Dougherty v. Equitable Life Assur. Soc. of United States

• Decision Date: 31 December 1934
• Citation: 266 N.Y. 71,193 N.E. 897
• Parties: DOUGHERTY v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES, and twenty-five other cases.
• Court: New York Court of Appeals Court of Appeals

266 N.Y. 71

193 N.E. 897

DOUGHERTY

v.EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES, and twenty-five other cases.

Court of Appeals of New York.

Dec. 31, 1934.

Actions by G. Frank Dougherty and others against the Equitable Life Assurance Society of the United States on insurance policies made by Russian citizens in Russia in which all the plaintiffs were successful at the Appellate Division. Twenty-two actions were brought on the theory of rescission in which premiums paid have been recovered, with interest from 1918. Others were for the face of an endowment and a life policy. The facts appear in the opinion. Some 6,000 policies, it is said, were issued in Russia and the foregoing have been selected as test cases. From judgment of the Appellate Division affirming judgments in favor of certain plaintiffs and reversing judgments in favor of defendant (238 App. Div. 696, 265 N. Y. S. 714), all the parties appeal.

Judgments reversed and complaints dismissed.

Appeals from Supreme Court, Appellate Division, First Department.

Walter H. Pollak, G. Frank Dougherty, Murray I. Gurfein, Thomas I. Emerson, George J. Hadjinoff, and Ruth R. Kessler, all of New York City, for plaintiffs-appellants-respondents.

John W. Davis, William C. Cannon, and David E. Hudson, all of New York City, for defendant-respondent-appellant.

Joseph M. Proskauer, Philip A. Carroll, J. Alvin Van Bergh, and Frank A. F. Severance, all of New York City, for National City Bank of New York, amicus curiae.

CRANE, Judge.

On November 16, 1933, the United States extended formal recognition to the Soviet Republic. The first question which arises in this case is as to the effect this recognition gives to the laws of the Soviet Republic passed in 1918 and 1919; the second question relates to the valuation of the ruble after 1924, to be paid under contracts made prior to 1918.

The Equitable Life Assurance Society of the United States had a concession or was licensed to do business in Russia under laws of the Imperial government. In 1890, the Russian government enacted the laws of August 10, 1890, known as the policy rules (Pravila), stating the regulations which were to govern the conduct of the Equitable's business in Russia. These were inserted in each policy issued by the defendant and became a part of each insurance contract. The defendant was obliged to keep on deposit with the government or the state bank sufficient assets to more than meet the liabilites incurred by the policies issued. The defendant at all times not only kept the required cash deposit, but also bonds, more than equal to the reserve premiums upon all policies issued in Russia.

Paragraph 1, clause 7, of the policy rules provides ‘that all disputes which may arise in connection with the assurance operations carried on by the Society in Russia shall be settled according to Russian laws and in Russian courts of justice.’ This was plaintiffs' Special Exhibit A, an interpretation of the original. The defendant's interpretation, defendant's General Exhibit 14, reads: ‘That the litigation of claims which might arise with the Society in connection with the business pertaining to its operations in Russia be pursued on the strength of our existing laws and in Russian court institutions.’ These varying interpretations mean the same thing, as the referee who decided this case said: ‘All disputes which may arise in connection with the insurance operations * * * shall be settled according to the Russian laws and in Russian courts of justice.’ Another provision, made part of the contract of insurance, was that this right to do business in Russia might at any time be canceled, in the discretion of the government, without explanation. If permission be withdrawn and the defendant expelled from Russia, the society ‘must immediately liquidate its business in Russia and settle its accounts with the assured in the manner that shall be indicated to it by the Russian government.’

All the policies upon which these twenty-six test actions have been brought were made in Russia by Russian citizens, to be performed there, and the obligation of the contract depended not only upon its specific terms but also upon the Russian law. The referee said: ‘The result of these various provisions is that these policies were made in Russia and were to be performed there. All payments to the defendant were to be made in Russian currency. What the insured or his beneficiary was to receive was the sum promised in Russian rubles. Primarily they were to be paid from funds accumulated in St. Petersburg for that purpose. Only if such funds proved insufficient or if for some reason payment could not or was not there made might recourse be had to the general assets of the Society, by which the Russian obligations of the defendant were guaranteed.’

This last statement of the referee had reference to another provision of the rules or Pravila made part of the contract of insurance. It reads: ‘That the exact fulfillment of the obligations entered into by the Society regarding the Russian assured shall be guaranteed, besides its sums and security found in Russia, by all the property belonging to the Society.’

Let us pause here to consider this paragraph. It is the obligation of the society in Russia which is guaranteed. When the obligation has once been established, the society pledges its funds to meet the obligation. Its funds or property may be anywhere. The obligation, however, only arises under Russian law. Until the Russian law, not New York law, determines that there be an obligation, the Equitable is not liable. By the undisputed terms of the insurance policy, these obligations, or any disputes about them, are to be determined by the Russian law; the guaranty of all the property of the Equitable only applies to an obligation which is or becomes such under that law. The plaintiffs have read these contracts as if the defendant had said: ‘If for any reason we cannot carry on this insurance business in Russia we will take over the policies and carry them on from New York. If the Russian law will not give you relief we will guarantee you a continuance of the policy and of our obligations under it in spite of Russian law; no matter how the government of Russia by its legitimate laws may affect the insurance contract or policies, we will carry out the obligation as though it were an obligation to be performed according to New York law.’ There is no such contract. Russians in Russia made a contract as to which ‘all disputes * * * shall be settled according to the Russian laws.’ If the imperial government had continued, had not been destroyed by revolution, there can be no doubt that the decrees of such government affecting these insurance policies or requiring the Equitable to liquidate in the manner indicated by the government would have been within the very terms of these policies of insurance. The question here presented is whether a different result follows when the imperial government has been succeeded by a republic.

The specific finding of the referee is: ‘The application for the policy herein was made in Russia. The policy herein was issued under, and subject to the law of 1871, Concession and Policy Rules.’ These Rules, so far as material, are given above. The fereree also found as a fact that not only was the contract of insurance made in Russia, but all premiums were to be paid in rubles in Russia at the St. Petersburg office of the defendant. The contract provided: ‘The policy shall take effect when (after the actual payment of the first premium) it has been countersigned by the General Manager for Russia.’

The law of the place of performance generally governs the contract and its discharge. Restatement, Conflict of Laws § 385; Zimmermann v. Sutherland, 274 U. S. 253, 47 S. Ct. 625, 71 L. Ed. 1034; 2 Wharton on Conflict of Laws (3d Ed. 1905) § 467b; 1 Joyce on Insurance (2d Ed. 1917) § 225. But we are not left to the general rule, whether it be the place of performance or some other place, because the parties have stipulated that the Russian law shall govern. The policy rules further provided that, if the assured failed to pay a premium on due date or within two months thereafter, the policy would lapse and become null and void and the insurance would terminate unless the defendant permitted the policy to be reinstated after the performance by the insured of certain conditions precedent, except that an assured, who had paid not less than three full annual premiums, was entitled to the surrender value of the policy, if applied for within one year after date of lapse, or to a paid-up policy for a reduced amount, if applied for within six months after date of lapse. All these applications were to be made to the defendant's general manager for Russia. While it is true that the referee made a finding that these contracts were to be primarily performed in Russia, we understand this to mean that the defendant may pay its assured wherever the assured might be found. But this does not mean that its obligations are to be determined by the law of the country where the insured may be able to obtain jurisdiction over the defendant. Wherever sued, that obligation is to be determined by Russian law, for such is the contract, and no court of this state has power to make a new contract for the parties. Not the Russian law, but the contract made between the assured and the Equitable in Russia is the basis for all these actions, and into that contract we must read that all disputes regarding the obligations of the contract are to be determined by the Russian law. The law of the situs of tangible property may or may not determine the right to its possession and ownership. The right to a sum of money due upon contract is to be determined by the terms of that contract the world over. ‘The obligation is not enlarged by the fact that the creditor happens to be able to catch his debtor here.’ Deutsche Bank Filiale Nurnberg v. Humphrey, ...