In re Equitable Reserved Fund Life Ass'n of City of New York

• Decision Date: 01 March 1892
• Citation: 30 N.E. 114,131 N.Y. 354
• Parties: In re EQUITABLE RESERVED FUND LIFE ASS'N OF CITY OF NEW YORK.
• Court: New York Court of Appeals Court of Appeals

131 N.Y. 354

30 N.E. 114

In re EQUITABLE RESERVED FUND LIFE ASS'N OF CITY OF NEW YORK.

Court of Appeals of New York.

March 1, 1892.

Appeal from supreme court, general term, first department.

Petition of the receiver of the Equitable Reserved Fund Life Association of the City of New York in regard to the distribution of the funds in his hands. The special term entered judgment upon the report of a referee, which judgment was reversed by the general term. Modified.

Lucius McAdam, Samuel H. Benton, Geo. C. Holt, and C. R. Minrath, for appellants.

Henry C. De Witt, Artemus B. Smith, R. J. Moses, and Henry H. Whitman, for respondent.

The other facts fully appear in the following statement by PECKHAM, J.:

This association was incorporated on the 17th day of May, 1883, under and by virtue of chapter 175 of the Laws of 1883, passed April 2d of that year, and entitled

‘An act to provide for the incorporation and regulation of co-operative or assessment life and casualty insurance associations and societies.’ This act was amended by chapter 285 of the Laws of 1887. The corporation has been dissolved, and a receiver appointed to distribute its funds among those entitled thereto. Disputes have arisen as to the respective rights of parties claiming an interest in the funds in the hands of the receiver of the dissolved corporation, the chief question being as to the proper application of the two funds called the ‘Death Fund’ and the ‘Reserve Fund.’ The company adopted a constitution and a set of by-laws, and used a form of certificate of membership under which people became insured. It continued business from the time of its incorporation until the 18th of September, 1889, when, upon the application of the attorney general, a temporary receiver was appointed, and the officers of the company enjoined from meddling with its funds. The receiver remained in charge of the company under this appointment until the 9th of November, 1889, when the company was formally dissolved, and a decree to that effect duly entered, and the temporary was appointed the permanent receiver to distribute the effects of the company among those entitled thereto. The company was dissolved on the ground that it had been conducting its business fraudulently, which, by the thirteenth section of the act of 1883, as amended by the act of 1887, was made a ground for dissolving a corporation formed under such acts, upon application of the attorney general. The association had no capital stock, and its only means of paying its expenses and the claims against it arose from admission fees, annual dues, and assessments. It is in respect to the moneys collected from assessments that the principal questions here arise. The constitution stated that the object of the association was ‘to advance the welfare of its members, and to provide pecuniary indemnity upon a member's decease, to his family or others dependent upon him, or to such other person or persons as shall have been duly designated by him.’ Article 1, § 2. All persons becoming members were required to ‘comply with and be subject to all the requirements for membership set forth in the constitution, by-laws, and certificate of membership.’ Article 2. The agency and general expenses of the business of the company were provided for by the admission fees and annual dues from members, and such fees and dues were to be graded according to the amount of benefit called for, and were to be prescribed in the certificate. Article 8. The following sections from different articles of the constitution have been specially alluded to and urged as material in the various arguments of counsel. Section 1 of article 6 is as follows: ‘Benefits. Section 1. Upon the death of a member during the continuance of his or her certificate in full force the association shall, within three months after due notice and satisfactory proofs of such death, and the approval thereof by the executive committee, pay to the beneficiary named on the books of the association, if such beneficiary be living at the time of such member's death, otherwise to the heirs or legal representatives of such deceased member, the amount to which the same may appear entitled according to the books of the associationand the terms of the certificate of membership, out of the death fund (hereinafter defined) of the association; or, if the death fund shall then be insufficient to pay the whole of any such claim, then, pro rata with other claims, out of the moneys to be realized to said death fund from an assessment to be made as hereinafter described: provided, however, that there shall be first deducted therefrom any counter-claim or indebtedness due from said member to the association. And no death claim shall become otherwise due or payable except from the reserve fund, as hereinafter provided.’

‘Article 7. Assessments. Section 1. Assessments shall be levied bi-monthly on the second Tuesdays of February, April, June, August, October, and December in each year, for such a sum as may be deemed by the executive committee of the board of trustees to be necessary to meet the claims outstanding, and not previously assessed for; but such assessments shall not exceed in the aggregate the amount stated in the third section of this article. Sec. 2. Should the amount realized by any such bi-monthly assessment, after providing for the reserve fund and contingent fund, as hereinafter stated, be insufficient to meet the claims for which the same was levied in full, then it shall be apportioned as provided in article 6, section 1, of this constitution. Sec. 3. The aggregate assessments in any one year shall not exceed the net cost of insurance upon the membership in force at the face value of the certificates, according to the American experience table of mortality, with an addition thereto, not exceeding forty percentum thereof, to provide for the reserve fund, (hereinafter defined,) and for the expenses of levying assessments, and for investigating adjusting, and contesting doubtful, illegal, or fraudulent claims. Such expenses shall not exceed five per centum of the total assessments so levied, which percentage may be set apart for those purposes, as a contingent fund, from the gross proceeds of said assessments.Such further assessments in excess of the foregoing may, however, be levied as may be rendered necessary by any law or laws of the state of New York, now or hereafter enacted. * * * Sec. 5. Twenty-five per centum of the proceeds of each death assessment shall be transferred from the assessment account to the reserve fund account. This amount, and interest thereon, together with the net earnings of the association, shall constitute a reserve fund. No part of the reserve fund shall be used for the payment of expenses. Sec. 6. The balance of each net death assessment, after provision for the contingent fund and transfer to the reserve fund, shall be transferred from the assessment account, above specified to the death fund account, and from this account death claims shall be payable. Sec. 7. The board of trustees shall designate some bank or trust company in which all sums transferred to the death fund account shall be deposited for the settlement of death claims under the certificates of the association, which shall be payable in the manner hereinbefore provided. Sec. 8. The board of trustees shall designate some trust company or companies, bank or banks, with which the reserve fund shall be deposited when not otherwise invested. The reserve fund may be invested by the board of trustees in good securities of the character prescribed by law, and may be used, in the discretion of the said board, to make any deposits required or allowed by the laws or usages of this or any other state, or to meet any want or necessity of the association that may hereafter arise by reason of unforeseen contingencies. Sec. 9. After the continuance of each certificate for a period of five years, and every fifth year thereafter, an apportionment of the reserve fund shall be made to the holders of such certificates upon such basis and principles as the board of trustees shall deem safe and equitable. The sum so apportioned to each certificate holder shall be applicable ten years from the date of such apportionment towards paying future dues and assessments under such certificate: provided, however, that, should membership under a certificate cease by death or otherwise, the amount of such apportionment remaining unapplied shall be withdrawn from said certificate, and shall be apportioned as above provided at the next quinquennial apportionment to members holding certificates issued in the same year as the aforesaid certificate. Sec. 10. The reserve fund in excess of $100,000, and in excess of the aggregate amount apportioned to members as aforesaid, may, in the discretion of the board of trustees, be applied in settlement of death claims in excess of the American experience table of mortality, or towards making up any deficiency that may then exist in the death fund.’

By-laws were adopted, but they are not deemed of importance with regard to the questions raised and decided herein.

When the company first commenced to do business it made assessments whenever a death occurred, and the funds were collected for the payment of the special claim arising from each death loss. The assessment was for the particular death. On the 12th of March, 1889, the constitution was amended in that particular so as to read as set forth in the first section of article 7, and without reference to any particular death. Each member took his certificate, paid his assessments, and continued his membership with reference to the recognized power of the company at the proper time and in the regular was to amend its constitution and by-laws. The following are the material provisions of the certificate issued by the company to the parties it insured: ‘And the said association agrees that within ninety...