CHAPTER IX. OF REINSURANCE. As every insurer takes upon himself the risks against which he insures, he has in himself an insurable interest against those risks. He may, therefore, indemnify himself against loss by effecting insurance against them. This is called reinsurance, and is quite common. An insurance company that wishes to close up its business may have many outstanding risks, and some of them may be for voyages or periods which will not terminate for a long time. If it would avoid the delay and uncertainty which would arise if it waited for the termination of those risks, it does this by effecting insurance for the whole amount, and then whatever it has to pay, that it will have to receive.1 1 Merry v. Prince, 2 Mass. 176. Two policies had been effected on two ships, and were by their stipulations policies of reinsurance. Losses having taken place, it was made a question of law whether or not the statute of 19 Geo. 2, c. 37, § 4, was in binding force in this country. Mr. Justice Sedgwick delivered the opinion of the court in substance as follows: "That a contract of reinsurance is not prohibited by the principles of the common law is admitted by the parties. It is a contract which, in itself, seems perfectly fair and reasonable, and might be productive of very beneficial consequences to those concerned in this important branch of commerce; but because it was much abused, and turned to pernicious purposes, it was prohibited by an act of the Parliament of Great Britain, by which reassurances were rendered illegal in all cases, except where the original assurer should become insolvent, a bankrupt, or die. And the only question is, whether that statute, as such, is law within this Commonwealth. As an act of the British Parliament merely, it is not pretended that its binding force was extended to the Colonies. But it is said, and, in my opinion, it is true, that from the very nature of our relation as colonies to Great Britain, the parent state, at the time the act was passed, it was competent to the Parliament to have extended this provision to the Colonies, if it had seen fit to do so. But if that was the intention it ought to appear by express words, or at least by inevitable implication. 1 Black. Com. 107, 108. But should we even go much further than does Blackstone, and admit that, although the Colonies are not expressly named, yet, if from the whole purview of the statute, it manifestly appears to have been the intention of the legislature that reassurance should be prohibited in the Colonies, that such ought to be the construction, yet I think that the case would be with the defendant, because So, too, an insurer may wish to lessen his responsibility, and then he effects reinsurance for a part of the amount. Or the risk may be greatly increased by lapse of time or change of circumstances, and he may wish to save himself from a part of his risk by reinsurance, although he pays a much higher premium than he receives. Or he may wish to divide the risks themselves, as, if he insures against all the perils of the sea, he may be reinsured against war risks, or piracy, or against any other risks, from which he may wish to be free. I can discover no such intention. There are no words in the section prohibiting contracts of reassurance, or in any other part of the act, which manifest or even imply such an intention. By the most attentive consideration of the statute, I can nowhere perceive such an intention, but, on the contrary, I think it is evident that no such intention existed. Nor can it hardly be believed that the Parliament could have intended that part only of that act should, by indefinite expression, be construed to extend to the Colonies. If such had been the will of the legislature, it would have been declared, and not left a subject of uncertain or difficult construction. There is another foundation, on which, it is said, a defence against this action may be bottomed. The Constitution, ch. 6, art. 6, declare that "all laws which have heretofore been adopted, used, and approved in the Colony, and usually practised on in the courts of law, shall remain in force until altered or repealed by the legislature." It is true that many acts of the British Parliament have been adopted here, from causes which are now unknown. And it is said that wager policies, which are only rendered illegal by the same act, are here considered as invalid, and that this could result only from an adoption here, in practice, of that act. In answer to this argument I observe, that, admitting ⚫ wager policies are here illegal, I do not think the argument would be conclusive, for it is true, that, at the time of the settlement of this country, and for some time afterwards, wager policies were, in England, considered and held to be illegal at common law. Union Mutual Ins. Co. v. Comm. Mut. Mar. Ins. Co., 2 Curtis, C. C. 524, 19 How. 318; Hastie v. DePeyster, 3 Caines, 190; Woodruff v. Columbian Ins. Co., 5 La. Ann. 697; Reed v. Cole, 3 Burr. 1512; Oliver v. Greene, 3 Mass. 133. See also Mercantile Mut. Ins. Co. v. State Mut. F. & M. Ins. Co. of Penn., 23 Barb. 319. "Reinsurance is a valid contract at the common law." See Bronson, J. New York Bowery F. Ins. Co. v. New York F. Ins. Co., 17 Wend. 359, 362. In a policy of reinsurance there is no doubt assurance, unless the reassured himself has effected the reassurance. Mutual Safety Ins. Co. v. Hone, 2 Comst. 235. 1 Union Mut. Mar. Ins. Co. v. Commercial Mut. Mar. Ins. Co., 2 Curtis, C. C. 524, 19 How. 318; Mercantile Mut. Ins. Co. v. State Mut. F. & M. Ins. Co. of Penn., 25 Barb. 319; Philadelphia Ins. Co. v. Washington Ins. Co., 23 Penn. St. 250, in which it was held" that underwriters on a time policy may reinsure on a particular voyage, but the time and risks covered must not exceed those covered by the original policy." In all cases of reinsurance, whatever may be their ground, the reinsured stands, as to his insurers, in the same relation in which the original insured stands to him. The reinsurers may make the same defences against him which he could make against the original insured.1 They may have defences against him which he could not have against the original insured. If, for example, the original insured was perfectly honest in obtaining his insurance, and his insurers obtained reinsurance by fraud, concealment, or misrepresentation, this would be a good defence against them; and if an insurer, when applying for reinsurance, withholds such knowledge as he possesses in reference to the character of the party insured, or any circumstances of the case, and this information would be material to the risk or to the amount of premium to be charged, the concealment would avoid the policy of reinsurance. This has been held in the case of fire insurance,2 and we have no doubt that the ' New York State Marine Ins. Co. v. Protection Ins. Co., 1 Story, 458. The plaintiffs in this action had insured the brig Evelina for a certain voyage, and afterwards reinsured in the defendant corporation. During the voyage insured, the vessel sustained damage by perils insured against, and the owners claimed of the insurers, the present plaintiffs, a total loss, which they refused to pay; and, action being brought, it was decided that there was liability for a partial loss only. The plaintiffs then claimed of their reinsurers the amount they were obliged to the owners by reason of the judgment recovered, and also the expenses of costs and counsel fees incurred by them in defending the suit. The question for the court was, whether the defendants were liable for these expenses. Mr. Justice Story held: "This is a case of reassurance; and nothing is clearer, upon principle and authority, than that in such a case the reassurers are entitled to make the same defence, and to take the same objections, which might be asserted by the original insurers in a suit upon the first policy. The consequence would seem to be, that, as no voluntary payment by the original insurers would be binding or obligatory upon the reassurers, they are compellable to resist the payment, and to require the proper proofs of loss from the assured in a regular suit against them, so as to protect themselves by a bona fide judgment to the amount of the recovery against them under their reassurance." 2 New York Bowery Fire Ins. Co. v. New York Fire Ins. Co., 17 Wend. 359. In this case, which was on error from the Court of Common Pleas, it appeared that the New York Fire Insurance Company, having insured for one year a stock of goods belonging to one Mortimer, effected reassurance with the plaintiffs, that the goods insured were destroyed, and that the loss was paid by the New York Company, who claimed to recover on their policy of reinsurance. The claim was allowed, and judgment ordered in the Court of Common Pleas, and on error brought same principle would be held applicable to a case of marine insurance. On the other hand, if the original insured obtained his insurance fraudulently, and his insurers obtained their reinsurance honestly, the reinsurers may defend against the reinsured on the ground that he had a good defence on the original insured, and consequently was at no risk, and had no insurable interest. In such case, the reinsurer would defend against the claim of the original insured, or might leave it to the reinsurers to defend in their name. If the reinsured defended against the claim of the original insured, on reasonable grounds, and were unsuccessful, the reinsurers would pay to them not only what they had to pay on their policy, but the costs and expenses of the defence, unless the reinsurers had withheld their sanction either expressly or by implication. The reinsured is not bound to pay his insured, and found his claim on this actual payment before he can call upon the reinsurer. For if the reinsured be insolvent, and pay but a small dividend on their policy, they have still a claim on the reinsurers for the whole amount for which they are reinsured, this amount being measured by the risks which the reinsurers assume for the premium paid them. to the Supreme Court. One of the grounds of the plaintiffs was, that the defendants, before entering into the policy with Mortimer, had received information concerning him, in effect that he had had trouble with other insurance companies, and that he could not effect insurance with some companies in the city on any terms; which information was not communicated to the plaintiffs when reassurance was effected. It was held, in substance, that "an underwriter, obtaining a policy of reinsurance, is bound to communicate such information as he possesses in reference to the character of the party insured; and if he omit to do so, whether from misapprehension of the probable effect of such communication when made, or from design, and the information be material to the risk or the amount of premium to be charged, the policy of reinsurance will be void." 1 New York State Mar. Ins. Co. v. Protection Ins. Co., 1 Story 458, n. 1, p. 299, supra. See also Hastie v. DePeyster, 3 Caines, 190, in which it was held that "the reassurer is liable to the assurer for all costs, bona fide expenses, &c., incurred in defending the suit, by the original underwriters, especially when, with notice of it going on, he stands by and does not offer to settle; for as the reassurer is entitled to every defence against the insurer which he may urge against the primitive assured, it becomes necessary for the original underwriter to show he has been obliged to pay, on a just claim against him; and he will be entitled to interest on all he has expended and paid." The original insured cannot assert any interest in a policy of reinsurance.1 The reinsurer may include in the amount of reinsurance the premium which he pays for such reinsurance; for then if he pays on the policy he made, and recovers on the policy of reinsurance, he is not more than indemnified. But if he includes also the premium paid him for the original insurance, he would then be more than indemnified by that amount. A question has been raised whether, for this reason, this premium should not be deducted. It has not, as we are aware of, passed under direct adjudication, and, so far as we have been informed, the practice has not been uniform on the subject. Text-writers differ about it. Valin,2 Pothier, and Boulay-Paty think the deduction should be made, and Mr. Phillips 5 agrees with them. Emerigon thinks the original premium should not be deducted. We are inclined to think that because the original premium is in no way at risk, and reinsurance is founded, not on property, but on risk, this premium does not enter into reinsurable interest. 4 Reinsurance is prohibited in England, except in case the insurer, being solvent when the policy is made, becomes bankrupt or dies. Mr. Arnould states that this statute arose from the fact that reinsurance had "come to be employed as a mode of speculating in the rise and fall of premiums, and the legislature foresaw that it might be used as a cover for wager policies." 8 Whatever be its cause, the statute is general in its terms, and contains no words to confine it to British ships, and it has therefore been held in England that every reinsurance made in that country, proceedings in equity against corporations. 1 In Heckenrath v. The American Mut. Ins. Co., 3 Barb. Ch. N. Y. 63, it was held that where a corporation has underwritten a policy, and afterwards causes itself to be reinsured, and after the loss of the property insured such corporation becomes insolvent, the person originally insured has no equitable lien or preferable claim upon the sum of money due on the contract of reinsurance, but that fund belongs to all the creditors of the insolvent corporation, ratably, under the provisions of the Revised Statutes relative to |