21 N.Y. 52, Mygatt v. New York Protection Ins. Co.

Citation:21 N.Y. 52
Case Date:March 01, 1860
Court:New York Court of Appeals

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21 N.Y. 52




New York Court of Appeal

March 1, 1860

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[Copyrighted Material Omitted]

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Henry R. Mygatt, for the appellant.

Francis Kernan, for the respondent.


The defence which prevailed at the trial, and which is relied upon here, is, that the defendants having been organized as a mutual company, had no authority to issue policies for premiums to be paid in cash, and consequently that their act in issuing the policy in question was ultra vires, and the policy void.

I shall assume, for the purposes of this case, that the defendants can avail themselves of this defence, and that they are in no manner estopped from insisting upon their own want of power. The question then is, did the defendants exceed their corporate powers by issuing this policy and receiving the premium upon it?

The charter adopted by the defendants, which was introduced and proved upon the trial, contained the following clause: "Any person applying for insurance, so electing, may pay a definite sum in money, to be fixed by said corporation, in full for said insurance, and in lieu of a premium note. "The policy

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in question here was issued in strict accordance with this provision. The defendants, therefore, to sustain their defence, must show that the company had no authority to insert such a clause in its charter; and this depends entirely upon the provisions of the act of 1849, under which the company was organized.

By section 3 of that act, it is enacted that persons intending to become incorporated under it, "shall file in the office of the Secretary of State a declaration, signed by all the corporators, expressing their intention to form a company for the purpose of transacting the business of insurance, as expressed in the several subdivisions of the first section of this act, which declaration shall also comprise a copy of the charter proposed to be adopted by them; " and section 10 provides that "it shall be the duty of the corporators of any and every company organized under this act, to declare in the charter, which is herein required to be filed, the mode and manner in which the corporate powers given under and by virtue of this act are to be exercised. "

These provisions confer upon the companies organized under the act a broad and unrestricted power to prescribe for themselves the manner in which they will conduct the business of insurance. They virtually transfer to these companies full legislative control over the subject and, construed by themselves, would invest each company, whether joint stock or mutual, with power to provide for every kind of insurance authorized by the act. The only express limitation upon this power is contained in section 11, which requires that the charter "shall be examined by the Attorney-General, " who, if he finds it "to be in accordance with the requirements" of the act, "and not inconsistent with the Constitution or laws of this State, " is to "certify the same to the Comptroller, " & c. It cannot be pretended that the clause in the defendants' charter, under which this policy was issued, is in any manner repugnant either to the Constitution or the general laws of the State. The only question, therefore, is, whether it is in conflict with anything contained in the act of 1849 itself. Unless the defendants can find

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something in that act which prohibits companies organized as mutual companies from receiving their premiums in cash, they cannot maintain their defence.

There is clearly nothing in the terms of the act which contains such a prohibition. But the restriction is sought to be deduced by implication from those provisions of the act which discriminate between joint stock and mutual companies. It is based mainly upon sections 3, 4 and 5. The charter, which persons wishing to become incorporated are required by section 3 to file, is, as we have seen, to prescribe "the mode and manner" in which their "corporate powers" are to be exercised. Section 4 authorizes the company, after filing such charter, "to open books for subscription to the capital stock of the company, " * * * "or in case the business of such company is proposed to be conducted on the plan of mutual insurance, then to open books to receive propositions, " & c. It is there provided (§ 5) that no "joint stock company" shall be organized in the city of New York, or the county of Kings, with a smaller capital than $150, 000, or in any other county, with a smaller capital than $50, 000; and that no company formed for the purpose of doing business "on the plan of mutual insurance, " in either of the counties of New York or Kings, shall commence the business of fire or inland navigation insurance, until agreements have been entered into for insurance, with at least one hundred applicants, the premiums on which shall amount to $200, 000, nor in any other county, until such premiums shall amount to $100, 000, for which premium notes are to be taken "in advance" as a "part of the capital stock" of the company.

Now the argument on the part of the defendants is, that there having been in this State, previous to the act of 1849, two distinct and well known classes of insurance companies, viz., joint stock and mutual companies, organized upon different principles, and transacting their business in different modes, it was the evident design of the Legislature, as evinced by the provisions to which I have referred, to keep these two classes of companies entirely distinct, and to prevent any intermingling

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of the two modes of insurance in the same company: that insuring for a specific premium, payable in cash, is the appropriate business of a joint stock company organized with a view to profit upon its capital, the corporators in which consist, not of the persons holding policies, but of the owners of this capital: that a mutual insurance company is composed exclusively of the persons insured, and is organized by its members, not with a view to profit, but for the sole purpose of mutually insuring each other: that it is essential to such a company that every person insured should be a member of the company, and an insurer of all the other members, as well as insured by them: and that one who pays the premium upon his policy in cash, and is liable for nothing more, does not become a member of the company, and is in no sense an insurer of others holding its policies: that there is no mutuality, therefore, between such a person and those who have given premium notes liable to be assessed for future losses; and hence that issuing policies for cash premiums is a departure from the legitimate business of a mutual insurance company, and subversive of that distinction between joint stock and mutual companies which it was the design of the Legislature to preserve.

This argument, it will be seen, consists of two branches, viz.: First, of that construction of the act of 1849 which holds that a strict line of demarcation was intended to be drawn between the two classes of companies, and that when a company had once made its election to organize, either as a joint stock or a mutual company, it was the object of the act that it should be ever thereafter rigidly confined to that mode of insurance which is appropriate to its class; and secondly, of the assumption that there is something in the taking of a specific cash premium in full for insurance, without further liability on the part of the insured, which is repugnant to the nature and principles of a mutual insurance company. The defendants are under the necessity of maintaining both these propositions. If they fail in respect to either, they fail in their defence. If evidence of that inflexible determination to keep the two kinds of companies entirely distinct, for which the defendants contend,

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is not to be found in the act; or if the taking of a cash premium in full for the insurance can be reconciled with the "mutual principle, " as it is called, then, of course, there is no objection to this policy.

Let us examine these two points separately. On what does the assumption of such a determination on the part of the Legislature rest? There is clearly no good reason why the Legislature should have provided for so rigid a separation of the two species of insurance companies. That it was never supposed there was any ground of policy which required that mutual insurance companies should be prohibited from receiving cash premiums, is conclusively shown by the course of legislation on the subject. Acts have been repeatedly passed, conferring upon such companies this power, in the precise terms used by the defendants in their charter. It was conferred upon the Albany County Mutual Insurance Company in 1848; upon the Herkimer County Company in 1850, and upon various other companies in subsequent years. The Legislature seems to have been ever ready, upon request, to authorize these companies to receive their premiums in cash, instead of premium notes.

There is no public reason why such a company, when it has once acquired a substantial basis for its business, should be rigidly confined to the mutual system. That system was not devised by the Legislature for the protection of the public, but by individuals for their private benefit. It does not rest upon any foundation of public policy. Why, then, should the Legislature, when enacting a general law, providing for the organization of all insurance companies, so adjust its provisions as to inhibit mutual companies from transacting any portion of their business in a manner which has so often received the legislative sanction? The very object of the law being to prevent the necessity of repeated applications to the Legislature, by those desirous of engaging in the business of...

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