Shoaf v. Palatine Insurance

EaiRGLOTh, C. J. Prior to October, 1898, the Merchants and Manufacturers Eire Insurance Company, of Baltimore City, in the State of Maryland, issued its policies of insurance on the property of the plaintiffs in the town of Salem, N. C., with the usual stipulations and conditions, and received the premiums therefor from the plaintiffs. During the life of said policies, to-wit, on October 4, 1898, the said Merchants Company and the Palatine Eire Insurance Company, of Manchester, England, doing business in this State, entered into a written contract of re-insurance, in which the Palatine Company agreed to re-insure all outstanding risks of the Merchants Company for loss or damage by fire, etc., on any property located in the United States and Canada, and assumed all liability under any outstanding policies or risks theretofore written by said Merchants Company, and on any policy or risk that might be written by the Merchants Company before November 1, 1898, the later business to be *309 for the benefit- of, and under the direction of, the Palatine Company, which company assumed all expenses and taxes connected therewith, and all said risks and policies are re-insured by the Palatine Company. In consideration of such re-insurance, the Merchants Company agreed to pay one-half of the unearned gross pro rata premiums on all policies in force on October 1, 1898, to furnish complete schedules of all policies, to retire from business, and to transfer and deliver its good-will, right, title, and interest in its business, daily reports, indorsements, registers, and books of record to the Palatine Company, except office fixtures, furniture, etc., with a provision of release on failure to perform the obligations of said contract. The tenth article of said re-insuring contract provides that it shall only be effective as between the parties thereto; that no holder of a policy in the Merchants Company shall be entitled to enforce this contract against the Palatine Company; that the holders of s-uch policies shall prosecute against the Memhants Company any claim 'arising under said policies; and the Palatine Company “agrees to pay all such claims legally arising and duly proved; and further, in case of any contest arising in connection with, or suit being brought for, or on, any such claim, said Palatine Company agrees to defend the same, and pay all costs and expenses incident thereto.” This agreement was signed by the two companies, and the plaintiffs were not parties thereto. Subsequently the insured property was de¿ stroyed by fire, and the plaintiffs, having performed the conditions of-their policy, instituted this action against the Palatine Company alone. The question is, can the plaintiffs, upon these facts, maintain their action ? This question has not until now befen, before this Court. There is some diversity of opinion in the decisions' of the Courts in our sister States and the general *310 authorities. • There is no question raised as to the validity of the insuring and re-insuring contracts, each being in due form, and supported by a valuable consideration. A policy of fire insurance is a contract of indemnity (Darrell v. Tibbitts, 5 Q. B. Div., 560) ; and such contract gives the insurer an insurable interest in the property insured, co-extensive with its liability (New York Bowery Fire Insurance Company v. New York Fire Insurance Company, 17 Wend. 359). A contract of re-insurance seems to be a union and blending of the business of the two companies, presumably for the advantage of each party. The re-insurer absorbed the estate and rights of the re-insured, and assumed the risks and liabilities of the re-insured, with the privilege of the re-insured, in the present case, to continue issuing new policies for a time specified, with the same right and liabilities under the new policies as under those already outstanding; this to be done for the benefit of, and under the direction of, the defendant. The plaintiffs were neither a party to, nor in privity with, said contracts. The question is, have they an interest in, or arising out of, the contract? The defendant is bound to indemnify the re-insured for all risks and loss, and the re-insured, at the same time, is bound to indemnify the plaintiffs for risk and loss. Does the defendant’s liability inure to the benefit of the 'plaintiffs, and, if so, can the plaintiffs directly enforce their claim for loss against the defendant ? The unearned premium at the date of the contract was a part of the consideration passing to the defendant for its risk and liability assumed. In this unearned premium the plaintiffs had an interest at the time of the re-insurance. The principle sanctioned by several respectable authorities is this: If A, on receipt of a good and sufficient consideration, agrees with B to assume and pay a debt of the latter to C, then C may maintain an action directly on such con *311 tract against A, although. C is not privy to the consideration received by A. The case before ns seems to come within the same principle. Onr Code (sectioai 177) provides that every action must be prosecuted in the name of the real party in •interest, etc. In all the cases close attention is given to the language of the agreement. In the present case the defendant expressly assumes the liability in case of loss, but agrees to pay to the Merchants Company only after claims have been duly proved in an action against the Merchants Company. The defendant also agrees, in the event of such litigation, “to defend the same, and pay all costs and expenses incident thereto.” We see no reason why the plaintiffs should be required to first, sue the Merchants Company, and then, in case of that company’s insolvency, have to sue the defendant on its contract. The defendant has all the means and information necessary to make a just defense. We can see no reason why the plaintiffs may not do directly that which it must be admitted they can do indirectly, nor do we see how the defendant is prejudiced thereby. The defendant suggests no such danger, but relies solely on the ground that it has no contract with the plaintiffs. Johannes v. Insurance, Company, 66 Wis., 50, is decisive on this question. It does not appear clearly, either from the statement, or the opinion, whether the promise was to pay the loss to the insured, or the re-insured, but the reasoning in the opinion does not consider that matter material. It is the implied right, arising out of the express agreement of the defendant, that enables the plaintiffs to maintain the action. The defendant relies on the provision in Art. X., of its contract as a protection against any. action of the plaintiffs against that company. If the plaintiffs have a right to sue the defendant, as we think they have, the two companies can not, by any agreement between themselves, to which plaintiffs are not a party, defeat that right. *312 There are numerous objections to evidence, exceptions, and prayers for instruction. Some relate to communications between plaintiffs’ attorneys, and Harris, the general agent, and Ballard, an assistant manager, of the defendant and the Merchants Company. These letters were written pending, and in connection with, the work of adjusting the loss caused by the fire, and have no material bearing on the present question. Carefully reading the evidence, we find no incompetent evidence admitted on any material matter. The issues found in favor of the plaintiffs dispose of most of the questions raised by the exceptions. Another exception is the refusal of his Honor to charge, on the third issue, “that there is no evidence of re-insurance by the defendant upon which it can be liable directly to the plaintiffs in this suit, and the jury will answer the third issue, No.’ ” Another exception is, that his Honor refused to dismiss the action, on motion, under Acts 1897, c. 109. These exceptions are met by what we have stated above. The defendant says, in its brief and oral argument, that “the first and leading question in the case relates to the right of the plaintiffs to sue the defendant upon the policies, and to the liability of the latter, even if a good cause of action upon the policies has accrued to the plaintiffs.” That is the crucial point in the case, and that we have considered. Our conclusion on that point, already stated, renders further investigation unnecessary. Affirmed.