Williams v. Albany City Insurance

| Mich. | Jan 5, 1870

Christiancy J.

This is a case made after judgment in favor of the defendant, in the Circuit Court for the County of Wayne.

The action was assumpsit upon a policy of insurance upon the schooner Stanley L. Noble, dated April 27th 1868, insuring the vessel from that date until the 30th day of November in the same year; the declaration alleging a total loss within that period.

The premium was not paid in cash, but an endorsed note was given for it at six months.

The policy contained an express stipulation that “in case the notes or obligations given for the premium or any part thereof, be not paid at maturity, the full amount of premium shall be considered as earned, and this policy becomes void, while said past due notes or obligations or any part thereof, remain overdue and unpaid,” and a memorandum to the same effect was contained on the face, but at the foot of the note.

The note given was not paid at maturity and was duly protested for non-payment, so that the endorsers, who are shown to have been good, were legally bound to pay the note.

On the 12th day of November, after the note had become due and while it remained over due and unpaid, the vessel was totally lost, the loss exceeding the amount insured, and the plaintiffs’ interest being undisputed.

On the 19th day of November — after the loss and after the defendants’ agent had notice of it through the newspapers, the endorsers paid the note with interest and expenses to said agent who received it and delivered up the note to the endorsers. The agent transmitted the money to the defendants who received and kept it.

The defendants refused to pay the loss, and in this suit defend on the ground that, by the express provision of the policy, they were exempt from liability for any loss occurring while said note was overdue and unpaid.

Upon this statement of facts, three questions arise : 1st. What is the true interpretation of this provision of the policy ? 2nd. When properly interpreted, is it valid in law; and, if so ? 3d. What was the effect of the defendants’ receiving payment of the note, after default and after the loss ?

First, As to the interpretation — Was it the intention that the policy should become utterly and finally extinguished on failure to pay the note at maturity P If the provision had stopped with the clause “ and this policy becomes void,” such would have been the true interpretation. But the whole instrument, and especially the whole provision upon the same identical subject must be construed together to ascertain the intent; and the clause last cited is but a part of one entire provision, but one branch or member of the same compound sentence, and is immediately followed by the qualifying clause, showing just how long the policy is to be void by reason of the default; “ while said past due notes or obligations or any part thereof shall remain overdue and unpaid.” This shows just as clearly the intent to limit the period during which the policy shall be void, as the previous words do to make it void at all or for any period or purpose. In other words, it shows that, notwithstanding the use of the term, “ void, ” the intention clearly was only to suspend its operation as a policy, while the note or obligation should remain overdue and unpaid, and that upon payment, after default, the policy should again take effect from the time of the payment and continue for the remainder of the period originally fixed; and that, by reason of such default it should only become wholly void, or cease to be capable of revival as a policy, in case that default should continue to the end of the period first fixed for the insurance. The provision, therefore, is but a stipulation in another form of words, that the company shall not be liable for any loss which may occur during the continuance of the default.

In connection with this and as a necessary part of the provision, without which it could not have full effect, it was also stipulated that, in case of such default, the full amount of premium should be considered as earned. But this, it is quite evident, does not mean that the premium should in all cases be considered as fully earned at the date of the default, but was intended to have this full effect, only in case the policy should not be restored, and the risk revived for the future by payment after default, and within the period originally fixed.

And when the policy should be thus restored and the risk revived, the premium would cover this latter period of risk also; and this period would constitute • a part of the time during which the premium was being earned. The premium was, I think, evidently intended to be earned by the risk, and the period within which it should be earned was intended to be exactly commensurate with the period or periods during which the risk should be covered by the policy. This renders the whole provision on the subject of default and its consequences, sensible and harmonious. Any other construction would be repugnant to that portion of the provision limiting the time within which* the policy should be void, of which it forms an essential part.

Such being the true interpretation of this provision of the contract, the next question is upon its validity. And I confess my entire inability to discover any ground upon which its validity can be questioned. It was certainly competent for the parties to' make their own contract and to fix for themselves all its terms and conditions, unleáfe there was something illegal or opposed to public policy either in the consideration or in what was agreed to .be done. Where is the law and wbat is the principle of public policy which this provision tends in any way to violate or impair ? I am aware of none.

The competency of the parties to have agreed upon a higher rate of premium, or for the same amount of premium for a shorter period of time, cannot be doubted. And upon the same principle, it must have been equally competent to agree that the period of time to be covered by the insurance, and for which the stipulated amount of premium should be paid, might be made shorter upon any contingency the parties saw fit to agree upon, without altering the amount of.the premium — especially upon any contingency, which the insured had it in their own power to prevent, and which it was t their moral and legal duty to prevent. If, therefore, the provision had been that in case of default in payment of the premium at the end of the six months, the policy should from that moment become utterly extinguished, or, what is the same thing, that the period of the risk should absolutely end then, and yet the whole amount of premium should be paid, I am inclined to think the provision would have been entirely valid. But here the provision is not that the period of insurance shall finally terminate on the default; but that the default shall only suspend the policy and the risk, during the continuance of the default,' and that upon payment after default and within the period for insurance originally contemplated, the policy and the risk should revive and the period of the insurance again proceed for the balance of the time remaining after such payment. And, so far from seeing any reason to doubt the validity of the provision, I am unable to see anything unfair or unreasonable in it. It seems to me no more than fair and reciprocal that while the insured continues in his violation of the contract to pay, the insurer should not be bound by his, to sustain the risk, when the parties have so deliberately agreed, and when 'the insured has it in his power at any moment, by simply performing his own duty, to make the insurer resume the risk for the future; and when it must be presumed that the amount of premium was fixed with reference to these provisions. If the contingency provided for, which should operate as a suspension of the risk, was one over which the insured had no control, there might be more reason to say the insurer should return the amount of the premium applicable to the period of suspension. But any claim for the return of this portion of the premium, applicable to the period of suspension, must rest upon the default of the insured, — their violation of their clear legal duty. Could they sustain such a claim upon such a ground?

Perhaps the nature of the provision and of the principle involved may be more easily understood by illustration. A, the owner of a vessel, applies to B, an insurer, for insurance upon his vessel for seven months. He is not prepared to pay the premium in cash, but offers to give his note with an endorser at six months. B replies, “I would be willing to insure your vessel for the seven months, at nine per cent, and give six months credit for the premium, if I could rely with entire certainty upon the payment of the proposed note at maturity. But experience has shown that notes, even of responsible parties, are not always paid at maturity and much embarrassment often arises from the delay. I must rely upon my premiums to pay my losses; and it is very essential that I should be able to calculate with some certainty, the amount I can rely upon at any particular time. The contract of insurance is one which relates to, and is based upon, a calculation of risks; and when I give credit for the premium, I must not only calculate the hazards of the property insured, but the risk of the non-payment of the premium, not only of its final payment, but of its prompt payment at the time agreed upon, and of the embarrassment which may arise from delay. I would not take the note you propose at all, if I did not believe it would be promptly paid. But it may not be. I will take your endorsed note for the nine per cent, premium and insure your vessel for six months; that is till the maturity of the note; and, if promptly paid, the period of insurance shall be seven months, in other words I will insure the vessel for six months at my own risk of being able to obtain payment upon the note, with the option on your part of having the period of insurance extended for another month, that option to be manifested by prompt payment of the note at maturity.” To this A replies: “ I intend to pay my note when.'due. It is possible I may fail to meet it exactly at the day, but if you will allow me, in case I should fail at the day, to pay as soon as I may choose, and thereby to restore the insurance after such payment, for the balance of the period then remaining— thus only suspending the policy and throwing on me the risk only of such losses as may occur during my default; this will be more reasonable, and will leave it in my own power and make it my interest to increase the period of insurance, and thus, in effect, make the rate less. I will, therefore, consent to your proposition thus modified. B thereupon accepts the modification, and the policy is drawn and issued with the proposition thus modified inserted as a part of its terms, and the note given and received accordingly.

This supposed contract is identical in principle with that before us. And unless insurers, because they are in that business, are under some legal obligation to insure upon terms which may be desired by others, though not satisfactory to themselves, I can see nothing unfair or unreasonable in such a contract, nor any reason why it should be forbidden by the law. And I am aware of no law or any principle of public policy, which it tends to violate. Contracts identical in principle with that before us have been treated as valid by the highest Court in the State of New York and I think them unobjectionable.—See Wall v. Ins. Co., 36 N.Y., 157" court="NY" date_filed="1867-01-05" href="https://app.midpage.ai/document/wall-v--the-home-insurance-co-3624606?utm_source=webapp" opinion_id="3624606">36 N. Y., 157; and Reed v. Ins. Co.,—not yet reported, but a copy of which was read upon the argument.

If I am right in the views I have already taken of the nature and validity of the contract, the acceptance of payment of the note in no way affects the right of the parties in this suit. It was no waiver of any of the rights of the defendants, as they were entitled to its full payment in any event and in any aspect of the case.

As this disposes of the case and shows that the plaintiffs were not entitled to recover, upon the facts stated, it becomes unnecessary to consider the other points discussed upon the argument.

The judgment of the Circuit Court in favor of the defendant must be affirmed with costs.

The other Justices concurred.