FIRE INSURANCE LAW

(Including Standard Policy)

PART I

INTRODUCTION

Insurance Law and Contract Law. Insurance law, so far as the policy is concerned, being a matter of contract, is subject to the general rules governing contracts. It will, therefore, be presumed in this work that the reader is familiar with the law of contracts and the briefest reference possible will be made to the general subject. Professor Eugene Wambaugh of Harvard University has stated that insurance is not, as it is sometimes hastily supposed, a mere application of the law of contracts and agency to the special phases of the contract as developed or used in a policy of fire insurance; but it has certain developments-peculiarities they may be called-of its own which are due to the fact that the laws of insurance were quite well worked out in the law of merchants, a law which was of Continental, and not English, origin.

To understand properly any special case arising under a policy it would be extremely desirable to have a copy of the policy and to know all the facts concerning the case. This, however, it is not always possible to secure. Since 1887, in New York, and since 1881, in Massachusetts, the standard policy may be supposed to be the one in question, but decisions prior to that time were based usually on individual policies rather than on one common form of policy.

A contract has been defined many times. In general, it is an agreement between parties to do or not to do something for a consideration. It may be verbal; in a great many cases, and in nearly all insurance contracts, it can be. It may be in writing; in nearly all insurance contracts it is in writing, eventually, although it may be a verbal agreement for a brief while. Neither party, however,

would desire to rest the contract on so unstable a record as a mere

verbal agreement.

Anson, in his "Law of Contracts", states the following five principles as necessary to a legal contract:

(1) A communication or offer and acceptance between the parties. (2) The evidence necessary to establish a legal relation.

(3) The parties must be capable of making the contract which they enter into or propose to enter into.

(4) The offer and acceptance must be absolutely genuine.

(5) The object for which the contract is made must be legal.

Beyond stating these fundamental principles in the law of contracts no further space will be devoted to the subject.

It will be understood without further reference that as this article treats of the law of fire insurance, only this particular phase of insurance law is referred to when the broader term is used.

Insurable Interest. It is essential to the contract that there shall be an insurable interest. In the early days insurable interest perhaps was not absolutely requisite, although it appears to have been more so in fire insurance than either in marine insurance or in life insurance. In 1746, a statute was placed on the books in Great Britain making insurable interest necessary in marine policies.

Gambling Act. In 1774 the so-called Gambling Act, Statutes 14 of George III., ch. 48, was placed on the books. It is a brief Act and reads as follows:

An Act for regulating insurances upon lives, and for prohibiting all such insurances, except in cases where the persons insuring shall have an interest in the life or death of the persons insured.

I. Whereas, it hath been found by experience, that the making insurances on lives, or other events, wherein the assured shall have no interest, hath introduced a mischievous kind of gaming: For remedy whereof, be it enacted by King's most excellent majesty, by and with the advice and consent of the lords, spiritual and temporal, and commons, in this present parliament assembled, and by the authority of the same, That from and after the passing of this act, no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, by way of gaming or wagering; and that every assurance made contrary to the true intent and meaning hereof, shall be null and void, to all intents and purposes whatsoever.

II. And be it further enacted, That it shall not be lawful to make any policy, or policies on the life or lives of any person or persons, or other event

or events, without inserting in such policy or policies the person or persons, name or names, interested therein, or for whose use, benefit, or on whose account, such policy is so made or underwrote.

III. And be it further enacted, That in all cases where the insured hath interest in such life or lives, event or events, no greater sum shall be recovered or received from the insurer or insurers than the amount or value of the interest of the insured in such life or lives, or other event or events.

IV. Provided always, That nothing herein contained shall extend, or be construed to extend, to insurances bona fide made by any person or persons, on ships, goods, or merchandises; but every such insurance shall be valid and effectual in the law, as if this act had not been made.

This Act made an insurable interest necessary to a contract of insurance which depended on a life or other event.

Definitions. An insurable interest may be defined as, a claim on property either real or personal, which, if said property be destroyed by fire, will be subject to a loss. The insured, in other words, stands so related to a property by ownership or claim or certain rights in the thing insured as will cause him a loss if it be destroyed by fire when not insured.

By Whom Held. An insurable interest may be held by many parties without their being direct owners of the property. The following list is by no means complete, but is fairly comprehensive and suggestive:

The owner at all times has, of course, an insurable interest. He has an insurable interest provided he retains the title in the property, even though the property be mortgaged for its full value. This is based on the theory that, though actual title is held by the nominal owner, the mortgage may be paid and the actual interest be increased to the full value of the property; indeed, the property might increase in value sufficiently to be more than enough to pay the mortgage and leave a surplus for the one who holds the title.

Among others who may hold this interest may be mentioned a trustee, beneficiary under a trustee, executors and administrators, co-partners, assignees, mortgagor and mortgagee, lienholders, vendor and vendee, lessor and lessee, sureties, common carriers, warehousemen, wharfingers, innkeepers, pawnbrokers, stockholders, and creditors. One of the earliest cases to establish this was McGivney v. Phoenix Fire Ins. Co., Supreme Court of New York, 1828, 1 Wend. 85.

"Action on a policy of insurance. On the 29th October, 1825, the defendants insured the plaintiff against loss or damage by fire

on a two-story frame building, privileged as a grocery, and on a stable and shed adjoining, situate in the city of New York, $2,500; and on his stock of groceries, shop furniture and fixtures, household furniture, etc., $5,000. The plaintiff was at the time, and had been for several years, in possession of the premises. About a year previous to the destruction of the property by fire, which took place in December, 1825, he had bought the lot on which the buildings were erected, and entered into a written contract with the vendor by which it was agreed that the plaintiff should pay the vendor for the same $5,000, in five yearly installments, with interest, the title not to be conveyed until all the installments were paid. During the year preceding the fire, he had made extensive repairs on the buildings. At the time of the fire, one year's interest had been paid. After the fire, the plaintiff surrendered his contract to the vendor. The judge of the circuit ruled that the plaintiff had an insurable interest in the premises. The jury found for the plaintiff, $5,277.17. A bill of exceptions to the opinion of the judge was tendered and signed, and the plaintiff now moved for judgment on the ground of its frivolousness."

The Court, through Savage, C. J., said:

"The plaintiff is entitled to judgment. Though the fee of the premises was in another, the plaintiff was in possession under a contract of purchase, had made a payment of interest in pursuance thereof, and had made valuable improvements. He therefore had an insurable interest in the premises. The omission of disclosure of title is not presented by the bill of exceptions as a point raised at the trial, and can not now be considered.

"Judgment for plaintiff."

Other cases are 7 Exe. 323.; 10 Cushing (Mass.) 37; also 31 Ia. 464, which was a case in which some of the stockholders insured the property of the corporation. Reversing the decision of the lower court which had been against the plaintiff, the Supreme Court said:

"Upon precisely the same principle, a stockholder may contract for indemnity against injury to the value of his stock, for he also has an interest in the preservation of the corporate property from destruction by fire; and in its destruction he sustains loss in so far as the value of his stock is depreciated in consequence thereof, or his dividends cut off.

"The argument that if this is allowed owners of stock worth not more than ten per cent upon its nominal value may be insured at its par value; and in case of loss by fire such par value of the stock recovered from the insurer, seems to us to be unsound. Without entering into a discussion in detail of what would be the exact measure of recovery in such case, we simply answer that no more than the actual loss sustained is in any case recoverable. This rule is well established, and rests upon just principles. (See Angell on Fire and Life Insurance, ch. 11, and cases cited in notes.)

"The question under consideration has not received direct judicial determination in any of the States, so far as we have been able to discover. The case of Phillips v. Knox County Insurance Company, 20 Ohio, 174, is cited and claimed as an authority against the right of a stockholder to insure. The decision in that case, as a careful examination of the same fully shows, was made entirely upon a construction of the charter of the insurance company.

"The judgment of the District Court is reversed."

In 122 Pa. St. 37, the Farmers' Mutual Insurance Company v. the New Holland Turnpike Company, it was decided that a subscription towards building a bridge by a Turnpike Company was not an insurable interest in the bridge.

EARLY POLICY FORMS

The piece of paper on which the contract of insurance is written is called a policy, a word derived from the Italian polizza, meaning to promise.

Marine. The contract of marine insurance, or policy, is a very old document and even in its present form was fairly well crystallized before the fire insurance business was founded, which was in 1667. The customs, usages, and practices in mercantile affairs as transacted at sea, were so well established previous to the year just mentioned, that but few changes have taken place in the policy covering marine risks since that time. In 1774, Lloyds of London adopted a standard form for marine risks, a form which, with but few exceptions, has continued in force down to the present time. The question of changing the marine policy has received consideration by an able commission and the conclusion reached was that while the document was somewhat archaic in its language and contained a vast number of things which would not be put into a modern policy, nevertheless, it had been subject to so many court deci