ALLEMANNIA INS. CO. v. FIREMEN'S INS. CO.(1908)
[209 U.S. 326, 327] This action was brought by plaintiff, who is the defendant in error, in the supreme court of the District of Columbia, for the purpose of recovering an amount alleged to be due the plaintiff from the defendant ( plaintiff in error) on a policy of reinsurance. The plaintiff obtained judgment in the trial court, which was affirmed in the court of appeals of the District.
The plaintiff had originally insured the property which was destroyed, and had, prior to the loss, reinsured a proportion of the original insurance with the defendant company. After such reinsurance the plaintiff suffered heavy losses by reason of the great fire in the city of Baltimore in the month of February, 1904, for which losses it became liable, and was rendered thereby insolvent, and is unable to pay the same, unless the plaintiff is able to collect the amount due it from the defendant by virtue of its reinsurance policies, and from other corporate fire insurance companies with which plaintiff had contracts of reinsurance. By reason of the insolvency of the corporation a receiver was appointed by a decree of the circuit court of Baltimore city, prior to the commencement of this action.
Upon the trial the plaintiff proved a cause of action against the defendant, unless the facts, which it also proved, that it had become insolvent by reason of the losses sustained by it incident to the Baltimore fire in 1904, and that a receiver had been appointed for it by the court in Maryland, and that the receiver had paid to its creditors, after this suit was brought, but 55 per cent of the amount of its liability, amounted to a defense.
The contract between the plaintiff and defendant was described therein as a 'reinsurance compact,' and in it the defendant agreed to 'reinsure the Firemen's Insurance Company' in the amounts and manner therein stated.
There were contained in the compact, and forming part thereof, the following subdivisions:
The defendant gave no evidence, but requested the court to instruct the jury as follows:
These instructions were refused and the refusal duly excepted to. Thereupon the jury, under instructions, returned a verdict in favor of the plaintiff for $12,613.24, being the amount which it was conceded was due under the reinsurance compact, provided the fact of insolvency and nonpayment by the reinsured did not constitute a defense.
Messrs. H. Prescott Gatley, Andrew Y. Bradley, and Charles H. Bradley for plaintiff in error.
[209 U.S. 326, 331] Messrs. William F. Mattingly and T. Wallis Blackistone for defendant in error.
Mr. Justice Peckham, after making the foregoing statement, delivered the opinion of the court:
The only question before the court is as to the construction [209 U.S. 326, 332] of the language of the reinsurance compact. The term 'reinsurance' has a well-known meaning. That kind of a contract has been in force in the commercial world for a long number of years, and it is entirely different from what is termed 'double insurance,' i. e., an insurance of the same interest. The contract is one of indemnity to the person or corporation reinsured, and it binds the reinsurer to pay to the reinsured the whole loss sustained in respect to the subject of the insurance to the extent to which he is reinsured. It is not necessary that the reinsured should first pay the loss to the party first insured before proceeding against the reinsurer upon his contract. The liability of the latter is not affected by the insolvency of the insured or by its inability to fulfil its own contract with the original insured. The claim of the reinsured rests upon its liability to pay its loss to the original insured, and is not based upon the greater or less ability to pay by the reinsured. If the reinsured commenced his action against the reinsurer before he had himself paid the loss, the reinsured took upon himself the burden of making out his claim with the same precision that the first insured would be required to do in an action against him. But there is no authority for saying that he must pay the loss before enforcing his claim against the reinsurer. These propositions are adverted to an enforced in Home v. Mutual Safety Ins. Co. 1 Sandf. 137, where the authorities upon the subject are gathered and reviewed at some length. The case itself was subsequently affirmed in the court of appeals in 2 N. Y. 235. See also Blackstone v. Alemannia F. Ins. Co. 56 N. Y. 104. The same doctrine is held in Consolidated Real Estate & F. Ins. Co. v. Cashow, 41 Md. 59.
Counsel for plaintiff in error frankly concedes that the legal propositions above stated are correct, and, unless there is something in the special provisions of this reinsurance contract which changes the ordinary rule on that subject, the judgment herein must be affirmed. Reference is made to the eleventh subdivision of the policy in question. Under the language of [209 U.S. 326, 333] that clause the plaintiff in error contends that the general rule is altered, and that unless the reinsured had paid over the money on account of the loss, to the original insured, the reinsurer is not bound to pay under this particular contract of reinsurance. Language somewhat like that used in the eleventh subdivision has been construed in other cases. In Blackstone v. Alemannia F. Ins. Co., supra, the language used was 'loss, if any, payable pro rata, and at the same time with the reinsured.' The court of appeals of New York held that the first part of the clause relieved the defendant from paying the full amount of the loss, and made it liable only for its pro rata share, so that, the defendant's reinsurance being for half the loss, the defendant was only held liable to pay half the loss. Continuing, the court said: 'In regard to the latter branch of the clause in question, which says that the loss is payable 'at the same time with the reinsured,' it is not possible to conclude from it that actual payment by the reinsured is, in fact, to precede or to accompany payment by the reinsurer. It looks to the time of payability, and not to the fact of payment. It has its operation in fixing the same period for the duty of payment by the reinsurer as was fixed for payment by the reinsured. To give to it the construction contended for by the defendant would, in substance, subvert the whole contract of reinsurance as hitherto understood in this state.'
In Ex parte Norwood, 3 Biss. 504, Fed. Cas. No. 10,364, a clause in the reinsurance policy stated that 'loss, if any, payable at the same time and pro rata with the insured;' and it was held that such language simply gives to the company the benefit of any defense, deduction, or equity which the first insurer may have, making the liability of the reinsurer the same as the original insurer. It does not limit such liability to what the original insurer may have paid or be able to pay. Speaking of this clause, Judge Blodgett said:
In Cashau v. Northwestern Nat. Ins. Co. 5 Biss. 476, Fed. Cas. No. 2, 499, in the reinsurance policy there was a clause that the reinsurer shall 'pay pro rata at and in the same time and manner as the reinsured.' It was held that the reinsurer was to have all the advantages of the time and manner of payment specified in the policy of the reinsured, but that it had no reference to the insolvency of the reinsured. The court in that case said:
Bearing in mind what the contract of reinsurance, pure and simple, means, and how these contracts have been enforced in the past when some special language has been introduced in regard to the payment under a reinsurance policy, the question arises whether, by the use of the language of the eleventh subdivision, the contract of reinsurance, while still [209 U.S. 326, 336] bearing that name, has been so changed as to deprive it of its chief value. As is stated by Judge Johnson, in regard to the language used in 56 N. Y., supra, to give this language this construction will, in substance, subvert the whole contract of reinsurance as hitherto understood. We agree with the court below, that the language of the eleventh subdivision, taken in connection with the fact that it is used in a contract designated by the parties as one of reinsurance, means that the reinsuring company shall not pay more than its ratable proportion of the actual liability payable on the part of the reinsured, after deducting all liability of other reinsurers.
To hold otherwise is to utterly subvert the original meaning of the term 'reinsurance,' and to deprive the contract of its chief value. The losses are to be payable pro rata with, in the same manner, and upon the same terms and conditions as paid by the reinsured company under its contracts. This means that such losses, payable pro rata, are to be paid upon the same condition as are the losses of the insurer payable under its contract. And the liability of the reinsurer shall not be in excess of the liability of the insurer under its original contracts, after deducting therefrom any and all liability of other reinsurers of the contract of the insurer or of any part thereof. It is the ratable proportion for which the other reinsurers are liable, that provision is made for deducting, and the liability of the insurer means such liability after that deduction, and does not mean there must be an actual payment of such liability by the insurer before it can have any benefit of the contract of reinsurance which is made with defendant.
Subdivision 10 of the contract does not result in any different conclusion.
This subdivision does not and cannot mean that there is to be no liability unless the reinsured should pay the loss sustained. The reinsured company under its provisions is bound to forward to the reinsuring company a statement of the date and the probable amount of loss or damage, and it is provided that after the reinsured company shall have adjusted, accepted [209 U.S. 326, 337] proofs of, or paid such loss or damage, it shall forward the proof of its loss and claim and a copy of the receipt taken for payment. It means that if the loss or claim has been in fact paid, then a copy of the receipt is to be sent; but it does not mean that there must be payment before any liability on the part of the reinsuring company exists.
We do not think that the language of these two subdivisions was intended to entirely nullify and tear up by the roots the construction given to the contract of reinsurance for so many years throughout the civilized world and upon which its chief value is based. The nature of the contract is accurately described in its commencement. It is described as a 'compact of reinsurance;' and there has been no doubt as to the meaning of such contract for the last two centuries. The judgment of the Court of Appeals is right, and is affirmed.