Allen v. Mutual Fire Insurance

| Md. | Jun 15, 1852

Ecclestox, J.,

delivered the opinion of the court.

This suit was instituted upon a policy, dated the 6th of January 1845, in which the defendants contracted to insure the plaintiff against all loss or damage by fire, that might happen to a “store and frame” grist mill, valued at $850, and a saw mill with a chair shop, and small sitting room attached, valued at $200.

The plaintiff gave his promissory note for the premium, as required by the company; and regularly paid the interest thereon.

On the night of the 21st of April 1847, the grist mill was accidently destroyed by fire. Due notice of which was given; and the defendants refusing to pay the loss, this action was commenced. At the trial, the plaintiff’s claim was resisted on two grounds, which are to be found in two instructions, granted by the court, at the instance of the defendants.

1st, If the jury should believe the evidence, then the plaintiff had no such title in the said mills and premises, as would enable him to enter into said policy, or contract of insurance, and therefore, could not recover.

2nd. If the jury should find from the evidence, that after the policy sued on was underwritten, and before the fire, the plaintiff caused certain improvements, or alterations, to be made on the property insured; and should further find, that such improvements, or alterations, either in themselves, or during their progress of completion, occasioned any additional increase of risk to the property insured, then the plaintiff was not entitled to recover, he not having shown, that the permission, provided for by the terms of the eighth condition of the policy, had been first given.

In the argument upon the first instruction, it was urged on the part of the defendants, that this institution is unlike an ordinary fire insurance company, where the capital consists of money paid in by the insured, and invested by the company. The one under consideration, is a kind of partnership, in which the members mutually insure each others buildings, at certain estimated values. And the property thus insured must stand pledged to secure the payment of such sum or sumá, as the owners may be required to pay, according to the regulations of the company, for the purpose of making good any losses which may occur from time to time. And as the second section of the original act of incorporation makes the premium notes, liens upon real estate only, it is contended, that this company cannot insure personal property, but is confined to such real estate, as the assured can create a valid lien upon, to the extent of the obligation imposed on him by his premium note. In aid of this view of the subject, reference has been made to the supplement of 1843, ch. 225, and to the 3rd and 6th sections of the supplement of 1849, ch. 173. The first provides, that any guardian of an infant may insure, under the original act, any houses or buildings owned by the ward or wards of such guardian; and that the insurance shall be a lien, with the same effect as if the minors were of full age, and had made the insurance themselves.

The 3rd section of the latter supplement, is, “that it shall and may be lawful for any person, possessed of a life estate in real property, or any person holding such property, in trust, to insure the same in said company; and that the premium note, given for such insurance, shall be a lien upon such property.”

The 6th section referred to, makes provision, that a feme covert, with the consent of her husband, may insure her real estate, and the premium note given by them jointly, shall be a lien on the same.

These acts were not resorted to, for the purpose of showing that any powers or authority, given in the charter, have been abridged or reduced by them. But they were used as legislative authority, for the construction claimed by the appellees. Experience, however, has taught us to believe, that legislative construction of a prior statute, is not always to be relied upon as a safe guide. And on the present occasion it is by no means certain, that the appellees aie right, in the belief, that the legislative interpretation of the original act, as manifested by the supplements, is the same which they insist upon.

When the charter declared, that premium notes should be liens upon real estate, it cannot be supposed, that a lien should exist, in any case, where the title of the party would not enable him to create one by deed or otherwise. These supplements were passed, with a view of authorising certain classes of persons to create liens for insurance purposes, who previously, had no such power, or who, it is presumed, the legislature supposed, had not the power. This seems to have been their chief design. And as the charter gave liens upon real estate only, the subsequent acts were also confined to the same species of property. If it be supposed, that because it is said in the supplements, the persons named may insure, they, therefore, had no such right previously, this is certainly a mistake ip one instance, at least, if not in more. A tenant for life surely had the right; even according to the construction of the charter, claimed by the appellees. His life estate being a freehold, is reality, and his premium note would have been a lien to that extent. How far this last act extends the lien in such a case, it is not necessary now to decide.

But even assuming that the supplements were passed, under the impression that the construction of the original act, contended for by the appellees, is correct, w7e cannot yield our assent to its correctness. For we consider it in direct conflict with the plain and obvious meaning of the first section, which is not contradicted or controlled by any subsequent clause or section.

In the act of 1842, ch. 214, which is the original charter, we find given to the company, in the first section, “full power and-authority to make insurances on any kind of property, against loss and damage by fire.” More ample powers to make insurances, could not well have been given. The language used, is abundantly7 comprehensive, to include both real and personal estate, and all such interests in either, as the well settled principles of law7 recognise to be insurable interests. The grant is without any express limitation, qualification, or restriction; and the subject legislated upon being that of insurance, the language must be construed according to the established rules of the insurance law, unless they are controlled by some other part of thjs charter. This, it has been contended, is done by the fourth section, which makes the -premium notes liens upon real estate only. The portion of the section referred to, is: “ That all premium notes, notes of hand, or other evidences of debt, held by the said company, which shall have been given thereto for premiums for insurance, or for any part or parts of said premiums, shall constitute and be deemed a lien on any real estate which may be insured, in consideration, or part consideration, of such notes or evidences of debt; which real estate shall be held liable for the full and just payment of such notes, or evidences of debt, either wholly or in part, at such time or times as the president and directors shall demand.” It is difficult to perceive, how this can aid the argument in defence. A lien on realty only, is created; but then it seems to provide for a case in which the insured may be indebted to the company, and may give his note for something besides an insurance on real estate, upon which a lien may be created by him. For the note is made a lien “on any real estate which may be insured in consideration, or pari consideration of such notes.” It is true, that this language might be applicable to a policy, including several parcels of real estate. But it would apply as well to a case where the note was given for premiums, under a policy of insurance, upon both personal and real estate. And it may very justly be supposed, the legislature had such a case in contemplation, after having given, in the first section, unlimited power to insure any kind of property. Confining the liens to realty, affords an argument in favor of the belief, that the legislature certainly intended to authorise insurances upon personalty and realty both. If they had supposed that by creating a mutual fire insurance company, they were conferring power to insure real estate only, they would not have considered it necessary, when providing for liens, to confine them by express language to real estate. Under such circumstances, it would have been quite sufficient, and perfectly correct to have said, the notes shall be liens upon the property insured. But under the supposition that they were giving authority to insure all kinds of property, and only designed making liens on realty, such language as that used in the fourth section, might well have been expected.

In case of failure to pay any of the notes mentioned in the fourth section, when demanded, provision is made that “the said president and directors may proceed to collect the same, or any part thereof, in the same manner as in the foreclosure of a mortgage on real estate, the said notes or evidences of debt to beheld and deemed as a mortgage on such real estate.”

Whenever a loss shall occur, the company are authorised, by the tenth- section-, to ascertain the proportion which each member is to pay, and after causing a statement thereof to be made, the members are to have notice of the same; and if at the expiration of sixty days from the date of such notice, any member shall fail to pay his contribution, the directors may file such statement in the office of the clerk of the county, and may “cause execution to issue for the said proportion, in- the same manner as if a judgment had been rendered for the same, together with all costs incident to such proceeding.” In this provision for a summary process of collection, the general and unrestricted language which includes all members of the corporation-, would include any premium notes not liens on real estate; and therefore this section is perfectly consistent with the general power in the first, to insure any kind of property. In truth; there is no part of the charter in which the language is not in harmony with the unlimited authority which we have conceived to be- granted in the first section.

The exposition of this statute, as insisted upon by the appellees, requires us- to limit or restrict the meaning of the words “any kind of property,” so as to- include real estate only, and such real estate as the insured can bind by a valid lien. This is clearly what is asked of us.- For they contend, that the present policy is void, because the appellant had not such a title to the property, included therein, as he could give a lien upon, the company having no authority to insure in such a case. To acquiesce in this view of the' statute, would violate one of the plainest, well settled, rules of construction. In 6 Bac. Ah., 380, title Statute, letter I, it is said: “Where words in a statute are express, plain and clear, the words ought to be understood according to their genuine and natural signification and import, unless by such exposition a eontradiction or inconsistency would arise in the statute, by reason of some subsequent clause, from whence it might be inferred that the intent of the parliament was otherwise.” According to Jacobs’ Law Die., 5th vol.,p. 332, Property is, “ The highest right a man can have to anything; being used for that right which one hath to lands or tenements, goods or chattels, which no way depend on another man’s curtesy.” Surely, then, the words “any kind of property,” if construed “ according to their genuine and natural signification and import,” will include more than real estate, on which a party proposing to insure can create a lien. And it will be a difficult task, to point out any subsequent clause of the act, contradictory to, or inconsistent with, such an exposition, as will justify an inference that the legislature had a different intent.

The appellees’ interpretation has been pressed upon us, as necessary for the security and protection of the members of the company, and, indeed, to secure the very existence of the company itself. Assuming it to be vitally important, that such institutions should only insure where they can have their premium notes secured by liens on realty, where is the absolute necessity of having them thus restricted and limited in their' charters? They can at any time regulate the matter in their by-laws, or by the conditions annexed to their policies. But how are they subject to any very great hazard, even whilst the kind of property to be’ insured is left discretionary? The officers have the privilege, in fact it is their duty, if not already fully informed on the subject, when application is made for an insurance, to inquire into and ascertain the circumstances of the party, the nature and amount of property to be insured, as also the title to the same. And if an insurance is effected on property, the premium note for which is not a lien, but the insured is considered perfectly good for the amount, being a man of large means, should it afterwards, at any time, be even suspected that the party is becoming, in any degree, less responsible than at first, the company, (this one at least, by express provision,) can revoke the contract. And if, in the mean time, a loss has occurred, rendering it necessary to call upon the members for contribution, the tenth section of the charter affords an exceedingly prompt method of compelling payment.

Although it was contended' in argument, that from the very nature of mutual fire insurance companies, they must be confined to real estate only, and that no policy ought to be valid> unless accompanied -by an actual lien; and that such regulations are so necessarily inherent in institutions of this sort, as to demand a construction of the present charter accordingly, still we find a different doctrine held elsewhere. In Addison and Clendenin, vs. The Kentucky and Louisville Insurance Company, 7 B. Monroe, 470, there is a decision upon the charter of a mutual fire insurance company, in which they are authorised to insure real and personal property. The insurance was on a flour-mill. The assured Iheld a lien upon it fór a debt due to them,, and one question was, whether they had such an interest, as authorised them to effect an insurance? It was held they had. There it appears to have been contended, that the owner of the mill, alone, could have it insured, and that a person merely holding a lien upon it, to secure the payment of a debt, could not effect an insurance on the property. But the court thought otherwise.

The counsel for the appellees thinks it would be great injustice to the members of this company not to hold this policy void, for the reason, that they have pledged their real estate to secure the appellant against loss by fire, whilst he has pledged nothing to them in return, but his personal responsibility. There is nothing, however, in the record tending to show that the facts are, as here stated, in regard to the pledges given. Speaking from the record, we are not authorised to say, whether there may or may not be many policies similar to the- present.

If, as- has been suggested, the company would be subjected to much inconvenience, by considering such policies as this binding upon- them, a contrary decision would subject the assured to quite as great, if not much greater, inconvenience. In the latter view of the subject, it might very well happen that a wealthy man, well known to the company as such, should apply for an insurance upon property in which he had an interest, but not such a title as would enable him to create a lien on the same. The company, having full confidence in the ability of the party to meet all his engagements, make no inquiry in regard to his title, and he says nothing on that subject. The insurance is effected. For many years in succession the interest on the premium note is regularly paid. And to satisfy losses by fire, it may be that the principal of the note has been paid several times. Finally, the insured property is destroyed, and when the company are called on to make good the loss, they, for the first time, investigate the title, and finding it defective, refuse to pay, because the policy is void. Although, in fact, at the time of the insurance, the insured had not a full title to the property, he may have believed that he had, and there might not have been, in the mind of any one, the slightest suspicion of any defect in the title. But subsequently, such defect may have been discovered by the decision of a law suit, in which some nice and difficult question was settled, contrary to the previous impression of the legal profession. The argument, ab inconvenienti, therefore, is not so decidedly in favor of the appellees, as to justify such a construction of the charter, as will give to the words of the first section any other meaning than “their genuine and natural signification and import.” As the expression, “any kind of property,” must include personal as well as real estate, we are of the opinion, that this company have the authority to insure, whatever interests are insurable, in ordinary fire insurance companies.

At different times doubts have existed in regard to what interests might be insured, but it is now well settled, that a party having a mortgage or other lien upon real property, may insure the property to secure his claim. I Phill. on Ins., 107, 108, (2nd Ed.) Hammond on Fire Insurance, 21, 22. In the case already referred to, in 7 B. Monroe, 470, the insured having only a lien upon the property created by deed, his right to make the insurance was resisted, but not successfully. The court held the interest to be insurable. And in deciding this question they say, “the plaintiffs had a right to have the property included in their policy insured, for the purpose of guarding against the loss of their debt by the destruction of the property bound for its payment. A debt is not itself a proper object of insurance, neither is the title to the estate, or any interest which an individual may have in it, but the property itself may be insured, as a means of securing the assured by the preservation of the property, from the loss of his interest, whatever that may be.” And this was a claim against a mutual insurance company.

Believing that at the time of the insurance, and also when the property was destroyed, the appellant had a lien, which was an insurable interest, we deem it unnecessary to notice the other grounds on which he claimed the policy to be valid.

There is no allegation of any fraud or misrepresentation on the part of the appellant, in relation to his title to the property, or that anything was said about it. The record contains no evidence on that point.

Entertaining these views, we are brought to the conclusion, that the court below erred in granting the first prayer of the appellees.

The second prayer of the appellees, which was also granted by the court, is based upon the eighth of the terms and conditions for making insurances, annexed to, or rather appearing at the foot of the policy; which eighth condition is as follows: “In case of any material increase of risk to the property insured in this company, such increase of risk must be notified to the company, and written permission therefor be obtained from the secretary, for which such charge as may be proper must be paid.”

As the words “material increase of risk” are used in this condition, it is unnecessary for us to say whether these conditions are to be considered as warranties, and requiring a strict compliance in every particular, or not as warranties, and therefore rendering a substantial compliance sufficient. For here the condition itself expressly providing for a material increase of risk, of course, it cannot include any increase which is not material.

The court instructed the jury, that the plaintiff could not recover, if they should find that the improvements or alterations, either in themselves or during their progress of completion, occasioned any additional increase of risk. They say additional when the condition is material. The difference between these two words is important in a case like this. An increase, however trifling, might be an additional increase, but every additional increase might not be a material increase, in a legal sense. The word used by the court was therefore calculated to mislead the jury. They might have thought the testimony sufficient to prove some additional risk, which, under the instruction, would justify a verdict for the defendants, when the same evidence would not have induced them to believe there was any material increase of risk; especially as there was testimony offered on the one side to establish the materiality, and on the other to disprove it.

An examination of a few cases will show how very important it is to ascertain, in suits upon policies of insurance, whether an increase of risk is material or not. And especially so, when repairs or improvements are the subjects of inquiry.

Dobson vs. Sotheby and others, Moody and Malic. R., 90. And 1 Phill. on Ins., 415, 416, is a leading ease, and is frequently referred to, as such, in subsequent decisions. There the conditions endorsed on the policy, required the assured to give a description of the property to be insured, and provided that all insurances on property falsely described, “so that the same might be charged at a lower premium than would otherwise have been charged, should be void.” The premises were described as “a barn, situated in an open field, timber built and tile,” at the lowest premium charged on buildings where no fire was kept, and no hazardous goods deposited. A provision was endorsed, that “if buildings insured with the company should, at any time after such insurance, be made use of, to stow or warehouse any hazardous goods without leave from the company, the policy should be void.” For ihe purpose of tarring the building, a fire was made inside and a tar barrel brought in. By the neglect of a servant, in the absence of the assured, the tar boiled over and took fire, and the building was consumed. Lord Tenderden, C. J., held, that if the company designed to provide, not only against the keeping of fire on the. premises, but that “none should ever be introduced upon them, they might have expressed themselves to that effect.” And the provision or condition was construed, as prohibiting “only the habitual use of fire, or the ordinary deposit of hazardous goods, not their occasional introduction, as in this case, for a temporary purpose connected with the occupation of the premises.” The judge also says: “The common repairs of a building necessarily require the introduction of fire upon the premises, and one of the great objects of insuring, is security against the negligence of servants and workmen.”

In Shaw vs. Robberds, et al., 6 Adolphus and Ellis, 75, and 1 JVevile and Perry, 275; also noticed in 1 Phill. on Ins., ■414, 415, the sixth condition of the policy provides: “If any alteration or addition be made in or to the buildings or covering of any premises insured, or in which any insured property is contained, or the risk of fire to which such building is exposed, be by any means increased, or if any furniture or goods be removed into other premises, such alteration, addition, increase of risk or removal must be immediately notified and allowed by endorsement on the policy, (the endorsement being duly made and signed by one of the society’s secretaries or agents,) otherwise the insurance, as to such buildings or goods, will be void.”

. The insurance was on a granary, “with a kiln for drying corn attached.” One of the conditions of the policy was, “that the trades carried on in the premises were accurately described, and if a kiln or any other process of fire-heat were used and not noticed in the policy, it was to be void.” The prbperty was destroyed by fire, in consequence of using the kiln three days in drying a cargo of bark, which had been sunk. The bark was to be dried gratis. It was found by the jury that using the kiln for this purpose, was more hazardous than in drying corn. It was, nevertheless, held by Lord Denman, C. J., that the policy was not thereby made void. He considered the sixth condition as pointing “to an alteration of business, at something permanent and habitual,” and that “this single act of kindness was no breach of the condition.” Dobson vs. Sotheby, is referred to by the judge as having been decided upon the same principle, and as an authority in point. And afterwards he says: “No clause in this policy amounts to an express warranty that nothing but corn should ever be dried in the kiln.”

The jury finding that the act complained of by the insurers, was- more hazardous than the drying of corn, shows clearly an increase of risk, and yet it was not such an increase as was held to require the stipulated notice and endorsement, although the policy provided, that if the risk should be increased by any means, notice should be given thereof and allowed by endorsement, or otherwise the insurance to be void.

In Jennings vs. The Chenango County Mutual Ins. Co., 2 Denio, 75, by a condition annexed to and expressly made part of the policy, it is provided, that the policy shall be void, if after the insurance the risk shall be increased by any means whatever within the control of the insured, or if the buildings shall be occupied in any way, so as to render the risk more hazardous than when the insurance was effected. The property included in the policy was a mill. On page 83, it is decided, that a work bench and tools kept in the mill, for the purpose of repairing it, was no violation of the contract. And it is held to he the undoubted right of the insured, to place in the mill suitable materials and tools to make ordinary repairs of the building, without any danger of forfeiting his policy.

In Grant vs. The Howard Ins. Co. of New York, 5 Hill, at page 14, C. J. Nelson says: “To adjudge that the clause under consideration relates to the repairs of the building insured, would have the effect to cut off all right of making any repairs, however proper and necessary; a construction that should not be admitted, except upon the most clear and explicit terms.”

The case of Jolly vs. The Baltimore Equitable Society, &c., 1 H. & G., 295, fully sanctioned the right of the insured to make a thorough repair of the premises. And the judge discarded the attempted distinction between the right to make Ordinary repairs, and such a thorough repair as Would render the house tenantable. There it was held, that alterations materially enhancing the risk, and not necessary to the' enjoyment of the premises insured, if they should occasion a loss by fire, then the- insurers would be released from liability under the policy. On page 306, the opinion of the learned judge, in the case* of Stetson vs. The Massachusetts Fire Co., 4 Mass. R., 330, is noticed with approbation, in which it is said: “ If every, the-least, alteration or enlargement of a building insureil against fire, is necessarily and of course material to the risk, and whenever it is made by the act or consent of the insured, is to vacate the policy, unless it should be renewed by the insurer; so close a restraint upon the party would place contracts of this kind in a state of complete uncertainty, and would render them so inconvenient as wholly to prevent them.”

See, also, 3 Comstock's R., 122, O'Neil vs. The Buffalo Fire Ins. Co.

The cases referred to are quite sufficient to show, we think, that under the eighth condition of this policy, the plaintiff’s right of action could not be defeated, unless the improvements or alterations relied upon in defence,, created a material increase of risk, and, therefore, that the court below should not have granted the second prayer of the defendants.

Under the circumstances of this case, the expression additional increase is rather singular. When an insurance is effected, there is necessarily some risk supposed to exist. Any act afterwards producing risk, is an increase of risk or an additional risk, but to call this an additional increase would be tautology. If one act producing risk occurs, and then another, the second might be called an additional increase of risk, having reference to the first. Here we understand the prayer as referring to one set of improvements, all of which, taken together, occasioned the injury complained of. Whether, however, the improvements or alterations made an increase of risk, or an additional risk, or an additional increase of risk, the right of the plaintiff to recover was not defeated, unless, according to the condition, such increase was material. ^

The plaintiff asked for an instruction, which was properly refused by the court. The prayer assumed, that admitting the improvements or alterations so affected the risk as to be within the provisions of the eighth condition, still the plaintiff was released from the obligation of giving notice and obtaining permission, if the jury believed he had made reasonable efforts to do so, and was prevented by the negligence or misconduct of the defendants or their secretary. In this he was mistaken. The present is not one of those instances, in which an excuse for non-performance will avail in lieu of performance, or where a man will be excused for not doing a thing, in consequence of the neglect or refusal of another party to do something, which is required to be done on his part. The company were not bound to give permission whenever asked, but had a discretion to do so or not. To deny them such a right, might subject them to very great hazard. If an insurance should be effected at the lowest premium, and afterwards the insured wishes to make an improvement of a very hazardous character, it cannot be the true spirit and meaning of this condition, that if application is made for permission, the company have no discretion, but must consent. Under the second section of the act of 1844, ch. 229, and the sixth by-law, they are authorised to cancel any policy, whenever they may deem it necessary. If then application for permission to make improvements, which would occasion very great hazard, should be presented, the company would be very apt to prefer cancelling the policy, rather than consent to the proposed alteration. It will avail nothing to say, this is putting an extreme case; for after providing for ciany material increase of risk,” the condition makes no distinction between degrees of materiality, from the lowest to the highest grade. And it would Be a. difficult task, in a matter of this nature, to draw a line, dividing the class of improvements, materially increasing the hazard, for which the company would be compelled to give their consent, from those, in regard to which, they could exercise a discretion. Moreover, the party is to pay “such charge as may be proper,”’for permission to make the material increase of risk. The amount to be paid being uncertain, it could only be ascertained by agreement between the parties, necessarily implying a discretion on both sides. No one can doubt the right of the insured to abandon his contemplated improvements, rather than pay a sum for the privilege of making them, which he considered exorbitant, and if so, it would seem to be but equal justice, that the company should be allowed authority to decline consenting to have their risk greatly enhanced, when the party asking their consent has offered as compensation a sum far below what they consider'a proper charge. It could not have been the design of this condition to take from the company all control of, and power to restrain, hazardous changes of insured property. And such would be the effect of denying them a discretion in the premises. Whilst a different construction would impose no serious hardship upon the insured. We see nothing in this record which prohibited him, without asking the consent of the appellees, from making whatever repairs were necessary or appropriate, for the purpose of rendering or keeping the mill useful and profitable, according to its design and character at the time it was insured. And if he desired to make alterations and improvements Beyond this, so as materially to increase the risk, if from any cause' he could not obtain the necessary permission, he had a right immediately to cancel the policy and effect an insurance elsewhere. In doing this he would have no difficulty, unless indeed the proposed improvements should be such as no company would be willing to insure, and if so, he could not complain of a disappointment in his application under his original contract. The third section of the charter gives him the authority to have his policy cancelled -whenever he may think proper.

The condition requiring permission, and the appellees having the right to give or to refuse it, if the appellant proceeded without it, ho did so at his own peril, provided the alterations or improvements made by him are such as the condition prohibits, unless consented to by the appellees. In consequence of the discretion in the company, the excuse for not having-obtained permission, which is relied upon in the prayer, will not avail. Under such circumstances, no court or jury would have authority to assume, that if the first secretary mentioned in the testimony had been a very attentive and faithful officer, regularly to be found in a convenient and suitable office, kept for the transaction of company business; and that the last secretary was well instructed in all the duties required of him, and attentive and prompt to perform them, that the company, or either secretary, would have given the permission desired by the appellant. From the testimony offered, and on which the prayer is predicated, it is manifest that the prayer denies any discretion on the part of the defendants, and assumes that the plaintiff had a right to demand the permission, and that the failure to obtain it resulted alone from the difficulty of being able to find the first secretary, and the want of proper official information on the part of the last. Believing the company had a discretion, we concur with the court in their opinion on this prayer.

Judgment reversed and procedendo awarded.