Allemannia Fire Ins. Co. v. Firemen’s Ins. Co., 209 U.S. 326 (1908)

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Allemannia Fire Insurance Company of Pittsburg

v. Firemen’s Insurance Company of Baltimore
No. 180

Argued March 17, 18, 1908
Decided April 6, 1908
209 U.S. 326

ERROR TO THE COURT OF APPEALS

OF THE DISTRICT OF COLUMBIA

Syllabus

Reinsurance has a well known meaning, and, as the usual compact of reinsurance has been understood in the commercial world for many years, the liability of the reinsurer is not affected by the insolvency of the reinsured company or by the inability of the latter to fulfill its own contracts with the original insured, and, in this case, the compact, notwithstanding it refers to losses paid, will be construed to cover losses payable by the reinsured company, and, in a suit by the receiver of that company on the compact, the fact of its insolvency and nonpayment of the risks reinsured does not constitute a defense.

28 App. D.C. 330 affirmed.

This action was brought by plaintiff, who is the defendant in error, in the Supreme Court of the District of Columbia, for the purpose of recovering an amount alleged to be due the plaintiff from the defendant (plaintiff in error) on a policy of reinsurance. The plaintiff obtained judgment in the trial court, which was affirmed in the Court of Appeals of the District.

The plaintiff had originally insured the property which was destroyed, and had, prior to the loss, reinsured a proportion of the original insurance with the defendant company. After such reinsurance, the plaintiff suffered heavy losses by reason of the great fire in the City of Baltimore in the month of February, 1904, for which losses it became liable, and was rendered thereby insolvent, and is unable to pay the same unless the plaintiff is able to collect the amount due it from the defendant by virtue of its reinsurance policies, and from other corporate fire insurance companies with which plaintiff had contracts of reinsurance. By reason of the insolvency of the corporation a receiver was appointed by a decree of the Circuit Court of Baltimore City prior to the commencement of this action.

Upon the trial, the plaintiff proved a cause of action against the defendant, unless the facts, which it also proved, that it had become insolvent by reason of the losses sustained by it incident to the Baltimore fire in 1904, and that a receiver had been appointed for it by the court in Maryland, and that the receiver had paid to its creditors, after this suit was brought, but 55 percent of the amount of its liability, amounted to a defense.

The contract between the plaintiff and defendant was described therein as a "reinsurance compact," and in it, the defendant agreed to "reinsure the Firemen’s Insurance Company" in the amounts and manner therein stated.

There were contained in the compact, and forming part thereof, the following subdivisions:

10. Upon receiving notice of any loss or claim under any contract hereunder reinsured, the said reinsured company shall promptly advise the said Allemannia Fire Insurance Company at Pittsburg, Pennsylvania, of the same, and of the date and probable amount of loss or damage, and after said reinsured company shall have adjusted, accepted proofs of, or paid such loss of damage, it shall forward to the said Allemannia Fire Insurance Company at Pittsburg, Pennsylvania, a proof of its loss and claim against this company, upon blanks furnished for that purpose by said Firemen’s Insurance Company, together with a copy of the original proofs and claim under its contract reinsured, and a copy of the original receipt taken upon the payment of such loss; and, upon request, shall exhibit and permit copies to be made of all other papers connected therewith, which may be in its possession.

11. Each entry under this compact, unless otherwise provided in this compact, shall be subject to the same conditions, stipulations, risks, and valuation as may be assumed by the said reinsured company under its original contracts hereunder reinsured, and losses, if any, shall be payable pro rata with, in the same manner, and upon the same terms and conditions, as paid by the said reinsured company under its contracts hereunder reinsured, and in no event shall this company be liable for an amount in excess of a ratable proportion of the sum actually paid to the assured or reinsured by the said reinsured company under its original contracts hereunder reinsured, after deducting therefrom any and all liability of other reinsurers of said contracts or any part thereof.

The defendant gave no evidence, but requested the court to instruct the jury as follows:

No. 2. The jury are instructed that proof of mere liability on the part of the plaintiff under the original contracts or policies involved in this suit is not sufficient to entitle it to a verdict against the defendant, and the jury are therefore further instructed that they must return a verdict in favor of the defendant, unless they shall find from the evidence that the plaintiff has actually paid the whole or some part of one or more of the claims against it, enumerated in the schedule annexed to the contract of reinsurance here sued upon.

No. 3. The jury are instructed that, if they find for the plaintiff, their verdict must not be for an amount in excess of a ratable proportion of the various sums actually paid by it to its policy holders under the original contracts or policies enumerated in the schedule attached to the declaration filed herein.

These instructions were refused and the refusal duly excepted to. Thereupon the jury, under instructions, returned a verdict in favor of the plaintiff for $12,613.24, being the amount which it was conceded was due under the reinsurance compact, provided the fact of insolvency and nonpayment by the reinsured did not constitute a defense.