Dresser v. Hartford Life Ins. Co.

• Decision Date: 09 June 1908
• Citation: 70 A. 39,80 Conn. 681
• Parties: DRESSER et al. v. HARTFORD LIFE INS. CO. et al.
• Court: Connecticut Supreme Court

70 A. 39

80 Conn. 681

DRESSER et al.

v. HARTFORD LIFE INS. CO. et al.

Supreme Court of Errors of Connecticut.

June 9, 1908.

Appeal from Superior Court, New Haven County; Silas A. Robinson, Judge.

Action by Charles H. Dresser and certain other holders of certificates of insurance in the "safety fund" department of the Hartford Life Insurance Company against it and others for an injunction and an accounting, and for damages and other relief on account of the alleged actual and intended misappropriation of the funds and mismanagement of the business of such department. Demurrers were sustained to the bill, and plaintiffs appeal. Reversed and remanded.

The plaintiffs are 31 holders of certificates of insurance issued by the defendant insurance company on or about the 1st of December, 1890. The defendants are the Hartford Insurance Company, its president, secretary, and its directors, who are said to constitute a majority of its stockholders, and the Security Company of Hartford. The first seven paragraphs of the complaint allege that the defendant insurance company was originally chartered in 1866, with a capital stock of $200,000, under the name of the Hartford Accident Insurance Company; that its charter has since been amended by different acts of the Legislature; that with a capital stock of $500,000 it now transacts insurance business under various plans, including level premium life insurance, for the benefit of its stockholders, and that prior to 1880 it had invented a plan of assessment life insurance which was published and known as the "safety fund plan," the principal features of which, as set forth in paragraph 8 of the complaint, are the following:

"(8) Each person applying for insurance under the plan was to pay an admission fee of from $8 to $40; to pay annually, for the sole purpose of paying the expense of said insurance on said safety fund plan, $3 for each $1,000 of insurance; to pay as mortuary payments or assessments to meet death losses an amount graduated according to the policy holder's age when the assessment was made, the amount of his policy, and the total amount of insurance or indemnity in force with the company; to pay $10 on each $1,000 of his insurance to make up a 'safety fund.' This safety fund was to be deposited with the defendant, the Security Company of Hartford, Conn., as trustee. As often as the fund composing such sum amounted to a sufficient sum to purchase $1,000 par value of United States bonds, such trustee was to make investments of such funds therein and register the same in its name as trustee of the 'safety fund' of said insurance company. The earnings of this safety fund after it reached $300,000, and all contributions to said fund after it reached $1,000,000 in United States bonds par value, were to be divided up among the remaining certificate holders in proportion to the face amount of their certificates. In case of failure of any certificate holder to make payments in accordance with his agreement, his interest in said safety fund and all his claims were to be forfeited for the benefit of the remaining certificate holders; and, when the face amount of outstanding certificates was less than $1,000,000, it should be divided among the outstanding certificate holders in proportion to the face amounts of their certificates. Said fund was to belong absolutely to the certificate holders, and the company was to have no interest whatsoever therein, except in its application for the benefit of the certificate holders in accordance with the terms of said plan."

Other material allegations in the several paragraphs of the complaint are as follows:

"(9) Some time in the year 1880 the defendant insurance company adopted said plan, and publicly announced that it would do business on said plan and in accordance with the terms thereof as hereinbefore stated, and particularly announced to the public and all certificate holders that said safety fund was to belong absolutely to the policy holders; that the company had no interest in it except in its application for the benefit of the certificate holders in accordance with the terms of the safety fund plan as above outlined, and that when the insurance outstanding was reduced to $1,000,000 the principal of said fund would be divided among the remaining certificate holders. Said announcements continued down to about March, 1899. These statements were made in numerous writings and by parol by the officers, managers, and agents of said company to the public, and to all certificate holders, and to all persons contemplating becoming certificate holders as an inducement to take said certificates and make payments thereunder, and particularly said company did in the year 1880 cause to. be so published and issued in large numbers a circular of which Exhibit A, hereto annexed, is a copy. And said company continued to so issue such and other similar circulars and make such statements as an inducement to persons to become certificate holders and to make payments under the terms of said certificates, down to about March 19, 1899."

Exhibit A, referred to in paragraph 9, contains, among other statements, the following: "Herewith will be found circulars which unfold to you a system of protection that is destined to become immensely popular, and will supersede the forms of insurance heretofore worked, combining as it does the cheapness of co-operative societies with a strength and soundness unknown in life Insurance. * * * Under the safety fund system of protection, * * * by the investing of $10.00 on each one thousand dollars of your insurance in United States bonds, registered for yourselves as members, forming a safety fund limited to one million dollars, held by your own trustee, you not only make the insurance as secure as are national bank bills, but in five years your insurance becomes self-sustaining, for by examination you will see that the basis of our graduated assessment table is 1,000 one thoussand dollar certificates, that is, one million dollars insurance, and with this number and amount insured, assessments would be sufficient to pay all losses or claims in full, and as the membership increases above 1,000 certificates in force, the assessment rate decreases, or there would be produced more than enough to pay the loss assessed for. But should the membership in after years fall to less than 1,000 certificates in force, that is, to a point where an assessment fails to produce enough to pay a loss in full, then the safety fund would be at once divided to the then members, paying to them the full face of these certificates while living."

"(10) The terms of said certificates were purposely made so involved that it is difficult, if not impossible, for the ordinary person to understand the true meaning and import thereof, in order to enable said company to defraud and impose upon the public and certificate holders, and only a person learned in the technicalities of insurance and law can fully understand the same." (A copy of said circular is attached to said paragraph.)

"(11) The company thereupon represented to the public and to certificate holders, and to all persons contemplating becoming certificate holders, as an inducement to become such certificate holders and to make payments in accordance thereof, that said certificates were in accordance with said 'safety fund' plan in all respects as above stated, and particularly that they did provide in substance that, when said outstanding insurance was reduced to $1,000,000, the principal of the fund should be divided among the outstanding certificate holders, and that said safety fund belonged wholly to the policy holders, and that the company had no interest therein except in its application for the purposes described in said safety fund plan as above set forth, and that such was the true meaning and construction of said certificates. And in particular did, and in the year 188o or 1886, issue and distribute in large numbers, for the purpose of inducing persons to accept certificates and make payment thereunder, a certain circular entitled 'The Safety Fund System Explained;' in which was used the following language: 'The Safety Fund System Explained. The rates given in the table of assessment ratios are such that while there is $1,000,000 or more of insurance in force the assessments will pay all claims in full. Should the amount of insurance in force fall below $1,000,000, the division of the safety fund to the then members will pay them the full face of their certificates at once and while living.' * * *

"(12) The plaintiffs, on or about the 1st day of December, 1890, relied upon said representations, and were induced thereby to accept their certificates (a copy of one of which, marked 'Exhibit B,' is attached to said paragraph), and to make the payments called for thereunder, and have made all the payments called for and complied with all the conditions of said certificate, and said certificates are still in force."

Exhibit B consists of the application for insurance, the certificate issued, with copy of agreement between the insurance company and the security company, and the table of graduated mortality ratios for every $1,000 of death loss on each $1,000 of a total indemnity in force of $1,000,000. The following are among the provisions of the certificates:

"Policy Safety Fund Department. Amount, $1,000.

"In consideration of the representations, agreements, and warranties made in the application herefor, and of the admission fee paid, and of the sum of ten dollars on each $1,000 of the indemnity herein provided for, to be paid to said company, as herein required, to create a safety fund as hereinafter described, and of three dollars, to be paid as hereinafter conditioned, and of the further payment of all mortality calls proportioned to the indemnity herein provided for, levied against the herein named member to form a mortuary fund for the payment of all indemnity...