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II. PROPERTY INSURANCE
The insurance industry is huge and old, with origins possibly dating as far
back as 1300 in Europe, when ships’ cargoes began to be insured. Today,
insurance sales of all kinds fiourish because individuals want to lessen their
risk of loss. This desire to avoid loss, however, sometimes leads to cheating.
Insurance fraud is a huge problem; it is perpetrated both by organized
criminals and by usually-honest property owners who succumb to the
temptation of padding their claims.
Insurance is a contractual undertaking by the insurer to pay a sum of money
or give something of value to the insured or a bene%ciary on the happening
A. FIRE AND PROPERTY INSURANCE
Protects the owner of real or personal property (or another person with an
insurable interest, such as a secured creditor or mortgagee) against loss
resulting from damage to or destruction of the property by %re and certain
related perils. Most %re insurance policies cover damage caused by lightning,
explosion, earthquake, water, wind, rain, collision, and riot.
*** Chapter Outcome***
With respect to property insurance claims, explain (1) the different types of %res, (2)
co-insurance clauses, (3) other insurance clauses, (4) insurable interest, and (5) valued
and open policies.
Types of Fire Covered
Fire insurance policies generally cover damage from “hostile” %res but not
“friendly” %res. A friendly %re is one contained in its intended location, such
as a %replace or furnace. A hostile %re is any other %re — one outside its
intended or usual locale. A friendly %re becomes hostile if it escapes from its
usual con%nes.
Co-Insurance Clauses
Co-insurance is a means of sharing the risk between the insurer and the
insured. A person insures property for less than its full or stated value and
Other Insurance Clauses
Recovery under nonlife insurance policies is typically limited by other
insurance clauses. These clauses generally require that liability be
distributed pro rata among the various insurers.
Types of Policies
Property insurance may either be a valued policy or an open policy. A
valued policy is a policy in which the insured and the insurer specifically
agree upon the full value of the property at the time the policy is issued. At
the time of total loss the insurer must pay this amount, not the actual or fair
B. NATURE OF INSURANCE CONTRACTS
Offer and Acceptance
Legally it is the customer who makes the offer to purchase insurance, be it
life, %re, or property insurance. The contract is created when the agent of the
insurance company takes the customer’s offer to the company and the
company accepts it.
In %re and casualty insurance, agents often have authority to make the
insurance effective immediately by means of a binder. Should a loss occur
before the company has actually issued a policy, the binder will be effective
on the same terms and conditions the policy would have had if it had been
issued.
Insurable Interest
The concept of insurable interest has been developed over many years,
primarily to eliminate gambling with regard to lives and property and to
lessen the moral hazard. If a person could obtain an enforceable insurance
policy on the life of anyone or a %re insurance policy on property that he did
Premiums
Premiums are the consideration paid for an insurance policy. The rates
charged for %re and various kinds of casualty insurance are regulated by
state law. Regulatory authorities have a duty to require that companies’
rates be reasonable, not unfairly discriminatory, and neither excessively high
nor inordinately low.
*** Chapter Outcome***
Compare the defenses of misrepresentation, breach of warranty, concealment, waiver,
and estoppel.
Defenses of the Insurer
Misrepresentations — A representation becomes a warranty if the
insured's application is incorporated into the contract. Also, if the insurer
relied on the false representation to its detriment, recovery, i.e., rescission,
will be permitted.
Breach of Warranty — May be based on a condition subsequent or a
condition precedent. Current policy is to allow an insured to be relieved of
its responsibility only if the breach of warranty is material.
Concealment — Failure of an applicant to reveal material facts. Must also
be fraudulent.
Waiver and Estoppel
Where an insurance company is entitled to deny liability it may be estopped
(prevented) from doing so by its own conduct or it may waive its right
through the intentional action of its agents.
Termination
Most contract of insurance are performed according to their terms, and due
performance terminates the insurer’s obligation. Cancellation by mutual
III. BAILMENTS AND DOCUMENTS OF TITLE
A. BAILMENTS
A bailment is the temporary transfer of personal property to another person.
specifically, a bailment is the relationship created when one person (the
bailor) transfers the possession of personal property by delivery, without
transfer of title, to another (the bailee) for the accomplishment of a certain
purpose, after which the bailee is to return the property to the bailor or
dispose of it according to the bailor’s directions.
Bailments include the transportation, storage, repair, and rental of goods.
1. Bailments for the Bailor’s Sole Benefit include the gratuitous custody
of personal property and the gratuitous services that involve custody such as
*** Chapter Outcome***
De%ne the essential elements of a bailment.
Essential Elements of a Bailment
(1) delivery of possession from a bailor to a bailee;
(2) delivery of personal property, not real property;
(3) possession without ownership by the bailee;
(4) a determinable period for which possession will last; and
(5) absolute duty on the bailee to return property or to dispose of it
according to bailor’s directions.
Delivery of Possession — Possession by a bailee involves (1) the bailee’s
power to control the personal property and (2) either the bailee’s intention to
control the property or awareness that the rightful possessor has given up
physical control of it.
Personal Property — A bailment can exist only with respect to personal
property, but the bailed property need not be tangible. Intangible property
that is evidenced by written instruments and is therefore deliverable is
frequently the subject matter of bailments — for example, promissory notes,
corporate bonds, shares of stock, documents of title, and life insurance
original property is returned, then the transaction is a sale, not a bailment.
Restoration of Possession to the Bailor — The bailee has a legal duty
to return the property to the bailor when the bailment is terminated. The
requirement that a bailee return the identical goods is subject to an
exception, where fungible goods are involved. Fungible goods are
interchangeable, e.g., grain, oil, or equivalent goods such that each unit is
the equivalent of every other unit.
*** Chapter Outcome***
Describe the rights and duties of the bailor and bailee.
Rights and Duties of Bailor and Bailee
Bailee’s Duty to Exercise Due Care — The bailee must exercise due care
not to permit injury to or destruction of the property by himself or by third
parties. The degree of care depends on the nature of the bailment
relationship and the character of the property.
The duty of care ranges from least where the bailment is for the sole benefit
of the bailor to greatest where the bailment is for the sole benefit of the
bailee; the duty of care is ordinary when the bailment is for the mutual
benefit of the bailee and bailor.
CASE 47-3
HADFIELD v. GILCHRIST
Court of Appeals of South Carolina, 2000
343 S.C. 88, 538 S.E.2d 268
http://scholar.google.com/scholar_case?
case=10116899322085945623&q=538+S.E.2d+268&hl=en&as_sclt=2,34
Anderson, J.
Mark Hadfield filed this action against Sam Gilchrist, d/b/a Gilchrist’s Service Center, and
d/b/a Gilchrist Towing Company (Gilchrist) for damages sustained by Hadfield’s vehicle
while impounded on Gilchrist’s lot. * * *
Facts/Procedural Background
Gilchrist owns a motor vehicle towing service and maintains a storage facility for the
retention of the towed vehicles. Gilchrist operates under a license issued by the City of
Charleston.
Hadfield, a medical student at MUSC, went to retrieve his 1988 Lincoln Continental
from the parking spot where his wife parked the vehicle. The parking spot, located near
MUSC, was on private property owned by Allen Saffer. Hadfield’s wife parked the vehicle
on Saffer’s property without Saffer’s permission. The vehicle was not in the parking spot
Hadfield called to retrieve his vehicle, but was informed he would have to wait until the
next morning and pay towing and storage fees. Upon Hadfield’s arrival to pick up his car the
following morning, he paid the fees. When he went to the storage area to collect his vehicle,
Hadfield discovered the vehicle had been extensively vandalized. The vandals stole the
radio/compact disc player, smashed windows, and pulled many electrical wires out of the
dashboard. The vehicle depended heavily upon computers and never functioned properly
after the incident. The vandals entered the storage area by cutting a hole in the fence. They
vandalized between six and eight vehicles on the lot that night.
* * *
Issues
I Did the Circuit Court err in applying the law of bailments?
II Did the Circuit Court err in finding Gilchrist was responsible for damages?
Law/Analysis
Neither the magistrate nor the Circuit Court judge made a finding as to the type of bailment
created in this case. The type of bailment created may determine the standard of care the
bailee, Gilchrist, must meet. Therefore, we review the law of bailments.
Bailments
A bailment is created by the delivery of personal property by one person to another in trust
for a specific purpose, pursuant to an express or implied contract to fulfill that trust.
[Citations.]
A. Gratuitous Bailment
“A gratuitous bailment is, by definition, one in which the transfer of possession or use of the
bailed property is without compensation.” [Citation.] For instance, a gratuitous bailment
arises if the bailment is undertaken as a personal favor or is involuntary. [Citations.]
A “gratuitous bailee” acts without expectation of reward or compensation. [Citation.] To
show the bailment was for the sole benefit of the bailor, the bailee must establish that it was
not expecting compensation. * * *
B. Bailment for Mutual Benefit
C. Constructive Bailment
Although a bailment is ordinarily created by the agreement of the parties, the agreement of
the parties may be implied or constructive, and the bailment may arise by operation of law.
[Citation.] Such a constructive bailment arises when one person has lawfully acquired
possession of another’s personal property, other than by virtue of a bailment contract, and
holds it under such circumstances that the law imposes on the recipient of the property the
Clearly, the [applicable Charleston] ordinances provide for the payment to the city or its
agent, the towing service, for the costs of towing and storage. Gilchrist charged Hadfield
towing and storage fees.
* * * We conclude a constructive bailment, for the mutual benefit of Hadfield and
Gilchrist, was created.
Bailment Action/Nature of Theory
Although contractual in nature, and involving the conveyance of personal property, an action
for breach of the duty of care by a bailor sounds in tort. [Citations.] * * *
Bailee’s Degree of Care/Burden of Proof
The degree of care required of a bailee for mutual benefit is defined as ordinary care, or due
care, or the degree of care which would be exercised by a person of ordinary care in the
protection of his own property. [Citations.]
In a bailment action alleging a breach of the duty of care, the bailor is entitled to be
compensated for all losses that are the natural consequence and proximate result of the
bailee’s negligence. [Citation.] * * *
* * *
Hadfield testified before the magistrate regarding the “nice” condition of the vehicle
prior to being towed, and the damage to his vehicle, and the other vehicles on the lot. In
addition, he introduced photographs depicting the damage. Thus, Hadfield made out his
prima facie case * * *. The burden then shifted to Gilchrist to show that he used ordinary
care in protecting the vehicle while in his care.
* * *
Accordingly, the order of the Circuit Court is AFFIRMED.
Bailee's Absolute Liability to Return Property — Generally the bailee
is free from liability if he has exercised the degree of care required of him
while the property was in his control. But there are important exceptions,
where the law imposes an absolute liability (strict liability) on the bailee.
• Where the bailee has an obligation by express agreement with the bailor
or by custom to insure the property against certain risks but fails to do so,
and the property is destroyed or damaged through such risks, the bailee
is liable for the damage or nondelivery, even though he has exercised
due care.
Bailee's Right to Limit Liability — Certain bailees — common carriers,
public warehousers, and innkeepers — may limit their liability for breach of
their duties to the bailor only as provided by statute. Other bailees, however,
may vary their duties and liabilities by contract with the bailor. Where
liability may be limited by contract, the law requires that any such limitation
be properly brought to the bailor’s attention before he bails the property —
especially in the case of “professional bailees,” such as repair garages. A
Bailee's Right to Compensation — A bailee who by express or implied
agreement undertakes to perform work on or render services in connection
with bailed goods is entitled to reasonable compensation for those services.
The bailee is still entitled to compensation if, after completion or
performance of work but before the goods are redelivered to the bailor, the
goods are lost or damaged through no fault of bailee.
Bailor's Duties — In a bailment for the sole benefit of the bailee, the bailor
warrants that she is unaware of any defects in the bailed property. In all
Special Types of Bailments
Warehousers, innkeepers, and common carriers are said to be extraordinary
bailees, whereas all other bailees are ordinary bailees. This distinction is
based on the character and extent of the liability of these classes of bailees
for the loss of or injury to bailed goods. Whereas an ordinary bailee is liable
for only the loss or injury that results from his failure to exercise ordinary or
reasonable care, the extraordinary bailee has absolute liability. The
extraordinary bailee insures the safety of the goods without regard to the
question of his care or negligence.
Pledges — The bailee (secured party) takes possession of the property in
order to secure a debt. The secured party does not take title but may assign
her interest in the property despite objections by the debtor.
Warehousing — A warehouser is a bailee who, for compensation, receives
goods to be stored in a warehouse. Under the common law, a warehouser’s
Safe Deposit Boxes — A majority of States hold that persons who rent a
safe deposit box from a bank enter into a bailment relationship. As a mutual
benefit bailment the bailee bank owes the customer the duty to act with
ordinary due care and is only liable if negligent.
Carriers of Goods — Anyone who transports goods from one place to
another, either gratuitously or for compensation, is a carrier. Carriers are
classified primarily as common carriers and private carriers. A common
carrier o/ers its services and facilities (called “carriage”) for compensation
to the general public. Common carriers include railroad, steamship, aircraft,
public trucking and pipeline companies. Common carriers are extraordinary
The person who delivers goods to a carrier for shipment is known as the
consignor or shipper. The person to whom the carrier is to deliver the goods
is known as the consignee. The instrument containing the terms of the
contract of transportation is called a bill of lading.
A private or contract carrier is one who carries the goods of another on
isolated occasions or who serves a limited number of customers under
individual contracts without offering the same or similar contracts to the
public at large. A private carrier is an ordinary bailee.
• Duty to Carry — Common carriers are under a duty to serve the public
• Duty to Deliver to the Right Person — Both private and public carriers
owe a duty to deliver the goods to the consignee.
Innkeepers — At common law, innkeepers (hotel and motel owners or
operators) are held to strict or absolute liability for their guests’ belongings.
This rule applies only to those who furnish lodging to the public for
compensation as a regular business and extends only to the belongings of
lodgers who are guests. Today, in almost all jurisdictions, the common law
liability of the innkeeper has been modi%ed substantially by case law and
statute.
*** Chapter Outcome***
Explain what a document of title is and identify and describe the various types of
documents of title.
B. DOCUMENTS OF TITLE
To be a document of title, a document must be issued by or addressed to a
bailee, covering goods that are in the bailee’s possession and that are either
identified or fungible portions of an identified mass. A document of title
symbolizes ownership.
Types of Documents of Title
Warehouse Receipts — Issued by a person engaged in the storage
business.
Warehousers are held to a standard of reasonable care but may limit liability
to a maximum amount by express provision. Such a limitation is precluded if
the warehouser converts the goods.
Bills of Lading — Issued by a carrier upon receipt of goods for
transportation, it serves as a receipt, evidence of the contract, and as a title
document.
Issuers are under a duty to deliver the goods to the proper person.
When a bill of lading provides that the goods be delivered to a second carrier
Negotiability of Documents of Title
Documents of title are negotiable if the goods are to be delivered to bearer
or to order of a particular person. A nonnegotiable document may be
transferred by assignment but may not be negotiated. An individual has
“control” of an electronic document of title “if a system employed for
evidencing the transfer of interests in the electronic document reliably
establishes that person as the person to which the electronic document was
issued or transferred.”
Due Negotiation
A transfer completed in the regular course of business, in good faith, without
notice of defenses or claims, and for value. The holder of a negotiable title
document has: a) title to the document, b) title to the goods, c) all rights
based on agency or estoppel, and d) the obligation of the issuer to hold or
deliver the goods according to the document.
If a nonnegotiable document is transferred or a negotiable document is
transferred without due negotiation, the transferee acquires all of the title
and rights that the transferor had or had actual authority to convey.
of an electronic document of title means voluntary transfer of control.
Warranties
Transferor warranties include: a) that the document is genuine, b) no
knowledge of impairment, c) that the negotiation was rightful.
Ineffective Documents of Title
Carriers and warehousers who receive goods from a thief or %nder and
