RSUI Indemnity Company--A Very Complex Excess Property Policy--Texas Style (Part I)

MOST DIFFICULT TO UNDERSTAND INSURANCE DECISION EVER WRITTEN, MAYBE, THOUGH WORTH THE READ, PERHAPS:

FIRST-PARTY PROPERTY EXCESS POLICY:
RSUI INDEMNITY CO. v. THE LYND COMPANY 
(Texas Supreme Court 13-0080 2015)

 

PART I

Michael Sean Quinn, PhD., J.D. Etc.

 

The contract of insurance at issue, in this case, was a first-party excess property policy covering 100 apartment buildings. The policy was over Westchester First Insurance Company's primary policy which had coverage for the first $20M per occurrence. RSUI covered the same buildings with $450M for each occurrence.

 

The insured's loss arose out of Hurricane Rita which hit the Gulf Coast in September 2005. The Lynd Company managed many properties and of them, 13 reportedly sustained damage in or from this storm.

 

The main issues in the case surrounded how much RSUI owed under its policy given the nature of the policies and the contract prescription for how to compute amounts owed.

Before proceeding to these matters, however, let's take a look at two crucial elements of the policy and then look at its applications. The reader might wish to remember that the principal principles of insurance contract interpretation were set forth and discussed in a previous post. See Quinn, “Interpreting Insurance Policies: Texas Law of Contract Semantics” (December 4, 2020).

"Occurrence"

One of the most important things about this insurance policy is the way the term "occurrence" was defined. Instead of being defined in terms of the causal or result producing event(s), it was defined as "any one loss, disaster or series of losses from any one loss, disasters, causality, arising from one event."  A variety of perils to which the term "occurrence" applies; they include "tornado cyclone, hurricane, windstorm, hail, flood, earthquake, volcanic eruption, riot, riot attending a strike, civil commotion and vandalism and malicious mischief, [where] one event shall be construed to be all losses arising during a continuous period of 72 hours."

"When filing a proof of loss[,] the insured may elect the moment at which the 72 hour period shall be deemed to have commenced, which shall not be earlier than the first loss to occur at any covered location. "

 

[Quinn Comment: As the reader will notice, the context, vocabulary and definitions are to some degree unusual from the standpoint of historically standard verbal usage, and this "deviation from nomenclature norm" is part of the problem with understanding the policy, the case, and this opinion. most significantly, the term "occurrence" in ordinary, standard American "insurance English" usually–almost always–refers to the cause of the loss, sort of, or part thereof. (Better put, "occurrence" is the word naming a category for the sort of event out of which a loss might arise or from which it might result. Sometimes the term "accident"–or some word like it–has been part of the definition of "occurrence." Sometimes the word "unexpected" has played a role. In this RSUI policy the term "occurrence" refers to a loss and the term "loss," also includes a series of connected losses. In some sense, this usage is not only unusual, from the standpoint of what has been quite usual, but it is also the opposite of how many see the term as normally used. Another way to put the same point might be to say that "occurrence" has usually been–during relatively recent coverage history–a synonym for a "peril" that happened (ie., ‘occurred’), while the term "loss" stood on its own (some injury to a building, e.g., windows), even if it included more than simple individual losses (roof, windows, carpets, foundation, etc.) but also included complex, multi-dimensional losses (e.g., building destruction and lost revenue) and even included series of individual but related losses (two buildings and some of the contents of each).

What has happened here is that the policy groups together too many different concepts. One way to put this point is to observe that the policy uses the word "disaster" to cover both the loss and that which lead to–or caused–the loss. Of course, in ordinary English, it makes perfect sense to refer to the whole event or series of events as a disaster, and even as a single event. That is a bad idea for an insurance contract, however, where what was the cause and what was the effect are conceptually different].

Policy Typology

Insurance policies of a given category fall into many different subtypes. In fact, the idea of subtypes is itself complex. Here we have a property policy, which is an excess policy, and then we have an excess policy that insures more than one building. Within that sub-category, there are more. Some policies are “blanket” policies, and some are not. Often non-blanket policies are called “specific” or “scheduled” policies.

 

This typology pertains to how limits and sub-limits on the insurer's liability for losses are to be conceived. Blanket policies have one aggregate limit, while scheduled policies have a series or concatenation of individual limits. More or less, "blanket" policies add up the covered values on all the buildings covered and think of that as policy limits. In a "scheduled" policy, one might say that each building has separate coverage, and policy limits are specified item by item, that is, building by building.

 

In this case the insurer and the insured disputed which subtype this one was. The insurer side "scheduled," while the insured said "blanket." Interestingly, in the end, the courts took itself to be governed by contract language and not the widely used insurance industry (or, world-of-insurance-markets) frameworks. At the same time, remember that there was a dissent.

 

 

INTERPRETING INSURANCE POLICIES: TEXAS LAW OF CONTRACT SEMANTICS

TEXAS LAW OF PROPER INSURANCE POLICY INTERPRETATION:
PRINCIPLES, RULES, APHORISMS, & MAXIMS

Michael Sean Quinn, Ph.D., J.D., Etc.

There are established legal principles as to how to interpret contracts and that almost always includes insurance policies–how could it not be since insurance policies are unquestionably a type of contract.  Whole books have been written on the general subject. 

In addition, coverage lawyers often find themselves rooting around looking for an applicable principle in this or that situation. For "ordinary" lawyers, the situation is often even more grueling. 

In 2015, the Texas Supreme Court issued an opinion in a very difficult case. RSUI Indemnity Company v. The Lynd Company, 13-0080 (May 8, 2015). The case was difficult for at least four reasons. First, the contract analyzed was a relatively rare sort and very complex in and of itself; second, the problem was (and remains) unusual; third, the language of the contract was defective in a variety of ways; fourth, it was a 6-3 opinion and the justices who wrote the opinions–did not appear, at any rate, to be restrainedly affable-though divided as to jurisprudence–a rarity for a Texas appellate court.

I will discuss the actual case concretely in another blog-essay. Here I propose to set forth what the case says about the legally approved logic of the semantics of contract interpretation. Much of what a reader will find here are quotes–or near quotes–from the opinions in RSUI; most of them will come from the lengthy majority opinion, with some from the quite short dissenting opinion.  

[QC. What the majority opinion states and quotes is a broad and helpful compilation of the relevant semantical principles.

I shall paraphrase a few principles enunciated with particularity as applicable to this set of facts. I will formulate them in general ways; these generalized versions are themselves established rules of interpretation.  

When I comment, it will be in brackets and begin "QC" standing for "Quinn's Comments." The same applies to slight changes, e.g., changing the phrase "insurance policy" to "contract." Thus, this very paragraph should have begun with "[QC." and closed with "]”.

The opinion I am using is frequently based what it says on older opinions and cite them explicitly. For the sake of simplicity, I am leaving out the citations and most of the "internal" quotes.  The reader who is looking for authority, as well as exposition, can do it quickly]. 

PRINCIPLES OF INTERPRETATION 

The following are taken from the RSUI Indemnity case's majority opinion written by the 6 justices. 

"An insurance policy is a contract, generally governed by the same rules of construction as all other contracts. When construing a contract, our primary concern is to ascertain the intentions of the parties as expressed in the document. Unless the [contract or] policy dictates otherwise, we give words and phrases their ordinary and generally accepted meaning, reading them in context and in light of the rules of grammar and common usage. We strive to give effect to all of the words and provisions so that none is rendered meaningless. 'No one phrase, sentence, or section {of a contract} should be isolated from its setting and considered apart from the other provisions.'

[QC. The bracket sign {} in the last sentence of the quote are those of the majority opinion. The principle in the last sentence implies that a contract, including an insurance policy, should be interpreted as a whole, with the language of various parts fitting together and being interpreted jointly. But what is one to do if two parts are unquestionably inconsistent? One can imagine this happening, and the parties together admitting that it's true.]

"When interpreting an insurance policy, we are mindful of other courts' interpretations of policy language that is identical or very similar to the policy language at issue. 'Courts usually strive for uniformity in construing insurance provisions, especially where. . . the contract provisions are identical across the jurisdictions. ('We have repeatedly stressed the importance of uniformity 'when identical insurance provisions will necessarily be interpreted in various jurisdictions.')" [QC: The parentheses are those of the majority opinion; the language quoted within them is from the case quoted].

“[In insurance policies, for sure, and other contracts often:] If only one party's construction is reasonable, the policy is unambiguous, and we will adopt that party's construction. But if both constructions present reasonable interpretations of the policy's language, we must conclude that the policy is ambiguous. In that event, 'we must resolve the uncertainty by adopting the construction that most favors the insured,' and because we are construing a limitation on coverage, we must do so, 'even if the construction urged by the insurer appears to be the more reasonable or a more accurate reflection of the parties' intent.' 'This widely followed rule is an outgrowth of the general principle that uncertain contractual language is construed against the party selecting that language,' and is 'justified by the special relationship between insurers and insured arising from the parties' unequal bargaining power." 

[QC. The paradigm here results from two factors. First, contracts of insurance are usually standardized, and the insurer is in much more control than the insured. Second, the "special relationship" is crucial to interpreting insurance policies. Not all standardized contracts are treated the same.]

"In contract law, the terms 'ambiguous' and 'ambiguity' have a more specific meaning that merely denoting a lack of clarity in language. 'An ambiguity does not arise simply because the parties offer conflicting interpretations.' Instead, 'a contract is ambiguous only when the application of pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.' Thus, a contract is ambiguous only if, after applying the rules of construction, it remains 'subject to two or more reasonable interpretations.'" [QC. The emphasis is mine, not the opinion’s.]

"Nor does the law deem a contract provision ambiguous merely because both parties can point to words or phrases, that read in isolation, favor different constructions of the contract or because both parties can identify language that, through the lens of hindsight, could have been more clearly stated. Few contracts could withstand that scrutiny. 'An ambiguity does not arise simply because the parties offer conflicting interpretations.' To be ambiguous, both interpretations must be a reasonable interpretation of the words chosen by the parties when read in the context of the policy taken as a whole."

[QC: Notice that the language of the court is "only when" and "only if." This is potentially very important. Neither, "only when" or "only if" constitute "when" or "if." This means what the court is saying is that language can possibly remain unclear and something other than ambiguous, even after all the pertinent rules of construction has been applied. The phrases "only when" and "only if" state necessary conditions only and not sufficient conditions.  I have never seen this distinction applied, and contract lawyers including coverage counsel do not think of the logic of this semantic principle working this way. The majority opinion, however, is quite clear on this point." Virtually all competent lawyers know the difference between necessary and sufficient conditions]. 

 

 

 

 

Chief Justice Lord Mansfield and Pan American World Airways

This post is a follow up to a post entitled "How to Read  Insurance Policies: One Phrase 200 Years," also published this day.

******

Some intentionally caused fires are not covered in property policies. This has always been true for fires intentionally caused by the insured property owner. There has also almost always been an exclusion for a set of fire-causing events that are associated with war and events like that. 

Drinkwater v. London Assurance

In the early part of the Eighteenth-Century, 1720 to be more exact, the London Assurance Company devised a provision in its Proposal which ended up in the policy that stated as follows: "No loss or damage by fire, happening by any invasion, foreign enemy, or any military or usurped power whatsoever, will be made good by this company." This phraseology remained the exclusion in the London Assurance policy for many, many years. 

However, there was a mob disorder that caused the destruction of a building–a "malting office"–which was insured.  The insurer denied coverage and refused to pay on the basis of the phrase "usurped power." London Assurance took the view that the mob had usurped power and caused the fire. The case was litigated, and it was eventually decided by three members of a panel with one judge dissenting. 

The court held that usurpation requires a foreign invasion, and so the insured prevailed. The dissenting judge rejected the idea that usurpation must be of foreign origin and indicated that it might be a domestic matter but that it must be or be like a civil war, rebellion, or something of the sort. The actions of a disorderly mob do not constitute usurpation and so the exclusion does not apply. 

The actual style of the case seems to be Drinkwater v. The Corporation of the London Assurance, 95 Eng Rep. (C.P. 1767). I cannot restrain myself from observing the if "usurp" means grabbing the power of an “official other,” e.g., a government or an army unit; consequentially, if there is no power to grab or being grabbed, then there can be no usurpation. This fact follows from the definition of the term “usurp.” Now, if a community is living in peace and tranquility but is subjected to mob disorder, it is not the case there was power prevailing which the mob usurped. Rather, there was no power prevailing, so there could be no usurpation, although, to be sure the spirit of the mob filled a power vacuum. 

Sun Fire Office

Although London Assurance did not change its proviso, while Sun Fire Office adopted it, but also added the phrase "civil commotion" in its 1727 Proposal/Policy. Fifty years passed. In the summer of 1780, there were terrible riots of a political nature. Those involved claimed to be protesting an act of parliament granting Roman Catholics some relief from then-current oppression.  

Their conduct burned down the sizable distillery of one Mr.  Langdale, a Catholic.  His building and stock of liquor were destroyed. He brought an action, Langdale v. Mason et al. (1780). In it, he sought coverage from Sun Fire Office. 

Jury Charge of Lord Mansfield in Langdale

 

The Chief Justice tried the case and his "address" to the jury was significant and perhaps a paradigm judicial reasoning as to contract language.  It is appropriate to remember that Lord Mansfield is famous not only for the Somerset case outlawing slavery but also for his reform and construction of English commercial law.  See Norman S. Poser, LORD MANSFIELD: JUSTICE IN THE AGE OF REASON (2013).

Said he, "Most undoubtedly every man's leaning must be to the side of the plaintiff [Langdale], in order to divide the loss in so great a calamity. But that inclination must be governed by the rules of law and justice; and the only question to be determined arises singly upon the construction of the two words in the policy."

At this point, the judge discussed the history of the use of the words "military or usurped power" and described them as ambiguous and already have been interpreted in an earlier suit, the Drinkwater case. The words refer to rebellion and events like that. 

The judge points out that the words do not imply high treason, felony, or mere misdemeanor; the policy does not even associate "civil commotion" with a riot. "It may be a question in point of law, whether an assembly or multitude be a riot. But the single question here is whether this has been a civil commotion. If there be a case to which these words be applicable, it is to a case of this sort. I cannot see any other words, to which it can be applied."

The judge rejects the idea that the events might be insurrections, rebellions, usurpations, or anything of the sort. So, "what is a civil commotion?" It is something else.

"The present [set of events] was an insurrection of the people resisting all law, setting the authority of the government at nought; and depriving of its protection whoever was obnoxious to them. What was the object and end of this violent insurrection? It took place in many parts of the town [London] at the same time, and the very same night; the mob were [in four or five different locations,] and at the plaintiff's. What is their object? General destruction, general confusion. It certainly was meant to aim at the very vitals of the constitution. It was not a private matter, under a cry of No popery only, to destroy all papists."

Lord Mansfield then describes a number of places and commercial buildings which were destroyed. Prisoners were freed, he observes.  "The houses of a vast number of papists burnt and destroyed." The military was brought in of necessity. People were killed. "What is this but a civil commotion, if any precise meaning can be affixed to those words. It is said that this is a civil commotion distinct from usurped power and rebellion. It is admitted that this kind of insurrection may amount to high treason: and, to be sure, it may. But the office [insurance company] does not mean to try whether these rioters were guilty of high treason or not. It is not put upon that but on the ground of civil commotion. It is not an occasional riot: That would be another question. I do not give any opinion what that might be. "You will give your opinions, whether the facts of this case bring it within the idea of civil commotion. I think a civil commotion is this: an insurrection of the people for general purposes, though it may not amount to a rebellion, where there is a usurped power. If you think it was such an insurrection of the people for the purposes of a rebellion, but within the exception of [exclusion in] the policy, you will find for the defendants. If not, you will find for the plaintiff. 

The jury delivered a verdict for the defendants." 

The quotations and the background story are taken from Samuel Marshall, A TREATISE ON THE LAW OF INSURANCE: IN FOUR BOOKS 687-91 (1802).*

According to Marshall, Langdale subsequently recovered from "the Hundred." As nearly as I can tell a Hundred is something like a division of county government. Upon concluding this discussion, Marshall takes up the matter of subrogation in situations like this one. 

*Samuel Marshall, Serjeant at Law, died in 1823.  ("Sergeant at Law" was a name for several hundred years of a very elite group of English barristers. It is from their dress code, for example, that the name "Order of the Coif" came.) By the Nineteenth Century, alas, this elite group was losing some of its luster. For example, no longer might they alone appear before the Courts of Common Pleas. Still, in the early Nineteenth Century Sergeant Marshall's position was a distinguished one. 

Now, I turn to the Twentieth Century case in which the phrase "civil commotion" plaid a significant role. There is quite a story, much of which will have to be set aside. 

The Pan Am Terrorist Case

On September 2, 1970–almost exactly a half-century ago–a Pan Am 747 going from Brussels to New York via Amsterdam was hijacked over London by what we would now call "terrorists." They demanded that the plane be flown to Beirut. There it was loaded with explosives and someone who knew how to detonate them. The grandest and perhaps largest of all commercial jets was flown on to Egypt where the passengers were unloaded safely, and the plane was then blown to bits. 

Pan Am had first-party property coverage through three different distinct types of insurance sources. There was never really a question as to whether Pan Am would recover; the question was from which: the all-risk carriers, the war-risk carriers, and/or the U.S. government under an air-travel statute.  Pan American World Airways, Inc. v. Aetna Casualty and Surety Co., 595 F.2d 989 (2d Cir. 1974). 

None of the insurers wanted to pay anything, of course.  Therefore, everyone else, including Pan Am, wanted the all-risk carriers to pay the whole tab. Aetna was one of the all-risk carriers.  Because its policy was an all-risk policy, every sort of physical loss or damage was covered unless it was subject to an exclusion. Naturally, the relevant highly sophisticated "manuscripted" policy had a slew of exclusions, several of which were in the general area of the manner of the loss. 

It was imperative for the all-risk carriers to get at least one of the many exclusions to apply. Sound arguments could be given to support some of them. Events that are part of a war, for example, were excluded, but there clearly was no war going on, so that exclusion would not work. 

Among other terms, the all-risk carriers invoked to shield themselves from coverage were "usurp" and "civil commotion." The Second Circuit panel rejected both arguments, and it cited both Drinkwater and Langdale.

Basically, the view of the Court was quite simple. There could not be a usurpation, even if the hijacking happened over British territory because the two terrorists were not acting on behalf of any government. and were not trying to grab the Crown's power.  The terrorists were agents of the Popular Front for the Liberation of Palestine and were not a government or military force or a government seeking to take over or interrupt British rule. Thus, even if the hijacking was somehow connected with an insurrection in Jordan, it was not due to and it did not result from it and was not proximately caused by it. 

The plane's destruction was "not due to" and did "not result from" said the court using the then long-established understanding of the nature of causation as understood in legal discourse and the phrase "proximate causation." To count Event#1 as the proximate cause of Event#2, Event#1 must be "close-in" or "immediately surrounding" the loss. Whatever political events were taking place in Jordan at the time, they did not meet the criteria for proximate causation or–indeed--causation simpliciter, at least as the idea is understood in law. 

The Second Circuit Court cited a case that is now approximately 100 years old. "As Justice Holmes stated in Queen Insurance Co. v. Globe & Rutgers Fire Insurance Co., 263 U.S. 487, 492 (1924). "The common understanding is that in construing these [insurance] policies we are not to take broad views but generally are to stop our inquiries with the cause nearest to the loss. This is a settled rule of construction, and if it is understood does not deserve much criticism, since theoretically at least the parties can shape their contract as they like." (Emphasis added.)

This court also cites the opinion of Cardozo, J. in Bird v. St. Paul Fire & Marine Insurance Co., 224 NY. 47, 120 N.E. 86, 87 (N.Y. 1918). "In Bird, the insured vessel was damaged by a concussion caused by an explosion in a freight yard about a thousand yards from the vessel. The explosion came about when a fire set off a stock of explosives. The insured sued on an insurance policy covering losses caused by 'fire.' The [New York] Court of Appeals [–that state's highest court–] held that the loss was not caused by fire. It ascertained that the scope of causation relevant to the insurance nature of a loss is largely a question of fact depending on the reasonable expectations of the businessmen: The question is not what men ought to think of as a cause. The question is what they do think of as a cause.  We must put ourselves in the place of the average owner whose boat or building is damaged by the concussion of a distant explosion, let us say a mile away. Some glassware in his pantry is thrown down and broken. It would probably never occur to him that within the meaning of his policy of insurance, he had suffered loss by fire. A philosopher or lawyer might persuade him that he had, but he would not believe it until they told him. He would expect indemnity, very likely, if the fire was near at hand, if his boat or building was within the danger zone of ordinary experience, if damage of some sort, whether from the ignition or from the indirect consequences of fire, might fairly be said to be within the range of normal apprehension." (Emphasis added.)

Interestingly, the Second Circuit court states that "New York courts give especially limited scope to the causation inquiry." (I wonder if that or any other state would hold the same view today. I myself even wonder if the great Cardozo got this one right at that time. It seems to me that the ideas of the philosopher and the lawyer should get more credit than he gives them.)

The court's discussion of usurpation as a cause to be excluded relies upon Drinkwater and Langdale together. The matter of "civil commotion" is different. In the case of usurpation, the court uses the 200-year-old argument as to the nature of usurpation plus an argument as to coverage for "distant" causation. But the idea of "civil commotion" has another element. Not only is Jordan a long way away from London, so that the Holmes-Cardozo analysis of causation applies, the phrase "civil commotion' could not apply, as a necessary truth, given the meaning of the phrase itself.  

As the Circuit Court pointed out, the terms that go with "civil commotion," as well as that phrase itself, have the meaning "domestic disturbance." "There is no authority," it said, "for the proposition that riots or civil commotion are other than local, domestic disturbances[,]" said the court.  The phrase "civil commotion" means, by its very semantic nature, that such an event must be nearby. One does not need the Holmes-Cardozo theory of interpreting contracts of insurance to determine that a relevant civil commotion must be "right here in the neighborhood." 

Given this fact, one wonders if there could be. semantically speaking, a civil commotion near an airplane flying above, say, 30,000 feet. Then again, I guess there could possibly be a civil commotion on a large airplane, though the idea doesn't sound linguistically plausible.

The district court had made the Cardozo point in almost exactly these kinds of words. The district court held that "'civil commotion' is essential 'a kind of domestic disturbance," referring to disorder 'such as occur among fellow-citizen within the limits of one community.' It found that 'it is not easily imaginable that any ordinary man, business or other, would have supposed a hijacking over London of an airplane that never went or was intended to go to Jordan would be deemed the result of 'civil commotion' in Jordan." (368 F. Supp at 1139)

Citing Langdale, and several other cases, the appellate court said this: "The district court clearly applied the correct rule of law: [']civil commotion['] does not comprehend a loss occurring in the skies over two continents." And it went on to say, "[w]e hold that the present loss was not caused by civil commotion for essentially the reasons set out in the district court's opinion." [Quinn: I wonder if this is the only way to look at what happened. After all, might the passengers on a flight constitute something like a community?]

Thus, the supposed exclusion does not–cannot not–apply and so is not actually an exclusion at all. Consequently, for this and other reasons, the all-risk carriers are not excused from payment for the covered loss of Pan Am's plane. 

As one might imagine there is a book waiting to be written telling the tale of the adjustment of the claims arising out of this incident. 

Michael Sean Quinn
Quinn & Carmona
Austin, Texas

How To Read Insurance Policies– An Example: One Phrase, 200+ Years (1780-1970)

Michael Sean Quinn, Ph.D., J.D.*

There is an unusual phrase that occurs in some Twentieth Century insurance policies that also occurred in Eighteenth-Century first-party insurance policies, all of which back then insured losses from fire, and only them, so long as they were not what we now call "ocean marine" policies. That phrase is "civil commotion."

It has been interpreted in at least one very important fairly recent Second Circuit case, and it was interpreted in another important insurance case in 1780 by none other than Lord Mansfield himself.

The blog-essay consists of three parts. The first one concerns where the phrase “civil commotion” came from and what happened to trigger Lord Mansfield's interpretation of the phrase. The second phase concerns what the Chief Justice said about the phrase. And the third section concerns a relatively recent case, Pan American World Airways, Inc. v. Aetna Casualty and Surety Co., 595 F.2d 989 (2d Cir. 1974) 

The actual discussion of these matters can be found on a link, the route to which is printed immediately below: 

Chief Justice Lord Mansfield and Pan American World Airways

INSUANCE HISTORY: 1794 Fire Insurance Proposal/Policy

SUN'S 1794 HOMEOWNERS AND BUSINESS OWNERS FIRE INSURANCE PROPOSAL/POLICY

This Proposal is very much like the proposal Sun Fire Office (aka Sun Insurance) issued in 1724. The abbreviated discussion of it here depends on the discussion of the earlier one that has been discussed in a post in Quinn's Commentaries on Insurance Law dated November 8, 2020. It should be read first, since this one is derived from the earlier one, and differs from it only somewhat as to both formatting and content, although the Roman numbered Articles are not completely in the same order. There was another similar proposal/policy put out in 1816.

 

Here is how some of the differences look. The 1727 Proposal states in the normal prose, right after the "Whereas Clauses," that "Insurances may be made on the following terms and conditions." The 1794 Proposal makes the statement as a title; it is indented, and reads this way: 

"INSURANCES may be made on the following TERMS and CONDITIONS"

 

There is no explicit distinction Article-by-Article between terms and conditions in either policy. That will change in an early Nineteenth Century fire policy Sun issued. 

 

The numbers on the Articles do not always match up. The contents of the matching articles are at least quite similar, though there are differences. The Articles in the 1794 issue are all titled.

 

One similarity is to be found in ARTICLE IV of both policies. This Article in the 1794 Proposal is entitled "The Several Heads of Insurance."  The term "Head" designates what is to be found at the top of a list, and the Heads are the same: "Common Insurances," "Hazardous Insurances," and "Doubly Hazardous Insurances." They each list categories of objects (including buildings) and the types of work that are or are not covered. Many of them are the same or tantamount to the same. They could have been called “headings. 

 

In the 1727 policy, the column headed with “Hazardous Insurances, concerned almost only different sorts of buildings. The 1794 Proposal, however, lists a few activities in the "Hazardous Insurances" section, as well as objects. For example, in the 1797 Proposal adds as hazardous "Out-Houses (having no chimnies, or adjoining to any Building having a Chimney) containing Farmer's stock or implements of husbandry[.]" On the same list are including stone or brick building in which wherein hazardous Goods of Trades are deposited or carried on [such X, Y, and Z.] The 1727 language said nothing about hazardous activities in the "Hazardous Insurance" sub-section. The idea there was that wooded, etc., buildings in which no hazardous activities were carried on constituted a separate category. 

 

The 1794 policy changed the categorization within "Hazardous Insurances." Now it included brick and stone building within which hazard work is taking place. In the 1797 Proposal and Policy-model, there were activities that were to be found in the "Doubly Hazardous" subsection of the 1727 Proposal. 

 

Further, the 1794 version, contains new activities (or those performing new activities) within the “Doubly Hazardous” category; these include Brewers, Carpenters, Colour-Men, Coopers, Victuallers, SailMakers, plus various mercantile stocks, including, for example, Spirituous Liquors. MSQ: "hard liquor," no doubt. 

 

The "Doubly Hazardous Insurances" included even more, separately listed, additional activities and goods, including Salt-Petre, Sea-Biscuit Bakers, Oil-Leather Dressers, Boat-Builders, and others, some of which are quite similar to those listed in the 1727 Proposal/Policy-model, though formulated more generally.

Both Proposals provide for ways in which coverage can be expanded. In the 1727 policy, the expansion had to do with amounts. The same is true in the 1794 Proposal but it also includes different activities that might be covered. Obviously obtaining inclusive "indorsements" [original spelling] would increase not only coverage but premium amounts.  Just as obviously, there would probably be some negotiations under some circumstances, paired with speculation as to credible and proper premium increases.  

 

The list of further activities in the 1794 Proposals is quite long, but it gives an indication of the industrial evolution of Great Britain in the Eighteenth Century. Here are some interesting elements: Mills and stock therein, Mills and buildings containing any kiln, Manufactories of a Commodity deemed hazardous: such as Coach-makers, Musical-Instrument-makers, Umbrella-makers, floor-cloth painters, sail-cloth-makers, "along with all operations attending the manufacturing of such materials from the raw state into the thread for the weaver, or such like",  by reason of the nature of the trade, and narrowness of the place or other dangerous circumstances, which special hazard must be inserted in the policy to render the same valid and in Force. 

 

MSQ: All this is found in Article V, which is untitled. One can imagine what kinds of problems these provisions invited. What had to be in the application-for-insurance documents, i.e., the "'bespeaking' documents"? Were there inspections? Was there negotiation as to what had to be disclosed?  In other words, the 1794 provisions are close to the same as those of 1727, but they are also much modern.

 

Some of the general exclusions are the same as between the 1727 policy and the 1794 policy. "No Loss or Damage to be Paid on Fire happening by any Invasion, Foreign Enemy, Civil Commotion, or any military or usurped Power whatever." [Article VII of 1727 Proposal and Article VIII of 1794 Proposal. The phrase "civil commotion" will turn out to be important, as we shall see in a subsequent Post.] 

 

The Other Insurance, Move-Habituation, Heirship, and Claims Clauses, are substantially the same. The 1794 Proposal/Policy is clear that its similar clause covers commercial buildings moves, such as warehouses, as well as houses. It is also clearer that insurance for buildings and insurance for personality such as commercial goods are quite separate risks and therefore priced independently. A change in the building does not necessitate a change is a premium for goods kept therein, though if the buildings are quite different, there may be a change in the risk the good are facing. 

 

The clauses in the two policies that say that one policy can cover more than one building and contents are different, or potentially, quite different. In Article V of the 1727 policy, it states that more than one building and the contents therein may be under one policy, subject to the various limits found in the Table. Article VI of the 1794 policy is far more detailed about the sorts of personality that are included: "Printed Books, Prints, Stock in Trade, Goods in Trust or on Commission, or Wearing-Apparel, and Plate therein may be included in one Policy, provided that the Sum insured on each is particularly mentioned." [Notice that there is no reference to various categories in the “Table” in the 1794 Proposal. Notice also that the word "Plate" is singular and in the list of commercial personality.]

 

Both Proposals contain clauses at the end of the document discussing or promising fire protection and firefighting personnel. The description in the 1794 policy about this important topic is more detailed than in the earlier one.

This policy was followed by another Sun policy in 1816. They are formatted differently, and some of the details differ, but the general approach and distinct categories is the same, or nearly the same. Both of the policies are to be found in Vol 1 of the David Jenkins & Takau Yoneyama HISTORY OF INSURANCE (2000). THE 1794 policy. is at pp. 145-48 while the 1816 policy is found at 149- 52. One of my favorite slight differences is that the 1816 policy insures "lime-barges and their contents," while the 1794 policy does not, at least explicitly. 

[MSQ: Reader–please do not conclude that every similarity and every difference involving these two historic policies have been discussed herein. Some might say that this blog is already too long, as is.]   

 

Insurance Law History: A 1727 Sun Fire Insurance Policy

 

SUN'S 1727 HOMEOWNERS AND BUSINESS OWNERS FIRE INSURANCE PROPOSAL POLICY* 

Preface

The following is an abbreviated description of a Proposal Sun Fire Insurance Office issued on July 8, 1727. For a quick history of the fire, see Debra Kelly, "The Great Fire of London Finally Explained," GRUNGE (October 16, 2020). (GRUNGE is apparently a British on-line publication.) 

A number of different fire policies had been issued and purchased after the several days long Great London Fire of 1666. Posts have been published in "Quinn's Commentaries on Insurance Law" briefly describing and discussing several earlier Proposals. 

In those days, at least at first, it appears that "Proposals" became "Policies," almost automatically, when ordered, with the exception of some policy limits and premium levels. There does not appear to have been much room for negotiation as to English fire policies at around this time. But see Article IV below.  Thus, the idea that standard policies are a new-fangled idea is a myth. By 1794 when Sun issued another Proposal/Policy, this point will have changed markedly.

It is easy to see why contracts of insurance (i.e., policies of insurance) have to be standardized to a significant degree, and frequently this has been done throughout history, sometimes haphazardly or without much data. Gathering data for underwriting, including reserve creation and preservation, pricing, etc., would be impossible if the policies did not substantially resemble each other. Even then, data collection and applicable mathematics had been very uncertain until recent times. Intuition was much more important in earlier days than it may be now for most types of insurance, although intuitive guesswork based on experience is always required.

One of the most interesting features of the historical development of fire policies is how they started off very simple and grew more complex, fairly quickly. The early level of simplicity was that the policy covered buildings (or "houses") destroyed or damaged by fire. Nothing else was covered. As time went along, again fairly quickly, policies began to cover some of the contents of houses. Once commercial buildings were included within the category of "houses," other sorts of what we now call "personality" were included in the coverage. 

 

This Sun policy represents a real advance in the growth and diversification of the sorts of things that were covered. These changes came along pretty quickly. The coverage in the 1724 policy about to be discussed here is a lot more expansive and diverse than it was in policies used a mere decade before. 

As everyone knows, contracts of insurance are often called "insurance policies." On and off, over many years, I have wondered why, but have been too lazy to try and find out.  This project has given me what I tentatively think may be the answer.  It's definitional. In Volume II of Samuel Johnson's, A DICTIONARY OF THE ENGLISH LANGUAGE (4th Ed. at p. 1477), there is a definition of "policy," and it contains three alternatives. Only one of them is possibly applicable. Definition #2 reads this way: "Art; prudence; management of affairs; stratagem." [Spelling Updated] Surely having insurance is prudent management of one's affairs, so–perhaps–the contract which constituted exactly that ended up being called a policy. In these days and times, it is relatively common to use a noun into a verb, for some purposes. Long ago we see verbs being converted into nouns. 

MSQ: Of course, the dogma of "Originalism" requires that the dictionary used to try and interpret a legal text (including contracts) must be published as of the approximate the same date as enactment or publication. By analogy, there might be some criticism of my using Samuel Johnson's Fourth which was published 46 years later. Then again, maybe not. 

[Usually, the use of italics in what follows means that it is the author’s addition, though not always. For example, see the very next paragraph.]

Proposal/Policy

I shall refer to the document I'm working from as a policy, even though the document's actual title is "Proposal." The specific title of the Proposal is this: "From the Sun Fire Office, near the Royal Exchange, for insuring Houses and other Buildings, Goods, Wares, and Merchandise from Loss and Damage by Fire." [Michael Sean Quinn: Italics in the original text.]

[MSQ] I have suggested in an earlier Post that the word "house," referred to any sort of building, whether a dwelling or a commercial building. I'll stick by that view, for now, but even if I'm right, the vocabulary changed very quickly. 

[MSQ] The Proposal consists of several "Whereas Clauses," and 12 Roman numbered "Articles," plus a small assortment of other prose.  They generally note the dangers of great fires, and the ruinous effect they can have on buildings and families. They also note the growth of the insurance industry and its social importance, noting that Sun Fire "Society” has been the recognized leader in this change in the social order.  Its claims history has been excellent since it has the resources and the will to “punctually discharge all demands[.]" The Proposal is thus saying that Sun is excellent at handling claims. It goes on to say or imply that Sun has grown so much that it has the resources to handle any claims that are pressed upon it.  Thus, we see that the "Whereas Clauses" in the Proposal are to some extent a form of advertising or public relationship statement, as well as a part of the policy. 

Now for the "Articles." They are not titled in the Proposal. I am providing titles for them, however, since they will do nothing but orient the general reader. They have not been italicized.]

Article I [Coverages]: The policies "insure houses and other buildings, household furniture, goods, wares, merchandize and utensils and implements in trade, being the property of the person insuring[.]" Notice that what we in our age would call the "insured" is here referred to as the "person insuring." 

There are exclusions: "glass and china wares not in trade," business papers of various types, including "ready money" (currency), bonds, accounting records, such as "tallies," etc., and in addition: "jewels, plate, pictures, and gunpowder," as well as wearing apparel, hay, straw, and all manner of fodder and corn unthrash'd [.]" However, there are exceptions to the exclusions: "unless the same be particularly valued and expressed in the policy." One can easily imagine what the bargaining process looked like if a merchant wanted coverage for his wife's necklace and a room filled with hay, he sold to m local to whoever wanted it. (I think there may not have been horse-drawn taxi or delivery services.) 

Article II [Further Coverages]: Although under Article I, the insured must own the property insured, Article II extends coverage to houses and other buildings, goods and merchandize, etc. (except as aforesaid), the insured does not own but which are in his trust (or, entrusted to him] or on commission. Coverage can be arranged for such items, provided they are "declared in the policy to be in trust or on commission[.]" There are no other ways for property to be covered: owned by the insured, held in trust by the insured, or held by the insured in anticipation of a commissioned sale. 

Article III [Procedural Requirements]: "All persons  'bespeaking policies' must deposit with Sun a specified sum for governmentally required tax revenues, "stamp duty and mark." 

MSQ: (1) To “bespeak” a policy was something like reserving, ordering, or setting it aside for purchase. In a way, it was a near-purchase, since further formalities were required.  (2) American readers should remember the phrases "stamp," "duty," and "mark" from what all led up to the American Revolution. Think "Stamp Act."

Furthermore, "no insurance is to take effect till the policy is in the actual possession of the insured, or his or her agent." Article III states that this is to prevent "frauds and disputes." (Back in Article I the Proposal stated what had to be so before an actual insurance policy came into being: "All policies shall be signed by three or more trustees or acting member and seal'd with the seal of the Sun.")

Article IV [Rates & Risks]: Probably the only feature of Article IV is the way it classifies various sorts of risks and the names it uses for them: 

Under the heading of "Common Insurances" insured structures are to be understood “any buildings cover'd with slate, tile, or led, and having the front, rear, and side walls of brick or stone; and wherein none of the hazardous goods or trades hereafter specify'd are deposited or carry'd on. “

"Under that of "Hazardous Insurances" are to be understood timber and plaister buildings, and goods and merchandise therein, not hazardous, or brick or stone buildings wherein hazardous goods or trades are deposited or carried on.” 

"Under that of Doubly Hazardous are to be understood all thatch'd buildings, all timber or plaister buildings wherein hazardous goods or trades are deposited or carry'd on, and also the following trades and businesses, as sugar bakers, and distillers in brick or stone buildings, any china, glass or earthenwares, houses on London Bridge, and all mills.  The hazardous trades and goods are apothecaries, chymists, bread and bisket-bakers, ship and tallow-chandlers, stable keepers, inn-holders, and malthouses; hemp, flax, tallow, pitch, tar, and turpentine, hay, straw, and fodder of all kinds, and corn unthrash'd."  

MSQ: As categories for pricing premiums and engaging in underwriting all these make obvious sense, though it is unclear to me why ship-chandlers and tallow-chandlers would go together as one category, unless ship supplies include such things as candles. What is fodder, anyway?

The categories just recorded are to be found at the top of different columns in a "Table of Annual Premiums To Be Paid For Insurance" that is part of the Proposal (and presumably the policy).  Underneath the Table, the policy states that if larger amounts of coverage are sought or different overages are sought, special arrangements and prices can be arranged. 

 

MSQ: Interestingly, these three categories continued in Sun's repertoire until at least into the early part of the 19th century, at the earliest. See Sun's Proposals dated November 1, 1794 and see its Proposal dated January 5, 1816. Both of these Proposals are to be found reprinted in David Jenkins and Takau Yoneyama Eds., A HISTORY OF INSURANCE: FIRE (2000) at 145ff and 149ff. The Proposal under discussion here is to be found in the same volume at 129ff.

Article V [What's Covered]: "Any number of houses or out-houses, or goods therein, may be insured in one policy, provided the sum insured on each is particularly mentioned, and the respective heads of insurances, and that the whole sum does not exceed the greatest sum specify'd in the Table, under the respective heads of insurances, and in all insurances the premium is to be paid for every hundred pounds."

Article VI [Other Insurance]: No coverage under this policy, if there is also coverage from another carrier, unless permission is specifically obtained from Sun and noted by an "indorsement" on the back of the Sun policy, in which case the Sun policy will  pay  its "equal average on any loss or damage." [Finding some lack of clarity here; think maritime or ocean marine insurance for what may be meant.  Don't count it, however, for a literal bank of information. The meaning and function of the term "average" in property insurance became a significant and controversial concept into the Nineteenth Century. This provision is designed to prevent "frauds" on Sun. MSQ Sidenote: the word now spelled "endorsement" was recorded here as it was spelled in the Sun 1727 Proposal. The same is true for the phrase "on the back of."]

Article VII [Standard Exclusions]: No coverage for fire loss or damage resulting from "any invasion, foreign enemy, civil commotion, or any military or usurped power whatsoever[.]" 

MSQ: Keep the phrase "civil commotion" in mind. It will be discussed in a subsequent post.

Article VIII [Moving Elsewhere]. Coverage may continue for both building and personality if authorized by an "indorsement" of the insurer, Sun, and the "nature and circumstance of the policy is not altered."

Interestingly, whereas we today would discourse "coverage under the policy," back then the Proposals (and therefore policies) read in terms of "benefits under such and such policy."

Article IX [Fraud]. If an insured obtains coverage which is at variance with the Table and its description of various categories or rates, there will be no coverage under that policy.

 

Article X [Timing of Premium Payments]: Quarterly during the first year, and after a first year, annually, if the insurer agrees to renewal. 

Article XI [Claims Procedures]. The insured shall give notice to the insurer at its office as soon as possible. after the loss. The insured must detail the claim and make proof by "oath or affirmation" from the insured, or "domestics or servants, according to the form practis'd in said office [i.e., by the insured], or by their book of accounts, or other proper vouchers, as shall be required, and procure a certificate under the hands of the minister and churchwardens, together with some reputable inhabitants of the parish not concerned with the loss importing: that they are well acquainted with the character and circumstances of the sufferer or sufferers, and do know or verily believe that he, she, or they have really and by misfortune without any fraud or evil practice, sustained by such fire the loss and damage of the value therein mentioned." 

Further, if there is a disagreement between Sun and the insured, the matter shall be referred to neutral conclusive and binding arbitration. If the insured prevails, the claim will be paid immediately. However, insured-insurer agreements work differently: "when any loss or damage is settled and adjusted, the sufferer or sufferers are to receive immediate satisfaction for the same, deducting only the usual allowance[.]"

However, "if there appears any fraud or perjury, such sufferers shall be excluded from all benefit by their policies." 

[MSQ: Notice that if there appears to be a fraud in a claim under Policy A, then the insurer(s) has(have) no right to benefits under any of their policies.  Or maybe this means, the insured has no right to recover under any part of a complex policy. In any case, it's hard to imagine that the term "appears" as used in the policy meant what it means today.]

MSQ: Now for a twist: "In adjusting losses on houses, no wainscot nor any sculpture or carved wood is to be valued at more than [the small determinate sum of] 3s per yard."

Article XII [Reserve and Quasi-Reinsurance]: Money–one moiety set aside from each premium and pooled. If that sum is exceeded by payable claims, then members of Sun are liable. [MSQ: I'm not completely sure I understood all the language of this section. Enough said for now.]

N.B. ["Farther Encouragement of Persons Insuring"]: Fire engines plus uniformed firefighters and porters provided. A promise to subsidize the acquisition of firefighting equipment for all cities and great towns upon applications from them, "agreeable to the number of insurances made by [Sun] in such respective cities or great towns."

 

 [MSQ: There was already a description of a "Salvage Policy" in a Post published herein on August 27, 2020.]

[MSQ: I wonder how the claims handling process worked at the time and what the adjusters did with fire losses in those days. I suppose one has to wonder if there were such things as professional adjusters; probably not. But then how did the executives of the "Insurance Office" do the work?.] 

 

Michael Sean Quinn, Ph.D., J.D. 
Austin, Texas