McEvoy v. Security Fire Insurance

Peabce, J., delivered the opinion of the Court. The Security Fire Insurance Company of Baltimore City became insolvent in consequence of the conflagration in San Francisco which accompanied or followed the earthquake in that city on April 18th, 1906, and its affairs are now in course of liquidation in the Circuit Court of Baltimore City. .In an auditor’s account, filed June 15th, 1908, certain dividends- ²⁷⁷ are allowed to a number of San Francisco policy holders upon their claims filed in the case, and to these allowances, the appellants, being stockholders and creditors of the insurance company, have excepted on the ground that the fire was caused by the earthquake, and that the insurance company is not liable under the terms of the policies. The exceptants, proceeding under sec. 196 of Art. 16, have raised certain questions of law for the opinion of the Court, which the Court directed to be heard as a preliminary matter upon the allegations of the application and the exhibits accompanying it. These exhibits are two forms of policies referred to in the application, and certain sections of the Civil Code of California, but it is not necessary that these should be set out, nor that the allegations of the application should be noticed specially.

The policies upon which the claims are made insure the holders “against all direct loss or damage by fire, except as hereinafter provided,” and they were made and accepted subject to the stipulations and conditions printed on the back of said policies. These stipulations and conditions are as follows: “This company shall not be liable for loss caused directly or indirectly by invasion, insurrection, riot, labor strike, civil war, or commofion, or military or usurped power, or by order of any civil authority, to prevent the spread of fire, whether such order be legal or not, nor in consequence of any neglect of, or deviation from, police or municipal laws, rules or ordinances where such exist; or by theft at or after a fire; or by neglect of the insured to use all reasonable means to save and preserve the property at and after a fire, or when the property is endangered by fire in neighboring premises, or (unless fire ensues, and, in that event, for the damage by fire only) by explosion of any kind or from any cause, or the bursting of a boiler, or earthquake, or hurricane, or lightning; but liability for direct damage by lightning may be assumed by specific agreement hereon.” It is upon the construction of these stipulations that the liability of the insurance company depends. ²⁷⁸ The questions ordered by the Court to be heard are as follows : A. Under the statement of facts alleged in said application, is the Security Eire Insurance Company of Baltimore City liable for loss or damage to the property of the claimants-therein mentioned, caused by earthquake or by dynamite prior to its burning? B. Is the Security Eire Insurance of Balitmore City liable for loss or damage to the property of said claimants from fire caused by an earthquake, which fire originated in the property or buildings containing the property of these claimants ? C. Is the Security Eire Insurance Company of Baltimore City liable for loss or damage to the property of said claimants from fire caused by an earthquake, which fire spread from its point or points of origin until it reached and destroyed or damaged the property of said claimants ?

D. Is the Security Eire Insurance Company of Baltimore City liable for loss or damage to the property of said claimants from fire, when, by reason of the occurrence of the earthquake, the water supply of the City of San Erancisco had been destroyed, the water mains and pipes burst or disconnected, and said water supply rendered useless as. a protection against fire or as a means of control or extinguishment thereof ? Upon argument heard the Court decreed that the insurance company was not liable for the loss caused as stated in question A, but decreed that it was liable for the loss caused as stated in questions B, C, and D, and from that decree the exceptants have appealed. Question A, being decided in favor of the appellants, need not be considered, there being nó cross-appeal, and in their brief the appellants say they do not urge the point involved in question D, as an independent ground of exemption from liability and refer to it only for the purpose of showing, as they contend, the strength and reasonableness of their argument upon questions B and C. We are required, therefore, to determine only the correctness of the Court’s ruling upon questions B and C. ²⁷⁹ Counsel on both sides were agreed that, so far as could be ascertained, there is only one case ever decided upon the precise language of the policy new before us, and that is Borgfeldt v. North German Fire Insurance Company, decided by the General Court of Hamburg in a case growing out of this San Francisco conflagration, and a copy of the opinion in that case has been filed with the brief of one of the appellees. The fires which followed this earthquake were most disastrous, both to insurers and insured, making this case one of •much importance, and we have given to it the careful reflection and examination which its own importance and the elaborate and able arguments of counsel demand.

Stated in concrete form, without present regard to the exact phraseology of the clause of the policy in controversy, the appellants contend that the company is not liable for any eaHhquake-staHed fire, while the appellees contend that if fire ensues from an earthquake, the company is liable for the loss by fire, though not liable for any precedent loss caused by earthquake. In the absence of any express or closely analogous, authoritative decision, we must resort to the general rules for the construction of contracts of this character, and to such intrinsic evidence of intention as may be afforded by the language of the policy and its collocation. It must be admitted that in Maryland the rigor of the prevailing rule to construe all insurance policies strictly against the company, has been relaxed to this extent — that they are not specially subjected to such rigid construction, but are to be construed as other contracts. Weaver’s Case, 70 Md. 536 ; Hamilton’s Case, 82 Md. 91 .

But these cases do not conflict with the general rule as to all contracts, which Mr. Brantly, on pages 183 and 184 of his work on Contracts, states thus: “Where doubt exists as to the construction of an instrument prepared by one party upon the faith of which the other has incurred obligation, that construction should be adopted which will be favorable to the latter party.” In Wallace v. German-American Ins. Co., 41 Fed. Rep. 744, Fudge McCrary said: “If the words employed, of themselves, or in connection with ²⁸⁰ other language used in the instrument, or in reference to the subject-matter to which they relate, are susceptible of the interpretation given them by the assured, although in fact intended otherwise by the insurer, the policy will be construed in favor of the assured. As the insurance company prepares the contract and embodies in it such conditions as it deems proper, it is in duty bound to use language so plain and clear that the insured cannot mistake or be misled as to the duties and burdens thereby imposed upon him.” In the Indemnity Co. v. Dorgan, 7 C. C. A. 592 , Judge Taft said: “Policies are drawn by the legal advisers of the company, who study with care the decisions of the Courts, and with these in mind attempt to limit as nearly as possible the scope of the insurance. It is only a fair rule, therefore, which Courts have adopted, to resolve any doubt or ambiguity in favor of the insured and against the insurer.” In Berliner v. Travelers’ Insurance Co., 121 Cal. 460 , the Court said: “Where the terms of a policy permit of more than one construction that will be adopted which supports its validity.” We can discover no conflict between these cases, and the views of our predecessors upon this subject, as stated by Judge Alvey in Transatlantic Fire Ins.

Co. v. Dorsey, 56 Md. 79 , where it was said: “It is certainly true as a rule of construction that where an insurance company attempts to limit'or restrict the general operation of its contract of insurance, by special exceptions or exemptions, it is bound to do so by clear and explicit terms; and if it fail in this, it cannot complain that the party insured is given the benefit of any doubt that may be reasonably raised as to the nature or extent of the exception from the general risk assumed. Where, however, the terms of the contract are clear and explicit, they must be allowed their full force and effect; there being no distinction in this respect between the contract of insurance and any other contract.” This last clause is just what was said in Kelly’s Case, 32 Md. 435 , and there is no conflict between these cases. Judges Alvey and Millee sat in both cases, two of the most eminent judges who ever sat in this Court, and it cannot be said that they repudi ²⁸¹ .ated. in the latter anything that was said in the former. It is the understanding and intention of the parties — that is, their ■mutual intention — which is to govern the contract, if it can be reasonably deduced from the contract itself; but if the contract is so expressed as to be susceptible of one interpretation asserted by one party as his understanding, and of another interpretation asserted by the adverse party as his understanding, then there is no mutual intention of the parties, and that interpretation will be adopted which will uphold rather than ■defeat the validity of the instrument.

These are not special rules for the construction of insurance contracts. They are hut the application to these contracts of the general rule of ■construction to all contracts, “ut res magis valeat quarn pereat” the propriety and necessity of which is especially apparent where the insurer alone prepares the contract and embodies in it what he deems proper. With these principles in mind, we will now examine the •clause we have transcribed and upon the construction of which the decision must depend. An analysis of that clause will in our ojfinion show that t-he company has plainly exempted itself absolutely from loss caused by or in consequence of certain conditions or circumstances, and that it has conditionally and partially exempted