106 Neb. 192 | Neb. | 1921
Plaintiffs are members and certificate holders of the defendant, which is a fraternal beneficiary association incorporated under the laws of the state of Nebraska. The purpose of the action is to have the court declare that certain provisions of the constitution and by-laws of the order in force in 1917 are still in full force and effect, and that the constitution and by-laws claimed to have been adopted by the Sovereign Camp of the defendant at its session in Chicago in July, 1919, be decláred unlawfully adopted; that sections 60 and 61 of said constitution and by-laws be declared unreasonable and discriminatory between members and classes of members, ultra vires, and void; and that defendant be perpetually enjoined from enforcing or attempting to enforce the provisions of said sections, or from collecting rates on any different basis than that provided in the laAvs of 1917; that it be enjoined from declaring or enforcing any lien upon the benefit certificates of its members, and from dissipating or disbursing its emergency funds by apportioning its accumulated funds among the members or permitting them to AvithdraAV any portion of the same. From a decree refusing the relief prayed, the plaintiffs appeal.
At the outset of the argument it was conceded by the appellants that under the decision of this court in Funk v. Stevens, 102 Neb. 681, a fraternal beneficiary association
These principles being established, the questions left for determination are mainly questions of fact.
Appellants insist that the 1919 constitution and by-laws were not legally adopted, for the reason that section 164 of the constitution and by-laws then in effect provides that the same shall not be altered, “(a) unless the alterations or amendments are proposed in writing through Head Camps, and such proposals are received by the Sovereign Clerk at least 15 days prior to the next regular meeting of the Sovereign Camp, or recommendations by the Sovereign officers or members of the committee on legislation, • which may be proposed at the session of the committee;” that such committee shall meet “(b) at least five days prior to the time of meeting of the Sovereign Camp to consider such proposed alterations and amendments. Such committee shall transmit them, together with its recommendations thereon in writing, and all other alterations and amendments which it may deem to be for the interest of this society, to the next regular meeting of the Sovereign Camp on the first day of its session, (c) The committee shall have its report printed in sufficient numbers to furnish a copy thereof to each officer and delegate of the Sovereign Camp on the first day of its
It is contended that the provision that a copy of the proposed amendments shall be placed in the hands of each delegate on the first day of the convention is mandatory and jurisdictional, and that this provision was not complied with, could not be waived, and hence the whole proceedings in this regard are void.
The evidence shows that the printed reports of the committee were distributed on the morning of the fifth day of the convention. The report Avas at once taken up by a committee of the whole house, Avhich considered the same during the day. On the afternoon of the sixth day a roll-call was had on the adoption of the amendments to sections 60 and 61, AAdiich were carried by more than a two-thirds vote. Consideration of the other amendments proceeded daily until the eighth day of the session, Avhen a resolution was offered that the constitution, laAvs, bylaws and rules, Avhich had been considered section by section, should be adopted as the constitution and by-laws from and after December 31, 1919. A roll-call Avas had and the presiding officer announced that 212 votes had been cast for the adoption, that 12 Sovereigns Avere absent, and that the laAvs were unanimously adopted.
Since the amendments were not presented, nor the reports printed and distributed on the first day of the session, they evidently must fall under the class of “other alterations” provided for in subdivision “d.”
The provision that “no other alteration or amendments” shall be submitted or considered, except by a two-thirds
It is alleged that the plaintiffs and interveners were paying the rates of assessments provided by the constitution, laws and by-laws enacted by the Sovereign Camp in 1917, which are now in force, and it is asserted that the changes in the rates and plan alleged to have been adopted in July, 1919, are void:
“(a) Because the rates of contribution therein imposed upon plaintiffs and other members are not fair, reasonable or just, in that they are higher than is reasonably necessary for defendant to pay its promised benefits and the legitimate expenses of doing business.
“(b) Because there is the rates of contribution therein imposed upon plaintiffs and other members, there is discrimination against older members and the existing members of defendant.
“(c) Because said sections and the plan of apportionment referred to there, change the fundamental plan of defendant from assessment or mutual benefit insurance to legal reserve or old line insurance.
“(d) Because the provision of said sections for the withdrawal of accumulated funds by members constitutes endowment insurance which as to defendant is ultra vires.
“(e) Because the provision contained in sections for charging liens against the certificates of members is illegal.”
The evidence shows that the defendant now has outstanding certificates of the face value of more than $1,173,000,000, and that there is a large deficiency be
While, in substance, conceding that a change of rates is necessary, the plan adopted is attacked and what is said to be a better and more equitable plan is suggested by appellants.
Desiring to make the association 100 per cent, solvent, the officers of the association .called to their assistance Mr. Abb. Landis, an experienced actuary, as to whom it is stipulated by the parties: “That he has been employed
by many fraternal societies and life insurance companies to make the valuation of their business, and that • he has made such valuations, and that he has been employed by many fraternal beneficiary societies to construct for them mortality tables and to prepare tables of rates and plans of adjustment, and that he is competent to prepare a mortality table and rates, based thereon.” And it is further stipulated that the defendant furnished Mr. Landis true records of its transactions for more than 20 years covering more than 10’0,000 lives, from which he prepared its mortality table, and also commutation and other tables. Mr. Landis, in conjunction with Mr. Macken, the actuary for defendant, and Sovereign Commander Fraser, after much investigation and deliberation, prepared and submitted to the Sovereign Camp of the order the amendments here attacked.
Mr. Landis testifies that experience has shown that a step rate of annually increased rates is not a practical plan of insurance, for thq reason that as the members become old it becomes prohibitory, and it was desired to have a level rate plan and at the same time an adequate plan. It was concluded that the best plan would be to get a rate according to the risk assumed by the society determined by attained age — “the plan therefore was to
Are the new rates discriminatory and unfair with respect to the older members? In a properly adjusted table of rates the natural premium, which is the premium which must be annually increased to meet increasing mortality, i,« a mathematical equivalent of the level premium. In the organization of nearly all fraternal associations they overlooked this indisputable fact, but by the force of circumstances they have been compelled to realize it. The evidence shows that, under the specified rates, each member candes his own insurance up to the age of 38 years. That is to say, while he pays more than the cost of his insurance in the early years, the payment for that entire term equals the loss from the average mortality. In order to relieve the older members of the society from paying the full cost of their insurance at their attained age on January 1, 1920, the plan apportions the accumulation in the emergency fund, amounting to about $30,-000,000, among the members then over the age of 38 years, for rate-making purposes; the theory being that, since the
The evidence shows that all, or nearly all, level premium companies derive the money to meet current expenses in this manner, and that a number of fraternal societies use the percentage method, or a combination of the percentage and per capita methods, which perhaps comes nearest to doing exact justice to the older members. It is also in evidence that such societies when rerated are increasingly changing from the per capita or “constant” to the percentage, or to a combined method. At the low and inadequate rates collected when such associations had their beginning, a per capita tax was necessary, since 15 per cent, to 25 per cent, of the net premiums would be insufficient to pay the expenses of the association, but as mortality increased this plan was found by experience to be unfair and inadequate. The “loading” is for the purpose of covering expenses and contingencies. It is customary in many companies to consider the first year as a one-year term policy, and to use the difference between the net premium
The mortality table of the society is shown to be low in comparison with the American Experience and other standard tables, and it would appear to be too low when the experience of the years of the epidemic of influenza and the world war is considered. The evidence convinces us that, while the experience of the society as set forth in this table must be considered, sound actuarial policy, would not accept this as absolutely correct, and it is the part of wisdom to add a factor of safety to any rate based upon this table. Epidemics are not usually foreseen, but it is necessary to assume they will come and to provide against them.
The practice of this society for 17 years, has been to
The point that the changes made allow endowment insurance, which, it is said, is not permitted by the statutes of this state, is not well taken. The withdrawals permitted are not ultra vires, as claimed. Section 3296, Rev. St. 1913, provides that such a society “may make provision for the payment of benefits in case of sickness, temporary or permanent physical disability, either as a result of disease, accident or old age: Provided, the period of life at which payment of physical disability benefits on account of age commences shall not be under seventy years.” There is nothing here to prevent a member who becomes permanently and totally disabled prior to his attaining the age of 60, as permitted by the new laws, from surrendering his certificate and receiving in settlement one-half of the face amount of his certificate, less indebtedness due to the society, as a permanent total disability benefit, and there is no provision in the amendment which
It is complained that the laws of 1919 impose a lien upon the certificates of older members without authority, and that such method of adjustment is illegal and void. A large number of cases are cited to sustain this position, but a critical examination of these shows that they are inconsistent with the law of this state as laid down in Funk v. Stevens, 102 Neb. 681, and Case v. Supreme Tribe of Ben Hur, p. 220, post, and are also inconsistent with the concessions made by appellants set forth in paragraph 2 of this opinion.
By the laws of 1917, upon which plaintiffs stand, a somewhat similar provision is made which in effect constitutes a lien upon the certificate.
In Shepperd v. Bankers Union of the World, 77 Neb. 85, the court said: “In the case under consideration the society said to its old members: We will not require you to pay the additional assessment from month to month as in the case of new members, but will charge you up with the additional amount and deduct it from the face of your certificate at the date of death.” This was held not to be illegal. Wright v. Minnesota Mutual Life Ins. Co., 193 U. S. 657; Polk v. Mutual Reserve Fund Life Ass’n, 207 U. S. 310. Furthermore, the liens provided for are only to be imposed with the consent of the member. If he would rather pay the actual cost of carrying his insurance at his attained age on January 1, 1920, he may do so. The Changes are not invalid because of this provision.
It is argued that the new plan constituted a change from fraternal or assessment insurance to level premium, or what is known as “old line” insurance, and is therefore void, and that the proposed increase is higher than necessary. Originally the plan bf insurance adopted by fra
That the society may exist for several years without a change of rates does not prove that the new rates are excessive. It is shown that a substantial increase, of rates in a fraternal society often results in “adverse selection,” the younger men leaving it and procuring insurance in a competitive association having lower rates, and the older members, many of whom are unable to procure other insurance, perforce remaining. The ratio of mortality becomes consequently greater and the mortuary payments and expensés are increased. The result of the 1919 change had to be anticipated and provided for, and not until the force of the shock is spent can it be determined with any degree of accuracy whether these rates are excessive. If they produce an excess of funds, the assessments will be reduced in number, or the rates or liens reduced, because it must be presumed that an insurer who is also the in
Some of the cases supporting the principles announced are: Reynolds v. Supreme Council, Royal Arcanum, 192 Mass 150, 7 L. R. A. n. s. 1154, and note; Supreme Council, Royal Arcanum, v. Green, 237 U. S. 531; Supreme Lodge, Knights of Pythias, v. Mims, 241 U. S. 574; Supreme Lodge, Knights of Pythias, v. Smyth, 245 U. S. 594; Smith v. Mutual Reserve Fund Life Ass’n, 140 Ill. App. 409; concurring opinion, Dawson, J., in Williams v. American Ins. Union, 107 Kan. 214; Clarkson v. Supreme Lodge, Knights of Pythias, 99 S. Car. 134; Wineland v. Knights of Maccabees, 148 Mich. 608; DeGraw v. Supreme Court, I. O. F., 182 Mich. 366; Hall v. Western Travelers Accident Ass’n, 69 Neb. 601; Sawyer v. Sovereign Camp, W. O. W., 105 Neb. 395.
The judgment of the district court is
Affirmed.