Manufacturers' Fire & Marine Insurance v. Western Assurance Co.

Knowlton, J. The contract entered into by the defendant with the plaintiff differed materially from an ordinary contract to insure a general owner against damage to his property by fire. While in a sense it was an insurance upon property, it was strictly a contract of indemnity against risk under another contract which had been entered into by the assured. The assured was not the owner of the property at risk, and had no relation to it except as insurer under the original policy. In that relation it had an insurable interest in it, and could enter into any proper contract for the protection of that interest. Eastern Railroad v. Relief Ins. Co. 98 Mass. 420. But, manifestly, many provisions appropriate to an ordinary agreement with the owner of property for the insurance of it could have no proper application to the agreement made by these parties. The defence relied on is that there was a change of title to the buildings and machinery referred to in the defendant’s policy, and an assignment of the policy issued by the plaintiff upon them, and an assent by the plaintiff to that assignment, all without the consent of the defendant. It appears upon inspection of the defendant’s policy, and is agreed by the parties, that it was prepared upon a printed blank, commonly used in writing policies to insure against loss upon property by the owners of it. This blank contained stipulations making void the policy, if, without the written consent of the company, the subject of the insurance should be sold or transferred, or any change should take place in title or possession, or the policy should be assigned before loss; and these stipulations appear in the policy declared on. It is often doubtful how far provisions which relate to the conduct of an assured person as general owner of that which is the subject of the contract should be given .effect, in a policy to [424] indemnify against a risk which the assured has taken upon the property of another. That can only be determined in a given case by a careful scrutiny of the different parts of the writing to ascertain its meaning. Whenever words are found in a contract which can have no proper application to the subject to which it relates, they cannot be regarded; and, not infrequently, the careless use of printed blanks compels recognition of this rule. The policy in this case contained many provisions which were originally intended to regulate the conduct of an owner in relation to his property before and after a possible fire. The nature of the risk against which it insured, if there were no special stipulation pertaining to it, would suggest troublesome questions with reference to the applicability of these provisions to this peculiar kind of insurance, some of which it might be necessary to decide. But, in connection with the statement of the risk, the following sentence was inserted, which relieves the case of this difficulty: “ This policy to be subject to the same risks, conditions, valuations, indorsements, privileges, assignments, and mode of settlement as are or may be assumed or adopted by the Manufacturers’ Insurance Company, and the loss, if any, and expense of adjustment, payable pro rata at the same time and in the same manner as by said company. Other reinsurance permitted.” By this language the defendant bound itself by what had been, and by what might be, assumed and adopted by the plaintiff, properly pertaining to the risk which it was reinsuring. This agreement rendered nugatory many printed portions of the policy in which it was inserted. This was special and peculiar, pertaining directly to the subject matter of the contract, and it controlled those parts of the policy which were inconsistent with it. It assumed knowledge on the part of the defendant of all the terms and conditions of the plaintiff’s policy, and it implied that the plaintiff, as the original insurer, might properly “ assume or adopt .... risks, conditions, valuations, indorsements, privileges, assignments, and modes of settlement,” without materially changing the nature of the liability created by the original policy. It did not authorize the plaintiff to charge the defendant by the assumption of a new risk of a different character, or to materially enlarge the existing one. But it covered whatever an insurance [425] company, in accordance with the general usage of such companies in like cases, would do, in the proper performance of its duty, for the continuation of the same risk, having due regard to the rights and interests of both insurer and insured. The plaintiff consented to that which continued its liability under the policy which it had issued. When the trustee of the mortgage bondholders, to whom the policy was payable, took measures to foreclose his mortgage, and the property was bought under a judicial sale by an agent of these bondholders, there was a change of title, although the mortgagor under the law of Indiana still had a year in which to redeem by paying the mortgage debt. It was provided in the policy issued by the plaintiff, that a change of title not assented to in writing by the company should render the policy void. Thereupon, to continue the insurance, the plaintiff assented in writing to this change, and also to an assignment of the policy, made by a mortgagor to the purchaser at the judicial sale, who represented the bondholders, and who afterward held the policy in the same interest as the mortgagee had done, to whom it was at first made payable. The only change which occurred was hardly more than a technical transfer of the legal estate. The validity of the policy was preserved by the plaintiff’s indorsement of consent upon it. The defendant, in the sentence which we have quoted, expressly agreed that its.policy should be subject to “indorsements” and “assignments ” upon the plaintiff’s policy, to be afterward “assumed or adopted ” by the plaintiff. The language chosen was apt to cover what the plaintiff did, and fully justified it. The defendant, therefore, cannot now be relieved from liability on the ground that a change in ownership which did not affect the risk was assented to by the plaintiff to prevent a forfeiture. This conclusion not only results from a proper construction of the language of the parties touching this subject, but is consistent with the manifest purpose and spirit of their contract. The defendant agreed to assume half the risk of the plaintiff upon the buildings and machinery insured. It was expressly agreed that the plaintiff should retain at its own risk an equal amount under its own policy. Both parties understood that an insurance company, to do a successful business, must deal equitably with its patrqns, and hold itself in readiness to consent to [426] changes in the situation and ownership of subjects of insurance which do not affect the risk, and which the necessities or convenience of policy-holders require. Contracts for reinsurance are properly made with reference to this recognized principle; and it is not unnatural that discretionary power should be given the original underwriter with reference to modification» of the contract which are commonly made, and which do not change its character. A partial guaranty for the proper exercise of that discretion may be obtained, as was done in this case, by requiring the reinsured company to continue to carry, on its own account, a part of the risk reinsured. The interests of all parties may be served, and their rights protected, by inserting in the contract a liberal provision, like that in the policy before us. Courts of New York, and also of Maryland, in dealing with somewhat different questions under policies of reinsurance, have reached conclusions not unlike our own. Jackson v. St. Paul Ins. Co. 99 N. Y. 124. Consolidated Ins. Co. v. Cashow, 41 Md. 59. . Judgment affirmed.