St. Nicholas Insurance v. Mercantile Mutual Insurance — 18 N.Y. Super. Ct. 238

Majority

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The St. Nicholas Insurance Company, Plaintiffs and Respondents, v. The Mercantile Mutual Insurance Company, Defendants and Appellants.

Headnote

1. Where an Insurance Company issued to another an open policy for an amount stated, reinsuring such other Company against a certain class of risks described, at a stipulated premium expressed in the policy of reinsurance, such stipulation cannot be altered and the recovery of the premium be reduced or defeated by parol evidence of a verbal agreement, made before or at the time of issuing the policy, that the reinsuring Company would not require the payment of the full premium stipulated, but would abate therefrom fifteen per cent of the gross amount of premiums earned.

2. To allow such proof to operate would violate the rule which makes the writing conclusive proof of the actual agreement between the parties, and forbids that the operation and legal effect of a written instrument shall be varied, altered or affected by proof of a prior or cotemporaneous parol agreement relating to the same subject matter.

3. A written instrument may sometimes be reformed on proof that by mistake it was so drawn as not to express the actual agreement of the parties.

4. The operation and effect of such a policy of reinsurance cannot be impaired, or the obligation to pay the full premium stipulated in it be affected, by proof that there is a usage and custom among all Insurance Companies in the city of New York by which the reinsuring Company abates a per centage from the gross amount of premiums stipulated and does not require the payment of the full amount.

5. Nor would it operate to reduce the claim of the reinsuring Company to recover the full amount of premiums stipulated, if in addition to such proof of custom it were shown that prior to issuing the policy it was, in view of

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such custom, agreed by parol that fifteen per cent should be so abated and payment thereof not required.

6. The force and legal effect of an unequivocal and unambiguous agreement between Insurance Companies cannot be altered by proof that there is a usage and custom not to require its performance.1

(Before Hoffman, Woodruff and Pierrepont, J. J.)

Heard, May 11th;

decided, July 28th, 1859.

This action was brought to recover the amount alleged to be due to the plaintiffs for premiums upon an open policy for reinsurance, to the amount of $195,000, whereby the plaintiffs reinsured the defendants for a sum not exceeding $10,000 by any one vessel or steamer at any one time, at and from London, Liverpool, Glasgow, Southampton and Havre to New York, Baltimore, &c. The policy to attach on shipments in the ports aforesaid, on and after October 1st, 1852, and prior to October 1st, 1853. The premium to be three-fourths of one per cent; and provided no loss is claimed equal to fifty per cent of the premium for the year on steamers from Havre, Liverpool and Glasgow, then there shall be a deduction of one-eighth of one per cent on steamers sailing from either of those ports on and after the 1st of March and prior to October 1st. And by the terms of the policy the plaintiffs acknowledged the receipt of a note for $1,000, “ being the premium in advance oh account of this insurance and is satisfied with the obligation of the said Mercantile Insurance Company for the payment of such further premium as may become due thereon.” This note was also set out in the complaint, with an averment that a greater sum for premiums was due. Ho question arose depending upon the form of the pleadings; nor was 'there any conflict of evidence as to the amount of the premiums on the risks covered by the policy of reinsurance at the rate of three-fourths of one per cent stipulated in the policy.

’ The defense was: First, that when the agreement for reinsurance was made it was agreed that fifteen per cent should be

1 This case is published, not because it is believed to contain any new propositions, but because the proof given on the trial showed so general a prevalence of a custom among Insurance Companies, not to require the payment of the full premium for reinsurance stipulated in the policy and the general habit of relying on that custom, that the application made here of the rules of law to a case within that custom is of interest to companies effecting reinsurt nee, and may suggest the importance of expressing in the policy the true amount or rate of premium to be paid. Befoeter.

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abated from the gross amount of premiums earned under the policy at the rate specified therein. That a prior policy for reinsurance for one year had been made by the plaintiffs, and upon that a memorandum that such fifteen per cent should be deducted was indorsed. But that on the policy mentioned in the complaint the indorsement was omitted by mistake.

Second. That it is and had long been the custom and usage of Marine Insurance Companies in New York, well known to the plaintiffs, to make the rate of premiums in the policies of reinsurance the same as the rates in the policies issued by the reinsured party, and to make an abatement or deduction in favor of the reinsured of a per centage of the gross amount of premiums, such per centage to be fixed and adjusted between the parties, and that the policies of reinsurance made by the plaintiffs were under and subject to that custom and usage, and the abatement agreed upon between the plaintiffs and the defendants was fifteen per cent of the paid premiums.

And, finally, that abating from the gross amount of premiums' earned under the plaintiffs’ policy the said fifteen per cent, and charging the plaintiffs the losses under the policy, no sum was due to the plaintiffs, but a small balance was due from them to the defendants.

The action was referred to the Hon. John L. Mason, as Referee, to try the issues between the parties.

The whole controversy on the trial was whether the defendants were liable for the premiums on the various risks at the rate mentioned in the policy, three-quarters of one per cent, or were ■ entitled to an abatement therefrom of fifteen per cent of the aggregate amount.

Proof was given tending to show that the plaintiffs had first issued to the defendants a policy of reinsurance for one year, and at the end of that year issued another, which is the one mentioned in the complaint, for another year; and that when the ' first policy was applied for, the person applying “ proposed this reinsurance to them, and that if they would make a deduction of fifteen per cent, the same as all other Companies made on similar contracts on this kind of policy, they might get it.” The witness understood them to assent to the proposal, and after that the first policy was made and executed. Other testimony ren

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dered it doubtful whether any such agreement, even by parol, was made.

Much proof was given tending to show that it was the uniform custom in New York, when an Insurance Company obtained a reinsurance of its risks, for the reinsuring Company to make some abatement in its charge from the premiums reserved by the Company so reinsured, so as practically to leave to the reinsured some profit on the risks taken by itself, but reinsured for its own protection.

But the rate of abatement was shown to vary in amount, and to depend upon the agreement made between the parties.

The Referee, subject to objection and reserving the right to determine its legal effect in deciding the case, received all the evidence the parties had to offer bearing upon the question, whether any such usage existed, and how far it was uniform or universal, and to what extent it fixed the amount of abatement, and also on the question whether any parol agreement to make any abatement from the rate of premium mentioned in the policy of the plaintiffs now in question, was made between the parties prior or cotemporaneously with the execution of the policy ; and upon the whole evidence he found and decided as follows, viz.:

“ 1. That the defendants failed to prove an agreement between them and the plaintiffs, as set up in their answer, for an abatement of fifteen per cent from the gross amount of premiums to be earned by the plaintiffs under the policies of insurance mentioned in the complaint.

“ 2. That there is a custom or usage among the Marine Insurance Companies in the city of New York, in case of reinsurances among themselves, to make an abatement or deduction in favor of the reinsured from the gross amount of premiums mentioned in the policies, but that there is no customary or fixed rate of this abatement, but that the same is in every instance fixed and adj usted by agreement between the parties.”

And the said Referee did thereupon also find as conclusions of law from the above facts:

“ 1. That evidence of a parol or verbal agreement as to the amount or rate of such deduction could not be received to contradict the written agreement as to the premiums contained in the policies.

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“ 2. That as it did not appear from the evidence'that there was any agreement between the plaintiffs and defendants respecting the rate of abatement or allowance, the' defendants could not have the benefit of an allowance, even -if evidence of a verbal agreement in relation thereto could have been received.” -

And he further reported, “ that there is due from the defendants to the plaintiffs, for the premiums • upon the reinsurance mentioned and described in the complaint, with interest to the date of this report, the sum of $1,145.01, for which sum the plaintiffs are entitled to judgment.”

From the judgment entered upon the report for the plaintiff, with' his'costs "of suit, the defendants appealed-to the General Term.

A. Dickinson, for defendants, (appellants.)

I. It appears by the testimony of all of the defendants’ witnesses, and the Referee finds, that there is a custom or usage among Marine Insurance Companies in the city of Kew York, in cases of reinsurance among themselves, to make an abatement in favor of the reinsured.

This abatement is made in lieu of scrip.

II. This abatement is not stated in the policies, (in which a fixed rate of premium, three-quarters of one per cent, is stipulated,) but is a matter of verbal agreement as to the amount.

If nothing is said as to the amount, it is understood to be ten per cent.

III. . An agreement to fix the abatement at fifteen per cent of the gross premiums was proved; an offer by the defendants accepted by the plaintiffs.

IV. The custom or usage for an abatément was established, and the Referee so finds. (4 Phil. Ev., Cow. and Hill’s Notes, 509, and cases there cited; Wiggleworth v. Dallison, Smith’s L. C., marg. p. 300, see notes; Brown v. Byrne, 26 Eng. L. Eq. R., 247; Fulton Ins.. Co. v. Milner, 23 Ala., 420 ; Merchants' Mut. Ins. Co. v. Wilson, 2 Md., 217 ; Stultz v. Dickey, 5 Binn., 287 ; Burber v. Biace, 3 Conn., 9 .);

But he rejected the defendants’'claim to abatement under that custom, on the ground that the rate was fixed by verbal agreement.

In this the Referee erred',, because,

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1st. If the custom or usage of an abatement was established,, the rate of abatement and the manner of fixing that rate was- also established as a part of that custom; and,

2d. If a custom is established, by which the amount of premium mentioned in the policy is to be affected, then the agreement as to the rate of such abatement relates to the custom or usage, and may be shown by parol testimony..

The judgment should be reversed, and a new trial' ordered.

E. A. Doolittle, for plaintiffs, (respondents.),

I. The defendants not only failed to prove the custom alleged, but their own witnesses show that no uniform or fixed custom prevails among Insurance Companies,, even in the city of New York.

Custom or usage to control or affect a contract must be established, and not casual; general, and,notpersonal or local, and known to the parties, and be constantly observed in the same manner; or, in other words, it must be uniform.. (Parsons on Con., 51-69.)

Evidence of custom or usage is- sometimes admissible to add to or explain what is doubtful, but not to contradict or vary a written contract. ( 5 Hill, 437 ; 25 Barb., 319 ; Smith’s Lead. Cas., marg. ref., [307,] 405-416.)

In this case, the policy specifies the premium, viz.: three-quarters of one per cent, and provides for a reduction upon the happening of certain events.. There is nothing ambiguous or uncertain in the language used, nor is there anything from which any implication can be raised that the agreement is in itself incomplete.

The President and Secretary of plaintiffs knew no such custom.

II. The charter requires and provides that all contracts of insurance shall be signed by the President and countersigned by the Secretary.

A corporation can- act only in the mode prescribed by the act creating it, and the acts of the agent are binding only so far as done in pursuance of that law. (McCullough v. Moss, 5 Denio, 567 .)

III. The plaintiffs’ case was fully made out by production of the nóte; defendants then introduced statement of Higgins, showing the amount found by Referee to be due the plaintiffs, unless

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defendants proved the agreement to deduct fifteen per cent, and this was agreed upon by both parties. The defendants failed to prove the agreement set up in the amended answer, and the Referee has so found as a question of fact, and his finding is conclusive:

IY. The Referee’s conclusions of law are correct. But if they were not, they would furnish no ground for a new trial, because all defendants’ evidence was received; and they fail because they could not prove their defense.

It is to be noticed that although the amended answer herein alleges that there is a usage and custom among Insurance Companies in the city of New York to make the rate of premiums in policies of reinsurance the same as in the policies issued by the reinsured party, and to make an abatement or deduction in favor of the reinsured, of a per centage of the gross amount of premiums; yet it is also stated, in the answer itself, that the rate or amount of the abatement is matter of agreement. The custom is therefore not relied upon in the answer as itself operating to modify the express contract between the parties fixing the rate of premium to be paid by the defendants at three-fourths of one per cent; but the allegation of the usage and custom is alleged by way of inducement, or as preparatory to the averment that the rate of abatement was in this case fixed, by actual agreement between the .parties, at fifteen per cent of the gross amount of premiums accruing under the policy. The answer, therefore, including the amendment thereto, amounts to this: (1.) The plaintiffs, when the said reinsurance was made and the policy executed, agreed to make an abatementof fifteen per cent from the gross amount of premiums earned under the policy. (2.) There being a usage and custom among Insurance Companies in the city of New York, when they reinsure, to make an abatement from the gross amount of premiums earned under the policy, the rate of abatement to be agreed upon between the parties, the plaintiffs did, when the policy of reinsurance was made, agree to abate fifteen per cent from the gross amount of premiums accruing to them ■under such policy.

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We might, therefore, since the whole defense set up in the answer depends on the question whether such an agreement was proved, dispose of the appeal by saying that the Referee has found, as matter of fact, that no such agreement was made; and that, on a careful examination of the testimony, we cannot say that his finding is so against the weight of the evidence that it should be disturbed.

But the case was tried upon an assumption that a defense would be established by proof of either of two facts, viz.: That there was a parol agreement' between these parties, that the plaintiffs would abate fifteen per cent from the rate of premium stipulated in the policy of reinsurance, or that there was a usage and custom in the city of New York, among Insurance Companies, to make such abatement in favor of other Companies effecting reinsurance. Without therefore reviewing the evidence in support of the finding of the Referee, that the defendants failed to prove the agreement set up in the answer and the amendment thereto, or the evidence in reference to the custom relied upon, we think proper to observe that in our judgment the proposed defense utterly fails upon strictly legal grounds applicable to both of the supposed defenses relied upon; for unless we are prepared to hold, first, that an express agreement to pay premiums of insurance, according to certain rates stipulated in writing, can be altered by proof that there is a custom in the city of New York not to require its performance; or, second, that such an agreement can be altered by proof of a parol agreement, prior or cotemporaneous with the written policy, that the defendants should not be bound to pay so much as they in fact agreed to pay, then the defense wholly fails, whatever parol proof was offered or given in support of it.

It is not necessary at this day to cite authorities to the proposition that a written instrument cannot be altered, or its legal operation or effect be impaired or modified, by evidence that the parties agreed by parol that it should not be obligator)'- according to the terms and effect of the writing. It is true that, on proof of a mistake by reason whereof the writing fails to express the actual agreement, the writing may <be reformed; and this was doubtless the idea of the pleader in the present case, when the answer was at first prepared. The proof, however, wholly fails

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to show mistake; and the proposition, therefore, recurs, that the parties, having expressed in writing the 'agreement which they have made, and that in terms which are clear and unambiguous, the defendants cannot be permitted to show that there was a parol agreement, antecedent to or cotemporaneous with the writing, that the defendants should not he compelled to pay so large a rate or sum for the premium of reinsurance as, by the terms of the policy, they were bound to pay. To a rule so well settled, any work upon evidence may be consulted, if authority is desired.

It is, in our judgment, no less clear that proof of a usage and custom, however uniform and universal among Insurance Companies in the city of Few York, not to require a reinsuring Company to pay the full premium which, by the policy of rein: surance, it is stipulated shall be paid, cannot legally operate to impair the effect of an agreement to pay a fixed rate settled by the policy.

A written agreement, which is in no wise of ambiguous or uncertain import, is to have effect according to its terms, and the parties are bound thereby; and the express stipulations of parties cannot be overruled or set aside by any custom hot to require their performance according to their tenor.

This is not a question regarding the mere incidents to the defendants’ undertaking, but it is a question whether a written agreement is itself binding. If the decisions in Woodruff v. Merchants’ Bank, ( 25 Wend., 673 ,) affirmed in Error, ( 6 Hill, 174 ,) and in Brown v. Newell, (4 Seld., 190,) are law, much more is it true that a defendant cannot avoid his express promise by proof of a local custom not to require its performance. (Anth. N. P., 70; Cooper v. Kane, 19 Wend., 386 ; Hunton v. Locke, 5 Hill, 437 ; Merc. Ins. Co. v. State Ins. Co., 25 Barb., 320 ; Machine Co. v. Partridge, 5 Fost. N. H. R., 369; Atkins v. Howes, 18 Pick., 16 ; Wheeler v. Nurse, 20 N. H., 220 ; id., 246 ; Barlow v. Lambert, 28 Ala., 704 ; 30 id., 167, 608; Cadwell v. Meek, 17 Ill., 220 ; 18 id., 126; Linsley v. Lovely, 26 Vt., 123 ; Corwin v. Patch, 4 Cal., 204 ; Webb v. Plummer, 2 B. & Ald., 746; Blackett v. Assurance Co., 2 Cr. & Jer., 244; Ford v. Yates, 2 Mann. & Grang., 548; Trueman v. Loder, 11 Ad. & El., 589; 39 Eng Com. Law R., 183, notes.)

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We have thought it advisable to say so much upon the questions discussed on the appeal. It may, perhaps, be useful to those who have occasion to effect reinsurance to know that they are liable to pay the rate of premium specified in their policy, notwithstanding there is a custom in New York for the reinsuring Company to make an abatement therefrom, and also that they cannot be protected against a claim for the stipulated premium by proof of a prior or cotemporaneous parol agreement that a less sum only should be required.

The judgment must be affirmed.