Story Case

The State Cotton Company sold to Mr. Levinson, a broker in New Orleans, two hundred bales of cotton, agreeing to assign to Mr. Levinson a policy of insurance, purporting to protect the owner against loss by fire or water. While the cotton was being transported to New Orleans, it was destroyed en route by the bursting of a levee. After the merchandise had been shipped, Mr. Levinson called upon the insurance company, stated the facts of his purchase, and asked the assent of the company to be regarded assignee of the original owner. The company consented. Because the goods were destroyed, as above indicated, an hour after this assent of the company was secured, can it refuse to pay Mr. Levinson for his loss?

Ruling Court Case. Wilson Vs. Hill, Volume 3 Metcalf, Massachusetts Reports, Page 66

Benson, Phelps and Capron were the owners of a factory building and certain machinery in the building. The machinery was mortgaged by them to Hill. Benson, Phelps, and Capron caused insurance against loss by fire to be affected by the Manufacturers' Mutual Fire Insurance Company, for one year to the amount of $2,700, on the property. Benson and Phelps conveyed their interest in the property to Capron, and Capron conveyed the same to Wilson, but in neither case was the policy assigned. The property was destroyed, and Wilson brings this action against Hill to recover the sum due on the policy. Wilson contended that the sale of the property carried with it the benefit of the policy even though the policy was not assigned.

Mr. Chief Justice Shaw said: "But it appears to us that the claim of the plaintiff - Wilson - to recover in this action is founded upon an entire misapprehension of the nature and legal effect of a contract of insurance. An insurance of buildings against loss by fire, although in popular language it may be called the insurance of the estate, is in effect a contract of indemnity, with an owner or other person having an interest in the preservation of the buildings, as mortgagee, tenant, or otherwise, to indemnify him, against any loss which he may sustain, in case they are destroyed or damaged by fire. If, therefore, the assured has wholly parted with his interests before they are burned, and they are afterwards burned, the underwriter incurs no obligation to pay anybody. The contract was to indemnify the assured; if he has sustained no damage, the contract is not broken. If, indeed, on the transfer of the estate, the vendor assigns his policy to the purchaser, and this is made known to the insurer, and is assented to by him, it constitutes a new and original promise to the assignee to indemnify him in like manner, while he retains an interest in the estate, and the exemption of the insurer from further liability to the vendor, and the premium already paid for insurance for a term not yet expired, are a good consideration for such a promise and constitute a new and valid contract between the insurer and the assignee. But such undertaking will be binding, not because the policy is in any way incident to the estate, or runs with the land, but in consequence of the new contract." The court held that Wilson could not collect, since the policy had not been assigned to him.

Ruling Law. Story Case Answer

A contract of insurance against fire is a personal contract between the owner of the property and the insurance company. The contract relates to, but does not inhere in, or run with, the property insured. Accordingly, if a person merely transfers insured property, and a loss results from fire, there can be no recovery upon that policy. The new owner of the property cannot recover, because the contract of insurance was not with him. The former owner cannot recover because he has suffered no loss, being no longer the owner of the property. Accordingly, if the transferee of property wishes to get the benefit of insurance upon the property, the policy must be assigned to him, with the consent of the company, and this transaction amounts to the making of a new contract between the company and the new owner of the property.

Such was the precise situation in the Story Case. While the goods were still in existence, the company agreed that the policy in favor of the State Cotton Company should thereafter run for the benefit of the new owner. The company is liable, therefore, on this contract.