U.S. Supreme Court Bates v. Equitable Insurance Company, 77 U.S. 10 Wall. 33 33 (1869)
Bates v. Equitable Insurance Company
77 U.S. (10 Wall.) 33
ERROR TO THE CIRCUIT
COURT FOR RHODE ISLAND
1. A policy of insurance contained the usual covenant that if the property was sold the insurance ceased unless the consent of the insurer was given in writing to the sale.
Held, that an endorsement on the policy by the assured "Payable in case of loss to E. C. Bates" (the plaintiff ), and under this, the endorsement by the insurer that "Consent is hereby given to the above endorsement," did not imply either a knowledge or consent to the sale of the goods insured.
2. Such endorsements are entirely consistent with the property in the goods remaining in the assured, and mean no more than that the loss of the assured shall be paid to the third party.
3. If such third party had really purchased the goods before the loss, then the party assured sustained no loss and the policy covered none, and no action could be sustained on it.
W. D. Philbrick, being the owner of certain goods, got them insured by the Equitable Insurance Company of Providence. The policy contained a clause that if the property insured should be sold or conveyed or if the policy should be assigned without the consent of the company, the risk should cease and the policy become void. It contained also provisions such as are cited below:
"And this company agree, that if the assured shall sell the aforesaid property, or any part thereof, before the expiration of this policy, a proportion of the premium received shall be repaid upon receiving notice of such sale before a loss happens, . . . or this policy may be continued for the benefit of such purchaser, if this company give their consent thereto, to be evidenced by a certificate of the fact or by endorsement on this policy."
Philbrick, the party insured, sold the goods during the life of the policy to one Edward C. Bates, and endorsed on the policy,
" Payable in case of loss to E. C. Bates. "
"W. D. PHILBRICK"
The policy, with this endorsement, was sent by a policy broker to the insurance company, and one Frederick W. Arnold, the secretary of the company, placed under the above endorsement these words:
" Consent is hereby given to the above endorsement. EQUITABLE INSURANCE COMPANY."
"FRED. W. ARNOLD, Secretary"
The goods having been destroyed by fire after the sale and the endorsement by Arnold in behalf of the company, Bates, the owner of them, brought assumpsit on the policy. The company refused to pay on the ground that Philbrick had ceased to be owner before the loss occurred, and that the company had never consented to any change of ownership
in the property. And the question was whether on the facts, this defense ought to be sustained.
Arnold, the secretary of the company, swore that he had no knowledge of the sale, nor was there any evidence that any officer of the company had notice of it, unless it was to be implied from the request to give their consent to the endorsement made by Philbrick, and the consent so given.
The court below was of the opinion that on the case stated, the plaintiff could not recover, and judgment having been entered accordingly, the record was brought here.
MR. JUSTICE MILLER delivered the opinion of the Court.
One of the conditions of the policy was that if the property insured should be sold or conveyed, the risk assumed ceased
and the policy became void, and there can be no doubt that, looking to both the provisions of a policy such as this one contained and which are cited in the statement of the case, it ceases to be binding when the assured parts with his interest in the property insured unless the company be notified of the sale. When this is done before a loss happens, the company is bound to refund a part of the prepaid premium, to be apportioned in reference to the unexpired time for which the policy was given.
If, however, the purchaser and assured ask it and the company consent to it, the policy may continue for the benefit of the purchaser. This latter proposition is founded upon the knowledge of the sale and upon the consent of the company to accept the purchaser as the party whose interest is insured instead of the vendor who was originally insured.
As there is no evidence, outside of the two endorsements already quoted from the policy [ Footnote 1 ] that there was any consent to accept Bates, the purchaser, as the party whose interest was insured, and as the presumption, if there is one arising from those endorsements of a notice of sale, is not supported by anything else, it becomes important to determine what those endorsements imply on those two points.
If Philbrick could not in law or in fact have directed the payment of the loss, if one should occur to him, as owner of the property, to another party, with the consent of the company, then it would be a reasonable inference that the endorsement made by him implied a sale of his interest. But if he could make, with the consent of the company, a valid appointment that any loss covered by the policy should be paid to a third person, though he remained the owner of the goods, and the loss was his loss, then the endorsement of Philbrick does not necessarily convey the idea of a sale nor the consent of the company imply a consent to a sale.
Now it is a well known and frequent thing in insurance business for a person to insure his life or his property and either in the policy itself or by endorsement at the time it
is made, or by subsequent endorsement, to which the consent of the company is generally required, to direct the loss to be paid to some third party. And this is done in language similar if not identical with that used in this case. It is a mode of appointing that the loss of the party insured shall be paid by the company to such third person. This transaction is a very common mode of furnishing a species of security by a debtor to his creditor, who may be willing to trust to the debtor's honesty, his skill and success in trade, but who requires indemnity against such accidents as loss by fire, or the perils of navigation. The property of the debtor at risk, being thus insured for the benefit of the creditor, gives him this indemnity.
In the face of this frequent use of the two endorsements on the policy, it cannot be held that they imply of themselves a knowledge of the sale or a consent to insure the purchaser.
If it could be shown that it had been the course of dealing between these particular parties to recognize the endorsement of the party first assured as evidence of a sale, and the endorsement of the company as a consent to the sale, or if it could be shown that by custom and usage in any particular place these endorsements were so treated, the case might be different; but in the absence of such usage or custom, we can see in these endorsement nothing more than the direction of Philbrick and the consent of the company that any loss sustained by Philbrick, covered by that policy, should be paid to Bates. As Philbrick did not have any interest in the goods when the fire occurred, he sustained no loss, and the policy covered none.
The analogy of the effect of such endorsements on promissory notes in assigning the notes to the endorser is very imperfect. In such case, the sum mentioned in the note is payable absolutely and without regard to the interest of the original payee in any other matter. It is all contained in the note whose contents, to use the language of the Judiciary Act, are thus made payable to the endorsee, and the endorser necessarily parts with his interest in the subject matter of the contract.
These view are well supported by recently adjudged cases in this county. [ Footnote 2 ]
[ Footnote 1 ]
Supra, p. 77 U. S. 34 -- REP.
[ Footnote 2 ]
Fogg v. Middlesex Manufacturing Co.,
10 Cushing 346;
Hale v. M. & F. Ins. Co.,
6 Gray 169;
Young v. Eagle Ins. Co.,
Grosvenor v. Atlantic Ins. Co.,
17 N.Y. 391;
State Mutual Fire Ins. Co. v. Roberts,
31 Pa.St. 438.