Dresser v. Hartford Life Ins. Co.

This is an action brought by the plaintiffs as quasi-creditors and holders of certificates of mutual assessment insurance issued by the defendant Hartford Life Insurance Company under what is called its "safety fund system," instituted by the named plaintiffs for their own benefit, and for that of all other similarly situated certificate-holders, and asking for equitable relief on account of alleged misappropriations and threatened misappropriations by said insurance company and its officers of the moneys of the "safety fund," and of the safety fund department of insurance, which moneys, it is alleged, the plaintiffs and other certificate-holders either own or have an interest in, and asking for the enforcement of the obligations of the insurance contract regarding said funds.

The defendant Hartford Life Insurance Company demurred to the complaint and certain paragraphs thereof and prayers for relief upon twenty-one grounds, the ten individual defendants upon four grounds, and the defendant Security Company upon six grounds. The rulings of the court sustaining all of these grounds of demurrer are the errors assigned. Most of the questions presented by the appeal may be discussed in considering the rulings of the trial court upon the several grounds of demurrer of the Hartford Life Insurance Company. The grounds of demurrer, stated in substance, will be considered in their numerical order.

First, to the complaint, upon the ground that it is multifarious, since the nine individuals and the Security Company are joined with the insurance company as defendants, and there is no allegation of a joint liability of the insurance company to the plaintiffs with said other defendants or any of them, and no joint relief prayed for against the insurance company and the other defendants or any of them, excepting by the ninth and tenth prayers for relief. This ground of demurrer was erroneously sustained.

The plaintiffs have a common interest in the subject of this action and were properly joined. General Statutes, § 617; Lewisohn v. Stoddard, 78 Conn. 575, 63 A. 621. The averments of paragraphs 19, 20, 24, 26, 27, 28, 31, 32 and 33 of the complaint are broad enough to permit proof of facts showing that the insurance company, and its officers made defendants, jointly participated in the alleged misappropriation of funds and mismanagement of the business of the "safety fund" department. As the Security Company is the custodian of the fund the plaintiffs' and the insurance company's present interest in which and future ownership of which is in question, it was not improperly made a party under § 618 of the General Statutes, as one having an interest in the controversy or necessary to be made a party for a complete determination or settlement of the questions in controversy. That the Security Company has such an interest is clearly shown by some of its reasons of demurrer. The relief asked for against the Security Company itself is incidental to the main relief prayed for, and is properly asked for in this action.Lewisohn v. Stoddard, 78 Conn. 575, 604, 63 A. 621. A misjoinder of the Security Company, or any of the other defendants, with the insurance company would not have defeated the action as to all the parties, but in that case the parties improperly joined should have been dropped. General Statutes, § 622; Fairfield v. Southport NationalBank, 77 Conn. 423, 427, 59 A. 513.

Second, to paragraphs 9, 11 and 12 of the complaint, upon the ground that all prior negotiations and representations between the parties were merged in the contract of insurance, and that parol or written representations are not admissible to change or affect the contract, in the absence of allegations of fraud, accident, or mistake. This ground of demurrer should have been overruled.

It is alleged in paragraphs 9, 11, 12 and 13 that the insurance company continued to make said representations and explanations after the plaintiffs' certificates were issued and until the company ceased to issue such policies in March, 1899. When the paragraphs demurred to are read in connection with paragraph 10 and subsequent paragraphs of the complaint it is clear that fraud is charged. It would be at least a constructive fraud for the insurance company, under an interpretation by it of the language of the certificates in direct variance with the representations of these circulars, to use the moneys of the "safety fund" department to the injury of the plaintiffs. This is in effect charged in the complaint. Palmer v. Hartford Fire Ins.Co., 54 Conn. 488, 9 A. 248; Rorschneider v. KnickerbockerLife Ins. Co., 76 N.Y. 216. The alleged written statements of the company would be admissible in evidence as showing, in connection with proof that the plaintiffs relied upon them, the interpretation which the parties themselves placed upon the contract of insurance. They tend to prove that when the plaintiffs received these certificates, and paid from time to time the sums required to be paid by the certificates, both they and the insurance company understood the contract alike. Home Life Ins. Co. v. Pierce, 75 Ill. 426; Bruce v. Continental Life Ins. Co.,58 Vt. 253, 2 A. 710; Fuller v. Metropolitan Life Ins.Co., 70 Conn. 647, 671, 41 A. 4; Bray v. Loomer,61 Conn. 456, 464, 23 A. 831; Elting v. Sturtevant, 41 Conn. 176,182. They would also be admissible as tending to prove, in connection with proof that the plaintiffs relied upon them, the alleged actual or constructive fraud.

Third, to paragraph 10 of the complaint, upon the ground that it contains no averment that plaintiffs did not understand the terms of the certificates, or that they were misled by them, and upon the ground that it appears upon the face of the certificates that their terms are not involved. This should have been overruled.

The language of the certificate justified the averment that its terms are, at least, not entirely clear. It was not necessary for the plaintiffs to allege that they were unable to understand the language of the certificates, or that they were misled by their terms, since they have in paragraph 12 averred that they accepted them relying upon the representations of the insurance company in Exhibit A and the other described circulars. The manifest purpose of paragraph 10 was to aver that one step in the alleged fraudulent purpose of the insurance company was to make the terms of the certificates so obscure that it might afterward successfully place upon them an interpretation variant from the language of the circulars, which it is alleged the company is now endeavoring to do.

Fourth, to paragraphs 15, 16, 17 and 18 of the complaint, upon the ground that the insurance company had the legal right to issue policies of insurance upon others than the "safety fund" plan, and to cease issuing certificates under the "safety fund" plan, without obtaining the consent of the certificate-holders. This ground of demurrer was properly sustained.

The insurance company was authorized by its charter to issue insurance on other than the "safety fund" plan. We find neither in the so-called circulars nor in the certificates any promise, either express or implied, by the insurance company to the certificate-holders, that it would not issue policies on any other than the "safety fund" plan, or that it would continue to issue safety-fund certificates any longer than it did. Wright v. Minnesota Mut.Life Ins. Co., 193 U.S. 657, 24 Sup. Ct. Rep. 549; Green v. Hartford Life Ins. Co., 139 N.C. 309, 51 S.E. 887. Having a legal right to do the acts complained of in these four paragraphs, neither the insurance company nor its officers are rendered liable even if their action was induced by improper motives as alleged. Fisher, Brown Co. v.Fielding, 67 Conn. 91, 106, 34 A. 714.

Fifth, to paragraph 19 of the complaint, upon the ground that it is not averred that the alleged diversion was wrongfully made. This ground of demurrer should have been overruled.

A fair interpretation of the language of paragraph 19, read in connection with that of paragraph 8, is that the insurance company and its managers and stockholders had, during the years named, appropriated to their own use money to the amount stated, which, by the terms of the contract, they had no right to do. It was unnecessary to expressly characterize such acts as wrongful.

Sixth and seventh, to paragraph 20 of the complaint, upon the ground that it appears by the terms of the contract of insurance (Exhibit B) that the "three dollars per annum on each $1,000, for expense dues," belongs to the insurance company.

We are of opinion that by the terms of the certificates no part of the $3 "expense dues" became part of the funds of the "safety fund" department, but that it belonged to the insurance company, to be used for its own benefit and that of its stockholders without accountability to the certificate-holders. By the language of the contract, the promise by the certificate-holders was "to pay to said company, for expenses, dues of Three Dollars per annum on each $1,000 Indemnity . . . so long as this Certificate shall remain in force." This is an absolute promise to pay a fixed sum for a certain time, without reference to the amount of the actual expenses incurred by the company or to the continued solicitation of new business. The insurance company continues to manage the business of the "safety fund" department, although it has ceased to issue new certificates. Security Co. v. Hartford, 61 Conn. 89,98, 23 A. 699. These ground of demurrer were properly sustained in so far as they apply to the alleged diversion, in paragraph 20, of the $3 expense dues, but, for the reasons above stated regarding the fifth ground of demurrer, they were not rightly sustained in so far as they are directed to the allegation, in said paragraph, of a diversion of large sums from the "safety fund."

Eighth, to a part of paragraph 21 of the complaint. This need not be considered, as the plaintiff has withdrawn its claim under paragraph 21, that the collection by the company of ten cents for sending notices of mortuary assessments was unauthorized.

Ninth and tenth, to paragraphs 29 and 30 of the complaint, upon the ground that the alleged claims by the insurance company as to the construction of the contract (Exhibit B) do not constitute a cause of action against them in behalf of these plaintiffs.

The trial court rightly sustained the defendants' claim that these paragraphs did not describe acts which in themselves constituted a cause of action entitling the plaintiff to any relief asked for. While relief may possibly be granted on account of the acts done, or threatened to be done, by the insurance company to the plaintiffs' injury, under said claimed construction of the terms of the certificates, no facts are alleged entitling them to relief against the mere making of the alleged claim. As a part, however, of the description, in connection with other paragraphs of the complaint, of the alleged misappropriation and threatened misappropriation of the moneys of the "safety fund" department, paragraph 29 properly remains a part of the complaint.

Eleventh and twelfth, to the first prayer for relief, upon the grounds that the action is prematurely brought, since it appears that the plaintiffs have not suffered, and may never suffer, any injury on account of the alleged threatened acts of the insurance company regarding its title to the "safety fund," and its right to collect mortuary assessments after the outstanding insurance shall be reduced to $1,000,000, and upon the further ground that the plaintiffs cannot in this action obtain an amendment of their several certificates.

Equity may grant relief against a threatened injury where the plaintiffs' rights may be prejudiced by delay. The demurrer admits that the insurance company asserts the right and the intention to do the acts described in paragraph 29 of the complaint. How soon the amount of the outstanding certificates may be reduced to $1,000,000 we cannot say. It appears from the averments of paragraphs 12 and 25 that since 1897 the amount of such insurance in the defendant company has diminished some $60,000,000. The remoteness of the danger of injury to the plaintiffs from the intended acts of the defendants may properly be considered by the trial court in deciding whether equitable relief ought to be granted. It does not appear from the complaint that such danger is necessarily so remote as to forbid the interference of a court of equity. Whether, in fact, there is a sufficiently substantial injury to the plaintiffs' rights, or such reasonable ground for the apprehension of injury to them from the alleged acts and intended acts of the defendants as will justify equitable interference, may be a question for dispute upon a trial of the case. Should it appear that the plaintiffs' rights are or are likely to be seriously prejudiced by the alleged acts, or intended acts, of the defendants, under their interpretation of the contract of insurance, it would seem to be necessary for the court to place a construction upon the language of the certificate in order to determine whether such acts of the defendants could be justified. It seems to be unquestioned that, by the express terms of the contract, the certificate-holders, who for five years have contributed their stipulated proportion of the safety fund, have been and are entitled to have applied upon their future dues the net interest received from the fund, as well as the excess of the fund over $1,000,000.

The real question in dispute is not so much whether the certificate-holders or the insurance company are the present owners of the "safety fund," as whether, by the terms of the certificates, the holders are entitled to a distribution of the entire "safety fund" when the aggregate amount of outstanding certificates shall be reduced to $1,000,000, as claimed by the plaintiffs, or whether the insurance company, when the amount of the certificates shall be so reduced, may continue to demand dues and assessments from the certificate-holders, and, upon nonpayment, appropriate the entire safety fund to itself, as it is alleged in paragraph 29 and stands admitted, it claims the right to do. The defendants, in support of their demurrer to this prayer for relief, contend that it appears upon the face of the contract of insurance, made a part of the complaint, that the plaintiffs' claimed construction of the certificate cannot be adopted. We cannot sustain this contention. We have already said that certain written statements issued by the company would be admissible to aid in ascertaining the true meaning of doubtful provisions of the certificates. But we are also of opinion that, even without the aid of such extraneous evidence, the language of the certificates does not prohibit the construction contended for by the plaintiffs as to the time when the "safety fund" must be divided. The language of the certificate is that "if at any time it [the insurance company] shall fail by reason of insufficient membership, or, shall neglect, if justly and legally due, to pay the maximum indemnity provided for by the terms of any Certificate, . . . it shall be the duty of said Trustee [the Security Company] to at once convert said Safety Fund into money and divide the same . . . among the holders of Certificates then in force. . . . The plaintiffs claim that by this provision there must be such a division of the safety fund among the certificate-holders when their number becomes so reduced that the aggregate amount of their insurance does not exceed $1,000,000, as would be the case when there were but one thousand holders of certificates of $1,000 each. The claim of the insurance company, as stated in paragraph 29 and admitted by the demurrer, is that, even after the number of certificate-holders are so reduced, it may continue to collect dues and to make mortuary assessments, unlimited in the average amount and unrestricted by the number of certificate-holders, and to declare the rights of certificate-holders forfeited who fail to pay such dues and assessments. If the insurance company may so continue to levy assessments unlimited in amount, it is difficult to see when there can be a failure to pay certificates by reason of insufficient membership, or how the certificate-holders have much protection from the existence of the so-called "safety fund." Which of these constructions is the correct one depends upon what is meant by the provision, if the insurance company shall "fail" (to pay the amount of any certificate) "by reason of insufficient membership." Clearly by the word "fail" is not meant a default in any obligation assumed by the insurance company. While the company undertakes to make the assessments (Lawler v. Murphy, 58 Conn. 294, 20 A. 457), and to pay the sum collected, its express agreement is to pay the amount of certificates from the "mortuary fund and not otherwise." If, after an assessment for the payment of the amount due upon a certificate is properly made and the assessment paid, the amount realized proves insufficient to pay the indemnity due, the failure is that of the mortuary fund and not of the insurance company, and there can be no such failure of the mortuary fund "by reason of insufficient membership," unless there is a fixed maximum limit of assessment. The certificate fixes such a limit. It provides that the payment of "mortality calls" to form a "Mortuary Fund" for the payment of "all Indemnity matured by the deaths of members" are to be levied "according to the table of graduated mortality ratios given hereon, and as further determined by their respective ages and the aggregate indemnity at the dates of such deaths." In the application, which is by its terms made a part of the contract of insurance, each member agrees to pay "all Mortality Calls determined as within set forth." Attached to Exhibit B is a table showing the method of determining mortality calls and the ratios graduated according to ages of certificate-holders for assessments against each holder of a $1,000 certificate, for the collection of a death loss of $1,000. This method is based upon a minimum outstanding insurance of $1,000,000. There is no other method provided by the contract, and therefore none for the making of mortality calls after the total of amount of outstanding insurance falls below $1,000,000. It is expressly stated that these ratios will decrease as the total amount of outstanding insurance increases. There is no suggestion that they can ever be increased. It must be held that they cannot. Even if it is doubtful which of the two claimed constructions of the contract should be adopted, the doubt should be resolved in favor of the insured. Liverpool,etc., Co. v. Kearney, 180 U.S. 132, 21 Sup. Ct. Rep. 326;Fricke v. United States Indemnity Society, 78 Conn. 188,192, 61 A. 431. The demurrer to the first prayer for relief, in so far as it applies to that part of the prayer which asks that the certificates be construed as providing that when the amount of the face of outstanding certificates is reduced to $1,000,000 the safety fund is to be distributed among the certificate-holders, should have been overruled. Since the contract may be construed as above stated, it should not be reformed as requested.

The thirteenth and fourteenth, to the second and fourth prayers for relief, were properly sustained. They have been sufficiently considered in the discussion of the sixth, seventh, ninth and tenth grounds of demurrer.

Fifteenth, nineteenth and twentieth, to the fifth, eleventh and twelfth prayers for relief, upon the grounds that the complaint alleges no sufficient grounds for the appointment of a receiver, and that by the laws of this State the right to apply for the appointment of such receiver is confined exclusively to the insurance commissioner.

Sections 3489, 3490, 3491 and 3546 of the General Statutes describe some of the powers of the insurance commissioner in matters touching the questions raised by these grounds of demurrer. He is to "see that all laws respecting insurance companies are faithfully executed." He may "examine into the methods of business of any company . . . doing any kind or form of insurance in this state, . . . and if in his opinion such company . . . is doing business in an illegal or improper manner, he may order it to discontinue such illegal or improper method of doing business. . . ." "If any such company . . . shall fail . . . to obey any such order . . . he may apply to a court or judge having jurisdiction for an injunction, or for the appointment of a receiver, or for both, and such court or judge may enforce such order of the commissioner by injunction, or by appointing a receiver."

Under § 35-46, if the insurance commissioner finds that the assets of an insurance company incorporated by the laws of this State are less than its liabilities, or if such company "shall fail to comply with any requirement of law, he may notify it to cease the issue of new policies or the payment of dividends to stockholders . . . until the deficiency be made good or the law complied with"; and he may, and if the assets of the company are less than three-fourths of its liabilities must, bring his petition to the Superior Court, or to a judge of the Supreme Court of Errors, praying for the appointment of a receiver, and that the charter of said company may be annulled; and said court or judge is empowered or directed to appoint such receiver, and to "annul the charter and decree the dissolution of such company, and to make all other orders and decrees necessary and proper in reference to winding up the affairs of such company and the disposition of its property."

Section 3351 of the General Statutes also provides for the appointment by the Superior Court of a receiver to wind up the business of any corporation organized under the laws of this State, upon the application of stockholders owning not less than one-tenth of its capital stock, for certain causes, including fraud or gross mismanagement in the conduct or control of such corporations. The acts of the insurance company complained of in this action are embraced in those described in § 3490, and for such acts the only statutory provision authorizing the appointment of a receiver by the Superior Court is upon proceeding instituted by the insurance commissioner. We may assume that the peculiar danger of serious injury to the credit and business of such institutions of a public nature, as banks and insurance companies, from the institution of even groundless applications for the appointment of receivers, may have been one reason why the legislature deemed it proper to place the exclusive power of commencing such proceedings against them in the hands of an experienced and disinterested public officer. While the Superior Court would not, in an action like the present one, be bound by any construction placed by the insurance commissioner upon the terms of these certificates, and while, under its general equity jurisdiction, it would have the power to appoint a receiver pendente lite for the preservation of any property in question in a suit before it, or as incidental to an accounting ordered, we are of opinion that it was the intention of the legislature to intrust it solely to the judgment of the insurance commissioner, when an application for the appointment of a receiver should be made for the causes described in § 3490. American Casualty Ins. Co. v.Fyler, 60 Conn. 448, 462, 22 A. 494; Ulmer v. FalmouthL. B. Asso., 93 Me. 302, 45 A. 32; Huntington CountyL. S. Asso. v. Fulk, 158 Ind. 113, 63 N.E. 123; Broadwell v. Inter-Ocean H. L. Asso., 161 Ill. 327,43 N.E. 1067. The said fifth, eleventh, and twelfth prayers for relief were properly held to be insufficient, excepting as, in connection with the sixth and tenth prayers, they ask for the appointment of a receiver as incidental to such accounting as may be ordered.

Sixteenth, to the sixth prayer for relief, upon the ground that the moneys received for expenses belong to the insurance company and that it is not required to account for them. For the reasons stated in discussing the sixth and seventh grounds of demurrer, this ground was properly sustained, to the extent that it asks for an accounting for the $3 annual expense dues.

Seventeenth, to the seventh prayer for relief, upon the ground that the allegations of the complaint do not authorize the accounting and payment asked for. This ground of demurrer should have been overruled.

Paragraphs 19, 20, 21, 24, 26, 27 and 32 contain allegations sufficiently broad to permit the proof of facts upon which the Superior Court may, under the sixth, seventh, or tenth prayers for relief, or all of them, order an accounting by the insurance company for moneys unlawfully collected or received by it and its officers, not including the $3 annual expense dues.

Eighteenth, to the eighth and ninth prayers for relief, upon the grounds that the allegations of the complaint do not justify a declaration by the court that the moneys received by the insurance company from the certificate-holders have been forfeited; that courts of equity will not decree forfeitures; and that it is not alleged that the individual defendants have received said moneys. This ground of demurrer was properly sustained upon the first two reasons stated therein.

The Superior Court, as a court of equity, will not lend its aid to cause or to enforce a forfeiture of the moneys lawfully received by the insurance company from certificate-holders when, as in this case, it appears that other adequate relief for the alleged injuries can be granted (1 Pomeroy Equity Jurisp. (3d. Ed.) §§ 459, 460; Warner v. Bennett, 31 Conn. 468, 478), and when there has been no rescission of the contract of insurance, and no offer or apparent intention by either party to rescind it. We have already said that it is sufficiently alleged that the individual defendants participated in the alleged wrongful appropriations of funds.

Twenty-first, to the thirteenth prayer for relief, upon the ground that the averments of the complaint do neither justify the awarding of damages, nor show the grounds or amount of such damages, nor from whom they should be recovered. This ground of demurrer should have been overruled.

The averments of paragraphs 10, 20, 21, 24, 26, 27 and 32 are sufficient in form and substance to allow the proof of facts which would justify the Superior Court in adjudging the insurance company and its officers who are defendants liable in money damages to the plaintiffs.

The four grounds of demurrer of each of the ten individual defendants upon the grounds, generally, that no facts are alleged showing a liability to the plaintiffs of such defendant, either individually or jointly with any of the other defendants, should have been overruled for the reasons above stated in considering the first ground of demurrer of the defendant insurance company.

The defendant Security Company demurs upon the following grounds: First, second, third and fourth, to the entire complaint, upon the grounds, in substance, that inasmuch as it is not alleged that the insurance company has failed to pay the maximum indemnity provided by the terms of any certificate, and the plaintiffs admit that the safety fund is not to be divided among the certificate-holders until the aggregate outstanding insurance is reduced to $1,000,000, and it appears from the averments of paragraph 25 of the complaint that the outstanding insurance amounts to about $40,000,000, the plaintiffs have no right or interest in the safety fund, and therefore no cause of action against this defendant either alone or jointly with the other defendants; and upon the further ground that there is a misjoinder of causes of action, and that the complaint is multifarious. These demurrers should have been overruled.

What we have already said regarding the character and purpose of this action, the joinder of parties, both plaintiffs and defendants, and the remedy for a misjoinder, the construction which the certificates of insurance will admit of, and the power of the court to grant some relief asked for should it conclude upon a hearing of the facts that the rights of the plaintiffs were likely to be prejudiced by the acts, or threatened acts, of the defendants, — makes further discussion of these four grounds of demurrer unnecessary.

Fifth, to the third prayer for relief, upon the grounds stated in its first, second and third demurrers to the complaint. This should have been overruled for the reasons just stated.

Sixth, to the fifteenth prayer for relief, upon the grounds stated in its second and third demurrers, which we have already considered, and upon the further grounds, in substance, that the plaintiffs are not creditors either of the Security Company or the insurance company, that the contract regarding the safety fund shows that it belongs to the insurance company, and that the insurance company has a legal remedy for the alleged breach of such contract by the Security Company.

The question of the right of the Security Company to change the investments from United States bonds to other securities is not raised by these grounds of demurrer, and they should have been overruled. The agreement of the Security Company is expressed to be with the insurance company and with each of the certificate-holders. Although the plaintiffs are not the present owners of the safety fund and may never become so, they have, as we have before stated, such an interest in it as, upon facts which may be proved under the averments of the complaint, would justify the Superior Court in granting some relief asked for, to save the certificate-holders from loss from any unlawful change which the Security Company, with the consent and procurement of the insurance company, may have made in the securities in which the "safety fund" was invested. Legal and equitable relief may properly be demanded in the same action. General Statutes, § 613.

That certain demurrers to particular paragraphs of the complaint and prayers for relief were properly sustained, as above stated, does not finally dispose of this case, since the remaining paragraphs before enumerated, and remaining prayers for relief, are sufficient to permit the proof of facts showing a good cause of action.

There is error, the judgment is set aside and the case remanded with direction to overrule certain of the demurrers as indicated in this opinion, and to proceed with the case according to law.

In this opinion the other judges concurred.