Clark v. Lincoln Liberty Life Insurance Company

• Decision Date: 14 February 1941
• Docket Number: 30923
• Citation: 296 N.W. 449,139 Neb. 65
• Parties: IRA N. CLARK ET AL., APPELLANTS, v. LINCOLN LIBERTY LIFE INSURANCE COMPANY ET AL., APPELLEES
• Court: Nebraska Supreme Court

296 N.W. 449

139 Neb. 65

IRA N. CLARK ET AL., APPELLANTS, v. LINCOLN LIBERTY LIFE INSURANCE COMPANY ET AL., APPELLEES

No. 30923

Supreme Court of Nebraska

February 14, 1941

APPEAL from the district court for Lancaster county: JEFFERSON H BROADY, JUDGE.Reversed, with directions.

REVERSED.

Syllabus by the Court.

1.Where a petition is filed to which a demurrer is sustained and with leave of court an amended petition is filed containing substantially the same allegations as the original petition, together with an additional paragraph alleging that plaintiffs have no adequate remedy at law, a demurrer to the amended petition will not raise the question of res adjudicata or previous adjudication upon the allegations set forth in the amended petition, and against which a demurrer to the original petition had been sustained.

2.The appropriate procedure to adopt when an amended petition filed with leave of court contains substantially the same allegations as the original petition is, before demurrer, to call the matter to the attention of the court by motion.

3.The district court is a creation of the Constitution as is also its common-law and equity power and jurisdiction.This power and jurisdiction are not limited by terminology and, further, the terminology does not admit of legislative limitation, but only of legislative extension.

4.The insurance department, or, as originally termed in the statutes, the department of trade and commerce, is not an agency created by the Constitution.It is an executive department of government, created by the legislature under constitutional authority with power to exercise general control and supervision over insurance companies, their organization, and the business of insurance in the state.

5.The insurance code fails, either in direct terms or by language from which such an inference may be drawn, to confer on the insurance department quasi judicial power or original exclusive jurisdiction to determine legal and equitable controversies between insurance companies and their policyholders.

6.The enforcement of rights and liabilities existing between insurance companies and policyholders has received no legislative attention in the insurance code.

7.In the insurance code no legislative expression is found, the language or purport of which would operate to curb or abridge any of the constitutional, common-law or equity power or jurisdiction of the district court.

8.Any attempt by the legislature to oust the district court of its jurisdiction over trusts and trust funds and litigation in relation thereto would be ineffective and void.

9.The assets and surplus of participating insurance companies, and of the participating division of companies doing both a participating and a nonparticipating business, are trust funds.

10.The surplus of a mutual life insurance company, and of the participating business of a company, belongs to its members, and a minority member may sue on behalf of himself and all others similarly situated.

11.Held that the amended petition states a cause of action, that the district court has jurisdiction of the parties and the subject matter, and that the demurrer of the appellee should be overruled.

Appeal from District Court, Lancaster County; Broady, Judge.

Action by Ira N. Clark and others against Lincoln Liberty Life Insurance Company and others, to require defendant insurance company to submit a report of its participating and nonparticipating business, and to distribute surplus of participating business to participating policyholders and for other relief.From a judgment sustaining the demurrer of the defendant named, plaintiffs appeal.

Reversed with directions.

Loren H. Laughlin and Edward T. Gardner, for appellants.

Clinton J. Campbell, contra.

C. Petrus Peterson, J. W. Kinsinger, William M. Holt, H. J. Requartte and James A. Doyle, amici curiae.

Heard before EBERLY, PAINE, MESSMORE and YEAGER, JJ., and MUNDAY, District Judge.

OPINION

YEAGER, J.

This is an action instituted in the district court for Lancaster county, Nebraska, by Ira N. Clark, June Cora Hill, James William Rolls and Freida C. Selander, plaintiffs and appellants, in their own behalf and in behalf of all others similarly situated, against the Lincoln Liberty Life Insurance Company, a corporation, Ira C. Crook, Harold L. Schwenker, George L. Towne, Joseph Albin and Ralph C. Lawrence, defendants.

The plaintiffs, in a lengthy amended petition, the gist of which will be set forth herein, alleged that the Lincoln Liberty Life Insurance Company is a life insurance corporation organized on April 16, 1919, under the laws of Nebraska as a stock company and has been since said date conducting a life insurance business and as such writes both participating and nonparticipating policies of life insurance; that the other defendants are, and have been since its organization, the managing and controlling directors and officers of the company; and that the defendants are trustees for the plaintiffs, who are participating policyholders, and for all of the other participating policyholders, of all of the surplus, earnings and accumulations arising from the participating business of the defendant company.It is alleged the defendant company on given dates between April 14, 1924, and October, 1928, issued to each of plaintiffs a participating policy or policies of insurance of one type or another; that all of said policies were in full force and effect at the date of the commencement of this action on the books and records of the defendant company except that of the plaintiff James William Rolls, whose policy was lapsed by the defendant company by reason of nonpayment of the annual premium which was due July 25, 1937.In this connection it is claimed by the plaintiffs that the policy of Rolls would not have lapsed had there been credited to it a proper apportionment of the surplus from the participating business of the defendant company.

It is further alleged that in violation of the statutes of the state and the obligation of the policies of insurance held by plaintiffs and all others similarly situated the defendants have failed, neglected and refused to keep in separate accounts the participating and nonparticipating insurance business of the defendant company, and have failed to submit to the department of insurance separate reports of the said two kinds and classes of insurance, and that they have transferred large sums of money from the participating business to the nonparticipating business with the intention of cheating and defrauding the plaintiffs and the others similarly situated, thus withholding earnings and accumulations in which plaintiffs and the others similarly situated were entitled to participate, all to the end that plaintiffs are unable to ascertain the exact conditions of the two classes of business and of the exact amount of money which has been transferred from the participating to the nonparticipating business.

It is further alleged that a conspiracy exists between the defendants Crook, Albin, Schwenker, Towne and Lawrence as managing and controlling directors and officers of the defendant company to carry out the foregoing claimed illegal acts of the company and, in furtherance of such conspiracy, the said defendants have illegally withdrawn about $ 650,000 which has been allocated "special funds and thrift," about $ 150,000 which has been allocated to "fluctuation reserves," and an additional $ 350,000 has been withdrawn from time to time with no explanation and in such manner that it cannot be traced or its use determined without an examination of the books of the defendant company.

It is further alleged that the surplus and earnings from the participating business of the defendant company belong to the participating policyholders in equitable proportions, and that as to the participating business the defendant company is subject to the laws of the state governing mutual life insurance companies.

It is further alleged that the defendant company is solvent and able to afford the relief prayed, and that there is no need for a receiver.

It is further alleged that no demands have been made on the defendant company, for the reason that such demands would be of no avail and futile; also that plaintiffs have but recently discovered the alleged wrongful acts of the defendants, and that a complete examination and investigation of the books and records of the company is necessary to a complete disclosure of all of the facts and circumstances relative to the business transactions of the defendant company and the exact extent of misapplication of the resources properly belonging to the plaintiffs and the other participating policyholders.

It is further alleged that plaintiffs have no adequate remedy at law, for the reason that the department of insurance is not a court, possesses no judicial powers to render relief prayed for against the defendants; that the department of insurance has no power to authorize the plaintiffs to examine the books and records of the defendant company; that the department of insurance has no power to render a binding judgment or decree as between the plaintiffs and defendants and is so constituted in law and in fact as to render it impossible for the plaintiffs to obtain a just and equitable accounting from the defendants; and that a court of equity has full, complete and original jurisdiction over the cause of action set forth in the petition.

The plaintiffs in their prayer in substance ask that the defendant company be ordered to submit full and complete reports of its participating and nonparticipating business in separate reports for each year it has been in business; that it be ordered to separate...