theory would be liable to him for £500 because his debt is wholly uncovered. On the first theory A and B would each be entitled to claim the whole sums insured, because A's security is less valuable by its margin of £500 than it was before the fire, while B's debt is, as before, entirely uncovered, A's insurer having been subrogated to A's preferable rights upon the security. Upon either theory the actual loss of £500 is ultimately made good by the insurer of the postponed creditor.

12. Insurance by prior and subsequent incumbrancers.-When valid.No contribution among insurers-Where several creditors hold liens over the same goods each may insure independently of the owner or of other creditors, and as the interests protected are distinct, the principle of contribution is not applicable to the settlement of the losses. The loss to each independent interest must be made good by the insurers of that interest1. If, however, the property is burdened to its full value, a subsequent lien, where it can be validly acquired, does not entitle the holder to recover upon a policy of insurance 2. The loss to the holder of the security in such circumstances is the chance that, by the discharge of prior incumbrances, his security may become available, but this is a mere expectation, of which the realization is uncertain apart from the perils insured against, and has no insurable value3.

Upon the same principle it has been held that subsequent incumbrancers cannot recover the rent of the property mortgaged, where it is included in the bonds of prior incumbrancers, and insured and recovered by them 4.

5

13. Clause of contribution does not apply to insurance by other incumbrancers-even if owner made party to policies.-In the Scottish Amicable v. Northern Assurance Company the suit was brought upon a policy of insurance issued to the holders of prior bonds over heritable subjects in Scotland and to the owners of the subjects. The policy ran in the name of the bondholders and of the owners 'jointly and severally and in reversion,' and contained the usual contribution clause providing that if at the time of any loss occurring to the property thereby insured there should be any other subsisting insurance 'whether effected by the insured or any other person covering the same property,' the insurer should only be liable to contribute his rateable proportion of the loss. It appeared that at the time of

1 Godin v. London Assurance, 1 Burr. 490; Scottish Amicable v. Northern Ass. Co., 11 R. 287.

Arnold, p. 118 et seq.

3 Lucena v. Craufurd, 3 B. & P. 75; 2 B. & P. N. R. 269; 6 R. R. 623; Routh v. Thompson, 11 East, 428; 10 R. R. 539; Arnold, p. 99.

Westminster Fire Office, 15 R. (H. of L.) 89; 13 App. Cas. 699.

11 R. 287.

the loss the holders of postponed bonds held policies of insurance upon the same subjects, and that the owner was made a party, in respect of his reversionary interest, to their policies as well as to those issued to the prior bondholders. The main question in the case was whether the latter policies fell within the terms 'other insurance upon the same property.' It was held that the other insurance contemplated was a second insurance of the same interest in the same property, and that, as the interests primarily insured by the different policies were the separate interests of the bondholders, the provision did not apply. The words 'the same property' were held to mean the same proprietary interest, and the effect of the provision was thus merely to express the ordinary rule as to contribution between insurers of the same interest1. The insurers of the prior bondholders were therefore not entitled to limit their contribution to the fractional part of the fire damage represented by the ratio of the sum insured by them to the aggregate sums insured upon the security, but were bound to make good their contract of indemnity as if no other insurance existed upon the same subjects. The insurers under the different policies were agreed that the loss should be settled as if all the policies had been issued to the owner, and that they should contribute rateably to the fire damage and pay the amount into a common fund which should stand in place of the security destroyed. The arguments in favour of this view will be found expressed in the judgment of Lord Young, who dissented from the majority of the Court 2. The majority rested their judgment upon the ground that the prior bondholders by whom the action was brought had no concern with other insurance to which they were not parties, and no right of action except under their own contract of indemnity.

14. Insurance by subsequent incumbrancers, when valid.—Measure of loss.-Effect of payment by other insurers to prior incumbrancers.— The decision in The Scottish Amicable v. Northern Assurance Company case was inferentially affirmed by the House of Lords in the subsequent case of the Westminster Fire Office v. Glasgow Provident Investment Society already cited 3.

The main question in the latter case was whether the postponed bondholders, by whom the action was brought, could recover upon their policies in respect of the same injury by fire to the bonded subjects. The policies held by the prior and postponed bondholders were issued by different companies, but they

1 Cf. N. B. and Mercantile Ins. Co. v. L. L. & Globe Ins. Co., 5 Ch. D. 569; Etna Fire Ins. Co. v. Tyler, 30 Am. D. 90.

3

2 11 R. 295.

14 R. 947; 15 R. (H. of L.) 89; 13 App. Cas. 699.

were in the same terms, and covered the owner's reversionary right. They contained, in addition to the clauses already narrated, an option to reinstate and an allocation of the sums insured over the different insurable items of the security, which consisted of a mill and machinery, and the site upon which the mill stood. The pursuer's postponed bonds over the subjects amounted to about £800. The prior bonds amounted to over £8,600; but the value of the security, inclusive of the site, before the fire, was, according to the admission of the parties, sufficient to cover all the bonds. As the result of the judgment in the previous case the prior bondholders had recovered from their insurers, who had elected to reinstate, a sum sufficient for that purpose, fixed by arbitration at 5,668. This sum had not as matter of fact been expended in reinstatement, but had been applied by the prior bondholders in reduction of their debt. The value of the site and salvage of the mill and machinery after the fire was, at the lowest estimate, (that of the pursuer's valuators,) £3,500, this being the sum the subjects as they stood would have brought if sold in the market. The defenders' valuation was higher, but they admitted that the value of the site and salvage after the fire was less than £8,600, the amount of the prior bonds1. The pursuer's right to recover in these circumstances was sustained by the Court of Session and affirmed on appeal by the House of Lords.

In the Court below the majority of the consulted judges rested their judgment upon the admission that the damaged subjects did not in fact afford as good a security for the diminished debt as the entire subjects afforded for the whole debt before the fire, thus affirming the principle which is established by a preponderance of authority in America. The same view was taken by the House of Lords, but the ground of judgment is less accurately made to rest upon the ground that the value of the security after the fire was insufficient to meet the balance due upon the prior bonds, and that the pursuer's security was therefore not only deteriorated but wholly destroyed as a consequence of the fire. The latter part of this proposition does not seem to be justified by the facts of the case so far as they appear upon the face of the Reports. The figures given above show that the balance due to the prior bondholders, after the payment made to them by their insurers, was, on a rough estimate, 3,000; while the reduced value of the subjects at the lowest estimate was £3,500, thus not only covering the balance due upon the prior bonds but leaving a margin of £500 available

1 13 App. Cas. 699, pp. 700 and 701.

2 Excelsior Fire Ins. Co. v. Royal Ins. Co., 14 Am. R. 271; supra, p. 56.

to meet the pursuer's bond of £800. The pursuer's bond was therefore uncovered to the extent of £300. It does not appear from the report whether the security was actually realized after the fire, or how the proceeds were dealt with; but however the facts may stand, the judgment of the House of Lords does not meet the question, which appears to have been raised by the facts, of a creditor's right to recover where his security is not wholly destroyed, but is so reduced in value by the fire as to cover only a part of the debt secured. Nor can any principle be deduced from the case as to the amount which the secured creditor can, in the case of such partial deterioration, recover under his policy of insurance. The question of amount, or the effect of the allocation of the sum insured upon the different items of the security, was not argued to the Court, and the actual sum of £230, to which the pursuers were ultimately found entitled, seems to have been arrived at by arrangement between the parties by a process which estimated the loss on each item separately and measured by the sum required to reinstate, and which was, therefore, in conflict with the principle of estimation of the loss upon which the right of the pursuer to recover at all rested1. The pursuer's proper course, in accordance with the latter principle, would have been either to claim the whole sum insured under offer to assign to his insurer any rights he might have in the security by which the loss might be reduced, or to realize the security so far as available to him after the fire, and claim the balance of the debt remaining due 2.

It ought also to be noticed that had the same method of settlement been applied in the case of the prior as in the case of the postponed bondholders, the payment to the prior bondholders, although upon an independent contract, might have been a valid defence to the claim by the postponed bondholders upon their policies. The ground of the defence would have been that they had sustained no loss, inasmuch as the diminution in value of their security occasioned by the fire was necessarily exactly equivalent to the reduction of the preferable debt with which it was burdened. The fallacy underlying the application of this argument to the case, which was strongly insisted on by the minority of the consulted judges in the Court below, was the assumption that the prior bondholders had received a full indemnity in the payment to them by their insurers of the sum required to reinstate the premises. As shown by Lord Selborne, this is a conclusion which is not generally admissible. The value of the salvage of

1 14 R. 957, 984.

2 Excelsior Ins. Co. v. Royal Ins. Co. of Liverpool, 14 Am. R. 271; Smith v. Columbia Ins. Co., 55 Am. D. 546; supra, p. 56.

a wrecked building, or of machinery damaged by fire, for the purpose of reinstatement is obviously greater than the price they would fetch as old stone or iron. The amount of the loss under a contract of indemnity is always a question of fact, and there is no hard and fast rule by which it is to be estimated. In the United States the view taken is that where the insurers, after a loss, elect to exercise an option to reinstate, the contract becomes a building contract, and the pecuniary measure of the insurer's obligation has no necessary relation to the sum for which he would be liable under a contract of indemnity 1.

15. Mortgagor's rights under joint insurance.-No subrogation.Aggregate amount recoverable, how limited.-The question of the owner's rights under the joint insurance was not directly raised in the case of the Westminster Fire Office, nor the question. whether the insurers upon payment to the bondholders could, as in the case where the creditor's interest alone is covered, have demanded an assignation to their rights in the security, or to their personal claim against the debtor. It would seem a conclusive answer to such a claim that the owner was insured as well as the creditor, and that, as against the insurer, he was entitled to a credit in respect of the money received under the policy 2. The joint insurance was in effect a collateral security for the debt, the proceeds of which the creditor was bound to apply in reduction of the debt. The doctrine of subrogation would, therefore, not be applicable, because in so far as the debt was met by the payment under the policy, it was extinguished, and there was no right competent to the creditor to which the insurer could have asked an assignation. At the same time it would be at variance with the fundamental principle of the contract that the owner should, as the result of the transactions arising out of the loss, be more than fully indemnified for the injury to his interest. This would clearly be the case if the amount paid to his creditors exceeded the damage done to the security by the fire. The anomaly would be met if the owner were regarded as holding the salvage of the security to the extent of this excess in trust for the insurers, and subject to their equitable lien, upon the principles laid down in Castellain v. Preston 3. It is also clear that if the excess so recoverable were apportioned among the insurers of the different creditors in the proportion of the indemnities paid by them, their ultimate liability would be the same as if the loss had been originally adjusted upon the contribution principle 1.

3 11 Q. B. D. 380.

2 14 R. 967.

Supra, section 13. For Actuaries the following proof will be sufficient. Suppose