Case Name: Patterson to Use, etc., versus The Benjamin Franklin Insurance Company
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1875-11-15
Citations: 81 1/2 Pa. 454
Docket Number: 
Parties: Patterson to Use, etc., versus The Benjamin Franklin Insurance Company.
Judges: Before Agnew, C. J., Sharswood, Williams, Mercur, (Gordon, Paxson, and Woodward, JJ.
Reporter: Pennsylvania State Reports
Volume: 81 1/2
Pages: 454–459

Head Matter:
Patterson to Use, etc., versus The Benjamin Franklin Insurance Company.
There may be a parol contract of insurance to protect the assured between the taking the risk and issuing the policy; but the company must have made the contract, and it must be clearly established.
2. When made by an agent, his power to bind the company must clearly appear.
3. Whatever may be the implied powers of an agent as to strangers, as insured director of an insurance company, is bound by the agent’s actuad powers. Per White, J.
4. The evidence in this case of a parol agreement for insurance made by an agent, not sufficient to bind the company.
October —, 1875.
Before Agnew, C. J., Sharswood, Williams, Mercur, (Gordon, Paxson, and Woodward, JJ.
Error to the Court of Common Pleas, No. 2, of Allegheny County, to October and November Term, No. 211.
This was an action of assumpsit, brought April 23d, 1873, by David L. Patterson, to the use of Eliza Y. Patterson and others, against The Benjamin Franklin Insurance Company.
The defendants were incorporated by the legislature of Pennsylvania on the 9th day of February, 1866 (Pamph. L., 61). The 5th section of the act authorized the corporation “ to make contracts and take risks against losses by fire or otherwise on all kinds of buildings,” etc. The 7th section enacted: “ That all policies of insurance or other contracts authorized by this act shall have the seal of said corporation affixed thereto, and shall be signed by the president and secretary, and, being so signed and executed, shall be bindiug and obligatory upon said corporation, according to the true intent and nieaning thereof.”
The case was tried April 19th, 1875, before White, J.
The plaintiff was owner of six buildings in the city of Allegheny ; on the 6th of May, 1872, he made a parol agreement with E. E. Heron, the general agent of the Benjamin Franklin Insurance Company, the defendants, to insure the buildings; the understanding was that the agent should deliver the policy, and the premium should then be paid; the plaintiff was a director in the company. The buildings were burned the same night, before the premium was paid or the policy delivered. The company declined to pay, on the ground that no insurance'had been made; the plaintiff brought this suit to recover for the loss.
The plaintiff testified that he met Heron on the premises and asked him what premium the company would take to insure the buildings; he said four per cent, for three years; the plaintiff said he would take the insurance at that premium, and said that there was another policy on which the premium had not been paid, to be brought to him, and he would give the agent a check for all when that was brought; the agent said it was alb right; the amount to be insured, $3000, was agreed on; the agent made a memorandum of the amount to be insured on each house. The agent left the premises between 5 and 6 o’clock in the evening; on the same night the buildings were burned. The custom was, unless otherwise provided, to date the policy on the day of the' application or of the making of the contract, at 12 o’clock, noon. Heron had insured for the plaintiff other buildings, and the premiums on them had been paid after the risks were taken. Plaintiff made application for the policy aftér the fire; the secretary said the company did not recognize the riskthe premium, with interest, was tendered by plaintiff'about sixty days after-wards, and was refused. The whole transaction was with the agent; the plaintiff supposed that the buildings were insured.
H. É. Heron testified that he was an insurance agent, and was employed by the defendants under a salary. Iiis duties were “ to solicit business, look after policies, deliver policies, take risks,” etc. There was a risk committee. He had a conversation on 6th of May with plaintiff about the insurance ; -they agreed on the price, it was the usual rate ; witness agreed to insure $3000, and told plaintiff the statement of the insurance would go on the books of the company the next morning ; part of business of witness then was to collect a premium; the other risk had been taken some weeks before the policy was to be issued; witness always passed these things tp the office ; the secretary made out the policy, witness delivered it; when witness got a risk the secretary examined it, if he rejected it witness notified the parties;' about that time he generally accepted what witness banded in. The custom was to date the policy at 12 o.’cloek noon of the day of the application'; the general custom with insurance companies was to pay the premium when the policy was delivered ; that had been the custom with the plaintiff; policies had .been issued to him before the premiums were paid ; witness made a memorandum in writing at the time of the transaction; it was left at the office the following morning after witness knew of the fire. The authority of witness had never been defined to him; he acted upon the usual custom of agents; he was to receive applications, submit them to the company, and after the policy was issued collect the premium; the applications were always submitted to the secretary or some other officer; the applications were' at their option to accept or reject. No officer of the company knew of the fire but the plaintiff; the secretary knew that the fire had occurred when he rejected the application. The plaintiff, when the agent left him on the 6th, knew nothing about submitting the application to the company.
M. Gr. dark testified that he heard the agreement between agent and plaintiff as stated, and that afterwards within a short time agent said he had insured plaintiff.
S. D. Thomson, president of American Insurance Company, said he had been in the insurance business for ten or twelve years, and knew the custom of insurance companies; that it was the custom of insurance companies to hold themselves liable for contracts of their general agents from the time the verbal agreement is made with the insured until he is notified that the company has refused the risk, It is generally left to the discretion of the agent to bind the company ; his power depends on the. power he gets from the company. Witness had never known a company paying, when the fire occurred before the company had accepted the risk.
J. JS. Stevenson testified: If an application by a general agent is made for insurance, he is supposed to have power to bind the company ; that the company is bound till they refuse the risk; witness did not know any custom in the case; he never knew a case like this.
The plaintiff having closed, the defendants asked the Court to direct a nonsuit for the following reasons: ■
1. The plaintiffs have shown no authority in R. E. Heron to bind the company in the manner claimed by the plaintiff's.
2. That the alleged contract of insurance is a purely verbal contract, and such a contract, under the charter of defendant, is not binding on the company.
* * 4 * * , *
4. The plaintiff being at the time a director of defendant company, was bound to know the authority of the person with whom he proposed to contract; proof of custom of other companies is irrelevant, and cannot affect the case.
The Court directed a nonsuit, which the court in bane refused to take off on the following opinion by White, J.: .
„ “. . . Was the company bound by the agreement made between the agent and D. L. Patterson on the evening of May 6th? The plaintiffs introduced some evidence as to the general custom or understanding of insurance companies as to the power of their general agents. And they contend that the case should have gone to the jury on the question whether Heron had power to bind the company.
“ But such, a general custom or understanding, even if the evidence had been sufficient to establish it, we think, does not control this case.. At most it would be only presumptive evidence that the agent of this company had such power, and would be of no avail to a party who knew that the agent had no such power. D. L. Patterson was one of the directors of this company, and is conclusively presumed to know the powers of their agents, and the rules and usages of the company. The real question then is, what power did R. E. Heron possess ?”
The Court here referred to the evidence :
“ Such testimony, we think, fails to show that Heron had power as an agent to bind the company in this case. Whatever may be the implied powers as to strangers, a director of the company must stand on the actual powers of the agent, a.nd must abide by the rules and usages of his company. It may be doubted whether, under the charter of this company, the company can be made liable for the verbal agreement of its agent, or whether they can clothe their agent with power to bind the company by a verbal agreement, especially when no money is paid. It may also be doubted whether any such general custom or understanding, as contended for by the plaintiff, does exist among insurance companies. But whether or not, I do not think the evidence in this case sufficient to establish it.”
The plaintiff took a writ of erro'r; he assigned for error the entering of the nonsuit, and the refusal to take it off.
J. M. Stoner and G. Shiras, for plaintiff in error.
A custom to effect insurances, as in this case, was shown ;. it operated on the powers of insurance agents, and was well known to those concerned in it: Helme v. Phila. Life Ins. Co., 11 P. F. Smith, 107 ; McMasters v. Penna. R. R. Co., 19 Id , 374; Palmer v. Ins. Co., 20 Ohio R., 539. This question should have been submitted to the jury: Loudon S. F. Soc. v. Hagerstown Bank, 12 Casey, 503. The contract was ex-ecutory, and not to be controlled by the provision of the charter as to sealing, etc.: Davenport v. Ins. Co., 17 Iowa, 284; Flanders on Ins., 126; Audobon v. Ins. Co., 27 N. Y., 216. The company were bound after the fire to act on the risk as they would have done before: Whittaker v. Ins. Co., 29 Barbour, 312.
J, W. Hall and S. H. Geyer, for defendants in error.

Opinion:
Judgment was entered in the Supreme Court, November 15th, 1875.
Pee Curiam :
This was the case of a nonsuit, and was decided by the Court below on the ground of the insufficiency of the evidence to establish a contract of insurance. It is-not intended to say that an insurance company may not be-bound by a parol insurance before the policy is made out and. delivered. There may be such a contract to protect the in sured. in the interim between the taking of the risk and payment of the premium and the issuing of the policy. Yet in such a case the company must not only have made the verbal contract., but the contract must be clearly established. It is not to be presumed that a contract, necessarily so loose and uncertain in its terms, would be made by a company which always protects its rights by written terms, often of the most rigid character. The power of the agent to bind the company should clearly appear. .This is stated by the very witness called to prove the custom of insurance companies to hold themselves liable for the contracts of their general agents, from the time of the making of the arrangement until the time the insured is notified of the refusal of the company to take the risk. He says, in such cases, " It is generally left to the discretion of the agent to bind the company; if no discretion was given him he ought not to bind the company ; the agent's power depends upon the power he gets from the company." He further testified that he never knew of an instance of a company paying a policy where a fire occurred before the company had accepted the risk. The next witness never heard of a case like this, and stated that he'had no positive knowledge of the custom of any company except his own. The testimony of Heron, the agent in this case, was by no means clear, and his cross-examination was opposed to the idea of his having power to bind the company before acceptance by it. He said it was customary to date policies back to noon of the day when the verbal agreement was made by the agent. This, however, is necessarily dependent on the delivery of the policy, and on the fact that the premium had been paid. Of course acceptance would then contemplate a contract from the time of its vei'bal inception and the receipt of the consideration. But in case of non-acceptance the premium is returned. Here there was no payment of the premium, and the plaintiff must resort to still another measure of doubt to perfect his contract, to wit: to a dereliction of duty by the agent in waiving the payment. What authority had he to bind the company by the loose terms of a verbal agreement, and yet omit to take the very consideration on which it rested ? Then, when we come to the alleged contract itself, the evidence does not clearly evince any present insurance, but rather an agreement to insure when the policy should be delivered. The plaintiff states: " I asked him what the company would take and insure those six buildings at ? He stated that they would take them at two per cent, for one year or four per cent, for three years, and I told him all right, to take them for three years at four per cent. I told him there was another policy tbat he was to bring down to me, and I would give him a check for the premium on these when he brought it down. Tie said all right." Heron, the agent, made a memorandum in his book. This was not called for or produced, and therefore leaves the matter without the light which the agent's own understanding of his intention would have thrown upon his entry in his memorandum-book. The testimony of Clark does not vary the proof of the contract. His statement that McCoy came in while Heron was making his memorandum, and Heron sayiug to McCoy, " I have just insured Patterson, you had better let me insure your mill," was but the loose declaration of-one not intending to express his understanding of the precise terms of his agreement with Patterson, but to canvass for a new insurance by referring, by way of inducement, to one he had already made an arrangement for. Now, when we take into view the provision of the charter as to the mode of. executing policies in writing, under seal, and the fact that Patterson was a director, and familiar with the mode in which the business of the company was done, and the necessity of acceptance before the company became bound, it is not clear that the learned judge made a plain mistake in holding that the evidence was insufficient to raise a present contract of insurance. Great weight is always given to the opinion of those who hear the testimony, observe the manner in which it is given in, and determine upon it as a whole, while its impression is yet fixed in their minds. It is, therefore, not clear to ús. that the Court below erred against the plaintiff' in granting the nonsuit.
Judgment affirmed.