are not liable for loss or damage occasioned by overheating, as long as the fire which caused the excessive heat has not left its proper receptacle. "Loss or damage by fire" also includes damage caused by water used in preventing the destruction of the building and its contents; and, unless stipulated to the contrary in the policy, comprises loss by theft or damage by breakage resulting from the process of removing goods in order to save them from destruction.

Excluded Risks.-Unless the policy contains provisions to the contrary, fire-insurance companies are held liable for loss or damage by fire occasioned by any cause not expressly excepted in the policy. In view of this general rule, and for the purpose of protecting the company against certain undesirable risks, the standard fire policy contains the following provisions (lines 31 to 37, inclusive):

"This company shall not be liable for loss caused directly or indirectly by invasion, insurrection, riot, civil war or commotion, or military or usurped power, or by order of any civil authority; or by theft; or by neglect of the insured to use all reasonable means to save and preserve the property at and after a fire or when the property is endangered by fire in neighboring premises; or (unless fire ensues, and, in that event, for the damage by fire only) by explosion of any kind, or lightning; but liability for direct damage by lightning may be assumed by specific agreement hereon.

"If a building or any part thereof fall, except as the result of fire, all insurance by this policy on such building or its contents shall immediately cease.

A few words of explanation are necessary to show why the standard policy expressly excludes some of the foregoing risks. The reasons, briefly stated, are as follows:

1. Loss resulting from invasion, riot, order of any civil authority, etc., are not covered by the standard policy, partly because they are usually extraordinary losses occurring under conditions which make the extinguishment of the fire diffi

cult, and partly because in most cases they may be recovered from the municipality or state.

2. Loss through theft in the process of removing goods is expressly eliminated, because it is especially hazardous from the standpoint of the moral hazard.

3. Loss by explosion must be distinguished from that caused by the subsequent fire, and the courts have repeatedly held that a fire and an explosion risk are inherently different. Therefore the standard fire policy provides that the company shall not be liable for loss by explosion of any kind, unless fire ensues, and in that event for the damage by fire only. This rule at times presents difficult cases for adjustment, because where a fire immediately follows an explosion it is frequently impossible to determine the amount of loss occasioned by the explosion, as separate from the loss caused by fire.

4. Loss through lightning is not covered by the policy unless the risk has been specifically assumed by an agreement indorsed on the policy, except where fire results from the lightning, and then, as in the case of explosion, the company's liability is limited to the damage occasioned by the fire. The agreement indorsed on the policy, which is called the lightning clause, usually reads as follows:

"This policy shall cover any direct loss or damage caused by lightning (meaning thereby the commonly accepted use of the term lightning, and in no case to include loss or damage by cyclone, tornado, or windstorm) not exceeding the sum insured nor the interest of the insured in the property, and subject in all other respects to the terms and conditions of this policy."

5. Loss in case the building has fallen "in whole or in part" is not covered by the policy, on the theory that when the insured building has fallen in part or in whole, it is no longer the original building which burns, but simply the débris.

Excluded Articles.-Line 38 of the standard policy provides against the insuring of a list of enumerated articles, which, in most cases, are simply evidences of ownership, and therefore not inherently valuable. The policy reads: "This company shall not be liable for loss to accounts, bills, currency, deeds, evidences of debt, money, notes, or securities." These articles are not insured, partly because they afford opportunity for fraud, being subject to easy concealment; and partly because the determination of the value of these articles is difficult, the company being obliged in most cases to depend upon the statements of the insured.

Another group of articles mentioned in line 39 and following are of such a nature that the companies insure them only if liability is specifically assumed by indorsement on the policy. With reference to these articles the policy reads: "This company shall not be liable. . . unless liability is specifically assumed hereon, for loss to awnings, bullion, casts, curiosities, drawings, dies, implements, jewels, manuscripts, medals, models, patterns, pictures, scientific apparatus, signs, store or office furniture or fixtures, sculpture, tools, or property held on storage or for repairs." These articles, unlike the first group, possess value, but it is apparent that their value is not easily determined, and may be the subject of much dispute. In many instances the value may be largely a sentimental one, concerning which opinions greatly differ. Companies, therefore, before assuming liability for the loss of the same, desire to prescribe special conditions. The policy further provides that the company shall not be liable (lines 41 to 44, inclusive)

"Beyond the actual value destroyed by fire, for loss occasioned by ordinance or law regulating construction or repair of buildings, or by interruption of business, manufacturing processes or otherwise; nor for any greater proportion of the value of plate glass, frescoes, and decorations, than that which this policy shall bear to the whole insurance on the building described."

The Company's Liability for Loss Limited to the Actual Cash Value of the Property.-A very important provision of the standard policy is that which limits the company's liability to the actual cash value of the property at the time of the loss. The clause reads (lines 1 to 4 inclusive):

"This company shall not be liable beyond the actual cash value of the property at the time any loss or damage occurs, and the loss or damage shall be ascertained or estimated according to such actual cash value, with proper reduction for depreciation, however caused, and shall in no event exceed what it would cost the insured to repair or replace the same with material of like kind and quality; said ascertainment or estimate shall be made by the insured and this company, or, if they differ, then by appraisers, as hereInafter provided; and, the amount of loss or damage having been thus determined, the sum for which this company is liable pursuant to this policy shall be payable sixty days after due notice, ascertainment, estimate, and satisfactory proof of the loss have been received by this company in accordance with the terms of this policy."

This policy provision conforms with the true object of the fire-insurance contract, namely, to furnish indemnity for the destruction of actual property values. In other words, even though the face value of the policy is for a larger amount, the insurance company should never be held liable for more than the actual cash value of the property at the time of the fire. As explained in the chapter on "The Policy Contract," many causes operate to decrease the value of property during the interval between the time of the issuance of the policy and its maturity. Again, it should be borne in mind that even though values did not fluctuate, it is impossible for companies to make absolutely accurate inspections of the property at the time the risk is assumed. Experience shows that only about one in every ten claims represents a total loss. Out of every 100,000 properties insured only about 3,333 suffer a loss, and only about 333 suffer a total loss. Where partial losses occur, an adjustment

must be made in any case. Is it not much more desirable, therefore, from the standpoint of expense, to defer a thorough investigation, as to actual value, to the 333 cases of total loss, when the losses occur, than to make the same originally in the case of the 100,000 properties?

Despite the fundamental principle of indemnity in fire insurance, and the much greater economy in deferring careful examinations to the time of the loss, it is a most regrettable fact that nearly one half of the states of the Union have seen fit to pass laws which, in the case of realty, make the company liable for the face value of the policy in case of a total loss. Thus the recent Minnesota law (1907, Chap. 446) is to the effect that every company insuring any building against loss, shall cause the same to be previously examined and to have its insurable value determined. The law further provides that in the absence of any increase in the risk without the consent of the insurer, in which the burden of proof shall be upon the company, and in the absence of intentional fraud upon the part of the insured, the company shall be liable upon the whole amount mentioned in the policy in case of total loss. Such so-called "valued policy laws" are opposed to the very principles underlying fire insurance, and furnish a motive for fraud, resulting in the payment of dishonest claims out of the premium contributions of the honest. They have proved exceedingly expensive to the policy-holders of the states which have enacted the same, and are sure greatly to increase the moral hazard.1

The Option to Rebuild or Replace. -Following the clause just explained, lines 4 to 6 of the standard policy read, "it shall be optional, however, with this company to take all or any part of the articles at such ascertained or appraised value, and also to repair, rebuild, or replace the property lost or damaged with other of like kind and quality within a 1 See Mr. Dean's discussion of valued policy laws contained in pp. 103 to 111 of "The Rationale of Fire Rates," Chicago, 1901.