139 So. 1 | La. | 1931
The Great Western Fire Insurance Company and the Marquette National Fire Insurance Company, both corporations being organized under the laws of Illinois and domiciled in Chicago, and being qualified and authorized to do business in Louisiana, issued a fire insurance policy to the Federico Macaroni Manufacturing Company, for $5,000, on the company's macaroni factory in New Orleans, on the 9th of July, 1924, for the term of three years. The policy was written and delivered by an agent of the insurance companies in New Orleans. Each company had filed a so-called qualification bond, of $20,000, with the state treasurer, as required *907
of foreign insurance companies, by Act No.
The Great Western and the Marquette National Fire Insurance Company were consolidated, by a merger of the Great Western into the Marquette National Fire Insurance Company, on or about the 15th of May, 1925, according to the laws of Illinois.
The Marquette National Fire Insurance Company afterwards became insolvent, and, on the 4th of April, 1927, in a proceeding brought by the director of the department of trade and commerce of the state of Illinois against the company, in the superior court of Cook county, in Chicago, a decree was rendered, declaring the corporation insolvent, appointing the director of the department of trade and commerce, ex officio liquidator of the affairs of the corporation, enjoining the corporation and its officers, as such, from transacting any business, and enjoining all persons, firms, and corporations from bringing or prosecuting any suit or proceeding at law or in equity against the corporation.
The Federico Company's factory was partly destroyed by fire on the 1st of June, 1927, during the term of the policy; and, according to the adjustment of the loss, the proportion thereof to be borne by the Marquette National Fire Insurance Company was $2,543.54.
None of the officers, members or agents of the Federico Company, was aware of the insolvency of the Marquette National Fire Insurance *908 Company, or of the insolvency proceedings against the company, until some time after the fire. In fact no attempt had been made by the liquidator, or by any officer or agent of the insurance company, or by any officer or agent of the American Surety Company, or by any one else, for that matter, to notify the Federico Company of the insolvency of the insurance company.
The Federico Company therefore brought this suit against the Great Western Fire Insurance Company, the Marquette National Fire Insurance Company, and the American Surety Company, by service upon the secretary of state, and prayed for judgment against the three defendants in solido for the sum of $2,543.54, with legal interest and the statutory penalties. The insurance companies made no appearance, and judgment went against them by default. The surety company pleaded that the policy of insurance was terminated by effect of the decree rendered by the superior court of Cook county, Ill., declaring the Marquette National Fire Insurance Company insolvent and appointing a liquidator to take charge of and settle its affairs, and that the Federico Company therefore was entitled only to the unearned part of the premium, to be determined as of the date of appointment of the liquidator. The Federico Company then pleaded that, inasmuch as the insurance policy contained the usual clause requiring notice to effect a cancellation, and inasmuch as the decree of the Illinois court could not affect the rights of a resident of Louisiana, who was not a party to the proceedings in the Illinois court, and who was not even notified of the proceedings, it would be violative of the Fourteenth Amendment of the Constitution of the United States, in that it would impair the obligation of a contract and take the Federico Company's property without due process of law, if the court should *909 hold that the decree of the Illinois court had the effect of canceling or annulling the insurance policy held by the Federico Company. The civil district court gave judgment for the Federico Company, as prayed for, against the three defendants in solido. The American Surety Company alone has appealed.
The appellant relies upon the general rule stated by Mr. Joyce in The Law of Insurance (2d Ed.) vol. 3, § 1454, pp. 2652, 2653, viz.:
"It is held that the fact of insolvency of the company does not of itself make the policy void. But the appointment of a receiver operates as a cancellation of the policy, and the contract of insurance is terminated, as to liability for future losses, by the insolvency and dissolution of the company, or after injunction or sequestration. There is, in such case, a damage to the policy holder to the value of the policy at the time of dissolution; or in case of death under life contracts after insolvency, but before presentment of proofs, to the full value of the policy, although it is held in a fire insurance case that the rights of the policy holder are fixed from the date of a voluntary assignment."
The rule is stated in 32 C.J. pp. 339, 340, §§ 102, 103, as far as is applicable here, thus:
"While there is authority to the contrary, the generally recognized rule is that a decree of dissolution or an adjudication of insolvency, coupled with the appointment of a receiver, cancels or terminates outstanding policies by operation of law, and subsequent losses under such policies are not liabilities which may be enforced against the receiver. * * * Holders of policies on which premiums have been paid for a term extending beyond the insolvency or dissolution of the company have valid claims for unearned premiums, and this is so even though there is no provision in the policy for refunding premiums paid." *910
The rule is stated in 14 R.C.L. 853, § 20, substantially the same, viz.:
"While there are some contrary decisions, the weight of authority supports the proposition that, on the judicial adjudication of the insolvency of a stock insurance company and the appointment of a receiver, the outstanding policies of the company are ipso facto canceled, and that a claim for a loss thereafter occurring is not a provable claim against the company. The policy holders are creditors for the value of their policies at the time of the breach thus occurring, which in most cases is the pro rata return premium," etc.
The doctrine stated was recognized by this court in Michel, Secretary of State, v. Southern Insurance Co.,
Counsel for the Federico Company contend, however — and we have concluded that the judge who tried this case was right in sustaining the contention — that the general rule that a judicial decree appointing a receiver or liquidator for an insolvent insurance company terminates the outstanding insurance policies is not applicable to a case where the court that rendered the decree had not jurisdiction over the person of the policyholder, and especially where the latter had no notice of the decree, and hence no opportunity to protect himself by obtaining other insurance. One of the decisions cited by counsel for the American Surety Company, Evans v. Illinois Surety Co.,
In Equitable Surety Co. v. Illinois Surety Co. and U.S. Fidelity Guaranty Co.,
"An Illinois surety company, in filing its bond with the insurance commissioner, with another foreign guaranty company as surety, complied with the law authorizing it to do business in the state, and such business continued as long as it had outstanding policies in the state, and until all claims against it had been settled, and service of process on the company was sufficient, though it was insolvent and had a receiver in another state.
"In suit in South Carolina against a foreign surety company authorized to do business in the state, the receiver appointed for it in another state is not a necessary party."
The court cited Pollock v. Association,
"The defendant had or ought to have had knowledge of the residence of every policy holder, and could have tried, at least, to have given notice to every policy holder so that other insurance could have been secured. Here the order and notice required the claims to be filed in Omaha, Neb. It may be that, if legal notice had been given the policy holder of the dissolution of the corporation *914 before the loss occurred, that would have operated to cancel the policy, and limit the claim of the insured to the unearned premium. But in this case the order of dissolution did not provide for notice to the policy holder, and there is no allegation in the answer that any notice was actually received by him, or that constructive notice was given in accordance with any law of Nebraska or of this state. The laws of South Carolina provide the means of procuring payment of established claims of its citizens in this state, and, until that fund is exhausted, the citizen of this state is not required to go to a distant state. If this were not the law, then see the anomalous condition. The state of South Carolina has the right to make conditions upon which a foreign corporation may do business in this state. One of the conditions in abundant courtesy is that a foreign corporation may do business with our citizens upon filing a bond with surety for the protection of the citizens of this state. When the fund is most needed (the corporation insolvent), the whole matter is taken away, and the insolvency of the principal discharges the surety."
It seems, therefore, that the question in this case is — as it is in all such cases — largely a matter of construction of the statute under which the bond was given by the foreign insurance company to protect the citizens of this state against a failure of the corporation to meet such obligations as it might incur in the exercise of its privilege to do business in the state. The condition of the bond required by Act No.
In Federal Union Surety Co. v. Flemister,
In Insurance Commissioner v. People's Fire Insurance Co.,
The doctrine controlling the present case is that a decree of a state court in an insolvency proceeding cannot discharge or affect an obligation which the insolvent owes to a nonresident creditor who has not voluntarily become a party to the proceeding. Ogden v. Saunders, 12 Wheat. 213,
We do not find anything in conflict with this view in any of the decisions cited by counsel for the American Surety Company. For example, in Michel, Secretary of State, v. Southern Insurance Company,
In Moren v. Ohio Valley Fire Marine Insurance Company's Receiver, decided by the Court of Appeals of Kentucky,
In Doane v. Millville Mutual Marine Fire Insurance Company,
"He had it in his power to provide against the contingency which involved him in the loss he sustained, and which he now seeks to recover of this company. He could have secured other insurance, and, by the insolvency of this company, was warned so to do if he expected relief from such disaster. Mayer v. Attorney General,
In Re Equitable Reserve Fund Life Association,
People ex rel. Attorney General v. Life and Reserve Association of Buffalo,
In People v. Commercial Alliance Life Insurance Company,
In Commonwealth ex rel. Kirkpatrick, Attorney General, v. American Life Insurance Company, 29 A. 660, 663, by the Supreme Court of Pennsylvania, it was held that the insolvency and consequent dissolution of the corporation was a breach of the policy contract. Hence it was said:
"The claim in all these cases, as is shown in the case first above quoted, is in the nature of damages for a breach of contract, and this breach occurs at the date of the decree of dissolution. The right of action for the damages suffered accrues at that date, and the damages in each case are the net value of each policy at that time."
In Fogg v. Supreme Lodge of United Order of Golden Lion,
Burdon v. Massachusetts Safety Fund Association,
Todd v. German-American Insurance Company of New York,
In Fuller v. Wright, Insurance Commissioner,
Lucas v. Pittsburgh Life Trust Company,
State ex rel. Gibson v. American Bonding Company,
In Johnson v. Button, Insurance Commissioner,
An interesting review of the decisions on this subject is to be found in the note to the Georgia case of Fuller v. Wright, Insurance Commissioner (
Appellant's alternative complaint of the amount of the attorney's fee which appellant has been condemned to pay is well founded. The judge allowed 25 per cent. on the amount of the judgment, which amount, with legal interest and the 12 per cent. statutory penalty allowed, is about $3,500. The statute on the subject (section 3 of Act No.
The judgment is amended by reducing the attorney's fee from 25 per cent. to 10 per cent., and, as amended, the judgment is affirmed. The appellant is to pay the costs incurred in the civil district court, and the appellee the costs of appeal.