Campbell v. The Merchants and Farmers' Mutual Fire-Insurance Co., 37 N.H. 35 (1858) - Opinion

The case agreed upon by the parties shows no fraud in the plaintiff, in effecting the insurance, but the application did not give a full description of the building in which the property insured was situated. It omitted to state that there was a small steam engine in the building, which fact, according to the rules and regulations of the company, would have prohibited the issuing of a policy upon the building itself, and, by implication, upon the property therein.

This regulation or by-law, however, would not make void a policy issued by the directors in contravention of the by-laws, if the policy was not voidable upon other grounds. A by-law is not a limitation and restriction of the power which is lodged by the charter of a company in the board of directors; and it can have no higher effect in this respect than instructions, or a general regulation, adopted by the directors themselves, as a convenient guide in ordinary cases. Union Mu. Fire Ins. Co. v. Keyser, 32 N. H. 313.

This policy, then, cannot be avoided unless it be upon the ground that the application, which, according to the terms of the policy, forms a part of the contract of insurance, did not set forth all the facts and circumstances material to the risk. It is a general rule that whatever is material to the risk must be correctly set forth in the application, if it forms a part of the policy; otherwise the policy will be void. Car penter v. American Ins. Co., 1 Story 57; Fowler v. Ætna Ins. Co., 6 Cowen 673; Davenport v. The New-England Co., 6 Cushing 340.

But in Marshall v. The Columbian Mu. Fire Ins. Co., 27 N. H. (7 Foster) 157, it was held that where the application is taken by an agent of the company, and he is aware of facts material to the risk, but which are not set forth in the application, the company will be charged with knowledge; and that, under such circumstances, an unintentional concealment or misrepresentation will not make void the policy. The same principle was alluded to in Leathers v. Farmers’ Mu. Fire Ins. Co., 24 N. H. (4 Foster) 262. As, however, the point has not been very fully considered by the courts of this State, and the counsel for the defendants have cited several eases of high authority, sustaining a different doctrine, we have thought it proper to examine the question at some length, with a view to test the accuracy of the position.

So far as the insurance companies in this State are to be considered, the legislature have settled the principle, by enacting that applications taken by the agents of the companies shall not be void by reason of any error, mistake"or misrepresentation, unless it shall appear to have been intentionally and fraudulently made. Laws of 1855, chap. 1662, sec. 6. But that act does not apply to corporations established by the laws of other States, and consequently not to this case. Contracts of insurance are believed to be of recent origin, when compared with many other contracts known to the law. The first allusion to the subject is said to have been made in the latter part of the fourteenth century, in the laws of Wisburg, compiled in the Teutonic language. The first English case that I have found was decided in 31 of Elizabeth, cited in 6 Coke 47. Between that time and up to 1756, Park, in his system of the law of marine insurances, says, that not forty cases upon the subject were to be found in the English books. After this the decisions in England assumed new spirit and vigor, so that Chancellor Kent says that there is no branch of the law that has been more thoroughly investigated than that of marine insurance, and that it is by far the most extensive and complex title in the commercial code. 3 Kent’s Com. 342.

Great strictness has always been held in contracts of marine insurance. - A misrepresentation or concealment of any fact material to the risk, even though it happen through mistake or accident, and though the loss arises from a cause unconnected with such misrepresentation, will make void the policy. -Park on Insurance 249, 6th edit.; 3 Burr. 1905; Fitzherbert v. Mather, 1 T. R. 12; McDowell v. Frazer, Doug. 260; Bridges v. Hunter, 1 Maule & Selw. 15.

A breach of a warranty avoids the contract ab initio; and it makes no difference whether the thing warranted be material or not, or whether the loss happened by reason of a breach of the warranty or not. A warranty differs from a representation in this respect, that it is in the nature of a condition precedent, and requires a strict and literal performance; but all express warranties must appear upon the face of the policy. 3 Kent’s Com. 288. There may also be implied warranties, such as necessarily result from the nature of the contract; and in every policy it is implied that tire ship is seaworthy when the policy attaches. Daw v. Hollingworth, 7 T. R. 160; Silva v. Low, 1 Johns. Cases 184. I apprehend that from this strictness existing in the law of marine insurance, have been drawn the rigid rules laid down by many tribunals upon fire insurance policies, and that the authorities in cases of marine insurance have been followed in actions upon policies against fire, without perhaps sufficiently adverting to the difference that exists in the knowledge of facts upon which the respective contracts are founded. Kent says that the strictness and nicety required in the contract of marine insurance do not so strongly apply to insurances against fire, for the risk is generally assumed upon actual examination of the subject by skillful agents, on the part of the insurance offices. 3 Kent’s Com. 373.

The severity of these rules has caused courts in many instances to endeavor to avoid their effect. Thus Lord Mansfield, in Pawson v. Watson, Cowper 785, says that it is the opinion of the court that to make written instructions valid and binding they must be inserted in (not referred to) in the policy. And Sutherland, J., in Jefferson Ins. Co. v. Catheal, 7 Wendell 80, also says that the doctrine of warranty in the law of insurance is one of great rigor, and frequently operates very harshly upon the assurer. And again, after discussing an application not embraced in the policy, and holding that it shall not be considered a warranty, he says: “ I am not disposed to lead the way in the extension of this harsh and rigorous doctrine.”

And there are authorities which hold that where inquiries are not put by the company or its agents, as to the title and situation of the properly, and no fraud appears, a suppression of facts will not make void the policy. Strong v. Manufacturers’ Ins. Co., 10 Pick. 40; Fletcher v. Com. Ins. Co., 18 Pick. 419; Niblo v. North-American Fire Ins. Co., 1 Saund. 551.

The books abound with cases as to what are and what are not necessary disclosures, and as to what shall he held representations and what warranties; and the authorities not unfrequently seem confused and contradictory, arising from the different construction which is put upon the applications for insurance and the effect that is given to them. And there appears to be a manifest disposition in some tribunals, which hold the rules with strictness, to bring as few cases as possible within their range. The business of insurance against fire has greatly increased by the incorporation and establishment of mutual companies, and the mode of transacting the business, as well as the property insured, differs very essentially from that of marine insurance. The method of doing the business in these companies also varies materially, in some respects, from that which prevails in stock companies, as they are usually termed. And were courts now, for the first time, to lay down without regard to authority the rules of law that should govern contracts made between mutual companies and their members, I apprehend that in many jurisdictions they would differ essentially from the rules which at present prevail. As a general practice these companies require all applications for insurance to be in writing, and they make the application a part of the policy. As a general practice, also, they send out agents appointed by themselves, who are oftentimes directors of the companies, who examine the buildings and make the surveys, and make out the applications for the insured to sign. Now, aside from authority, upon what principle of right can it be said that in regard to facts which are obvious and known to the agent and company, but which are unintentionally not communicated, a different rule of law should prevail from that which exists in the sales of property ? "Why should it be held that the unintentional neglect to state facts in an application for insurance, which are pei’fectly obvious and well known to the officers of the company, shall defeat the contract and make void the policy, while the sale of property made upon a warranty is not to be affected by any defects which are obvious to the senses ? I entirely agree with the court in Jennings v. The Chenango Mutual Ins. Co., 2 Denio 79, when they say that it would be difficult to assign a satisfactory reason for a distinction in this respect. "Why should not an insurance company be estopped from setting up defects in an application, which are known to them, as well as the owner of property who knowingly stands by and sees the property sold by a third person, without disclosing his title, be afterwards estopped from setting up that title ? It appears to me that the fraud in the former case is quite equal to that in the latter. I am aware that there are many cases, and of high authority, which lay down the rule the other way, and hold that, when the application is made a part of the policy, statements contained in it are warranties, and, if untrue, the policy is void, even though the variance he not material to the risk. The same authorities also hold that the rule which prevails upon sales of property, that the warranty does not extend to defects which are known to the purchaser, does not apply to warranties contained in contracts of insurance. And such is the doctrine of Jennings v. The Chenango County Mutual Ins. Co., 2 Denio 75, already cited, and which is an authority in point for the defendants. The authorities are examined at length in that case, and the conclusion arrived at that they show the policy to be void. In closing the opinion, however, the court say: “ At the same time, it cannot be denied that the application of these principles to the ease under consideration operates with great severity upon the plaintiff, and is well calculated to lead to serious douht whether the intention of the parties and the interests of justice were duly regarded in the establishment of the rule.” And they then add: “ Here the mistake was proved to have been the consequence either of the ignorance, carelessness or bad faith of the agent of the defendants. He filled up a printed blank application, furnished by the defendants, to be subscribed by the plaintiff, who probably neither had or pretended to have any information or knowledge of what such a paper ought to contain in order to render the policy available, but relied in that respect implicitly upon the agent sent out by the defendants.” The defects in that application were that the building was occupied for a further purpose than that stated in the application, and also that the surrounding buildings were not correctly given. These facts were known to the agent, who said that the risk was not increased, and that it was of no use to put them into the application. Still the court felt themselves bound by the authorities, and held that the application, taken in connexion with the conditions of the policy, was a warranty, and that the policy was void.

The evident harshness and severity of this doctrine, so well shown by the court in the last case cited, has since led to a different result in some cases in the same State.

In Masters v. The Madison County Mutual Ins. Co., 11 Barb. Sup. Ct. 624, the agent of the company, on being applied to for an insurance upon the plaintiff’s mill, went to see the property, and made a survey of the same — the plaintiff not accompanying him, but leaving him to transact the business, and-do whatever was necessary. The agent then made out the application for the plaintiff to sign, using the printed blank furnished to agents for that purpose. He was informed at the time by the plaintiff’s son that there was a mortgage on the premises, which was a lien thereon, but the application made no mention of any incumbrance. It was held that the notice given to the agent, of the incumbrance, was a sufficient notice to the company, and that the omission to set forth the mortgage in the application, was not a breach of warranty, or a concealment of important matters affecting the risk, notwithstanding the application, by a memorandum in the margin, required the applicant to state whether the property was incumbered, by what, and to what amount, and if not to state it; and although the by-laws of the company made the person taking the application the agent of the applicant; and farther, that, notwithstanding such bylaw, he was still the agent of the company, and that they were bound by his acts. See, also, New-York Central Ins. Co. v. National Ins. Co., 20 Barbour 468. Kent says that the decisions contain strict doctrines on the subject of concealment, but he adds that the insured is not bound to communicate any facts which the underwriter may be presumed to know equally with himself. 8 Kent’s Com. 285.

¥e would not relax any of the sound and wholesome rules which require integrity and good faith on the part of the insured, and would hold them to as strict a compliance with their contracts as we would the companies; but upon a reexamination of the question, we think that the rule laid down in Marshall v. The Columbian Mu. Fire Ins. Co. contains the just and true doctrine.

The applicant, unused to the business of making applications, and ignorant of what is necessary to be done, trusts to the skill, knowledge and judgment of the agent to fill up the application, which is usually a blank, by giving all the information that is required by the company. He puts full confidence in the agent, and relies upon him to see that the business is done correctly, and the application made out according to the requirements of the company; and if he acts honestly and in good faith the company ought to be charged with a knowledge of all the facts that are known to the agent. It would be unjust to the insured, after he has made such an application, paid the premium demanded, the expenses of the policy and the assessments as they are made, to permit the company, upon the destruction of the property, to say that they will not make good the loss, because their agent, whom they have authorized to act for them and make their application, has failed to make it sufficiently full. There are many facts which an agent may know quite as well as the applicant. Upon an examination and survey of a building, if personally made by himself, he will ordinarily become possessed of all the material facts in this respect. The title to the property he does not investigate, and of course relies upon the statements of the applicant. He knows the requirements of the company, and the details that should be set forth in the application, while the insured is in most cases entirely ignorant of these matters; and if the application is unintentionally defective, upon a point well known to the agent, the company, and not the insured, should he the sufferers. The agents are to this extent, and for the purpose of taking the applications, the officers of the company.

The facts in the present case appear to come distinctly within the rule which we have endeavored to explain, and which, we think, should prevail; and we are therefore of opinion that, according to the agreement of the parties, there should be