Clarkson v. Supreme Lodge K.P.
| Decision Date | 30 September 1914 |
| Docket Number | 8959. |
| Citation | 82 S.E. 1043,99 S.C. 134 |
| Parties | CLARKSON v. SUPREME LODGE K. P. MILLER v. SUPREME LODGE K. P. |
| Court | South Carolina Supreme Court |
Appeal from Common Pleas Circuit Court of Richland County; Geo. W Gage, Judge.
Actions by E. McC. Clarkson and S. L. Miller against the Supreme Lodge Knights of Pythias. Judgment for plaintiff in each case, and defendant appeals. Reversed.
Weston & Aycock and J. P. Goodrich, all of Columbia, for appellant.
Barron Moore, Barron & McKay, and W. Anderson Clarkson, all of Columbia, for respondents.
Plaintiffs brought these actions to recover the premiums which they paid to defendant on their policies of insurance, alleging that on January 1, 1911, defendant breached its contracts with them by unreasonably increasing the rates, and declaring their policies forfeited because they refused to pay the increased rates.
The circuit court held that the action of defendant in establishing the new rates was taken in good faith, but overruled defendant's motion for a directed verdict, based on the ground that the rates were unreasonable, and submitted to the jury the question whether the rates were reasonable, instructing them that, if they found that they were prohibitive, or unnecessary, or arbitrary, that would make them unreasonable, and they should find for plaintiffs. Under this instruction the jury returned verdicts for the plaintiffs. From the judgments entered thereon, defendant appealed. The cases were tried together on circuit and in this court.
The exceptions impute error in the admission of evidence, in the charge as to the measure of damages, and in the refusal of defendant's motion to direct the verdicts. If the verdicts should have been directed for defendant, the other assignments of error become speculative, and need not be considered.
Under its charter, constitution, and by-laws, the power to do what was done is specifically reserved to defendant, and, in their contracts, the plaintiffs expressly agreed to that reservation. Indeed, they do not now question the power or authority of defendant in the premises. Their sole contention is that the action taken was unnecessary, arbitrary, and unreasonable, and therefore void. Defendant admits that, if the power to change the rates was arbitrarily or unreasonably exercised, the plaintiffs were not bound to pay the increased rates, and the forfeiture of their policies cannot be sustained.
The question of paramount importance, therefore, is: Was the power unreasonably exercised? The purpose of defendant in organizing its insurance department was to give its members life insurance at actual cost. A brief recital of its efforts to do this, and the results thereof, without unnecessary or precise detail, may make the issue clearer.
In 1877 two classes were organized; in the first, certificates for $1,000 were issued to each member; in the second, they were for $2,000 each. Death claims were paid by monthly assessments, the members of the first class paying $1 each and those of the second $2 each, without regard to their ages. Later a third class was organized, with special features and privileges which need not be mentioned. This plan was so defective that it could not be kept up. In 1884 the fourth class was organized, on a different basis, the members being rated according to age and amount of insurance carried. The members of the other classes were allowed to transfer to the fourth, practically without restriction, except as to the rates, which were based on the age of entry, and not the attained age. Nearly all the old members transferred to the fourth class. These rates were too low, and in 1894 they had to be supplemented by the collection of dues and extra assessments. In 1901 the mortuary fund was reduced to $8,000, while the unpaid death claims amounted to $500,000. At that time, the rates were again increased, but, as before, the members were rated at the age of entry. The result was that, in some instances, men of vastly different ages were assessed at the same rate. To illustrate: Mr. Clarkson was admitted, in 1885, at age 41, and Mr. Miller, in 1893, at age 40. Under the rating of 1901, each was assessed at his age of entry, though, at that time, Mr. Clarkson was 57, and Mr. Miller 48, and Mr. Clarkson's rate was $1.85 per thousand, while Mr. Miller's was $1.75, although he was nine years younger. Under this new rating, the department appeared for a time to be in a flourishing condition, and a considerable surplus was accumulated. But the prosperity was only apparent and short lived. As the years passed, it was found that the mortuary fund was diminishing out of safe proportion to the death rate and the amount of outstanding insurance, and, at the rate of diminution, it was only a question of time when it would be insufficient to pay the death claims. In this extremity the defendant employed an experienced actuary, who, after examination and investigation of its insurance department, advised that a rerating upon a scientific and adequate basis was absolutely necessary to preserve its life. He advised further that this rating be based upon the American Experience Table of Mortality, with proper addition for the expense of administration. This was done, in 1906, by organizing the fifth class, to become effective January 1, 1907. The rates were fixed as suggested, and, to prevent the accumulation of any unnecessary surplus, and give the members insurance at actual cost, it was provided that, at the end of each year, an accounting should be had, and if it should disclose a surplus equal to or exceeding one or more assessments, such surplus was to be distributed among the members by waiving that number of assessments. The members of the fourth class were urged to transfer to the fifth, and were allowed until January 1, 1909, to do so, without expense or medical examination, but they were to be rated at their attained ages. A great majority of them transferred, but many of them, plaintiffs among them, finding that their rates would be greatly increased by reason of their increased age, declined to transfer. Two extra assessments were levied on the fourth class in 1909, and three in 1910. During those years the lapse ratio of that class increased to 21.07 and 22.80 per cent., as against 6.35 and 5.09 for the years 1907 and 1908. In August, 1910, the rates of the fourth class were increased, to become effective January 1, 1911. This new rating, like that of the fifth class, was based on the American Experience Table of Mortality, with adequate expense loading, and the members were rerated at their attained ages. Provision was made for the annual distribution of any unnecessary surplus, by the waiving of assessments, as in the fifth class. A number of options were offered to the members of the fourth class. Among them were: (1) To continue paying the old rates for such period as said rates would give them the same protection, using the standard adopted as the basis for determining the cost of the insurance; (2) to continue paying the old rates, and scale the amount of their insurance to such a sum as those rates would carry, according to said standard; (3) to continue paying the old rates,...
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