Commonwealth ex rel. Attorney General v. American Life Ins. Co.

• Decision Date: 11 July 1894
• Docket Number: 5,6,7
• Citation: 162 Pa. 586,29 A. 660
• Parties: Commonwealth ex rel. Attorney General v. American Life Ins. Co. McCouch's Appeal. Little's Appeal. Miller's Appeal
• Court: Pennsylvania Supreme Court

29 A. 660

Commonwealth ex rel. Attorney General v. American Life Ins. Co. McCouch's Appeal.

Little's Appeal. Miller's Appeal

162 Pa. 586

Nos. 5, 6, 7

Supreme Court of Pennsylvania

July 11, 1894

Argued May 21 and 22, 1894 [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Appeals, Nos. 5, 6 and 7, May T., 1894, by Josephine McCouch, Annie Little and Mary A. Miller, from order of C.P. Dauphin Co., June T., 1890, No. 480, dismissing exceptions to report of auditors distributing estate of American Life Ins. Co. Affirmed.

Exceptions to report of auditors to distribute.

From the report of the auditors it appeared that the company was incorporated by act of April 9, 1850, P.L. 429, and supplements of April 21, 1852, P.L. 381, and April 8, 1857, P.L. 158, under the name of "The American Life and Health Insurance Company," the title of the corporation being changed on May 10, 1854, by order of the court of common pleas of Philadelphia county, to "The American Life Insurance and Trust Company," and later, on March 21, 1868, to "The American Life Insurance Company."

Section 3 of the act of incorporation provides that "the corporation hereby created, although a stock company, may embrace the mutual system, thus combining the benefits of both a stock and mutual insurance company, shall have power to insure the respective lives and health of its members and others, and to make all and every insurance appertaining to life risks of whatever kind or nature, and to receive and execute trusts, to make endowments and to grant and purchase annuities."

By supplement of April 8, 1857, the company was also authorized "to insure all kinds of property against loss or damage by fire, or any other cause or risk; to make all kinds of insurance against loss or damage of goods, merchandise or other property in the course of transportation by land, water or otherwise, and on any vessels or boats or other water craft, whereever they may be; to make all kinds of insurance upon life or lives; to lend money on bottomry or respondentia; to cause themselves to be insured against any loss, damage or risk in the course of their business, and generally to do and perform all other matters and things connected with and proper to promote their objects."

On May 13, 1890, on suggestion of the insurance commissioner of Pennsylvania, the company was dissolved by decree of the court of common pleas of Dauphin county, and The Real Estate Title Insurance and Trust Company, of Philadelphia, appointed receiver.

On July 14, 1891, the receiver filed its first account, showing a balance in its hands for distribution of $314,834.05. The account was subsequently confirmed, and the auditors were appointed to make distribution of that fund.

Other facts appear by the opinion of the court below.

Exceptions to the report of the auditors, Edgar L. King, Esq., and William J. Meyers, Esq., were dismissed by the court, in the following opinion by SIMONTON, P.J.:

"The facts are sufficiently found in the auditors' report, and we shall not restate them except so far as may be necessary with respect to the special cases to which the exceptions relate. In People v. Security Life Insurance Co., 78 N.Y. 114, it is shown that where a life insurance company has been adjudged insolvent and has been dissolved, it has broken its engagements with its policy holders and becomes liable to them on account of such breach, and the policy holders then have a claim for damages; and it is said that the decisions have uniformly been to this effect. The policy holders are in the same position as any other person would be who had running contracts of value with the company which it had broken -- claimants for damages; citing several cases.

"As to the measure of the damages, there can be no question that when a claim has become due before the date of the decree of dissolution, the amount of the damage for failure to pay is the amount of the valid claim, just as in all cases of failure to pay a just debt when due.

"But where policies are running at the date of dissolution, the measure of the damage suffered in each case by the policy holder is, as is said in the same case, 'the value of the policy which has been destroyed. When such value has been ascertained, the true measure of damage has been arrived at but the difficulty is to determine the value. In any given case the precise value cannot be ascertained. If the time of death were certain, and the rate of interest determined, there would be no difficulty; then the present value of the amount to be paid at death, diminished by the amount of the present value of all the premiums to be paid, would give the value. But the time of death is uncertain, and hence the present value of the running policy must always be speculative and uncertain.' And after discussing the mode of determining this value, the conclusion is arrived at that the net value of the policies, without regard to the health of the holder, and calculated as of the date of the dissolution of the corporation, according to the tables of mortality used in the business of life insurance, less the outstanding premium notes, if any, fixes the true value.

"The rules thus stated were adopted by the auditors in this case, and no exception has been taken to their action, except as to certain special cases, and it is therefore to these only that we shall direct our attention.

"In one of these special cases, in which exceptions to the report of the auditors have been filed, the claim was due at the date of the decree of dissolution, and the facts are as follows: Mary A. Miller was the beneficiary in a policy of $5,000 on the life of her husband, who died prior to the date of the decree of dissolution, and due proof having been made of the loss, a sight draft to her order was drawn on the company in her favor by its treasurer and sent to her in Texas, where it was indorsed by her and sent through a bank for collection, and was presented for payment, and payment refused, and shortly thereafter the decree of dissolution was entered.

"On these facts it is contended on her behalf that 'the draft of this company, drawn upon itself, was an equitable assignment of funds to meet the claim,' and that hence this is a preferred claim, and entitled to be paid in full. In Nesmith v. Drum, 8 W. & S. 9, it was held that a draft on a particular fund in the hands of a third party is an equitable assignment of the fund, although the draft be not accepted. And in Clemson v. Davidson, 5 Binn. 398, it is said by TILGHMAN, C.J.: 'Any order, writing or act which makes an appropriation of a fund amounts to an equitable assignment of that fund;' but as is added in Greenfield's Estate, 24 Pa. 232, at page 240: 'The appropriation must be in express terms, or the intent to make it must be clear. An order drawn upon one who has in his hands funds belonging to the drawer will not of itself amount to the assignment of the fund or any part of it, unless it plainly appears that the fund claimed was one designated out of which payment was to be made. If a debtor appropriates particular moneys to pay a certain debt, and it is as far delivered as the nature of the case will admit of, equity will control the appropriation, but if the act of appropriation is uncertain, or the subject-matter doubtful, the right of property in the fund is unchanged.' And in 3 Pom. Eq. Jur. 1284, it is said: 'An ordinary bill of exchange or draft drawn generally and not upon any particular fund, whether accepted or not by the drawee, does not operate as an equitable assignment. Its operation is not changed even when funds have been placed in the drawee's hands as a means of payment.'

"These authorities sufficiently show that there was no equitable assignment of any particular funds in the case we are considering. It is not acceptance by the drawee, but appropriation of the fund by the drawer which effects the assignment. By acceptance the drawee becomes the debtor to the holder, but if the draft be drawn on a particular fund it constitutes an assignment and binds the fund in the hands of the drawee on mere notice to him, whether he accepts the draft or not.

"Even if Mary A. Miller has become an equitable assignee by the delivery of the draft to her, she would not thereby have become a preferred creditor, but would have become an equitable owner of the fund assigned, and would have been entitled to follow it into the hands of the receiver if she could designate it and prove that it had come into his possession. But manifestly she can do neither. No fund is specified in the draft, and there are absolutely no indicia by which any fund can be designated or followed. There is, therefore, no basis on which her claim to be paid in full can rest.

"Exceptions have also been filed in respect of a special class of cases in which certain policies have matured by the death of the assured since the date of the decree of dissolution and before the filing of the auditors' report, and the beneficiaries in these policies contend that they are entitled to a dividend on the face value of their policies and that the auditors erred in awarding them only a dividend on the net value calculated as of the date of the dissolution. The argument on their behalf concedes that the rule adopted by the auditors is correct when applied to policies still running at the date when the proofs were taken; but it is contended that this is at best a calculation of chances which is adopted from the necessity of the case, and that it should not be used where at the time it is applied the data for the ascertainment of the exact value of the policies were furnished by the death of the assured. There have been cases decided in New York and in England in which the rule...