Friend Bros., Inc. v. Seaboard Sur. Co.

• Decision Date: 30 June 1944
• Citation: 316 Mass. 639,56 N.E.2d 6
• Parties: FRIEND BROS., Inc. v. SEABOARD SURETY CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

316 Mass. 639

56 N.E.2d 6

FRIEND BROS., Inc.

v.SEABOARD SURETY CO.

Supreme Judicial Court of Massachusetts, Suffolk.

June 30, 1944.

Reservation and Report from Superior Court, Suffolk County; Walsh, Judge.

Action by Friend Brothers, Inc., against Seaboard Surety Company for specific performance of an oral agreement to issue and deliver a policy of insurance. On reservation and report without decision.

Decree ordered in favor of the plaintiff. C. B. Rugg and W. E. Carley, both of Boston, and J. J. Phelan, Jr., of North Andover, for plaintiff.

Asa S. Allen and V. B. Kneeland, both of Boston, for defendant.

M. M. Goldman, S. B. Horovitz, W. M. Brady, J. A. Hines, and E. C. Parks, all of Boston, amicus curiae.

Before FIELD, C. J., and QUA, RONAN, WILKINS, and SPALDING, JJ.

SPALDING, Justice.

The plaintiff seeks specific performance of an oral agreement to issue and deliver a policy of insurance. The case was heard on a statement of agreed facts and the judge at the request of counsel reserved and reported the case to this court without decision. See G.L.(Ter.Ed.) c. 214, § 31.

The pertinent facts are these. The plaintiff is an employer subject to the provisions of the Workmen's Compensation Act G.L.(Ter.Ed.) c. 152, as amended. By section 25A of this act, inserted by St.1943, c. 529, § 7, the plaintiff must provide workmen's compensation benefits for its employees and is given the option of doing this by securing insurance or by acting as a self-insurer. The plaintiff elected to act as a self-insurer, obtained a license from the department of industrial accidents in accordance with said § 25A, and is now operating under the license. In order to safeguard its position as self-insurer against ‘excessive or catastrophe losses' and to strengthen its ability to pay compensation benefits to its employees the plaintiff entered into a contract with the defendant whereby the latter agreed to issue a policy of insurance. In this proposed policy the defendant would reimburse the plaintiff for all losses arising by virtue of its acting as self-insurer from November 15, 1943, to November 15, 1944, to the extent that the amount of such losses exceeded an amount equal to seventy-five per cent of the normal premium that would have been payable by the plaintiff in the event it had purchased a standard workmen's compensation insurance policy to cover the employees to whom it became responsible as a self-insurer, or $6,000, whichever amount was greater. The defendant, an insurance company incorporated under the laws of New York, was authorized in this Commonwealth to issue and deliver policies of workmen's compensation insurance and other forms of casualty insurance.

The plaintiff, not having received the policy from the defendant in accordance with the agreement, made a written demand for the same. The defendant replied that, although it was otherwise willing to complete its agreement with the plaintiff, it was prevented from doing so in view of a ruling¹ of the commissioner of insurance declaring that policies of this sort could not be issued in this Commonwealth.

The underlying question for decision is whether an insurance company authorized to do business in this Commonwealth may issue a policy of insurance to an employer, who has qualified as a self-insurer under G.L.(Ter.Ed.) c. 152, as amended by St.1943, c. 529, to indemnify him against losses over and above a specified amount. We think that it may.

Prior to St.1943, c. 529, an employer such as the plaintiff had the option of becoming an insured person under c. 152 or not insuring and risking the enlarged common law liability of an uninsured employer. Alecks' Case, 301 Mass. 403, 17 N.E.2d 173. Chapter 529, however, brought about an important change in the law; under it an employer such as the plaintiff is compelled to provide for the payment of the compensation provided under c. 152, (1) by insurance with an insurer or (2) by obtaining a license to act as a self-insurer. The statute sets forth in some detail what must be done by the employer to qualify as a self-insurer. Thus, subject to certain exceptions, not here material, set forth in G.L.(Ter.Ed.) c. 152, § 1(4), as amended by St.1943, c. 529, § 3, all employees must now be insured by either one of the two methods mentioned above.

The proposed policy is in reality a contract for reinsurance. Such contracts are expressly recognized by our insurance laws. General Laws (Ter.Ed.) c. 175, § 2A, provides that: ‘Contracts of reinsurance shall be deemed contracts of insurance as defined in section two, and authority to make contracts of insurance shall include authority to make contracts of reinsurance covering the same classes of risks * * *. No provision of law relative to the form of insurance policies shall apply to contracts of reinsurance unless made specifically applicable thereto.’ Reinsurance has been defined as ‘an agreement to indemnify the assured, partially or altogether, against a risk assumed by [it] in a policy issued to a third party.’ Royal Ins. Co. v. Vanderbilt Ins. Co., 102 Tenn. 264, 267, 52 S.W. 168, 169. Somewhat similar definitions may be found in the following cases. People ex rel. Sea Ins. Co. v. Graves, 274 N.Y. 312, 315, 8 N.E.2d 872;Allemannia Fire Ins. Co. v. Fireman's Ins. C., 209 U.S. 326, 332, 28 S.Ct. 544, 52 L.Ed. 815,14 Ann.Cas. 948;Goodrich & Hick's Appeal, 109 Pa. 523, 2 A 209;Barnes v. Hekla Fire Ins. Co., 56 Minn. 38, 40, 57 N.W. 314,45 Am.St.Rep. 438;Stickel v. Excess Ins. Co., 136 Ohio St. 49, 52, 23 N.E.2d 839. See also 2 Bouvier's Law Dictionary, Rawle's 3d Rev., p. 2861. Essentially it is a contract to indemnify one who has insured a risk. Boston Ins. Co. v. Globe Fire Ins. Co., 174 Mass. 229, 231, 54 N.E. 543,75 Am.St.Rep. 303;Allemannia Fire Ins. Co. v. Fireman's Ins. Co., 209 U.S. 326, 332, 28 S.Ct. 544, 52 L.Ed. 815,14 Ann.Cas. 948. We do not adopt the view urged in one of the briefs filed in opposition to the plaintiff, that reinsurance can exist only between two insurance companies. If one is in fact an insurer, as the plaintiff is here, a policy which indemnifies him with respect to the risk he has assumed constitutes reinsurance. Indeed, the very statute under consideration, St.1943, c. 529, confirms this conclusion. In § 7 is the following provision: ‘As a further guarantee of a self-insurer's ability to pay the benefits provided for by this chapter to injured employees, the department may require that a self-insurer reinsure² his compensation risk against catastrophe, and such reinsurance, when so required, shall be placed only with an insurance company admitted to do business in this commonwealth.’

Section 7 recognizes that reinsurance may be desirable as a furtehr guaranty of the self-insurer's ability to pay the benefits provided for by the act and empowers the department to require reinsurance against ‘catastrophe.’ We see no reason why a self-insurer may not also voluntarily strengthen his ability to meet excessive or ‘catastrophe’ losses by reinsurance as the plaintiff seeks to do. By so doing both the employer and the employees are benefited; the employer's financial position thereby becomes more secure and the likelihood that the employees will receive compensation under the act is correspondingly increased. Such a policy as that under consideration we think may be issued unless expressly prohibited by our laws.

It has been earnestly argued that the proposed policy is void³ by reason of section 54A of G.L.(Ter.Ed.) c. 152, inserted by St.1935, c. 425, the material portion of which reads as follows: ‘Every contract or agreement the purpose of which is to insure an employer in whole or in part against liability on account of injury or death of an employee, other than a domestic servant or a farm laborer, shall be void unless it also insures the payment of the compensation provided for by this chapter. Nothing in this section shall affect any such contract or agreement made with an employer of less than six persons.’ In Alecks' Case, 301 Mass. 403, at page 406, 17 N.E.2d 173, 175, it was said: ‘The reasons for the enactment of section 54A are...