Pink v. Town Taxi Co., Inc.

• Decision Date: 04 August 1941
• Citation: 21 A.2d 656
• Parties: PINK, Superintendent of Insurance of State of New York v. TOWN TAXI CO., Inc.
• Court: Maine Supreme Court

21 A.2d 656

PINK, Superintendent of Insurance of State of New York

v. TOWN TAXI CO., Inc.

Supreme Judicial Court of Maine.

Aug. 4, 1941.

Agreed Statement from Superior Court, Cumberland County.

Action in assumpsit by Louis H. Pink, Superintendent of Insurance of the State of New York, as liquidator of the Auto Mutual Indemnity Company, against the Town Taxi Company, Incorporated, to recover a certain amount assessed against the defendant as a policyholder and member of the Auto Mutual Indemnity Company. On report from the superior court on an agreed statement of facts.

Judgment for plaintiff.

Argued before STURGIS, C. J., and THAXTER, HUDSON, MANSER, WORSTER, and MURCHIE, JJ.

Jacob H. Berman, Edward J. Berman, and Sidney W. Wernick, all of Portland, and Alfred C. Bennett, of New York City, for plaintiff.

Abraham Breithard, of Portland, for defendant.

HUDSON, Justice.

Report from the Superior Court on agreed statement of facts. The plaintiff, Superintendent of Insurance of the State of New York, liquidator of the Auto Mutual Indemnity Company, sues the defendant in assumpsit to recover the sum of $1,497.69 (and interest) assessed against it as a policyholder in and member of the Indemnity Company.

On June 26, 1936, the Indemnity Company, by its agent in Portland, issued its policy to the defendant with coverage from July 1, 1936, to July 1, 1937, providing for a total annual cash premium of $2,490.87. On July 14, 1937, it issued a like policy to it to run from July 1, 1937, to July 1, 1938, for a total cash annual premium of $3,645. Both were issued and countersigned at Portland. It is stipulated that the Indemnity Company was duly authorized and licensed to do business in this State as a foreign mutual automobile casualty insurance company. It is conceded that the plaintiff has the right to sue this action in this jurisdiction.

The Indemnity Company was organized under the statute law of New York State. Under its by-laws in force when these policies were issued it was provided that "The members of the corporation shall be the policy holders herein"; that "The Board of Directors shall make an assessment upon the members of the corporation when the cash funds of the corporation are less than the required reserves for unearned premiums, losses and expenses"; that "The contingent mutual liability of the members for the payment of losses and expenses not provided for by the corporation, shall not be less than an amount equal to twice the amount of, in addition to, the cash premiums written in the policy"; and that "Every member shall be liable to pay and shall pay his proportionate part of any assessment which may be laid by the corporation in accordance with the law and his contract, covering any deficiency (excess of liabilities over admitted assets) if he is notified of such assessment within one year after the expiration or cancellation of his policy."

On the 24th day of November, 1937, pursuant to Article XI, § 400 et seq, of the Insurance Law of the State of New York, Consol.Laws, c. 28, as added by Laws 1932, c. 191, the Supreme Court of that state ordered the Indemnity Company's dissolution, annulment of its charter, and transfer of title of its assets to this plaintiff, who was authorized and directed forthwith to take possession of its property and liquidate its business.

On the 7th day of February, 1938, the court ordered an assessment of forty percent against all members of the Indemnity Company, against whom an assessment might have been levied on November 10, 1937. On August 12, 1938, it ordered payment of the assessments to the plaintiff on or before the 19th day of September, 1938, and in case of nonpayment, that the assessed should show cause on the 29th day of September, 1938, why they should not be held liable to pay such assessments. It is admitted that the defendant company was of those so assessed and that the total of its assessment on the two policies amounted to $1,497.69.

Although notices for hearings on the petitions on which said orders were based were given in accordance with the provisions of the New York statutes, both by publication and mail with postage prepaid, yet this defendant did not appear before the New York court at any hearing nor file objections to such assessments nor in any way attack or contest the validity thereof.

The plaintiff concedes that no valid judgment in personam was recovered in the New York courts against this defendant. It does claim, however (and we think rightly), that the New York court, having jurisdiction of the corporation itself and its corporate matters, lawfully and bindingly determined the necessity for an assessment and its amount. Childs v. Cleaves, 95 Me. 498, 508, 50 A. 714; Johnson v. Libby, 111 Me. 204, 209, 88 A. 647, Ann.Cas. 1916C, 681.

In a subsequent action brought in the jurisdiction where the defendant resides to obtain a judgment in personam for an assessment, the defendant may set up personal defenses, such as nonmembership or payment or the statute of limitations. Childs v. Cleaves, supra, 95 Me. on page 509, 50 A. 714.

In an article on the assessment system and its history in Vol. 23 of the Harvard Law Review, it is stated on page 44:

"A further proceeding is therefore necessary to render the assessment effective as a personal liability. The assessment fixes the rate of liability but the persons who are liable have yet to be judicially ascertained. This is done in single actions at law brought against each alleged stockholder respectively. In each of these actions the plaintiff must establish that the defendant is in truth a stockholder, and show the number of shares held by him. The defendant, as has been shown, may bring forward any personal defence, though he may not attack either the necessity for or the extent of the assessment. In other words the assessment represents the measure of damages which will be applied if personal liability as a stockholder is established."

The general rule with citations from Maine and other states and the Federal courts is stated in 48 A.L.R., page 669, as follows: "It seems well settled that a decree assessing stockholders of an insolvent corporation is conclusive against nonresident stockholders, although not served with process within the state in which it was rendered or made parties to the proceedings, in so far as the necessity for such decree and the amount of the assessment are concerned, where, under the laws of the state, the court has jurisdiction to enter such decree, and its determination is conclusive as to such questions."

While the rule may have been applied more often in actions against stockholders where double liability, for instance, is sought and in actions against members of fraternal benefit companies, we see no controlling distinction between those cases and one, as here, to recover an assessment against a member of a mutual company. 48 A.L.R. 674 et seq.

On the back of one of these policies are printed these words:

"Notice to Policyholders.

"1. The Insured is hereby notified that by virtue of this Policy he is a member of the Auto Mutual Indemnity Company and is entitled to vote either in person or by proxy at any and all meetings of said company.

"2. The annual meetings are held at the Home Office of the Company in New York City on the second Tuesday of January in each year, at twelve o'clock noon.

"3. The contingent liability of the named Insured under this Policy shall be limited to one year from the expiration or cancellation hereof and shall not exceed the limits provided by the Insurance Law of the State of New York or of the State in which the Insured is domiciled and/or this policy is written," while on the other the words "or of the State in which the Insured is domiciled and/or this policy is written" in paragraph 3 are omitted.

We consider that the words "Insurance Law" in paragraph 3 have reference only to statutory law. As admitted by the defendant, there is no statutory law in Maine fixing limits as to contingent liability that would apply to these policies. That being so, the quoted additional words are inoperative and consequently paragraphs 3 on the backs of both policies are identical in effect.

Insurance corporations are classified as stock, mutual, and mixed. In a strictly mutual company there are no stockholders. The ownership of the company is in its policyholders who are its members. A mixed company, as its name indicates, is one that has, at least in part, the nature of both stock and mutual companies, and in which a certain portion of the profits is divided among the stockholders and distribution of other funds made among the insured. Richards on the Law of Insurance, 4th edition, § 5, pages 7 and 8.

In § 146 of his work on Insurance, Mr. May says:

"Mutual insurance, it is truly observed, is essentially different from stock insurance, and much of the litigation that has grown out of this species of insurance has been owing to inattention to this difference. * * * They need many by-laws and conditions that are not required in stock companies; and it is necessary and equitable that each person who gets insured in them should become subject...