Miller v. Barnwell Bros.

• Decision Date: 02 August 1943
• Docket Number: No. 5041.,5041.
• Citation: 137 F.2d 257
• Parties: MILLER v. BARNWELL BROS., Inc.
• Court: U.S. Court of Appeals — Fourth Circuit

137 F.2d 257 (1943)

MILLER v. BARNWELL BROS., Inc.

No. 5041.

Circuit Court of Appeals, Fourth Circuit.

August 2, 1943.

William T. Joyner, of Raleigh, N. C. (Joyner and Yarborough, of Raleigh, N. C., and Beckman, Healy, Reid & Hough, of Chicago, Ill., on the brief), for appellant.

Thomas D. Cooper, of Burlington, N. C. (Cooper & Sanders, of Burlington, N. C., on the brief), for appellee.

Before PARKER, SOPER, and NORTHCOTT, Circuit Judges.

SOPER, Circuit Judge.

Cross appeals were taken in this case from the judgment of the District Court whereby it was decreed that the receiver of the Central Mutual Insurance Company of Chicago recover the sum of $9,964.35 from Barnwell Brothers, Inc. of North Carolina, the defendant, who held policies of insurance therein. The judgment was based upon an assessment of 100 per cent of the cash premiums specified in two public liability policies of insurance issued to the defendant by the Insurance Company; and the assessment was ordered on March 19, 1940 by the Circuit Court for Cook County, Illinois, in a proceeding wherein the Insurance Company had been adjudicated an insolvent on January 11, 1937 and the receiver had been appointed to liquidate its affairs. The defendant appealed for the reasons amongst others that it was not bound by the determination of the Illinois court as to the necessity for or the amount of the assessment, since it was not a party to the proceeding; that the contracts of insurance were void because of fraudulent statements made by the president of the Insurance Company, and that the receiver's claim was barred by limitations. The receiver appealed on the ground that the amount of the judgment was less than the 100 per cent assessment ordered by the Illinois court with interest from the date of the receiver's demand.

In 1934 and subsequent years Barnwell Brothers, the defendant, operated a trucking business between points in North Carolina and New York, as a public carrier of goods for hire. North Carolina and other States required the defendant as a condition of continued operation to carry public liability insurance protecting persons from loss from bodily injury and property damage, and also required that copies of the policies be deposited with the State authorities. In September, 1934 an insurance policy of this character, which defendant had been carrying in another company, expired, and in its place defendant secured a policy from the Insurance Company herein, and filed it with the Utilities Commission of North Carolina in December, 1934. On January 8, 1935 the Insurance Company qualified to do business in North Carolina and on January 9 the defendant delivered to the Utilities Commission of North Carolina in substitution another policy of the same company, which had been delivered to the defendant in New York on December 13, 1934, where the insurance company was not qualified to do business. Subsequent to December 13, 1934, copies of this policy were filed with the public control bodies of eight or more jurisdictions so as to comply with their local requirements. This policy expired on December 21, 1935 and was not renewed. The monthly premium specified in the policy was $1,649.92 and the total amount earned and paid during the life of the policy was $20,006.12, but the premium earned and paid from January 31, 1935, the beginning of the period of insolvency of the Insurance Company to December 21, 1935, was $17,807.79. This policy contained the following clauses as to changes in the policy and the contingent liability of the assured thereunder:

"S. An agent has no authority to change this policy, or to waive any of its provisions, nor shall notice to any agent or knowledge of his or any other person be held to effect a waiver or change this contract or any part of it. No change whatever in this policy, and no waiver of its provisions, shall be valid unless an endorsement be added hereto, signed by the president and secretary of the company, expressing such change or waiver."

"The contingent liability of the assured hereunder is limited to one time the premium named herein and no more. The assured is given and hereby accepts notice that by virtue of this policy he is a member of the Central Mutual Insurance Company of Chicago and that the annual meetings of the company are held at its home office in Chicago, Illinois, the first Thursday following the second Monday of February in each year."

On May 16, 1935 the Insurance Company issued to Barnwell Brothers another public liability insurance policy which became effective April 1, 1935 for the period of one year and was cancelled by Barnwell Brothers, in accordance with the terms of the policy on December 21, 1935. A copy of this policy was delivered by the defendant to the Utilities Commission of North Carolina on May 16, 1935.

Premiums aggregating $2,763.97 were earned and paid on this policy during its life. The policy likewise contained a provision that the contingent liability of the assured was limited to one time the premium named in the policy. The receiver made demand upon the defendant for the payment of the assessment upon the first policy on July 20, 1940 and upon the second policy on February 6, 1941.

The receiver concedes that his recovery is limited to an amount equal to the premiums earned and paid from January 31, 1935, the beginning of the period of insolvency, to December 21, 1935, the end of the life of the policies, that is, $17,807.79 on the first policy and $2,763.97 on the second policy, or $20,571.73 in all. The District Court, however, allowed only 48.31 per cent of this amount, or $9,964.35, because a summary filed by the receiver in the Illinois case indicated that the gross deficiency bore this ratio to the contingent liability of the policy holders for the period. The District Court found that no appraisal of the collectibility of the liability had been shown and therefore assumed that the entire amount was collectible, and applied that percentage to the premiums paid by the defendant and reached the sum indicated above.

Fundamental to any recovery by the receiver of the Insurance Company in this case is the determination of the District Court that the defendant, although not a party to the Illinois case, was bound by the decree of the Illinois court as to the necessity for a 100 per cent assessment upon the policy holders. That suit was brought on behalf of the People on the relation of Ernest Palmer, Director of Insurance of the State of Illinois v. Central Mutual Insurance Company, and the judgment which authorized the receiver to levy an assessment of 100 per cent upon the policy holders was affirmed by the appellate court, 313 Ill.App. 84, 39 N.E.2d 400. The defendant contends that neither the complaint nor the evidence offered by the receiver supports the judgment in the pending case against the defendant because the statutes of Illinois, governing the liquidation of insurance companies on January 11, 1937 when the Central Mutual Insurance Company was decreed to be insolvent, provided no machinery for the levying of an assessment or the enforcement of the contingent liability of the policy holders by a receiver's suit or otherwise.

The existence under a statute or contract of an additional liability of shareholders or members of a corporation for the corporation's debts does not deprive them of their day in court to resist the imposition of an assessment, unless some procedure has been set up by statute or contract under which the corporation may be brought into court for the determination of insolvency and the amount of an assessment. If such mechanism is provided, the shareholders are deemed by virtue of their membership to be bound by the determination as to the necessity for and the amount of the assessment although they are not named as parties to the proceeding or served with process. When suit is brought against them for collection of the assessment they may show that they are not members or shareholders of the corporation, but may not dispute the assessment itself. For example, it was held in Christopher v. Brusselback, 302 U.S. 500, 58 S.Ct. 16, 82 L.Ed. 518, that the statutory liability of the shareholders of a joint stock land bank for the debts of the bank to the extent of the par value of their stock could be enforced only by suit against them wherever they might be found; and that in such suit the insolvency of the bank and the amount of the needed assessment were essential elements of the cause of action that were not supplied by the previous determination of the court in a creditors' suit to which the stockholders were not parties. The decision was based upon the ground that although the liability of the shareholders for the debts of the bank was fixed by the statute, it did not set up any machinery comparable to that of the National Banking Act, 12 U.S.C.A. § 21 et seq., for enforcing the liability.

The converse of this proposition was held to be the law in Pink v. A.A.A. Highway Express, 314 U.S. 201, 62 S.Ct. 241, 86 L.Ed. 152, 137 A.L.R. 957, under a New York statute, Insurance Law, § 346, as amended by Laws 1923, c. 811, § 7, Consol.Laws N.Y. c. 28, which provided that any mutual insurance company shall specify the extent of the contingent liability of members for losses and that "all assessments, whether levied by the board of directors, by the superintendent of insurance in the liquidation of the corporation, or otherwise, shall be for no greater amount than that specified." The court said: (314 U.S. at page 207, 62 S.Ct. at page 245, 86 L.Ed. 152, 137 A.L.R. 957)

"It is a familiar rule that those who become stockholders in a corporation subject themselves to liability for assessment when made in conformity to the statutes of the state of its organization, although they are not made parties to the proceeding for levying it. * * * Whether we support these legal consequences by reference to consent of the stockholder or...