Clark v. Allen

• Court: United States State Supreme Court of Rhode Island
• Writing for the Court: DURFEE, C. J.
• Citation: 11 R.I. 439
• Parties: JOHN CLARK, Administrator, v. JAMES ALLEN.
• Decision Date: 24 February 1877

11 R.I. 439

JOHN CLARK, Administrator,
v.
JAMES ALLEN.

Supreme Court of Rhode Island.

February 24, 1877

A life policy is a chose in action.

The sale and assignment of a life policy, outstanding and valid, and containing no prohibition of such alienation, is good in Rhode Island, though made to one who has no interest in the life insured, provided such sale and assignment is a bonâ fide business transaction, and not a device to evade law.

Query . Whether in Rhode Island a person can legally take out an original policy on a life in which he has no interest?

ASSUMPSIT, tried by the court, jury trial being waived. The facts are stated in the opinion of the court.

The sale and assignment of a life policy, outstanding and valid, and containing no prohibition of such alienation, is good in Rhode Island, though made to one who has no interest in the life insured, provided such sale and assignment is a bona fide business transaction, and not a device to evade the law. Any rule that a person taking out a policy on the life must have an insurable interest in that life does not extend to require an assignee of a policy to have such interest.

Charles Hart, for plaintiff.

A person cannot purchase and hold for his own benefit, as a matter of speculation, a policy of insurance on the life of another in whose life he has no insurable interest.

Nor can a policy, valid in its inception, issued to one holding an insurable interest, be assigned to one holding no such interest so as to sustain an action in favor of the assignee. Franklin Life Ins. Co. v. Hazzard, 41 Ind. 116; Stevens, Adm'r, v. Warren, 101 Mass. 564; Cammack v. Lewis, 15 Wall. 643.

A policy may be assigned to a creditor of the insured, he having an interest in the life of the insured.

Upon the death of the insured the creditor may collect the policy, but must account to the representatives of the deceased for any surplus above his debt and advance for premiums or otherwise.

The cases of St. John v. Am. Mut. Life Ins. Co. 13 N.Y. 31, and Valton v. Nat. Fund Life Ins. Co. 20 N.Y. 32, seem to hold that a policy valid in its inception may be assigned for value to one having no interest in the life of the insured, and the assignee be entitled to collect the whole amount: that is to say, from the insurers. They do not decide that the assignee of the policy would not be obliged to account to representatives of the insured for any surplus received over amount advanced by him. The later case of Reese v. Mutual Life Ins. Co. 23 N.Y. 516, practically overrules the cases cited from the 13 and 20 N.Y. This case in 23 N.Y. decides that one procuring insurance upon the life of another, if he had no interest in the life of the insured, cannot recover. The statute of 14 Geo. III. cap. 48, which was [11 R.I. 440] passed to remedy the mischief of gambling and wagering policies, the court says was merely declaratory of the common law.

We especially refer this case to the consideration of the court, as, with the cases cited under first point, furnishing clear rules to dispose of the present case. Certainly it would be a singular conclusion to say that A. cannot procure a policy on the life of B. having no interest in the life of B., but that he might arrange with A. to take out a policy for $5,000, and then A. purchase the policy for a nominal sum. If the first is a speculating and wagering policy so is the last. See also 3 Kent Comm. *368-9; May on Insurance, §§ 110, 398, and cases cited; § 75, note. See also Mowry v. Home Life Ins. Co. 9 R.I. 346.

The principles applicable to fire insurance should be applied to life insurance cases, as in case of a mortgagee's interest in a policy, whether insurance be by mortgagor and made payable to mortgagee, or assigned to mortgagee, or the mortgagee insures his interest as mortgagee. In all these cases his interest in the policy is only commensurate with his debt. If the mortgagee insures his interest directly, he can only recover to the extent of his debt. If the mortgagor insures his interest in the property and makes the policy payable to the mortgagee, or assigns it to the mortgagee as security; upon collection by the mortgagee for the loss he must pay over any excess to the mortgagor.

Where the mortgagee insures directly he can only recover to the extent of his debt. Carpenter v. Washington Ins. Co. 16 Pet. 495; Angell on Insurance § 59; Phillips on Insurance, vol. 1, § 288 et seq.; vol. 2, §§ 1511 and 1712.

Insurance by mortgagor payable to mortgagee in case of loss, or assigned to mortgagee as further collateral security in case of loss, and recovery by mortgagee of amount in excess of debt, makes him a trustee of the mortgagor for the balance. If the debt is paid, the mortgagor is entitled to the whole amount collected. Smith v. Packard, 19 N.H. 575; Roberts v. Traders' Ins. Co. 17 Wend. 631.

James Tillinghast, for defendant.

I. A policy of life insurance is not a contract of indemnity, but a contract for the payment of a definite sum at a definite time, supported by a full adequate consideration, to wit, the premium which is the agreed, exact equivalent of the risk assumed. [11 R.I. 441] Dalby v. The India & London Life Ins. Co. 15 C. B. 365, overruling Godsall v. Boldero, 9 East, 72; see Rawls v. Amer. Life Ins. Co. 36 Barb. S.C. 357; also, on appeal, 27 N.Y. 282, and cases infra . See also Mowry v. Home Life Ins. Co. 9 R.I. 354.

Hence contracts of marine and fire insurance furnish no analogy. These being mere contracts of indemnity, the interest of the insured must exist not only at the inception of the risk but also at the time of the loss. Though, even here, if a mortgagee or a consignee who has made advances insure his own interest alone, he is not accountable for the amount received on the loss to his mortgagor or consignor. King v. State Mut. Fire...