CHAPTER XLI INSURANCE By WILLIAM BRUCE ELLISON AND BRUCE ELLISON 1 Protection against various hazards incident to the ownership of property is commonly offered by insurance companies under policies which group themselves into the following classes: A. Policies which indemnify in the event of damage to the property from Fire Tornado, windstorm, and cyclone 1 William Bruce Ellison, New York, N. Y., a well-known attorney and authority on insurance matters. Admitted to the Canadian Bar in 1880, to the New York Bar in 1882, member of the New York Legislature in 1893; member of the Ways and Means Committee in that year; Commissioner of Water Supply, Gas and Electricity, for New York City, in 1906; Corporation Counsel for New York, 1907; many times Commissioner appointed by the Supreme Court to condemn lands for public purposes; Director of Rossia Insurance Company of America; Member of the Chamber of Commerce of the United States; Chairman of the Committee on City Government of the Merchants' Association of New York; Member of the American Bar Association; New York State Bar Association; New York County Bar Association; Association of the Bar of the City of New York; Academy of Political and Social Science; The Economic Association; Real Estate Board of New York; United Real Estate Owners' Association of New York. Author of "Canadian-American Fisheries," "The Unification of the United States and Canada," "Insurer and Insured," "Insurance Companies before the Courts," and "Fire Insurance." Mr. Ellison was appointed by the Governor to investigate the business of Fire Insurance of New York State, in 1913. Mr. Ellison was assisted in the preparation of this chapter by his son, Bruce Ellison, his partner in business. Sprinkler leakage Strike, riot, and civil commotion Plate-glass breakage Boiler explosions and accompanying loss B. Policies which protect against loss of income, i.e., Credit insurance to cover loss of income due to Leasehold Use and occupancy Rain insurance. C. Policies which assume the liability arising out of accidents, described as Workman's compensation and employer's liability The beginning of the present development of fire insurance. dates from the great fire of London in 1666. That disaster caused the financial ruin of thousands of property owners. How different is the situation today! It is now the exception to find a building not insured, to some extent, against fire. There are three types of organizations which carry fire risks: mutual companies, stock companies, and a group which write insurance under a method known as "Lloyds." Mutual companies have remained quite local or highly specialized in their field of operations, confining themselves to groups, such as the Lumbermen's Mutuals, Farmers' Mutuals, etc. Mill owners have developed companies which primarily write insurance covering their large factories or plants. Mutual Insurance. The principle of mutual insurance may be broadly described as a cooperative insurance by which the estimated cost of carrying the risk for the year is paid in advance in the form of a premium, the holder of the policy being liable for an additional premium if the year's experience should show the actual cost to be more than the amount provided by the advance premium. On the other hand, if the actual cost is less, then the policyholder receives his proportion of excess as a refund or dividend. The additional liability is usually limited to an amount not in excess of the original premium on the insurance carried. Reciprocals. In some states, we have what are known as reciprocals, or interinsurers, which are similar to mutuals with the exception that the policyholder is under a joint liability; that is, if one of the holders should default in his share of an assessment, this amount must be paid by the other policyholders. Stock Companies.-Stock companies are formed by a group of individuals who invest a certain amount of capital at the formation of the company. This paid-in capital and such additional surplus funds as may be required by law are for the purpose of taking up all unusual losses such as may be caused by great conflagrations, etc. There is in the policies issued by these companies no obligation on the part of the insured to contribute beyond the premium paid. The company, however, retains whatever profit there may be in the transaction. Lloyds. Organizations known as Lloyds are authorized by the Insurance Law, and are subject to supervision similar to that exercised over incorporated companies. The principal distinction is that under a Lloyds Policy, the individual members of the Lloyds organization assume individual liability for a certain proportion of each risk. The individual members are subject to examination by the insurance department as to their financial responsibility, which in New York must be shown to be at least $20,000, over and above all liabilities. The assured under a Lloyds Policy is covered in much the same manner as under the policy of an incorporated company, with the exception that in the event of the failure of any of the individual insurers their proportion of the loss is borne by the insured rather than by the remaining or solvent members of the Lloyds association. Associations.-As 90 per cent of all fire insurance is carried by stock companies, their policies and methods are the dominating influence in insurance practice. These companies have formed themselves into national and local associations which play a large part in fixing rates, in influencing the general conditions under which policies are written, and in collecting and tabulating data in connection with fire losses. The largest of these associations is the National Board of Fire Underwriters, organized in 1866 as the result of a costly rate war. Its activities have to do with problems relating to fire insurance which are general throughout every state. Two outstanding results of the work of this organization are the Standard Fire Insurance Policy and the Underwriters Laboratories at Chicago. Standard Policy.-A Standard Fire Insurance Policy was first prepared by the National Board of Fire Underwriters for the voluntary use of the companies. Its use was first made compulsory in the state of Massachusetts in 1873, and in 1886 the state of New York required its use. At the present time, the Standard Policy form has been adopted by every state and with some exceptions the wording is uniform. It represents the evolution of the insurance contract begun in 1667, when the first policies were written, up to the present. Its wording has been changed from time to time as a result of experience. Prior to January 1, 1918, there was in force in the state of New York a Standard Policy similar to, if not identical with, Standard Policies mandatory in many other states. Unfortunately, the courts of the various states requiring the so-called Standard Policy have placed different constructions upon similar provisions, and the Federal Courts have further confused standardization. The New York Standard form of policy made mandatory after January 1, 1918, contains substantially the same provisions and requirements as were contained in the previous Standard Policy, with the exception that the phraseology has been somewhat changed so as to state, more clearly, such provisions as might be doubtful. A fire insurance policy, under the standard form, covers: "All direct loss and damage by fire and by removal from premises endangered by fire." This includes the damage from water, smoke, and breakage resulting from a bona fide effort to extinguish the fire or to protect property endangered thereby. Damage by lightning, except insofar as caused by a resultant fire, is not covered by the Standard Policy itself, but is usually included by special agreement endorsed upon the policy. Fire Prevention.-The other great work of the National Board of Fire Underwriters has to do with fire fighting and fire prevention. Under the direction of the Underwriters Laboratories, tests are made of fire-fighting and fire-prevention apparatus. A certain high standard of performance must be attained before an appliance is approved. Where an appliance has to be assembled and installed on the premises, the installation, when completed, is rated in accordance with the rules laid down by the Laboratories. All fire-fighting apparatus or appliances, as well as fireprevention appliances, after having passed the tests of the Underwriters Laboratories, are stamped or tagged with their label, which reads as follows: "Passed by the Underwriters Laboratories Certificate No. ." For this label, the National Board of Fire Underwriters exacts a financial compensation from the manufacturer of the apparatus. Often such manufacturer thinks this exaction or penalty is rather high. Fire Insurance Exchanges.-The local associations, which are usually known as the fire insurance exchanges, cover a city, a state, or territory which may extend into several states. These are primarily rating organizations whose functions are to classify local properties and promulgate premium rates. They frequently arrogate to themselves general supervision over rules and methods of writing policies. This includes supervision of the conditions contained in the forms, riders, or endorsements which are attached to the policies and by which the Standard Policy is made to apply to the building insured, the limiting of agencies, and the fixing of brokers' commissions. These latter functions are apparently expressly authorized by the New York Rating Laws recently enacted. |