Federal Union Surety Co. v. Flemister

• Decision Date: 16 May 1910
• Citation: 130 S.W. 574
• Parties: FEDERAL UNION SURETY CO. et al. v. FLEMISTER et al.
• Court: Arkansas Supreme Court

130 S.W. 574

FEDERAL UNION SURETY CO. et al. v. FLEMISTER et al.

Supreme Court of Arkansas.

May 16, 1910.

On Rehearing, July 11, 1910.

Appeal from Pulaski Chancery Court; Jno. E. Martineau, Chancellor.

Suit by J. A. Flemister against the Federal Union Surety Company and another in which Mrs. M. B. Evans and others intervened. From a decree for plaintiff and interveners, defendants appeal. Affirmed in part, and reversed in part.

On the 4th day of December, 1907, J. A. Flemister filed a complaint in the Pulaski chancery court, in which he alleged in substance that the defendant National Mutual Fire Insurance Company of Omaha, Neb., a corporation organized and incorporated under the laws of Nebraska, had been engaged in the business of general fire insurance in this state; that before engaging in business here it had filed a bond as required by law with the Federal Union Surety Company of Indianapolis, Ind., as surety, and had otherwise complied with the laws of the state in regard to foreign insurance companies; that in the city of Omaha, state of Nebraska, a general receiver had been appointed to take charge of the assets of said company and to wind up its affairs on the ground of insolvency; that he was a creditor of said company in this state by virtue of holding two of its policies of insurance; that he files the complaint on behalf of himself and all others similarly interested, and asks that a receiver be appointed to take charge of the assets of said company in this state. The chancellor appointed a receiver in accordance with the prayer of the complaint. The Federal Union Surety Company asked and was granted permission to be made a party to the action. It alleged that it was the surety on the bond of said insurance company. It asked that all parties asserting claims against it be required to file them in said chancery court and prayed for an injunction to be granted restraining such parties from proceeding against it elsewhere. The court granted the injunction. No objection was made by parties having claims against said surety company. All parties interested filed interventions asserting their claims and voluntarily submitted themselves to the jurisdiction of the chancery court; and the liability of the Federal Union Surety Company was treated by the parties and by the chancery court as an asset of the insurance company to be collected and distributed to the creditors. The National Mutual Fire Insurance Company of Omaha, Neb., applied for and obtained permission to engage in business in this state, and, pursuant to the statutes of the state, executed three separate bonds for the insurance year of 1905, ending March 1, 1906; for the insurance year of 1906, ending March 1, 1907; and for the insurance year 1907, ending March 1, 1908. Each of said bonds is for the sum of $20,000 and is conditioned as follows: "Now, therefore, if the said National Mutual Fire Insurance Company of Omaha, Neb., shall promptly pay all claims arising and accruing to any person or persons, by virtue of any policy issued by the said company, during the term of this bond, upon any property situated in the state of Arkansas, when the same shall become due, and shall pay to the state of Arkansas all such sums of money as shall be adjudged against them for the violation of any of the provisions of an act of the General Assembly of the state of Arkansas approved January 23, 1905, entitled `An act for the punishment of pools, trusts, and conspiracies to control prices'; then this obligation to become void; otherwise to remain in full force and effect."

The policies issued by the company in this state were in the usual form of stock policies, and among other provisions containing the following: "This policy shall be canceled at any time at the request of the insured; or by the company by giving five days' notice of such cancellation. If this policy shall be canceled as hereinbefore provided, or become void, or cease, the premium having been actually paid, the unearned portion shall be returned on surrender of this policy or last renewal, this company retaining the customary short rate; except that when this policy is canceled by this company by giving notice it shall retain only the pro rata premium. * * * The holder of this policy incurs no other or greater liability for premium or otherwise than that expressly provided in this policy." All fire losses occurred before the receiver was appointed, except in the case of W. H. Cajul, which occurred afterwards.

There is no dispute in regard to the amount of the claims. After the receiver was appointed, all persons having policies and who had not suffered fire losses were permitted to come in and surrender their policies to the receiver for cancellation, and prove their claims for the unearned premiums. On the final hearing of the case, the chancellor found in favor of all the claimants except W. H. Cajul, and held that the Federal Union Surety Company was liable therefor. In the case of W. H. Cajul, the chancellor held that the appointment of the receiver canceled the policies by operation of law, and, his fire loss having occurred after the receiver was appointed, the surety company was not liable. A decree was entered against the Federal Union Surety Company in favor of the respective claimants. In addition, the chancellor fixed the amount of fees that should be allowed the receiver and his attorney and adjudged that said surety company should pay the same as well as all costs of the suit. The case is here on appeal.

J. W. & M. House, for appellants. C. S. Collins and Bradshaw, Rhoton & Helm, for appellee. Carmichael, Brooks & Powers and Funk & Funk, for interveners.

HART, J. (after stating the facts as above).

Counsel for the Federal Union Surety Company insist that its principal was a mutual fire insurance company organized under the laws of the state of Nebraska, and that by virtue of the laws of that state, the articles of incorporation, and the by-laws of the company, its policy holders became members of the company, and as such were not entitled to a return of the unearned premium.

In making this contention, learned counsel have not duly considered the effect of our statutes on foreign mutual insurance companies. It is settled that the Legislature may dictate the terms upon which such companies may do business in the state. Hartford Fire Insurance Co. v. State, 76 Ark. 303, 89 S. W. 42; State v. Lancashire Ins. Co., 66 Ark. 466, 51 S. W. 633, 45 L. R. A. 348.

The General Assembly of the state of Arkansas, in 1905, among other conditions imposed upon foreign mutual insurance companies as a prerequisite to their doing business in the state of Arkansas, provided as follows: "Sec. 4. All foreign mutual fire insurance companies authorized to do business in this state shall annually give a qualified indemnity bond to the state of Arkansas, with not less than three good and sufficient sureties, or with a surety, trust or indemnity company authorized to do business in this state, as surety, to be approved by the Auditor of state, in the sum of twenty thousand dollars, conditioned for the prompt payment of all claims arising and accruing to any person during the term of said bond by virtue of any policy issued by any such company upon any property situated in the state, and said bond shall be in full force and effect during the lifetime of any policy issued by said company." A comparison of the provisions of the above section with those prescribing the conditions of the bond of stock insurance companies will show that in all essential particulars they are the same. Acts Ark. 1905, p. 772, and Kirby's Dig. § 4339. The effect of this statute is to make the liabilities of foreign mutual insurance companies doing business in this state under policies issued by them here the same as those of stock fire insurance companies.

In the case of Minneapolis Fire & Marine Mutual Insurance Company v. Norman, 74 Ark. 190, 85 S. W. 229, 109 Am. St. Rep. 74, the court held (quoting syllabus): "(1) Where a foreign insurance company, authorized to insure property upon the assessment plan, gave the bond required of stock companies issuing standard policies, and proceeded to issue policies on the standard plan, instead of the assessment plan, it cannot, after receiving the benefit of such contracts, invoke the doctrine of ultra vires to defeat an action brought against it on such a contract. (2) A surety on the bond of a foreign mutual fire insurance company, executed to enable it to do a standard, and not a mutual insurance business, cannot plead as a defense that the policies issued by the company were ultra vires." The effect of this decision is to hold that the charter powers, bylaws and the laws of the state under which the company was organized do not determine the character of the insurance issued; but that it is settled by the terms of the policy and the laws of this state. This was evidently the view taken of our statute by the National Mutual Fire Insurance Company, for it issued policies in this state in the usual form of standard policies issued by stock insurance companies.

The policies provided that the insured incurred "no other or greater liability for premium or otherwise than that expressly provided in this policy." This provision is inconsistent with the idea that the policy holder was a member of the company, and should be liable for losses sustained by other members. The policy also contained a clause providing for the cancellation of the policy by the insured and the payment to him of the unearned premium, and, as above stated, it conformed in all other respects to the form of standard policies issued by stock insurance companies. The policies do not refer to the articles of incorporation or the by-laws of the company. Therefore, the right of the policy holder to a return of the unearned part of the premium on account of...