Wetmore v. McElroy , 96 S.C. 182 ( 1913 )

December 5, 1913. The opinion of the Court was delivered by This appeal involves the construction of certain provisions, in the constitution and by-laws adopted by the Carolina Mutual Fire Insurance Company, and in the policy issued by it, to the defendant.

The statute under which the said association was organized, contained the provision, that those associating themselves together, in the manner therein prescribed, might make, assess, and collect from each other, from time to time, as might be necessary to pay losses, occasioned by fire, etc., to any member of such association; and that the assessment and collection of such sums, should be regulated by the constitution and by-laws of the association (section 1912, Code of Laws, 1902).

The association adopted a constitution which contained the following provision:

"No member shall be liable for more than his pro rata assessment of losses incurred, and all policies issued by the company shall so provide. Inasmuch as the successful operation of this company is based upon the calculation that the average cost of insurance for the year will not exceed seventy-five per cent. of the old line rates, any member already a member of the company, or hereafter becoming such, shall have the right to pay in advance, such three fourths of the old line rate and receive receipts therefor, which will protect such member from assessments during the succeeding twelve months; and the company hereby ratifies and confirms all contracts heretofore made to that effect with any member of the company."

It also passed a by-law providing that "each member shall pay an initial premium or dues, which shall be a sum equal to one-fourth of the Southeastern Tariff Association rates, upon the policy held by the member, and he shall pay, annually, such assessments as long as his policy remains of force." The policy issued to the defendant contained these stipulations:

"The insured has the privilege of paying assessments for losses in advance, each year, by paying an additional sum equal to twice the first payment, and thereby be exempt from assessments, and at the end of each year the insured will be credited with the difference, if any, between such payment and assessments, to which the policy would have been liable.

"This policy is made and accepted subject to the foregoing stipulations, conditions, and constitution and by-laws of the company, together with such other provisions, agreements or conditions as may be endorsed hereon or added hereto; and no agent or other representative of this company shall have power to waive any provisions or condition of this policy, except such as by the terms of this policy may be the subject of agreement indorsed hereon or added hereto, and as to them, no agent or representative shall have such power, unless such waiver shall be written upon or attached hereto. This policy is not valid until signed by the president and the secretary."

The statute under which the Carolina Mutual Fire Insurance Company was organized did not prohibit the association from adopting a constitution and by-laws embodying the provisions hereinbefore set out, but, on the contrary, conferred upon it, full power to adopt such regulations as might seem advisable, provided, of course, they pertained to the objects of the association, and were not against public policy. Similar provisions were construed in the case of Union Ins. Co. v. Hoge, 21 How. 35, 16; L. Edition 61, in which the rule was thus correctly stated by the Court:

"It is argued, however, that the company in question is a mutual insurance company, as declared by the act; that, according to this system, the insured must be a member of it, and that a person insured upon a cash premium, without any further liability, cannot be a member. This argument is not well founded, either upon principle or authority. Admitting that the insured must be a member of the company, he is made so by the payment of a cash premium. The theory of a mutual insurance company is, that the premiums paid by each member for the insurance of his property constitute a common fund, devoted to the payment of any losses that may occur. Now, the cash premium may as well represent the insured in the common fund, as the premium note; and this class of companies has been so long engaged in the business of insurance it may well be that they can determine, with sufficient certainty for all practical purposes, the just difference in the rates of premium between cash and notes. These mutual companies, possessing the authority contained in the 8th section of this charter, namely: to take cash premiums or premium notes, are, at the present day, in operation in several of the States, and it has never been supposed that the mutual principle has been thereby abrogated."

In 1910 the legislature passed an act containing this provision: "No officer of a mutual protective association shall give, either officially or privately, a guarantee or estimate, to a policyholder, against an assessment to which he may be liable." No doubt this statute was enacted to change the effect of the foregoing provisions. We desire to call special attention to the provision in the policy that "at the end of each year the insured will be credited with the difference, if any, between such payment and the assessment, to which this policy would have been liable." (Italics added.) This was not the appropriate language, if the insured was to be held liable for any losses that might occur during the year in which he made the additional payments, but, on the contrary, shows that he was not liable at the end of the year for further assessments exceeding the cash payments.

Furthermore, it will be observed, that while the insured is to be credited with the difference between the additional payments and the assessments, no mention is made of assessments that exceeded the cash payments, for the obvious reason that he was exempt from further liability during the year in which the cash payments were made.

"In the absence of statutory prohibition a mutual insurance company may issue policies for cash premiums, which, under its by-laws, form a part of its general fund, from which all losses are to be paid." 22 Cyc. 1417.

It is true, the author says immediately thereafter: "But the company cannot provide, that on the payment of such cash premium, the policyholders shall be exempt from assessments to pay any losses occurring during the period for which it was paid." The only cases, however, cited to sustain the last proposition are State v. Manufacturers Mut.Fire Asso., 50 Ohio St. 145, 24 L.R.A. 232, and State v.Monitor Fire Asso., 42 Ohio State 555. Those cases were decided under a statute expressly prohibiting the association from limiting the amount of the annual liability, either to the amount of the cash premium when the policy is issued, or to the amount of additional cash premiums.

They, therefore, do not sustain the principle announced in the quotation from 22 Cyc. 1417.

The appellant's attorney relies upon the case of Corey v.Sherman (Iowa), 32 L.R.A. 490, in which the facts were quite different from those in the present case, as will appear from the following language of the Court:

"First. That the articles of incorporation provide that the losses and expenses are to be paid exclusively from assessments made upon the mutual pledges of the members. The company had no authority, by the terms of its charter, to apply the cash premiums in payment of losses. And, second, those who paid these premiums did not become members of the company and did not pay these premiums as assessments. They paid these premiums for insurance, for the full term of the policy, and the only rights they had thereafter to them, or any part thereof, was an unlawful agreement to pay dividends from the profits of the business." That case, however, shows that it may be regarded as a common practice for mutual insurance companies to adopt such regulations as those hereinbefore mentioned, and that they are valid, in the absence of a statute prohibiting them. The Court says: "We are aware that there are a great number of authorities holding that a mutual insurance company may receive all cash premiums in lieu of assessments and still be considered a mutual company, but none of these cases were decided under a statute like ours, and in most of them the insured became members of the company, just as those who paid on the assessment plan, the only difference being that they paid their assessments in advance. We base our decision upon the terms of our statute."

There is another reason why the defendant was exempt from further assessments for losses sustained during the year in which the additional payments were made.

In the agreed statement of facts the following appears: "The plaintiff admits that a soliciting agent of the company, named W. Daniel, represented to the defendant that if he would pay three times the regular premium of $27.00 that he would be guaranteed against assessments for one year, and that the defendant did pay $82.50 on the policy for $2,900.00, and took the said agent's receipt for same, and that the said company became insolvent and went into the hands of a receiver on the 9th day of June, 1908."

The agent, while acting within the apparent scope of his employment, construed the policy, and offered to guarantee exemption from further assessments for losses occurring one year after its issuance, for the purpose, no doubt, of inducing the defendant to become a member of the association, which he did. The company was thereby estopped even though the acts of the agent were without authority,Williamson v. Asso., 54 S.C. 582, 32 S.E. 765; EasternB. L. Asso. v. Williamson, 23 Sup. Ct. Rep. 527;Drewery v. Amusement Co., 87 S.C. 445, 69 S.E. 879;Kammer v. Knights of Pythias, 91 S.C. 572, 75 S.E. 177;Holliday v. Pegram, 89 S.C. 73, 71 S.E. 367; Plunkett v. Insurance Co., 80 S.C. 407, 61 S.E.: McCarty v. Insurance Co., 81 S.C. 152, 62 S.E. 1; Williams v. Tolbert,76 S.C. 211, 56 S.E. 908.

Judgment affirmed.

MR. JUSTICE WATTS concurs.