[225 N. Y.] Opinion, per ANDREWS, J. [Dec., business of title insurance companies restricted practically to those cases where an intending purchaser or mortgagee completes the transaction in reliance upon the insurance contract? It has been said often that every policy of insurance is a contract of indemnity. The accuracy of this statement is a question of definition. If it means that wagers are prohibited; that the insured must possess an insurable interest, it is true to-day. But if the word “indemnity is given a broader sense; if it means that whatever the language of the contract the insured may recover only the precise amount of the pecuniary damage caused to him by the contingency against which he seeks protection, then it is not now and never has been the inflexible rule. An ordinary fire or marine policy is a contract of indemnity, for it is so written. (Ferguson v. Mass. M. L. Ins. Co., 32 Hun, 306; affirmed, 102 N. Y. 647.) But valued policies of this character may also be written and then, in the absence of fraud, the amount of the loss is immaterial. (Sturm v. Atlantic Mutual Ins. Co., 63 N. Y. 77.) All life policies are substantially valued policies. (Olmsted v. Keyes, 85 N. Y. 593; Rawls v. American Mutual Life Ins. Co., 27 N. Y. 282.) A creditor whose debt has been paid after he has obtained a policy on the life of his debtor may still recover. (Ferguson v. Mass. M. L. Ins. Co., supra.) As is said by May in his work on Insurance, section 7: "When it is said that fire, life or other insurances, where valued policies obtain, are contracts of indemnity, it is simply intended that to support them the insured must have some interest in the thing insured. The amount of this interest and the amount to be paid in case of loss may be fixed by arbitrary agreement, even before the loss." There is then no fundamental objection to definition between the parties to an insurance contract of the loss which they intend to cover, so long as it is made in good 1918.] Opinion, per ANDREWS, J. [225 N. Y.] faith and not as merely the cover of a wager. The courts will not interfere. Their function is limited to a construction of the contract. What then is the meaning of the words "loss or damage as used in the policy before us? It may be observed at the outset that the corporation is authorized to insure the owners of real property and others interested against loss by reason of defective title thereto and other incumbrances thereon. (Insurance Law [Cons. Laws, ch. 28], sec. 170.) This would seem to contemplate the insurance of an existing title. Loss in such a case can only be damages caused to the owner by an existing defect in the title. We have already quoted the language of the policy. As the statute permitted, the owners are insured against loss by reason of defective title to or an incumbrance upon their property. The policy itself defines what shall constitute a loss. It arises where the insured has been evicted under a judgment of a competent court; where in such a court the existence of a lien or incumbrance has been declared; where, on a sale, the property proves to be unmarketable or where, because of some defect, a mortgage loan has failed. The plaintiffs come precisely within one of these provisions. In a competent court the existence and lien of these assessments has been declared. Because under their contract the plaintiffs are compelled to pay them their loss is no less. As is said in Foehrenbach v. German-American Title & Trust Company (217 Penn. St. 331) the word "loss" is a relative term. Failure to keep what a man has or thinks he has is a loss. What the word means is to be measured by the standard accepted between the parties. As a help to our decision we may examine the purpose and object of the contract. To a layman a search is a mystery and the various pitfalls that may beset his title are dreaded but unknown. To avoid a possible claim against [225 N. Y.] Opinion, per ANDREWS, J. [Dec., him; to obviate the need and expense of professional advice, and the uncertainty that sometimes results even after it has been obtained is the very purpose for which the owner seeks insurance. To say that when a defect subsequently develops he has lost nothing and, therefore, can recover nothing, is to misinterpret the intention both of the insured and the insurer. In no sense is the contract a mere wager. Such a contract so made and understood by the parties should be enforced. A decision to the contrary would very materially diminish the business now carried on by title insurance corporations. Further this is the interpretation which the parties themselves have placed upon the contract. The schedule of exceptions refers to a purchase-money mortgage executed by one of the plaintiffs; a reference not necessary if the construction given by the Appellate Division is to prevail. We think also that the conclusion we have reached is that generally accepted in practical business. In at least two cases in other states under such circumstances a recovery has been permitted without the question being raised. (Minn. Title Ins. & Trust Co. v. Drexel, 70 Fed. Rep. 194; Purcell v. Land Title Guarantee Co., 94 Mo. App. 5.) It seems to be assumed that loss or damage would be received when, because of a defect in the title, the insured was bound to pay something to make it good. That is the present risk of loss inseparable to every contract of insurance. If this be the general rule, it governs the case before us. The contract of February 13th provided that the plaintiffs should take the property subject to all assessments which became a lien after December 14th, 1906. They knew of the proceedings pending as to the assessments in question and they knew when the title passed and the policy was dated that the lien had been perfected. Yet it might be vacated or reduced. The proceedings might be without jurisdiction or void. Against the payment 1918.] Opinion, per ANDREWS, J. [225 N. Y.] of these liens they had the right to secure themselves. The result reached by the Appellate Division cannot be sustained except upon the theory adopted by that court, and that theory is dependent upon its construction of the word "loss." For mere knowledge of a defect by the insuring owner would not constitute a defense. A title insurance policy is much in the nature of a covenant of warranty or a covenant against incumbrances. Here we have held that knowledge is immaterial. We see no reason for applying a different rule as to such a policy. Another question remains. The undisputed evidence shows, as we have said, that both parties knew of this assessment. It further shows that knowing of the assessment the issuance of the policy was delayed and an agreement was made that the particular assessment should not be excepted from the policy because of the promise of the plaintiffs that they would pay the same and have it canceled. Thereafter the assessment was paid by the plaintiffs and the policy was issued but its date was given as before the payment. Under these circumstances the defendant undoubtedly would be entitled to a reformation of the policy so that it might be relieved from paying this particular assessment. (Trenton Potteries Company v. Title G. & T. Co., 176 N. Y. 65.) This defense was pleaded as a counterclaim. The difficulty of the situation is, however, that after the defendant had rested this counterclaim was dismissed by the trial court. Thereafter considerable rebuttal evidence was given and finally judgment was ordered for the plaintiffs. We may not assume that if the counterclaim had not been dismissed the plaintiffs could not have contradicted the evidence given as to their knowledge of the assessment in question; as to the arrangement for delaying the policy and as to the agreement under which this particular assessment was not to be excepted. The action of the trial court in dismissing the counter [225 N. Y.] Statement of case. [Dec., There claim to which we have referred was erroneous. fore, while the action of the Appellate Division in reversing the judgment below was correct, it should not have dismissed the complaint. The questions arising on the counterclaim should have been litigated. The judgment of the Appellate Division should be reversed and the case should be sent back for a new trial, with costs to abide the event. HISCOCK, Ch. J., CHASE, COLLIN, CUDDEBACK, CARDOZO and POUND, JJ., concur. Judgment reversed, etc. THOMAS M. RYAN, Respondent, v. EMPIRE ENGINEERING CORPORATION, Appellant. Waters and watercourses navigation injury to boat and cargo through failure of contractor to mark shoal in newlyexcavated part of Erie canal erroneous charge as to defendant's negligence and plaintiff's freedom from contributory negligence - improper instruction that jury must add interest to award of damages. 1. In an action against a contractor, engaged in enlarging the Erie canal, for alleged negligence in failing to mark a shoal spot in the newlyexcavated part of the canal about thirty to fifty-five feet from the original channel but apparently safely navigable, whereby plaintiff's boat ran aground and with its cargo was damaged, held, that although it appears that the defendant was required by his contract with the state to take such precautionary measures as might be necessary to guard against interruption to navigation, it was erroneous for the court in its charge and by refusals to charge to hold as matter of law that the plaintiff's boat was rightfully and without negligence where it was and that defendant as matter of law was guilty of negligence because in the course of and while still engaged in making excavations it allowed this uprising strip of bottom to exist. 2. The trial court instead of defining the rights and obligations of the parties by rigid rules of law should have submitted them to the jury with instructions as to the tests of reasonable conduct and ordinary prudence. |