Schwartz v. United States Ins. Co.

WASHINGTON, Circuit Justice (charging jury). This is an action for money had and received, to recover back the premium paid "by the plaintiffs to the defendants, for short interest, in the cargo of the Margaret; the whole having been covered by policies, prior to that underwritten by the defendants. The ground of the action is, that the defendants were never exposed to the risk, against which they bound themselves to indemnify the plaintiffs, and for which they received the premium; and consequently, that they cannot, in conscience, retain it. The principle of this action is unquestionably founded in sound law. The answer to this demand is, that the plaintiffs liave been guilty of a fraud, in procuring this insurance to be effected; and that no court will, in such a case, lend its aid to recover back the money paid for effectuating such a purpose. Generally speaking, this too, is sound law. This is an equitable action, and the plaintiffs should derive their right to recover from pure sources. The title of the defendant, in such a case, to retain what he has received, and which, ex sequo et bono, is not his; does not arise from any merit in himself, but from the demerit of the plaintiff, which denies him a remedy to draw it out of the hands of the defendants. The alleged fraud consists in covering belligerent. property by false papers, and insuring it as neutral. The first question, therefore, is a question of fact, for the decision of the jury; whether the plaintiffs were knowingly guilty of the imputed fraud. The second is a question of law, whether this is such a fraud, as ought to prevent the plaintiff from reclaiming in a court of justice, the premium which he has paid. In ascertaining the fact, on which the law Is to arise, you have direct evidence, opposed to that which is merely circumstantial. The former consists in the information given by Captain Herd to the plaintiffs, on which they appear to have acted; by which they were led to conclude, that the cargo was entirely their own, and about equal in value to the aggregate of the sum insured on it. The circumstances opposed to this positive proof are, the small capital carried from the Isle of France to Batavia; the knowledge which William M’Fadon, during his life a partner of the plaintiffs, had of the connexion with Arnold in the Tranquebar voyages; and some others of less weight. But it may be observed, that though Arnold might be willing to take a share in the short trading voyages from Ba-tavia to Tranquebar, it by no means followed, that he would engage in a shipment to the United States; and at all events, as fraud is never to be presumed, the jury ought to be very well satisfied with the evidence offered to prove it, before they should believe it to have existed, especially when it is opposed by strong proofs to the contrary. We wish it were in our power to speak as favourably of the conduct of the plaintiffs, after they received Captain Herd’s letter, which contained a full and candid disclosure of the transactions at Batavia, in relation to the interest of Arnold in this cargo. Had they then communicated this information to the underwriters, it would, we think, have been very difficult to have brought home to the plaintiffs, a knowledge of, or concern in, this unfair transaction. But the demand which they made of a total loss on the whole sum insured; their offer to receive 75 per cent, of the whole, at a subsequent period, after they had more time for reflection; and their concealment of the truth from the defendants, until after they had by other means obtained a knowledge of it; these, if they do not so connect the plaintiffs with the transactions at Batavia, as to induce a belief that they had authorized, or knew of them, when these insurances were, effected, do at least amount to an adoption and ratification of what was done by their agent; [772] which subjects them, in point of law, as much to the charge of fraud in the first instance, as if the fact was brought home to them by the clearest proof. This being the case, it becomes unnecessary to give any opinion on the second point made by the defendants’ counsel. The next inquiry is, whether this is such a fraud as ought to bar the plaintiffs’ right of recovery? It is much to be wondered at, that only five cases are to be met with, in which this question has received a judicial decision. The cases of Whittingham v. Thornburgh, 2 Vern. 206, De Costa v. Scandret, 2 P. Wms. 170, and Wilson v. Ducket, 3 Burrows, 1361, in which the premium was decreed to be refunded, notwithstanding the fraud of the insured in obtaining the insurance, fall short of establishing the point for which the plaintiffs’ counsel contend. In the two former, the insurers were plaintiffs in equity, seeking to set aside the policies on the ground of fraud; and since the insurers could not, in conscience, retain the premiums, no matter how great the demerit of the insured might be, a court of equity, governed by its own principles, could not relieve the insurers on other terms, than compelling them to disgorge that to which they had no equitable right, and placing the parties in the situation they were in, when the contract was entered into. The other case, though tried at law, was under a decree of the court of chancery, in which the insurers were complainants, and offered in their bill to repay the premium. The case of Tyler v. Horne, mentioned in Park, Ins. 218, which was decided at nisi prius, in 1785, since the Revolution, and is, of course, not authority in this court, establishes the doctrine, that, in a case of gross fraud, the insured cannot recover back the premium. Chapman v. Fraser, which was decided at a still later period, but in the king’s bench, is so loosely stated in 2 Marsh. Ins. 652, that it is difficult to discover the precise principle which it establishes. This court does not feel itself disposed to countenance a distinction between different grades of fraud, as affecting the right of the plaintiff, in actions of this kind. It is believed, that upon general principles of law, as well as of sound policy and morality, it may be safely laid down as a rule, that if the insured, by deception and false pretences, induces others to undertake a risk, which, had the truth been disclosed, they would not have taken at all, or would have done so on different terms from those agreed upon, thereby securing to the insured a chance to claim an indemnity in case of loss, or a return of premium in case of safe arrival; it is such a fraud as ought to defeat his right to maintain this action, for the premium. That is precisely the present case. The plaintiffs had this chance, and it might in all probability have been realized, had this vessel been lost at sea, or the evidence of the real transaction been otherwise kept from public view. The bill of lading and invoice, the ordinary proofs of property and value, were sufficient to authorize a recovery of the sums insured, or might have induced the underwriters to pay without a suit. If the jury think with the court on the facts of this case, their verdict ought to be for the defendants. Verdict for defendants.