CHAPTER IV. OF REPRESENTATION AND OF CONCEALMENT. SECTION I. OF REPRESENTATION. BESIDES the warranties and stipulations which may be expressed by the parties, or implied by the law, analogous rights and liabilities sometimes spring from the representations made by either party to the other, in reference to a contract of insurance then under negotiation, and material to the estimate of the risk to be assured.1 That misrepresentations avoid the contract of insurance as between the parties to the contract, is agreed and certain; but there is some difference of opinion as to the grounds of this rule. And the better opinion seems to be, that 1"The policy would equally be void, against the underwriter, if he concealed (material facts); as if he insured a ship on her voyage which he privately knew to be arrived and an action would lie to recover the premium." Per Lord Mansfield, C. J., Carter v. Boehm, 3 Burr. 1905, 1909. See also, Duffell v. Wilson, 1 Camp. 401. : 2 Mr. Arnould, in his work on Insurance, p. 495, contends that it is on the ground of constructive or legal fraud. This he defines to be "such conduct on the part of the assured as, though it does not imply any moral turpitude in himself, yet, from the effect it has in fact of misleading the underwriter, is in legal language said to be fraudulent." See also, Pawson v. Watson, Cowp. 785; Cornfoot v. Fowke, 6 M. & W. 358, 379; Elkin v. Janson, 13 M. & W. 655, 658. This is controverted by Mr. Duer and Mr. Phillips, on the ground that this is an anomalous use of the term, and that the true reason is that there is an implied condition in the contract of insurance that it is free from misrepresentation or concealment, whether fraudulent or through mistake. 2 Duer on Ins. 647; 1 Phillips, Ins. § 537. This question becomes of importance in determining whether, if an insurer alleges that a misrepresentation is falsely and fraudulently made, he is bound to sustain his allegation by proof of moral where there is a misrepresentation, the insurance is for all purposes null and void, and not voidable only.1 In general, to constitute a representation in this sense, and for this purpose, "there should be an affirmation or denial of some fact, or an allegation which would plainly lead the mind to the same conclusion." 2 It may be made by word of mouth, or in writing, or by the fraud, or whether it is not sustained by the proof of falsehood, whether intentional or not, which is considered as legal or constructive fraud. The point arose in the late case of Lewis v. Eagle Ins. Co., Sup. Jud. Ct., Mass., March Term, 1858. The defendants alleged that a certain material representation was "falsely and fraudulently made." At the trial, the court instructed the jury that it was necessary to prove not only that it was false, but also that it was fraudulent. The jury having found a verdict for the plaintiff, exceptions were taken to the above ruling, on two grounds: 1st. That the word "fraudulent" meant legal fraud, and that a false representation of a material fact constituted a legal fraud, in support of which, the English authorities above referred to, and the case of Burritt v. Saratoga Co. Mut. F. Ins. Co., 5 Hill, 188, 191, were cited. 2d. That as a false representation would avoid a policy, the word fraudulent might be struck out as surplusage. Commonwealth v. Squire, 1 Met. 258, 260, Commonwealth v. Baker, 10 Cush. 405, Southall v. Rigg, 11 C. B. 481, 4 Eng. L. & Eq. 366, and Anderson v. Thornton, 8 Exch. 425, 20 Eng. L. & Eq. 339, were cited. The court held that it was not necessary to prove fraud, but it does not very clearly appear from the decision, upon which of the two grounds above mentioned the case rested. Speaking of the allegation of fraud, the court, per Merrick, J., said: “There is nothing in their answer which imposes upon the defendants the burden of proving this fact, in addition to the fact of a false representation, in order to maintain their defence. It is true that they allege, in general terms, that the representation of which they complain, was falsely and fraudulently made. But whether this representation was designedly and intentionally erroneous, and made with the corrupt purpose of gaining an undue advantage or not, is immaterial in relation to the question at issue between the parties; for, if it was false, it clearly exonerated the defendants from a performance of the contract on their part, and wholly avoided the policy." In Anderson v. Thornton, supra, which was an action on a policy of insurance, it does not clearly appear from the pleas, as they are stated in the report of the case, that fraud was alleged, but the language of the court shows that this must have been the case. Parke, B., said: "Much reliance was placed on the form of the sixth and seventh pleas; and it was contended, that, inasmuch as those pleas alleged a fraudulent misrepresentation on the part of the plaintiffs, in order to sustain the pleas, it was necessary to prove the fact as fully as alleged; and it was very strongly urged that the plaintiffs had been subjected to a great hardship in being compelled to combat such pleas by having to procure evidence to disprove the matters of fraud, it turning out afterwards on the trial that there was no such imputation of fraud on the plaintiffs. But the pleas were supported by proof of material communications by the agents; for in cases of insurance, material misstatement or concealment vitiates the contract, and whether it be fraudulently made or not, is a matter which is wholly immaterial, except with reference to the return of the premium." 1 See cases cited ante, p. 101, n. 1. 2 Livingston v. Maryland Ins. Co., 7 Cranch, 506. exhibition of a letter, or a newspaper, or other written or printed paper, or by a reasonable inference from the words of the policy.1 It is a misrepresentation under the law of insurance, when it is false, whether intentionally so or not, and tends to obtain for the party uttering it some advantage in the bargain, or an entering into the bargain by the other party. And it has the same effect whether made in reference to a matter concerning which some representation is necessary or otherwise. Thus, if the first insurer is merely a decoy, this is equivalent to a misrepresentation, in regard to the other insurers, and discharges them.3 For it must be remembered, that the question as to the materiality of a representation, is not whether the fact stated actually did or possibly could affect the risk, but whether it would naturally tend to influence the insurer in his estimate of the risk. 1 The general rule of law is that every direct statement contained in a policy, is to be regarded as a warranty. See ante, p. 106. But it would of course be otherwise if it were agreed in express terms that a direct statement in the policy should be treated as a representation. 2 Duer on Ins. 644. So statements of belief or expectation, though inserted in the policy, are to be regarded as representations only. In Stewart v. Morison, Millar on Ins. 59, the words, "the vessel was expected to be loaded between the 13th and 20th of September," were inserted in the policy. This was held to be a representation, that the vessel had not, within the knowledge of the assured, been loaded before the 13th of September. Inferences drawn from statements upon the face of a policy are frequently treated as representations. In Hodgson r. Richardson, 1 W. Bl. 463, 3 Burr. 1477, the insurance was from Genoa to Dublin, "the adventure to begin from the loading to equip for the voyage." This clause was held equivalent to a representation that the cargo was to be loaded at Genoa, and as it was in fact loaded at Leghorn, and the risk was thereby materially affected, the policy was held to be void. See Reid v. Harvey, Dow, 97; Seton v. Low, 1 Johns. Cas. 1, per Kent, J.; Vandenheuvel v. United Ins. Co., 2 Johns. Cas. 451; Palmer v. Warren Ins. Co., 1 Story, 360. * Sawyer v. Coasters' Mut. Ins. Co., 6 Gray, 221; Lewis v. Eagle Ins. Co., Sup. Jud. Ct., Mass., March Term, 1858, cited on the preceding page. In this case the plaintiff represented, at the time of obtaining the insurance, that the vessel had cost him five thousand dollars, and one thousand more for coppering. The court held that this was a material representation, and, if false, it would avoid the policy. 3 Whittingham v. Thornburgh, 2 Vern. 206; Wilson v. Ducket, 3 Burr, 1361. * In Sibbald v. Hill, 2 Dow, P. C. 263, a merchant, to induce an underwriter at Leith to insure for him, stated that he had paid no more than eight guineas per cent. for the same risks in London. He had actually paid as high as twenty-five per cent. The contract was held valid in Scotland on the ground that, "the statement as to the premium was not a misrepresentation as to any of the circumstances attending the situation or condition of the ship, or nature of the voyage, which could affect the nature of the risk." The House of Lords reversed the judgment on the ground “that every misrepresentation is fatal to a contract, which is made under such circumstances SECTION II. OF CONCEALMENT. Concealment, in the law of insurance, is the suppression of a fact unknown to the other party, which refers to the pending bargain, and is material to its terms;1 and it is no defence against a concealment, that it is proved by the result to relate to circumstances which did not in fact enter into the risk.2 The law is so nearly the same in respect to misrepresentation and concealment, that we cannot avoid speaking of them together. A misrepresentation or a concealment discharges the underwriters, although it is not intentional and fraudulent in fact, but is made from inadvertence, or forgetfulness, or misapprehension; by reason of the implied obligation of a full and honest statement. And we consider it the better rule that the falsehood of a representation discharges the insurers, although they were not influenced by it; but there may be room for a distinction here, which would discharge the insurers only when the misrepresentation was knowingly and wilfully made.1 A temporary and in such a way, as to gain the confidence of the other party, and induce him to act when otherwise he would not." 1 Maryland Ins. Co. v. Ruden, 6 Cranch, 338; Hurtin v. Phoenix Ins. Co., 1 Wash. C. C. 400. 2 Sec post, p. 165, n. 2. 3 In Burritt v. Saratoga M. F. Ins. Co., 5 Hill, 188, Bronson, J., said: "In marine insurance the misrepresentation or concealment by the assured of a fact material to the risk, will avoid the policy, although no fraud was intended." See also, Curry v. Commonwealth Ins. Co., 10 Pick. 535; Sawyer v. Coasters' Mut. Ins. Co., 6 Gray, 221; N. Y. Bowery Ins. Co. v. N. Y. Fire Ins. Co., 17 Wend. 359; Dennison v. Thomaston Mut. Ins. Co., 20 Maine, 125; Bridges v. Hunter, 1 M. & S. 15; Fitzherbert v. Mather, 1 T. R. 12; and ante, p. 155, n. 2. 4 In Flinn v. Headlam, 9 B. & C. 693, it was held that a misrepresentation as to a fact affecting the risk, might be shown not to have influenced the underwriter, and consequently not to have been material. In Clason v. Smith, 3 Wash. C. C. 156, the alleged misrepresentation was contained in a letter from the assured to their agent, in which they offered to give fifteen per cent. premium, and added, "we have no doubt, but that we could get the insurance effected in New York at that premium." This statement, which was false, was shown to the underwriters, but they declined taking the risk at less than twenty per cent., which rate was finally accepted. It was held that the non-compliance after the risk has commenced, does not discharge the underwriters, if the representation be of a continuous character, and be complied with before any loss connected with it occurs.1 And if the misrepresentation or concealment refers to a severable subject-matter of insurance, or to a severable risk, the insurance is avoided as to that part, or that risk, but is valid as to the rest; unless the circumstances and nature of the contract are such that this partial misrepresentation enhances the risk as to the whole. Nor are the insurers discharged by non-compliance with a misrepresentation which ceases to be material before the risk begins; or if it be withdrawn before the policy is made, expressly, or by the implication arising from a subsequent and opposite representation.3 misrepresentation was immaterial, as it in no way influenced the underwriters. Washington, J., said: “A misrepresentation to avoid a policy must not only be false, but it must be material either in relation to the rate of premium, or as offering a false inducement to the underwriter to take the risk at all, when otherwise perhaps he would not have done it. If, in point of fact, it had no influence, nor ought to have had any in these respects, it is impossible to say that it was material." See also, Snyder v. Farmers' Ins. & Loan Co., 13 Wend. 92; 16 Wend. 481, 490; Rice v. New England Mar. Ins. Co., 4 Pick. 439, 443; Ruggles v. General Interest Ins. Co., 4 Mason, 74; Coulon r. Bowne, 1 Caines, 288. This question is considered in 2 Duer on Ins. 697, but does not appear to have come up for adjudication. But the principles which have been adopted in the American courts in relation to the warranty respecting the continuance of sea-worthiness, seem to leave little doubt that the doctrine of the text would be adopted. See ante, p. 142, n. 1. 21 Phillips on Ins. § 680. In Marshall v. Union Ins. Co., 2 Wash. C. C. 357, there was a suspicion resting upon a part of the cargo, which might subject that portion to seizure. It was held that a concealment as to that, would avoid policies on the whole, because it would subject the whole to capture and detention. See cases ante, p. 105, n. 2. 3 Dawson v. Atty, 7 East, 367. In Edwards v. Footner, 1 Camp. 530, a week before the policy was signed, it was represented that the vessel would sail with convoy, and carry ten guns and twenty-five men. There was no further conversation in regard to the representations either at the time the policy was made, or in the intervening period, and the vessel sailed without convoy, and carried only eight guns and seventeen men. It was contended that the court could look only at what took place at the time the policy was subscribed. Lord Ellenborough, C. J., said: "If a representation is once made, it is to be considered as binding, unless there is evidence of its being afterwards altered or withdrawn. . . . . But here there is no evidence of any conversation upon this subject between the parties subsequently to the statement that the ship was to carry ten guns and twenty-five men; and this having taken place when the insurance was talked of, and the terms of it were agreed upon, it must be referred to the policy, and 14 VOL. II. |