Keehn v. Hi-grade Coal & Fuel Co.

• Decision Date: 20 February 1945
• Citation: 41 A.2d 525
• Parties: KEEHN v. HI-GRADE COAL & FUEL CO.
• Court: New Jersey Court of Common Pleas

41 A.2d 525

KEEHN

v.HI-GRADE COAL & FUEL CO.

Court of Common Pleas of New Jersey, Essex County.

Feb. 20, 1945.

Action by Roy D. Keehn, as receiver of the Central Mutual Insurance Company of Chicago, against the Hi-Grade Coal & Fuel Company, a corporation, to collect an insolvency assessment against defendant as a member-policyholder of such company. On plaintiff's motion to strike defendant's answer and five separate defenses.

Motion denied as to answer and first two separate defenses, and granted as to last three defenses.

Samuel M. Hollander, of Newark, for plaintiff.

Kristeller & Zucker (by Saul J. Zucker), of Newark, for defendant.

State of New Jersey, by Walter D. Van Riper, Atty. Gen. (Louis J. Cohen, of Newark, of counsel), amicus curiae.

HARTSHORNE, Judge.

This case poses the interesting question as to whether the recent decision of the United States Supreme Court that the business of insurance is interstate commerce, United States v. South-Eastern Underwriters Association, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440, rehearing denied October 9, 1944, 65 S.Ct. 26, has rendered invalid, as applied to insurance companies located outside New Jersey, certain important provisions of that ‘net-work of legislation’ comprising the New Jersey insurance law. It is because of this question that the Attorney General appears as amicus curiae.

The statutory receiver of the Central Mutual Insurance Company of Chicago, a mutual company incorporated in Illinois, which became insolvent, sues defendant to collect an insolvency assessment against him as a member-policyholder. Defendant raises several defenses which plaintiff moves to strike as sham and frivolous. Among the defenses raised, it is asserted that the company, not admitted to do business in New Jersey, has, nevertheless, been doing business in this state without complying with our statutes, and, because of such non-compliance, it cannot recover in our courts. R.S.17:32-10, N.J.S.A. Hence, the question as to the validity of the provisions of the New Jersey law, as affected by the South-Eastern decision, supra. We turn to the facts.

On November 1, 1935, one Scheckner solicited defendant in Irvington, Ne Jersey, to take one of the company's automobile liability policies covering the defendant's motor vehicles. The defendant signed the formal application which was forwarded to the company, and a policy was issued November 18, 1935, either in the company's home office in Chicago, or in North Carolina, where the company was authorized to do business. But whether Scheckner solicited the policy on behalf of the company, or was merely looking for insurance prospects on his own account as a broker, is not stated in the affidavits. While this policy, as originally issued, ran for a year from November 7, 1935, to November 7, 1936, and charged a premium of $704.76, for the amount of which plaintiff sues, it remained in effect for but three weeks, being cancelled with the consent of both parties on December 10, 1935, the earned premium on such policy, then charged defendant and now paid, being in the amount of $162.09.

The company was found to be insolvent on January 11, 1937, at which time the plaintiff-receiver was appointed by the Illinois courts, it having been determined in such proceedings that the company had been insolvent since January 31, 1935. Thereupon, in accordance with the Illinois statutes, an assessment was levied by the receiver against all who had been member-policyholders from the date of the insolvency to the time of the receiver's appointment, the assessment against defendant being in the above sum of $704.76, the amount of the original premium, not the amount of the earned premium. This assessment was duly confirmed by the Illinois courts. People ex rel. Palmer v. Central Mutual Insurance Company of Chilcago, 313 Ill.App. 84, 39 N.E.2d 400. To these proceedings, the defendant, a nonresident, was not in name a party.

The legal effect of such insolvency assessments against the member-policyholders as a class, and of the subsequent proceedings at law against the individual assessees, has been clearly stated in a recent opinion by our Court of Errors and Appeals, Merola v. Fair Lawn Newspaper Printing Corporation, 135 N.J.Eq. 152, 36 A.2d 290. While such proceedings were upon similar assessments for unpaid stock subscriptions of an insolvent corporation, the status of member-policyholders in an insolvent mutual insurance company ‘is quite like that of stockholders of a corporation whose stock is not fully paid.’ Stone v. New Jersey & Hudson River Railway Co., 75 N.J.L. 172, 66 A. 1072, 1073; Pink v. A. A. A. Highway Express, 314 U.S. 201-207, 62 S.Ct. 241, 86 L.Ed. 152, 137 A.L.R. 957. In the Merola case our highest court lays down the rule in that regard as follows [135 N.J.Eq. 152, 36 A.2d 292]:

‘It is the general rule that where a corporation has been decreed insolvent, and it has been judicially determined that an assessment against unpaid stock subscriptions is necessary to liquidate the corporate debts, the determination of the insolvency, the necessity, propriety, and the quantum or the rate of the assessment, are conclusive upon the stockholders in subsequent proceedings against them to enforce the payment of the assessment, even though the stockholder against whom the assessment is sought to be enforced was not made a party to the particular proceeding in which the assessment was made, and had no personal notice thereof. This is grounded in the principle that a stockholder is so far an integral part of the corporation that, in the view of the law, he is privy to the proceedings touching the body of which he is a member. He is in such privity with the corporation as to be a party to the assessment proceedings through representation by the corporation. Where the assessment is made in a proceeding at the domicile of the corporation to which the corporate body is a party, the propriety and amount of the assessment-matters which concern the entire body of stockholders as a class-are beyond question by the stockholder, but he may interpose all defenses personal to himself in a later action to enforce the assessment. The levy is not a personal judgment against the stockholder, but a judicial determination relative to corporate affairs in which he is represented by the corporation.’

See to the same effect McDermott v. Woodhouse, 87 N.J.Eq. 615, 618, 101 A. 375; Lincoln Bus Company v. Jersey Mutual, etc., Co., 112 N.J.Eq. 538, 541, 165 A. 112; People ex rel. Palmer v. Central Mutual Insurance Company of Chicago, supra; Miller v. Barnwell Bros., Inc., 4 Cir., 137 F.2d 257, the latter two cases involving the instant insolvency proceedings against the company here involved.

It follows that the assessment in question against defendant, when confirmed by the decree of the Illinois Court, became a judgment against the member-policyholders of the insurance company as a class, including the defendant, conclusive as to the necessity, propriety and either quantum or rate of the assessment, but subject to defenses personal to defendant. Hence, the defenses here raised must now be considered.

The Validity of the New Jersey Statutes in the Light of the South-Eastern Under-writers Decision.

As stated above, defendant claims that the company, for whose rights plaintiff is receiver, while not admitted to do business in New Jersey, has, nevertheless, been transacting business in this state, but without complying with our statutes. Therefore, because it has not ‘complied with the provisions of’ the New Jersey Insurance Law, it is claimed that it cannot ‘recover in an action in any court in this state * * * for any assessment made upon the policy.’ R.S. 17:32-10, N.J.S.A. Among other things, these statutes require out-of-state insurance companies, in order to transact business in New Jersey, to appoint ‘agents resident’ in New Jersey, subject to exceptions here immaterial [R.S. 17:32-11, N.J.S.A.], to file with the Department of Banking and Insurance its charter, to satisfy the Commissioner of the propriety of its condition and methods of operation, to constitute him its attorney for the service of process, to obtain his certificate as to such compliance, and not to solicit or negotiate any insurance by itself ‘or by * * * its * * * brokers, agents, solicitors, surveyors, canvassers, or other representatives,’ the statutes further requiring brokers who write for any admitted company to be licensed. R.S.17:32-1, 2, N.J.S.A.; P.L.1928, Ch. 221, N.J.S.A. 17:17-12; R.S. 17:22-1, N.J.S.A. The purpose of these statutes is to ‘[protect] the public against imposition, which might otherwise be practiced by wholly irresponsible companies.’ Columbia Fire Insurance Co. v. Kinyon, 37 N.J.L. 33, 37; State v. New Jersey Indemnity Co., 95 N.J.L. 308, 113 A. 491. The company has met none of the above requirements.

Defendant here relies on the case of Cunningham v. Brockway Fast Motor Freight, Inc., 11 A.2d 422, 18 N.J.Misc. 101, and that of Keehn v. Laubach, 39 A.2d 73, 22 N.J.Misc. 380, which relies upon the Cunningham case, as holding that the failure of the insurance companies there involved to comply with these very provisions of the New Jersey insurance law prevented their receivers from recovering on insolvency assessments in proceedings similar to the present. But the Cunningham case was decided at a time when the United States Supreme Court had, by a long line of decisions, Paul v. Virginia, 8 Wall. 168, 19 L.Ed. 357; New York Life Insurance Company v. Deer Lodge County, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332; Hooper v. California, 155 U.S. 648, 15 S.Ct. 207, 39 L.Ed. 297, held that the business of insurance was intrastate, not interstate, commerce, and that consequently the state could either exclude an out-of-state company from entering the state at all, or could impose such conditions on its entry as it saw fit. Now, however, by the South-Eastern...