Insurance Companies v. Wright,, 68 U.S. 456 (1863)
U.S. Supreme CourtInsurance Companies v. Wright, , 68 U.S. 456 (1863)
Insurance Companies v. Wright
68 U.S. (1 Wall.) 456
1. Where a written contract is susceptible on its face of a construction that is "reasonable," resort cannot be had to evidence of custom or usage to explain its language. And this general rule of evidence applies to an instrument so loose as an open or running policy of assurance, and even to one on which the phrases relating to the matter in contest are scattered about the document in a very disorderly way. NELSON and FIELD, JJ., dissenting from the rule, or from its application in this case, in which there was a clause that, as they conceived, made the evidence of usage proper.
2. The expression "rate," or "rating" of vessels, as used in policies of assurance, means relative state in regard to insurable qualities. Hence, where a policy requires that a vessel shall not be below a certain "rate," as, ex gr., "not below A 2," this rate is not, in the absence of agreement to that effect, to be established by the rating register alone of the office making the insurance -- certainly not unless the vessel was actually rated there -- nor by a standard of rating anywhere in the port merely where that office is. There being, as yet, no "American Lloyds," the party assured -- if not actually rated on the books of the office insuring -- may establish the rate by any kind of evidence which shows what the vessel's condition really was, and that, had she been rated at all at the port where the office was, she would have rated in the way required. He may even show how she would have rated in her port of departure, or in one where the company insuring had an agency through which the insurance in question was effected, this being shown, of course, not as conclusive on the matter of rate, but as bearing upon it, and so fit for consideration by the jury.
3. Evidence is not admissible of a general usage and understanding among shippers and insurers of the port in which the insuring office is that in open policies the expression used, as, ex gr., "not below A2," refers to
the rate of vessels or the register of vessels making the insurance. SWAYNE and DAVIS, JJ., dissenting on the facts of the case as to this last point.
These were actions brought by Wright against two insurance companies in New York -- "The Orient Mutual" and "The Sun" -- on two policies of insurance, called open or running policies, a sort of policy which has been described in this Court [Footnote 1] as one enabling the merchant to insure his goods shipped at a distant port when it is impossible for him to be advised of the particular ship upon which they are laden and which therefore cannot be named in the instrument of assurance. The insurer upon this class of policies, of course, has no opportunity to inquire into the character or condition of the vessel, and agrees that the policy shall attach if she be seaworthy, however low may be her relative capacity to perform the voyage, and, for the additional risks he may thus incur, he finds his compensation in an increase of premium. [Footnote 2]
The two suits brought on the two policies here were tried together in the court below, and so argued and disposed of here, the principles in each case being confessedly, and so declared by the court, the same.
The policies professed to insure Wright against loss on one-fourth of five thousand bags of coffee, to be shipped on board of "good vessel or vessels" from Rio de Janeiro to any port in the United States. Thus far the case was plain. The difficulty arose from certain clauses relating to the premium, of which clauses there were several scattered about the instrument. One such, just after the declaration of insurance made, was thus: "To add an additional premium if by vessels lower than A 2, or by foreign vessels; to return 1/4 of 1 percent if direct to an Atlantic port." The policies also contained this clause:
"Having been paid the consideration for this insurance by the assured at the rate of 1 1/2 percent, the premiums on risks to be fixed at the time of the endorsement,
and such clauses to apply as the company may insert, as the risks are successively reported."
The companies here sued, though New York companies, had an agent in Baltimore through whom they effected insurances there, and it was through this agent that the present insurances were made. His testimony went to prove that when applications were made to enter risks on running policies, the application was endorsed at once by him, and a report made to the company in New York, which named the premium, and that this was made known to the assured; that the premiums specified in the body of the policies are nominal, and the true premiums to be charged are fixed by increasing or reducing the nominal premiums, and that the nominal premiums taken on the delivery of a running policy are returned if no risks are reported.
On the back of one or both the policies here, were entries as follows, which, it was argued, explained this alleged custom:
1855. Aug. 13. Bank Maine Law, from Rio to New Orleans, $15,750, at 1 1/2 percent
1855. Aug. 13. Brig Windward, from same place to Baltimore, $4,750, at 1 1/4 percent
1855. Nov. 20. Brig T. Walters, from same place to Philadelphia, $2,375, at 1 1/4 percent
In the present cases, the plaintiff applied, in the latter part of August, 1856, to the agent in Baltimore for an endorsement on the policy of the coffee in question, laden or to be laden on board a vessel called the Mary W., from Rio de Janeiro to New Orleans, which application was communicated to the company in order that they might fix the premium. The company at first declined to acknowledge the vessel as coming within the description of a "good" vessel, on account of her alleged inferior character, but the plaintiff, insisting on her seaworthiness and his right to insure within the terms of the policy, the company replied to his application: "We shall charge the same rate as the Sun does, viz., 10 percent, subject to average, or 2 1/2 percent free of average." This the plaintiff refused to pay. The
company thereupon claimed to be released from the risk. The plaintiff asserted that there was still a subsisting contract.
The coffee had been shipped on the Mary W. at Rio, for New Orleans, 12 July, 1856, when she started on her voyage. The vessel was lost on the 29th of the month upon rocks, the master being some seventy miles out of his course.
The cases had been already before this Court in 1859, 64 U. S. 23 How. 401, 64 U. S. 412, [Footnote 3] by writ of error from a former trial. On that trial it was conceded that the vessel rated below A 2, or that the testimony might lead the jury to this conclusion. And on review here, this Court held that if this were true, then inasmuch as no rate of premium had been fixed by the agreement of the parties and the plaintiff had refused to pay the additional premiums which the companies had demanded, there was in reality no contract of insurance consummated as to the goods on that vessel. As the instructions of the court below had assumed that the contract was complete, although the vessel might rate below A 2 and although no agreement had been made for the increased premium, the cases were reversed and a new trial ordered. On this second trial, the plaintiff sought to establish, and contended that he had established, that the vessel was within the rate prescribed, and in fact was not a vessel lower than A 2.
On this second trial, the defendants having given testimony (much the same testimony as that above mentioned as given on the first), tending to establish a usage that the premium named in the policy was in all cases a nominal one, and that the insured had a right, when the risk was reported, to vary the rate of premium as he might wish -- asked the court for eleven instructions, the material parts of the seventh, eighth, and ninth being as follows:
"Seventh. That if they found from the testimony and course of dealing of the parties, that the premium specified in the body of the policy was a nominal premium only, to which no attention
was paid in fixing the true premium to be paid, then the company had the right to fix the premium at the time of endorsement, whether the vessel rated A 2 or not."
"Eighth. That by the true interpretation of the policy, in the custom referred to in the preceding prayer, the insurer had the right, in good faith, to fix the real premium above or below the nominal premium, where the vessel rated A 2 or above it."
"Ninth. That by the true interpretation of the policy, the real or actual premiums on risks were to be fixed by the companies at the time of return or endorsement of the risk, and that the premiums so fixed by them in the case of the Mary W. not having been assented to by the assured, the premiums in that case cannot now be fixed by the court or jury, and further that by the true interpretation of the policies, the real premiums on risks are not fixed therein without action by the parties, whether the vessel rates A 2 or above or below that rate."
These instructions the court refused to give, and the only question submitted to the jury was whether the vessel in which the loss occurred did or did not rate below A 2 within the meaning of the policy.
But another question here arose -- the question, to-wit, by what standard was this fact, whether the vessel did or did not rate below A 2, to be fixed? Was it by that of Rio, whence she sailed? Or by that of Baltimore, where the application for insurance was made? Or by that of New York, where the policy was issued? Or by the register of the company which made the insurance? -- with a conclusion that if that were silent, the vessel was not A 2 within the meaning of the contract at all. It was proved that the standard of rating was different at Rio and Baltimore from what it was at New York, being higher in the last-named city than it is in either of the former ones, so much so, indeed, that a vessel might be rated A 2 at Rio and Baltimore which would fall below that rate at New York. It was also proved that each of the marine companies of New York keeps constantly in its employment a salaried officer whose business it is to examine and rate vessels, and that the rates of the vessels thus examined by him are reported to the company and entered
upon a book kept for that purpose. Mr. Swan, of the house of Grinnell, Minturn & Co., large shipping merchants of New York, testified that
"the business of rating is a special one; that the companies all have inspectors to ascertain the rating of vessels, and that when a policy speaks of the rate of vessels, it is the rate of the company, and refers to that standard."
There was other testimony to the same effect. Testimony was given also, however, showing that this rating differs materially on the registers of different companies, and that we have not yet established in this country any institution similar to that of the British Lloyds, though there is one in New York calling itself the American Lloyds, and now attempting to establish for itself here the same position as the one in England, which has its inspectors in all ports of the United Kingdom, whose reports are forwarded to a board in London, which fixes the rate of all vessels which are known to it, and whose owners are willing to have them examined. In fact, with regard to this particular vessel, it appeared that in 1849 she had three different ratings out of five which it was proved had been made of her; that she left New York in the year last mentioned for California, and has never been in the port of that Atlantic metropolis since; that 1849 was the last year in which she was rated on the books of the "Sun Mutual" at all; while the "Orient Mutual" had not been established until 1854, and of course had her not upon any register of theirs, and shown finally that a rating seven years old is regarded by all insurers as no rating at all. [Footnote 4]
The plaintiffs were allowed to give evidence that at Baltimore and at Rio she was rated A 2, and particularly to give in evidence a memorandum in writing, signed by the counsel of the insurance companies, and which they had given in order to expedite a trial, that the vessel in question, at the time she left Rio, "was in a seaworthy condition, fit for any voyage, and especially for the transportation of coffee," and by reason of thorough repairs at Rio, was "entitled to rate, and did in fact rate, at A 2 there." There was evidence also tending to prove that she so rated elsewhere, and ought to have so rated in New York, but much testimony also tending to prove the reverse.
The court below allowed the above-mentioned memorandum to go in along with other evidence, both evidence in favor of the plaintiff and evidence against him, including, in the former, evidence of this vessel having been newly and thoroughly repaired, and the testimony of seamen long engaged in the trade of this part of South America, and including the testimony of marine experts, and proof of the mode in which the vessel had been rated more than seven years before the policy issued. And disregarding the prayers of the defendants presented in some five or six different forms, and praying instructions that the standard of rate was to be determined by the books of the defendants and of other insurance companies in New York, charged them essentially as follows:
"If the jury should find that the rating of vessels on the registers of companies in New York, was always from personal examination by inspectors of the different companies, and should further find that by the long absence of the said vessel from New York, she had, in the understanding and usage of underwriters in New York, no fixed rating on the registers of any of
the insurance companies of that city in 1856 (the date of the contract); but would have been rated there not lower than A 2 -- owing to her thorough repair, had she been there for examination -- then the plaintiff is entitled to recover, although the jury may find that the said vessel was rated in 1848 or 1849, on the books of the defendant, below A 2, and that it was the general usage and understanding of underwriters and commercial men in New York that the words in their policies 'not rating below A 2' refer to the rate of vessels on the register of the company making the insurance."
The rejection by the court of the defendant's seventh, eighth, and ninth prayers, given on pp. <|68 U.S. 459|>459-60, and its refusal to submit, in interpretation of the contract, the practice and course of dealing between the insurance companies and its customers, as shown by the Baltimore agent, in regard to the nominal premiums, were the errors relied on in the first part of the case, as were the instructions as to the evidence of rating and the admission of the memorandum and other evidence at Rio, those relied on in the second.