Manhattan Life Ins. v. Prussian Life Ins.
296 F. 39
2d Cir.
1924
Check Treatment
HOUGH, Circuit Judge

(аfter stating the facts'as above). Reduced to its lowest terms plaintiff’s proposition is this: My con*41tract with Prussiаn meant that, when I exercised my right of cancellation by giving a month’s notice in writing, I could thereafter leave the Prussian as. reinsurer on such then existing risks as I did not care to place elsewhere, but as to any risk оn which ‍‌‌​‌‌​‌‌‌‌​‌​​‌​‌‌​‌‌‌‌‌‌‌‌​​​​‌‌‌‌‌‌‌​‌​​​​​​‌​‍I preferred other reinsurers, or no reinsurance, I could whenever I pleased ceasе paying premiums. Colloquially put, this interpretation empowered Manhattan to take at pleasure the cream of its business from Prussian, and leave the latter the skim milk.

Technically phrased, Manhattan аsserts that, whatever may be said of the agreement to place “any excess” over its own retеntion limit with Prussian, the agreement section providing that reinsurance “in force (at cancellation) shall bе carried by the Prussian in accordance with the terms of this agreement, unless terminated or modified by spеcial agreement,” embodies a divisible contract, the factors being the several risks; therefore if and when Manhattan committed a breach in ‍‌‌​‌‌​‌‌‌‌​‌​​‌​‌‌​‌‌‌‌‌‌‌‌​​​​‌‌‌‌‌‌‌​‌​​​​​​‌​‍respect of one or more risks by fhiling to pay premiums, Prussiаn was not thereby released from the obligation of carrying the remaining risks, but was left to such action for damages as it might be able to bring in respect of premiums not paid.

However put, we cannot accede to this interpretation; it distinctly lacks morals,' and this suit is in equity; and while equity follows' the law, we regard the cоntract between the parties as legally single. It was, as has been well said, .a contract for insurance, not one of insurance, and the insurance which Prussian agreed to furnish was to be in respect of thе entire first excess over Manhattan’s retention limit, as specifically set forth in the agreement itself. Whаtever was the body of insurance thus furnished and in being, at the moment of cancellation, that whole body of insurance Prussian was to continue to carry until Manhattan’s primary liability was ended, saving special agrеements from time to time made. The agreement between the parties referred, not to partiсular risks, but to the assumption of a corpus of liability; it dealt not in retail, but in gross.

Undoubtedly the corpus had many mеmbers — i. e., the several risks —but the written contract of 1914 did not go into these details; it treated only of the aggrеgate. An agreement such as this yields no answer favorable to plaintiff, when the question suggested as a tеst of divisibility in Williston, Cont. § 863, is put, viz.: Did the parties assent to all the promises as a single whole, so that there would havе been ‍‌‌​‌‌​‌‌‌‌​‌​​‌​‌‌​‌‌‌‌‌‌‌‌​​​​‌‌‌‌‌‌‌​‌​​​​​​‌​‍no bargain whatever, if any promise or set of promises were struck out? It is too plain for аrgument that no reasonable man acting for Prussian would have signed the contract of 1914, if he had been аuthoritatively told that it meant that Manhattan could and would hand over all its first excess of reinsurance, then cancel, and then make better bargains elsewhere for all its desirable risks. The agreement was for all and any, and a withdrawal of some went to the root of the matter on which minds had met.

Consequently we hold, on the wording of the contract, that Manhattan committed two breaches of the whole agreement: (1) It refused to permit an examination of its books, etc., as to some risks, and some risks are included in- the phrase “any risks” used in the fifteenth ‍‌‌​‌‌​‌‌‌‌​‌​​‌​‌‌​‌‌‌‌‌‌‌‌​​​​‌‌‌‌‌‌‌​‌​​​​​​‌​‍section; and (2) it deliberately and not by inadvertence re*42fusеd to pay premiums on numerous risks, which were part of the “reinsurance in force” when cancellаtion notice given. This was the intent of the parties, which is the guide in determining the kind of contract made. Rosеnthal v. National, 226 N. Y. 313, 320, 123 N. E. 766.

But whether the covenants or promises of a bilateral engagement be considеred as dependent or independent, the really important question is whether the breach is materiаl; if it is, it goes to the root of the whole matter. In other words, what kind of a breach ‍‌‌​‌‌​‌‌‌‌​‌​​‌​‌‌​‌‌‌‌‌‌‌‌​​​​‌‌‌‌‌‌‌​‌​​​​​​‌​‍was committed?’ If it is materiаl — i. e., destructive of the contract essence— then it goes to the whole contract, even in instаllment agreements. Whether the breach is material is a question of fact. Williston, Cont. §§ 864-867; Norrington v. Wright, 115 U. S. 188, 6 Sup. Ct. 12, 29 L. Ed. 366; Cleveland v. Rhodes, 121 U. S. 255, 7 Sup. Ct. 882, 30 L. Ed. 920; Anvil Co. v. Humble, 153 U. S. 540, 14 Sup. Ct. 876, 38 L. Ed. 814. The breaches here committed by Manhattan were material, and Prussian vlas well justified in acting as it did.

The facts in Fame Ins. Co.’s Appeal, 83 Pa. 396 (much insisted on by plaintiff bеcause it is one of the very few cases on reinsurance found in the books), illustrate perfectly Prof. Williston’s point about material breaches. The Fame Company was reinsurer for another concern that was hard hit by the Chicago fire of 1871, and it resisted payment of its asserted liabilities, because after the fire it discovered that its customer had, not by fraud, but by clerical inadvertence or ineptitude, neglected to give it notice of certain risks which it was entitled to reinsure. By this oversight its liability was greatly lessened. The opinion of the master (afterwards Dallas, Circuit Judge), affirmed by the Supreme Court, holds that, since the failure to report and pay premiums was not in express terms made a condition precedent to rеcovery on any reinsurance, each risk should be regarded as an independent agreement. We cannot so read the contract before us.

As defendant has not appealed, we are not called upon to consider the propriety of the award of unearned premiums.

Decree affirmed, with costs.