I think this judgment should be affirmed. The case has been tried three times and this is its second appearance here.
In January, 1889, the defendant issued its policy on the testator's building for $10,000, one year. In January, 1890, this policy was duly renewed for a year, and on or about January 1st, 1891, a binding slip was issued continuing the insurance for another year. On the 7th of January, 1891, the defendant wrote a letter to testator's brokers that they would not renew for $10,000, but would for $5,000, and stated "that the risk is not held binding by this company for more than $5,000."
No reply was made to this letter, and on the night of January 13th, 1891, the property insured was destroyed by fire. *Page 426
The defendant at once assumed the position that the letter of January 7th, 1891, was a cancellation of the binding slip.
On the other hand, the first counsel employed by the testator treated that letter as reducing the insurance under the binding slip to $5,000, and an action was brought to recover that amount.
A verdict was directed for the plaintiff, but the General Term reversed the judgment on various grounds that need not be stated.
At the second trial the complaint was dismissed, and the General Term affirmed the judgment to that effect.
The case then came here, the appellant appearing by new counsel, and this court held that the letter of January 7th, 1891, was not effectual as a cancellation, but was a mere proposition to reduce the insurance, not acted upon, and that the binding slip was in full force and effect at the time of the fire for $10,000. (151 N.Y. 130.)
Thereupon the plaintiffs amended their complaint, asking judgment for the full amount of $10,000.
I have been particular to state the history of this case in order that the situation at the opening of the third trial might be clearly understood.
This court had decided the effect to be given to the letter of January 7th, 1891, and distinctly determined that the binding slip was in full force at the time of the fire.
The defendant's answer to the amended complaint alleged, among other things, that testator's brokers applied, on or about December 30th, 1890, for insurance of $10,000 on testator's premises; that the binding slip was issued temporarily to cover the risk, and that according to custom prevailing in the city of New York between brokers and insurance companies, upon a declination of the risk, the binding slip immediately ceased to exist.
The defendant's claim is that this binding slip was issued "pending the consideration of the application."
The record discloses that on the 26th day of December, *Page 427 1890, three days before the alleged application was made by the new brokers of the testator, the defendant had sent a renewal of the insurance for another year to the old broker.
When the binding slip was issued it contained the statement that this renewal was not in force, or, in other words, was replaced by the former. This shows that during the last week of December, 1890, the defendant twice renewed or continued this insurance for another year on a risk with which it was necessarily familiar.
At the third trial a verdict was directed for the plaintiff, the trial judge having refused to receive the evidence of custom as pleaded.
The learned Appellate Division, in affirming, held that the evidence was properly rejected. Mr. Justice PATTERSON said: "There was no concealment of its purpose. It was not to explain ambiguities, but was clearly to deprive the instrument of the effect of its express terms and so to vary it and to substitute another and different obligation in the place of that which appeared plainly upon its face."
It is undoubtedly the settled law of this state that the binding slip issued by insurance companies, to stand until the policy is made out and delivered, is a present and complete contract for the full term to be covered; that the law writes into it all the provisions of the regular policy, and if a fire occurs before the policy is issued the insured can recover on the binding slip, subject to such defenses as the company might interpose under the terms and conditions of the policy. The question now presented is, can parol evidence of custom be introduced to contradict and alter an absolute contract of insurance, free from ambiguity?
If it may be done in the case of a binding slip, a policy will be subject to a like attack, as both are complete contracts containing in contemplation of law the same provisions.
That the introduction of parol evidence offered by the defendant in this case is incompetent seems very clear, as it seeks to show that the insured, in the possession of a valid and unambiguous contract of insurance after a fire, is in fact *Page 428 uninsured. (Atkinson v. Truesdell, 127 N.Y. 230, and cases cited; Thomas v. Scutt, 127 N.Y. 133; Truscott v. King,6 N.Y. 147; Chester v. Bank of Kingston, 16 N.Y. 336; Horn v.Keteltas, 46 N.Y. 605, 610.)
Furthermore, the effect of this parol proof is to vary the contract between the parties and violate the statute, as to the right of the company to cancel the contract of insurance.
The present standard policy and the statute provide that the company can cancel a policy by giving five days' notice.
The company being clothed with this absolute power to terminate the contract, there is no occasion to resort to the defense of custom as set up in this case, in violation of well-settled legal principles and the long-established practice in the insurance world.
Prior to the standard policy the company could cancel at once on giving notice to the insured. The termination of the insurance at the time of giving notice was considered unjust to the insured, and in the standard policy five days was given him in which to place his risk elsewhere. The defense here is that by reason of notice rejecting the risk "said binding slip immediately then and there ended and fell," etc.
This court repeatedly enforced the old provision as to cancellation where notice was given while the binding slip was in force. In Lipman v. N.F. Ins. Co. (121 N.Y. 454), Judge ANDREWS said: "The binding slip signed by the defendant was not a mere agreement to insure, but was a present insurance to the amount specified therein."
It was held, however, that the binding slip was subject to the conditions contained in the ordinary policy, and as notice of cancellation had been served before the fire under the clause giving it effect, eo instanti, the company was not liable.
This case was followed by the Second Division of the court inKarelsen v. S.F.O. of London (122 N.Y. 545, 549), Judge PARKER writing the opinion.
I am deeply impressed with the far-reaching effect of the principles laid down in the prevailing opinion.
It is little short of startling to hold, at this late day in the *Page 429 law of insurance, that a binding slip is scarcely intelligible without the aid of parol evidence.
As already pointed out, it is the full contract of insurance, having read into it all the provisions of the standard policy, and has been the basis of recovery in many cases. If insurance companies desire a temporary contract of insurance, whereby they gratuitously assume a risk pending investigation, which is to be terminated instantly, at their pleasure, it is very easy to draw it, and no one will be misled.
I vote to affirm the judgment.
PARKER, Ch. J., GRAY and HAIGHT, JJ., concur with O'BRIEN, J., for reversal.
MARTIN and VANN, JJ., concur with BARTLETT, J., for affirmance.
Judgment reversed, etc.