Haydel v. Mutual Reserve Fund Life Ass'n

• Decision Date: 17 October 1899
• Citation: 98 F. 200
• Parties: HAYDEL v. MUTUAL RESERVE FUND LIFE ASS'N.
• Court: U.S. District Court — Eastern District of Missouri

98 F. 200

HAYDEL v. MUTUAL RESERVE FUND LIFE ASS'N.

United States Circuit Court, E.D. Missouri, Eastern Division.

October 17, 1899

E. T Farish, for plaintiff.

W. C. &amp J. C. Jones, George Burnham, Jr., and Sewell T. Tyng for defendant.

ADAMS District Judge (orally).

The case stands on a petition charging that the defendant, a mutual life insurance company, executed two policies of life insurance on the assessment plan; that the insured plaintiff's husband, paid all dues and assessments required of him, and otherwise conformed to the conditions of the policies; that insured died March 6, 1898; and that therefore, plaintiff is entitled to recover. The answer of the defendant is, in substance and effect, as stated in the petition, that it is a corporation doing business on the assessment plan; that under the terms of the policies (and the constitution and by-laws, which are referred to in, and made part of, the contract of insurance) the insured was required to pay assessments as and when they were made and called by the executive committee or board of directors of defendant company; that an assessment was made, known as 'Mortuary Call No. 96,' in February, 1898, calling for a certain amount on each of these two policies; that this assessment was due, according to the terms and provisions of the policies, within 30 days thereafter, to wit, on the 3d day of March; that the insured failed to pay that assessment, and therefore, under the stipulations in the policies, constitution, and by-laws, the plaintiff's rights under these policies ceased, notwithstanding the death of the insured, which occurred March 6, 1898, a few days after the last date allowed to pay the assessment. In brief, the defense in the case is forfeiture for failure to pay assessments.

The replication, after alleging that the assessments (No. 96) were largely increased over what they had formerly been, admits that the assessments were not paid on either of the policies, and presents several separate grounds by way of excuse for the nonpayment of said assessments. The first excuse pleaded in the replication is that the defendant company was a corporation doing business on the assessment plan, and was authorized and empowered by the laws of New York to do business only on that plan; yet, notwithstanding such limitation upon its powers under its charter and the laws of the state of New York, it proceeded, after it had insured the member in this case, to devise a scheme of general insurance on practically what is known as the 'old-line' plan of insurance, of certain and fixed premiums for fixed and certain liabilities. It is charged that this character of insurance was ultra vires the corporation, and, being so ultra vires, entailed upon the members of this, an assessment or mutual company, new and different obligations, which were not contracted for by the parties, or contemplated by the laws of the state of New York; and it is specifically alleged that the issuing of this kind of insurance contracts was not only ultra vires the corporation, but thereby money which belonged to the mortuary fund under the original or assessment scheme of insurance was diverted,-- that is, that a large amount of money was thus diverted, and used in a business which was ultra vires the corporation, or not within the power of the corporation,-- and that, if this money had not been so diverted, there would have been plenty of money to have paid the liabilities matured on the 3d day of March, 1898, and the call for assessment No. 96 would have been unnecessary.

It will be seen from this statement of the first excuse for nonpayment of these assessments that the party pleading realized the legal situation, and understood that, notwithstanding the fact that the particular class of business which he complains of was beyond the power of the corporation, and ultra vires, that fact in itself would be no defense to this action. In other words, he appreciated that the plaintiff in this case could not state, as a full legal excuse for nonpayment of the assessments, the single fact that this defendant had been doing business beyond its corporate powers in some other transactions, and he therefore averred in his reply that, not only was the transaction of this business ultra vires, but that thereby money which, according to the contract, and laws of the state of New York, belonged to what was originally the assessment class, was diverted for the benefit of the so-called 'old-line' class, so that it was lost, and therefore it was the fault of the company, and not the fault of the member, if this assessment was not paid.

There are two questions involved in considering this first excuse for nonpayment of the assessment: First, whether the character of the business known as the 'five-year combination option policy' is unwarranted, and beyond the powers of the corporation under the New York statutes. I have given this question all the attention which I have been able to give it during the progress of the trial, have examined the statutes of the state of New York, and especially this contract called the 'five-year option policy.' In determining whether it is ultra vires, it is important to understand distinctly what is assessment insurance, or insurance on the assessment plan; and a general statement of this proposition is that it is assessment insurance where the benefit to be paid is dependent upon the collection of such assessments as may be necessary for paying the amounts insured. In other words, it is assessment insurance if payments to be made by the insured are not fixed-- unalterably fixed-- by the contract. On the contrary, an old-line policy is a contract where the amount to be paid by the insured is fixed, the premiums to be paid are unalterable, and the liability incurred by the defendant company is also fixed, definite, and unchangeable. In the light of this distinction,-- which no one will dispute,-- it becomes important to see whether the five-year combination option policy, which is the form of policy complained of, is a policy that has fixed and unalterable premiums becoming due at certain definite and fixed times, and none other. In determining this it is proper to call attention to two particular phases of it. It is true that the contract, on its face, requires the payment of so many dollars and cents at certain specified dates in each and every year during the continuance of the contract. The contract is made subject however, to this provision on the back of the policy (clause 5), in which it is provided as follows: 'On the dates named on the first page hereof in each year during the continuance of this policy there shall be due from the assured for premiums the amounts mentioned on said first page, or such multiple or ratio thereof as its executive committee may determine;' thereby clearly indicating that it is left to the executive board to determine how much shall be required of the member to pay the losses as they may accrue from time to time in the transaction of the business of the company. In addition to this, a reserve or emergency fund is provided for by this policy, and a particular and definite way is indicated for the distribution of this reserve. The reserve belongs, of course, to the members, and the distribution thereof must vary from year to year and always, as a matter of course, according to the death losses and claims paid during such year. So that, from article 5 and the provisions of this policy as to the treatment of the reserve, it is apparent that this is not a...