Reynolds v. Mutual Fire Insurance

Grason, J., delivered the opinion of the Court. On the 5th day of October, in the year 1868, the appellant obtained insurance against fire, upon buildings in Caroline county, in the Mutual Fire Insurance Company of Cecil county, for $2,383, and at the same time, in consideration thereof, executed and delivered to the company his note, called a premium note, for $108.89, to be paid “in whole ²⁸⁷ or in such sums and at sucli times as the managers of the said company shall or may call for the same, according to the provisions of the Act of incorporation and by-laws of the said company, as recognized and authorized by said Act of Incorporation, and interest thereon, at six per cent., to be paid annually in advance, so long as the managers of the said company may find it necessary to call in and receive the same.” The record shows that the appellant regularly paid the interest on said note, and the taxes assessed by the company to August, 1862, inclusive, and that, on the 25th day of December, 1860, he applied to the Circuit Court for Caroline county, for the benefit of the insolvent laws, and was finally discharged in the month of October, 1862, and that the buildings described in the policy were destroyed by fire in February, 1863. The company refused to pay the insurance, and the appellant instituted suit against it in the Circuit Court for Cecil county, and the judgment being in favor of the company, the plaintiff below took this appeal. The consideration given for the policy of insurance was the premium note of the appellant.

Where insurance companies conduct their business exclusively upon the mutual plan, they have to look to the premium notes of the insured for the means of paying losses that may occur, and for this purpose they assess upon their members and call in such sums as may be necessary. It is therefore essential that the parties giving their premium notes shall be under a legal obligation to pay the amounts of their respective notes, in such sums and at such times as the companies may require and call for the same, in accordance with their charters and by-laws. If the insured be discharged from their liability to pay, it follows that the insurers are also released from their obligation to indemnify against loss by fire; otherwise there would be no mutuality in the contract between the parties. Was the appellant released from the legal obligation of his contract with the appellee by his discharge under the insolvent laws ?

The 4th section of the 48th Article of the Code provides that, “if ²⁸⁸ the creditors, endorsers or sureties shall fail to make any allegations or propose interrogatories, or if the same shall be answered satisfactorily, or determined in favor of the insolvent, the Court shall discharge the insolvent from all debts and contracts made before the filing of his petition, and he shall be released from all sueh debts and contracts.” The contract of the appellant with the appellee was entered into before the former filed his petition for the benefit of the insolvent laws, and his discharge operated a release from all liability upon his note to the appellee; and had any necessity arisen for calling in sums from parties insured for the purpose of paying losses incurred by fire, the appellant could have successfully resisted any such call upon him, by pleading his discharge under the insolvent laws. After his discharge there remained no mutuality in the contract between him and the appellee, and he cannot be permitted to hold it bound by its contract, while ho himself has been released from all liability upon his note, which is the only consideration on which the policy was issued. Pie is therefore not entitled to recover from the appellee for the loss he has sustained by the destruction of his buildings by fire, even if it appeared from the record that he had an insurable interest therein at the time of the fire. But it was contended that, by reason of the receipt by the appellee from the appellant, of interest upon the premium note after the filing of the petition for the benefit of the insolvent laws,- it has waived any right it may have had to treat the policy of insurance as at an end, and no longer binding upon it, and is estopped from now denying its continuing validity.

This argument is based upon the fact that the proceedings in insolvency were had in a Court of record, whose proceedings are constructive notice to the whole -world, and that, having received the interest on the appellant’s note with this constructive notice of his application for the insolvent laws, the appellee cannot now avail itself of said application as a defence to this action. If the proof had shown that the ²⁸⁹ appellee had received the payments of interest with actual knowledge of the appellant’s application for the benefit of the insolvent laws, there might have been some reason for the argument that it had thereby waived its right to hold itself absolved from its contract; but, upon that question, we do not mean, to express any opinion. But the proof clearly shows that the proceedings in insolvency were had in a Court at some distance from the county in which the office of the appellee was located and its officers resided, and that they had no actual notice of those proceedings, and the discharge of the appellant, until long after" the mouth of August, 1862, when he made his last payment of interest. The principle is well-settled, that a party will not be held to have waived his rights or to be estopped by his conduct and acts, unless it is shown that he has acted with full knowledge of all the facts affecting his rights, Ijams vs. Hoffman, 1 Md., 437, 438 ; Gray vs. Murray, 3 Johns.

Ch. Rep., 188 ; Bennett vs. Colley, 2 Myl. & Keene, 225; Howard vs. Carpenter, 11 Md., 279 ; Flagg vs. Mann, 2 Sumner, 563. (Decided 3d March, 1871.) We find no error in the rulings of the Court below, in refusing the instruction asked by the appellant, or in granting that asked by the appellee. The evidence in the second exception, which was objected to by the appellant and admitted by the ■ Court, was legally admissible.

Proof having been offered to show that Alexander Stewart was agent of the appellee, residing in Caroline county, the evidence objected to was admissible to show the special character and extent of the agency. The judgment appealed from must be affirmed. Judgment affirmed. Stewart, J., delivered the following dissenting opinion: The plaintiff below brought his action against the insurance company, the defendant, to recover for the destruction of his premises by fire. ' There is no charge of fraud or misrepre ²⁹⁰ senlation, on the part of the insured, alleged, in the case.

Assuming that the evidence made out an insurable interest on the part of the plaintiff in the property, when the policy was issued, and when the fire occurred, the material questions involved are: First, whether the transfer of the property by the appellant, to his trustee in insolvency, vacated the policy; and, secondly, did” the discharge of the insured, as an insolvent debtor, operate to relieve the insurance company from liability, although the policy is not annulled by the alienation. The two questions are involved in the prayers, the one presented by the plaintiff, the other by the defendant, in the first bill of exceptions. The Court below refused the plaintiff's and granted the defendant's prayer. In regard to the transcript of the record of insolvency offered in evidence by the company, it is observable that Peter S. Reynolds, on the 25th of December, 1860, applied for the benefit of the Act of 1854, chapter 193.

This application was subsequent to the adoption of the Code, February 14th, 1860. The deed to his trustee was executed on the 25th of December, 1860, and purported to be, according to the Act of Assembly in such case, made and provided. The Code repealed the Act of 1854, substituting therefor its 48th Article. No valid proceeding in insolvency, or transfer of property to a trustee, in pursuance of the Act of 1854, could take place after the adoption of the Code, but must be in accordance, with the provisions of the Code.

Whilst the company require a liberal construction in regard to their pleadings, they urge a very different theory of interpretation of the policy, to exclude the insured from recovery against them. But it is not material, from the view now taken, to consider the precise effect of these proceedings, or whether any distinction ought to be made between the alienation to a trustee in insolvency, from any other transfer. If the policy does not provide, by its terms, that the alienation of the property shall vacate it, yet, if the insured has divested ²⁹¹ himself of all interest therein at the time the fire has destroyed it, he has no insurable interest entitling him to indemnity. The general principles controlling such a contract, prevent recovery under such circumstances, because, in fact, the insured has sustained no loss.

It is well settled, that the contract of insurance is one of indemnity for loss to the insured, and if he has no interest in the property when the fire destroys it, lie requires no indemnity. Wash. F. Ins. Co. vs. Kelly, 32 Md., 436 .

But, notwithstanding, the insured cannot recover during his divestiture of interest in the property, yet if, at the occurrence of the fire, he has reacquired the property, he has an insurable interest therein, and is entitled to recover indemnity, because he must then suffer loss. The failure to recover is not because the policy is void, but because he sustains no loss; but when he does sustain loss by the fire, the fact of proving alienation, suspending his right to recover, ought not to prevent recovery when his right to the property has been restored at the time of the fire. See 2 Amer. Leading Cases, 463; Angell on Ins., 234, 235.

According to the policy and principles governing contracts of insurance, they ought to be construed so as to give them effect according to the true intent of the parties, regardless of mere technical objections. In this case, the contract is to be interpreted and explained by the terms and conditions of the Act of incorporation, (1845, chapter 249,) for the purpose of ascertaining the obligations of the parties in cases not provided for in the policy. Assuming that the transfer by the insured to his trustee, was an absolute alienation of the property which deprived him of all insurable interest therein, the terms of the policy do not declare the policy to be void on that account. The policy commences with a preamble, stating the desire of the appellant to become a member of this Mutual Eire Insurance Company, and to have certain property therein mentioned and valued, insured.

It then recites that he has deposited with the company his premium obligation, and declares that ²⁹² he has become a member, and is insured, and that the “ insurance is to be considered perpetual, provided all interest, charges and assessments due from the insured shall be. regularly paid; subject, however, to termination upon the transfer or alienation, or removal of the property, or to adjustment, or withdrawal, when either party, upon the notice provided for by the by-laws in such case made and provided, shall require it.” To this extent, the policy is evidently a simple declaration, that the party is insured perpetually, if the interest, charges and assessment are regularly paid, with this qualification however, that it may be terminated, by a transfer of the property, or by adjustment or withdrawal, when either party, upon the notice provided for, shall require it. This statement is merely descriptive and explanatory of the first part of the sentence, declaratory of the perpetuity of the policy, and intended to modify its extent by the language employed, “subject, however, to termination.” It is not a