A FARMERS' MUTUAL KIKE INSURANCE COMPANY. 13 



LIABILITY OF THE COMPANY AND OF THE INSURED. 



Even large legal-reserve companies find it necessary in their con- 

 tracts to exempt themselves from liability for losses clue to such 

 catastrophes as invasion, insurrection, riot, or civil war. A local 

 mutual is, of course, even less capable of assuming liability for loss 

 caused by such disasters, in which the destruction of property may 

 surpass all expectations or estimates for which an insurance company 

 can reasonabty make provision. Since the destruction by windstorm 

 of a building in which light and heat are used involves the proba- 

 bility of fire resulting from the fall, it is proper for the company to 

 arrange for exemption from liability in the case of such fire loss. The 

 insured should rely upon windstorm insurance for indemnity against 

 loss primarily due to the windstorm hazard. 



A few farmers' mutuals limit their liability for indemnity in case 

 of all losses, whether total or partial, to three-fourths of the value of 

 the property. Where the insurance written is limited to three- 

 fourths of the actual value of each risk, as is here advocated, the 

 member suffering a total loss bears one-fourth of the loss himself. 

 A part of a partial loss can be borne by the insured with even less 

 hardship. Prevailing practice requires full indemnity in the case 

 of partial losses, however, up to the amount of the insurance carried, 

 and this practice has been recognized in the accompanying by-laws. 



The main reason for not embodying in the accompanying by-laws 

 the more logical practice of three- fourths indemnity in all cases is 

 the danger that unfair competition might result. In spite of its 

 reasonableness, the practice offers an opportunity for agents of com- 

 peting companies to alienate members who have suffered partial loss, 

 by pointing out to them the greater indemnity that would have been 

 paid by another company. A recent loser is likely to overlook the les- 

 sened cost of insurance resulting from the three- fourths provision, in 

 his contemplation of the greater indemnity that he would have re- 

 ceived under the full indemnity plan for partial losses which another 

 company offers. He is not reminded, and may himself forget, that 

 as a total loser he would be required to bear part of his own loss in 

 either company. Hence, until insurance companies in general agree 

 to adopt a better practice, it may be disadvantageous for a local 

 mutual to adopt the three-fourths plan. Where a company already 

 has adopted such a plan, however, and where the members under- 

 stand and appreciate the closer approach to justice given thereby, it 

 should be continued. 



The liability of the insured is either limited or unlimited. Un- 

 limited liability in this case means that a member binds himself to pay 

 his pro rata share of all losses and legitimate expenses of the com- 

 pany. Many persons have objected to this unlimited liability feature 



