in general, that the contract of insurance must possess the same requisites of validity that must characterize any other contract. But there are some special rules growing out of the peculiar nature of the contract itself, and the peculiar relation of the parties thereto will require us to examine in detail the application of principles that are already familiar to the student of contract law. The considerations that primarily require this special treatment in the case of insurance contracts are: (1) The quasi public character of insurance business, which has induced a large measure of statutory restraint and control of insurance companies and regulation of insurance contracts; and (2) because the relation of the parties to the contract of insurance is in a measure fiduciary, and therefore, in the making of all insurance contracts, each party is under obligation to exercise the highest degree of good faith towards the other. The consequent special rules of law affecting the formation of the contract of insurance will therefore be now taken up and examined in detail.

CHAPTER III.

PARTIES.

Who May be Insurers.

The Several Kinds of Corporate Insurers.

The Rights of Foreign Insurers.

Contracts Made by Insurers not Complying with Statu

35.

36.

37-38.

39.

40.

41.

42-43.

44-45.

Insane Persons as Parties Insured.

tory Requirements.

Who May be Insured.

Infants as Parties Insured.

Aliens as Parties Insured.

IN GENERAL.

34. There must be at least two parties to every contract of insurance, the insurer and the insured, and there may be a third, the assured or beneficiary. At common law any person capable of making a valid contract may become a party to a contract of insurance, but the contract is one affected by a public interest, and is, therefore, a proper subject for governmental regulation. Such regulation may impose special qualifications as necessary for those who would become parties to the contract. The relation between insurer and insured is that of debtor and creditor, subject to the conditions of the policy, and not that of trustee and cestui que trust.

As in the case of any other contract, there must be at least two parties to a valid contract of insurance. A person cannot contract for insurance with himself, even though, in so doing, he may suppose that he is acting for the insurance company. It has therefore been held that where an agent or other representative of the insurance company, having power to contract on its behalf, insures his own property, or issues a life policy to himself, such insurance is invalid.' The authority of the agent does not extend to any transaction in which his personal interest is opposed to that of his principal.

While there must always be two parties, there may be three, or even four, parties to a contract of insurance. Thus, when one person takes out insurance upon the life of another, the consent of both the assured

1 Pratt v. Insurance Co., 130 N. Y. 206, 29 N. E. 117. See, also, Nenendorff v. Insurance Co., 69 N. Y. 389; Wildberger v. Insurance Co., 72 Miss. 338, 17 South. 282, 28 L. R. A. 220, 48 Am. St. Rep. 558; Greenwood Ice & Coal Co. v. Georgia Home Ins. Co., 72 Miss. 46, 17 South. 83.

and the insured, and of the insurer, is necessary to the validity of the contract. In case the assured assigns such a policy to a fourth party with the consent of the insurer, the assignee then becomes properly a party to the contract.2 So there may be a third party to a contract of fire insurance, as where the standard mortgagee clause is attached to a policy of insurance upon the mortgaged property. The mortgagee in such case becomes a proper party to the contract, who may enforce it by an action in his own name, and whose rights under the contract will not be defeated by the default of the party insured.

The person who grants the insurance is termed the "insurer," and the second party to the contract is called, indifferently, the "insured" or "assured." ↑ There has been some effort made by text-writers and in some of the decisions to make a distinction in the use of the terms "insured" and "assured." The latter has been said to designate the person for whose benefit the insurance is granted, while the word “insured" indicates the person whose life is the subject of the contract. While such a distinction has the sanction of very respectable authority, it cannot be said to be maintained with such consistency as to entitle it to the dignity of a rule of law.

It is customary that the second party to the contract shall be expressly designated, but this is by no means necessary. The name of the insured may be left blank, and parol testimony is admissible to show who is intended as the insured. It is not unusual that policies shall be issued "for the benefit of whom it concerns." This phrase, however, is not so broad in its legal effect as its apparent meaning would seem

Biddeford Sav. Bank v.
Tremblay v. Insurance

2 Kingsley v. Insurance Co., 8 Cush. (Mass.) 400; Dwelling-House Ins. Co., 81 Me. 571, 18 Atl. 299; Co., 97 Me. 547, 55 Atl. 509, 94 Am. St. Rep. 521. 3 See Capital City Ins. Co. v. Jones, 128 Ala. 361, 30 South. 674, 86 Am. St. Rep. 152; Hastings v. Insurance Co., 73 N. Y. 141.

4 See Equitable Life Assur. Soc. v. Commonwealth (Ky.) 67 S. W. 388, where this second party is termed the "insurant."

Ferdon v. Canfield, 104 N. Y. 143, 10 N. E. 146; Smith v. Insurance Co., 5 Lans. (N. Y.) 545. "There are undoubtedly instances where this distinction between the terms ‘assured' and ‘insured' is observed, though we do not find any judicial consideration of it. The application of either term to the party for whose benefit the insurance is effected, or to the party whose life is insured, has generally depended upon its collocation and context in the policy." Per Mr. Justice Field in Connecticut Mut. Life Ins. Co. v. Luchs, 108 U. S. 498, 2 Sup. Ct. 949, 27 L. Ed. 800.

• Burrows v. Turner, 24 Wend. (N. Y.) 276, 35 Am. Dec. 622, and note. "The policy is valid, although no particular person was named therein as the assured." Weed v. Insurance Co., 133 N. Y. 401, 31 N. E. 231, and cases cited. So, where the insurance was effected by certain brokers named therein, "for the owners, payable" to such brokers, the owners were permitted to sue on the policy in their own names. Farrow v. Insurance Co., 18 Pick. (Mass.) 53, 29 Am. Dec. 564. But see dictum in Newson's Adm'r v. Douglass, 7 Har. & J. (Md.) 417, 16 Am. Dec. 317.

to imply. It is merely equivalent to saying that the policy is taken out on behalf of some person not designated; and, while the person contemplated as beneficiary under such policy by the person taking it out may take the benefit of it by ratifying the act of his agent, even when it had been without authority, it has been held that the interest of a stranger not in the contemplation of either of the original parties to the contract cannot be protected thereunder.

Statutory Regulations.

In the absence of statutory provision there is no reason whatever why any person sui juris may not make a contract of insurance, whether as insurer or insured. But since the business has assumed such great proportions, and its proper conduct has become of such vital importance to the welfare of the public, the contract of insurance is now regarded as a proper subject for legislative control.

9

In the language of the Pennsylvania court in a recent case, “The business of insurance against loss by fire is, by reason of its magnitude, its importance as to property owners, and the nature of the business, a proper subject for the exercise of the police power of the state." As to how far the police power, properly invoked for the regulation of so important a business, shall extend in fixing the qualification of those who are going to take part in it, is a matter of much difficulty and doubt.10 It seems to be well settled that the state may impose such regulations as it may see fit, so far as they do not violate the constitutions of the United States or of the state, upon the conduct of insurance within its boundaries, and may prohibit the making of contracts by either natural persons or corporations who have not complied with

7 Newson's Adm'r v. Douglass, supra; Fire Ins. Ass'n v. Merchants' & Miners' Transp. Co., 66 Md. 339, 7 Atl. 905, 59 Am. Rep. 162; Ballard v. Insurance Co., 9 La. 258, 29 Am. Dec. 444. Where there has been no previous authority the contract can only be ratified by the person who was in the contemplation of the party effecting the insurance. Buck v. Insurance Co., 1 Pet. (U. S.) 151, 7 L. Ed. 90. The policy may be ratified after loss. Hooper v. Robinson, 98 U. S. 528, 25 L. Ed. 219. And it has been held that the government may adopt insurance taken out by captors having no insurable interest, and thereby take the benefit of the insurance, although it had not been originally effected for the benefit of the government. Routh v. Thompson, 13 East, 274, 284, 285; 1 Arn. Ins. (7th Ed.) 370; McLaughlin v. Insurance Co. (Com. Pl.) 20 N. Y. Supp. 536.

8 FARMERS' MUT. INS. CO. v. NEW HOLLAND TURNPIKE CO., 122 Pa. 37, 15 Atl. 563; Mosser v. Donaldson (Pa.) 10 Atl. 766.

9 Commonwealth v. Vrooman, 164 Pa. 306, 80 Atl. 217, 25 L. R. A. 250, 44 Am. St. Rep. 603.

10 "When and how far such power may be legitimately exercised with regard to these subjects must be left for determination to each case as it arises." Mr. Justice Peckham in Allgeyer v. Louisiana, 165 U. S. 578, 17 Sup. Ct. 427, 41 L. Ed. 832.

the requirements that have been imposed.11 But may this power to regulate be extended to prohibit contracts by natural persons, and confine the business of insurance wholly to corporations? Freedom of contract is a constitutional right that should not be lightly interfered with, and it would seem that any statute which takes from an individual his common law right to enter into a contract of insurance would be an unconstitutional interference with the freedom of contract.12 Yet in some of the states statutes are found prohibiting, and even penalizing, the granting of insurance by any others than corporate insurers; and in a recent case in Pennsylvania the constitutionality of such statutes has been upheld, though in the face of a vigorous dissent.13 The ground upon which these statutes are held valid is that the regulation of insurance business is a proper exercise of police power, and that effective control of the business is not possible excepting when it is carried on by corporations whose compliance with the requirements of law can be easily compelled.14

Strangers Acquire no Rights Under Contract.

Only those between whom the agreement was made are entitled to the rights of parties,15 excepting, of course, that the beneficiary of the contract may be the real party in interest, and may, as such, enforce the contract.16 But a stranger cannot thrust himself into the contract, and

11 Hoadley v. Purifoy, 107 Ala. 276, 18 South. 220, 30 L. R. A. 351, State v. Eagle Ins. Co., 50 Ohio St. 252, 33 N. E. 1056.

12 For a discussion of the right of citizens to follow the common occupations of life, see Butchers' Union Slaughter-House, etc., Co. v. Crescent City Live Stock Landing, etc., Co., 111 U. S. 746, 4 Sup. Ct. 652, 28 L. Ed. 585.

13 Commonwealth v. Vrooman, supra, Sterrett, C. J., and Dean and Green, JJ., dissenting.

14 A similar question is raised by statutes restricting the business of banking to corporations. In State v. Scougal, 3 S. D. 55, 51 N. W. 858, 15 L. R. A. 477, 44 Am. St. Rep. 756, such a statute was declared unconstitutional. The contrary was held in State v. Woodmansee, 1 N. D. 246, 46 N. W. 970, 11 L. R. A. 420.

15 Lockwood v. Bishop, 51 How. Prac. (N. Y.) 221; North America Life Ins. Co. v. Wilson, 111 Mass. 542; Burns v. Grand Lodge, 153 Mass. 173, 26 N. E. 443, where the policy was sealed; Stamps v. Insurance Co., 77 N. C. 209, 24 Am. Rep. 443; Martin v. Insurance Co., 38 N. J. Law, 140, 20 Am. Rep. 372. But a lessor may sue on a fire policy taken out in her name by the lessee's agent on personal property belonging to her and situated on the leased premises. Watson v. Insurance Co. (Miss.) 31 South. 904.

16 Munroe v. Association, 19 R. I. 363, 34 Atl. 149; Mutual Ben. Life Ins. Co. v. Hillyard, 37 N. J. Law, 444, 18 Am. Rep. 741. Under the Codes of Procedure the beneficiary may sue as the real party in interest. Code Civ. Proc. N. Y. § 111. See Price v. Insurance Co., 17 Minn. 497 (Gil. 473), 10 Am. Rep. 166; Capital City Ins. Co. v. Jones, 128 Ala. 361, 30 South. 674, 86 Am. St. Rep. 152; Lowry v. Insurance Co., 75 Miss. 43, 21 South. 664, 37 L. R. A. 779, 65 Am. St. Rep. 587. This is also the rule in Virginia. Code Va. 1887, § 2415, construed in Tilley v. Insurance Co., 86 Va. 811, 11 S. E. 120.