Sugg v. Farmers' Mut. Ins. Ass'n.

• Decision Date: 26 February 1901
• Citation: Sugg v. Farmers' Mut. Ins. Ass'n., 63 S.W. 226 (Tenn. 1901)
• Parties: SUGG v. FARMERS' MUT. INS. ASS'N et al.
• Court: Tennessee Supreme Court

63 S.W. 226

SUGG v. FARMERS' MUT. INS. ASS'N et al.

Court of Chancery Appeals of Tennessee.

February 26, 1901.

Appeal from chancery court, Davidson county; H. H. Cook, Chancellor.

Suit by T. J. Sugg against the Farmers' Mutual Insurance Association and others. Defendant M. M. Smith demurs. Demurrer sustained, and plaintiff appeals. Reversed.

M. H. Meeks, H. C. Lassing, and D. R. Carpenter, for appellant. C. A. Miller, for appellee M. M. Smith.

NEIL, J.

The bill in this case is a general creditors' bill filed in the chancery court of Davidson county to wind up an insolvent fire insurance company. The company is based on the mutual assessment plan. The corporation was made a defendant; also J. A. Young, its president, and F. W. Todd, its secretary and treasurer. The bill also asked that the stockholders or members of the defendant company be made parties. They reside in different counties of the state. Among others so sought to be made defendant to the bill was M. M. Smith, a citizen and resident of Hardeman county. Process was issued and served on him. He came in and filed a demurrer, setting forth the following grounds of objection to the bill: "(1) Because the bill on its face discloses that this defendant is a resident of Hardeman county, Tennessee, and this court has not and cannot acquire jurisdiction of him by reason of any matter or thing alleged in the bill. (2) Because the bill filed in this cause shows that this court has no jurisdiction of this defendant. (3) Because the bill states no ground for action against the defendant, nor is any evidence of indebtedness shown or filed against him, or anything to base a recovery on against him. (4) To so much and such parts of the complainant's bill as seeks to hold defendant liable as a member or a stockholder in the Farmers' Mutual Insurance Association of Tennessee, as debtor to said association, the bill shows he is not a proper or necessary party to the proceedings to administer said corporation as an insolvent incorporation. (5) To so much and such a part of complainant's bill as seeks to hold the defendant liable as a debtor of the defendant corporation, the bill shows that he is not a necessary or proper party, and this court has no jurisdiction as to his person or the subject-matter of the suit so far as he is concerned. (6) To so much of complainant's bill as seeks to wind up the defendant company or association as an insolvent corporation, the bill and exhibits show the acts and doings of said corporation or association complained of are ultra vires and void. (7) To so much of complainant's bill as seeks to administer the defendant association as an insolvent corporation, the bill shows that said association has no power or authority under its charter to engage in mutual assessment insurance, and that all the acts and doings of said corporation and its officers were without its charter power, and void. (8) The exhibits designated in the bill are not filed therewith. (9) To so much of the bill as seeks any relief because of a partnership alleged in the bill, the bill and exhibits show that the defendant contracted with defendant corporation as such, and that no agreement of partnership was ever intended and entered into, and that no partnership contract or agreement was entered into between the policy holders, and that no partnership relations existed between complainant and defendant in any way. (10) To so much of complainant's bill as seeks relief on the ground of estoppel, the bill does not allege nor show that defendant had information or knowledge that the policies were issued in excess of, or contrary to, the charter power of said corporation."

Three leading questions are presented by the foregoing grounds of demurrer, when taken in connection with the allegations of the bill to which they refer. The first of these questions is whether a mutual fire insurance company on the assessment plan could be organized under the charter of the defendant association, that charter being a transcript of Act 1875, c. 142, §§ 5, 10; the latter being the section specially applicable to insurance companies, the former the section which gives general powers to all corporations chartered under that act. We are of opinion that a mutual fire insurance company, of the description just referred to, could be organized under that act. We need refer only to the following excerpts from section 10: "The said company, incorporated as aforesaid, shall have the power to make insurance against losses by fire, at such rate of premium, and upon such terms and conditions as may be agreed upon, on any house, tenement, manufactory or other building; on goods, wares, or merchandise, and on other effects; on hay, grain and other agricultural products in barns or stacks, and generally to insure against loss by fire, earthquake, storms or floods, on all kinds and species of property. * * * The insurance business of the company may, at the option of the company, be conducted upon the principle of giving to policy holders an interest in the profits," etc. We think the power may be found in the language: "To make insurance * * * at such rate of premium and upon such terms and conditions as may be agreed on." We think this construction finds confirmation, if such were needed, in the language last quoted supra: "The insurance business of the company may, at the option of the company, be conducted upon the principle of giving to policy holders an interest in the profits." It is true the matter last quoted is found in a portion of the section that seems to refer specifically to life insurance, yet it does not in terms so indicate in the paragraph from which we have made the excerpt last referred to. We do not think, however, that the distinction is very material, because it is expressly provided by the section that the company may, at its option, exercise "one or more or all of the three branches of the business in which it is authorized to engage"; that is, fire, life, and accident insurance.

The only suggestion found in the statute that seems to seriously oppose the construction just given is that section 5 seems to contemplate a company with "stockholders." When we use this term we usually have in contemplation a stock subscription list, whereby certain sums are agreed to be paid as contribution to a fund intended to supply a capital stock for the company. This meaning, however, is not exclusive. In a proper sense, those who agree to be answerable for assessments are really stockholders in the company whose operating fund is thus secured. We find this meaning given to the word "stockholders" in the last paragraph of section 10. That paragraph refers to life insurance, and is useful as indicating the legislative idea of the meaning of the word "stockholders." That language is: "Any company organized under the provisions of this act may restrict its business to the insurance of the lives of its members or stockholders alone; it being the intent of this paragraph to give a corporative existence to any profession, association, guild, brotherhood or other mutual association, the right, by an arrangement among themselves, as stockholders in the corporation, to insure the lives of each other upon the principle of a mutual participation in the profits by annual subscription, or otherwise, and thereby provide a fund out of which provision may be made according to the by-laws of the corporation for the support of the family of any stockholder on his decease, or for the payment of any policy due the estate on his decease. In case any company organized under this charter restricts its business to the insurance of the lives of stockholders, no publication need be annually made of its debts and liabilities." The reference in the last clause to the subject of publication is made to a provision of the seventh paragraph which is as follows: This paragraph refers to a publication to be annually made exhibiting a general balance sheet, showing the amount of capital stock paid in or secured by notes of stockholders for stock subscribed by them, etc. A strict construction, of course, would limit the remission of the duty of publication to instances where the company was engaged only in the business of insuring lives; but, taking the whole act together, we are of opinion that, inasmuch as companies organized under section 10 were authorized to carry on all three kinds of insurance at the same time, the powers given, so far as applicable to the three several kinds of business, would extend through all of the operations of the company, and that the word "stockholders" was meant to have the same meaning all through, — that is, where the companies were assessment companies, those who had agreed to become members of the association and to pay assessments; and, in case of subscription companies, those who had agreed to pay in such and such amounts as their contribution to the capital stock.

The legislature evidently took this view of the matter when Act 1895, c. 220, was passed. That act is entitled "An act to govern and regulate the business of mutual or assessment fire insurance companies, organized or incorporated under the laws of this state." There is no act under which such a corporation could have been organized, except the act of 1875, above referred to. The act of 1895, just mentioned, was in general terms as follows: Section 1 provided that no mutual or assessment fire insurance company "organized or incorporated under the laws of this state" should commence the transaction of business until it should receive from the insurance commissioner a certificate of authority, which certificate should state that the company had complied with the provisions of said act of 1895. Section 2 provided that every such mutual or assessment fire insurance company should file with the insurance commissioner a properly certified copy of its charter or articles of incorporation, together with a sworn statement...