Case 20. A Fraudulent Insurance

Titius, a dealer in furniture falsely represented as antique, insures his goods, which perhaps are worth one thousand pounds, upon the customary terms with an insurance company for ten thousand pounds. This company, however, reinsures half of the goods with another company and a fourth part with a third company. A little afterward the insured goods perish by fire, and Titius, congratulating himself, receives ten thousand pounds from the first company. Afterward, however, he doubted whether he had received it justly, for, although he had paid the premium, as it is called, proportioned to the sum received, nevertheless the latter exceeds the value of the goods. Hence he explained the doubt to a confessor in order that he might know his obligations. Hence it is asked:

1. What is a contract of insurance, and concerning what things is it ordinarily entered into?

2. What conditions are ordinarily annexed to this contract in England, either by the express consent of the parties, by law, or by custom?

3. What is to be said of the case?

1. What is a contract of insurance, and what is its ordinary subject-matter?

Marine, Life, and Fire insurance are the general types of this contract, but nowadays most risks can be made the matter of insurance. The contract of Fire insurance, with which we are here concerned, is one of indemnity in consideration of a premium paid by the insured, against loss, not wilful, caused by fire, to a given account, upon certain subjects.

2. What are the conditions ordinarily annexed to this contract in England, either by the express consent of the parties, by law, or by custom?

This contract is usually effected on the basis of a proposal containing a list of questions which must be truthfully answered by the insured. Everything that can enable the insurer to arrive at an estimate of the risk insured against must be disclosed. The property insured, its value, locality, and whether it is insured with other companies, must be indicated. If any change is made which increases the risk, it must be made known to the company. On any loss to the goods insured being incurred by fire, the insurer must make a particular statement of the details of his loss, with an estimate of the value, confirmed if required by a statutory declaration of the truth of the account.¹

1 Knight, Encyclopaedia, under the entry “Fire Insurance.”

3. The case. Titius, an old curiosity dealer, insured his goods for a sum ten times their value. In this he was guilty of fraud; the company had no intention of contracting with him to pay such a sum. He has no right to keep more than what covers his loss, and he must make restitution in some way to the company from which he obtained the money. This company will then be under the obligation of squaring accounts with the other companies which took part of the risk. Titius may deduct from the sum to be restored the difference between the premiums which he paid and those which he should have paid on the real value of the property insured.