Keehn v. Brady Transfer & Storage Co.

• Citation: 159 F.2d 383
• Decision Date: 05 February 1947
• Docket Number: No. 9115.,9115.
• Parties: KEEHN v. BRADY TRANSFER & STORAGE CO.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

159 F.2d 383 (1947)

KEEHN v. BRADY TRANSFER & STORAGE CO.

No. 9115.

Circuit Court of Appeals, Seventh Circuit.

January 7, 1947.

Rehearing Denied February 5, 1947.

D. J. Fairgrave and Howard A. Steele, both of Des Moines, Iowa, and David Axelrod, of Chicago, Ill. (Bradshaw, Fowler, Proctor & Fairgrave, of Des Moines, Iowa, of counsel), for appellant.

Wm. H. Beckman, Charles F. Hough, George H. Braasch, Ira W. Hurley and Ferre C. Watkins, all of Chicago, Ill., for appellee.

Before MAJOR and MINTON, Circuit Judges, and BALTZELL, District Judge.

MAJOR, Circuit Judge.

This is an appeal by the defendant from a summary judgment entered March 13, 1946 on plaintiff's motion. The action was instituted and a recovery sought by the plaintiff as receiver of an Illinois mutual insurance company to collect from the defendant, a former policyholder of the State of Iowa, an assessment levied in the amount of 100% of the premiums paid by the defendant during the policy period.

Inasmuch as the questions raised on this appeal are solely legal in nature, it is unnecessary to state the facts any further than they bear upon such questions. The policy in suit was issued by the Central Mutual Insurance Company, formerly a mutual insurance company organized under the laws of Illinois, to the defendant, an Iowa corporation with its principal place of business at Fort Dodge, Iowa, engaged in inter-state and intra-state carriage for hire. The policy, dated September 7, 1935, was countersigned and delivered to the defendant at Fort Dodge by the authorized agent of Central Mutual, and was cancelled according to its terms by Central Mutual on August 16, 1936. By the terms of the policy defendant was insured against liability arising out of the operations of its motor carriers in consideration of the payment of a deposit premium of $1,600.00, plus a fixed percentage of defendant's gross receipts computed and payable monthly. The policy provided: "The contingent liability of the assured hereunder is limited to one time the premium named herein and no more. The assured is given and hereby accepts notice that by virtue of this policy he is a member of the Central Mutual Insurance Company of Chicago * * *."

During the period the policy purported to be in effect premiums were paid by the defendant in the amount of $9,280.73, which included the deposit premium of $1,600.00. During such period defendant reported a number of claims to Central Mutual which were investigated by the latter, some of which claims were compromised and settled. The judgment rendered was for defendant's asserted liability under the contingent provision of the policy and was for the same amount which defendant had theretofore paid in premiums, together with interest from a certain date.

Central Mutual has been in the process of involuntary liquidation in the Circuit Court of Cook County, Illinois, since January 11, 1937. The instant action is to recover an assessment levied against the defendant and other policyholders in a proceeding wherein the defendant was not a party. At all times during the policy period Central Mutual was licensed and authorized by the Insurance Commissioner of Iowa to transact insurance business in that state. The policy was issued without any application having been made or signed by the defendant.

Of the numerous defenses interposed in the lower court only two are relied upon here, referred to as defendant's third and fourth separate defenses. By the former, it is contended that the policy was issued in violation of certain provisions of the Iowa statute and is therefore void. By the latter, it is contended that plaintiff's failure to comply with a provision of the Iowa statute pertaining to contingent liability relieves the defendant of such liability.

This being an appeal from a summary judgment, it is well to keep in mind that the only question with which we are concerned is whether the allegations of defendant's answer were such as to raise a material or genuine issue of fact. A material or genuine issue of fact is raised when the facts alleged, if proven, are such as to constitute a legal defense. The lower court concluded that the allegations of defendant's answer, if proven, did not constitute a legal defense, and therefore no material or genuine issue of fact was raised. The propriety of the court's conclusion in this respect must be determined on this appeal.

We shall first consider defendant's third defense, which involves Secs. 8955 and 8956 of the Code of Iowa, 1935. Sec. 8955 is entitled "Foreign mutual companies — surplus," and provides: "Any mutual insurance company organized outside of this state * * * may be admitted to this state and authorized to transact herein any of the kinds of insurance authorized by its charter * * *, when so permitted by the provisions of this chapter * * *; provided, however, such company * * * is also solvent according to the requirements of this chapter and is possessed of a surplus safety invested as follows: * * *."

Sec. 8956 is entitled "Certificate to foreign company," and provides: "When any foreign company has fully complied with the requirements of law and become entitled to do business, the commissioner of insurance shall issue to such company a certificate of that fact, which certificate shall be renewed annually on the first day of April, if the commissioner is satisfied that capital, securities, and investments of such company remain unimpaired, and the company has complied with the provisions of law applicable thereto."

Defendant in its answer as its third defense pleaded these statutory provisions; conceded that Central Mutual was authorized by the Commissioner of Insurance of the State of Iowa to write insurance in that state, but alleged as a matter of fact that it was hopelessly insolvent during all of such period, and that it obtained such license by fraud and deception in that it misrepresented to the Insurance Commissioner its true financial condition, and that by reason thereof Central Mutual was not legally authorized to write said policy of insurance in the State of Iowa and as a result the policy was void and of no legal effect.

The parties concede that the question must be decided in accordance with the law of the State of Iowa, and they also agree that there is no adjudicated case in that state exactly in point, although both cite cases from that state which it is claimed by analogy and reasoning support their respective contentions.

We shall first consider the cases relied upon by the defendant. In Pennypacker v. Capital Ins. Co., 80 Iowa 56, 45 N.W. 408, 8 L.R.A. 236, 20 Am.St.Rep. 395, the suit was to recover upon a fire insurance policy issued to plaintiff covering property in Pennsylvania. Both of the parties to the suit were residents of Iowa. The defendant pleaded as a defense that it was not authorized to do business in the State of Pennsylvania, that its policy was issued in violation of the laws of that state and therefore void. The court stated and recognized as the general rule (45 N.W. 409): "`The well-settled general rule is that, when a statute prohibits or attaches a penalty to the doing of an act, the act is void, and will not be enforced * * *. Or, in other words, a penalty implies a prohibition though there are no prohibitory words in the statute, and the prohibition makes the act illegal and void.'" The court, however, in deciding against the defendant's contention found under the facts of the case an exception to this general rule and the tenor of the opinion is that an insurance company should not be permitted to take advantage of its own wrong. The court said: "The evident purpose of such a law is the protection of those paying for insurance upon property in that state. The prohibition and penalty is against the company only. No duty is required of the insured, and no act upon his part expressly prohibited. * * * A number of cases are cited by appellant insurance company where, in actions brought by the insurance company to enforce rights under the contract of insurance, it was held that statutes similar to that set out were prohibitory and the contracts void; but in none of those cases is it held that they are void as to the assured." It thus appears to be the reasoning of the court that the statutory provision being for the protection of the assured, a policy issued in contravention thereof is void only as to the company. In other words, it appears to be the reasoning that the insured may defend an action by the company on the ground that the policy is void but that such defense is not available to the company when the suit is against it.

In Seamans v. Zimmerman, 91 Iowa 363, 59 N.W. 290, a suit was brought by the receiver of a Wisconsin Mutual Fire Insurance Company to recover assessments made in accordance with the terms of the policies which provided, as does the policy in the instant case, that the defendant became a member of the company and liable for such assessments. The suit was defended on the ground that the Wisconsin company had failed to comply with the Iowa statute regarding its financial condition. The court, in sustaining such defense, stated (59 N.W. 291): "The prohibition of section 1144 is directed not merely to the agents as such, but to the companies themselves. They are forbidden to take any risks in this state, either directly or indirectly. The general assembly intended the prohibition to reach as far as its jurisdiction extends. The power of the legislature of a state to make contracts like those under consideration void is not questioned. * * * To hold that the company may recover the assessments would be an evident violation of the spirit and intention of the statute. The contracts are contrary to the policy of this state as expressed in the statute, and the courts of this state will not aid the company to enforce them."

Thus the court adhered to the general rule which it had announced in the Pennypacker...