loss covered by the policy which contains a definition of insolvency as given above." In case the insured issues execution against the debtor on a judgment for merchandise sold during the running of the policy, and the execution is returned unsatisfied, the mere fact that the execution was not returned till three days after the expiration of the term of the policy will not relieve the company from liability, where the other terms of the policy have been complied with." But, where no judgment had been obtained nor any execution issued against such debtor of the insured until after the expiration of the terms of the bond, the loss is not covered by the policy." 43. The Loss. -The failure of the debtor of the insured to pay the debt is the loss insured against. Where the failure to pay occurs within the provision contained in the policy, the company is liable to pay it. Thus, a policy provided that, in case the debtor, a certain corporation, failed to pay the principal debt on certain debentures held by the insured three months after they become due, the insurance company should pay for the same. At about the time the debenture of the insured became due, the other debenture holders passed a resolution that the payment on all the debentures should be postponed for several years. It was held that under the terms of the policy, when default was made within three months after the debentures of the insured became payable, the company was liable to pay the insured the whole amount of the unpaid debt, provided, however, that the company should succeed to all the rights of the insured on the debentures held by him. The usual provision of the policy is, as we have previously stated, that the company is liable only for loss of insolvent customers of the insured.10 44. Initial Loss. One of the peculiar features of the credit-insurance policy is the provision which is contained in the typical credit policy in the United States with reference 13 17 N. Y. App. Div. 474, 477 (1897). 14 166 N. Y. 416 (1901). 159 N. Y. App. Div. 433 (1896). to the initial loss. This clause states that the insured himself shall suffer a certain amount of the loss, either in proportion to the losses which have occurred during the term of the policy, or a certain percentage of the gross sales of the year, which shall not be less than a certain figure. For example, where the policy covers a loss of twenty thousand dollars and provides that the indemnified shall stand an initial loss of two thousand dollars on sales of a certain amount of goods, the insured, in order to recover the full face value of the policy, will have to show a loss covered by the policy of twenty-two thousand dollars." Other deductions are frequently made in the policy from the sum to be paid by the company, practically of the same nature as the initial loss. Where the policy running for one year provides that certain deductions should be made from the loss of the year, which shall be borne by the insured himself, and a further clause provides that the policy shall cover all losses on sales made the year just preceding, except certain losses already ascertained, the indemnified is not, under the terms of the policy, compelled to stand a deduction from the losses of the previous year's sales." Where the policy provides for a deduction from the losses of the year of an amount equal to one per cent. of the sales of the year, which according to a provision in the policy is to be not less than ninety thousand dollars, and the company puts an end to the contract before the year is over, the deduction is to be made of one per cent. of the sales that were made during the running of the policy, and not one per cent. of the ninety thousand dollars." And where the policy. provides that a certain proportion of the loss shall be suffered by the insured as an initial loss, and further provides that the loss of any one debtor shall not exceed a certain sum, as the sum of seven thousand five hundred dollars, and the insured incurs a loss from one debtor of twenty thousand dollars, the initial loss provided for in the policy is to be determined, not by calculating the required proportion 17 103 Fed. Rep. 609 (1900). 18 17 N. Y. App. Div. 474 (1897). 19 65 Minn. 283 (1896). of twenty thousand dollars, the actual loss, but of seven thousand five hundred dollars, the loss covered by the policy. As the loss of twelve thousand five hundred dollars is not covered by the policy, the company has no interest in it. It, therefore, cannot make that loss any part of the basis of determining the initial loss of the insured." 45. Notice of Loss.-The policy usually requires that the insured shall send to the company notice of the insolvency of the debtor within a certain number of days from the time when he receives knowledge of it. The purpose of this provision is to afford the company prompt information that loss has happened, for the purpose of investigation and for taking measures for the protection of its interests. Where the company requires such notice in the policy, the insured must furnish the same in order to recover for such loss. The company, under these provisions, is entitled to the notice even as to such loss which under the terms of the policy is an initial loss to be suffered by the insured himself." Where a policy provides that the insured shall give notice within a certain number of days after learning of the insolvency of the debtor, on blanks furnished by the company, and these blanks require an answer as to the failure of the debtor, the date, and nature of the failure, and the insured notifies the company within the required time by filling out one of these blanks to the effect that the goods of the debtor were seized by the sheriff in execution, causing suspension of the debtor's business, the notice is sufficient. The mere failure on the part of the insured to give subsequent notice to the company within the limit of time after his own judgment against the debtor was returned unsatisfied, will not defeat his right under the policy. The terms failure and insolvency, as used in this provision of the policy and in the blanks, are used in their commercial sense, and mean suspension of payment or compulsory suspension of business, and the nature of the failure means the kind or distinguishing character of the suspension, that is, whether it were voluntary or enforced." 20 41 N. E. Rep. 276 (1895). 2154 N. Y. Supp. 505 (1898). 2295 Fed. Rep. 111 (1899). 46. Transfer of the Debt. -The modern policy provides that when the losses are allowed by the company, the claims the insured has against the insolvent debtor for such losses shall at once be transferred to the company. It further provides that where the indemnified has a part interest in any one of such claims, as where only a part of the loss is covered by the policy, or it makes up the initial loss to be borne by the insured, the amount realized by the company thereon, less the costs of collecting the same, shall be divided pro rata between the insured and the company, as the interest of each shall appear. Thus, where the policy covers only a certain loss from any one debtor and the indemnified suffers a loss in excess of that limit, payments thereafter made by the debtor, either to the indemnified or to the company, or any security of the said debtor, must be distributed proportionally between the loss covered by the policy and the loss not so covered." 23 103 Fed. Rep. 609 (1900); 17 N. Y. App. Div. 474 (1897). TITLE INSURANCE 47. Definition and Nature. - Title insurance is a contract to indemnify the owner or mortgagee of real property from loss by reason of defective titles, liens, or encumbrances.' The business is usually carried on by incorporated companies, as in the case of other kinds of insurance. But these institutions are not always simply title-insurance companies; sometimes they embody in their corporate names and the scope of their business the functions of trust and safe deposit companies. The specific business of a title-insurance company is substantially conducted by having the title to specified property examined on application of a purchaser, owner, or mortgagee, for whom an abstract of title is prepared, the correctness of which is guaranteed, whereupon a policy is issued to such person stipulating that he shall be indemnified for any loss that may arise to him by reason of a defect in the title. The organization of these companies is of recent origin, and few court decisions bearing upon their rights and liabilities have been rendered. The few cases that have reached the courts have defined the law only as to certain matters connected with this class of insurance. 48. Construction of the Contract. - Like other contracts of insurance, title insurance is governed by the rules of law that govern all contracts, and especially all other insurance contracts. All doubts and ambiguities, if any, contained in the policy are to be resolved in favor of the insured. As to formality, the general statements contained elsewhere in this title apply to this class of insurance.* Usually, therefore, a contract of title insurance includes a 1 Bouv. Law Dict. 2 Am. & Eng. Encyc. Law (1st Ed.), Vol. 26, p. 19. 3 Frost Guar. Ins., Sec. 164, citing 70 Fed. Rep. 194 (1895); 67 Minn. 126 (1897). 4 See subtitles Introduction, Form of the Contract, supra. |