CHAPTER VIII

THE RISK ASSUMED UNDER THE POLICY

Definition of the Insurer's Liability Under the Policy. -Several sections of the standard fire policy prescribe the general nature of the risk insured and the extent of liability which a fire insurance company assumes. In the very first section of the policy it is stipulated that:

The Insurance Company, in consideration of the stipulations herein named and of $ ........ premium, does insure .... .. and legal representatives, to the extent of the actual cash value (ascertained with proper deductions for depreciation) of the property at the time of loss or damage, but not exceeding the amount which it would cost to repair or replace the same with material of like kind and quality within a reasonable time after such loss or damage, without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair and without compensation for loss resulting from interruption of business or manufacture, for the term of ............

the ....

at noon, to the

day of

day of

... from

192..,

192.., at noon, against all DIRECT LOSS AND DAMAGE BY FIRE and by removal from premises endangered by fire, except as herein provided, to an amount not exceeding $. to the following described property while located and contained as described herein, or pro rata for five days at each proper place to which

any of the property shall necessarily be removed for preservation from fire, but not elsewhere, to wit:

(Here follows a blank space for the written description of the property.)

The "consideration" for which an insurance company promises to give indemnity includes not merely the money premium, but also the insured's promise to comply with all the stipulations of the policy. In fact, the policy further states that it "is made and accepted subject to the foregoing stipulations and conditions, and to the stipulations and conditions printed on the back hereof, which are hereby made a part of this policy, together with such other provisions, stipulations, and conditions as may be endorsed hereon or added hereto as herein provided." In view of the consideration as thus defined the company agrees to insure the property against all direct loss and damage by fire. The policy also expressly provides that the property is only insured while located. and contained as described in the policy, and not elsewhere, although, as we have seen in the Chapter on "The Description of the Property," this part of the policy must be interpreted in various states with reference to the nature of the business or property which is to be insured. Still other portions of the policy carefully define the insurer's liability by stipulating:

(1) That the company is only liable to the extent of the actual cash value of the property at the time of loss or damage.

(2) That such value must be ascertained with proper deduction for depreciation.

(3) That such value shall not exceed the cost of repairing or replacing the property destroyed with material of like kind and quality within a reasonable time after the occurrence of the loss or damage.

(4) That such cost of repairs or replacement shall not

take into account any allowance for increased cost by reason of any ordinance or law regulating construction or repair.

(5) That the company shall not be liable for any compensation for loss resulting from interruption to business or manufacture.

(6) That the company shall be liable for direct loss and damage resulting from the removal of property from the premises endangered by fire.

(7) That liability is limited to the amount stipulated as constituting the face of the policy.

(8) That the protection afforded under the policy is extended "pro rata for five days at each proper place to which any of the property shall necessarily be removed for preservation from fire."

The Doctrine of Proximate Cause.-An explanation of the meaning of the restrictive word "direct" in the foregoing provision involves a discussion of the doctrine of proximate cause. It frequently occurs that the property damaged or destroyed is situated far distant from the place where the fire originated, and is reached by the fire spreading from one property to another. In such cases disputes will frequently arise as to who shall be liable for the loss, especially where the factor of negligence is involved. A case in point is that of Atkinson vs. Goodrich Transportation Co. (60 Wisc., 141). Here the transportation company was charged with having negligently set fire to property situated a long distance from the origin of the fire, the flames having spread from building to building, until they finally reached and destroyed the insured premises. The court, in its opinion, gave the following rule: "The true rule is that what is the proximate cause of the injury is ordinarily a question for the jury. It is not a question of science or legal knowledge. It is to be determined as a fact, in view of

all the circumstances of fact attending it. The primary cause may be the proximate cause of the disaster, though it may operate through successive instruments, as an article at the end of a chain may be moved by the force applied at the other end, that force being the proximate cause of the movement. . . . The question always is, was there an unbroken connection between the wrongful act and the injury, a continuous operation? Did the effects constitute a continuous succession of events so linked as to make a natural whole, or was there some new and independent cause intervening between the wrong and the injury? It must appear that the injury was the natural and probable consequence of the negligence or wrongful act, and that it ought to have been foreseen in the light of the attending circumstances." Again, as summarized by Ostrander, "the proximate cause is not the one which is nearest in time to the result, unless such cause be independent. That must be regarded as proximate which is primary, efficient, the one which is the cause of causes. That which is only incidental and contributing is in no sense responsible for the disaster."1 If, in such cases, the insurance company pays the claim, it becomes subrogated to the rights of the original insured to reimburse itself through the collection of damages from the party whose negligence caused the loss. The company, however, must prove that the proximate or real cause of the loss was the negligence of the party from whom it wishes to collect damages.

Numerous cases arise, however, where the doctrine of proximate cause is not connected with the subject of subrogation, but must be used to determine the liability of the insurance company itself. This is well illustrated in the case of The Lynn Gas and Electric Co. vs. The

1D. Ostrander, "Law of Fire Insurance," p. 365.

Meriden Fire Insurance Company (158 Mass., 570). Here the plaintiff was insured for a large amount, under the Massachusetts standard fire insurance policy, against direct loss or damage by fire, and the policies of the several companies covered all the machinery and other property of the plant. It so happened that all the wires. transmitting power from the building to other parts of the city emanated from a single wire tower, near which stood a waste-paper basket. In some way this basket caught fire, which fire was quickly extinguished, but not until the flames had come in contact with the mass of wires, thus producing a short circuit, which in turn affected certain pulleys and belts until all the machinery in the building was severely strained or wrecked. The fire had done little or no damage by actual burning, although the indirect damage reached large proportions. The companies, in a test case, denied liability, but the court held that the policies insured everything in the building. Quoting the court's ruling: "The defendants when they made their contract understood that the building contained a large quantity of electrical machinery, and that electricity would be transmitted from the dynamos, and would be a powerful force in and about the building. They must be presumed to have contemplated such effects as fire might naturally produce in connection with machinery used in generating and transmitting strong currents of electricity." It should be added that liability for the indirect consequences of fire is to-day very commonly assumed or eliminated through special arrangements between insured and insurer in the form of endorsements attached to the policy.

Doctrine of Proximate Cause in Marine Insurance.Unlike fire insurance, where fire is the only cause of loss under consideration, marine insurance affords a very different problem since the policy covers many perils, two