Keehn v. Brady Transfer & Storage Co.
| Decision Date | 13 February 1946 |
| Docket Number | No. 3933.,3933. |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | KEEHN v. BRADY TRANSFER & STORAGE CO. |
Beckman, Healy, Reid & Hough, of Chicago, Ill., for plaintiff.
David Axelrod, of Chicago, Ill., and Bradshaw, Fowler, Proctor and Fairgrave, of Des Moines, Iowa, for defendant.
This is an action by the receiver of the Central Mutual Insurance Company, of Chicago, to collect the assessment ordered by the Circuit Court of Cook County, Illinois, against defendant, a policyholder in the insolvent insurance company.
The case originated in the Circuit Court of Cook County, Illinois, on December 13, 1941, from which it was removed to this court on petition of the defendant, an Iowa Corporation, on January 23, 1942. A pretrial conference was held on June 2, 1942. The case finally came to trial on May 12, 1944, and was dismissed for want of prosecution. On May 25, 1944, the order of May 12 was vacated and the case reinstated. Another pre-trial conference was held on September 11, 1944, when it was agreed that the court would determine the case on plaintiff's motion for summary judgment. Whereupon briefs were filed and the case submitted to the court on March 2, 1945.
Liquidation proceedings were instituted against the Central Mutual Insurance Company of Chicago on January 8, 1937, because of insolvency. On July 1, 1940, the Circuit Court of Cook County, Illinois, levied an assessment of 100% of the cash premiums expressed in the policies, against certain named individuals and corporations, including the defendant, who held policies issued by the company at any time from January 31, 1935, to January 11, 1937. Defendant was not a party to the assessment action. Defendant's policy was effective for a term of one year from September 15, 1935, but was cancelled by the insurance company on August 16, 1936. The policy covered personal injuries and property damage arising from the operation of defendant's trucking business. Defendant was assessed for the sum of $10,096.89, which figure was derived by adding to $9,280.73 (the amount of premiums paid by defendant during the eleven-month life of the policy), the sum of $816.16 for the period from August 16th to September 15th, 1936, following the cancellation of the policy. The latter figure is called the "average" premium and is based on amounts actually paid by defendant, which varied from month to month according to the volume of the defendant's business. Plaintiff asks judgment for the amount assessed, plus interest thereon from July 20, 1940, when demand was made on defendant by plaintiff's predecessor receiver.
The defendant resists payment of the assessment and asks that the complaint be dismissed on substantially the following grounds:
I. The policy issued to the defendant was void because the insurance company did not comply with Iowa statutes in these respects:
(a) Failure to maintain the surplus and unearned premium reserve required by Iowa Code 1939, Sec. 8955 and Sec. 8939.
(b) Failure to observe requirements as to the form of the policy, in not receiving an application for the insurance and attaching it to the policy. Iowa Code 1939, Sec. 8974.
(c) Failure to state the maximum premium to be paid for the insurance, and whether such maximum premium is a cash premium only, or includes an additional contingent premium. Iowa Code 1939, Sec. 8909.
(d) Failure to insert a provision in the policy releasing the insured from liability for losses after the cancellation of the policy. Iowa Code 1939, Sec. 8989.
(e) Filing false financial statements with the Iowa Insurance Commissioner, by reason of which falsification, the insurance company received authority to do business in Iowa. Iowa Code 1939, Sec. 8945.
II. Even if the policy is valid, under Iowa law it is nonassessable in form.
III. The notice on the back of the policy, stating the contingent liability of the assured and informing the assured that it is a member of the insurance company, is not a part of the insurance contract.
IV. Even if this notice is binding, judgment cannot be entered for the amount ordered by the Illinois court because the formula adopted by the court as a basis for the assessment is meaningless and, in one respect, violates the Iowa statute.
(a) No "cash premium" (of which the assessment is to be 100%) is expressed in the policy.
(b) In any event, the assessment cannot exceed the $1600 deposit premium named in the policy.
(c) Iowa statute releases an Iowa policyholder from liability for losses after the policy cancellation, which was on August 16, 1936; yet the Illinois decree assesses policyholders for losses through January 11, 1937.
The only possibly effective attack on the validity of the policy arises out of the insurance company's filing allegedly false statements of its financial condition with the Iowa Insurance Commissioner. The other defenses based on statutory violations are not only insufficient to avoid the policy, but may no longer be valid since the holding of the United States Supreme Court in United States v. South-Eastern Underwriters' Association, 1944, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, that interstate insurance business is interstate commerce. The extent to which a state can now impose conditions on foreign insurance companies before admitting them to do business is therefore in doubt. It is, however, unnecessary to pass on the validity of these statutory conditions, except to say that the requirement of disclosure of financial condition, which is the basis of the defense of fraudulent misrepresentation, is valid until Congress occupies the field by the passage of a federal insurance regulatory law, because it is non-discriminatory, being imposed on home and foreign insurance companies alike (Iowa Code 1939, Sec. 8945), and is not a burden on interstate commerce.
Failure to maintain surplus: The lack of a surplus, and an unearned premium reserve, as required by Iowa Code 1939, Sections 8955 and 8939, is related to the fact of the company's insolvency and alleged fraudulent misrepresentation to the Iowa Insurance Commissioner. These factors will be considered together in a subsequent portion of this opinion under the defense of fraud.
Lack of application for policy: It is difficult to understand how the defendant can maintain that Sec. 8974 of the Iowa Code requires that the insurance company attach a copy of the application to the policy as a condition precedent to the validity of the policy. The language of the statute is clear that only applications which are made a part of the policy, or are referred to therein, or affect the validity of the policy, must be attached thereto. Furthermore, Section 8975 provides that failure to attach the application shall not render the policy invalid, but that the company shall be precluded from pleading or proving such application, or the falsity thereof, in any action on the policy.
Statement of maximum premium: The defendant's contention that the policy failed to state the maximum premium is related to its third main defense that the "notice on the back of the policy," stating the policyholder's contingent liability, is not a part of the policy and is not binding on him. Inasmuch as this court holds that this notice is a part of the policy, for the reasons given later in this opinion, it also holds that the maximum premium is clearly stated in the policy, and consists, first, of the earned premium, adjustable monthly on the basis of the volume of defendant's business, as set forth originally in Endorsement No. 199 to the policy and later in subsequent endorsements, and second, of the contingent liability, limited to one times the premium provided for by the policy. Keehn v. Parrish Dray Line, 4 Cir., 1944, 145 F.2d 646.
Failure to include release of policy-holder from liability for losses after cancellation of policy: Iowa Code 1939, Sec. 8989 provides that the Commissioner of Insurance shall refuse to authorize an insurance company to do business or to renew its permission to do business when the form of policy does not provide, among other things, for the release of the insured from liability for losses after the cancellation of the policy, if the insurance is in a mutual company. By the very terms of the statute, therefore, failure to include such a provision in the policy is merely a ground for refusing to allow the company to do business in Iowa. There is no indication that the proper sanction is the invalidation of the policy, and this court refuses so to hold. The result sought by the statute through inclusion of this release provision in the policy is attainable also through general rules of law covering the liability of mutual policyholders to assessments arising out of the insolvency of the company. Protection of the defendant's rights in this respect can therefore be attained without going beyond the statute and invalidating the policy. This aspect of the case will be further discussed in the final section of this opinion.
Filing false financial statements with the Iowa Insurance Commissioner. The defense based on the company's alleged fraudulent misrepresentation of its financial condition to the Iowa Insurance Commissioner, and the related defense based on the company's failure to remain solvent and to maintain the surplus and unearned premium reserve required by Iowa law, will be considered together.
Since the company qualified, even though fraudulently, to do business in Iowa, all cases involving companies which did not qualify to do business in a state, whose courts were thereby closed to such companies in the enforcement of insurance contracts, may be laid to one side. A few cases, however, hold squarely that even though an insurance company has formally qualified to do business in a state, its pre-existing insolvency may be...
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Keehn v. Brady Transfer & Storage Co.
...with Sec. 8909 is a prerequisite to the creation of a contingent liability. The District Court, in discussing this provision, stated 64 F.Supp. 392, 397: "It is not clear that the import of this statutory provision is to make an application a condition precedent for a valid insurance policy......