Scottish Court of Session Decisions

Catherine, Mary, Annie, and Agnes M'Elroy, Spring Gardens, Kelvinside, Glasgow, raised an action against The London Assurance Corporation for payment of £80 under an alleged contract of insurance against fire in respect of damage caused to their household furniture by fire.

The pursuers averred—“(Cond. 2.) In or about the end of April 1896 the pursuers insured with the defenders' agent Mr Thomas M'Elroy, writer in Glasgow, against loss by fire for one year from that date, the household furniture and personal effects belonging to them within said dwelling—house, for the sum of £700, and a policy of insurance was duly prepared by the defenders, and the premium due thereunder was paid to the said Thomas M'Elroy, as defenders' agent, who has remitted the same to them, less the usual commission at 15 per cent. allowed for obtaining the insurance and collecting the premium as the agent of the defenders.”

The pursuers further averred that a fire occurred at their residence in or about the end of May 1896 whereby they sustained loss to the extent of £80, and that though called upon to indemnify them for this loss the defenders refused to do so.

The pursuers also founded upon certain correspondence, of which the following were the most important letters:—

Mr T. M'Elroy to Mr T. S. Brown, District Manager of the London Insurance Corporation.

“ Glasgow, 6 th June 1896.

Dear Sir— Spring Gardens—I send you herewith postal order for 12s., being premium less my commission on this policy, as per your letter of 2nd May.—I am, yours truly, pro Thos. M'Elroy, R.M.”

Mr T. S. Brown to Mr Thos. M'Elroy.

London Assurance Corporation, Glasgow, 8 th June 1896.

Dear Sir— No. 2 Spring Gardens—We are in receipt of your favour of 6th inst., inclosing postal order for 12s., being the amount of premium less commission for the insurance of £700 over furniture in this dwelling-house. We shall forward a policy in a few days; meanwhile pending delivery of that document, we hand you covering note to keep matters in order.—Yours faithfully, “ T. S. Brown, District Manager.”

The covering-note referred to was in the following terms:—

8 th June 1896.

“Misses M'Elroy having this day made a proposal to insure the sum of £700, and having paid the sum of 14s. as premium, the property as described in the proposal shall be held insured by this receipt for a period not exceeding thirty days from the date hereof, subject to the usual conditions of the corporation, pending preparation of policy. Should the proposal be declined, the corporation's liability will cease on the decision being communicated to the proposer.

(Signed) T. S. Brown, District Manager.

N.B.—This receipt will only hold good for the time herein specified.”

The defenders denied that Thomas M'Elroy was their agent, and averred that he had made a proposal to the company to insure the pursuers' (his sisters) furniture for £700 on the 29th of April; that a policy was accordingly prepared; that on or about the 2nd May the defenders wrote to Mr M'Elroy stating that the policy was prepared, and that the defenders would be glad to receive payment of the first premium “when the policy, which is the receipt of the first year's premium, will be sent you,” and that no covering-note was granted by them. The defenders further averred that payment of the premium had not been made to them at the date of the fire, and that the policy was still in their hands. They also founded on Condition XV. of their policy, which was as follows:—“No insurance shall be conclusive or binding on this corporation unless the premium be previously paid thereon.”

The pursuers pleaded—“(1) The defenders having insured said household furniture and effects against loss by fire, and the pursuers having sustained loss and damage to said furniture and effects by fire, the defenders are bound to indemnify the pursuers for said loss and damage as concluded for, with expenses. (2) The defenders are barred by their actings from repudiating liability for the sum claimed.”

The defenders pleaded—“(1) The action is incompetent as laid, or otherwise, separatim, the action is excluded by the arbitration clause in the policy. (2) The pursuers' averments being irrelevant and insufficient in law to support the conclusions of the summons, the defenders

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should be assoilzied therefrom. (4) The defenders never having received any premium from the pursuers, and not having issued or delivered any policy or covering-note to the pursuers, and having come under no obligations of indemnity or assurance to them, are entitled to absolvitor.”

On 4th December 1896 the Lord Ordinary repelled the first plea-in-law for the defenders, and allowed a proof before answer.

Opinion.—…“The defenders pleaded that the action was incompetent, because there was no conclusion for declarator that the subjects had been insured, and because the amount of the damage fell to be ascertained by reference. I see no necessity for a declaratory conclusion, and think it sufficient that the contract of insurance should be averred on record. It may be that the amount of the damage must be referred to arbitration, and the pursuers had no objection that it should be so ascertained; but it must, in the first place, be decided whether there was a completed contract of insurance, and if that be decided in the affirmative, then it may be that the amount to be paid may be adjusted by agreement. I am therefore of opinion that the defender's first plea is bad.

As to the relevancy, I have more difficulty, but think that the safer course is to allow a proof before answer. I might not have done so but for the letter of the defenders' manager, printed on record. He there accepts a premium. The defenders say that that was a premium for a new policy about to be made out, and not for the policy which had been made out in the beginning of May. That, however, seems to involve a question of fact.”

The defenders reclaimed, and argued—(1) The action was incompetent. It proceeded upon the footing that there was a completed contract of insurance. But that was precisely what the defenders denied. The proper form of action would have been a declarator that there was a contract of insurance, or that the defenders were bound to issue a policy to the pursuers. (2) In any event, the action was irrelevant. No policy had been issued to the pursuers and no premium had been paid by them to the defenders or accepted by them. There was no relevant averment of payment of the premium, for the statement in article 2 was only to the effect that payment had been made to Mr M'Elroy, and there was no distinct and explicit averment that he was the defenders' agent entitled to receive money on their behalf and to bind them, and, moreover, from anything that appeared in that statement, the payment averred might have taken place after the date of the fire. The Lord Ordinary had misunderstood the correspondence, which plainly showed that the payment tendered by Mr M'Elroy on 6th June had been accepted by the defenders as the premium of an entirely new policy, to run from the date when the covering-note was issued. A proof was therefore unnecessary, for by condition 15 of the policy the parties were still in the region of negotiation, and would not have entered that of contract until the first premium was paid.— Sickness and Accident Assurance Association, Limited v. General Accident Assurance Corporation, Limited, July 12, 1892, 19 R. 977, and Canning v. Farquhar, 16 Q.B.D. 727, per Lord Esher, M.R. 731.

Argued for the pursuers—The Lord Ordinary was right. It was admitted that the acceptance of the premium would complete the contract of insurance, and the premium had been accepted.