Home Indemnity Co. of New York v. O'BRIEN

• Decision Date: 07 June 1939
• Citation: 104 F.2d 413
• Parties: HOME INDEMNITY CO. OF NEW YORK v. O'BRIEN, Atty. Gen. of Michigan, et al.
• Court: U.S. Court of Appeals — Sixth Circuit

104 F.2d 413 (1939)

HOME INDEMNITY CO. OF NEW YORK v. O'BRIEN, Atty. Gen. of Michigan, et al.

Circuit Court of Appeals, Sixth Circuit.

June 7, 1939.

Clark C. Coulter, of Detroit, Mich. (Clark C. Coulter, of Detroit, Mich., on the brief), for appellant.

Stevens T. Mason, of Detroit, Mich., and Earl L. Burhans, of Paw Paw, Mich. (Thomas Read, Atty. Gen. of Mich., and John Panchuk, Asst. Atty. Gen. of Mich., on the brief), for appellees.

Mason, Davidson & Mansfield, of Detroit, Mich., amicus curiæ.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

This is an appeal by appellant, The Home Indemnity Company of New York, from a judgment of $25,000 rendered by the District Court and involves construction of the reciprocal insurance laws of New York and Michigan.

The Legislature of the State of New York, by an act of April 5, 1929, amended its compensation laws (Chapter 305, Laws of New York, 1929, Subsection 7, Section 54, Workman's Compensation Law, chapter 67, Consolidated Laws of New York). The part pertinent to this appeal is as follows:

"No policy or contract of insurance issued by a foreign stock corporation * * * authorized to transact the business of workmen's compensation insurance in this state, * * * covering or intended to cover the liability of an employer to his employees under this chapter, shall be accepted as a compliance with subdivision two of section fifty of this chapter, unless such foreign stock corporation * * * shall have filed with the superintendent of insurance a bond or undertaking with good and sufficient sureties to the people of the state of New York, and conditioned upon the payment in full of any and all compensation and benefits as provided in this chapter to any and all persons entitled thereto under any such policy or contract of insurance. * * * The amount of such bond shall be such sum as may reasonably represent twenty-five percentum of the outstanding reserves for compensation losses on policies issued by such foreign stock corporation or mutual association upon risks located in the state of New York as determined by law or by the requirements of the superintendent of insurance, provided, however, that the amount of such bond shall in no case be less than twenty-five thousand dollars nor more than one million dollars. Such bond shall be renewed annually."

The act also provided the bond was to contain a provision authorizing the Attorney General of the State, upon a certificate of the Superintendent of Insurance that there had been a default in the payment of compensation for thirty days or that the principal had become insolvent, to enforce such bond in the name of the people of the State of New York for the benefit of any and all persons entitled to the compensation assured by any policy issued by such company or association, or otherwise entitled to any benefits under said policy.

The purpose of the law was to protect all workmen and their dependents then or thereafter entitled to compensation benefits under policies issued for such purposes in the event of the insolvency of a foreign insurance carrier (New York Legislative Document No. 87, 1928; No. 75, 1929).

Section 12260 of the Compiled Laws of Michigan for 1929, commonly called "The Reciprocal Insurance Law of the State of Michigan" and effective August 28, 1929, provides in substance that whenever, by any law in force without the State, a Michigan insurance corporation was required to make a deposit of securities for the protection of policyholders or for any other purpose, or any special burden was imposed, greater than required by the laws of the State of Michigan for similar foreign corporations or their agents, foreign insurance companies should be required, as a condition precedent to their transacting business in the state, to make a like deposit for like purposes with the State Treasurer of Michigan and to pay to the Commissioner of Insurance a rate equal to such charges and payments imposed by the laws of such other state upon similar corporations of the State of Michigan and the agents thereof. Any corporation refusing for thirty days to make such payment should have its certificate of authority revoked by the Commissioner of Insurance. Pursuant to the provisions of the above statutes, the Commissioner of Insurance for the State of Michigan required the Southern Surety Company, a New York corporation, as a condition precedent to continuing business in that State to file a bond similar to the one required by the Superintendent of Insurance of New York State as a condition precedent to foreign insurance companies doing business there, and on June 16, 1931, pursuant to this demand, the Southern Surety Company, with the appellant, The Home Indemnity Company, as surety, filed with the Commissioner of Insurance for the State of Michigan, a bond the substance of which is as follows: After reciting that it was engaged in the business of an insurance carrier of workmen's compensation as authorized and regulated by the laws of the State of Michigan and that it was required by the Superintendent of Insurance of that State to file a bond with sureties to the people of that State conditioned upon the payment in full of any and all compensation and benefits, as provided in the Workmen's Compensation Law, to any and all persons entitled thereto under any and all contracts of insurance that it might issue, it specifically agreed:

"Now Therefore, The Condition of This Bond is Such, That if the principal shall pay in full any and all compensation and benefits as provided in the Workmen's Compensation Law to any and all persons entitled thereto under any policy or contract of insurance issued by the Principal, this obligation to be void; otherwise to remain in full force and virtue.

"Provided Further, That upon the Certificate of the Superintendent of Insurance that there has been default in the payment of compensation for thirty days or that the principal has become insolvent, the Attorney General of the State of Michigan may enforce this bond in the name of the People of the State of Michigan for the benefit of any and all persons entitled to the compensation assured by any policy issued by the principal or otherwise entitled to any benefits under such policy."

The penal sum of the bond was $25,000.

During 1932, the Southern Surety Company became insolvent and on March 22 of that year it was dissolved and its charter forfeited by a decree of the Supreme Court of the State of New York and title to all of its assets, including choses in action, became vested by virtue of the laws of New York in the Superintendent of Insurance of that state. The Circuit Court for the County of Wayne in the State of Michigan, appointed Walter Schweikart its receiver, the date not shown in the record.

Prior to June 16, 1931, the date of the execution of the bond in question, the Southern Surety Company had issued a large number of policies of compensation insurance to employers in Michigan, which were in conformity with the provisions of the Workmen's Compensation Law of that state, Comp.Laws Mich.1929, § 8407 et seq., and on April 11, 1932, a certificate of the Superintendent of Insurance was issued certifying that there had been a default for thirty days in payments in excess of $100,000 of awards of arbitration by the Department of Labor and Industry of the State of Michigan for which the Southern Surety Company was carrier under the above policies and that said company had become insolvent. Subsequently the certificate of the Superintendent of Insurance was submitted to the Attorney General of the State with the request that he proceed under the bond for the use and benefit of persons to whom the insurance carrier was indebted. Thereupon this action was instituted in the name of the Attorney General and claimants under the policies of the Southern Surety Company against the appellant, The Home Indemnity Company of New York, surety and Schweikart, receiver. Some of the plaintiffs were employers who had paid their employees on the default of the Southern Surety Company and others were injured employees who had not been paid.

The trial court held it was the intention of the parties to the bond, and the terms of the New York statute so required, that its obligations applied to all compensation due and unpaid at the date of execution, as well as those subsequently accruing, and that the reciprocal insurance statute of Michigan could be constitutionally construed to cover such obligations.

It further held that The Home Indemnity Company was a joint obligor on the bond and that the Southern Surety Company was not a necessary party to the action. It also held that the plaintiffs in the action were the real parties in interest and that there was no misjoinder of parties plaintiff and that all claimants to compensation under the policies of the Southern Surety Company were not necessary parties. It held that the obligation of the bond included protected employers who had paid compensation to employees covered by the policies of the Southern Surety Company.

The construction of the New York statute and the legal effect of a bond executed pursuant thereto, identical with the one here, was before the Court of Appeals of New York, a court of last resort, in the case of In re International Reinsurance Corporation, 271 N.Y. 381, 3 N.E.2d 518, 520. In that case, the International, as principal, had filed a bond dated January 5, 1933, with the General Indemnity Company, surety and in April, 1933, the principal became insolvent and was liquidated. The question for decision was whether the Indemnity Company, as surety, was liable only for losses incurred on policies issued after the execution of the bond or on those unpaid at date of execution or subsequent thereto. The court, after stating that the controversy was primarily upon a construction of the statute and after setting out the terms of the bond, said:

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