the insurers. The property having become the purchaser’s, is at his risk, and if burnt it is his loss, and he has a good original contract upon a valid consideration to guarantee him against such loss…… Upon each assignment perfected, there is an entire change in the contract, in the party contracted with, in the insurable interest in the property at risk, and it becomes an insurance on the property of the assignee, and ceases to be a contract of insurance of the property of the assignor.”
If, of course, in all cases, a new premium note was given to the insurance company by the assignee of the contract at or before the time of thc assignment of the policy, these remarks of Chief Justice Shaw would be perfectly adequate to explain the liability of the company to the assignee of the contract. But this is by no means always done. How, then, can the liability of the insurance company to the assignee be explained? Where is the consideration for their new contract?
Chief Justice Shaw has also offered a possible explanation of this case too. “The exemption of the insurer from further liability to the vendor, and the [retention of the] premium paid for insurance for a term not yet expired, are a good consideration for such promise, and constitute a new and valid contract between the insurer and the assignee.”[1]
It is hard to see how the person originally insured has any claim upon the insurance company for a return of the premium paid for a term not yet expired. Apart from any special agreement for the return of premium, his claim will rest entirely upon a failure of consideration; and there has been no failure of consideration here, either partial or total. The contract in favor of the insured still exists after the assignment of the property, and if subsequently any interest in the subject-matter of the insurance becomes vested in the insured during the continuance of the policy, the insured will be protected from any loss to his interest.[2]
Yet the suggestion, that the exemption of the insurer from further liability to the vendor is a sufficient consideration for the new promise, may afford an explanation of this question. It is apparent that this explanation depends entirely upon principles of novation. The argument is that the old obligation to the vendor is released in consideration that the insurer incurs a new obligation to the vendee. The writer is unable to see how this doctrine of
