Spellacy v. American Life Ins. Ass'n

• Decision Date: 01 May 1957
• Court: Connecticut Supreme Court
• Parties: , Blue Sky L. Rep. P 70,336 Thomas J. SPELLACY, Insurance Commissioner, et al. v. The AMERICAN LIFE INSURANCE ASSOCIATION. Supreme Court of Errors of Connecticut

Page 834

131 A.2d 834

144 Conn. 346, Blue Sky L. Rep. P 70,336

Thomas J. SPELLACY, Insurance Commissioner, et al. v. The AMERICAN LIFE INSURANCE ASSOCIATION.

Supreme Court of Errors of Connecticut.

May 1, 1957.

Louis Weinstein, Asst. Atty. Gen., with whom, on the brief, was John J. Bracken, Atty. Gen., for plaintiffs.

James J. A. Daly and Daniel E. Brennan, Jr., with whom were John P. Evans and, on the brief, Thomas F. Seymour, Bridgeport, for defendant.

Before BALDWIN, O'SULLIVAN, WYNNE and DALY, JJ., and KING, Superior Court Judge.

BALDWIN, Associate Justice.

This is an action for a declaratory judgment and an injunction, brought by the insurance commissioner and the bank commissioner of this state to restrain the defendant, a domestic fraternal benefit society, from issuing to its members residing in Connecticut and seven other states, where it is duly licensed to operate, a proposed certificate, or policy, of insurance known as a variable endowment contract. The case has been reserved upon an agreed statement of facts for advice upon certain questions. ¹ The defendant was first incorporated by a special act of the General Assembly in 1899. It began as the Hungarian Sick Benefit Societies Confederation with the purpose of assisting its members by the payment of benefits in the event of illness or bodily injury and by defraying funeral expenses and paying the family or estate of a deceased member benefits not exceeding $600. 13 Spec.Laws, p. 158, No. 175. In 1911, the benefits payable on death were increased to $1,000. 16 Spec.Laws, p. 132, No. 150. By another amendment in 1925, the defendant, the name of which had been changed to the Hungarian Aid Association of America, was authorized to establish and maintain an institution which would be available to members who by reason of illness or age had become incapable of earning a living or to their widows and dependent children. The defendant was also authorized at that time to establish subordinate branches of its society in any town or city of this state and, subject to such by-laws, rules and regulations as the defendant should determine, in any other state or country. 19 Spec.Laws, p. 769, No. 259. In 1931, the General Assembly provided by special act that the defendant could pay the families, relatives or estates of its deceased members 'such sum or sums of money, upon such certificates and terms, and designation by its members while living, as the by-laws of said corporation may prescribe.' 21 Spec.Laws, p. 123. In 1936, the name of the defendant was changed to the American Sick Benefit and Life Insurance Association. A further amendment in 1947, now in force, empowers the defendant 'to pay its members, while living, endowments, annuities or other benefits.' 25 Spec.Laws, p. 615, No. 456. The name of the defendant was again changed in 1948 to 'The American Life Insurance Association.'

The defendant is duly licensed by the insurance commissioner of this state to carry on its affairs as a fraternal benefit society. It also has branches in New Jersey, Pennsylvania, Michigan, Ohio, West Virginia, Indiana and Illinois, under licenses issued by the insurance commissioners of those states. It is subject to chapter 299 of the General Statutes, relating to fraternal benefit societies. That chapter includes § 6244, which empowers fraternal benefit societies to issue to their members 'term, life, endowment and annuity certificates and combinations thereof.' The defendant has filed with the insurance commissioner forms of certificates providing for fixed endowments, refunds of premiums and guaranteed paid-up additions, all of which are insurance agreements similar to those issued by other organizations with the approval of the commissioner.

The defendant informed the insurance commissioner that it proposed to issue to its members in this state and elsewhere a so-called variable endowment contract, and on January 6, 1956, it filed with him a proposed form of contract. This proposed certificate, commonly referred to as an insurance policy, is a combination life insurance and endowment contract with conventional provisions giving protection for a term of years against the contingencies of ill health and death. The policy further provides for a 'variable endowment' payable to the insured at the end of the term stated in the policy. The term in the specimen policy is forty years. The conventional benefits are payable in cash, and, in the event of death, the sum specified is $10,000. The variable endowment is payable in 10,000 'units.' It is this feature of the policy which precipitates the present controversy and calls for a discussion of the nature of these units.

Each unit represents a specific amount invested in the variable endowment fund. A specific portion of each annual premium paid by an insured is allocated by the defendant to this fund, the corpus of which, pursuant to the terms of the policy, is invested and reinvested by the defendant in common stocks, equity-type securities, and other lawful investments. The avowed purpose of the variable endowment fund is to afford the insured, upon the expiration of the term stated in the policy, not payment in depreciated dollars but the advantage of payment in the form of a participation in a fund appreciated, it is hoped, by investment and savings. In common parlance, the fund represents an effort to hedge against inflation.

In the view which we take of this case, it is unnecessary to rehearse in complete detail all the provisions contained in the policy for the establishment and management of the variable endowment fund. Some of the particular provisions will be discussed hereinafter in connection with our examination of the applicable law. At this point, it suffices to say that the provisions appear to have been carefully considered in the interest of the insured and in the effort to provide a purportedly safe investment out of which to pay the endowment set up in the policy. The crucial question is whether the charter of the defendant and the general statutes relating to fraternal benefit societies empower the defendant to issue a policy providing this type of endowment.

The charter of the defendant empowers it 'to pay its members, while living, endowments, annuities or other benefits.' 25 Spec.Laws, p. 615, No. 456. General Statutes, § 6244 authorizes fraternal benefit societies to issue to their members 'term, life, endowment and annuity certificates and combinations thereof.' The immediate inquiry is whether the word 'endowment' as used in the defendant's charter and in § 6244 comprehends the variable endowment which the defendant proposes to issue to its members. In seeking the answer to this question, we shall first consider some general principles controlling the construction of corporate charters. Generally speaking, legislative grants of power to corporations, when susceptible of more than one interpretation, are to be construed favorably to the state. Hartford Bridge Co. v. Union Ferry Co., 29 Conn. 210, 222. The power of any insurance company to issue policies of insurance is limited to that especially given by, or necessarily inferred from, the statutes under which it was organized and operates. 18 Appleman, Insurance Law & Practice, § 10002. Fraternal benefit societies like the defendant are creatures of statute and can exercise only the powers which are expressed or clearly implied in their charters or in legislation controlling their conduct. 18 id. § 10171. Legislation concerning insurance companies and fraternal benefit societies is adopted primarily for the protection of the public and must be construed with that purpose in mind. 44 C.J.S. Insurance § 56, p. 520.

Against this background of general principles, we next consider specifically what is meant by the word 'endowment' as used in § 6244 and in the defendant's charter. The word is one of common usage in insurance circles. An endowment policy is one whereby 'the insurer agrees to pay to the insured a certain sum at the end of a certain period, or if he dies before the expiration of the term fixed, to pay the amount to a person designated as beneficiary.' 1 Cooley, Insurance (2d Ed.) p. 32; Central States Life Ins. Co. v. Morris, 202 Ark. 969, 973, 155 S.W.2d 333. The defendant argues that its proposed policy does provide for the payment of a fixed amount, albeit that amount is measured, not in terms of dollars, as the death benefit is, but in terms of 'units.' These units concededly have a fluctuating value and represent aliquot portions of the variable endowment fund in which a part of each premium has been invested. Stated briefly, the endowment rights are in the form of shares in an investment trust. It is true that the settlement of the endowment will be in cash, unless an option for a different mode of settlement is exercised. The dollar amount of the settlement, however, is fixed by the value of the units as shares in the variable endowment fund, which, in our example, could be substantially more, or substantially less, than $10,000.

As stated hereinbefore, the word 'endowment' is one of long and general usage. Countless thousands of policies providing for insurance and endowments payable in specified sums of money have been issued through the years by innumerable companies. Endowment insurance has been defined as promising 'to pay a stated amount to designated beneficiaries if the insured should die within a stipulated time or to the insured himself if he survive.' Webster's New International Dictionary (2d Ed.), 'life insurance or assurance.' That the payment of a specified amount in dollars is the generally accepted concept of an insurance company's liability on an endowment policy finds overwhelming support in the definition of an endowment by text writers and the courts. 1 Appleman, Insurance Law & Practice, § 4; 1 Couch, Insurance, § 25; 1 Joyce, Insurance (2d Ed.) p. 99; 1 Richards, Insurance (5th Ed.) §...