179. Reinsurance. One insurance company may insure its own liability upon policies issued, by entering into separate contracts covering the same risks with other insurance companies. For example, A, an insurance company, insures B's factory for $1,000.00. A may in turn insure its liability to B, by entering into a contract with C, another insurance company, by the terms of which C agrees to insure A against loss upon A's contract with B. A is not permitted to bind C by a greater responsibility than A is bound to B. In case B's factory is burned, in the absence of express stipulation to the contrary, A may recover from C regardless of whether he has first paid B. Even though A is insolvent and unable to pay B, this is no defense to C on his contract with A. C must pay A regardless of the insolvency of A. In case B has a fire and A settles with him for $500.00, C is liable to A for only $500.00. That is C's liability to A is the same as A's liability to B, unless by the terms of the re-insurance, C assumes only a portion of A's liability to B. In this event C must pay A the pro rata share of A's liability to B. B in no event has any rights against C. B's contract is with A, and the fact that A has entered into a contract with C involving the same subject matter, gives B no rights against C.
180. Assignment of Insurance Policies. By assignment, is meant a sale or transfer of some intangible interest by one person to another for a valuable consideration. In case of insurance contracts other than life, no real assignment can be made. The person whose property is insured is the one who really benefits by the contracts of insurance. Before loss, an attempted assignment of the insurance policy amounts merely to a designation of the person to whom the insurance is to be paid. In case of loss, the original party insured still holds the property insured or the insurable interest, and any breach of the insurance contract on his part avoids the contract. A policy of insurance cannot be assigned without the consent of the insurance company. If an attempt is made to transfer an insurance policy other than life, before loss, without the transfer of the property itself, the transaction does not amount to an assignment, but amounts to a contract between the seller and buyer, by which the latter is entitled to receive the proceeds of the policy if any ever arises. So far as the insurance company is concerned, acts of the seller after the attempted assignment are as complete a defense as before. If the property insured as well as the insurance policy is transferred to another, with consent of the insurance company, this is not an assignment, but amounts to a new contract between the insurance company and the purchaser. After a loss has occurred, the right of the insured against the insurance company amounts to a debt, which may be assigned the same as an ordinary debt.
In case of life insurance, if a third party has been named as beneficiary, he is supposed to have such an interest in the policy that a change of beneficiary cannot be made nor can an assignment of the policy be made without his consent. In case the proceeds of a life insurance policy are payable to the insured himself, or to his estate, the policy may be assigned at the will of the insured. If the policy provides against assignment, it cannot be assigned. Otherwise, it may be transferred as collateral security, or sold outright at the will of the insured.
181. Open and Valued Policies, and Other Insurance. Policies or contracts of insurance are said to be valued or open, depending upon whether the amount to be paid in case of loss is agreed upon in advance. Life insurance policies are examples of valued policies. The insurance company agrees to pay a certain fixed amount in case of death of the insured, or at a certain time. Fire insurance policies usually are open policies. The insurance company agrees to pay the amount the insured loses by fire which destroys or injures certain specified property. The fact that a limit is placed upon the liability of the insurance company does not make the policy valued. If, however, the insurance company agrees to pay a certain fixed amount in case of loss by fire the policy is valued.
A person may take as much insurance upon his life as he pleases, so long as he reveals the facts to the companies with whom he contracts. In case of insuring property, the insurer is not permitted to recover in excess of the value of the property, regardless of the amount of insurance he carries. If an insurer takes out a policy of insurance upon property already insured, he must not conceal this fact from the subsequent insurer. The second policy will provide for payment, in case of loss in excess of the first insurer's liability, but not in excess of the value of the property. Or it will provide that in case of loss each policy shall share the loss in the proportion that the amounts of the policies bear to the loss.
SURETYSHIP
182. Nature of Contracts to Answer for the Debt of Another. In the transaction of business, many contracts are made to answer for the debt or obligation of another, as distinguished from the direct debt or obligation of the person entering into the contract. These contracts are made for the purpose of adding security to the original contract, or for the purpose of enabling the original obligor to obtain credit. The general term applied to contracts to answer for the debts of another is suretyship. The arrangement by which one party agrees to answer for the debt or obligation of another is a contract. This kind of a contract requires all the elements of any contract. There must be a meeting of the minds of the contracting parties, consideration, etc. If A purchases goods from B, agreeing to pay $100.00 for them, A's obligation to pay B $100.00 is a primary one arising out of a simple contract. If A purchases goods from B agreeing to pay $100.00 therefor, and C, as a part of the same transaction, makes a promise in writing to B, to pay the $100.00 if A does not pay, C's obligation is one of suretyship. He is known in law as a guarantor. His contract is to pay the debt of another. He has agreed to pay A's debt if A fails to pay it. Any contract by which a person agrees to answer for the debt or default of another, no matter what its form may be, or by what technical name it may be known, is a contract of suretyship.
183. Kinds of Suretyship Contracts and Names of Parties Thereto. The term, suretyship, is the general or descriptive term applied to all contracts by which one person agrees to answer for the debt or obligation of another. It may be in the form of a contract of a surety, a contract of a guarantor, or a contract of an indorser. There are at least three parties to all suretyship contracts; the party whose debt is secured, called the principal; the one to whom the debt is owed, called the creditor; and the one promising to pay the debt of another, called the promisor. For example, if A, orders one thousand dollars' worth of merchandise from B, and, as a part of the transaction, C promises to pay the amount for A, when due, if A fails to pay it, the transaction is one of suretyship in which A is principal, B, creditor, and C, promisor. A promisor may be a surety, a guarantor, or an indorser of a negotiable instrument. Whether a promisor is a surety, a guarantor, or an indorser depends upon the particular kind of a contract made. In any event it is a promise to pay the debt of another. But the conditions and terms of the agreement may make it that of a surety, a guarantor or an indorser. The distinguishing features of the different kinds of promisors are discussed under separate sections.