State ex rel. Attorney General v. Manufacturer's Mutual Fire Insurance

| Mo. | Oct 15, 1886

Black, J.

This case stands upon a demurrer to an information filed by the Attorney General for a writ of quo warranto. The object sought by the writ is to require the respondent to show cause why it should not be dissolved for using the franchise of a stock insurance company, it being only a mutual insurance company. The respondent was incorporated in December, 1884, under article 3, chapter 119, Revised Statutes, 1879, as a mutual fire and marine insurance company.

The information, in substance, states that the respondent has issued a great number of policies known as stock policies, that is to say, policies running for periods of time less than six years, and varying from two days to five years, and for which it receives at the time of the issuance of the policies, a total cash premium ; that, on the eighteenth of February, 1886, respondent had policies of this description in force, insuring the total amount of $3,275,119.37, for which it has received in cash premiums, the amount of $60,535.85, and that, at the institution of this suit, the outstanding policies of this character numbered three thousand two hundred. It is also alleged that, on the eighteenth of February, 1886, the respondent had outstanding four hundred and six mutual policies, insuring the aggregate sum of $997,532.31, for which it held premium notes of the face value of $149,201.25 ; and that, at the commencement of this suit, there were but four hundred policies of this description in force.

The questions presented by the demurrer are: (1) Has the respondent the right to issue policies running for .a period oí time short of six years; (2) has it a right to issue policies for premiums payable wholly iu •cash at the time the policies are issued. An answer to these questions must, in a great measure, depend upon a proper construction of the statutes with respect to the organization of these companies. The legislation upon that subject has been so varied and diverse, that we do not regard it essential to go back further than the act of March 10, 1869. Acts of 1869, p. 45. That act provided for the incorporation of lire and marine insurance companies on the “ stock plan ” and on the “mutual plan.” It is there expressly declared that mutual companies :shall not issue policies known as stock policies, or do business as joint stock companies, or upon the joint stock plan (sec. 2); and the remainder of the act is consistent with the legislative assertion. After the organization, the distinguishing features of the mutual companies, so far as defined by that act, are, that every person who insures must make his note to the company for the premium, a part of which, not less than ten per cent., must be paid in cash at the date of the policy. The notes are made payable at any time, in part or in whole, as the directors may demand, by assessment for payment of losses and other liabilities of the company. The assessment must be made upon all notes held by the company which have been in existence for one year at the date of the loss. The notes upon which all assessments have been paid, at the expiration of the policies, are delivered up to the makers, whether paid in full or not. The principle of the scheme throughout is mutuality, and the .contrary not being declared by the law, each policy-holder becomes a member of the association and continues such, certainly, during the life of the policy. 2 Wood on Fire Insurance, sec. 538. The law, as it then stood, does not contemplate the issuing of policies for all cash premiums, nor can the right to issue what are called short-time policies be easily reconciled with, the various provisions of the act of 1869. Enough, lias been said to show the general policy of that act, which is the basis of' the present law upon the subject. Many of the sections are the same, others have-been amended, and some new ones have been added.

It remains to be seen what effect is to be given to-the amendments. The present statute, as before, points out in detail how the stock companies and mutual companies may be organized, and when they may commence business ; and section 5988 makes it the duty of every company, organized on the mutual plan, to have the-word “mutual” affixed to the name; and it is made unlawful for such companies to do business on any other-plan. The same section also declares: “and mutual companies shall not issue policies known as stock policies, or do business as joint stock companies, or upon the joint stock plan; [ but any mutual company, upon a majority vote of its members present at an annual meeting, or at any special meeting, called for that purpose, after one week’s notice by advertisement, * * * may charge and receive for the mutual benefit of all its policyholders, cash in payment of premiums on such of-its policies as shall be, by a majority vote at any such meeting, determined upon.”] Section 6000, among other things, provides: “Every person who shall insure in such mutual company [whose premium is payable in note] shall, before he receives his policy, deposit with the-company a note,” etc. The quoted words enclosed in brackets were introduced by the act of 1877. These amendments are significant, and this must be apparent when they are considered in connection with the act of 1869. They show a determination to make a most important change in respect of the powers of these mutual companies. Express authority is given them to charge and receive all cash premiums for the benefit of all policy-holders.

In the present case the information shows that, by a vote, after clue notice, it was resolved to charge and receive cash in payment for premiums on policies issued for a period less than six years. Such a course of business, it is argued, has nothing in common with, and is inconsistent with, mutual insurance.

The first answer to this argument is, if the law clearly .gives companies organized on this mutual plan power to issue policies for all cash premiums, and we hold'that it does, then we can only declare the law as we find it. It is no objection that this power is one conferred upon stock companies, or one not usually possessed by mutual companies. The legislature can, for itself, define what it means by the “mutual plan,” and this it does in specifying the duties and powers of these companies. Some of these powers may well be common to both.

But the argument is not sound for another reason. The theory of mutual insurance, as generally understood, is, that the premiums paid, or to be paid, by the members for their insurance, constitute a fund for the liquidation of losses. It is not essential that the premiums should be paid by note. They may be paid In cash, and when so paid the cash stands for the note. The policy is still a mutual policy, and the holder thereof a member of the association. Union Insurance Co. v. Hoge, 21 How. [U. S.] 35; Ohio Mutual Insurance Co. v. Marietta Woolen Factory, 3 Ohio St. 348; Mygatt v. Insurance Co., 21 N.Y. 52" court="NY" date_filed="1860-03-05" href="https://app.midpage.ai/document/mygatt-v--new-york-protection-insurance-company-3601404?utm_source=webapp" opinion_id="3601404">21 N. Y. 52; Schimpf v. Insurance Co., 86 Pa. St. 373; Spruance v. Insurance Co., 10 Pac. Rep. 287. Under the present statutes of this state, these mutual insurance companies may, therefore, issue policies for all such premiums paid at the time the policies are issued.

The only limitation as to the time policies shall run is that found in sections 5999 and 6001. The first provides for an organization with a guarantee fund and without a guarantee fund. If the company is organized without a guarantee fund, then before it can commence business it must have a designated amount of agreements for insurance with thirty per cent, of the premium paid in cash, and the balance secured by premium notes of solvent parties, founded on bona fide applications for insurance. The company may then receive a certificate to do business from the superintendent of insurance. The policies required to be issued for a period not shorter than six years are the policies to be issued on account of the notes given at the organization. The whole section seems to relate to matters pertaining to the preliminary steps to be taken for the commencement of business, and we cannot see that this requirement to issue six-year policies has any application, save as to those policies issued upon the notes made for the purpose of commencing business. Section 6001 does require that the assessments to pay losses, expenses, etc., shall be made upon each and every note held by the company at the time of the assessment, and which has been in existence for one year prior to the date of the assessment. Had these companies no power to issue cash policies, then this provision would indicate that short-time policies should not be issued. But as they have the power to issue policies for all cash, then there cannot be any difficulty because of short-time policies, for they can be issued for all cash, and no assessments will be required. We cannot see that these mutual companies are limited as to the time for which policies shall be issued. Effect must be given to the amendments before noted, and they show a determination to make a radical change in the law of 1869.

The amount of business done by the respondent, by way of all cash policies, exceeds that done by way of notes for premiums, in the ratio of about ten to three, and it is earnestly insisted that the legislature never contemplated such results, and it is said these policy-Folders are without security. The answer is, that the legislature has fixed no limit as to the amount of cash business these mutual companies may do. If the law is defective in this respect the remedy must come from the law-making power. There are statements in the information that the respondent has issued, and is issuing, large numbers of policies known as stock policies, but this we understand to be the conclusion of the pleader, based upon the other facts alleged, the most prominent of which are that the policies are issued for all cash and on short time. These facts do not make the policies stock policies.

It results from what has been said that the demurrer must be sustained, and it is' so ordered.

Brace, J,} absent, the other judges concur.