Tice v. Supreme Lodge Knights of Pythias , 123 Mo. App. 85 ( 1904 )

GOODE, J.

(after stating,the facts). — The legislation of this State takes notice of and regulates several classes of companies or associations furnishing life insurance, among which are regular or old line companies conducted for profit and issuing policies calling for a stipulated premium to all persons who can pass the required health examination, assessment companies which raise money to pay death losses in whole or in part by assessing their membership, and fraternal-beneficiary societies, which commonly depend, to some extent, on assessments too, for the payment of losses, but are distinguished by their social and fraternal features, lodge system, rituals and ceremonies, and by insuring only initiated members. Instead .of leaving the question of whether any company writing life insurance in the State, belongs to one or the other of the different classes of companies, to be determined by the intention of the members as expressed in its charter, or by the understanding between it and those insured as to the nature of the contract, the State’s policy has been to classify such companies according to statutory definitions and the presence or absence in their corporate organization and mode of business of certain features deemed decisive of their essential character. In deference to statutory criterions prevailing at different times, our courts have held some societies that were organized elsewhere as fraternal, and empowered by the incorporating sovereignty to write benefit certificates, to be old line insurance companies. As the immunities' and duties of the different kinds of companies are various, the character which the statutes affix to one often becomes important in litigation over its contracts and proves decisive of the rights of the parties. An apt illustration of this is found in the career of the present defendant. The Supreme Lodge of Knights of Pythias of the World was incorporated by an act of Congress for fraternal purposes, and empowered to organize the Endowment Rank to write benefit insurance for members of the order; and doubtless no member who ever took a certificate believed he was getting an old line policy. Nevertheless, because of statutes then in force in Missouri, this court in Toomey v. Supreme Lodge (74 Mo. App. 507), and the Supreme Court of the State in the same case (147 Mo. 129, 48 S. W. 936), held the defendant was conducting a regular, instead of a fraternal-beneficial insurance business, was not entitled to the exemption from the general insurance laws granted by the statutes (sec. 1408, R. S. 1899) to fraternal associations, but was subject to all of them, including the provision that the suicide of an insured person shall be no defense to an action on the policy, unless it was procured in contemplation of suicide. [R. S. 1899, sec. 7896.] The same question is presented as the controlling one in the cause before us; which must be disposed of as the Toomey case was, and on its authority, unless subsequent legislation has so altered the law as to require a decision that the defendant was writing fraternal-beneficial, and not old line, insurance, when it contracted with the deceased, and that the certificate sued on created a contract between him and the defendant for fraternal insurance. The constitution and rules of the defendant remain as they were when the.Toomey certificate was issued and a different result from the one reached in that cause, can only be justified if changes have been made in the statutes which annul the reasons for which the Supreme Court held the defendant’s certificates constituted old line contracts. Construing the sections of the Revised Statutes of 1889 relating to fraternal associations and assessment companies, the Supreme Court said: “Thus under defendant’s amended charter of 1892, it had power to-, insure the lives of members of the Endowment Ranh of the order for a certain sum, upon the payment of fixed monthly premiums, and it exercised that power when it issued the policy sued on. The amount to be paid does not depend ‘upon the collection of an assessment upon persons holding similar contracts,’ and hence, it is not an. assessment company within the meaning of section 5860; nor is the amount to be paid derived ‘from the proceeds of assessments upon the members of the association,’ and therefore it is not a fraternal-beneficial association, within the definition of such societies by section 2823, R. S. 1889. The premium ■ to be paid by the insured is fUr.ed, and the sum to be paid by the defendant to the beneficiary is certain — two1 thousand dollars flat. Thus whether we reason by induction or exclusion the result is the' same; it is a regular old line policy of insurance and section 5855, R. S. 1899, applies and renders the defense of suicide unavailing in this case.”

We understand that the controlling reason for the decision was that the statutes of 1889 classed as fraternal-beneficiary associations only those raising money to pay benefits by assessing their members; a mode of deriving revenue not exclusively, nor chiefly pursued by the defendant, but only resorted to when other modes temporarily prove inadequate. Fraternal insurance, if not of recent origin, has but recently attained a magnitude that caused States to regulate it. The growth of associations furnishing such insurance and their experience, have altered opinions as to the best mode of conducting the business, and corresponding changes in the law have followed from time to time. The original conception of such insurance was that the consideration for it should be assessments levied on and paid by members to meet death or indemnity losses as they accrued, and that the amount of benefit paid in each instance should depend on the sum then collected, not to exceed a maximum limit. The law in this State reflected that conception at first. Many fraternal associations now exact fixed dues as a consideration for their certificates and agree to pay a certain sum when the insured member dies. Presumably, this system has come into vogue in response to a popular demand, and legislation has been enacted in this State as in others, to authorize it.

Besides the decisive fact that the defendant did not rely on assessments to pay benefits, the Toomey opinion called attention, as arguing for the bid line nature of ' defendant’s business, to the fund which the Endowment Rank had accumulated beyond the sums needed to defray current losses, and to the circumstance that in the year 1895 the benefits paid in Missouri exceeded the receipts therein.

By comparing the relevant sections of the statutes of 1889 and 1899, it will be observed that the alterations introduced by the Act of 1897 were radical and exten- ‘ give, and that they go directly to the reasons which induced. the ruling in the Toomey case, that the defendant’s indemnity contracts were old line, instead of fraternal-beneficial. We will examine those reasons in the light of the law as it now is to see if they still hold good.

The fund to pay death benefits due on certificates is yet obtained by the defendant otherwise than by levying assessments on members. But the present statutes, instead of restricting the association to that means of raising the fund, expressly authorize it to be raised by dues collected from members as well as by assessments (sec. 1408), and impliedly authorize its obtainment from still other sources; for among the questions fraternal-beneficiary associations are required to answer in their annual reports to the State Superintendent of Insurance is this one: “Does association guarantee in its certificates, fixed amounts to be paid, regardless of amount realized from assessments, dues, admission fees and donations?” This language shows that in passing the Act of 1897, the legislature did not intend benefit societies doing business in Missouri, should be restricted, in raising money to pay losses, to assessments and dues; but that they should be privileged to realize a fund from other sources — from admission fees and donations at least; and we take it that any available income naturally incident to and arising from the accustomed management of such orders, may be devoted to paying losses without putting the society outside the fraternal-beneficial class.

The argument is advanced to prove the defendant does a regular life insurance business, that it partly collects its mortuary fund from some sources not mentioned in our statutes — from clearance card fees, for instance. But this feature is of small value as a criterion of character under the present law, which lays stress on other things; and we think the Legislature had no thought of being exhaustive as to the means of raising a benefit fund, or of providing that nothing but the recited sources of revenue could be utilized on pain of frustrating the intention to conduct a fraternal beneficiary association by making it take on the obligations of an old line company. There is nothing in the statutes to compel so narrow a construction and the fact that one section (1408) empowers the benefit fund to be gathered from assessments and dues, while another section (1411) presupposes the use of admission fees and donations, argues against it. Probably speculation and commercial hazard are to be shunned by companies desiring to enjoy fraternal privileges, but the defendant is not shown to have engaged in anything of the sort; and in truth it is doubtful if a single source of its mortuary fund, except the interest received, the effect of which will be discussed below, falls outside the meaning- of the words “assessments and dues.” The test of an association’s fraternal nature is no longer its method of raising money for indemnities, but the absence of profit-seeking in its plan and administration, whether it possesses a lodge system, a representative government, a ritual, and confines its benefits to members. Even if a mortuary fund should be formed to some extent by ultra vires methods, of which we think the defendant guiltless, it is questionable if that course would affect the character of the association in a collateral proceeding on a certificate, though the State would have redress against it. The objection in the Toomey opinion that the insured was required to pay a fixed sum monthly for his certificate and that the death indemnity to be paid to his beneficiary was certain, is obviated by the present law. The question we have quoted from the Revised Statutes of 1899 recognizes a benefit company’s privilege to “guarantee in its certificates fixed amounts to be paid,” while question 9 of the same section and section 1408, recognize its privilege to charge periodic dues. As to those matters the rules of the defendant do not differ essentially from those of the Royal Tribe of Joseph, which we ruled in the Morton case (93 Mo.App.78) were compatible with the fraternal beneficiary character. That association charged a fixed monthly premium, graded according to the age of the insured, for its benefit certificates, and agreed to pay a certain and unchangeable benefit. See too, Boyce v. Royal Circle, 99 Mo. App. 349, 73 S. W. 300; McMahon v. Maccabees, 151 Mo. 522, 52 S. W. 384. The Toomey opinion dwelt on the accumulated surplus of the defendant’s Endowment Rank and on the excess of payments in Missouri over its receipts from that State. But now benefit societies are empowered by section 1408 of the Statutes, to create and maintain a reserve or emergency fund; a plan which obviously makes for the security and desirability of their contracts and ought to be encouraged. But plaintiff insists that the defendant has no reserve, but only expense and mortuary funds; and it is true that no assets are set apart under the name of a reserve or Emergency Fund. But the Mortuary Fund is devoted to the payment of death benefits, and the accumulated surplus in it clearly constitutes a reserve or emergency fund within the meaning of the statute.

Nor is there significance, under the present laws, in the possibility of the payments of a society in a given locality during a year exceeding its income therein during the same period. True, this could not happen if the society was bound to rely exclusively on the assessment of members to pay losses, as societies were bound to do to be classed as fraternal under the statutes of 1889; for no more could be paid out under that system than came in from assessments. But now there are other resources in the lawful reach of a fraternal society. And in providing for the maintenance of an emergency fund, the Legislature took into consideration the possibility of extraordinary death losses during periods, which the usual income would be insufficient to meet.

It thus appears, if our reasoning is sound, that the reasons for holding the defendant to be an old line insurance company under the statutes as they stood when the Toomey case was decided, or rather when Toomey’s certificate was issued, no longer exist. . The legislation regarding fraternal beneficiary socities has been remodeled and another definition and other criterions of what is fraternal insurance have been prescribed; and in truth the state policy regarding those associations has been. completely changed. They are brought by the statutes now in force, under- the supervision of the State Insurance department, instead of being exempt from it as they were previously; are subject to much more comprehensive state regulation and invested with wider privileges than obtained prior to the passage of the act of 1897, doubtless because experience dictated the propriety of these changes. The fact of public supervision meets an objection sometimes assigned against ranging societies like the defendant among beneficiary orders, that they would thereby be enabled to carry on an insurance business in the state free from the regulation and superintendency designed to protect policy-holders. [National Union v. Marlow, 71 Fed. 775.]

Of the present statutes, the one particularly pertinent to the matter in hand is section 1108, which defines what is meant by a fraternal beneficiary society and prescribes its essential features. These we have stated above, as the statute gives them. That the defendant possesses all the statutory requirements except one, is practically conceded by the plaintiff. It has lodges and every member must belong to a lodge; it works according to a ritual, its government is representative, it pays death benefits to such persons only as the statutes allow (viz: persons related to or dependent on the insured member for support) and insures members and no one "else. True, every member is not insured, but only those who choose to join theEndowment Rank; insurance not being compulsory nor the sole aim of the Order, which is fraternal and social as well, like most associations issuing benefit certificates. But the essential fact in this connection is that no one save a member can get insurance, though all need not take it; an arrangement that was indorsed as a lawful one for a. beneficiary-society to establish in Laker v. Royal Fraternal Union, 95 Mo. App. 353, 75 S. W. 705.

Our attention is directed to the opinion in Knights of Pythias v. Kalinski, 163 U. S. 294, wherein the management of defendant’s Endowment Rank was said to be detached from that of its main body. But instead of holding the contracts of the Endowment Rank to be old line insurance on that account, the United States Supreme Court held positively that they were benefit certificates. That the act of 1897 intended orders like the defendant, which issue death indemnity contracts, to be treated as fraternal-beneficiary associations, seems to be conclusively shown by its last section (R. S. 1899, sec. 1423), which expressly excludes from the class of fraternal beneficiary associations “Masons, Odd-Fellows or similar orders, paying only side disability or funeral benefitsThe defendant is a “similar order” paying death benefits.

Said section emphasizes too, the importance of the lodge system in fixing .the character of an association, by excluding from the fraternal class, associations not working on a lodge system which limit their certificate holders or membership to a particular class of persons. Confining insurance to members does not suffice to render a society fraternal under our laws, and the fraternal character can be acquired only through lodges to which the members must belong and in which they may fraternize. The question of what the fraternity contemplated by the former law on this subject consists in, has received different answers from courts. In the Marlow case, supra, which dealt with the law of 1889, it was thought an association of persons engaged in the same avocation, like the Brotherhood of Locomotive Engineers, was meant by the words “fraternal-beneficial.” In Franta v. Bohemian, etc., Union, 164 Mo. 313, 63 S. W. 1100, it is said: “In the invitation that our statute gives to the people to form such societies, it does not specify what sentiments or bonds of union may be used for that purpose. Whatever sentiment a number o>f men may have in common and peculiar to themselves, which draws them together for a purpose that is not immoral or inimical to the State, may be made by them essential to membership in their society.” In that case the defendant order required, as a condition of membership, that, a person should be a communicant and perform the rites of the Roman Catholic Church. This religious communion was held to be a lawful bond of fraternal union and failure to observe the church rites a cause for suspending a member’s benefit certificate. The nature of the tie that unites an order is of less moment under the present statutes, as they distinctly enunciate the characteristics of a fraternal beneficiary association in a section (1408) separate from the one (1394) describing benevolent societies generally; which was not done in the statutes of 1889 nor until 1897.

Plaintiff’s counsel rely mainly on the proposition that the defendant is shown to run its business at a profit and that this fact deprives it of the status of a fraternal beneficiary association, because section 1408 of the statutes declares such an association to be one “formed or organized and carried on for the sole benefit of its members and their beneficiaries and not for profit.” The defendant association fits that definition. It is not a profit-making or profit-sharing concern; and whatever money it raises and accumulates redounds to the benefit of its members and their beneficiaries, either by defraying the expenses of the order, paying funeral benefits, which are incident to all memberships, or discharging liabilities or certificates. The statutory privilege of gathering a reserve, implies the right to lift the receipts above the current disbursements and in that sense to earn a profit. But the profits the statutes intend shall exclude an association from the fraternal beneficiary class are such as the stockholders or members of an insurance company expect to receive as dividends on shares, additions to the amounts called for by their policies, or in other ways that benefit them financially. In speaking for the court on this point in the Morton case, Judge Bland said:

“These benefit certificates are not policies of insurance of the old-line type, and the monthly dues are not paid as so much premium in consideration of so much insurance contracted to be paid at the death of the insured, from which dues it is expected by both parties that the insurance company will derive a profit. The certificates are not issued with a view that the association may make a profit thereby, but for the purpose of securing mutual protection without profit to the association; and herein again is the insurance widely distinguishable from the premium plan for a profit. Toomey v. Supreme Lodge K. of P., 147 Mo. 129; Jacobs v. Life Association, 146 Mr. 523, 48 S. W. 462; Wallace v. Bankers’ Life Assn., 80 Mo. 102; National Union v. Marlow, 74 Fed. 775; Knights of Pythias v. Kalinski, 163 U. S. 294, relied on by appellant, did not have under review the law of 1897, and are inapplicable to the law and facts which control the case at bar.”

There have been legislative efforts for twenty years or more, to place benefit societies on a sound working basis, so that their indemnity agreements could be relied on without forcing them into the position of regular life insurance companies; as is shown by the successive statutes passed during the period between 1879 and 1897. The course of most of this legislation is traced in Hanford v. Assn., 122 Mo. 50, 26 S. W. 680, and Toomey v. Supreme Lodge, 74 Mr. App. 507; and in appraising the present force of any decision, the state of the statutory law when the contract considered was made, is to be carefully noticed. For instance, State ex rel. v. Mer. Ex., 72 Mo. 158, and State ex rel. v. Citizens’ Assn., 6 Mo. App. 162, dealt with, defendants claiming to be benefit societies prior to the passage of statutes conferring the right- on associations to do business in Missouri as such. The written law bearing on these companies was not only greatly amplified by the Act of 1897, but the marks of distinction between them and regular life insurance companies were made more definite and somewhat changed. Concerning the meaning attached by the Legislature to “profit-seeking” in furnishing life insurance, there seems to be little doubt, if we construe the word “profit” as used in section 1408 in connection with its use in other sections in pari materia as relating to regular life companies. These are divided into three classes; first, those having a capital stock and whose stockholders also share in the profits; second, those having no stock, but in which the policy-holders get the profits, and third, those having stock but whose stockholders and policy-holders both participate in the profits (R. S. 1899, sec. 7883.) A distribution of the profits earned by such companies is allowed. [Sec. 7881.] The charter of the defendant is significant on the question of its being a profit-seeking enterprise or not. We find a section (5) reading as follows: “That said corporation shall not engage in any business for gain, the purpose of said corporation being fraternal and benevolent.” It is difficult, in the face of such a charter, to hold that the defendant was “formed or organized and carried on for profit.” In an amendment of the charter June 29, 1894, it was provided (sec. 2) that its property should not be “divided among the members, but descend to their successors for fraternal and benevolent purposes,” and the constitution says (art. IY, sec. 2) the funds of the Endowment Rank shall be used to defray expenses and legitimate death losses. These provisions appear to render profit-sharing impossible. The assertion that great profits accrued to the Endowment Rank between 1891 and 1902 is based on the statement of assets in the former year worth sixty-nine thousand dollars while in the latter they rose to four hundred and ninety-seven thousand. But these figures ignore the outstanding liabilities and take account of only disbursements actually made. The liabilities have sometimes amounted to more than the available resources so that assessments became necessary. The wisdom of providing a considerable reserve for these associations to fall back on in periods of depleted income, has been learned from experience. An increased death rate as the insuredmembers grow old, failure to add new members as rapidly as was expected, and other disappointments in business, frequently embarrass benefit societies and assessment companies, which rarely, if ever, have a surplus beyond their needs. A tendency to lay up a fund against vicissitudes has developed and met with legislative sanction, as we observed above. As to assessment companies, the statutes provide the amount of reserve they shall carry. [R. S. 1899, sec. 7905.]

In view of our statutes expressly legitimizing such a system, the defendant’s reserve is not so much relied on to impugn its fraternal character as is the investment of the accumulation in interest-bearing securities, which policy is said to be palpably a profit-seeking and profit-making one. It may result incidentally in gaining a profit; but no person will say the association was organized, or is carried on, simply to lend its reserve, and the statute does not refuse it the beneficiary character unless it was organized or is carried on for profit. The prime object of the order seems to us to be to benefit members and their lawful beneficiaries, and drawing interest on a reserve to be a minor detail of its' business. Moreover, we think it would be an unreasonable interpretation of the statutes to say they bespeak a purpose on the part of the Legislature to have a society’s reserve lie in its coffers instead of earning interest. The intention was to prevent profit-seeking insurance companies from operating under the guise of fraternal orders; not to prevent the latter from handling their reserves providently. And here it may he said in response to the argument based on the amount of defendant’s reserve, that the statutes do not make that a test of the defendant’s character nor fix a maximum limit for the reserve. The definite test of this phase of the question is whether the association is carried on for profit, commercially speaking, or solely for the benefit of members and beneficiaries.

Minor reasons for holding the defendant a beneficiary association instead of a regular life insurance company are that it was incorporated to do business as the former; that Congress authorized the creation of the Endowment Rank that the defendant might through said branch, provide for the payment of indemnities to the beneficiaries of insured members, and that all the rules of the Rank and the forms of its contracts convey the notion of benefit insurance.

It is said by the plaintiff’s counsel that defendant’s “contract of insurance is not such as a fraternal beneficial association gives, but contains all the elements of an old line insurance contract.” If the defendant is a fraternal order under our statutes and its contracts are left to speak for themselves, free from a construction forced by holding it to be an old line company, this statement is erroneous. Regular insurance companies are not restricted as to the class of persons who may be payees of their policies, as the defendant’s constitution restricts it. The payee of a regular policy has a vested interest in it, whereas the certificate in suit shows on its face that the plaintiff had no vested interest but might have been displaced by the designation of another beneficiary. Regular policies do not require the insured to belong to an order and comply with its rules, or to be over twenty-one and not over fifty years of age, and able to read and write, as do the defendant’s certificates. There is no snch provision for carrying a certificate for a member who lapses in his dues, as this defendant has. [Constitution, art. VI, sec. 1.] The rates charged for regular insurance are much higher than the defendant charges. Perhaps other differences might he pointed out, while we think of no resemblances except the fixed dues and the certain benefit which, as has been shown, rest on statutory warrant. The applications signed by members asking for certificates in- the Endowment Rank show that benefit insurance was expected and paid for.

A point is made in regard to the charter of the defendant permitting it to hold only one hundred thou-' sand dollars worth of property, whereas the statements of the Endowment Rank disclose larger holdings. If that clause of the charter has any bearing on the funds of the insurance branch, which we seriously doubt, a transgression of it might be a ground to revoke the charter, or for some other interference by the United States, but has no relevancy to the question of whether the Order furnishes fraternal or old line insurance.

We conclude that its contracts are fraternal beneficiary, exempt from the statutes limiting the defense of suicide, and hence by force of the admitted fact that the deceased committed suicide, the judgment below was for the right party. It is affirmed. Reybwrn, J., concurs; Bland, P. J., dissents and because he deems the decision in conflict with the decision of the Supreme Court in Toomey v. Supreme Lodge, 147 Mo. 130, asks that this case be certified to the Supreme Court for determination. It is so ordered.