Appeal of Susquehanna Ins. Co.

Decision Date06 October 1884
Citation105 Pa. 615
PartiesAppeal of the Susquehanna Mutual Fire Insurance Company.
CourtPennsylvania Supreme Court

Before MERCUR, C. J., GORDON, PAXSON, TRUNKEY, STERRETT, GREEN and CLARK, JJ.

APPEAL from the Court of Common Pleas of Northampton county: Of January Term, 1884, No. 370.

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Henry W. Scott and W. S. Kirkpatrick, for the appellant.— The appellee gave his premium note to the appellant, wherein he promised to pay $1,237.50 "in such portions, and at such times, as the directors of said company may, agreeably to the Act of Assembly governing insurance companies, with the various supplements thereto, and the by-laws of the company require." His contract with the company, when the policy issued, was that this policy is made and accepted in reference to the by-laws of this company; also the application and the conditions hereto annexed, which are made a part of this policy, and to be used and "resorted to in order to explain the rights and obligations of the parties hereto."

It was recited in his policy that his premium note was "subject to the payment of such assessments as may be made thereon for the purpose of paying losses and the necessary expenses of the company accruing during the term of this policy." A policy holder in mutual insurance, suffering loss before the term of his policy has ended, is still liable, until the end of that term, to contribute his assessments. The assured, in any event, if he makes such a contract, as he did here, is bound by it: May on Insurance, §§ 553, 555; Bangs v. Skidmore, 21 N. Y., 136; Boots & Shoes Ins. Co. v. Melrose Society, 117 Mass., 199; Iowa Ins. Co. v. Prossee, 11 Iowa, 115; New Hamp. Ins. Co. v. Rand, 4 Fost., 428. The company then was entitled to levy its assessments, if nothing else interposed, for the amount claimed. Having levied, it had a lien for them upon the judgment recovered by the appellee. Although there is no such lien at common law, yet whenever a lien is created by statute, or by charter of incorporation, those dealing with a corporation are bound by it. So where created by a by-law, those dealing with the company, and having notice of the by-law, are bound by it: Rogers v. Huntington Bank, 12 S. & R., 77; Sewall v. Lancaster Bank, 17 S. & R., 285; Grant v. Mech. Bank, 15 S. & R., 140; Steamship Dock Co. v. Heron, 2 P. F. Sm., 280. In a mutual insurance company every insured is held to knowledge; and the appellee here has expressly included the by-law as part of the contract, and thus created the lien for himself: Geyer v. Insurance Co., 3 Pittsb., 41; Morgan v. Bank of North Am., 8 S. & R., 73; 1 Amer. & Eng. Corp. cases, pp. 39 and 40.

The court below in permitting the payment of the money into court for distribution expressly preserved the rights of the appellant. Certainly its lien was not lost by thus parting with the fund. It is only when a person having a lien upon personal chattels parts voluntarily with possession that he loses his privilege: Addison Contracts, *1185; Trickett on Liens, § 756; Kent Com., vol. 2, p. *639; and not then if the parties otherwise agree: Sawyer v. Fisher, 32 Maine, 28.

The Court below has held that the estoppel arises, because the company defended against the suit on the policy of insurance, on the ground of forfeiture. The defences made by the insured were principally, that policy was forfeited because of false warranties, over-valuation, and failures to furnish proofs of loss. But by the terms of the policy, apparently overlooked by the court below, it is provided that "if said policy shall become void through the acts of the said applicant, the company shall have the right to retain the premium note given for said policy, and collect such interest and assessments as may be due, or become due, on the same." From this provision, and sec. 26 of the by-laws (supra), it is plain that the assured, by his contract, is obliged to pay his assessments during the term of his policy, whether his policy is avoided or not. Other conditions being fulfilled, the company is entitled to recover the assessments whether it waives the forfeiture of the policy or defends and enforces it.

E. J. Fox (with whom were E. J. Fox, Jr., and Elisha Allis), for the appellee.—Inasmuch as the company has, in an action, denied liability on the ground that the policy had become void, it cannot recover on the premium note for any losses which occurred after the date of the forfeiture: Tuckerman v. Bigler, 46 Barb., 375; Rodermund v. Clark, 46 N. Y., 354; Columbia Insurance Co. v. Masonheimer, 26 P. F. S., 138.

Two courses of action were open to the company; one in affirmation of the policy, payment of the loss and recovery of assessments; the other in disaffirmance, contesting the loss, and repudiating the contract. This company took the latter course and is bound by it. It elected to avoid the policy, ab initio. The doctrine of election holds where remedies are inconsistent with each other: Patterson v. Swan, 9 S. & R., 16; Cox v. Cox, 2 Casey, 382. The contract of insurance is admitted to have been one and entire, and it is well settled that a person cannot accept and reject the same instrument Birmingham v. Kirwan, 2 Sch. & L., 449. The appellant contends that although the claim for assessments is invalid for collection, it is valid as a lien upon the fund made by the appellee's execution. But the fund in court being the fruit of Mr. Staats' execution was not, by expression or implication, "an amount remaining unpaid upon said note," but was entirely distinct and separate. The assessments themselves are utterly valueless, for want of due notice, as a lien or for any other purpose. A lien must be founded on a substantial legal right, or it is valueless for the purpose of assertion or retention.

By the payment into the Court of Common Pleas of Northampton County, upon Mr. Staats' execution, of the amount of his judgment with interest and costs, all connection between the fund and the company's claim for assessments was broken.

To sum up: Under the contract of insurance, as defined and limited in section 34 of by-laws, the only claim which the company could have made was for "assessments of the insured until the expiration of the policy;" and the contract being admitted as one and entire, and the policy having expired nearly seven months before the verdict, the company was bound to defalcate all its claims upon it upon the trial, and is concluded by the verdict.

A lien, in any event, is but a legal right to detain for the security of a valid debt; and where, as here, the assessments upon which it is based are invalid, for want of notice, it has no existence, and cannot be asserted for any purpose. Hence it is of no consequence whether the company parted with the fund from necessity to save the corporate franchise or not. It had no valid lien for invalid assessments, even while it held the fund; and there was therefore no lien after it had parted with the fund. It has already been shown that the premium note had no relation to a fund produced by adverse process and upon execution. Therefore the questions of lien, and consequent detention, are not in this case, and the judgment of the court below must be affirmed.

Mr. Justice GREEN delivered the opinion of the court, October 6, 1884.

The 34th section of the by-laws of the Insurance Company, appellant, is in the following words:

"In case any buildings, goods or other property insured shall be burned or damaged by fire, the directors shall retain in the treasurer's hands the premium note given for the insurance of said property, and also such amount remaining unpaid upon said note as the board of directors may deem a sufficient security for the payment of assessments of the assured until the expiration of the policy; and upon such expiration the balance (if any) in the treasurer's hands, shall be paid to the assured."

Although the meaning of this section is not very accurately expressed, its import undoubtedly is, that in case of a loss upon a policy, the company shall retain out of the money due to the insured for the loss, so much, not exceeding the amount unpaid upon the premium note, as the directors may deem sufficient for the payment of possible future assessments during the continuance of the policy, that is, assessments to which the insured would be regularly subject under the policy. Such assessments would, under the contract of the parties, be for losses occurring during the term of the policy, whether they were actually made before or after the policy expired. This by-law was in force at and before the time when the policy to the appellee was issued. By one of the provisions of the policy it was agreed that the policy was made and accepted in reference to the by-laws of the company, and also the application and conditions annexed, which are made a part of the policy, and to be used and resorted to, in order to explain the rights and obligations of the parties. By this provision the by-laws in existence at the date of the policy became part of the contract of the parties. There is a proviso annexed to the 34th section of the by-laws which more fully explains its meaning. It is as follows: "Provided, however, that should the assured give sufficient security for the payment of all future assessments...

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