People ex rel. Palmer v. Cent. Mut. Ins. Co. of Chicago
| Decision Date | 04 February 1942 |
| Docket Number | Gen. No. 41490. |
| Citation | 313 Ill.App. 84,39 N.E.2d 400 |
| Parties | PEOPLE EX REL. PALMER, DIRECTOR OF INSURANCE, v. CENTRAL MUT. INS. CO. OF CHICAGO. MILLER ET AL. v. CENTRAL MUT. INS. CO. OF CHICAGO ET AL. |
| Court | United States Appellate Court of Illinois |
OPINION TEXT STARTS HERE
Appeal from Circuit Court, Cook County; Philip J. Finnegan, Judge.
Proceeding by the People, on the relation of Ernest Palmer, Director of Insurance of the State of Illinois, to liquidate Central Mutual Insurance Company of Chicago, wherein Henry G. Miller was appointed receiver. From a judgment authorizing the receiver to spread and levy a 100 per cent. assessment against policyholders of the company, the Central Mutual Insurance Company and Irving L. Block appeal.
Affirmed.
Myer N. Rosengard, of Chicago, for appellants.
Lloyd C. Whitman, of Chicago, for Henry G. Miller.
Beckman, Healy, Reid & Hough, of Chicago, for Roy D. Keehn.
Irving L. Block, whose status or interest in this proceeding does not clearly appear of record, but who is characterized as a policyholder, joins in an appeal with the defendant, Central Mutual Insurance Company of Chicago, seeking the review and reversal of an order of the Circuit court entered in a proceeding instituted by the attorney general, on request of Ernest Palmer, director of insurance, to liquidate the defendant company because of its alleged insolvency, which authorized and directed the receiver in that proceeding to spread and levy a 100 per cent assessment against its policyholders in an amount of approximately $5,000,000.
The liquidation proceeding had been instituted by petition of the attorney general filed January 8, 1937, pursuant to an Act in Relation to Delinquent Insurance Companies, etc., approved June 26, 1925, and subsequent amendments thereto (pars. 495-503e, ch. 73, Ill.Rev.Stat.1935). Shortly thereafter, a decree was entered finding that the company was insolvent, that its liabilities exceeded its assets by approximately $500,000 as alleged in the petition, and that sufficient cause existed for the appointment of a receiver to take possession of its assets and to liquidate its business. Accordingly, Henry G. Miller was appointed as receiver by the director of insurance and at once qualified under his appointment, January 12, 1937, he had leave to employ as his counsel Lloyd C. Whitman, and thereafter the receiver and his counsel entered upon their respective duties, as appears from our opinion on another phase of this proceeding (Miller v. Central Mut. Illinois Insurance Company, 299 Ill.App. 194, 19 N.E.2d 822), and continued to serve in their respective capacities until shortly before the instant appeal came on for oral argument, when we were first advised that Roy D. Keehn had been substituted for Miller and that Whitman had been superseded by Beckman, Healy, Reid & Hough as solicitors for the receiver.
After the liquidation proceeding had progressed for some 16 months, the receiver in May, 1938, filed a verified petition for an assessment against all policyholders, who, January 31, 1935, to January 11, 1937, both inclusive, were holders of policies, in an amount of 100 per cent of the premiums stated in the policies. From the essential allegations of his petition, it appears that defendant company had, October 22, 1926, obtained a charter from the State of Illinois and was licensed to do business as a mutual insurance company under the act of July 1, 1915, (an Act to provide for the Organization and Management of Mutual Insurance Corporations, other than Life, pars. 309-332, ch. 73, Rev.Stats. of St. of Ill., 1915-1916, ed, by Hurd), and authorized to make contracts of insurance against loss or liability arising from the various kinds of casualty or hazard which may be the lawful subject of insurance, except life or fire; that it was provided, among other things, at paragraphs 388, 389 and 390 of the act of 1915 (ch. 73, Ill.Rev.Stat.1935), under which it was incorporated, (a) that every policyholder shall be a member of the corporation and entitled to vote; (b) that the by-laws of the company shall provide for a cash premium and may limit the contingent liability of the members to an amount of not less than one nor more than ten times the cash premium expressed in the policy, the maximum contingent liability to be plainly stated as part of each policy; (c) and that no corporation shall issue a policy for a cash premium without contingent liability unless it is possessed of a surplus of at least $100,000 and not less than the capital required of domestic insurance companies doing the same kind of business.
The petition further alleged that the corporation adopted by-laws pursuant to statute which contained, among others, the following provisions: Art. III, that each policyholder shall be entitled to one vote, and that membership in the company automatically ceases upon termination of the policy by cancellation, lapse, forfeiture for nonpayment or otherwise; Art. VIII, that the board of directors shall exercise all corporate powers not prohibited by statute or the by-laws, shall have power to prescribe when and how payment of premiums and assessments shall be made, when policies shall lapse or be subject to forfeiture, and how they may be reinstated; but that the directors shall have no power to issue policies not providing for a cash premium deposit nor shall they have power to waive the same, nor shall the contingent liability of any member be more than an amount equal to such cash annual premium deposit and which shall be expressed in the policy.
The receiver's petition further alleged that defendant company engaged in business until January 11, 1937, and maintained its principal offices in Chicago; that it qualified in and issued policies to residents of some sixteen states and the District of Columbia; that it issued 100,000 policies of insurance, in each of which it was provided that “The contingent liability of the assured hereunder is limited to one time the premium named herein and no more,” and “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.”
It is further alleged that July 1, 1925, and since that time there was in full force and effect a legislative act entitled, “An Act in relation to delinquent insurance companies,” etc. (pars. 495-503e, ch. 73, Ill.Rev.Stat.1935); that in July, 1937, this act was repealed by another act of the legislature, entitled “An Act to revise the law relating to insurance and to repeal certain Acts therein named,” commonly known as the Illinois Insurance Code (pars. 613-1091, ch. 73, Ill.Rev.Stat.1937); that under section 1061 of this statute, found in chap. 73, Illinois Revised Statutes, 1937, it is expressly provided that the repeal of any law by the Code shall not affect any rights accrued or established or any liability or penalty incurred under the provisions of any repealed law prior to the repeal; and that under par. 833 (ch. 73, Ill.Rev.Stat.1937) every proceeding heretofore commenced under the act of 1925 shall be continued as if the act of 1925 had not been repealed.
Following these allegations, the petition recites the commencement of the liquidation proceeding in 1937, the entry of an order finding, among other things, that sufficient cause existed for the appointment of a receiver to take possession of the defendant's assets and to proceed with the liquidation; that in February, 1937, the court entered an order directing that claims be filed with the receiver, and publication of notice thereof to policyholders; that in pursuance to the order and notice, there were filed with the receiver, up to and including April 14, 1938, 2,644 claims, 29 of which were for unliquidated damage or loss in amounts not stated, but estimated at an aggregate of approximately $138,000; that taking into consideration these 29 claims, the total claims filed would aggregate some $4,500,000, classified approximately as follows:
+----------------------------------------------+
¦loss claims ¦$4,000,000¦
+-----------------------------------+----------¦
¦investigation and adjustment claims¦240,000 ¦
+-----------------------------------+----------¦
¦commission and reinsurance claims ¦125,000 ¦
+-----------------------------------+----------¦
¦return insurance claims ¦95,000 ¦
+-----------------------------------+----------¦
¦miscellaneous claims ¦92,000 ¦
+----------------------------------------------+
Before filing his petition for assessment against policyholders, the receiver employed Conover & Green, consulting actuaries, auditors and accountants, especially experienced in insurance accounting work, to assist him in gathering information and data in connection with the assessment of policyholders, the proper claim reserve, the fair value of the assets, and the necessary rate of assessment against policyholders. Pursuant to the employment, the auditing firm made an exhaustive and detailed report dated April 21, 1938, which is used as the basis for the assessments sought. Their report indicated that the value of defendant's assets, as of January 11, 1937, exclusive of any claim against London Lloyds under a reinsurance contract, aggregated $253,274.34; that the total liabilities of the company, estimated and stated as accurately as was practical at the time, were $3,272,667.44; that throughout the period from February 1, 1935, to January 11, 1937, both inclusive, defendant was not possessed of assets equal to the unearned premium reserve and other liabilities, and that from time to time during this period there was a deficiency in assets and an excess of liabilities over assets of $4,000,000; that as indicated by the premium account on the books of the company as of January 31, 1935, and from February 1, 1935, to January 11, 1937, there were outstanding...
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