Thomas v. Cochran , 46 L.R.A. 160 ( 1899 )

John Q.A. Herring, late of Baltimore City, when he died, in February, 1897, was a member of the Expressmen's Mutual Benefit Association in which he held two certificates in the nature of life insurance policies securing the payment of $3,000 in all, at his death. The association was a purely mutual one, having no capital stock, and the only form of benefit which it provided was the payment of a specified sum of money at the death of the member, or the payment of a smaller sum in the event of his becoming totally disabled.

In consideration of this benefit the member paid to the association a stipulated monthly premium and also agreed to pay such assessments, if any, as might be made by the executive committee to make good any impairment of the reserve fund of the association, or to meet the requirements of the laws of New York, where it was incorporated. The benefits of the insurance were not limited to the family or relatives of the member, nor to any particular class of persons, but the assured had the right to designate any one as the beneficiary of his policy, and he could change the beneficiary at will with the assent of the association, and "if possible," of the beneficiary named in the policy. The designation and change of beneficiary were required to be made in writing upon the certificate of membership, and the names of the beneficiaries were registered on the books of the association. The by-laws provided for the distribution of the fund at the death of the member, in case he failed to designate any beneficiary, but they were silent as to who would be entitled to the fund if a designated beneficiary died in the lifetime of the member.

Mr. Herring upon his application for membership in the association designated his wife, Ann M. Herring, as the person to receive the insurance money at his death, and her name was duly endorsed upon the certificates and entered upon the books of the association as the beneficiary. She would have been paid the entire fund in question if she had survived him, but she died about a year prior to his death. He made no attempt after her death to designate to the association or upon his certificates a new beneficiary, although he made a will in which he gave the residue of his estate, "including the insurance on my (his) life" to his two surviving children and the issue of his two deceased children in equal shares per stirpes.

After Mr. Herring's death the $3,000 due from the association was claimed, first, by his executor, secondly, by the administrator of his wife's estate, thirdly, by his two surviving children, and fourthly, the children of his two deceased children claimed to participate per stirpes in the distribution of the fund. The association being uncertain to which of the claimants to pay the fund, a special case stated to which the several claimants were parties was docketed in Circuit Court No. 2, of Baltimore City, under the provisions of General Equity Rule No. 47, to determine the question. A pro forma decree was passed in the case awarding the fund to the appellees, who are the surviving children of Mr. Herring, and the other claimants appealed therefrom.

It is conceded by all parties, that if this were a case of ordinary life insurance, the fund would be payable to Mrs. Herring's administrator, as the claim under the policy would in that event have by law devolved upon him. The material question, therefore, which the case presents, is whether the contract between Mr. Herring and the Expressmen's Mutual Benefit Association differs from an ordinary contract of life insurance to such an extent as to require the application of a different rule to the disposition of the proceeds of the contract, and if so, what rule is to govern their disposition?

Mutual benefit associations have in recent years become quite numerous, and have frequently been before the Courts of this and other States in cases involving an inquiry into the nature of the organizations and the character of the contracts of insurance issued by them. The object of the insurance feature of these associations is generally to provide pecuniary compensation for the loss occasioned by the illness or death of their members. This compensation in some cases consists of a specific sum of money and in others it is made up of the proceeds of assessments which the society undertakes to collect from its members.

In many of the associations the persons who may become the beneficiaries of the insurance are strictly limited to the immediate family or near relatives of the insured member, while in others no restriction at all is placed upon those who may acquire the right to receive the amount due at the death of the member. Most of the companies permit the insured member to designate, in writing, generally upon the membership certificate, the person who is to receive its proceeds, and from time to time, with the assent of the association, to change the beneficiary, but others rigidly fix by their by-laws the persons who are entitled to receive the fund.

The Courts have uniformly held that the contract of membership is made with reference to the by-laws and regulations of the association, and these are treated as part of the contract. While the constitutions and by-laws of some associations are skillfully drawn and are not difficult of interpretation, others are loose in structure and their meaning is not clearly expressed. As might be expected, the interpretation of these varied contracts of mutual insurance and the determination of the rights of respective claimants to the funds arising from them, has resulted in a series of decisions in which there appears at first sight to be an unusual lack of harmony. Upon a close examination the apparent differences in the decisions are found to arise chiefly from the variety in the terms of the contracts, or in the structure and regulations of the associations themselves. There are, however, two lines of cases which differ in the view taken by the Courts of these institutions as a class. In the one line the Courts are disposed to regard the contract of indemnity provided by the associations, at least in the event of the death of the member, as having all of the essential qualities of ordinary life insurance as furnished by the so-called Standard Mutual Companies. In the other line of cases mutual benefit associations are treated as entirely distinct in principle from life insurance companies and their respective contracts of indemnity are differently construed.

The decisions of this Court, in the cases in which it has been called upon to consider the nature and incidents of the indemnity afforded by these associations, are in harmony with the first of the two above-mentioned lines of cases. JUDGE MILLER, in delivering the opinion of this Court in Goodman v. JedidjahLodge, 67 Md. 128, says of the system of mutual or co-operative insurance provided by that lodge for its members, which much resembled the one now under consideration: "Under it a book of endowment certificates was furnished to each subordinate lodge, and one of these certificates was issued to each member; and it stipulated for the payment of $1,000 on his death to his widow and children, if he left any, and if not, then to a beneficiary to be designated by him, whose name must appear in the body of the instrument. Such certificates differ in no substantial point from ordinary life insurance policies issued by ordinary life insurance companies. The death dues and the contributions to the sinking fund are nothing more or less than premiums exacted, as in ordinary cases, by the payment of which the policies are kept alive. If an organization like this chooses to go into that kind of business it must expect that the Courts will deal with and adjudicate the rights of the policy-holders upon the same principles of equity and justice that apply in the usual and ordinary cases of life insurance contracts." This Court also had occasion in Maryland Mutual Benevolent Society v. Clendinen,44 Md. 429, to consider the character of the life insurance effected by means of membership in a mutual benefit association, and more especially to determine the nature and extent of the interest of the member himself whose life was insured in the proceeds of the policy. In that case the by-laws of the association provided that upon the death of a member leaving no widow or child the insurance should be payable to such person as the deceased should have disposed of it by will or assignment. The member died without widow or children, but left a will giving "the entire residue" of his estate, without mentioning the life insurance, to his sisters. The administrator,c.t.a., of the deceased member, claimed that the insurance money passed under the will, but the Court held that the will did not operate upon it, because, as the insurance was not payable to the deceased or to his own benefit, it was not his property, and did not go as assets to his administrator. The Court also held that the deceased had no estate in the insurance but merely possessed a power of disposition over it, and as there was no reference in his will to the power or to the subject of it, and there was other property upon which the will operated, the insurance money did not pass under the will.

In Yoe v. The Howard Mutual Benevolent Association,63 Md. 91, CHIEF JUSTICE ALVEY, in delivering the opinion of the Court, says: "These associations are of a beneficial character, and have for their general purpose mutual aid and protection for the families of deceased members, * * *. The certificate ofmembership is analogous to the ordinary policy issued by a mutuallife insurance company, and the Courts have, as MR. MAY says, with great uniformity treated these associations as substantially life insurance companies, applying to them and to the virtualrelatives of the members the rules and principles applicable tothe contract of life insurance." May on Insurance, sec. 550a and cases there cited.

The case of Cowman v. Rogers, 73 Md. 403, presented the following facts: Walter E. Hoopes was in his lifetime a member of the Order of the Golden Chain, a beneficial association, and his certificate was payable on his death to his wife. The regulations of the society in that case, unlike those of the one in the case at bar, provided for the event of the death of the beneficiary in the lifetime of the member, and the failure on his part to designate another beneficiary, in which event they required the fund to be paid to his widow, children,c., c. Hoopes, together with his wife and children, perished in the great flood which occurred at Johnstown, Pa. Upon a bill of interpleader, filed by the association to determine the proper disposition of the insurance fund, this Court held, CHIEF JUSTICE McSHERRY writing the opinion, that it would be presumed that all of the family perished simultaneously, and as the wife was the beneficiary named in the certificate, her representative had aprima facie title to the fund, which could only be divested by evidence showing that she had died before her husband, and there being no such evidence the fund was awarded to her representative.

Cooke on Life Insurance, sec. 76, treats the interest of the beneficiary under an insurance contract of this kind as a valuable interest which is irrevocable in him during his life, and in his representatives after his death, so that it cannot be divested without their consent, unless it is made revocable by the terms of the contract, and he holds that even in that event, so long as the power of revocation is not exercised, there seems to be no valid reason why the rule should not apply. Joyce onInsurance, in sec. 741, says, the right of a member to change his beneficiary arises not from the character of the association, but from the contract between the parties.

Applying the principles asserted by the Maryland decisions to the appeals now under consideration, we arrive at the conclusion that the executor of J.Q.A. Herring, the deceased member, is not entitled to the fund in Court, because his testator had no property in the policy or its proceeds, but had only a power to designate, and from time to time change, in the manner prescribed by the by-laws of the association, the person entitled to receive such proceeds when they became due. This power was not assets in his hands, and did not pass on his death to his executor, who, therefore, has no claim upon the fund in controversy.

The designation by Mr Herring of his wife, Ann M. Herring, as his beneficiary, when he joined the association, conferred upon her the beneficial interest in the proceeds of the policy when due. The estate thus acquired by her in the insurance and its proceeds, although it was liable to have been defeated by the appointment of a new beneficiary by her husband if he had made the new appointment, possessed the inherent qualities of the estate of a beneficiary under an ordinary policy of life insurance, and was a valuable asset, which at her death devolved upon her administrator. The title of the administrator would have been divested after her death if the husband had in his lifetime designated a new beneficiary in the manner prescribed by the by-laws of the association, but as he did not do so, the title to the fund in controversy is still in Mrs. Herring's administrator, and the Court below erred in not awarding it to him. It follows, from what we have said, that neither the children nor grandchildren of Mr. Herring are entitled to the fund in their own right, but they will practically derive the benefit of it in the due course of distribution of their mother's estate.

The decree appealed from will be reversed, and the case remanded, to the end that a decree may be passed in accordance with this opinion. The costs in both Courts should be allowed out of the fund.

Decree reversed and cause remanded.

(Decided June 20th, 1899).