Schimpf & Son v. Lehigh Valley Mut. Ins. Co.

• Decision Date: 25 March 1878
• Citation: 86 Pa. 373
• Parties: Schimpf & Son <I>versus</I> The Lehigh Valley Mutual Insurance Company.
• Court: Pennsylvania Supreme Court

Page 373

86 Pa. 373

Schimpf & Son versus The Lehigh Valley Mutual Insurance Company.

Supreme Court of Pennsylvania.

March 7, 1878.

March 25, 1878.

March 7th 1878.

Before AGNEW, C. J., SHARSWOOD, MERCUR, GORDON, PAXSON and TRUNKEY, JJ. WOODWARD, J., absent

Error to the Court of Common Pleas of Lehigh county: Of January Term 1878, No. 48.

Butz & Schwartz and R. E. Wright & Son, for plaintiffs in error.—The mere fact that a company has a capital stock does not make its policies stock policies, nor does the fact that a company is incorporated as a mutual company and is so called, make any policy it may see fit to issue a mutual policy. If the mere wiping out of the capital stock would have made this company a mutual company exclusively and changed its policies to mutual policies, though in the form of "cash" or "stock" policies, why should the legislature, in the Act of 1871, Pamph. L. 325, provide that thereafter it shall have the powers of a mutual company only. If the defendant in error and the court below are correct, then the Act of 1871 did nothing more than retire the capital stock, leaving the powers of the company as to the character of business it was to transact just as broad as they were before the passage of the act. Yet this can hardly be contended in view of the emphatic recitals and enactments in the act. To permit a member of the company to purchase indemnity from the liability, for which, by the act, all persons are made liable, by the payment of a small annual sum of money, destroys the mutuality that should exist between the members. In a mutual company, he is not only the insured but the insurer, and liable to indemnify his associates, in consideration of his right to insist upon indemnity from them. To strike this feature from his contract, destroys its mutuality. It will not do to say, that by the payment of a definite sum annually the mutuality is continued, because that sum constitutes a fund out of which the other insured persons are to be paid, for the reason that the fixed premium, when it is paid, becomes the property of the company, and not a fund belonging to the insured persons individually, against which the company can make its drafts.

Edward Harvey and John D. Stiles, for defendant in error.— The theory of a mutual insurance company, is that the premiums paid by each member constitute a common fund devoted to the payment of any losses which may occur. The cash premium may as well represent the insured in the common fund as the premium notes. Companies have been chartered to do business on the mutual plan, with authority to give the insured the option to pay the whole premium in advance, in cash, without further liability to assessments or to pay in an assessable premium note, and it has been held, that such option is not inconsistent with the principles of mutuality: May on Insurance, sect. 548, pp. 684, 685; Mygatt v. N. Y. Protection Insurance Company, 21 N. Y. 52; White v. Havens, 20 Howard N. Y. 177; Ohio Mutual Insurance Company v. The M. W. Factory, 3 Ohio St. 348; Blanchard v. Waite, 28 Maine 51; Brouwer v. Appleby, 1 Sand. S. C. R. 158. The directors had the right to make the assessment after the assignment: Burrell on Assignments, 401; Hurlbut v. Carter, 21 Barb, 221; Germantown Pass. Railroad Co., v. Fitler, 10 P. F. Smith 125; Mann v. Pentz, 3 Comst. 422.

Mr. Justice PAXSON delivered the opinion of the court, March 25th 1878.

This action was brought in the court below by the Lehigh Valley Mutual Fire Insurance Company against John G. Schimpf & Son, plaintiffs in error, to recover an assessment upon a premium note. The defendants resisted payment upon two grounds, viz.: 1. That the assessment was ultra vires; and 2d. That it was made by the company after it had executed a general assignment for the benefit of creditors. These two questions involve all that is important in the numerous assignments of error. In order to discuss them intelligently it is essential to have a clear understanding of the facts. The company was incorporated March 30th 1866, Pamph. L. of 1867, p. 1398, with a capital of $20,000, divided into shares of $50 each, with power to increase the capital stock to $500,000, "and to be organized and managed according to the provisions of an act to provide for the incorporation of insurance companies, approved the 2d day of April 1856, and shall be limited to risks designated in the first class in the 7th section of said act, with the right to transact its business on the mutual principle in connection with its capital stock as aforesaid." On the 11th of March 1871, a supplement to its charter was passed by the legislature (Pamph. L. 325), which after reciting that the said company possessed the power to insure on the stock and on the mutual principle, that policies had been issued on the mutual principle only, and that $10,000 of the capital stock had been paid in, declared, by the 1st section, "that it shall be lawful for the directors of the said company, with the approval of the holders of a majority of the said capital stock, to withdraw said stock and pay the amount thereof paid in to the parties entitled thereto; and by the second section, "That if said stock be withdrawn, as above provided, thereafter the powers and liabilities of said corporation shall be those of a mutual insurance company only." The company accepted this amendment, and the capital stock was withdrawn. After this it proceeded to issue two classes of policies, the one for premium notes and the other for cash. Members insuring upon the all-cash plan were not liable to any further assessment to pay losses, but were permitted to participate in the profits, and...