What May be old is Still New
Although I tend to only write about new insurance decisions, I thought it would be interesting to see if a decision by the first Chief Justice of the United States Supreme Court had to say about a request for reformation of an insurance policy. As you read you will see that his reasoning and conclusion is the same that would end up in a federal court if the case was heard today.
Chief Justice Marshall, in one of the first cases on an insurance issue, heard by the U.S. Supreme Court, resolved a request to reform an insurance policy based upon a claimed mistake. The Chief Justice concluded that under the circumstances of the case a court of equity cannot reform an insurance policy based on a claimed unilateral mistake and also because the remedy of the plaintiff, Graves, on the policy, to the extent of his interest, is complete at law, there can be no reformation.
The case of Graves and Barnewall v. The Boston Marine Insurance Company, 6 U.S. 419, 2 Cranch 419, 2 L.Ed. 324 (February Term, 1805) the plaintiffs sued an insurer seeking to charge the insurer for the benefits of a policy of insurance and to obtain relief against an alleged mistake by omitting to insert the name of Barnewall in the policy although the interest and property insured being that of Graves and Barnewall.
Graves and Barnewall were equally and jointly interested in the ship Northern Liberties and her cargo. Graves and Barnewall had various insurances effected in different places upon the ship and cargo, from New York to Teneriffe, as well as from thence to La Vera Cruz, always for their joint and equal benefit.
Graves sought insurance through a broker, Elisha Sigourney and Sons of Boston who used an application that stated, that “on the 20th of February last, the ship Northern Liberties sailed from this for Teneriffe;… she mounted sixteen six pounders, and had a crew of thirty in number…. Upon this vessel’s cargo we want insurance at and from Teneriffe to La Vera Cruz. The ship and cargo really and truly belong to American citizens.”
On the 15th of May 1800 insurance was ordered upon the cargo to the amount of $16,000, upon the best terms and within certain limits. Upon these orders they made insurance with the Boston Marine Insurance Company in the sum of $10,000 upon the cargo of the ship, for the voyage. The policy was made for and on account of John Boonen Graves, and for account of no other person whatsoever.
The first policy written by the company was dated the 3d of April 1799. There was full proof of a total loss of ship and cargo.
The material words of the policy are: “By these presents, cause John Boonen Graves to be assured, lost or not lost, ten thousand dollars on property on board the ship Northern Liberties, as property may appear, at and from Teneriffe to Vera Cruz.”
Mr. Chief Justice MARSHALL delivered the opinion of the court.
The points made by the plaintiffs in this case, were:
- That the policy does really insure their joint property on board the ship Northern Liberties, so far as the same was at the time uncovered by prior assurances.
- That if the property be not insured at law, yet it was intended to be insured, and this court will relieve against the mistake in the agreement.
Chief Justice Marshall opined that the operation of the words themselves, taken in their ordinary sense, would certainly not extend beyond the interest held by Graves in the cargo. The words, ‘as property may appear,’ restrict the general terms of the policy to the interest of the person named in it.
The plaintiffs still argued that the interest of each partner in the whole partnership-stock, is an insurable interest; and as it was obviously the intention of Graves to insure for his partner as well as for himself, the policy ought to receive a construction which will effect this intent. The doubt in this case, is not whether Graves could have insured the interest of his partner, but whether he has insured it.
The interest of Barnewall, therefore, could not be considered as insured by this policy. Although one partner has the power to insure the share of his co-partner. On the legal construction of this policy John Boonen Graves was insured to the extent of his own interest in the cargo only. The interest of his co-partner is not insured. Were it otherwise, the remedy would be complete at law. Therefore, the plaintiffs could not maintain their case in a court of equity.
It remains to inquire whether, under the circumstances of the case, a court of equity will relieve the plaintiffs against the mistake alleged to exist in the contract, and extend the insurance to the whole partnership interest. That Graves intended to insure the whole was proved satisfactorily. That the insurance company believed themselves to be insuring the property of Graves only is probable. There is no ground for imputing to the company a knowledge that the policy did not correspond with the intentions of the insured.
The evidence presented contained no information that any other than John Boonen Graves was interested in the particular policy. The application for insurance was only for a part of the cargo. If that application was made in the name of Graves only, it was no unreasonable supposition that the other parties concerned might be separately insured, and that the policy then required was designed to cover Graves only.
Justice Marshall concluded: “These grounds are too equivocal to warrant the court in varying a written contract in a case attended with the circumstances which appear in the present.” The policy was in the possession of the agent for the plaintiffs, and ought to have been understood by him before it was executed; he retained it in his possession for several months before a mistake was alleged.
Under such circumstances the information given to the insurance company ought to be very clear to justify a court of equity in conforming the policy to the intention of one of the parties, which was not communicated to the other till the loss had happened.
The remedy of the plaintiff, Graves, on the policy, to the extent of his interest, is complete at law, no other interest can be paid.
A unilateral mistake, only claimed months after the delivery of a policy to the insured, Graves, or his agent, could not be changed because he claimed he intended to also insure the interest of his partner. Since neither he, nor his representative, advised the insurer of the interest of the partner or the need of the insurer to be advised of the interests that needed to be insured. Equity requires fairness. It would be unfair to require an insurer to pay for the interests of a party not named on the policy nor for whom insurance – as far as the insurer was concerned – was not requested.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.