Herckenrath v. American Mutual Insurance , 3 Barb. Ch. 63 ( 1848 )

The Chancellor..

The question presented in this case is one of considerable importance. But as the contract of reassurance was virtually prohibited in England more than one hundred years since, and before the principles of the law of insurance had been well settled there, nothing is found in the English reports upon this point. And, so far as I have been able to discover, the question has not heretofore arisen before any of the courts of this country for decision. The validity of the contract of reassurance was early acknowledged among the maritime nations of Europe; being found in the Guidon. and also in the marine ordinances of Louis the fourteenth. (Le Guid. ch. 2, art. 19; Ord. of 1681, tit. Assur. art. 20.) It is expressly authorized '• by the present commercial codes of France and of Spain. (French Com. Code, art. 342. Com. Code of Spain, art. 852.) It is also recognized, by our courts, as a valid contract hete; (Hastie & Patrick v. De Peyster & Charlton, 3 Caines Ca. 190. Bowery Fire Insurance Company v. New-York Fire Insurance Company; 17 Wend. 359.) And I believe It i:s:£t species of insurance- which is in common use in many of thW.other States of the union; as well, as with us. I have, therefoio, considered : it proper to examine the question raised by the bill in this case, with considerable care, and to endeavor to arrive át a correct conclusion thereon.

Valin, if he lias not confounded a reinsurance of the- first in surer, against the risk he-has assumed; with what is said in ,the 20th article of the Guidon, as, to a reassurance' obtained .by the person originally insured, against the insolvency of -his first insurer, decides "the question in favor of" the claim of -the complainants "in' this suit. For, in his commentary upon the 20th article of the ordinance of 1681, relative to insurances,- he says, the insurer, who procures a .reassurance, remains subject to the same Obligation to the person previously insured by him, while he causes his own solvency to he insured. That the effect of it is, that the person insured has two. insurers, instead of one, with a perfect right of action directly, and in solido, against each of them ; so that he is not obliged to proceed against the first insurer before attacking the second, provided tile engagement in solido has been stipulated in the policy of reassurance -; otherwise a discussion will be necessary. (2 Becane’s Valin, b. 3, tit. 6, art. 20, p. 278.) Emerigon, however, is óf ah entirely different opinion. He says, the risk which the first insurer-has assumed, forms, as between him and the reinsurer, the stibject matter of the -reinsurance; which is a new contract, eñtirely' distinct from the first which still subsists in all "its force. For that reason, the premium of reinsurance may bé greater, or it may be less, than that upon the,first insurance., If the' premium is less, it is a gain which the first insurer makes'; if it is more, it is his loss. It is no concern of the person first insured, who is not'brought into this new contract. And to sustain this position Emerigon refers to Potliier.. He says, it follows from-this principle that the person first insured cannot sustain a suit upon the reinsurance. To support this principle he cites two decisions of the French commercial-courts, in which it was expressly decided that the person originally insured was not entitled to the benefit of .the reassurance in case of the failure of his insurer. , The first was decided in 1763 ; where the first insurer, after having procured himself to be reinsured, became a bankrupt. The subject matter of the first insurance having been lost by the perils insured against, the persons who were originally insured claimed a lien, or a right to a preference in payment, to the extent of their loss, out of the fund produced by the reassurance. This claim was contested by the general creditors of the bankrupt; and the court rejected the claim of preference made by the persons insured by him. The second case, which arose fifteen or twenty years afterwards, was substantially the same, in all its circumstances, and was decided in the same way. (1 Emer. Traite des Assur. ch. 8, § 14.) And to show that the reassurance is not a contract for the benefit of the person first assured, and merely to indemnify the insurer for what he actually pays upon his own insurance, in case of loss, Emerigon cites a decision by the commercial court at Marseilles, in 1748. There the original insurer failed, and by the compromise, with the assured and his other creditors,-the insurer only paid sixty per cent upon the amount of his debts. The reinsurer thereupon claimed the benefit of a deduction, to that extent, upon the policy underwritten by him. But the court held that the reinsurer was bound to pay what the original insurer became liable to pay, to the first assured, in consequence of the loss of the subject matter of the first insuauce; and not what he had actually paid, upon the compromise with his creditors, as an insolvent debtor. And judgment was accordingly given against the reinsurer, for the whole amount of the reinsurance.

Delvincourt, a very recent French writer, in his institutes of commercial law, after stating the opinions of Yalin and of Emerieon, upon the questions now under consideration, arrives at the conclusion that the opinion.of Emerigon is in conformity with the true principles of the contract of reinsurance. And that the reinsurance was, as to the first assured, res inter alios acta. (2 Delv. Inst, de Droit Com. 338.) Persil, Q,uenault, and Grun & Joliat, modern French writers on the law of life and fire insurances, as well as Pardessus and Alauzet, also state the law on this subject., as laid down by Emerigon, without objection. (Persil des Assur. Terrest. 117, art. 92. Quen. Traite des Assur. Terrest. 29. Grun & Joliat, Assur. Terrest. &c. 189. 1 Alauz. Traite des Assur. 277.)

The law on this subject appears to be understood in the same way in Scotland. For Bell, after stating that the insurer has himself an insurable interest, which he may protect by a reinsurance, says : “ This transaction, in the event of the original insurer’s insolvency, the person originally insured has no interest in, and cannot recover from the last insurer in any other way than in common with the other creditors of the first insurer.” (2 Bell’s Law Dict. 93, art. Insurance.) Millar says a reinsurance is a hedging contract, by which the underwriter withdraws himself from all risk ; and'that an insurance against insolvency is a contrivance by which the assured strengthens his former security. (Mill. on Ins. 233.) And Marshall understands the law.in England, on this subject, to be the same that it is stated by Emerigon to be in France ; although he refers to no English decisions. (1 Condy’s Marsh. 143.) Judge Livingston also, in the case of Hastie v. De Peyster, says there is no privity at all between the person originally insured and the reinsurer. (3 Caines’ Rep. 196.)

The weight,of authority, therefore, is decidedly against Valin upon this question. And from the nature of the contract, of reinsurance, and the want of privity between the reinsurer and the person first insured, I think it does not come within the rule, that the principal creditor is, in equity, entitled to the benefit of all counter bonds and collateral securities given by the ' principal debtor to his surety.

The claim of the complainants, therefore, cannot be sustained; and the motion of the defendant, The American Mutual Insurance Company, to dissolve the injunction, must be granted with costs.