Case Name: Insurance Company v. Insurance Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1882-01
Citations: 38 Ohio St. 11
Docket Number: 
Parties: Insurance Company v. Insurance Company.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 38
Pages: 11–18

Head Matter:
Insurance Company v. Insurance Company.
Where an insurance company, after having taken a risk and reinsured in another company to indemnify itself against loss on its • policy, discharges it's liability by the payment of a less sum than that for which the original insurance was effected, the sum so paid by it will be taken as the amount of damage sustained, and the measure of indemnity to be recovered from the reinsuring company; provided such sum is within the amount of'the reinsurance policy, and does not exceed the amount of actual loss, and such policy contains no condition for prorating loss or limiting liability.
Ebror to the District Court of Cuyahoga County.
The petition alleged, that on the 10th of May, 1871, the plaintiff, the Commercial Mutual Insurance Company, issued its policy of insurance, causing $20,000 to be insured upon the body, tackle, apparel, and other furniture, of the schooner called the “John Burt,” from noon of: May 6, 1871, to noon of December 5, 1871; that on the same day, the defendant, the Detroit Fire and Marine Insurance Company, on account of the Commercial Mutual Insurance Company — loss, if any, payable to them — made re-insurance, and caused $5,000 to be insured upon said schooner, from noon of said May 6, to noon of said December 5. That in and by said policy of re-insurance, the said vessel, with her tackle, apparel and other furniture, was valued at $25,000; and the limit of insurance upon the vessel interest thereby insured, was fixed at $20,000. That with the exception of the names of parties and amount insured, the terms, conditions, and stipulations of said re-insurance policy were substantially the same as those contained in the policy issued by the re-insured company to the owner of the vessel.' That on October lé, 1811, the said vessel was, by the perils and dangers of the lakes, sunken, and so damaged, that she was abandoned as a total loss, and the abandonment was' accepted.
The answer alleged that before the commencement of said action, the.plaintiff settled and compromised with the owner of said vessel, his claim of $20,000 under the policy issued to him, for the sum of sixty cents on the dollar, to wit, $12,000; and obtained from the owner an absolute release and discharge from all liability under said policy ; that at the time of said settlement and compromise, the plaintiff was not in a bankrupt or insolvent condition ; that in accordance with the terms of said settlement and compromise, the defendant paid to the plaintiff $3,000, or sixty per cent, of the amount insured on said vessel by said policy of re-insurance; and paid the same, in full satisfaction and discharge of all claim against it, under said re-insurance policy.
To the foregoing answer the plaintiff below demurred generally, and the court sustained the demurrer. The defendant, ‘■not desiring to plead further, judgment was thereupon rendered in plaintiff’s favor for the full amount of'its claim; and at the following term of the district court this judgment was affirmed.
F. J. JDielcman, for plaintiff in error:
The plaintiff in error submits, that the re-insurer should participate in the provisions of said compromise; and that it should not inure exclusively to the benefit of the original insurer. The contract between the two companies, interpreted on equitable principles, was, that the re-insurer would indemnify the re-in sured, to the extent of $5,000, on a liability of $20,000, or, to the extent of twenty-five per cent, of such liability. The re-insurer fixed that as the ratio of its indemnity to the liability of the re-insured. The risk assumed by the re-insurer was upon the basis that the liability of the re-instired might amount to $20,000; it was virtually a risk upon the implied condition, that such liability might equal that sum.
From abundant caution, some policies of re-insurance contain the clause “ Loss, if any, payable fro rata, at the same time and in the same manner with the re-insur'ance company.” But the insertion of this clause or its equivalent, is not indispensable to an apportionment of the actual loss between the re-insurer and the re-insured. The true meaning of the contract between these two companies, is, that they should share the risk between them. The doctrine of apportionment is not confined to the domain of equity. Thus, at common law, if a lessor granted part of a reversion to a stranger, the rent was to be apportioned. Co. Litt. 118 a, and in the case of Bashford v. Shaw, 1 Ohio St. 263, the principle was applied to the discharge of a guarantor from liability only fro tanto, when his actual loss from want of notice did not go to the whole amount of the claim guaranteed.
An agreement by the re-insurer to bear a certain proportion of the risk, is tantamount to an agreement to pay the same proportion of the loss. But, it must be an actual, and not a constructive loss. The defendant in error will insist, that the re-insured company may, to the.extent of the re-insurance, recover not merely what it has paid, but all that it ought to pay, or has become liable to pay. To this we reply, that insurance is a contract of indemnity; and anything which tends to show, that an assured can recover beyond his actual loss, is against the very principle of the contract. Being a contract of indemnity, it may be, that as soon as the loss has happened, the re-insured may look to the re-insurer, without first paying the loss. But, when the re-insured company has gone forward, and discharged its liability, so that the owner of the property has no longer a claim upon it, then the liability of the re-insurer is to be measured, not in proportion to the original loss, but in proportion to the amount which has been paid by the first insurer, to settle and discharge the claim of the owner of the property. When the liability has become actually discharged, by the payment of a sum less in amount, it is difficult to perceive, on principle, why the sum paid in discharge of the liability should not be taken as the amount of damage sustained, and as the standard for determining the amount of indemnity to be recovered under the contract.
These views are sustained by the recent and well-considered case, Illinois Mut. Fire Ins. Co. v. Andes Ins. Co., 67 Ill. 362, in which the nature of the contract of re-insurance and the liability of the re-insurer are clearly set forth.
There is nothing in the nature of the contract of re-insurance, which should distinguish it from any ordinary contract' of indemnity against liability. Where that liability has been compromised, then the measure of damages must be no greater than the amount which the party to be indemnified has paid. And, where the guarantor is to pay a certain proportion of that liability, in case of loss, he should not, we submit, be held to pay more than the same proportion of the amount actually paid by the party indemnified, in discharge of his liability.
These principles are recognized in the following authorities : 1 Phillips on Insurance, p. 207, § 374; Tate v. Bool, 9 Ind. 13; Schooley v. Stoops, 4 Ind. 130; Child v. Eureka Powder Works, 44 N. H. 354; Osgood v. Osgood, 39 N. H. 209; Haseltine v. Guild, 11 N. H. 390; Swift v. Crocker, 21 Pick. 241; Cushing v. Gore, 15 Mass. 69; Little v. Little, 13 Pick. 426; Churchill v. Hunt, 3 Denio, 321; Administrators of Pond v. Warner, 2 Vt. 532; Sedgwick on Damages (4 ed.) 35, 358.
Samuel F. Williamson, for defendant in error:
The plaintiff in error insists that because the defendant in error paid only sixty per cent, of the amount of the policy, the re-insurer should pay the same proportion of the amount insured by it. There might be ground for argument in favor of this claim if either of two things were true, viz.: that the Commercial Mutual Company had paid less than the amount of reinsurance, or that the policy contained the clause usual in fire insurance policies, “ Loss, if any, payabl&pro rata, at the same time and in the same manner with company re-insured but as neither is. true, the plaintiff has hot the slightest ground to stand upon. Home v. Ins. Co., 1 Sandf. 137; 2 N. Y. 239; Blackstone v. Ins. Co., 56 N. Y. 104; Ins. Co. v. Cashon, 41 Md. 59.

Opinion:
Longworth, J.
The original insurer became liable to the owner of the vessel for a total loss, but actually paid him only $12,000, being sixty per cent, of the amount of the policy, in full discharge of its liability. The whole amount of re-insurance was $5,000. Shall the re-insured company recover the full, amount of its policy, or only a pro rata part of the latter sum, at the rate of sixty cents on the dollar ?
The contract of insurance has always been regarded as one of indemnity; the object being to protect the insured from any. and all damage occasioned by the happening of the loss insured against, not exceeding the amount of the policy.
Ee-insurance is thus defined by Mr. May : " It is a contract of indemnity to the re-insured, whatever be the subject-matter, and binds the re-insurer to pay to the re-insured the loss sustained in respect to the subject insured, to the extent for which he is re-insurer, and not necessarily differing in form from an original insurance." May on Insurance, § 11. In the ease before us the policy does not differ in form from the original policy. Although it may be true, as I am informed it is, that policies of reinsurance generally contain a condition that the loss, if any, shall be payable pro rata, at the same time and in the same manner with the re-insurance company, .yet no such condition is expressed in the policy before us. Is it to be implied ? To answer this question we must have a clear idea of the nature and object of such a contract. Parsons, in his work on Marine Insurance, vol. 1, p. 299, says: " In all cases of re-insurance, whatever may be their ground, the re-insured stands, as to his insurers, in the same relation in which the insured, stands to him," — " and it may be said in general, that, wherever the insurance is not on the property of the insured, but against risks which he bears, this is in the nature of re-insurance," (p. 303); and in Phillips on Insurance, § 374, this definition is given : " Re-insurance is a contract whereby one party, called the re-insurer, in consideration of a premium paid to him, agrees to., indemnify the other against the risk assumed by the latter, by , a policy in favor of a third party." And it has been held that the original assured cannot assert any interest in a policy of reinsurance. Herkenrath v. Ins. Co., 1 Barb. Ch. 363.
If it be true, then, that it is the ris/c which is insured against, and the contract is intended to furnish complete indemiit/y, it is difficult to understand any reason why, when such risk has become a certainty, and the reinsured has actually sustained a loss, he is to be indemnified oAy partially and not completely ; at least to the extent of the amount named in the policy of re-insurance.
Upon this subject, there are but few adjudged cases. None are to be found in the English books. Erom a very early day re-insurance has been interdicted in that country by act of parliament (19 Geo. 2, ch. 37, § 4). Mr. Arnold states that this statute arose from the fact that re-insurance had come to be, employed as a mode of speculating in the rise and fall of premiums, and the legislature foresaw that it might be used as a cover for wager policies. 1 Arnold on Ins. 291. Andree v. Fletcher, 2 T. R. 161, is an emphatic declaration of the meaning and force of this statute. Whatever may have been the reasons for its adoption, however, it has certainly never been recognized as a part of the common law of this country. Our courts have refused to so regard it, or to find anything in reinsurance contrary to public policy and fair dealing. Upon this subject Mr. Justice Sedgwick said, in the early case of. Merry v. Prince, 2 Mass. 176, " That a contract of re-insurance is not prohibited by the principles of the common law is admitted by the parties. It is a contract which, in itself, seems perfectly fair and reasonable, and might be productive of very beneficial consequences to those concerned in this important branch of commerce ; but because it was much abused, and turned to pernicious purposes, it was prohibited by an act of the parliament of Great Britain." In this case he goes on to show conclusively that the principle of that statute has never found a place in the insurance law of the United States. See also Merchants' & M. Ins. Co. v. Washington Ins. Co., 1 Handy, 408, 425. This will serve to explain the fact that the English reports are barren of authority upon the subject under investigation.
Since the decision of the French court of admiralty at Marseilles in December, 1848, cited in Emerigon, Traité des1 Assurance, Meredith's translation, 202 (but no other report of which I have been able to find), it has been uniformly held, that, where the first insurer becomes insolvent, and, on a compromise with his creditors, pays only a certain percentage of the loss, the re-insurer is, nevertheless, bound to pay the re-insured the full amount of the loss to the extent of the re-insurance. The most carefully, considered case, and, perhaps, the leading case upon this subject, is Hone v. Mutual Safety Ins. Co., 1 Sandf. 137, subsequently affirmed in 2 Comstock, 235. In this case the decision of the French admiralty court is followed, and the court repeat with approval the language of Emerigon and Roccus to the effect that the re-insurer is bound to pay the whole loss which is incurred by the first insurer.
Boulay Paty and Alanzet, two distinguished modem French authors, are also cited as speaking to the same effect.
In Blackstone v. Allemannia Ins. Co., 56 N. Y. 104, the same doctrine is declared to be definitely settled. See also, to. same effect, Ins. Co. v. Cashow, 41 Md. 59; and Eagle Ins. Co. v. Lafayette Ins. Co., 9 Ind. 443.
If it be true, then, that, the re-insurer is liable to the re-assured (to the extent of the sum named in the policy) for the full amount of the loss, for which only a liability has attached to the original insurer, but which he has not paid and cannot pay on account of insolvency, how much more must it be true that such obligation exists where the re-assured has not only incurred a liability but has actually paid the full amount for which he asks indemnity % If there existed room for doubt as to how this question should be answered, the answer would be found in the decision of Ill. Mut. Ins. Co. v. Andes Ins. Co., 67 Ill. 362, which, as far as I am able to understand it, is indistinguishable from the case at bar. In that case the ele ment of insolvency did not exist. The original insurer was liable to pay to the insured the sum of $6,000, in consequence of the loss .of the subject-matter insured, but actually paid. only $600, in full discharge of the liability. The amount of the re-insurance was $2,000. It was said by the court that the re-assured would have been entitled to recover $600 had there, not been a clause in the policy prorating the loss.
The claim of plaintiff in error is based upon the theory that, in respect to the subject-matter of insurance, the re-insured and the re-insurer are engaged in a common venture, and ought therefore to bear the loss in ratable proportion. In the light of the authorities cited, this view is wholly untenable.. It /presupposes a certain privity of contract to exist between the original insured and the re-insurer, the existence of 'which is denied by every authority which has spoken upon the topic. 1 am content to close this subject by quoting the language of Emerigon: " The re-insurance is absolutely foreign to the original assured, with whom the re-insurer contracts no sort of obligabion." Traité des Assurance, Meredith's Translation, p. 201.
Judgment affirmed.