Carlton v. Southern Mut. Ins. Co.

• Decision Date: 10 June 1884
• Citation: Carlton v. Southern Mut. Ins. Co., 72 Ga. 371 (Ga. 1884)
• Parties: CARLTON et al. v. THE SOUTHERN MUTUAL INSURANCE COMPANY et al.
• Court: Georgia Supreme Court

72 Ga. 371

CARLTON et al. v. THE SOUTHERN MUTUAL INSURANCE COMPANY et al.

Supreme Court of Georgia.

June 10, 1884

February Term, 1884.

1. Where a mutual insurance company filed a bill in equity alleging that a large surplus fund had been accumulated by reserving certain amounts from the premiums paid in by the mutual insurers; that this surplus had become amply sufficient, and was in danger of becoming too large; that certain questions had arisen concerning it and the interest arising from it; and praying that the charter might be construed and interpreted " so that by the decree in this case the legal status of the reserve fund may be finally and definitely determined and fixed, and so that it may be ascertained and declared who are its lawful owners, and who are entitled to share in any division of the fund itself or of the income produced by it," — such bill brought the reserved fund before the court, and cross-bills on the part of some of the defendants, setting up rights or claims as to the fund were germane to the litigation and not demurrable.

( a. ) If a cause of action arose by the filing of a bill, and is germane to it, or if it existed before, and the bill uncovers facts transpiring before it was brought, and discovers equitable rights to the defendants, they may ask relief arising from those facts by cross-bills, and need not bring a separate action.

2. Where a mutual insurance company filed a bill, and selected certain individuals of each class of persons interested, as representatives of such classes, on the ground that service could not be made on all the class, and the defendants entered the litigation into which they had been invited, and through their representatives, filed cross-bills setting up their rights, they were not outside parties to the litigation, and it is not just to dismiss their cross-bills and thus turn out of court both the class whom the select men represent, and the men so selected by the company itself.

3. If the reserved fund is more than the charter, or the resolutions of the directors authorized, or than the necessities of the company and its expenses and reasonable expectation of losses require, the protest against it is clearly expressed in the cross-bills, and amply sufficient to make an equitable issue thereon.

4. An allegation in the cross-bills that there was nothing on the books of the company to put the defendants filing such cross-bills on notice that more than ten per cent of annual profits had been reserved, and that a resolution of the directors announced that they would not go beyond that per cent on profits annually, or $200,000 in bulk, and that such defendants had no actual notice of any sort, was sufficient and should not have been dismissed on demurrer.

5. When the defendants are brought into court as a class or classes they may defend in the same manner, and if a cross-bill be a legitimate mode of defence, by asserting rights springing out of the subject-matter of the bill, and asking relief thereon, it may be filed by them as a class.

6. A mutual insurance company is based upon the idea that each of the assured becomes one of the insurers, thereby becoming interested in the profits and liable for the losses. Without a charter, such an organization would be governed by the general law of partnership. When incorporated, they are subject to the terms of their charter. The charter stands in the place of articles of partnership, and modifies the general law as respects losses and profits, where the two conflict. But except as changed by the charter, equity will apply the general laws of partnership in respect to interest in and division of profits.

7. The fundamental principle at the base of all partnerships is a division of profits or losses in some form or degree, equal or otherwise, as the terms may be; and in a mutual insurance company the idea of mutuality involves the result that each assured becomes interested in profits and liable for losses.

8. The Southern Mutual Insurance Company, in its charter, its essence and its very name, is a mutual insurance company, and every stockholder is interested in the profits; and when the fund remaining, after paying losses and expenses, swells beyond the necessities of the corporation, and the excess becomes subject to distribution, he participates in the division. His obligation to pay losses is to the amount of premium required of him, and his privilege is to participate in the profits, when the fund reserved for the necessities of the corporation becomes larger than necessary.

9. The terms " stockholder" and " member," as used in the charter of this company are synonymous, and a stockholder, in respect to division of profits, is he who puts stock in the company in the shape of premium money (the only stock in such company consisting of premiums paid to insure property); and if what he puts in contributed to make a surplus fund of profits, whether in or out when the division is made, he remains a member to draw his share of such profits according to the amount of his premiums paid, pro rated with that paid by others, who also contributed to the accumulation.

10. The effect of paying premiums by notes or in cash discussed.

11. If the surplus over a proper reserve fund was in the coffers of the company, and it appears that it should have been divided while a member was still insured, and that the division would have allotted to him a part, equity will decree that this be done now, and will distribute it as it would have gone then.

12. The essence of mutuality is that those who contribute to produce assets are interested in proportion to their contribution, and if others manage for them as beneficiaries or cestuis que trust, the managers being trustees, equity will prevent misappropriation, or decree restoration, if improperly withheld.

13. By resolutions in 1855, the directors provided for a reserved fund, fixing ten per cent on profits as the annual contribution thereto, and for the remaining part of the profits scrip was to be issued annually to the policy-holders for one year, to be paid when the cash means of the company amounted to $200,000. Whatever was not issued to a then stockholder entitled to it, he is entitled to now.

14. The act of 1856, amending the charter of this company, did not destroy its mutual character. It gave the right to reserve a fund necessary to meet emergencies, and then retained the mutuality of all stockholders in participation in profits made during their term of insurance.

( a. ) The limit of $200,000 cash, as fixing the time when the scrip should be paid, would not apply to all years. With the increase of business and the increase of risk, proportionately will the amount of cash necessary to meet that risk increase.

( b. ) If the resolutions of 1855, and other similar resolutions, fixing the issuance of scrip, after deducting ten per cent, were published from year to year to invite insurance, and some of the defendants were induced thereby to insure, it would add weight to their right to hold the company to its publication and to keep the directors within the limits of the reserve which they thus fixed, and appropriate the balance to profits for stockholders.

15. The equity of those forced out without fault is greater than that of those voluntarily retiring, but in neither case would the termination of the insurance forfeit the profits previously made.

16. No statute of limitations can apply to all of these cross-bills, many of the defendants filing them having been insured but a year or two before the bill was filed. Besides, the relation makes a sort of continuing trust, and the statute does not bar, especially until the limit is complete, after knowledge of the acts of the trustees which made the fund accessible for distribution. Knowledge or opportunity therefor is denied in these cross-bills.

17. No demand was necessary on the part of the defendants before filing the cross-bills; but from abundant caution a demand was made before the last cross-bill was filed.

18. Directions given to the court below as to the mode of ascertaining what would be a legitimate reserve, what amount would be for distribution, and how a distribution should be effected.

19. In fixing the amount of the reserved fund, regard must be had to the present, past and future, and equity will so direct as to do justice to all.

Insurance. Corporations. Stock and Stock. Before Judge ESTES. Clarke Superior Court. November Term, 1883.

To the report contained in the decision, it is only necessary to add the following: On May 26, 1881, the Southern Mutual Insurance Company, through its directors, filed its bill in Clarke superior court against Lampkin et al. and Carlton et al., alleging, in brief, as follows: The company was chartered by act of the legislature in 1847, and its charter has been amended three times since, in 1849, 1856 and 1866. The amended charter is set out hereafter. The company was organized strictly upon the mutual plan, " and upon that plan all its operations have been conducted." There are no stockholders, in the ordinary sense of the term, the policy-holders, officers and agents exercising control over the affairs of the company, and the policy-holders being treated as occupying a relation most nearly corresponding to that of stockholders.

The principal office was first in Griffin, but in 1849 was moved to Athens. At first, the company insured both lives and property, but in 1855 it ceased the business of life insurance.

" From a very early period in its existence, it has been the policy of the company, as indicated in its charter, to accumulate a reserved fund which would be sufficient to furnish an ample guaranty to the holders of policies in the company....