Buck v. Ross

Decision Date17 February 1932
Docket Number7211.
PartiesBUCK v. ROSS et al.
CourtSouth Dakota Supreme Court

Appeal from Circuit Court, Codington County; W. N. Skinner, Judge.

Action by Clarence F. Buck, as receiver of the Integrity Mutual Casualty Company, against W. E. Ross and others, copartners as Ross & Sons. From a judgment for defendants, plaintiff appeals.

Reversed and cause remanded, with directions.

Case & Case, of Watertown, for appellant.

Loucks & Wohlheter, of Watertown, for respondents.


This action was brought by the plaintiff, as receiver of the Integrity Mutual Casualty Company, a corporation, to recover from the defendants the balance alleged to be due upon a premium agreed to be paid for a policy of employer's liability insurance, insuring the defendants against liability during the year 1926. The complaint alleged the incorporation of the Integrity Mutual Casualty Company (hereinafter referred to as the company) the authorization to carry on business in this state; the appointment of the plaintiff as receiver of the company by the United States District Court for the Northern District of Illinois on the 29th day of May, 1926; the application by the defendants to the company for a policy of insurance for the year 1926 and the issuance by the company of the policy; that the premium was to be determined by the pay roll of the defendants; the payment of the premium up to the 29th day of May, 1926; and alleged a balance due under the terms of the policy for the premium period ending December 31, 1926. The complaint further alleged in paragraph five that the company was a mutual company, and that the defendant, as a policyholder, was mutually liable with other policyholders for the indebtedness and liabilities of the company. The answer admitted that the defendants had paid the premium up to the 29th day of May, 1926; the answer denied the balance of the complaint and set up as a further defense that the company terminated the policy on the 29th day of May, 1926 and that upon the appointment of the receiver all protection and benefits which the defendants were to receive under the policy terminated.

There is no material dispute in the evidence. The company was duly authorized to carry on its business in this state; the policy was issued by the company to the defendants for the year 1926, at their request, with the premium based upon the defendants' pay roll. The premium was paid until May 29, 1926, the date of the appointment of the receiver. The receiver, shortly after his appointment, notified the defendants of the fact, and further, as follows: "No insurance written by the Integrity Mutual Casualty Company is in effect after the appointment of the receiver, and this notification is sent to you so that, if you have not already done so, you may immediately take steps to secure proper coverage of insurance in place of policies etc."

There was also introduced in evidence the application, the policy and the by-laws of the company. The plaintiff also submitted evidence showing that on May 29, 1926, the Integrity Mutual Casualty Company was insolvent to the extent that, if all outstanding premium accounts and all other assets of the company were realized upon in full, there would still be a deficiency as to all creditors of over a million dollars. The defendants objected to all of this evidence regarding insolvency upon the grounds that it was incompetent, irrelevant, and immaterial. This objection raises the first issue for our determination. The trial court admitted the evidence over the objection, but made no finding as to insolvency, and ultimately held in favor of the defendants.

The respondents first contend that the complaint failed to allege the insolvency of the company, and for this reason the evidence regarding insolvency was incompetent, could not be considered by the trial court, and would not sustain a finding of insolvency. We are unable to agree with this contention of the respondent. The complaint, in the first instance, simply stated a cause of action to recover the balance alleged to be due upon a liability insurance premium upon a policy issued by a mutual casualty insurance company, which premium, it is alleged, the defendants had agreed to pay. The answer admitted the payment of a portion of the premium, and by way of an affirmative defense alleged that the policy had been terminated by the company, and that upon the appointment of the receiver, as disclosed in the complaint, all protection and benefits which defendants were to receive under said policy terminated, and the policy was thereby termiinated, and the defendants were not liable for any further payment. In this state of the pleadings, we are of the opinion that, should the insolvency of the company become material in view of this affirmative defense, under our Code practice, no reply being necessary unless a counterclaim is pleaded (section 2372, Rev. Code 1919; Koester v. Port Huron Co., 24 S.D. 546, 124 N.W. 740; Bennett v. Campbell, 48 S.D. 285, 204 N.W. 177; Board of Ed. v. Whisman [S. D.] 229 N.W. 522), evidence of insolvency would be competent and within the issues raised by the pleadings.

Was the evidence of insolvency material in view of the affirmative defense? The correct answer to this question, in our opinion, depends upon whether or not the Integrity Mutual Casualty Company was a mutual company. The by-laws and articles of association, among other things, provided as follows:

"Every policy-holder shall be a member of the corporation during the period for which his policy is in force and effect and, while such member, shall be entitled to vote at all meetings of members in such manner as shall be provided in the by-laws.
"No member shall be liable for any obligation of the corporation except to the extent of the premiums expressed in his policy.
"The board (of directors) may from time to time at its discretion, distribute any part of the gains and savings of the business among the members of the corporation in such manner and to such extent as it may deem advisable."

By these articles of association and the by-laws each policy holder becomes a member of the corporation, and to that extent acts as both insurer and insured. It is contemplated that the premiums paid by the members and the surplus and reserve, if any, constitute the fund from which losses and expenses are paid. Each policyholder is entitled to his voice in the meetings of the company and to share in the profits as determined by the board of directors, whom he may have a voice in electing. These facts determine that this is a mutual company. Rosebraugh v. Tigard, 120 Or. 411 252 P. 75; 32 C. J. 1018. The respondent contends that because this policy was not subject to assessment, but provides for the payment of a cash...

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