Home Insurance v. Continental Insurance

This action was brought upon a policy of reinsurance issued by the appellant, the Continental Insurance Company, to the respondents, the Home Insurance Company of Hew York and the Phoenix Insurance Company of Hartford. The plaintiffs had a judgment for the amount claimed, from which the defendant has appealed.

The facts, as to which there is no dispute, are as follows:

On the 18th of June, 1895, the plaintiffs issued a joint policy insuring certain property of one Heilner for the term of one year, in the sum of ¡¡¡>10,000, against all direct loss or damage by fire; and on the 16th of July following the defendant issued to the plaintiffs a policy for $5,000, reinsuring their risk “against all direct loss or damage by fire, except as hereinafter provided.” The policy issued by the defendant contained this clause:

“This policy is subject to the same risks, conditions, valuations, indorsements, and assignments as are or may be assumed or adopted by the Home

Insurance Company of New York and the Phoenix Insurance Company of Hartford, Conn.; and the loss, if any, payable pro rata at the same time and in the same manner as by said companies.”

On the 12th of August, 1895, a fire occurred, and some of the property insured was damaged to the extent of $3,000. Intermediate the issuance of the defendant’s policy and the fire, at the request of Heilner, and without notice to the defendant, the plaintiffs had reduced Heilner’s insurance from $10,000 to $2,000, which was the amount he had upon the property when the fire occurred. On the 8th of October, 1895, the plaintiffs paid to Heilner the sum of $2,000, the loss sustained, together with $14.10, the reasonable and necessary expenses incident to the adjustment of the loss, which sum it requested the defendant to pay. The defendant refused to make such payment, at the same time tendering to the plaintiffs the sum of $1,-007.05,—one-half of the amount which they had paid, and which it claimed was the total amount for which it was liable.

The referee held that the defendant, under its policy, was liable, as already indicated, for the full amount paid by the plaintiffs to Heilner. In reaching this conclusion, we are of the opinion that the referee erred. By the terms of the policy of reinsurance the defendant was only liable to pay one-half of the loss sustained by the plaintiffs. Its policy so provides. The language is, “The loss, if any, payable pro rata at the same time and in the same manner as by said companies.” This clearly and unmistakably contemplates that the defendant is not bound to pay the full amount reinsured, but only such a proportion of the amount of the loss as is in the ratio of the amount of the reinsurance to the amount originally insured,—a contract of indemnity to this extent, and nothing more. To give the policy of reinsurance the construction put upon it by the learned referee is to make a new contract for the parties, or else to eliminate the words quoted from the one which they made. The legal effect of this clause was to fix the defendant’s liability in case of loss to just what the plaintiffs’ liability was. This was the purpose of the contract, and this is what the words used accomplished. Blackstone v. Insurance Co., 56 N. Y. 104 ; Insurance Co. v. Cashow, 41 Md. 59 ; Illinois Mut. Fire Ins. Co. v. Andes Ins. Co., 67 Ill. 362 , 16 Am. Rep. 620 ; Imperial Fire Ins. Co. v. Home Ins. Co., 15 C. C. A. 609 , 68 Fed. 698 . Blackstone v. Insurance Co., supra, is directly in point. There the policy of reinsurance provided that “the loss, if any, payable pro rata at the same time with the reinsured.” The reinsurance was for half the amount originally insured. A loss occurred which was less than the amount of the original insurance, and it was held that the defendant, by virtue of such clause, was bound to pay only one-half of the actual loss sustained. Judge Johnson, delivering the opinion of the court, referring to the clause of the policy quoted, said:

“By virtue of the first part of this clause the defendant is not bound to pay the full amount reinsured by its policy, but only such a proportion of the amount of the loss as is in the ratio of the amount of the reinsurance to the amount originally insured. Thus, the defendant’s reinsurance being for half the amount of the original insurance, the defendant is to pay half the loss.”

In the case at bar the original insurance, as we have already said, was for $10,000. The amount of reinsurance was for $5,000, or one-half of the original insurance. Upon principle, as well as under the authorities cited, it seems to us that the proper construction of the clause in defendant’s policy providing that the loss, if any, should be “payable pro rata,” made the defendant liable to the plaintiffs for 50 per cent, of the loss which they sustained under their policy, and no more.

The judgment therefore must be reversed, and a new trial ordered before another referee, with costs to the appellant to abide the event. All concur.