Federico Macaroni Mfg. Co. v. Great Western Fire Ins. Co.

• Decision Date: 30 November 1931
• Docket Number: 30925
• Citation: 173 La. 905,139 So. 1
• Court: Louisiana Supreme Court
• Parties: FEDERICO MACARONI MFG. CO. v. GREAT WESTERN FIRE INS. CO. et al

139 So. 1

173 La. 905

FEDERICO MACARONI MFG. CO. v. GREAT WESTERN FIRE INS. CO. et al

No. 30925

Supreme Court of Louisiana

November 30, 1931

Rehearing Denied January 4, 1932

Appeal from Civil District Court, Parish of Orleans; E. K. Skinner Judge.

Action by the Federico Macaroni Manufacturing Company against the Great Western Fire Insurance Company, the American Surety Company, and others. From the judgment the American Surety Company alone appeals.

Judgment amended, and, as amended, affirmed.

Denegre Leovy & Chaffe, of New Orleans, for appellant American Surety Co.

Delvaille H. Theard, of New Orleans, for appellee.

OPINION

O'NEILL, C. J.

The Great Western Fire Insurance Company and the Marquette National Fire Insurance Company, both corporations being organized under the laws of Illinois and domiciled in Chicago, and being qualified and authorized to do business in Louisiana, issued a fire insurance policy to the Federico Macaroni Manufacturing Company, for $ 5,000, on the company's macaroni factory in New Orleans, on the 9th of July, 1924, for the term of three years. The policy was written and delivered by an agent of the insurance companies in New Orleans. Each company had filed a so-called qualification bond, of $ 20,000, with the state treasurer, as required of foreign insurance companies, by Act No. 172 of 1908, p. 232; and the bonds were signed by the American Surety Company of New York, as surety. The condition or obligation of the bond was, according to the statute, "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 corporation upon * * * any property situated in this State." Section 1.

The Great Western and the Marquette National Fire Insurance Company were consolidated, by a merger of the Great Western into the Marquette National Fire Insurance Company, on or about the 15th of May, 1925, according to the laws of Illinois.

The Marquette National Fire Insurance Company afterwards became insolvent, and, on the 4th of April, 1927, in a proceeding brought by the director of the department of trade and commerce of the state of Illinois against the company, in the superior court of Cook county, in Chicago, a decree was rendered, declaring the corporation insolvent, appointing the director of the department of trade and commerce ex officio liquidator of the affairs of the corporation, enjoining the corporation and its officers, as such, from transacting any business, and enjoining all persons, firms, and corporations from bringing or prosecuting any suit or proceeding at law or in equity against the corporation.

The Federico Company's factory was partly destroyed by fire on the 1st of June, 1927, during the term of the policy; and, according to the adjustment of the loss, the proportion thereof to be borne by the Marquette National Fire Insurance Company was $ 2,543.54.

None of the officers, members or agents of the Federico Company, was aware of the insolvency of the Marquette National Fire Insurance Company, or of the insolvency proceedings against the company, until some time after the fire. In fact no attempt had been made by the liquidator, or by any officer or agent of the insurance company, or by any officer or agent of the American Surety Company, or by any one else, for that matter, to notify the Federico Company of the insolvency of the insurance company.

The Federico Company therefore brought this suit against the Great Western Fire Insurance Company, the Marquette National Fire Insurance Company, and the American Surety Company, by service upon the secretary of state, and prayed for judgment against the three defendants in solido for the sum of $ 2,543.54, with legal interest and the statutory penalties. The insurance companies made no appearance, and judgment went against them by default. The surety company pleaded that the policy of insurance was terminated by effect of the decree rendered by the superior court of Cook county, Ill., declaring the Marquette National Fire Insurance Company insolvent and appointing a liquidator to take charge of and settle its affairs, and that the Federico Company therefore was entitled only to the unearned part of the premium, to be determined as of the date of appointment of the liquidator. The Federico Company then pleaded that, inasmuch as the insurance policy contained the usual clause requiring notice to effect a cancellation, and inasmuch as the decree of the Illinois court could not affect the rights of a resident of Louisiana, who was not a party to the proceedings in the Illinois court, and who was not even notified of the proceedings, it would be violative of the Fourteeenth Amendment of the Constitution of the United States, in that it would impair the obligation of a contract and take the Federico Company's property without due process of law, if the court should hold that the decree of the Illinois court had the effect of canceling or annulling the insurance policy held by the Federico Company. The civil district court gave judgment for the Federico Company, as prayed for, against the three defendants in solido. The American Surety Company alone has appealed.

The appellant relies upon the general rule stated by Mr. Joyce in The Law of Insurance (2d Ed.) vol. 3, § 1454, pp. 2652, 2653, viz.:

"It is held that the fact of insolvency of the company does not of itself make the policy void. But the appointment of a receiver operates as a cancellation of the policy, and the contract of insurance is terminated, as to liability for future losses, by the insolvency and dissolution of the company, or after injunction or sequestration. There is, in such case, a damage to the policy holder to the value of the policy at the time of dissolution; or in case of death under life contracts after insolvency, but before presentment of proofs, to the full value of the policy, although it is held in a fire insurance case that the rights of the policy holder are fixed from the date of a voluntary assignment."

The rule is stated in 32 C. J. pp. 339, 340, §§ 102, 103, as far as is applicable here, thus:

"While there is authority to the contrary, the generally recognized rule is that a decree of dissolution or an adjudication of insolvency, coupled with the appointment of a receiver, cancels or terminates outstanding policies by operation of law, and subsequent losses under such policies are not liabilities which may be enforced against the receiver. * * * Holders of policies on which premiums have been paid for a term extending beyond the insolvency or dissolution of the company have valid claims for unearned premiums, and this is so even though there is no provision in the policy for refunding premiums paid."

The rule is stated in 14 R. C. L. 853, § 20, substantially the same, viz.:

"While there are some contrary decisions, the weight of authority supports the proposition that, on the judicial adjudication of the insolvency of a stock insurance company and the appointment of a receiver, the outstanding policies of the company are ipso facto canceled, and that a claim for a loss thereafter occurring is not a provable claim against the company. The policy holders are creditors for the value of their policies at the time of the breach thus occurring, which in most cases is the pro rata return premium," etc.

The doctrine stated was recognized by this court in Michel, Secretary of State, v. Southern Insurance Co., 128 La. 562, 54 So. 1010, and by the courts of other states in the following cases, cited in appellant's brief, viz.: Moren v. Ohio Valley Fire & Marine Insurance Company's Receiver, by the Court of Appeals of Kentucky, 224 Ky. 643, 6 S.W.2d 1091; Doane v. Millville Mutual Marine & Fire Insurance Co., by the Court of Chancery of New Jersey, 43 N.J.Eq. 522, 11 A. 739; People v. Commercial Alliance Life Insurance Co., 154 N.Y. 95, 47 N.E. 968; In re Equitable Reserved Fund Life Association, 131 N.Y. 354, 30 N.E. 114; People ex rel. Attorney General v. Life & Reserve Association, 150 N.Y. 94, 45 N.E. 8; Commonwealth ex rel. Attorney General v. American Life Insurance Company, by the Supreme Court of Pennsylvania, 162 Pa. 586, 29 A. 660; People v. Metropolitan Surety Co., 205 N.Y. 135, 98 N.E. 412, Ann. Cas. 1913D, 1180; Fogg v. Supreme Lodge of United Order of Golden Lion, 159 Mass. 9, 33 N.E. 692; Burdon v. Massachusetts Safety Fund Association, 147 Mass. 360, 17 N.E. 874, 1 L. R. A. 146; Boston & A. R. Co. v. Mercantile Trust & Deposit Co., by the Court of Appeals of Maryland, 82 Md. 535; 34 A. 778; Todd v. German-American Insurance Co., 2 Ga.App. 789, 59 S.E. 94; Fuller v. Wright, Insurance Commissioner, 147 Ga. 70, 92 S.E. 873, L. R. A. 1917E, 1139; Johnson v. Button, Insurance Commissioner, 120 Va. 339, 91 S.E. 151; Lucas v. Pittsburgh Life & Trust Co., by the Supreme Court of Appeals of Virginia, 137 Va. 255, 119 S.E. 109; State ex rel. Gibson v. American Bonding Co., by the Supreme Court of Iowa, 206 Iowa 988, 221 N.W. 585.

Counsel for the Federico Company contend, however -- and we have concluded that the judge who tried this case was right in sustaining the contention -- that the general rule that a judicial decree appointing a receiver or liquidator for an insolvent insurance company terminates the outstanding insurance policies is not applicable to a case where the court that rendered the decree had not jurisdiction over the person of the policyholder, and especially where the latter had no notice of the decree, and hence no opportunity to protect himself by obtaining other insurance. One of the decisions cited by counsel for the American Surety Company, Evans v. Illinois Surety Co., 319 Ill. 105, 149 N.E. 802, is in accord with that proposi...