The North British and Mercantile Ins. Co. v. McLellan, (1892) 21 SCR 288

Supreme Court of Canada

The North British and Mercantile Insurance Company v. McLellan (1892) 21 SCR 288

Date: 1892-06-28

The North British and Mercantile Insurance Company (Defendants.

Appellants

And

Harry R. McLellan (Plaintiff)

Respondent

1892: Feb. 29; 1892: Mar. 1; 1892: June 28.

Present:—Sir W. J. Ritchie C. J., and Strong, Taschereau, Gwynne and Patterson JJ.

ON APPEAL FROM THE SUPREME COURT OF NEW BRUNSWICK.

Fire insurance—Ownership of property—Insurable interest—Transfer by insurer—Construction of agreement—Condition in policy—Insurance by other parties—Evidence.

An agreement by which. M. undertook to cut and store ice provided:— That said ice houses and all implements were to be the property of P. who after completion of the contract was to convey same to M.; and that M. was to deliver said ice to vessels to be sent by P. who was to be obliged to accept only good merchantable ice so delivered and stored. The ice was cut and stored and M. affected insurance thereon and on the buildings and tools. In the application for insurance in answer to the question "Does the property to be insured belong exclusively to the applicant, or is it held in trust or on commission or as mortgagee?" the written reply was "Yes, to applicant." At the end of the application was a declaration "that the foregoing is a just, full and true exposition of all the facts and circumstances in regard to the condition, situation and value and risk of property to be insured so far as the same are known to the applicant, and are material to the risk."

The property was destroyed by fire and payment of the insurance was refused on the ground that the property belonged to P. and not to M. the insured. On the trial of an action on the policy the defendants also sought to prove that P. had effected insurance on the ice and that under a condition of the policy the amount of M's. damages, if he was entitled to recover, should be reduced by such insurance by P. This defence was not pleaded. The policies to P. were not produced at the trial and verbal evidence

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of the contents was received subject to objection. A. verdict was given in favour of M. for the full amount of his policy.

Held, affirming the judgment of the court below, that the property in the ice was in M.; that it was the buildings and implements only which were to be the property of P. under the agreement and not the ice which was at M's. risk and shipped.

Held, further, Gwynne J. dissenting, that the insurance to P. and the condition of the policy should have been pleaded but if it had been the evidence as to it was improperly received and must be disregarded.

Held, per Ritchie C.J., that the application of M. for insurance not being made part of the policy by insertion or reference the statements in it were not warranties, but mere collateral representations which would not avoid the policy unless the facts mis-stated were material to the risk. If materiality was a question of law the non-communication of the agreement with P. could not affect the risk; if a question of fact it was passed upon by the jury.

Per Strong J.—The application, being properly connected with it by verbal testimony, formed part of the policy and the statements in it were warranties, but as M. only pledged himself to the truth of his answers "so far as known to him and material to the risk" and such knowledge and materiality were for the jury to pass upon, the result was the same whether they were warranties or collateral representations.

Appeal from a decision of the Supreme Court of New Brunswick affirming the judgment for the plaintiff at the trial.

The plaintiff, McLellan, a resident of St. John, N.B., entered into the following agreement with one Palmer of the same place:

"1st. Said McLellan agrees to cut, store and put in proper houses secured and properly protected from the weather, from 5,000 to 10,000 tons of pure fresh water ice, free from foreign matter in blocks of the following sizes, viz.: 22 in. x 32 in. and the thickness that the block ice will cut."

"2nd. That the said ice, houses, and all implements are to be the property of said Palmer, but after the completion of this contract he is to convey same to the said McLellan."

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"3rd. The said McLellan to build a good sluice or shute for delivering ice to vessels where they can load to 16 feet and proceed to sea and of such a character that he can deliver and load at least four hundred tons per day."

"4th. Said McLellan is to deliver the said ice free on board and stowed to vessels to be sent by said Palmer in July and or August and or September, 1890, and do all things necessary in the premises and usual by the shippers of ice."

"5th. Said Palmer is to pay said McLellan for all said ice as follows: The sum of one dollar and twenty-five cents per ton of 2,240 lbs. of good merchantable ice put on board and stowed in good merchantable condition, the quantity to be ascertained on the shipping documents of each vessel."

"6th. Said Palmer is to advance the said McLellan the sum of sixty cents per ton of ice as housed and secured and for the purpose of ascertaining quantity housed fifty cubic feet to be reckoned as a ton, such advances to be deducted from payments of the first cargoes shipped."

"Said Palmer shall be only liable to accept and pay for under this document the good merchantable ice delivered and stowed on board vessels sent by him or assigns."

The land on which the buildings in which plaintiff proposed to store the ice were situate was leased by the owner to Palmer, the lease containing a covenant of renewal in favour of plaintiff. The buildings were mortgaged by plaintiff to one Barnhill as security for money due.

McLellan, the plaintiff, cut and stored the ice, and before shipment he effected insurance with the defendant company for $15,000 on the ice, and smaller amounts on the buildings and tools. In the application

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for insurance was printed the following question: "Does the property to be insured belong exclusively to applicant, or is it held in trust or on commission, or as mortgagee?" To this question the answer written was "Yes, to applicant." At the foot of the application and just before plaintiff's signature, the following memo. was printed:—

"It is hereby declared that the foregoing is a just, full and true exposition of all the facts and circumstances in regard to the condition, situation, value and risk, of the property to be insured, so far as the same are known to the applicant and are material to the risk; and the said applicant hereby agrees and consents that the same shall be held to form the basis of the liabilities of the company."

One of the conditions of the policy was as follows:—

"13. If at the time of any loss or damage by fire happening to any property hereby insured, there be any other subsisting insurance or insurances, whether effected by the insured or by any other person, covering the same property, this corporation shall not be liable to pay or contribute more than its ratable proportion of such loss or damage."

The property insured was destroyed by fire, but payment of the insurance was refused by the defendants, who claimed that plaintiff had no insurable interest in the property, but that it belonged to Palmer. An action was brought on the policy on the trial of which defendants, in addition to the defence as to the whole claim, set up a partial defence under the 13th condition, and sought to prove that Palmer had also insured the ice and received the sum of $3,250 for such insurance. This 13th condition was not pleaded and the policies to Palmer were not produced at the trial. Defendants tendered secondary evidence of their contents which was received by the

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trial judge subject to objection that it was inadmissible.

The plaintiff obtained a verdict for the full amount of his policy which the court in banco affirmed. The defendants appealed.

Weldon Q.C. and Jack for the appellants. McLellan had no insurable interest in the property. Calcutta & Burmah Steam Navigation Co. v. DeMattos[1]; Castellain v. Preston[2].

Plaintiff cannot recover profits on his business as part of his damages. Wilson v. Jones[3].

The application contained a warranty of the truth of the answers of plaintiff to the printed questions and some of the answers being untrue the policy was void. Thomson v. Weems[4]; Fowkes v. Manchester &c. Assurance Assoc.[5]; Gore District Mutual Insurance Co. v. Samo[6]; Marshall v. Times Insurance Co.[7]; Cashman v. London & Liverpool Insurance Co.[8].

The question of materiality should not have been left to the jury.

Barker Q.C. for the respondent. As to plaintiff having an insurable interest see The North British & Mercantile Insurance Co. v. The Liverpool, London & Globe Insurance Co.[9]; and as to misrepresentation National Bank v. Hartford Insurance Co.[10]; Hopkins v. Provincial Insurance Co.[11]; Stock v. Inglis[12].

Sir W. J. RITCHIE C.J.—The whole property was substantially plaintiff's, in his possession and at his risk, and there was an insurable interest in

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plaintiff in the whole property. If destroyed by fire the loss would fall on him because he could never deliver the ice and so fulfil his contract and obtain payment, and if the building and tools were destroyed, which were only held by Palmer to secure the fulfilment of the contract, they could never be returned to him as contemplated by the agreement; and the same observation is applicable to Barnhill's bill of sale which was also only by way of security.

I think as the application was not referred to in the policy and therefore formed no part of it by insertion or reference the statements contained in it were not warranties but merely representations collateral to the policy, and therefore, unless material to the risk, would not avoid the policy; and inasmuch as the ice, buildings and tools were at the risk of the plaintiff I cannot, if the materiality was a question of law, see how the non-communication of the contract with Palmer, and the bill of sale to Barnhill, could possibly have been material to the risk. If the ice, houses and tools were all destroyed the loss, for reasons before stated, must necessarily fall on the plaintiff and therefore he was substantially and practically for the time being the owner of the ice, buildings and tools. If the materiality was a question of fact then the jury have passed on it in a manner I think entirely satisfactory. Thinking therefore, as I do, that the application contained a representation only and not a warranty; that if not literally it was substantially correct, and that if not substantially correct it was not material to the risk; and that the plaintiff had an insurable interest to the full value of the amount insured, I think he is entitled to recover the amount so insured, which is the whole marketable value of goods insured at the time of the loss, and they cannot cut that amount down by reason of transactions between plaintiff and Palmer

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and Scammel, to which the insurance company is in no way a party. They received the agreed premium for insuring this property; the market value of the property has been satisfactorily established; and this is the legitimate amount of the loss under the 9th condition of the policy, and this amount they must pay.

At the time this agreement was made there was no ice cut to which the second paragraph could refer if ice is to be read as separate from the houses, and I think the general scope of the clause indicates that it had reference to the houses and implements alone which for the time being are to be the property of Palmer and not to the ice itself, because "after the completion of this contract he is to convey the same, that is the ice houses and implements, to the said McLellan." How could this apply to the ice which, by the same agreement, McLellan is to deliver free on board and stowed to vessels to be sent by Palmer in all July, and/or August, September, 1890, and do all things necessary in the premises and usual by shippers of ice.

It is said there should be a deduction by reason of there having been other insurance by other parties under the 13th condition which is as follows:

13. If at the time of any loss or damage by fire happening to any property hereby insured there be any other subsisting insurance or insurances, whether 'effected by the insured or by any other person, covering the same property, this corporation shall not be liable to pay or contribute more than its ratable proportion of such loss or damage.

But this was not pleaded, and had it been there was no legal evidence of any other insurance beyond that of the plaintiff. It was sought to prove the contents of the alleged policies by verbal evidence; this was objected to and the policies required to be produced. The evidence was objected to and received

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subject to objection, the learned judge intimating that the evidence was not receivable, but it was pressed in subject to the objection and was clearly not admissible and must be rejected.

The appeal should be dismissed.,

STRONG J.—The principal objection which has been raised to the respondent's right to recover in this action is that the answer recorded as his to the 14th question in the application on which the policy was issued was untrue, and constituted either a breach of warranty or at least material misrepresentation.

The jury have found that there was no misrepresentation or concealment of facts material to the risk, and the court on an application for a new trial have held that this finding was justified by the evidence. And the learned judge who presided at the trial, Mr. Justice Tuck, having ruled that as a matter of law and legal construction the answer to the question referred to did not constitute a warranty the court in banc have confirmed that ruling.

The first question to be considered is that as to the legal effect of this answer to the 14th question assumed to have been put to and answered by the appellant; whether it forms part of the contract of insurance, and is therefore to be regarded as a warranty, or whether it was a mere collateral representation, and as such of no effect save in so far as it mis-states some fact or facts material to the risk.

The 14th question is as follows:

Does the property to be insured belong exclusively to the applicant, or is it held in trust or on commission or as mortgagee?

The answer recorded as the response of the responddent is "Yes, to applicant." At the foot of the application, after the last question and immediately

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preceding the signature of the respondent, this declaration appears:

It is hereby declared that the foregoing is a just, full and true exposition of all the facts and circumstances in regard to the condition, situation, value and risk of the property to be insured so far as the same are known to the applicant and are material to the risk; and the said applicant hereby agrees and consents that the same shall be held to form the basis of the liabilities of the said company.

The application is not dated, but the evidence shows that it was signed on the 18th or 19th of April, 1890.

The policy is dated the 25th of April, 1890, and is not under seal. The risk was from the 18th April, 1890, until the 18th of October, in the same year. At the time of the application there was no other insurance on the property, the insurance effected on the ice by Mr. Charles A. Palmer not having been made until afterwards, namely, on the 23rd of April, 1890.

The policy does not in terms contain any reference to the application.

I am, however, of opinion that it is impossible to come to any other conclusion, having due regard to the express terms of the clause of the application before set forth, than that the statements embodied in the answers of the respondent, and which were "to form the basis of the liabilities of the company" were not mere representations or anything else than warranties, forming part of the contract between the parties. The case of Thomson v. Weems [13] was, it is true, a stronger case inasmuch as the proposal was there referred to in the body of the policy, but this difference is not conclusive against holding the statements in the answers contained in the proposal or application warranties for there is no reason why the statements in the application may not be connected with the policy by parol evidence, and if this is done, and these statements are read as the basis of the contract, they are as much part

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of the contract of insurance as if they had been written on the face of the policy. The case of Wheelton v. Hardisty [14] contains nothing adverse to this construction for it was not there stipulated by the insurers that the answers to the questions contained in the proposal should form the "basis" of the insurer's liability.

There would, however, be little difference between the effect of a warranty expressed in the terms used in the concluding clause of the application and a mere representation. In the latter case the questions of materiality and knowledge of the assured of the truth or falsehood of the facts stated would be the principal questions to be determined, and these would, of course, be questions for the jury. But under a warranty framed as this is the questions to be determined are identical, for the party proposing the insurance only states that his replies are just, full and true statements "so far as the same are known to the applicant and are material to the risk."

I do not at all agree in the meaning and construction attributed to this clause at the foot of the application which is relied on by the appellants, and which is set forth in their factum. This would make the applicant pledge himself to the truth and materiality of his statements absolutely, which is just what the words "so far as the same are known to the applicant and are material to the risk" protect him against. It would be impossible to attribute to these words the meaning contended for without perverting the language actually used.

It appears to me that the respondent only undertook to affirm the truth of his statements so far as they were known to him, and so far as they were material to the risk. The questions of materiality and of the

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respondent's knowledge must therefore, even in the view which I think is the correct one, be for the jury. The result must consequently be that the questions for determination are practically the same whether we regard this last clause of the application as forming part of the contract and so constituting a warranty, or as being a mere collateral representation.

The principal objection to the truth and accuracy of the answer to the 14th question is that it states the property insured, which includes the ice, ice houses and tools, to belong exclusively to the respondent.

This was not strictly the answer which, according to the concurrent testimony of the respondent himself, and that of Mr. Brittain and Miss Wholley, the clerks of Mr. Russel Jack, the appellant's agent, was given to the question by the respondent, for according to all the witnesses what he, the respondent, said was that he was the owner of the ice but was under bonds to deliver it which, making due allowance for the difference between a technical and non-technical mode of expression, was strictly true. The respondent, in my opinion, was the absolute and exclusive owner of the ice, whilst he was by the contract into which he had entered under an obligation to deliver it or other ice to Messrs. Palmer and Scammels.

It is to be observed in the first place that the correctness of this statement does not depend on any question of fact, but on a question of law or rather of legal construction, a matter for judicial opinion. There is no question as to the fact that the respondent had duly executed and become bound by the agreements of the 18th March, 1890, and that his title to the leasehold property on which the ice house was erected depended on these agreements and the agreement for the lease entered into between Mr. Raynes and Mr. O. A. Palmer. Something might have turned upon this if

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the legal effect of those instruments had not been, as I think it was, such as entirely to warrant the construction the repondent put upon them.

This depends upon the question whether the property in the ice was by the terms of the agreement to vest in Mr. Palmer before its shipment. I entirely concur in the opinions of the learned judges who delivered judgment in the Supreme Court of New Brunswick, that the words "ice houses and all implements" in the second clause of the agreement of the 18th March, 1890, do not refer to the ice, but to the houses in which it was to be stored; this, in my judgment, necessarily results from the provision that after the completion of the contract Mr. Palmer was to convey "the same" to the respondent. What was to be so conveyed was the property which was to become vested in Mr. Palmer, and it could not have been meant that the ice was to be conveyed inasmuch as the completion of the contract would involve the shipment and delivery of that. The second paragraph of the 6th clause is, however, conclusive to shew that the property in the ice was not to pass. It reads as follows: "Said Palmer shall be only liable to accept and pay for under this agreement the good merchantable ice delivered and stowed on board vessels sent by him or his assigns." Nothing, in my opinion, could shew more plainly that the ice was not only to be at the risk of the respondent, but that he was to be the actual owner of it, and to retain the property in it until shipment.

Clearly Palmer could not be the owner of the ice which he had not accepted, and the time for his acceptance had not arrived when the insurance was effected, nor when the loss occurred. This is so plain that no further demonstration is required. As regards the tools, which were not consumed or damaged by the fire, and in respect of which no loss is alleged,

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there is no pretence for saying they vested in Mr. Palmer.

The legal property in the lease was no doubt in Palmer, but the clause in the agreement providing that he was to reconvey this property to the respondent after the completion of the contract, coupled with the stipulation in the agreement with Raynes that he was to renew in favour of McLellan, shows that Mr. Palmer held this property in the leasehold merely as a mortgagee and by way of security. Then there was nothing in this nor in the bill of sale to Barnhill inconsistent with the respondent's statement that he was the owner. A mortgagor is deemed the owner of property mortgaged both in a popular and in a technical sense, and the last alternative of the 14th question shows that the word "property" in the first part of the interrogation is used as contra-distinguished from the interest of a trustee, mortgagee or commission agent, and the question being read and construed in this sense the respondent was perfectly justified in saying that he was, according to the meaning thus attached to the word "property" by the appellants themselves, the exclusive owner of the icehouse as well as of the ice.

I have therefore no difficulty in holding that the absolute and exclusive ownership in all the property insured was in the respondent, and assuming the answers to the questions propounded to have been strictly warranties there has been no breach of the warranty contained in the answer to the 14th question.

The pleadings did not under the New Brunswick rules put the plaintiff to proof of the notice of loss required by the 6th condition and this objection requires no further notice.

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The 9th condition does not apply; the respondent does not seek to recover for profit but for the amount of insurance on the substantial property actually in his possession at the date of the loss and of which he was the absolute and exclusive owner, and which on sufficient evidence the jury have found to have been of the value of $18,000 and upwards.

The objection founded on the 13th condition has given rise to some difficulty. That condition is in the following words:

If at the time of any loss or damage by fire happening to any property hereby insured there be any other subsisting insurance or insurances, whether effected by the insured or by any other person, covering the same property, this corporation shall not be liable to pay or contribute more than its ratable proportion of such loss or damage.

It is said that Mr. C. A. Palmer, subsequently to the respondent's insurance with the appellants effected by the policy sued upon in this action, effected insurance upon the ice to the amount of $4,000 in two other offices, $2,000 being insured by each company, and that Mr. Palmer after the loss received from each company $1,625, being $3,250 in all.

The first observation to be made on this head is that it is a partial defence requiring to be pleaded and that it is not merely a matter of reduction of damages. Apart from this condition the respondent would, upon the finding of the jury that the ice, all of which was destroyed or so damaged by fire as to be of no value, was worth $18,000 and upwards, be entitled to recover upon this head the full amount insured, namely, $15,000. If his right to recover is to be partially reduced under this condition it should therefore have been pleaded. The only plea or notice of defence applicable is the 6th which alleges that Charles A. Palmer was jointly interested in the assured property with the plaintiff, that he (Palmer) effected other insurance

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and after the loss recovered and received such further insurance for a total loss and to the extent of the full value of the property insured and of the property destroyed. This plea is not proved. Palmer was not jointly interested with the plaintiff, nor did he recover the full value of the property lost. No application to amend this plea or to add a proper plea founded on the 13th condition was made either at the trial or in banc or in argument at this bar.

Had the defence, however, been properly pleaded the evidence to sustain it is not sufficient. It is true that Mr. Palmer says that he did effect insurance on the 23rd of April on the ice, but the policies were not produced, the terms of them were not even stated, and the evidence, manifestly irregular, being persistently objected to was received subject to objection. Mr. Palmer says he was unable to state the terms of the policies and as these might, had they been produced, have shewn that they did not come within the condition, the evidence ought not to have been received and ought to have no weight.

But assuming that these preliminary objections had been got over there would still have remained a more substantial objection to this partial defence.

It does not appear from the agreement that Mr. Palmer had any lien or charge upon the ice which was the subject of his insurance, for his advance or otherwise. This specific ice need not have been delivered by the respondent. He was free to sell it and purchase or otherwise obtain other ice with which to fulfil his contract with Messrs. Palmer & Scammels. The contract contains no provision for any security on the ice for the advances, and the provision before noticed that the ice was not to be accepted by Palmer until it was shipped repels the presumption that it was

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for any purpose, either by way of security or absolutely, to vest or that Mr. Palmer was to have any property equitable or legal before actual shipment. It follows that any insurance upon the ice effected by Mr. Palmer subsequently to the policy upon which this action is brought could not have covered the same property, since Mr. Palmer was a stranger having no legal or equitable interest in the ice to which his insurance as he states it was restricted. It would be impossible so to construe the 13th condition as to make it apply to any case in which an entire stranger, having no interest in the property which formed the subject of insurance, should subsequently to the date of the policy and without the privity of the assured assume to insure it by effecting what might be a mere wager policy. Such a proceeding could not under this condition operate to the prejudice of the owner of the property regularly insured by means of the policy to which this condition is attached, by reducing the amount of the risk or otherwise. And yet if we were to hold the 13th condition applicable to the present case it would also apply to such a case as that supposed.

For these reasons I have reached the same conclusions as have been arrived at by the Supreme Court of New Brunswick.

The appeal should be dismissed with costs.

TASCHEREAU J. concurred.

GWYNNE J.—I think the plaintiff had an insurable interest as proprietor to the full value of the property insured whatever may have been the nature of Palmer's claim on the property by virtue of the contract entered into by plaintiff, and this I think is the extent of the representation made by the plaintiff that

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he was solely interested; that representation was never intended to be a warranty or assertion that no one else had any interest subject to which the policy was issued. The 13th condition of the policy shows this for it points to the contingency of any other person effecting an insurance upon the same property or any part thereof, and provides for what should take place in such an event. This was in fact done, and I must say I think that in justice the defendants are entitled to the benefit of a reduction provided for by that condition, whatever the amount may be. It was not disputed before us, on the contrary it was admitted, that in point of fact Palmer had effected an insurance upon the ice insured by the plaintiff or some part thereof, and that he had received thereon $3,250; I think, therefore, a reduction from the $15,000 insured upon the ice by the plaintiff should be made under the 13th condition.

PATTERSON J.—I concur in the opinions expressed by the Chief Justice and my brother Strong.

Appeal dismissed with costs.

Solicitor for appellant: I. Allan Jack.

Solicitors for respondent: Barker & Belyea.