Moseley v. Liverpool & London Globe Insurance

Cook, J., delivered the opinion of the court. The Liverpool & London & Globe Insurance Company and the Mississippi Home Insurance Company, both engaged in the insurance of property against loss by fire, in June, 1905, entered into the following contract and agreement: “Agreement of reinsurance this day entered into between the Mississippi Home Insurance Company, of Vicksburg, Miss., which shall herafter be known as the party of the first part, and the Liverpool & London & Globe Insurance Company, of England, which shall hereafter be known as the party of the second part, upon such property, for such periods, for such rates of premiums, and at such locations in the states of Mississippi and Louisiana as may be more specifically described in the daily reports which are to be furnished the party of the second part by the party of the first part: It is understood and agreed that all risks declared under this agreement of reinsurance shall attach and become binding upon the party of the second part at and from the time of the issuance of the policy of the party of the first part by their representatives. Such liability, however, shall be governed by the memorandum of net rententions of the party of the first part, and the maximum amount of cessions to be made by the party of the second part as follows: “No. 2. Memo. of net retentions of the Mississippi Home Insurance Co. and maximum amount of cessions to be made the Liverpool & London & Globe Ins. Co.: Mississippi Home’s Eetension. L. & L. & G. Acceptance. $1,500 00 Dwelling ....................... $5,000 00 Brick store building............. 5,000 00 Brick......................... 5,000 00 Frame store and stocks (isolated) 2,500 00 Frame store and stocks (in range) 2,500 00 Gins, system.................... 5,000 00 — 335 — To he a system gin, the same must he equipped with condensors, feeders, blowers, suction elevator, double box revolving press, and flint flues. Gins, not system................ 2,000 00 This latter class to embrace all gins which do not qualify as system gins, as above defined. Oil mills ....................... 2,500' 00 Saw mills ...................... 2,500 00 Saw mills which are acceptable under this agreement must consist of a reasonable protection acceptable to the L. & L. & G. Ins. Co. Cotton in press, warehouses or yards....................... 2,500 00 This latter is not to embrace cotton on yards within 150 feet of a gin. “For all classes of business not included in the. above, the L. & L. & G. Ins. Co. The limits of acceptance and cessions to and by the L. & L. & G. Ins. Co. may be modified by mutual agreement in record form at any time. “Daily reports of cessions to be mailed the party of the second part not later than the succeding business day after the receipt of report at the office of the party of the first part. All such cessions will be considered accepted by the party of the second part, unless notice of rejection is immediately mailed or telegraphed by the party of the second part to the party of the first part on the day of the receipt of report of cessions by the party of the second part and it is agreed that the party of the second part will not cancel any risk after acceptance unless for reasons satisfactory to both parties to the contract. — 336 — “When any policy of the party of the first part is reinsured by the party of the second part, and such policy is renewed by the agent of the party of the first part, such reinsurance shall be automatically renewed for account of the party of the second part in keeping with the net retentions, and memorandum of acceptance above enumerated. “The party of the second part agrees to a pro rata share of all expenses, legal and otherwise, incurred in the adjusting or resisting of any claim upon the party of the first part under policies reinsured by' this agreement. The said cessions shall be subject to the same risk, conditions, valuations, and mode of settlement, indorsements, and assignments as may be assumed or adopted by the party of the first part. Loss, if any, payable pro rata at the same time and in the same manner as if effected by the party of the first part. “The party of the first part is to apprise the party of the second part of cessions by daily reports, being copies of the originals received from their representatives. All notices or indorsements or cancellations are to be promptly supplied to the party of the second part on blanks provided for that purpose. All settlements for premiums on cessions to be made in New York or New Orleans exchange within thirty days after the conclusion of the month. The rate of commission to be allowed the party of the first part to be twenty-five per cent upon the net balance of each month. • “This agreement to take effect immediately on signature, and is concluded for an unlimited time; but it can be canceled by giving written notice thereof, the cancellation to take effect thirty days after receiving such notice, but not to affect current liabilities of the party of the first part to the party of the second part, which are to be liquidated in the ordinary way after such notice has been given. ’ ’ In February, 1906, the Home Insurance Company issued its policy to appellant for two thousand and five — 337 — hundred dollars, and ceded one thousand dollars thereof to appellee, which was accepted by it. The property -insured was destroyed by fire, and this suit was brought by the holder of the policy against appellee, and is based-upon the above contract. It is the contention of appellant that the contract between appellee and the Home Insurance Company was not one of reinsurance, that is, a contract to indemnify the latter company against loss to appellant under its policy in her favor, but that the so-called insurance contract was an obligation on the part of appellee to pay its pro rata of any loss which might be sustained by appellant, and against which the Mississippi Home Insurance Company has insured her. In other words, appellee agreed to pay its pro rata of any loss that appellant might sustain, and not to indemnify the Mississippi Home. Insurance Company for the pro rata of any sum it might have to pay appellant on account of such loss. It is the position of appellee that the contract is an ordinary contract, for reinsurance to indemnify the insurer and not the insured against loss. It seems to be the theory of appellant that the fact that the contract was a contract antecedent to the issuance of the policies upon risks to be indemnified by appellee and that it agreed to pay its pro rata share of the expense of adjusting claims of loss and that it was to settle with the insured in the same manner and to the same extent as the insurer was bound by its policy to settle with the insured, constitutes this agreement either a partnership between the two insurance companies, or that the insuring company was the agent of appellee in securing the insurance for it, or that the agreement to take over insurance thereafter to be written was an assumption of the payment to policyholders of all losses which resulted to the policyholders, and not simply to pay to the insurer the amount which the insuring' company was obliged to pay to its policyholders. — 338 — It is settled beyond all peradventure that contracts of reinsurance are contracts of indemnity of the insurer, and that there is no privity between the insured and the reinsuring company. This is so well settled that it is unnecessary to cite authority in support of it. Indeed, appellant recognizes this to be the true rule, but insists that the contract here involved was not a contract of reinsurance. We have stated the positions of the parties to this controversy, and copied into this opinion the contract involved. Exclusive of mere detail the contract means that the reinsurer in consideration of seventy-five per cent of the premiums received by the insurer, obligates itself to pay to the insurer its contractual proportion of the losses upon the risk assumed by the insurer. This is the well-understood and long-established contract of reinsurance. The details do not change, or in any way affect, the obligations of the reinsurer. The measure of the reinsurer’s obligation to the insurer is the obligation •of the insurer to the insured, to be determined by the terms of the policy of insurance issued to the insured. In other words, the reinsurer undertakes to indemnify the insurer upon a certain proportion of its legally ascertained losses. The details of report, cession, and settlement between the insurer and this company amount to no more than a scheme or plan whereby (a) the time when the liability of this company to the insured began; (b) the option of this company, after notice, to reject risks, and cancel its liability attaching at the time the original policy was written; (o) that no accepted risk can be canceled, except upon terms agreeable to both parties. This, it seems to us, constitutes an agreement of reinsurance, and does not amount to a taking over of the business of the Mississippi Home Company. The words “cede” and “cession,” occurring in the contract, evidently mean the apportionment of fixation of the amount of reinsurance to be accepted by the reinsurer, and do not mean a trans — 339 — ference of the risk to the reinsurer, in the sense that the insurer divests itslf of the risk and burdens the reinsurer with same. The question here involved is fully discussed, and all of the authorities upon every phase of the case are cited, by Mr. Freeman in his note to Barnes v. Hekla Fire Insurance Co., reported in 45 Am. St. Rep. 438. Affirmed.