J. P. Lamb & Co. v. Merchants' Nat. Mut. Fire Ins. Co.

• Decision Date: 04 March 1909
• Citation: 18 N.D. 253,119 N.W. 1048
• Court: North Dakota Supreme Court
• Parties: J. P. LAMB & CO. v. MERCHANTS' NAT. MUT. FIRE INS. CO.

18 N.D. 253

119 N.W. 1048

J. P. LAMB & CO.

v.MERCHANTS' NAT. MUT. FIRE INS. CO.

Supreme Court of North Dakota.

Dec. 31, 1908.

On Rehearing, March 4, 1909.

Syllabus by the Court.

The powers of the officers of a domestic mutual fire insurance company are more limited than those possessed by like officers of stock companies.

A mutual fire insurance company organized under the laws of this state is an association of individuals to provide mutual relief in case of loss by fire. All policy holders are members, and each one has the same proportionate interest that every other member possesses, and is liable to the same proportionate extent.

The members of a mutual fire insurance company organized under the laws of North Dakota are all entitled to the same treatment, and the officers of such a corporation cannot favor one member at the expense of his fellow members, as this would contravene the principle of mutuality which is at the foundation of mutual insurance.

By-laws of a corporation are laws for the regulation of its officers and the management of its property. They have much the same force and effect as between the members and officers in the conduct of the affairs of the corporation that a public statute has, unless in conflict therewith, and can only be repealed or amended in the manner provided by law.

The statutes under which a domestic mutual fire insurance company is organized, its articles of incorporation or charter, and by-laws all enter into the contract of insurance, and are binding, not only on the organization, but on each member thereof.

While the officers of a domestic mutual fire insurance company, the by-laws of which are required by law to be adopted by a vote of the members, may waive many irregularities, they have no power to waive any matter of substance contained in such by-laws, and it is accordingly held, that the secretary of such a corporation has no power to waive definite terms of its bylaws which provide under what circumstances and for what time credit may be given members for premiums or assessments, or to give such credit in any other manner than that provided by such by-laws.

A section of the by-laws of a domestic fire insurance company which was printed upon the policy in suit provided that, if the premium should remain unpaid for 30 days after the taking effect of the policy, such policy should be and remain suspended until the payment by the policy holder and the receipt and acceptance by the company of such premium, and that during such period the policy should be unenforceable and the company not liable thereon, and that, if it remained suspended for 60 days, it should be canceled without notice. In this case no premium was ever paid, and the policy was canceled as required by such by-laws. Held, that the holder of such policy cannot recover for loss occurring after the expiration of such period and the cancellation of the policy, and before payment of premium.

Appeal from District Court, Nelson County; Fisk, Judge.

Action by J. P. Lamb & Co. against the Merchants' National Mutual Fire Insurance Company. From a judgment for plaintiff, and an order denying a new trial, defendant appeals. Reversed.Geo. A. Bangs, for appellant. Frich & Kelly, for respondent.

SPALDING, J.

This is an appeal from a judgment in favor of the plaintiff in an action on a fire insurance policy issued by appellant on a stock of merchandise and from an order denying a motion for a new trial.

It is not necessary to quote the pleadings. The principal issue was as to certain acts of appellant's secretary constituting a waiver or estoppel in favor of respondent, who had not paid any part of the premium due on the policy. The facts referred to consisted in sending respondent the renewal policy in suit without an application, giving it notice that $13.60 was due it on a policy for the same amount on the same property, which was about to expire, with a notice that $20.40 more would pay the premium on the new policy, and about four months later sending it notes to execute for the premium which remained unpaid, and about five weeks after the fire which destroyed the property insured answering letters from respondent and not expressly denying liability, and sending it a blank proof of loss. Appellant is a domestic fire insurance company organized under the laws of this state providing for the organization of such companies. It has no capital stock. Policies are issued to members, and each holder is a member and entitled to vote at the annual and other meetings of the corporation. It conducts its business under by-laws adopted by the members in accordance with the provisions of section 4201, Rev. Codes 1905. Section 2 of article 8 of the by-laws of appellant reads as follows: “If the premium of any policy issued by this company shall remain unpaid for thirty days after such policy takes effect, such policy shall be and remain suspended until the payment by the policy holder and the receipt and acceptance by the company of such premium. During the period of such suspension aforesaid, such policy shall be unenforceable against the company and the company shall not be liable thereon under the terms thereof or otherwise. If such policy remains suspended for sixty days it shall be cancelled without notice to the insured and the premiums on the same charged at the short rate for the thirty days during which such policy was in force. The sending of any statement due on the policy shall not constitute a waiver of any of the rights of the company or of the conditions of the policy or clauses thereto annexed and shall not be considered in any manner as the giving of credit to the insured. On request of the policy holder in writing the secretary may extend the time of payment of the premium, provided such extension is in writing and signed by the secretary. During the period in which any policy is suspended as aforesaid the receipt by the company of the premium from the insured shall not reinstate such policy or be binding upon the company unless such premium has been fully accepted and acknowledged by the company before any injury or damage occurs to the property covered by and included in such policy.” The trial court found that the acts referred to above constituted a waiver by appellant which entitled respondent to recover on the policy. We shall not consider the sufficiency of these acts to constitute a waiver, if a waiver of that nature were possible. Neither shall we determine the constitutionality or unconstitutionality of the standard policy law of this state which is suggested. We are satisfied that in the proceedings in the trial court there was a failure to distinguish between the powers of officers of stock and those of mutual companies. The books contain many cases in which the attention of the courts has not been directed to this distinction. A mutual insurance company organized under the laws of this state is an association of individuals organized to provide mutual relief for loss suffered. Its members all pay the same premiums or assessments for the same protection, and, when the policy expires, receive the same percentage or pro rata share of any net profits or surplus after complying with the statute providing for a reserve fund. Sections 4441, 4442, Rev. Codes 1905. Their minimum contingent liability is fixed by section 4440, Rev. Codes 1905, and the by-laws they adopt. Each member has the same proportionate interest in the surplus that every other member possesses, and is liable to the same proportionate extent. All are entitled to the same treatment in matters relating to premiums, assessments, surplus, losses, and liabilities. If one is favored in these respects by the officers or agents of the corporation, it is at the expense of his fellow members, and contravenes the principle of mutuality, which is the corner stone of the system of mutual insurance. Officers of stock companies may deal with its policy holders (who do not by virtue of being so become members or stockholders) with a far wider range of discretion than those of mutual companies, and conversely the company may be liable for acts of officers and agents, which, if done by those representing the members and governed by by-laws of a mutual company, would not bind or render liable their principal. May on Insurance, at section 146, says: “Mutual insurance, it is truly observed, is essentially different from stock insurance, and much of the litigation that has grown out of this species of insurance has been owing to inattention to this difference. Its original design was to provide cheap insurance by means of local associations, the members of which should insure each other. Such associations are in their nature adapted only to local business. They need many by-laws and conditions that are not required in stock companies; and it is necessary and equitable that each person who gets insured in them should become subject to the same obligations towards his associates that he requires toward himself. If the officers have discretionary power as to the terms of the contract, or even as to its form, it is obvious that different parties may become members upon different terms and conditions, and thus the principle of mutuality will be completely abrogated. When the company have once determined the forms in which their policies shall be made, and the conditions upon which they are willing to contract, it is nothing less than a violation of duty for the officers to undertake to bind the companies they represent by other and inconsistent contracts, parol or otherwise.” Baxter v. Chelsea Mutual Fire Ins. Co., 1 Allen (Mass.) 294, 79 Am. Dec. 730. There is also a distinction between the powers of officers of those mutual companies whose by-laws are enacted by directors as in New York, and those governed by by-laws made by the members themselves, as in this state. In those of the first class courts hold acts of officers or agents as...