Court Opinion

ID: 9559032
Source: CourtListenerOpinion
Date Created: 2023-08-21 17:21:05.907239+00
Date Added: 2024-06-11T09:09:43.382854
License: Public Domain

Petition for Rehearing
PERRY, J.
The plaintiffs have petitioned this court for a rehearing solely upon that portion of our decision that states the loss as between the plaintiff and defendant insurance companies should be borne equally.
*131It is the position of the plaintiff St. Paul Fire and Marine Insurance Company that since its applicable limit was $25,000 for property damage and the defendant’s limit was $5,000, the loss should be prorated between them in proportion to these applicable limits of liability. For example, in this case the plaintiff insurance company would pay 5/6th and the defendant l/6th of the loss.
The plaintiff company properly states that this position taken is against its monetary interest in this case, but that in general the courts under similar situations have followed a rule of prorating the losses on the basis of the limits of liability of each company; that this rule has been followed and relied upon generally in the insurance industry and should not be changed.
The defendant’s brief submitted upon the petition for a rehearing also urges this position.
Independent of the briefs submitted, our limited research discloses that the law of apportionment is of very ancient origin. In the second book of the Bible, revised standard version, Exodus, ch 21, para 35, it is said:
“When one man’s ox hurts another’s, so that it dies, then they shall sell the live ox and divide the price of it; and the dead beast also they shall divide. Or if it is known that the ox has been accustomed to gore in the past, and its owner has not kept it in, he shall pay ox for ox, and the dead beast shall be his.”
Similar rules were recognized by the most ancient civilizations. 3 Select Essays in Anglo-American Legal History, Assoc. American Law Schools, 101.
The first appearance in Anglo-American law of the principles of pro rata contribution seems to be under *132the heading of Admiralty, where the principles of general average have been used for at least 500 years. Hopkins, Average and Arbitration, 4th ed, p 6. In cases where one merchant’s goods were jettisoned or destroyed on a sea voyage for the purpose of saving the rest of the venture from imminent peril, the loss was borne by all interests in proportion to the value of their goods whieh were saved. Hopkins, supra, p 47. The pro rata contribution whieh was applied in these cases can easily be justified on an unjust enrichment basis, since each owner was required to make a contribution which was proportional to the benefit whieh he received.
It is generally believed that in England the contract of insurance was first used in' underwriting marine risks, since insurance was introduced by maritime traders from the Italian cities. 3 Select Essays in Anglo-American Legal History, Assoc. American Law Schools, 107. All early insurance disputes were settled by merchant courts, or arbitrators. For example, in the record of the proceedings before Admiralty prior to 1570 there is a petition by the owner of insured goods asking that arbitrators be appointed and the underwriters made to pay, “ ‘forasmuche as your said rater hath noe remedye by the ordre and course of the common lawes of the realme, and that the ordre of insurance is not grounded upon the lawes of the realme, but rather a civill and maritime cause to be determined and decided by civilians or else in the highe courte of Amiraltye.’ ” 3 Select Essays in Anglo-American Legal History, supra, 111. Since insurance disputes were settled by marine traders in their merchant courts, it seems likely that they imported the law of general average into the law of marine insurance. If one merchant should be compelled to contribute to another because his wares were saved through the *133sacrifice of the second merchant’s goods, it would seem equally logical that one insurance company which had its risk saved through the abandonment of goods insured by another, should be compelled to share the loss according to the relative value of the goods preserved. This later became the law. 11 Arnould, Marine Insurance and Average, 12th ed., 1224.
There is, however, an even more direct connection between the law of general average and land insurance. This link is the case of Deering v. The Earl of Winchelsea, 126 Eng Rep 1276 (1787), 2 Bos & Pul 270. In 1778, Thomas Deering was appointed receiver of fines and forfeitures of the customs of the out ports. Sir Edward Deering and the two defendants entered into three separate bonds of 4,000 pounds each to assure that Thomas Deering would duly account for funds received. Thomas lost the King’s money while gaming and left the realm. His accounts were short nearly 4,000 pounds. Judgment was obtained against Sir Edward for this amount. Thereupon Sir Edward brought a suit against the other two sureties for contribution on their separate bonds. They argued that as the bonds were separate, they were under no contractual obligation to reimburse Sir Edward. They also asserted it was Edward who had led Thomas into his evil habits and that Edward could not recover on that account. To the defendant’s first contention the court replied, pages 1277 and 1278:
“* * * the bottom of contribution is a fixed principle of justice, and is not founded in contract
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“There is an instance in the civil law of average, where part of a cargo is thrown overboard to save the vessel, Show. Pari. Cas. 19 Moor, 297. The maxim applied is qui sentit commodum sentire *134debet et onus. In tbe case of average there is ho contract express or implied, nor any privity in an ordinary sense. This shews that contribution is founded on equality, and established by the law of all nations.”
To the argument that Sir Edward did not have clean hands the court said, page 1277:
“* * * There might indeed be a case in which a person might be in a legal sense the author of the loss, and therefore not entitled to contribution; as if a person on board a ship was to bore a hole in the ship, and in consequence of the distress occasioned by this act it became necessary to throw overboard his goods to save the ship * * *.”
Apparently, the court applied principles derived from the law of general average in this case which closely approximates the present controversy. However, it is here submitted that the case of Deering v. Earl of Winchelsea, supra, was not directly analagous to the average cases. In the insurance cases involving general average, there are two insurers and two separate risks. A sacrifice of one risk saves the other. If there is no contribution, the one whose risk is saved is enriched at the expense of the one whose goods were jettisoned. But in the Deering case, as in the present casé, there was only one risk which was concurrently covered by separate insurers. Any right to contribution must be established on the basis of such equitable maxims as “Equity is equality,” etc. As the court said in the Deering case, supra, “the bottom of contribution is a fixed principle of justice.” Considering the case on that basis it is no doubt sound. Three sureties received what was presumably an equal fee to secure separately one risk. In case of a loss, it seems reasonable that they should contribute in proportion to the benefit each had received from the contract, i.e., the premium. Although the Deering case and the general *135average cases may not be as closely akin as the court indicated in its opinion, there runs through them both this controlling principle: when there is a loss which should be shared, the respective shares will be determined by considering the benefits which accrued to the contributors. With the general average cases, the benefit is the value of the goods saved. With a surety contract, the benefit is the premium paid.
Fifty-eight years later Chief Justice Shaw of Massachusetts was faced with a case which concerned double marine insurance. In Wiggins v. The Suffolk Insurance Company, 35 Mass 145, 153 (1836), he said:
“Treating these policies then as in fact made at the same time, the clause in regard to priority is wholly inoperative, and then as to the amount of the difference between the sum insured and the sum at risk, it is the case of a double assurance, that is, the assured has an obligation from two or more parties to perform the same thing, at the same time. When this is the case, the party holding such double assurance, may in the outset, and before making any. election, consider each debtor as liable for a proportionate part of the common burden, and recover accordingly; or he may require either of the parties liable, to pay the whole, and then it follows as a rule of law, founded upon the broadest principles of equity, that where one of two parties has paid the whole of a debt, for which each was originally and ultimately liable, the party who has paid the whole or a disproportionate part of the common debt, shall have a remedy against the other for a contribution, so that the burden may be borne equally according to their respective liabilities.”
If, in this case, the risk borne by each was directly related to the benefit, or premium received, it would seem that this case is as sound as the Deering case, supra. Both policies were for the same amount, so the premiums were probably equal.
*136Giles v. Royal Ins. Co., 179 Mass 261, 266, 60 NE 786 (1901), was a case in which, the plaintiff sought to enforce an arbitration decree against several fire insurance companies. Commenting on the joinder of the several insurance companies, Chief Justice Holmes said:
“* * * It is evident that the joinder of parties was with an intelligent design which we see no reaT son for not carrying out. It is true that the claims against different insurance companies are distinct. But if all the policies are on the same risk it is at least convenient, and may be important, that all the companies should be represented in any adjustment that takes place. Their burdens may have to be equalised in one way or another. Wiggin v. Suffolk Ins. Co., 18 Pick 145, 153. * * *” (Italics ours)
Mr. Justice Holmes’ reference to page 153 of the Wiggins case, supra, contains the quote from Chief Justice Shaw set forth above. It is evident that Justice Holmes considered the principle of the marine insurance case broad enough to embrace a fire insurance case. Fire insurance rates are quoted as the number of cents per annum per hundred dollars insurance, so the premium varies directly with the limits of the policy. Patterson, Cases on Insurance, 3rd ed, p 785. Thus Justice Holmes’ statement is consistent with the Peering case, supra, and the Giles case, supra. Again the burden in a pro rata distribution will be directly related to the benefit received. For another case which holds that two fire insurance companies should bear a loss in the proportion that the limits of their respective policies bear to the total insurance, see Home Ins. Co. v. Baltimore Warehouse Co., 93 US 527, 23 L Ed 868 (1876).
Celina Mutual v. Citizens Casualty, 194 Md 236, 241, 71 A2d 20, 21 ALR2d 605, (1950), is urged as authority for the proposition that automobile liability *137insurance should be prorated in the same manner as fire insurance. The case is easily distinguishable on its facts, since both insurance policies there involved contained pro rata provisions. However, much language in the decision does point to the result urged by the companies:
“There appears to be no very direct authority on the exact question. The general rule as to insurance policies is that where there are pro rata or proportionate clauses in several insurance policies insuring the same property, the insurance is concurrent and each insurer is liable for its proportionate amount. This has also been held to be the rule where there is no provision about proportionate insurance in either policy. Richards on Insurance, 4th Ed., Page 455, Section 272, Joyce, Law of Insurance, 2nd Ed., Yol. 4, Sections 4911-4914, both inclusive. Hough v. President etc., of Peoples Fire Insurance Co., 36 Md. 398; Fire Insurance Ass’n v. Merchants’ and Miners’ Transportation Co., 66 Md. 339, 7 A. 905; 59 Am. Rep. 162; Hanover Fire Ins. Co. of City of New York v. Brown, 77 Md. 64, 25 A. 989, 27 A. 314, 39 Am. St. Rep. 386; Liberty Mutual Insurance Co. v. United States Fidelity and Guaranty Co., 164 Md. 117, 164 A. 179; Home Insurance Co. v. Baltimore Warehouse Co., 93 U.S. 527, 23 L. Ed. 868; American Lumbermen’s Mutual Casualty Co. v. Lumber Mutual Casualty Ins. Co., 251 App. Div. 231, 295 N.Y.S. 321.”
As seen above, in the case of fire insurance, when a loss is prorated in the ratio which the limits of the policies bear to the total coverage, the burden imposed on each insurer is generally proportional to the benefit which he received, since the size of the premium is most always directly related to the size of the policy.
While distinction can be made between insurance underwriting practices in the field of fire insurance and automobile liability, it would seem that they are *138not sufficiently important to disturb the rule of pro-ration sought by the companies in this case.
Our former opinion is modified to this extent only: that the plaintiffs’ have judgment against the defendant for one-sixth of the ascertained liability.
Petition for rehearing denied.