Story Case

Mr. Floyd Clark, agent for the Hill Steamship Line, applied for insurance to the Sunset Marine Insurance Company on the Pacific freighter, Conway, plying between San Francisco and Manila. The policy provided that any misrepresentation would make void the insurance. Mr. Clark stated that the ship was only two years old, and was just leaving the dock, having been newly caulked and painted. The facts stated, however, were true of the ship "Connor" with which the agent, Mr. Clark, had inadvertently confused the "Conway." The Conway sprang a leak in a high sea and sank. The company proved that, contrary to Mr.

Clark's representations, the ship had been used for fifteen years, and was recognized by the sailors as a dangerous barque. Can the Hill Steamship Line recover?

Ruling Court Case. Armour Vs. Transatlantic Fire Insurance Company, Volume 90 New York Reports, Page 450

The Trans-Atlantic Fire Insurance Company issued a policy of insurance upon Armour's warehouse in Chicago. By the terms of the policy, other insurance was permitted upon the same warehouse without notice to the company, and it was provided that all losses should be apportioned on the whole sum insured. It was further provided in the policy that any misrepresentations whatever should void the policy. Armour's agent who applied for the policy, stated that there was insurance amounting to $2,000,000 upon the warehouse. There was, in fact, only $30,000, though the agent honestly believed that there was $2,000,000 as stated. The warehouse was destroyed by fire, and this action was brought. The insurance company contended that misrepresentation, however honestly made, voided the policy.

Mr. Justice Rapallo said: "A material misrepresentation by the agent for effecting the insurance will defeat it, though not known to him, and though made without any fraudulent intent on the part of the agent to the same extent as though made by the assured himself."

Justice Story says: "A false representation of a material fact is, according to well settled principles, sufficient to void a policy of insurance underwritten on the fact thereof, whether the false representation be by mistake or design." Judgment was given for the insurance company.

Ruling Law. Story Case Answer

Where the company propounds definite questions to the applicant, and the information sought by those questions is material to the risk which the company is taking, the insured cannot defend the consequences of false statements, on the ground that he made them in good faith, believing that they were true. He must, at his peril, answer correctly. The company seeks such information, in order to determine whether it is willing to take the risk. If the information is so material that it influences the company to take a risk which it would not have taken had it known the truth, the consequences of such false statements should justly fall on the one who made them, even though he acted in good faith.

This is the state of facts in the Story Case. The risk taken by the insurance company was considerably greater than it had anticipated from the agent's erroneous description of the property. The policy is therefore void.