116 N.Y.S. 841 | N.Y. App. Div. | 1909
The complaint alleges that the plaintiff is and since December 15, 1890, has been a policyholder of the Washington Life Insurance
What the companies conceive has- been accomplished by the contract of reinsurance of December 30,1908, referred to is evidenced by the circular signed in the name of both companies by W. C. Baldwin, president, dated at Pittsburgh and addressed to the policyholders of both companies, wherein it was stated : “The Washington Life Insurance Company had 28,000 policyholders. The Pittsburgh Life and Trust Company had 15,000 policyholders. Therefore, the merging of the business of the two companies creates a group of 43,000 lives which will greatly benefit all the policyholders of the merged group. * * * Since merging the business of the Washington Life Insurance Company and the Pittsburgh Life and Trust Company the premium income will be more than double that of 1907, and it is reasonable to assume that the expense of the conduct of the business will be materially reduced.”
It appears that immediately after the execution of this contract upwards of $18,000,000 of securities of the Washington Company were physically transferred from the office of the company in the city of Hew York to the office of the Pittsburgh Company in the city of Pittsburgh, Penn. It also appears that prior to the making of the order at bar appealed from, the said securities had been brought back to the State of Hew York, and, under negotiations had between .the officers of the several companies, the Attorney-General •of the State of Hew York and the Superintendent of Insurance, had been put into custody of the Superintendent of Insurance under an agreement entered into by the two companies, pending future
On the fifteenth of February the learned judge sitting at Special Term, Part I, upon the return of orders to show cause why an injunction should not issue and receivers be appointed which had been granted upon the complaint and the accompanying papers, handed down a memorandum, in which he stat-ed: “ The motion must be granted to the extent of'restraining the Pittsburgh Company from removing, assigning, disposing' of, pledging or incumbering the properties, securities, moneys and assets of tlie Washington Company, and appointing receivers during the pendency of the- action of the assets, properties,- securities, books,, papers,, policies, moneys, stocks, bonds, mortgages and choses in action heretofore belonging to the defendant Washington Company, and by it assigned and delivered to the Pittsburgh Company,, and the receivers should have authority to resume and carry on the business of the Washington Company until the trial which can soon take place to protect, and conserve the interests of its policy holders^ creditors and stockholders.” (Russell v. Washington Life Ins. Co., 62 Misc. Rep. 403.)
On the second day of March the order appealed from herein -was made. The said order overruled certain preliminary objections to the jurisdiction of the court -made by the two companies^ -and it determined that the argument on the merits and the- submission of ■ the affidavits by the companies in opposition on the merits are not to be deemed and shall not constitute a general appearance on behalf of the Pittsburgh Company or a waiver of the preliminary objections-raised by the Washington Company. . From that part ,of the order ■ the plaintiff appeals. Further, it restrained the Pittsburgh Company from removing,, assigning, disposing of, pledging or incumbering the properties^ securities, moneys or other assets of, said Washington Company or otherwise dealing, therewith except to deliver the same to William H. Hotchkiss, as the Superintendent of Insurance, during the pendency of this action, or until the further order of the court. The register of deeds was restrained until the further order of the court from recording, the various deeds and
It will be noted that none of the officers, directors or individuals charged with fraud or conspiracy are made parties defendant. The action is solely against the two corporations. ■ While it is alleged in the complaint that the contract of reinsurance is invalid and ultra vires, the action is not brought to rescind or annul said contract. There is no allegation of the insolvency of either company, but on the contrary the solvency of the Washington Life was affirmatively alleged. The Pittsburgh Company is a foreign stock corporation and the Washington Company isa domestic stock corporation, and both life insurance companies. The action is not to'dissolve either of said corporations. Although stock corporations, no stockholder of either company brings the action. A receiver is asked for certain specific real estate of the Pittsburgh Company situate in the city of Hew York, and a receiver for the Washington Company to take possession thereof and to continue the business of life insurance. There is no allegation of notice served upon the Attorney-General of the State of the application for the order for the appointment of a receiver of this domestic life insurance company.
The Pittsburgh Company appeared specially challenging the jurisdiction of the court upon the ground that it had not been properly brought into court, and the Washington Company raised certain preliminary objections. In the view- that we take of this matter, we do not deem it necessary to consider any of these preliminary objections, but proceed directly to what seems to us the controlling question, which is: Has the plaintiff as a policyholder of a domestic life insurance company, a stock corporation, standing in a court of
The learned court at .Special Term, in answer to the claim put forth by the defendants, that a policyholder has no standing in a court of equity for the redress sought because he occupies the position simply of a creditor whose claim is not in judgment, said: “ The Washington Company, although, a stock company, is conducted on the mutual plan, and the surplus of its profits above a limited dividend to the stockholders is equitably applied for the benefit of the policyholders. The policy in question has a reserve and surrender value which is'fixed and payable at specified periods. Although a policyholder may technically be said to occupy the relation of creditor to a corporation, in, a company such as this he is likened more to that of an associate or capitalist, furnishing the money upon which the business is conducted. (Lord v. Equitable Life Assur. Soc., 109 App. Div. 252, 263.) In Brown v. Equitable Life Assur. Soc. (151 Fed. Rep. 1), in which the bill charged specific acts of waste, mismanagement and unauthorized diversion of funds, the Circuit Court of Appeals held that a policyholder had a right to appeal to a court of equity for relief. This action is not to recover upon the policy, but to prevent the diversion of its assets. ‘ In a purely mutual company the whole body of policyholders at any given time whose policies are not yet matured, have a .quasi ownership in all the assets of the corporation, and are like stockholders of an ordinary corporation, in effect cestuis que trustent.’ (Young v. Equitable Life Assur. Soc., 49 Misc. Rep. 347, 361, affd., 112 App. Div. 760.) * * * On authority, as well as principle, the policyholders have a standing to maintain this action.”
In Young v. Equitable Life Assur. Soc. (49 Misc. Rep. 347) the plaintiff was a stockholder as well as a policyholder. The. defendants, other than the: company, were directors thereof. Tier complaint alleged waste by said directors and demanded that they account therefor and pay into the treasury the amounts for which they were liable. It was, therefore, an action by a stockholder in the right of his corporation and in its behalf to maintain suit where the corporation had itself improperly failed to bring the same. The quotation, therefore,, from the opinion of the learned judge at Special Term was obiter, because the company was not a purely
Lord v. Equitable Life Assur. Soc. (109 App. Div. 252) was an action by a, stockholder attacking the action of. the company in attempting to amend its charter by giving policyholders the right to vote for directors in the absence of legislation. In sustaining the action and denying the power to give such right to policyholders, the court used this language: “ The policyholder does not become a member of the corporation; he is a third party holding a contractual relation with the corporation as a distinct entity. * * It would naturally seem as though, if it were intended by the Legislature that persons occupying merely contractual relations with the corporation were to be intrusted with the power to elect, and thus to control the corporation, there would be some provision for making the policyholders answerable in some measure at least for the conduct of the corporation, but we look in vain for any provision of this kind; all of the duties and responsibilities are confined to the members of the corporation and the corporation itself, acting through its board of directors, while there are no duties imposed uj>on the policyholders.”
Brown v. Equitable Life Assur. Soc. (151 Fed. Rep. 1), mainly relied upon by the Special Term, has been reversed by the Supreme Court of the United States (sub nom. Equitable Life Assur. Soc. v. Brown, 213 U. S. 25). Having thus examined all the cases cited by the learned court at Special Term upon this point, we find none of them an authority to sustain its position.
On the other hand; it seems to me that there is an unbroken line of authorities in the State of How York to the contrary. In St.
In repudiating the doctrine of partnership the court said in People v. Security Life Ins. & Annuity Co. (78 N. Y. 114), where the defendant was a stock company: “Every policyholder in such a. company enters into engagements with the company and not with' any other policyholder. He pays the premiums upon his policy not to make a fund to insure others, but solely as a consideration of his own insurance. The company receives the money as its own and holds it as its own and may do with it what it will, except as it is restrained by some statute. * * * But they who pay their money for insurances are no more jointly interested! or in any sense partners than the depositors in a bank. The, depositors swell the assets of the bank, and also its liabilities, and they have a common interest that the hank shall keep its funds !so as to be able to discharge its liabilities, and that is all. * * The fund produced by the payment of all. the premiums does not in any sense belong to the policyholders, but belongs exclusively to the' company, and the policyholders are interested in it in the. same way only that the creditors of any other corporation are interested in; its funds.”
In Uhlman v. New York Life Ins. Co. (109 N. Y. 421) the court
In reversing the Circuit Court of Appeals in Brown v. Equitable Life Assur. Soc. (151 Fed. Rep. 1) Mr. Justice Peckham for the Supreme Court of the United States, in Equitable Life Assur. Soc. v. Brown (213 U.S. 25), said: “ The suit is brought by complainant for himself, as well as all other policyholders and annuitants, of the defendant, who may choose to come in and join in the suit, and the company is the sole defendant. * * * The purpose, of the averment is probably to sustain the application for a receiver made necessary, as alleged, by the wrongdoing of some of the former officers of the defendant. That, however, gives no j lirisdiction for an accounting in equity as between a simple debtor and creditor and in the absence of any trust relation between them. A mere creditor, as such, has no right to that remedy. We come then to a careful analysis of the other averments in the bill and it is seen that it is- largely founded upon the theory of the existence of a trust in favor of the policyholders, past and present, of the defendant as against the defendant, its officers and stockholders; and it is asked that they, and each of them, be decreed to hold the funds and surplus,1 as
So that it would seem that the doctrine that a policyholder has a standing in court in an equitable action against his company upon the ground that he is a cestui que trust has finally been set at rest in accordance with the long line of decisions in the State of Hew York by the final determination of the Supreme Court of the United States. I know of no theory upon which a cause of action can be spelled out of this complaint not based upon that doctrine. A stockholder might have a cause of action to attack the transaction upon the ground that the act of the officers and directors in making the contract for reinsurance and attempting to carry it into effect was ultra vires, and 'certainly the Attorney-General, upon his own motion, or at the instigation of the Insurance Department, would have the right to question this transaction if its result is, as claimed, to practically dissolve the company, to prevent it from doing further business and to transfer such business to a foreign corporation having no right to do such business within the State of Hew York, and that is the protection given by the law to the policyholder.
“ If an action had for its object the compelling of the trustees, directors, managers or other officers of a corporation to account for their official conduct in the management and disposition of the property committed to their charge, then it would have to be brought by the Attorney-General in behalf of the People; or it might be brought by a judgment creditor of the corporation under sections 1781 and 1782 of the Code of Civil Procedure. * * * The objects of life insurance corporations invest them with such a public interest that the State has placed them within the superintendence of a special department, and every consideration militates in favor of the protection which the State has thrown around these companies.” (Swan v. Mutual Reserve Fund Life Assn., 155 N. Y. 9.)
We do not pass upon the validity of the contract or the acts done thereunder, or whether or not it'was uUt'a vires either corporation, because we do not think such matters properly before us. We hold squarely that the plaintiff has no standing in court on any cause of action set up in his complaint for any relief therein prayed.
Therefore, the order, so far as appealed from by the defendants, is reversed, with ten dollars costs .and disbursements, and the motion denied, with ten dollars costs to the appellants; and so far as the plaintiff appeals, the appeal is dismissed, with ten dollars costs and disbursements.
Ingraham, McLaughlin, Laughlin and Scott, JJ., concurred.
On defendants’ appeal, order reversed,, with ten dollars costs and disbursements, and motion denied, with ten dollars costs to appellants ; on plaintiff’s appeal, appeal dismissed, with ten dollars costs and disbursements. Settle order on notice.