Gaut v. Mutual Reserve Fund Life Ass'n

121 F. 403 | U.S. Circuit Court for the District of Middle Tennessee | 1902

HAMMOND, J.

It is the opinion of the court that the motion of the defendant to direct a verdict in its favor should be granted, and the verdict will be so entered. I might now close the case, and leave the question where the law puts it; but it would be intolerable to counsel on either side, and to you, that I should make no explanation for taking that course. But what I am saying is not a charge upon which any exceptions can be taken, or of which any error can be predicated, as I am simply explaining to you the reasons why I direct your verdict in favor of the defendant, for your own information, and as a matter of courtesy to you and counsel.

I only wish I had time to take this record out, and go quite carefully over the details of it, in order to fully justify that judgment; but that is a matter of impossibility, under the circumstances under which we are trying this case here and now. But I may say to you that when the plan of assessment assurance was first commenced among our people and those of England, where it has obtained for some time, it was denied by the writers upon the subject, and those who are familiar with the philosophy and science of insurance, that it was a practicable and workable scheme of insurance; and it was attacked from the beginning as being an absurd system, as being one that would result just as this policy has resulted, and for just the very reasons that have been given here in reference to the outcome of it to this disappointed plaintiff. Originally the same objections were urged against assessment insurance as those which we find exhibited by the facts of this case and to considering it a desirable or effective plan or means of accomplishing the purpose of life insurance. That controversy and conflict among those who know something of the scientific values of plans of life insurance has been raging ever since. The assessment plan was a very attractive system, and, if it could be worked, it would undoubtedly be more attractive than other forms of insurance which are regarded as more excellent and efficient. Its cheapness was its chief value, and there were such other attractive features that the benefit societies based on that plan, and the mutual insurance companies using the same plan, had an immense rush of business, — a kind of boom or craze for that sort of insurance, which is a familiar fact in the history of life insurance. It was seen in the beginning, in the first years of the scheme, that it worked out very well; that it was very attractive and very satisfactory; but as the company grew, and the average of the generations of human life, somewhere in the neighborhood of 30 or 35 years, approached, it was realized that a constantly increasing death rate would become so enormously large that the cost of insurance in the end would be disastrous. I speak with some reserve as to the history of it, but my recollection is that the history of assessment insurance in this country and in England has pretty well justified what was said of it in the beginning. Some of the societies and companies have gone into the hands of receivers to wind up, and lost everything for every one that went into it. Some of the old-line companies, it is true, have done the same thing. But all these assessment companies have got into trouble, and they have all been doing everything and struggling in every way they could devise to save themselves against this defect that existed, but was not fully appreciated, in the start. We have a very significant indication of that fact in the proof here that this defendant company has changed or attempted to change its policy, and convert itself into an old-line company. Nevertheless, it had this large body of persons insured on the assessment plan, and had to take care of them; and it felt that it must do what they were authorized to do to meet and provide for and against the losses to which I have called your attention. Theoretically a great deal could be planned about it. For instance, it was believed and said that new blood could be brought into it; but, when the people already insured got to be old, the young men on the outside would say: “It is not worth while for us to go into this class of old people ready to die, for we will go in only to carry their insurance, and so we will keep out.” Therefore new blood did not come in, and there is the inherent defect. The idea that the scheme would be worked out by an influx of new and young people has been a disappointment.

Now, that is what has happened to Mr. Gaut, the plaintiff, in this case. He has been bitterly disappointed in the outcome, no doubt; but that does not give him a right to recover the money he paid into this company — one which hé selected on account of its attractiveness; and this misfortune of his cannot give him a right to get back money which voluntarily he paid into an ill-devised scheme of insurance. The only thing he can do, or has a right to do, is to recover any damages that may have accrued to him by reason of the company’s violation of their contract, and hence he says that which has been done under the contract is a violation of it, and is illegal. The court does not think so. The court does not think there is any illegality in the procedure or practices of this company, as shown by the proof, in making these assessments. Undoubtedly it started out with the idea it would apportion the assessments from time to time, according to the age of the member at the time that he entered the compan)', and to that extent the company has undoubtedly given a practical construction to the contract; but, after all, it was not so much a matter of construction of the contract, as it was a selected method of doing the business of raising funds to meet losses by making assessments. All started out with the idea that they could keep the assessments down to something like the amount that was originally required to pay losses by the influxion of new blood, as just explained, and at the same time they hoped to keep to the analogies of old line companies of a fixed premium at the entrance age; but, when the company was disappointed about that, as was Mr. Gaut, evidently it had to resort to some kind of a scheme or plan, within its chartered powers and within its contracts, to save the company, and those connected with it, from loss. Whether, in what this company did, it acted wisely or unwisely, we are not here to inquire. Every man who goes into a company submits himself to the wisdom of those governing it — the board of directors or the stockholders, or to whomsoever is appointed to govern the corporation; and everything they do unwisely is not necessarily a matter of just complaint or cause or ground of damages to the members, because they must submit to the discretion of somebody, and the policy holders of this company submitted to the board of directors the problem of doing the best they could to get out of this inadequacy of funds to pay the death losses. The directors in this case resorted to what all the companies usually and principally do. They increased the assessments. Mr. Gaut, the plaintiff’s counsel, does not deny, on the part of the plaintiff, that they had a right to increase the assessments. He says they have not increased them according to the original scheme and plan, and according to their experience with the actual results of the scheme, as they were bound to do. But we have no proof here showing that this company has not assessed the losses or premiums upon their actual experience as they found it in the operation of the company. If Mr. Gaut could show by a bill in equity, or in this action in law, that the company, in the process of assessing these premiums, had assessed the plaintiff in this case a larger sum than their experience in the management of the company’s business actually necessitated, and more than the actual requirements under their scheme of insurance demanded, then he would have a good cause of action; but he has not gone into that; has not gone to New York and examined the books of this company, or otherwise shown how many deaths there were, and how many losses, and the amount, and how many assessments were necessary to be made, and what amount each member should pay, and thus enable the jury — if they could practically make such an inquiry as that — to determine that the payments demanded of the plaintiff were too large; but he has not brought such evidence as that before us, and has rested on the fact that the plaintiff in this case has been required to pay in a larger sum of money than is agreeable to him, and a larger sum of money than would be justified by good business considerations in paying for life insurance. That may be so, and greatly disappointing to him, and, no doubt, it is; but it is not shown to have come from any wrongdoing on the part of the company, and therefore we cannot give him any judgment on that ground.

Now, as to the rates of insurance. The taproot of this whole controversy is that Mr. Gaut claims that by this contract he had secured to himself the right to have, during all his lifetime or during the continuance of this policy, assessments made against him as of the age of 61, when he entered the company, and not as of any advanced age, and that when the company came, according to its experience and necessities, to assess any needed sum upon all members of the company, it must assess his share as of the age of 61, and not at his then attained age. The court does not think that is one of the stipulations of this policy. He has not been accorded by the charter the right to demand that method and rate of assessment, if you call it so, or ratio of assessment. He has not had secured to him, by any expressed words of the contract, the right to have any assessment made as of the age of 61. It is true that this company assessed him at that age for 12 years, but it was its right to do that, and then to abandon that method at any time. It was not a construction by the company of their contract with the plaintiff; but it was a method chosen, by which the company hoped to make its business attractive, and so attractive that it might last as a rule of assessment always, no doubt; but when the time came that it was confronted with changed conditions, and confronted with the fact that it did not have enough money to pay constantly increasing losses, it was within the province of their contract, and strictly within its provisions, and wholly within the competency of the charter, for the company to devise a means by which these assessments could be increased; and then, likewise, under the terms of the contract and the charter, it was permissible to have changed the method or proportion of assessments from the age of entry to the age attained at the time the assessment was made. I think there is no doubt but that that construction of the contract and the charter is correct, and, this being so, to thus make the assessments would not violate the contract. As to whether that change was wise or not, it is not for us to say. There is nothing here to show it was fraudulently done; nothing to show it was unnecessarily done; nothing even to show that it could have been done in some way that would have been better ; and we must take it, in the absence of such proof as that, and assume it to be true, that the company did the best its judgment dictated; and this plaintiff cannot complain if the company was acting within the exercise of its charter powers and rights, and within the terms of the contract, no matter how disastrous the change was to him at his greatly advanced age. He has outlived the value of his insurance on the plan which, unfortunately, he selected when he was younger.

The next question is whether it is an excessive assessment. If that were so, he might refuse to pay the premium, and recover the money back, but it has not been shown that it was excessive. How can we sav it was excessive, unless we know all the facts of the assessment No. 97 which he refused to pay? It is true, we can see that it is high, and quite prohibitive to continuance in the company for a member who is called in the proof “a persistent member”— that is, one who keeps up his policy, keeps on paying his premiums, instead of forfeiting those already paid and getting out of the way; and the question was, “How much shall we assess this member as he grows old?” That which they did may indicate a harsh mode of dealing with a “persistent member,” but unless we have an insight into the true condition of the company’s operations, and go into the vitals of it, and see how it was constituted, and what was the basis of it, no matter how good may be our business capacity, we could not tell whether the assessment made was an excessive assessment or not. That the plan of assessing according to the age attained at the time of making the assessment is burdensome to the oldest men goes without saying, and also that it increases the burden of all members with advancing age. But that fact, or the fact that it was burdensome to Mr. Gaut, would not show it was excessive, and that is all he has to rely upon. It may be that the burden and absurdity come from the absurdity of the insurance itself — from the natural infirmity in the scheme of assessment insurance; and the plaintiff cannot recover until he goes further, and shows by some proof, brought before us, that it was outside and beyond the necessities of the company, which he has not shown.

Another complaint is that the plaintiff has been wronged, and his contract violated, in the manner in which the company has treated its reserve fund. 1 do not see any proof of that. So far as we have any proof, it rather shows to the contrary, but we are not sufficiently advised by the proof to say, as to the reserve fund, just what the scheme was; but, as far as Mr. Gaut was concerned, he had a provision in his contract relating to that reserve fund, or to his share of it, and he got the two bonds to which he was entitled, and used them; and the testimony of the witnesses of the company is that it would have gone on and delivered to him whatever bonds he was entitled to under the contract, if he had continued his insurance. It was a bond which assigned to him his share of the reserve fund, and which he might use or make available to that amount on certain conditions mentioned in the bond. He got that benefit for some time. It is not necessary to say how much, but he certainly got two bonds, and some part of them was used by him. There is no proof to show he was entitled, under this new scheme of assessments, to any more of the reserve fund, or that he was in any way injured by the company’s treatment of that fund. There were to be new issues of bonds on plans of five and ten year series. Also there were made some different arrangements about the process of distributing this reserve fund, than that Mr. Gaut had; but until he has shown by the proof that these differences in arrangement, whatever they were, resulted in some denial to him of his right or share in the reserve fund, he has no right to complain.

Another complaint suggested is that the company might have paid some of its losses out of the reserve fund," .under the terms of his contract, but I do not see that that has been established by the proof. We cannot say by any proof before us that in 1898, or at any time, there was a condition existing as to the reserve fund which enabled the company to exonerate the plaintiff from any of the burdens of this policy of insurance by paying death losses out of' the reserve fund; and until the plaintiff has shown us, by sufficient proof, and by examining the operations of the company in its details, such a result as that, we cannot see how he could have a right to recover.

The outcome of it all is that the plaintiff relies upon the fact that this company has assessed him at the rate of 73 years instead of at 61, which it had done for 12 or 15 years after his insurance commenced. Unfair as that may have been to Mr. Gaut, burdensome and a hardship as it was, it was a right that the company had, to assess him that way, under the charter and the contract; and having that right, and not having shown that the company violated its discretion or judgment in the premises, I do not see how he has any cause of action because of the hardship. The law1 does not relieve against hardships of that kind in the bargains that are made by the parties to the contract.

There are judicial decisions that have been read in our hearing, on both sides of the question, as to the proper construction of the charter of this company and the contracts of insurance under it; but, until it is settled by the Supreme Court, there will be differences of opinions, for judges differ like other people. There seems to have been in Virginia and Georgia and in New York one view, and in North Carolina and Minnesota another. The opinion in North Carolina is a very strong opinion, and possibly is the sound one, but I do not think so. It proceeds upon the theory that this company and Gaut had made a contract which forbade the company to make any assessment other than at the age of entry into the company; but, from what I have said, you will understand that I do not concur in that view, but agree with the Court of Appeals in the Eighth Circuit that the company had abundant power under its charter and under the plaintiff’s contract to do what it did do, and that it was bound to do what was required to raise the funds for its losses according to the circumstances of its operations and the necessities that confronted it, and that these requirements of the company were to be met as it appeared best to them at the time they arose; and we do not see, from any proof we have here, that the company violated that duty; and I feel compelled to say, notwithstanding the loss to Mr. Gaut, that he has not shown such a case as would authorize us to give him a verdict upon any showing he has made in that behalf.

Mr. Gaut, of course you desire to take an exception. It is not required that you should take any exception to the language of the court in giving its reasons for directing a verdict, for that is unnecessary. The stenographer will enter on the record an exception on the part of Mr. Gaut to the court’s action in directing a verdict in this case for the defendant.