Summary
In Shoaf v. Palatine Insurance Co., 127 N.C. 308, 37 S.E. 451, 80 Am.St.Rep. 204, the Palatine Insurance Company agreed, in substance, to reinsure all the outstanding fire risks of the Merchants' Manufacturers' Fire Insurance Company and to assume all liability under any outstanding policies or risks theretofore written by the latter company or that might be written thereafter prior to a named date. It was shown in that connection that such assumption was for a valuable consideration and that the latter company was to retire from business on such date.
Summary of this case from Morrow v. Burlington Basket Co.Opinion
(11 December, 1900.)
INSURANCE — Policyholder's Right to Sue Reinsurer.
A policyholder may sue a reinsurer to recover a loss on property covered by his policy.
ACTION by C. J. Shoaf and W. J. Ellis, trading as C. J. Shoaf Co., against the Palatine Insurance Company, heard by Judge W. S. O'B. Robinson and a jury, at May Term, 1900, of FORSYTH. From a judgment for plaintiffs, the defendant appealed.
Watson, Buxton Watson, for the plaintiffs.
Glenn Manly, and Burwell, Walker Cansler, for the defendant.
Prior to October, 1898, the Merchants and Manufacturers Fire Insurance Company, of Baltimore City, Maryland, issued its policies of insurance on the property of the plaintiffs in the town of Salem, N.C. with the usual stipulations and conditions, and received the premiums therefor from the plaintiffs. During the life of said policies, to-wit, on 4 October, 1898, the said Merchants Company and the Palatine Fire Insurance Company, of Manchester, England, doing business in this State, entered into a written contract of reinsurance, in which the Palatine Company agreed to reinsure all outstanding risks of the Merchants Company for loss or damage by fire, etc., on any property located in the United States and Canada, and assumed all liability under any outstanding policies or risks theretofore written by said Merchants Company, and on any policy or risk that might be written by the Merchants Company before 1 November, 1898, the later business to be for the benefit of, and under the direction of, the Palatine (309) Company, which company assumed all expenses and taxes connected therewith, and all said risks and policies are reinsured by the Palatine Company. In consideration of such reinsurance, the Merchants Company agreed to pay one-half of the unearned gross pro rata premiums on all policies in force on 1 October, 1898, to furnish complete schedules of all policies, to retire from business and to transfer and deliver its good will, right, title, and interest in its business, daily reports, indorsements, registers, and books of record to the Palatine Company, except office fixtures, furniture, etc., with a provision of release on failure to perform the obligations of said contract. The tenth article of said reinsuring contract provides that it shall only be effective as between the parties thereto; that no holder of a policy in the Merchants Company shall be entitled to enforce this contract against the Palatine Company; that the holders of such policies shall prosecute against the Merchants Company any claim arising under said policies; and the Palatine Company "agrees to pay all such claims legally arising and duly proved; and, further, in case of any contest arising in connection with, or suit being brought for, or on, any such claim, said Palatine Company agrees to defend the same, and pay all costs and expenses incident thereto." This agreement was signed by the two companies, and the plaintiffs were not parties thereto. Subsequently the insured property was destroyed by fire, and the plaintiffs, having performed the conditions of their policy, instituted this action against the Palatine Company alone.
The question is, can the plaintiffs, upon these facts, maintain their action? This question has not until now been before this Court. There is some diversity of opinion in the decisions of the Courts in our sister States and the general authorities. There is no question raised as to the validity of the (310) the insuring and reinsuring contracts, each being in due form, and supported by a valuable consideration. A policy of fire insurance is a contract of indemnity (Darrell v. Tibbitts, 5 Q. B. Div., 560); and such contract gives the insurer an insurable interest in the property insured, coextensive with its liability (Insurance Company v. Insurance Company, 17 Wend., 359). A contract of reinsurance seems to be a union and blending of the business of the two companies, presumably for the advantage of each party. The reinsurer absorbed the estate and rights of the reinsured, and assumed the risks and liabilities of the reinsured, with the privilege of the reinsured, in the present case, to continue issuing new policies for a time specified, with the same right and liabilities under the new policies as under those already outstanding; this to be done for the benefit of, and under the direction of the defendant. The plaintiffs were neither a party to, nor in privity with, said contracts. The question is, have they an interest in, or arising out of, the contract? The defendant is bound to indemnify the reinsured for all risks and loss, and the reinsured, at the same time, is bound to indemnify the plaintiffs for risk and loss. Does the defendant's liability inure to the benefit of the plaintiffs, and, if so, can the plaintiffs directly enforce their claim for loss against the defendant? The unearned premium at the date of the contract was a part of the consideration passing to the defendant for its risk and liability assumed. In this unearned premium the plaintiffs had an interest at the time of the reinsurance.
The principle sanctioned by several respectable authorities is this: If A, on receipt of a good and sufficient consideration, agrees with B to assume and pay a debt of the latter to C, then C may maintain an action directly on such contract against A, although C is not privy to the consideration received by A.
The case before us seems to come within the same principle. Our Code (section 177) provides that every action must (311) be prosecuted in the name of the real party in interest, etc. In all the cases close attention is given to the language of the agreement. In the present case the defendant expressly assumes the liability in case of loss, but agrees to pay to the Merchants Company only after claims have been duly proved in an action against the Merchants Company. The defendant also agrees, in the event of such litigation, "to defend the same, and pay all costs and expenses incident thereto." We see no reason why the plaintiffs should be required to first sue the Merchants Company, and then, in case of that company's insolvency, have to sue the defendant on its contract. The defendant has all the means and information necessary to make a just defense.
We can see no reason why the plaintiffs may not do directly that which it must be admitted they can do indirectly, nor do we see how the defendant is prejudiced thereby. The defendant suggests no such danger, but relies solely on the ground that it has no contract with the plaintiffs. Johannes v. Insurance Company, 66 Wis. 50, is decisive on this question. It does not appear clearly, either from the statement, or the opinion, whether the promise was to pay the loss to the insured, or the reinsured, but the reasoning in the opinion does not consider that matter material. It is the implied right, arising out of the express agreement of the defendant, that enables the plaintiffs to maintain the action. The defendant relies on the provision in Art. X of its contract as a protection against any action of the plaintiffs against that company. If the plaintiffs have a right to sue the defendant, as we think they have, the two companies can not, by any agreement between themselves, to which plaintiffs are not a party, defeat that right.
There are numerous objections to evidence, exceptions, (312) and prayers for instruction. Some relate to communications between plaintiff's attorneys, and Harris, the general agent, and Ballard, an assistant manager, of the defendant and the Merchants Company. These letters were written pending, and in connection with, the work of adjusting the loss caused by the fire, and have no material bearing on the present question. Carefully reading the evidence, we find no incompetent evidence admitted on any material matter. The issues found in favor of the plaintiffs dispose of most of the questions raised by the exceptions.
Another exception is the refusal of his Honor to charge, on the third issue, "that there is no evidence of reinsurance by the defendant upon which it can be liable directly to the plaintiffs in this suit, and the jury will answer the third issue, `No.'" Another exception is, that his Honor refused to dismiss the action, on motion, under Acts 1897, c. 109. These exceptions are met by what we have stated above. The defendant says, in its brief and oral argument, that "the first and leading question in the case relates to the right of the plaintiffs to sue the defendant upon the policies, and to the liability of the latter, even if a good cause of action upon the policies has accrued to the plaintiffs." That is the crucial point in the case, and that we have considered. Our conclusion on that point, already stated, renders further investigation unnecessary.
Affirmed.
Cited: Voorhees v. Porter, 134 N.C. 601; Jones v. Water Co., 135 N.C. 554; Wood v. Kincaid, 144 N.C. 395.
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