To further stabilize insurance companies and prevent insolvencies, the States frequently specify the types of securities in which the reserve may be invested, enforcing restrictions very similar to those for life insurance companies, as outlined in Chapter VII. Besides, it is frequently required that both domestic and foreign companies make a deposit of approved securities with the State for the purpose of guaranteeing solvency. This sum, however, is usually inadequate as a reserve, and does not approach the unearned premium liability. A more stringent requirement than a "special deposit" in the form of a flat sum is one which requires approved securities to an amount equal to the unearned premium liability. This serves the double purpose of subjecting the assets to close scrutiny and at the same time preventing fraudulent manipulation by placing this "trust. fund" beyond the reach of the individual officers of the company.

It should be mentioned that the above applies principally to the stock companies, mutuals usually being allowed to regulate the reserves as they see fit and make assessments when found necessary. The different conditions of organization and the relative merits of these two types of companies have been discussed elsewhere.

CHAPTER XVIII

SETTLEMENT OF LOSSES

Classification of provisions applying to loss settlements.— The policy provisions which remain for discussion apply after a loss has taken place. They may be divided into four groups: (1) those referring to the preservation of the property, (2) those dealing with the proof of the amount lost, (3) those providing for the settlement of disagreements, (4) those determining the extent of the company's net liability. With regard to the requirements made of the insured, the courts have been lenient when they apply after a fire has occurred, while the requirements before a loss have been regarded as more important because they may serve to prevent a fire. We will discuss the policy provisions in the order in which they would naturally come into play in the course of the adjustment of a loss.

Provisions referring to the preservation of property.-The policy requires that "the insured shall give immediate notice to this company of any loss or damage." That the insurer is entitled to notice of this important event is clear, inasmuch as it enables him to take action to reduce the loss by protecting the property, to investigate the cause of the fire and better to determine his liability. Without such notice it is usually held that he is released from liability. But "immediate notice" is not always the prompt action which might be supposed. While it would be unsafe for an insured to presume upon the leniency of the courts, it has been held that immediate notice is notice given within a reasonable time and that a delay of thirty days may be justifiable under certain circumstances. In another case seven days has been held to be an unreasonable delay, sufficient to release the company from liability. The next action required of the insured is to "protect the property from further damage."2 For such further damage

resulting from neglect the insurance company is not liable, ac

'Appendix XXX, lines 126-128.

'Appendix XXX, lines 128 and 129.

cording to several decisions, since the fire policy is not designed to protect the insured against his own negligence or carelessness, but only against the danger of loss by fire. The cost of protecting the property is naturally considered a part of the loss.

After this has been done the insured is required to "forthwith separate the damaged and undamaged personal property and put it in the best possible order." This tends to protect such goods as are undamaged and enables the representative of the company to make an examination of the property and to take necessary measures for further protection. The insured is not required by this provision to restore the goods to the same conditions as existed before the fire.

Estimation of amount of loss.-The next few requirements are designed to enable an estimate of the amount of loss. The insured is required to "furnish a complete inventory of the destroyed, damaged and undamaged property, stating the quantity and cost of each article and the amount claimed thereThis is in the nature of a preliminary proof of loss. This provision is not a mere direction to the insured of what his action should be, but is essential to enable him to claim from the company.

994

"And the insured shall within sixty days after the fire, unless such time is extended in writing by this company, render to this company a proof of loss signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: (a) the time and origin of the fire; (b) the interest of the insured; (c) and of all others in the property; (d) the cash value of each item thereof; (e) and the amount of loss or damage thereto; (f) all encumbrances thereon; (g) all other contracts of insurance whether valid or not, covering any of said property; (h) any changes in the title, use, occupation, possession, or exposure of said property since the issuing of this policy; (i) by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of the fire.' We might call attention here to the policy provision previously referred to regarding false swearing and fraud, which is not lightly

regarded by the courts in the proof of loss, whatever may be the attitude toward it at other times. The object of the proof of loss is to enable the insurance company to determine whether or not it will assume liability for the loss and to what extent. A time limit is placed upon furnishing the proof of loss, but this has been sometimes leniently construed by the courts. A form such as is shown in the appendices is furnished to the insured for the purpose of making a proof of loss. In several cases it has been held that these requirements are inoperative as regards a mortgagee because the company's contract with him is held to be a new contract. If the owner does not furnish a proof of loss the mortgagee may do so for the protection of his interest. The new standard policy provides that "upon failure of the insured to render proof of loss, such mortgagee shall as if named as insured hereunder, but within sixty days after notice of such failure, render proof of loss and shall be subject to the provisions hereof as to appraisal and times of payment and of bringing suit."

"And shall furnish a copy of all the descriptions and schedules in all policies and if required, verified plans and specifications of any building, fixtures or machinery destroyed or damaged." This is inserted to assist the company in identifying the property destroyed and in estimating the value of such property. In many cases this saves the time which would be necessary to examine the physical property itself. "The insured as often as may be reasonably required shall exhibit to any person designated by this Company all that remains of any property herein described and submit to examinations under oath by any person named by this company and subscribe the same." 9910 This enables the company to protect

itself against fraud or the illegal appropriation of any of the goods insured. For the same reason the insured "as often as may be reasonably required, shall produce for examination all books of account, bills, invoices, and other vouchers or certified copies thereof, if originals be lost, at such reasonable time and place as may be designated by this company or its representatives and shall permit extracts and copies thereof to be made."11 These requirements are important to the com

pany and have generally been given effect by the courts, but the companies, to insure the production of books and papers, have sometimes used a so-called iron-safe clause, whereby the insured was required among other things to keep books and papers in a fireproof safe at night on penalty of voiding the contract, but this was so leniently regarded by the courts as to make its effect ludicrous. The time and place of examination of the insured and of his books and papers must be reasonable. The place of the fire has been held a reasonable place.

Agreement and appraisal.-We have now seen what the insured is required to do after a loss occurs. When the insured. has complied with these regulations, a special agent of the insurance company under the title of an adjuster and the insured or his representative must endeavor to settle upon the amount to which the insured is entitled. If the two parties agree the policy provides that "the amount of loss or damage for which this company may be liable shall be payable sixty days after proof of loss as herein provided is received by this company and ascertainment of the loss or damage is made either by agreement between the insured and this company, expressed in writing or by the filing with this company of an award as herein provided." As previously stated, the insured cannot under a fire policy abandon the property and claim the full amount of insurance.13 If the parties cannot agree upon the amount of loss and damage an appraisal is necessary as provided for in the policy.

"In case the insured and this Company shall fail to agree as to the amount of loss or damage, each shall, on the written demand of either, select a competent and disinterested appraiser. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire then, on request of the insured or this Company, such umpire shall be selected by a judge of a court of record in the State in which the property insured is located. The appraisers shall then appraise the loss and damage, stating separately sound value and loss or damage to each item; and failing to agree, shall submit their differences only, to the umpire. An award in writing, so itemized, of any two when filed with this Company shall determine the amount of sound value