CHAPTER XXIII.

FIRE INSURANCE.

SECTION I.

THE USUAL SUBJECT AND FORM OF THIS INSURANCE.

This kind of insurance is sometimes made to indemnify against the loss by fire of ships in port; more often of warehouses, and mercantile property stored in them; or of personal property in stores or factories, in dwelling-houses or barns, as merchandise, furniture, books, and plate, or pictures, or live-stock. But the most common application of this mode of insurance is to dwellinghouses.

It may be effected by any individual who is capable of making a legal contract. In fact, however, it is always, or nearly always, in this country, and we suppose elsewhere, made by companies.

There are stock companies, in which certain persons own the capital and take all the profits by way of dividends; and mutual companies, in which every one who is insured becomes thereby a member, and the net profits, or a certain proportion of them, are divided among all the members in such manner as the charter or by-laws of the company may direct. Sometimes both kinds are united, in which case there is a capital stock provided, which is a permanent guaranty fund over and above the premiums received, and a certain part or proportion of the net profits is paid by way of dividend upon this fund, and the residue divided among the insured.

Of late years, the number of mutual fire-insurance companies has greatly increased in this country, and much the largest amount of insurance against fire is effected by them. The principal reason for this is, undoubtedly, their greater cheapness, the premiums required by them being, in general, much less than in the stock offices. For example, if the insurance is effected for seven years, which is a common period, an amount or percentage is charged, about the same as that charged by the stock companies, or a little more. Only a small part of this is taken in cash; for the rest a premium note or bond is given, promising to pay whatever part of the amount may be needed for losses which shall occur during the period for which the note is given. More than this, therefore, the insured cannot be bound to pay, and it frequently happens that no

assessment whatever is demanded; and sometimes, where the company is well established, and does a large business upon sound principles, a part of the money paid by him is refunded when the insurance expires, or credited to him on the renewal of the policy, if such be his wish.

The disadvantage of these mutual companies is, that the premiums paid and premium notes constitute the whole capital or fund out of which losses are to be paid for. To make this more secure, it is provided by the charter of some companies that they shall have a lien on the land itself on which any insured building stands, to the amount of the premium. But while this adds very much to the trustworthiness of the premium notes, and so to the availability of the capital, it is, with some persons, an objection that their land is thus subjected to a lien or incumbrance.

There is another point of difference which recommends the stock company rather than the mutual company; it is, that the stock company will generally insure more nearly the full value of the property insured, while the mutual companies are generally restrained by their charters from insuring more than a certain proportion, namely, from one-half to three-fourths, of the assessed value of the property. It would follow, therefore, that one insured by a mutual company cannot be fully indemnified against loss by fire.

USAGE.

The method and operation of fire insurance have become quite uniform throughout this country; and any company may appeal to the usage of other companies to answer questions which have arisen under its own policy; only, however, within certain rules, and under some well-defined restrictions.

In the first place, usage may be resorted to for the purpose of explaining that which needs explanation, but never to contradict that which is clearly expressed in the contract. And no usage can be admitted even to explain a contract, unless the usage be so well established, and so well known, that it may reasonably be supposed that the parties entered into the contract with reference to it. And not only the terms of the contract must be duly regarded, but those of the charter or act of incorporation.

In regard to the execution of a fire policy, and what is necessary to constitute such execution, we say that delivery is not strictly necessary, and a signed memorandum may be sufficient, or, indeed, an oral bargain only, and that this insurance may be effected by correspondence, and that the contract is completed when there is a proposition and assent.

If proposals are made on either side by letter, and accepted by the other party, also by letter, this is a valid contract of insurance as soon as the party accepting has mailed his letter to that effect, if he have not previously received notice of a withdrawal of the proposals.

It has been held in an action on a fire policy, that a memorandum made on the application-book of the company by the president, and signed by him, was not binding, where the party to be insured wished the policy to be delayed until a different adjustment of the terms could be settled, and, after some delay, was notified by the company to call and settle the business or the company would not be bound, and he did not call. The court held that there was here no consummated agreement. A subsequent adoption or ratification of a policy made by an agent is equivalent, either in a fire or marine policy, to the making originally of the contract.

SECTION II.

THE CONSTRUCTION OF POLICIES AGAINST FIRE.

It is sufficient if the words of the policy describe the persons, the location, and the property, with so much distinctness that the court and jury have no difficulty in determining their identity with a certainty which prevents any real and substantial doubt.

In the construction of this as of other contracts, the intention of the parties is a very important and influential guide; but it must be the intention as expressed; for otherwise, a contract which was not made would be substituted for that which was made; and evidence from without the contract would be permitted to vary and to contradict it. Thus, where stock in trade, household furniture, linen, wearing-apparel, and plate were insured in a policy, the court held that the term "linen " must be confined to "household linen," and would not include linen drapery goods purchased on speculation. But in a case where the policy required that the houses, buildings, or other places where goods are deposited and kept, shall be truly and accurately described, and the place was described as the dwellinghouse of the insured, whereas he occupied only one room in it as a lodger, this description was held sufficient.

It was held in another case that the insurance by an innkeeper against fire of his "interest in the inn and offices" does not cover the loss of profits during the repair of the damaged premises. And in another, the words "stock in trade," when used in a policy of insurance in reference to the business of a mechanic, as a baker, were

held to include not only the materials used by him, but the tools, fixtures, and implements necessary for the carrying on of his business; and the words in question were held to have a broader application to the business of mechanics than to that of merchants.

A policy upon wearing-apparel, household furniture, and the stock of a grocery, covers linen sheets and shirts actually laid in for family use, and such as were laid in for sale or traffic in the usual way in the store; but not such as, being smuggled, were concealed and intended for secret sale.

So, if the designation of the insured be common to many persons, the intention of the parties must decide for whom it is made. Whatever is written on any part of the sheet containing the policy, or even on a separate paper, if referred to or signed by the parties as a part of the policy, is thereby made a part of it. But things said by either party while making their bargain, or written on other paper, and not so referred to or signed, form no part of it.

Alterations may be made at any time by consent. But a material alteration by either party, without the consent of the other, renders the contract void; although it was made honestly, in the hope or belief of its being assented to. A court of equity will generally correct a material mistake of fact.

A policy may be assigned, unless this is prohibited by the policy itself, and the assignee may sue in the name of the assignor. If the loss is made by the policy payable" to order" or "to bearer," it will then be negotiable by indorsement or delivery; but it is not certain that the transferee can even then sue in his own name. In New York and some other States, not only these assignees, but ther assignees of debts or contracts, may sue in their own names.

If the insured transfers the property, unaccompanied by a transfer of the policy with consent of the insurer, this discharges the policy, unless it was expressly made for the benefit of whoever should be owner at the time of the loss. There is usually a clause to the effect that the policy is void if assigned without the consent of the insurers. But this does not apply to an assignment by force of law, as in a case of insolvency, or in a case of death. And after a loss has occurred, the claim against the insurers is always assignable like any other debt. And a seller who remains in possession of the property as trustee for the purchaser, or a mortgagor retaining possession, may retain the policy, and preserve his rights.

It is a general rule with our mutual insurance companies that every one who is insured becomes a member of the company. And it follows, necessarily, that every insured party is bound by all the laws and rules of the company, as by laws and rules of his own making.

APPLICATIONS.

The mutual fire-insurance companies, by a law or rule which is perhaps universal, require that an application shall be made in writing; and this written application is after a peculiar form, which is prescribed by the rules. It always contains certain definite statements, which relate to those matters which affect the risk of fire importantly. In each form of application sundry questions are put, which are quite numerous and specific, and are those which experience has suggested as best calculated to elicit all the information needed by the insurers, for the purpose of estimating accurately the value of the risk they undertake. Specific answers must be given to all these questions. And this application, with all these statements, questions, and answers, is expressly referred to in the policy, and made a part of the contract.

It is common to state in the printed part of the formal application that it is made on such and such conditions; and these usually follow those statements which are deemed the most material in estimating the.risk. These would be considered as express conditions, and therefore the substantial truth of all of them is a condition precedent to any right of indemnity in the insured party. By the legal phrase condition precedent is meant a condition which must be fully complied with before the contract can take effect. Hence, if any of these statements are false, the policy will be void.

Sometimes there is no distinct application in writing, but the policy itself states the facts relied upon. For this purpose it contains many blanks, which are filled up according to the circumstances of each case. It may happen that what is written in these places may be inconsistent with what is printed; and then it is a general rule that what is written prevails, as that is more immediately and specifically the act of the parties, and may be supposed to express their precise purpose better than the printed phrases which were prepared without especial reference to any particular case. But this rule would not be applied where it would obviously operate injustice.

Policies of fire insurance, especially of mutual companies, often contain a scale of premiums, calculated upon different classes of buildings, of stocks in trade, or other property, in conformity with what is thought to be the greater or less risk of fire in each case. This is a matter of special importance; and if a statement were made by an applicant which put his building or property into a class of which the risk and premium were less than those for the