Commonwealth v. Massachusetts Mutual Fire Insurance

| Mass. | Oct 27, 1875

Morton, J.

1. The directors, by their vote of December 6, 1872, made an assessment of an amount equal to two dollars for each and every dollar advanced as premium and deposit. This was the whole amount to which the members of the corporation were liable to be assessed under the charter and by-laws. So much of this amount has been collected by the receivers, that they have paid in full the principal of all the losses by fire which occurred prior to the date of the vote, and there remains in their hands a large surplus. The first question presented by their petition is whether they shall pay interest upon such losses.

The solution of this question depends upon the construction of' the peculiar contract into which each member of the corporation enters with the other members.

The holder of a policy is “ insured against loss or damage by fire under the conditions and limitations expressed in the rules ” of the company. In each policy, the undertaking of the company is “ to satisfy and make good, from the absolute and conditional funds of the company, unto the said assured, all the damage by fire which may happen to said real estate, within the term aforesaid, according to the true intent and meaning of said rules. Provided nevertheless, that if the whole of the absolute and conditional funds of said company shall be insufficient to pay and satisfy all damages that may happen, in such case a just average shall be made to the sufferers, and the payment to be demanded in virtue of this policy shall be a dividend of said stock, in proportion to the sum insured and the rate of damage.”

The twenty-first rule requires notice of a loss to be given in a prescribed manner, and provides that 66 payment shall be made in thirty days after receiving notice of the loss as above.”

The twenty-sixth rule provides that 65 in case losses should happen so as to absorb the whole of the absolute fund, the president and directors shall, within twenty days, proceed to assess on each member a sum not exceeding double the amount by him paid by way of premium and deposit, and the same assessment publish in two or more newspapers in Boston. They shall then collect the said assessment without delay; and in thirty days after such notice shall have been given, they shall actually proceed in due form of law against each delinquent, and thereby be completely exonerated. In case of neglect, they may be subjected to the penalty expressed in the act of incorporation. In the'case of neglect to pay said assessment, such delinquent’s policy or policies shall cease and determine until payment is made, with interest, and such reasons given for the delay as shall be satisfactory to the president and directors.”

The contract between each policy holder and the other members of the corporation, contained in the policy and the rules, is not an absolute contract of indemnity such as is usual in a policy issued by companies having specific capitals. It contemplates that losses are to be paid in thirty days after notice, if the absolute funds are sufficient for that purpose ; but if they are insufficient, it only requires that the insurers shall make an assessment according to the twenty-sixth rule, for the purpose of paying them in full, or in part, if' the whole funds are not sufficient to pay in full. If the corporation, through its officers, proceeds to make an assessment in accordance with the twenty-sixth rule, and pays the losses sustained, it does all that the contract with the insured requires of it. There is no loches or neglect to perform the contract which renders it liable to pay interest as damages for the detention of the money of the insured beyond the time when it is payable by the contract.

The provision of the twenty-first rule, that payment of losses shall be made in thirty days after notice, cannot apply to losses which make it necessary to resort to the contingent fund, because it is clear that it is not contemplated by the twenty-sixth rule that assessments can be made and collected within the thirty days. We are of opinion, therefore, that, upon the fair construction of the contract contained in the policy and rules of the company, where losses occur which absorb the absolute funds and require an assessment upon the contingent liability of the members, the insured who have sustained losses are not entitled to interest thereon. It follows that the receivers "cannot pay interest upon the losses which occurred before the assessment was laid.

2. It appears that there are about fifty policies which have not been formally cancelled, and which were issued for a term oi years which has not yet elapsed, but on which the assessment remains unpaid; and the second question presented by the petition of the receivers is, “Whether any of said uncancelled policies are to be treated as subsisting policies, and whether any money shall be reserved for the payment of losses which may hereafter occur thereon.

The proceedings under the statute are in the nature of proceedings in insolvency, the object of which is to close up the affairs of the corporation as speedily as possible. This object would be defeated if the fund in the hands of the receivers is liable for future losses, for the fund could not be distributed until the longest policy had expired by lapse of time. The decrees of the court perpetually enjoining the corporation from further proceeding with its business, and sequestering all its property, deprive the corporation and its officers of the power to provide for any future losses. Each holder of a policy is a member of the corporation, and as such has notice of and is affected by the injunction. It is an incident of the peculiar contract and relation which each member of a mutual insurance company enters into with the other members, that the injunction and judicial sequestration of all the property of the corporation terminates its liability for future losses.

For these reasons, without considering other grounds of objection, we are of opinion that the funds in the hands of the receivers are not liable to pay any losses which might occur after the judicial sequestration of the property of the company, and therefore that no part of the fund should be retained for the purpose of meeting such losses.

3. The third question is, whether the surplus in the hands of the receivers should be repaid to persons who have paid in full the sums assessed upon them, or shall be paid to holders of unexpired policies on account of claims for the value of unexpired terms or unearned premiums.

The twenty-fifth article of the rules provides that “ the absolute fund of the company shall be and hereby is appropriated to the payment, 1st, of expenses; 2d, of losses by fire; 3d, of returns of premiums and deposits, and of dividends on policies expired.” The twenty-sixth article, above quoted, provides that, Í3B case losses should happen so as to absorb the absolute fund, an assessment shall be made upon the members. Under this provision, the liability to assessment is measured by the amount of the just claims for losses for which the company is then responsible. Neither this nor any other provision of the rules or of the contract authorizes an assessment for the purpose of paying the value of unexpired policies or unearned premiums. Commonwealth v. Massachusetts Ins. Co. 112 Mass. 116" court="Mass." date_filed="1873-03-15" href="https://app.midpage.ai/document/commonwealth-v-massachusetts-mutual-fire-insurance-6417239?utm_source=webapp" opinion_id="6417239">112 Mass. 116. Commonwealth v. Mechanics' Ins. Co. 112 Mass. 192" court="Mass." date_filed="1873-03-15" href="https://app.midpage.ai/document/commonwealth-v-mechanics-mutual-fire-insurance-6417254?utm_source=webapp" opinion_id="6417254">112 Mass. 192.

The surplus in question results from the fact that the directors made an assessment larger than was necessary for the purposes for which an assessment was authorized. The payments of the excess were required and made under a mistake of fact, and we are of opinion that such surplus should be repaid to the members who have thus paid more than they were required by law to pay.

A decree is to be entered accordingly upon the petition of the receivers for instructions, and the petition of George W. Taylor is to be dismissed. Decrees accordingly.