Continental Fire Ins. Co. v. Whitaker & Dillard

Decision Date18 January 1904
Citation79 S.W. 119,112 Tenn. 151
CourtTennessee Supreme Court

Error to Circuit Court, Bedford County; W. C. Houston, Judge.

Action by Whitaker & Dillard against the Continental Fire Insurance Company. Judgment for plaintiffs. Defendant brings error. Affirmed.

Thos R. Myers, for plaintiff in error.

W. B Bates and B. D. Kingree, for defendants in error.


This suit was brought by Whitaker & Dillard, the defendants in error, in the circuit court of Bedford county, against the Continental Fire Insurance Company, seeking to recover on a policy issued by that company to them on May 21, 1901 insuring a storehouse at the sum of $100, with fixtures therein at $100, and a stock of merchandise therein at $1,500; in all $1,700.

The property was destroyed by fire on September 9, 1903.

The case was tried at the August term, 1903, of Bedford circuit court, when the jury rendered a verdict of $1,700, the full amount of the policy, and for the additional sum of $250 attorney's fees, under Acts 1901, p. 248, c. 141.

The insurance company has appealed and assigned errors.

The first error assigned is that there is no evidence to sustain the verdict. Under this are comprehended the following points, viz.: That the defendants in error warranted that they owned the legal title to the property, whereas the testimony shows that they did not; that they warranted that the storehouse was unincumbered, when in fact it was heavily incumbered; that the policy contained what is known as the "iron-safe clause," and the testimony shows that this was not complied with; that the policy provided that the proofs of loss should be furnished within 60 days from the date of the fire, and that this provision was not complied with. It is insisted that all of these were warranties by the terms of the policy, and a failure to comply with either of them avoided the policy.

Another assignment raises the question of the constitutionality of section 22 of the Tennessee insurance act of 1895 (chapter 160, p. 332, of the Acts of that year). This section is reproduced as section 3306 of Shannon's Code of Tennessee.

Other assignments raise the question of the constitutionality of chapter 141, p. 248, Acts 1901.

We shall consider these objections in the following order:

1. As to the constitutionality of section 22, c. 160, p. 332, Acts 1895 (Shannon's Code, § 3306).

This section reads as follows:

"No written or oral misrepresentation or warranty therein made in the negotiation of a contract or policy of insurance, or in the application therefor by the assured, or in his behalf, shall be deemed material or defeat or void the policy or prevent its attaching, unless such misrepresentation is made with actual intent to deceive, or unless the matter represented increase the risk of loss."

This section has been twice approved and applied in reported cases. Light v. Ins. Co., 105 Tenn. 480, 58 S.W. 851, and Hartford Life Ins. Co. v. Stallings (Tenn.) 72 S.W. 960. In both of these cases the validity of the legislation was tacitly assumed, but in neither of them was the question of constitutionality directly raised. Some presumption of constitutionality, of course, arises from the above-mentioned decisions applying the law as a valid one; but this does not relieve us of the duty of considering and determining the question when directly made.

The section quoted is assailed on the ground that it is vicious class legislation. It is said that the classification is improper, in the first place, because the rule laid down limiting the power to make binding warranties capable of forfeiting the contract is confined to insurance companies alone; and, in the second place, that it does not apply to all kinds of insurance companies operating upon the assessment plan.

The title of the act of which section 22 is a part (chapter 160, p. 332, Acts 1895) indicates that it was passed for the purpose of laying down rules "to govern and regulate the business of insurance" "other than life and casualty insurance upon the assessment plan." The act applies to both foreign and domestic companies. The generality of the title, nothing else appearing, would justify the conclusion that it was intended to embrace all kinds of insurance except life insurance upon the assessment plan and casualty insurance upon that plan; thus apparently including within its scope fire insurance companies upon the assessment plan. An attentive examination, however, of the body of the act discloses the fact that its scope is not so broad. This clearly appears from the provisions of sections 9 and 10, fixing the terms on which foreign fire companies may do business, from which it appears that the act had in contemplation only companies possessing a capital stock. The same appears, in respect of domestic fire insurance companies, from section 13. Moreover, as to the latter the same result is reached by a comparison of the act with chapter 220, p. 443, Acts 1895, which makes provision for the business of mutual or assessment fire insurance companies organized or incorporated under the laws of this state. It does not appear that any provision is made in either of the acts for the business of foreign fire companies of this character; that is, those operating on the mutual or assessment plan. The business of life and casualty companies operating upon this plan is provided for by Acts 1887, p. 303, c. 178.

It seems, therefore, that the classification made by chapter 160, p. 332, Acts 1895, is of all insurance companies other than those operating on the mutual or assessment plan. We have, then, on the one hand, nonassessment companies; on the other, assessment companies. To the first class the provisions of section 22, above copied, apply; to the second class they do not apply. Is there a good reason underlying the classification? We think there is. It is obvious, without going into the particulars of the matter, that the two classes of companies operate on principles so radically different that different and distinct regulations are required for their management. Is there a good reason why the provisions of section 22 should be made to apply to the one class, and not to the other? A sufficient reason seems to be found in the diverse relations which the policy holders of the different classes bear to their respective companies. In the assessment companies each policy holder is an integral part of the whole. The members mutually insure each other. In them is vested the control and regulation of the affairs of the company. There is, therefore, in those companies not so great a tendency to oppression, and to the abuse of power, as in stock companies organized for the profit of its stockholders, who need not be policy holders. It may be well supposed that temptations to the abuse of power, so likely to arise in companies of the latter class, either would not arise at all in those of the former, or, if arising, would be corrected by the organization itself, the interest of each being, in a sense, that of all.

But, aside from this, if, upon the second division of the subject, it be found that section 22 is justified under the police power of the state, it would be immaterial that the Legislature had determined to impose it upon policies issued by nonassessment companies, and had not chosen to do the same thing in respect of policies issued by assessment companies. If an act falls under the police power, the Legislature must judge of the objects upon which the statute shall operate. The court cannot declare it void on the ground that there are, in its opinion, other objects equally deserving of the attention of the Legislature, which it has omitted to notice.

That legislation of this character is justifiable under the police power, there can now no longer be any doubt.

There was a similar statute passed in Pennsylvania on June 23, 1885 (P. L. 134), reading as follows: "Whenever the application for a policy of life insurance contains a warranty of the truth of the answers therein contained, no misrepresentation or untrue statement in such application made in good faith by the applicant shall effect a forfeiture or be a ground of defense in any suit brought upon any policy of insurance issued upon the face of such application, unless such misrepresentation or untrue statement relate to some matter material to the risk." Speaking of this statute, in Penn. Mut. Life Insurance Company v. Mechanics' Savings Bank & Trust Co., 72 F. 413, 19 C. C. A. 286, 38 L. R. A. 33, White v. Insurance Co., 4 Dill. 177, Fed. Cas. No. 17,545; Society v. Clements, 140 U.S. 226, 11 S.Ct. 822, 35 L.Ed. 497; Wall v. Assurance Society (C. C.) 32 F. 273; The Eagle Ins. Co. of Cincinnati v. State, 153 U.S. 446, 14 S.Ct. 868, 38 L.Ed. 778; Reilly v. Ins. Co., 43 Wis. 449, 28 Am. Rep. 552; Insurance Company v. Leslie, 47 Ohio St. 409, 24 N.E. 1072; 4 Thompson on Corporations, §§ 5491, 5524. In commenting upon a similar statute in Missouri, Dillon, J., said: "The Legislature of Missouri conceived, and, we think, wisely, that the promises held forth to the assured in the policies in general use were but too often a delusion and a snare, and, as the courts were powerless to correct the evil, it ought to be corrected by statute." White v. Conn. Mut. Life Ins. Co., supra. In speaking of a similar statute existing in New Hampshire, the Supreme Court of that state, through Foster, C.J., said: "The policy and purpose of the law were to promote honest and open fair dealing, to do equal justice, to protect the confidence reposed by the insured in those with whom he may contract, and (especially disclaiming any reference to this defendant company), to spring the traps 'concealed in the...

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