Home Ins. Co. v. Cont'l Ins. Co.

• Decision Date: 03 February 1905
• Citation: 73 N.E. 65,180 N.Y. 389
• Parties: HOME INS. CO. et al. v. CONTINENTAL INS. CO.
• Court: New York Court of Appeals Court of Appeals

180 N.Y. 389

73 N.E. 65

HOME INS. CO. et al.

v.CONTINENTAL INS. CO.

Court of Appeals of New York.

Feb. 3, 1905.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the Home Insurance Company and another against the Continental Insurance Company. From a judgment of the Appellate Division (85 N. Y. Supp. 262,89 App. Div. 1) affirming a judgment for less than their claim, plaintiffs appeal. Affirmed.

Bartlett, J., dissenting.

George Richards, for appellants.

William C. Trull, for respondent.

VANN, J.

This action was brought by two fire insurance companies against a third upon a contract of reinsurance in the standard form, made under the following circumstances: On the 13th of June, 1895, the plaintiffs, ‘each acting and contracting for itself, and not one for the other,’ by a policy otherwise joint in form, insured one Heilner for the term of one year to an amount not exceeding $10,000 against loss by fire to a quantity of wool. On the 16th of July, 1895, the defendant reinsured the plaintiffs against all loss, except as otherwise provided, under their said policy to Heilner to an amount not exceeding $5,000, ‘subject to the same risks, conditions, valuations, indorsements and assignments as are or may be assumed or adopted by the Home Insurance Company of New York and the Phoenix Insurance Company of Hartford, Connecticut.’ It was also provided that ‘the loss, if any,’ should be ‘payable pro rata at the same time and in the same manner as by said companies. Other reinsurance permitted, if desired.’ These provisions appeared in what is called a rider attached to the standard form of policy in order to convert it into a contract of reinsurance. It was provided in the body of the policy that the defendant should not be liable ‘for a greater proportion of any loss on the described property * * * than the amount hereby insured shall bear to the whole insurance, whether valid or not. * * * Liability for reinsurance shall be as specifically agreed hereon.’ Prior to August 12, 1895, the plaintiffs, at the request of Heilner, and without notice to the defendant, reduced his insurance to the sum of $2,000, and on that day the property covered by their policy was injured by fire to an amount exceeding $3,000. They paid Heilner $2,000, the amount of their policy as reduced, and they also paid $14.10 for the necessary expense of adjusting the loss. They served proofs of loss on the defendant, claiming that they were entitled to $2,014.10, the whole amount paid by them, and more than 60 days thereafter commenced this action to recover that sum. Upon the first trial they were awarded the whole amount claimed, but the judgment was reversed by the Appellate Division. Home Insurance Co. v. Continental Insurance Co., 62 App. Div. 63,70 N. Y. Supp. 824. Upon the second trial the defendant was held liable for $1,007.05, or one-half the amount claimed, and, as an offer of judgment for that sum had been served, costs were allowed against the plaintiffs, and judgment was entered in their favor for the remainder only. After affirmance by the Appellate Division they appealed to this court.

The plaintiffs claim that the defendant under its policy of reinsurance is liable for the whole loss which they sustained under their policy of insurance. The defendant claims that it is liable for only one-half that amount, upon the theory that its contract is limited to such proportion of the loss as the amount of reinsurance bears to the amount of insurance. The controversy turns upon the meaning of the following sentence as used in the policy of reinsurance: ‘The loss, if any, payable pro rata at the same time and in the same manner as by said companies.’ The mooted words are ‘pro rata,’ which mean, literally, ‘according to the rate,’ or, as ordinarily understood, ‘in proportion.’ The loss, therefore, is payable according to some proportion, and must be apportioned in some way. Obviously, the apportionment, as to parties, is to be made either between the plaintiffs alone or between the plaintiffs and the defendant; and as to amount, on the basis of facts existing at the date of the policy or at the date of the loss. If it is between the plaintiffs simply, the provision is unnecessary, and is of slight concern to one and of no concern to the other party to the contract; but, if between the contracting parties, it relates to the amount of reinsurance to be paid, and has a function to perform of importance to both. We agree with the Appellate Division that the parties intended to divide the loss between themselves according to the proportion which the amount of the defendant's policy of reinsurance bears to the amount of the plaintiffs' policy of insurance. The promise of the reinsurer was to indemnify the insurers to an amount not exceeding $5,000 against their liability under the policy for $10,000 to Heilner by paying pro rata any loss sustained by them; that is, by paying any such loss in proportion to the sums covered by the respective policies. There was no promise to pay the full amount of insurance, but a certain proportion thereof. The defendant did not say to the plaintiffs, ‘I will pay your loss, not exceeding $5,000,’ but, ‘I will pay my proportion of your loss, not exceeding $5,000.’ The proportion was fixed by the contract in accordance with the amount of insurance furnished by either party as stated in the policy of reinsurance, or at the ratio of 5,000 to 10,000, which is one-half. After the contract was made, the proportion could not be changed without the consent of both parties. It could not be affected by any act of the plaintiffs in modifying their contract with Heilner. The right to change their contract with him was unrestricted, but any change could not affect the ratio of 5,000 to 10,000, which was agreed upon as the basis of division. The amount of insurance might be changed, but not the proportion which the reinsurer was to pay if a loss occurred. The plaintiffs, by agreement with the owner of the property, might reduce the amount of his policy to $2,000 or increase it to $20,000, but the promise of the defendant to pay in accordance with the proportion originally fixed would remain unchanged. That promise was to pay upon the ratio settled by the facts existing at the date of the contract, and which were stated therein. It was agreed that the amount of insurance was $10,000, and that the amount of reinsurance should be $5,000, payable pro rata in case of loss. There is no agreement to pay the whole loss, but a pro rata share thereof, in proportion to the amounts of the policies as they stood when issued. The premium paid to the defendant is presumed to have been arranged with reference to those amounts. The plaintiffs received a premium of $230, and they...