This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If a policy of marine insurance is issued, and a war subsequently breaks out during the life of such policy, between the country in which the insurer is domiciled and the country in which the insured is domiciled, such policy does not protect the insured against loss due to the naval operations of the state in which the insurer is domiciled;1 nor does it protect the insured against loss due to the naval operations of a belligerent power with which his own government is at war,2 probably without regard to the existence of an alliance between such power and the government in which the insurer is domiciled.3
"If the company elects to annul the contract and policy, I can not see how it is justly entitled to retain anything as profits on a policy which it has chosen to annul. The court is careful to say that it can retain nothing for profits which in the future would have been made by the company out of the contract; and it seems to me that it is equally clear that it can retain nothing for profits made under the policy in the past. It can retain only such sum as would actually pay it without any profit for the risk it had run before the annulment of the policy and while it was in force. If it elects to annul the policy, it must annul it as from the beginning after being paid for the actual rink it had run, and can not rightfully claim to be paid anything as profits on the policy. It can not rightfully repudiate its obligations under the contract and claim still to be allowed profits under such contract. The assured agreed to pay the company for a certain sum to be paid in the case before us to his family after his death, a sum not only sufficient to compensate it for the risk it ran, but a large additional sum as profits in the transaction. This he did that his family might on his death have something on which they could certainly rely, no matter when he might die. When the company elect to take from him the only consideration which, induced him to agree to give it this large profit, is it equitable that he should still be required to pay any part of this profit? Is it not just that he should receive back all he has paid, except what is sufficient to compensate the company for the risk it had run while the policy was in force? Can he be justly called upon to pay a further sum for profits? It seems to me that it would be obviously inequitable to require this of him. He never was willing to pay any profits to the company for insuring his life for a certain number of years before the war, and yet this he is now required to do. He was only willing to pay such profit upon his being insured for his entire life, and when the company decline to carry out such insurance for his entire life, ft must surrender the entire profits of the insurance contract and be content to retain only what will compensate it for the risk it has run.
"Of course, after the deduction from the amount actually received in any year from the assured of the amount necessary to just compensate the company for the risk it ran that year, the balance should bear interest from the time when it was paid to the company. These balances should bear interest till the time when the company may elect to annul the policy, when it should be paid to the assured. And I can see no reason why this interest should stop during the pendency of the war. It is true that if a creditor lived in Virginia and his debtor in Pennsyl-vania, the interest on the debt would not have run during the continuance of the war, because the law itself in such a case forbids the debtor to pay either principal or interest to the creditor during the war, they being then alien enemies. See, McVeigh v. The Bank of the Old Dominion, 26 Gratt. 188; Brown v. Hiatts, 15 Wall. 177. But in the case before us the defendant did not owe the plaintiff any debt either before or during the war on which interest could be stopped. The debt was contracted for the first time after the war closed, when the defendant elected to annul the policy. When it did so, it imposed on itself the obligation of placing the plaintiff in the position in which he would have been, had no policy ever been issued, after the payment to it of a sum sufficient to compensate it for the risk it had run. The sum necessary to do this can be properly ascertained only by refunding the money which it had received on the policy, with interest not have run during the continuance of the war, because the law itself in such a case forbids the debtor to pay either principal or interest to the creditor during the war, they being then alien enemies. See, McVeigh v. The Bank of the Old Dominion, 26 Gratt. 188; Brown v. Hiatts, 15 Wall. 177. But in the case before us the defendant did not owe the plaintiff any debt either before or during the war on which interest could be stopped. The debt was contracted for the first time after the war closed, when the defendant elected to annul the policy. When it did so, it imposed on itself the obligation of placing the plaintiff in the position in which he would have been, had no policy ever been issued, after the payment to it of a sum sufficient to compensate it for the risk it had run. The sum necessary to do this can be properly ascertained only by refunding the money which it had received on the policy, with interest for the whole time after deducting the amount which would compensate the company for the risk it ran while the policy was in force, or, as it is called, the cost of the insurance. This is not allowing interest on a debt during the war. What is here called interest is really not interest on a debt, but is simply a mode of ascertaining what is the amount of the principal, which became due from the defendant to the plaintiff for the first time after the close of the war." Abell v. Penn Mutual Life Ins. Co., 18 W. Va. 400.
This rule has been upheld on the ground that to permit a contract of insurance to protect against the acts of the government of the insurer would be to nullify the effects of the war by paying to the insured, out of the treasury of the insurer, after the war, what the government of the insurer was attempting to take from the subjects of the enemy during the war. As far as the interests of the insurer and the insured are to be considered, it may be assumed that the insurer has so adjusted the amount of the premiums that the amount paid in as premiums by all who take such insurance, will exceed the amount of losses upon such policies, unless the past experience on which the insurer is basing his premiums has been made futile by new devices for capturing or destroying property on the high seas, which the insurer has not taken into account in fixing the amount of premiums.
1 Furtado v. Rogers, 3 Bos. & Pull. 191; Gamba v. Le Mesurier, 4 East 407.
On this subject generally, see Insurance of Foreign Property in War Time, by W. R. Wilson, 32 Law Quarterly Review, 373; 33 Law Quarterly Review, 15.
2 Brandon v. Cushing, 4 East 410.
3 Brandon v. Cushing, 4 East 410.
A better justification for the rule is to be found probably in the interest of the government itself. It is entitled to demand that none of its subjects shall have an active interest in preventing the capture of enemy property on the high seas, and that the government shall not be hampered in working out new and more effective devices for capturing property by the fact that absolute success in their naval operations may. be followed by the bankruptcy of some of their own insurance companies. Whether the outbreak of the war dissolves or suspends the contract of reinsurance, on the one hand, or whether it leaves it in force except as against loss due to the naval operations of the government in which the insurer is domiciled, is a question upon which there is little authority outside of dicta. Since the insurer has received premiums as consideration for undertaking the risk, it would seem that he ought not to be allowed to take advantage of the existence of war if his own government does not forbid the continuance of such contracts or attempt to confiscate the right of the alien enemy therein. The act of presenting a claim upon a loss which has been sustained after the outbreak of war on a policy which was issued before the outbreak of war, against a local branch of an alien enemy insurance company, is said not to be a transaction with the enemy within the meaning of the fifth clause of the Trading with the Enemy Proclamation, issued by the English government on October 8, 1914.4 If an alien enemy insurer pays a loss caused by the seizure of neutral goods, and the insured transfers his interest in such goods to the insurer, the goods are for most purposes to be regarded as enemy property.5
The outbreak of war between the country of the insurer and the country of the insured, would seem not to operate as a discharge of a policy of fire insurance, at least if the loss is not due to the military or naval operations of the government in which the insurer is domiciled. Probably, in analogy to the rules which apply to marine insurance, such a policy would be held not to include losses due to the action of the government of the country in which the insured is domiciled. As in other cases,6 the insured can not maintain an action in the courts of the country in which the insurer is domiciled, as long as such war continues, and he is a nonresident alien enemy to such country.7 A policy against theft and robbery, which was issued by an English insurance company to a mining company which operated in the Transvaal, was held to protect the insured against seizure by the Transvaal government just before the war and in anticipation thereof.8 The result which was reached in this case may have been influenced by the fact that the financial interests in the mining company were the interests of English subjects, although the corporation itself was formed under the laws of the Transvaal.
4 Ingle v. Mannheim Continental Ins. Co. , 1 K. B. 227,
5 On this question, see The Palm Branch , A. C. 272. 6 See Sec. 2751