CHAPTER XVI.

OF INSURANCE.

SECTION 1.-Definitions.

INSURANCE is a contract, wherein the insurer agrees for a consideration, which is called a premium, to insure the party named, and who is called the insured, against the destruction or injury of property by certain specified perils. When the contract is in writing, the instrument is called a policy.

The subject in a commercial community is of great importance, and its utility is universally admitted. It distributes the effects of individual calamities among many, thereby shifting inevitable losses from those who can ill afford to bear them, to those who, in the aggregate of premiums and losses, derive profit from the business.

There are three kinds of insurance, marine, fire, and life

insurance.

Marine insurance is the insurance of vessels, cargoes, and other maritime property, against perils of the sea, to which they may be exposed; during a specified voyage, or a fixed period of time.

Fire insurance is the insurance of houses, and other property against damage by fire.

Life insurance is, in the same sense, insurance against death. While these are the usual definitions found in the books, it will be readily seen that they are not strictly accurate. No one can be insured against death,

Strictly, the contract of fire or marine insurance is one, by which the insurer undertakes to indemnify the insured in case of loss or damage to the property covered by the policy, during a prescribed period of time, and to a stipulated

amount.

Fire and marine insurance are, strictly, contracts of indemnity.

Life insurance is not a contract of indemnity, but is an agreement to pay to certain parties, a stipulated sum, on the death of the party, whose life is insured.

Whether the insurance to a creditor, of the life of his debtor, whereby the creditor is entitled to payment of a stipulated sum, if the debtor shall die within the time limited, is or is not a contract of indemnity, has been differently determined, and may be deemed an unsettled question. The practice of most life insurance companies, in such cases, in the absence of fraud, is, to pay the amount of the policy, without reference to the amount of the debt due the creditor. The whole law of insurance has grown up out of the business, and has, therefore, originated mainly in the sagacity and experience of merchants and insurers. Its rules are eminently practical and commercial.

SECTION 2.

The Purpose of Insurance.

The purpose of insurance is, to provide and pay a fair indemnity, to the extent of the loss, to parties who have honestly suffered in the damage or destruction of their property; the insurer receiving therefor, such an amount of premium in all cases, as, when aggregated, will enable him, not only to meet the occasional losses, but to retain a reasonable profit, as compensation for his services and risk.

Now,

it is easy to say, as some do, that insurers should not be strict in their requirements of proof, nor rest upon defenses, which are technical, and, though strictly legal, are frequently a surprise to the insured. Insurance companies are frequently blamed for making defences, and other companies are praised and become popular, because they never resist a claim, and have never been sued. But a little consideration will show that the insured, and not the insurance companies, are the parties really interested in this matter. All losses paid by insurers must, of course, be paid out of

premiums,

or the business of insurance will stop; these pre

miums must go higher as the risk increases; when they get so high, as to be much beyond the actual risk, incurred by honest, prudent and substantial men, who see that their property is properly cared for, such men will no longer insure. Then the business of insurance will involve so large a moral hazard, as to drive honest men and companies out of it, leaving it in the hands of the reckless and the unprincipled; and premiums necessarily rising higher and higher, the mischief will enlarge and confirm itself. Then, instead of being an aid to commerce, it will rather derange it; and the whole business will differ but little from legalized gambling. The effort of all interested in the business, insured as well as insurers, should be, to make the business of insurance satisfactory to honest men, who are transacting legitimate business, prudently and carefully.

SECTION 3.

Who may Insure, and How the Contract is Made. Contracts of insurance may ordinarily be made, by all persons competent to transact business.

Formerly, the business was mainly done by individual insurers. A policy was written, for a stipulated amount, frequently much larger than one person would care to assume, and it was offered in the market to responsible parties, as a risk, to be taken in the whole, or for such specified part thereof as they should write against their individual names. names were written under the policy, and the signers were called "underwriters." Now, nearly, if not quite, all the policies of insurance in this country are made by incorporated companies.

The

These are of two kinds: 1. Stock companies, where the capital stock is owned by persons who compose the company, who are called stockholders. From the premiums received, and if these are insufficient, from the capital stock, the losses are paid. The excess of premiums over losses constitutes the profits of the business, which in these companies is paid to the stockholders in dividends. 2. Mutual companies, where the profits, deducting only the expenses of the business,

are divided among the insured, or so applied, upon renewal of insurance, in reduction of premiums, that the insured pays only the amount of his actual risk.

Contracts of insurance ought always to be in writing, but may be binding if only oral, or by words spoken. This is usually true, even where the insurer is an incorporated company, in whose charter a special mode of contract is specified, as binding upon the company.

An

agreement to insure, orally made, by the President, Secretary, or other authorized officer or agent of such a company, will be binding upon a company, in case of loss.

An agreement to insure, entered and subscribed in the usual way in the book of the insurers, would generally be held to be a contract, binding both parties to the terms usual in the common policies of that company.

It is the settled law of the United States, that a contract is made by letter, when either party, receiving a letter containing proposals, puts into the mail an answer of acceptance, not having previously received from the proposing party a letter withdrawing proposals.

A policy is an ancient instrument, awkward and ungrammatical, and not easy of construction, as originally expressed ; but it has acquired a fixed and definite meaning, by the usage

of trade.

It is subscribed only by the insurers, but the instructions, conditions and stipulations it contains, bind also the insured; if he accepts the policy and puts his property at risk under it. A policy may insure " A." " specifically" and to his own use, or "A." "for whom it may concern," or may use such other words, as will secure the benefit of the insurance to the individual procuring it, or to every person interested in the property, who authorized the insurance, or who subsequently approves it, and who was contemplated by "A." as

to be insured.

Sometimes the policy defines and exactly describes the property insured; and sometimes it leaves it undetermined, but requires that it shall be afterwards defined in writing on the policy; as, such and such property on board the Brig

Betsey, now in the harbor of New London. The first is the more common form of policy, and the last is called an open policy.

When a party has made an agreement for insurance of his property, and paid the required premium, he will be treated in equity as insured, whether a policy has been actually executed or not, and, at law, no delivery of a policy is essential, as in the case of a deed; but when the policy has been executed, the insurer would be considered as holding it for the benefit of the insured.

If a loss should occur and the insurer refuse to deliver the policy, it would not be necessary for the insured to seek relief in equity, but he could bring his action at law, setting forth the contract, substantially as made, and alleging inability to set it out literally, because of the refusal to deliver it. Under such circumstances the policy becomes, immediately upon its execution, the property of the insured, and if he should be refused it, upon demand made by him, he could immediately maintain an action to obtain its possession.

The question sometimes arises, whether the agreement of insurance has been perfected; and this is often a question of some difficulty, and especially where, as is usually the case in life insurance, the agent has only authority to receive and report applications, the company reserving the right to pass upon each case after the application is reported.

Suppose such an agent receives an application, states the terms on which insurance will be effected,-if the company approve and accept the risk,-reports the application to the company and it is approved, but before the applicant has been notified of such approval, no policy being yet made, the applicant dies ;-is he insured?

In precisely the case here stated, he would probably be held not to be but, the execution of the policy, the sending of a letter to the applicant stating the acceptance of the proposal,-though it may not have reached him before the death,--would probably be held to have perfected the con

tract.