The Lusitania
Disaster and Insurance Regulation—Part VI
Michael Sean Quinn*
          I know.  Just
when you thought you were done, another insurance case pops up. There will be a
few more, one of them really unusual and fascinating, and a couple of probate
cases. In the end, there will be a couple of deep sea diving cases in which
insurance plays some role.


case to be described here is an accident policy with a life insurance
component. Hopkins v. Connecticut General
Life Insurance Company,
225 N.Y. 76, 121 N.E. 465 (N.Y. 1918). (For the
“outsider,” remember that the New York Court of Appeals (“N.Y.”) is the highest
state court in the state.) In this case, the Court of Appeals. The Court of
Appeals reversed the Supreme Court, Appellate Division (the immediate-level
appellate court) 174 A.D. 23, 160 N.Y.S. 247 (July 1916), which decided the
case in favor of the insured and had reversed the trial court. 158 N.Y.S. 79
(March 1916), that had decided the case in favor of the insurer.  (Normally, these days, where there is a “West
Cite” one doesn’t mother citing official state reporters. Since there are three
reported cases here, I thought I best to cite the official reporters.  They may be obtained directly from various
judicial clerk offices of the State of New York—again on the Net. Incidentally,
New York is one of a relatively few state that has some reported opinions from
trial courts.)

Cast of
Lawyer Characters: Justice Hughes

of the things that makes this case intriguing is that Charles E[vans] Hughes
argued the case before the high court on behalf of the insurance company. We
all know who he is, don’t we. Well, if I’m wrong about that. Here’s what’s good
to know. Charles was on the U.S. Supreme Court from 1910 to 1916, when he ran
for President and lost to Wilson in a squeaker, and then back to the Supreme
Court as Chief Justice from 1930 to 1941, where he was often a swing vote in
the constitutional wars during the New Deal period.  

In between rendering Supreme Court services he was
Secretary of State (1921-25), among other things. And there’s more. Suffice it
to say for now that Hughes was a paradigm of what Anthony Kronman, called the
“lawyer-statesman” in his brilliant and now classic 1993 study of legal ethics
and excellence, THE LOST LAWYER.  (It
looks like before Justice Hughes went to join the faculty of the Cornell Law
School he practiced at a law firm with the name “Cravath” in it, so he may have
been a predecessor law firm to the now Cravath, Swaine and Moore a 200 year old
paradigmatic “blue stocking” New York firm. For a bit more on Justice Hughes public life, see the “Post Script” at the end.

Cast of
Lawyer Characters: Van Slyke

The lawyer for the Hopkins, apparently all the way
through was Warren C. Van Slyke.  He was
not as famous a lawyer as Hughes or one rendering such notable public service. However, in some of the literature he is called “a prominent New York lawyer.”

More significantly from an historical point of view, he
married, as her third husband, one Ruth Coles. Before marring Van Slyke, she had
inherited a substantial sum property on Fox Mountain above Le Grande Lake. Her
second husband was building an estate there, and it was named “Foxcroft.” The
name has stuck. Warren and Ruth lived on Long Island, during which period of
time he argued at least a few Lusitania cases. (During WWI, he had been
assistant to the chief of naval intelligence.) After Warren’s death in 1925,
Ruth lived on Foxcroft full time.  After
her death, the estate has an unrelated history of decline, but eventually became
an informal tourist “Mecca,” for those who like to walk in the more-or-less
woods and see Manhattan buildings off in the distance. Part of the property was
and still is called the “Van Slyke” castle—hence, the story told her.  (It may be that the Castle is located on property in the Ramapo Mountains. I am not sufficiently familiar with the geography of Northern New Jersey to be sure.)


This case involves an “accident policy” issued by
Connecticut General Life, the insurer, to Albert L. Hopkins (“ALH”) the husband
of May Davies Hopkins (MDH). She was the beneficiary under the $40,000 policy
and the plaintiff in the underlying case. It insured ALH for death caused by
the “burning or wrecking of a vessel on which he was a passenger.” The policy
was purchases on April 29, 1905, just a few days before the Lusitania sailed
with ALH on board, and—you guessed—ALH was killed.

Attached to the policy, unfortunately was a “rider,”
aka an endorsement that set forth war risk exclusion. It was attached to the
policy and the policy could be delivered to ALH only if he agreed to the rider,
and that agreement was to the effect that “the policy would not cover any loss
caused directly or indirectly by an act of the belligerent nations engaged in
the present European War.” ALH signed the rider.

MDH sought coverage, but the claim was denied, as one
might expect.  One of the central issues
in this case was the fact that the rider had not been filed with the relevant
state regulatory agency, which had therefore not approved it, although the rest
of the policy had been filed and approved.  MDH’s view that the rider was invalid because
of the lack of a required filing, which the insurer’s view was that everything
was just fine.

The trial court dismissed the case reasoning that
since the rider did not contradict anything in the policy, although there had
been a minor violation of established law, it need not be declared invalid or
for some statutorily based reason ignored. In addition, since the rider—an
endorsement—was part of the policy, if it were ignored, the  whole contract would have to be ignored and
then there would be no policy at all.

Today this kind of point might be made this way. ALH signed
the rider when he obtained the policy. He was therefore required to understand
what the whole policy said. Consequently, if he bought it, he was stuck with it
as it read. Parties to contracts are presumed to have read and understood what
they have agreed to and this applies to contracts of insurance as well as any
other type of contract.

The Supreme Court—Appellate Division reversed the
trial court, with one judge dissenting. Remember, this case is about insurance
regulation should work.  The kinds of
regulations at issue in this case are widely used all over the country, and
cases at least somewhat similar to this one are litigated to this day. (Often
they apply to surplus line carriers, since it is not uncommon for admitted
carriers, when issuing policies for members of the general population—real
persons doing ordinary things—to be tightly controlled as to usable forms.  One of the meanings of “surplus lines carrier”
is an insurer not licensed in a given state.)

Here is the most important thing the intermediate
appellate court said: The purpose of the relevant statute was to

carry out the public policy of the state to take
control of the forms of insurance contracts and prevent insurance companies
from issuing any form of policy not approved by the superintendent of
insurance. That part of the policy which had been approved by the
superintendent of insurance clearly covers a loss such as occurred in this
case. . . . The rider in question here cut down this risk so as to exclude
death by accident caused by any belligerent in the present was. In a very
substantial particular, it changed the form as approved by the state. The
issuance of a policy in this form without the approval of the superintendent of
insurance. . . if absolutely forbidden. The trial court held that
notwithstanding the law had been violated in issuing the policy; it was
nevertheless a valid policy as to all its provisions.
The decision of the appellate division
was to reverse the trial court.  It did
not remand the case, however. It decided the case on the spot in favor the
plaintiff. Today that could probably not be done in most courts in response to
a trial court’s order of dismissal. It could however be done in if the trial
court’s judgment was a summary judgment, and I suspect that is what happened
here, which a change of vocabulary.

The Court of Appeals reversed the
decision of the appellate court and affirmed the judgment of the trial court,
based on pretty much the same reasoning.
The way it put one of its reasons is
that the rider is part of the policy. It wasn’t an add-on. There was,
therefore, nothing in the policy it contradicted since it was part of the
policy right from the start.  In
addition, there was nothing in the policy that said “We cover risks of war,” so
there was nothing actually contradicted.

The way it puts another one is this:

The policy which is valid is the contract as the
parties have agreed upon it, so far as it is consistent with the statute—not
the contract as changed and altered by the excision of some of its provisions.
What if no part of a policy defining the risks insured against had been filed?
Are only the standard provisions which the law says shall be inserted in every
policy to be enforced? In themselves they form no complete policy. 

. . .
Further, the policy was not changed. At its inception it included the rider.
All the papers together constitute the policy, and it is as agreed by the
parties. This is the agreement the agent was expressly authorized to make, and
he was prohibited from making any other. 
The policy never had any existence except as it contained the agreement
in the rider.
It seems to me that the lower appellate
court had the better position.  The war
risk exclusion in the rider did cut back on an existing coverage, namely “We
insured death from the wrecking of a ship.” The policy with the rider was
substantially different from the one without it.

The “what if” argument given by the
Court of Appeals is just that: a hypothetical. 
It had nothing to do with the existing Hopkins case before it, since no
such issue was at stake. The Court’s “what if” argument can be undermined by an
opposite argument. What if the rider said, “None of the rest of the policy upon
which this clause is riding applies in any way at all, and the only provisions
of the policy are those which are to be fund herein.”  Interestingly, the Court of Appeals scorns exactly
this situation. 

My guess is that we are looking at a
near to the last gasp discourse by the high Court. Insurance regulation was
relatively new in New York and the other states at the time of the decision. In
New York, first party fire regulation was already much more developed that life
insurance regulation was in 1918. Today, I think most court would be inclined
to accept the reasoning of the lower appellate court and avoid the sophistries
of the upper court.  In any case, this
opinion may have come at a watershed point in the history of insurance law and
so have a significance all its own.

We would also be more conscious about
for whom the agency was the agent. And we would be interested on how all this
happened. Surely if ALH was racing through the city in a hurry to get to the
docks (or something of the sort) that might make a difference as to how the
case was decided. It is perfectly clear from the opinions in the lower courts
that the agency-insurer relationships were a mess, though exactly how this is
true is not so clear.

Post Script

Here is the opening of the preface of  Samuel Hendel’s biography entitled CHARLES EVANS HUGHES AND THE SUPREME COURT. Columbia U. Pr. 1951. P. vii. “The public career of Charles Evans Hughes began very early in the twentieth century and ended just before Pearl Harbor. In that career is written a vital segment of the history of our century. It was a career in which of personal eminence, diversity of experience and significance of American society few men have ever rivalled.  In its course, Charles Evans Hughes was governor of the State of New York, an Associate Justice of the Supreme Court of the United States, acknowledged leader of the American bar, Secretary of State, a Judge of the Permanent Court of International Justice, and Chief Justice of the [Supreme Court of the] United States.”
Michael Sean Quinn, Ph.D.,
J.D., c.p.c.u. . . .
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