building and furniture within it, and still another insuring the furniture and general merchandise. Or it may happen that certain policies are "specific," and cover only one item of property, whereas other policies are "general" (sometimes called "blanket" policies or "compound" policies), and cover all the items under one sum. Again it may happen that the policies on a given interest do not agree as regards important indorsements, one policy, for example, containing a three-quarter's loss clause and another containing no such limitation. Non-concurrent policies on the same interest are usually the result of carelessness on the part of the agent, and in case of loss always result in much dissatisfaction. Companies instruct their agents, in order to avoid the issuing of such contracts, to refuse a policy where the insured declines to make known the wording of policies already covering the property. And where the nature of the other policies is revealed and they are found to vary in their wording, it is deemed best to have their terms so changed that they will be concurrent with the new insurance. Where this is not done, hopeless confusion will arise which no system of apportionment can accurately solve. In most instances the companies have sought to adjust such cases outside of the courts through the application of some arbitrary rule; and where the courts have undertaken to prescribe a method of settlement, the attempt has usually been far from satisfactory. As a rule a study of the court decisions shows that whenever a case of apportioning a loss among non-concurrent policies was brought up for consideration, only two plans were considered by the court, namely, "the two rules of apportionment contended for by the parties to the suit." The court would then attempt to place the different policies as much as possible upon a footing of equality, and would approve that rule of apportionment which would pay the insured the full amount of the loss. As stated by Daniels, "the courts have repeatedly decided that if the insured has as much or more insurance than the amount of loss, his loss must be paid in full, and no rule of apportionment which fails to pay the loss in full will be recognized by the courts." The Various Rules in Use for the Apportionment of Loss among Specific and Compound Policies.-The difficulties which present themselves in the apportionment of losses when some of the policies are "specific" and others are "compound," are well illustrated by the case submitted for solution to Mr. W. H. Daniels. According to the case the Continental Insurance Company insured $2,500 on wheat, $3,000 on corn, and $2,000 on oats, or a total insurance of $7,500. Two other companies, however, the Ætna and Home, insured $5,000 and $6,000 respectively on "grain." The value of the wheat, corn, and oats was respectively $8,000, $7,000, and $10,000; and the loss on these three items in the order given was $3,000, $4,000, and $8,000. Now what should be the method of apportioning this loss among the several policies, and how much should be paid under each? In answering this question, Mr. Daniels makes the following introductory statement: "You may not fully realize the importance of the proposition you have submitted to me for my consideration. It involves some of the most intricate questions we find in the adjustment of losses, and for many years such cases as you have submitted have been the source of serious anxiety in the loss departments of the various insurance companies, and have been the basis for a large number of contests before the courts. The insurance men of the past, and of to-day, who were, and are, because of their interest and work in the adjustment of loss claims, thoroughly posted, have not agreed and do not agree what each company should pay in such a case as you have submitted. Similar cases have received the attention of the courts during the past fifty years, and it is safe to say that the decisions of the courts as to how the losses in your case should be apportioned among the companies are not in harmony." Judge Ostrander, likewise, in discussing a legal decision. in which the court came to the conclusion that the apportionment would have to be entirely arbitrary, states: "Then, as now, no learning of the courts, no ingenuity of the counsel, can explain that which is essentially inexplicable. Cases are sometimes presented where the complications defy human understanding. When this occurs when reason is baffled and mathematics fail-arbitrary action becomes a necessity. The knot we cannot untie must be cut."' In his work on "The Apportionment of Loss and Contribution of Compound Insurance," Mr. Daniels applies the following rules of apportionment used in different locations to the foregoing case, and shows that each will result in different amounts being paid under the several policies involved. THE READING RULE "Compound insurance shall contribute with specific in proportion as the value of the specific property bears to the value of all the property covered by the compound policy" (Daniels, p. 7). THE CROMIE RULE "When the compound insurance covers property which is not covered by the specific insurance, a portion of the compound insurance equal to the amount of loss on the property not covered by the specific insurance must be set aside to pay the loss. The remainder of the compound insurance contributes with the specific to pay the loss on the property covered by the specific insurance. If the loss on the property covered only by the compound insurance is equal to or greater than the amount of the compound insurance, the compound insurance will be exhausted and there will be nothing to contribute from to help out the specific insurance" (Daniels, p. 7). THE CHICAGO RULE "The compound insurance contributes from its full amount with the specific, to pay the loss on the first item in the general form 'D. Ostrander, "The Law of Fire Insurance," p. 496. on which there is a loss. The remainder of the compound insurance, after deducting amount of loss paid, contributes with the specific insurance on the next item in the general form on which there is a loss. This plan to be followed until the whole loss is paid or the compound insurance is exhausted" (Daniels, p. 23). This rule is widely used by Chicago adjusters. THE HARTFORD RULE "The compound insurance contributes from its full amount with the specific to pay the loss on the item covered by specific insurance on which there is the largest loss. The remainder of compound insurance after deducting amount of loss paid contributes with the specific insurance on the item having the second largest loss. This plan to be followed until the whole loss is paid or the compound insurance is exhausted" (Daniels, p. 25). Also see Schmaelzle vs. London & Lancashire Insurance Co., 53 Atl. Reporter, 841. THE GRISWOLD RULE "Compound policies become specific and cover the several subjects under their protection in the exact proportions of the respective losses thereon" (Daniels, p. 52). Also see Cromie vs. Kentucky & Louisville Insurance Co., 15 B. Monroe (Ky.), 432. THE KINNIE RULE "The principle governing all apportionments of non-concurrent policies is that general and specific insurance must be regarded as coinsurances; and general insurance must float over and contribute to loss on all subjects under its protection, in the proportions of the respective losses thereon, until the assured is indemnified, or the policy exhausted” (Daniels, p. 53). Illustration of Apportioning Compound Insurance.-To illustrate one of the principles of apportioning the general policy over the various items of property insured, the following example and its solution, as discussed by Judge Ostrander,1 will prove instructive. Judge Ostrander regards as most equitable the principle that where general and specific insurance exists on a property, the general policy 1Ostrander, "The Law of Fire Insurance," pp. 493–495. "should apply to each item for purposes of contribution in the proportion that the value of each item bears to the total value of the property." In applying this principle he uses the following example: Let us assume that "A" owns a stock of merchandise valued at $20,000 and distributed over the following items as follows: Dry goods valued.. Boots and shoes valued.... .$10,000 Groceries and hardware valued.... 5,000-$20,000 Let us assume that those three items of stock are insured as follows: On the general stock... Boots and shoes and dry goods.. Groceries and hardware.. .$8,000 Let us assume that a loss of $13,000 occurs as follows: On dry goods... On boots and shoes.. On groceries and hardware. .$5,000 According to the illustration chosen by Ostrander the value of the property is $20,000. The insurance, $17,000, is taken out in three policies, one of which is general, two of which are specific, but all of which are non-concurrent, as regards the description of the property. Applying the principle that the general policy should apply in the proportion that the value of each item respectively bears to the whole value, the general policy will apply as follows to the various items: $4,000 of general policy applies to dry goods, $10,000 (value of dry goods) $8,000, i. e. (amt. gen. policy) 1 $20,000 (total value) $2,000 of general policy applies to boots and shoes, i.e., $5,000 (value of boots and shoes) $8,000 = $4,000 = $2,000 1 $2,000 of general policy applies to groceries and hardware, i.e., $20,000 (total value) |