Schwarzwalder v. Tegen

• Decision Date: 08 June 1899
• Citation: 43 A. 587,58 N.J.E. 319
• Parties: SCHWARZWALDER v. TEGEN et al.
• Court: New Jersey Court of Chancery

43 A. 587

58 N.J.E. 319

SCHWARZWALDER

v. TEGEN et al.

Court of Chancery of New Jersey.

June 8, 1899.

Application by Catherine Schwarzwalder for a preliminary injunction enjoining Frederick Tegen, Jr., and others from changing the German Fire Insurance Company from a mutual to a joint-stock company. Heard on bill, affidavits, and answering affidavits and stipulations. Writ granted.

Samuel F. Leber and T. S. Anderson, for complainant.

James A. Beecher, for defendants.

EMERY, V. C. The complainant is the holder of a policy of insurance in the German Mutual Fire Insurance Company of Newark, N. J., a corporation organized on April 27, 1893, as a mutual fire insurance company under the general laws of this state, and files this bill against the defendant company and its individual directors to enjoin them from changing the company from a mutual to a joint-stock company. The general Insurance law requires companies organizing under it to designate in their certificate whether they propose to organize a mutual fire insurance company or a stock insurance company. There is also a provision (section 39) In the general insurance laws which were in force at the time of the incorporation of the defendant company that mutual companies might unite a cash capital to any extent as an additional security to the members over and above their premium and stock insurance, and that the company might allow interest on such capital and a participation in its profits, and prescribes the liability of the owner or owners thereof to share the losses of the company. The defendant company, under this section, has provided for a cash capital of $48,000, and it has accumulated a surplus, which in the bill is charged to be $20,000, and in the answering affidavits la admitted to be $0,000. Where persons become members of a mutual insurance company by reason of holding the policies, it has been usual, if not general, for such members to give premium notes which are assessable to pay the losses of members and the expenses of management, and the general insurance, law seems to contemplate this method of fixing the liability of the members of a mutual company who became such by reason of taking out policies. There is, however, no express provision against the issuing of a policy to a person as member upon the payment of a premium in cash in lieu of the giving of a premium note, and the charter of the company in this case, as amended in March, 1895, contained a provision (article 5, § 4) under which "any person calling for insurance may elect to pay a cash premium or definite sum in money to be fixed by the directors of the company in lieu of a premium note"; and it was further provided by this section of the charter that "the liability of the members of the company for losses and expenses incurred, during the term of their policies, shall be limited to an amount not exceeding twenty-five per cent. of the amount of the assessment premium written in their policy and in addition thereto." The complainant in the present case became a member of the company on April 12, 1898, by receiving a policy for $2,000, and paying a cash premium of $20, and it was also expressed on the face of the policy that there was a liability to the extent of 25 per cent. in addition. There is no difficulty or objection to this method of becoming a member of a mutual insurance company by the payment of a cash premium down, instead of the giving of premium notes assessable, and this has been the view of several courts of high authority where the question has been raised. Mygatt v. Insurance Co., 21 N. Y. 52 (1800). The New York statutes seem to have been statutes on which our first general mutual insurance company act of 1852 was based. Insurance Co. v. Hoge, 21 How. 35. The charter of defendant company further provides in reference to the rights of those members who are such by reason of the holding of a policy, by article 2, § 1, of its charter, that all persons who shall insure in or with said company shall be deemed and taken for members of said corporation, and (section 2) that every member shall be entitled to cast one vote for every $1,000 and fraction of $1,000 worth of property insured for him with this company, and also to one vote for every $100 invested in cash to the capital stock of said company, provided always that every member shall be entitled to at least one vote.

In reference to the distribution of profits between the members of the company who are such by reason of holding policies, and those who are holders of its capital stock, it is provided (by-laws, art. 13) that the board of directors may divide the profits between the capital stockholders and persons insured in the company holding policies of one year's standing, or for a less period, as they shall determine, provided such dividends shall not be less than two dollars. There are no other express provisions in the charter or by-laws regulating the respective rights of the policy holder members and the capital stock members. No dividends have yet been declared under this section, nor have the directors established any rule of division between the two classes. The question in the present case arises under a proceeding which has been taken to change the company from a mutual company to a joint-stock company purely, and the effect of which will be to terminate the right of the policy holders who are not capital stock holders to have a voice in the management of the company. All of the directors and three-fourths of the cash stockholders have consented to the change, and the proceedings for a change have been commenced on this consent, and without (so far as appears) the consent of any of the policy holders who are not stockholders. The entire number of policies issued is about 3,000, Insuring over $2,000,000; but the number and amount of the policies held by stockholders does not appear. The complainant, whose policy is still outstanding, bases her claim to enjoin this change upon several grounds, the two principal ones being—First, that this action cannot be taken without her consent, and is one which requires the unanimous con-sent of the policy holders and stockholders: "and, second, that, if it can be...