This case was presented to the Appellate Division upon an agreed statement of facts, seeking an answer to this question: "Does the delivery of said certificates and agreements by the plaintiff, the Ollendorff Watch Co., Inc., to the owners of its watches violate Section 9 of the Insurance Law [Cons. Laws, ch. 28] of the State of New York?"
Section 9, so far as applicable, provides that no corporation nor any individual shall transact the business of insurance within this State without the certificate of the Superintendent of Insurance certifying under his hand and seal that the corporation or individual has complied with all requirements of law authorizing it to transact insurance business.
The Ollendorff Watch Co., Inc., is a domestic corporation selling watches as well as other merchandise. The agreed statement contains an extract from the certificate of incorporation. Since October, 1930, the company has been delivering a certificate and agreement to the purchaser of a watch, in which the company agrees to replace such watch with a new watch of like quality and value, provided the first watch is lost within one year from the date of purchase in the United States or Canada through burglary or robbery. The agreed statement in paragraph VI reads as follows:
"VI. That the said plaintiff, Ollendorff Watch Co., Inc., adds no charge to the sales price of its watches for the aforesaid certificates and agreements. The cost of the insurance policy numbered SPL-1889577 is borne by Ollendorff Watch Co., Inc., out of its corporate income from various sources including the sales of watches and is charged on its books as an item of expense incident to the business in which it is engaged." *Page 36
The insurance policy referred to in this paragraph relates to the Travelers Indemnity Company, a Connecticut corporation which insures the Ollendorff Watch Co., Inc., against all losses sustained by reason of these replacement agreements with its customers. Does this constitute carrying on the insurance business by the Ollendorff Watch Co., Inc.? This goes further than a guaranty or warranty. For instance, a warranty would relate in some way to the nature or efficiency of the product sold — in this case, that the watch would work or was of a certain make and fineness. A warranty would not cover a hazard having nothing whatever to do with the make or quality of the watch. A guaranty is an undertaking that the amount contracted to be paid will be paid, or the services guaranteed will be performed. It relates directly to the substance and purpose of the transaction.
This contract goes much further. It has nothing whatever to do with the sale of the watch or the contract of sale. It is an extraneous inducement to procure sales. If the watch is stolen the seller will replace it. In other words, he takes a chance or a risk of theft from his customers; that is, he insures them for a year against such risk.
As this transaction presents itself to the mind, it is not so apparent as it would be if the principle were applied to other things. In this day it is not an unusual thing for speculators to put up hundreds of model houses in a development. Could the builder, in selling the house, agree that if it burned down within a year he would rebuild it, repair it or give another house for it? The fire insurance feature is readily apparent. So with automobiles, is it insurance to contract with the purchaser that if the automobile be stolen or destroyed by fire the seller will replace it? Carrying this out to all classes of bargain and sale, we can see how far the insurance feature may go.
All insurance law makes one of the elements of insurance the payment of a premium — a consideration. It is said *Page 37 that this is not insurance because the price is the same, whether the certificate be given or not; that the purchaser pays nothing for the insurance; that he pays only the price of the watch. Nevertheless, we have this in the case: The seller insures the risk and pays the Travelers Indemnity Company a premium; in other words, it reinsures at its own expense. This, however, is the payment for insurance by indirection instead of by direct act of the purchaser. The fact that the insurance comes out of the proceeds of all the income of the watch company cannot hide the reality of the transaction. The price which the purchaser of the watch pays is not only for the watch but for everything which the seller gives him. The seller would not give him the insurance if he did not buy the watch. The price he pays for the watch is the inducement for the insurance the same as the certificate of insurance is an inducement for the purchase. That consideration for a bargain may be of this nature, see Herbert v. ShanleyCo. (242 U.S. 591); Palmetto Fire Ins. Co. v. Conn (272 U.S. 295); Hunt v. Public Mut. Benefit Foundation (94 Fed. Rep. [2d] 749). The payment of a sum of money is not necessary to constitute the consideration of an insurance contract. (People v. Roschli, 275 N.Y. 26.) While the statutes of New York do not define a contract of insurance, other States have sought to codify the common law. Massachusetts, in its General Laws, chapter 175, section 2, provides: "A contract of insurance is an agreement by which one party for a consideration promises to pay money or its equivalent, or to do an act valuable to the insured, upon the destruction, loss or injury of something in which the other party has an interest."
This is a statement of the common law as it exists in this State of New York, and the agreement here in question falls within it. Interpreting the Massachusetts law, the court said, inAttorney-General v. Osgood Co. (249 Mass. 473, 477): "Whether this clause in the contracts of the *Page 38 defendant is ancillary to its chief business or is mainly for advertising ends is not relevant in view of the absolute prohibition in G.L., c. 175, § 3, against the making of contracts for insurance except by companies and in the manner authorized by law. This prohibition is sweeping. It is not subject to exceptions." (See, also, Imperial Fire Ins. Co. v. CoosCounty, 151 U.S. 452.) The cases cited (Cole Bros. Hart v.Haven, 7 N.W. Rep. 383, and Evans Tate v. Premier RefiningCo., 31 Ga. App. 303) are in the nature of warranties, and so distinguishable on the present appeal.
The judgment should be reversed and judgment granted in favor of defendant. By stipulation, no costs are to be awarded.
LEHMAN, O'BRIEN, HUBBS, LOUGHRAN, FINCH and RIPPEY, JJ., concur.
Judgments reversed, etc.