Argument for Plaintiff in Error.

209 U.S.

County, 151 U. S. 462, 463; 2 Parsons on Contracts (7th ed.), 626, 632.

The language of paragraph 11 of this contract is neither technical nor ambiguous nor have any of the terms therein used "acquired a meaning district from the popular sense of the same terms." They must, therefore, be taken and understood in their plain, ordinary and popular sense. The words "and in no event," in their plain, ordinary and popular sense, include and refer to insolvency as clearly as though that word were visibly written in the contract.

This contract provides that "in no event shall this company be liable for an amount in excess of a ratable proportion of the sum, actually paid," not a ratable proportion of the loss. The liability of the reinsuring company being clearly and expressly fixed by the terms of the contract, the court will not enlarge it. Kerr on Ins., 729, 735; Imperial Ins. Co. v. Coos County (supra).

The moment the reinsured accepted the contract in this case it assumed and took upon itself the duty of performing a certain definite act by which, and by which alone, the extent and measure of the liability of the reinsuring company could be ascertained in the event of a loss. The reinsured, by its acceptance of this contract, agreed that "actual payment" by it of its losses should be a condition precedent to its right of recovery against the reinsuring company. Langdell on Contracts, $33; Ostrander on Insurance, § 334; Kerr on Insurance, 740; Braunstein v. Ins. Co., 1 Best & S. 728.

The insolvency of the reinsured was an event the happening of which could have been provided against by the terms of the contract. There being no such provision in the contract, it must be conclusively presumed that the parties had that event, as well as all others, in mind when they agreed that "in no event" should the reinsuring company be liable for an amount in excess of ratable proportion of the sum actually paid, etc.

The fact that performance of this condition precedent is

now impossible does not invalidate it, nor is the reinsured relieved or discharged from its obligation.

Mr. William F. Mattingly and Mr. T. Wallis Blakistone for defendant in error:

The contract did not contemplate insolvency. It was a contract of indemnity and the legal construction of § 11, in connection with the entire contract, following the strict intent of both parties to it, is that in no event should the defendant be required to pay under its contract more than its ratable proportion of the actual liability of the plaintiff. May on Ins., §§ 11, 11a; 2 Clement on Fire Ins., 551, 557; Consolidated R. E. & F. Ins. Co. v. Cashow, 41 Maryland, 59, 74, 75; Blackstone, Rec'r, v. Allemannia Ins. Co., 56 N. Y. 104; In re Insurance Company's Appeal, 83 Pa. St. 396; Cashau v. Northwestern Nat. Ins. Co., 5 Fed. Cas. No. 2,499; Ex parte Norwood, 18 Fed. Cas. No. 10,364; In re Republic Ins. Co., 20 Fed. Cas. No. 11,705.

The construction of these reinsuring contracts, as shown by authorities cited, is in conformity with the general principles, relating not only to indemnity contracts, but all contracts. The fundamental rule of construction is that the consideration of the situation of the parties when the contract was made, its subject matter and the purpose of its execution, are material to determine the intention of the parties and the meaning of the terms they used, and that when these are ascertained they must prevail over the words of the stipulations. Kauffman v. Ræder, 54 L. R. A. 247, 250; S. C., 47 C. C. A. 278; Canal Co. v. Hill, 18 Wall. 94; O'Brien v. Miller, 168 U. S. 287; Insurance Co. v. Duval, 8 S. & R. 147; Illinois Ins. Co. v. Andes Ins. Co., 67 Illinois, 362; Eagle Ins. Co. v. Lafayette Ins. Co., 9 Indiana, 443; Gantt v. American Ins. Co., 68 Missouri, 503; 24 A. & E. Enc. (2d ed.), 265ƒ, 267 (2), 270, VIII.

MR. JUSTICE PECKHAM, after making the foregoing statement, delivered the opinion of the court.

The only question before the court is as to the construction

of the language of the reinsurance compact. The term "reinsurance" has a well-known meaning. That kind of a contract has been in force in the commercial world for a long number of years, and it is entirely different from what is termed "double insurance," i. e., an insurance of the same interest. The contract is one of indemnity to the person or corporation reinsured and it binds the reinsurer to pay to the reinsured the whole loss sustained in respect to the subject of the insurance to the extent to which he is reinsured. It is not necessary that the reinsured should first pay the loss to the party first insured before proceeding against the reinsurer upon his contract. The liability of the latter is not affected by the insolvency of the insured or by its inability to fulfill its own contract with the original insured. The claim of the reinsured rests upon its liability to pay its loss to the original insured and is not based upon the greater or less ability to pay by the reinsured. If the reinsured commenced his action against the reinsurer before he had himself paid the loss the reinsured took upon himself the burden of making out his claim with the same precision that the first insured would be required to do in an action against him. But there is no authority for saying that he must pay the loss before enforcing his claim against the reinsurer. These propositions are adverted to and enforced in Hone &c. v. The Mutual Safety Insurance Company, 1 Sandf. Superior Court Reports, 137, where the authorities upon the subject are gathered and reviewed at some length. The case itself was subsequently affirmed in the Court of Appeals in 2 N. Y. 235. See also Blackstone v. Allemannia Fire Insurance Company, 56 N. Y. 104. The same doctrine is held in Consolidated Real Estate &c. v. Cashow, 41 Maryland, 59.

Counsel for plaintiff in error frankly concedes that the legal propositions above stated are correct, and unless there is something in the special provisions of this reinsurance contract which changes the ordinary rule on that subject the judgment herein must be affirmed. Reference is made to the eleventh subdivision of the policy in question. Under the language of

that clause the plaintiff in error contends that the general rule is altered, and that unless the reinsured has paid over the money on account of the loss, to the original insured, the reinsurer, is not bound to pay under this particular contract of reinsurance. Language somewhat like that used in the eleventh subdivision has been construed in other cases. In Blackstone v. Allemannia Fire Insurance Company, supra, the language used was "loss, if any, payable pro rata, and at the same time with the reinsured." The Court of Appeals of New York held that the first part of the clause relieved the defendant from paying the full amount of the loss and made it liable only for its pro rata share, so that the defendant's reinsurance being for half the loss, the defendant was only held liable to pay half the loss. Continuing, the court said (p. 107): "In regard to the latter branch of the clause in question, which says that the loss is payable 'at the same time with the reinsured,' it is not possible to conclude from it that actual payment by the reinsured is, in fact, to precede or to accompany payment by the reinsurer. It looks to the time of payability and not to the fact of payment. It has its operation in fixing the same period for the duty of payment by the reinsurer às was fixed for payment by the reinsured. To give it the construction contended for by the defendant would, in substance, subvert the whole contract of reinsurance as hitherto understood in this State."

In Ex parte Norwood, 3 Biss. 504, a clause in the reinsurance policy stated that "loss, if any, payable at the same time and pro rata with the insured," and it was held that such language simply gives to the company the benefit of any defense, deduction or equity which the first insurer may have, making the liability of the reinsured the same as the original insured. It does not limit such liability to what the original insurer may have paid or be able to pay. Speaking of this clause, Judge Blodgett said:

"The reinsuring company is to have the benefit of any deduction by reason of other insurance or salvage, that the

original company would have, and also to have the benefit of any time for delay or examination which the original company might claim, so that the liability of the reinsuring company shall be co-extensive only with the liability and not with the ability, so to speak, of the original company. .

"The original company may have reinsured for the purpose for which reinsurance is usually, if not universally, accomplished-for the purpose of supplying itself with a fund with which to meet its obligations. It may have placed its own funds entirely out of its control; it may have divided its capital among its stockholders, and may depend solely upon the reinsurance to make good its liability to policyholders.

"The intention of this clause was to make the reinsuring company's liability co-extensive, and only co-extensive, with the liability of the original insurance company.

"For instance, suppose an insurance company in the city of Chicago wishes to go out of business. It has money enough to reinsure all its risks, and does so, and goes out of the insurance business. That company does not keep a fund on hand any longer for the purpose of meeting losses as they fall in, but depends upon its reinsurance.

"Now, it is to my mind absurd to say, if a loss occurs on one of those reinsured policies, that the company primarily liable is to have its claim against the reinsuring company limited by its ability to meet its obligations to its original policyholders. The very object of making the policy of reinsurance was to place the company in funds with which to make its policyholders whole, and that is defeated if the construction which is insisted upon by the assignee is the true one.

"The fair, liberal construction, it seems to me, of this clause, and the salutory one, is to assume that the true intent of itthe judicial meaning-is that the liability of the reinsurance company is to be no greater than that of the original company; that they are not to be compelled to pay any faster than the original company would be compelled to pay; that they are to have the benefit of any defense which the original company