Goodrich & Hick's Appeal , 109 Pa. 523 ( 1885 )

Mr. Justice Clark

delivered the opinion of the court,

The only question raised by the several assignments of error, in this case, is whether or not, in the distribution of the assets of the Penn Fire Insurance Company of Philadelphia, in the hands of an assignee, the appellants are entitled to any preference over the general creditors of the company. The preference claimed is as to the fund of $6000 received on set- , tlement or compromise, with the French corporation known as “La Caisse Générale des Assurances Agricoles et contre l’lneendie.” It is unfortunate, perhaps, that the formal policy provided for .in the agreement, between the Caisse Générale &c. and the Penn Company was never issued, as the true intent of the contracting parties would doubtless have been therein more fully disclosed ; but this was not done, and we must learn that intent and determine the rights of the contending parties, upon the fair “reading and construction of the executory contract, evidenced by the writings of 26th and 28th February, 1876.”

In the agreement of 26th Februaiy, 1876, the receipt of $10,000 is acknowledged; in consideration of which “a policy of insurance ” is to be issued by La Caisse Générale &c., “re-insuring the outstanding risks of the Penn Fire Insurance Company ” &c; “ the amount over and above $10,000, ■necessary to ‘re-insure’ its outstanding risks to be paid” &c. In the more full and formal contract, made two days later, it is provided that the “policy of re-insurance” to be issued shall be subject to certain conditions, &c.

Re-insurance is properly applied to an insurance effected by one underwriter with another, the latter wholly or partially indemnifying the former against the risks which he has assumed ; that is to say, after an insurance has been effected, the insurer may have the subject of insurance re-iusured to him by some other. There is in such case, however, no privity between the original insured and the re-insurer ; the latter is in no respect liable to the former, as a surety or otherwise, the contract of insurance and of re-insurance being totally distinct and disconnected. But whilst the contract is one of indemnity simply, in which the insurer is to be protected to the extent of his loss, when ‘the loss is incurred and ascertained, the re-insurer must pay the amount. The insurer may at once, without payment to the original assured, resort to his action: Fame Ins. Co.’s Appeal, 83 Penn. St., 396. Even if the insurer fail, or become insolvent so that his insured receives only a dividend however small, the re-insurer can gain nothing by this, but must pay the amount of the loss to the first insurer: Hastie v. De Peyster, 3 Caines, 190; Hone v. Mut. Saf. Ins. Co., 1 Sand. Sup. Ct. N. Y., 137, affirmed in Court of Appeals, sub nom. Mut. Saf. Co. v. Hone, 2 Comst., 235 ; 3 Kent Com., 279; Marshall on Ins., 143. So in Herckenrath v. Am. Ins. Co.. 3 Barb. (N. Y.) Ch., 63. Chancellor Walworth decided that where an insurance company has underwritten a policy, and afterwards causes itself to be re-insured, and after the loss of the property insured, such company becomes insolvent, the person originally insured has no equitable lien upon the sum of money due on the contract of re-insurance ; but the fund belongs to all the creditors of the insolvent company ratably.” These are familiar principles of insurance law, and are not now any where doubted.

If therefore the contract between La Caisse Générale &c. and the Penn Fire Insurance Company was for a policy of reinsurance, properly so called, the appellants could have no preferable claim or lien upon the fund in question, although the Penn Company was admittedly and hopelessly insolvent.

It is contended, however, by the appellants, that the contract in question, when read in the light of the facts attending its execution, cannot in any strict sense be considered a contract for re-insurance ; that it was not intended to provide indemnity to the company, but to the individual policy-holders, and that the policy-holders can claim the advantage of this so-called reinsurance for themselves, directly and exclusively; that the term, “re-insurance” was not used in its legal or technical sense but in a different sense, defined by the particular facts which induced the creation of the contract, and that the reinsurance by the Caisse Générale &e., was in fact, although not so expressed, a conditional assumption of the business of the Penn Company.

It was competent, we think, for the Penn Company acting in the interest of its general policy-holders with or without authority, in view of insolvency and without fraud, to effect an indemnity for their individual protection, in case of loss, (Glen v. Hope Mut. Co., 56 N. Y., 379 ; Fischer v. Same, 69 N. Y., 161) which, even after loss, they might ratify and approve, (Fleming v. Mar. Ins. Co., 4 Wh., 59; Stillwell v. Staples, 19 N. Y., 405 ; 1 Amer. Lead. Cas., 844); and, if the insurance was in their interest, directly for their benefit, and free from any additional burden or obligation on their part, ratification might be presumed. But we fail to find anything in the words of the contract, in the special circumstances attending its creation, in the nature of the transaction itself, or in any rule of public policy, that would justify us in saying that the contract was any other than a contract of re-insurance, in the proper sense of that term. The contract was written by and between persons on both sides, actually engaged in the business of insurance, persons conversant doubtless with the meaning of terms employed in the practice of insurance, and the presumption is a fair and reasonable one, that words of technical or special import were by them properly applied. The words “re-insure” and “re-insurance” would therefore seem in the first instance at least to characterize the contract and to point out the object and purpose of the parties. The proper signification of these terms would, of course, vary with the clearly manifested intention of the parties. But the contract is with the Penn Company, for a consideration moving from it providing for a policy to the Penn Company, to re-insure its risks. There is no provision whatever, expressed in the contract, for the individual indemnity of the policy-holders nor ■for the insurance of their property for them ; the re-insurance is expressly upon the “ outstanding risks ” of the company. The contract of re-insurance, in some sense perhaps operates upon the property itself rather than the risk, but the fact that ■the policy was to be -upon the “ risks,” indicates that it was .the company’s insurable interest in the property, which formed the basis of the insurance.

It is true, that except for the appellant’s losses by fire, the ■fund of $6000 would not have been realized, but this is incident to all cases of re-insuz’ance. It is true, also, that the reinsurance was of all the outstanding risks of the company, and not as is usually the case, of any particular part of them ; but whether a compare shall re-insure tlie whole or only a part of its risks, is a question of policy for the company, dependent upon its purposes for the future, or its circumstances. If the underwriter wishes to change his business, or to quit the country, or to avert insolvency, he may choose to re-insure the whole ; under different circumstances he may choose to indemnify himself as to part only. The provisions that the Penn Company “will turn over to the Caisse Générale its original registers, hooks, reports, and other papers, in any way relating to the policies thereby insured,” and, “that the Caisse Générale will assume the care and expense of tlie adjustment of all losses which may occur under the policies of the said Penn Fire Insurance Company, which are thereby to be re-insured,” are consistent, wo think, with either theory of the case — as consistent with one as with the other; and they, therefore, prove nothing either way. Such a course of proceeding may be rare, but cases are rare perhaps when the re-insurance is upon the whole list of the underwriters’ risks, and where this is the case there can certainly be nothing unreasonable in the provision. We think there is nothing on the face of the contract itself, to give it the effect claimed for it, and we can discover nothing in the facts which led up to its execution, which would evidence any intention of the parties different 1'rom what is plainly expressed.

The inducing cause of the contract, doubtless, was the proceeding instituted by tlie Attorney General, at tlie instance of the Insurance Commissioner. After the order to suspend business, the company was permitted to effect a re-insurance of its outstanding policies, &c., for sixty days, with the hope that its available funds would prove sufficient to complete the re-insurance, at the expiration of that time. Had these hopes been realized, it is probable that the decree of dissolution, during the period of re-insurance at least might not have been entered. The commissioner, in his report refers, it is true, to this contract as an effort of the company to “ secure its policy-liolders by re-insurance,” but if the contract were, in fact, otherwise, the report of the commissioner, subsequently made, could not change its provisions, or alter its effect. The Caisse Générale, &c., in paying certain of the losses directly to the policy-holders, would seem, subsequently to have put a construction on the contract, conformable to the appellants’ claim; but the effect of this is certainly overcome by the fact that the Penn Company repudiated this payment by bringing suit against the Caisse Générale &c., and tlie fund now for distribution is the result of that action.

To sustain the appellants’ contention in this case, the fact should clearly appear, either by the contract, or otherwise in the transaction, that the indemnity provided was to the policyholders directly, and in the absence of such proof their claim of preference must be disregarded.

The case of Glen v. Hope Mut. Ins. Co., supra, is greatly relied on by the appellants, but that case is materially different from this. By a contract duty executed, the Hope agreed to re-insure the Craftsman Company, on all risks for which its policies were outstanding; and, also, to assume all such policies, and to pay the holders thereof all such sums as the Craftsman might, by force of such policies, become liable to pay. The engagement to the policy-holders was direct and express, and the liability was therefore direct and exclusive. This case was followed by Eischer v. Hope Mut. Ins. Co., supra, which was another action on the same contract, and the rulings in the former case were in the latter recognized and approved.

The decree of the Court of Common Pleas is affirmed, and the appeal is dismissed at the costs of the appellant.