Lubin v. Equitable Life Assur. Soc. of United States

• Decision Date: 15 June 1945
• Docket Number: No. 42933.,42933.
• Citation: 326 Ill.App. 358,61 N.E.2d 753
• Parties: LUBIN v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES.
• Court: United States Appellate Court of Illinois

326 Ill.App. 358

61 N.E.2d 753

LUBIN

v.EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES.

No. 42933.

Appellate Court of Illinois, First District, Second Division.

June 15, 1945.

Appeal from Circuit Court, Cook County; Benjamin P. Epstein, Judge.

Suit by Alfred Lubin against the Equitable Life Assurance Society of the United States, a corporation, for an accounting and distribution to plaintiff and other former policyholders of their proportionate shares of that portion of contingency reserve fund held by defendant company which was accumulated while policies were in force. From a final order dismissing the suit for want of equity, plaintiff appeals.

Affirmed.David H. Caplow, Sol Andrews, and Maurice L. Davis, all of Chicago, for appellant.

Mayer, Meyer, Austrian & Platt, of Chicago (Miles G. Seeley, of Chicago, of counsel), for appellee.

SULLIVAN, Presiding Justice.

By this appeal plaintiff, Alfred Lubin, seeks to reverse a final order dismissing this action for want of equity, which order was entered on the motion of defendant, Equitable Life Assurance Society of the United States.

Nineteen separate plaintiffs, including the plaintiff herein, filed nineteen separate suits in equity against nineteen mutual life insurance companies, each plaintiff, a former policyholder, claiming to represent in each suit all other former policyholders who were similarly situated in respect to the defendant company in that suit and praying for an accounting and distribution to such former policyholders of their proportionate shares of that portion of undistributed surplus funds held by the respective companies, which were accumulated during the time the plaintiffs' policies were in force.

A motion to dismiss, under Sections 45 and 48 of the Civil Practice Act, Pars. 169 and 172, Chap. 110, Ill.Rev.Stat.1943, was filed by the defendant in each of the nineteen cases. Each motion attacked the respective complaints on several grounds. In all of the nineteen cases the motions to dismiss were sustained and, each plaintiff electing to stand on his complaint and to suffer judgment of dismissal, a final order was entered in each case which dismissed the action for want of equity. Separate appeals, which were perfected in the nineteen cases, have been consolidated for hearing in this court.

The allegations of the complaints in the nineteen cases are essentially the same and each of them averred substantially that the defendant is a mutual life insurance company organized in a state other than Illinois; that plaintiff is a former policyholder and member of the defendant insurance company and that after the policy was issued to him by said defendant the premiums were paid as long as his policy remained in force; that a surplus fund was accumulated by the defendant in excess of the legal reserve and the fund set apart each year for the payment of dividends and that this surplus belongs in equity to all of the members who contributed to the same proportion to their respective contributions during the time they were members of the defendant company; and that by the payment of premiums on his policy, plaintiff contributed to this fund which now amounts to several million dollars.

It was further alleged that other policyholders paid premiums on their policies until they either lapsed, were cancelled or were surrendered and that by so doing they likewise contributed to the surplus fund; that plaintiff brings this suit for himself and others in like situation; and that this fund is held by the defendant in trust for him and all other former policyholders he purports to represent. The complaint concluded with a prayer for an accounting, appointment of a receiver and the distribution of the surplus fund according to the interests of the parties therein.

The theory of the complaint of the plaintiff herein, as well as that of the plaintiffs in the other eighteen cases, as stated in their brief is as follows:

‘In mutual insurance companies, the assets of the company, including the surplus, are held by the company for the benefit of all of the members. The members are entitled to participate in the surplus accruing during the terms of their membership, in proportion to their contributions to such surplus, through the payment of premiums. This right is not lost when a policy lapses or is surrendered or matures; for the issuance of a policy of insurance creates the status of membership, and the right to participate in the surplus, flowing from such status, does not end with the expiration of the insurance coverage provided for in the policy. A right to distribution of the interest of any policyholder, in the entire undistributed surplus accruing during the period in which the policy remained in force, arises immediately upon the lapse or surrender or maturity of the policy.’

We deem it appropriate at this point to explain just what the ‘surplus' is which the plaintiffs seek to have distributed to them in proportion to their contributions thereto, through their payment of premiums while they were members of the defendant companies and their policies were in force. The statutes of the state in which each of the defendants is domiciled require that a reserve equal to the present value on a net premium basis of all outstanding policies must be set aside and maintained. Such reserve is generally called the ‘legal reserve.’ The legal reserve is not a surplus but is considered a liability. Surplus is the excess of assets each year over the legal reserve and other liabilities, which consist principally of losses and expenses of operation. Such surplus is usually referred to as the ‘total surplus' of an insurance company. That portion of the total surplus determined by each company's board of directors to be available for dividends is called the ‘divisible surplus.’ Only what remains of the total surplus in any year after the divisible surplus has been determined and set apart for the payment of dividends constitutes what will be variously referred to hereinafter as the ‘contingency reserve’ or ‘safety fund.’ The contingency reserve or safety fund as determined at the end of each year is added to the contingency reserve or safety fund previously accumulated since the inception of each of the defendant companies. Such conitingency reserve funds were created and are maintained by the defendants as an additional factor of safety for the protection of their policyholders against extraordinary hazards, such as major epidemics, wars and financial crises or panics. It is to compel the payment to them and other former policyholders of what they claim to be their proportionate shares of each of the defendant company's contingency reserve or safety fund that plaintiffs have instituted these suits.

All but four of the nineteen defendant companies are expressly authorized by statute in the states where they were incorporated and are domiciled to create and maintain a contingency reserve or safety fund. As to two of the four defendant companies which are not so specifically authorized by the statutes of the states of their domicile, it was clearly contemplated by the statutes of those states that mutual life insurance companies might create and maintain contingency reserve or safety funds. As to the other two of said four defendant companies the statutes of the states of their domicile (Connecticut and Vermont) contain no provision with respect to the creation and maintenance of contingency reserve or safety funds but neither do the statutes of those states contain any provision that could be construed as prohibiting a mutual life insurance company from accumulating a contingency reserve or safety fund. In Iowa, where one of the defendant companies is domiciled, there is no specific statutory provision authorizing the accumulation of a contingency reserve or safety fund but the Supreme court of that state in three cases-Wall v. Bankers Life Co., 208 Iowa 1053, 223 N.W. 257;Central Life Assur. Soc. v. City of Des Moines, 212 Iowa 1254, 238 N.W. 535, 78 A.L.R. 551;New York Life Ins. Co. v. Burbank, 209 Iowa 199, 216 N.W. 742-expressly approved and commended the maintenance of contingency reserve or safety funds by mutual life insurance companies doing business in that state and held that former policyholders have no interest in such funds; that the amount thereof is a matter confided to the discretion of the Board of Directors of the particular insurance company; and that by analogy to the insurance statutes of New York a contingency reserve or safety fund not exceeding a company's legal reserve is reasonable.

Several of the grounds alleged in the motions to dismiss filed in this and many of the other consolidated cases are not common to all of the cases but there are three grounds uniformly specified in each of the nineteen motions to dismiss. The substance of these three grounds, as stated in a brief filed in behalf of several of the defendants, is: ‘(1) Plaintiffs have no rights or claims against defendants other than as are set forth in their policies of insurance. Each policy provides for the manner in which and the extent to which plaintiffs were entitled to participate in the earnings of the defendant companies during the period that their policies were in force, and likewise specifies what each policyholder would be entitled to receive in the event of the lapse or surrender of the policy. None of the complaints alleges that the plaintiffs did not receive such benefits and rights as were provided in their policies of insurance. (2) The determination of the amount and the apportionment of surplus earnings to policyholders is a matter for the exercise of sound business discretion on the part of defendants' boards of directors, acting under controlling statutes and decisions which expressly authorize them to set aside and maintain out of earnings a corporate surplus, contingency reserve or safety fund. None of the complaints alleges that the Board of...