The Insurance Companies v. Wright

• Decision Date: 01 December 1863
• Parties: THE INSURANCE COMPANIES v. WRIGHT
• Court: U.S. Supreme Court

68 U.S. 456

17 L.Ed. 505

1 Wall. 456

THE INSURANCE COMPANIES v. WRIGHT.

December Term, 1863

THESE were actions brought by Wright against two insurance companies in New York—'The Orient Mutual' and 'The Sun'—on two policies of insurance, called open or running policies; a sort of policy which has been described in this court¹ as one enabling the merchant to insure his goods shipped at a distant port, when it is impossible for him to be advised of the particular ship upon which they are laden, and which, therefore, cannot be named in the instrument of assurance. The insurer upon this class of policies, of course, has no opportunity to inquire into the character or condition of the vessel, and agrees that the policy shall attach if she be seaworthy, however low may be her relative capacity to perform the voyage; and, for the additional risks he may thus incur, he finds his compensation in an increase of premium.²

The two suits brought on the two policies here, were tried together in the court below, and so argued and disposed of here; the principles in each case being confessedly, and so declared by the court, the same.

The policies professed to insure Wright against loss on one-fourth of five thousand bags of coffee, to be shipped on board of 'good vessel or vessels' from Rio de Janeiro to any port in the United States. Thus far the case was plain. The difficulty arose from certain clauses relating to the premium; of which clauses there were several scattered about the instrument. One such, just after the declaration of insurance made, was thus: 'To add an additional premium if by vessels lower than A 2, or by foreign vessels; to return 1/4 of 1 per cent. if direct to an Atlantic port.' The policies also contained this clause: 'Having been paid the consideration for this insurance by the assured at the rate of 1 1/2 per cent., the premiums on risks to be fixed at the time of the indorsement and such clauses to apply as the company may insert, as the risks are successively reported.'

The companies here sued, though New York companies, had an agent in Baltimore, through whom they effected insurances there; and it was through this agent that the present insurances were made. His testimony went to prove that when applications were made to enter risks on running policies, the application was indorsed at once by him, and a report made to the company in New York, which named the premium, and that this was made known to the assured; that the premiums specified in the body of the policies are nominal, and the true premiums to be charged are fixed by increasing or reducing the nominal premiums; and that the nominal premiums taken on the delivery of a running policy, are returned if no risks are reported.

On the back of one or both the policies here, were entries as follows, which, it was argued, explained this alleged custom:

1855. Aug. 13. Bank Maine Law, from Rio to New Orleans, $15,750, at 1 1/2 per cent.

1855. Aug. 13. Brig Windward, from same place to Baltimore, $4750, at 1 1/4 per cent.

1855. Nov. 20. Brig T. Walters, from same place to Philadelphia, $2375, at 1 1/4 per cent.

In the present cases the plaintiff applied, in the latter part of August, 1856, to the agent in Baltimore, for an indorsement on the policy of the coffee in question, laden or to be laden on board a vessel called the 'Mary W.,' from Rio de Janeiro to New Orleans, which application was communicated to the company, in order that they might fix the premium. The company at first declined to acknowledge the vessel as coming within the description of a 'good' vessel, on account of her alleged inferior character; but the plaintiff, insisting on her seaworthiness and his right to insure within the terms of the policy, the company replied to his application: 'We shall charge the same rate as the Sun does, viz., 10 per cent., subject to average, or 2 1/2 per cent. free of average.' This the plaintiff refused to pay. The company thereupon claimed to be released from the risk. The plaintiff asserted that there was still a subsisting contract.

The coffee had been shipped on the Mary W. at Rio, for New Orleans, 12th July, 1856, when she started on her voyage. The vessel was lost on the 29th of the month upon rocks; the master being some seventy miles out of his course.

The cases had been already before this court, in 1859 (23 Howard, 401, 412),³ by writ of error from a former trial. On that trial it was conceded that the vessel rated below A 2: or that the testimony might lead the jury to this conclusion. And on review here, this court held, that if this were true, then, inasmuch as no rate of premium had been fixed by the agreement of the parties, and the plaintiff had refused to pay the additional premiums which the companies had demanded, there was in reality no contract of insurance consummated as to the goods on that vessel. As the instructions of the court below had assumed that the contract was complete, although the vessel might rate below A 2, and although no agreement had been made for the increased premium, the cases were reversed and a new trial ordered. On this second trial the plaintiff sought to establish, and contended that he had established, that the vessel was within the rate prescribed, and in fact was not a vessel lower than A 2.

On this second trial, the defendants having given testimony (much the same testimony as that above mentioned as given on the first), tending to establish a usage that the premium named in the policy was in all cases a nominal one, and that the insured had a right, when the risk was reported, to vary the rate of premium as he might wish—asked the court for eleven instructions; the material parts of the seventh, eighth, and ninth being as follows:

Seventh. That if they found from the testimony and course of dealing of the parties, that the premium specified in the body of the policy was a nominal premium only, to which no attention was paid in fixing the true premium to be paid, then the company had the right to fix the premium at the time of indorsement, whether the vessel rated A 2 or not.

Eighth. That by the true interpretation of the policy, in the custom referred to in the preceding prayer, the insurer had the right, in good faith, to fix the real premium above or below the nominal premium, where the vessel rated A 2 or above it.

Ninth. That by the true interpretation of the policy, the real or actual premiums on risks were to be fixed by the companies at the time of return or indorsement of the risk, and that the premiums so fixed by them in the case of the 'Mary W.' not having been assented to by the assured, the premiums in that case cannot now be fixed by the court or jury; and further, that by the true interpretation of the policies, the real premiums on risks are not fixed therein without action by the parties, whether the vessel rates A 2 or above or below that rate.

These instructions the court refused to give, and the only question submitted to the jury was, whether the vessel in which the loss occurred did or did not rate below A 2, within the meaning of the policy.

But another question here arose; the question, to wit, by what standard was this fact, whether the vessel did or did not rate below A 2, to be fixed? Was it by that of Rio, whence she sailed? Or by that of Baltimore, where the application for insurance was made? Or by that of New York, where the policy was issued? Or by the register of the company which made the insurance?—with a conclusion that if that were silent, the vessel was not A 2 within the meaning of the contract at all. It was proved that the standard of rating was different at Rio and Baltimore from what it was at New York, being higher in the last-named city than it is in either of the former ones; so much so, indeed, that a vessel might be rated A 2, at Rio and Baltimore, which would fall below that rate at New York. It was also proved that each of the marine companies of New York keeps constantly in its employment a salaried officer, whose business it is to examine and rate vessels, and that the rates of the vessels thus examined by him are reported to the company, and entered upon a book kept for that purpose. Mr. Swan, of the house of Grinnell, Minturn & Co., large shipping merchants of New York, testified that 'the business of rating is a special one; that the companies all have inspectors to ascertain the rating of vessels, and that when a policy speaks of the rate of vessels, it is the rate of the company, and refers to that standard.' There was other testimony to the same effect. Testimony was given also, however, showing that this rating differs materially on the registers of different companies, and that we have not yet established in this country any institution similar to that of the British Lloyds; though there is one in New York calling itself the American Lloyds, and now attempting to establish for itself here the same position as the one in England, which has its inspectors in all ports of the United Kingdom, whose reports are forwarded to a board in London, which fixes the rate of all vessels which are known to it, and whose owners are willing to have them examined. In fact, with regard to this particular vessel, it appeared that in 1849, she had three different ratings out of five which it was proved had been made of her; that she left New York in the year last mentioned for California, and has never been in the port of that Atlantic metropolis since; that 1849 was the last year in which she was rated on the books of the 'Sun Mutual' at all; while the 'Orient Mutual' had not been established until 1854, and of course had her not upon any register of theirs; and shown finally that a rating seven years old is regarded by all insurers as no rating at all.⁴

The plaintiffs were allowed to give evidence that at Baltimore and at Rio she was rated A 2; and particularly to give in evidence a memorandum in writing, signed by the counsel of...