Federal Union Surety Company v. Flemister

• Decision Date: 16 May 1910
• Citation: 130 S.W. 574,95 Ark. 389
• Parties: FEDERAL UNION SURETY COMPANY v. FLEMISTER
• Court: Arkansas Supreme Court

130 S.W. 574

95 Ark. 389

FEDERAL UNION SURETY COMPANY v. FLEMISTER

Supreme Court of Arkansas

May 16, 1910

Appeal from Pulaski Chancery Court; John E. Martineau, Chancellor reversed in part.

STATEMENT BY THE COURT.

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, Nebraska, 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, Indiana, 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, Nebraska 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, Nebraska, 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 contained the following: "This policy shall be cancelled 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 cancelled 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 cancelled 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 cancelled 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.

Decree affirmed.

J. W. & M. House, for appellant.

A policy of a mutual insurance company is not cancelled by the appointment of a receiver. 56 N.Y.S. 83. When a bond is given for only one year, the surety is bound only for that year. 65 F. 476; 11 Fed. Cas. No. 6114; 4 Dil. 185; 26 Am. R. 703; 29 Id. 230; 59 Ill. 172; Brandt on Sur. 187; 67 Cal. 505; 130 Mass. 242; 7 Barb. 581; 5 Cow. 424; 3 Cow. 151; 17 Mass. 603; 2 Leigh 157; 87 Ala. 334; 6 Am. St. R. 456. The policy holders are members of the company. 109 N.Y.S. 367; 21 How. 35; 9 Col. 77; 3 S.W. 385; 21 N.Y. 67; 86 Pa. 367; 79 Wis. 492. And they are bound by the rules of the company and the laws of the State. 43 N.J.Eq. 522; 64 Am. St. R. 715; 90 N.W. 926; 96 N.W. 327. As to whether a policy holder is entitled to a return of the unearned premium, see 52 N.W. 744. The premiums in a mutual company constitute a fund, and must be exhausted before liability on the bond would attach. 66 A. 1072; 98 Am. Dec. 89; 45 Id. 656; 71 Id. 662. The court erred in taxing as costs attorney's fees and receiver's fees. 60 Ia. 70; 62 Ga. 146; 86 N.W. 466; 37 N.Y. 536; High on Rec., §§ 339, 805, 810. The findings of a chancellor, in a case tried on depositions, will be reversed if against the weight of the evidence. 71 Ark. 605; 63 Ark. 314; 68 Ark. 134; 72 Ark. 67; 73 Ark. 489; 75 Ark. 52; Id. 72; 77 Ark. 216; Id. 303; 75 Ark. 75; 83 Ark. 343; 85 Ark. 105; 68 Ark. 314; 75 Ark. 9.

C. S. Collins and Bradshaw, Rhoton & Helm, for appellee.

The liability of the insurance company is fixed by the terms of the policy. American Insurance Co. v. Haynie, 91 Ark. 43; 89 Ark. 378; 52 Ark. 201. The State has the right to regulate insurance companies. 76 Ark. 303; 26 L. R. A. 295; 126 Mo. 281; 129 Ia. 725; Cooley's Briefs, Ins., 57. The by-laws of the company do not form a part of the contract unless referred to in the policy. 8 Cush. 393; 44 N.J.Eq. 224. A member of a mutual company is not liable on future assessments. 70 Am. St. R. 149; 63 Ill. 187; 57 Ill. 354; 9 How. Pr. 45; 162 Pa. 638; 86 N.W. 831; 101 N.W. 938; 87 Minn. 392; 49 Minn. 291; N.Y.S. 478; 28 Mo.App. 215; 2 Tenn.Ch. 727; 111 U. Ill. 79; 59 Wis. 162; 91 Mo.App. 339; 77 N.H. 583. The insolvency of the company constitutes a breach of its contract. 78 N: Y. 114; 34 Am. R. 522; 85 Ala. 401; 162 Pa. 586; 42 Am. St. R. 844; 38 L. R. A. 97. The bond covers unearned premiums. 112 F. 599. The unearned premium should be returned. 33 L. R. A. 551; 130 Ind. 332; 49 Minn. 291; 60 N.Y.S. 478; 28 Mo.App. 215; 2 Tenn.Ch. 727; 111 U.S. 264.

Carmichael, Brooks & Powers and Funk & Funk, for intervener.

The liability of the insurance company is fixed by the policy of insurance. 52 Ark. 201. But the liability of the sureties on the bond is fixed by the bond.

OPINION

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

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 Fire Ins. Co., 66 Ark. 466, 51 S.W. 633.

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: "Section 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...