Allemannia Fire Insurance Co. of Pittsburg v. Fireman's Insurance Co. of Baltimore

Mr. Justice McComas

delivered the opinion of the Court

The only question upon this appeal is the construction of the contract of reinsurance, and especially the construction of the eleventh stipulation of that contract, which is as follows :

“Each entry under this compact, unless otherwise provided in this compact, shall be subject to the same conditions, stipulations, risks, and valuation as may be assumed by the said re-insured company under its original contracts hereunder re-insured, and losses, if any, shall be payable pro raía with, in the same manner, and upon the same terms and conditions as paid by the said reinsured company under its contracts hereunder reinsured, and in no event shall this company be liable for an amount in excess of a ratable proportion of the sum actually paid to the assured or reinsured by the said reinsured «company under its original contracts hereunder reinsured, after deducting therefrom any and all liability of other rein-surers of said contracts, or any paid thereof.”

We must determine upon the demurrer whether, the appellee having become insolvent, such insolvency, under the provisions of the eleventh stipulation, relieved the appellant from all liability under its contract of reinsurance.

The appellant insisted that, by the terms of the stipulation just quoted, actual payment by the appellee of its losses, in whole or part, was a condition precedent to its right of recovery from the appellant. It was conceded that, by the weight of authority, payment by the reinsured of its losses is not a condition precedent to its right of recovery against the reinsurer, and also that the insolvency of the reinsured does not relieve the reinsurer from its liability. It was urged, however, that in none of the cases supporting the propositions conceded did any of the contracts sued upon contain the additional provision which is here found, namely: “And in no event shall this company be liable for an amount in excess of a ratable proportion of the sum actually paid, etc.,” and this appears to be true.

The contract of reinsurance was early adopted by the maritime nations of continental Europe. Chief Justice Kent remarked that very little information upon this question can be found in the English books, as reassurances are rendered unlawful in most cases by the statute of 19 Geo. II. chap. 37, and that by the law of the commercial nations of the Continent the reinsurer was obliged to pay all that the first insurer ought himself to pay. “The reinsurer has no connection or concern with the first insurance, and is at all times bound to indemnify his own insured when the other can show that he has been damnified in consequence of the first insurance;” and Livingston, J., added: “This engagement is to make good all that the first underwriter shall lose or become liable to pay.” Hastie v. De Peyster, 3 Caines, 194, 195.

In a later case it was said, in speaking of the reinsured: “Their claim upon the reassurers rests upon their liability to pay the loss to the insured, not on their greater or less ability to pay it in full. If the liability of the reassurer depend upon the insolvency or bankruptcy of the first insurer, in many cases he will not become chargeable at all, or but to a nominal amount, according to the extent of the first insurer’s insolvency.” Hone v. Mutual Safety Ins. Co. 1 Sandf. 152, Affirmed by the court of appeals in 2 N. Y. 235. New York State Marine Ins. Co. v. Protection Ins. Co. 1 Story, 461, Fed. Cas. No. 10,216.

The courts treat reinsurance as a contract of indemnity to the reinsured; wherefore it is not necessary for the reinsured to pay tbe loss to tbe first insured before proceeding against tbe reinsurer; nor is tbe liability of tbe latter affected by its inability to fulfil its own contract with the original insured. Tbe liability of tbe reinsurer, unless specially limited by agreement, is coextensive with that of tbe reinsured. In seeking tbe intent of tbe parties to tbe contract, and construing its terms, the courts are always mindful that tbe policy is a contract of indemnity. In tbe case of a policy containing tbe following-clause: “Loss, if any, payable pro rata and at tbe same time with the reinsured,” — it was held that by tbe first part of this clause tbe defendant was not bound to pay tbe full amount re-insured by its policy, but only such a proportionate amount of tbe loss as is in tbe ratio of tbe amount of tbe reinsurance to the amount originally insured. In regard to tbe latter part of this clause, which says the loss is payable “at the same time witli the reinsured,” it is not meant that actual payment by the rein-sured is in fact to precede or to accompany payment by the re-insurer. “It looks to the time of payability, and not to the fact of payment.” See Blackstone v. Alemannia F. Ins. Co. 56 N. Y. 107. In another case tbe contract stipulated that “the losses, if any, are to be payable pro rata to tbe Enterprise Insurance Company at such time and in such manner as the latter company may pay;” and Judge Sbarswood said a contract of reinsurance is a contract of indemnity, and this clause must have such an interpretation as will not entirely defeat the contract. The Enterprise Company, being insolvent, had made a general assignment, and this learned judge remarked: “If the assignee can only recover from tbe defendants when and as ho pays dividends on tbe assigned estate to tbe original insured, it is plain an endless number of suits must be tbe consequence: and if it bad so happened that there was no assigned estate, there could be no recovery at all. I would construe tbe words, 'as the latter company may pay,’ to mean 'as tbe latter company may be liable to pay.’ ” Affirmed. Fame Ins. Co’s Appeal, 83 Pa. 396.

In Ex parte Norwood, 3 Biss. 512, Fed. Cas. No. 10,364. where the liability clause in the reinsurance contract was. “Loss, if any, payable at tbe same time and pro raía witb tbe insured,” Blodgett, J., considered that tbe true meaning of tbe clause, and a salutary one, is that tbe reinsuring company stipulates that it shall not pay any more loss than tbe original company is liable for; that tbe reinsuring company is to have tbe benefit of deductions by reason of other insurance or salvage, which tbe original insuring company would have, and also tbe benefit of any time or delay for examination, which tbe first company might claim; that it is not to pay any faster than tbe original company, and is to have the benefit of any defense the original company would have bad. So that tbe liability of tbe reinsuring company shall be coextensive only witb tbe liability, and not with tbe ability to pay, of tbe original company. Judge Blodgett said: “It is. to my mind absurd to say, if a loss occurs on one of those reinsured policies, that the company primarily liable is to have its claim against tbe reinsuring company limited by its ability to meet its obligations to its original holders. Tbe very object of making tbe policy of reinsurance was to place tbe company in funds witb which to make its policyholders whole, and that is defeated if the construction which is insisted upon by tbe assignee in this case is the true one.”

In Cashau v. Northwestern Nat. Ins. Co. 5 Biss. 476, Fed. Cas. No. 2,499, tbe court took tbe same view of a similar clause, saying that under such a contract of indemnity tbe insolvency of tbe original insurer is no defense to a suit against tbe rein-surer, for, tbe court said, “otherwise, tbe defendant’s policy would not be tbe contract of indemnity intended, and endless litigation might ensue.”

Tbe parties to this contract are in different States. The place where tbe final act is performed which is neeessary to establish tbe relation of reinsurer and reinsured becomes, therefore, tbe locus of tbe contract. Its terms make plain that tbe locus of tbe contract we are here considering was Maryland. In that State, it is true, tbe statute of 19 Geo. II. chap. 31, is still in force as to reinsurance on marine risks, but tbe court of appeals construes in a fair and liberal spirit tbe contract of reinsurance against fire. In Consolidated Real Estate Fire Ins. Co. v. Cashow, 41 Md. 74, that court said that, from the nature of the contract of reinsurance, the insolvency of the original insurer in no wise affects or limits responsibility under it, and, in construing a clause almost identical in terms with the clause in the New York case last herein mentioned, adopts the reasoning of the New York court of appeals, and adds: “When we consider the distinct and independent nature of this contract, and that it is wholly unaffected by the insolvency of the original insurer, there is, we think, no escape from the force of that reasoning.”

Mindful of the construction uniformly given, as we have shown, to such contracts of reinsurance, and of the construction which the Maryland court has given to a contract of indemnity such as we are here considering, we cannot interpret this Maryland contract to mean that the reinsurance of its policies by the appellee, which, by the import of the contract of reinsurance itself, was designed by the original insurer to protect its policyholders from its own inability to pay, was intended to defeat both, if it happened to become insolvent.

In our opinion, the additional clause in the eleventh stipulation of the contract of reinsurance before us was not intended to mean that the insolvency of the first insurer should release the reinsurer. The word “paid,” in the clause, “Losses, if any, shall be payable pro rata with, in the same manner, and upon the same terms and conditions as paid by the said reinsured company,” — means “payable” or “liability to pay.” The concluding words, “And in no event shall this company he liable for an amount in excess of a ratable proportion of the sum actually paid to the assured or reinsured by the said reinsured company under its original contracts hereunder reinsured, after deducting therefrom any and all liability of other reinsurers of said contracts, or any part thereof,” — does not vary the meaning so as to operate to release from liability the reinsur-ing company because the first insurer became insolvent. The added words were not intended to change, and do not change, the import of this contract of indemnity. They mean that the liability of the reinsurer is to be coextensive with the liability of the reinsured company, and are intended to protect the rein-suring company from paying more than the “sum actually payable” by the reinsured company. The words, “sum actually paid,” in this collocation, providing for deducting therefrom “all liability of other reinsurers,” must mean that in no event shall the reinsuring company pay more than a ratable proportion of the sum “actually payable” by the reinsured company, or, in other words, more than its ratable proportion of the actual liability to pay “on the part of the reinsured after deducting all liability of other reinsurers.” The construction urged so earnestly by the counsel for the appellant would defeat this contract of indemnity. The construction we give to this stipulation as to the liability of the appellant gives effect to the contract, and is the only interpretation which preserves the vitality of the contract of reinsurance. It is the nature of the contract of reinsurance that the insolvency of the original insurer can in no wise affect or limit responsibility under it.

The judgment of the learned court below must be affirmed, ■with costs, and it is so ordered.