Hartshorn v. Shoe & Leather Dealers' Insurance

Dewey, J. The contract of insurance, like other contracts, requires a legal consideration to render it valid. The insurer, for a premium to be paid by the assured, undertakes to indemnify against loss on property exposed to peril. That the insurer is not allowed to receive or retain a premium for insurance where -no risk has attached, is abundantly shown by the numerous cases where such prepaid premium has' been recovered back by the assured. It must, from the nature of the case, be equally true that the payment of a premium, or a liability to pay the same, must always exist on the part of the assured, where the insurers are responsible for a risk. In those cases where the amount and value of goods are known, and also the mode of conveyance is arranged, the matter of premium is very easily adjusted between the parties, the same being paid either in cash, or by a note payable at a future day for the precise amount to be paid for the risk. The money or note thus taken is the absolute property of the insurer, and furnishes the consideration for the risk assumed. When the quantity of merchandise to be forwarded is not precisely known, the rate of premium is definitely fixed, and the gross sum to be paid made to depend upon the value subsequently ascertained from the invoice. The difficulty in the present cáse arises from the peculiar terms of this policy. It is an open or running policy, the precise property to be covered by it to be ascertained and declared after the date of the policy, and open to the objections hereinafter stated. No doubt, in reference to an open policy, drawn in the form in which many policies are, it would be competent for — 245 — the assured to declare the subject to which the policy is to be applied after he had received knowledge of the loss. The validity of a general insurance, describing the articles of merchandise to be hereafter shipped on account of the assured, was sanctioned by the king’s bench in Kewley v. Ryan, 2 H. Bl. 343. In that case the policy was at and from Grenada to Liverpool, in ship or ships warranted to sail before the 1st of August 1793. It was said by the court that the legality of a general insurance on goods to come in ship or ships was too well established both by usage and authority to be disputed. An insurance of this character had been sustained without any apparent objection in the earlier case of Henchman v. Offley, reported in a note to the last cited case, in which the policy was on goods to come in ship or ships from Bengal to London which should sail between the 1st of July and the 31st of December 1780. But in neither of those cases were the terms of the policy such as are found in the case before us. That policies on goods by a ship or ships to be thereafter declared are valid, and that the party may declare after a loss, seems to be assumed in 1 Phillips on Insurance, § 438. This would be a perfectly reasonable construction of such a contract as applied to goods which were directly the subjects of the policy, and for which a premium had been stipulated to be paid. Take the case of a shipment of certain goods ordered by a resident of New York to be shipped from New Orleans—the character of the goods, the mode of conveyance, and the rate of premium all declared in the policy, but the precise amount or value, or the particular ship or ships by which they were to be sent, unknown to the assured — in such case the parties understand the insurance to cover all the goods ordered, and the premium agreed to be paid attaches to all the goods to be forwarded under such order. Here is a reciprocity in the obligations assumed by the parties. The premium for the risk is pai’, or agreed to be paid, and the policy attaches to the goods when the transportation commences. In such case it may properly be held that the indorsement on the policy may be made of the goods forwarded after the knowledg" nj the loss has come to the assured — 246 — But the plaintiffs particularly rely upon the case of E. Carver Manuf. Co. v. Manufacturers' Ins. Co. 6 Gray, 214, as decisive in their favor. It certainly has an important bearing upon the present case. It sanctions contracts between assured and insurers, by which the former may in certain cases declare the application of the policy to goods lost, after the knowledge ci such loss has been received by him. . As already remarked, there are contracts of insurance where the parties obviously intend this, and both parties are bound whenever the goods are shipped to treat them as insured goods, for which on one hand the premium is to be paid, and on the other the policy is to attach. When the policy is upon a specified kind of goods, to be brought in a certain class of ships, within a stated time, from a certain port named, and with a rate of premium fixed, leaving nothing but the quantity and value of the goods to be declared and indorsed on the policy as invoices may be received, we see no objection to giving legal effect to it as embracing any such goods that may be lost, and known to be lost, before they are indorsed on the policy. Such a policy would imply that all the goods of the kind named, shipped within the time and manner stated, were to be covered by the insurance; and that as to all such goods, a premium would be earned, and good faith would require both parties to give full effect to such a policy. The case of E. Carver Manuf. Co. v. Manufacturers' Ins. Co. had much of this character of certainty and definite understanding of the parties on all the points material to the risk and to the rate of premium, leaving nothing to be done but to enter the amount of the shipments upon the policy from time to time as they should come to the knowledge of the assured. It was definite in the following particulars: 1st. The character of the property to be insured was stated in the policy, “ Cotton gins and banding.” 2d. The ports from and to which they were to be shipped were stated, namely, “at and from New York to New Orleans.” 3d. They were to be shipped by steamers. 4th. The time and duration of the policy was fixed, “ to be closed in twelve months, if not sooner filled.” fith The rate of premium was — 247 — fixed in the policy, namely, “ one per cent.” Under such a policy it might well be held that the parties contemplated an insurance of all the “ cotton gins and banding ” of the plaintiffs that might be shipped in steamers from or to the ports named, to an amount not exceeding $25,000 (the sum named in the policy) during the period of twelve months from the date of the policy. But the policy in the present case has not one of these five elements. 1st. It is an insurance “ on property,” and is wholly wanting in any description of the kind of property which is to be the subject of the risk. 2d. No ports are named from or to-which it is to be transported. 3d. There is no limitation to a particular kind of vessels, but the policy extends to goods-transported by steamboats, sailing vessels, and land carriage.. 4th. No time is named within which the policy is to be limited;. 5th. No rate of premium is fixed by the policy, the insurers-only “confessing themselves paid the consideration due unto them for this insurance by the assured at and after the rate of such per cent, as shall be written against each indorsement.” The policy itself demonstrates that the indorsement required was to be an act having the concurrence and sanction of both parties, as the rate of premium in every case of a new indorsement was to be “ such per cent, as shall be written against each indorsement.” The assured surely had not the right to fix tht rate, nor was he obliged to make an indorsement with such a rate of premium, however high, as the insurers might demand. No rate of premium being fixed, no kind of vessels to be employed stated, no ports to or from which the goods were to be transported, the species of merchandise to be shipped entirely uncertain, all show that this was an inchoate contract of insurance as to shipments of property ordered after the date of the policy, and was to be practically a new and separate insurance on each successive parcel of goods as they were indorsed on the policy, and a rate of premium as agreed upon written against each indorsement. That the plaintiffs so understood it, and acted upon the hypothesis that an indorsement was necessary to give effect to the policy as to ™>w shipments, is strongly indicated by the course — 248 — of the evidence introduced at the trial. One of the witnesses says that one of the plaintiffs told him on the 22d of March that there were goods coming, “ and it would be necessary to get an indorsement on the policy.” One of the plaintiffs testifies that on that day he said to the bookkeeper, “We have a large quantity of goods coming by this steamer. I do not know when she sails, but you must take care to have it indorsed on the policy.” Suppose the goods lost by the plaintiffs, and the subject of the present action, had arrived in safety in Boston, and no indorsement of the same had ever been made on the policy, or any proposition to do so, would the plaintiffs have been legally bound to pay a premium for the insurance thereof, the same as if an indorsement had been made? This would seem to be a test question as to the liability of the insurers to make good the loss of the same, as in the one case there would be a consideration for the promise to do so, and in the other there would not. To make such an agreement binding, the stipulations and risks proposed must be mutually understood by the parties. 1 Phil. Ins. § 18. Ocean Ins. Co. v. Carrington, 3 Conn. 357. Here they were not; but matters necessary to the consummation of the contract were to be adjusted and agreed upon by the parties before an indorsement of new shipments of goods could properly be made. Without therefore at all questioning the validity of a class of cases of open and running policies of a more restricted character, to which reference has been made, and where the indorsement was entered upon the policy-after the knowledge of the loss, we are of opinion that the present case does not fall within that class. As to the question of the competency of the proposed evidence of usage in respect to open and running policies, that the premium is to be at the market rate, this evidence was properly rejected. first, because such usage might well exist as to the class of open policies which have been referred to as valid, being definite in their description of the goods, the ir ode of conveyance, the ports from and to which they were to oe carried, and the time of transportation, and not affect this case. But if the — 249 — inquiry was as to a usage more comprehensive, it would no! avail the plaintiffs, as it would be inconsistent with the terms of this policy to give effect to any such usage. The provisions of this policy forbid this species of evidence. There are so many circumstances that might exist here, affecting the rate of premium, that it could not well be adjusted by adopting any principle of market rate of premium. But, further, the parties here, by the terms of the policy, provide that-the premium shall be “ such per cent, as shall be written against each indorsement,” excluding the idea of a previously agreed mode of fixing the rate, but leaving that, as we have already construed the contract to imply, to be mutually agreed by the parties before indorsing the risk. The decision of the supreme court of Louisiana in Douville v. Sun Mut. Ins. Co. 12 Louisiana Annual, 259, upon an open and running policy subject to some of the objections now urged, will be found to be in accordance with the views we have taken. Judgment for the defendants