Page:The New International Encyclopædia 1st ed. v. 10.djvu/767

* INSURANCE. 679 INSUBANCE. series of payments. It may be noted in passing that in the case of the mutual insurance company there is in llieory the transfer of only a part of the uncertainty. The insured, being also in- burer, is still exposed to .some uncertainty aa tc the amount of loss he will sufi'er in the form of assessments. In practice, however, the ditference between insurance in a mutual company and in a .stock company is very slight, and during the present discussion may be disregarded. ( Further reference to this matter will be made in consid- ering the dill'crent kinds of insurance com- panies.) The insurance company assumes the legal obligation of paying to the insured certain specified sums on the occurrence of certain speci- fied events. It assumes these liabilities, how- ever, with the certainty that in the great major- ity of eases it will not be called upon to make the payments. Its actual liability is much less than its full legal liability. The actual liabilit_v which the company assumes in granting insur- ance at any time is technically known as the risk. The most important question in this con- nection is how the risk is determined. In seek- ing an answer to this question two things have to be taken into account, the amount which the eompany binds itself to pay, and the probability that it will have to make payment. These two factors will be considered in turn. The maximum amount for which the company renders itself contingently liable is usually ex- pressed in the policy. This amount ought in all cases to be limited to the insurable inter- est of the insured ; that is, to the amount of loss he would actually suffer from the occur- rence of the event against whose consequences he is insured. To promise a larger amount is to make it for the interest of the insured to bring about the occurrence of the event — a condition of things which is prejudicial to the welfare of the com|)any. and contrary to public policy. In the insurance of property the attempt is nearly al- ways made to apply this principle. In life in- surance, however, and in other forms of insur- ance against loss of income from labor, no such attempt is made in many cases. A life insurance company does not undertake to limit the amount of insurance which any man may take out on his own life to the capitalized value of his in- come-earning capacitv. any more than it limits his choice of beneficiaries to those who are ac- tually economically benefited by his living. It cannot be denied that the results of this policy are in some respects very unfortunate. It leads to an increase in the incentive to commit two kinds of crimes, suicide and murder, and to a certain increase in the number of such crimes actually conunitted. Tliat the situation is not inlolcralile is due to the fact that other motives are at work which are sufficiently strong in most cases to dvercome entirely the economic' motive. Insiirable interest, then, fixes the maximum amoinit for which a policy should be made out. Insurable interest may be defined as any legal or equitable right or interest such that the con- tingency insured against will result in financial loss to the insured. This definition, while not eom|)lete. covers the greater number of examples of insurable interest. Thus a mortgagee or pledgee has an insvirable interest in the property mort- gaged or pledged. A vendee of property under an executory contract of purchase has an insur- able interest in the property. A conunon carrier or other bailee has an insurable interest in the goods bailed. The carrier also has an insurable interest in the prospective freight upon goods ac- tually laden upon his ship or other vehicle for carriage. It will thus be seen that several dif- ferent persons may have distinct insurable in- terests in the same property, and that these in- surable interests may in the aggregate exceed the value of the property insured. In general, no particular amount of insurable interest is necessary to make the insurance con- tract valid. It is enough if at the time of ef- fecting the insurance policy the insured has some interest in the life or property insured. There is, however, one exception in the case of life insurance. Although in the case of insur- ance of the life of a relative the law does not require anj' limit to be placed on the value of the life insured, when the interest of the insured is purely financial, the insurance by a creditor of the life of a deulor, the amount of the insurance must bear some relation to the amount of the debt plus interest and the cost of insur- ance or it will be deemed void as a gambling contract. One of the most important principles of the law of insurances is that the contract of insur- ance is a contract of indemnity only. It follows that in most forms of insurances the insurer must not only have an insurable interest at the time he effects the insuranee, but that he must have an insurable interest at the time of the loss in order to recover on the policy, and the amount of the recovery will be measured by the amount of his insurable interest. The life insurance con- tract constitutes an exception to the rule. It is not strictly a contract of indemnity, but a con- tract to pay a fixed amount of money : and if the insured has an insurable interest at the time of effecting the insuranee. so that the policy is then valid, he may recover the entire amount of the policy upon the happening of the loss even though the insurable interest has then ceased. Insurance policies, known as 'valued policies,' are sometimes written in which an agreed value is assigned to the interest of the insured. In the event of loss the insured must still have his interest in the property insured, but the value of his interest is determined by the policy. In sev- eral States insurers against loss by fire are re- quired by statute to issue only valued policies. Wlien there are several insurers of the same interest in the same property, their position in the event of loss is not imlike that of co-sureties. If the amount of the several policies exceeds the value of the interest, the insured may not re- cover the full amount of property from the in- surer, but each is required to contribute ratably to the loss; or, if the insured elects to recover the amount of the loss from any one insurer (as ho may do in the absence of stipiilation to the contrary in the policy), that one. on pay- ment of the loss, may compel contribution pro rata by each of the other insurers. In the case of marine insurance policies the insured, is deemed to be a co-insurer with his insurer if the amount of insurance is less than the full value of the interest insured. The ma- rine policy is therefore a policy of indemnity only if the property or interest insured is insured for its full value. If insured for less than its full value, the insured can recover on his policy only such proportion of the amount insured as