THE LAW OF INSURANCE. PART FIRST. CHAPTER I. NATURE, ORIGIN, AND GROWTH OF INSURANCE. § 1. Nature and Importance of Insurance.-There are certain serious casualties or accidents, such as shipwreck, fires, and premature death or disability, to which exposure is very common among mankind, but which actually occur in comparatively few instances. It is difficult or impossible to predict or prevent the happening of these events, but it is often of the greatest consequence to those most intimately concerned to guard against the loss of property or future earnings which their occurrence entails. This result may be accomplished by means of a general fund obtained by the imposition of a small contribution or premium upon the many who are exposed to the common hazard, out of which the few who actually suffer may be indemnified. Insurance is the system for distributing losses of this character in the manner just described. Its principal branches are fire, life (including also accident), and marine insurance; and, as an institution, the development of these branches of insurance among civilized peoples of modern times has assumed a vast and increasing importance. It is not necessary to recite many statistics in illustration of this fact. A very few will suffice. Home Ins. Co., and to Sheppard For assistance in the preparation of this chapter I am indebted to D. A. Heald, Esq., Ex-Pres. of Nat. Board of Fire Underwriters and Pres. of Arthur on Mar. Ins., and the Enc. Brit. غ For the last year, in this country alone, it is estimated that the value of outstanding risks carried by insurers against fire amounted to more than $12,000,000,000, and that the payment of premiums for life insurance for the same year nearly reached the sum of $200,000,000; while the loss by fire during the same period, of property insured and uninsured, is estimated to have exceeded $120,000,000. To the sufferers by the great Chicago fire of 1871, the fire companies paid over $90,000,000, by aid of which that city was enabled within a few months to regain its commercial activity and preeminence among the cities of the West. Fire insurance concerns a larger number of persons probably than any other branch of insurance; but, on the other hand, many persons who have made no great accumulations of capital insure their lives in large amounts. Marine insurance, from its nature, is somewhat restricted and localized as compared with the other departments, and both the business and the practice of the law of this branch of insurance fall into the hands of specialists to a greater extent than in the case of other classes of insurance. There are certain minor forms of insurance which do not fall within the scope of this book, as, for example, against lightning, tornadoes, hail-storms, boiler explosions, injuries to plate glass, defaults or breaches of trust on the part of officers, trustees, agents, or employees, defects in real estate titles, death to live-stock, and to indemnify merchants for loss from giving credit. Insurance against accident to the body or health of persons may be considered a branch of life insurance, and subject to the same principles of law. § 2. Conditions Necessary. The conditions which in general are necessary to the successful operation of a system of insurance are said to be these: There must be a risk of real loss which it ought to be beyond the power of either the insurer or the insured to avert or to hasten; a large number of persons must be liable to the like risk; the casualty contemplated must be likely to fall on a comparatively small number of the persons exposed to the risk of it; the probabilities of its occurrence must be capable of being estimated beforehand with some approximation to certainty; the loss apprehended must be so considerable when it does occur as to be worth providing against; and the cost of that provision must be comparatively so small as not to be prohibitive. To this list of requisites may be added an honest administration, and some means of securing permanency and integrity to the general fund. § 3. Insurance Companies.-The bulk of the business. of insurance is now transacted by corporations, which, on account of their exemption from liability to natural death, and their facility for raising capital and extending their operations over wide areas of territory, are peculiarly well adapted to serve in the capacity of insurers. But a not inconsiderable fraction of life insurance business is in the hands of friendly organizations and benefit societies, guilds, orders, odd fellows, knights, and unions, of one sort or another, many of which are incorporated, and some of which are not. The members of these organizations are governed by their by-laws and other regulations, as well as by the statutes and common law of the land.1 In this country insurance corporations are usually organized under general laws instead of special charters, and are divided into stock, mutual, and mixed companies. A stock or proprietary company has for its basis a capital stock, owned by stockholders, who may be quite distinct from the insured. It ordinarily insures at lower premium rates than those of mixed or mutual companies, and its profits over and above required accumulations and the liabilities of the company are divided in the shape of dividends among the stockholders. In mutual companies there are no stockholders, but the insured themselves are the members of the company, entitled to the management of its affairs and to the receipt of any share of surplus premiums over and above those needed for the payment of losses and expenses. Mixed companies partake of the nature of stock and mutual companies, and in them a certain portion of the profits is paid to the stockholders, and the remainder distributed among the insured. Premiums in most companies are paid in 1 Treadway v. Hamilton Mutual Ins. ship Ins. Asso. v. Wyllie, L. R., 22 Q. Co., 29 Conn. 68. Great Brit. Steam. B. D. 710 (1889). cash in advance at stated intervals, but in other companies by means of assessments levied from time to time upon the insured of a certain class to meet the losses which have occurred in that class; and the company is bound in good faith to lay an assessment by which it may meet a loss in accordance with the spirit of its contract.1 In mutual companies premiums are often paid in whole or in part by notes of the insured, which are held by the company, and from time to time assessed to pay losses and expenses. Premium notes are sometimes made a lien on the property insured. Life companies frequently offer to make loans to the insured, taking the contract of insurance as collateral. In this country the mutual plan has been much more successful in marine and life insurance than in fire. In the United States, as a general thing, in the laws governing the organization and scope of insurance corporations, the business of ocean-marine, fire, and life insurance, respectively, is kept somewhat distinct and exclusive; in New York and elsewhere life companies are forbidden to take marine or fire risks, but fire insurance companies are often organized to insure against inland marine disasters, lightning, and tornadoes. In the West, fire losses to crops, whether standing or cut, are an important item. § 4. Statutory Safeguards.-For the better protection of the insured, it has been customary throughout the States of this Union, as well as in England, to establish by law an insurance department, or superintendent or commissioner of insurance, or other official, with whom, as a rule, foreign insurance companies doing business within the State, and domestic life insurance companies, with certain exceptions, are required, upon organization or commencement of business within the State, to make deposits of money or equivalent securities, which are held as collateral by the department for the security of the insured. This official, called by different names in different States, has considerable discretionary power to decide whether under the laws of the State a foreign company is entitled to be admitted to transact business within the State.2 The insurance department receives stated reports from each 'Lawler v. Murphy, 58 Conn. 294 (1890), by Seymour, J. Am. Casualty Co. v. Tyler, 60 Conn. 448 (1891), by Andrews, C J. company, setting forth with some detail its business affairs and financial condition, including its assets and debts, amount of insurance, and other particulars. It also has a visitorial power over the companies, to see that their investments are made according to law, and to examine their books and papers in case of suspected misconduct or insolvency. In addition to these safeguards, there are laws requiring the companies, before paying out dividends or profits, to accumulate and reserve a certain amount of assets with which to meet any future liabilities; also, laws directing foreign companies to appoint a representative within the State upon whom service of papers can be made. The object of insurance is to compensate the insured for loss and not to prevent the occurrence of loss; but in many of the cities the fire insurance companies have established a system of patrol with statutory powers, which does much to prevent the spread of fire, and to protect from unnecessary injury or theft the property exposed during and after the conflagration. Any State has the right to control the conduct of insurance business by the enactment of suitable statutory regulations. It may make a compliance with these by a foreign company the condition of doing business within the State, or it may capriciously shut its doors to a foreign corporation without any reason at all.1 Subject to such statutes, many of the insurance companies transact business throughout the country generally. § 5. Origin of Insurance and Insurance Law.The origin of the business of insuring or underwriting is a matter of doubt. The practice of marine underwriting by individuals lays claim to great antiquity. Some suppose it to have existed under the early Roman emperors. But it is more probable that it was started in connection with the revival of commerce which took place in the twelfth or thirteenth century after Christ, especially among the flourishing republics of Italy. At that time the ocean commerce of Christendom was largely undertaken by merchants of the north of Italy, then generally known by the name of Lombards, who had established trading companies in almost every country in Europe. 'Doyle v. Continental Ins. Co., 94 U. S. 535. Phil. Fire Asso. v. N. Y., 119 U. S. 110. Barron v. Burnside, 121 U. S. 186. |