62 U.S. 35 (1859), Union Ins. Co. v. Hoge

Citation:62 U.S. 35, 16 L.Ed. 61
Case Date:January 10, 1859
Court:United States Supreme Court

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62 U.S. 35 (1859)

16 L.Ed. 61




United States Supreme Court.

January 10, 1859

THIS case was brought up, by writ of error, from the Circuit Court of the United States for the northern district of New York.

It was an action brought by Hoge upon a policy of insurance upon a paper-mill in Virginia. The insurance company were

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incorporated by the Legislature of New York, and their place of doing business was in that State. The law of New York and charter of the company are set forth in the opinion of the court.

The declaration stated that the policy of insurance was made in November, 1851, for the consideration of fifty-six dollars, and that for that sum the company agreed to insure the mill for one year to the amount of $2,500. The plea was, that the business of the company was to be conducted on the plan of mutual insurance, and that the receiving of a definite sum of money, in lieu of a premium note for the policy of insurance, was not warranted by the act of 1849, and that the policy was void, as made without authority, and in violation of the statute.

To this plea there was a demurrer.

The Circuit Court decided that the policy was a valid policy, and the company brought the case up to this court.


It was argued by Mr. Van Der Lyn for the plaintiffs in error, and Mr. Mygatt for the defendant.

Mr. Van Der Lyn made the following points:

POINT FIRST.--The issuing of policies upon the plan of stock companies, and the receiving of a definite sum in lieu of a premium note, is not warranted by the act of 1849, and is in violation of its manifest spirit; and therefore the policy declared on is void, being made without authority and in violation of the statute.

We say this for several reasons:

1. This is a mutual insurance company, formed to do business on the plan of mutual insurance, and is so declared in the charter, in pursuance of the act of 1849, sec. 10. (See 2d sec. of the charter.) 'Its business shall be conducted on the plan of mutual insurance.' The company was organized without a dollar of cash capital, and with $100,000 of premium notes, (secs. 5 and 11,) and was prohibited from commencing business without $100,000 of premium notes. The act has not a word, or a provision, indicating the right to do business after the stock or cash plan, and a corporation can exercise no powers not expressly granted, or that are not necessary to carry

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into effect those that are granted. (See authorities cited under point third, post.) And, moreover, that statute expressly prohibited the commencing business on the stock plan without $50,000 of cash capital.

2. The company, being organized under the general act as a mutual company, and with a capital made up of premium notes, by direction of the statute, the Legislature, by the term 'mutual insurance,' used in the act, must be deemed to have adopted the term as it had become known in the legislation of the State, and as expressed in the Jefferson and Madison County Mutual Insurance Company charters. (Laws of 1836, pages 42 and 89.) In these acts of incorporation, the members were 'all persons who should insure.' (Sec. 2.) 'Each person, before he received his policy and became a member, must deposite his premium note, and pay a sum in cash not exceeding five per cent.,' (sec. 6,) and the members were bound for losses to the extent of the said note, and, in addition, one dollar for every $100 of the sum insured on the mutual principle. (Secs. 8 and 11.) Over thirty companies were chartered the same session after this pattern act; and in subsequent sessions, I may say, that out of New York city nearly or quite every mutual insurance company was chartered after this pattern act, there being twenty or thirty charters each session referring to and adopting it. In May, 1834, the Saratoga Company had been organized under a similar act, requiring a premium note; and previous to that, the Scoharie Company and the Washington Company were chartered, with similar provisions, except the omission of the premium-note feature. We say, therefore, that in 1849, when a general act was to be passed, it had become a settled feature in the mutual insurance companies, that a premium note, instead of a cash premium, was essential to the idea of a mutual company; and that interpretation of the word 'mutual' was clearly indicated by the requirement, in mutual companies, of a capital made up of premium or deposit notes, instead of a cash capital, which was required in companies organized on the plan of stock companies and in life insurance. (Act of 1849, p. 441, secs. 5 and 6.) It certainly will not be insisted that the Legislature intended

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to follow the example of the companies which had been chartered in New York, with a cash premium instead of a premium note; if so, they would have required the capital to consist of cash premiums; and, besides, the failure of those companies operated as a beacon of warning to the law-makers against any such system. An additional reason to the almost universal prevalence in the State of New York of the mutual companies, on the plan of the Jefferson County Company, and the great success of that system, and to the requirement by the act of a capital in the mutual companies composed wholly of premium notes, and the entire omission of any authority in the act to allow a business to be commenced by the mutual companies in part or in whole on the stock plan; and the impracticability of pursuing the mutual principle when part of the members are obtaining policies on the cash or stock plan, and a part on the mutual plan, and the entire abandonment of the mutual principle by such a course; I say, an additional reason to infer the intent of the Legislature is found in the prevalence of this premium-note principle in the other States. (Angel, 424, sec. 418.)

In Indiana, Connecticut, Maine, Massachusetts, Vermont, Illinois, New Hampshire, Pennsylvania, and many others, the Legislatures, at the time of the act in 1849, had adopted the premium-note system, as we claim it to be. I infer this from the decisions of their courts, without an actual examination of the acts in the several States.

3. It is some evidence of the necessity of having legislative authority for issuing policies for a definite sum paid in cash in lieu of a premium note, that a special enactment has been resorted to for that purpose, instead of coming in under the 14th section of the general act, which would have given the power, if it were possible, under the provisions of that statute.

(Session Laws of New York, 1849, pp. 436, 184; ibid, 1850, p. 337; ibid, 1852, pp. 27, 399, 65; 3 Ohio, N. S., 348.)

4. Another and to our minds a conclusive objection to the exercise of this power of receiving a definite sum in lieu of a premium note (without an express legislative sanction) is, that it destroys the principle of mutuality, which is the leading characteristic

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of mutual companies formed under the act of 1849, and confounds the operation of a company 'organized to do business on the mutual plan,' with that of those companies which are organized on the plan of stock companies, and which are in their nature and principles antagonistic to the mutual companies.

To illustrate this idea, suppose that an individual desires to make an insurance in a mutual company. He makes his application, and receives a policy for $1,000, and executes a premium note for $100, and pays in addition five per cent. of that sum in cash. If the company is prudently and successfully managed, this five per cent. will pay expenses and all ordinary losses. But he is liable to pay, if any exigency like a disastrous fire renders it necessary, upon a just assessment, the whole of his $100 note, to satisfy the losses of any of his associates, who have also given their premium notes; and all who have given premium notes share in this contribution, which constitutes the principle of mutuality. Now, let us suppose that he applies to and is insured in a stock company; he gets his policy for $1,000, and pays for it one per cent., $10. He is entitled to the same indemnity in case of a loss as he was in the mutual company; but when he pays his premium, he ceases to have any further interest in the successful operation of the company; he is the insured, but not the insurer; and whether the company make gains of suffer losses, matters not to him, provided the company continues solvent. In the mutual company, he was not only the insured, but he was also one of the insurers, and suffered a loss by the loss of any one of his fellow-members. Now, suppose he insured in a mutual company by paying a definite sum in lieu of a premium note; and we will suppose that he pays one per cent., (for unless a mutual company insures at the ordinary stock rates, it would soon cease to make cash insurances;) he would pay $10, and get his policy. And, now, what is his situation as to his fellow-members of the company? He gets the same indemnity as he did in the mutual company, on giving his premium note, and the same he got in the stock company, but he is no longer interested in the successful operation of the company; he suffers

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nothing by the losses of his associates, and is not liable to contribute in any manner for their relief; he is the insured party, just as he is in the stock company, but he is not the insurer; on the contrary, all the premium-note makers are the insurers, and stand in precisely the condition of stockholders in a stock company; and in this way, and by this device, themakers of the premium notes are turned into a stock company, and become insurers to stock policy holders, to a ruinous amount, without any liability...

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