Iowa Life Ins. Co. v. E. Mut. Life Ins. Co.

• Decision Date: 05 March 1900
• Citation: 61 N.J.L. 340,45 A. 762
• Court: New Jersey Supreme Court
• Parties: IOWA LIFE INS. CO. v. EASTERN MUT. LIFE INS. CO.

45 A. 762

61 N.J.L. 340

IOWA LIFE INS. CO.

v. EASTERN MUT. LIFE INS. CO.

Court of Errors and Appeals of New Jersey.

March 5, 1900.

(Syllabus by the Court.)

Error to circuit court, Camden county.

Action by the Iowa Life Insurance Company against the Eastern Mutual Life Insurance Company. Judgment for defendant and plaintiff brings error. Affirmed.

Lewis Starr and Lindley M. Garrison, for plaintiff in error.

Howard Carrow, for defendant in error.

ADAMS, J. The trial judge overruled a general demurrer to a special plea, and gave Judgment for the defendant Error has been assigned on the record.

The suit was brought by the Iowa Life Insurance Company against the Eastern Mutual Life Insurance Company upon an agreement, dated October 10, 1896, and a supplementary extension thereof, dated March 1, 1897, which are as follows:

"The Eastern Mutual Life Insurance Company, of Camden, New Jersey, by this policy of insurance, in consideration of twenty 15/100 dollars, promises to pay to the Iowa Life Insurance Co., as Insurer, one thousand dollars, upon proof that Joseph Terrett, of Ashley, county of Luzerne, state of Pennsylvania, who Is Insured in the Iowa Life Insurance Co. under policy No. 20,308, shall have died on or before the second day of April, 1897. This Insurance may be renewed by the payment of twenty-one 09/100 dollars on the first day of April and October in each year hereafter for nine years. The title to benefits under this policy is not assignable. Signed at Camden, New Jersey, October 10th, 1896. George W. Townsend, Secretary. J. E. Nixon, President"

"In consideration of extra premium of one 50/100 dollars, this policy of insurance is extended to April 15, 1897. Dated at Camden, N. J., March 1st, 1897. George W. Townsend, Secretary. J. E. Nixon, President."

The declaration sets up the original and supplementary agreements; alleges that Joseph Terrett, the insured, died on April 10, 1897; that due proof of his death was delivered to and accepted by the defendant; that the plaintiff thereupon paid the amount for which said Joseph Terrett was insured; and that thereby the defendant became liable to pay to the plaintiff the sum of $1,000.

The special plea that was demurred to avers, in bar of the action, "that the defendant was, at the time of the making of the contracts in said declaration mentioned, and is now, a life Insurance company, organized and Incorporated under and by virtue of the laws of the state of New Jersey; that the contracts mentioned in said declaration wherein defendant, for the consideration in said declaration mentioned, agreed to pay to the plaintiff, as insurance, the money as mentioned therein, are contracts of reinsurance, and were not, nor were either of them, made with the consent in writing of two-thirds in number of the holders of the policies proposed to be reinsured, nor were such contracts of insurance, or either of them, submitted to the secretary of state, and by him approved, as provided by law, and hence said contracts of insurance are utterly Invalid, and of no force whatever." The statutory provision on which this plea is founded is section 66 of "An act to provide for the regulation and incorporation of insurance companies," approved April 9, 1875, and will be found on page 1755 of the General Statutes. It reads as follows: "That it shall not be lawful for any life insurance company, organized or to be organized under the laws of this state, to contract for the reinsurance of any of its outstanding risks or policy obligations in any other company, nor Itself to reinsure such risks or obligations of another company unless two-thirds in number of the holders of the policies proposed to be reinsured shall assent thereto in writing; and the contract for such re-insurance shall be utterly invalid and of no force until it shall have been submitted to the secretary of state of this state and by him approved, which he shall only do after due inquiry and upon satisfactory evidence that the interests of the policy holders are fully protected, and that the consent of two-thirds of them has been had in writing as aforesaid." The section above quoted was originally passed as the third section of a supplement to the insurance act, approved March 8, 1877 (P. L. 1877, p. 100). This supplement was subsequently amended as to provisions not material to this Inquiry, and, as amended, was incorporated in the Revision of 1875 (2 Gen. St p. 1754). The first section of this supplement provides, among other things, that whenever the secretary of state, as the result of examination authorized by the act to which the statute of 1877 is a supplement, shall ascertain that the assets of any life insurance company are not sufficient to reinsure its outstanding risks and discharge its total actual liabilities, it shall be his duty to apply to the chancellor for an Injunction restraining such corporation from the transaction of any further business, or the transfer of its assets, or any portion thereof, in any manner whatsoever. The fourth section says that it shall be lawful for the receiver of any life insurance company organized under the laws of this state, whenever the assets of such company shall be sufficient for that purpose, and the consent of two-thirds of the policy holders thereof shall have been had in writing, to reinsure all the policy obligations of such company in some other solvent life Insurance company; or, whenever the assets are insufficient to secure the reinsurance of all the policies in full, he may reinsure such a percentage of each and every policy outstanding as the assets will secure; provided that there shall be no preference or discrimination as against any policy holder, and that the contract for such reinsurance by the receiver shall be approved by the secretary of state before it shall have effect. It is now urged by the plaintiff in error that for several reasons the defense set up by the special plea is insufficient in law.

It is said, in the first place, that the sixty-sixth section of the insurance act Is Invalid, because it violates that provision of the fourteenth amendment of the constitution of the United States which declares that no state shall deprive any person of life, liberty, or property without due process of law. The argument submitted on behalf of the plaintiff in error is this: A corporation is a person. The right to contract is both a "liberty" and a "property" right, which is essential to corporate existence. The sixty-sixth section takes from a corporation its right to thus contract. It is not a regulation, nor is it reasonable, but it is oppressive and wrong. The legislature may determine what powers and franchises shall be conferred on corporations, but it cannot constitutionally provide for conferring impaired or Illusory powers; that is, it may limit the sphere of its grant, but within the sphere the company must have the liberty to contract, and this right cannot be invaded. Consequently, the lawmaking power cannot limit the right of a corporation to contract as to a matter that is within its corporate range, unless it is a proper subject of legislative control, such as a case that falls within the scope of the police power. The constitution has not expressly confided the matter of insurance to the legislature, and therefore legislative action can be justified only when it is reasonable. This argument, so far as it is not an assertion that the statute is unreasonable, is a denial of the right to restrict by regulation, and applies to whatever, in the sixty-sixth section, is regulative; to the provision requiring the assent of two-thirds of the policy holders no less than to that requiring the approval of the secretary of state. Freedom, it is said, is of the essence of the right to contract. Regulation restricts, and restriction fetters freedom. This line of reasoning does not distinguish, as it should, between the natural and the conventional. If the power to reinsure were the natural right of a natural person, it would be Inalienable, except by due process of law. Here the person and the right are both artificial. The defendant is the creature of legislation, enacted under a constitutional provision that says: "The legislature shall pass no special act conferring corporate powers, but they shall pass general laws under which corporations may be organized and corporate powers of every nature obtained, subject, nevertheless, to repeal or alteration at the will of the legislature." Const. N. J. art. 4, § 7, par. 11. The defendant, therefore, by the very law of its being, got only what was granted; now possesses only what repeal or alteration has not taken away or modified; and can hold in the future only what repeal or alteration may leave undisturbed. The power to after implies the power to regulate. Indeed, to after usually is to regulate. The defendant cannot, in a constitutional sense, be deprived by this regulation of any right, because it never was exempt from such regulation. There the fourteenth amendment finds it, and there it leaves it. If the exercise of the right of regulation is in any case absurd, so as to stultify the evident legislative purpose, the courts can rectify the error by applying some recognized canon of statutory Interpretation. Within due limits, the capacity of the lawmaking power to regulate the subject of insurance is unquestionable.

It is said, in the second place, that the provision in the sixty-sixth section that concerns the secretary of state is unconstitutional, and that, if this be true, the entire section is void, because its provisions are interdependent. The rule as to the divisibility of a statute is thus stated in Cooley on Constitutional Limitations (at star page 178): "If a statute attempts to accomplish two or more objects, and is void as to one, it may still be in every respect complete and valid as to the other. But if its purpose is to accomplish a single object only, and...