4. Deposit of policy as a pledge. 5. Deposit of policy as collateral for a chattel mortgage. 6. Assignment with a bill of lading as collateral sev. This is not to say that the assignee acquires the rights a the insurer possessed by the insured, or the rights which v have been obtained by an assignment with the consent o insurer. These are merely cases where the policy remain effect and where the assignee has a claim upon the procee of such policy when paid to the assignor. CHAPTER XIV THE FIRE INSURANCE CONTRACT In this chapter we will discuss the basis of fire insurance, that is, the contract between the two parties; and since all the relations of the parties are summed up in this contract such a discussion might be extended until it covered every phase of the fire insurance business. Many of such phases, however, we have considered in other chapters and need not refer to here. This chapter is concerned mainly with the conditions of the fire insurance policy, the meaning of the various provisions found therein and the reasons for the existence of such provisions. The printed policy is often modified by the addition of endorsements and clauses but this subject must be postponed to the following chapter. Development of the standard policy. In the early days of fire insurance every company issued a policy which suited its particular needs. While at first policies were written largely at the home offices of the companies, the spread of the insurance idea caused more and more power to be placed in the hands of the agents and, dealing with an insured miles away, the company ran the risk not only of the incompetence of agents, but dishonesty of the insured. The original simple policy accordingly became hedged about by a multitude of restrictions, policies lacked uniformity, and some companies attempted to devise policies which would impose as little liability upon themselves as possible. As stated in a court decision of the period, the provisions were of such bulk and character that they were not to be understood by men in general, even after laborious study. They were intermixed with subjects in which the premium payer had no interest, and some of the most material parts were concealed in a mass of rubbish on the back of the policy and the following page, where few would think of looking. As if it were feared that some one would, in spite of these difficulties, discover the meaning of the contract, it was printed in extremely small type and long crowded lines so that "the perusal of it was made physically difficult, painful and injurious." After a time even the companies which issued the policies did not know their meaning because of the conflicting court decisions which were rendered, and loss settlements where several policies were written on the same property were aimost impossible. There was therefore considerable agitation to establish a fixed form of policy. The first standard policy form was adopted in Massachusetts in 1873 and in New York a standard form of policy was made the only legal form in 1887. Eventually other States followed the example of New York until there were about seventeen standard forms in use in various States. Of these, however, the New York standard policy was the most important, having been adopted as it stood by several States, and only slightly modified by others. The National Convention of Insurance Commissioners recommended a new standard form in 1914 which was adopted by three States, including Pennsylvania, and an amended Insurance Commissioners' form was adopted by New York' and Wisconsin in 1918. Many provisions of the old New York policy had been nullified by court decisions and some were considered to be unfair to the insured. The advantages of a standard form are: (1) Every company issues the same form of contract, which is merely modified by endorsements to meet the circumstances of the case; (2) The insured becomes educated to the meaning of the contract; (3) Law suits are greatly reduced in number; (4) Court decisions gradually fix the meaning of the terminology employed; (5) Discrepancies between different policies on the same risk are reduced and loss settlements made easier. Provisions of the New York standard policy. We will use, for illustration, the present New York standard policy, with which the policies of many other States are practically identical. Instead of reading the policy from the first line to the last, more satisfactory results will be attained by grouping the policy provisions in their logical classifications and considering them under the following heads: (1) the parties to the contract; (2) the premium and consideration; (3) the extent of protection granted; (4) the provisions governing the inception and termination of the contract; (5) the suspension of the policy; (6) the voidance of the policy, and (7) the provisions relating to the settlement of losses. This will 'For New York Standard Policy see Appendix XXX. enable us to consider together those provisions which are related. vator. 2 Parties to the contract. The position of the insured has already been described in the chapter on "Insurable Interest,' and the various types of insurers in the chapter on the "Types of Insurance Organizations." The policy reads, "Does insure John Doe and legal representatives," and the name of the insured is an essential part of the contract. He should not be named in an indefinite manner and it is not the general practice to issue policies "for account of whom it may concern," although it may be done where a custodian undertakes to procure insurance for his customers, as in the case of a warehouse or grain eleIn time of war it is essential to see that the insurance/ is not written for the benefit of an enemy, and interest hidden under the expressions, "in trust," "on consignment," etc., are properly avoided by the companies. Because of its legitimate usefulness, however, a "commission clause" of this type is frequently used. The expression-"and legal representatives❞— is intended to cover a trustee or administrator appointed to manage the affairs of an insane or otherwise incompetent person. The old New York standard form did this in a roundabout way by stating that "wherever in this policy the word insured occurs, it shall be held to include the legal representatives of the insured." With reference to a mortgagee, the policy provides that "other provisions relating to the interests and obligations of such mortgagee may be added hereto by agreement in writing," and we have seen that such cases are most frequently covered by the addition of a mortgagee clause. The rate, premium and consideration.-All contracts without seal require a consideration to make them enforceable, and the consideration for the fire insurance contract is of a twofold character, consisting (in the language of the policy) of "the stipulations herein named and of $ premium." The promises of the insurance company are conditional upon the fulfillment of the agreements of the insured, and where the policy form is prescribed by the law of the State the insured may reasonably be expected to be acquainted with the stipulations of the policy. Whether the acts or knowledge of 'See Appendix XXX. an insurance company constitutes a waiver of such requirements is another question to be discussed elsewhere. The policy specifies the amount of insurance, the premium and the rate, the latter being the premium per $100 of insurance. The amount of insurance merely measures the company's maximum liability and not necessarily its actual liability on any particular loss. The requirements made of the insured are (1) that he will truthfully furnish certain facts, and (2) that he will avoid certain acts. Extent of protection. 1. Events covered by the policy.-The policy insures "against all direct loss or damage by fire and by removal from premises endangered by fire except as herein provided." The amount for which the company is liable can never exceed the face value of the policy and may be considerably less, but we are here concerned not with the amount of liability, but with the events which make the policy payable. It is essential to consider what is meant by a loss "by fire." It is not necessary that the fire actually reach the property which is destroyed or damaged, but only that fire shall have been the proximate cause of the loss. Whether a given event is the proximate cause of a fire is primarily a question of fact, but it may be generally so considered when there is an unbroken connection between the said event and the loss without the intervention of some new and independent cause. Thus, in one case an insurance company insured a plant and its equipment, including electrical machinery. A fire of negligible size and duration occurred in a waste basket, which was sufficient, however, to come in contact with wires connected with the machinery, producing a short circuit which severely strained and wrecked most of the machinery in the building. The court held that the fire was the cause of the loss and, since the companies had not limited their liability in this respect, they were compelled to pay. Accordingly, all the natural results of a fire are considered losses by fire, such as the damage caused by smoke, by water, by the necessary removal of property, and by falling walls where fire was the cause. On the other hand, we must have a hostile and not a friendly fire, understanding by the latter one which never leaves the place intended for it. For instance, a company will not be held liable for damage caused by smoke thrown off by an oil heater * See Appendix XXX. |