Opinion
No. 6697.
July 25, 1932.
Morgan, Lewis Bockius and Wolf, Block, Schorr Solis-Cohen, all of Philadelphia, Pa., for plaintiffs.
Byron, Longbottom, Pape O'Brien, of Philadelphia, Pa., for National Surety Co.
In Equity. Suit by Olive K. Thomas and another, trading as the National Pad Binding Company, against Charles Baker Co., Inc., wherein a receiver was appointed, and wherein the National Surety Company filed a claim.
Claim allowed.
The opinion of the special master follows:
The National Surety Company, claimant above named, issued a policy of credit insurance wherein and whereby the Surety Company guaranteed the Baker Company against loss to an amount not exceeding $31,315.75 due to insolvency of purchasers of the Baker Company's products. The policy became effective June 1, 1931, and the terms thereof ended the 31st day of May 1932. The premium payable by the Baker Company was $1,520.38. The Baker Company paid half the premium and the remaining half of $760.19 remained unpaid and is the amount of the surety company's claim. On September 17, 1931, the company advised the receiver that the policy under its terms was terminated by reason of the receivership. At this time the policy had been in effect for about three and one-half months.
In opposing this claim, counsel for the receiver contended (1) that no risk ever attached under the policy because the premium was not fully paid; (2) that the surety company was not entitled to recover because it had refused to pay a claim for loss which arose shortly after the receiver was appointed; (3) that the policy was divisible and the premium therefor apportionable, which would leave the National Surety Company the debtor of instead of the creditor of the Baker Company; and (4) that, even if the policy contract became effective and was not apportionable, only $443.94 would be due claimant by reason of the provision in the policy whereby the insured became entitled to a reduced premium where the gross sales failed to reach a certain amount.
1. On the first page of the policy (Test 127) the following provision appears: "This policy does not cover any loss occurring prior to the payment of the premium, although the policy may have been delivered, nor any loss occurring after the termination of this policy, nor any loss that is not a valid and legally sustainable indebtedness against the debtor."
It did not appear under what circumstances the first payment of one-half the premium was made, but undoubtedly the company received the portion of the premium thus paid. The statement to this effect by counsel for the surety company was not challenged by counsel for the receiver, and the claim for the balance of the premium is an acknowledgment by the company that it received the first payment on account thereof.
The policy also contained the following conditions or stipulations: "No agent is authorized to make any alteration in, or addition to, this policy, or to waive any of its terms, conditions or stipulations; and no addition to or alteration in, or waiver of, any of the terms, conditions or stipulations of this Policy, shall be valid unless expressed in writing and signed by the President or a Vice President of the Company; nor shall notice to, or knowledge of, any agent or any other person be held to effect a waiver or change in any part hereof."
It was argued on behalf of the receiver that, by reason of the foregoing provisions, the failure to pay the premium in full prevented the policy from becoming effective or the risk attaching. We believe that the complete answer to this contention is that an insurance company may waive a stipulation, made solely for its benefit or protection, that no liability shall attach until the first premium is actually paid to it. Snyder v. Nederland Life Insurance Co., 202 Pa. 161, 51 A. 744.
Pennsylvania is in accord with the general rule in this respect. The principle is set forth in 32 Corpus Juris at page 1136, § 243, as follows: "A condition that the policy shall not take effect or that the company shall not be liable until the payment of the first premium, being for the benefit of the company, may be waived by it either expressly or impliedly. A waiver may consist of acts, words, or conduct showing an intention on the part of the company to waive or not to insist upon the condition, such as the giving of credit for all or part of the premium, the taking of a note or notes for the premium, or the unconditional delivery of the policy as a completed and executed contract under an express or implied agreement that credit shall be extended for all or a part of the premium."
An insurance company may waive any condition of a policy inserted therein for its benefit. As the company may at any time, at its option, give authority to its agents to make agreements, or to waive forfeitures, it is not bound to act upon the declaration on its policy that they have no such authority. Knickerbocker L. Insurance Co. v. Norton, 96 U.S. 234, 24 L. Ed. 689.
"That the company may waive the prepayment of the premium and give credit for the same is but to state a self-evident principle. * * * No man is bound to insist upon his rights, and an insurance company may disregard the provision requiring prepayment of the premium as a condition of imparting vitality to the policy. * * * An intention to give credit may be inferred from the mere fact of unconditional delivery without requiring present payment." Pender v. North State Insurance Co., 163 N.C. 98, 79 S.E. 293, 295.
It may not be successfully argued that the insurance company could have refused to pay a loss which might have occurred prior to the receivership. It would be estopped. The delivery of a policy, reciting the consideration of a premium and countersigned by the agent by whom it is required by its terms to be countersigned, estops the company from saying that the premium was not paid. Essington Enamel Co. v. Granite State Insurance Co., 45 Pa. Super. 550.
2. The contention that the surety company should not recover because it refused to pay a loss incurred after the policy became terminated because of the receivership is met by the provisions of the policy above quoted which expressly provides that the policy does not cover any loss occurring after its termination. The company did not waive this provision, but, on the contrary, wrote to the receiver advising of the termination of the policy by reason of the receivership. In another portion of the policy, to wit, clause 11 (Test 129), it is specifically stated that the policy shall immediately terminate if a receiver is appointed for the company. It is obvious that this is a vital provision. It is well known that it is much more difficult for an insolvent concern to collect from debtors than it is for a going concern.
3. We do not think the premium in this case is apportionable. Credit insurance is not covered by statutory law as is the case with many other kinds of insurance, but a contract of credit insurance must be construed under the common law. The argument on behalf of the receiver that the premium is apportionable is principally based upon the provision in the policy covering premium which is as follows (see Test 128): "1 — Premium — A deposit premium in the sum of one thousand five hundred twenty and 38/100 dollars ($1,520.38) shall be paid to the company when application is made for this policy but an additional premium shall be paid to the Company on or before the first day of July 1932 calculated at the rate of twenty-five (25) cents per Thousand Dollars on the gross sales of merchandise made during the policy term, less allowances and returns as hereinbefore provided, which may be in excess of one million five hundred thousand and 00/100 dollars. * * *"
The provision does not make the premium apportionable as to the subject-matter of the insurance nor as to the duration of the insurance. It is simply a provision requiring additional premium or a reduction in premium according to the amount of subject-matter insured. In our opinion, the contract is an entire and indivisible one. Upon the delivery of the policy, the company immediately assumed the risk of a loss to the extent of the entire principal amount of the policy.
Couch on Insurance in volume 3, § 709, states the law to be: "In the absence of statutory or contract provision to the contrary, if a legal risk has once attached or commenced, there can be no apportionment or return afterward of the premium, so far as that particular risk is concerned. And diminution in its duration has no effect to decrease the amount stipulated as the premium or price for renewing the risk for it is sufficient to preclude a return that the insurer has been liable for any period, however short. This rule is based upon just and equitable principles, for the insurer has, by taking upon himself the peril, become entitled to the premium; and although the rule may result in profit to the insurer, it is but a just compensation for the danger or perils assumed; besides the danger incurred may be greater in any one moment than during the entire remaining period of insurance, and it would be extremely difficult, at the least to apportion the premium." See, also, Joyce on Insurance, vol. 2, § 1397, p. 1467.
The latter author in the same volume at page 1495 states: "If the insurance is for a specified term, this being entire and indivisible the premium is earned from the instant the risk attaches and is, therefore, not returnable thereafter."
Even where the subject-matter of insurance is divided into separate risks, if the premium or consideration paid be single and entire, the contract must be held to be entire. Gottsman v. Pennsylvania Insurance Company, 56 Pa. 210, 94 Am. Dec. 55; Schiavoni v. Dubuque F. M. Insurance Company, 48 Pa. Super. 252.
The above cases are cited and approved in Bowers Company v. London Assurance Corporation, 90 Pa. Super. 121.
4. With respect to the contention that there should be a reduction of the premium by reason of the termination clause and because up until the time of the termination of the policy because of the receivership the gross sales of the Baker Company had amounted only to $234,989.49, which was $1,265,001.51 less than $1,500,000, we are of the opinion that the proper construction of this premium clause is that any additional or reduced premium is to be based upon the gross sales for the term for which the policy was written — in this case for one year. The language of the premium clause is that any additional premium has to "be paid to the company on or before the first day of July 1932 calculated * * * on the gross sales of merchandise made during the policy term, * * *" and the return of any premium because of gross sales less than $1,500,000 is to be calculated on gross sales "made during the policy term. * * *" The additional or reduced premium is therefore based on the "policy term" which is declared on the first page of the policy to be "the term beginning the first day of June 1931 and ending the 31st day of May 1932." The additional premium is payable by the insured or the return of the return premium by the insurer on or before July 1, 1932, thus giving time for a calculation and adjustment after the completion of said policy term of one year. If any such adjustment was to be made in case of sooner determination on account of insured's default, undoubtedly there would be a provision in this part of the policy providing for such adjustment within, say thirty days after such termination by default. Furthermore, in view of the fact that the entire risk attached the moment the policy was delivered, and the company could have become liable for the full face of the policy in the event of the delinquency of the Baker Company's debtors, there would be so large a return of premium in case of a termination of the policy by the insured's default shortly after the policy became effective that the risk assumed would be out of all proportion to the premium paid. We think that the express language of the contract is sufficiently explicit to impel the construction that an adjustment of the premium is contemplated only in the case of a complete policy term. If the language were not considered so explicit as it seems to us, we still believe that such construction thereof is the only fair and reasonable one to be placed upon the language used.
It seems rather hard that the insurance company should recover the balance of a premium calculated on a year's protection when such protection has been required of it for a period of three and one-half months only without any loss payable, but no equities in the situation in our opinion can overcome the rule of law which governs the matter. It certainly may be said that it would be most unfair for a company to assume the whole risk of loss as it did in this case, and then, because of the insured's default, be required to return a large portion of the premium paid. While a pro rata return of premiums paid in other kinds of insurance has been legislated in Pennsylvania and many other states, such insurance companies are with knowledge of such fact and can fix the amount of their premiums accordingly. A credit insurance company not governed by such legislation has the privilege and undoubtedly does calculate and fix the amount of its premium on the assumption that there is no pro rata return in the event of termination of the policy before the expiration of the policy term.
The claim of the National Surety Company is therefore allowed and approved in the sum of $760.19.
And now, to wit, this 25th day of July, 1932, upon reading and consideration of the within report of T. McKeen Chidsey, Esquire, special master in the above case, no exceptions thereto having been filed, the same is hereby approved. Distribution may be made in accordance with the schedule made part of the master's report.