Standard Fire Insurance Policy

• Author: F.C. Oviatt
• Published date: 01 September 1905
• Date: 01 September 1905
• DOI: http://doi.org/10.1177/000271620502600213
• Subject Matter: Articles

STANDARD

FIRE

INSURANCE

POLICY

An

Analysis

of

its

Provisions

and

a

Brief

Discussion

of

the

Legal

Questions

Involved.

By

F.

C.

OVIATT.

What

is

a

fire

insurance

policy?

A

fire

insurance

policy

may

be

defined

as

&dquo;a

contract

to

indemnify

the

holder

thereof

for

actual

destruction,

by

a

certain

immediate

cause,

i.

e.,

fire,

of

value

apper-

taining

to

certain

specified

property

owned

by

him.&dquo;

1

While

there

are

different

forms

of

policies,

the

foregoing

definition

is

the

basis

of

fire

insurance

contracts.

There

are

some

differences

in

phrase-

ology,

and

in

some

of

the

provisions

of

some

of

the

statutory

policies,

but

in

essence

they

are

the

same

and

are

founded

upon

the

fact

given

in

the

definition.

It

should

also

be

noted

that

the

indemnity

is

for

actual

loss

sustained.2

2

A

man

should

never

receive

more

than

the

amount

of

his

loss,

as

it

is

against

public

policy

for

a

man

to

profit

by

the

destruction

of

his

property

by

fire.

The

real

or

actual

value

cannot

always

be

determined

in

advance

of

the

fire,

especially

where

personal

property

is

concerned.

A

stock

of

merchandise

or

of

material

is

likely

to

vary

in

value,

but

the

owner

endeavors

to

keep

some

fairly

consistent

ratio

between

the

value

of

the

property

and

the

amount

of

insurance

carried.

While

expert

accounting

has

made

1

The

conditions

which

surround

an

insurance

contract

as

regards

person,

place,

and

property

are

admirably

summed

up

in

Ostrander

on

Fire

Insurance

Section

33.

2

The

measure

of

damage

was

that

agreed

upon

in

the

policy,

to

wit :

"

The

actual

cash

value

at

the

time

of

the

loss

and

damage ;

also

that

the

option

to

replace

the

machinery,

if

destroyed,

was

a

reservation

for

the

benefit

of

the

company.

They

were

not

bound

to

adopt

it.

What

it

would

cost,

therefore,

to

replace

the

reaping

machine

did

not

furnish

the

room

for

damages

which

the

company

must

pay

to

make

good

the

loss.

Nor

was

the

fact

that

the

machines

insured

were

constructed

under

a

patent

of

any

importance.

Patented

or

unpatented,

what

they

were

worth

at

the

time

of

the

fire,

was

by

agreement

of

the

parties

to

be

the

measure

of

their

value,

and

this

must

be

ascertained

by

testimony

as

is

done

in

every

other

case

where

this

value

is

not

fixed."

(Commonwealth

Ins.

Co.

v

Sennett,

37

Pa.

205).

It

is

not

the

cost

of

rebuilding,

but

the

money

value

at

the

time

of

the

fire.

Waynesboro

Mutual

Ins.

Co.

v.

Creaton,

98

Pa.

451.

180

a

great

advance

in

this

country

within

the

past

few

years,

there

are

still

many

manufacturers

and

n;erchants

who

do

not

keep

their

books

and

accounts

in

such

a

way

as

.to

actually

set

forth

the

value

of

what

they

have

on

hand

at

the

time

of

the

fire.

The

investigations

which

often

accompany

an

adjustment

not

infrequently

reveal

a

condition

of

affairs

as

to

value

and

quantity

which

are

quite

unex-

pected

by

the

property

owner.

Most

men,

when

they

insure

buildings,

believe

themselves

en-

titled

to

recover

for

the

amount

of

the

policy.

Buildings

are,

how-

ever,

not

by

any

means

stable

in

value.

They

are

subject

to

con-

stant

deterioration.

Then,

again,

as

the

building

becomes

less

de-

sirable

for

a

certain

occupancy,

either

through

unsatisfactory

interior

arrangements

or

lessened

desirability

of

location,

its

value

decreases

because

its

earning

power

has

decreased.

Calculations

based

upon

an

experience

involving

some

three

hundred

and

fifty

thousand

poli-

cies,

show

that

about

one

policy

in

thirty

results

in

a

claim.

Of

these

claims,

not

over

ten

per

cent.

are

for

total

losses.

To

illustrate

this,

it

may

be

assumed

that

one

hundred

thousand

buildings

of

all

kinds

are

insured.

Not

more

than

three

thousand,

three

hundred

and

thirty-three

are

injured

by

fire,

and

not

more

than

three

hundred

and

thirty-three

are

totally

destroyed.

Therefore,

out

of

one

hundred

thousand

contracts,

in

not

more

than

three:

hundred

and

thirty-three

cases

can

the

question

arise

as

to

whether

the

value

of

the

property

destroyed

is

less

than

the

insurance.

This

illustration,

of

course,

applies

to

buildings,

and

not

to

personal

property.

The

value

con-

templated

so

far

as

the

insurance

of

a

building

is

concerned

is

what

it

would

cost

to

reinstate

the

property

in

the

same

condition

as

before

the

fire,

subject

to

a

reasonable

deduction

for

depreciation

from

use

or

neglect.

In

the

case

of

personal

property,

the

value

of

the

manufacturer’s

goods

consists

of

the

cost

of

his

raw

material

at

the

time

of

the

fire,

plus

transportation

charges

and

cost

of

manufacture.

The

value

of

his

machinery

is

measured

by

what

it

would

cost

at

the

time

of

the

fire

to

purchase

and

set

up

machines

similar

to

those

destroyed,

with

a.

suitable

deduction

for the

difference

in

value

between

old

and

new

machinery.

Where

property

which

is

normally

subject

to

fluc-

tuation

in

value

is

insured,

the

price

at

the

time

of

the

fire

controls.

If

grain

is

bought

and

stored

at

seventy

cents

per

bushel,

and

burns

when

similar

grain

is

worth

ninety

cents

per

bushel

in

the

market,

181

ninety

cents

is

the

limit

of

value

in

making

up

the

claim.

If,

on

the

other

hand,

grain

falls

to

fifty

cents,

then

fifty

cents

is

the

limit

of

value.

Then,

again,

some

property

depreciates

very

rapidly,

a

fact

which

must

be

taken

into

account

in

the

matter

of

values.

A

thresh-

ing

machine

five

years

old

is

practically

valueless;

an

automobile

three

years

old

has

lost

a

large

part

of

its

value.

Fashion

also

takes

a

hand

in

changing

values.

An

Easter

hat

will

have

no

par-

ticular

value

if

it

should

burn

in

the

fall

following

the

Easter

when

it

was

in

fashion.

Fire

has

not

destroyed

its

value,

it

is

not

worn

out,

but

Dame

Fashion

has

said

it

is

out

of

date.

An

insurance

policy

is

a

personal

contract.

It

does

not

follow

the

property,

and,

properly

speaking,

it

does

not

insure

the

property

at

all.

It

simply

agrees

to

indemnify

the

owner

for

a

loss

occurring

to

him

personally

by

reason

of

the

damage

or

destruction

of

certain

property.

Consequently,

to

recover

under

a

fire

insurance

policy

one

must

show

ownership

or

an

insurable

interest.

Many

questions

arise

in

the

adjustment

of

losses

over

this

question

of

ownership,

and

it

is

always

a

part

of

wisdom

for

a

man

to

be

sure

that

he

possesses

an

insurable

interest

in

the

property

covered

by

the

policy

taken

out

in

his

name.3

If

John

Jones

sells

a

house

to

William

Smith,

and

gives

him

possession,

John

Jones’s

fire

insurance

policy

does

not

insure

William

Smith.

If

the

policy

has

not

been

taken

up

and

rewritten

in

the

name

of

William

Smith,

then

William

Smith

must

bear

the

loss

in

case

of

fire

for

John

Jones

cannot

collect,

since

he

does

not

own

the

property,

and

William

Smith

cannot

collect

because

he

has

no

insurance

policy.

A

man

may

insure

such

interest

as

he

possesses

in

certain

property

against

the

risk

of

loss

by

fire.

This

in-

cludes

mortgage

interest,

an

equitable

interest

in

the

property,

the

pledging

of

property

as

a

security

for

a

loan

such

as

grain

in

storage.

Then

again,

a

fire

insurance

policy

is

not

only

a

personal

contract,

but

a

personal

contract

covering

property

located

at

a

specified

and

def-

inite

place.4

If

the

American

Fire

Insurance

Company

of

Philadel-

phia

issues

a

policy

on

a

stock

of

merchandise

located

at

the

corner

of

Girard

avenue

and

Twelfth

street,

and

the

goods

are

moved

to

the

3

Insurance

being

a

contract

of

indemnity

it

appertains

to

the

person

or

party

to

the

con-

tract

and

not

to

the

property

which

is

subjected

to

the

risk.

Cummings

v.

Cheshire

County

Mutual

Ins.

Co.,

55

N.

H.

457;

Ostrander

on

Fire

Insurance,

209.

4

The

courts

generally

hold

that

the

risk

does

not

follow

the

goods

to

any

other

location

than

that

described

in

the

policy.

Maryland

Fire

Ins.

Co.

v.

Gusdorff,

43

Md.

506 ;

London

and

Lancashire

Ins.

Co.

v.

Lycoming

Fire

Ins.

Co.,

105

Pa.

424.