1. When a party states, in his application for an insurance,
that he has made a just, full, and true exposition of all material
facts and circumstances in regard to the condition, situation,
value, and risk of the property so far as known to him, and the
application is expressly made a part of the policy, should it
afterwards appear that he overestimated the value of the property,
the policy would not be vitiated unless it be shown that the
estimate was intentionally excessive.
2. When a policy contains contradictory provisions or is so
framed as to render it doubtful whether the parties intended that
the exact truth of the applicant's statements should be a condition
precedent to any binding contract, that construction which imposes
upon the assured the obligations of a warranty should not be
favored.
3. The policy having been prepared by the insurers, it should be
construed most strongly against them.
This is an action on a policy of insurance issued by the
Hartford Fire Insurance Company to W. D. Oldham, on certain mill
property, building, and machinery, and by him transferred and
assigned to the First National Bank of Kansas City, Mo. The
parties, by written stipulation, waived a jury and, upon a special
finding of facts, the circuit court gave judgment for the company.
The bank thereupon sued out this writ of error.
It appears from the special finding that by the terms of the
application, the assured was required to state separately
"the estimated value of personal property and of each building
to be insured and the sum to be insured on each; . . . the value of
the property being estimated by the applicant."
The applicant was also directed to answer certain questions, and
sign the same "as a description of the premises on which the
insurance will be predicated." Among the questions to be answered
were:
Page 95 U. S. 674
"What is the cash value of the buildings, aside from hand and
water power? What is the cash value of the machinery?' The answer
was: '$15,000, building; $15,000, machinery."
The application concludes with these words:
"And the said applicant hereby covenants and agrees to and with
said company, that the foregoing is a just, full, and true
exposition of all the facts and circumstances in regard to the
condition, situation, value, and risk of the property to be insured
so far as the same are known to the applicant and are material to
the risk."
The policy refers to the application in these words: "Special
reference being had to assured's application and survey, No. 1462,
on file, which is his warranty, and a part hereof."
The policy further recites:
"If an application, survey, plan, or description of the property
herein insured is referred to in this policy, such application,
survey, plan, or description shall be considered a part of this
policy, and a warranty by the assured; and if the assured, in a
written or verbal application, makes any erroneous representation
or omits to make known any fact material to the risk, . . . then
and in any such case this policy shall be void. . . . Any fraud or
attempt at fraud, or any false swearing on the part of the assured,
shall cause a forfeiture of all claim under this policy."
The policy also declares that it is made and accepted upon the
above, among other, express conditions.
It is found by the court that when the policy was issued, as
well as at the date of the destruction of the property by fire, the
cash value of the building, aside from hand and water power, was
$8,000, and no more, and the cash value of the machinery, at the
same dates, was $12,000 and no more.
The court also found that
"the answers made by the assured to the questions contained in
the application were made by him in good faith, without any
intention on his part to commit any fraud on the defendant."
It is further declared in the special finding that
"under the provisions of the policy and application, made part
thereof, the court finds as a conclusion of law that the answers of
the assured as to the value of the property insured defeat the
right to recover on the policy. "
Page 95 U. S. 675
MR. JUSTICE HARLAN delivered the opinion of the Court
On behalf of the company, it is contended that, under any proper
construction of the contract, the assured warranted, absolutely and
without limitation, the truth of the several statements in the
application, including the statement as to the value of the
property. If this view be sound, the judgment of the circuit court
must be affirmed; otherwise, it must be reversed.
Our conclusion is that the plaintiff in error, who is the
beneficiary of the policy, is entitled to a judgment,
notwithstanding the overvaluation of the property by the
assured.
The entire application having been made, by express words, a
part of the policy, it is entitled to the same consideration as if
it had been inserted at large in that instrument. The policy and
application together, therefore, constitute the written agreement
of insurance; and, in ascertaining the intention of the parties,
full effect must be given to the conditions, clauses, and
stipulations contained in both instruments.
Looking first into the application, we find no language which,
by fair construction, was notice to the assured that, in answering
questions, he was assuming, or was expected to assume, the
Page 95 U. S. 676
strict obligations which the law attaches to a warranty. There
is no intimation anywhere in that instrument that the exact truth
of the answers was a condition precedent, either to the
consideration of the application or to the issuing of a policy. On
the contrary, the application contains the covenant of the assured
that he had in that instrument made a just, full, and true
exposition of all material facts and circumstances in regard to the
condition, situation, value, and risk of the property, so far as
known to him. The taking of that covenant, at the threshold of the
negotiations, was, in effect, an assurance that a frank statement
of all such material facts as were within the knowledge of the
applicant would meet the requirements of the company. It was a
covenant of good faith on the part of the assured -- nothing more;
and, so far as it related to the value of the property, was not
broken, unless the estimates by the assured were intentionally
excessive. If the case turned wholly upon the construction to be
given to the application, it is quite clear that the overvaluation
of the property would not defeat a recovery upon the written
agreement, since the assured, by the special finding, is acquitted
of any purpose to defraud the company. That is equivalent to saying
that the assured did not withhold any material fact within his
knowledge concerning the condition, situation, value, or risk of
the property.
But the difficulty in the case arises from the peculiar wording
of the policy, considering the application as a part thereof. While
the assured in one part of the written agreement is made to
stipulate for a warranty, and in another the policy is declared to
be void if the assured "makes any erroneous representation, or
omits to make known any fact material to the risk," in still
another part of the same agreement -- the application -- he
covenants that, as to all material facts within his knowledge,
respecting the condition, situation, value, and risk of the
property, he has made a full, just, and true exposition. If the
purpose of the company was to secure a warranty of the correctness
of each statement in the application, and if the court should adopt
that construction of the contract, there could be no recovery on
the policy, if any one of these statements were proven to be
untrue; and this, although such statement may have been wholly
immaterial to the risk, and was made without
Page 95 U. S. 677
any intent to mislead or defraud. Such a construction, according
to established doctrine, might defeat the recovery, even if the
overvaluation had been so slight as not to have influenced the
company in accepting the risk. But if such was the purpose of the
company, why did it not stop with the express declaration of a
warranty? Why did it go further, and incorporate into the policy a
provision for its annulment in the event the assured should make an
"erroneous representation, or omit to make known any fact material
to the risk"? -- language inconsistent with the law of warranty.
Still further, why did the company make the application a part of
the policy, and thereby import into the contract the covenant of
the assured, not that he had stated every fact material to the
risk, or that his statements were literally true, but only that he
had made a just, true, and full exposition of all material facts,
so far as known to him.
It is the duty of the court to reconcile these clauses of the
written agreement, if it be possible to do so consistently with the
intention of the parties, to be collected from the terms used.
It will be observed, from an examination of the questions
propounded to the assured, that, among other things, he was asked
whether the building was of stone, brick, or wood; how the premises
were warmed; what materials were used for lighting them; whether a
watchman was kept during the night; what amount of insurance was
already on the property; whether it was mortgaged, &c. These
and similar questions refer to matters of which the assured had
actual knowledge, or about which he might, with propriety, be
required to speak with perfect accuracy. They are matters capable
of precise ascertainment, and in no sense depending upon estimate,
opinion, or mere probability. But his situation and duty were
wholly different when required to state the cash value of his
property. He was required to give its "estimated value." His
answers concerning such value were, in one sense, and, perhaps, in
every just sense, only the expression of an opinion. The ordinary
test of the value of property is the price it will command in the
market if offered for sale. But that test cannot, in the very
nature of the case, be applied at the time application is
Page 95 U. S. 678
made for insurance. Men may honestly differ about the value of
property, or as to what it will bring in the market, and such
differences are often very marked among those whose special
business it is to buy and sell property of all kinds. The assured
could do no more than estimate such value, and that, it seems, was
all that he was required to do in this case. His duty was to deal
fairly with the company in making such estimate. The special
finding shows that he discharged that duty and observed good faith.
We shall not presume that the company, after requiring the assured
in his application to give the "estimated value," and then to
covenant that he had stated all material facts in regard to such
value, so far as known to him, and after carrying that covenant, by
express words, into the written contract, intended to abandon the
theory upon which it sought the contract, and make the absolute
correctness of such estimated value a condition precedent to any
insurance whatever. The application, with its covenant and
stipulations, having been made a part of the policy, that
presumption cannot be indulged without imputing to the company a
purpose, by studied intricacy or an ingenious framing of the
policy, to entrap the assured into incurring obligations which,
perhaps, he had no thought of assuming.
Two constructions, of the contract may be suggested. One is to
regard the warranty expressed in the policy as limited or qualified
by the terms of the application. In that view, the assured would be
held as only warranting that he had stated all material facts in
regard to the condition, situation, value, and risk of the property
so far as they were known to him. This is perhaps the construction
most consistent with the literal import of the terms used in the
application and the policy. The other construction is to regard the
warranty as relating only to matters of which the assured had or
should be presumed to have had distinct, definite knowledge, and
not to such matters as values, which depend upon mere opinion or
probabilities. But without adopting either of these constructions,
we rest the conclusion already indicated upon the broad ground that
when a policy of insurance contains contradictory provisions or has
been so framed as to leave room for construction rendering it
doubtful whether the parties intended the
Page 95 U. S. 679
exact truth of the applicant's statements to be a condition
precedent to any binding contract, the court should lean against
that construction which imposes upon the assured the obligations of
a warranty. The company cannot justly complain of such a rule. Its
attorneys, officers, or agents prepared the policy for the purpose,
we shall assume, both of protecting the company against fraud and
of securing the just rights of the assured under a valid contract
of insurance. It is its language which the court is invited to
interpret, and it is both reasonable and just that its own words
should be construed most strongly against itself.
Wherefore, as it does not clearly appear that the parties
intended that the validity of the contract of insurance should
depend upon the absolute correctness of the estimates of value, and
as it does appear that such estimates were made by the assured
without any intention to defraud, our opinion is that the facts
found do not support the judgment.
The judgment will therefore be reversed, and the cause remanded
with directions to enter a judgment upon the special finding for
the plaintiff in error, and it is.
So ordered.
