this policy for a greater proportion of any loss or damage sustained than the sum hereby insured bears to the whole amount of insurance on said property, issued to or held by any party or parties, having an insurable interest therein, whether as owner, mortgagee, or otherwise."

Although the wording of this "contribution clause" would seem to be sufficiently definite to preclude a misunderstanding, there have been conflicting decisions as to the effectiveness of this clause where the mortgagor, after protecting the mortgagee under a mortgage clause providing for full contribution, takes out subsequent insurance, of which the mortgagee may have no knowledge. In the case of Eddy vs. London Assurance Corporation (143 N. Y., 311) the owner of the property had taken out insurance for the protection of the mortgagee. The mortgage clause protected the mortgagee against the acts of the owner, and contained the contribution clause as quoted above. Subsequently, and for his sole benefit, and without the mortgagee's consent or knowledge, the owner procured other insurance which was not made payable to the mortgagee. Then a loss occurred, and the companies issuing the policies made payable to the mortgagee insisted on the right of paying only that portion of the loss represented by their pro-rata share of all the insurance on the property, even though taken out subsequent to the issuance of the mortgage clause and for the sole benefit of the owner. The court argued that in this particular case the "full contribution clause" in the mortgage clause was inconsistent with the other section in the same clause which protects the mortgagee against the acts of the owner, and that this last agreement must take precedence over the provision for contribution. Since the last policies were taken out by the owner for his own benefit and without the knowledge of the mortgagee, the court argued that "the act of obtaining this additional insurance was the act of the owner, and it was unknown to the mortgagee, and, of course, not

consented to by him. The additional insurance could by no possibility benefit him, as it was not upon any interest of his in the property. He could not, therefore, resort to any of these additional policies for his indemnity. It is not a case of contribution in any sense, but simply one on the insurer's theory of the diminution of their liability, caused by the act of the owner, and unknown, and with no possible corresponding benefits, to the mortgagee."1 While legal textbook writers recognize the force of this reasoning, it should be stated that in other cases the courts have sought to enforce this important provision of the policy as regards subsequent insurance, by declaring that the section of the mortgage clause protecting the mortgagee against the acts of the owner, is qualified by the agreement relating to contribution.

2 See Ostrander's "Law of Fire Insurance," p. 348.

3

3 See Hartford Fire Insurance Co. vs. Williams, 11 C. C. A.,

503; 63 Fed., 925, described by Ostrander on pp. 348, 349.

CHAPTER V

PARTIES TO THE CONTRACT-THE COMPANY AND ITS ORGANIZATION

Types of Companies.-The fire-insurance business of the country is transacted by three different classes of insurers. Named in the order of their importance they are, stock companies, mutual companies, and so-called Lloyd's organizations. Concerning mutual companies a further convenient classification may be made, viz., "county and town mutuals," "state mutuals," and "factory mutuals."

State Statutes Governing the Incorporation, Organization, and Operation of Fire-Insurance Companies.—The laws of the several States relating to the incorporation and organization of fire-insurance companies differ greatly in their details, but resemble each other in the principles involved and the objects to be attained. In outlining the method of incorporating and organizing companies, therefore, the law of Pennsylvania will be used as a basis, for aside from details such as numbers, amounts, and time, the law of this State will serve as a typical illustration of the underlying principles and methods elsewhere in use.

According to the law of Pennsylvania, fire and marine insurance companies may not do a life-insurance business. Any ten or more persons, who are citizens of the State, may associate themselves and form an incorporated company for the purpose of issuing fire and marine insurance. Such persons, according to the law, must associate themselves by articles of agreement in writing, which agreement must specify

(1) the name by which the corporation is to be known; (2) the class of insurance for which the company is to be constituted; (3) the plan or principle according to which the business is to be conducted, and the domicile of the company; (4) the amount of the capital stock, if any; and (5) the general object of the company, and the powers it proposes to have and exercise. The name of the company must clearly designate the object and purposes of the company, and in case the associated persons wish to form a mutual company, the word "mutual" must appear in the title.

The articles of agreement must next be acknowledged by the subscribers before some person who is empowered to receive acknowledgment of deeds, and must then be forwarded to the insurance commissioner. If the insurance commissioner approves of the same, the articles of agreement must next be submitted to the attorney-general for examination. If the attorney-general finds them to be in accordance with the law of the State, he certifies the same to the governor, with his approval indorsed thereon.

Following this, the subscribers to the articles of agreement choose a president, a secretary, a treasurer, and directors. In case the company is a joint stock company, the subscribers must next open books for the subscription of stock in the company, and such books must be kept open until the full amount of stock specified in the certificate is subscribed. Where a mutual company is to be organized, the subscribers to the articles of agreement must open books to receive applications for insurance until such applications have been obtained in sufficient number to comply with the law.

The capital stock of a joint stock fire-insurance company may not be divided into shares of less than $10 each. Ten per cent on each share must be paid in at the time of subscribing, the remaining 90 per cent may be paid in as the company may direct, but must, according to the law, be all

paid in within six months from the time of the subscription. When the capital stock specified in the articles of agreement has been subscribed for to the extent of one half, and 20 per cent of the same has been paid into the hands of the treasurer of the company, the officers and a majority of the directors must next under oath make a certificate to the Governor of the State, stating the number and par value of the shares of the company, the names and residences of the subscribers, the number of shares subscribed for by each, the amount paid in on each share, and the place where the same is deposited. In case the Governór approves the articles of agreement thus certified to him, he indorses his approval thereon and causes letters patent to issue, erecting the subscribers to the articles of agreement into a body corporate. But in no case is this body corporate to engage in the business of insurance until the stock has been fully paid in.

Besides carefully regulating the organization of fire and marine insurance companies, the statutory law of the several states seeks to make such companies safe, and protects the interests of property owners by carefully regulating the investment of all their funds. A joint stock fire or marine company in Pennsylvania must have a capital stock of not less than $100,000. A mutual company, on the other hand, may begin business when it has applications for $200,000 of insurance. A foreign joint stock company doing business in Pennsylvania must have a capital stock of $200,000. In Pennsylvania it is unlawful for any fire or fire-marine company, organized under the law of the State, to invest its capital otherwise "than in bonds and first mortgages on improved and unencumbered real estate, within the State of Pennsylvania, worth fifty per centum more than the sum loaned thereon, exclusive of buildings, unless such buildings are insured and the policy transferred to said company, or in ground rents, or bonds of the United States or of the State of Pennsylvania, or the bonds of any other State that may