CHAPTER XIX.

CONTRACTS OF INSURANCE.

§ 243. Definition.-Insurance is a contract whereby one party agrees to indemnify another in case he shall suffer loss in respect of a specified subject by a specified peril. The party who insures is called the underwriter; the party indemnified is called the insured. When the contract is in writing it is called the policy. Unless prohibited by a law a verbal contract of insurance is valid. And so, after the execution and delivery of the policy its terms may be modified by verbal agreement. Insurance contracts may be made to pay a certain sum in case of death or accidental injury of some person, or of death or accidental injury to live stock; in case of loss of property by fire or tornado; in case of loss of ships or their cargoes by perils of the sea; in case of failure of title to property; in case of the temporary illness of the insured. These are all forms of indemnity contracts which may be properly called insurance

contracts.

§ 244. Contract, how made.-The form of the contract is immaterial, unless there is something in the law or the charter of the company making it which requires it to be in a specified form. When the policy is issued by the company, and accepted by the insured, the rights and liabilities of the parties are

fixed by its terms. If all the terms of the contract have been agreed upon, and it only remains for the company to issue the policy, the failure to issue it will not invalidate the contract. When the contract takes effect is a question which is to be determined by reference to the rules already stated, under the head of contracts in general. Where the agent of the company agrees with the insured upon the terms of the contract, but with the express understanding that it is not to take effect until the company has approved it, no valid contract exists until such approval.

§ 245. How interpreted.-When made in writing, the interpretation of the contract is for the court, the object being always to arrive at the real intention of the parties. It can not be denied, however, that the rules of interpretation adopted in the courts of the country in insurance cases tend to the conclusion that insurance companies are not favorites of the law. Stipulations in a policy are construed liberally towards the insured, and strictly against the insurer. Even where a stipulation in a policy is violated by the insured, it will not prevent a recovery on the policy, unless it is expressly provided that such violations shall work a forfeiture.

§ 246. Warranty and representation.-Questions arise whether certain stipulations in the policy amount to a warranty or a representation merely. A warranty is a statement or stipulation inserted in or referred to in and made a part of the policy, upon the truth or performance of which on the part of the insured the validity of the contract depends. A representation is an incidental statement

made by the insured with regard to some feature of the risk upon the faith of which the contract is entered into. It is said to be no part of the contract, and that it need not be literally, though it must be substantially, true. So it is evidently a matter of difficulty in many cases to distinguish between the two. Intentional concealment of material facts will avoid a policy unless the company knew of their existence. Material facts are such facts only as may be fairly presumed to have been material in the belief of the insured.

§ 247. Payment of premiums.-The premium is the consideration for the insurance, and must be paid by the insured or by some one for him. Where the policy provides that the payment of the first premium must be made when the policy is delivered, it does not take effect, though delivered, until payment is made. Where a note is given and accepted for the premium, a failure to pay the note when due will not avoid the policy unless it is expressly stipulated that such shall be its effect. The manner of payment is immaterial if it is accepted by the company or its agent, and is in accordance with the usual course of business of the agent, known to the company. In companies where the insured is entitled to have his dividends credited as part payment of his premiums, it is the duty of the company to give him timely notice of the amount in cash which it is necessary for him to pay, the reason being that the company, having exclusive knowledge of the facts, is bound to make them known. Premiums falling due on Sunday may be paid on the following Monday.

§ 248. Waiver of payment. -An agent having authority to receive the premium may agree with the

insured to waive prompt payment, the agent becom ing debtor to the company for the amount, and such waiver will bind the company. And even where the policy makes a failure to make prompt payment a cause of forfeiture, if the company has been in the habit of granting indulgence to the insured and accepting payments after due, it can not insist upon a forfeiture for a failure to make prompt payment.

§ 249. Insurable interest. It is essential to a valid policy that the insured should have an insurable interest in the life, or the thing insured, and generally speaking, whatever has an appreciable pecuniary value, and is subject to loss or deterioration, or of which one may be deprived, or which he may fail to realize, whereby his pecuniary interest is or may be prejudiced, may properly constitute the subject-matter of insurance, the object of insurance being to protect men against uncertain events which may in any wise be of disadvantage to them.

§ 250. Increase of risk.-The doing of anything by the insured, or with his assent, which increases the risk of the company, will avoid the policy, as the removal of one whose life is insured to a place prohibited by the policy, or the change of a business carried on upon the insured property to another business which increases the danger of loss by fire. It is the duty of the insured who contemplates a change of that character to notify the company and procure its assent to the proposed change. In making answer to questions as to the previous serious illness of the applicant for life insurance, if the applicant in good faith believes his answer to be true, it will not avoid the policy, though his answer may be errone

ous.

CHAPTER XX.

CONSIDERATION.

§ 251. Definition.-Consideration is something esteemed in law to be of value, in exchange for which the promise in a contract is made. The law estimates values in money, and the consideration must be something to which a jury can attach a pecuniary value. Natural love and affection named in a deed as a consideration will make the conveyance good, but a promise to convey, or a promise to pay money in consideration of natural love and affection, is not binding. As between the original parties to a negotiable promissory note, or bill of exchange, a consideration is necessary, but if the note or bill is purchased in good faith, before it is due, by a third person, he can enforce payment, although it was originally given without consideration.

A good consideration is blood, natural affection and the like. A valuable consideration is money, or some commodity, or marriage.

One who takes a deed based upon a good consideration only, takes the property subject to the rights of creditors who may be injured thereby. A man may give away his property if he retains sufficient to pay his existing debts. The maxim is that "a man must be just before he is generous.

A mere moral obligation imposed by a sense of