Walling v. Iowa Mut. Liability Ins. Co.
| Decision Date | 14 May 1940 |
| Docket Number | 44993. |
| Citation | 292 N.W. 157,228 Iowa 503 |
| Parties | WALLING et al. v. IOWA MUT. LIABILITY INS. CO. et al. (H. L. NEHLS INV. CO. et al., Interveners). |
| Court | Iowa Supreme Court |
Appeal from District Court, Linn County; Chas. J. Haas, Judge.
Suit in equity to secure the restoration of assets of an insurance company alleged to have been wrongfully transferred to another insurance company, to impress a trust thereon, secure an accounting therefor, the appointment of receiver to restore the same and for general equitable relief. The answer asserted that the assets were transferred pursuant to a merger of the two companies, which was authorized by the members of each company and approved by the attorney general and the insurance commissioner. Plaintiffs filed a reply asserting that the alleged merger was fraudulently obtained was illegal, ultra vires and void, and beyond the authority of the insurance commissioner or attorney general to approve also that Section 9115 of the Code, relating to such approval, is unconstitutional. Defendants moved to strike the reply. The motion was sustained. Plaintiffs appeal from such ruling.
Affirmed.
Crissman & Bleakley, H. L. Nehls, Jr., and E. A. Johnson, all of Cedar Rapids, for appellants.
C. J. Lynch and G. P. Linville, both of Cedar Rapids, for appellees.
The questions presented by this appeal arise upon the pleadings and concern only the propriety of a ruling on a motion to strike the plaintiffs' reply to the defendants' answer. The pleadings are quite voluminous and the questions are not as simple as might at first appear.
On May 26, 1938, plaintiffs filed a petition in equity, which is voluminous, comprising 22 pages of the abstract. The facts asserted thereby are substantially the following: The Iowa Mutual Liability Insurance Company and the Preferred Class Mutual Insurance Company are two Iowa corporations, the former organized in 1909 and the latter in 1910, both under what is now Chapter 404 of the Code. The insurance lines authorized for the Iowa Mutual are those specified in Paragraphs 5 and 6 of Section 8940 and Paragraph 2 of Section 8941, whereas the lines authorized for the Preferred Class are those specified in Paragraphs 1 and 9 of Section 8940. The members of the board of directors for the two companies were substantially identical, as were the officers. The individual defendants are such officers and directors. Under the statutes and the articles of incorporation of the two companies, each policyholder is a member and is entitled to one vote. Plaintiffs are policyholders of the Preferred Class. On December 31, 1936, that company had assets of $354,471.11, of which $169,202.05 was surplus, the net worth was $209,450.83, exclusive of good will, which was asserted to be worth $100,000. Defendants, to unjustly enrich themselves and to defraud the members of the Preferred Class, entered into a scheme whereby the Iowa Mutual acquired the assets of the Preferred Class. This scheme was concealed from plaintiffs. Plaintiffs were misled and misinformed and prevented from asserting their rights against the scheme. Pursuant to the scheme, the Preferred Class purported to sell and assign its assets to the Iowa Mutual and they were taken over by the latter. The Preferred Class ceased to engage in the business for which it was organized. The purported sale was illegal, not authorized by the articles of incorporation, without consideration, for inadequate consideration, fraudulent and void. The Iowa Mutual was unjustly enriched and has co-mingled the assets of the two companies. The assets of the Preferred Class are in danger of being dissipated and lost. The defendants are unfit to act as officers and directors of the Preferred Class and have abandoned the Preferred Class and its members. Plaintiffs have demanded that the defendants rescind the pretended sale and they have refused to act. A receiver should be appointed to conserve the assets of the Preferred Class. Plaintiffs have no adequate remedy at law. The suit is a class suit for the benefit of others situated similarly to the plaintiffs.
The prayer of the petition was that the purported transfer of assets be declared to be void, the assets of the Preferred Class be restored to it, defendants be held to account for the same, a trust be impressed thereon, a receiver be appointed to restore them to the Preferred Class and restore said corporation to function in accordance with its articles of incorporation and for general equitable relief and costs.
Defendants filed answer, which is in five divisions or counts. Each division refers to and incorporates the preceding allegations of the answer so that each is cumulative. The answer comprises 17 pages of the abstract, and presents substantially the following issues:
Certain allegations of the petition are admitted and all others are denied. The answer admits the organization of the two corporations, the purposes for which they were incorporated, the fact that the personnel of the boards of directors and the officers of the two corporations were substantially identical, and that the individual defendants are such officers and directors, that the Preferred Class has ceased to do business and its assets have been transferred to the Iowa Mutual, that demand has been made by plaintiffs to rescind such transfer and defendants have refused such demand.
The answer specifically denies the allegations of fraud, deceit, concealment, dishonesty, bad faith, etc., and asserts the following facts:
The Iowa Mutual reinsured over 90 per cent of the business written by the Preferred Class. Except for a small amount of fire and windstorm insurance written by the Preferred Class, both companies wrote similar lines of insurance. The fire and windstorm insurance of the Preferred Class was written through the Mutual Fire Underwriters in such a manner that it was placed in six companies, of which the Preferred Class was one, each company assuming a several liability of 18 per cent on each of the policies so written. In November, 1936, the merger of the two companies was under consideration, and, since the Iowa Mutual could not assume or reinsure the fire and windstorm business, a contract of reinsurance was made with the other five companies, who were insurers on the policies written by the Mutual Fire Underwriters, whereby said five companies became substituted for the participation of the Preferred Class in such policies, and the liability thereon was re-distributed so that each of said five companies had 20 per cent of such liability and the Preferred Class was relieved from all liability thereon. This contract of reinsurance was approved by the commissioner of insurance and accepted by the policyholders. When the policies then in force expired, new policies were taken out in each instance with the liability limited to said five companies to the exclusion of the Preferred Class.
After the Preferred Class had disposed of its fire and windstorm business, as aforesaid, and its lines of insurance had been limited to those in which the Iowa Mutual was also authorized to write and engaged in writing, the two companies in January, 1937, undertook to effect a merger and consolidation. The proposal was submitted at the annual meeting of the members of each corporation in January, 1937, and approved by the members of each corporation. The contract was entered into under date of February 4, 1937, provided for the transfer and assignment by the Preferred Class to the Iowa Mutual of all its assets and property, the receding to the Iowa Mutual of all automobile insurance ceded to the Preferred Class, the reinsurance with the Iowa Mutual of all insurance written direct by the Preferred Class, and the Iowa Mutual assumed all liabilities and obligations of the Preferred Class. The merger was submitted to and approved by the commissioner of insurance and the attorney general. The members of the Preferred Class at the time of such merger became members of the Iowa Mutual.
In addition to the foregoing, there were other allegations to the effect that the merger of the two corporations was necessary and desirable, legally effected, accomplished in good faith, acquiesced in by plaintiffs, and that plaintiffs are now estopped to question the same. It was also asserted that the statutes of Iowa provide for the exclusive remedy, in a situation such as plaintiffs allege, and plaintiffs have failed to comply with such statutes. The prayer was for dismissal of the suit and for costs.
Plaintiffs filed a reply to the answer. It was thereafter amended and ultimately included 21 counts or divisions, the divisions being cumulative in the same manner as the divisions of the answer. The reply comprises over 40 pages of the abstract. The issues asserted by such reply are substantially the following:
In addition to the denial of the answer implied by law, the reply denied all allegations except such as were fully and unqualifiedly admitted. In addition thereto, the reply asserted the following contentions. On December 31, 1936, the Preferred Class had outstanding policies of fire, tornado windstorm, cyclone, hail, sprinkler leakage, riot, civil commotion, explosion and plate glass insurance, on which the unearned premiums amounted to approximately $28,500, which lines the Iowa Mutual was not authorized to write. Section 9116 of the Code prohibits the Preferred Class from consolidating with a company not authorized to write such lines and Section 9118 makes such consolidation a criminal offense. The reinsurance agreement with the five companies as to the fire business of the Preferred Class was fraudulent, known to be illegal and the first step in the scheme to assign the assets of the Preferred Class to the...
To continue reading
Request your trial