Opinion
Argued December 2, 1915
Decided January 11, 1916
Louis L. Waters for appellant. Hiram R. Wood for respondent.
This action is upon a policy of credit insurance. The defense relied upon is breach of warranty. The plaintiff made written application for the policy on June 16th, 1910. In that application it made the following statement as to its losses: "Losses $8,959.05 from July 1st, 1909, to date, showing amount owing as accounts stand to day." It is conceded that this statement of losses did not include the loss occasioned to the plaintiff by reason of the insolvency of F.W. Edwards of Duluth, Minnesota. The defense of breach of warranty is predicated upon the failure of the plaintiff to include in his statement of losses the loss that resulted upon this account. The amount of the loss which the plaintiff suffered upon this Edwards account was $9,667.63. Five months and thirteen days before the plaintiff signed the application for the policy Edwards made a deed of trust to the plaintiff covering all of his property. This trust deed shows Edwards to have been indebted to the plaintiff and some twenty-four other creditors in an amount in excess of $16,000. The largest part of this amount was due to the plaintiff. The trust deed gave to the plaintiff the right to continue the business of Edwards, to sell his property and to apply the proceeds thereof to the payment of his indebtedness to the plaintiff and to the other creditors. The plaintiff and the other creditors of Edwards accepted the property in payment of their claims and agreed to discharge Edwards from liability. These circumstances disclosed to the plaintiff the fact that a large sum of money was due to it from a debtor who was insolvent and had turned over his property to it. The property transferred was wholly insufficient to pay the debt due the plaintiff and the debts due to the other creditors of Edwards. At the time the plaintiff signed the application for the policy it must have been evident to it that it would sustain a loss upon the Edwards account although at that time the extent of the loss may not have been apparent. The large indebtedness of Edwards to the plaintiff was due, and the plaintiff had released Edwards from liability. Its only opportunity for payment was that it should realize from the administration of the insolvent estate a sum sufficient to pay all the creditors of Edwards. The question is presented whether the Edwards account was a loss within the meaning of the word "losses" as used in the application for the policy. The application and the terms used in it are "not to be interpreted technically, but the language must be held to mean what the words import to the commercial world." ( People v. Mercantile Credit Guarantee Co., 166 N.Y. 416, 420.) The word "losses" as understood in its ordinary sense when used in an application for credit insurance, includes, we think, such an account as that of Edwards. The word "loss" as used in this connection contemplates the loss which at the time the application is signed the applicant has sustained without regard to any possibility that may exist that the applicant will be able to recover his loss from the administration of the estate of an insolvent debtor. The word "losses" in the application does not refer to "probable loss" or "loss beyond recovery." It includes such accounts as in the ordinary and usual course of business a business man would regard as representing a loss. In the usual and ordinary course of business Edwards could not pay his debts and the assignment of his property would as against him be considered as conclusive evidence of his insolvency. ( Morewood v. Hollister, 6 N.Y. 309, 322.) It indicated to his creditors his insolvency and that loss would result to them upon the accounts due from him to them. ( People v. Mercantile Credit Guarantee Co., supra, page 423.) The respondent contends that the word "losses" refers only to the losses which at the time the application is signed appear upon the books of the applicant. Whether or not there was a loss greater than that which the applicant stated is a question of fact and does not depend upon whether the entries in the applicant's books are in accord with the facts. The successful conduct of the business of credit insurance necessarily depends upon the insurer receiving correct information from the insured as to his losses. There are we think few business men who would not regard an account of an insolvent debtor as representing to some extent a loss, even though that debtor had made an assignment of his property for the benefit of his creditors. The statement in the application as to the "losses" which the applicant had sustained cannot be limited to claims against insolvent debtors whose estates had been finally settled. The assignment by Edwards and the agreement of his creditors including the plaintiff to release him from liability and to look to his property for the pro rata payment of their debts was a "loss" within the ordinary meaning of that term as used in an application for credit insurance. It is claimed on behalf of the respondent that the striking out of the printed application before signature of a clause which was designed to permit the applicant to state anything that he knew detrimental to the credit or standing of any customer, brings this case within the rule that a breach of warranty cannot be predicated upon the mere failure to answer a question. The fallacy in this argument lies in the fact that no attempt is made to base the claim of breach of warranty upon the failure of the respondent to answer a question but rests entirely upon the fact that the applicant's answer to the question in relation to its losses was not true. While the failure to answer a question will not of itself justify a claim of breach of warranty it does not excuse the making of a false answer. I think that it plainly appears from this record that at the time the plaintiff made the statement as to its losses, which made no reference to the Edwards account, the plaintiff had in fact sustained a loss upon that account. It follows that the judgment should be reversed and a new trial granted, with costs to the appellant to abide the event.
WILLARD BARTLETT, Ch. J., HISCOCK, COLLIN, CUDDEBACK, CARDOZO and POUND, JJ., concur.
Judgment reversed, etc.