CHAPTER XV

OF THE PREMIUM.

SECTION I.-What the Premium is, and who is liable therefor.

THE promise of the insurers to indemnify the insured requires, like all other contracts, a valid consideration; and this consideration is the amount paid for the insurance by the party insured, which is called the premium. This is usually regarded as due on the delivery of the policy; but in marine insurance, which is now effected in this country almost exclusively by incorporated companies, the premium is usually paid by a promissory note, given when the policy is delivered, or soon after, and called the premium note.

Our policies usually acknowledge the receipt of the premium; but this can be no bar to a suit for it if it has not been paid. The general rule of law is, that a receipt for money is open to evidence, either to qualify it or to controvert it altogether. It is true that generally no written contract is to be varied by oral evidence. But even in a deed for land, where the receipt of the consideration money is acknowledged under seal, the actual payment may be inquired into and any question raised concerning it which does not tend to impeach or invalidate the deed, or vary any of its provisions; 2 and the same rule must certainly be applicable to policies of insurance. But where the validity of the contract depends upon the receipt of the premium, parol evidence has been held not admissible to contradict the written acknowledgment in the policy. But in a recent case in New York it was held, that, although the printed terms of the policy state that no policy will be considered binding until the premium is paid, this condition may be waived, and if it is to be inferred from the facts in the case, signing the policy." Emerigon, ch. 3, s. 1 (Meredith's ed.), p. 51.

1 "The word 'premium,"" says Emerigon, "comes either from the word præmium, signifying price, or from the word primo, because formerly the premium was paid before all, and at the time of

21 Greenl. Ev. 26, note.

Goit v. National Protection Ins. Co., 25 Barb. 189.

that a credit is intended, the policy will be valid although the premium is not paid. This ruling was made in an action on a fire policy; but it rests on reasons equally applicable to marine insurance.1

In England contracts of insurance are made, generally, if not always, by brokers, who make themselves liable to the insurers for the premium, and stand, generally, as regards the underwriters, in the same position as the insured do in this country.2 And they are allowed to recover the amount from the insured as money paid, before they have actually paid it to the underwriters.3

The actual owner of the property or interest which is insured, being in fact the party for whose benefit the contract is made, is bound to pay the premium ; and this even if the note of another

1 Boehen v. Williamsburg Ins. Co., 35 New York, 131.

* For cases growing out of the peculiar relations of underwriters and brokers in England, see Airy v. Bland, Park, Ins. 34; Edgar v. Bumstead, 1 Campb. 411; Edgar v. Fowler, 3 East, 222; Grove v. Dubois, 1 T. R. 112; Bize v. Dickason, 1 T. R. 285; Minett v. Forrester, 4 Taunt. 541; Cumming v. Forrester, 1 M. & S. 494; Koster v. Eason, 2 M. & S. 112; Parker v. Beasley, 2 M. & S. 423; Houstoun v. Robertson, 6 Taunt. 448.

* See Power v. Butcher, 10 B. & C. 329, cited post, next note. This is al lowed on the ground that there are running accounts between the brokers and underwriters, on which the former are credited with the losses, and the latter with the premiums. The consequence of this practice is, that in ordinary cases, as against the assured, the underwriter cannot set up that the broker has not paid the premium of which he has acknowledged the receipt. Dalzell v. Mair, 1 Campb. 532; De Gaminde v. Pigou, 4 Taunt. 246; Anderson Thornton, 8 Exch. 425, 20 Eng. L. &

v.

Eq. 339. But if the assured has fraudulently induced the underwriter to give credit to the broker, the receipt will not estop the underwriter from claiming the premium of the assured. Foy v. Bell, 3. Taunt. 493. And so, where there is fraud on the part of the broker and the assured. Mavor v. Simeon, 3 Taunt. 497, note.

But it seems always to have been admitted in England that the policy would not be conclusive evidence of the payment of premium between the underwriter and broker. See the argument of Best, Sergt., in Foy v. Bell; Cumming v. Forrester, 1 M. & S. 494. And it cannot be doubted that in the United States, when the underwriter looks in the first instance to the assured for the premium, the policy would not be conclusive evidence of its payment. Ins. Co. of Penn. v. Smith, 3 Whart. 520.

The practice in England in effecting insurances and paying premiums is thus described by Bayley, J., in Power v. Butcher, 10 B. & C. 329, 340: "According to the ordinary course of trade between the assured, the broker, and the underwriter, the assured do not, in

is taken who is agent or broker for the principal,1 unless the insurers knew that the agent was not acting for himself. In that case they are to be considered as electing to take the liability of the agent or broker, and can look no further.2 But they do not elect to take the agent, when they do not know that he is not the principal, or that there is another principal to whom they might look. If, however, the agent or broker signs the note in his own name, the principal is never liable on the note. Our policies usually contain a clause giving the insurers a right to deduct or set off the premium due, against a loss. They would have this right as against the insured without any express agreement; but this clause secures to them their right, although the premium consists of the note of another party, if the note be unpaid.5

the first instance, pay the premium to the broker, nor does the latter pay it to the underwriter. But as between the assured and the underwriter the premiums are considered as paid. The underwriter, to whom, in most instances, the assured are unknown, looks to the broker for payment, and he to the assured. The latter pay the premiums to the broker only, and he is a middleman between the assured and the underwriter. But he is not solely agent: he is a principal to receive the money from the assured, and to pay it to the underwriters." But in this country there can be no question but that the underwriter can look to the assured in the first instance.

1 Ins. Co. of Penn. v. Smith, 3 Whart. 520. See Paterson v. Gandasequi, 15 East, 62, 2 Smith, Leading Cases, 222, note.

Patapsco Ins. Co. v. Smith, 6 Harris & J. 166; Paterson v. Gandasequi, 15 East, 62.

Ins. Co. of Penn. v. Smith, 3 Whart. 520. The policy in this case was of such a form that others might be interested, but not necessarily, and it was held that the taking of the note of the agent was not a waiver of the right to

look to the principal. But if the agen applies for insurance "for self and others," and the underwriters take the note of the agent only, the principals are not liable, though they were not known when the insurance was effected. Patapsco Ins. Co. v. Smith, 6 Harris & J.

166.

Stackpole v. Arnold, 11 Mass. 27. 5 In Hurlbert v. Pacific Ins. Co., 2 Sumner, 471, the insurance was for "H. & Co., for whom it may concern payable to H. & Co.," and by a clause in the policy all sums due to the company from the insured, when the loss should become due, were to be deducted. H. & Co. were mere agents for the parties in interest. It was held, in an action brought by H. & Co. for the benefit of the parties in interest, that the company could not set off debts due from H. & Co. in their own rights; but that the premium note, whether given by the agent or principal, was to be deducted, and that the words "the assured" applied not to the party who procured the insurance, but to him for whose benefit it was made. See also Wiggin v. American Ins. Co., 18 Pick. 158; Wiggin v. Suffolk Ins. Co., 18 Pick. 145, cited ante, p. 55, n. 1.

SECTION II. Of the Return of the Premium.

THE premium, although due and payable in one sense as soon as the policy is made, is, in another, not due unless that risk is incurred for insurance against which the premium is paid.1 If, therefore, there be no such risk, the premium cannot be claimed if it has not been paid, and, if it has been paid by cash or by a note, it must be returned. This rule gives to the insured the power of avoiding the contract, in whole or in part, after it is made; because this contract is, substantially, a promise by the insurers to indemnify the insured against a certain risk if that risk be incurred, and a promise of the insured in return to pay the premium to the insurers if their promise of indemnity attaches. If no part of the risk attaches, either because no part of the goods is shipped,2 or because no part of the voyage takes place, or because the insurance was predicated on a fact about which the parties were mistaken, or because the insured had no interest,5 or because the

Waddington v. United Ins. Co., 17 Johns. 23; Scriba v. Ins. Co. of N. A., 2 Wash. C. C. 107; Toppan v. Atkinson, 2 Mass. 365; Bermon v. Woodbridge, 2 Doug. 781; Richards v. Mar. Ins. Co., 3 Johns. 307; Murray v. Col. Ins. Co., 4 Johns. 443.

Forbes v. Church, 3 Johns. Ca. 159; Murray v. Col. Ins. Co., 4 Johns.

443.

As a blockade. Taylor v. Sumner,

1 In Tyrie v. Fletcher, 2 Cowp. 666,
Lord Mansfield, C. J., states the law as
follows: "There are two general rules
established, applicable to this question:
the first is, that where the risk has not
been run, whether its not having been
run was owing to the fault, pleasure, or
will of the insured, or to any other
cause, the premium shall be returned;
because a policy of insurance is a con-
tract of indemnity. The underwriter
receives a premium for running the risk 4 Mass. 56.
of indemnifying the insured, and what-
ever cause it be owing to, if he does not
run the risk, the consideration for which
the premium or money was put into his
hands fails, and, therefore, he ought to
return it. 2. Another rule is, that if
that risk of the contract of indemnity
has once commenced, there shall be no
apportionment or return of premium
afterwards."

In

5

Routh v. Thompson, 11 East, 428. this case a Danish vessel was captured and taken into port before war was declared against Denmark, though subsequent to a proclamation by the king in council to detain and bring into port all Danish vessels. Insurance was made by order and on account of the captors. Held, that the captors had no claim of right, but only ex gratia of the crown, the vessel being seized before war was declared, and that they

vessel was unseaworthy and consequently the risk never attached,1 the whole premium is returnable. And, generally, the premium is to be returned if the risk never commenced on account of a breach of warranty.2

But the assured cannot annul the insurance merely by serving on the underwriters a notice of his desire to put an end to the contract, if the voyage is not actually abandoned.3

Many insurance companies, by a clause in their policies, retain one half of one per cent on the premium returnable; but in some cases, other terms are agreed upon for the return premium. This half per cent is allowed by foreign laws of insurance, and may have been derived from them.