( Originally Published 1911 )
Policy defined.—A policy of insurance is a contract that does not differ in its fundamental principles from other contracts. It requires that there shall be an agreement to do or not to do a certain thing for a fixed consideration. A contract once made can not be altered by one party without the consent of the other.
In the beginning of fire insurance the contract, or policy, was a comparatively simple document, and it was customary in those days to include in the contract what was called the "prospectus." This prospectus contained a great deal of the material which has since crept into the standard policy. In writing the con-tract, or making out the policy, as it was called, the prospectus was referred to and made a part thereof. In the latter part of the eighteenth century Lloyds adopted a certain policy form under which all marine risks were to be written. This was probably the earliest effort to bring the policy contracts to uniform conditions so far as the writing of the policy was concerned.
Early history of contracts.-Each fire insurance company was privileged to adopt its own form. There had been in different sections of the United States some agreement as to a form of policy, but it was not binding, as the companies lacked legal authority, so that if a company did not choose to write under the policy con-tract it was privileged to use its own form. The conditions resulting from this are best set forth by the Court in the case of Delaney v. Rockingham Farmers' Mutual Fire Insurance Company, 52 New Hampshire, 581, June, 1873, as follows :
The principal act of precaution was to guard the company against liability and losses. Forms of applications and policies (like those used in this case) of a most complicated and elaborate structure were prepared and filled with covenants, exceptions, stipulations, provisions, rules, regulations and conditions, rendering the policy void in a great number of contingencies. These provisions were of such bulk and character that they would not be understood by men in general, even if subjected to a careful and laborious study ; by men in general they were sure not to be studied at all. The study of them was rendered particularly unattractive by a profuse intermixture of discourses on subjects in which a premium payer would have no interest. The compound, if read by him, would, unless he were an extraordinary man, be an inexplicable riddle, a mere flood of darkness and confusion. Some of the most material stipulations were concealed in a mass of rubbish on the back side of the policy and the following page, where few would expect to find anything more than a dull appendix and where scarcely any one would think of looking for information so important as that the company claimed a special exemption from the operation of the general law of the land relating to the only business in which the company professed to be engaged. As if it were feared that notwithstanding these discouraging circumstances, some extremely eccentric person might attempt to examine and under-stand the meaning of the involved and intricate net in which he was to be entangled—it was printed in such small type and in lines so long and so crowded that the perusal of it was made physically difficult, painful and injurious. Seldom has the art of typography been so successfully diverted from the diffusion of knowledge to the suppression of it. There was ground for the premium payer to argue that the print alone was evidence, competent to be submitted to a jury, of a fraudulent plot. It was not a little remarkable that a method of doing business not designed to impose upon, mislead and deceive him by hiding the truth and depriving him of all knowledge of what he was concerned to know, should happen to be admirably adapted to that purpose. As a contrivance for keeping out of sight the dangers created by the agents of the nominal corporation, the system displayed a degree of cultivated ingenuity which, if it had been exercised in any useful calling, would have merited the strongest commendation.
Traveling agents were necessary to apprise people of their opportunities and induce them to act as policyholders and premium payers under the name of "the insured." Such emissaries were sent out. The soliciting agents of insurance companies swarm through the country, plying the inexperienced and unwary, who are ignorant of the principles of insurance law and unlearned in the distinctions that are drawn between legal and equitable estates. Combs v. Hannibal Savings Insurance Company, 43 Mo. 148, 162 ; 6 Western Insurance Review, 467, 529. The agents made personal and ardent application to people to accept policies and prevailed upon large numbers to sign papers (represented to be mere matters of form) falsifying an important fact by declaring that they made application for policies, reversing the material step in the negotiations. An insurance company, by its agent, making assiduous application to an individual to make application to the company for a policy, was a sample of the crookedness of the whole business.
When a premium payer met with a loss, and called for the payment promised in the policy which he had accepted upon most zealous solicitations, he was surprised to find that the voluminous, unread and unexplained papers had been so printed at headquarters and so filled out by the agents of the company as to show that he had applied for the policy. This, however, was the least of his surprises. He was informed that he had not only obtained the policy on his own application, but had obtained it by a series of representations (of which he had not the slightest conception) and had solemnly bound himself by a general assortment of covenants and warranties (of which he was unconscious), the number of which was equaled only by their variety and the variety of which was equaled only by their capacity to defeat every claim that could be made upon the company for the performance of its part of the contract. He was further informed that he had succeeded in his application by the falsehood and fraud of his representations—the omission and misstatement of facts which he had expressly covenanted truth-fully to disclose. Knowing well that the application was made to him and that he had been cajoled by the skilful arts of an importunate agent into the acceptance of the policy and the signing of some paper or other, with as little understanding of their effect as if they had been printed in an unknown and untranslated tongue, he might well be astonished at the inverted application and the strange multitude of fatal representations and ruinous covenants. But when he had time to realize his situation, had heard the evidence of his having beset the invisible company and obtained the policy by just such means as those by which he knew he had been induced to accept it, and listened to the proof of his obtaining it by treachery and guilt in pursuance of a premeditated scheme of fraud with intent to swindle the company in regard to a lien for assessments or some other matter of theoretical materiality, he was measurably prepared for the next regular charge of having burned his own property.
With increased experience came a constant expansion of pre-cautionary measures on the part of the companies. When the court had held that the agents' knowledge of facts not stated in the application was the companies' knowledge, and that an unintentional omission or misrepresentation of facts known to the company would not invalidate the policy, the companies, by their agents, issued new editions of applications and, policies containing additional stipulations to the effect that their agents were not their agents but were the agents of the premium payer; that the latter was alone responsible for the correctness of the applications, and that the companies were not bound by any knowledge, statements or acts of any agent not contained in the application. As the companies' agents filled the blanks to suit themselves and were in that matter necessarily trusted by themselves and by the premium payers, the confidence which they reposed in themselves was not likely to be abused by the insertion in the application of any unnecessary evidence of their own knowledge of anything, on their own representations, or their dictation and management of the entire contract on both sides. Before that era it had been understood that a corporation—an artificial being, invisible, intangible and existing only in contemplation of law—was capable of acting only by agents ; but corporations pretending to act without agents, exhibited the novel phenomena of anomalous and nondescript, as well as imaginary beings, with no visible principal or authorized representative; no attribute of personality subject to any law or bound by any obligation, and no other evidence of a practical, legal, physical or psychological existence than the collection of premiums and assessments. The increasing number of stipulations and covenants, secreted in the usual manner, not being understood by the premium payer until his property was burned, people were as easily beguiled into one edition as another, until at last they were made to formally contract with a phantom that carried on business to the limited extent of absorbing cash received by certain persons who were not its agents.
When it was believed that things had come to this pass, the legislature thought it time to regulate the business in such a manner that it should have some title to the name of insurance and some appearance of fair dealing.
Standard policies adopted.—In 1873 the State of Massachusetts adopted the first standard policy in the United States. In 1886 the State of New York adopted a standard policy, and since that time the practice has spread until in many states of the Union a uniform policy is in force. The State of California is the latest to adopt a standard policy, the law having been passed to take effect July 1, 1909. The later forms have been improved to a certain extent, but in the main principles there is little if any departure from the earlier forms.
Although coming some years later than the Massachusetts standard policy that of the State of New York has attained a much greater vogue and has furnished a basis for other states. Even in those states where no standard is required it is the practice of insurance companies to use the New York standard form. Having thus the largest use of any policy and well illustrating the principles of the insurance contract it may form the basis for a consideration of the standard policy. The interpretations placed upon it have been sufficient to make its meaning fairly clear and to give a certain fixity to it, enabling both insured and insurer to act intelligently.
Provisions of the law: The law provides that a printed blank form of a contract or policy of fire insurance, together with the provisions, agreements and conditions which may be endorsed thereon or added thereto shall be filed with the Superintendent of Insurance. The law also provides that no fire insurance corporation may issue a contract under any other form than the one prescribed, and it must conform in blanks and size of type, in context, provisions, agreements and conditions, with such printed blank form of contract or policy; and no other is permitted, except the following :
(a) Name of the corporation; location ; place of business; date of incorporation or organization; whether it be a stock or mutual ; the names of its officers ; the number and date of the policy, and if issued through a manager or agent these words, "This policy shall not be valid until countersigned by the duly authorized manager or agent of the corporation at ....... "
(b) Printed or written forms of description or specification ; or schedule of the property covered by any particular policy ; or any other matter furnished clearly to express all the facts and conditions of insurance on any particular risk not inconsistent with or a waiver of any of the conditions and provisions of the standard policy.
(c) If the Superintendent of Insurance approves and the standard form makes no provision therefor, any statement which the corporation is required by law to insert in its policies, if the same do not conflict with the standard policy, is permissible. Also the name, with the word "agent" or "agents" and place of business of any insurance agent or agents, either by writing, printing, stamping or otherwise, may be endorsed on the outside of such policies.