Life Insurance Services

General provisions of New York standard policy.—The New York standard policy has been indexed line by line, and for the convenience of reference is usually referred to in that manner.

Line "a" reads as follows: "In consideration of the stipulations herein named and of Dollars Premium."

The point is likely to be overlooked that it is not the mere paying of so many dollars premium which entitles the insured to indemnity, but equally with the premiums are the stipulations contained in the policy and which with the premium form the consideration of the con-tract.

Line "b" reads :— "Does insure for the term of ........"

Line "c"—"From the day of 19-, at noon, to the day of 19—' at noon."

The question has arisen as to what is "noon" under the standard policy. Living as we do for practical business purposes under standard time, which differs materially from the sun or local time, it was almost inevitable if a fire occurred which would make certain policies liable for indemnity or which would relieve them of indemnity in event of a fire starting and being put out between the few minutes intervening between the standard time at noon and the local time, that the matter would have to be tested in the court. It has been so tested and the decisions have generally favored the local time. In Massachusetts there is a statute to the effect that standard time is the time referred to in the word "noon" of the standard policy.

Direct loss by fire.—Line "d"—"against all direct loss or damage by fire, except as hereinafter provided."

Direct loss by fire includes, of course, the loss which may be occasioned by water used by the Fire Department in putting out a fire. The property would not have to be touched by the fire—it would be sufficient that water was used and damage resulted. That would be a direct loss by fire. The fire itself must be what is known as "vicious" or "uncontrolled." No loss could be claimed, for instance, if one should hang a garment too near the stove and the garment were singed or scorched. The fire in that case is one strictly under control, and in the stove where it ought to be, and loss from it is not a loss under the insurance policy.

Limitation of amount.—Line "e"—"To an amount not exceeding Dollars." The amount stated in the policy is the limit of indemnity. The company is not liable, whatever the loss may be, beyond the amount stated ; neither is it liable beyond the amount of the loss, although it may only be a small part of the amount stated. The amount stated has no bearing except as fixing a limit to the amount which may be collected for a loss. The contract of insurance is a con-tract of indemnity. The insured is entitled to recover from the company that which he has lost not exceeding the amount stated on the face of the policy. The policies might be for $700,000—to quote an actual case—and the loss $75.00, which was the amount collected.

The fact that the contract is one of indemnity has been lost sight of in many cases, and so far lost sight of that laws have been passed forbidding a payment in certain cases on the indemnification basis. What are known as valued policy laws prescribe that if a building (they never apply to contents) is totally destroyed the amount stated on the face of the policy is the amount to be paid. These laws have been severely attacked, as they should be, but are still in force in several of the western states. To repeat: A contract of insurance is a contract of indemnity. It does not attempt and should never be made to reimburse the insured for other than actual loss. Fire insurance at once loses its true function whenever it is considered to cover anything except actual indemnity.

Description of property.—Line "f"—"to the following described property while located and contained as described herein, and not elsewhere, to-wit." A blank space is then left for the description of the property to be written in. As a matter of fact the description of the property is usually in the shape of a printed "form," as it is technically called, and this form is attached to the policy to meet the conditions of the description. In line "f" there is one word which is interesting as pointing out how the insurance con-tract has grown. That word is "while." It came into the standard policy in this manner: A buggy or carriage was insured, the policy stating that it was in a barn or stable. It was destroyed by fire while away some miles in a repair shop. The owner promptly called on the insurance company to pay the loss, but they denied liability, taking the position that they insured this carriage while it was in a barn and did not insure it at any other point. The case went to the courts and the courts ruled that the owner was entitled to recovery because the language giving the location of the carriage at the time insurance was taken out was merely descriptive language and not a warranty that the carriage was only insured in that location. Because of this decree of the court the companies, in order to protect themselves and fix the locality where the policy attached, placed the word "while" in the policy.

Limitations of contract. From this point on-ward the lines are numerical, and it will not be necessary to quote them in full. A brief running comment will doubtless serve the purpose.

Lines 1 and 2 state that the company shall not be liable beyond the actual cash value of the policy at the time any loss or damage occurs, and mike provision for the method of ascertaining and estimating such actual cash value, providing for depreciation, and also providing that it shall not exceed what it would cost the insured to repair or replace with material of like kind and quality. These two lines, also lines 3 and 4, have more bearing on loss settlements, which will be noted in that connection.

Lines 7, 8, 9 and 10 provide for the voidance of the policy if there shall have been concealment or misrepresentations on the part of the insured, or if the interest of the insured has not been truly stated, or in case of any fraud or false swearing touching any matter relating to the subject of insurance, whether it shall occur before or after a loss.

The contract assumes good faith on the part of both insured and insurer. The moral hazard is a problem which has always confronted the underwriter and probably always will. Many of the provisions which seem to be somewhat harsh have been incorporated into the contract because of past experience where moral hazard has been involved.

Voidance of contract.—Lines 11 to 30 inclusive provide that the policy shall be void if certain things are done, unless permission for the doing thereof shall by agreement be endorsed upon the policy. The things requiring such endorsement to avoid cancellation of policy contract are:

(a) If there is any other contract of insurance on the property of which the insuring company has no knowledge. In other words, there must always be per-mission for other insurance than that which the company carries.

(b) If the insured property be a manufacturing establishment and it be operated later than ten o'clock at night, or cease to be operated for more than ten consecutive days. Ten consecutive days may be held to include Sundays and holidays ; that is, ten consecutive days, not ten working days.

(c) If the hazard be increased by any means within the control or knowledge of the insured.

(d) If mechanics are employed in building, altering or repairing more than fifteen days at any one time.

(e) If the interests of the insured are other than unconditional and sole ownership. This does not mean that the company would not insure if the ownership were not as stated, but means that the fact must be stated to the company at the time.

The earliest case ever tried in the English courts, involving the question of fire insurance, brought into question this very fact of ownership. A certain property had been insured for many years by an insurance office and was sold. The policy of insurance was not transferred to the new owner, but the property being destroyed by fire shortly after the sale, the new owner brought suit against the insurance office on the ground that the policy followed the title to the property and that he was entitled to indemnity under the policy. The company denied liability, taking the position that they insured a certain individual; that the contract was between them and that individual and that it could not be transferred to cover some other individual's property without their consent. The courts sustained this position and this is the accepted law so far as this question is concerned since that date. The foregoing famous case was that of Roger Lynch and John Lynch, appellants, against Robert Dalzel, Henry Cartwright, and John Everett, respondents, decided in the House of Lords, the 13th day of March, 1729, reported in the 3rd of Brown P. C., 497, also the fourth of the same reports, page 431-3.

It may well be emphasized that the contract of insurance is a personal matter with a certain individual or individuals. The company does not in fact insure the property; it insures the individual or agrees to indemnify him for a certain loss by fire. The contract is not transferable without the consent of the company.

(f) If the insured property be a building and stands on ground not owned by the insured in fee simple.

(g) If the insured property be personal property, covered by a chattel mortgage. Here again the company may insure but prefers to know that fact. It would not be necessary in case of real estate to admit that there was a mortgage or state that fact except as it might come out in case of the mortgagee's interests being involved, but in the case of personal property it is absolutely a requirement of the policy that notice of an existing chattel mortgage be given to the company.

(h) If with the knowledge of the insured, foreclosure proceedings be commenced and notice given of sale of any property covered by the policy by virtue of any mortgage or trust deed.

(i) If a change take place (other than by the death of the insured) in the interest, title or possession of the subject of insurance (except that there may be a change of occupants without an increase of hazard) , whether by legal process or judgment or by voluntary act of the insured or otherwise.

As to what constitutes an increase of hazard there are many different opinions. It is evident that where property occupied for private dwelling purposes changes to any other occupancy there would be an increase of hazard. In such case the company should be notified. From such a simple case there are any number of gradations up to property already used for manufacturing purposes where the increase occasioned by any other tenant may not be appreciable owing to the already existing use made of the building. A change of occupancy is a change of hazard from an insurance point of view, and the question arises as to whether this change in occupancy or use increases the chance of fire.

(j) The policy must not be assigned before a loss, that is, without the consent of the company.

(k) If illuminating gas or vapor be generated in the described building or adjacent thereto for use therein permission is required from the company to use even such simple devices as portable acetylene lamps, since this, technically at least, generates gas on the premises. Of course, permission would equally be required for any other method of generating, but the simplicity of the portable lamp is taken as an illustration to emphasize the fact that permission is required.

(1) If any usage, custom, trade, or manufacture to the contrary notwithstanding, there be kept, used, or allowed on the above described premises, benzine, benzole, dynamite, ether, fireworks, gasoline, greek fire, gunpowder exceeding twenty-five pounds in quantity, naptha, nitro-glycerine or other explosives, or petroleum or any of its products of greater inflammability than kerosene oil of the United States standard, which last may be used for lights and kept for sale according to law in quantities not exceeding five barrels, provided it be drawn and lamps filled by daylight or at a distance not less than ten feet from artificial light.

These lines, being practically the 23d to 28th inclusive, are among the most important in the policy. The extensive use, for instance, of benzine or gasoline in every household for ordinary cleaning purposes, as the cleaning of a pair of gloves, requires, of course, per-mission on the policy. No permission to clean a pair of gloves is given but permission to use a certain amount of benzine. Efforts are constantly made to secure this privilege—not in a specific but in a general form—especially when a substance becomes as widely used as gasoline and similar products. The utmost that has been done to grant this general privilege has been to form what is known as a "work" and "materials" clause which reads somewhat thus :

"PRIVILEGED to do such work and to use such materials as are usual in the business of "

Whenever benzine or any of its products and the other substances referred to might be used in the business this general privilege would be considered as covering the use. It is exceedingly doubtful whether the work and materials clause adds anything more to the contract than the policy itself contains. If a property is devoted to the business of manufacturing benzine paint and the company insures the risk special permission for the use of benzine is unnecessary for the simple reason that the company has insured this property while engaged in a certain business which involves the use of this material; that is, they have entered into a contract knowing precisely what they were insuring and to that knowledge will be held in the event of a loss. They will not be permitted to deny liability in case of loss on the ground that the policy contained no specific permission for the use of this substance. This was decided in the case of Harper Brothers in the State of New York, and as a matter of fact, is simply common sense. However, the majority of cases are not so easy as the above.

Take the business of cloak and suit-making. The use of benzine is not usual in the manufacturing of garments. It is customary, however, to have a small quantity on the premises so that in the event of a garment becoming stained or spotted during the process of manufacture the damage may be instantly removed and the garment not destroyed. In all such cases where it is not absolutely a part of the business but is generally used permission is given without charge. The privilege will usually permit one quart and may prescribe the manner in which it must be kept. It is interesting to note in this connection that the New York standard policy makes no provision for any benzine, but the practice of using a small quantity is so common that it has led to the privilege being granted in the latest standard policy to be adopted, namely, that of the State of California, where the policy permits one quart of gasoline without notice to the company.

(m) If the building described, whether intended for occupancy by owner or tenant, be or becomes vacant or unoccupied and so remains for ten days.

Here again this would be considered probably as ten consecutive days. A vacant building is not as desirable a risk as an occupied building. The mere presence of a human being on the ground and in charge of property is of value.

Special limitations of liability.—Lines 31 to 35 inclusive provide that the company shall not be liable for loss arising from the following conditions :

(a) Invasion, insurrection, civil war, or commotion, etc., or by order of any civil authority.

(b) By theft.

(c) By neglect of the insured to use reasonable means to save and preserve the property at and after fire or in danger of fire in the neighborhood.

(d) By explosion of any kind unless fire ensues (and then for the damage only by fire), or a loss by lightning, although damage caused by lightning may be assumed but is subject to a specific agreement.

Lines 36 and 37 provide that if the building or any part of the building falls, all insurance represented by the policy on either the building or its contents immediately ceases. This is based on the simple rule that the company insures the whole building or insures the building in a certain form. If a building should be thrown over by a tornado, assuming that no fire arises, the insurance immediately ceases because the company did not insure a wrecked building. It would not have insured a mass of rubbish; therefore, the insurance ceases. Furthermore, the measure of damage in such cases is not the damage to the building before it was blown down but such damage as was occasioned by the fire, assuming the fire took place after the building was blown down. If the fire had started before the building was blown down the insurance company would probably have to meet all the loss.

Items excluded from liability.—Line 38 forbids the company to assume liability for loss to accounts, bills, currency, deeds, evidences of debt, money, notes and securities.

This is one of the most misunderstood lines in the standard policy. Dozens of forms have been printed excluding the company from liability for the items mentioned in line 38, when as a mere matter of fact the standard policy forbids the company to insure any of these items. In a state where a standard policy is the law the insurance of such things would be beyond the powers of the company and such insurance would probably be held illegal. If, however, insurance was taken on one of the items mentioned in a state where the standard policy was not law, although the standard policy might be used, the liability would undoubtedly be good. It is well to point out that almost in the very beginning the companies refused to insure such items. It is evident that the difficulty of ascertaining a loss and either proving or disproving it would be almost insurmountable.

Lines 39 and 40 and a portion of 41 provide that insurance may only be taken on certain things when they are mentioned specifically. It is exceedingly difficult to use general language and make the policy cover these items, such as awnings, bullion, drawings, dies, implements, etc. All these are more than usually susceptible to damage and it is difficult to prove the loss, and for that reason the company desires to know whether it is to cover any of these items.

Liability based on actual value of property.—The remainder of line 41, also lines 42, 43 and 44 provide that there shall be no liability to the company for a loss except the actual value destroyed by fire if it be occasioned by the ordinance or laws regarding the repair of buildings or by interruption of business, manufacturing processes, or otherwise; nor for any greater proportion of the plate glass, frescoes, decorations, etc., than that which the policy shall bear to the whole insurance on the building described.

A loss arising in regard to an ordinance within the fire limits of a city may occur in this way: A frame building situated in a certain place before fire limits were established would be permitted to stand, but if destroyed by fire and the owner wished to rebuild it would be necessary to erect a brick or perhaps a fire-proof building. It is evident that the amount of money received from the loss of the frame, building would not erect a building of ordinary or of fireproof construction; so for this loss occasioned by ordinance, the company is not liable. Provision is sometimes made whereby a much higher rate is paid, usually double, and the additional loss is assumed.

Renewals, cancellations, etc.—Lines 45 and 46 merely provide that if there be an application, survey, plan or description of property referred to it becomes part of the contract and beyond that is also a warranty by the insured.

Lines 47 and 48 state that unless duly authorized in writing no person shall be deemed the agent of the company in regard to the matter of insurance.

Lines 49 and 50 make provision for the renewal of the contract under the original stipulations and consideration of premium for the renewal, and also point out that should there be an increase of hazard at the time of the renewal it is the duty of the owner to give notice of that fact ; otherwise the renewed policy is void.

Lines 51 and 55 cover what is known as the cancellation of the policy. A contract of insurance probably differs from some other contracts in that either side is at liberty to cancel it. On behalf of the company five days' notice must be given of such cancellation. This provision is to prevent an undue mishap to the insured in suddenly finding himself without insurance. At the request of the insured, however, the policy may be cancelled at any moment. The pro-visions of cancellation provide that if the premium shall have been paid and the policy cancelled by the company it shall return to the insured the actual pro rata share of the premium unearned, but if cancelled at the request of the insured the company has the privilege of cancelling at what is known as "short rate," being some-what higher than the pro rata share.

Other Provisions.—Lines 56 to 59 declare that if there is a mortgage interest on the property the pro-visions of the policy shall attach as set forth. The mortgagee is not held to that strict responsibility peculiar to the owner. This probably grew out of the fact that parties were unwilling to loan money on property where there would be difficulty in regard to insurance. They would hardly wish to assume responsibility for many of the provisions of the insurance contract, and to that extent have they by special mortgage clauses been relieved of a certain amount of responsibility.

Lines 60 to 66 make provisions for having the insurance cover the property if it has been necessary to remove it to a place of safety during a fire. It provides that that part of the policy in excess of that required to cover the property at the original location shall cover five days after the removal of the property, and if moved to more than one location said excess shall cover thereunder for such five days in the proportion that the property of any one location bears to the value of all in such new location. This is, perhaps, an extremely cumbersome provision in order to meet the conditions of covering property under special emergencies.

Lines 67 to 107 inclusive deal with the question of loss settlement and are considered in a chapter dealing with that subject.

Lines 108 and 109 state that wherever the word "insured" occurs it shall include the insured or his legal representative, and wherever the word "loss" occurs it shall be deemed the equivalent of "loss or damage."

This latter clause, "loss or damage," would, of course, cover the loss of property damaged by water or smoke rather than loss by fire.

Lines 110, 111 and 112 merely cover certain pro-visions which are applicable to mutual insurance companies only, providing that if there be any special agreement in their charter applicable to that organization they apply to and form part of the policy.

Lines 113 to 116 inclusive stipulate that the policy is made and accepted subject to all that has gone be-fore and to the provisions, agreements, and conditions endorsed herein and added hereto. They also provide that no officer, agent or other representative has power to waive the provisions or conditions except those which may be waived by the conditions of the policy itself and which are, if waived, subject to (in order to note that they are waived) endorsement upon the policy.

Lines 117, 118, 119 and 120 furnish the blank spaces and the language pertinent thereto providing for the signing of the policy and the countersigning by the officer or agent.

The standard policy represents the evolution of the insurance contract. As a document it is of great ingenuity, representing as it does the ability of man to work out through the centuries a business contract quick and effectual in performing its work. With the exception of leases covering property and bills of lading it is perhaps a contract more commonly used in the business of the world than any other.