Lincoln Bus Co. v. Jersey Mut. Cas. Ins. Co.
| Decision Date | 21 March 1933 |
| Citation | 165 A. 112 |
| Parties | LINCOLN BUS CO. v. JERSEY MUT. CASUALTY INS. CO. et al. |
| Court | New Jersey Court of Chancery |
Syllabus by the Court.
1. Contemplated deficiencies in collection of assessments, resulting from insolvency of members, is an appropriate item in the assessment upon policyholders of a mutual insurance company for the payment of losses.
2. Actuarially estimated losses of unliquidated claims for losses is a proper item in an assessment of policyholders of a mutual insurance company for the payment of losses.
3. In levying an assessment upon policyholders of a mutual insurance company the receiver acts in the stead of the directors, under the direction of the court. The decree fixes the rate of liability, not the responsibility of members. Responsibility is to be determined at law in suits to recover the assessments, where all defenses to responsibility may be invoked; the assessment is conclusive as to the amount of liability only.
4. Recovery of assessments upon policyholders of a mutual insurance company must be at law.
5. Recovery may be had in this court by bill to declare an assessment and by decree to enforce it, only, if equitable elements are involved.
6. Assessments upon policyholders of a mutual insurance company for losses by calendar years is not objectionable per se.
Suit by the Lincoln Bus Company against the Jersey Mutual Casualty Insurance Company and others, in which receiver was appointed for the named defendant. On the receiver's motion for assessment against policyholders of the named defendant.
Decree in accordance with opinion.
Israel B. Greene, of Newark, for receiver.
George F. Seymour, Jr., and David E. Feldman, both of Newark, and J. Harry O'Brien, and Edward Stover, both of Hoboken, for policyholders.
BACKES, Vice Chancellor.
The defendant company insured taxicab and jitney bus owners against liability. For the history of how this insolvent mutual insurance company landed here, see 162 A. 915, 10 N. J. Misc. 1114.
The receiver now petitions for leave to assess the 2,400 policyholders, upon their contingent liability under their policies and the statute, to put him in funds to pay losses. Upon the return of the order to show cause a few appeared and objected to his method. Ordinarily the matter would be referred to a master, but they asked the court to hear their objections.
Section 6 of the Insurance Act of 1902, as amended, Cum. Supp. Comp. St. pp. 1574, 1575, § 99—6, provides:
The company's by-law is a paraphrase. It does not fix the amount of the contingent liability; nor does the policy. The assessable sum is, consequently, an amount equal to the premium, the minimum fixed by the statute.
Claims exceeding $900,000 have been presented to the receiver. More than $600,000 are unliquidated claims for personal injuries, of which 386 are in litigation and 322 suits may be expected. Based on the company's experience, at least $158,306.59 will be required for their satisfaction. Accepting this estimate of losses, with the fixed liabilities, the debts are:
Judgments against policy holders
$247,556.51
Claims for unearned premiums.
14,225.74
Claims for counsel fees
1,750.00
Miscellaneous claims
6,753.36
Reserve for unliquidated claims.
158,306.59
$428,592.20
To this must be added
Interest on fixed claims (estimated)
$50,000.00
Costs of defending suits (estimated)
Court costs of prosecuting suits for recovering assessments (estimated $15,000) and administration expenses (estimated $40,000)
An explanation: After the banking commissioner took possession, and up until he turned the administration over to this court, he defended all actions against policyholders. That course was discontinued by the receiver, under the court's direction, and accounts for the claimant's charges of $1,750 for counsel fees laid out by them in their defense and for $30,000, an approximation of charges by claimants for defending suits against them now pending and to be brought.
The items, $15,000 for costs of suit to be brought by the receiver to recover assessments, and $40,000 for administration expenses, are deemed fair approximations. It will take some more years for the winding up process. Suits will have to be brought on the assessment from those of the 2,400 policyholders who refuse and who are able or the receiver feels may be compelled to pay.
The receiver has assets estimated at $78,000, so that approximately $500,000 will have to be forthcoming to pay debts and to close the estate, and this is to be realized from earned premiums during the respective years of losses, viz.:
Earned Premiums
Losses
1928
$270,547.16
$81,037.09
1929
264,424.61
131,765.82
1930
263,363.80
178,987.10
1931
10,661.05
5,957.36
Total
$808,996.62
It is apparent that a 100 per cent. assessment will yield but a fraction of the liabilities, for most of the members, policyholders, mostly taxi drivers, barely earning a living, are financially irresponsible; many cannot be found, and others have withdrawn from the occupation. The receiver's only hope of collection is from a few, and from the comparatively few bus owners with routes; and he anticipates not more than $200,000.
It is objected that to discount the collection of assessments of irresponsible members places a burden upon solvent members not warranted by the statute as read into and forming a part of their contract to pay contingent liabilities. The "contingent mutual liability of its members for the payment of losses and expenses not provided for by its available cash funds," fixed by the statute though proportional, contemplates deficiencies in collections resulting from insolvency of members and is an appropriate item in the assessments. In this aspect the mutual undertaking of the members resolves itself into a limited joint liability. Bangs v. Gray, 12 N. Y. 477; Rosenberg v. Washington Mutual Fire Ins. Co., 87 Pa. 207; Wardle v. Townsend, 75 Mich. 385, 42 N. W. 950, 4 L. R. A. 511. The cases dealing with the several liability of stockholders of national banks (U. S. v. Knox, 102 U. S. 422, 26 L. Ed. 216, and others there cited) are not in point.
Objection is made to the items reserved for unliquidated claims, $158,306.59, as mere guesswork. It is actuarial and calculated by one whose qualifications are conceded, based upon the company's experience during its five years' existence. It is an appropriate item in the...
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