October Term, 1899.
Albert A. Wray, for the appellant.
Alfred A. Cook, for the respondent.
The plaintiff is the receiver of the Equitable Mutual Fire Insurance Company of New York. This company, as its name implies, is a mutual fire insurance company and was organized under article 3 of the Insurance Law of the State of New York, being chapter 690 of the Laws of 1892. The defendant gave a capital stock note for $400 in order to complete the organization of the company, and his note was one of those which represented the capital requisite for such organization. After the appointment of the plaintiff as receiver, he estimated the losses of the company and its liabilities, and made an assessment sufficient to cover them. The amount of the assessment upon the defendant's note was $240. This he declined to pay, and the plaintiff brought this action to recover the full amount of the note, pursuant to section 116 of the statute. A recovery was had upon the note, and from the judgment entered upon the decision this appeal was taken.
The defendant raises several questions which have already been decided in this court in actions by the same receiver against other makers of notes for premiums of this corporation. ( Raegener v. McDougall, 33 App. Div. 231; Raegener v. Hubbard, 57 N.Y. Supp. 1018.) These cases declare no new law, but what has been the law of this State for many years. ( Cooper v. Shaver, 41 Barb. 151.) They dispose of all the points but one made against this judgment.
But the defendant raised at the trial a question as to the validity of the assessment made upon his note which was not presented in either of the former cases decided in this court. In each of those cases it was taken for granted that the assessment was valid, and the case was decided upon that presumption. But no such concession is made by the defendant here. He insists that in making the assessment the receiver went beyond the power given him by the statute and, therefore, the assessment is invalid and the action cannot be maintained. There is no doubt that the receiver in making his assessment has precisely the same power that the directors would have, and no other. This power is not an arbitrary one, nor is it judicial in its nature; but for its validity it depends upon the existence of facts making the assessment necessary and proper. ( Thomas v. Whallon, 31 Barb. 172; Herkimer Co. Mutual Insurance Co. v. Fuller, 14 id. 375; Cooper v. Shaver, 41 id. 151.) If upon the facts shown in an action for the amount of the assessment it should be made to appear that, in fixing the amount, the directors or receiver have included any considerable sum of money which is not a proper charge against the corporation, the assessment is not valid, and it cannot be recovered. (Cases cited supra.)
It is not disputed in this case that, in fixing the amount of the assessment, the receiver included $17,000 for returned premiums allowed to persons who had taken out policies for cash payment and whose policies had been canceled. The defendant claims that persons who had taken out policies for which they paid cash premiums became members of the corporation; that their cash premiums stood in lieu of the liability of the persons who made deposit notes upon other policies; that the amount of premiums so paid should no more be withdrawn from the assets of the company than could the stock notes be taken up and canceled; and, therefore, the company was not liable to return unearned premiums upon canceled policies, and for that reason this sum of $17,000 was not the liability of the corporation. The plaintiff, on the contrary, claims that persons who take out policies of insurance for which they pay cash premiums do not become members of the company, but they stand in a purely contractual relation, with the same rights towards the company that the policyholder of any ordinary stock company has; one of which is, when a policy is canceled, to have returned to them the difference between the premium paid and the cost of the canceled policy at short rates during the time that it was in force. Which of these two conflicting claims is correct is the question presented.
For a long time it was a disputed question in the courts whether a mutual company created under the laws of this State whose policies were to be paid for partly in cash and partly by giving deposit notes could issue paid-up policies for cash premiums. It was decided in the case of Hart v. Achilles (28 Barb. 576) that policies issued by such a company for cash premiums were void. But this ruling was not adhered to by the Court of Appeals, and finally that court determined that, under the act for the incorporation of mutual insurance companies, it was competent for a mutual company to issue policies for the payment of fixed premiums in cash. ( Mygatt v. New York Protection Ins. Co., 21 N.Y. 52; White v. Havens, 20 How. Pr. 177.) From that time on it has been the undisputed law of this State that a mutual company might take for a policy either a percentage of the amount of the premium in cash with a deposit note to secure the remainder of the premium, or a fixed premium in cash for the full amount. The law of 1892, under which this corporation was organized, expressly provided that any mutual corporation might receive from any person applying for insurance, in lieu of a deposit note, the whole amount in cash for the premium therefor, without subjecting such person to any other additional liability or in any way changing or impairing the obligation of the corporation. The Court of Appeals held that a person taking out a policy of insurance for a cash premium became a member of the corporation to precisely the same extent as though he had paid a part of his premium in cash and given a deposit note for the remainder. (Cases cited supra.) That rule was also incorporated into this statute by section 113, by which it was prescribed that every person having insurance in any mutual fire insurance corporation, and his heirs, executors, administrators and assigns, continuing to be so insured, shall thereby become members of the corporation during the period of insurance.
It is quite true that the charter of the Equitable Company limits the membership to those policyholders who are also makers of capital stock notes. But this limitation is inconsistent not only with the provisions of the statute just quoted, but also with the ruling of the Court of Appeals in construing previous statutes. Further inquiry in this case must, therefore, proceed upon the theory that all policyholders alike are members of the company. What liability, then, does one assume when he takes out a policy in a mutual insurance company and thereby becomes a member of it? As to the makers of capital stock notes the statute answers the question by saying that "All capital stock notes * * * shall remain as security for all losses and claims, until the accumulation of profits invested as required by law shall equal the amount of cash capital required to be possessed by stock fire insurance corporations, the liability of each note decreasing proportionately as the profits are accumulated. (§ 113.)
This portion of the section, however, applies only to capital stock notes, which are those given to complete the organization of the company. The statute provides for another sort of notes called deposit notes, which may be given to the corporation by one effecting insurance after the organization of the company. (§ 115.) The makers of such notes are members of the company, but their liability upon their notes is not precisely like that of the makers of the capital stock notes. The makers of deposit notes are to remain liable only until the expiration of the term of insurance, and at that time the note, or that portion of it which shall remain unpaid after receiving from the maker a proportionate share of the losses or expenses occurring during such term, shall be delivered by the corporation to the maker. (§ 115.)
So it will be seen that the makers of deposit notes are liable only for losses, etc., which occur during the term of insurance. Their notes do not constitute capital, as do those given before the organization to complete it, but are part of a fund to be drawn upon with capital stock notes to pay losses occurring during the term of the insurance for which each particular deposit note has been given. The liability of the makers of these notes arises from the receipt of a policy. It is strictly contractual, and exists only during the term of insurance.
What is the "term of the insurance?" That depends upon the provisions of the policy. The policy to be issued by every fire insurance company, whether stock or mutual, is prescribed by sections 120 and 121 of the statute, which applies to all companies alike. The policy thus prescribed and issued is subject to all the requirements of the statute. As the precise form is fixed by the law, we may take notice of it. One provision which the law establishes and which the policy contains is that made to comply with section 122 permitting the cancellation of the policy, and that provision is effective to determine what is the term of insurance, which is the time for which the policy has been issued, or the time it is in force if it has been canceled as provided by its terms. When it expires or when it is canceled, the maker of the deposit note has the right to have his note returned to him upon compliance with the requirements of section 115. It is to be noticed that the liability of the makers of capital stock notes is not affected by this section. The statute prescribes that the cash premium when paid is to be received in lieu of a deposit note.
When a policy issued for cash has been canceled, therefore, the policyholder who has paid in cash is entitled to receive back a proportion of his cash premium. Just how that proportion is to be estimated we need not inquire. We have not the data to enable us to determine whether the amounts fixed by the receiver were correct or not, and we must, therefore, assume that they were properly adjusted. The rebate upon a canceled cash policy is clearly to be repaid to the same extent as the note is to be surrendered, and the obligation to repay it is clearly a liability of the corporation to be satisfied by the receiver. In none of the cases upon this subject has the question been presented as to the time of limitation of the liability of the insured and, therefore, the general expressions in one or two of the opinions upon that subject are not authoritative.
The other objections to the assessment are not well taken. The claim of Kelvey for $600 was clearly a liability of the company. If the reinsurance procured by him has proved to be worthless, that fact alone affords no reason why he should not be repaid what he expended to obtain it, in the absence of anything showing fraud or neglect on his part.
The evidence shows that the reinsurance was obtained in companies which had either gone out of business or had become insolvent. That is not denied. The receiver was not called upon, when he learned that to be the fact, to expend money in procuring judgments against these insolvent corporations, but might rely upon the advice of his counsel that nothing could be collected. The conclusion is that nothing shown by the defendant has cast doubt upon the validity of the assessment, and, therefore, the judgment must be affirmed, with costs.
VAN BRUNT, P.J., PATTERSON and O'BRIEN, JJ., concurred.
Judgment affirmed, with costs.