Co. V. Burroughs, 69 Pa. St. 43 (1871). A snowstorm is not an "accident": Fen wick v. Schmalz, L. R. 3 C. P. 313 (1868). Injuries received in a fight in which the in- sured engaged without fault on his part are "accidental": Supreme Council V. Garrigus, 104 Ind. 133, 3 N. E. 818 (1885). ' Providence L., etc., Co. v. Mar- Un, 32 Md. 310 (1869); Western, etc., Ass'n v. Smith, 85 Fed. 401, 29 C. C. A. 223 (1898). (429) § 392 LIFEj ACCIDEXT AND INDEMNITY INSURANCE. 430 the definition of an accident are included the following : — A rupture of a blood vessel while exercising with indian clubs f an unintentional taking of poison ;* a sprain caused by lifting a heavy weight f an in- jury resulting from jumping from the platform of a train under cir- cumstances which would justify a person in assuming that no harm would result;" suicide while insane;^ death by hanging at the hands of a mob;* injuries from an assault which the insured was not ex- pecting and did nothing to induce ;° injuries intentionally inflicted by another.^" The accident must be the proximate and sole cause of the injury or there can be no recovery.^^ I. Construction of Provisions of Policy. § 392. External, violent, or accidental injuries. — ^A policy insuring against death or accident caused by "external, violent or accidental means" covers death by stumbling and falling against a locomotive engine ;^^ a fall due to a temporary and unexpected physical dis- ' McCarthy v. Travelers' Ins. Co., 8 Biss. (U. S.) 362 (1878). * Healey v. Mutual Ace. Ass'n, 133 111. 556, 9 L. R. A. 371 (1890); Mutual, etc., Ass'n v. Tuggle, 39 111. App. 509 (1890). ° Martin v. Travelers' Ins. Co., 1 F. & F. 505 (1859). Policies some- times exempt the company from liability when the injury is caused by voluntary overexertion. For con- struction of this provision, see Rustin V. Standard, etc., Ins. Co., 58 Neb. 792, 79 N. W. 712, Woodruff Ins. Cas. 294 (1899); Metropolitan, etc., Ass'n v. Bristol, 69 111. App. 492 (1896); Reynolds v. Equitable Ace. Ass'n, 49 Hun (N. Y.) 605 (1888). "United States, etc., Ass'n v. Barry, 131 U. S. 100 (1888). But see Southard v. Railway, etc., Assur. Co., 34 Conn. 574 (1868). ' Blackstone v. Standard, etc., Ins. Co., 74 Mich. 592, 3 L. R. A. 486 (1889); Mutual, etc., Ins. Co. v. Daviess, 87 Ky. 541 (1888). "Fidelity, etc., Co. v. Johnson, 72 Miss. 333, 17 So. 2, 30 L. R. A. 206 (1894). "Phelan v. Travelers' Ins. Co., 38 Mo. App. 640 (1890). " See § 400, infra. "Freeman v. Mercantile, etc., Ass'n, 156 Mass. 351, Woodruff Ins. Cas. 282, 17 L. R. A. 753 (1892), and note on Proximate Cause of Death within the Meaning of a Life In- surance Policy. See, also, Manu- facturers' Ace. Indem. Co. v. Dor- gan, 58 Fed. 945, 7 C. C. A. 581, 22 L. R. A. 620 (1893); Western, etc., Ass'n v. South, 85 Fed. 401, 29 C. C. A. 223 (1898); Martin v. Manufacturers', etc., Co., 151 N. Y. 94, 45 N. B. 377 (1896). "Equitable Ace. Ins. Co. v. Os- bom, 90 Ala. 201, 9^0. 869, 13 1,. R. A. 267 (1890). 431 ACCIDENT INSt'EAXCE. § 393 order ;^' an aeeidental strain causing death ;^* a blow struck by an- other person ;^^ death due to excitement and strain caused by at- tempting to hold and control a frightened and runaway team;^* death caused by accidental drowning;^' death caused by drowning while attempting to rescue the crew of a wrecked ship, where it ap- peared that there was a bruise over the left temple ;^^ a rupture caused by jumping from a train ;^° choking to death while attempting to swallow a piece of beefsteak ;''" injury caused by the sting of an in- sect;-^ hanging at the hands of a mob;^^ death by inhaling gas while working in a well ;^' blood poisoning, caused by an abrasion of the skin of a toe by a new shoe ;^* lockjaw produced by a gunshot accidentally inflicted upon the insured by himself.^^ But a rupture caused by the insured jumping from a train, where he acted for his own convenience, and not Under any necessity, was held not within the conditions of an accident policy insuring against injury caused by "violent or external means."^* So, sunstroke contracted in the course of the ordinary duties of an architect is a disease, and not an accident caused by "ex- ternal, violent or accidental means."^' A policy provided that "in- surance under this policy shall extend only to physical and bodily "Meyer v. Fidelity, etc., Co., 96 Iowa 378, 65 N. W. 328 (1895). " North American, etc., Ins. Co. v. Burroughs, 69 Pa. St. 43 (1871). "Richards v. Travelers' Ins. Co., 89 Cal. 170, 26 Pac. 762, 23 Am. St 455 (1891). "McGlinchey v. Fidelity, etc.. Co., 80 Me. 251, 14 AU. 13 (1889). "Manufacturers', etc., Indem. Co. v. Dorgan, 58 Fed. 945, 7 C. C. A. 581 (1893); Mallory v. Travelers' Ins. Co., 47 N. Y. 52, 7 Am. Rep. 410 (1871); Tucker v. Mutual Ben. Life Co., 121 N. Y. 718 (1890); De Van V. Commercial, etc., Ass'n, 92 Hun (N. Y.) 256 (1895), 157 N. Y. 690, 51 N. E. 1090 (1898); Trew v. Railway, etc., Assur. Co., 6 Hurl. & N. 838 (1861); United States, etc.. Ass'n V. Hubhell, 56 Ohio St. 516, 47 N. B. 544, 40 L. R. A. 453 (1897). "Tucker v. Mutual Ben. Life Co., 121 N. Y. 718, 24 N. E. 1102 (1888). "Travelers' Ins. Co. v. Murray, 16 Colo. 296, 26 Pac. 774 (1891). *■ American Ace. Co. v. Reigart, 94 Ky. 547, 23 S. W. 191, 21 L. R. A. 651 (1893). ^ Omherg v. United States, etc., Ass'n, 19 Ky. L. 462, 40 S. W. 909 (1897). "Fidelity, etc., Co. v. Johnson, 72 Miss. 333, 17 So. 2, 30 L. R. A. 206 (1894). "Pickett V. Pacific, etc., Ins. Co., 144 Pa. St 79, 22 Atl. 871, 13 L. R. A. 661 (1891); Paul v. Travelers' Ins. Co., 112 N. Y. 472, 20 N. B. 347; 3 L. R. A. 443 (1889). "Western, etc., Ass'n v. Smith, 85 Fed. 401, 29 C. C. A. 223 (1898). " Travelers' Ins. Co. v. Melick, 65 Fed. 178, 12 C. C. A. 544 (1894). " Southard v. Railway, etc., As- sur. Co., 34 Conn. 574 (1868). " Dozier v. Fidelity & Cas. Co., 46 Fed. 446 (1891). § 393 LIFE, ACCIDENT AND IITDEJINITT INSURANCE. 433 injuries resulting in disability or death * * * solely by reason of and through external, violent and accidental means within the terms and conditions of this contract, and which shall, independently of all other causes immediately, wholly, totally and continuously from the date of the accident causing the injury, disable the insured. If any injury causing disability or death entitling the insured to claim benefits under the provisions of this policy be caused or contributed to * * * by any sunstroke or freezing while in the line of his duty as a railroad employe * * * then, in such case, the limit of the association's liability shall be one-fourth of the sum otherwise payable." It was held that under this limitation a sunstroke re- ceived while in the line of his employment was covered by the policy.^' § 393. Risks of travel. — Policies sometimes insure against acci- dents "while actually traveling in a public conveyance," and while complying with the rules and regulations of the carrier. Such a policy covers an accident which occurs while the insured is getting on or ofE a train, either at an intermediate station, where he left the ear temporarily, or at his destination.^* . A party accepting a policy which plainly limits the risk to that of a common ■ carrier's public conveyances can not recover for injuries received while caring for and selling horses which he was taking to market, although the agent of the company instructed him that the policy would cover such risks.^" But the company is presumed to issue its policy with a knowledge of the ordinary customs of the business in which the in- sured is engaged. Hence, a cattle dealer who receives a policy which permits him to care for his cattle in transit on trains may show that at the time of /the injury he was engaged in doing what was customary among cattle dealers.''- A party who is insured against "accident while traveling by public or private conveyance, provided for the transportation of passengers," can recover for an injury sus- tained while going on foot from a steamboat landing to the railway station for the purpose of continuing his journey.'^ But a person who had left the landing place of a steamer and was injured while " Railway, etc., Ass'n v. Johnson, " Pacific, etc., Ins. Co. v. Snowden, 22 Ky. L. 759, 58 S. W. 694, 52 L. R. 58 Fed. 342, 7 C. C. A. 264 (1893). A. 401 (1900). ="Northrup v. Railway Pass., etc., ^Tooley v. Railway, etc., Assur. Co., 43 N. Y. 516, 3 Am. Rep. 724 Co., 3 Biss. (U. S.) 399 (1873). (1871). ""Fidelity, etc., Co. v. Teter, 13.6 Ind. 672, 36 N. E. 283 (1894). 433 ACCIDENT INSUEANCE. § 394 walMBg home, a distance of about eight miles, was not traveling by a "public or private conveyance at the time of the injuiy."»» § 394. Inhaling gas — ^Poison. — ^IJnder a policy which contains a provision that the liability of the company shall not extend to any death or disability which may have been caused "by the taking of poisonous substances, or the inhaling of gas, or by any surgical opera- tion or medical treatment," the company is not liable for death caused by a volimtary and intelligent act on the part of the insured, as distinguished from one which was unconscious and in that sense involuntary. An insurance company was therefore held liable under such a policy where the insured was asphyxiated by illuminating gas which he unconsciously, involuntarily and accidentally inhaled while asleep in his room at a hotel.'* Death caused by the poisonous sting of an insect is not within a clause exempting the' company from liability for injuries caused by "poison in any form," or "by contact with poisonous substances."** Death resulting from the shock caused by swallowing aqua ammonia results from taking poison." Under a policy insuring against "the effects of injury to the body caused by external, violent or accidental means," but excepting liability for death caused by poison, the in- surer is liable when death is caused by poison accidentally taken by the insured.'^ » Ripley v. Insurance Co., 16 Wall. Ace. Co., 89 Fed. 685, 32 C. C. A. (U. S.) 336 (1872). 318 (1898); Early v. Standard, etc., ** Paul V. Travelers' Ins. Co., 112 Ins. Co.. 113 Mich. 58, 71 N. W. 500 N. T. 472, 20 N. E. 347 (1889); (1897). Bacon v. United States, etc.. Ace. "Omberg v. United States, etc., Ass'n. 123 N. Y. 304, 25' N. E. 399 Ass'n, 19 Ky. L. 462, 40 S. W. 909 (1890); Menneiley v. Employers', (1897). etc., Assur. Corp., 148 N. Y. 596, 43 " Early v. Standard, etc, Co., 113 N. E. 54 (1896); Pickett v. Pacific Mich. 58, 71 N. W. 500 (1897). Ins. Co., 144 Pa. St 79, 22 Atl. 871, " Early v. Standard, etc., Ins. Ck)., Woodnifl Ins. Cas. 290 (1890); Fi- 113 Mich. 58, 71 N. W. 500 (1897); delity, etc., Co. v. Waterman, 59 111. Travelers' Ins. Co. v. Dunlap, 160 App. 297 (1895); affirmed 161 111. lU. 642, 43 N. E. 765, Woodruff Ins. 632, 44 N. B. 283 (1896). See, also, Cas. 287 (1896), and cases cited; Fidelity, etc.. Co. v. Lowenstein, 97 Metropolitan Ace. Ass'n v. Froiland, Fed. 17, 38 C. C. A. 29 (1899). 161 lU. 30, 43 N. E. 766 (1896). See Contra, on the general proposition. Pollock v. United States, etc., Ass'n, see McGlother v. Provident, etc., 102 Pa. St 230 (1883). 28— Elliott Ins. § 394 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 434 Where the policy contained a statement: "I agree that this instru- ment shall not be held to extend * * * to poison in any way taken, administered, absorbed, or inhaled," it was held that the words "in any way" related to the mode or manner in which the poison was taken, and not to the motive of the insured in taking it.^' In a recent case in Wisconsin,^' the policy in suit excepted "in- juries, fatal or otherwise, resulting wholly or in part from poison, or anything accidentally or otherwise taken, administered, absorbed, or inhaled." The insured died from blood poisoning resulting from the treatment of a wound caused by extracting a tooth. It was said that there was no reason for extending the rule that death caused by inhaling gas accidentally or otherwise only covers cases of volun- tary, conscious inhalation. "Certainly no good reason can be given for extending it to cases of accidental taking or absorption of poison- ous substances into the system through the voluntary use for remedial purposes of some other substance. In the instances cited, the word 'inhaled' and the word 'taken,' in view of the other language used in the contract, were easily construed to contemplate voluntary,' conscious action, not in the sense that the victim should know the precise nature of the substance that he was taking or inhaling, and its eflfect on his system, but that the taking should be by his own act or per- mission. Here, the cotton was placed in the mouth of the deceased "Metropolitan Ace. Ass'n v. Froi- death of the member, ProUand, land, 161 111. 30, 43 N. E. 766 having been caused by accident, iff (1896). The court said : "Verynear- not excluded from the risks covered ly this precise language was so by the contract of insurance sued construed in Connecticut, etc., Ins. on by reason of the exception abovfr Co. V. Akens, 150 U. S. 468 (1893). mentioned. Insurance contracts- It was there held that in the phrase are to be liberally construed so a& 'self -destruction In any form' the not to. defeat the indemnity which, words 'in any form' clearly related In making the contract, was the ob- to the manner of killing, and that ject to be secured, unless plainly the clause was by- no means syn- necessary from the language of the onymous in meaning with such contract." phrases as 'die by suicide, sane or ""Kasten v. Interstate Cas. Co., insane,' or by 'suicide, felonious or 99 Wis. 73, 74 N. W. 534, 40 L. R. A. otherwise, sane or insane.' In ac- 651 (1898); Early v. Standard, etc., cordance with the ruling in Trav- Ins. Co., 113 Mich. 58, 71 N. W. 500 elers' Ins. Co. v. Dunlap, 160 111. (1897); Westmoreland v. Preferred, 642, 43 N. E. 765 (1896), and etc., Ins. Co., 75 Fed. 244 (1896) Healey v. Mutual Ace. Ass'n, 133 [when the insured died from the- 111. 556, 25 N. E. 52 (1890), we must effects of chloroform], hold In the case at bar that the 435 ACCIDENT INSURANCE. § 395 by his own permission. True, the fact that it contained germs which propagated and evolved the poison which was absorbed into the blood with fatal effects was unknown and accidental, but that was within the express terms of the exception under consideration." § 395. Occupation or employment. — The ordinary accident policy insures the party against accident while he is occupied or employed as described in the contract. All occupations are not subject to the same risks, and some are so hazardous as to render it impossible for the parties engaged in them to procure accident insurance. The in- surance companies classify the various occupations and arrange their premium rates in accordance with the hazard involved. Where the contract provides that, if the insured is injured in any occupation rated by the company as more hazardous than that given by the insured as his occupation, the insurance shall only be what the premium paid would purchase at the rate fixed by the tables for the increased hazard, the jury must determine whether there has been any increase in the risk.*" Where the insured gave his occupation as that of a blacksmith employed by a railroad company, and it appeared that he also acted as a switchman and car-coupler, which occupation was classed as a more hazardous one, he was allowed to recover the amount the pre- mium paid would have secured in the more hazardous occupation.*^ A mere occasional act not strictly within the scope of the stated oc- cupation is not engaging in another occupation. Such provisions refer to classes of occupations and not to particular acts. Thus, one who is insured as a "grocer with desk and counter duties" may hunt for pleasure without being held to have engaged in the occupa- tion of a Jiunter.*^ So, a person insured as a mining expert does not become an engineer or fireman by casually riding on an engine.*' A farmer may drive piles in the construction of a private bridge with- out engaging in the occupation of a piledriver.** A banker does "Standard, etc., Ins. Co. v. Mar- Sibley, 57 111. App. 315 (1894); tin, 133 Ind. 376, 33 N. E. 105 Kentucky, etc., Ins. Co. v. Franklin (1893). See § 373, supra. (Ky.), 43 S. W. 709 (1897). « Standard L., etc., Ins. Co. v. " Berliner v. Travelers' Ins. Co., Taylor, 12 Tex. Civ. App. 386, 34 121 Cal. 458, 53 Pac. 918, 41 L. R. A. S. W. 781 (1896). 467 (1898). « Union, etc., Ass'n v. Frohard, " National, etc.. Society v. Taylor, 134 111. 228, 25 N. E. 642, 10 L. R. A. 42 111. App. 97 (1892). 383 (1890); Star Accident Co. v. § 396 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 436 not change his employment to that of a sawyer by operating a saw to cut some pieces of lumber while he is in a sawmill for the purpose of getting some boards to make a table to use in his bank.** But it seems that operating a buzz-saw for his own amusement is not within the permissible pleasures of one who states his occupation to be that of "retired gentleman."*' Where the insured is engaged in a designated employment, and the policy provides that the company shall not be liable for accidents while engaged in a more hazardous employment, it is for the jury to deter- mine whether a certain employment is more hazardous than another.*' § 396. External signs. — ^A provision to the effect that there shall be no liability for injuries which produce no external and visible signs does not apply to injuries which result in death.*' Under such a provision the insured was allowed to recover for injury caused by a strain which produced no external result until some time after the accident.*' A nosebleed is an external and visible sign of injury."" Where artificial respiration practiced upon a dead body brought forth illuminating gas, it was treated as an external or visible mark of an accident."^ So, where water ran from the mouth of a dead body, which was taken from a river, it was held that there were external and visible signs of drowning."^ "Hess V. Preferred, etc., Ass'n, v. United States Cas. Co., 34 N. J. 112 Mich. 196, 70 N. W. 460, 40 L. L. 371 (1871). R. A. 444 (1897). A teacher who, "McGlinchey v. Fidelity, etc., Co., while out of employment, causes 80 Me. 251, 14 Atl. 13, WoodrufC Ins. two dwelling houses to be erected Cas. 277 (1888); Bggenberger v. does not become a "builder:" Stone Guarantee, etc., Ass'n, 41 Fed. 172 v. United States Cas. Co., 34 N. J. L. (1889). 371 (1871). See, also, Grattan v. "Pennington v. Pacific, etc., Ins. Metropolitan, etc., Ins. Co., 80 N. Y. Co., 85 Iowa 468, 52 N. W. 482 281 (1880); Dwight v. Germania L. (1892). Ins. Co., 103 N.Y. 341 (1886); North "Whltehouse v. Travelers' Ins. American, etc., Ins. Co. v. Bur- Co., Fed. Cas. No. 175,666, 7 Ins. L. roughs, 69 Pa. St. 43 (1871). J. 23 (1877). "Knapp V. Preferred, etc., Ass'n, "Menneiley v. Employers', etc., 53 Hun (N. Y.) 84 (1889). Assur. Corp., 148 N. Y. 596, 43 N. E. "Eggenberger v. Guarantee, etc., 54, 31 L. R. A. 686 (1896). Ass'n, 41 Fed. 172 (1890). For defi- "Wehle v. United States, etc., nition of "employment," see Stone Ass'n, 63 N. Y. St. 464, 31 N. Y. Supp. 865 (1895). 437 ACCIDENT INSURANCE. § 397 II. Excepted BisJcs, § 397. Effect of negligence. — ^Unless excepted by the terms of the policy, the insTired is entitled to recover where the accident was caused by his own negligence.^' But policies ordinarily provide that the company shall not be liable unless the insured exercises due care for his personal protection. Under such a provision he is bound to exercise that degree of care which an ordinarily prudent man would use under the same circumstances.'* The insured was not allowed to recover where the policy contained such a provision, and it appeared that he was thrown from the plat- form of a passenger coach, where he was standing in violation of a known rule of the carrier.'"' § 398. Volimtary exposure to imnecessary dangers. — Accident pol- icies commonly exempt the insurer from liability for death or injury caused by voluntary exposure to unnecessary danger, or hazards, or perilous adventure. This means wanton or grossly imprudent ex- posure.°* In an English case it was said:'^ "Two classes of acci- dents are excluded from the risks insured against; viz.: "(1) Accidents which arise from exposure by the insured to risk of injury, which risk is obvious at the time he exposes himself to it. "(2) Accidents which arise from an exposure by the insured to risk of injury where the risk would be obvious to him at the time if he were paying reasonable attention to what he was doing." The phrase '^voluntary exposure to unnecessary danger" means intentional exposure to a danger; as where a person acts so reck- lessly and carelessly as to show an utter disregard of known danger, or does an act in the face of a risk and danger so obvious that a pru- •• Schneider v. Provident L. Ins. v. United States Cas. Co., 34 N. J. Co., 24 Wis. 28. 1 Am. Rep. 157 L. 371 (1871). (1869); Wilson v. Northwestern, "Bon v. Railway, etc., Assur. Co., etc., Ass'n. 53 Minn. 470, 55 N. W. 56 Iowa 664, 10 N. W. 225, 41 Am. 626 (1893). Rep. 127 (1881). " Tuttle T. Travelers' Ins. Co., 134 " Manufacturers', etc.. Indent. Co. Mass. 175, 45 Am. Rep. 316 (1883); v. Dorgan, 58 Fed. 945, 7 C. C. A- Duncan v. Preferred, etc., Ass'n, 13 581 (1893). N. T. Supp. 620 (1891); Kentucky "Cornish v. Accident Ins. Co., L. Il, etc., Ins. Co. v. Franklin, 19 Ky. R. 23 Q. B. D. 453 (1889) [insured L. 1573, 43 S. W. 709 (1897); Stone was killed while attempting to cross a railway track]. § 398 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 1138 dent man, exercising reasonable foresight, would not have done it.°* It means dangers recognized, but consciously and intentionally as- sumed."" A policy containing such a provision does not relieve the company from liability for injury which resulted from a voluntary exposure to a danger which was contemplated by the contract.*" A party wha goes out in a boat on a dark night to fish, without a knowl- edge of the existence of snags which are dangerous to his boat, does not expose himself to unnecessary danger within the meaning of such provision.*^ Nor does a person voluntarily expose himself to danger by riding in a bicycle race and overexerting himself f^ nor by cleaning a gun, without the knowledge that it was defective and loaded;"^ nor by visiting a house of ill fame and getting shot immediately after leaving the place ;°* nor, generally, by doing what a man of ordinary prudence would do under the same circumstances;'" as by climbing a bank with a loaded gun in his hand, while hunting.''^ But there can be no recovery imder such a policy for an accident occasioned by jumping from a moving train after it has passed the station;"' or by attempting to cross through a freight train standing across the highway ;" or by attempting to lower himself from a window to avoid police officers who were at the door.''" A person who, with packages in "De Ley V. Travelers' Ins. Co., 171 Pa. St. 1, 32 Atl. 1108 (1895); Johnson v. Liondon Guar., etc., Co., 115 Mich. 86, 72 N. "W. 1115, 40 L. R. A. 440 (1895); Manufacturers', etc., Indem. Co. v. Dorgan, 58 Fed. 945, 7 C. C. A. 581; 22 L. R. A. 620 (1897). ■"Travelers' Ins. Co. v. Randolph, 78 Fed. 754, 24 C. C. A. 305 (1897); Ashenfelter v. Employers', etc., As- sur. Corp., 87 Fed. 682, 31 C. C. A. 193 (1898). ™ Wilson V. Northwestern, etc., Ass'n, 53 Minn. 470, 55 N. W. 626 (1893). " Collins v. Bankers' Ace. Ins. Co., 96 Iowa 216, 64 N. W. 778 (1895). ""Keeffe v. National Ace. Soc, 4 App. Div. (N. T.) 392 (1896). " Miller V. American, etc., Ins. Co., 92 Tenn. 167, 21 S. W. 39, 20 L. R. A. 765 (1893). "Jones v. United States, etc.. Ass'n, 92 Iowa 652, 61 N. W. 485 (1894). " Shevlin v. American, etc., Ass'n, 94 Wis. 180, 68 N. W. 866, 36 L. R. A. 52 (1896). "Cornwell v. Fraternal Ace. Ass'n, 6 N. Dak. 201, 69 N. W. 19,1, 40 L. R. A. 437 (1896). "Smith V. Preferred, etc., Ass'n, 104 Mich. 634, 62 N. W. 990 (1895). ""Bean v. Employers', etc., Assur. Corp., 50 Mo. App. 459 (1892). One who attempted to cross the track between the cars of a freight train, when he saw the men in the places where they would be if the train was about to start, voluntarily exposed himself to unnecessary danger: Willard v. Masonic, etc., Ass'n, 169 Mass. 288, 47 N. E. 1006 (1897). ■""ShafEer v. Travelers' Ins. Co. (111.), 22 N. E. 589 (1889). ■t39 ACCIDENT INSURANCE. § 398 his hands, attempts to cross over a trestle which he knows is danger- ous, while there are other ways of travel open to him, voluntarily exposes himself to imnecessary danger.''^ But it can not be said, as a matter of law, that a person voluntarily exposes himself to tmneces- sary danger by crossing a railroad trestle bridge, where there is a plank walk and a fence railing on one side.'^ Whether standing on the platform of a moving train which is going at a rapid speed is a voluntary exposure to a known danger, is a question for the jury.''* Whether, under all the circumstances, going on a railroad track or bridge is a voluntary exposure to unnecessary danger, is a question of fact which should be submitted to the jury.'* Force must be given to the word "unnecessary" as qualifying "dan- ger." An attempt of a traveling man to get on a train which is already Ln motion is not, as a matter of law, a voluntary exposure to an un- necessary danger.'^ The term "voluntary exposure" does not mean simply that the act of attempting to get on board of a moving train was voluntarily or was consciously or iatentionally performed, but also that the insured was conscious of the danger to which he was thus exposing himself, and voluntarily assumed it, or that the dan- ger was so apparent that a man of ordinary intelligence would, under such circumstances, .have known it. As was said by the court: •'Here failure to observe ordinary care would not, as in an action for negligence, defeat a recovery on the contract. * * * Por one to leap into a turbulent stream, rush into a burning building, or to do any other hazardous thing to save human life, would be a voluntary exposure to danger, but not to unnecessary danger. So, too, many emergencies in the lives of men occur, where the most urgent necessity reqtiires their presence at some particular place, at some particular time, and where to miss a train would involve serious consequences. In such cases the voluntary exposure to danger might not be unnecessary; as, the presence of a physician or surgeon at "Travelers' Ins. Co. v, Jones, 80 "Keene v. New England, etc., Ga. 541, 7 S. B. 83, 12 Am. St 270 Ass'n, 161 Mass. 149, 36 N. E. 891 (1888). (1894). See, also, Tuttle v. Trav- "Follis v. United States, etc., elers' Ins. Co., 134 Mass. 175, 45 Ass'n, 94 Iowa 435, 62 N. W. 807. Am. Rep. 316 (1883); Freeman v. 27 L. R. A. 78 (1895). Travelers' Ins. Co., 144 Mass. 872, "Travelers' Ins. Co. v. Randolph, 12 N. E. 372 (1887); Travelers', etc., 78 Fed. 754, 24 C. C. A. 305 (1897). Ace. Ass'n v. Stone, 50 111. App. 222 See Standard, etc., Ins. Co. v. Thorn- (1893). ton, 100 Fed. 582, 40 C. C. A. 564 "Fidelity, etc., Co. v. Sittig, 181 (1900). 111. Ill, 48 L. R. A. 359 (1900). i § 399 LIFE, ACCIDENT AND INDEMNITY INSX7KAN0E. 440 some critical period in the illness or injury of a hiunan being migM be necessary to save human life, and it might be necessary for him to expose himself to danger to reach his patient, or in some other respect to perform his professional duty. The necessity implied in the provision of the policy does not mean only that which is unavoid- able and inevitable, but also any object or purpose which men of moral responsibility and prudence would regard as of such serious importance in the performance of duty as to demand or justify the incurring of risk or danger to accomplish it." A complaint alleging that the insured at the time of his death was seining in a river which was very swift and full of holes, and that the insured, while so en- gaged, fell into one of said holes, and, being unable to swim, was drowned, is good as against a demurrei:.^' Where the insured, wHle asleep and unconscious, walked off the platform of a car and was killed, it was held not a case of "voluntary exposure, design or self- inflicted injuries.'"' ' § 399. Bodily infirmity or disease. — These words, as used in an accident policy to exempt the insurer from liability for injuries re- sulting from bodily infirmity or disease, mean practically the same thing. Where the policy insured against accidental injury or death through external, violent or accidental means, and provided that it should not cover "injuries, fatal or otherwise, * * * resulting directly or indirectly from intoxicants * * * or any disease or bodily infirmity" it appeared that the defendant was subject to fits when he was insured, and it was claimed that his death was due to disease or bodily infirmity. In stating the meaning of these words, the court said:" "When speaking of infirmity we generally mean a state or quality of being infirm, physically or otherwise, debility or weakness; and by the use of the word 'disease' we desire to convey the impression of the morbid, resulting from some functional dis- turbance or failure of physical functions which tends to undermine the constitution. We do not, as a general rule, apply either term to a slight and temporary disorder, or to the imperfect working of some function, which is over in a short period of time, and which, when recovered from, leaves the body in its normal condition. In using either of the words we do not, as a rule, refer to a slight and "Conboy v. Railway, etc., Ass'n "Meyer v. Fidelity, etc., Co., 96 (Ind. App.), 43 N. B. 1017 (1896). Iowa 378, 65 N. W. 328 (1895). " Scheiderer v. Travelers' Ins. Co., eS Wis. 13 (1883). Ml ACOIDBNT IN8UHAN0B. § 400 mere temporary disturbance or enfeeblement. If this is true of our ordinary speaking and -writing it is dear that the words should be given no broader meaning when we find them used by an insurance company in a clause of its policy which it relies upon to defeat a recovery thereon." In a case in the circuit court of appeals the words were given the same meaning. "In a broad, generic sense," said Taft, J.," "any temporary trouble by reason of which a man loses consciousness is a disease. It is a condition of the body not normal, and produced by the imperfect working of some function, but as the imperfect working is not permanent and the body returns at once, or in a short period of time, to its normal condition, it does not rise to the dignity of a disease. A fainting spell produced by indigestion or lack of proper food for a number of hours, or for any cause which would not indi- cate disease in the body, but would show mere temporary disturbance or enfeeblement, would not come within the meaning of the words 'disease or bodily infirmity,' as used in this policy." Sunstroke is a disease, and not an accident.'* Death caused by a malignant pustule resulting from contact of the body with putrid animal matter is death by disease, and not accident.*^ § 400. Injuries intentionally inflicted by others. — ^A policy which insures against accidents covers an injury intentionally inflicted upon the insured by a third person, unless such risk is expressly excepted.*^ "While our preconceived notion of the term 'accidenf would hardly lead us to speak of the intentional killing of a person as accidental " Manufacturers', etc., Indem. Co. " Travelers' Ins. Co. v. McConkey, V. Dorgan, 58 Fed. 945, 7 C. C. A. 127 U. S. 661 (1888); Supreme Coun- 581 (1893). See, also, Pudritzky v. cil v. Garrigus, 104 Ind. 133, 54 Am. Supreme Iiodge, 76 Mich. 428, 43 N. Rep. 298 (1885); Hutchcraft v. Trav- W. 373 (1889); Mutual, etc., Ins. Co. elers' Ins. Co., 87 Ky. 300 (1888); V. Daviess, 87 Ky. 541, 9 S. W. 812 Fidelity, etc., Co. v. Johnson, 72 (1888). Miss. 333, 30 L. R. A. 206 (1895), "Dozier v. Fidelity, etc., Co., 46 annotated; Lovelace v. Travelers' Fed. 446 (1891); Sinclair v. Marl- Prot. Ass'n, 126 Mo. 104, 47 Am. St time, etc., Co., 3 El. & El. 478 (1861). 638, 30 L. R. A. 209 (1894); Collins ° Bacon V. United States, etc.. Ace. v. Fidelity, etc., Co., 63 Mo. App. Ass'n, 123 N. T. 304, 9 L. R. A. 617 253 (1895); American Ace. Co. v. (1890). As to disease caused by ac- Carson, 99 Ky. 441, 36 S. W. 169, cident, see Freeman v. Mercantile 34 L. R. A. 301 (1895). & Ace. Ass'n, 156 Mass. 351, 17 U R. A. 753 (1892). § 400 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 442 killing, yet no doubt can now remain, in view of the precedents es- tablished by all the courts, that the word 'intentional' refers alone to the person inflicting the injury, and if, as to the person injured, the injury was unforeseen, unexpected, not brought about through his agency designedly, or was without his foresight, or was a casualty or mishap not intended to befall him, then the occurrence was ac- cidental and the injury one inflicted by accidental means, within the meaning of such policies."'* It is customary, however, to insert a provision exempting the company from liability for injuries inten- tionally inflicted upon the insured by others. The exemption is limited to such injuries as are intentional ; hence the insurer is liable where the injury was inflicted by an insane person who was incapable of forming an intent.** So, the insurer is liable for injuries caused by a blow struck by a person who did not intend to kill the insured.'^ Where the insured was shot by an officer, who had no intention of killing him, it was held that it could not be said, as a matter of law, that the insured lost his life through the design of another.^' Where the policy provided that there could be no recovery for in- juries caused by fighting, it was held that there could be no recovery, although the insured was not the aggressor.'^ There is no liability where the insured was intentionally shot and killed by another per- son;** as, where the insured was waylaid and shot by robbers;*' al- " American Ace. Co. v. Carson, 99 am v. Equitable Ace. Ins. Co., 87 Ky. 441, 34 L. R. A. 301, 36 S. W. Ga. 497, 13 S. E. 752, 13 L. R. A. 169 (1895). See Button v. Ameri- 838 (1891). See Accident Ins. Co. can, etc.. Ace. Ass'n, 92 Wis. 83, 53 v. Bennett, 90 Tenn. 256, 16 S. W. Am. St. 900 (1896). 723 (1891). "- Corley v. Travelers', etc., Ass'n, ^ Jones v. United States, etc.. Ace. 105 Fed. 854, 46 C. C. A. 278 (1900); Ass'n, 92 Iowa 652, 61 N. W. 485 Berger v. Pacific, etc., Ins. Co., 88 (1894); Fischer v. Travelers' Ins. Fed. 241 (1898). Co., 77 Cal. 246, 19 Pac. 425, 1 L. R. » Richards v. Travelers' Ins. Co., A. 572 (1888); Travelers' Ins. Co. v. 89 Cal. 170, 26 Pac. 762, 23 Am. St. McCarthy, 15 Colo. 351, 25 Pae. 713, 455 (1891). 11 L. R. A. 297 (1890). "" Utter V. Travelers' Ins. Co., 65 ™ Railway, etc.. Ace. Ass'n v. Mich. 545, 32 N. W. 812, 8 Am. St. Drummond, 56 Neb. 235, 76 N. W. 913 (1887). 562 (1897); Hutchcraft v. Travel- " United States, etc., Ass'n v. Mil- ers' Ins. Co., 87 Ky. 300, 8 S. W. 570, lard, 43 111. App. 148 (1892). It is 12 Am. St. 484 (1888). A recovery immaterial whether the person by was denied because, while the kill- whom the insured was killed was ing was accidental within the mean- sane or insane, if the insured volun- Ing of these words, "external, vio- tarily engaged in the fight: Gresh- lent and accidental," as used on the 443 ACCIDENT INSURANCE. § 401 though, in the absence of such a limiting clause, death by such means would be considered an accident."" Where the policy provided that "$i,000 shall be paid in case of death by accident," and that in case of death "by natural causes," the insured should be entitled to $100, the beneficiary was allowed to recover for injuries received by the insured in a fight in which he voluntarily engaged.*^ Under this exception the insurer is not liable where the insured is murdered.*^ The insurer is not liable where the insured is killed for the purpose of getting the insurance money, under a policy which provides that "this insurance does not cover * * * death re- sulting wholly or partly, directly or indirectly, from * * * in- tentional injuries inflicted by the insured or any other person," and which further provides that this clause does not exclude claims for personal injuries received by the insured while defending herself or family, or her property, from assaults of burglars, robbers, thieves or pickpockets.®* So, there is no liability where the injuries are inflicted upon an officer by a person who is resisting arrest, although such injurfes are within the meaning of the words, "external, violent and accidental means."'* In such cases the general liability is limited by the express provision. § 401. Injuries received while engaged in violation of law. — Ac- cident insurance companies commonly limit their liability by a pro- vision to the effect that no claim shall be made when an injury or death occurs while the insured is engaged in, or in consequence of, any unlawful act. Under this provision the mere fact that the insured face of the policy, yet certain con- Ass'n v. Langholz, 86 Fed. 60, 29 ditions or provisos protected the C. C. A. 628 (1898) ; Butero v. Trav- company against loss, where the elers' Ace. Ins. Co., 96 Wis. 536, 71 death or injury was caused by In- N. "W.'811 (1897); Johnson v. Trav- tentional injuries inflicted by the elers' Ins. Co., 15 Tex. Civ. App. 314, insured or any other person: Amer- 39 S. W. 972 (1897); Railway Of- ican Ace. Co. v. Carson fKy.), 30 ficials', etc., Ass'n v. McCabe, 61 111. «. W. 879 (1895). App. 565 (1895); Phelan v. Travel- "» Ripley v. Insurance Co., 16 ers' Ins. Co., 38 Mo. App. 640 (1890); Wall. (U. S.) 336 (1872). Travelers' Ins. Co. v. McConkey, 127 "Lovelace t. Travelers' Prot U. S. 661 (1888). Ass'n, 126 Mo. 104, 28 S. W. 877, 30 "Ging v. Travelers' Ins. Co., 74 L. R. A. 209, Woodruff Ins. Cas. 270 Minn. 505, 77 N. W. 291 (1898). (1894). "American Ace. Co. v. Carson, 99 ■« Brown v. United States, etc., Co., Ky. 441, 36 S. W. 169, 34 L. R. A. 88 Fed. 38 (1898); Travelers' Prot. 301 (1895). § 401 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 444 is violating some criminal statute does not absolve the company from liability imless it appears that the death was in some manner caused by such violation of law. As said in a case in Indiana,'" "the known violation of a positive law * * * avoids the policy if the natural and reasonable consequences of the violation are to increase the risk. A violation of law does not avoid the policy if the natural and reasonable consequences of the act do not increase the risk." The insurance company must, therefore, show that the act was such as tended to produce the injury. Thus, where the insured came to his death while engaged in seining in a river, in violation of a statute, the court, after stating the general principle, said:*' "If the insured had been accidentally shot or struck by lightning while fishing in violation of law, it could not be successfully maintained that there was a forfeiture." Applying the rule that it must be made to appear that the injury was the natural result of a violation of law, it was held that the fact that the insured was killed by being shot soon after he had left a house of ill fame, while carrying a concealed weapon, did not prevent a recovery on the policy. Chief Justice Kinne said:*^ "It may be conceded that Jones visited a house of prostitution for an unlawful purpose; that he was carrying concealed weapons, in viola- tion of law, but it does not appear that the injuries he received were caused by any of these illegal acts. It is not enough to defeat liability to show that the insured violated the conditions of the policy in these respects, but it must also be shown that such violation had a causative connection with the injury. The shooting was not, in a legal sense, caused by, or the result of, the assured's visit to the bawdyhouse, reprehensible as that act may have been, nor by his carrying concealed weapons in violation of law. In other words, it does not appear that there was any such connection between the unlawful acts and the injury as would justify the contention that the former caused the latter. If the injury was caused or produced by something else than the assured's violation of the law, then the latter can not be said to have such a legal relation to the former as to be a defense to an action upon the policy. If the acts were in themselves unlawful, as they were, and the shooting might reasonably have been expected to have re- " National Ben. Ass'n v. Bowman, •• Conboy v. Railway, etc., Ass'n 110 Ind. 355, 11 N. E. 316 (1887); (Ind. App.), 43 N. E. 1017 (1896). Supreme Lodge v. Beck, 181 U. S. 48 " Jones v. United States, etc., (1900). See § 373, supra, Ass'n, 92 Iowa 652, 61 N. W. 485 (1874). 145 ACCIDENT INSURANCE. § 401 suited from them, then a causative conneetion between the unlawful lets and the injury may be said to have been established."** Where the insured was shot by an officer who was attempting to irrest him as a deserter, the death did not result from the unlawful ict of the insured, as the insured was not acting unlawfully at the time of the killing.'* So, where the insured was injured while at the tiouse of a friend, a few hours after he had been hunting on Sunday, in violation of law, it was held that he could recover on the policy.^"" But where the accident happened while the insured was returning from a hunting expedition, and a statute made both hunting and traveling on Sunday a crime, the insured was not allowed to recover. The court said:^"^ "The effect of a violation of the Sunday law upon a person's right to recover for injuries received in the course of such violation has generally arisen in cases in which the defendant sought to escape responsibility for his own tort to a traveler or laborer. On this question the decisions have not been uniform. Some courts have held that the immediate cause of the injury was the travel or labor on Sunday and that the plaintiff could not recover. Other able courts have held that a Simday traveler or laborer, injured by the wrongful act or neglect of another, might recover upon the ground that the violation of the Sunday law by the injured party is in the na- ture of a condition rather than the immediate cause of the injury. * * * The provision quoted from the policy excluded liability from any injury of which a violation of law was the cause or con- dition producing it It also expressly provides exemption from lia- bility where the violation of law is either the proximate or remote cause or condition producing the injury. In short, it is so drawn as to exempt from liability imder the reasoning and holding of the courts in both classes of cases cited. Plaintiff contends in argument that he was not engaged in himting at the time he received the injury, " See, also, Bradley v. Mutual, etc., Mich. 545, 32 N. W. 812, 8 Am. St. Ins. Co., 45 N. Y. 422 (1871); Mur- 913 (1887). See, also. Griffin v. ray v. New York, etc., Ins. Co., 96 Western, etc., Ass'n, 20 Neb. 620 N. Y. 614 (1884); Griflan v. Western, (1890); Goetzman v. Connecticut, etc., Ass'n, 20 Neb. 620, 31 N. W. etc., Ins. Co., 3 Hun (N. Y.) 515 122 . (1887) ; Accident Ins. Co. v. (1875). Bennett, 90 Tenn. 256, 16 S. W. 723 "» Prader v. National, etc., Ass'n, (1891) [where the insured was 95 Iowa 149, 63 N. W. 601 (1895). killed while living with a mistress '" Duran v. Standard, etc., Ins. Co., In violation of law]. 63 Vt. 437, 22 Atl. 530, 25 Am. St "Utter v. Travelers' Ins. Co., 65 773, 13 L. R. A. 637 (1891). § 402 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 446 but was walking home after he had been visiting. Were his claim conceded, we do not see how it gives the plaintiff any better ground for recovery. * * * The plaintiff was clearly violating the pro- visions of the statute prohibiting traveling on Sunday. Every step he took in making that trip was in and of itself a violation of law. In taking one of those steps he slipped and was injured. * * * The liability to accident must be greatly increased in the case of a person who, like the plaintiff, engages in hunting or traveling about the country on Sunday in open violation of law, as compared with one who observes the law. The defendant had the right to show that it should not assume such increased risk." A person who was shot by one upon whom he had made a violent assault died in consequence of a violation of law.'^"^ So, a woman who voluntarily submits to an operation for abortion is engaged in a violation of law, and there can be no recovery upon a policy for death resulting therefrom.^"' There is some difference of opinion as to whether the law which is being violated must be a criminal statute. It was held in Massa- chusetts that to invalidate the policy there must be a violation of some criminal statute.^"* A contrary view was expressed in New York ;^"° and in Indiana the court said -.^"^ "In our opinion, the law 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 reasonable consequences of the violation are to increase the risk; a violation of law, whether the law is a civil or a criminal one, does not avoid the policy if the natural and reasonable consequences of the act do not increase the risk." § 402. Injuries received while intoxicated. — Where the contract provides that there shall be no recovery for injuries which. are received while the insured is intoxicated, the insurance company is not liable, although the intoxication did not contribute to the injury.^"^ '"Murray v. New York L. Ins. Co., Allen (Mass.) 308 (1866). See, also, 96 N. Y. 614, Woodrufe Ins. Cas. 301 Harper v. Phoenix Ins. Co., 19 Mo. (1884); Bloom v. Franklin L. Ins. 506 (1854). Co., 97 Ind. 478 (1884). ""Bradley v. Mutual, etc., Ins. Co., "= Hatch V. Mutual L. Ins. Co., 120 3 Lans. (N. Y.) 341, 45 N. Y. 422 Mass. 550, 21 Am. R. 541 (1876). (1870). As to suicide being a violation of ™ Bloom v. Franklin L. Ins. Co., this provision, see § 373, supra. 97 Ind. 478 (1884). >" Clulf V. Mutual, etc., Ins. Co., 13 "" Standard, etc., Ins. Co. v. Jones, -i-i? ^ ACCIDENT INSURANCE § 40S III. General Provisions. ■ § 403. Amount of recovery — Disability. — The contract is com- monly for the payment of a specified sum for certain injuries, sucb as the loss of a hand,^°8 f oot,^"' or eye/^" and the payment of a certain sum in case of total disability. As said by Mr. Justice Mitchell :"^ "The principal contest is as to the construction of that part of the policy, and particularly the term, 'wholly disabled.' Accident in- surance being of comparatively recent origin, the policies do not seem to have acquired any settled form ; and the decisions construing them are comparatively few, and do not seem to have agreed on any very definite meaning to be given to the term 'total disability.''^- The cases which have placed a construction on the term 'total disability' might seem to be divided into two classes; viz., those which construe it liberally in favor of the insured,^^^ and those which construe it strictly against him.^^* Any apparent conflict in the decisions may, however, be mostly reconciled in view of the differences in the lan- guage of the policies, and of the different occupations under which the parties were insured. As is well said in Wolcott v. United Life^ etc., Assn.j^^^ 'total disability must, from the necessity of the ease, be- a relative matter, and must depend -largely upon the occupation and employment in which the party insured is engaged.' One who labors^ with his hands might be so disabled by a severe injury to one hand as not to be able to labor at all at his usual occupation; whereas a merchant or professional man might, by the same injury, be only dis- 94 Ala. 434, 10 So. 530 (1892); phreys v. National Ben. Ass'n, 139" Shader v. Railway, etc., Assur. Co., Pa. St. 214, 11 L. R. A. 564 (1891). 66 N. Y. 441, 23 Am. Rep. 65, Wood- "' Lobdill v. Laboring Men's, etc., ruff Ins. Cas. 297 (1876). See Jones Ass'n, 69 Minn. 14, 38 L. R. A. 537 V. United States, etc., Ass'n, 92 Iowa (1897). 652, 61 N. W. 485 (1894). '"^ See cases cited in Bacon Ben. "* See Lord v. American, etc., Soc, § 501; Niblack Vol. Soc, § 401. Ass'n, 89 Wis. 19, 26 L. R. A. 741 See 4 Harvard Law Review 180 (1894); Hutchinson vr Supreme (1890). Tent Co., 68 Hun (N. Y.) 355 (1893). »» Hooper v. Accidental, etc., Ins. ""' Sheanon v. Pacific, etc., Ins. Co., Co., 5 Hurl. & N. 545 (1860); Young 83 Wis. 507, 9 L. R. A. 685 (1892); v. Travelers' Ins. Co., 80 Me. 244 Stevers v. People's, etc., Ins. Ass'n, (1888). 150 Pa. St 132, 16 L. R. A. 446 "'Lyon v. Railway, etc., Assur. (1392). Co., 46 Iowa 631 (1877); Saveland ""Mogg V. Society, etc., 167 Mass. v. Fidelity & Cas. Co., 67 Wis. 174, 298, 39 li. R. A. 736 (1896); Hum- 58 Am. Rep. 863 (1886). •"55 Hun (N. Y.) 98 (1889). § 403 LIFE, ACOIDBNT AND INDEMNITY INSUEANOB. 448 abled from transacting some kinds of business pertaining to his occu- pation. In policies of this character the aim of the insurer is usually to get as large premiums as possible by incurring the least possible liability; and, on the other hand, after the accident occurs the usual aim of the insured is to recover the greatest amount of indenmity for the least possible injury. All the courts can do is to construe the contract the parties have made for themselves; but in doing so they should give it a reasonable construction, so as, if possible, to give effect to the purpose for which it is made. There are a few proposi- tions applicable to the construction of the policy under consideration which, under the evidence, are decisive of this case. The first is that total disability does not mean absolute physical inability on the part of the insured to transact any kind of business pertaining to his occupation. It is sufficient if his injuries were of such a character that common care and prudence required him to desist from the transaction of any such business so long as it was reasonably necessary to effectuate a cure. This was a duty which he owed to the insurer as well as to himself."' The second is that, under the particular terms of this policy, to wit, 'from the transaction of any and every kind of business pertaining to the occupation above stated (mer- chant),' inability to perform some kinds of business pertaining to the occupation would not constitute total disability within the meaning of the policy. ♦ * * But the mere fact that he might be able, with due regard to his health, to occasionally perform some single and trivial act connected with some kind of business pertaining to his occupation as a merchant would not render his disability partial instead of total, provided he was unable substantially or to some material extent to transact any kind of business pertaining to such occupation. To illustrate this proposition by reference to the evi- dence in this case, it appears, as we shall assume, that on one or two occasions where the plaintiff went into his store, when down town for other purposes, he handed out some small article to a customer, and took the change for it. This would not necessarily prove that he was able to attend to the business of waiting on customers, and that he was not 'wholly disabled' within the meaning of the policy. He might be able on temporary visits to the store to occasionally per- form a trifling act of this nature and yet be substantially and essen- tially unable to transact any kind of business pertaining to his occupa- "« Young V. Travelers' Ins. Co., 80 Me. 244 (1888). 44:9 ACCIDENT INSURANCE. § 404 tion of merchant. The frequency and nature of these acts would be for the consideration of the jury in determining whether he was totally disabled, but would ordinarily be by no means conclusive on that question." The fact that a man whose business was that of making loans on personal security goes to his office for a short time every day, without doing any work or business there, does not show that he was not totally disabled from prosecuting any and every kind of business pertaining to his occupation.^^' § 404. Construction — Effect of existing judicial decisions. — In an action on a policy containing a provision which had, prior to its issu- ance, been given a uniform judicial construction by the courts of last resort of several states, it will be presumed that such construction was adopted by the parties and the policy issued with that imder- standing. A policy contained a provision that the insurance should cover "injuries, fatal or othervnse, resulting from poison or anything accidentally or otherwise taken, administered, absorbed or inhaled." Prior to its issuance another policy issued by the same company had been construed so as not to exempt the company from liability for the death or injury of the insured resulting from the unconscious and involuntary inhaling of illuminating gas while asleep. It was held by the circuit court of appeals that the same construction would be adopted in an action on the latter policy. The court said:^*' "The defendant company issued the policy in suit, and doubtless many others of like character, after it was advised by the decisions to which reference has been made, one of which was a construction of its own contract, that, as interpreted by the courts of last resort in several states, the policy as drawn would not exempt it from liability if. poisonous gas was unconsciously, involxmtarily and accidentally in- haled by the insured, which occasioned his death or injury. It had knowledge, therefore, that by reason of such adjudication its policies, if it continued to issue them in the old form, would in all probability be accepted by some, and possibly many persons, upon the under- standing that the company intended, and in fact assumed, the species of risk last described. If such was not its intention, its plain duty "' Turner v. Fidelity & Cas. Co., "" Fidelity, etc., Co. v. Lowensteln, 112 Mich. 425, 38 L. H. A. 529 97 Fed. 17, 38 C. C. A. 29 (1899), and (1897), annotated. See also, Hoff- cases there cited, man v. Michigan, etc., Ass'n (Mich.), 64 L. R. A. 746 (1901). 29— Elliott Ins. § 404 LIFB, 4CCIDENT AND INDEMNITY INSUEANOB. 450 was to SO modify the language of its policy as to make its purpose clear, inasmuch as a slight change in the phraseology originally em- ployed would leave no room for doubt or speculation as to its meaning. We are unwilling to concede that the insurance company may con- tinue to issue policies, with no modification of their terms, after certain provisions thereof have been construed by several courts of the highest character and ability, and be heard to insist in controver- sies between itself and the insured with respect to such subsequently issued policies, that they do not in fact cover risks which they had been judicially adjudged to cover before they ha,d been issued. While it may not be accurate to say that under such circumstances a technical estoppel arises in favor of the insured, yet courts in such cases should rigidly enforce the rule requiring policies of insurance to be construed most strongly against the insurer, and they should not hesitate to hold that decisions construing a policy adversely to the contention of the insurer thereafter create a doubt as to the proper interpretation of sufficient gravity to be resolved in favor of the insured." CHAPTER XVI. employees' liability, guaranty and title instjeancb. I. Employers'' Liability Insurance. sec. ssa 417. Manner ot prool. 410. In general. 418. Constructive noUce. 411. Injuries while engaged in desig- 419. Supervision of employe. nated business. 412. Violation of statute by insured 413. When liability accrues. 414. Effect of judgment against in- sured. 415. Notice of injury or claim. //. Fidelity Insurance. 416. In general. III. Credit Insurance. 420. In general. 421. Construction o£ policy — Amount of recovery. 422. Identity of the Insured. IT. fitle Insurance. 423. Insurance of titles — Construc- tion. 7. Employers' Liability Insurance. § 410. In general. — The constant risk from damage suits to which employers of men engaged in manufacturing, transportation and other business are exposed has led to the adoption of a form of in- surance which is commonly known as employers' liability insurance. The insurance company, for an adequate premium, agrees, subject to specific exceptions, restrictions and conditions, to protect the em- ployer against liability or loss resulting from actions brought against him by his employes to recover damages for personal injuries caused by the negligence of the employer or his representatives. The busi- ness has reached considerable magnitude, and in some states there are statutes which authorize the incorporation of companies for the express purpose of writing such insurance. As between master and servant, a contract exempting the master from liability for the results of his negligence is void as against public policy; but by the great weight of authority, a contract with a third person by which such third person agrees to indemnify the master is valid.' 'Trenton Pass. R. Co. v. Guaran- 246, 44 L. R. A. 213 (1897); Amer- tors', etc., Indem. Co., 60 N. J. L. lean Gas. Ins. Co.'s Case, 82 Md. 635 (451) § 411 LIFE, ACCIDENT AND INDEMNITY INSUEANCE. 452 §411. Injuries while engaged in designated business. — The em- ployer is insured against loss resulting from his liability for injuries received by his employes while engaged in a designated business. The provision with reference to the business is liberally construed for the purpose of securing to the insured the protection for which he has paid. Where a policy insured an ice company against claims for damages on the part of its employes "in all operations connected with the business of ice dealers," it was held that, taking into consid- eration the statements contained in the application, this language cov- ered only employes in the operating department, and that a person injured while engaged in constructing an ice house was not one of such employes.* A policy was issued under which the' liability was restricted to injuries to employes while engaged in occupations connected with the business of iron and steel Works; that is, in the operating depart- ment as distinguished from a business like that of constructing nec- essary buildings. An employe was injured while at work in the operating department by the fall of a girder which was being raised to its position by an independent crew engaged in this work. The court said:' "The general language of the contract, 'all operations (Boston, etc., R. Co. v. Mercantile etc., Assur. Corp., 161 Mass. 122, 36 Trust, etc., Co., 38 L. R. A. 97, 34 N. E. 754 (1894). Atl. -778) (1896); Kansas City, etc., "Hoven v. Employers', etc., Assur. R. Co. V. Southern Ry. News Co., Corp., 93 Wis. 201, 67 N. W. 46, 32 151 Mo. 373, 52 S. W. 205, 45 L. R. L. R. A. 388 (1896). In reference to A. 380, 74 Am. St. 545 (1899). As People's Ice Co. v. Employers', etc., to the right of the injured employe Assur. Corp., 161 Mass. 122, 36 N. E, to maintain an action upon the pol- 754 (1894), the court said: "We icy of insurance, see Embler v. Hart- are not prepared to say but that ford, etc., Ins. Co., 158 N. Y. 431, 53 there was reasonable ground to N. B. 212, 44 L. R. A. 512 (1899). hold that the poUcy, taken in con- That such policies sometimes pro- nection .with the application, and vide for the apportionment of the the language of the schedule, 'all loss between the insured and the operations connected with the busi- insurer, — see Rumford Palls Paper ness of ice dealers,' covered only Co. V. Fidelity, etc., Co., 92 Me. 574, persons engaged in the actual oper- 43 Atl. 503 (1899). That this is ations of cutting, handling, storing also true of credit insurance con- and delivering ice, and not those en- tracts, — see Jaeckel v. American, gaged In the construction of store- etc, Indem. Co., 34 App. Div. (N. Y.) houses; nevertheless, we should hes- 565 (1898). itate to adopt such construction If 'People's Ice Co. v. Employers', the precise question were before 453 employees' liability insurance. § 411 connected with the business of iron and steel works/ is not restricted by anything in the conditions indorsed on the policy or any paper referred to or made a part of it. If the intention was to restrict such language to operations in any particular department, or to any par- ticular branch of the business, or to any particular instrumentalities used in sucli business, it was easy to' have said so in unmistakable language. The court should give the general language the assurer saw fit to use, under the circumstances, a broad and liberal construc- tion in favor of the objects for which the policy was taken out; and by so doing the conclusion is easily reached that it covers the opera- tion of constructing a building for tlie use of the assured in its business as one of the operations connected with such business." But a policy indenfnifying for damages on account of injuries to persons not employes, resulting from "accident to or caused by horses, cars, plant, ways, works, machinery or appliances used in the business of the insured and described in the application," does not cover in- juries caused by the use of omnibus sleighs, as the risk would be dif- ferent. "The defendants would not have been liable under the terms of the policy if the motive power had been changed by the use of steam or electricity instead of horses; and we are not able to see that the result is different when one kind of a vehicle is substituted for another. * * * whether the risk would be increased or diminished would depend upon the circumstances of the particular case, but it is evident that the risk in the use of sleighs differs from that in the use of ears."* A policy was issued upon an application which stated: "It is un- derstood that in the conduct and operation of their business, the insured employ a railroad owned by themselves and used only for their own lumbering purposes." The insurance was against liability to persons who should "sustain bodily injuries under circumstances which would impose on the insured a common-law or statutory liabil- ity therefor." The company's lumbering operations were carried on upon lands owned by it, and it had mills and dwellings for its work- men in a region not otherwise inhabited. It also had, in connection with the mills and dwellings for the workmen mentioned, a store, in which it kept for sale to its agents and other workmen such materials and goods as they required. These buildings and mills were remote from any other settlement and could not be reached by any public * Phillipsburg Horse Car Co. v. Fidelity, etc., Co., 160 Pa. St. 350, 28 Atl. 823 (1894). § 412 LIFE, ACCIDENT AND INDEMNITY INSUEANCE. 454 road or highway. The company constructed and operated on its own land, and primarily for use in its business, a railway by which logs were transported to the mills and manufactured into lumber, and from the mills to an ordinary road some miles distant. Necessary supplies for the store were transported over the railroad as occasion required, and the company's agents and workmen, and persons hav- ing business at the mill or at the shop, such as commercial travelers, were carried from time to time over the railway. From some of such persons the company demanded and collected pay for transporta- tion. Two commercial travelers, who had been to the store to take orders, were, by special arrangement and for compensation, being carried over the road on a locomotive, which was overturned, and the passengers received injuries for which they recovered damages from the railroad company. It was held that under all the circumstances the injuries occurred within the scope of the company's lumberiug operations, and that the insurance company was therefore liable.' § 412. Violation of statute by insured. — It is sometimes provided that there shall be no liability for injuries to employes caused by the neglect of the insured to obey statutes and ordinances designed for the protection of such employes. Where the policy insured against liability for injuries accidentally sustained by employes, except a child illegally employed, it was held that the company was not liable for damages which were recovered from the insured for injuries sustained through its negligence by a child under twelve years of age, employed in violation of law. The insured claimed that under this contract the insurance company was exempted from liability only where the injuries were proximately caused by the illegality of the employment, but the court said:' "We can entertain no doubt but that the meaning of the clause in question which was intended by the parties, and which should be given it by the courts, is the popular meaning as distinguished from the purely technical, legal meaning. So construed, all difl5culties disappear, and the clause becomes a sub- stantial limitation, as undoubtedly intended by the parties, and it encourages no violation of law, but rather discourages it." In a recent New York case, the application upon which the policy was issued contained an agreement on the part of the insured, a ce- • Travelers' Ins. Co. v. Wild River • Goodwillie v. London Guaran- Lumber Co., 83 Fed. 977, 28 C. C. A. tee, etc., Co., 108 Wis. 207, 84 N. W. 127 (1897). 164 (1900). 455 employers' liabilitt insueanoe. § 413 meat company, to "conduct all business and maintain all premises to which, such proposed insurance may apply in strict compliance with all statutes and ordinances provided for the safety of persons." One of the employes of the insured was injured while attempting to oil a shafting in certain machinery, and subsequently brought an action against the cement company and secured judgment, which the cement company paid and demanded from the insurance company. The insurance company claimed that the insured had forfeited its right to indemnity because it had failed to maintain its premises in compliance with the factory act, which required such machinery to be properly guarded. "There are but few cases," said Mr. Justice Haight,' "to be found in our courts in which the provisions of the factory act have been construed, and these offer but little aid in construing the provisions here involved. The manifest purpose of the enactment was doubtless to give more force to the existing rule that masters should afford a reasonably safe place in which their servants are called upon to work. We think, however, that the legislature could not have intended that every piece of machinery in a large building should be covered or guarded. This would be impracticable. What evidently was intended was that those parts of the machinery which were dangerous to servants whose duty required them to work in its immediate vicinity should be properly guarded so as to mini- mize, as far as practicable, the dangers attending their labors. Human foresight is limited, and masters are not called upon to guard against every possible danger. They are required only to guard against such dangers as would occur to a reasonably prudent man as liable to happen." It appearing that this had been done, the company was allowed to recover upon the policy of insurance. § 413. When liability accrues. — Whether the insured can main- tain an action against the insurer without having paid the claim of an employe depends, of course, upon the language of the policy. If the insurance is against damages actually suffered, it is necessary for the insured to pay the judgment or claim against it before proceed- ing against the insurance company. But where the policy by its terms protects the insured against liability for damages for injuries suffered by his employes, it is not necessary that the liability be dis- charged before bringing an action." "According to the terms of the ' Glens Falls, etc., Co. v. Travel- " Hoven v. Employers', etc., Assur. ers' Ins. Ck)., 162 N. Y. 399, 56 N. B. Corp., 93 Wis. 201, 67 N. W. 46, 32 897 (1900). L. R. A. 388 (1896). § 413 tlFE, ACOIDBNT AND INDEMNITY INSURANCE. 450 policy," said Mr. Justice Martin," "the insurance company under- took to pay all such sums as the railway company should become liable' for in damages in consequence of bodily injuries caused by the operation of its street railway. Upon the occurrence of an accident in respect to which a claim for damages may have arisen, notice was required to be immediately given by the railway company to the insurance company. * * * The insurance company assumed the liability for such claim and had authority to settle it without litiga- tion. If any legal proceedings were instituted against the railroad company to enforce it, the insurance company bound itself to take ab- solute control of the same in the name and in behalf of the assured. In only one way could it have absolved itself from this obligation, and that was by paying or offering to pay the insured the full amount for which it was liable in such cases by its policy. According to these terms, the ascertainment and adjustment of the liability of the insured for claims for damages depended upon the insurance com- pany, provided it acted in good faith. The assured surrendered the entire control and management thereof to the insurer. So long as the latter resisted in the courts the enforcement of such claims, no right of action accrued upon the policy ; for, until the termination of the litigation, both parties denied the liability of the assured, and the existence and extent thereof remained undetermined, according to the methods by which the parties, in effect, agreed it should be ascertained and fixed. Any other interpretation of the policy would take from the insurer the protection for which it contracted." But the liability of the insured is not determined so as to render it liable to pay such damages so long as an action is pending in court against the insured, or an appeal from a judgment therefor is pending in the supreme court. An employers' liability policy provided (1) that it insured against all liability on account of fatal or non-fatal injuries suffered by an employe; (3) that the company, at its own expense, would take upon it the settlement of any loss, and the control of any legal proceedings taken against the insured to enforce a claim for injuries to an in- sured employe; (3) that the insured should not settle for any injury without the consent of the insurance company; (4) that no action should lie against the insurance company after the period in which •Fidelity, etc., Co. v. Fordyce, 64 dyce, 62 Ark. 562, 54 Am. St 305 Ark. 174, 41 S. W. 420 (1897). See (1896). also, American, etc., Ins. Co. v. For- " 457 employees' liability insurance. § 414 action might be brought by the employe against the insured, unless at such period there was a suit pending for such purpose, in which case the action might be brought in respect to a claim involved in such suit against the company within thirty days after a judgment was rendered in such suit, and not later. It was held that this policy was not one merely of indemnity against any act of an employe, but that in case of accident to him whereby he had a cause of action against the insured, the insurance company would assume and pay the liability. Also, that an employe having, while so employed, sus- tained injury and recovered a judgment therefor against the insured, the insurance company was liable therefor in an action against it without the employer having first paid the judgment.^" § 414. Effect of judgment against insured. — Ordinarily, questions determined in a suit brought by the employe against the employer to recover damages for personal injuries are res adjudicata, in a pro- ceeding by the employer against the insurance company to recover upon a policy coverrug the particular risk in question. In a New York case, an action was brought by an employe against his employer to recover damages for personal injuries alleged to have been caused by the negligence of the employer. The defense was undertaken by the insurance company, but a short time before the time set for trial it vnthdrew from the defense and permitted judg- ment to go by default on the theory that the evidence showed that the employer had neglected to comply with the provisions of the statute for the protection of his employes, and therefore the insurance company was not, under the terms of its policy, liable for the loss. In an action subsequently brought against the insurance company by the employer, it was claimed that the question of negligence of the employer in failing to comply with the statutory provisions was res adjudicata, but the court said:^^ "We do not think that the adjudication in that action is binding upon the plaintiff in this action, for the reason that, under the contract of insurance, the insurance company had agreed to defend the action, and had conducted such defense down to the eve of the trial, and then withdrew, leaving the cement company without reasonable opportunity to prepare its own defense to the action. Had the insurance company continued its defense, it might "Anoka Lumber Co. v. Fidelity, "Glens Falls, etc., Co. v. Trav- etc, Co., 63 Minn. 286, 65 N. W. elers' Ins. Co., 162 N. Y. 399, 56 N. 353, 30 L. R. A. 689 (1895). B. 897 (1900). § 415 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 458 have shown upon the trial that the cement company was free from negligence in the matter, and thus have avoided judgment against the company ; hut having withdrawn from the defense of that action im- properly, and permitted judgment to go against the cement company by default, it is now estopped from claiming that the adjudication thus obtained precludes the plaintiff from the indemnity which the defendants had contracted to render." § 415. Notice of injury or claim. — ^A provision in a policy of this character, to the effect that notice shall immediately be given to the company of the occurrence of an accident, is a condition precedent to liability, although the policy contains no forfeiture clause. Where an employe made no claim for damages imtil nine months after the accident, a notice given at that time was held to be too late. "Cer- tainly we can not hold," said the court, "under the conditions of this policy, that the notice of the claim for damages, made for the first time nine months after the accident, satisfied the requirement that immediate notice should be given of the occurrence of the accident; , nor can we hold that such requirement was not a condition precedent ; nor can we hold that such notice of an accident given for the first time nine months after the occurrence of the accident was imme- diate notice within the condition quoted, as those words have been repeatedly construed in this eourt."^" But in Minnesota, under a policy which contained a clause to the effect that "the insured, upon the occurrence of an accident, and upon notice of any claim on account of an accident, shall give imme- diate notice in writing of such accident, or claim, with the fullest information available, to the company, at its ofiBce in New York City, or to an agent, if any, who shall have countersigned this policy," it was held that the insured need not give notice to the insurance com- pany until notice that a claim had been made.^' " Underwood Veneer Co. v. Lon- . Grand Rapids, etc., Co. v. Fidelity, don Guar., etc., Co., 100 Wis. 378, etc., Co., Ill Micli. 148, 69 N. 75 N. W. 996 (1898); quoting Kentz- W. 249 (1896). ler V. American, etc.. Ace. Ass'n, 88 " Anoka Lumber Co. v. Fidelity, Wis. 589, 60 N. W. 1002 (1894). etc., Co., 63 Minn. 286, 65 N. W. 353, See further, as to tlie construction 30 L. R. A. 689 (1895). of tlie provision requiring notice. 459 FIDELITY INSURANCE. § 416 II. Fidelity Insurance. § 416. In general. — Contracts by which a party is insured against loss^* by the fraud or dishonesty of his employes are contracts of in- surance and not of suretyship.^^ "Guaranty insurance," said Mr. Justice WiUdn,^® "is, in its practical sense, a guaranty or insurance against losses in case the person so guaranteed makes a designated default or be guilty of specified conduct. It is usually against mis- conduct or dishonesty of an employe or officer, though sometimes against a breach of contract. This branch of insurance is so much more modem in origin and development than fire, marine, life and accident 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 confidently stated that, notwithstanding the comparative absence of specific de- cisions, the general principles applicable to other classes of insur- ance are applicable here as well. Thus, the general doctrine of war- ranty, representation and concealment, as applied to fire, life and marine insurance, is applicable also to the subject of guaranty insur- ance." Fidelity policies usually provide that the insured shall promptly notify the company of any fraud or dishonesty on the part of the em- ploye.^' A condition in the bond of fidelity insurance, which requires " As to what are "losses," see Rice See, also. People v. Fidelity, etc., V. National, etc., Ins. Co., 164 Mass. Co., 153 111. 25 (1894); Claflin v. 285, 41 N. B. 276 (1895). United States, etc., Co., 165 Mass. "Supreme Council v. Fidelity, 501, 52 Am. St. 528 (1896). For the etc., Co., 63 Fed. 48, 11 C. C. A. 96 general principles of insurance gov- (1894); Mechanics' Sav. Bank & erning, contracts of this character. Trust Co. V. Guarantee Co., 68 Fed. see Mechanics' Sav. Bank & T. Co. 459 (1895). The principal ques- v. Guarantee Co., 68 Fed. 459 (1895); tions which have arisen out of Supreme Council v. Fidelity & Cas. credit insurance have been those of Co., 63 Fed. 48, 11 C. C. A. 96 (1894). construction. As an illustration. In the Mechanics' Sav. Bank case see the cases of Smith v. National, the court said: "The business is etc., Ins. CO., 65 Minn. 283, 68 N. W. therefore becoming one of vast pub- 28, 33 L. R. A. 511 (1896), and lie as well as private importance, Shakman v. United States, etc., Co., and it can not be objected if rules 92 Wis. 366, 66 N. W. 528, 53 Am. of reasonable stringent liability are St. 920 (1896). applied to these contracts as in i« People V. Rose, 174 111. 310, other forms of insurance." Woodruff Ins. Cas. 16 (1898); quot- "Where the relation of principal Ing 9 Am. & Eng. Enc. Law 65. and surety exists, the surety is en- § 416 LIFE, ACCIDENT AND INDEMNITY INSUEANCB. 460 that a claim thereunder shall be made as soon as practicable after the discovery of the loss, and within six months after the expiration of the bond, must be complied with or there can be no recovery ; and the fact that the insurance company has actual knowledge of the loss does not excuse compliance with such a condition.^* Where the eon- tract requires that written notice of any act of the employe involving loss to the employer- shall be given as soon as practicable after knowl- edge of such act, it is not necessary to give notice of a mere suspicion. Thus, where a bond was given to protect a bank from the dishonesty of its cashier, it was held that notice need be given only after the bank had knowledge of such facts as would justify a charge of fraud or dishonesty against the cashier.^' The notice must be given within a reasonable time. A bond pro- vided that notice should be given the company of any act of the cashier of a bank which might involve loss for which the insurance company might be responsible, "as soon as practicable after the occurrence of such acts shall have come to the knowledge of the bank." The bank suspended payment and passed into the hands of a receiver, and after- wards notified the surety company of the discovery of dishonest acts of the cashier, and made proofs of loss as required. It was held to be titled to notice, although it is not Contra, see Phenix Ins. Co. v. Pind- expressly provided for in the bond, ley, 59 Iowa 591, 13 N. W. 73& In Phillips V. Foxall, L. R. 7 Q. B. (1882). 666 (1872), it was said: "We think "California Sav. Bank v. Ameri- that in the case of a continuing guar- can Surety Co., 87 Fed. 118 (1898); anty for the honesty of a servant, Michigan Sav., etc., Ass'n v. Mis- if the master discovers that the souri, etc., Trust Co., 73 Mo. App. servant has been guilty of acts of 161 (1898); Missouri, etc., Trust dishonesty in the course of the ser- Co. v. German Nat'l Bank, 77 Fed. ice to which the guaranty rela..-, 117, 23 C. C. A. 65 (1896) [where and if, instead of dismissing the a guarantee company, after it knew servant, as he may do at once, and of the fact that an employe was a without notice, he chooses to con- defaulter, took security from him tinue In his employ a dishonest without notifying the insured that servant, without the knowledge and it disclaimed liability, it was held consent of the surety, express or im- proper to submit to the jury the plied, he can not afterwards have question as to whether the guar- recourse to the surety to make good antee company waived the defense any loss which may arise from the that the employe in his application dishonesty of the servant during the for the bond had understated his subsequent service." To the same indebtedness to the bank], effect, see Lancashire Ins. Co. v. '"American Surety Co. v. Pauly, Callahan, 68 Minn. 277 (1897). 170 U. S. 133 (1898). 461 FIDELITY INSURANCE. § 416 a question for the ]ury as to whether notice had been given with rea- sonable promptness.^" Such contracts are strictly limited with reference to the time and manner of employment, and therefore cease to be effective whe^e there is a change of employment. The cashier of a national bank remains in the "service of the bank" after the bank is in the hands of a bank examiner who is investigating its affairs, and until the ap- pointment and qualification of a receiver.^^ In the same case in the lower court it was held that the cashier was "in the service of the bank" while he was in the employ of the receiver, who was winding up the affairs ef the bank.^^ So, where a bank was insured against loss through the fraud or dishonesty of an employe in connection with his duties as teller, "or the duties to which, in the employer's service, he may be subsequently appointed or assigned by the em- ployer," the contract was held to cover his misconduct while acting as assistant cashier.^' Where a bond, given to secure a bank against loss by reason of fraud or dishonesty of an employe, provided that a claim thereunder should embrace only acts and defaults committed during its currency, and within twelve months next before the discovery of the act or de- fault, it was held that it did not cover a default committed more than twelve months prior to the discovery, which would have been discov- ered within the year had not such discovery been prevented by the act of the employe in falsifying the booTss during the year preceding the discovery. The court said:^* "The bank's position rests upon the assumption that it would have recovered its earlier losses by action upon this bond, but for the fraudulent postponement of their discovery. Let this be conceded, still it is obvious that seasonable discovery of the preceding dishonest acts would have rendered the perpetration of the succeeding ones impossible, and hence that the en- tire liability [of the surety] is one which could not possibly have ac- crued if discovery of the earlier embezzlements had been made within the prescribed time; and it is not possible to hold, in the face of a "American Surety Co. v. Pauly, Nat'l Bank, 97 Ga. 634, 54 Am. St. 72 Fed. 470, 18 C. C. A. 644 (1896). 440 (1895). " American Surety Co. v. Pauly, =* Fidelity, etc., Co. v. Consolidated 170 U. S. 133 (1898). Nat'l Bank, 71 Fed. 116, 17 C. C. A. »" American Surety Co. v. Pauly, 641 (1895); reversing 67 Fed. 874 72 Fed. 470, 18 C. C. A. 644 (1896). (1895). "Fidelity, etc., Co. v. Gate City § 417 IIFB, ACCIDENT AND INDEMNITY INSURANCE. 462 condition limiting liability by the requirement of discovery, that, by reason of non-discovery, the liability so limited was extended or en- larged." § 417. Manner of proof. — The contract often provides that certain facts and statements shall be taken as proof of a default by the em- ploye, and the amount of such default. Where this is done the pro- duction of such evidence makes a prima facie case against the in- surer.^"* Where a policy insuring against actual loss by theft or dishonesty of an employe provided the means of determining the extent and amount of the shortage, and that, when thus ascertained, it should be accepted as evidence that it was caused 'by fraud or dishonesty, and not by any of the various other causes enumerated as exceptions, it was held that a shortage so ascertained was prima facie evidence of its existence, and that it was caused by the employe's fraud or dishon- esty, thus casting the burden upon the insured to rebut the prima facie ease by sufficient evidence. It was held, however, that it was not bound to do this by aflBrmative evidence showing a particular one of the causes enumerated as exceptions, but might do it by negative evidence showing that it was not caused by fraud or dishonesty of the employe, and hence must have been produced by one or more of the excepted causes. It was also held, in an action, brought by the in- surance company against the employe to recover money alleged to have been paid to his employer on the bond, that, the contract of guaranty having been executed at defendant's request, the obliga- tion to indemnify plaintifE was co-extensive with the obligation of the latter to indemnify the employer, and any provisions in the con- tract between the insurer and the employer as to the proofs of liabil- ity were equally binding on the defendant in favor of the plaintifE.^* Under a bond to "make good such pecimiary loss, if any, as may be sustained by an employer by reason of fraud or dishonesty of an em- ploye in connection with the duties referred to, amounting to embez- zlement or larceny, which was committed or discovered during the continuance of said term or any renewal thereof," — entries, receipts and reports made by an employe, the treasurer of a benevolent asso- ciation, during the life of the bond in the ordinary course of his duty, "American Surety Co. v. Pauly, Minn. 170, 30 L. R. A. 586, 56 Am. 72 Fed. 484, 18 C. C. A. 657 (1896). St. 464 (1895). *■ Fidelity, etc., Co. v. BlckhofE, 63 463 FIDELITY INSUEANOB. § 418 charging himself with certain items, are not conclusive against the insurance company as to the time such items were received.^' § 418. Constructive notice. — ^A hank is not bound by constructive notice of matters brought to the attention of its president and cashier while they were engaged iu a fraudulent design to rob the bank. "The presumption that an agent informed his principal of that which his duty and the interests of the principal required him to communicate does not arise where the agent acts or makes declara- tions not in execution of any duty that he owes to the principal, or within any authority possessed by him, but to subserve simply his own personal ends to commit some fraud against the principal. In such cases the principal is not bound by the acts or declarations of the agent unless it is proved that he had at the time actual notice of them, or, having received notice of them, failed to disavow what was as- sumed to be said or done in his behalf."''* § 419. Supervision of employe. — The character and extent of the supervision which will be exercised over employes by the insured is a very important factor in the risk assumed by a fidelity insurance company. But an insured owes no duty of supervision to the insurer, unless it is imposed by the contract of insurance.^^ There is some controversy as to whether a statement made by an applicant for insurance, as to the kind of supervision exercised and the method of cheeking accounts, is in the nature of a promissory representation and its future observance vital to the contract. In an English case a guaranty company issued a policy upon statements that the accounts were checked weekly. It appeared that this had " Supreme Council v. Fidelity, that where there is nothing in the etc., Co., 63 Fed. 48, 11 C. C. A. 96 contract requiring the insured to (1894). In this decision the various notify the insurance company that authorities on both sides of the ques- it has learned that the employe is tion are collected and reviewed. untrustworthy, the knowledge of the " American Surety Co. v. Pauly, cashier is not imputable to the bank. 170 U. S. 133 (1898); citing Henry The doctrine of constructive notice V. Allen, 151 N. Y. 1, 36 L. R. A. 658 is held to have no application to (1896). See 2 Pomeroy Equity such a contract. Juris., § 675. In Fidelity, etc., Co. "Fidelity, etc., Co. v. Gate City V. Gate City Nat'l Bank, 97 Ga. 634, Nat'l Bank, 97 Ga. 634, 54 Am. St. S4 Am. St. 440 (1895), it was held 440 (1895). § 419 MPS, ACOIDBNT AND INDEMNITY INSUEANCB. 46-1 been the practice, and tliat it was discontinued after the policy was issued. It was held that there could be no recovery on the policy.^' In a Canadian case it appeared that the policy was issued upon the express condition that the answers contained in the application em- braced a true statement of the manner in which the business was conducted, and accounts kept, and that they would be so kept. As there had been no proper supervision exercised over the books, the insured was not permitted to recover for a loss caused by the dishon- esty of an employe.'^ A good-faith, customary examination of the books of a bank, such as a committee deemed sufScient for the pro- tection of the bank, is a compliance with a requirement in the bond of a bank teller that the bank shall "observe all due and customary supervision over such employe for the prevention of default."'^ Where a policy stipulates that a bank "shall observe all due and customary diligence" in the supervision of its employes, it is not obliged to comply with the general bank custom as to the taking of a trial balance from the individual ledgers.*' In answer to an inquiry, the employer stated that the employe would be authorized to draw checks to which the countersignature of the bookkeeper would invariably be required. It was held that there could be no recovery for losses caused by the drawing of cheeks to which the signature of the bookkeeper was not required. The court said:'* "A written statement made by the employers to the obligee ™Towle v. National Guardiau Ins. anced and closed at the eAd of each Soc, 7 Jur. (N. S.) 1109 (1861), quarter: Board of Education v. Cit- reversing same case, 30 Law J. izens' Ins., etc., Co., 30 U. C. C. P. Ch. 900 (1860). But in Benham v. 132 (1879). See also. Hunt v. Fl- United Guarantee, etc., Co., 7 Bxch. delity, etc., Co., 99 Fed. 242, 30 C. C. 742 (1852), the applicant stated in A. 496 (1900), quoted at § 103, answer to a question as to what supra. checks would be used to secure ac- '" Mechanics' Sav. Bank & T. Co. v. curacy in the accounts of the treas- Guarantee Co., 68 Fed. 459 (1895). urer, that they were "examined by . "^ Guarantee Co. v. Mechanics' finance committee every fortnight." Sav. Bank, etc., Co., 80 Fed. 766 It was held that this was a mere (1896). representation of intention and that " Rice v. Fidelity & Dep. Co., 103 there could be a recovery, although Fed. 427, 43 C. C. A. 270 (1900) the loss was caused by the failure [citing American, etc.,- Indem. Co. to make such examination. v. "Wood, 73 Fed. 81, 19 C. C. A. " Harbour Commissioners V. Guar- 264 (1896); American, etc., Indem. antes Co., 22 Can. Sup. Ct. 542 Co. v. Carrollton Furn. Mfg. Co., (1894). So, where the contract pro- 95 Fed. Ill, 36 C. C. A. 671 (1899)]. vided that the books should be bal- -t65 CREDIT INSURANCB. § 420 in a bond of indemnity against the dishonest acts of their employe, to the effect that they will invariably apply certain checks to his action, which the parties expressly agree by the statement itself and the bond, shall be the basis of the latter, and a condition precedent to a recovery upon it, is of the nature of a warranty, and not a repre- sentation, and a failure to comply with the promise it contains is fatal to an action upon the bond." III. Credit Insurance. ' § 420. In general. — The practice of insuring merchants and trad- ers against loss through the insolvency or dishonesty of their cus- tomers is of very recent origin."* Massachusetts seems to be the only state that does not recognize such contracts as insurance, and it is there held that they are invalid whether made by domestic or foreign corporations, because not .authorized by the insurance statutes.'" It has been contended that the relation between the parties to such a contract is that of principal and suretj', but the courts have re- fused to accept this view. In a recent case it was said:'^ "In- surance against mercantile losses is a new branch of the business of underwriting, and but few eases dealing with policies of that char- acter have as yet found their way into the courts. The necessarily nice adjustments of the respective proportions of loss to be borne by insurer and insured, the somewhat intricate provisions which are required to make such business successful, and the lack of experience in formulating stipulations to be entered into by both parties to suph a contract, have naturally tended to make the forms of the policy crude and difficult of interpretation. * * * The cases cited by defendant in error holding that the surety is 'a favorite of the law,' and that a claim against him is strictissimi juris, have no application. Corporations entering into contracts like the one at bar may call themselves 'guarantee' or 'surctj'' companies, but their business is in all essential particulars that of insurers, who, upon careful calculation of the risks of such business, and with such re- " The first case in which such a " Tebbets v. Mercantile, etc.. Guar, contract came before the courts was Co., 73 Fed. 95, 19 C. C. A. 281 (1896). Solvency Mutual Guar. Co. v. York, To the same effect, see Shakman v. S Hurl. & N. 587 (1858). United States, etc., Co., 92 Wis. 366, "Claflin V. United States, etc., Co., 66 N. W. 528 (1896); United States, 165 Mass. 501, 43 N. E. 293 (1896); etc., Co. v. Robertson (N. J.), 29 M,ass. Pub. St. 1887, ch. 214, § 78. Atl. 421 (1894). 30— Elliott Ins. § 421 LIFE, ACCIDENT AND INDEMNITY INSUEANCE. 46G strictions of their liability as may seem to them sufiBcient to make it safe, undertake to insure persons against loss, in return for pre- miums sufficiently high to make such business commercially profit- able. Their contracts are, in fact, policies of insurance, and should be treated as such." Such contracts are therefore to be construed like other contracts of insurance.'^ The general principles governing the making of such contracts apply to contracts of credit insurance. It was held in England that the rule requiring the utmost good faith on the part of the insured in disclosing facts affecting the risk extends to instruments in the form of a policy guaranteeing the solv- ency of a person who is a surety for the repayment of borrowed money.'" But, as in cases of life and fire insurance, the American cases do not apply the rule with reference to concealment so strictly. "We think it is going too far," says Goodrich, P. J.,*" "to say that the creditor is in all cases, and without being inquired of, boimd to communicate everything that it is important for the surety to know that would increase the risk. Under such a rule no one would ever know when he could rely upon a bond, and it would lead to a good deal of litigation. Besides, the duty of the defendants, when applying for a renewal of the bond, stands upon a different basis than their duty when applying for original insurance." § 421. Construction of policy — Amount of recovery. — A policy which insures against loss on sales, sustained by the insolvency of debtors who have assigned their property for the benefit of creditors, covers an assignment under a state statute, at common law, or for the benefit of a single creditor. "It may be a statutory assignment, a mortgage, a confession of judgment, or some other contrivance, the purpose and effect of which is to dispose of all the debtor's assets and disable him from paying his debts. In such cases the loss is fairly within the scope of the indemnity secured by the insured by this policy. It is the completeness of the transfer and its effect upon the debtor in his business, and not the name or form of the instrument or transaction, that gives it character. Any transfer by a trader or merchant of all his stock in business, when it covers substan- » Mercantile, etc.. Guar. Co. v. " Seaton v. Heath, L. J. 68 Q. B. Wood, 68 Fed. 529, 15 C. C. A. 563 D. 630 (1899). (1895); Mercantile Cred., etc., Co. V. "American, etc., Indem. Co. v. Littleford, 18 Ohio C. C. 889 (1899). Wimpfheimer, 14 App. Div. (N. Y.) 498 (1897). See ch. v. 467 CREDIT INSURANCE. § 431 tially all his property, may be an assignment within the meaning of the policy, in spite of its form or the name given to it. * * * A general assignment, within the meaning of the policy, may be made for the benefit of a single creditor or all. It may be in the form prescribed by state statutes, or an assignment at common law. The form of the transaction is not so material as the result, when it operates to divest the debtor of substantially his entire property and closes out his business. Such a transaction means insolvency, within the fair scope of the indemnity."*^ Within the definition of the term "insolvency," as defined in a policy, was included the return of a writ of execution against the debtor unsatisfied, except where such execution has been issued and returned after the appointment of a receiver. The policy required the insured to give notice within ten days after learning of the insolvency of a debtor, upon blanks furnished by the company and in the man- ner described therein. The blank contained no reference to insolv- ency, but required the insured to answer certain questions as to the "People V. Mercantile Credit Guar. Co., 166 N. Y. 416, 60 N. B. 24 (1901). The policy limited liability to cases where "an execution has been returned unsatisfied on a judg- ment obtained * * * for merchan- dise sold to said debtor during the period covered by this policy." It was held that a failure to return an execution until three days after the expiration of the policy did not re- lieve the insurer from liability where the other requirements of the policy had been complied with. "To sustain the decision under review, it is necessary to hold that not only must the goods be sold within the lite of the policy, and a judgment rendered and an execution issued, but that it must be returned un- satisfied within that time, which is one year; and that, too, when there is no language in the policy or in the conditions which would warrant such construction. * * * The re- turn of the execution does not con- stitute the main fact of insolvency, but is simply evidence of that fact; and if the insured, when presenting his proof of loss within the time stipulated, can say that it has then been returned, that is a compliance with the terms of the policy." [Cit- ing Sloman v. Mercantile, etc.. Guar. Co., 112 Mich. 258, 70 N. W. 886 (1897).] In the same case the court said: "I can not perceive that the case of Talcott v. National, etc., Ins. Co., 9 App. Div. (N. Y.) 433 (1896), affirmed in this court without opinion, 163 N. Y. 577, 57 N. E. 1125 (1900), has any bearing upon the questions now before us. That action was against another company upon a very different in- strument. That case turned upon a condition In the contract to the effect that the insurer should not be liable for any loss of which he did not receive notice during the life of the policy." § 421 LIFE, ACCIDENT AND INDEMNITY INSUKANCB. 468 failure of the debtor. .The word "failure" was held to be used in its commercial sense, and hence a confession of judgment by a debtor who was in business, and the seizure of his stock by the sheriff, caus- ing a suspension of his business, was a failure, and a report thereof within ten days fulfilled the requirement as to notice, and a second notice after the return of an execution unsatisfied was not necessary.''^ A policy insuring the holder against loss "sustained by reason of the insolvency of debtors owing the insured for merchandise" provided that "in adjusting losses, * * * before determining the per- centage of loss to be borne by the company there should first be de- ducted all sums paid, offered and accepted, settled and secured, and the value of any security and collateral." Under this policy the loss insured against was not the whole amount due from the insolvent debtor at the time of his suspension, but the amount remaining due after deducting any payments made by the debtor. It was also held that the clause, "When only a part of the loss is covered by this policy, a proportionate part of everything released or secured by the insured shall be credited to so much of it as this policy covers," apparently referred to cases where a part of the loss is covered by one policy and part by another. But as it could not be brought into harmony with the rest ^ of the contract, and the instrument considered as a whole "American, etc., Indem. Co. v. insured was required to notify the CarroUton Fur. Mfg. Co., 95 Fed. company within ten days after re- 111, 36 C. C. A. 671 (1899); Talcott celving information of any insol- V. National, etc., Ins. Co., 9 App. vency or loss, and it was provided Div. (N. T.) 433 (1896). A bond in that final proof of loss should he this case provided "that in case the made at the home ofSce of the corn- second party shall suffer losses in pany within thirty days after the his business during said period of expiration of the bond, and that in this bond' by reason of the insol- the event of loss occurring within vency by legal process of any party the life of the bond, of which the or parties to whom said second obligor had not received notifica- party shall have sold and delivered tion before the termination of the goods during the period of this bond, such loss should not be prova- bond, ' * * or by reason of ble under this policy. Proof could any judgment or decree of court not be made of claims for goods obtained for goods so delivered which had been sold during the within said period of this bond, period covered by the bond but on upon which execution shall have which no judgment had been ob- been returned unsatisfied over tained or execution returned un- and above said losses, then the satisfied until after the expiration obligor would indemnify the plain- of the term of the bond. tiff as stated in the bond." The 469 TITLE INSURANCE. § 422 was ambiguous, that meaning should be given it which is most favor- able to the insured.** Where the policy insured against loss by insolvency of debtors owing for merchandise "sold between April 1, 1893, and March 31, 1894," and provided that the policy should "expire on March 31, 1894," and that proofs of loss must be presented within ninety days after the expiration of the policy, and that no loss should be paid until presented in such proofs, except that if the policy should be renewed, losses occurring after such expiration in sales made during its ex- istence were payable, it was held that the company was liable for losses occurring after the expiration of the policy on sales made dur- ing its existence, although the policy was not renewed. The court said:** "We are of the opinion that the fairer view to take is that the provision in relation to the expiration of the policy refers to the time when sales to be covered thereby shall cease, and that it does not determine the time when losses must occur upon such sales, but that these shall be recoverable, regardless of that date, subject to the lim- itation as to final proof. This conclusion is justified by the rule that any ambiguity in an instrument is to be resolved against the draftsman." § 422. Identity of the msured. — In guaranty insurance we find a principle somewhat analogous to that of change in interest or title in fire insurance. Two partners were insured against loss by uncol- lectible debts, under a policy which provided that "if any member guaranteed with respect to his gross or particular trade debts shall cease to be such trader, his guarantee or contract shall become void on his retiring from such trade," and it was held that the retirement of one partner invalidated the contract.*' Under such a policy the death of a partner efEects such a change in the firm as will release the insurer.** lY. Title Insurance. § 423. Insurance of titles — Constniction. — There are but few cases construing contracts of title insurance. Apparently the gen- " Mercantile Credit, etc., Co. v. " Solvency Itfut. Guar. Co. v. Free- Wood, 68 Fed. 529, 15 C. C. A. 563 man, 7 Hurl. & N. 17 (1861). (1895). "Cosgrave Brewing, etc., Co. v. « Sloman V. Mercantile, etc., Guar. Starrs, 5 Ont. 189 (1884); Pember- Cc, 112 Mich. 258, 70 N. W. 886 ton v. Oakes, 4 Russ. 154 (1827). (1897). § 423 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 470 eral principles governing insurance contracts apply to contracts of this nature. Thus, when such a policy contains a condition which renders it void from its inception, and this is known to the insurer when the policy is issued, the condition is waived.*' The refusal of an adjoining owner to make compensation for the use of a party wall does not constitute an incumbrance within the meaning of a policy which guarantees the title of real estate against all liens or incumbrances.** The words "tenancy and present occupants," used in such a policy as a defect in the title not insured against, do not include a claim of one in actual adverse possession asserting ownership in fee against the title insured. They refer to the tenancy which arises through occupation or temporary possession of the prem- ises by those who are tenants in the popular sense of the word.*" A condition that "no right of action shall accrue unless the insured has contracted to sell the estate or interest insured, and the title has been declared by a court of last resort and competent jurisdiction defective or incumbered, by reason of a defect or incumbrance for which the company would be liable under this policy," does not apply in an action on the policy where the land was in actual adverse possession of another at the time the policy was issued, and had been actually lost by reason of a defect in the insured's title.^° A policy issued to the holder of a mortgage on certain real estate insured him to the amount named against loss through defects in the title to the real estate, or by liens or incumbrances thereon ex- isting at the date of the policy. It provided that no right of action should accrue until the insured had conveyed or agreed to convey to the company his interest in the property at a price, which, in case of title acquired through foreclosure, should be the amount bid at the foreclosure sale, and that payment, discharge or satisfaction of the mortgage indebtedness, except by foreclosure of the mortgage, should annul the policy, and that the insurance company should have an opportunity to defend any suit affecting the title. Suits " CJuigJey v. St. Paul Title Ins., " Thomas v. Tradesmen's Trust, etc., Co., 60 Minn. 275, 62 N. W. etc., Co., 21 Pa. Co. Ct. 151, 7 Pa. 287 (1895). See this case for the Dist. R. 375 (1898). liabilities assumed by the insurance *" Place v. St. Paul Title Ins., etc., company when it assumes to defend Co., 67 Minn. 126, 64 Am. St. 404 arrainst Claims on the mortgaged (1897). premises. The same case was again "" Place v. St. Paul Title Ins., etc., before the court in 64 Minn. 149, Co., 67 Minn. 126, 64 Am. St. 404 «6 N. W. 364. (1897). 471 TITLE INSURANCE. § 423 were brought to establish mechanics' liens on the property, which were unsuccessfully defended by the company. The property was then sold to satisfy the liens and the insured foreclosed his mortgage by publication, and at the sale bought it in for the amount due on the mortgage, with interest and costs. The insured having died, his representatives offered to convey to the title insurance company for the amount bid at the foreclosure sale, and demanded, in default of purchase for that amount, that the company redeem the property from the sale under the mechanics' liens. This it declined to do, and the insured's representatives redeemed the property and brought suit against the insurance company for the amount so paid. It was held that the purchase of the property by the insured at the fore- closure sale for the amo^t due on his mortgage did not cancel his mortgage debt and thus annul the policy, and that the title insurance company was bound either to buy the property for the amount bid at the sale or to redeem it from the sale under the liens, and that the plaintiffs were entitled to recover the amount paid by them for that purpose. "The contract," said the court,'*' "is plain and ex- plicit on this point. In a word, it is a guaranty that the mortgagee shall not suffer any loss or damage by reason of defects in the title to the property, or liens or incumbrances thereon existing at the time of the policy. Under this guarantee, if the mortgage, with a clear title, and free from incumbrances, was worth the amount of the mortgage debt, the mortgagee can confidently rely on the sufficiency of his security. The mechanics' liens upon which the property was sold were liens upon the property at the date of the policy. The de- fendant company nevertheless refused either to pay this prior lien, or to pay the insured the amount bid for the property at the fore- closure sale, which was the amount of the mortgage debt, thus forcing the insured, in order to protect his security and his title, to redeem the property from the sale under 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 on the property "Minnesota Title Ins., etc., Co. v. George v. Goldsmitlis', etc., Ins. Drexel, 70 Fed. 194 (1895). There Ass'n, 67 L. J. (Q. B. D.) 807, 78 L. are many other kinds of risks T. Rep. 813 (1898). As to insurance which are insured against, but the against loss of rents, see Heller v. cases construing such contracts are Royal Ins. Co., 133 Pa. St. 152, 19 few and not yet of great importance. Atl. 349, 7 L. R. A. 411 (1890). See As to insurance against theft, see § 7, supra. § 433 LIFE, ACCIDENT AND INDEMNITY INSURANCE. 472 which' existed at the date of the policy, and to gauge his bid on the assumption that the defendant would discharge his obligation in this regard." A policy insured against "all loss by reason of defects or unmar- ketableness of the title to the estate or interest insured, or because of liens or incumbrances, charging the same at the date of this policy, saving the defects, liens or incumbrances excepted in schedule B." This schedule provided that "unmarketableness by reason of the pos- sibility of mechanics' and municipal liens is excepted from this in- surance, but actual losses by reason of such liens, or by reason of the non-completion of the building now in process of erection on the prem- ises, unless such building should happen to be destroyed by fire, are hereby insured against." It was held that claims for municipal work done three years after the policy was issued were not within the policy."^ " Wheeler y. Real Estate Title Ins., etc., Co., 160 Pa. St. 408, 28 AtL 849 (1894). Part VIII. MARINE INSURANCE. CHAPTER XVII. MARINE INSURANCE. SEC. SEC. 424. General statement. 442. 425. Description of insured. 426. Insurable interest. 443. 427. Beginning of the risk — Voyage 444. "from" or "at and from." 445. 428. Termination of the risk. /. Subjects of Marine Insurance. 429. In general. 430. The ship. "The body, tackle, apparel, ordnance, artillery, boats and other furniture of and on the good ship." 431. Cargo, goods or merchandise. 432. Groods carried on deck. 433. Freight. 434. Passage money. 435. Profit or commissions. 436. B o t to m r y and respondentia bonds. 437. Seaman's wages. II. Implied warranties. ( a ) Seaworthiness. 438. Definition. 439. What constitutes seaworthiness. 440. Implied warranty in voyage policy. 441. Time policies — English rule. 446. 447. 448. Time policies — Rule in the Uni- ted States. Different stages of voyage. Seaworthiness a relative matter. Time of seaworthiness — Contin- uing warranty. Knowledge and intent of in- sured. Exclusion of warranty by terms of the policy. Presumption — Burden of proof. ( 6 ) Deviation. 449. 450. 451. 452. 453. 454. 455. 456. 457. 458. 459. 460. 461. 462. 463. 464. 465. Definition. Departure from route. Order of visiting ports. As affected by usage. Delay. Departure to save property. Transshipment of cargo. To avoid danger. Change of voyage — Intention. Excusable deviation. Restraint justifying deviation. Entering port to refit. To recruit crew. Driven in by stress of weather. To escape capture. To join convoy. To save life or succor distress. 473 § 434 MARINE INSURANCE. 474 Sec. Sec. 466. Effect of deviation. 468a. Neutrality. 469. Violation of revenue laws — (c) IllegaUty. ^^^^^^ g^^^ 467. General statement. 470. Proper documents. 468. Violation of war policy of State. § 424. General statement. — Marine insurance protects against loss or damage to a ship, cargo, freight, profits, and other in- terests in property which is subjected to the risks of naviga- tion. It is a branch of general maritime law, and deals with a commerce which is limited in its operation only by the boundaries of the seas. A ship which sails under the protection of a marine policy may, before the end of her voyage, touch at the ports and subject herself to the jurisdiction of half the maritime powers of the world. The flag at her mast head may be that of the parties to the contract, but the wreck of the ship on some foreign shore, may require the loss to be ad- justed under the laws of another sovereignty. A shipowner or merchant with large quantities of goods, often takes insurance upon the same in different countries. In some respects, marine in- surance is, therefore, international in its character, as the subject matter with which it deals is continually passing from one jurisdic- tion to another. The manifest justice and convenience which would result from the adoption of uniform rules by which to determine the rights and liabilities of insurers and underwriters in the ad- justment of losses under marine policies has led to persistent efforts on the part of jurists and insurance experts to secure a uniform system of marine insurance . law. The tendency in this direction is marked and encouraging, but many conflicting principles still exist. In a general way Great Britain and the United States have, developed similar systems while a differ- ent one has grown up on the Continent of Europe. While much diversity still exists, the trend toward uniformity is very apparent.^ ■ As illustrating this tendency it is and the Glasgow Marine Insurance only necessary to call attention to Rules, adopted by the International the York-Antwerp Rules for the ad- Law Association at its meeting in justment of general average losses, 1901. The discussions upon these 473 GENERAL STATEMENT. § 425 ^Marine insurance is the oldest branch of the law of insur- ance, and the principles underlying insurance contracts were therefore developed before the modern systems of insurance against fire and other such casualties were known. These prin- ciples have been discussed in preceding chapters and no attempt will be made to re-state them. But some peculiar doctrines and the application of well known principles to unusual condi- tions require special consideration. § 425. Description of insured — Interest covered by policy. — ^Whatever may have been the actual intention of the parties a policy covers only the interest of the party named or who is in some manner designated therein.- An insurance, "as agent," is for the benefit of the principal, and where the name of the principal does not appear it is equiv- alent to an insurance "on account of whom it may concern," and the undisclosed • principal may maintain an action upon the contract.^ This language covers the interest of the party for whose benefit it was intended by the person who procured the policy.* The rule stated by Phillips and quoted with ap- proval by the Supreme Court of the United States, "that an insurance 'for whom it may concern' will avail in behalf of the party for whom it is intended, does not mean that any specific individual must be intended. . . . But he may intend it for rules printed in the Report of the Finney v. Warren . Ins. Co., 1 Met. Eighteenth Conference of the Asso- (Mass.) 16, 35 Am. Dee. 343 (1840); ciation, p. 103, et seq., and the Ee- Burrows v. Turner, 24 Wend. (N. port of the Twentieth Conference, p. Y.) 276, 35 Am. Dec. 622 (1840), 94, et seq., disclose the divergent the- and cases cited in note, ories of the British, American and ' Davis v. Boardraan, 12 Mass. 80 Continental jurists and insurance ex- (1815); Anchor Marine Ins. Co. v. perts. The proposed English Codifi- Allen, 13 Quebec, 4. cation of Marine Insurance, known * Hooper v. Robinson, 98 U. S. 537 as the Marine Insurance Bill (1899), (1878) ; Hagan v. Scottish Ins. Co., is printed in the appendix to Ar- 186 U. S. 423 (1902); Duncan v. nould's Mar. Ins. (7th ed.). China Mut. Ins. Co., 129 N. Y. 237 ^Graves v. Boston Marine Ins. Co., (1891) (interest need not exist at 2 Cranch (U. S.), 419 (1805), (power the time the insurance was effected) ; of equity to relieve against mistake Hagedorn v. Oliverson, 2 M. & S. in the contract and make it conform 485 (1814), Lord Ellenborough. to the intention of the parties). § 436 MARINE INSURANCE. 476 whatever party shall prove to have an insurable interest in the specified subject, in which case it will be applicable to the in- terest of any person subsequently ascertained to have such an insurable interest, who adopts the insurance. "° It is not necessary, therefore, that a person who takes out insurance shall have at that time any specific individual in mind ; but it is sufficient if he intends the policy to cover the interest of any person to whom he may sell the entire, or any part of the interest insured. Applying the rule that the written portion of a policy controls the printed provisions, it was held that a policy "on account of whom it may concern," covered the interest of a subsequent purchaser of a boat, notwithstanding a written provision that it should be void, if any change should take place in the title or possession of the subject matter of the insurance.' § 426. Insurable interest — ^Lost or not lost. — The general prin- ciples governing insurable interest have been treated in a prior chapter and the only matter requiring notice in this place is (the provision sometimes inserted in the policy whereby the underwriter expressly assumes the risk upon the property, whether "lost or not lost." The practice of effecting insurance, "interest or no interest," which was held valid prior to 19, Geo. II, 37, was forbidden by that statute. Notwithstanding, the present rule which requires that the insurer shall have a substantial interest in the subject matter of the insurance when the policy is issued, it is held that the insurer may, if he de- sires, assume the risk of the property already having been lost, without the knowledge of the insured. The policy is thus made retroactive.^ §427. Beginning of the risk — ^Voyage "from" or "at and from." — Where the policy is upon a vessel "from" a designated port it attaches when the ship breaks ground and starts on the = 1 Phillips' Insurance, § 385. As Wall. (U. S.) 237 (1873); Mead to the various forms of this expres- v. Davidson, 3 Ad. & El. 303; Kolme sion, see Duer Insurance, p. 28. v. Insurance Co. 1 Wash. (C. C.) ' Hagan v. Scottish Ins. Co., 186 92 ; People v. Dimoek, 107 N. Y. 29, U. S. 423 (1902). 14 N. E. 178 (1887) ; 1 Phillips' 'See 3 Kent's Com. *259; Merean- Ins. 235. tile Mut. Ins. Co. v. Polsom, 18 477 GENERAL STATEMENT. §. 427 voyage insured.* The question whether a ship has sailed from the quay where she has been loading, depends upon the inten- tion of the master when the ship is moored away from the quay.' There is still some uncertainty as to the meaning to be placed on the words ' ' at and from. ' ' If the ship is at home, these words cover the time the ship is in port after the policy is signed, and if abroad the risk is assumed only after she has been safely moored twenty-four hours after her arrival in port.^° If the ship is expected to arrive at a foreign port, there are cases holding that the risk attaches from the time of her first arrival,^^ if at the time of her arrival she is in a seaAvorthy condition.^^ Where the ship was insured "at and from St. Michaels to England," and after arriving there and after being at anchor for over twenty-four hours in a condition which required the constant use of the pumps, — the crew working "at the pumps spell and spell" — ^was blown out to sea, and destroyed, it was held by Lord EUenborough that the insurer was not liable, as the ves- sel had not been in port in safety." Under such a policy it is not necessary for the vessel to be at the place when the contract is made, but she must begin the voyage within a reasonable time thereafter.^* *Moeher v. Provident Washington (policy attached at the tiine of the Ins. Co., 12 Misc. (N. Y. ) 104; Mur- preparations for the voyage), ray v. Columbian Ins. Co., 4 Johns. '^Houghton v. Empire Mar. Ins. (N. Y.) 443. Co., 4 H. & C. 44 (1865), L. R. 1 °Sea Ins. Co. v. Blogg, 67 L. J. Exch. 206 (1866) (the policy at- Q. B. 757 (1898) ; Cochrane v. Fish- taches as soon as the vessel arrives er, 3 L. J. Ex. 185 (1834) ; Wood v. within the port named, although not Smith, 43 L. J. Adm. 11, L. R. 5 C. safely moored). "First arrival" does P. 451 (1874). not mean moored in safety. St. Paul '"See Garrigues v. Coxe, 1 Binn. & C. Ins. Co. v. Troop, 26 Can. Sup. (Pa.) 592 (1809). Ct. 5 (1896), and cross cited by " Seamans v. Loring, 1 Mason (C. King, J. C), 127 (1816) ; Fed. Cas. No. 12593, " Parmeter v. Cousins, 2 Camp. Story, J.; Motteaux v. London Assur- 236 (1809). In Martatiqui v. Louis- ance Co., 1 Atk. 545 (1739) ; Smith v. iana Ins. Co., 8 La. 65, 28 Am. Dec. Surridge, 4 Esp. 25 (1801) (insur- 129 (1835), "good safety" was said anee attaches while undergoing re- to mean "the placing of a vessel in pairs) ; Patrick v. Ludlow, 3 Johns. a situation to discharge her cargo." Cas. .(N. Y.) 10 (1802), 2 Am. Dec. "Seamans v. Loring 1 Mason (C. 130 (in a policy on goods); Snyder C), 127 (1816); unreasonable delay V. Insurance Co., 95 N. Y. 196 (1884) amounts to a non-inception of the voyage. § 427 MARINE INSUEANCE. 478 When the policy is upon a cargo "from" an intermediate port, or "now on board, or to be shipped," the risk attaches as soon as any portion of the cargo is on board.^° When it is merely "at and from," it attaches when the cargo is loaded," or if the goods are already on board, from the time of the execution of the contract. ^^ A policy on goods from A to B "until they should then be discharged and safely landed, ' ' covers goods while being taken from the ship to the shore in Ughters.^' Where the insur- ance is "at and from" a particular port, the policy will attach when the goods arrive at that port after having been loaded at another port,^° but when it is provided that the adventure shall begin, "from the loading thereof" aboard the said ship at that port, the policy will not attach upon goods previously loaded.^" This rule is relaxed, however, when there is anything to show that it was the intention of the parties that the goods previously loaded should be covered.^^ A policy on chartered freight "at and from" a place other than the place of loading, attaches when the vessel sails on the voyage to the place of loading for the purpose of earning the freight.^^ But where freight is insured "at and from" a des- ignated place, the risk attaches pro rata as the goods are placed on board.^' "Patrick v. Ludlow, 3 John. Cas. v. AUnut, 2 M. & S. 106, 14 Eev. R. (N. Y.) 10, 2 Am. Dee. 130 (1802), 599 (1813); Richards v. Merchants' Kent, J.; Colonial Ins. Co. v. Ade- Ins. Co., 3 Johns. (N. Y.) 307 laide Ins. Co., 12 App. Cas. 128 (1808); Murray v. Columbian Ins. 1886); Mobile Mar., etc., Co. v. Mc- Co., 11 Johns. (N. Y.) 302 (1814). Millan, 31 Ala. 711 (1858) (unless "Gladstone v. Clay, 1 M. & S. 418 custom to the contrary is shown) ; See (1813) ; Joyce v. Realm. Ins. Co., L. Cleveland v. Fettyplace, 3 Mass. 392 R. 7 Q. B. 580, 41 L. J. Q. B. 356 (1807); Lewis v. Mfrs. Ins. Co., (1872); 19 Am. & Eng. Enc. Law, 131 Mass. 364 (1881). 970; Clark v. Higgins, 132 Mass. "The Liscard, 56 Fed. 44 (1893); 593. Augusta Ins. Co. v. Abbot, 12 Md. ^' Barber v. Fleming, L. R. 5 Q. B. 348 (1858). 59; Mercantile Steamship Co. v. Ty- " Merchants' Ins. Co. v. Clapp, 11 son, 7 Q. B. D. 73 (1881); Melcher Pick. (Mass.) 56 (1831). v. Ocean Ins. Co., 60 Me. 77 (1872); "Hurry v. Royal Exchange Assur- Adams v. Warren Ins. Co., 22 Pick, ance Co., 2 B. & P. 430 (1801). (Mass.) 163 (1839). '" Silloway v. Neptune Ins. Co., 12 ^ See 19 Am. & Eng. Enc. La^, 2d Gray, 73 (1858). ed. 972; Flint v. Flemyng, IB. &Ad. ™Spitta V. Woodman, 2 Taunt. 45 (1830). 416, 11 Rev. R. 628 (1810); Mellish 479 GENERAL STATEMENT. § 438 §428. Termination of the risk.— Chancellor Kent says that the risk usually continues until the ship has been anchored twenty-four hours in good safety, and that this rule applies, al- though the loss is caused by a death wound received before the arrival 6f the ship.^* The common form of policy provides that the insurance shall be in force, "until moored twenty-four hours in safety." This "does not mean that the vessel is- to arrive without any damage or injury whatever from the effects of the voyage, nor, on the other hand, are such words satisfied by the vessel arriving and being moored in a sinking state, or as a mere wreck, nor by a temporary mooring. The vessel must be in such a state of physical safety as to be able to keep afloat while the cargo is being unloaded or until she can be repaired. ' '-^ Where the policy is on ship to a port named in the policy "until she hath there moored at anchor in good safety" and "for thirty days after arrival in port, however employed," the thirty days are to be reckoned as thirty successive periods of twenty-four hours each the first of which commences to run as soon as the ship is safely moored at anchor in good safety in her port of destination.-" Where the policy is to a country generally, as to Jamaica, the risk ends when the vessel has been safely moored for twenty-four hours at the first port made for the purpose of unloading.-^ A policy insuring a ship to Martinique, and all or any of the leeward or windward islands, is terminated when the ship un- loads the greater part of her cargo at Martinique, and sails with the residue to Antigua, where she stops, partly to dispose "3 Kent's Com. 308; Lockyer v. worthy for purpose of lying in a har- Offley, 1 T. R. 252 (1786) (vessel bor while not so for going to sea); seized after having been more than Shame v. Felton, 2 Bast, 109 (1801). 24 hours in port, for an act of *° Oarnfoot v. Royal Exch. Assur. smuggling during the voyage); Con- Corp. 72 L. J. (K. B. D.) 387 (1903). tra Peters v. Phoenix Ins. Co.j 3 Serg. ^ Leigh v. Mather, 1 Esp. 412 & R. (Pa.) 25. (1795); Cruikshank v. Jansen, 2 ^ 19 Am. & Eng. Enc. Law (2d ed.) Taunt. 301 (1810) (protected while 975; Lidgett v. Secretan L. R., 5 C. moving from port to port in the is- P. 190 (1870); Annen v. Woodman, land). 3 Taunt. 299 (1810) (may be aea- § 429- MARINE INSURANCE. 480 of the rest, and partly to obtain a homeward cargo. The cap- tain, said Lord Ellenborough, had no right to mix up together the two objects, and when the disposal of the outward cargo ceased to be the sole reason of the stay at Antigua, the insurers were discharged.^* I. Subjects of Marine Insurance. § 429. In general. — Any property, or interest therein, which it is legal to own, and which is exposed to the perils of the sea, may be the subject of insurance, unless the use is of a char- acter which is prohibited by law. The ordinary subjects of marine insurance are ships, goods, merchandise, freight, pas- sage money, profits, commissions and wages. These are desig- nated in the policy either by general terms which have acquired a technical significance, or by a more detailed and specific descriptdon. §430. The ship. "The body, tackle, apparel, ordnance, munition, artillery, boats and other furniture of and in the good ship." — Tile word, ship, in its generic sense, and as com- monly ussd designates a vessel of burden, irrespective of the rig, and without regard to the particular means of locomotion. It is in this common sense that the insurance on a ship without further description or qualifying words is to be taken. "An insurance on the body of a ship," says Kent, "except when varied by special agreement, sweeps in by the compre- hensiveness of the expression whatever is appurtenant to the ship. This is the doctrine taught in all the continental writers on insurance, as well as in the English law."^' The word, ' ' furniture, ' ' includes provisions for the use of the crew, placed on board the ship when she sails.'" The hull and outfit are both protected by the ins-7.rance on the ship.'^ ''^Inglis V. Vaux, 3 Camp. 437 206 (1791). Excess provisions would (1813). be classed as part of the cargo. =»3 Kent's Com. 'ZSa. "Forbes v. Aspinall, 13 East. 323 "Brough V. Whittemore, 4 T. R. (1811); Lord Ellenborough; HiU v. Pattej>, 8 East. 375 (1807). 481 SUBJECTS OF MARINE INSURANCE. § 431 The word, "outfit," when used in connection with a whaling voyage, has a peculiar significance, and refers to the instru- ments and apparatus for taking care of the fish. Lances, spears, whaling lines, casks, cisterns, boilers, and articles of this character are not covered by a general insurance on the ship, or on "The body, tackle, , apparatus, etc., of the ship."'^ "The boat" is sometimes expressly named in the policy as a part of the ship, but in the common designation it forms a part of the outfit that is included under and within that desig- nation.^^ Although such parts of the ship are usually mentioned a policy "on ship" covers the engines and machinery of a steam- ship as well as the c»al in the bunkers.^'' The instruments used for the purpose of navigating the ship are also covered by a policy on the ship.^'^ When the insurance is upon a vessel engaged in a certain trade, the policy covers all the appliances necessary to that trade. Thus, where a ship was in the grain trade, it was held that the policy covered the appliances, such as cloth and dunnage mats, necessary for the handling of the grain, although not in use on the particular voyage.^* § 431. Cargo, goods or merchandise. — ^Under a policy contain- ing a general description of the articles insured, as goods or mer- chandise, the insured can recover for any goods of his not requir- ing a more specific designation, which are on board at the time of '^Hoskins v. Piekergill, 3 Doug. Exchange Assurance Co., 2 C. & J. 222 (1783); See Gale v. Laurie, 5 B. 244 (1832). & Cr. 156, 164 (1826) (custom as to ^'Roderick v. Indemnity, etc., Ins. certain fisheries); Macey v. Insur- Co. ( 1895 ), 1 Q. B. 842. As to what is anoe Co., 135 Mass. 328 (1883); included by the words "hull and ma- Lewis V. Insurance Co., 131 Masd. chinery," see Roderick v. Indemnity 364 (1881); Taber v. China Insur- Insurance Co. (1895), 2 Q. B. 380, ance Co., 131 Mass. 239 (1881) 1 64 L. J. Q. B. 733, 8 Asp. M. C. 24. Phillip Ins. § 496. "1 Phillips' Ins. (3d ed.), 468. "Hall V. Ocean Insurance Co., 21 "Hoggarth v. Walker (1900), 2 Pick. (Mass.) 472 (1839) (liable for Q. B. 283 (1899), 2 Q. B. 400, 68 the loss of a boat hung to the davits L. J. Q. B. 888. "I can see no dis- unless it is "shown that the boat was tinetion between these things and improperly slung or carried in that movable bulkheads, which it is admit- position." See Blackett v. Royal ted would be part of the furniture." § 431 MARINE INSURANCE. 483 a loss.'' Such insurance covers goods substituted at an inter- mediate port for such as were on board at the commencement of the risk. Successive cargoes are, according to the custom of the trade, treated as one continuous subject matter of insur- ance.'* Articles of a perishable nature, and such as are con- traband of war, according to the French law, must be specifically- described, although this has never been held necessary under the English lavi^. But liability on articles peculiarly liable to dete- rioration is limited by the common memorandum clause. When money, bullion or jewels are put on board as merchandise, they are covered by the general words, "goods, wares and merchan- dise, '"° but such property is usually specifically named. Bank bills and notes seem to come under a different rule, as they are not an ordinary subject of , commerce. They are not merchant- able, and therefore are not goods, — that is, articles used for the purpose of cornmerce.*" Merchandise does not include arti- cles which are attached to or carried upon the person, such as jewelry, money or cash, not carried for the purpose of trade, nor does it include the other personal effects of the passengers.*^ Nor does it include provisions for the officers and crew, as these are covered by the insurance upon the ship.*^ A policy on "cargo" covers household goods,*' money to be invested in goods,** but not live stock, unless it is the usual cargo in the trade in which the ship is engaged, and for which she is insured.*^ " 1 Arnould Marine Insurance (7th express company as freight are liable ed.), 266. to contribute to a general average ''Lord Ellenborough in Hill v. loss. Patten, 8 East. 373 (1807). "Wilkinson v. Hyde, 3 C. B. (N. =»Waleott V. Eagle Ins. Co., 4 Pick. S.) 30 (1858) ;. Duff v. McKenzie, 3 (Mass.) 429 (1827); American Ins. C. B. (N. S.) 16 (1857); Brown v. Co. V. Griswold, 14 Wend. (N. Y.) Stapylton, 4 Bing. 122 (1827). 399, 458 (1835); Seton v. Delaware "Ross v. Thwaites, 1 Parker, 23. Ins. Co., 2 Wash. (C. C.) 174 (1808), "Vasse v. Ball, 2 Dallas (Pa.) Fed. Cas. No. 12675. 270, 275 ( 1797 ) . "See 1 Arnould Marine Ins. (7th "Waicott v. Eagle Ins. Co., 4 Pick, ed.) 268; Palmer v. Pratt, 2 Bing. (Mass.) 429 (1827). 185 (1824). In Harris v. Moody, 30 "Allegro v. Maryland Ins. Co., 2 N. Y. 266 (1864), it was held that Gill & J. (Md.) 136, 20 Am. Dec bank notes (not being money and not 424 (1830), 8 Gill & J. 190, 29 Am. a legal tender) when carried for an Dee. 536 (1836). 483 SUBJECTS OF MARINE INSURANCE. § 432 § 432. Goods carried on deck. — The general language of the policy does not cover goods or merchandise carried on the deck of the ship,*" unless by virtue of a general custom of particular trades which the insurer is presumed to take into consideration in assuming the risk,*^ or the goods insured, by name, are of such a character as are usually carried on deck.^' '" Backhouse v. Eipley, 1 Park Ins. 23 (1802) ; Ross v. Thwaites, 1 Park Ins. 24 (1776) ; Millward v. Hibbert, 2 G. & D. 142, 3 Q. B. 120, 11 L. J. Q. B. 137; Miller v. Techerington, 7 H. & N. 954, 31 L. J. Ex. 363; Al- legro V. Maryland Ins. Cp., 2 Gill & J. 136, 20 Am. Dee. 424 (1840); Lenox v. United States Ins. Co., 3 Johns. Gas. (N. Y.) 178 (1802); Orient Miit. Ins. Co. v. Eeymershaf- fer, 56 Tex. 234 (1882) unless from the nature.of the goods they can only be carried on deck) ; Smith v. Insur- ance Co., 11 La. 142, 30 Am. Dec. 714 (1837); Walcott v. Eagle Ins. Co., 4 Pick. (Mass.) 429 (1827); Brooks V. Oriental Ins. Co., 7 Pick. (Mass.) 259 (1828) (hawser lost over- board, stowed in a boat on deck) ; Adams v. Warren Ins. Co., 22 Pick. (Mass.) 163 (1839) fgeneral policy on freight will not cover freight to be earned by carrying goods on deck) . " De Costa v. Edmunds. 4 Camp. 142 (1815) (Carboys of vitriol car- ried on deck). As it is only a cer- tain description of goods in any trade that would be thus exposed, it may be doubtful whether, even where sanc- tioned by usage the things ought not to be specifically described in the pol- icy so as to apprise the underwriter of the extra risk that he has to run. 1 Arnould Marine Insurance (6th ed.), 27 (7th ed.), p. 269. In Blaekett v. Royal Exch. Assur. Co., 2 C. & J. 250 (1832), Lord Lyndhurst said: "Goods carried on deck are not in a part of the ship where goods are usually carried; they are in more than usual peril and an usage, that they are not covered by an ordi- nary policy on the goods, but that they require a distinct explanation to the Tinderwriter of the part of the ship in which they are to be carried, or (where ^hat will imply the same information) of the nature of the goods, is not at variance with any part of the policy is essential to that information which the underwriter ought to receive to enable him to e.=!- timate the risk and calculate the premiums and is a portion of that fairness which ought to be rigidly ob- served upon all these contracts." " Rogers v. Merchants', etc., Ins. Co., 1 Story (C. C), 603 (1841): Allen r. St. Louis Ins. Co., 85 N. Y. 473 (18S1) (special provision in pol- icies on canal boats) ; Merchants', etc.. Ins, Co. v. Shillito, 15 Ohio St. 559 (1864). In Apollonaris Co. v. Nord-Deutsche Ins. Co., 73 L. J. (K. B.) ea' (1903), the cases are re- viewed, and it is held that the rule exempting underwriters from liabil- ity for the loss of deck cargo on a voyage by sea does not extend to in- land voyage by canal and river which is contemplated by the policy, and on which it is the established practice to carry cargoes on deck. Quaere whether the rule in any case is ap- plicable to an inland voyage, citing American cases. See Ursula, etc., S. S. Co. V. Amsick, 115 Fed. 242 § 433 MARINE INSDEANCE. 484 § 433. Freight. — In the general law of shipping, the word freight, as between the shipowner and the shipper, means the price to be paid for the carriage of goods in the ship, and is not earned or payable until the goods- have arrived at the port of destination. In marine insurance it has, however, a wider significance, and includes all the benefits "derived by the shipowner from the employment of his ship." As ob- served by Lord Tenterden, it imports the benefit derived from the employment of the ship. "If the term then as used in policies of insurance imports the benefit derived from the em- ployment of the ship, it is the same thing to the shipowner whether he receives that benefit of the use of his ship (1) by a money payment from one person who charters the whole ship; or (2) from various persons who put specific quantities of goods on board, or (3) from persons who pay him the value of his own goods at the port of delivery increased by their carriage in his own ship."*" Insurance on freight covers freight in each of its senses.'^" The French law formerly forbade in- surance upon expected freight, but this rule was changed in 1885, and now, as in England and the United States, airtici- pated freight is a lawful subject of insurance. The ship-owner may thus effect insuraiice on freight which he expects to earn and which he can be prevented from earning only by the perils insured against.^^ Where the insur- ance is upon freight, as the hire of a ship under a charter party, the inchoate right of the shipowner arises as soon as there is "an inception of the performance."^'' "In either case," says Arnould, "the shipowner has put him- self in a condition to earn freigtt, and he will earn it, pro- (1902) (carrier may insure his Ira- °° Etches v Aldan, 1 M. & R. 157 bility for carrying goods on deck). (1827) (diarter of a vessel) ; Winter " Flint V. riemyng, 1 B. & Ad. 45, v. Haldemond, 2 B. & Ad. 649 48 (1830); Winter v. Haldemand, 2 (1811); Clark v. Ocean Insurance B, & Ad. 649 (1831); See Forbes v. Co., 16 Pick. (Mass.) 289 (1835). Aspinall, 13 East. 323 (1811); De- "Mason v. Marine Ins. Co., Utt vaux V. J' Anson, 5 Bing. N. C. 519 Fed. 700, 44 C. C. A. 106, 54 L. R. (18.39); Griffith v. Bramley-Moare, A. 700 (1901), and cases there cited. 48 L. J. Q. B. 201, 4 Q. B. D. 70, 4 ■>= Foley v. United F. & M. I. Co., Asp. M. C. 66. L. R. 5 C. P. 155 (1870). 485 SUBJECTS OF MARINE INSURANCE. § 434 vided either the ship which he has thus let out to a freighter, or the goods which he has thus engaged to transport, or the merchandise, arrive safely at their destination. "°^ Freight may he insured for either the whole or a part of the voyage.^* Advances are also insurable, and whether cov- ered hy a policy on freight alone, or required to be specifi- cally described, depends upon the terms of the charter party.^'* Freight must be insured under a specific designation in the policy.^® § 434. Passage money. — ^Passage money differs from freight in that it is usually payable in advance, and in the absence of a statute, a passenger cannot recover it if the ship is lost. As said by Lord Campbell : "No liability is by the com- mon law thrown upon the owner or master of a ship if the ship be lost, to forward passengers to their places of desti- nation. Nor usually is there any obligation to do this imposed by actual contract between the parties."^' But the British statute now imposes upon the owners and masters of passen- ger ships, in certain cases, the duty, notwithstanding a wreck, of forwarding passengers to their places of destination.^* Un- der this statute, parties thus subjected to the additional lia- bility, may cover this risk by insurance, as under the com- mon law could a passenger who had paid his passage money in adA-ance.'® " 1 Amould Mar. Ins. (6th ed.), p. " I Arnould Mar. Ins. (7th ed.), 32. p. 276. "Taylor v. \Mlson, 15 East. 324 "Gibson v. Bradford, 4 E. & B. (1812). A portion only of the freight 586, 24 L. J. Q. B. 159 (1855) ; Gil- may be insured. Griffith v. Bramley- Ion v. Simpkin, 4 Camp. 241 (1815). Moare (1878), 4 Q. B. D. 70. "'Merchants' Shipping Act., 1894. '=The Clentonia, 104 Fed. 92 ""Denoon v. Insurance Co., L. R. (1900) ; Allison v. Bristol Mar. Ins. 7 C. P. 341 (1872) ; whether a policy Co., 1 App. Cas. 209 ( 1875 ) ; Hall v. on "freight" covers passage money Johnson, 4 El. & Eb. 509; Paradise must depend upon the circumstances V. Sun Mut. Ins. Co., 6 La. Ann. 596 of each case. In this case it was held (1851) (advances made by con- that passage money was not covered signee) ; See Thames, etc., Mar. Ins. by the policy on freight. Co. V. Pitts (1893), I Q. B. 476. § 435 MARINE INSURANCE. 486 At common law, when the passage money was not payable in advance, the shipowner had an insurable interest therein.'" ^ § 435. Profits and commissions. — Probably in all maritime countries, anticipated profits may be the subject of insurance by an open or valued policy."^ In England it must be shown before there can be a recovery under such a policy, that but for the intervention of the perils insured against some profit would in fact have been realized by the sale of the goods upon their arrival."^ In the United States this is not necessary under a valued policy, as there is a conclusive pre- sumption that a profit would have accrued had the goods arrived at the place of destination."^ In England profits and commissions are not covered by a policy on goods or merchan- dise, but must be specifically named."* In Massachusetts it is held that, "the right to a certain percentage, proportion ^ or share of the cargo, or commission on profits, is • covered by a policy on the 'property.' ""^ •"Truseott v. Christie, 2 Br. & B. 320, 5 Moorfe, 33. "' Conoda Sugar E«f . Co. v. Insur- ance Co., 175 U. S. 609 (1899), 58 U. S. App. 22 (1898) ; Eyre v. Glover, 3 Camp. 276 (1812); Barclay v. Cousins, 2 East. 544 (1802). In this case, Lawrence, J., said: "As insur- ance is a contract of indemnity, it cannot be said to be extended beyond what the design of such species of contract will embrace, if it be ap- plied to protect men froim those losses and disadvantages, which but for the perils insured against they usually would not suffer; and in every mar- itime adventure the adventurer is lia- ble to be deprived not only of the thing immediately subjected to the perils insured against, but also of the advantages to arise from the ar- rival of those things at their des- tined port. If they do not arrive his loss in such case is not merely that of his goods or other things exposed to the perils of navigation, but of the benefits which, were his money employed in an undertaking not sub- ject to the perils, he might obtain." By the law of Aug. 12, 1885, profits are now insurable in France. Prior to that the rule was otherwise. "^Hodgson V. Glover, 6 East. 316 (1805); Lord Ellenborough ; 2 Ar- nould, Marine Insurance (7th ed.), 280 (1901). It must also appear that the insured was interested in the goods at the time of the loss. Stock- dale V. Dunlop, 6 M. & W. 224 (1840). " Patapsco Ins. Co. v. Coulter, 3 Pet. (U. S.) 222 (1830); Conodo Sugar Ref. Co. v. Insurance Co., 175 U. S. 609 (1899), quoting from 2 Phillips' Ins., § 1209; Loomis v. Shaw, 2 Johns. Cas. (N. Y.) 36 (1800). "'Lucena v. Crauford, 2 B. & P. N. R. 315 (1806). "Holbrook v. Brown, 2 Mass. 280 (1807). 487 SUBJECTS OF MARINE INSUKANCE. § 436 § 436. Bottomry and respondentia. — The risk from the perils of the sea, which is assumed by one who loans money upon bottomry or respondentia bonds, may be the subject of insur- ance. In Great Britain and the United States, the anticipated maritime interest, as well as the amount loaned, may be pro- tected by insurance,^" and this is now the rule in France where it was formeHy held that only the capital loaned could be insured. Unless there is a usage to the contrary,"' interests of this character are not included within the designation of goods and merchandise, but must be specifically named in the policy,"* as, says Kent, J., "The risk on a bottomry policy is peculiar. There is neither average nor salvage ; and capture does not mean a temporary taking, • merely, but one that occasions a total loss. If the nature of the interest was not disclosed, the insurer might pay for a total loss on an immediate capture, without being apprised of his rights.""' § 437. Seaman's wages. — ^A master could always insure his wages, commissions, share in the ship or cargo, and personal effects on board the ship,'" but seamen have never been granted the privilege of insuring their wages. '^ As the loss of freight involved the loss of the wages of the crew, it was said that freight was the mother of wages. This hard rule rested upon the theory "Glover v. Black, 3 Burr. 1393 "In Robinson v. United Ins. Co.'s, (1763). An assured on bottomry 2 Johns. Cas. 250 (1801). cannot recover against the under- "Duff v. Mc.ekenzie, 3 C. B. N. S. writer unless there has been an actu- 16, 26 L. J. C. P. 3i3 (1857). al total loss of the ship. If the ship " Webster v. De Tastet, 7 Term exists in specie, in the hands of the Rep. 157 (1797) ; The Lady Durham, owners, though under circumstances 3 Hagg Adm. 196; The Neptune, 1 which would entitle the insured Hagg Adm. 227 ; Lucena v. Crauford, to abandon, it will not be a total loss 2 B. & P. N. S. 284 (1835) ; Gallo- withiA the meaning of the bottomry way v. Morris, 3 Yeates (Pa.) 446 bond. Thompson v. Royal Exeh. As- (1802); Hancock v. Fishing Insur- sur. Co., 1 M. & S. 30 (1813) ; Broom- ance Co., 3 Sumn. (C. C.) 132 (1837; field V. Southern Ins. Co., L. R. 5 1 Emerigon, cviii, § 10, p. 235. A Ex. 192, 39 L. J. Ex. 186 (1870). seaman can insure any goods he may " Gregory v. Christy, 3 Doug. 419 have on board. Galloway, 3 Yeates (1784). (Pa-). 445 (1802). "Glover v. Black, 3 Burr. 1393 (1763). § 438 MARINE INSURANCE. 488 that by thus involving the wages of the seamen, their zeal was stimulated and the safety of the ship and cargo greatly in- creased. Upon the same ground of public policy seamen were denied a claim for wages out of the owner's insurance.^^ Lord Stowell held that a seaman had a lien upon the wrech for his wages earned, although the freight was lost.'^* But now, by statute, the loss of the freight no longer involves the loss of wages already earned, and there would seem to be no reason why seamen should longer be denied the right to protect their future wages by insurance.'* II. Implied Warranties. (a) Seaworthiness. § 438. Definition. — ^In one of the early leading cases. Baron Parke said that seaworthiness means that the vessel "shall be in a fit state as to repairs, equipment and crew, and in all other respects, to encounter the ordinary perils of the voyage insured at the time of sailing upon it.'"° In another ease, Earle J. said that seaworthiness implies, the relation between the "The Neptune, 1 Hagg Adm. 227 as they will go in satisfaction of his (1824). In this case Lord Stowell wages already earned by past services said: "Be it remembered that by the and perils." generally just policy of our maritime '"The Lady Durham, supra. statutes a, total loss occasioned solely " 1 Arnould Mar. Ins. (Maclach- by the act of God visiting the deep lin's 6th ed.), 44. In the 7th edition with storms and tempests, brings of this work (1901) it is said as the with it the loss of all earned wages Merchant Shipping Act does not deal (except advanced ) , although the gen- with the law in respect of wages for eral rule of law is that the act if the remainder of the voyage, it is God prejudices no man; although the very doubtful that the Act would be mariner has contributed nothing to held to have had the desirable effect the mischance, but exerted his utmost of making them insurable, endeavors to prevent it ; although he " Dixon v. Saddler, 5 M. & W. 405 is prohibited by law from protecting (1839). For other definitions of sea- himself from loss by insurance as the worthiness see Knill v. Hooper, 2 owner is empowered to do. Thus, it Hurl. & N. 277 (1857;) Moares v. is surely a moderate compensation for Louisville Underwriters, 14 Fed. 226 these disadvantages that he should (1882); Erie, J., in Small v. Dixon, be entitled to the parts saved, so far 4 H. L. 353, 384. 489 IMPLIED -WAREAKTIES — SEAWORTHINESS. § 439 state of the ship and the perils it has to meet in the situation it is in.'^ A marine policy is intended to protect the insured against extraordinary perils of the sea only, and the risks arising from the ordinary perils are not covered by the contract, as these are to be borne by the insured. Seaworthiness, therefore, means that the vessel is in good condition to encounter these ordinary perils. § 439. What constitutes seaworthiness? — To be in a sea- worthy condition it is necessary that the vessel should be in good physical condition, — ^that is, properly built, and not worn ■out, — to meet the ordinary perils of the voyage for which she is destined, and to carry the cargo which is to be placed upon her. She must also be properly loaded, stowed,^^ trimmed and ballasted, and equipped for the voyage with suitable sails, cables, anchors and compass;'* with machinery in good condi- tion,'' with stores and supplies, and provided with a master and crew of competent skill to discharge the usual duties and meet the usual dangers to which the vessel will be exposed upon the contemplated voyage.*" There must also be a person on board competent to navigate the vessel on the contemplated voyage in the event of the disability of the -master.'^ Where the nature of the navigation requires that a pilot shall be taken on board in entering a port or harbor, and pilots are "Small V. Gibson, 4 H. of L. 418 408, 10 Sup. Ct, 934 (1889); Mer- (1853). chants' Ins. Co. v. Morrison, 62 111. "Chase v. Insurance Co., 5 Pick. 242, 14 Am. Rep; 93 (1871); The 51 (1827). A ship ought not to be Orient, 16 Fed. 916. treated as unseaworthy because of "Merchants' Ins. Co. v. Morrison, something objectionable, but easily supra; Quebec Marine Ins. Co. v. curable by those on board. Ajum Commercial Bank, L. E., 3 P. C. 234 Goolam Hassan Co. v. Union Marine (1890). Ins. Co., 70 L. J. P. C. 34 (1901). «> 19 Am. & Eng. Ene. of Law, 2d The cargo must not be greater than ed. 1006, and many cases there cited, the ship can safely carry. Anderson McLanahan v. Universal Ins. Co., 1 Lumber Co. v. Greenwich Ins. Co., 79 Pet. (U. S.) 179, 184 (1828). Fed. 125 (1897). ^'Clifford v. Hunter, 3 C. & P. 16 "VVedderburn v. Bell, 1 Camp. 1 (1827) ; Copeland v. New England M. (1807); Richelieu & O. Nav. Co. v. L Co., 2 Met. (Mass.) 432 (1841). Boston Marine Ins. Co., 135 U. S. § 4ii9 MAKING INSURANrE. 490 there present, it is said that the warranty of seaworthiness re- quires that one shall be taken on and kept as long as the necessity for his services exists. ^^ But the question is not free from doubt, and unless the law expressly requires a pilot it would seem that all that is necessary is that there be some one on board sufficiently skillful to navigate the vessel under the conditions. That is, it is only necessary that there shall be on board a person who is competent to navigate the vessel in and out of harbors, and if this requirement is met, the ves- sel is not rendered unseaworthy by a failure to take on a pilot, even though it is usual and customary to do so at the place in question.'^ If the master is unable to obtain a pilot, he may, under certain circumstances of danger and necessity, attempt to proceed without a pilot, and if a loss occurs the insurer is liable therefor. Where the statutory law requires a pilot to be taken, it is held in this country that a failure to do so only raises the presumption of unseaworthiness, which may be overthrown by evidence that the master was competent to navigate the vessel.'* In England, however, the failure under such a condition to take a pilot, establishes unseaworthiness.*' There must be a crew competent to handle the vessel,*" but the insured does not warrant the good conduct of the master '^Phillips V. Headlam, 2 B. & Aid. Leaving an intermediate port with- 380 ( 1831 ) ; Law v. Hollingsworth, out a pilot, where it is proper to 7 T. R. 156 (1797) (pilot improperly have one, may render the vessel un- allowed to leave the vessel). This seaworthy, although entering a port case is limited by Phillips v. Head- without a pilot may not be a breach lam, supra. of the warranty of seaworthiness. ''Phillip V. Headlam, 2 B. & Aid. See 1 Phillips' Insurance, § 715. 380 (1831); Lapene v. Sun Mutual "Borland v. Merc. Mut. Ins. Co., Ins. Co., 8 La. Ann. 1 (1853), 58 46 N. Y. Super. Ct. 447 (1880); Am. Dec. 668, and note on the sub- Flanigan v. Washington Ins. Co., 7 ject of unseaworthiness. Keeler v. Pa. St. 306 (1847). Firemen's Ins. Co., 3 Hill' (N. Y.), ^'Law v. Hollingsworth, 7 I. R. 250 (1842); McMillan v. Union Ins. 160 (1797); Hollingsworth v. Brod- Co., Rice L. (S. C.) 248, 33 Am. eriek, 7 A. .& E. 44 (1837). See Dec. 112 (1839). But neglect to em- Sadler v. Dixon, 8 M. & W. 895 ploy a pilot discharges the insurers (1839). only when the loss is the direct and '"Louisville Ins. Co. v. Monascb, immediate consequence of the neglect. 99 Ky. 578 (1896). 491 IJIPLTED WARRANTIES — SEAAVORTHINESS. § 440 or crew during the voyage." The men must not only be on board, but sufficiently sober when the vessel sails, to properly per- form their duties.*® Where the voyage is to be made entirely by day, it is not necessary that a night crew shall be taken on.®° The genera] rule is, that the vessel must have a full complement of men engaged for the whole voyage, when she sails,*" unless a differ- ent complement is required for the different stages of the voy- age, when they may be obtained as their services are required.®^ § 440. Implied warranty in a voyage policy. — By English and American law, in every contract of marine insurance upon a voyage policy on a ship, cargo or freight, there is an implied warranty that the vessel, at the time she sails, is seaworthy and competent to perform her voyage, and a breach of this warranty avoids the contract.'- She must be "tight, staunch and strong. ^ Trinder v. Thames, etc.. Mar. Ins. Co., 2 Q. B. 114 (1898); Busk v. Royal Exch. Assur. Co., 2 B. & Aid. 73 (1818); Walker v. Maitland, 5 B. & Aid. 175 (1821), Bailey, J. ''United States v. Hunt, 2 Story, C. C. 120. *" Louisville Ins. Co. v. Monasch, 99 Ky. 578 (1896). " Forshaw v. Chabert, 3 Brod. & B. 154; 1 Arn. Mar. Ins. (6th ed.) 676. "Dixon V. Sadler, 5 M. & W. 405; Breadwell v. Union Ins. Co., 6 Cow (X. y.) 270 (1826). As to the mat- ter of carrying proper papers as af- fecting seaworthiness, see Christie v. Seeretan, 8 T. R. 192 (1799), Law- rence, J.; Elting v. Soott, 2 John. (X. Y.) 157, Kent. C. J. "= Dixon V. Sadler, 5 Mees. &. W. 414 (1839); 14 Eng. Rul. Cas. 58; Watson V. Clark, 1 Dow. 336 (1813) ; Wedderburn v. Bell, 1 Camp. 1 (1807); Dudgeon v. Pembroke, 1 Q. B. D. 96 ( 1875 ) ; Forshaw v. Chabert, 3 Brod. & B. 158 (1821); Koebel v. Sounders, 17 Com. B. N. S. 71 (1864); Douglass v. Scougall, 4 Dow. 269 (1816) ; Knill v. Hooper, 2 H. & X. 277 (1857); Brooking v. Maudslay, 38 Ch. D. 636 (1888); Christie v. Seeretan, 8 T. R. 198 (1799), Lawrence, J.; Quebec M. Ins. Co. V. Com. Bank, L. R. 3 P. C. 234; Rouse v Ins. Co., 3 Wall. Jr. (C. C.) 367 (1862); Pope v. Swiss L. Ins. Co., 6 Saw. (C. C.) 533 (1880). (No warranty under time policy under Cal. laws) ; Watson v. Ins.. Co., 2 Wash. (C. C.) 480 (1811) ; Higgie V. Am. Lloyds, 14 Fed. 143, 11 Biss. (C. C.) 395 (1882) ; Seaman V. Enterprise Ins. Co., 21 F. 778, 58 Am. D. 671 (note) (1884); Guy V. Citizens' Ins. Co., 30 Fed. 695 ( 1887 ) , seaworthiness presumed ; Me- Lanahon v. Universal Ins. Co., 1 Pet. (U. S.) 183 (1828); Merchants' Ins. Co. V. Morrison, 62 111. 242, 14 Am. R. 93 (1871); Snethen v. Memphis Ins. Co., 3 La. Ann. 474 (1848); Marcy v. Sun Ins. Co., 11 La. Ann. 748 (1856) (warranty of seaworth- iness of dock ) ; Donnally v. Merch. Mut. Ins. Co., 28 La. Ann. 939, 26 Am. R. 129 C1876) Dupeyre v. Wes- § 440 MARINE INSUKAJTCE. 493 properly manned and equipped, and otherwise fit and in a navigable state for the service and the voyage contemplated.'"' "There is," says Marshall,"* "in every insurance, whether on ship or goods, an implied warranty that the ship shall be sea- worthy when the risk commences; that is, that she shall be tight, staunch and strong, properly manned, and provided with all necessary stores, and in all respects fit for the voyage. The consideration of the insurance is paid in order that the insured may be indemnified against certain contingencies; it exists that the insurer may gain a premium, but if the ship be incapable of performing the voyage, there is no possibility of the insurer gaining the premiums, and in that case the contract on his part would be without consideration and consequently void. The insurer undertakes to indemnify the insured against the extraordinary and unforseen perils of the sea, and it would be absurd to suppose that any man would insure against those perils, but in the confidence that the ship is in condition to encounter the ordinary peril to which every ship must be ex- posed in the usual course of the voyage proposed." There is no implied warranty of seaworthiness in an ordinary policy insuring a vessel against fire.°^ tern Ins. Co 2 Rob. (La.) 457, 38 (N. Y.) 232 (1801); Van Wiekle v. Am. D. 218 (1842) ; Dodge v. Boston Mechanic, etc., Ins. Co., 97 N. Y. 350 M. lua. Co., 85 Me. 215 (1892) ; Field ( 1884) ; Rogers v. Sun Mut. Ins. Co., V. Ins. Co., 3 Md. 244 (1852); Au- 46 N. Y. Supr. Ct. 65(1880); Patrick gusta Ins. Co. v. Abbott, 12 Md. 348 v. Hallett, 1 John. 241 (N.Y.) (1806) ; (1858) ; Taylor v. Lowell, 3 Mass. Draper v. Com. Ins. Co., 21 N. Y. 37S 331, 3 Am. Dec. 141 (1807); Merch. (1860); Walsh v. Washington Ins. Ins. Co. V. Clapp, 11 Pick. 56(1831) ; Co., 32 N. Y. 427; Allison v. Corn Paddock v. Brooklyn Ins. Co., 11 Exch. Ins. Co., 57 N. Y. 87 (1874); Pick. 227 (1831); Starbuck v. New Howard v. Orient Mut. Ins. Co., 2 Eng. Ins. Co., 19 Pick. 198 (1837); Robt. (N. Y.) 539 (1864); Walden Hoxie V. Pac. Mut. Ins. Co., 7 Allen, v. Firemen's Ins. Co., 12 John. 128 211; Hudson v. Williamson, 3 Brer. (1815) ; Hoxie v. Home Ins. Co., 32 .(S. C.) 342; Ingraham v. S. C. Ins. Conn. 2, 85 Am. Dec. 240; Natchez Co., 1 Tread. (S. C.) 707; Talcott v. Ins. Co. v. Stanton, 2 Smead. & M. Com. Ins. Co., 2 John. 124, 3 Am. (Miss.) 340, 41 Am. Dec. 592 (1844). Dec. 406 (1807); Am. Ins. Co. v. »^ Joyce Ins. § 2156, and cases Ogden, 15 Wend.(N. Y.) 532 (1836) ; there cited. Barnewell v. Church, 1 Caines (N. "Marshall Ins., p. 363 (1805). Y.), 217 2 Am. Dec. 180 (1803); ""Mark v. Nat'l F. Ins. Co., 91 N. Warren v. U. S. Ins. Co., 2 John Cas. Y. 663 (1883), affirming 24 Hun (N. 493 IMPLIED WARRANTIES SEAWORTHINESS. § 441 The warranty applies only to the ship, and there is no im- plied agreement that the cargo is, at the time of the com- mencement of the voyage, in a seaworthy condition."® But where the policy is upon the cargo, there is an implied warranty that the ship in which it is to be carried, is seaworthy."' The warranty does not extend to the seaworthiness of lighters used in landing the cargo,"* but it has been held to apply to a tug employed to tow the insured boat down a river."" §441. Time policies— English rule.— In the earlier English cases it was assumed that there was no difference between time and voyage policies in respect to the implied warranty of sea- worthiness.^"" The question was first decided in the leading case of Small v. Gibson,"^ where after much discussion it was finally held by the House of Lords^"^ that, "in a time pol- icy on a ship framed in the usual terms, no special circum- stances appearing respecting the situation and employment of the ship, there is no implied warranty that the ship shall be seaworthy on the date when the policy ought to attach." This conclusion was accepted as final and followed in a number of cases,^"^ but the question was again raised and received elabo- Y.) 565 (1881). The implied war- Higgie v. American Lloyds, 14 Fed. ranty on the part of the shipowner 143 (1883); Howard v. Orient Mut. that the vessel is seaworthy is a Ins. Co., 2 Eobt. 539 (1864); Horton condition precedent to performance v. Merchants' Mut. Ins. Co., 28 La. by the shipper in every charter party Ann. 730 (1876); Van Winkle v. or contract of affreightment. The Mechanics', etc., Ins. Co., 97 N. Y. Director, 34 Fed. 57 (1888), anno- 350 (1884). tated; 35 Fed. 335 (1888) ; McAdam "Lane v. Dixon, L. R. 1 0. P. 412. V. Severick, 35 Fed. 305 (1888), an- "Merchants' Ins. Co. v. Alger, 31 notated. Pa. St. 446. ""Koebel v. Saunders, 17 C. B. N. i" Dixon v. Saddler, 5 M. ft W. 405, S. 71 (1864); Aeatos v. Burns, L. R. 8 M. & W. 875 (1841) (this cele- 3 Exch. D. 282 (1878). A raft of brated ease was upon a time policy), logs is treated as a vessel. Moore ■»' 16 Q. B. 128, a. c. in Exchequer, V. Louisville Underwriters, 14 Fed. 16 Q. B. 241, 4 H. of L. 353 (1853) ; 226 (1882). 14 Eng. Rul. Cas. 85. "The Caledonia, 157 U. g. 174 ""The substance of this decision as (1894) ; Knill v. Hooper, 2 Hurl & stated in Thompson v. Hopper, 6 E. N. 277 (1857); Oliver v. Cowley, 1 ft B. 187, 25 L. J. Q. B. 249. Park Mar. Ins. (8th ed.) 470 (1765); . ""Thompson v. Hopper, 6 El. & § 441 MARINE INSURANCE. 494 rate consideration in Dudgeon v. Pembroke."* The court of Queen's Bench held that there was no implied warranty in a time policy. This was reversed by the Exchequer Chamber, which in turn was reversed by the House of Lords, which ad- hered to the decision in Gibson v. Small, and put the question a* rest for all time as far as the English courts are concerned."" Bl. 186, 25 L. J. Q. B. 249 (1856) (unless the ship was knowingly sent to sea in an unaeaworthy condition, and she is lost in consequence there- of) ; Faw«us v. Sarsfield, 6 E. & B. 199, 25 L. J. Q. B. 254 (1856) ; Bic- card V. Shephard, 14 Moore P. C. 471, 6 El. & Bl. 192; Jenkins v. Heycock, 8 Moore P. C. 351; Mich- aels r. Tredwin, 17 C. B: 251, 25 L. J. C. P. 83 (1856). ""L. R. 9 Q. B. 551, 1 Q. B. Div. 96, 2 App. Cas. 288 (1872). *"In Dudgeon v. Pembroke, L. R. 2 App. Cas. 284, 46 L. J. Ex. 409 (1877), Lord Penzance in the House ol Lords said: "The policy then, be- ing a time policy, the first question raised for your lordships determina- tion is, whether the law implies in such a contract any warranty that the vessel should be seaworthy at any period of the risk, and, if so, at what period or periods. This is no new question. It was raised in the case of Gibson v. Small, which was determined by your lordships house in the year of 1854, and has been the subject of more than one subsequent decision. I do not propose to trouble your lordships by reviewing the argu- ments on this question, because T con- sider that the case of Gibson v< Small, supplemented as it was by the two cases of Thompson v. Hopper, and Pawcus V. Sarsfield, must be consid- ered to have set at rest the contro- versies on this subject, and to have finally decided that the law docs not, in the absence of special stipulations in the contract, infer in the case of a time policy any warranty that a vessel at any particular time shall have been seaworthy. In pronounc- ing the judgment of the majority of the court in the latter case. Lord Campbell said: 'For the reasons which I have given in the case of Gibson v. Small, and which I have given in Thompson v. Hopper, I think there is no implied warranty of sea- worthiness in any time policy.' From that time upwards of twenty years ago, to the present, these decisions have been acted upon and submitted to, and thousands of policies have been affected and millions of losses adjusted under them, and whatever may be argued as to the soundness of the conclusions then arrived at, or however desirable it may be as a matter of public policy and concern that some obligation to keep his ves- sel as far as it is within his power, seaworthy, should be cast on the ship- owner, the law must, I submit to your lordships, be considered as set- tled by these decisions, and any change madie in it, must be by legis- lative authorii^ alone.'' Anchor Mar. Ins. Co. v. Keith, 9 Can. Sup. Ct. 483; Phoenix Ins. Co. v. Anchor Ins. Co., 4 Ont. 524. 495 IMPLIED WARRANTIES SEAWORTHINESS. § 442 This doctrine is peculiar to England. But if by the personal misconduct — ^that is, the wilful act — of the owner, the ship is sent to sea in an unseaworthy condition, and a loss is occa- sioned thereby, there can be no recovery.^"* § 442. Time policies — Rule in the United States. — The rule of the English and Canadian authorities that there is no implied warranty of seaworthiness in a time policy is not accepted in its entirety by the American courts. The extremes are repre- sented by the courts of Illinois and Connecticut. The former accept the English doctrine to its fullest extent,^"^ while in the latter it is held that the warranty of seaworthiness is a neces- sary condition of every contract of marine insurance.^"* In New York it is held that seaworthiness at the inception of the risk is implied when the vessel is in port.^"° In an earlier case a policy was held invalid where the vessel was unseaworthy when it left an intermediate port, although it had been seaworthy when it left the original port at a time subsequent to the com- mencement of the risk.^^" In line with the New York cases, it is held in the federal courts that under a time policy, "lost or not lost, " issued when the vessel is at sea, there is no implied warranty of seaworthiness, but otherwise, when the policy is issued, while the vessel is in the home port, or any other port where she then was refitting.^^^ The American authorities^^* are very confusing, but they seem to establish the rule that there is no implied warranty of seaworthiness in a time policy '"Thompson v. Hopper, 6 E. & B. ""Jon« v. Insurance Co., 2 Wall. 188 (1856); Trinder v. Thames, etc., Jr. C. C. 278, Fed Cas. No. 7470; Mar. Ins. Co. (1898), 2 Q. B. 114. Bouse v. Insurance Co., 3 Wall. Jr. '"Merchants' Ins. Co. v. Morrison, C. C. 367, Fed. Cas. No. 12089; Un- 62 111. 242, 14 Am. Dec. 93 (1871). ion Ins. Co. v. Smith, 124 XJ. S. 405, '" Hoxie V. Home Ins. Co., 32 Conn. 8 Sup. Ct. 534. 21, 85 Am. Dec. 240. Pope- v. Swiss ""Capen v. Washington Ins. Co., Lloyd's Ins. Co., 6 Sawy. C. C. 532; 12 Cush. (Mass.) 517; Macey t. to the same eflFect, was decided under Mutual Marine Ins. do., 12 Gray the California statute. (Mass.) 497; Hathoway v. — Insur- '"Berwind v. Greonich Ins. Co., ance Co., 21 N. Y. Super. Ct. 33; 118 N. Y. 234 (1889). Insurance Co., 21 N. Y. Supr. 33; ""American Ins. Co. v. Ogden, 20 Rouse v. Insurance Co., 3 Wall. Jr. Wend. (N. Y.) 287. See, also, Jones C. C. 367 (1862) ; Jones v. Insurance V. Insurance Co., 2 WaUace Jr. C. C. Co., 2 Wall. Jr. C. C. 278; Union Ins. 387, Co. V. Smith, 124 U. S. 405. See § 443 MARINE IlSrSURANCB. 496 issued upon a vessel which is then out at sea, but otherwise when the vessel is in port where it can be put in a seaworthy condition before it sails.^^* § 443. Different stages of the voyage. — The voyage from the port of sailing to that of ultimate destination, is often made under conditions which create different stages. Thus, one stage may consist of river and lake navigation and another of open sea, and yet another of difficult and dangerous in shore navi- gation, where an experienced crew and expert navigator is necessary. "What is a sufficient equipment in one stage of such a voyage would be entirely inadequate for another stage. A different equipment is thus necessary at different stages, where the vessel is exposed to different perils at different times. The implied warranty of seaworthiness is complied with if the vessel is seaworthy at the commencement of the voyage for the first stage of the voyage, and is made seaworthy at the beginning of each subsequent stage, for that stage.^^* Hence, if the voyage be such as to require a different complement of men, and a different state of equipment in different parts of it, as where it is a voyage down a canal or river, and thence across the open sea, it is enough if the vessel is in each stage of the navigation properly manned and equipped for it.^^° The voyage may be divided into stages for the purpose of coaling, and it is only necessary to have on board at the be- ginning of the voyage enough coal to carry the vessel to an intermediate port where it is the intention to take on a fresh supply, sufficient for the next stage. The warranty of sea- Caper V. Wash. Ins. Co., 7 Allen Parmeter v. Cousin, 2 Camp. 235; (Mass.) 211 (1853); 1 Phillips Ins., Houghton v. Empire Maj. Ins. Co., p. 409, and note in 14 Eng. Rul. Cas. L. R. 1 Exch. 206; Bouillon v. Lup- 121. ton, 33 L. J. C. P. 37 (1863), 14 "'Hoxie V. Pacific Mut. Ins. Co., Eng. Rul. Cas. 72; Purges v. Wick- 7 Allen (Mass.) 211; Dallam v. In- ham, 33 L. J. Q. B. 17 (1863), judg- surance Co., 6 Phila. (Pa.) 15, and ment of Cockbum, C. J. ; Quebec Mar. cases cited in the preceding notes. ins. Co. v. Commercial Bank, L. R> "•The Vartigem (1899) P. 140, 3 P. C. 234; Treadwell v. Union Ins. 68 L. J. P. 49, Collins, L. J.; Dixon Co., 6 Cow. (N. Y.) 270 (1826) ; Bell V. Sadler, 5 Mees. & W. 405, 414 v. Reed, 4 Binn. (Pa.) 127 (1811). (1839); Oliverson v. Loughman, "'Baron Parke in Dixon v. Sad- cited in 2 B. & Aid. 322 (1815); lev, supra. 497 IMPLIED WARRANTIES SEAWORTHINESS. § 444 worthiness thus attaches at each coaling port for the stage which ends at the next coaling port."' § 444. Seaworthiness a relative matter. — It is thus apparent that seaworthiness is a relative and not an absolute condition, determined by the time, place and nature of the voyage, the character of the vessel and the purposes for which it is to be used.^^^ When the vessel is in a harbor it may be entire- ly seaworthy for that place, although it may be out of repair and with a crew insufficient to go to sea.^^' Where a river vessel is insured for a sea voyage and the character of the ship is fully made known to the insurer, the vessel will be considered as seaworthy if she is put in as good condition and character as the ship permits.^" § 445. Time of seaworthiness — Continuing warranty. — The English doctrine is that there is no implied warranty of sea- worthiness except at the beginning of the voyage. "Every ship," said Lord Mansfield, "must be seaworthy when she sails on the voyage insured, but she need not continue so throughout the voyage. "^^" The voyage out and home is treated as one voyage, and there is no breach of warranty if the vessel is unseaworthy when it sails from the out port on the homeward "•Thin V. Richards, 2 Q. B. 141 ""Turnbull v. Janson, 36 L. T. N. (1S92); The Vortigern (1899); P. S. 635; Clapham v. Langston, 34 L. 140; Greenock Steamship Co. v. Mar- J. Q. B. 46, 10 L. T. N. S. 875; Rog- itime Ins. Co., 72 L. J. N. S. (K. ers v. Sun Mut. Ins. Co., 46 N. Y. 13 S.) 868 (1903). Supr. Ct. 65; Tliebaud v. Great West- "^ Forbes v. Wilson, 1 Park Ins. em Ins. Co., 155 N. Y. 516. 472 (1800); Knill v. Hooper, 2 H. ""Bermon v. Woodbridgej 2 Doug. & y. 277; Gibson v. Small, 4 H. of 781 (1781); Watson v. Clark, 1 L. 418; Smith v. Surridge, 4 Esp. Dow. 344 (1813), per Lord Eldon; 25; Hibbert v. Martin, 1 Park Ins. Dixon v. Saddler, 5 M. & W. 414 473 (1808); Moores v. Louisville (1839); Walker v. Maitland, 5 B. & Underwriters, 14 Fed. 226. As to the Aid. 171 (1821); Phillips v. Head- charaeter of the ship, see Burges v. lam, 2 B. & Aid. 380 (1831); Eden Wickham, 33 L. J. Q. B. 17; The- v. Parkinson, 2 Doug. 733 (1781); baud V. Phoenix Ins. Co., 52 Hun (N. Parfitt v. Thompson, 13 M. & W. 391 Y.) 495; Parmeter v. Cousin, 2 ( 1844 ) ; Woodhouse v. Prov. Ins. Co., Camp. 235 (1809), 3 Kent. Com. 31 U. Can. Q. B. 176. See general ♦289. discussion in Dudgeon v. Pembroke, 2 ""Annen v. Woodman, 3 Taunt. App. Cas. 284 (1877). 299 (1810). § 445 MARINE INSURANCE. 498 voyage.^''^ This principle applies not only to the physical con- dition of the ship, but also to the equipment and the master and crew. If the owner has his ship in proper condition, properly equipped, and provides a competent master and crew in the first instance, he has discharged his whole duty. "He makes no warranty," says Parke B,^'"' "that the vessel shall continue seaworthy or that the master and crew shall do their duty dur- ing the voyage ; and their negligence and misconduct is no de- fense to an action on the policy where the loss has been imme- diately occasioned by the peril insured against. Nor can any distinction be made in this respect between the omission by the master and crew to do an act which ought to be done, or the doing of an act which ought not, in the course of the navigation. It matters not whether a fire which causes a loss be lighted improperly, or, after being properly lighted be negligently at- tended; whether the loss of an anchor which makes a vessel unseaworthy be attributed to the omission to take proper care of it or to the improper act of slipping it or cutting it away; nor can it make any difference whether any other part of the equipment were lost, or thrown away or destroyed in the exercise of improper discretion by those on board." In this country, the implied warranty of unseaworthiness is given a much wider application.^^^ The insured is bound not only to have his ship seaworthy at the commencement of the risk, but to keep her in that condition so far as it depends upon himself during the continuance thereof and at the com- mencement of all the subsequent stages. The insured is at least required to abstain from misconduct during the voyage. Negli- gence in not keeping the ship in a proper condition of repair and equipment under this rule releases the insurer when it "' Bermon v. Woodbridge, 2 Doug. plied a warranty that the vessel will 781 (1781). be kept in repair and made seaworthy '"Dixon V. Saddler, 5 M. & W. at all times during the continuance 414 (1839). of the risk, so far as that is reason- "^ McDowell V. Gen. M. Ins. Co., 7 ably possible, and this implied cove- La. Ann. 684, 56 Am. Dec. 619. In nant imposes upon the insured the Berwind v. Greenwich Ins. Co., 114 duty of active diligence to keep the N. Y. 239 (1889)), the court said: vessel in good order and in a sea- "In time policies there is im- worthy condition." 499 IMPLIED WARRANTIES SEAWORTHINESS. § 446 causes a loss. As said by Mr. Justice Blatchford,"* "A de- fect of seaworthiness arising after the commencement of the risk and permitted to continue from bad faith or want of ordi- nary piiidence or diligence on the part of the insured or his agents, discharges the insurer from liability for any loss which is the consequence of such bad faith or want of prudence or diligence, but does not affect the contract of insurance as to any other risk or loss covered by the policy, not caused or increased by such particular defects." The California code provides that when the ship becomes unseaworthy during the voyage, or unreasonable delay in re- pairing the defect, exonerates the insurer from any loss aris- ing therefrom.^-^ § 446. Knowledge and intent of insured. — ^As the seaworthi- ness of a vessel is a condition precedent to the inception of the contract, it is immatei'ial whether the loss is traceable to a breach of this warranty.^^" It is equally immaterial that the insured was not aware of the unseaworthy condition of the vessel.^-^ In England and the United States the warranty of >=' Union Ins. Ck). v. Smith, 124 U. '^Civ. Ck)de, Cal. § 2686. S. 405, 8 Sup. Ct. 53; Paddock v. "'Forshaw v. Chabert, 3 B. & B. Franklin Ins. Co., 11 Pick. (Mass.) 158 (1821); Quebec M. I. Co. \. 227 (1831) ; Lapene v. Sun Mnt. Ins. Commercial Bank, L. R. 3 P. C. 234 Co., 8 La. Ann. 1, 58 Am. Dec. 668 (1870). In this case the ship sailed (1853), 3 Kent. Com. •288. But see from Montreal with a defective boiler. Copeland v. New Eng. M. Insurance On reaching salt water the defect be- Co., 2 Mete (Mass.) 432; American came apparent and was repaired. Ins. Co. V. Ogden, 20 Wend. (N. Y.) She was afterwards lost, owing to 287 ( 1838 ) ; Lockwood v. Insurance bad weather. It was held that there Co., 46 Mo. 71 (1870). In Morse v. could be no recovery, as there had St. Paul F. & M. Ins. Co., 122 Fed. been a breach of condition. On the 748 (1903), Putnam, J., held that Continent of Europe the insured is this rule did not apply to the cargo, released only when the unseaworthi- and that the underwriters were not ness causes the loss. discharged by the negligence of the '"Marey v. Sun Ins. Co., 11 La. master in leaving an intermediate Ann. 748 (1856); Standard Refining port with the vessel in an unsea- Co. v. Schooner Centennial, 2 Fed. worthy condition. The court also ex- 409 (1880); Richelieu, etc., Naviga- presses a doubt as to whether Union tion Co. v. Boston Marine Ins. Co., Ins. Co. V. Smith, sttpra, will be ad- 136 U. S. 408 (1889) (defective com- hered to. pass) ; Rogers v. Mutual Ins. Co., § 446 MARINE INSURANCE. 500 seaworthiness at the beginning of the voyage is absolute. The condition is broken by the fact of unseaworthiness, and not by the fraud or want of good faith of the insured. It is, there- fore, as said by Lord Eldon,^^* "not necessary to inquire whether the owner acted honestly and fairly in the transaction, for it is clear law that, however just and honest the intentions and conduct of the owner may be, if he is mistaken in the fact, and the vessel is in fact not seaworthy, the underwriter is not liable." The existence of a latent defect in the timbers of the keel of a vessel, which was not disclosed while the vessel was being overhauled and repaired, was held by Lord Mansfield to dis- charge the insurer.^^° There is some difference of opinion as to the effect of a survey for the purpose of discovering the condition of the vessel. In New York it was held that the fact that the owner had a careful survey of the vessel made '' which failed to disclose the defect, was not material.^^" In England, where the ship's carpenter certified that the repairs made were all that was necessary to prepare the ship for the voyage, it was held there could be no recovery where the vessel in fact proved to have been unseaworthy and not able to stand the ordinary perils of the sea."^ But the federal courts seem to give more effect to such a survey. In one case the report of the surveyor was said to be enough to establish seaworthiness until it was overcome by other evidenee.^^^ Where there is a 46 N. Y. Supr. Ct. 65; Oliver v. Cow- ignorance, his care or negligence." ley Park Ins. 470. Quoted by Chief Justice Fuller in '=" Douglass V. Scougall, 4 Dow, The Caledonia, 157 U. S. 124 (1894). 269, 276(1816). In The Edwin I. Mor- "'Lee v. Beach, 1 Park Ins. 468. rison, 153 U. S. 199, 210, Mr. Justice See, also, to the same effect Oliver Gray said: "In every contract for v. Cowley, 1 Marshall Ins. 160 the carriage of goods by sea, unless (1810); The Caledonia, 157 U. S. otherwise expressly stipulated, there 124 (1894). is a warranty on the part of the ship- ™ Warren v. United Ins. Co., 2 owner that the ship is seaworthy at Johns. Cas. (N. Y.) 232, 1 Am. -Dec. the time of beginning her .voyage, and 164 (1801), and cases cited in note, not merely that he does not know her "' Douglas v. Scougall, 4 Dow. to be unseaworthy. The warranty is 269 (1816). See, also, Stewart v. absolute that the ship is, or shall be, Wilson, 12 M. & W. 11. in fact, seaworthy at that time, and "^Bacheler v. Insurance Co., 30 does not depend on his knowledge or Fed. 459 (1887). See further as to 501 IMPLIED WARRANTIES — SEAWORTHINESS. § 447 provision in the policy which exempts the insurer from liability from loss occasioned by unseaworthiness, it is immaterial whether the actual condition of the vessel was known or unknown to the insured.^^* § 447. Exclusion by the terms of the policy. — The warranty of seaworthiness may be excluded by the insertion of clear and express terms to that effect in the policy, but it will not be inferred from doubtful or ambiguous language. Thus, where a voyage policy excepted losses caused by rottenness and in- herent defects, "and other unseaworthiness," it was held not to have excluded seaworthiness as an implied condition pre- cedent to the attaching of the policy. As the boilers were de- fective when the voyage began, the plaintiff was not allowed to recover although the defect had been made good before the loss -occurred.^^* §448. Presumption — Burden of proof. — There is not entire unanimity of opinion as to the party upon whom rests the burden of showing the seaworthiness of the vessel. It has the effect of a certificate as to evi- covered in spite of the application of denee of seaworthiness, Perkins v. the care of a careful shipowner." It Augusta, etc., Co., 10 Gray (Mass.), is probable that in time a similar 312, 71 Am. Dec. 654 (1858) ; Ber- rule will be made to apply to eon- wind V. Greenwich Ins. Co., 114 N. tracts of insurance. Y. 231, 21 N. E. 151 (1889) ; Lunt v. '=» Richelieu & O. Navigation Co. Boston Ins. Co., 19 Blatchf. 151, 17 v. Boston M. I. Co., 136 U. S. 408, Fed. 411 (1833). In France' the war- 10 Sup. Ct. 934 (1889). ranty is absolute as to the ' ship's "* Quebec M. 1. Co. v. Commercial soundness, but as to the equipment Bank, L. E. 3 P. C. 234 (1890). the insured is only liable for want of Where the condition is broken by the proper care. In the United States, departure of the ship in an unsea- under the act of Congress (Harter worthy condition the insurer may Act, 1893), the shipowner's obligation waive the breach of condition by a to his freighters is to use due diligence proper endorsement on the polity, to have the ship seaworthy. The new Thus the insurer may even after the German Code of 1900 makes the ship- condition is broken assume liability owner "answerable to the charterer for a loss. Weir v. Aberdein, 2 B. for every damage arising from the de- & Aid. 320. See comment of Lord fective condition of the vessel unless Penzance in Quebec M. I. Co. v. Com- tlie defects aould not have been dis- mercial Bank, supra. § 448 ■ MARINE INSURANCE. 502 been held that the burden is upon the defendant,^'"* but other decisions are to the effect that the insured must Sihow that the vessel was seaworthy when she left port. Probably the weight of authority supports the view that seaworthiness on the commencement of the voyage is to be presumed, although the burden is shifted if the vessel becomes unseaworthy very soon after sailing, and before any particular sea peril has been en- countered.^^^ Lord Eldon said that it was a clear and established principle that if the ship was seaworthy at the commencement of the voyage, though she became otherwise only an hour after the warranty was complied with, and the insurer was liable. But when the inability of the ship to perform the voyage be- came evident, in a short time after the commencement of the risk, the presumption was that it was from causes existing before she set sail on the intended voyage, and that the ship was then not seaworthy, and the burden then rested with the insured to show that the inability arose from causes arising subsequent to the commencement of the voyage.^^" This so-called presumption is, however, merely an inference of fact which the courts feel justified in drawing from a condi- tion which is disclosed soon after sailing. In one case it was held that the presumption in case of the loss of the ship soon after leaving port, of which the insured could not show the cause, was rebutted when the balance of the evidence was to the effect that the ship was neither overloaded nor top heavy when she left port, and that the loss was attributable rather to a mistake of management after she started than to unseaworthi- ness when she left port.^" "'Pickup V. Thames, etc., Ins. Co., ""Watson v. Clark, 1 Dow App. 3 Q. B. D. 594, 47 L. J. Q. B. 749 Cas. 336 (1813). (1878); Watson v. Clark, I Dow "' Ajum Goolman Hassen v. Union App. Gas. 336 (1813); Patrick v. Mar. Ins. Co., 70 L. J. P. C. 34 Hallett, 3 Johns. Cas. (N. Y.) 76 (1901), approving Pickup v. Thames, (•'^^^^)- etc., Mar. Ins. Co., supra; Anderson "'a Nome Beach, etc., Co. v. Munich v. Morrioe, 44 L. J. C. P. 10, 341 Ins. Co., 123 Fed. 820 (1903); Ad- (1875). derly v. Am. Mut. Ins. Co., Fed. Caa. No. 75. 503 IMPLIED WARRANTIES — DEVIATION. § 44'J (6) Deviation. § 449. Definition. — There is in every contract of marine in- surance an implied agreement that the ship vrill not be guilty of deviation. Originally, deviation meant a voluntary depart- ure, without necessity or reasonable excuse, from the regular and usual course of the voyage described in the policy.^'* But this definition has been much extended in modem times, and the warranty against deviation now includes any improper de- parture from the stipulated or customary route, or o-ther change in the risk covered by the insurance.^^* It thus includes not merely the unnecessary going out of the track or course usually taken by vessels, but also a departure from any of the express or implied terms of the contract.^*" The words deviation and departure are, in law, synonymous, but the one is sometimes used to express a variation from the usual course or conduct of the voyage, and the other to denote some other violation of the contract of insurance while touch- ing at intermediate ports.^*^ For on extra premium the under- writer often expressly agrees to carry the insurance, although there is a deviation.^*- § 450. Departure from route. — The implied warranty against deviation requires that the vessel shall proceed with all reason- able dispatch by the shortest, safest and most usual route from "'Hostettcr v. Park, 137 U. S. 30 '='15 Am. Law Rep. 108 (1881), (1890), Blatchford, J.; The Brig article by Mr. S. G. Crosswell, on Cora, 2 Wash. C. C. 80 (1807), 2 Deviation, citing and reviewing nu- Pet. Adm. 361 (to save human life) ; merous cases. Warder v. La Belle Coffin V. Newburyport Mar. Ins. Co., Creole, 1 Pet. Adm. 31 (1792). 9 Mass. 436 (1812) (delay); Am- '"Phoenix Ins. Co. v. Cochran, 31 sinck V. Am. Ins. Co., 129 Mass. 185 Pa. St. 143 (1865); Amsinck v. (1880) (unreasonable delay); Bur- American Ins. Co., 129 Mass. 185 gess V. Equitable Mar. Ins. Co., 126 (1880) (delay); 1 Arnould Marine Mass. 70, 30 Am. Rep. 654 (1878) Ins. (6th ed.) 450. (putting into port for bait, usage); "'Phoenix Ins. Co. v. Cochran, 51 Lawrence v. Ocean Ins. Co., 11 John Pa. St. 143 (1865). (N. Y.), 241 (1814). It is in this '"See Institute Voyage Clause, sense that the word is used in the Appendix 2 Arnould Mar Ins. (7th English Marine Insurance Bill, 1899, ed.) 1505. § 47. § 451 MARINE INSURANCE. 504 the port of departure to that of destination, and the policy therefore remains in force only so long as the insured pursues the prescribed course of the voyage from beginning to end throughout, with all safe, convenient and practicable expedi- tion, without touching at any interjacent port, or pursuing any intermediate adventure.^*^ "Whatever the vessel does to the contrary of this implied warranty, unjustified by any emergent cause that shall be considered hereafter, or without leave ex- pressly given in the policy, however trifling in extent or dura- tion, is a fatal deviation, although the ship afterward returns to her proper course nothing damaged by its departure from it.""* § 451. Order of visiting ports. — The order in which the va- rious ports must be visited is determined either by the express terms of the policy or by their geographical order, subject to any well-established usage varying the order of calling.. Where the ports to be visited are named in the policy, they must bo called at in the specified order,^*^ although it is not necessary "'3 Kent.' Com. (14th ed. ) 312; loss after return to safe water — in- 1 Arnould Marine Ins. ( 6th ed. ) surers liable ) ; Hood v. Neabitt, 1 449; Burgess v. Equitable Mar. Ins. Yeats (Pa.), 114, 2 Dallas, 137, 1 Co., 126 Mass. 70, 30 Am. Rep. 654 Am. Dec. 265 (1792) (barratry or (1878) ; Hartley v. Buggin, 3 Dougl. deviation) ; Plare v. Travis, 7 B. & 39 (1781) (changing nature of ship); C. 14, 9 D. & R. 748. As to the ef- Coffin V. Newburyport Marine Ins. feet of the special clauses giving lib- Co., 9 Mass. 436 (1812); Spinney v. erty to "to call" or "to touch" or Ocean Mut. Mar. Ins. Co., 17 Can. "to touch and stay" or "to touch, Sup. Ct. 326 (1980); Himely v. stay and trade" see Urquhart v. South Carolina Ins. Co., 1 Mills Barnard, 1 Taunt. 450 (1809); Met- (S. C.) 153, 12 Am. Dec. 623 (1817) ; calfe v. Parry, 4 Camp. 123 (1814) ; Auenreid v. Merc. Mut. Ins. Co., 60 2 Arnould Mar. Ins. (7th ed.), 476. N. Y. 482, 19 Am. Rep. 204 (1875) ; ^"1 Arnould Marine Ins. (6th Snyder v. Atlantic Mut. Ins. Co., 95 ed.), 462 (7th ed.), p. 469; Fox v. N. Y. 196, 47 Am. Rep. 29 (1884) Black, 2 Park Ins. 620 (1767); Bur- ( going on towing trip); Riggin v. gess v. Equitable Marine Ins. Co., r20 Patapsco Ins. Co., 7 Har. & J. (Md.) Mass. 70, 30 Am. Rep. 654 (1878). 279, 16 Am. Dec. 302 (1826) (de- "'Andrews v. Mellish, 5 Taunt, parture caused by fear of captive); 496 (1814); Gairdner v. Senhouse, Wilkins v. Tobacco Ins. Co., 30 Ohio 3 Taunt. 16 (1816) per Lord Mans- St. 317, 27 Am. Rep. 455 (1876) field; Stevens v. Commercial Mut. (going outside of permitted waters — Ins. Co., 26 N. Y. 397; Beatson v. 505 IMPLIED WARRANTIES — DEVIATION. § 451 that all the specified ports shall be visited.^*® Where certain designated ports are not called at, those remaining must be taken in the order named in the policy, unless there is a usage to the contrary not excluded by the terms of the policy."^ A permit to call at certain intermediate ports, by implication ex- cludes the right to call at all others. Thus, where the policy covered a voyage from "C. to H., with liberty to call at L," and the ship called at M. instead of L., it afterwards being again safely tipon the direct route to H., and was wrecked dur- ing a violent storm, it was held that there had been a devia- tion, and that the underwriters were discharged.^** Where a ship is insured merely for a voyage "to ports of dis- charge," without naming them, it must visit such ports in the geographical order of their distance from the terminus a quo, or port of departure.*'"' The captain of a vessel is bound to know, as far as the ordi- nary means of information can afford such knowledge, the va- rious routes and ports in the course of his voyage, and a depaVt- ure from the proper course caused by his mistake, ignorance, Haworth, 6 Term Rep. 531 (1796). "'Marston v. Reid, 3 East. 572 When the ship is insured for a voy- (1803) ; Ashley v. Pratt, 16 Mees & age, covering several ports, it may W. 471 (1847); Cross v. Shurtleff, terminate the voyage at one of the 2 Bay (S. C), 220, 1 Am. Dee. 645; intermediate ports without being Hale v. American Marine Ins. Co., guilty of deviation. Brown v. Vigne, 6 Pick. (Mass.) 172 (1828); Kane 12 East. 283, 11 Rev. Rep. 375 v. Columbian Ins. Co., 2 Johns. (N. (1810); 2 Emerigon, CXIII, § 11. Y.) 264 (1807). To revisit a port is a deviation, Gaird- '"Marston v. Reid, 3 East. 571; ner v. Senhouse, 3 Taunt. 16 (1810), (1803) ; Kane v. Columbian Ins. Co., unless authorized by the express or 2 Johns. (N. Y.) 262 (1807); Comw. implied terms of the policy. Deblois Ins. Co. v. Cropper, 21 Md. 311 V. Ocean Ins. Co., 16 Pick. (Mass.) (1863). 303 ( 1835 ) ; Mellish v. Andrews, 5 "' Elliott v. Wilson, 7 Brown's P. Taunt. 496 (1813). Trading at a C. 459, 9 Eng. Rul. Cas. 351 (1776). port where the ship had a right to "" Beatson v. Haworth, 6 Term call, which does not occasion delay, Rep. 531 (1796); Andrews v. Mel- is not a deviation. Raines v. Bell, lish, 5 Taunt. 496, 502 (1813); Deb- 9 East. 194 (1808); Carmaek v. lois v. Ocean Ins. Co.. 6 Pick. (Maas.) Gladstone, 11 East. 347 (1809); 303 (1835). Hughes V. Union Ins. Co., 3 Wheat. (U. S.) 159 (1818). § 451 ■ MARINE INSURANCE. 506 or negligence, discharges the underwriter.^'" A deviation is not excused by the fact that the voyage was thereby expedited. A vessel was insured from Gibraltar to the United States, with leave to stop at the Cape Verde Islands for salt. It was found impossible to procure salt without a delay of several weeks, and at the instance of the Governor of the Islands, the captain made an intermediate trip to obtain provisions for the Governor, upon the promise that, upon his return, he would be allowed to load his salt without waiting his turn. The vessel was lost on the voyage home, after having returned to the Cape Verde Islands and being properly loaded. It was claimed that., by reason of what had been done, the voyage was hastened to the mutual benefit of all the parties concerned ; but the court held that the master had not the right to speculate in this manner upon the possibility of advantage in pursuing a route which did not be- long to the voyage, and that it was his duty to pursue the usual route and let the consequences fall where they might.^'^ ' -In line with this case it was held that it was a departure to take a vessel through a chute used only in high water, for the purpose of shortening the distance.^'^ The strictness with which this rule is applied is illustrated by a case in which it was held a departure for a ship to leave the port of destination and go to a place seven miles away on the same bay, to test repairs and to take on eoal.^^' Where the policy permitted the insured ship to go on a "voy- age to a port on the north side of Cuba, with liberty of a sec- ond port thereon, ' ' it was held that a visit to a port on the south side of the island was a departure.^^* So, a master has no right, for the purpose of hastening his departure, to take a different '""Tait V. Levi, 14 East. 481; Phyn »■» Snyder v. Atlantic Ins. Co., 95 V. Royal Exchange Assurance Co., 7 N. Y. 196, 47 Am. Rep. 29 (1884). Term Rep. 505 (1798); Brozier v. See, also, Fernandez v. West Ins. Co., Capp. 5 Mass. 10; Riggins v. Pa- 48 N. Y. 571, 8 Am. Rep. 571, over- tapsco Ins. Co., 7 Har. & J. (Md.) ruling 3 Robert, 457 (1872) (trial 279, 16 Am Dee. 302 (1826). trip of sixteen miles after repairs and "'Kettell V. Wiggin, 13 Mass. 68 to take on coal held a deviation. (1816). "'Nicholson v. Mercantile Marine "'Jolly V. Ohio Insurance Co., Ins. Co., 106 Mass. 399 (1871). Wright (Ohio), 539 (1834). 507 IMPLIED WARRANTIES DEVIATION. § 452 route from that contemplated when the insurance was effected. Where the usual course from New York to Norwich was through Long Island Sound, it was held a deviation to make a voyage by the open sea, although the Sound was obstructed by ice. It was the duty of the master to delay his departure, although the ice had continued in the Sound longer than usual.^°° § 452. As affected by usage. — As suggested in the preceding section, usage plays a large part in determining the rights of the insured in eases where it is claimed there has been a de- parture from the ordinary route. If it is made to appear clearly that it is customary in the course of the voyage insured to stop at interjacent ports, although outside of a direct line, it is no deviation to stop there, although leave has not been expressly reserved in the policy, as such a stop is in the regular course of the voyage, and thus within the contemplation of the parties. But the usage must be clear, precise, and well established. Thus, where all the ships sailing through the sound were in the habit of stopping at S. to pay sound dues, a stop may properly be made, although there is no reference to it in the policy .^^° But the occasional stopping by vessels at a particular port will not establish a usage. Thus, two instances merely of stopping at a particular port, is not sufficient to establish a usage which will justify a departure from the regular course.^'^ The right to engage in certain intermediate voyages *n connection with certain trade, such as the Newfoundland or West Indian trade, was fully recognized by the English courts."^ As said by Arnould,'^' "Where the termini only of the voyage insured are indicated by the policy, and the parties to the contract have done nothing else toward indicating its cours'e, the sole guide in determining what that course shall be is mercantile usage; '"Crosby v. Fitch, 12 Conn. 410 of the trade.") Blatehford, J., citing (1838). numerous cases. "•Comwick y. Gladstone, 11 East. "'Martin v. Delaware Ins. Co., 2 347; Hostetter v. Park, 137 U. S. Wash. C. C. 254 (1808). 30, 40 (1890) ("it is no deviation, '"Vallance v. Dewar, 1 Camp, in respect to such a voyage, to touch 503. and stay at a port out of its course, "° 1 Amould Marine Ins. (7th ed.), if such departure is within the usage 469. § 453 MARINE INSURANCE. 508 nothing can be considered a deviation which only follows the course which usage has sanctioned." § 453. Delay. — After a policy has once attached, any unrea- sonable delay in commencing ^'"' or pursuing the insured voy- age,^*^ constitutes a deviation which will relieve the insurer.^'^ What is unnecessary delay must be determined by the facts of each case. No arbitrary rule can be laid down, as the reason- ableness must be determined by the state of affairs in the place where the vessel is at the time.^°* As said by Chief Justice Tyndall,^"* "Detention for a reasonable time for the purpose of the adventure must be allowed; and whether the time is reason- able or not must be determined, not by any positive and arbi- trary rule, but by the state of things existing at the port where >"» Hartley v. Bruggin, 3 Doug. 39 (1781), (delay for repairs); Smith V. Surridge, 4 Esp. N. P. 25 (1801) ; Palmer v. Marshall, 8 Bing. 29 (1831); Mount v. Larkins, 8 Bing. 108, 1 M. & S. 165; Spinney v. Ocean Mut. Mar. Ins. Co., 17 Can. Sup. Ct. 326 (1890); Himely v. South Car. Ins. Co., 1 Mill. (S. C.) 153, 12 Am. Dec. 623 (1817) ; 3 Kent's Com. 315; Upton v. Salem Ins. Co., 8 Met. (Mass.) 605; jirnould v. Paci- fic M. I. Co., 78 N. Y^ 7. It is no ex- cuse that the insured is detained in port by proceedings in admiralty. Augusta Ins. Co. v. Abbott, 12 Md. 348 (1858). "' Columbian Ins. Co. v. Cattlin, 12 Wheat. (U. S.) 383 (1827); Bur- gess V. Equitable Mut. Mar. Ins. Co., 126 Mass. 70, 30 Am. Rep. 654 (1878); Aimsick v. American Ins. Co., 129 Mass. 185 (1880); Auden- reid v. Mere. Mut. I. Co., 60 N. Y. 482, 19 Am. Rep. 204 (1875); Ar- nould V Pacific Mut. Ins. Co., 78 N. y. 7 (1879); Kingston v. Grand, 4 Dall. (Pa.) 274 (1803), (captain of ship remaining in port for the pur- pose of trading) ; Natchez Ins. Co. v. Stanton, 2 Smeed & W. (Miss.) 340, 41 Am. Dec. 592 (1844) (taking a tow) ; Settle v. St. Louis, etc., I. Co., 7 Mo. 379 (1842) (departure to save property). '"Marine Ins. Co. v. Stearns, 71 L. J. K. B. 86 (1902) (delay of about a month in sailing). That deviation refers to time as well as space or locality, see Hartley v. Buggin, 3 Doug. 39 (1781); Company of Af- rican Merchants v. British, etc.. Mar. Ins. Co., L. R. 8 Exch. 154 (1873). '"Columbian Ins. Co. v. Catlett, 12 Wheat. (U. S.) 383 (1827); Earl V. Shaw, 1 Johns. Caa. (N. Y.) 313, 1 Am. Dec. 117 (1880); Stocker v. Harris, 3 Mass. 409 (1807); CoflSn V. Newburyport Mar. Ins. Co., 9 Mass. 436 (1812); Ellery v. New England Ins. Co., 8 Pick. (Mass.) 14 (1829); Phillips v. Irving, 7 M. & Gr. 325 (1844); Schroder v. Thompson, 7 Taunt. 463 (1817), (as to when departure is justified with a view to promote the main objects of the voyage) . •" Phillips V. Irvine, 7 M. Gr. 325, 328 (1844). See, also;, Smith v. Sur- redge, 4 Esp. 25. 50ff IMPLIED WARRANTIES — DEVIATION. § 464 the ship happens to be. It may be collected from numerous eases, that delay before or after the commencement of a voyage in- sured is not equivalent to a deviation, unless it be unreasonable. Mr. Justice Story said,"' "What delay will constitute such a deviation will depend upon the nature of the voyage, and the usage of the trade; * * * a delay which is necessary to ac- complish the object of the voyage according to the course of trade, if bona fide made, cannot be admitted to avoid the insur- ance." "To discharge a policy," said Lord Ellenborough,"" "there must be a clear imputation of a waste of time. Mere length of time between the sailing of the vessel and underwrit- ing the policy is not of itself sufficient to avoid the policy; it is capable of explanation." § 454. Departure to save property.— A distinction is made be- tween departures for the purpose of saving life, and those for the purpose of saving property. The former rests upon hu- manitarian grounds, and the insurer is held to assume the risk involved in such a departure. But it is settled that no such right exists in the case of property. Efforts of this kind may enable the insurer to earn salvage, but the effect is to increase the risk of the underwriter by increasing the cargo, diminish- ing the crew, and subjecting the vessel to additional dangers."'^ But the mere fact that, while engaged in saving life, some prop- erty is also saved, will not invalidate the insurance. ^°° '"Columbian Insurance Co. v. Cat- 657 (1878) ; The Schooner Boston, 1 lett, 12 Wheat. (U. S.) 283, 387 Suran. (C. C.) 328 (1833); The (1827). Henry Ewbark, 1 Sumn. (C. C.) 400 •"Grant v. King, 4 Esp. N. R. 125. (1833) ; Taylor v. The Cato, 1 Pet. "' Scaramanga v. Stamp, 3 C. P. Adm. 64 ; Mason v. The Ship Blair- DiT. 295 (1880), affirming 4 C. P. eau, 2 Cranch. (U. S.) 240; Dabney Div. 316; Company of African Mer- v. New. Eng., etc., Ins. Co., 11 Allen chants v. British, etc.. Mar. Ins. (Mass.), 300 (1867). Co., L. E. 8 Exch, 154, 42 L. J. "'Scaramanga v. Stamp, 5 C. P. Exch. 60 (1873); Settle v. St. Div. 295 (1880) ; Crocker v. Jackson, Louis Per. Mar. I. Co., 7 Mo. 379 1 Sprague (C. C), 141, Fed. Gas. (1842) (river steamer), overruled No. 3398 (1847); Williams v. Box on question of usage in Walsh v. of Bullion, 1 Sprague C. C. 57, Fed. Homer, 10 Mo. 6, 45 Am. Dec. 342 Cas. No. 17717 (1843). Towing a ( 1846 ) ; Burgess v. Equitable Mar. vessel in distress unreasonably re- Ins. Co., 126 Mass. 70, 30 Am. Rep. tards the progress of the towing ves- § 455 . MARINE INStTHANCE. 510 § 455. Trans-shipment of cargo.— The unnecessary transfer of a cargo from one vessel to another, is a deviation which will re- lease the insurer from liability.^'" Trans-shipment is not justi- fied by a delay caused by low water,"" nor by the necessity for repairing a vessel where the want of repairs or defects are not so serious as to endanger the eargo.^'" § 456. To avoid danger. — There is some doubt as to the right of a vessel to depart from the regular course in order to escape a danger not insured against, and yet recover for ^ subsequent loss. It. may be taken as settled that a voluntary deviation un- der such circumstances is not an excuse.^''' In other words, ne- cessity only will justify a deviation on account of a peril not insured against. But "where a departure from the course of the voyage is necessitated by the immediate and irresistible operation of a peril not insured against, it will not be held to amount to a deviation, whether the peril be one not included among the ordinary risks, or expressly excluded by the specific terms of the policy.""* Hence, where the deviation is the re- sult of a superior force, no distinction is made between policies covering the particular risks, and those embracing all risks. Where a neutral ship was insured against "sea risks and fire only," and was carried out of her course and detained for six weeks by a vessel of war, it was held no deviation.^^* Where a ship insured against sea risks only was turned from her destination by a blockading squadron and thus driven into another port out of her course by bad weather, it was held ex- cusable. "I am of the opinion," said Kent, C. J., "that a de- viation from necessity will excuse the insured in cases of in- sel, and thereby prolongs the risk of "' Salisbury v. Marine Ina. Co., 23 the voyage. Scaramanga v. Stamp, Mo. 553 (1856). supra. As t o the eif ect of being "' (y-Eeilly v. Royal Exchange As- towed, see Stewart v. Tenn. Mar. I. surance Co. 4 Camp. 246 (1815) Co., 1 Humph. (Tenn.) 242 (1839). Lee v. Gray, 7 Mass. 349 (1811) ""Schweder v. Schweizer Lloyd Breed v. Eaton, 10 Mass. 21 (1813) Transp. Co., 60 Cal. 467, 44 Am. Eep. '■■" 1 Amould Marine Ins. (7th ed.) 61 (1882); Bald v. Rotheram, 8 Q. 517. B. 781, 1 Car. & K. 360, 15 L. J. Q. "* Scott v. Thompson, 1 Boss 4 P. B. 274. N. R. 181. "° Malinckrodt v. Jefferson Mut. F. Ins. Co., 1 Mo. App. 205 (1876). 511 IMPLIED WARRANTIES DEVIATION. § 457 surance against a particular risk, as well as in eases of a gen- eral insurance. "*'° § 457. Change of voyage— Intention.— The abandonment of a voyage must be distinguished from a deviation. In the latter the intention to pursue the original voyage always remains and is never lost sight of, while in the former the identity of the voyage is gone and a new and distinct voyage is substituted. A change of voyage is never excusable, and if the master forms an intention to change before the ship sails from her starting port, the policy never attaches. A change of voyage involves the substitution of a different port of final destination, while a deviation arises where the ship pursues a route other than that contemplated by the contract, between the proper termini. The test is whether the terminus ad quem. specified in the policy re- mains the ultimate place of intended destination. If it does, then the design, though formed before sailing, of putting into any other port, or conducting an intermediate voyage on the way to such ultimate place of destination, does not necessarily amount to a change of the voyage.^'^ Where the intention to change the voyage is formed after the ship has started from the home port, the insurer is released from the time the intention is formed, although some authorities are to the effect that where a part of the course is over the same route as that contemplated by the policy, and there is a lossi be- fore the point of departure is reached, it is a mere intention to deviate not carried into effect and therefore not a deviation.^'"^ The general rule is that after the intention to abandon the voyage insured is formed by deciding to go to a different port '" Eobinson v. Marine Ins. Co., 2 allowing a "change of voyage" for an Johns (N. Y.) 89 (1806); 3 Kent's extra premium was held inoperative Com. (12th ed.) 317. See, also, Rig- when the ship sailed for a different gin V. Patapsco Ins. Co., 7 Har. & J. port from that^ named in the policy. (Jrd.) 279, 16 Am. Dee. 302 (1826) "'Marine Insurance Co. v. Tucker, (mere apprehension of danger). 3 Cranch (U. S.) 357 (1806); "'1 Amould Marine Ins. (7th Kewly v. Ryan, 2 H. Bl. 343 (1794) ; ed.) 459; 3 Kent's Com. 317; New Thellusson v. Ferguson, 1 Dougl. 361 York 4; Ins. Co. v. Lawrence, 14 John. (1780) ; Elliott v. Wilson, 4 Brown's (N. Y.) 46 (1816). In Simon v. P. C. 470, 9 Eng. Rul. Cas. 351 Sedgwick, 4 Rep. 128 (1893), 1 Q. (1776). B. 303, 62 L. J. Q. B. 163, a clause § 458 _ MARINE INSURANCE. 512 of ultimate destination, there has been a change of voyage which avoids the policy, although the ship may, up to the time of the loss, be on the exact course originally contemplated. As soon as an intention to change the |)ort of ultimate destination is formed, the underwriter is discharged.^'* Where the original port of destination is not changed, a con- templated change of route not carried into effect does not amount even to a deviation.^'" The same rule has been applied even where there was an intention to change the ultimate termina- tion of the voyage. In a leading case in New York the ship was insured "At and from New York to Gottenberg and at and from thencfe to one port in the Baltic or North Sea." After leaving Gottenberg for St. Petersburg the vessel was obliged to stop at Carlsham for repairs, and while there the captain de- cided to sail to Stockholm instead of St. Petersburg. While still on the common route to Stockholm and St. Petersburg, the vessel was captured, and it was held that, although the cap- tain had decided to change the ultimate port of destination, it was, under the circumstances, no more than intention to deviate, and that the insurer was liable for the loss. This de- cision was affirmed on appeal by a divided court, but Chancel- lor Kent wrote an able opinion in favor of reversal on the ground that when the ship left Carlsham for Stockholm she had started on a new voyage which was not covered by the policy.^*" § 458. Excusable deviation. — From the definition of devia- tion heretofore given it appears that it is only a voluntary and inexcusable departure from the terms of the policy that '" Wool ridge v. Boydell, 1 Dougl. '™ Lawrence v. Ocean Ins. Co., 11 17 (1778), Lord Mansfield; Merrill Johns. 241 (1814), affirmed in Court V. Boylston M. & F. I. Co., 3 Allen of Errors, 14 Johns. (N. Y.) 46 (Mass.), 247 (1861). (1816), Chancellor Kent dissenting. ^'•Woolridge v. Boydell, supra; See, also. Winter v. Delaware Ins. Thelluson V. Ferguson, 1 Dougl. 361 Co., 30 Pa. St. 334. Where a policy (1780); Kewley v. Ryan, 2 H. Bl. on goods covers both a land and sea 343 (1794) ; Hare v. Tavis. 7 B. & transit, the terminus ad quem of the Cr. 14 (1827), 9 Eng. Kul. Cas. 357; sea voyage only should be considered. Hobart v. Narton, 8 Pick. (Mass.) Simon v. Sedgewick, 4 Rep. 128 159 (1829), (distinction between a (1893), 1 Q. B. 303, 62 L. J. Q. B. deviation and a cliange of voyage). 163. 513 IMPLIED WARRANTIES DEVIATION. § 459 will discharge the underwriters from a subsequent loss. It follows that a departure which is necessitated either by moral or physical force, or excused by a justifiable caus«, does not affect the validity of the insurance.^^' As said by Chancellor Kent, "There is not probably any exception to be met with to the application of the general principle, that if a vessel de- parts from the usual course of the voyage from necessity, and deviates no further than that necessity requires, the vessel will still be protected by the policy. "^^- The conditions which thus justify a departure from the express or implied terms of the policy must result from necessity, and there must be no unnecessary waste of time or needless divergence, — that is, if the ship leave the prescribed course from necessity, she must pursue such new voyage of necessity in the direct course, and in the shortest time, or the underwriters will be released.^^' § 459. Restraint justifying deviation. — The restraint which will excuse a deviation may be either moral or physical in its character, as the law makes no distinction as to its nature, if it be suiBcient in degree.^^* It may be the act of a mu- tinous crew which compels the vessel to return to port,^'^ or the act of a naval cruiser carrying a neutral ship out of her course and detaining her for a number of weeks far beyond the limits allowed by the policy for the voyage."* But in such cases it must appear that a degree of force was exercised •"Maryland Ins. Co. v. Le Roy, 7 '''Robinson v. JIarine Ins. Co., 2 Craneh. (U. S.) 26 (1812); Warder Johns. (N. Y.) 89 (1806). V. La Belle Creole, 1 Pet. Adm. 31 ""Lafabre v. Wilson, 1 Dougl. 284 (1792); Urquhart v. Barnard, 1 (1779); Hyderabad Co. v. Willough- Taunt. 450 (1809); Scott v. Thomp- by, 2 Q. B. 530 (1899); 1 Arnould son, 1 B. & P. X. R. 181; Brazier v. Marine Ins. (7th ed.) p. 506. Clap, 5 Mass. 1 ( 1809 ) ; Robinson v. '" Riggin v. Patapsco Ins. Co., 7 Columbia Ins. Co., 8 Johns. (N. Y.) Har. & J. (Md.) 279, 16 Am. Dec. 491 (1811); Fernandez v. Great 302 (1826). Western Ins. Co., 48 N. Y. 571 '"Elton v. Brogden, 2 Str. 1264 (1872); Burgess v. Equitable Marine (1795), 9 Eng. Rul. Cas. 413; Dris- Ins. Co., 128 Mass. 70, 8 Ins. L. J., coll v. Bovill, 1 B. & P. 313 (1798.) 30 Am. Rep. 654 (1878). '"Scott v. Thompson, 1 B. & P. N. K. 181. § 460 MARINE INSURANCE. 514 towards the captain which either physically he could not re- sist, or morally as a good subject, he ought not to resist."' A deviation may be justified by causes short of restraint. The general rule is, however, that it cannot be excused un- less the state of circumstances be such as to leave the masicr no alternative as a reasonable and prudent man exercising a sound judgment, and acting for the interests of all con- cerned. Under these circumstances only, may he depart from or delay the usual course of the voyage. § 460. Entering a port to re-fit. — ^A ship has the right to enter a port for necessary repairs and to stay until they are completed. This is an excusable deviation if it appears that such repairs under the circumstances were -reasonably nec- essary, and the delay is not longer than is requisite for the purpose.^^* If the vessel does not find what is necessary to '"Phillips V. Auldjo, 2 Camp. 351 (1809). Where a merchantman was ordered by the captain of a naval vessel of his own country to go out to sea and discover the nationality of a strange ship, and without remon- strance complied, it was held an in- excusable deviation. "If a, degree of force was exercised towards him which either physically he could not resist or morally as a good subject he ought not to have resisted the deviation is justified. But if he choose to go out in the hope of mak- ing a prize, he could not thereby ex- tend the risk of the underwriters," per Lord EUenborough. Lee v. Gray, 7 Mass. 349 (1811); Wiggin v. Amery, 13 Mass. 117 (1816); Kittel V. Wiggin, 13 Mass. 68 (1816); Rob- inson V. Columbian Ins. Co., 8 Johns. (N. Y.) 383 (1811) ; Crosby v. Fitch, 12 Conn. 411, 31 Am. Dee. 745 (1839); Biggin v. Fatapsco Ins. Ca, 7 Har. & J. (Md.) 279, 16 Am. Dec. 302 (1826). "* Phillips on Insurance (5th ed.), 585 ; Matteux v. London Ins. Co., 1 Atkyns, 545 (1739) ; Scott v. Thomp- son, 1 B. & P. N. R. 181; Kane v. Columbian Ins. Co., 2 Johns. (N. Y.) 264 (1807); Smith v. Surridge, 4 Esp. N. R. 25 (1801) ; Miller v. Rus- sell, Bay (S. C), 309 (1793) ; Turner V. Insurance Co., 25 Me. 515, 43 Am. Dec. 294 (1846). "The rule seems to be," said Mr. Justice Washington, "that if the accident happened whilst the property is at the risk of the underwriters, and cannot be repaired at the port of her departure, she may, without prejudice to the insur- ance, go to the nearest port where the damage may be repaired, and that in doing so she stands in the same situation as if she had been repaired at the place of departure." Cruder V. Philadelphia Ins. Co., 2 Wash. C. C. 262 (1808). 515 IMPLIED WARRANTIES — DEVIATION. § 461 enable her to re-fit in the first port, she may proceed to other ports for that purpose."® §461. To recruit crew. — ^Where a ship is properly manned and equipped at the commencement of the voyage, and it there- after loses such proportion of the officers or crew by sickness or other causes that it is impossible to continue the voyage, and no more can be obtained without entering a port out of the direct course of the voyage, the putting into such port for that purpose is an excusable deviation.^'" It was said by Lord Eldon, "That if by visitation of God, so many of the crew, who were otherwise sufficient, became so afflicted with sickness as to be incapable of managing the ship, such illness of the crew was a necessity which might justify the deviation. "^'^ §462. Driven in by stress of weather. — It is no deviation if a ship be driven out of her course by stress of weather,^®^ or if the captain puts into a port out of his course or delays his sailing to take refuge from a tempest or to wait for the wind, provided that in so doing, the captain did what a prudent man, in the exercise of a sound judgment, would have done under the circumstances with a view to the benefit of all con- cerned.^"* It follows that a vessel driven out of her course by a storm is covered by the policy until she is able to return to her course. She is not required to return to the place in the course from which she was driven by the storm, but it is sufficient if s'he makes the best of her way to her port of des- tination.'"* •«■ Hall v. Franklin Ins. Co., 9 Pick. •" Woolf v. Claggett, 3 Esp. 257 (Mass.) 466 (1830). See Silloway (1801). V. Neptune Ins. Co., 12 Gray (Mass.) '"Burgess v. Equitable Mar. Ins. 73 (1858). Co., 126 Mass. 70, 30 Am. Rep. 654, "'Woolf V. Claggett, 3 Esp. 257 8 Ins. L. J. 103 (1878). ( 1801 ) ; Forshaw v. Chabert. 6 '"1 Barber Ins., p. 504. Moore, P. 0. 357; Burgess v. Equit- '"Harrington v. Halkeld, 2 Park able Marine Ins. Co., 126 Mass. 70, Ins. 639; Delaney v. Stoddart, 1 30 Am. Rep. 654, 8 Ins. Law Jour. Term. Rep. 22 (1785); WSnthrop v. 103 (1878); Winthrop v. Union Ins. Union Ins. Co., 2 Wash. C. C. 7 Co., 2 Wash. C. C. 7 (1807). (1807); Fernandez v. Great Western § 463 MARINE INSURANCE. 516 Where the port of destination is blockaded by ice or other- wise rendered inaccessible, a ship may go to the nearest prac- ticable port and remain there until her original port is open, without being guilty of deviation.^"^ § 463. To escape capture. — Keal and immediate danger of capture, or the apprehension thereof, will justify a vessel in delaying its departure or in departing from the voyage in- sured, or in leaving her port without proper preparation for sailing, but to justify such a departure, the danger must be real and immediate.^'-"* If upon approaching the port of destination, the master of a vessel obtains information which leads him to believe that the port is blockaded, he may properly, without danger to the in- surance, visit a neighboring port for the purpose of securing information as to existing conditions, and remain there at least for a reasonable time.^"' § 464. To join convoy. — Where necessary for the safety of the ship, she may depart from the direct course of the voyage in order to seek a convoy."* Ins. Co., 48 N. Y. 571 (1872), 8 Am. Johns Cas. (N. Y.) 10, 2 Am. Dec. Rep. 571. "If a storm drive a ship 130 (1802) ; Miller v. Russell, 1 Bay out of her voyage into any port, and (S. C), 309 (1793) ; Snowdon v. being there, she done the best she can Phoenix Ins. Co., 3 Binney (Pa.), to get to her port of destination, she 457 (1811) ; Reade v. Commercial is not obliged to return back to the Ins. Co., 3 John. (N. Y.) 352, 3 Am. point from whence she was driven." Dec. 495 ( 1808 ) . Lord Mansfield, in Delaney v. Stod- '" Blackhagen v. London Assurance dart, supra. Co., 1 Camp. 454 (1808); Savage v. "° Graham v. Commercial Ins. Co., Pleasants, 5 Bin. (Pa.) 403, 6 Am. 11 Johns. (N. Y.) 352 (1814). Dec. 424 (1813); Riggin v. Patapsco ""Driseoll V. Bovil, 1 B. & P. 313 Ins. Co. 7 Har. & J. (Md.) 279, 16 (1789) ; Blackenhagen v. London Ins. Am. Dec. 302 (1826). Co., 1 Camp. 454 (1808) (to return ''-"Bond v. Gonsales, 2 Salk. 445 home would bo to abandon the voy- (1704) ; D'Aguilar v. Tobin, Holt. 1S.'> age) ; O'Reilly v. Gonne, 4 Camp. 249 (1816); Burgess v. Equitable Mar. (1815); Winthrop v. Union Ins. Co., Ins. Co., 126 Mass. 80, 30 Am. Ecp. 2 Wash. C. C. 7; Burgess v. Equit- 654 (1878); Warder v. La Belle Cre- able Marine Ins. Co., 126 Mass. 70, ole, 1 Pet. Adm. 31 (1792); Patrick 30 Am. Rep. 654, 8 Ins. Law J. 103 v. Ludlow, 3 John. Cas. (N. Y.) 10, 2 (1878) ; Whitney v. Haven, 13 Mass. Am. Dec. 130 (1802). 172 (1816); Patrick v. Ludlow, 3 517 IMPLIED WARRANTIES DEVIATION. § 465 §465. To save life or succor distress. — "A doubt," says Ar- nould, "dishonorable to the jurisprudence of Christian com- munities, appears for some time to have prevailed both in Eng- land and the United States, as to whether a departure from the direct course of the voyage for the purpose of saving the lives of men threatened with imminent danger of shipwreck , or foundering, were or were not a deviation which would dis- charge the underwriters. It is now fsettled, however, that a deviation of this kind, sanctioned alike by the true interests of commerce and the clearest precepts of humanity, can in no instance be held to discharge the underwriters.^'" "Deviation," said Chief Justice Cockburn, "for the purpose of saving of life is protected, and involves neither the forfeiture of the in- surance nor liability to the goods o^vner in respect to the loss which would otherwise be within the exception of perils of the sea. And, as a necessary consequence of the foregoing, a devia- tion for the purpose of communicating with a ship in distress is allowable inasmuch as the state of a vessel in distress may involve danger to life. On the other hand a deviation for the sole purpose of saving property is not thus privileged, but en- tails all the usual consequences of a deviation. If therefore the lives of the persons on board a disabled ship can be saved without saving the ship, as by taking them off, a deviation for the pur- pose of saving the ship will carry with it all the consequences of an unauthorized deviation. But where the preservation of life can only be effected through the concurrent saving of property, and the bona fide purpose of saving life forms part of the motive which leads to the deviation, the privilege will not be lost by reason of the purpose of saving property hav- ing formed the second motive for deviating. "^'"' ^^ 1 Arnould Marine Ins. (7th ed.) Boston, 1 Sum. (C. C.) 328, Fed. Cas. 515; Burgess v. Equitable Ins. Co., No. 1673 (1833), Story, J.; Dabwey 126 Mass. 70, 30 Am. Rep. 654, 8 v. New Eng., etc. Ins. Co., 14 Allen Ins. L. J. 103 (1878); Fernandez v. (Mass.) 300 (1867); 1 Phillips' In- Great Western Ins. Co., 48 N. Y. 570, surance, 1027; 3 Kent's Com. 313 8 Am. Rep. 571 ( 1872) ; Bond v. Brig ( 16th ed.). Cora, 2 Pet. Adm. 351, 2 Wash. (C. ="Soaramango v. Stamp, 5 C. P. D. C.) 80; Crocker v. Jackson, 1 Sprague 295 (1880). (U. S.) 141 (1847); The Schooner § 466 MARINE INSURANCE. 518 The principles of humanity which justify a departure for the purpose of saving life, apply where it becomes necessary to seek medical attention and supplies for the sick on board the vessel, and for this purpose the master is justified in putting into a port out of his course.^"^ But it is the duty of the insured to see tha/t the vessel is properly equipped with medical stores before it sails, and it has been held that where this is not done, a departure for the purpose of obtaining such stores during the voyage, is a deviation which releases the under- writers.^"^ § 466. EfTect of deviation — Increase of risk. — ^An unauthor- ized and unexcused deviation discharges the underwriter from all liability for losses occurring subsequent to the deviation, but leaves him liable for a loss occurring prior to the devia- tion.2°^ "Deviation does not, however, like unseaworthiness, discharge '" Burgess v. Equitable Marine Ins. Co., 126 Mass. 70, 30 Am. Rep. 654, 9 Ins. L. J. 103 (1878). In Perkins V. Augusta Ins. Co., 10 Gray (Mass.), 312, 71 Am. Dec. 654 (1858), Mer- rick, J., said: "It makes no difference whether the object of such departure is to alleviate the distress and admin- ister to the necessities of persons who are lawfully on board, or of strangers suffering from the disasters sustained by the loss or wreck of another vessel. The dictates of humanity are as forc- ible in the one case as in the other, and it would be strange and unrea- sonable if the law recognized any dis- crimination between them. To make the excuse valid and, effectual it must, without doubt, be shown that there was a real necessity for the departure of the vessel froon her proper course. The exigency which demands relief must be equal in importance to the intervention which is required in its behalf. ... To determine rightly all the circumstances of infirmity and suffering, and the relief afforded on the one hand, must be considered in connection with the increased length of the voyage, the prolonged time to accomplish it, and the addi- tional risk incurred, on the other." The Iriquods, 118 Fed. 1003 (1902). """•Woolf V. Claggett, 3 Esp. N. P. 257 (1801); Kittel v. Wiggin, 13 Mass. 68 (1816). ="»Hearn v. Marine Ins. Co., 20 Wall. (U. S.) 488 (1874); Burgees V. Equitable Mar. Ins. Co., 126 Mass. 70, 30 Am. Rep. 654 (1878), 8 Ins. L. J. 103; Hare v. Travis, 7 B. & C. 14 (1827); Schroeder v. Schweizer Lloyd Transp., &c., Co., 66 Cal. 294 (1885) ; Riggin v. Patapsco Ins. Co., 7 Har. & J. (Md.) 279, 16 Am. Dec. 302 (1826) ; Wilkins v. Tobacco Ins. Co., 30 Ohio St. 317, 27 Am. Rep. 455 (1876); Kittel v. Wiggin, 13 Mass. 68 (1816) ; Natchez Ins. Co. v. Stan- ton, 2 Smeed & M. (Miss.) 341, 41 Am. Dee. 592 (1844). 519 IMPLIED WARRANTIES ILLEGALITY. § 467 the underwriter from liability on the policy ab initio; he still remains liable for loss incurred prior to the deviation. The reason is that the implied condition of seaworthiness relates to the state of the ship at the commencement of the risk, and is a condition precedent to the underwriter's liability on the policy. The implied condition not to deviate relates to the conduct of the ship in the course of the voyage, and cannot by relation be carried back, so as to except the underwriter from liabilities incurred prior to its being broken."'"* It is not necessary, in order to invalidate the policy, that the deviation increase the risk, as the policy is issued upon the implied agreement that the risk shall remain precisely as it appears upon the face of the policy. If that risk is "varied although not aggravated," there is a breach of the agreement, and the underwriter's liability is at an end.^°° Nor need the subsequent loss be shown to be due to the deviation.'"* (c) Illegality, § 467. General statement. — There is also in every contract of marine insurance an implied agreement that the adventure is lawful in itsi nature, and that it will be carried on in a maimer and by means which are in accordance with law. § 468. Violation of war policy of state. — ^During a maritime war each belligerent is permitted by the laws of war to de- crease the strength and wealth of the enemy by destroying its sea commerce and the property of individual citizens as well as that belonging to the government. This being the war policy of the state, it is illegal for any citizen to enter into any contract of insurance upon the property of the enemy which would protect the owner from loss in the event of its ="1 Arnould Marine Ins. (7th cd.) Hopper, 6 El. & Bl. & El. 1033, 27 454. L. J. (Q. B.) 441 (1856); Hartley "»1 Arnould Mar. Ins. (6th ed.) v. Buggin, 3 Doug. 39 (1781) ; Davis 450. Lord Mansfield in Hartley v. v. Garrett, 6 Bing. 716 (1830), and Buggin, 3 Doug. 39 (1781). cases cited, note 1, supra. ""Lord Oampbell, in Thompson v. § 468a MARINE INSURANCE. 580 capture. All such contracts with alien enemies are void. When entered into before the beginning of the war there can be no recovery for a loss which occurred during the war, but if the loss also occurs before the commencement of the war, the right of action is merely suspended until after the restoration of peace.''"^ It is settled that all trading with the enemy without a li- cense, except by one domiciled in the enemy's country,""' is illegal, and insurance effected to protect such trading is there- fore void.""' Insurance may be effected on goods sent to a neutral port to be delivered to a neutral, although the port is in fact in the possession of the military forces of the enemy. For this purpose the port is considered as neutral so long as the administration of the civil power is still in the hands of the neutrai authorities.*" This is true where there is naked military possession, but when the conqueror has seized the port and is exercising all the powers of civil government, the port is no longer to be treated as neutral."" A port will be treated as neutral by the courts so long as it is so regarded by the executive power of the government to which the court belongs."' § 4€8a. Neutrality. — There is an implied warranty in every contract of marine insurance that in the conduct of the voyage the vessel will not violate the neutral duty of the state to- ward either belligerent. These duties are determined by inter- national law and municipal statutes, such as the neutrality acts of the United States and Great Britain. As the violation of these neutral duties subject the ship to seizure and contis- =°rFlindt V. Waters, 15 East, 260 v. Bell, 1 M. & S. 451, 459, 14 Rev. (1812); Furtado v. Rogers, 3 B. & Rep. 497 (1813). See, also, Donald- P. 191 (1802), 14Eng. Rul. Cas. 125. son v. Thompson, 1 Camp. 429 =»'BelI V. Buller, 1 M. & S. 726 (1808) ; Muller v. Thompson, 2 Camp. (1813); Taylor Ins. Law, § 465. As 610 (1811); Broml^ v. Hasselton, 1 to the effect of war on contracts see Camp. 75 (1807), and comimient § 461. thereon in 1 Duer Marine Ins. 486. """Potts V. Bell, 8 Term. Rep. 548 "• Bentson v. Boyle. 9 Cranch 'U. (1800), overruling Bell v. Gilson, 1 S.) 191 (1815). B. & P. 345 (1798). ""Johnson v. Greaves, 2 Taunton, ""Lord EUenborough in Hagedorn 342 (1810). 531 IMPLIED WARRANTIES — ^ILLEGALITY. § 468a cation, the risk of loss is thereby greatly increased, and one of the conditions of the contract is thereby broken, and the underwriter is released from liability. It is impracticable at present to discuss the various acts which are regarded as breaches of neutrality, and attention will be called to but a few of the most common. It is universally admitted that a neutral must not furnish either belligerent with those stores and articles which are di- rectly adapted to warlike purposes, and which are known as contraband of war. There has never been a time when it was possible to define contraband in such a way as to be accepta- ble to both neutral and belligerent powers. The well-known classification of Grotius 'is still recognized as correct in prin- ciple. He divided all articles into three classes. First, things of direct and immediate use in war; second, things useless for warlike purposes; third, things useful in war and peace in- differently. The first are always contraband, the second never, and with regard to the third, the circumstances of the ease are to be considered.^^* The instruments of war have always been treated as contra- band, and articles of luxury have never been so treated. Many attempts to agree upon a list of contraband articles, such as referred to in the three classes, have been made, but there never was a time when greater uncertainty prevailed than at present.^^* Contraband articles are infectious and contaminate the whole cai^o as well as the ship when it also belongs to the owner of the contraband goods. Where the contraband goods do not belong to the ship OAvner, and there is no fraud on his part for the pur- pose of protecting the contraband articles, the ship owner loses •"Gratius, De Jure Belli, lib. iii, Doctrine of Continuous Voyages," 6 c. 1, s. V, § 1. That goods contraband Yale Law Journal, 289 (1904), where in their nature are subject to seizure the authorities are cited and re- while on the way nominally to a viewed. neutral port, but really used as a ''* Taylor Int. Law, Pt. V, Ch. V; cover to aid in forwarding them Hall Int. Law, Pt. IV, Ch. V; Law- to the belligerent, see The Spring- rence Int. Law, Pt. IV, Ch. VI. See bok, 5 Wall. (U. S.) 1, 1866, and an article by Dr. C. N. Gregory. Yale article by the present ^Titer on "The Law Journal, April, 1903. § 469 MARINE INSURANCE. 522 only the freight and his expense charges'.''^'' While the carrying of contraband goods to a belligerent is not unlawful, yet the belligerent has the admitted right to capture the same. The rights are co-existent, and therefore insurance by a neutral upon contraband goods and the ship in which they are to be carried is legal when effected in a neutral country, and the underwriter is liable provided the nature of the trade was dis- closed to him, or the circumstances were such as to raise a presumption that he had such knowledge. An implied war- ranty against such breach of neutrality exists where the in- tention to violate the laws of neutrality is thus concealed from the underwriter."^' A violation of the law of blockade subjects both the ship and the cargo to confiscation.''^' As in the case of carrying contraband goods for the use of a belligerent, an attempt by a neutral to trade with a blockaded port is not illegal on the part of the neutral, and he simply takes his chances of cap- ture by the belligerent in the exercise of his belligerent rights. He may insure the adventure in a neutral country, but there is always an implied agreement that he will not engage in so perilous an enterprise without the knowledge of the insurer, so that the insurer may determine 'whether he will assume such a risk, and if so, at what rate of premium. Formerly, under the Rule of 1756, neutral ships and cargoes engaged in the coast or colonial trade with the enemy, not open to foreigners in time of peace, were liable to confisca- tion, and as the trade was illegal, it was not protected unless by an express provision in the policy, or the implied consent of the insurer. § 469. Violation of revenue laws and foreign statutes. — ^Ev- ery contract of marine insurance contains an implied warranty "» The MercuriuB, 1 C. Bob. Adm. guage of the poliqr. See Skidmore v. 288 and note. Desdoity, 2 John. Cas. (N. Y.) 77 *"3 Kent's Com. 267; Tyndall, C. (1800). J.; Eltom V. Larkins, 5 Car. 4; P. ^'As to Blockade, see Taylor Int. 385; The Santisaimo Trinidad, 7 Law, Pt. V, Ch. VH; Lawrence Int. Wheat. (U. S.) 283 (1822). But Law, Pt. IV, Ch. V. this may be controlled by the Ian- 523 IMPLIED WARRANTIES — ILLEGALITY. § 470 that the ship will not violate any of the revenue*^' or naviga- tion laws,"^' or commercial treaties,^^" or embargo""^ statutes of the state in which the insured is domiciled. No court will lend its aid to carry into effect a contract which violates the laws which it is its duty to administer. It is equally well set- tled that the courts of one country are under no obligation to enforce the laws of another, and Lord Mansfield's decision that a policy is not invalidated because the property covered by it is used in violation of the revenue laws of a foreign state''" has been universally accepted by the courts. Duer says that it has been the policy of states to encourage their citizens to violate the revenue laws of other states. This prin- ciple, utterly indefensible except upon the ground of estab- lished usage, is recognized as in force by such continental writers as Valin, Emerigon and Pardessus, and by Arnould in England, but it 'is condemned as immoral by Pothier in Prance, Marshall in England, and by Kent and Story in the United States."^ § 470. Proper documents. — There is an implied warranty in every marine policy taken out by a ship-owner that the ship "' 3 Kent's Com. 262 ; 1 Emerigon, "' Delmoda v. Motteaux, 1 Park li. VIII, s. 5, 215; 2 Amould Mar. Ins. 505; Odlin v. Insurance Co., of Ins. (7th ed.) 838. Pennsylvania, 2 Wash. (C. C.) 312 "•If the adventure can be carried (1808). on without violating the law, the '"Lever v. Fletcher, Park© Insur- policy is not invalidated by an illegal ance (8th ed.) 507 (1780); Plauehe act on the part of master or crew v. Fletcher, 1 Doug. 251 (1779) without the consent of the insured. ("the courts do not take notice of Waugh V. Morris, L. E. 8 Q. B. 202 foreign revenue laws," Lord Mans- (1873); Nelson v. Rankin, L. R. 1 field); Parker v. Jones, 13 Mass. Q. B. 162 (1865) (sailing without 173; Skidmore v. Desdoity, 2 John, proper clearance papers); Dudgeon Cas. (N. Y.) 77 (1800) (insurance V. Pembroke, 6 El. & Bl. 186^ L. R. "against all risks" covers contraband 2 App. Cas. 284, 2 Asp. Mar. Cas. of war). Deerow v. Waldo Mut. 323 (illegally carrying passengers). Ins. Co., 43 Me. 460 (1857). See "=" Welson V. Marryat, 8 Term. Richardson v. Maine Ins. Co., 6 Mass. Rep. 31 (1798); Bird v. Appleton, 102, 4 Am. Dec. 92 (1809). 8 Term. Rep. 562 (1800) ; The Een- ™1 Marshall Ins. 55; 3 Kent. Com. oron, 26 Rob. 1, 6 (1799). See note 263, 265; Story, Conflict of Laws, S (r) Amould Mar. Ins., Vol. 2 (7th 256; Story, Agency, § 195; 2 Ar- ed.) 839. nould (2d ed.), p. 744. § 470 MARINE INSUHANCE. 534' in tlie course of the voyage, and at the time of its capture, shall have on board all such "documents as are regarded by international law as necessary to prove her national character and thus protect her from capture and condemnation for want thereof." But a failure to comply with this condition will discharge the underwriter only when the sentence of the for- eign prize court shows that the condemnation proceedings were based upon the absence of such papers.^^* "In order to re- lease the insurer," says Arnould,^^® "(1) it must appear from the holding of the foreign sentence taken altogether that it proceeded in part or in whole on a want of such documents ;^^° (2) the condition extends to such papers only as are required by international law or existing treaties; (3) the warranty exists only when the insurance is effected for the ship owner and not for the owum- of the goods. "^" »» Price V. Bell, 1 East, 663 (1801), "»2 Amould Mar. Ins. (6th ed.) Lawrence, J.; Christy v. Secretan, 8 681. Term. Rep. 192 (1799) (is required "^Bell v. Carstairs, 14 East, 374; to be seaworthy). In Elting v. Bell v. Bromfield, 15 East, 364 Scott, 2 Johns. (N. Y.) 157 (1807), (1812); Steel v. Lacy, 3 Taunt. 28S Kent, C. J., held that the possession (1810). of certain designated papers is not ^Carruthers v. Gray, 3 Camp. 142 necessary to constitute seaworthiness, (1811); Hobbs v. Henning, 17 C. B. and that the requirement stands up- N. S. 791 (1864), 34 L. J. C. P. 117. on another foundation. See Ballan- As to the effect of carrying simulated tyne v. Mackinnon, 2 Q. B. 463 papers, see Homeyer v. Lushington, (1896). See Cleveland v. Union Ins. 15 East, 46 (1812) ; Oswell v. Vigne, Co., 8 Mass. 308; Nelson v. Suffolk 15 East, 70 (1812). Ins. Co., 8 6ush. (Mass.) 477, 54 Am. Dec. 770. CHAPTER XVIII. MARINE INSURANCE — Conimwcd. TTie Risks. See. Sec. 480. Capture and seizuie— Takings 471. Enumeration in the policy. at sea. 472. Perils of the sea. 481. Arrest, restraint — Detention. 473. Foundering at sea. 482. Barratry. 474. Stranding. 483. "AH other perils, losses and 475. Collisions. misfortunes." 476. Shipwreck. 484. Proximate cause of loss. 477. Salvage. 485. Negligence — Misconduct. 478. Loss by fire. 486. The sue and labor clause. 479. Loss by thieves. 487. Excluded risks, and limitation upon liability. § 471. Enumeration in the policy. — The form of marine pol- icy prescribed by statute in England and in common use in the United States, . contains the following enumeration of risks or perils against which the insurer undertakes to indemnify the insured: "Touching the adventures and perils which we, the assurers, are contented to bear and do take upon us in this voyage, they are of the seas, men of war, fire, enemies, pirates, rovers, thieves, jettisons, letters of mart and counter- mart, surprisals, takings at sea, arrests, restraints, and de- tainments of all kings, princes and people, of what nation, condition or quality soever; barratry of the master and mar- iners, and of all other perils, 'losses and misfortunes that have or shall come to the hurt, detriment or damage of such gaid goods, merchandise, the ship, etc., or any part thereof." The policy also generally contains an express provision lim- 525 § 473 MARINE INSURANCE. 536 iting the liability of the • underwriter to losses occasioned by thesie risks only when they occur at certain times and places.^ § 472. Perils of the sea. — Under this head fall all marine casualties, and damage to the ship or cargo or other interest insured which are occasioned by the violent and immediate action of the wind and waves,^ not included in the ordinary wear and tear of the voyage or directly referable to acts ■of negligence of the assured as the proximate cause.^ §473. Foundering at sea. — Foundering is one of the com- mon perils of the sea. When a ship disappears with all on ' See Huntley v. Prov. Wash. Ins. Co., 79 N. Y. Sup. 35, 77 App. Div. 196 (1902) (liability for damage oc- casioned by ioe, "except when the ves- sel is lying between piers." St. Paul F. & M. Ins. Co. V. Knickerbocker Steam Towage Co., 93 Fed. 936 (1879). 'The perils must be connected with navigation. Thames, etc., Ins. Co. v. Hamilton, L. R. 12 App. Cas. 484, 543 (1887). 'Lush, J., in Merchants' Trading Co. V. Universal Mar. Ins. Co., quoted in Dudgeon v. PembrokCj L. R. 9 Q. B. 596 (1874) ; Hagedom v. Whitte- more, 1 Starke, 157 (1816); Coving- ton V. Roberts, 2 B. & P. N. R. 378; Montoya v. London Assurance Co., 6 Exch. 451, 20 L. J. Ex. 254 (cargo injured by sea water) ; Rohl v. Parr, 1 Esp. 445 (1796) (bottom eaten by worms) ; Fleming v. Insurance Co., 3 Watt & S. 144, 38 Am. Dec. 747 (1842) (injury by sea water due to bad stowage) ; Hazard v. New Eng- land Ins. Co., 8 Pet. (U. S.) 557 (1834) reversing 1 Sumn. (C. C.) 218. As to use of the word "violent" in this connection, see Lownea' Mar. Ins. (2d ed.) § 114. "I think the idea of something fortuitous and unexpected is involved in both words 'perils' and 'accident;' you could not speak of the danger of a ship's decay; you would know that it must decay, and the destruction of the ship's bottom by vermin is assumed to be one of the natural and certain effects of an unprotected wooden vessel sailing through certain seas." 'Lord Hals- bury, L. C. in the Xantho, 12 App. Cas. 524 ( 1887 ) . See, also, language of Lord Herschell, page 509, of the same case. Ajiun Ooolam Hassen v. Union Mar. Ins. Co., 70 L. J. P. C. 34 (1901). See elaborate note on dan- gers of the sea in 41 Am. Dec. 281 (Van Horn v. Taylor, 7 Rob. (N. Y.) 201). An injury to cotton by being thrown into the water by the sudden c£(.reening of a steamboat is by a "peril of the river," although the careening was due to the negligence of the crew! Crescent Ins. Co. v. Vicksburg, etc., Packet Co., 69 Miss. 208, 30 Am. St. 537 (1891). "Perils of the seas, canals, rivers, etc.," cov- ers the loss of a canal boat which grounded and sank after reaching its destination at tide water. Petrie V. Phoenix Ins. Co., 132 N. Y. 137 (1892). 5^3'}' THE RISKS. § 474 board, or after it has been abandoned and lost sight of by the crew, and is not heard of for a reasonable time, it is pre- sumed that it has foundered at sea. In Prance the period is fixed by the Code of Commerce at one and two years, de- pending upon the time ordinarily required to make the con- templated voyage, but in England and the United States it is left to be determined in each case as circumstances seem to require. Where a ship sailed on a voyage which ordina- narily took seven weeks and was not heard of at the end of nine weeks, it was held that she had foundered at sea.* It must, of course, be proven that the ship sailed from the port of departure on the voyage insured." "The fact of her never having arrived there, supposing a reasonable time for such arrival to have elapsed before the action is brought, coupled with the rumour at her port of departure that she had foundered at sea, will be sufficient prima facie evidence of a loss by the perils of the sea.'" § 474. Stranding. — The stranding of the ship ia one of the perils of the sea, but the insurer is liable only where it is the result of fortuitous or accidental circumstances.'' If the ship strikes ground in the course of the voyage not as the result of any extraordinary casualty, the damage is regarded •Green v. Brown, 2 Str. 1199 the shora It was held that the loss (1795). In this case the vessel was was due to a peril of the sea, distin- not heard of for four years after sail- guished from Livie v. Janaen, 12 ing from North Carolina to London. East, 648, and Green v. Elmslie, 'Cohen v. Hinckley, 2 Camp. 51 Peoke, N. P. 278; Corcoran v. Gur- (1809). ney, 1 El. & Bl. 456 (1853); Potter •2 Amould Mar. Ins. (6th ed.) 746 v. Suffolk Ins. Co., 2 Sunm. (C. C.) (7th ed.) 922; Koster v. Reed, 6 B. 197 (1835). To constitute a strand- 4 Or. 19 (1826), 14 Eng. Rul. Cas. ing within the policy, the vessel must 358, 30 Rev. Rep. 239 ; Paddock v. be on the strand under extraordinary Franklin, 11 Pick. (Mass.) 227. circumstances." Firemen's Ins. Co. 'Hahn v. Corbett, 2 Bing. 205 v. Powell, 13 B. Mon. (Ky.) 311 (1824). The case involves the questi 3 Taunt. 508 (1811). Wilful resistance to right of search; Dederer v. Delaware Ins. Co., 2 Wash. C. C. 61 (1807); Wilcoeks v. Union Ins. Co., 2 Binn. (Pa.) 578, 4 Am. Dec. 180 (1809) (any trick, cheat or fraud, "and any crime or wilful breach o:^ ^^t committed by a master to the prejudice of his owners, is barratry.") Illegal trading without the privity of the owner, resulting in confisca- tion, Earle v. Rowcroft, 8 East, 126 (1806). "Rosoow V. Corson, 8 Taunt. 684 (1819). " See language of Lord Mansfield in Vallejo v. Wheeler, 1 Cowp. 154. 543 THE RISES. § 482 It is the duty of the owner or master to use ordinary force and reasonable vigilance to prevent barratrous acts of the mari- ners, such as smuggling, and if this is not done, there can be no recovery for a loss caused thereby.'* "The rule, in fact, is that where the cause of the loss is a superior force originating v?ith the crew, the underwriters are liable as for barratry by the mariners. "'' It follows from what has been said that no act can be bar- ratrous which is sanctioned or authorized by those who are either the absolute owners of the ship, or are the owners for the voyage.'" "Barratry," said Lord Mansfield, "is something contrary to the duty of the master and mariners the very terms of which imply that it must be in the relation in which they stand to the owners of the ship. * * * The owner cannot commit barratry. He may make himself liable by his fraudu- lent conduct to the owner of the goods, but not as for bar- ratry. And, besides, barratry cannot be committed against the owner with his consent.'"' The better view is that a part owner, however, may commit barratry against his co-owner.'* A mas- ter who has merely an equitable interest in the ship can nev- ertheless commit barratry.'* "Where the charterers of a vessel are so situated at the time of a loss as to have the right to the complete control and man- agement of the ship, they are treated by the English law as the owners for the purpose of barratry, and barratry may "See Pipon v. Ck)le, 1 Camp. 434 ''Nutt v. Bourdesse, 1 T. R. 323 (1808). (1786). "2 Arnould, 782; Dixon v. Eeed, 5 "Insurance Co. v. Moog, 78 Ala. Barn. & Aid. 597 (1822); Phoenix 284(1884) ; Hutching v. Ford, 82 Me. Ins. Co. V. Moog, 78 Ala. 284, 56 362 ; Voison v. Com. Mut. Ins. Co., 16 Am. Rep. 31 (1884) ; Meyer v. Great N. Y. Supp. 410 (1891) ; Small v. U. Western Ins. Co., 104 Cal. 382, 38 K. Mar. Ins. Co., 2 Q. B. 311 (1897), Pac. 82 (1894); New Orleans Ins. 66 L. J. Q. B. 736; Jones v. Nichol- Co. V. Albro, 112 U. S. 506, 5 Sup. son, 10 Exch. 28 (1854); Wilson v. Ct. 289 (selling cargo). General Mut. Ins. Co., 12 Cush. "Marcardier v. Chesapeake Ins. (Mass.) 360, 59 Am. Dec. 188; Con- Co.. 8 Cranch (U. S.) 39 (1814); fro, Meyer v. Great Western Ins. Co., Ward V. Wood, 13 Mass. 539 (1816) ; 104 Cal. 382, 38 Pac. Rep. 82 (1894). Stanuna v. Brown, 2 Str. 1173; Nutt "Barry v. Louisiana Ins. Co., 11 V. Bourdesse, 1 T. K. 323 (1786). Martin N. S. (La.) 630. § 483 MARINE INSURANCE. 544 therefore be committed against them with the comiivaiice of the general owners. In the United States the rule seems to be different. The charterer here seems not to be considered as the owner for the purpose of barratry, except in those cases where the ship is absolutely rented to him, and the master and mariners are hired, paid and victualed by him.*" §483. "All other perils, losses and misfortunes," etc. — The clause, "all other perils, losses or misfortunes that have or shall come to the hurt, detriment or damage of the aforesaid subject matter of this insurance, or any part thereof," covers all cases of marine damage of like kind with those specifically enumerated, and occasioned by similar causes.*^ Lord Bram- well said that such a clause covered "every accidental circum- stance, not the result of ordinary wear and tear, delay, or act of the insured, happening in the course of the navigation of the ship and incidental to the navigation, and causing loss to the subject matter of the insurance. ""' There are numerous cases in which this clause has been con- strued, but the following are sufficient for purposes of illus- tration : It has been held to cover a loss caused by the striking of the ship on the ways, while being launched;*' by the beaching of the vessel in preparation for repairs ;** by the ship being blown over while in dock for repairs;'" by the breaking of tackle and supports used in moving the ship from the dock where she had been for repairs ;'" while being hauled out on a marine rail- way;'^ the breaking of a rope which caused the vessel to fall over at low tide;** sinking of the vessel caused by being fired "'2 Arnould Mar. Ins. (7th ed.) » Swift v. Union, etc. Ins. Co., 122 968; 1 Phillips' Ins. 1083; 1 Par- Mass. 573 (1877). sons' Ins. 566. «» Phillips v. Barber, 5 B. & Aid. "Moses V. Sun Mut. Ins. Co., 1 161 (1821). Duer (N. Y.) 159 (1852). ^Devaux v. J'Anson, 5 Bing. N. S. "Thames, «te., Insurance Co. v. 519 (1839). Hamilton, 12 App. Cas. 484, 492 "EUery \. New England, etc., Ina. (1887). Co., 8 Pick. (Mass.) 14 (1829). •» Fritchette v. State Mut., etc., Co., "= Laurie v. Douglas, 15 M. & M. 3 Bos. (N. Y.) 190 (1858). '46 (1846). 545 THE RISKS. § 484 on by mistake by a man of WBr;^° seizure of the ship by pas- sengers;*" injury to the cargo caused by seawater negligently permitted to enter through a cock;*^ specie thrown overboard to prevent its capture by a pursuing enemy ;°^ loss of freight caused by the discharge of a cargo of coal threatened by spon- taneous combustion.'* It does not, however, cover a loss occasioned by the bursting of machinery within a vessel,'* nor by barratry.'^ §484. Proximate cause of loss. — It is now settled law that the insurer is liable when the risk insured against is the prox- imate cause of the loss. The courts thus look no further than the nearest efRcient cause,'® recognizing the truth of Lord Ba- con's oft-quoted statement, that "It were infinite for the law to consider the cause of causes, and their impulsions one of another.'"' While the principle is undisputed, it is often ex- tremely difficult of application. Where a ship and goods, "Warranted free from Ameocan condemnation," after being "•CuUen V. Butler, 4 Gamp. 289, 5 M. & S. 461 (1815). "Palmer v. Naylor, 10 Exeh. 382, 18 Jut. 961, 23 L. J. Ex. 323. "Davidson v. Bumand, L. R. 4 C. P. 117 (1868); Good v. London, etc., Ins. Go., L. E. 6 C. P. 563 (1871). "Butler V. Wildman, 3 B. & Aid. 398 (1820). "The Knights of St. Michael (1898), P. 19. The risk of loss by spontaneous combustion is "an in- herent vice" in the goods, and not a peril of the sea. Providence Wash. Ins. Go. V. Adler, 65 Md. 162 (1885), § 478 supra. "Miller v. Galif. Ins. Go., 76 Gala. 145, 9 Am. St. 184 (1888); Thames, etc., Ins. Go. v. Hamilton, 12 App. Gas. 484 (1887), reversing 17 Q. B. D. 195 .(1886), and overruling West India, etc.. Go. v. Home, etc., Ins. Go., 6 Q. B. D. 51 (1880) Such a lo«s may, of course, be within the terms of the policy, and yet not be what is commonly known as a pM'il of the sea. See Perin v. Protective Ins. Co., 11 Ohio, 169, 38 Am. Dec. 728 (1842). * O'Gonnor v. Merchants' Marine Ins. Co., 20 Nova Scotia, 514, 16 Can. Sup. Ct. 331 (1889), (the insurance was against "perils of the sea.") "•The Xantho, 12 App. Gas. 503 (1887). " Pink V. Fleming, 25 Q. B. D. 396, 59 L. J. Q. B. 559, 6 Asp. M. G. 554; Beisher v. Borwick, 9 R. (Q. B. App.) 558 (1894); Lewis v. Aetna Ins. Co., 123 Fed. 157 (1903); Cline V. Western Assur. Co., 101 Va. 496, 44 S. E. 700 (1903) ; Orient Ins. Co. V. Adams, 123 U. S. 67, 8 Sup. Ct. 68; Thompson v. Hopper, 6 E. & B. 171 (1856). In Dudgeon v. Pem- broke, L. R. 9 Q. B. 581, 595 (1874), Blackburn, J., said: "In all cases the law regards the proximate cause of the loss, and it would be difficult to find a better example of what Lord § 484 MAKINE INSURANCE. 546 damaged by the perils of the sea, was driven asihore and there seized and condenmed by the American government, Lord El- lenborough held that there could be no recovery, as the subse- quent total loss by condemnation deprived the insured of the right to recover for the prior loss by the perils of the sea."' When a vessel was driven by a gale upon the shore unin- jured, and there captured by the enemy. Lord Kenyon said that the case was too clear to admit of argument; that it was clearly a loss by capture, and that, had the ship been driven on any other coast but that of the enemy, she would have been perfectly safe.®* Where two causes of the loss concur, one at the risk of the insured, and the other insured against, or one insured against by A., and the other by B., if the damaged caused by each peril can be discriminated, it must be borne proportionately. But if it cannot be distinguished, the party responsible for the predominating efficient cause, or that which sets in operation the other incidental to it, is treated as the cause of the lossi.^"" Bacon ealLs 'the infinity of the cause of causes, and. their impulsion one on the other,' than is afforded in this case. The ship perished because she went ashore on the coast of York- shire. The cause of her going ashore was partly that it was thick weather, and she was mailing for Hull in dis- tress, and pa,rtly that she was un- manageable because full of water. The cause *f that cause, viz., her be- ing in distress ajid full of water, was that when she labored in the rolling sea she made water, and the cause of her making water was that when she left London she was not in so strong and staunch a state as she ought to have been; and this last is said to be the proximate cause of the loss, though since she left Lon- don she had crossed the North Sea twice. We think it would have been a misdirection to tell the jury that this was not a loss by the peril of the seas, even if connected with the state of unseaworthiness, as that would prevent anyone who knowingly sent her out in that state, from re- covering indemnity for this loss." See, also, Butler v Wildman, 3 B. & Aid. 398 (-1820) ; McGoun v. New England Marine Ins. Co., 1 Story (C. C.) 157 (1840), and cases collected in note to Gilson v. Delaware, etc.. Coal Co., 36 Am. St. 854. »=Livy V. Jansen, 12 East, 648 (IS 16) (the ship was injured, not destroyed, by the perils of the sea before capture). See criticism of this case in Brown v. St. Nicholas Ins. Co., 61 N. Y. 332 (1874), and 1 Phil- lips' Ins., p. 673. See, also, lonides V. Universal, etc., Ins. Co., 14 C. B. N. S. 259, 32 L. J. C. P. 170, 8 L. T. 705 (1863), 14 Eng. Rul. Cas. 271. "Green v. Elmslie, I Peake N. P. 278 (1795). ^■"Insurance Co. v. Transportation 547 . THE RISKS. § 484 Lord Campbell held that where a total loss occurs from a risk not insured by the policy, the underwriters are not liable even for a partial unrepaired loss, because, under the circum- stances, it was not prejudicial to the insuredl.^"^ Where the insurance was against loss "by collision" and "damage received in a collision with any object, including ice," it was held to cover the loss of a ship from an injury which with reasonable diligence could not be repaired in time to prevent the ship from sinking. The vessel struck a floating snag, which entered the engine room, and, among other things, broke the cover of the condenser, and thus left an opening of some twenty square inches in area. An attempt was made to repair the break and the ship was taken in tow by another ves- sel: but, notwithstanding all the efforts of the crew during several days, she finally sank. The plaintiff claimed to recover for the loss of the vessel. It was admitted that the ship was injured by the peril insured against, and the insurer admitted liability for 'the repair of the injured parts, but it was held that the collision was the proximate cause of the injury, and that the insurer was therefore liable for the entire loss.^°- Co., 12 Wall. (U. S.) 194 (1870). was as much « proximate cause of Where two independent accidental her sinking as the other, and it causes have operated, the last in point would, in my opinion, be contrary to of time is the proximate cause. Cary good sense to hold that the damage V. Burr, S App. Cas. (H. L.) 393. by the sinking was not covered by "'Knight V. Faith, 15 Q. B. 649, this policy I feel the dif- 19 L. J. Q. B. 581, 14 Jur. 114. fieulty of expressing in precise lan- '■^ Reisher v. Borwick, 9 R. 558 guage the distinction between causes (1894), Lord Lindley said: "There which co-operate in producing a given is no doubt that in considering the result.' When they succeed each other liabilities of the underwriters of ma- at intervals, which can be observed, rine insurance policies it is a car- it is comparatively easy to distin- dinal rule to regard the proximate guish them and to trace their respec- and not the remote causes of loss. tive effects; but under other cireum- This rule is based on the intention of stances it may be impossible to do the parties as expressed in the con- so. It appears to me, however, that tract into which they have entered, an injury to a- ship may fairly be but the rule must be applied with said to cause this loss, if before that good sense so as to give effect to, and injury is or can be repaired, the ship not to defeat those intentions is lost by reason of the existence of The sinking was due as much to one that injury, i. e., under circumstances of these causes as the other; eacli which, but for that injury, would not § 485 MARINE INSURANCE. 548 § 485. Negligence — ^Misconduct. — ^It thus appears that before there can be a recovery on the policy it must appear that the proximate cause of the loss was one of the perils insured against. It follows that where the proximate cause isi the negligence of the insured or his agents, and not the risk insured against, or is the result of his wilful misconduct, in placing the ship in immediate contact with the peril insured against, the under- writer is not liable.^"' In certain early cases it was held that there was no liability where the loss was due even to the re- mote negligence of the insured or his agents, but the rule is now well established "that if the vessel, the master, officers, crew and equipment, are competent and sufficient at the com- mencement of the voyage, the insured has done all that he has contracted to do; he does not guarantee the faithfulness and vigilance of the master and crew, and he is not responsible have affected her safety. It follows that if, as in this case, a policy is effected covering such an injury it will, in the circumstances supposed, extend to the loss of the ship, or in the case supposed, the injury will really be the cause of the loss, the causa oausans, and not merely the causa sine qua non. I am not aware of any authority opposed to this view." Lord Justice Lopes said: "The damage received in the collision was the breaking of the condenser, and it was the broken condenser which real- ly caused the proximate loss.' The ship was continuously in danger from the time the condenser was broken, and the broken condenser never ceased to be an imminent element of danger, though that danger was mit- igated for a time by the insertion of a plug in the outside of the vessel. The cause of the damage to the con- denser was the collision, and the con- sequence of the collision (that is, the broken condenser) never ceased to exist, but constantly remained the efficient and predominating peril to which the damage now sought to be recovered was attributable. It was contended that the towing of the ship through the water after the col- lision was the proximate cause of the loss now sought to he recovered. It was, however, admitted that this was a reasonable and proper act in the circumstances. This may have been a concurrent cause, and one without which the loss would not have happened, but, in my judg- ment, it is not, but the broken con- denser is the proximate cause." ""Hazzard v. New England, etc., Ins. Co., 1 SuBim. (C. C.) 218 (1832); Nelson v. Suffolk Insurance Co., 8 Cush. (Mass.) 477, 54 Am. Deo. 770, and note, (injury to an- other ship caused by the negligence of the insured ship — ^must be indem- nified by insurer) ; Dudgeon v. Pem- broke, L. R. 9 Q. B. 594 (1874); Orient Mutual Insurance Co. v. Ad- ams, 123 U. S. 67 (1887) ; Schultz v. Pacific Insurance Co., 14 Fla. 1i (1872). 549 THE RISKS. § 485 for their negligence." The insurers are therefore liable for a loss occasioned by the conduct of the master and mariners in the practical navigation and management of the vessel after the commencement ©f- the- voyage, if the actual loss arises from one of the perils insured against, although the vessel may have been subjected to such peril in consequence of the negligence or carelessness of the master and crew."* By the French law the fact that the loss has been brought about by negligence is a, defense to the underwriter. The English and American rule does not, however, apply to deviations.^°° In some modem policies there is a provision which relieves the underwriter from liability for losses caused by the want of ordinary care and skill in the navigation of the vessel.^"* ^"^ Natchez Insurance Co. v. Stan- ton, 2 Sneed & M. (Miss.) 340, 41 Am. Dec. 592 (1844). Loss caused by the gross negligence of the master or crew is sometimes excepted by the terms of the policy. See Jones v. Western Assur. Co., 198 Pa. St. 206 (1901). ™See Rogers v. Aetna Insurance Co., 95 Fed. 103, 35 C. C. A. 396, 28 Ina. L. J. 808. "The collision oc- curred .... and was caused by the gross carelessness of Walch, who by that time was so intoxicated as to be incapable of performing his duties properly. There is no evidence that either the master or the pilot was in- competent or unskillful in their vo- cation or were not in good repute, and none to impute any fault or re- missness to the libellant in employ- ing either of them. It is no defense to a contract of insurance that the loss occurred through the megligence of the assured, or of his servants un- less the contract expressly consti- tutes such negligence a defense. One of the principal objects which the as- sured has in view in effecting an in- surance is protection against casual- ties accruing from these causes, "the '"Nome Beach, etc., Co. v. Munich Assur. Co., 123 Fed. 820 (1903), Gala. Civ. Code, | 2629; Trueder V. Thames, etc.. Mar. Ins. Co., 67 L. J. Q. B. 666 (1898), 2 Q. B. 114; Busk V. Hoyal Exch. Assur. Co., 2 B. & Aid. 73 (1818) ; Walker V. Maitland, 5 B. & Aid. 171 (1821) ; Smith V. Scott, 4 Taunt. 126 (1811) ; Thompson v. Hopper, 27 L. J. Q. xJ. 441, 6 E. & B. 171 (1856); Orient Ins. Co. V. Adams, 123 U. S. 67, 8 Sup. Ct. 68 (1887); Lewis v. Aetna Ins. Co., 123 Fed. 157 (1903) (stranding caused by negligence) ; Enterprise Ins. Co. v. Parisat, 35 Ohio St. 35, 35 Am. Rep. 589 (1878); American Ins. Co. v. Insley, 7 Pa. St. 223, 47 Am. Dec. 509 (1847); Crescent Ins. Co. v. Vickbui^, etc., P. Co., 69 Miss. 208, 30 Am. St. 537 (1891); Louisville Underwriters v. Pence, 93 Ky. 96, 40 Am. St. 176 (1892). "Nothing short of dolus, in its proper sense, will defeat the right of the insured to recover in respect of a loss of which, but for such dolus the proximate loss would be a peril of the sea." Lord Justice Collins in Trinder v. Mercer, etc.. Mar. Ins. Co., supra. § 485 MARINE INSURANCE. 550 Where the policy excepted perils consequent upon and aris- ing from or caused by the incompetency of the master, or want of ordinary care or skill in navigating the said vessel, and it appeared that after the vessel sprung a leak, the master had her taken in tow, and attempted unsuccessfully to carry her to her port of destination, it was held proper to charge the jury that if an ordinarily prudent man would have deemed it nec- essary to repair her before proceeding, and her loss was occa- sioned by the omission to do so, the underwriter was relieved from liability, and, further, that expert testimony was admissi- ble to show whether under the circumstances it was the exer- poliey contains a warranty that the tug 'shall a,t all times he in charge of and commanded by a duly licensed pilot or captain.' It contains also the following . . . warranty: 'free from loss, damage or expense caused by or arising from so doing or from ignorance on the part of the master and pilot as to any port or place the steam, tug may use, or from want of ordinary care or skill.' It is insisted by the insurance company that there was a breach of the warranty against loss arising 'from want of ordinary care and skill.' The collision un- doubtedly occurred through want of ordinary care or skill, and if it is the meaning of the policy that the insurance company shall not be liable in such case, the proofs establish a defense. But this warranty is found in a contract which has no other pur- pose than to indemnify the assured against the loss which he may sus- tain through the improper mmgation of his own vessel, and as such a loss cannot arise in any other way or from any other cause than want of skill or care of those in charge, the contract would be of no value to him and would be nugatory as to the in- surance company, if the warranly is given the effect claimed for it. It was probably inserted where it is found for the purpose on the part of the insurance company of escaping any liability in the event of a loss, if it should see fit to do so. But it is in- serted in a part of the policy where it would not naturally convey that mean- ing to the insured. It is made a part of a comprehensive warrant expressed to exonerate the insurance company against the risks that may intervene if the tug, with her tow, is taken out of the regular towing channels, or to any port or place where the master or pilot through ignorance or inex- perience ought not to undertake her navigation. Under no rule of con- struction can it be permitted to ex- tend to defeat the whole end and aim of the contract. It must be given the interpretation most favorable to the assured. We construe it as though it read, "warranted free from loss aris- ing from ignorance or want of ordi- nary skill or care on the part of the master or pilot as to any port or place the steam tug may use.' " See, also, Egbert v. St. Paul Fire & Ma- rine Ins. Co., 71 Fed. 739 (1895). OOI THE RISKS. § 486 oise of good seamanship and prudence to attempt to take the vessel to her port.**" The neglisrent navigation to relieve the insurer from liabil- ity must^ of oourse. have been the proximate cause of the loss.**^ § 486. The sue and labor dause. — ^What is kno-vra as the sne and labor clause provides for the recovery of sums necessarily expended in preserving the subject matter of the insairance from loss or damage for whieli the insurers would be liable under the policy. It thus comes into effect only through the operation of one or more of the perils insured against."* The danse provides that in eas* of disaster the insured may labor, travel and sue for the safeguarding and recovery of the prop- erty, and for the expense thereof the insurer is to contribute m the proportion which the amount insured by him hears to the whole property. It applies to aU cases in which the under- writer is saved &om liability to loss, whether partial or total, and whether an abandonment does or probably may take place."* The liability imposed by the obligation is collateral to, and not a part of, the eontrac* of insurance proper. It was held in the House of Lords that a claim for volunteer salvage was not recoverable under this dause. but could be recovered under an averment of loss by the perils which occasioned the '"Uniim InsoraBte Co. t. Smith, pQlk^r. \ronId hare faUat upon the 124 U. S. 403 (ISs^SV, underwriters). The sue and labor "^Kicjielfea. ete-, NaTigat»» Ock v. clause has no applieatioi when ttie Bostna Marine Ins^ Co., 136 U. S. insuianee fe against the liabili^ : GO- the ^po\nier to the owners of a lespie T. British Ameriean. et«-. C5oi., cargo of mides. and the shipowner 7 U. C. Q. B. 109 < 154S > . incurs espense io attempting to save "" Gieat Indian Pen. E. Co. t. the ship and cargo from wreck. Con- Sannders. 1 B. * S- 41. 30 L. J. Q. ard Steamship Go. t. 3dhrtai, ;2 L. B. 21> (1?61): Boc«h ▼. Gair. 15 C. J- X. S. (K. B.) 754 (1903>. B. X. S. 291. 33 L, J. C. P. 99 "•Kidstwi t. Empire Marine Ins. (IStW-; The Peaneranten (lS9o> P. Co.. L. R- 1 a P. .53,i il-:tW\ 2 C. 349 (fodder furnished tar Itre stock P. 363 (1S67), 14 Eng. »uL Gas. to keep them alive and thus prevent 247. S^ the learned judgmoit of Mr. a kes trhidi, vrndo- the tem^ of the Justice WUes in ibis ease^ § 486 MARINE INSURANCE. 552 salvage.^^^ The object of the sue and labor clause is said to be the encouragement of the personal exertions of the as- sured and his agents for the preservation of the ship, by pro- viding for the expenses attending such personal exertions, and perhaps for hiring additional labor when necessary.^^* It does not therefore provide a remedy for a claim of salvage for labor performed by those who were not the agents of the assured, and whose award was determined under the general maritime law, as administered by a court of admiralty .^^* Ac- cording to Lord Blackburn the sue and labor clause refers only to physical labor and bodily toil. This decision and the grounds upon which it resits have been severely criticised. Mr. Maclachlan charges the learned judge with "total ignorance of the proper meaning of the clause, and with being a law unto himself in spite of all law." Expenses incurred to repair losses caused by risks insured against are not recoverable under this clause.^^*' Under the sue and labor law the insured can recover only such expenses as were reasonably necessary. Thus, where the master after stranding the ship sent the freight overland by rail at a heavy expense when he might have retained' it unltil the ship was repaired,^ and re-shipped it at another place at ^Lohre v. Aitchison, 4 App. Cas. tected. Montgomeiy v. Ind., etc., Ins. 755 (1879), 49 L. J. Q. B. 123, 14 Co., 70 L. J. N. R. (K. B.) 47 'Eog. Rul. Cas. 448. See Buzby v. (1901), per Matthews, J. Phoenix Ins. Co., 31 Fed. 422 (Sal- '"See Washburn, etc., Mfg. Co. v. vage on agents expenses not recover- Keliajice Ins. Co., 179 U. S. 1, 18. ablel)l See Mr. Mkclachlan's com- statement of Chief Justice Fuller, ment on this case in 2 Amould Ins. "' See International Navigation Co. 792, and appendix, 807 (6th ed.). v. Atlantic Mut. Ins. Co., 100 Fed. See also note to Kidston v. Empire 313. In Western Assur. Co. v. Poole. Mar. Ins. Co., 4 Eng. Eul. Cas. 268; 72 L. J. N. S. (K. B.) 201 (1903). Dixon V. Sea Ins. Co., 44 L. J. Q. B. Bigham, J., says that the words 408, 4 Asp. M. C. 327 (1880); Xen- "salvage charges" are nevertheless OS V. Fox, L. R. 4 C. P. 665, 38 L. J. 'often used in policies to describe C. P. 351 (1868); Nicholson v. those expenses which come within the CSiapman, 2 H. B. 254 (1793). Soel- scope of suing and laboring expendi- berg V. Western Assur. Co., 119 Fed tures. 23 (1902). The clause is not intend- "»a Alexandre v. Sun M. Ins. Oo., ed to afford an additional remedy for 51 N. Y. 253 (1873). "What was already sufficiently pro- 653 THE RISKS. § 487 a much less expense, he was allowed to recover only the lesser sum;.^^* § 487. Excluded risks and limitations upon liability. — Marine insurance is for the protection of the owner of the property involved from such losses as are caused hy the direct and violent operation of the perils insured against. It does not pro- tect against what is known as ordinary wear and tear. As said by Arnould, "A ship cannot navigate the ocean for any length of time, even under the most favorable circumstances, without suffering a certain degree of decay and diminution in value, which we speak of as wear and tear; for this, however considerable, the underwriter is never liable; he is only liable when the damage sustained is the result of some casualty or something which could not be foreseen as one of the neces- sary incidents of the adventure. "^^° Another well-recognized exception is found in the rule that '"Lee V. Southern Ins. Co., L. R. 5 C. P. 397. >«2 Amould Mar. Ins. (7th ed.) 873; 3 Kent's Com. star page, 300; Hunter v. Potts, 4 Camp. 203 (loss arising from rats eating holes in the bottom of the ship is not within the ])erils insured against in the common form of policy) ; Thames, etc., Ins. Co. V. Hamilton, 12 App. Gas. 484 (1887). In the Xantho, 12 App. Cas. 503, 509 (1887), Lord Herschell said: "I think it clear that the term 'perils of the sea' does not cover every accidoit or casualty which may hap- pen to the subject matter of the in- surance on the sea. It must be a peril 'of the sea. Again it is well settled that it is not every loss or damage of which the sea is the im- mediate cause that is covered by these words. They do not protect, for example, against that natural and inevitable action of the wind and wares, which results in what may be described £.t wear and tear. There must be some casualty, something that cannot be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen. It was contended that those losses only were losses by perils of the sea, which were occa- sioned by extraordinary violence of the winds or waves. I think this is too narrow a construction of the words, and it is certainly not sup- ported by the authorities, or by com- mon understanding. It is beyond question that if a vessel strike upon a sunken roek in fair weather and sinks, this is a loss by perils of the sea. And a, loss by foundering, owing to a vessel coming into collision with another vessel, even when the colli- sion results from the negligence of that other vessel, falls within that same category." § 487 MARINE INSURANCE. 554 the underwriter is not liable for a loss arising solely from a defect inherent in the subject matter, as where fruit becomes rotten, wine sour, or meat putrid.^^* So there is no liability for leakage or breakage.^^' In the United States and on the Continent, a percentage is fixed and the underwriter is not liable for damage for a percentage of loss less than that so fixed, unless the ship is wrecked or stranded.^^* Nor is there a liability because of a loss caused by the bursting of wrappers resulting in the commingling of goods.^^^ Nor where the insurance is upon liAring animals con- stituting the cargo is the insurer liable for 'losses caused by death due solely to natural causes, such as infectious disease.^^* But when the death is caused by violence, as by the agitation of th« ship caused by a violent Storm, the Ices' is due to the perils of the sea.^" So there is an exception as to losses not proxima,tely caused by the peril insured against,^^" and those caused proximately by the negligence or wilful act of the insured or his agent.^^' In addition to the risks which are excluded from the policy by reason of certain well-recognized implications, it is cus- tomary to exclude others by express provision. During the great maritime wars which raged during the early part of the century, it was usual to insert an express stipulation to the '" Taylor v. Dunbar, L. R. 4 C. P. '^' Lawrence v. Aberdein, 5 B. & 206 (1869) (imeat became putrid by Aid. Ill (1821); 14 Eng. Rul. Cas. delay of the voyage); Boyd v. Du- 296; Gaybay v. Lloyd, 3 B. & Or. bois, 3 Camp. 132 (1811). Pink v. 793 (1825). Distinguished in Tay- Fleming, 25 Q. B. D. 396, 59 L. J. Q. lor v. Dunbar, L. E. 4 O. P. 206, 38 B. 151 (1890). L. J. C. P. 178 (1869); See also "'Croft V. Marshall, 7 C. & P. 597 Snowden v. Guion, 101 N. Y. 458; (1836). Oodt V. Smith John Cas., N. Y. 16; "» Phettiplace v. British, etc., Mar. Lockyer v. OflFley, 1 T. R. 252. Ins. Co. (R. L), 49 Atl. 33 (1901) ; '=^§484, supra. See Discussion of Indemnity, etc., Assur. Co. v. United remote and proximate cause in Oil Co., 88 Fed. 315 (1889) (con- lomidies v. Universal Mar. Ins. Ass'n, struction of clause). 14 C. B. N. S. 259, 32 L. J. C. P. ""Spenee v. Union Marine Ins. Co., 170 (1863). L. R. 3 C. P. 427 (1868) (confusion ^^^ Thompson v. Hopper, 6 E. & B. of goods). 171 (1856). §485, Swpra. ""Tatham v. Hodgson, 1 Parke Ins. 14 L 555 THE RISKS. § 48T effect that the underwriter would not assume the risk of cap- ture, seizure or confiscation at the ship's port of discharge.^-* What is known as the common memorandum clause may be referred to in this connection, although it is possibly more in the nature of a restriction upon the amount of th« liability than upon the nature and character of the risk to be' assumed. This clause has been in general use in England since 1749, and is now a statutory form. The nature of the articles referred to is such that it is extremely difficult to determine whether the deterioration which they may suffer during a voyage is due to the perils of the sea, or to their inherent tendency to decay and deterioration. It is difficult to adjust the proper premium for insurance upon such articles. The claims for the losses which frequently arose were often trivial in amount and un- certain in cause. To avoid this annoyance and uncertainty it has been customary for many years to stipulate in the policy that upon the articles named the underwriters shall not be lia- ble for sea damages unless there is a total loss, or unless the damage amounts to a certain percentage of the value ofi the goods. The common memorandum covers, 1. Corn, fish, salt, fruit, flour and seed warranted free from average unless general, or the ship be stranded. 2. Sugar, tobacco, hemp, flax, hides and skins warranted free from average unless five pounds per cent. 3. All other goods, and also the ship and freight, are war- ranted free from average under three pounds per cent., unless genera] or the ship be stranded.^-^' This means the stranding of the ship while the goods are on board of her.^^° In recent "'Dalgleish v. Brooks, 15 East, v. Kensington, 7 T. R. 210, 1 Esp. 295 (1812), Lord Ellenborough ; Mel- 416, 4 R. R. 424; London Assur. Co. lish V. Standiforth, 3 Taunt. 499 v. Campanhia de Moagers, 167 U. S. (1811). As to the distinction be- 149 (1897) (see this ease for con- tween "port of discharge" and "port," struotion of this exception in case of see Jarman v. Coape, 2 Caratp. 614 stranding). (1811); Devitt v. Prov. Wash. Ins. ""The Alsace Lorraine (1893). 1 Co., 173 X. Y. 17 (1902), affirming R. 632. In that eivemt the insurer 61 App. Div. 390. must pay aH particular average ''^Thames, etc., Ins. Co. v. Pitts losses, whether caused by the strand- (1893), 5 R. 168; Roux v. Salvador, ing or not. Burnett v. Kensington, 1 Bing N. C. 526 (1835); Burnett 7 T. R. 210, 4 Rev. Rep. 424(1797); § 487 MARINE INSURANCE. 556 years it has been the common practice to add to the ordinary memorandum clause the words, "or the ship be stranded, sunk or burnt." "Burnt," in this connection, is to be given its gen- eral signification as meaning something more than some slight damage from fire.^^^ The word "average," as here used, means partial damage to the subject of insurance by any part of the perils insured against. The words "warranted free from average unless gen- eral" mean that the insurer is free from liability for anything less than a total loss, unless it be in the nature of a general average; that is, a loss voluntarily incurred to prevent a total loss of the general adventure, for which the insurer is liable, whether it be great or small.^"* Wells V. Hapwood, 3 B. & Aid. 20 ""2 Arnould Mar. Ins. (7th ed.) (1832). See latter case for meaning 995; see 6th ed., p. 919, for meaning of "sifcranded" in this connection. of the word "average;" Wilson v. '" The Glenlivet (1893) P. 164, 62 Smith, 3 Burr. 1555 (1764). L. J. P. 55, 68 L. T. 860 (1894) 6 R. 665. CHAPTER XIX. MAKINE INSURANCE — Continued. The Loss and Matters Subsequent Thereto. ssc. 488. Character of the loss. (a) Actual total loss. 489. The general rule (b) Constructive — total loss. 490. In general. 491. Insurance against "actual total loss only" — ileraorandum ar- ticles — "Free from average unless general." 492. Entire or severable contract. 493. Division of cargo — Transship- ment. (c) Abandonment. 494. Definition. 495. Right to abandon. 496. Test of right to abandon. 497. Apprehension of peril. SEC. 498. For lack of funds to repair. 490. Sale by master. 500. Goods separately valued. 501. Time when must be nmde. 502. Must be complete. 503. Notice, manner and character of. 504. Basis of valuation for total loss. 505. Acceptance of abandonment. 506. Effect of abandonment. 507. The master as agent of the un- derwriters. 508. Time when right is determined — Erroneous information. (d) General average and the adjust- ment of losses. 509. General average. 510. Adjustment of loss. 511. York- Antwerp rules. The Loss and Matters Subsequent Thereto. § 488. Character of the loss. — The risks against which the underwriter agrees to protect the insured have been already considered, and we now proceed to the consideration of the character and extent of a loss for which there may be a re- covery. It is" apparent that a loss may be either total or par- tial, and that a total loss may be either actual or constructive. 557 § 488 MARINE INSURANCE. 558 The distinction appears very clearly in the following statement of Lord Abinger:^ "The underwriter engages that the object of insurance shall arrive in safety at its destined termination. If in the progress of the voyage it becomes totally destroyed or annihilated, or if it be placed by reason of the perils against which he insures in such a position that it is wholly out of the power of the assured or of the underwriter to procure its arrival, he is bound by the very letter of his contract to pay the sum insured. But there are intermediate cases. There may be a capture, which, though prima facie a total loss, may be followed by a recapture, which would revest the property in the assured. There may be a forcible detention which may speedily termi- nate, or may last so long as to end in the impossibility of bringing the ship or the goods to their destination. There may be some other peril which renders the ship unnavigable, with- put any reasonable hope of repair, or by which the goods are partially lost, or so damaged that they are not worth the ex- pense of bringing them, or what remains of them, to their des- tination. In all these or any similar cases, if a prudent man, not insured, would decline any further expense in prosecuting an adventure, the termination of which will probably never be successfully accomplished, a party insured may, for his own benefit, as well as that of the underwriter, treat the case as one of a total loss, and demand the full sum insured. But if he elects to do this, as the thing insured or a portion of it still exists, and is vested in him, the very principle of the in- demnity requires that he should make a cession of all his right to the recovery of it, and that, too, within a reasonable time after he receives the intelligence of the accident, that the un- derwriter may be entitled to all the benefit of what may still be of any value, and that he may, if he pleases, take measures at his own cost for realizing or increasing that value. In all these cases not only the thing assured or part of it is supposed to exist in specie, but there is a possibility, however remote, of its arriving at. its destination, or at least of its value being in some way effected by the measures that may be adopted 'Roux V. Salvador, 3 Bing (N. C.) 266, 285 (1836). 559 ACTUAL TOTAL LOSS. § 489 for the recovery or the preservation of it. If the assured pre- fers the chance of any advantage that may result to him be- yond the value insured, he is at liberty to do so; but then he must also abide the risk of the arrival of the thing insured in such a state as to entitle him to no more than a partial loss. If in the event the loss should become absolute, the un- derwriter is 'not the less liable upon his contract, because the insured has used his own exertions to preserve the thing as- cured, or has postponed his claim till that event of a total loss has become certain, which was uncertain before. In the lan- guage of Lord Ellenborough, in the case of Mellish v. An- drews,^ 'it is an established and familiar rule of insurance, that when the thing insured subsists in specie, and there is a chance of its recovery, there must be an abandonment. A party is not in any case obliged to abandon, neither will the want of an abandonment oust him of his claim for that which is in fact an average or total loss, as the case may be.' " (a) Actual Total Loss. § 489. The general rule. — An actual total loss may result either from the total destruction of the thing insured; the loss of the thing by sinking' or being broken up; any damage to the thing which renders it valueless to the owner for the pur- poses for which he held it, as the wrecldng of a ship, whereby, although the form of the ship is preserved, it is of no use for the purposes of navigation;* or any other event which entirely deprives the owner of the possession at the port of destination of the thing insured, as hostile capture,^ seizure, confiscation or = Mellish V. Andrews, 15 East, 13 Super. Ct. 444 (1885); Burt v. (1812). Brewers & M. Ins. Co., 9 Hun (N. 'The Blairmore, 67 L. J. (P. C.) Y.) 383 (1876). 96 (1898). See Crosby v. New York '"Monroe v. British, etc., Ins. Co., Ins. Co., 5 Bosw. (N. Y.) 369 (1859). 52 Fed. 777, 3 C. C. A. 280 (1892) ; * Cambridge v. Anderton, 4 Dowl. Abel v. Potts, 3 Esp. 242, 6 Rev. Rep. & R. 203 (1824); Merchants' S. S. 826 (1800). Co. V. Com. Mu.. I. Co., 51 N. Y. § 490 MARINE INSUKANCE, 560 destruction of the cargo in specie by a sea risk before arrival at the port of destination." An actual total loss may be presumed from the continuous absence of the ship without being heard from for a sufficient length of time. When there is an actual total loss the insured is not required to give any notice of abandonment. (6) Constructive Total Loss. § 490. In general. — Where the subject matter of the insur- ance has been reduced to such a state of peril, or placed in such a position by the perils insured against, as to nuke its probable destruction or annihilation, though not inevitable, yet highly imminent, or its ultimate arrival under the terms of the policy, though not hopeless, yet exceedingly improbable, there is said to be a constructive total loss, and the insured may abandon the property to the insurer and recover as for a total loss.' §491. Insurance against "Actual Total Loss Only" — Mem- orandum articles "Free from Average Unless General." — ^An insurance contract is sometimes by its terms limited to cases of actual total loss. Such a policy covers only the loss which necessarily results from the depriving of the insured at the port of destination of the entire thing insured.* When the insurance is in terms against "total loss only," the early cases and probable weight of authority are to the effect that the insured can recover only when there was an actual total loss. The more recent decisions are more favor- " Hellish V. Andrews, 15 East, i3 of England Assn., 11 L. T. R. 10(5 (1812) ; Williams v. Cole, 16 Me. 207 (1894) ; Rowland's S. S. Co. v. Mar. (1839). Ins. Co., 6 Com. Cas. 160 (1901); 2 ^Devitt V. Prov. Wash. Ins. Co., Arnould Mar. Ins. (7th ed.) 1228. 173 N. Y. 17 (1902), affirming 61 = Gala. Civ. Code §212. See App. Div. 390; Mareardier v. Ches- Burt v. Malsters Ins. Co., 78 N. Y. apeake Ins. Co., 8 Cranch (U. S.) 39 400 (1879). (1814) ; Sunderland S. S. Co. v. North 561 CONSTRUCTIVE TOTAL LOSS. § 491 able to the insured, and are to the effect that under a policy of this character there may be a constructive total loss." The condition against liability for a partial loss, or for any loss not total in a maritime shipment of goods, some of which are and some of which are not perishable, does not preclude the insured from recovering for a constructive total loss in respect to the latter.^" What are known as memorandum articles are insured "free from average unless general," or "warranted free from par- ticular average," which means that the insurer is liable only when there ia a total loss of the property. There is a conflict of authority as to whether there can be a recovery for a con- structive total loss on memorandum articles. In the federal courts it is denied, but elsewhere it is generally held that there can be such a recovery. There has been much controversy over the meaning of the words "actual total loss." In the early case of Cocking v. Fraser, Lord Mansfield held that nothing short "of an absolute destruction of the goods by the wreck of the ship" could amount to a total loss on articles insured free from particular average, thus excluding a constructive total, loss. This strict rule, which required the total physical annihilation of the in- sured property, was for a time accepted in the United States," and Chancellor Kent said that the weight of authority in this country was then in favor of the doctrine "that in order to charge the insurer, memorandum articles must be specifically and physically destroyed." Cocking V. Fraser has, however, been overruled in England, and the courts of the United States have adopted the more liberal doctrine of the later authorities. Complete physical destruction is therefore no longer regarded as necessary for a "Devitt V. Prov. Wash. Ins. Co., sons, Marine Ins., p. 340; Kittell v. 61 App. Div. 319 (1901), affirmed Atlantic Ins. Co., 10 Gray (Mass.) 173 N. Y. 17 (1902) ; Insurance Co. 144 (1857) ; Hebner v. Eagle Ins. Co., V. Canada Sugar Refining Co., 58 U. 10 Gray (Mass.) 131 (1857); Ad- S. App. 22 (1898) (but this does not ams v. McKenzie 13 C. B. N. S. 442. apply to insurance on profits) ; Mun- "Maggrath v. Church, 1 Caines roe V. British, etc.. Mar. Ins. Co., 52 (N. Y.) 196 (Kent, C. J.), 2 Am. Fed. 773, 3 C. C. A. 280. Bee. 173, and note 179. " Barber Insurance § 131; 2 Par- i§ 491 MARINE INSURANCE. 562 total loss.^^ But it is still held in England that a total de- struction in specie is necessary, and that no amount of damage will justify the insured in claiming an actual total loss unless such damage involves a total destruction of the goods in spe- cie. As this is construed, goods arriving in an unmerchant- able condition are considered as not arriving in specie.^' In the federal courts it is now settled law that there cannot be a total loss unless the articles are specifically destroyed or at least their value extinguished by the loss of their identity.^* Within these decisions nothing short of total extinction, either physical or in "value," amounts to an actual total loss. "3 Kent's Com. (12th ed.) 292; Cocking V. Fraser, 4 Doug. 295 (1785). That this ease is no longer the law in England, see Cologon v. London Assur. Co., 5 M. & S. 455 (1816), Lord Ellenborough ; Ander- son V. Wallis, 2 M. & S. 240, 3 Camp. 440 (1813); Asfar v. Blundell (1895), 1 Q. B. 123; Adams v. Mc- Kenzie, 32 L. J. C. P. 92 ; Cocking v. Fraser was originally followed in the United States (see. 3 Kent Com. 295), but the law is now in line with the later English cases. Wallerstein V. Columbian Ins. Co., 44 N. Y. 204 (1870), and see cases cited in note 14. infra. '= Asfar V. Blundell, 1 Q. B. 123 (1896). The ship, with a cargo of dates, was sunk for three days in the Thames. When received, the dates were saturated with water and sew- age and were unfit for human food. They were, however, always recog- nizable as dates, and were sold for purposes of distillation. It was held that the goods had not arrived in specie, as they were not in a condi- tion to be used as dates. "Biays v. Chesapeake Ins. Co., 7 Cranch (U. S.) 415 (1813); Macar- dier v. Chesapeake Ins. Co., 8 Cranch (U. S.) 39 (1814); Marean v. Unit- ed States Ins. Co., 3 Wash. (C. C.) 256 (1814) ; Marean v. United States Ins. Co., 1 Wheat (U. S.) 219 (1816) Hugg V. Augusta Ins. Co., 7 How. ( XT. S.) 595 (1849); Great Western Ins. Co. V. Fogarty, 19 Wall. (U. S.) 640 (1873); Washburn, etc., Co. v. Reliance Ins. Co., 179 U. S. 1 (1900), 106 JFed. 116 (1895); Robinson v. Comw. Ins. Co., 3 Sumn. (C. C.) 220 (1838). See, also, Canada Sugar Refining Co. v. Insurance Co., 175 U. S. 609 (1899); Gould V. Louisiana Mut. Ins. Co., 20 La. Ann. 259 (1868); Williams v. Ken- nebec Ins. Co., 31 Me. 455 (1850): Wain V. Thompson, 9 Serg. & R. , (Pa.) 115 (1822) ; Willard v. Mnfrs. Ins. Co., 24 Mo. 561 (1857); Wads- worth V. Pacific Ins. Co., 4 Wend. (N. Y.) 33 (1829); De Peyster v. Sun Ins. Co., 19 N. Y. 272 (1859); Burt V. Brewers' Ins. Co., 9 Hun (N. Y.) 383, 78 N. Y. 400 (1879) ; Mer- chants' S. S. Co. V. Com. Mut. Ins. Co. (19 Jones & S.) 51 N. Y. Super. Ct. 444 (1855) ; Carr v. Security Ins. Co., 109 N. Y. 504 (1888). Contra, Kettell V. Alliance Ins. Co., 10 Gray (Mass.), 144 (1857); Mayo v. India Mut. Ins. Co., 152 Mass. 172 (1890). 563 CONSTRUCTIVE TOTAL LOSS. § 491 In New York it is held that there may be a recovery for a total loss, although some of the memorandum articles are re- covered in specie.^^ Where more than one-half of a cargo of corn was thrown overboard and lost, and the remainder was saved in a damaged condition and sold for about one-fourth of the market value of sound com, it was held not a total loss because some of the corn was saved in a condition in which it was of some value.^® In another case the insurance was upon a cargo of four hundred tons of jerked beef. Part of the cargo was thrown overboard, and part of the remainder was so badly damaged that the port authorities at Nassau re- fused to allow more than one hundred and fifty tons of it to be landed, and this was wet and heated and in no condition to be reshipped. In answer to a' question certified to the supreme court, it was said that "If the jury found 'that jerked beef was a perishable article within the meaning of the policy, the de- fendant is not liable as for a total loss of freight, unless it ap- pears that there was a destruction in specie of the entire, cargo, so that it had lost its original character at Nassau, or that total destruction would have been inevitable from the damage re- ceived, if had been reshipped before it could have arrived at Matanzas, the port of destination."^' " In the recent case of Devitt v. " Marean v. United States Ins. Co., Prov. Wash. Ins. Co., 61 App. Div. 1 Wheat. (U. S.) 219 (1816). A 390, 173 N. Y. 17 (1901), the policy plaintiff was insured upon hides, read "free from any claim for dam- memorandum" articles, the whole num- age or partial loss," and "fruits and ber of which was 14,565, and of these vegetables, and other articles perish- 798 were a total loss by the sinking able in their own nature, are free of of a lighter, and 2,491 of those sunk particular average." These clauses were fished up in a, damaged condi- were held to have the same meaning, ti°° a°d sold, as ■ well as 800 hides that the underwriters were liable insured as part of a much larger onlv for a total loss. But "a total number of the same kind as those loss only" was held to mean a con- lost- It was held not a total loss structive total loss. The original of the 798. Biays v. Chesapeake Ins. value of the cargo was $3,811, and Co., 7 Cranch (U. S.), 415 (1813). at a total expense of $1,983.88, the "H"gg ^- Augusta Ins. Co., 7 How. underwriter succeeded in recovering ^r- (U- »•) 595 (1849). In Great in specie a. portion of the cargo which Western Ins. Co. v. Fogarty, 19 Wall, sold for thfe gross sum of $960.25. (U. S.) 640 ( 1873), Mr. Justice Mil- The plaintiff was allowed to recover ler in reference to this case said: jis for a total loss. "Though there are some very strong I 491 MAUINE INSURANCE. 564 In a leading case the policy was upon machinery, "At and from New York to Havana free from particular average." The machinery consisted of the various parts necessary for a complete sugar packing machine, described as "eight pieces and eight boxes, composing one sugar packer and three trucks." The ship was wrecked and abandoned to the underwriters, and their agents took possession, and after a month's work raised up a number of pieces composing the machinery, which they tendered to the insured with a claim that there was not a total loss. The trial court instructed the jury that "The meaning of the term, 'free from particular average,' used in the policy was that the defendant should be liable only for the total loss of the subject insured; and that the subject insured was not the machine, but the machinery, by which is generally understood the several parts and portions of the machine adapted and fitted to be put together so as to constitute the machine," which was approved by Mr. Justice Miller, saying, "The circuit court was right in holding what is insured, was the machinery, the pieces or parts of the 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 re- pair or adapt that one to the purpose, then there was a total loss of the machinery. If no piece recovered was 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, expressions of the judge who deliver- physical extinction. Indeed, phil- ed the opinion as to the necessity of osophically speaking, there can be no a total destruction of the thing in- such thing as an absolute extinction, sured to establish a total loss in That of which the thing, is composed memorandum articles, no doubt the must rei^ain in its parts, though de- language here certified is the true stroyed as to its specific identity, expression of the court's opinion. In the case of the jerked beef, for And it will be observed in this case, instance, it might remain as a viscid as in the case of Macardier v. Ches- mass of putrid flesh, but it would no apeake Ins. Co., the destruction spok- longer be either beef or jerked beef." en of is as to species, and not mere See Taney's Dec. 169. 565 CONSTRUCTIVE TOTAL LOSS. § 492 however much rusty iron may have been taken from the wreck."" Where a carriage was insured and all was lost but the wheels, the court held that the thing insured was lost, and that it was a total loss.^" § 492. Entire or severable contract. — Where articles are in- sured, "warranted free from all average," it is sometimes nec- essary to determine whether the contract is entire or severa- ble, in order to prevent the doctrine that there can be no re- covery where any part of the subject of insurance is recov- ered in specie, from destroying the very purpose for which the insurance is effected. Carried to its extremes by strict construction it leads to rather absurd results. Thus, a policy upon the personal effects of the master, "free from all aver- age," would be rendered ineffectual if the unfortunate master escaped from the wreck with his breeches on, although leaving all the rest of his property behind. To avoid this result it is held that such a policy should be applied distributively to the various articles, and that the underwriter is liable for articles which are totally lost, although a few articles of wearing ap- parel are saved.-*" Upon the same principle of construction a policy against total loss for a gross amount "on goods" of an emigrant, which consisted of a number of cases and packages of miscellaneous articles, was held to cover the articles totally lost in a wreck, although a case of circular saws and a ease of window glass were saved uninjured."^ § 493. Division of cargo — ^Transshipment. — Where goods shipped under such a policy are necessarily transshipped at "Great Western Ins. Co. v. Fogar- solute extinction or destruction of ty, 19 Wall. (U. S.) 640 (1873^. the thing insured is not the true doc- "Judah V. Randall, 2 Caines' Cas. trine, or at least is not applicable (X. Y.) 324 (1805). "In Waller- in all cases as a criterion of a total stein V. Columbian Ins. Co., 44 N. Y. loss." Mr. Justice Miller in Great 204 (1870), the doctrine is reviewed Western Ins. Co. v. Fogarty, supra. Avith a full reference to previous de- " Canton Ins. Office v. Woodside, cisions, and it is there shown that 90 Fed. 301 (1898); Duff v. Mac- there is far from unanimity in Ian- Kenzie, 3 C. B. (N. S.) 16 (185?). guage in which the rule is expressed; =' Wilkinson v. Hyde, 3 C. B. (N. and the extreme doctrine of the ab- S.) 30 (1857). § 493 MARINE INSURANCE. 566 an intermediate port and divided between two vessels, one of which is thereafter wrecked with its cargo, and the other ar- ^ rives safely at its port of destination, the insurers are liable for the loss although they would not have been liable had the goods remained on the original ship and some portion thereof lost. "A policy upon goods in a particular ship," said Mr. Justice Gray,^^ "covers them in another ship, when trans- shipped by necessity or under a stipulation in the policy al- lowing transshipment. It is admitted that if the names of the two ships into which the goods were transshipped, had been originally inserted in the policy, or endorsed thereon by the assured with the authority of the insurers, the cargo of each would have been a distinct subject of insurance, and if the power to transship had been expressly given in the policy, the result would have been the same. The insured, indeed, could not by any act of theirs without the assent of the insurers '* separate one subject of insurance into two, but if the separa- tion is made with the assent of .both the assured and insurers or their authorized agent, it has the same effect as if the two subjects had always been distinct. Upon the wrecking of the vessel, the breaking up of the voyage, and the bringing of the cargo into a port of necessity, the right, according to the law of England and according to our law, the duty also, of acting as agent for the best interests of all parties, the under- writers as well as the owners of ship and goods, is cast upon the master; and whatever under such circumstances he does fairly, in the exercise of a sound discretion, binds all the par- ties in interest. * * * The transshipment must, therefore, be taken to have been authorized by both the insurers and the assured. After such transshipment the cargoes of the two ships be- come subject to different perils of separate voyages, to distinct liens for freight, to independent contributions in case of jet- tison. "The object of limiting an insurance to total loss is to ^= Pierce v. Columbian Ins. Co., 14 of the goods are saved, see Monroe Allen (Mass.) 322 (1867). That a v. British, etc., Ins. Co., 52 Fed. 777, jettison of cargo to save the ship is 3 C. C. A. 280 (1892). not an absolute total loss if a part 5b ( ABANDONMENT. § 494 exclude a claim for a mere partial loss of that subject which is liable to the perils that cause the injury; not to exempt the insurers from liability when those perils destroy the whole subject which is within their operation because another sub- ject insured in the same policy indeed, but undergoing differ- ent risks, has not also been destroyed. An insurance upon two ships, or the cargoes of two ships, as an indivisible sub- ' ject matter, would be a novelty. There is no more reason for inferring an intention in the parties to treat these goods as one subject of insurance after they had been necessarily sep- arated into two bottoms than if they had been originally de- scribed in the policy as partly in one ship and partly in another. ' '-^ (c) Abandonment. § 494. Definition. — An abandonment is the ,act by which, after a constructive total loss, the insured declares to the in- surer that he relinquishes to him his interest in the thing in- sured.-* § 495. Right to abandon. — The insured may abandon the thing insured or any particular portion thereof separately val- ued by the policy, or otherwise separately insured, and recover for the total loss thereof when the cause of the loss is the peril insured against, (1) if more than half thereof in value is actually lost or would have been expended to recover it " See Macey v. Mutual Marine Ins. bach v. MaeKenzie, L. E. 3 C. P. D. Co., 12 Gray (Mass.), 479 (1859); 470 (1878). The insured need not Plantamour v. Staples, 3 Doug. 1 abandon unless he chooses to do so. (1781). The collection from the insurers of "Civ. Code Gala. § 2716; 2 Ar- the full amount for which the vessel nould Mar. Ins. (7th ed.) 1335. No was insured on account of injury by notice of abandonment is necessary a collision does not import an aban- when there is an actual total loss, donment of the vessel to the imder- that is, when there is nothing left writers when she was undervalued to abandon. Rankin v. Potter, L. R. and the insured refused to abandon. 6 H. L. 83 (1873); 1 Eng. Rul. Cas. Abandonment must be the voluntary 71. As to the distinction between aban- act of the insured. The St. John, 101 donment and notice of abandonment. Fed. 469 (1900), and cases there see language of Brett L. J. in Kalten- cited. § 495 MARINE INSURANCE. 568 from the peril; (2) if it is injured to such an extent as to reduce its value more than one-half; (3) if the thing insured, being a ship, the contemplated voyage cannot be lawfully per- formed without incurring expense to the insured of more than one-half the value of the thing abandoned, or without incur- ring a risk which a prudent man would not take under the circumstances; or (4) if the thing insured being the cargo or freightage, the voyage cannot be performed, nor another ship procured by the master within a reasonable time and with reasonable diligence to forward the cargo without incurring like expenses or risk. But freight cannot in any case be aban- doned unless the ship is also abandoned. The foregoing statements taken from the Civil Code of Cali- fornia"^ fairly express the law of the United States. The Eng- lish rule does not permit abandonment unless the cost of re- pairs would be greater than the value of the ship when re- paired."" An abandonment cannot be made after the voyage is com- pleted even though the vessel arrives in its port of destination in a damaged condition, so that it will cost more than fifty per cent, of her value to repair."^ ^ Civ. Code Cala. § 2717; see Wash- Justice Story derives the one half burn, etc. Co. v. Reliance Mar. I. Co., rule from Le Guidon, a treatise pub- 179 U. S. 1, 21 Sup. Ct. 1; Marcor- lished in Rouen in 1556. See, dier v. Chesapeake I. Co., 8 Craneh statement of the rule In Peele v. (U. S.), 39 (1814); Patapsco Ins. Merchants' Ins. Co., 3 Mason (C. C.) Co. V. Southgate, 5 Pet. (U. S.) 604 27, 69. (1831); Bradlie v. Maryland Ins. " Pezant v. National Insurance Co., 12 Pet. (U. S.) 378 (1838); Co., 15 Wend. (N. Y.) 453 (1836); Orient Ins. Co. v. Adams, 123 U. S. Burt v. Brewers' Insurance Co., 78 67 (1887); Louisville Underwriters N. Y. 400 ( 1879 ). That abandonment V. Pence, 93 Ky. 96, 40 Am. St. 177 of the injured cargo must be made (1892); Soelberg v. Western Assur. before the end of the voyage, see Co., 119 Fed. 23 (1903). Phillips v. Manufacturers' Ins. Co., =° Angel V. Merchants' Mar. Ins. 1 Gray (Mass.), 371 (1854); Sea- Co., 72 L. J. N. S. (K. B.) 498 ton v. Delaware Insurance Co., 2 (1903). The departure in the United Wash. (C. C.) 175 (1808). A voy- States from the English rule began age does not end until the vessel has with Gardiner v. Smith, 1 John. (N. been safely moored in her harbor for Y. ) 142. In Marcardier v. Chesapealie twenty-four hours. Ins. Co., 8 Craneh (U. S.)-47, Mr. 569 ABANDONMENT. § 496 § 496. Test of the right to abandon. — There is some conflict of authority as to the circumstances under which the insured is entitled to abandon the insured property. In Massachusetts and Maine the courts adhere to the rule that the right does not exist so long as the recovery of the ship is not impossible, and the underwriter is willing to pay all expenses of an at- tempt to rescue and repair the ship. Where the underwriter is willing to undertake such a risk the right to abandon does not exist until an attempt has been made and proved unsuc- cessful. Under this rule imminent danger of a total loss, how- ever critical the condition, does not give the right to aban- donment.-* But the weight of authority is to the effect that there may be a total loss, although the subject matter of the insurance continues to exist physically, as when the ship is intact but at the bottom of the sea.^* The test of the right to abandon within these authorities is not the certainty, but "the high probability of a total loss." As stated by Chancel- lor Kent,'" "The insured is to act, not upon certainties, but upon probabilities; and if the facts present a case of extreme hazard and probable expenses exceeding one-half the value of the ship, the insured may abandon though it would happen that she was afterwards recovered at a less expense." Hence, "The right to abandon exists when the ship for all useful "Wood V. Lincoln, etc., Ins. Co., derwriters then raised and repaired 6 Mass. 480 (1810); Peale v. Suf- the ship and claimed to have con- folk Insurance Co., 7 Pick. (Mass.) verted the total into a partial loss, 254 (1828); Hall v. Franklin Ins. but the owners were allowed to re- Co., 9 Pick. (Mass.) 166 (1830); cover for a total loss. Deblois V. Ocean Insurance Co., 16 '°3 Kent's Com. 321, quoted in Pick. (Mass.) 303 (1835); Common- Louisville Underwriters v. Pence, 93 iTCalth Ins. Co. v. Chase, 20 Pia-. Ky. 96, 40 Am. St. 177 (1892); (Mass.) 142 (1838) ; Dunning v. Peale v. Merchants' Ins. Co., 3 Ma- Merchants' M. I. Co., 57 Me. 108 son (C. C), 27, 41 (1822); Bradlie (1869). See Orrok v. Commonwealth v. Maryland Ins. Co., 12 Peters (U. Ins. Co., 21 Pick. (Mass.) 456 S.), 376, 397 (1839); Copelin v. (1839). Phoenix Ins. Co., 46 Mo. 211 (1870) ; ^See The Blairmore, 67 L. J. (P. The Brig Sarah, 2 Sumn. (C. C.) C.) 96, (1898), App. Cas. 593. The 206, 215 (1836); Ruekman v. Mer- ship went to the bottom and the in- chants' Ins. Co., 5 Duer (N. Y.), sured gave notice of abandonment, 342 (1856). which the insurers refused. The un- § 497 MARINE INSURANCE. 570 purposes of the voyage has gone from the control of the owner; as in the ease of submersion or shipwreck or capture, and it is uncertain or the time unreasonably distant when it will be restored in a state to resume the voyage; or when the risk and expense of restoring the vessel are disproportionate to the expected benefit and object of the voyage." "To es- tablish such a loss," under the English law, said Lord Wat- son," "it must be shown that a ship owner of ordinary pru- dence and uninsured would not have gone to the expense of raising and repairing the vessel, because her market value when raised and repaired would probably be less than the cost of restoration." § 497. Apprehension of peril. — The rule as stated in the Cal- ifornia Code is, that there may be an abandonment when the voyage cannot be lawfully performed without incurring a risk which a prudent man would not take under the circumstances. It has been suggested that this provision is intended to cover a case where the vessel cannot enter the port of destination without incurring the risk of capture. ^- The authorities are conflicting upon the question of whether mere apprehension of capture, if the ship attempts to enter the port of destination which has been blockaded or declared hos- tile, will justify abandonment. In Massachusetts it is held that no right to abandon exists under such circumstances,^' and this is in line .with the leading English authorities which hold that, "An interdiction of commerce with the port of des- tination by means of 3 blockade or an embargo, or the posses- sion of the port by the enemy, is not a peril within the pol- icy."^* The prevailing rule in the United States, however, is that the insured may abandon under such circumstances." ='The Blairmore, 67 L. J. -(P. C.) "Hadkinson v. Robinson, 3 Bos. & 96, (1898) (H. L.) App. Gas. 593. P. 388 (1803), Lord Alvanly, C. J. =^ Barber Insurance, See. 133. " Olivera v. Union, etc., Ins. Co., 3 '^Richardson v. Maine, etc., Insur- Wlieat. (U. S.) 183 (1818); King v. ance Co., 6 Mass. 102, 4 Am. Dec. Delaware, etc. Ins. Co., 2 Wash. (C. 92 (1809) ; Cook v. Essex, etc., Ins. C.) 300 (1808); Craig v. United Ins. Co., 6 Mass. 122 (1809); Tucker v. Co., 6 Johns. (N. Y.) 226 (1810); United, etc., Ins. Co., 12 Mass. 288 Saltus v. Everett, 15 John. (N. Y.) (1815). 523 (1818); Lorent v. South Care- 5^1 ABANDONMENT. § 498 However this may be, there is, as said by Chancellor Kent,^» "No doubt about the general principle, that if the voyage be relinquished merely through fear of capture the loss is not cov- ered by the policy. The apprehension of capture or any peril in transitu is no ground for abandonment." § 498. For lack of funds to repair. — Where the master is unable to raise funds necessary to repair the ship, and his inability is not caused by the default or negligence of the in- sured, he may sell the ship and abandon it to the under- writers.^' "The duty of the master or any other agent," says Mr. Jus- tice Bigelow,''* "of the owners, is the same whether the inabil- ity of the vessel to continue a voyage, caused by the effects of a peril insured against, consists in damage to the vessel arising from the effects of the winds and waves, or by the loss of officers and crew, or want of some materials or equip- ment necessary to render her fit for the further prosecution of the voyage. In such a case, if the vessel is in a port of neces- sity in a foreign land, at a great distance from the home port, and there are no means of communicating with the owners, and receiving advice or aid from them, except after the lapse of a long period of time extending over several months or a year, and the master or agent of the owners is unable with the use of due diligence to procure money to repair and refit the ship for the voyage, or cannot procure the needful equip- ment or materials, or supply the officers and crew necessary to the continuance and prosecution of the voyage, within a reasonable time, it cannot be said that there is any negligence or dereliction of duty in breaking up and abandoning the voy- age insured. On the contrary, such a state of things may lina Ins. Co., 1 ]Siott & McC. (S. C.) surance Co., 5 Duer (N. Y.), 342 .505 (1819); Thompson v. Read, 12 (1856); American Insurance Co. v. Searg. & Rawle, 440 (1820); Savage Ogden, 20 Wend. (N. Y.) 280, 302 V. Pleasant, 5 Binn. (Pa.) 403 (1838), reversing 15 Wend. (N. Y.) (1813); 3 Kent's Com. 394; 1 Phil- 541. lips' Insurance, § 1115. ^ Green v.- Pacific Mut. Ins. Co., 9 *■ 3 Kent's Com. 298. Allen (Mass.), 217 226 (1864); 2 "Ruckman v. Merchants', etc.. In- Phill. Ins., § 1537. § 499 MARINE INSURANCE. 573 be sufficient to create a necessity which would warrant the sale of the vessel for the benefit of whom it may concern, and justify a claim for a total loss, although the actual injury to the ship might be less than half her value." § 499. Sale by the master. — Where the ship is in a position of extreme peril, the proper protection of the interests of all concerned may make it the duty of the master to effect a sale. If possible, it is his duty to consult the owners, but when this is impossible, the master may make the sale upon his own re- sponsibility.^* But the master is justified in making such a sale only under circumstances of peril, after full considera- tion of the circumstances, a careful examination of the condi- tion of the ship, and after having first made every effort in his power with the means then at his disposal to extricate the ship from her peril, or to raise funds for her repairs.*" So carefully is this power guarded thait it has been said "that the facts and circumstances must exclude every rational the- ory that the interests of those he represents would be sub- served in any other way than by the sale; or in other words to refrain from selling, to one of ordinary maritime experi- ence and intelligence as the shipmaster, must seem to be a violation of his manifest moral duty."*^ Under the conditions, of course, the master cannot purchase on his own account or for that of his owners without waiving the abandonment.*^ Where the ship is thus sold, the title to =»2 Phillips' Insurance, §§ 1577, ance Co., 54 Me. 55, 77 (1866). The 1578; Barber Insurance, § 133; 2 authority of a master to sell a ves- Parsons' Marine Law, 344; Prince v. sel or cargo in case of marine disas- Ocean Insurance Co., 40 Me. 481 ter rests exclusively upon the ground (1855); Gordon v. Marine Ins. Co., of necessity. In kind the necessity 2 Pick. (Mass.) 249; The Schooner is not a legal or physical necessity, Tilton, 5 Mason, (C. C.) 476; Hun- but a moral one, and though different ter V. Parker, 7 Mees & W. 342 courts and jurists use various epi- (1840); Acatos v. Burns, L. R. 3 thets to intensify the degree of the Exch. Div. 282 (1878) (right to sell requisite necessity, these add little goods). significance to the simple words, "Cobequid M. I. Co. v. Barteaux, moral necessity. L. R. 6 P. C. A. 319 (1875), quoting "Ogden v. Fire Ins. Co., 10 John. 1 Arnould Insurance, p. 191. (N. Y.) 177 (1813). "Stephenson v. Flscataqua Insur- 5T3 ABANDONMENT. . § 500 the proceeds of the sale passes at once to the insurers, and therefore, according to the great weight of authority, no aban- donment is necessary.** § 500. Goods separately valued.— Phillips says that "Where divers articles of a cargo are indiscriminately insured in the same policy and against the same risks a separate abandon- ment of any one of them cannot be made though they are separately valued."** But the riile recognized in the California Code seems to be established by the weight of authority, and is to the effect tha:t where any part of the cargo is separately valued although covered by one policy and a gross premium, there may be an abandonment of the part that is separately insured.** Thus, where the insurance covered sugar, maize and logwood, and the quantity of each was separately stated and valued, and more than one-half the sugar was damaged, by the perils of the sea, the right to abandon the whole of the sugar was sustained.*® § 501. Time when must be made. — Abandonment must be made within a reasonable time after information of the loss, after commencement of the voyage, and before the party aban- doning has information of its completion. The reasonableness of the time must be determined by the circumstances of the case.*" After having taken a reasonable time to ascertain the "Farnsworth v. Hyde, 18 C. B. N. (1858); Humphrey v. Union Ins. S. 835 (18651: The Brig Sarah, 2 Co., 3 Mason (C. C), 429 (1824). Sumn. (C. C.) 206 (1836): Prince See opinion of Jervis. C. J., in Ralli V. Ocean Insurance Co., 40 Me. 480 v. Janson, 6 EI. & BI. 422 (1856). (1855). As to when there is such separate "2 Phillips' Insurance. § 1661. insurance, see Schumitsch v. Amer- See Hernandez v. Sun il. I. Co.. 6 lean Insurance Co., 9 Ins. L. J. 60. Blatchf. (C. C.) 317 (1869); Newlin "Deiderick v. Commonwealth Ins. V. Insurance Co., 20 Pa. St. 312 Co., 10 Johns. (N. Y.) 233 (1813). (1853). "Hunt v. Royal Exchange Assur- «3 Kent's Com. 329: Emerigon ance Co., 5 Maul & S. 47 (1816) (Meredith's ed.), chap. 17. § 8; (delay of five days held unreason- Ocean Insurance Co. v. Carrington, able) ; Bell v. Beveridge, 4 Dallas 3 Conn. 357 (1820); Kittel v. Alii- (Pa.), 272 (1803) (delay of five ance Insurance Co., 10 Gray (Mass.), months under the circumstances not 144. 154 (1857); Silloway v. Xep- unreasonable), tune Ins. Co., 12 Gray (Mass.), 73 § 503 MARINE INSURANCE. 574 facts,*' the insured must promptly elect to abandon or not to abandon, and if he elects to abandon, he must give prompt no- tice thereof to the underwriter.*" § 502. Must be complete. — An abandonment, which has for its object the transfer of the title to the property to the under- writer, must be positive, complete and unconditional.'" § 503. Notice — ^Manner and character of. — An abandonment, unless otherwise provided for in the policy, is made by giving either oral or written notice thereof to the underwriter. Such a notice is necessary unless waived expressly or by the accept- ance of an actual abandonment, and is an offer made by the insured to the underwriters to vest the property in the under- writers, so that they may deal with it as itheir own.'^ The notice must be explicit and must specify the cause of the abandonment although it need state only sufficient to show " Browning v. Provincial Ins. Co., L. R. 5 P. C. 263, 28 L. T. 853, 2 Asp. M. C. 35. "Kleinwort v. Cassa Maratime, L. E. 2 App. Cas. 56 (1877); Gemon V. Royal Exeh., 6 Taunt. 381 (1815) ; Maryland Insurance Co. v. Ruden, 6 Cranch (U. S.) 338 (1810). '"Pierce v. Ocean Insurance Co., 18 Pick. (Mass.) 83, 29 Am. Dec. 567 (1836); Higginson v. Dallj li Mass. 96 (1816); Emerigon (Mer- edith's ed.), chap. 17, § 6; Bosley v. Chesapeake Ins. Co., 3 Gill & J. 450 (1831), 22 Am. Dec. 337, and note. " Western Assurance Co. v. Poole, 72 L. J. N. S. (K. B.) 195, 198 (1903); New Orleans Ins. Co. v. Piaggio, 16 Wall. (U. S.) 378 (1872); Bosley v. Chesapeake Ins. Co., 3 Gill & J. (Md.) 450, 22 Am'. Dec. 337 (1831); Gomelig v. Insur- ance Co. 40 La. Ann. 553, 4 So. 490 (1888). Unless the circumstances are such as to render the notice of no avail. Roux v. Salvador, 3 Bing. N. C. 2'66 (1836). By whom given, Hunt V. Royal Exeh. Assur. Co., 5 M. & S. 45 (one of several parties jointly interested ) ; Jardine v. Leathly, 3 B. & S. 700. As to waiver by denial of liability, see De Farconnett v. Western Ins. Co., 110 Fed. 405 (1901). Whfen the policy contains a provision, "there can be no aban- donment of the subject insured," the assured is not bound to give notice of abandonment in order to convert a constructive total loss into an actual total loss. The case is to be consid- ered without reference to such notice or as if no notice were essential to convert a construction into actual to- tal loss. In other words, it was the intention of the parties to eliminate the necessity of notice of abandon- ment in all cases of loss or damage.'' Dewitt V. Prov. Wash. Ins. Co. (N. Y.), 61 App. Div. 390 (1901). See, also, McLain v. British, etc.. Marine Ins. Co., 38 N. Y. Supp. 77. 575 ABANDONMENT. § 503 that there is probable cause, and therefore need not be ac- companied by proofs of interest or loss.^- It is held in this country that the notice must state the cause and the grounds upon which the abandonment is made, and that the assured can avail himself of no other grounds than those stated in the notice.^* Lord Ellenborough once intimated that the word "abandonment" must be used in the notice, but it is now set- tled that this is not necessary.'* Any expression which informs the underwriter that it is the intention of the assured to give up to him the property insured on the ground of its having been a total loss, is sufficient.'' The notice is sufficient if it leaves no reasonable doubt of the intention of the insured to abandon." In one case the following language was held sufficient to constitute a notice of abandonment: "With regard to the Northland, we regret to say that she is a total wreck, and we "See Cal. Civil Code, § 2721; Bosley v. Chesapeake Ins. Co., 3 Gill & J. (Md.) 450, 22 Am. Dec. 337 (1831). ■"Pierce v. Ocean Ins. Co., 18 Pick. (Mass.) 83, 93 (1836), Shaw, C. J. In Suydam v. Marine Ins. Co., 1 Johns. (N. Y.) 181 (1806), the court said: "Though no form be prescribed for the act, yet care should be taken that it be unconditional, explicit, and on sufficient grounds; and particular- ly that the accident occasioning it be described with certainty, so as to en- able an underwriter to determine whether he is bound to accept. If he be not, he will, of course, refuse, and neglect to take measures for the pre- servation of the property, which is one object of making an abandon- ment. The assured here, having re- lied on matter which was not a jus- tifiable cause, must be bound by it and shall not be permitted to avail themselves of a subsequent accident without making a new abandonment. Emerigon appears to be of this opin- ion; he considers an abandonment absolutely null, if at the time there was neither a 'capture, nor ship- wreck, nor stranding, nor arrest of princes, nor innavigability, nor a to- tal loss,' and adds that 'an abandon- ment founded in error produces no effect.' Our opinion then is that here was no valid abandonment, and though it be settled with us that such an act is never too late, while the loss continues total, yet we have not said that a suit can be maintained with- out any abandonment at all; or one assigning a reason which justified a, refusal to accept." Calif. Civ. Code, § 2723; 2 Phillips' Insurance, 1684. This rule does not prevail in Eng- land, 2 Arnould Marine Insurance (7th ed.), 1346, note. " See Parmeter v. Todhunter, 1 Camp. 541 (1808). "^ Currie v. Bombay, etc., Ins. Co., L. R. 3 P. C. 72, 39 L. J. P. C. 1. "Patapsco Ins. Co. v. Southgate, 5 Pet. (U. S.) 604. § 504 MARINE INSURANCE. 571 have hereby to give you notice that we shall claim paymen of the policies we hold against her cargoes and disburse ments."" In the United States the notice must state or clearly implj that the loss exceeds one-halt of the value of the subject o: insurance."' The notice may, of course, be waived by the underwriter and actual abandonment, if accepted by the underwriter, ren ders notice unnecessary.^" Notice must be given within a rea sonable time, but the insured is entitled to take a reasonabli time for the purpose of making an investigaition in order tha he may act advisedly.*" § 504. Basis of valuation for total loss. — There is some uncer tainty as to the basis upon which the valuation should be madi in determining the extent of a- loss which will justify an aban donment. In England the insured can abandon only when th, cost of the repairs would amount to more than the ship woulc be worth when repaired."^ The value of the ship when re paired to the owner is the general test in valued as well as ii open policies."^ In the United States the calculation of fifty pei cent, of the loss is to be made upon the value . of the ship a. the time and place of the accident."* The English authoritiei are to the effect that the value is to be determined according to the rule above stated in open as well as time policies, anc "Currie v. Bombay, etc., Ins. Co., Walker, 3 H. & C. 209, 33 L. J. Ex L. R. 3 P. C. 72, 39 L. J. P. C. 1; 325; Mitchell v. Edie, 1 T. E. 608. King V. Walker, 3 H. & C. 209, 33 "Irving v. Manning, 1 H. L. 28' L. J. Exch. 325; Thelluson v. Pletch- (1847), 1 C. B. 168 (1845). er, 1 Esp. 72 (1793). '"Irving v. Manning, 1 H. L. 28' "McConchie v. Sun Mut. Ins. Co., (1847), 1 C. B. 168 (1845). Se 26 N. Y. 477 (1863). Granger v. Martin, 2 B. & S. 45^ "Canada Sugar Eef. Co. v. Insur- (1862), 4 B. & S. 9 (1863). ance Co., 175 U. S. 609 (1899). "Soelberg v. Western Assur. Co «» Harvey v. Detroit, etc., Ins. Co. 119 Fed. 23 (1903); (note terms o (Mich.) 79 N. W. 898 (1899); King policy); Patapseo Ins. Co., \ V. Walker, 3 Hurl. & C. 209; Currie Southgate, 5 Pet. (U. S.) 60 V. Bombay, etc. Ins. Co., 39 L. J. P. ( 1831 ) ; Bradlie v. Maryland Ins C. 1, L. R. 3 P. C. 72; Potter v. Co., 12 Pet. (U. S.) 378 (1838); Campbell, 16 W. R. 401; King v. Kent's Com. 331; Peale v. Merchanti Ins. Co., 3 Mason (C. C.) 27. O'^'H ABANDONMENT. § 505 this rule was approved by Mr. Justice Story .<>* But in Massa- chusetts and New York the valuation of the vessel as stated in the policy is to be taken as • conclusive for this purpose."' This rule is sometimes incorporated in the policy.'" Chancellor "Walworth very pertinently asks,®^ "If in the case of her total destruction, the underwriters would not be permitted to prove that she was not worth one-half as much when she was lost, as when the voyage commenced, why sihould the assured be permitted to prove that she had deteriorated to that extent, in order to make an abandonment as for a total technical loss, which could not be otherwise maintained?" The courts of ^Massachusetts are also at variance with the general line of authorities on the question of whether a deduction of one- third off for old is to be made in determining the amount of damages for the purpose of abandonment. It is there held that the deduction must be made."* But the contrary is held by the Supreme Court of the United States, in a case where Mr. Justice Story said that the rule does not apply to cases- of a technical total loss."' g 505. Acceptance of abandonment. — The right of the in- sured to abandon under certain circumstances is determined by the facts as they exist when the notice is given,'" and is "Peale v. Merchants' Ins. Co., 3 (1831); Deblois v. Ocean Ins. Co., 16- Mason (C. C), 27 (1822). Pick. 303 (1833); Allen v. Com- " Deblois v. Ocean Ins. Co., 16 Pick. monw. Ins. Co., 1 Gray (Mass.) 154 (Mass.) 303 (1833); Hall v. Ocean (1854). Ins. Co., 21 Pick. 472 ( 1839 ); Crocks "' Bradlie v. Maryland Ins. Co., 12 V. Commonw. Ins. Co., 21 Pick. Pet. (U. S.) 378 (1838). Chancellor (Mass.) 456 (1839) ; Allen v. Com- Kent says (3 Com. p. 331), that "the mercial Ins. Co., 1 Gray (Mass.), half value which authorizes an aban- 154 (1854) ; American Ins. Co. v. donment is one half the sum which Ogden, 20 Wend. (N. Y.) 287 (1838). the ship would be worth without any "Harvey v. Detroit, etc.. Mar. Ins. such deduction," citing Center v. Co. (Mich.), 79 N. W. 898, 28 Ins. L. American Insurance Co., 7 Cowan J. 834 (1899); Soleberg v. Western (N. Y.) 564 (1827), 4 Wend. 45.. Assur. Co., 119 Fed. 23 (1903). See 2 Phillips' Insurance, § 1536. " American Insurance Co. t. Ogden, " Dickey v. American Ins. Co., 3 20 Wend. 287 (1838). Wend. (N. Y.) 658, 20 Am. Dec. 763 "Sewall V. United Ins. Co., 11 (1829); Orient Ins. Co. v. Adams, Pick. 90 (1831); Winn v. Columbia 123 U. S. 67 (1887). Ins. Co., 12 Pick. (Mass.) 279 § 505 MARINE INSUKANCE. 578 not affected by the refusal of the insurer to accept the aban- donment. If the insurer in fact accepts the abandonment, it .is conclusive upon the parties and admits the loss and the pro- priety and sufficiency of the abandonment/^ and in this coun- try no subsequent developments can affect the right of the in- sured to recover.'^ This acceptance may be expressly or by implication, as by acts and conduct inconsistent with any other intention/^ Mere silence, however, on the part of the under- writer will not preclude him from contesting the abandon- ment.'* By the weight of authority, however, elsewhere than in Massaehusetts,'^ when the underwriter takes possession of a vessel after abandonment, he accepts the abandonment, and after repairing the ship cannot tender her back to the insiured in fulfillment of his contract.'" On the other hand, the insured "Insurance Co. v. Piaggio, 16 Wall. (U. S.) 378 (1872); Phoenix Ins. Co. v. Copelin, 9 Wall. (U. S.) 461 (1869) ; Reynolds v. Ocean Ins. Co., 22 Pick. (Mass.) 199, 33 Am. Dec. 727 (1839). "Northwestern Transp. Co. v. Con- tinental Ins. Co., 24 Fed. 171 (1885) ; Dickey v. American Ins. Co., 3 Wend. (N. Y.) 658, 20 Am. Dec. 763 (1829); Wood v. Lincoln Ins. Co., 6 Mass. 479, 4 Am. Dec. 163 (1810). "Hudson V. Harrison, 3 B. & D. 97 (182); Capelin v. Insurance Co., 9 Wall. (U. S.) 461 (1869). "Peale v. Merchants' Ins. Co., 3 Mason (C. C), 27, 81 (1822) ; Bodge V. Ocean Ins. Co., 23 Pick. (Mass.) 347 (1839); Washburn, etc., Co. v. Reliance Ins. Co., 179 U. S. 1 (1900). " See Wood v. Lincoln, etc., Ins. Co., 6 Mass. 479(1810), Parsons, C. J. Deblois v. Ocean Ins. Co., 16 Pick. 303 (1835); Reynolds v. Ocean Ins. Co., 22 Pick. (Mass.) 191, 1 Met. (Mass.) 160 (1840). "The Blairmore, 67 L. J. (P. C.) 96 (1898), H. L. App. Cas. 593; 2 Parsons' Marine Insurance, 361; 2 Phillips' Insurance, §§ 1559, 1706; 2 American Leading Cas., 2d ed., 379; Barber Insurance, p. 372; Fulton Ins. Co. V. Goodman, 32 Ala. 108 (1858) ; Ruckman v. Merchants' Ins. Co., 5 Duer (N. Y.), 342 (1856). In Gloucester Ins. Co. v. Young, 2 Cur- tis (C. C), 322 (1855), it appeared that the imderwriter had taken pos- session of the ship and repaired her, and tendered her to her owners and claimed the right to do this under the Massachusetts authorities. Mr. Justice Curtis said: "But this court held in Peale v. Merchants' Ins. Co. (3 Mason, 27) that the insurer had no such right; and this being a ques- tion not of mere local municipal law, but arising under the law merchant, and though this court must consider with unaffected respect the decisions of that court on this question, yet they are not binding on our judg- ments, and we have no right to eon- form to them when we believe they do not announce the true rule. . . . Being satisfied of the correctness of the decision of this court in Peale v. Merchants' Ins. Co., and of its con- 579 ABANDOXIIENT. § 506 may waive his right to abandon, expressly or by acts prior to its acceptance, which are inconsistent with a recognition of the fact that there has been a complete transfer of his property and interests to 'the underwriter." But acts of the master after abandonment not inconsistent with his possession as agent of the underwriters do not affect the legality of the abandon- ment.'* ilarine insurance policies often contain a provision to the effect that the acts of either party, after the accident, done with a view to saving property, will not be considered a waiver, or an acceptance of the abandonment." § 506. Effect of abandonment. — ^After abandonment ana proper notice thereof is given, the title to the property passes to the underwriters, and they become the owners from the date of the casualty.*" Therefore the giving of proper notice fonnity with sound principles, I can- not overrule it, because the highest court of the state has subsequent to the decision taken a different view of the right of the insurers. The law of the place of the contract being the general law merchant, I am bound to declare that in my opinion it did not confer on the underwriter the right claimed to take possession on an of- fer of abandonment and repair and restore the vessel, and thus perform his contract." " Canada Sugar Refining Co. v. In- surance Co., 175 U. S. 610 (1899); Colombian Ins. Co. v. Catlett, 12 Wheat. (U. S.) 384 (1827); Ogden V. New York F. I. Co., 12 Johns. (N. Y.) 25 (1814); Abbott v. Sebor, 3 Johns. Cas. (X. Y.) 45 (1802) (pur- chased by the owner) ; Dickey v. American Ins. Co., 3 Wend. (N. Y.) 658 (1829) (repair of ship) ; Suarez V. Sun Mut. Ins. Co.. 2 Sandf. (N. Y.) 482 (1849) (partial and tem- porary repairs only). "Columbian Ins. Co. v. Ashby, 4 Pet. (U. S.) 139 (1830); Washburn & Moen Mfg. Co. v. Reliance Mar. Ins. Co., 106 Fed. 116 (1895) (in- surer transshipping saved portion of cargo). '" Gloucester Ins. Co. v. Young, 2 Chirtis (C. C), 322; Soelberg v. Western Assur. Co., 119 Fed. 23 (1903), under the sue and labor clause. ^'Comegys v. Vasse, 1 Pet. (U. S.) 218 (1828); Sun Mut. Ins. Co. v. Hall, 104 Mass. 507 (1870); Ran- dall V. Cochran, 1 Ves. Sr. 98; Leath- am V. Terry, 3 Bos. & P. 479 (1863) ; Thompson v. Rowereroft, 4 East, 34 (1803). The valuation fixed by the policy is conclusive. The St. John, 101 Fed. 469 (1900). "If a party chooses to have his vessel, or his goods, as the case may be, taken at a fixed value, instead of leaving the contract, as in an ordinary policy, simply one of indemnity to the ex- tent of the real value, and if thereby any benefit accrues to the underwrit- er, the underwriter must be entitled to it." Association v. Armstrong, L. R. 5 Q. B. 244 (1870) ; The Potomac. 506 MARINE INSDRANCE. 580 in a case justifying abandonment or the acceptance of the abandonment after notice effects a complete transfer of the in- y, terest of the insured 'in the property, although it may not have been insured for its full value.*^ Where the policy provides that an abandonment for a total loss should not be effectual unless it was sufiScient to convey to the insurance company an unencumbered and perfect title to "the subject abandoned," and several companies have poli- cies on the vessel, it is only necessary to convey a proportion- ate part to one company.*^ The party to vsrhom an abandonment is made becomes there- after entitled to aill claims for general average and contribu- tion,*' or damages,'* or other indemnity vi^hieh the insured then had including prospective earnings of freight.*^ Freight al- ios U. S. 630 (1881) ; Mason v. Ma- rine Ins. Co., 110 Fed. 452, 44 C. C. A. 106, 54 L. R. A. 700 (1901), citing numerous cases. See § 508. "Mason v. Marine Ins. Co., 110 Fed. 452, 49 C. C. A. 106, 54 L. R. A. 700 (1901), See note, 87 infra. '^ Harvey v. Detroit, etc., Mar. Ins. Co. (Mich.), 79 N. W. 898, 28 Ins. L. J. 834 (1899). The court said: "Counsel argue, 'The insurance cov- ers the whole body of the schooner, and the abandonment should be co- extensive with the subject insured,' citing The Mary Perew, 15 Blatchf. 58, Fed. Cas. No. 9207; The Mani- toba, 30 Fed. 129. The authorities are not free from conflict. If the con- tention of defendant is true, before plaintiff could malce an abandonment which would entitle him to recover from the defendant, he must make a conveyance which would cut off his right to recover from the other under- writers who had policies on the ves- sel. It was the opinion of the trial judge that 'The provision in the pol- icy requires that the abandonment shall be evidenced by a written trans- fer, which shall convey to and invest '' in the insurance company an unin- cumbered and perfect title to the subject abandoned. The subject aban- doned, in my judgment, means that part of the policy covered by the in- surance.' The conclusion is justified by 2 Phill. Ins. §§ 226, 1490; 2 Am. Ins. 953, 956, 979; Rice v. Cobb, 9 Cush. 302; Phillips v. Insurance Co., 11 La. Ann. 459; Insurance Co. v. Duffield, 6 Ohio St. 200. See Insur- ance Co. V. Johnson, 17 C. C. A. 416, 70 Fed. 794; The Potomac, 105 U. S. 630." •^Sturgis V. Gary, 2 Curtis (C. C), 59 (1854); The St. John, 101 Fed. 462 (1900). The right of subroga- tion does not, however, depend upon abandonment. "Mason v. Marine Ins. Co., 110 Fed. 452 (1901); Atlantic Ins. Co. V. Storrow, 5 Paige (N. Y.), 285 (1836). *° Burnand v. Rodocanochi, L. R. 7 App. Cas. 333. The underwriter on the ship becomes entitled to freight earned if the ship com- pletes her voyage after the aban- 581 ABANDONMENT. § 500 ready earned at the time of the disaster goes to the owner of the ship, or to the insurers of the freight, if it ia insured. "Where the freight is still pending, the English doctrine is that upon abandonment the whole freight goes to the abandonee, on the theory that the right is immature at the time of the abandonment and therefore not detachable ' from the ship, but many American courts have adopted what seems to be a more equitable rule, and award pending freight where it has been finally matured by the underwriter, to him and the owner of the vessel pro rata itineris, which each has accomplished. Thus by a device of equity the freight is divided at the date of the disaster.*' Under an ordinary policy, the right of the insurer, who has paid a total loss, to recover against third parties who caused the loss is limited to the amount paid the insured. But where the policy is valued the value thus determined is conclusive as between the parties, and upon abandonment the underwriters succeed to the insured's claim for damages against the party whose tortious act occasioned the injury to the full extent of the claim of the insured, even though it exceeds in amount the insurance paid.^^ donment. In The Red Sea (1896), P. L. Cas. 159 (1848). But not to 20, Lord Esher, M. R., said: "Now the freight paid in advance. London what is the effect of that (abandon- Assur. Co. v. Williams, 9 L. R. 96, ment) as between the underwriters 257 (C. A.) (1892). and the shipowners, according to the *■ Mason v. Marine Ins. Co., supra. ease of Case v. Davidson, and all the ">.orth of England, etc., Assn. v. others? It seems to me that Lord Armstrong, L. R. 5 Q. B. 244. Co- Ellenborough pointed out distinctly megys v. Vasse, 1 Pet. (U. S.) 193; in that case, first of all that the ship Phoenix Ins. Co. v. Erie Transp. Co., is to be considered as having passed 117 U. S. 312 (1885). The Liv- to the underwriters after the aban- ingstone, 122 Fed. 278 (1903), and donment has been accepted, as from cases there cited. This case was re- the time when the damage occurred versed by the Circuit Court of Ap- to her, which entitled the shipo^vner peals (130 Fed. 746) (1904), but the to abandon her. From that time the rule there established is againsit the underwriter is entitled to everything weight of authority and does not seem which that ship, then being his, can satisfactory in principle. It is di- eam, that is to say, that he can earn rectly in conflict with the English by her as being her owner." See rule as settled by the case of North Case V. Davidson, 5 M. & S. 79 of England Assn. v. Armstrong, (1816), 1 Eng. Rul. Cas. 140; Stew- supra. -art V. Greenock Mar. Ins. Co., 2 H. § 507 MARINE INSURANCE. 583 The underwriters, however, are entitled to no greater rights than were possessed by the insured, and if the insured has by a special contract waived or limited his right to claim damages from the party whose negligence caused the loss, the under- writer is bound by the contract, even though he had no notice of its existence when the insurance was effected.** The concealment of the fact that such a contract is in ex- istence may excuse the insurer from the payment of the loss, but if payment is voluntarily made, the insurer is without a remedy.*^ But where the right to compensation from a third party passes by abandonment to the insurer, any compromise or settlement made after notice to the third party of the rights of the insurer, is void.*" The underwriter takes the property subject to all valid liens then existing against it.°^ § 507. The master as the agent of the underwriters. — ^Upon the abandonment of the property, the master becomes the agent of the underwriters, and from that time all acts which are done in good faith by the master and others who were the agents of the insured before the loss, are at' the risk and for the benefit of the underwriters. The abandonment relates back to the time of the loss,°^ and the underwriters are liable for "Mercantile Mut. Ins. Co. v. Ca- (1854) (doubted whether there could lebs, 20 N. Y. 173 (1859). be a valid abandonment without hav- ^ See Insurance Co. v. Blackj 1 ing first discharged liens ) . Woods (C. C), 72 (1870). "Gilchrist v. Chicago Ins. Co., 104 ""Home Ins. Co. v. Western, etc., Fed. 566 (C. C. A.) (1899), Harlan, Ins. Co., 33 How. Pr. (N. Y.) 102 J. That the transfer is retroactive (1886). As to the right of action and operates from the moment of and in whose name it must be the casualty which gives the right brought, see Clark v. Insurance Co., to abandon, see Coolidge v. Glou- 100 Mass. 509 (1868); Marine Ins. cester Marine Ins. Co., 15 Pick. Co. v. Clark, 118 Mass. 288 (1875) ; (Mass.) 343. This is the rule under- The Frank G. Fowler, 8 Fed. 360 the English authorities. 2 Arnoukl (1881) ; Swarthout v. C. & N. W. E. Marine Ins. (7th ed.), 1364. In Co., 49 Wis. 625 (1880) (where there France under the Code of Commerce, are several insurers all must join in Art. 385, salvage vests in the under- one action against the wrong doer). writer from the time the notice of "Gordon v. Miss., etc., Ins. Co., 2 abandonment is given. Bouley-Pat- Pick. (Mass.) 249 (1824); Allen v. tey, Droit Mar. torn. IV, p. 373. Comw. Ins. Co., 1 Gray (Mass.), 154 Emerigon, C. XVII, ». 6, p. 232,, ^83 ABANDONMENT. § 5or the bona fide acts of the master during the intermediate period."^ "By the general law maritime," says Arnould,®'' "as recognized alike in this country and foreign states, the assured is bound on the occurrence of any casualty which authorizes an aban- donment to do his utmost to avert a total loss, so as to lighten as far as possible the burden which is to fall on the under- writers. In so doing he is considered to be the agent of the underwriters, and the exertions he makes in such capacity do not at all prejudice his right to insist on his abandonment. * * * Immediately therefore that the emergency arises, and before notice of abandonment has been given, the master is bound to take every necessary measure for the defense, safe- guard and recovery of the thing insured; in so doing he acts as the agent for both parties, or, more accurately speak- ing, as the agent of the party who may eventually turn oui to be interested in the salvage, and as such derive benefit from his exertions.'* If no abandonment is made, or if the aban- donment is not justified by the circumstances, that party is of course, the assured himself; and it is to him the master must look for all repairs hona fide incurred in the agency. In the case, however, of an abandonment which is either accepted or ultimately effectual, the underwriter ia the owner of the prop- erty from the moment of the casualty,®' and therefore the mas- ter, by operation of law, is his agent in so acting.'"' claims that abandonment operates to 27 L. J. Q. B. 120 (1857), Lord transfer the whole interest to the nn- Campbell. derwriter from the commencement of " That the agency of the master is the risk. transferred simultaneously with the "Gilchrist v. Chicago Ins. Co., 104 transfer of the property, see Colum- Fed. 566 (1899), Harlan, J.; Dederer bian Ins. Co. v. Ashby, 4 Pet. (U. S.) T. Delaware Ins. Co., 2 Wash. (C. C.) 138 (1830); Phillips v. St. Louis, 61; The Sarah Ann, 2 Sunm. (C. etc., Co., 11 La. Ann. 459 (1856); C.) 206 (1835). Story, J.; Wallace Gardere v. Ins. Co., 7 Johns. (N. Y.) T. Insurance Co., 22 Fed. 66, 73 514 (1811); Smith v. Manufacturers' (1884), Matthews, J.; 3 Kent Com. Ins. Co., 7 Met. (Mass.) 449 (1844) ; 319. Bryant v. Comimonw. Ins. Co., 6 "2 Arnould Mar. Insurance (7th Pick. (Mass.) 131 (1828); Smith v. ed.), 1336. Touro, 14 Mass. 113 (18-17); Dela- "3 Kent's Com. 331. ware Ins. Co. v. Winters, 38 Pa. St. •• Miller V. Woodf all, 8 E. & B. 495, 176 (1861). The relation of the § 508 MARINE INSURANCE. 584 If the master in good faith re-purchases the ship after eon- demnation and before notice of abandonment, on account of his owner, the owners are bound by his act.®' If the re-pur- chase is after notice of abandonment and acceptance, the pur- chase is for the benefit of the underwriters and at their op- ftion, and they may take or refuse to accept the benefit of the same."' § 508. Time when right is determined — ^Erroneous informa- tion. — In England the right to recover for a total loss on aban- donment depends upon the condition of affairs at the time the action is brought. Hence, although the conditions were master to the parties to a contract of insurance is stated by Chancellor Walworth in a case where it appeared that after the vessel had received in- juries which justified an abandon- ment, the master so notified the i"- sured, who thereupon served notice of abandonment upon the underwrit- ers. In the meantime, however, the master had repaired the ship, and at the time when the notice of abandon- ment was given to the underwriters the vessel was proceeding on her voy- age in safety. The Insured claimed the right to recover for a total loss, and the Chancellor said: "I appre- liend the question whether the mas- ter is the agent of the owner or of the underwriter depends upon the fact of a valid abandonment during the continuance of the total loss. If a valid abandonment is made, it re- lates back to the time of the disaster; a,nd as to all acts of the master done in good faith in the discharge of his duty, he is, in that case, to be con- sidered the agent of the underwriter. While it is doubtful whether the as- sured ABLE Interest; Ownee. TITLE INSURANCE, construction of policy, 423. TOTAL DISABILITY, what is, 403. I TOTAL LOSS, arbitration and appraisement, 318. under valued policy, 318. damage to foundation not considered, 335. frame building within fire limits, 235, 336. insurer electing to rebuild, 327. effect of valued policy, 327. meaning, 335. recovery under valued policy, 209, 333. See Loss. TRADE, contract In restraint of, 8. TRUSTS, beneficiary without Interest, Texas rule, 62. insurable interest of trustee and cestui que trust, 48. 654 INDEX. [References are to Sections.'] U USAGE, as controlling materiality of location, 219. as determining rate, 126. as to giving notice of maturity of premiums, 134. testimony of insurance expert as to, on question of materiality, 117. USB OF PREMISES, breach of condition as to, 205, notes 15, 16. change in, alterations by mechanics, effect, 256. description of, when a warranty, 215. prohibited articles, 283, 284. exception in favor of kerosene oil, 285. See Excluded Peopeett; Exclttded Risks; Inceease of Risk; Occtr- panoy; Pkohibited Abticuis; Vacancy. V VACANCY, condition against, p. 2S5. breach of, 205, notes 15, 16. construction of, 287. illustrations, 291. in case of a dwelling house, 289. in case of building and contents, 290. ■" effect on rate of premium, expert evidence, 255. increased danger of fire from, expert evidence, 255. temporary, effect, 286. "vacant" and "unoccupied" distinguished, 288. what is, 287. See Occupancy. VALUE, at date of loss, measure of damage, 337. false statement as to, effect, 228. proof unnecessary under valued policy, 30. stated In application, company not bound by, 337. See Certieicate of Loss; Measuee of Damages. VALUED POLICY, defined, 30. insurer's right to rebuild under, 327. legislative provisions, 333. constitutionality of, 334. measure of damages, 209. overvaluation, effect, 228, 333. INDEX. 655 IBeferences are to Sections.} VALUED FOIACY— Continued, Bubmitting amount of loss to arbitration not a waiver of statutory benefits, 318, note 119. total loss, arbitration and appraisement, 318. me.asure of damages, 333. ■where in force, 333. VENDOR AND VENDEE, Insurable interest, 48. VENDOR'S LIEN, for purchase money, effect on quality of title, 258. See Alienation; Incumbrances; Title and Owneeship. VOID OR VOIDABLE, condition broken as to other insurance, 245. VOYAGE POLICY, defined, 30. W WAGER CONTRACT, form of policy not allowed to cover and protect, 69. WAGER POLICY, defined, 30. prohibited, 30, WAIVER, basis of, 178. company estopped to assert, when, 185. condition as to, p. 305. definition, 143, note 98, 175, 176. factory running over hours, issuing policy with knowledge, 252. In writing only, construction of condition, 185. knowledge and intent essential, 177. limitations upon power of, 301. not inferred from mere silence, 179. of condition against other insurance, 249. of condition against removing stock, 183. of condition requiring certificate of nearest notary public, ISO note 10. of conditions by president and secretary, provision against, 163. of conditions in policy, 180. evidence to show, 159. power of agents, 182. of defenses, 181. of failure to give notice of loss, when not, 181, note 16. 656 INDEX. [References are to Bectiont.l WAIVER— Continued, of forfeiture, 206. affirmative action to deny, 206. effect on policy, 176, note 2. parol evidence to show, 189. for breach of condition by agent, 158. note 50. for removal of property, 219. of fraud, 68. of imperfection in answer to inquiry, 87. of incumbrances by agent, 258. of iron safe clause by general agent, 301. of limitations as to time of bringing suit, 359. of notice of assignment of policy, 363, note 94. of prepayment of premium, 130, 358. by agent, 159, 184, 359. by clerk of agent, 156. by general agent, 129. of proofs of loss, what is, 311. of provision in policy by oral agreement to renew, 2C. of right to arbitrate, what is, 323. to second arbitration, 324. to forfeiture, implied, 128. to rebuild, 180, note 10. of time Of payment of assessments, 143. of premiums, 128. presumption of knowledge, 177. See Acceptance; Estoffel. WAR, suspension of contract by, 128. WAREHOUSEMEN, insurable interest, 47. WARRANTIES, application and survey, in standard policy, 224. are conditions in the policy, 79. as to space between buildings, knowledge of agent, 188. condition precedent, 118. , not in Minnesota, burden of proof as to falsity, 118. defined, 102. descriptions construed as, when, 215. Incorrectly written by agent, 188, note 40. oral evidence to show incorrectness, 189. irresponsive answers are not, 88. mistake, good faith answer, lOSa. not created by implication, 106. 34 — Elliott Ins. iNDiac. 657 {References are to Sections.] WARRANTIES— OontiMited, not favored In law, 107, note 23. overvaluation as a breach of, 228. statements in application as, 367a. See Concealment; Fbatjd; Mjsbepeesentations; Mistase; Repbbbenta- TIONS AND WABBANTIES. WATCHMAN, employment of while factory idle, 261. WATER DAMAGE, resulting from flre, policy covers, 221. See Cause of Loss. WEARING APPAREL, when covered by policy, 220. WILL, power to change beneficiary in, 354. ♦ in mutual company, 356. WORDS AND PHRASES, "any use or custom of trade or manufacture to the contrary," 283. "apparent or ostensible authority," 158. "as his interest may appear," 259. "bodily infirmity," 399. "brick building," 215. "cease to be operated," 251. "children," policy payable to, 352. "date of notice," 134, note 66. "dependent," 66, 352. "direct loss or damage by fire," 221, 222. "disease," 399. "dwelling," construed as description, not warranty, 215. "forthwith," separation of goods, 305. "good health," 375. "grain," 216. "guano," 216. "heirs," 352. "household furniture," 216. "immediate" notice, 304. "insurable interest," 42, 57. "insurance," 6. "insurance agent," 150. "insured," p. 381. "interest" broader than title, 227. "live stock," 216. "loss," p. 381. "machinery," 216. 658 INDEX. IReferences are to Sections.'] WORDS AND PHRASES— ConHiiMed, "material fact," 90. '"merchandise," 216. "plate," 236. premium "to be paid in advance to the company," 129, "rags and old metals," 216. "relatives," who included, 352. includes stepfather, 66. "self-destruction in any form," 394, note 38. "serious illness," 375. "stock in trade," 216. "storage," 236. "store" construed as shop, 217. "store fixtures, ' 236. "storehouse," 215. "tools," 216. "total disability," 403. "total loss." 335. "true" and "untrue" answers, 108a. "vacant or unoccupied," meaning, 288. "valid or invalid," other insurance, 247, 248. "void" construed as voidable, 203. "voluntary exposui'e to unnecessary danger," 398. See CoNSTBUCTiON OF Policy; DETiniTioNa. Whole number of pagres, 677. ii- Sffl&^i;; m iiilMi ^^r'-m