Kane v. Knights of Columbus

• Decision Date: 08 March 1911
• Citation: 84 Conn. 96,79 A. 63
• Court: Connecticut Supreme Court
• Parties: KANE et al. v. KNIGHTS OF COLUMBUS et al.

79 A. 63

84 Conn. 96

KANE et al.

v. KNIGHTS OF COLUMBUS et al.

Supreme Court of Errors of Connecticut.

March 8, 1911.

Case Reserved from Superior Court, Fairfield County; Howard J. Curtis, Judge.

Suit by Patrick Kane and others against the Knights of Columbus and others for an accounting and distribution of certain funds in the possession of defendant corporation. Facts found and case reserved for the Supreme Court on questions submitted. Advice, that questions be answered in the negative.

This is a suit by members of defendant order joining prior to January 1, 1902, against the order and members joining after January 1, 1902. for an injunction, an accounting, and a judgment for the amount due on such accounting. The case was reserved on request of parties on a finding of facts for the advice of this court upon two questions:

(1) Does the defendant corporation hold the funds in suit upon a trust, other than a trust in favor of all the insured members and their beneficiaries?

(2) Should there be an accounting and apportionment, distribution and application of such funds; the manner and method to be determined by the trial court?

The defendant is a fraternal beneficiary society organized under a charter granted by the General Assembly of Connecticut March 29, 1882, amended April 5, 1889, February 24. 1893, March 3, 1897, and June 27, 1907. The charter of 1882 recited its purpose to be "of rendering mutual aid and assistance to the members of said society and their families." The amended charter of 1889 recited one of its purposes to be "of rendering pecuniary aid to its members and beneficiaries of members," and this provision was re-enacted in the amendments of 1893 and 1907. The amended charter of 1889 provided that "said corporation for the purpose of more effectually rendering aid and assistance to its members, may establish, accumulate and maintain a reserve or other fund in such manner and to such an amount as it may determine," and this provision was re-enacted in the amendments of 1893 and 1907. The charter of 1882 provided that said corporation "may make and execute necessary by-laws, rules and regulations for the proper management of said society and its property; provided such bylaws, rules and regulations shall not be inconsistent with the general laws of this state." And further provided that the resolution of incorporation might be amended or repealed at pleasure. The amended charter of 1889 provided that "said corporation * * * shall have power to make and adopt a constitution and by-laws, rules and regulations * * * for the management and protection of its property and funds; * * * may from time to time alter and repeal said constitution, by-laws, rules and regulations and adopt others in their place, provided the same is legally done." And this provision was re-enacted in the amendments of 1893 and 1907.

The plaintiff Mr. Kane became a member in 1885, and there was issued to him a benefit certificate for $1,000. His application for membership recited: "I will conform to and abide by the constitution and rules of this council and of the order, which are now in force, or may be hereafter adopted by the proper authority." The certificate of membership provided that its issue should not exempt the holder from any duty or obligation arising out of present or future laws of the order. From its organization to 1880, death claims were met by assessments of $1 upon each insurance member. In 1886, and in 1891, the method of assessment was changed and rates based on age adopted. In 1892 a by-law was passed requiring each member to pay in addition to assessments $5 for each $1,000 death benefit carried and these sums deposited in a mortuary reserve fund. It was adopted for the purpose of accumulating a reserve to meet mortuary losses in excess of those estimated under the American Experience Table. Said fund was held "for the purpose of paying such mortuary claims in any one year, as are over and above the ordinary number of mortuary claims (based upon the American Experience Tables), as may occur by reason of epidemics or other extraordinary causes and events." The finding recites: "The fund was created and raised for the purpose of aiding and supporting the plan and rates of assessment then in force, in times of pressing necessity, as byits provisions is shown." Upon the discontinuance of this by-law in 1901, this fund amounted to $155,305. Prior to 1898 there were accumulations from the ordinary assessments, the excess of which over $20,000 was duly transferred to a surplus death benefit fund subject to the regulations and restrictions of the mortuary reserve fund, except it was provided that said surplus may be used at any time to meet ordinary death claims when the regular assessments may not be sufficient. This fund on January 1, 1902, totaled $405,754.41. No contributions to either of said funds have been made on or after said date. The rates in effect prior to said date were not sufficient without levying extra assessments to enable the defendant to pay death benefits in force, as the same should arise.

On January 1, 1902, under a by-law passed in 1901, a so-called step-rate plan became operative. This plan, as advised by an actuary, assessed members in classes according to their ages up to 60 years of age for each five years' mortality expenses that it was calculated those ages would show. The intent of this plan was to meet all future death losses without extra assessments and to provide an adequate surplus for this purpose. Assessments on those 60 years of age and over were on a level whole-life basis. All term rates were increased in order to reduce the assessments on those 60 years and over. On said January 1, 1902, a by-law established a "mortuary reserve fund of the Knights of Columbus," and provided that "said fund shall consist of all moneys and securities of the death benefit fund in excess of $25,000," and that moneys could be drawn from this fund only "in case of emergency, to pay death claims after the other funds applicable thereto have been exhausted." The by-law further provided that "all moneys and securities standing to the credit of the surplus death benefit fund and the mortuary reserve fund on the 1st day of January, 1902, shall be placed to the credit of the mortuary reserve fund." Pursuant to said by-law said funds were transferred to the new "mortuary reserve fund" on said date. Said by-law relating to the transfer of said funds was first noticed and approved at and by said national council at the meeting of August 17, 1901. All of the said bylaws were duly passed. The validity of the step-rate plan by-law is challenged by the complainants because of lack of power to adopt the same. It was adopted by the national council August 17, 1901, and first noticed and approved at the time of its adoption. Section 8 of the by-law creating the mortuary reserve fund provided that no change, modification, or amendment or any final disposition of such fund, etc., should be made except upon a notice, in writing, of such change, amendment, or modification, to be lodged and approved at and by the annual board of government meeting next preceding. Prior to June 1, 1898, said section 8 was repealed. Under said plan a surplus of more than $500,000 has been collected; two regular assessments of $80,000 each, under advice of said actuary, have been omitted. The mortality of members under forty-five years has been less than estimated and of those over 45 more.

Under each of said plans and rates special assessments might be levied to meet the excess of death claims over regular assessments, and under the by-law of 1836 three such special assessments were levied. Since January 1, 1902, it has not been necessary to make special assessments or to use any funds except those from ordinary assessments to meet the death claims. The membership and amount of insurance in force January 1, 1902, has been and is sufficient to assume a fair average mortality experience from year to year. The rate of assessments under said plan appears from experience to date to be adequate to enable the defendant to pay all certificates in full as they mature by the deaths of the members, without relying upon the funds in suit. In fixing the rates under the step-rate plan, the actuary considered that the death losses in some one of the early years might exceed the regular assessments before the plan had accumulated a sufficient reserve to meet such contingency, and thus cause a panic among the members; and he regarded these funds as a safeguard against risk of danger in this regard.

Under said plan and rates the plaintiff and those whom he represents were required to pay the same rates, fixed at their attained ages, as if they were newly admitted to membership, and thereby to make the same contributions to the new mortuary reserve fund as members thereafter admitted at those respective ages. The plaintiff and those he represents have paid all assessments levied without objection or protest until this action, except that on numerous occasions they have protested against the failure to apportion and apply the fund in suit to reduce the assessments of the contributing members at and over GO. On May 20, 1909, said Kane made demand for an accounting or application of his share of the funds in suit, which the defendant refused. None of the said funds have been returned to said Kane and those he represents otherwise than by the omission of said assessments, which was common to all members admitted before or after January 1, 1902. On May 30, 1903, said Kane received and retained a new death benefit certificate, but did not surrender his original certificate. Said Kane represents, for the purpose of this action, all insurance members joining the defendant prior to January 1, 1902; and the defendant Henry B. Cleary represents for the same purposes all insurance members joining said order on and after January 1, 1902. It...