Hoxsie v. the Providence Mutual Fire Insurance Company

The second plea to the first count, and the last plea to the second count of this declaration, are clearly bad. It is true, as argued for the defendants, that the officers of a corporation cannot exceed their charter powers; and that in a mutual company like this, of which the assured are members, they may fairly be presumed actually to know, as well as constructively to have notice of, all limitations of these powers. The language of the 8th section of the charter restricting the directors of the company in the relative amount which they may insure upon buildings is, certainly, very strong and explicit. "They shall have power to determine the sum to be insured upon any building, provided it shall not exceed three fourths (except on stone or brick buildings, upon which four fifths of the value may be insured) of the value thereof;" but then, by this very sections as well as by the third, they have the general management and direction of the funds and affairs of the company, and the determination of all questions relating thereto, as well as the special power to fix the premium or sum to be deposited for insurance, which, of course, is to be proportioned to the amount insured. They, and they alone, on the part of the company, have the power to determine the value, three fourths or four fifths of which, as the case may be, they are at liberty to insure; and when without fraud or misrepresentation on the part of the assured, they have agreed with him as to this value, and have taken his money upon the basis of this agreement, the company ought to be bound by their action, as the assured must be by his. The value of a building must necessarily be a mere matter of estimate or opinion, incapable of mathematical exactitude, and depending not only upon the manner and consequent cost of construction, but upon the thousand and one circumstances which from time to time sway the market here, even in real estate. Unless, then, this is to be considered as concluded by the policy, where a mutual estimate has been fairly arrived at by both parties to it, it might lead, especially at a distance of time, (and the policies of this company run for seven years,) not only to dispute and litigation, but possibly to great injustice. We say "possibly," because in practice we hardly think that an insurance company would reap much advantage from an appeal from the judgment of their own directors, in such a matter, to that of a jury. The rule adopted by the courts in the cases upon this point noted in the plaintiff's brief, is quite satisfactory to us, as a rule of practical justice, and we apply it to this case.

But waiving this, there is another fatal objection to this plea. Grant that the estimate of value by the directors, in a fair case, is not binding upon the company, does it follow that the policy is void because the agents of the company are not as wise or as wary in their duty as they ought to be? Full justice would be done to the company, at least, by correcting the error of their directors, and abating the excess of insurance over the limit of proportional value, upon the adjustment of the loss. They might well afford to pay the sum which their agents had a right to insure, especially if they retained the greater premium proportioned to what they did insure. In this view of the matter, which, in the absence of all fraud or misrepresentation on the part of the insured, is the one we should certainly take, if we were disposed to depart in such a case from the sum fixed in the policy, the plea, which professes in its commencement to answer the whole cause of action declared upon in the count, would answer it only in part; that is, as to the excess insured over the charter limit of value; and so, would be insufficient upon general demurrer. Earl of Manchester v. Vale, 1 Saund. 28, and note 3.

The first plea to the second count, demurred to by the plaintiff, and the replication to the second plea to the same count, demurred to by the defendants, present questions turning upon the same general principles; and as our determination of these will dispose of the cause of action covered by the count, we deem it unnecessary to consider the further question presented by the defendants, whether the action upon the policy originally issued to Benjamin R. Hoxsie, and by him assigned to his mortgagee, should not have been brought in the name of the former.

The first plea to the second count, in substance, alleges, that after the execution of the policy and its assignment to the plaintiff as mortgagee, and before the loss, the mortgagor, in whose name the policy was taken out, quitclaimed all his interest in the house insured to the plaintiff, leaving himself, the party originally insured, no interest, at the time of the loss, in the subject of insurance. The plaintiff's demurrer admits this, and the question is, what effect had this deed of quitclaim upon the policy?

It is as old as the law of fire insurance in England, that a fire policy, being a personal contract of indemnity between the insurer and insured by which the interest of the latter in the subject of insurance is alone covered, does not pass, upon alienation of the subject, as incident thereto, nor, without the consent of the insurer, upon an alienation of the subject, by an assignment of the policy to the alienee. From the very nature of such a contract, it follows, in such case, that upon the determination, before loss, of the interest of the insured, the policy becomes a nullity. Lynch v. Dalzell, 3 Brown's P.C. 497; Sadler's Co. v. Badcock, 2 Atk. 554; Wilson v. Hill, 3 Metc. 66, 68, Shaw, C.J.; Carpenter v. ProvidenceWashington Ins. Co. 16 Pet. 495, 503. In modern policies this is not ordinarily left to inference; and in this, by the 29th section of the charter of the company, made, by the 2d section, with the other charter provisions, as well as by reference in the policy, a part thereof, and conclusively binding upon all policy holders, it is expressly provided, that "when any house or other building shall be alienated by sale or otherwise, the policy shall thereupon be ipso facto void," unless, indeed, "the grantee or alienee, having the policy assigned to him, shall have the same ratified and confirmed to him" for his own benefit, upon application to the board of directors, and with their consent, within thirty days next after such alienation, on his giving security to the satisfaction of the board for such portion of the premium note as shall remain unpaid; by which ratification and confirmation, the parties causing the same shall be entitled to all the rights and privileges, and be subject to all the responsibilities, to which the original insured was entitled or subject under the charter.

Is there anything in this case which relieves it from the unratified alienation by the assured of all his interest in the subject of insurance, set up in the plea? It is said, that upon the same day that the policy was taken out by Benjamin R. Hoxsie, it was assigned, with the consent of the company, to the plaintiff, whose mortgage on the house insured was noticed in the policy; and that, by virtue of this consent, the plaintiff, to the extent of his mortgage, became an original insurer, incapable of being affected by the subsequent alienation to him of the interest of the person originally insured.

We do not apprehend that the mortgage, which existed prior to the policy, was any alienation of the subject of insurance whatever; and certainly not, in the sense of the 29th section of the charter of this company, which contemplates only an alienation made after the effecting of the policy. It follows, that no such application to the board of directors, or consent given by them, could have been made upon the issuing of this policy, such as are contemplated by this section; nor is there anything in these pleadings to show that anything ever was done by this company or its agents, by which the plaintiff under this policy subjected himself to the responsibilities, or entitled himself to the rights, of the original insured. It was necessary to the validity of the policy, under the 14th section of the charter, that the incumbrance of the plaintiff, by way of mortgage upon the house insured, should be expressed in the policy; and this having been done, and the insured having assigned the policy to the plaintiff as mortgagee in farther security for his debt, all that was done by the company was to record this assignment, with the policy, upon their books. No doubt this would operate as notice to them of the assignment of the policy, and be viewed as an implied assent on their part thereto; but it left wholly unaffected the questions who was the insurer, and whose interest was insured. The insurance was, notwithstanding all this, the insurance of the mortgagor, upon his interest in the subject, assigned to the plaintiff by way of security for his mortgage debt, and merely collateral thereto. As such, in case of loss, it was to be collected, held, and applied, for the benefit of the mortgagee, to the extent of his mortgage debt, but if that were paid, or beyond that, to the benefit of the mortgagor, the insured. Carpenter v. The ProvidenceWashington Ins. Co. 16 Pet. 495, 501, 502.

As a policy of fire insurance is not a negotiable instrument, and gives to the assured only a contingent and conditional right to recover in case of loss, it would seem to follow, that when it was assigned, though with the consent of the insurer, merely as the policy of the assured and as collateral security for his debt, it would be defeated by breach of any of its conditions, before loss, suffered or committed with or without the knowledge or complicity of the assignee. If a mortgagee desires to avoid responsibility, to this extent, for the acts or defaults of the mortgagor, it is perfectly competent for him to take out insurance upon his own interest as mortgagee, and to hold it unaffected by the conduct of another. It seems to us quite unnecessary, in search of some general equity, to break down the contracts of parties perfectly capable of making them; and such, in application to this subject, is the doctrine of the present day by the decided weight of authority. Ibid.; and see cases cited to this point by the counsel for the defendants.

Nor is this result at all affected, in the view of the courts of Massachusetts, by their notion, that in case of assignments of fire policies similar to this, the action to recover the loss may, upon the ground of a new contract with him, be brought in the name of the assignee. This new promise to pay is still construed by them to embrace, and be limited by, the conditions of the policy, and to be defeated with it, by any breach of those conditions by the assignor, though subsequent to the assignment.Macomber v. Cambridge Mutual Fire Ins. Co. 8 Cush. 133; Fogg another v. Middlesex Mutual Fire Ins. Co. 10 Ib. 337; Hale v. Mechanics' Mutual Fire Ins. Co. 6 Gray, 169.

It is unnecessary, however, to decide in this case, what would have been the effect upon the policy of an alienation of the interest of the mortgagor to a stranger, made without the consent of the defendants; the policy having been previously assigned, with their consent, to the plaintiff, his mortgagee. The plea alleges, that the plaintiff himself received the quitclaim of all the interest of the assured in the subject of insurance. He cannot, therefore, complain that he is subjected to the breach of a condition of this policy, in which he admits by his demurrer that he participated. If he chose to foreclose his mortgage, and terminate the insured interest of the mortgagor without obtaining, in his favor, as alienee, the company's ratification of the policy, there is no pretence, either at law or in equity, for holding them to a contract, an express condition of which he himself has broken. Macomber v. Cambridge Mutual Fire Ins.Co., supra.

This plea must, therefore, be sustained, as a good bar to the cause of action declared upon in the second count in the declaration.

The replication to the second plea to this count remains to be considered. The policy, as set out in the count, describes the house insured, as "occupied for a dwelling-house," "the basement being of wood and stone." The plea alleges, that this basement, after the assignment of the policy and before the loss, was used and occupied as a joiners' shop, and thereby was exposed to a greater risk than when insured, of which the plaintiff had notice, c. The replication, to which the defendants have demurred, replies, that it was not so used and occupied with the knowledge of the plaintiff. The question thus raised is, whether such use of the house after the assignment, and unknown to the assignee of the policy, avoids it.

We have already stated our conclusion, that the plaintiff held this policy subject to be defeated by all breaches done or suffered by the assignor after the assignment and prior to the loss; and in application to this portion of the pleadings, need add nothing more. There is very great justice, and very high authority for holding, that the description in a fire policy of the construction and use of the premises insured, constituting as it does the basis of the insurance and determining the amount of the premium, is tantamount to a warranty on the part of the assured, that this description shall remain substantially true while the risk is running; and that no alteration in either shall subsequently be made by the insured, to enhance the liability of the insurer. Sillem v. Thornton, 3 El. Blackb. 868, 883. "It seems strange," says Lord Campbell, in delivering the opinion of the court in the case just cited, "that if a house be described in the policy as occupied by the owner carrying on the trade of a butcher, so that the premium is on the lowest scale, he may, immediately afterwards, merely taking care that the walls and floor and roof remain, so that it shall be the same identical house, convert it into a manufactory of fireworks, a trade trebly hazardous, for which the highest scale of premium would be no more than a reasonable consideration for the stipulated indemnity." The 28th section of the act incorporating the defendants recognizes and applies precisely this reasoning. It provides, not only that "no sugar-house, bake-house, distil-house, or joiners' shop, or other house," in which certain hazardous trades are carried on, "shall be insured in said company, but on such terms only as shall or may be especially agreed on by the directors," but that "no policy shall extend, or be construed to extend, to any of the houses, buildings, or risks specified in this section, unless the same is expressly mentioned in the policy, and a proportional premium and deposit paid; nor shall any policy extend to, or be construed to extend to, any house or building in which more than twenty-eight pounds of gunpowder shall have been for twenty-four hours next before the time that the same house or building was burnt." The only purpose of this section is, to exclude the specified risks from the policy unless named and paid for; and it applies, in our judgment, to exclude them, as well when arising during the running of the policy from a change of use, as when the prohibited use exists at the time of effecting the policy. In other words, it holds the insured to the risk he describes and pays for, to this extent, at least, that he has no policy for the risks prohibited, if he has not described and paid for them. The consequence of this must be, that the moment he changes the use of the insured premises to any of those thus conditionally forbidden his policy ceases to attach, and the liability of the company upon it is determined.

The plea, in our judgment, sets up a good bar to the count; the replication was no sufficient answer to it, and must, therefore, be overruled.

The result is, that the plaintiff is entitled to judgment upon the first count, and the defendants upon the second count, in the declaration.