[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 539
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 540 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 543 The question presented in this case is whether there was a contract for insurance between the parties and it may be said that if such a contract existed at any time subsequent to May twelfth it had not been rescinded or annulled at the time of the fire.
If there was a contract it grows out of the acts of the agent Sage and his subordinate Nichols, which are binding upon the defendant notwithstanding the fact that it promptly refused to accept the risk or issue a policy when the application was presented to it.
An agent of a fire insurance company having unrestricted authority to accept risks, fix premiums and make and issue policies has power to bind his principal by a preliminary parol contract to issue a policy. (Ellis v. Albany City Fire Ins. *Page 544 Co., 50 N.Y. 402; Angell v. Hartford Fire Ins. Co., 59 id. 171.)
Such was the power possessed by Sage as agent of the defendant and had he agreed to issue a policy to the plaintiffs the judgment could be sustained.
The General Term based its decision upon the application of the principle of the cases cited to the facts which that court assumed to exist that Sage knew on May sixteenth that the insurance according to the agreement between Nichols and the plaintiffs was to take effect from May twelfth and that the plaintiffs relied upon the defendant as an insurer of their property, and that Sage's silence under these circumstances was in legal effect an approval of the application and a consent on the part of the defendants to enter into the contract contemplated by the plaintiffs. That Sage had the power and authority to make just such a contract as plaintiffs claim was made may be conceded, but the facts assumed by the General Term were not found by the referee.
He refused to find that Nichols agreed that in case the property was burned after May twelfth plaintiffs would get their insurance or that the agreement was to commence on that date. The finding that he did make was that the evidence tended to the belief that it was to be considered as commencing on that day.
But this was qualified by another finding that plaintiffs understood from Nichols that he could not issue a policy, and that before that was done their application must receive the approval of some other person. In effect this was a finding that there was not to be a contract until the application was approved elsewhere.
The evidence does not disclose that Sage had any knowledge concerning the negotiations between plaintiffs and Nichols except such as he derived from the application and in view of the findings of the referee that I have quoted it cannot be said that on May sixteenth he knew or had any reason to suppose that the plaintiffs relied upon the defendant as an insurer of their property. On the contrary the finding of the referee in *Page 545 reference to the plaintiffs' belief on that subject is that they "believed that they were insured after being informed by Nichols that he had received the premium and that it was all right or he would have heard from the company."
But this was on June first, and on May eighteenth Sage had informed Nichols by letter that he could not approve the application — that the risk was a special one and could not be accepted without the defendant's consent. It appears, therefore, that the referee has not found that plaintiffs relied upon the defendant as insurer of their property, until about June first, six days before the fire, and that this resulted not from Sage's neglect to inform them that the application was refused, but from what Nichols told them on that date.
It is contended, however, that a contract can be inferred from Sage's silence and failure to notify the plaintiffs that the application was rejected. This, I think, would be a novel doctrine to introduce into the law of contracts. In discussing it I assume Sage's powers to have been those of a general agent and co-extensive with that of the defendant.
The courts have applied the principles of waiver and equitable estoppel in a most liberal manner to insurance contracts, but always to enforce good faith and to prevent injustice and fraud where the insured has been misled by the acts of the company or its agents. But no case has yet decided that the mere failure to respond to an application raised an inference that the company accepted and insured the risk.
A party cannot be held to contract where there is no assent.
Silence operates as an assent and creates an estoppel only when it has the effect to mislead.
There must be such conduct on the part of the insurer as would, if it were not estopped, operate as a fraud on the party who has taken or neglected to take some action to his own prejudice in reliance upon it. (2 May on Ins. § 508.)
When a party is under a duty to speak, or when his failure to speak is inconsistent with honest dealings and misleads another, then his silence may be deemed to be acquiescence.
If the company knew a person was acting as its agent without *Page 546 or in excess of authority and did not disclaim his acts, it might be held liable, as in such a case there is a duty to speak.
But this case presents no element of that character.
The plaintiffs knew that Nichols had no authority to contract with them on behalf of the defendant. Their application was promptly rejected by the defendant when it reached it.
They were not misled by the neglect of Sage to notify them of that fact. They knew they had no contract until the application was approved and they could at any time have withdrawn their application and secured other insurance. If they had done so and the defendant had issued a policy, it could not be claimed that they were liable for the premium. It is very plain that they relied upon Nichols and his statement that "it would be all right," but as they knew he had no power to speak for the company their trust was in him alone and they had at no time any legal claim upon the defendant.
While I do not find that this question has been presented before in the courts of this state, it has been raised in other jurisdictions and decided adversely to the plaintiffs' claim.
In Insurance Co. v. Johnson (23 Penn. St. 72), a fire occurred six months after the application was made, during which time the company had neglected to notify the plaintiffs that their application was rejected, and that delay was claimed to justify the inference of a contract. It was held that a proposal could not become a contract from delay in rejecting or answering it.
In Royal Ins. Co. v. Beatty (119 Penn. St. 6), the validity of a policy by renewal was involved, and it was decided that when, in an action upon a contract, plaintiff's case consists of proof of a proposal with the presumption of assent thereto arising from silence of the defendant, no legal inference of a contract can arise out of such silence without evidence of a duty to speak on the part of the defendant, which was neglected to the plaintiff's harm.
To the same effect are Haskin v. Agricultural Fire Ins. Co. (78 Va. 700); Misselhorn v. Mut. R.F. Life Assn. (30 Fed. Rep. 545); Winnesheik Ins. Co. v. Holzgrafe (53 Ill. 516). *Page 547
And it was said in Titus v. Glens Falls Ins. Co. (81 N.Y. 410), in reference to a waiver by an insurance company of a breach of a condition which forfeited the policy, that "A waiver cannot be inferred from mere silence. It (the company) is not obliged to do or say anything to make a forfeiture effectual."
And it may be added that a person is under no obligation to do or say anything concering a proposition which he does not choose to accept.
Our opinion is that when an application for insurance is made, and its rejection is not signified, no presumption of its acceptance can be indulged in.
There must be actual acceptance, or there is no contract.
The respondent contends further that the company was bound from the time of the payment of the premium to Nichols. This payment was never remitted to Sage or to the company, and it is not found that they had any knowledge of it. Its effect, therefore, depends on the relation which Nichols bore to the defendant, and the knowledge which plaintiff had of his powers.
There is no finding in the case that Nichols was the defendant's agent. The referee refused to find either that he was or was not defendant's agent. He found that Sage had authority to appoint sub-agents, and that the acts done by Nichols in connection with the risk in question were within the scope of Sage's authority. But this does not aid the plaintiffs in view of the express finding that plaintiffs knew that the application had to be submitted to some other person or persons, and approved by them before a policy could be issued.
The negotiations with Nichols did not reach the point where a contract was made. Nichols did not assume to have power to contract. The plaintiffs understood that perfectly. There was an application to defendant through Nichols. He was the solicitor merely. His apparent power to represent the defendant did not go beyond that. The application was to be approved by, and the contract to come from, some person other than him. *Page 548
That person was either Sage or the company. The application reached and passed Sage without approval, and of this fact Nichols was informed, and he then knew that the contract, if made, must come from the company. About June first, the plaintiff learned from Nichols that he had received no word from the company that the application had been approved or the risk accepted. In substance, Nichols informed them that approval must come from the company, and yet he told them, because it had not come, it was all right, and they would get the policy in a day or two.
Now, it is very plain that Nichols had no authority to make that statement. Had plaintiffs any right to rely upon it?
Did the acceptance of the premium by Nichols, coupled with the statement that it was all right and the policy would come in a day or two, bind the defendant? Obviously not, under the finding that plaintiffs had been informed that he had no power to make or issue a policy, and that before their application could grow into a contract, it must be approved elsewhere. This fact, of which plaintiffs were informed at the beginning of their negotiations, limited and qualified all their subsequent dealings with Nichols. The payment of the premium could not, therefore, bind the defendant, as Nichols had no authority to contract on its behalf, and for the same reason his statement that "it was all right and they would get the policy in a day or two," was the expression of an opinion merely. Having no power to contract, he could not bind the defendant by a representation as to the effect of its failure to report its action upon the application. A different question would have been presented had the plaintiffs dealt with Nichols as the agent of the defendant, with no knowledge as to any limitations upon his power. (Bodine v. Exchange Fire Ins.Co., 51 N.Y. 117; Arff v. S.F. Ins. Co., 125 id. 57-64.) But such a case is not presented on the facts as found by the referee.
The judgment should be reversed and a new trial granted.
All concur.
Judgment reversed. *Page 549