Bailey v. State Farmers Mut. Cas. Co., 23984

• Decision Date: 02 April 1964
• Docket Number: No. 23984,23984
• Citation: 377 S.W.2d 485
• Parties: A. P. BAILEY, M. K. Crain and J. Ensign, Plaintiffs-Appellants, v. STATE FARMERS MUTUAL CASUALTY CO., a Corporation, et al., Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 485

377 S.W.2d 485

A. P. BAILEY, M. K. Crain and J. Ensign, Plaintiffs-Appellants, v. STATE FARMERS MUTUAL CASUALTY CO., a Corporation, et al Defendants-Respondents.

No. 23984.

Kansas City Court of Appeals, Missouri.

April 2, 1964.

Stephen J. Millett, Kingston, Frank L. Pulley, Cameron, for appellants.

Watson, Ess, Marshall & Engass, Kansas City, for respondents.

SPERRY, Commissioner.

Plaintiffs, policy holders of State Farmers Mutual Tornado Insurance Company (hereafter referred to as Tornado), organized under the laws of Missouri, instituted this as a class action for and on behalf of themselves and all policy holders of the company to recover for Tornado Company, $700,000.00 alleged to have been illegally transferred from Tornado Company to State Farmers Mutual Casualty Company (hereafter referred to as Casualty Company), a Mutual Insurance Company organized under the laws of Missouri. The individual defendants in the caption were policy holders and constituted the board of directors of both Tornado and Casualty. Judgment was for defendants and plaintiffs appeal.

Plaintiffs allege that they are policy holders and stockholders of Tornado; that they bring this action for themselves and for the 91,000 other policy holders, as a class, and for Tornado; and that they are truly representative of the class. They do not state facts tending to show how they were selected, or why or how they are truly representative of the class. They do not state facts showing, nor do they allege, that they made demands upon defendants for restitution of the illegally transferred funds, prior to institution of this suit. They allege that they made no demand to secure relief, prior to institution of this action; and the evidence established that they did not make any effort, of any kind, to secure correction of the wrongful act for which redress is here sought.

This action is brought pursuant to the provisions of section 507.070, V.A.M.S., providing the remedy which plaintiffs seek. Paragraph two (2) thereof is as follows:

'2. In an action brought to enforce a secondary right on the part of one or more shareholders in an association, incorporated or unincorporated, because the association refuses to enforce rights which may properly be asserted by it, the petition shall aver that the plaintiff was a shareholder at the time of the transaction of which he complains or that his share thereafter devolved on him by the operation of the law. The petition shall also set forth with particularity the efforts of the plaintiff to secure from the managing directors or trustees and, if necessary, from the shareholders such action as he desires, and the reasons for his failure to obtain such action or the reasons for not making the effort.' (Emphasis ours).

The above section is now Civil Rule 52.08(b), the second paragraph of which, in part follows:

'The petition shall also set forth with particularity the efforts of the plaintiff to secure from the managing directors or trustees, and, if necessary, from the shareholders, such action as he desires, and the reasons for his failure to obtain such action or the reasons for not making such effort.'

It is similar to Federal Rule 23. 28 U.S.C.A. page 146.

The evidence disclosed that Tornado was, by law, restricted to writing insurance covering losses on property by windstorm; that, in 1956, the board of directors and other policy holders, became aware that the public desired 'package' insurance which would cover all of their losses and liabilities; that it became desirable that its policy holders should be able to secure, from one company, insurance covering all of their risks; that ways and means of making such services available to Tornado's policy holders, and to its future policy holders, were discussed at various policy holder meetings; that, December 5th, 1957, the State Farmer's Mutual Casualty Company was licensed to do business in Missouri; that it was created by Tornado and was, in effect, subsidiary to Tornado; that, on February 20th, 1958, a meeting of policy holders was held at the home office of Tornado for the purpose of considering and acting upon a proposal to transfer money by loan, to Casualty Company, to provide it with funds required by law, and with an operating fund; that the entire body of policy holders, including plaintiffs, was notified of this meeting, and of the proposal to be considered; that plaintiffs did not attend the meeting, although they lived within a few miles of the home office and that said meeting was attended by approximately a hundred policy holders; that the proposition hereinbefore mentioned was discussed in open meeting; that no one spoke against it; that it was moved, seconded, and voted by an overwhelming majority of those voting, that Tornado finance Casualty Company; that, prior to said meeting, the defendant directors had sought and obtained the advice and opinion of a lawyer, approving such procedure; that they had conferred with the Superintendent and other officials of the State Department of Insurance; that such department officials approved the plan; that the policy holders, at said meeting, voted instructions to Tornado directors to transfer $700,000.00 of Tornado's funds to Casualty, to be used in financing it; that no policy holder suggested that such action was ultra vires the corporation; that said funds were, on February 24th, 1958,...