mon practice for groups of companies, where there is a mutual feeling of reliability, to assist each other in the distribution of risks. Thus one company may write a policy for $100,000 on a given property, although it may desire to retain only $10,000. In that case the company will place the remaining $90,000 with other companies, and these reinsuring companies, in turn, may again divide their risk by having a portion reinsured in other companies. By thus carefully restricting their "lines," and having all surplus lines reinsured, the liability of the companies is so well distributed that even large conflagrations like those in Baltimore and San Francisco will result in but few failures, and in most instances will not even lead to a reduction of the dividends to stockholders. Conditions Required in Effecting Reinsurance.-Line 100 of the standard fire policy provides that "liability for reinsurance shall be as specifically agreed hereon." While this provision leaves the arrangement of conditions governing the reinsurance contract to the companies interested, certain precautions are almost invariably taken. In the first place, reinsurance should be effected for a company only when its line is too large for it to carry, and not when its desire to reinsure is prompted by a knowledge that the rate is too low or that the risk is too hazardous or otherwise undesirable. Reinsurance should especially be avoided where a moral hazard is found to be involved. Precaution should be taken to prevent the reinsuring company from separating the risk, retaining the best portion, and, through reinsurance, relieving itself of the most hazardous portion at the rate charged for the combined risk. It is also essential that the reinsuring company should not insure a policy for more than is retained by the reinsured company, even though the excess can be placed with other companies. To do otherwise may simply mean that the reinsuring company is guaranteeing the policy of a weaker company. The reinsurance of a portion of the excess amount assumed with other companies will not necessarily protect the reinsuring company. In law it is held liable for the full amount assumed, and runs the chance of not being able to collect the portion which it in turn reinsured in another company. Thus, supposing that Company A writes a policy of $30,000 on a building, and, not wishing to carry so large a risk, induces Company B, a very reliable company, to reinsure it for $25,000. Company B, however, desiring to limit its loss, reinsures one half of its risk ($12,500) with Company C. Now let us suppose that owing to a conflagration, involving the loss of the insured building, Company C becomes insolvent. In that case Company B is legally liable to Company A for the entire $25,000 it assumed, and takes its chances of collecting only a portion of the $12,500 which it reinsured with Company C. The importance of the foregoing considerations is generally recognized, and reinsurance agreements almost invariably contain conditions which seek to protect the reinsuring company from such contingencies. While the wording of the agreements for reinsurance is not always alike, the following two agreements are representative of those in general use: in the name of .... $........ of its liability as insurers under its Policy No. issued in the sum of $... covering the property described in the form attached to this policy. This reinsuring policy is subject to the same risks, conditions, indorsements, assignments, valuations, and modes of settlement as are or may be assumed or adopted by the reinsured company. Loss, if any, to be paid pro rata with the reinsured, and at the same time, and upon the same terms and conditions. It is understood and agreed that the company reinsured retains at its own risk at least an equal amount on the identical property reinsured by this policy. Other reinsurance permitted without notice until required. of the issued Agent. (2) THE INSURANCE COMPANY In consideration of the premium to be paid as set forth hereon does hereby reinsure the on such property, for such amounts and for such period as shall be referred to and specified upon the reverse of this card. It is a condition of this reinsurance that the reinsured company is to retain at its own risk, on the property on which this reinsurance applies, an amount equal to the amount of this policy, or failing to do so, this company shall not be liable for an amount greater than that for which the reinsured company may be liable for its sole account. It is further understood and agreed that such reinsurance is a pro rata part of each and every item insured by the policy of the reinsured company and is subjected to the same risks, valuations, conditions, and mode of settlement as may be taken or assumed by said company; it being expressly agreed, however, that notice of any change in the risk or additional privileges granted shall be at once given to this company. Loss, if any, payable at the same time and in the same manner and pro rata with amount paid by said company. Other reinsurance permitted subject to the aforesaid conditions. IN WITNESS WHEREOF, the said Company of to be executed and attested, in day of Insurance has caused these presents upon the But the same shall not be valid until counter signed by its Secretary. In other instances the form of reinsurance agreement contains the stipulation that "it is a condition of this reinsur ance that if the reinsured policy is canceled or reduced in amount, this policy shall be canceled or reduced in like proportion, and that the reinsured company is to retain at its own risk (exclusive of any and all reinsurance) under the policy hereby reinsured an amount equal to the proportion which the amount of this policy bears to the amount of the particular policy hereby reinsured at the date this reinsurance is effected." The Application of the Reinsurance Contract to the Original Insured.-By the weight of authority the original insured is regarded as a stranger to the contract of reinsurance, unless it is specifically agreed that he shall have an interest therein. In other words, when one company reinsures the risk of another, the contract is considered as having been made only between these two companies, and the reinsuring company is liable only to the reinsured company, and not to the policy-holder. Thus if property owner A insures his property for $10,000 with Company B, and B reinsures $5,000 of this risk with Company C, Company C will be liable only to B and not to the policy-holder A. In case B should be insolvent, it follows that A, in case of total loss, cannot collect the $5,000 directly from C. This sum will be paid to B, and when merged with the assets of this company for the general benefit of creditors, will somewhat enlarge the dividend paid to A as a creditor, but will nevertheless result in a loss. The case, however, is different where the policy-holder has been promised in the reinsurance contract that losses will be paid to him. Under such an agreement the policy-holder is entitled to collect his indemnity directly from the reinsurer.1 1A few recent cases hold the contrary view, and regard the reinsurance contract written for the benefit of the policy-holder. See Hunt vs. New Hampshire, etc., Assn. (68 N. H., 305), and Shoaf vs. Palatine Ins. Co. (127 N. C., 308). CHAPTER XIX THE ASSIGNMENT OF FIRE POLICIES IN a former chapter reference was made to a section in the standard fire policy which relieves the company of all liability, unless it has given its consent, in case the insured property is sold, or there has been a change in title, interest, or possession. The fire policy, we saw, is essentially a personal contract, and this provision is, therefore, necessary and reasonable as a precautionary measure against fraud. For the same reason the standard policy contains another provision which prevents the assignment of the policy without the company's consent to a vendee of the property or to a creditor, or other interested party. The provision reads: "That this entire policy shall be null and void if without the consent of the company there be an assignment of the policy before a loss takes place." It is a common practice for companies to consent to the continued validity of the policy as far as the purchaser of the insured property is concerned, where they are satisfied with his character. But the frequent extension of such acts of grace to the insured should not be interpreted as creating a general usage which compels the company to accept the purchaser as the insured. In life insurance the courts of many states have decided that, in the absence of restrictive provisions, the policy is assignable. But in fire insurance, on the contrary, it is a well-established legal principle that the policy, since it is a personal contract, can be assigned only with the consent of the company. In case of the transfer of the insured property, the company may refuse its con |