Vial v. Norwich Union Fire Ins. Soc'y of Norwich

• Decision Date: 20 February 1913
• Citation: 257 Ill. 355,100 N.E. 929
• Parties: VIAL v. NORWICH UNION FIRE INS. SOCIETY OF NORWICH, ENGLAND.
• Court: Illinois Supreme Court

257 Ill. 355

100 N.E. 929

VIAL

v.NORWICH UNION FIRE INS. SOCIETY OF NORWICH, ENGLAND.

Supreme Court of Illinois.

Feb. 20, 1913.

Error to Appellate Court, First District, on Appeal from Circuit Court, Cook County; Charles M. Walker, Judge.

Bill by Joseph Vial against the Norwich Union Fire Insurance Society of Norwich, England. From a decree for complainant, reversed by the Appellate Court, complainant brings error. Affirmed.

Lyman, Lyman & O'Connor, of Chicago, for plaintiff in error.

Barger & Hicks, of Chicago, for defendant in error.

FARMER, J.

Plaintiff in error filed a bill in chancery in the circuit court of Cook county to reform a fire insurance policy on the ground of mutual mistake, and to enforce the payment of a loss under said policy as reformed. A decree was entered by the circuit circuit in accordance with the prayer of the bill, and the defendant prosecuted an appeal to the Appellate Court for the First District. That court reversed the decree of the circuit court and remanded the cause, with directions to dismiss the bill for want of equity, and the record has been brought to this court for review by writ of certiorari.

Plaintiff in error resided and was engaged in business in La Grange, Ill., and owned a farm near that place, upon which there were several buildings, including a large residence for the tenant and two smaller residence buildings, which were not at the time of the loss, nor had been for some time previous, used for residence purposes, but were used for storage and other purposes. The policy sought to be reformed was issued on October 30, 1905, by the Indemnity Fire Insurance Company of New York, covering a term of three years, for the amount of $1,700 on a frame dwelling house on the farm, described in the policy. In August, 1908, a number of buildings on the farm were destroyed by fire, but the frame residence was not destroyed. When proofs of loss were made payment was refused on the ground that the buildings destroyed were not covered by the policy. Plaintiff in error claimed his instructions to and agreement with the parties who secured the policy for him were that it was to cover all the buildings on the farm. There was a mortgage of $2,200 on the farm, and the old policy, which expired at the time the policy sought to be reformed was issued, was in the hands of the party who held the mortgage, as collateral to said mortgage. When the policy sought to be reformed was issued plaintiff in error claims it was delivered by the agents who procured it to the same party, and that he never saw it until after the loss occurred. The bill alleged that the failure to include all the buildings on the farm in the policy was a mutual mistake, and the master in chancery, to whom the cause was referred to take the testimony and report his conclusions, found that the proofs sustained the allegations of the bill, and recommended a decree as prayed, and a decree was accordingly so entered.

In the view we take of this case it will be unnecessary to pass upon the merits of the controversy as to whether there was a mutual mistake in the description of the property covered by the policy.

Under date of May 1, 1907, defendant in error, the Norwich Union Fire Insurance Society of Norwich, england, entered into a reinsurance contract with the Indemnity Company, by which contract, in consideration of an amount agreed upon, defendant in error reinsured to the Indemnity Company its risks covered by outstanding policies, and the Indemnity Company thereafter ceased doing business in the state of Illinois. The Norwich Union Company was made the sole defendant to the bill.

The first question presented for our determination then is whether a policy holder in the Indemnity Company can maintain an action, by virtue of the reinsurance agreement, against defendant in error. The decision of this question involves a construction of the reinsurance agreementand a determination whether it is strictly a reinsurance contract.

[1] Reinsurance is defined to be a contract that one insurer makes with another to protect the first insurer from a risk he has already assumed. It is not denied such contracts are lawful and valid. ‘The ordinary contract of reinsurance operates solely between the insurer and the reinsurer, and creates no privity whatever between the reinsurer and the person originally insured. The contract of insurance and that of reinsurance remain totally distinct and unconnected, and the reinsurer is in no respect liable, either as surety or otherwise, to the person originally insured.’ 24 Am. & Eng. Ency. of Law (2d Ed.) p. 249. In a note to this text will be found cited numerous decisions of courts of last resort sustaining it, and we do not understand it to be disputed by plaintiff in error that this is the rule where the reinsurance contract is strictly one of reinsurance. In Barnes v. Hekla Fire Ins. Co., 56 Minn. 38, 57 N. W. 314,45 Am. St. Rep. 438, the court said: ‘Reinsurance is a mere contract of indemnity, in which an insurer reinsures risks in another company. In such a contract the policy holders have no concern, are not the parties for whose benefit the contract of reinsurance is made, and they cannot, therefore, sue thereon.’

[2] A number of cases are to be found where it has been held that a policy holder may maintain an action against the reinsuring company, but in all of such cases the contract between the reinsuring company and the reinsured was more than a mere contract of reinsurance, and the reinsurer assumed the liabilities of the reinsured and agreed to pay them.

In Johannes v. Phenix Ins. Co., 66 Wis. 50, 27 N. W. 414,57 Am. Rep. 249, the right of a policy holder to maintain an action against the reinsuring company was sustained. The contract between the reinsuring company and the reinsured, however, was not a strictly reinsurance contract. The court said: ‘But in the case before us the contract between the defendant companies was, as it seems to us, something more than a mere reinsurance. By that contract the Standard...