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CHAPTER XI

CONTRIBUTION IN FIRE INSURANCE

"CONTRIBUTION," or the apportionment of loss where several fire-insurance policies have been written on the same interest, involves some of the most important and, at the same time, most perplexing problems to be met with in the adjustment of losses.1 Lines 96 to 100 of the standard fire policy provide that "this company shall not be liable under this policy for a greater proportion of any loss on the described property, or for loss by and expense of removal from premises endangered by fire, than the amount hereby insured shall bear to the whole insurance, whether valid or not, or by solvent or insolvent insurers, covering such property, and the extent of the application of the insurance under this policy or of the contribution to be made by this company in case of loss, may be provided for by agreement or condition written hereon or attached or appended hereto.'

Apportionment of Loss where the Policies are Concurrent.-Where the several policies covering the same interest are alike in all their terms, i.e., are "concurrent," the application of the foregoing rule is a simple matter. For the purpose of explanation, let us assume that the owner of a

'The best discussion of contribution, involving an explanation of the various rules for apportionment of losses, and a statement of the principal legal decisions, is contained in W. H. Daniel's "The Apportionment of Loss and Contribution of Compound Insurance. Published by Rough Notes Co., Indianapolis, Ind., 1904. An excellent discussion, from a legal standpoint, is also found in Ostrander's "The Law of Fire Insurance."

property valued at $40,000 has the same insured to the extent of 80 per cent of its value, or $32,000, in three different companies as follows: in Company "A" $8,000, in Company "B" $10,000, and in Company "C" $14,000. Now let us assume that a loss of $10,000 occurs. If all the policies agree in their wording, and cover the same interest, it follows from the apportionment clause just quoted that each insurer is liable for the payment of only a ratable proportion of the $10,000 loss. Since Company "A" carried only $8,000 of insurance on the risk, it will not be liable for a greater proportion of the $10,000 than the amount of its insurance ($8,000) bears to the whole insurance on the property ($32,000), or one fourth. In the same way Company "B" will only be liable for 12 of the $10,000 loss, i.e., the proportion that its insurance, $10,000, bears to the total insurance of $32,000, and Company "C's" liability will be limited to Company "A;" therefore, will pay $2,500 of the loss, Company "B" $3,125, and Company "C" $4,375. It will be apparent that if the insured carries insurance equal to or greater than the amount of the loss, this loss will be paid in full. In fact, the courts have decided again and again that where the insurance exceeds the loss, no rule of apportionment can be recognized which will not fully indemnify the insured.

Special mention should be made of that section of the contribution clause, which provides for pro-rata apportionment among all the policies, "whether valid or not, or by solvent or insolvent insurers." Such a clause avoids many troublesome questions, as to the validity of policies and the solvency of companies, which would frequently arise where a number of policies cover the same property and which would have to be settled before the loss could be apportioned. But by expressly declaring that invalid policies or policies issued by insolvent companies must contribute just like the others, it becomes possible to avoid the expense and

delay always connected with any inquiries into the validity of policies or the solvency of companies. This part of the apportionment clause is also of the greatest importance to the property owner who may rely upon the chance that he will only suffer a partial loss, and may, therefore, feel that he can afford, in part at least, to take cheap insurance in an unreliable company. If the policies of insolvent companies were not considered as contributing with those of the solvent companies, it would inevitably follow that property owners, who are constantly on the lookout for cheap insurance, would take part of their insurance in reliable companies charging adequate rates, with a view to covering their partial losses, and then, as a protection against unusual losses which they hardly expect, would take other insurance in unreliable companies charging inadequate rates. The contribution clause as it stands, however, gives fair warning to property owners that such a practice can prove of no benefit because, whether the loss be partial or total, all policies in companies unable to pay will be considered as contributing on a pro-rata basis with those issued by solvent insurers. If in the foregoing illustration Company "C" should have been able to pay only 50 cents on the dollar, it would, nevertheless, be considered as having contributed of the $10,000 loss. Companies A and B, despite the insolvency, would pay only their respective portions of and of the loss, and the property owner would be the loser of one half of Company C's liability, or $2,187.50.

Contribution when the Policies are Non-Concurrent.-As contrasted with the foregoing, much greater difficulties present themselves in the apportionment of a loss when two or more policies are issued on the same interest and are "nonconcurrent," i.e., do not agree in their terms. As some

times happens, a number of policies may be written on the same interest, and differ as to the description of the property, one policy insuring the building, another covering the

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.

panies 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

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