with a $2,000 policy.

At a rate of 1 per cent the first owner

Now let
In case

pays a premium of $80, and the second only $20. us assume that both owners suffer a loss of $2,000. there were no coinsurance both owners would receive their $2,000, although one paid four times as large a premium as the other.

Again, to use an excellent illustration of the unfairness of issuing policies without incorporating the coinsurance principle, let us assume that "A' and 'B' each own a half interest in a building having a present structure value of $20,000. Each insures his half interest separately and in different companies; each company charges the same percentage or 'rate' for insuring the property, and that ‘rate' is 1 per cent, or $10 for $1,000 of insurance. 'A' insures his half in the 'Y' company for $10,000, and pays for his policy $100. 'B' insures his half in the 'Z' company for $5,000, and pays for his policy $50. A fire occurs and the building is damaged to the extent of $10,000 only. Company 'Y,' insuring 'A,' is called on to pay but 50 per cent of the amount of its policy, while company 'Z' pays 100 per cent; and yet company 'Y' received twice as much premium as did company 'Z.' "'1

The above illustrations demonstrate that a disregard of the coinsurance principle results in a grave injustice to those who do not desire to run the risk of taking partial insurance, and who, in consequence, pay premiums out of all proportion to the benefits received. The coinsurance clause, however, remedies this injustice by providing that every property owner shall have his losses paid only in the proportion that he is willing to pay a premium. In our first illustration one of the owners was willing to pay only one fourth as

'Illustration furnished by President Evans of the Continental Fire Insurance Company and published in F. C. Moore's "Fire Insurance and How to Build,” p. 577.

much premium as the other, who was willing to pay the premium required of the community in general. Justice demands that he should receive in the proportion that he was willing to pay premiums, and accordingly is entitled to only one fourth of his loss, or $500.

But coinsurance serves another very useful purpose in protecting property owners against the efforts of great industrial and mercantile corporations to shirk the payment of their just share of premiums. In most large mercantile and manufacturing plants it will be found that the property is either situated in different localities, or that the contents of a given building are stored in different compartments, each separated from the other by fireproof walls, or at least so protected that in the great majority of cases the fire can be easily confined to the compartment where it originated. Under such circumstances a total loss is hardly to be expected, and no one realizes this better than the property owner. Thus, let us assume that a merchant is the owner of two stocks of goods, situated in two localities, "A" and "B," and worth, respectively, $10,000 and $5,000. If these two stocks of goods are situated so far from each other that from a fire-insurance standpoint neither is affected by the other, it is apparent that, if permitted, the merchant could fully protect himself by taking out a blanket policy of $10,000, covering both items, since his loss could not exceed this amount, except under the most unusual event of a fire occurring in both properties at the same time. In other words, $15,000 worth of property would be effectually covered by $10,000 of insurance.

No insurance company could afford to insure the property of large concerns in this way, and so until comparatively recent years it was the general practice of American companies to require a specific amount of insurance on each isolated compartment. Soon, however, it became evident that many property owners were suffering an injustice through

the requirement for specific insurance. While buildings could be easily insured under different policies, it was impossible for the merchant to know in advance how much insurance he would require on the contents in given buildings or compartments, since the amount of his stock in different localities was constantly changing, and his books could not be kept in such a way as to show the value in each locality. The manufacturer also complained that in the process of manufacture his property moved from hour to hour, from one compartment to another, and that it was impossible to keep track of the value of the property in different parts of the factory.

So in one line of business after another there arose a demand for insurance written in such a way as to insure against loss resulting from the origin of a fire in any part of the establishment. To meet this need the companies began to issue blanket policies covering the entire property. But to prevent the owner from securing full protection for all the items of property by simply taking out a policy equal in amount to the value of the most valuable item, the companies issued the blanket policy "with coinsurance"; according to which the insured agreed to keep his property insured for 80 per cent of its value; and, in case this was found not to have been done, his losses were to be paid only in the proportion that the amount of insurance he carried bore to the 80 per cent of value required.

Where property is thus distributed over several items and changes its location from time to time, the interests of both insured and insurer are protected by the use of the "distribution form" of the coinsurance clause. The adjustment of losses under this plan will become clear if we revert to our last illustration, where a merchant is the owner of two stocks of goods, situated in two localities, "A" and "B," and worth respectively $10,000 and $5,000. Let us assume that these two items are insured this time under a blanket

policy of $10,000, with an 80 per cent coinsurance clause, and that a loss of $2,000 occurs in "A."

In determining the liability of the insurance company, it should be stated that the distribution form of the coinsurance clause automatically distributes the blanket policy at the time of the fire in such a manner that each separate item is covered in the proportion that the value of that item bears to the combined value of all the items. Since, in the above illustration the merchant saw fit to carry a blanket policy of only $10,000 on two items of property worth $15,000, it follows from the above rule that the property in "A" is only covered by the $10,000 blanket policy in the proportion that its value ($10,000) bears to the combined value of both items ($15,000), i.e., to the extent of two thirds of $10,000, or $6,666.66. If no provision had been made for coinsurance, the $2,000 loss in "A" would be paid in full, since $6,666.66 of insurance is available. But in this case the blanket policy was written with 80 per cent coinsurance, and the merchant was thus required to insure his $15,000 worth of property in "A" and "B" to the extent of 80 per cent of the value, or $12,000. Since he took out only $10,000 worth of insurance, his loss of $2,000 in "A" will be paid only in the proportion that his policy of $10,000 bears to the required insurance ($12,000), or five sixths, making the claim $1,666.66.

The fairness of coinsurance as a means of establishing equitable rates is so well recognized that in practically all parts of Europe the agreement is invariably used, and in many countries, like France, Italy, Spain, Portugal, and Belgium, is made compulsory by law. The principle has also been used in marine insurance from the earliest times. In the United States, however, it was not until about 1890 that a serious attempt was made to apply coinsurance generally to fire policies. Even to-day the vital importance and inherent justice of the practice are not appreciated in many

sections of the country. No less than ten states now have so-called anti-coinsurance laws upon their statute books. The recent law of Louisiana (chapter 187, passed in 1908) may be cited as an illustration. It reads: "No insurance policy hereafter issued by any insurance company authorized to do business in this state shall contain any clause or provision requiring the insured to take out or maintain a larger amount of insurance than that covered by such policy, nor in any way providing that the insurer shall be liable as coinsurer with the company issuing the policy for any part of the loss or damage which may be occasioned by fire, lightning, or wind-storm, to the property located in this state, covered by such policy, nor making provisions for a reduction of such loss or damage by reason of failure of the assured to take out and maintain other insurance upon said property."

Legislation of this sort shows a woeful ignorance of the true relation of fire insurance to the business community, and deliberately puts it in the power of large business concerns, with scattered property interests, to shift a large share of their fire tax upon the small property owner. It overlooks the fact that the application of the coinsurance principle must be likened to the application of a government tax. Fire insurance, as already noted, is a tax paid by all the property owners of the community for the purpose of indemnifying unfortunate losers. In form it resembles a general property tax, except that it is collected and disbursed by private companies instead of by the government. As the government tax, to be equitable, is paid by the owners of property in proportion to the value of the same, so the fireinsurance tax, to be equitable, should also be based upon the value of the property owned, and not according to what the insured may choose to pay. As every state and municipality adopts a uniform method of assessment in levying its tax with a view to preventing discrimination, so in fire insurance