Opinion
July Term, 1898.
George Clinton and Harvey D. Goulder, for the appellant.
Norris Morey, for the respondents.
This case appears to have been twice tried. Upon the first trial a verdict was directed in favor of the defendant, which was set aside by the General Term and a new trial ordered.
Several of the questions which are involved in the present appeal were litigated upon the former trial and adjudicated by the General Term when the case was in that court for review. It was there contended by the defendant, as it is now, that the plaintiffs were not entitled to recover, for the reason that, in the application for insurance by the assured, it was represented that the vessel was "laid up" at L'Anse, whereas, in fact, it was at the time the contract of insurance was entered into and at the time the fire occurred, preparing to continue its voyage to Duluth.
Upon the first trial this was treated as a question of law, and, as already stated, it was decided by the trial court in favor of the defendant; but it was held by the General Term (92 Hun, 527) that the evidence upon this subject, which was not materially different from that contained in the present record, presented an issue of fact which ought to have been submitted to the jury. The procedure, therefore, which was adopted, and the result which was reached upon the second trial, ought not, so far as this particular question is concerned, to be disregarded by this court, unless it be made to appear either that the former decision was clearly erroneous or that the verdict was unsupported by evidence.
There certainly was a very sharp conflict in the evidence which bore upon this feature of the case. Upon the one hand it was made to appear that after the vessel had reached L'Anse and the process of dismantling had commenced, instructions were received from the charterer to resume the trip to Duluth, the original point of destination, in consequence of which the work of stripping the vessel preparatory to its being "laid up" for the season was suspended, and it was to some extent at least put in condition to complete its trip. Upon the other hand, evidence was given which tended very strongly to show that, notwithstanding these instructions and the steps taken by reason thereof, the idea of proceeding any further was abandoned prior to the fire in consequence of the refusal of the party authorized by the underwriters to take charge of the vessel, to have anything further to do with it, after his quarrel with the captain.
There was, likewise, considerable expert evidence given to prove that the vessel was, and that it was not, "laid up," within the definition of that term as it is understood by navigators and persons engaged in the business of fire and marine insurance. But without entering further into the details, it is sufficient to say that if the question of whether or not the steamer was actually laid up, was one of fact, the verdict of the jury is not without evidence to support it, and it is, therefore, conclusive upon this court.
Several other propositions are pressed upon our attention by the learned counsel for the defendant, which were disposed of upon the former appeal, and, as already intimated, as to those we are inclined to regard the decision of the late General Term as the established law of the case for the purposes of this review. There is, however, one question presented upon this appeal which, to our mind, is of vital importance, and yet, for some unexplained reason, it has not, up to the present time, been regarded as a very potent factor in the case. We refer to the omission of the owners of the vessel to disclose the condition it was in at the time application was made for its insurance.
It is an undisputed fact that the disaster which overtook the Northerner when it ran aground at Keweenaw Point, was a very serious one; that in order to get the steamer off the ground a large portion of its cargo was jettisoned; that when righted it was discovered that the vessel was leaking at the rate of ten inches an hour, in consequence of which it became necessary to seek a haven of safety, and to keep the steam up and the pumps working in order to prevent the vessel sinking. It also appears that some 2,500 barrels of the kerosene oil were jettisoned, and that a large number of barrels containing lubricating oil were broken open, and their contents poured over the side of the vessel. This operation must of necessity have saturated the vessel with oil, and very materially increased the risk from fire. Indeed, several witnesses called on behalf of the plaintiffs testified that by reason of the condition the vessel was in when it reached L'Anse, the risk would have been regarded as an extraordinary one, and one which it would be difficult, if not impossible, to get any insurance company to accept if the facts were known.
It appears that immediately upon reaching the harbor of L'Anse both the charterer and owners were notified by telegram of the accident which had befallen the vessel, and of the condition it was in.
Mr. Ward, the charterer, testified: "I heard of the disaster to the Northerner in December, 1892. I think it was the 7th or 8th of December. I became acquainted with the fact from a telegram received from Capt. McKinnon, of the boat, from L'Anse. I answered that telegram to the effect that he had better lay up there. As soon as I had done that I telegraphed to Mr. Blakeslee, the managing owner, of Rochester, that the boat was at L'Anse and would remain there, and to place his fire insurance."
Mr. Blakeslee also testified that he was advised of the arrival of the vessel at L'Anse, and of the disaster at Keweenaw Point; and it appears that he thereupon telegraphed Mr. Hitchcock to obtain the necessary insurance, which, as we have seen, was accomplished the following day, the underwriters, as well as Hitchcock, being in entire ignorance of the actual condition of the vessel at the time the contract of insurance was entered into. In view of these conceded facts, the inquiry which at once suggests itself is, what, if any, duty of disclosure rested upon the assured when making application for insurance upon this property?
A contract of insurance is one which requires perfect good faith upon the part of the insured, upon whom the obligation rests not to suppress any facts and circumstances material to the risk which would mislead the company, and thereby induce it to assume a risk which it would not assume if such facts and circumstances were disclosed. ( Skinner v. Norman, 18 App. Div. 609. ) It has long been the well-settled law of marine insurance that the concealment of a material fact avoided the contract ( Watson v. Delafield, 2 Johns. 526; Gates v. Madison Co. Mutual Ins. Co., 5 N.Y. 469; M'Lanahan v. Universal Ins. Co., 1 Pet. 170); and in the case last cited it was held that if the owner possesses secret information respecting a fact material to the risk, and with such knowledge permits his agent to procure insurance in ignorance of the existence of the fact, for the purpose of misleading the underwriter, it is no less a fraud than it would be if he made the application himself. And although the same general principles are said to apply to the contract of fire insurance, it has been held that in the absence of fraud, "if the applicant for such insurance make a full and true answer to the questions put to him by the insurer, it is enough; he is not answerable for an omission to mention the existence of other facts about which no inquiry is made of him, though they may turn out to be material for the insurer to know in taking the risk." ( Gates v. Madison Co. Mutual Ins. Co., supra.)
This difference between marine and fire insurance is said by a recognized authority upon the subject to be not "so much one of doctrine as of the subject-matter, and of the degree of confidence necessarily placed in the assured by the underwriter." (1 Philips Ins. ¶ 635.)
Property insured against loss or damage by fire is, says this same author, "usually stationary and the risk local, and within the limits of actual inspection by the insurers or their agents. * * * And besides, the inquiries put to the assured, his answers to which are usually referred to in the policy, are intended by the insured to cover and usually do cover, all the circumstances affecting the risk material to be disclosed."
And he then states the rule to be that, " any circumstance evidently and materially enhancing the risk of fire, known to the applicant at the time of insuring and not so, or presumed to be so, to the insurer, and of which he is not bound to inform himself or to take the risk of it, must be disclosed, though no inquiry is made respecting it." (1 Philips Ins. ¶ 635.)
The application in this case does not disclose that any questions were asked or any information imparted by the assured, save that the vessel was "laid up at L'Anse, Mich.," and that the risk was of such a character as to entitle it to be classified by the company as "A2;" and it is not disputed that it would not have been thus classified if the actual condition of the vessel had been known to the underwriters. But even had there been other inquiries and answers, we do not think that there would exist in this case any reason for applying a different rule of obligation to the assured than would have been the case if they had applied for marine instead of fire insurance.
The subject of insurance was a vessel which was laid up in a harbor many hundreds of miles distant from the place where the insurance was effected. It was consequently not "within the limits of actual inspection by the insurers or their agents." In accepting an application for insurance under these circumstances the underwriters had a right to assume that the owners or their agent would act in perfect good faith and disclose any and all facts material to the risk of which they had any knowledge; and it seems to us that they were under precisely the same obligation to do so as they would have been had they been seeking to obtain an insurance of their vessel against the perils of water. It was stated upon the trial, and not disputed, that if this obligation had been fulfilled, and the underwriters informed of the condition the Northerner was in, they would probably have refused the risk. Consequently, to have concealed from them its true condition was, in our opinion, almost if not quite equivalent to an actual fraud.
This question is one which the defendant is entitled to have adjudicated, but it is one which, as has already been suggested, does not appear to have been considered by the trial court, and for this reason we feel constrained to order a new trial, when possibly other and different facts may be made to appear.
The judgment and order should be reversed and a new trial ordered, with costs to the appellant to abide the event.
All concurred, except WARD, J., dissenting.
Judgment and order reversed and a new trial ordered, with costs to the appellant to abide the event.