Page:Encyclopædia Britannica, Ninth Edition, v. 13.djvu/176

 164 INSURANCE [FIRE. which was worth 1000 has come to be worth only 700, and is then destroyed by fire, it is 700 and not 1000 that is recoverable under the policy. In some cases loss by lightning and by explosions of gas are insured against, even where there has been no fire in the ordinary sense. It is the value at the time of the fire, or rather the difference in value which the fire has occasioned, that becomes the sum payable, provided it do not exceed the sum insured. It has been sometimes tried to have &quot; valued policies &quot; by which the sum to be paid in the event of the property being destroyed is fixed definitely beforehand ; but the system has been felt to be open to grave objections ; for, apart from the labour and cost of valuing a thousand properties in preparation for the total destruction of four or five, it is obvious that, if the value fixed is less than the real value, there is no advantage to the insured, but the contrary ; and if it is greater than the real value, then no doubt the insured might make a profit by a fire, but this would offer an inducement to carelessness, if not to incendiarism. In the United States, however, several State legislatures have been so imprudent as to enforce the issue of &quot;valued policies.&quot; According to the general practice of insurance in Great Britain, the insured recovers his loss up to the amount of the policy, although the property may not have been insured to its full value. A different rule prevails on the Continent and elsewhere, and even in England under exceptional circumstances, and wherever several uncon nected properties or parcels of goods are insured under one sum. In these cases the rule of &quot; average &quot; is applied, by which the insured recovers only such proportion of his loss as the total sum insured bears to the total value of the property covered. The effect of this rule is virtually to compel persons to insure their property to the full amount of its value, unless they are willing when any loss occurs to bear a share of the loss. Under either system, if property is not fully covered, the owner is to the extent of the deficiency his own insurer ; but under the one plan his liability to loss begins only after that of the insurance company has been exhausted, under the other his liability and that of the company run parallel from the first. The difference is most material where the loss is only partial, and practically the English rule is equivalent to a con siderable reduction of rate. There are weighty reasons for believing that it might be for the advantage both of the insurance offices and the public to introduce more widely the pro rata principle, with a corresponding reduc tion of the nominal scale of premiums, or even to enforce a participation of risk on the part of the insured, The contract of insurance is one of good faith. The insured is bound to disclose all special circumstances of risk attaching to his property, and ought to have them described in the policy, otherwise its validity may be endangered. He is bound, moreover, to communicate any change of circumstances which may affect the degree of risk. Special hazards affecting particular kinds of property are often specially warranted against. Companies do not insure against the loss occasioned by invasion, foreign enemy, civil commotion, riot, or any military or usurped power ; and there are some kinds of property which they will not insure, ready money, books of accounts (their value as documents), bank notes, stamps, bills, bonds, and other written securities. The almost universal practice in England is to insure a separate sum on each distinct kind of property insured, as on a building and on its contents, on mercantile stock, and on furniture in private use. The same rule prevails with respect to all properties not involved directly in the risk of one fire. Thus two contiguous buildings or their contents may be insured for one sum if the buildings com municate with each other internally or have a common roof, but otherwise they must be separately insured. Very important questions arise out of the circumstance that the same building or goods may be insured by different persons, with various offices, and under dissimilar con ditions. Thus a house may be insured by the landlord, the tenant, and the mortgagee ; goods may be insured by ..the owner, by a creditor holding a lien over them, and by the warehouseman or other person who may be responsible for their custody. Where the owner alone has effected insurances, these may be so varied in their character as to give rise to perplexing questions. A merchant may have insured with one office wines in a specified warehouse A ; with another, wines and spirits in the same warehouse for one lump sum ; and with a third, wines only, but in all or any of the warehouses A, B, and C, subject to the con ditions of average. The questions that arise under such circumstances owe their solution as much perhaps to the honour and fair dealing of the several offices interested as to any settled rules of law, but the general practice may be shortly stated. As between a policy covering a specific parcel of goods or goods in a specified place and another embracing a wider range subject to average, the former is exhausted before liability attaches to the latter. As between a policy covering goods in A and B and another covering goods in A, B, and C, if a fire occurs in A or B liability attaches first to the more restricted policy, pro vided the more extended liability of the other is not merely nominal. On the other hand, if one policy insures stock and machinery together (but without the condition of average), and another insures one or both of these separately, liability attaches to both policies pari passu ; but the former is placed at some disadvantage in being obliged to contribute ratably to its whole amount with certain limitations, as against each of the separate items of the other. Where the same property is insured under similar conditions with more than one office, it has been the aim of the companies to provide that the loss shall be borne by each in proportion to the sum insured, whether the several insurances may be in favour of the same person or of several persons having different interests. It is plain that if it were in the power of two persons, having each some sort of insurable interest in the same parcel of goods, so to insure them as that each might recover their full value, the goods might come to be paid for by the offices twice over, and it might become the interest of one or both of the persons that they should be burned. The &quot; contribution clause &quot; of policies is intended to guard against this. It has lately received an unexpected interpretation which limits its application to insurances in which the interests insured are identical, while protection against double payments is afforded by another principle, namely, that each person insures only his own special interest. The utmost possible interest which M, N, and P can have in any given property cannot exceed the present value of the property ; each may recover what he himself has lost by its destruction, whether he be owner, or mort gagee, or depositary, but he deals separately with the office that insures him, without reference to what other insurances may have been effected by other persons having a different kind of interest in the same property. The application, however, of these principles is often matter of extreme difficulty, and has scarcely yet been definitely settled. The adjustment of a loss when a fire occurs is not unattended with difficulty, even where there are no such complications as those just referred to. To ascertain the qunutity, the quality, and the value of property injured, and the degree of injury, is often a work of no little anxiety. Its destruction has swept away the readiest proof which could have been given ; or, where partial damage only has been sustained, it is often scarcely capable