FIRE INSURANCE LAW (Including Standard Policy) PART II BASIC PRINCIPLES OF STANDARD POLICY There are certain fundamental principles underlying the insurance contract which call for somewhat more extended notice than could be given to the subject in the running commentary of the standard policy. To have treated the matter at length under the standard policy would have been to sacrifice the purpose of the comments, namely, to give a fairly clear idea of the document as a whole without too much of detail to distract the student; but a deeper acquaintance with some of the basic principles, perhaps not merely of the insurance contract but of other contracts, is of large importance and must not be passed over. Insurable Interest. Insurable interest has already been treated at some length, but for emphasis it is well to state that the party who takes out insurance against fire on property must have such an interest in the property as will be adversely affected by the fire. It must not be a remote and indefinite interest, as a possibility of inheriting the property on the death of the present owner, but it must be one which will cause a money loss in the event of the property being damaged by fire. A representation is Representations and Concealment. some statement or act which has been done and which would influence a reasonably minded person to insure the property. A representation differs from a warranty in that it does not void the policy unless it be the occasion of the loss, or unless it has a very vital effect on the matter. It has been defined thus: "A representation is an oral or written statement of facts or circumstances made Copyright, 1912, by American School of Correspondence at the time of, or before, the closing of the contract and relating to the proposed adventure upon the faith of which the agreement is made." Again, “A representation is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will assume the risk." The court states the case in Carpenter v. The American Insurance Company, Circuit Ct. of the United States, District of Rhode Island, 1839, 1 Story, 57. Story, J., delivered the opinion of the court as follows: "We are clearly of opinion that the policy in this case, having been obtained upon a misrepresentation of the material facts, is utterly void. The original proposal for the insurance by the letter of the 14th of November, 1836, referred the defendants to the description of the property at Providence-Washington Insurance Company's office, at which it was insured for $15,000, the property being therein valued at $19,000. The defendants after examining that policy and description declined, by the letter of the 17th of November, to take the additional sum proposed, upon the very ground that the sum already insured thereon was as much as was proper to be taken on such a valuation. In order to induce the defendants to take the risk the letter of the 6th of December, 1836, represented, that since the original insurance was made, additions had been made to the factory, etc., fully equal to $10,000. Upon the faith of this statement the present policy was underwritten. It now turns out that this representation is utterly untrue (whether by design or by mistake is not material), and no such additions have been made since the former policy. No one can doubt the materiality of this representation; for it was the very point (the increased value) upon which the policy was underwritten. It seems to us, therefore, that this makes an end of the case; for a false representation of a material fact is, acccording to well-settled principles, sufficient to avoid a policy of insurance underwritten on the faith thereof, whether the false representation be by mistake or by design. "It is suggested that the misrepresentation was in fact unintentional and without any fraudulent design, and that Epenetus Reed (the mortgagee) for whose benefit the insurance was made, was entirely ignorant of the misrepresentation; and that, under such circumstances, his rights under the policy ought not to be prejudiced thereby. But this suggestion can not avail for the plaintiff, or for Reed. The misrepresentation made by an agent in procuring a policy is equally fatal, whether made with the knowledge or consent of the principal or not. The ground in each case is the same. The underwriters are deceived. They execute the policy upon the faith of statements material to the risk, which turn out to be untrue. The mistake is, therefore, fatal to the policy, as it goes to the very essence of the contract." See also Dennison v. Thomaston Mutual Insurance Company, 20 Me. 125; Freedman v. The Fire Association of Philadelphia, 168 Pa. St. 249. Warranty. Warranty differs from a representation in that the materiality is not of such large moment if the warranty be not complied with. In the State of Maine there is a statute to the effect that a warranty shall be deemed a representation unless it shall be material to the loss. The only effect of this is to practically wipe out the distinction between representation and warranty and reduce the latter to the level of the former. The distinction, however, has most always, or generally, been maintained in all of the States, except the one mentioned, and that distinction is, that a representation must be material and vital to the loss in order to be deemed as having some effect on the matter; but a warranty need not be so. The loss may not have been occasioned by a breach of the warranty but the breach itself is sufficient to void the contract. A warranty has been defined thus: "A stipulation expressly set out or, by endorcing, incorporated in the policy whereby the insured agrees that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done." Again, "It is not necessary that the fact or act warranted should be material to the risk, for the parties by their agreement have made it so." Lord Eldon states: "It is a first principle in the law of insurance that if there is a warranty, it is a part of the contract that the matter is such as it is represented to be; the materiality or immateriality signifies nothing." In the case of Fowler and Others v. Aetna Fire Insurance Company, Savage, C. J., Supreme Court of New York, 1827, 6 Cow. 673, said: "I think it very immaterial as regards this action, whether the error in description arose from design or mistake. The question is, did this description amount to a warranty that the property answered the description? The judge at the circuit so considered it; and it was admitted on the argument, that if the principles of marine insurance are applicable to fire insurance, it is a warranty. In the case of Stetson v. Mass. Mutual Fire Ins. Co. (4 Mass. Rep. 337), Sewall, Justice, lays down the law thus: The estimate of the |