Opinion
July Term, 1901.
George Richards, for the appellant.
Tracy C. Becker, for the respondent.
The plaintiffs owned an elevator building situate on Blackwell canal and Hatch slip in the city of Buffalo, and known as the Dakota elevator. The defendant issued its policy on the "use and occupancy" of this property. The premium paid was $26.25, and the insurance was not to exceed $1,500. The contract of insurance contained the condition that if "the Property, Buildings or Machinery therein, or either of them, or any part thereof, shall be destroyed, or so damaged as to prevent the elevating and other handling of grain, this Company shall be liable at the rate of $4.77 per day for each working day of such prevention." It was further provided that the loss was to be computed from the date of the fire "to the time when the buildings could, with ordinary diligence and despatch, be repaired or rebuilt and the machinery placed therein, and not to be limited by the day of expiration named in this policy."
On the 13th of August, 1900, the elevator with its contents was destroyed or damaged by fire. Appraisers were appointed in compliance with the terms of the policy to ascertain the length of time which plaintiff would be prevented from carrying on its business, and awarded in their report 259 days. There were many policies of other companies of similar insurance, and the aggregate liability, as adjusted by these appraisers, was $60,328.87, and the proportion thereof chargeable to the defendant is $1,235.41
At the time of the issuance of the policy and also at the time of the loss, the plaintiff with about twenty other elevator companies in Buffalo, and comprising a majority of them in that city, had formed a combination known as the Western Elevating Association. The business of this association was managed by an executive committee chosen by the members composing it. All receipts of money for business carried on by the members of the organization were collected by its treasurer, and after paying the expenses of the combination and certain prescribed charges to the elevator company earning them, the earnings were to be distributed among the various companies in certain percentages set forth in the combination agreement. This agreement was operative substantially during the period of lake navigation and was intended to regulate the rate of elevator charges, which were fixed by said committee and to facilitate the carrying on of the business of handling and trans-shipping grain. The plaintiff, during the existence of this agreement was not restricted in the operation of its plant, and that is true of each representative in the organization. The plaintiff owned its plant and machinery and all the elevator property, carried on its business, employed and paid and controlled its workmen, made its own contracts for the shipping and handling of the grain, and paid its own current and operating expenses, taxes and insurance, and managed its affairs the same as theretofore, but turned over eighty per cent of its elevator receipts into the association to be distributed as their agreement directed. It was like a clearing house for the banks of a city represented in it. Each bank retains control of its affairs but the clearing house committee supervises it and in a measure regulates the business in a general way of all the banks who are interested in the clearing house.
The course of business required that whenever any grain arrived at the port of Buffalo, consigned to any of the elevator companies in the association, the consignee at once reported the fact to the secretary and treasurer of the association and its warehouse receipt was issued to the company receiving the grain and a like course was pursued when grain was shipped out of the said elevator.
The defendant presents several defenses to the collection of the amount fixed by the appraisers as its proportionate share of the loss to the plaintiff. By the terms of the policy it is rendered void if the insured "has concealed or misrepresented * * * any material fact or circumstance concerning this insurance, or the subject thereof, or if the interest of the insured in the property be not truly stated herein." And it is further provided that the policy shall be void "if the interest of the insured be other than unconditional and sole ownership; or if the subject of insurance be a building on ground not owned by the insured in fee simple."
It will be noted that the policy does not insure the buildings of the plaintiff, but the "use and occupancy" of this property. The key note of the argument of the learned counsel for the appellant is that "use and occupancy" signifies "expected profits or estimated net earnings" and it is claimed the plaintiff was not the unconditional and sole owner of these earnings, consequently a material representation in the policy has been violated. We cannot agree with this contention. There is no suggestion in the policy that "use and occupancy" is correlative with earnings or affects them in any way. The insurer agreed to pay absolutely and unconditionally the sum which it fixed in its contract for the loss to the plaintiff by reason of the suspension of its business by fire. That sum was in no way dependent upon the profits which were accruing to the plaintiff for the loss it may have been suffering at the time the fire took place. Whether the plant was in operation, or idle; whether remunerative or not, was of no concern to the defendant. The liability to pay was fixed irrespective of whether the insured lost or gained by the fact that the elevator might not have been running during the time of the rebuilding, even if no fire had occurred. If the business was interrupted by fire of any part, the liability continues during the time required to restore the plant to its former condition. On what the defendant bases its per diem allowance does not appear. The evidence does not show that it exacted a statement to be furnished, preliminary to the issuance of the policy, of the past or prospective earnings of the plaintiff. The insurer was responsible for the rate fixed, and whether founded on earnings or some other grounds, or a mythical basis is a matter of conjecture. "Use and occupancy" may refer to market rental value, to the earnings to the occupant, or to the extent of the business carried on, though it does not inure in profit to the user. During depressed times the business might be extensive and unprofitable, while at other times the net income might be large in proportion to the business done. The amount of the earnings would inevitably be varying and uncertain from month to month, or from year to year, but the amount defendant has stipulated to pay when loss by fire occurs is unchangeable. It is entirely immaterial to the insurer what disposition the plaintiff makes of its earnings, if any there be. If it desires to give them away or assign them or unite them with other like concerns in a common fund for their weal or woe, that agreement does not need the sanction of the defendant to keep alive the policy. It is interested in the occupancy of the plant by the plaintiff, but the use made of its earnings is of no more moment to the defendant than what is paid to the foreman or any of the employees in the elevator building.
The insured did carry on its business. It did retain unimpaired its title to the property. Whatever gives significance to the expression "use and occupancy," as intended in this policy, it continued to be burdened or benefited with. That expression did not contemplate invalidating the policy because the number of men employed in the business happened to be increased or diminished, or because the amount of the business may have been augmented, or because the elevator was run to full capacity, or only occasionally. The vitality of the policy in no way hinged upon the manner in which the property was managed. If the plaintiff parted with the user, if it transferred the occupancy to another, then the insurer might be heard to complain.
The authorities cited by the learned counsel for the appellant do not hold that the expression "use and occupancy" in a policy implies profits or earnings. In Wright v. Pole (1 Ad. El. 621) the insured, whose property, which was an inn, had been burned, sought to recover for loss sustained by him by persons refusing to patronize him while it was undergoing repairs. The court held that these damages were not covered by the policy; that while profits could be made the subject-matter of insurance "he must insure them qua profits." In Niblo v. North American Fire Ins. Co. (1 Sandf. 551) the court also held that profits represented an insurable interest, "but they must be insured as such." In Abbott v. Sebor (3 Johns. Cas. 39) the court decided that a person interested in the subject-matter from which the profits are derived may insure those profits. In these cases, it will be observed, the court simply holds that profits may be the subject-matter of insurance, but in order to be covered they must be included specifically in the policy. The cases proceed upon the assumption that the policy determines what is insured and nothing will be read into the policy to relieve the insurer from the strict performance of the agreement or to add to the burdens it has undertaken to meet.
It is undoubtedly true, as urged by the counsel for the appellant, that the essence of an ordinary fire insurance policy is indemnity against loss. There is this in the present policy, however, that distinguishes it from the ordinary open policy. The sum stipulated in that contract may be subject to diminution for various causes. This policy is analogous to the so-called valued policy. The sum to be paid is fixed by the insurer and is not subject to variation. The insurer is to pay four dollars and seventy-seven cents per day during the time the plaintiff is prevented from doing business by reason of the fire loss, and that is not made dependent on whether the insured is carrying on a profitable business. It may have had unfortunate contracts which were terminable by the fire so that the suspension of business would be to the pecuniary benefit of the plaintiff. Still the defendant must pay the stipulated sum. Interruption of business, when the insured is to be paid in the meantime, may often be gainful to him, but that is no reason why the insurer should evade payment. The weekly indemnity paid to an injured person who is insured by an accident company may exceed what he has been earning when in full health, but it has agreed to pay a certain sum for the specific disability inflicted and that is the measure of its liability.
In construing a valued policy the court, in Voisin v. Providence Washington Ins. Co. ( 51 App. Div. 553), use this language (at p. 560): "This was a valued policy, and undoubtedly the rule is well settled that the value of the goods stated in a valued policy is, in the absence of fraud, conclusive between the parties, however largely in excess of the true value."
Wood, in his work on Fire Insurance, thus states the principle in section 43: "When a valuation is made by the insurer he is, in the absence of fraud, estopped from disputing it, and is liable for the value fixed, although the real value of the loss is less than the sum insured. In such cases the insured is required to make no proof as to value. His case is made when he establishes a total loss of the property, and a substantial interest in a subject corresponding to and satisfying the description mentioned in the policy."
The defendant's argument rests upon the fallacious assumption that the plaintiff has parted with its earnings and profits. The twenty elevator companies forming the pool put their profits in the common fund and it is distributed according to a prescribed schedule of percentages. Presumptively each company received what it earned, less the small expenses incident to the management of the business by the combination. Instead of retaining its profits primarily it receives them for convenience through an agent. If the gross earnings of the plaintiff were turned over to one of its members to be used by him in defraying the expenses, and then distributing the net profits among the stockholders, I think there would be no surrender of its receipts. Is it any more so when they are paid to a treasurer in conjunction with twenty other like concerns, each receiving its aliquot portion through the medium of their common representative? Nor do I think the plaintiff, by joining in this combination, violated that provision of the policy which makes it void "if any change other than by the death of an insured, take place in the interest, title or possession of the subject of insurance (except change of occupants without increase of hazard), whether by legal process or judgment, or by voluntary act of the insured, or otherwise." This pertains to a change in the use and occupancy which is the subject of the insurance. Of course if profits are not within the scope of the contract, any transfer of them is not repugnant to it.
It is urged that inasmuch as the combination agreement provides that "destruction by fire * * * shall not deprive such elevator representative of his participation in the division of earnings," the plaintiff, if permitted to recover on its policy and participate in the common profits as well, obtains double compensation for its loss. The inability to do business by reason of the loss by fire lessens the profits of each elevator company in the association. In the present case it is stipulated that the gross earnings collected by the Western Elevating Association during the time of the interruption of plaintiff's business was $50,000 less by reason thereof, and plaintiff's percentage of that loss was about $3,000. This question, as well as the other upon which defendant hopes to escape payment, depends upon the vital one whether the earnings or their disposition are of any concern to the insurer.
By the stipulated facts it appears that since the fire the earnings paid over to the plaintiff by the Western Elevating Association amount to $30,000, and this will be augmented by the further sum of $2,698, and the defendant contends there should be credited on this policy its proportion of these earnings, and which, it is conceded, amount to $614.24. In Foley v. Manufacturers' Fire Ins. Co. ( 152 N.Y. 131) the policy was upon three dwelling houses in process of construction, which were destroyed by fire. By the terms of the contract between the owners and the builders, the latter were charged with the burden of completing the buildings so that the owners were not liable to the contractors for the materials furnished or the work done. The court held that the contract of insurance was unaffected by the agreement with the contractors, there being no exemption clause in the policy. The following is an extract from the opinion (at p. 135): "But the contract relations between the plaintiffs and the contractors is a matter in which the defendant has no concern. When the policy was issued it could not be known whether the contractors would perform their contract. If they abandoned it the owners would derive such advantage as would accrue from the partial construction of the buildings prior to such abandonment. It is possible that if the defendant is compelled to pay the policy the plaintiffs may, if they insist upon their rights against the contractors, get double compensation, unless they should be adjudged to hold the fund recovered for the contractors. But, however this may be, the owners had an insurable interest to the whole value of the buildings on their land, and the defendants neither can compel the plaintiffs to put the loss on the contractors, nor can they resort to the terms of the building contract to diminish the liability for an actual loss within the terms of the policy."
If a portion of a tenement house is destroyed by fire and the owner is fortunate enough to lease the portion remaining uninjured for as much as he had been gaining from the whole building, the insurer under a policy of this kind is not entitled to a reduction by reason of the fact that the insured sustains no loss in earnings. The difficulty with counsel's argument is that this policy is not unqualifiedly a contract of indemnity. As already stated, it partakes of the character of a valued policy, and in the absence of fraud no diminution of the stipulated sum when adjusted is permissible to the defendant.
The defendant took part in the selection of the appraisers, and I seriously doubt its right to interpose the defense of breach of warranty ( Smith v. Glens Falls Ins. Co., 62 N.Y. 85), but I prefer to uphold the claim of the plaintiff on the ground already stated.
The policy was prepared by the insurer and evidently for the protection of its interests and should be construed most favorably to the insured if the meaning of any part of it is in doubt. ( Matthews v. American Cent. Ins. Co., 154 N.Y. 449, 456.)
The judgment and order should be affirmed, with costs to the respondent.
All concurred.
Judgment and order affirmed, with costs.