Citizens' Mutual Fire Insurance v. Sortwell

Bigelow, C. J.

The amount involved in the decision of this case is quite disproportionate to the importance of the questions, on the determination of which the right of the plaintiffs to recover depends. If some of the objections urged by the defendants against the validity of the assessments imposed on them are well taken, the result will be not only that this action must fail, but the conclusion will follow that the plaintiffs have been carrying on the business of insurance for thirteen or fourteen years on an illegal basis, and issuing policies in a manner not authorized by law. It will also follow that many of their deposit notes are illegal and void. To understand fully the nature of the main objections raised by the defendants, it is necessary to premise that, in the year 1849, by a statute of that year, c. 104, the legislature authorized mutual fire insurance companies then existing to divide the property which they might thereafter insure into two distipct and separate classes, the division of risks to be made according as the risk assumed might be deemed to belong to a greater or less hazardous description of property. The statute required that, when such a classification should have been made, each policy should designate the class to which it belonged, and that the premiums and deposits received in each class should be kept separate and distinct, and held liable to meet only those losses which might occur in the class to which they belonged. It was also required that these provisions should not take effect in reference to any company, until they should have been adopted at a meeting of the corporation called for the purpose, and that no policy should be issued to cover property in any separate "class, until the amount of one hundred thousand dollars should have been insured in such class. On the 22d day of June 1860, the plaintiffs issued a policy to the defendants, purporting to insure certain property belonging to them in “ the second class,” and received from them a deposit note for the sum of eighty dollars, on which they have proceeded to lay an assessment, to recover which this action is brought. The defendants insist that this rule is not binding on them, and that they are not liable to pay the assessment laid upon it, because the proceedings of the plaintiffs have been irregular and illegal in several particulars, and the policy issued to the defendants, as well as the premium note given in consideration thereof, are without validity or legal force.

1. The first and leading objection is, that the plaintiffs were not authorized by law to make a policy in the second class, because the St. of 1849, c. 104, authorizing a division of property insured into two classes, was never legally accepted by the plaintiffs. This objection is put on two grounds. The first is, that the meeting of the corporation, at which the alleged acceptance of the act took place, was not duly called, for the reason that, being a special meeting, it could be legally assembled only in the manner prescribed by the 20th by-law of the company, on the application of ten members. But this objection proceeds on a misconstruction of the terms of the by-law and the purpose it was intended to answer. It is not prohibitory, but only mandatory. It provides a method in which the members of the company can require the officers to call special meetings. But it does not in terms or by implication restrain the directors from calling them at other times without such application, whenever in their judgment it may be expedient or necessary so to do. Certainly any such restriction on the authority of the directors would be unreasonable, and could be created, if at all, only by the most clear and explicit language. By Rev. Sts. c. 37, § 25, directors of mutual insurance companies are expressly authorized “ to manage and conduct all the business thereof.” Under the authority thus granted, there can be no doubt that legal power was vested in the directors of the plaintiff corporation to call special meetings. It is equally clear that this power was neither abridged nor taken away by the operation of the by-law on which the defendants rely, and that it was well and legally exercised in calling the meeting at which the provisions of St. 1849, c. 104 were accepted by the plaintiffs.

An equally decisive answer to this ground of defence is, that the objection to the mode of calling the meeting in question, even if well founded, is not open to the defendants. The provision of the statute authorizing a division of risks was in fact accepted by the corporation, and they had proceeded to act under it, and had carried on business in conformity to its enactment for ten years before the defendants became members of the corporation. By accepting a policy of insurance under these circumstances, they cannot now object to any informality in the previous proceedings. By coming in after a practical acceptance of the act for so long a period, they waived all technical defects and irregularities. They stand in no better position than a stockholder of a corporation, who is estopped from raising any objection to the legal organization of the company, after they have proceeded under an actual organization and transacted business for several years. Chester Glass Co. v. Dewey, 16 Mass. 94,101.

The other objection to the legality of the meeting is, that a quorum of members of the company, according to the requisition of the 19th by-law, was not present at the time the act was accepted. It is true that the record does not show affirmatively that fifteen members of the company were present at the meet,ing. Nor is it necessary that it should. The contrary does not appear. It is sufficient that the record showrs that the meeting was duly called, and proper notice of it seasonably given. The law will assume, in the absence of evidence, that a proper number were present to transact the business for which the meeting was called. Illegality will not be presumed, but the contrary. The maxim of law in such cases is, omnia rite acta presumuntur Sargent v. Webster, 13 Met. 504.

2. It is next objected that there was no actual division of the property insured into two distinct classes, as required by the statute, after its provision had been accepted by the plaintiffs. But we do not think this objection is supported by the facts which are disclosed in these exceptions. Without taking into account policies which were issued prior to August 2d 1849, purporting to be in the second class, it appears by the evidence of the secretary of the company that, between the last named date and the first day of October following, the sum of one hundred thousand dollars was subscribed to be insured in the second class, and policies duly issued therefor. This we think was a practical division of the risks, in pursuance of the provisions of the statute. Nor do we see how any other division of risks could conveniently be made. After the act was accepted, the company had full power to divide the risks. How could that power be exercised ? Certainly it was not necessary to wait until the requisite sum was subscribed before making a division of the risks. Such a mode of carrying into effect the provisions of the statute would be hardly practicable. The only reasonable mode of making the division would be by classifying each risk when it was offered and assumed by the company. That was the time when the nature and situation of the property would be examined and considered with a view to ascertain the expediency of taking the risk, and the premium at which it would be safe and proper to insure it, and, as necessarily incident to this, would be the determination of the question into which of the two classes or divisions the risk would fall. The division, therefore, would be appropriately and properly made day by day as each risk was approved. Such was the course adopted by the plaintiffs. A set of books was opened in which the second class of risks was entered, the accounts of the two classes were kept separate and distinct, and the business of the company conducted on the basis of a division of the risks according to the statute. Whenever, therefore, the requisite amount of one hundred thousand dollars of property to be insured in the second class was subscribed and assumed by the company, the division of risks became complete and the authority of the corporation to issue policies designated as belonging to the two classes was plenary. The only irregularity was in issuing policies thus designated before the full amount was subscribed in the second class, as required by statute. But this, we think, is quite immaterial. Inasmuch as the requisite amount was obtained within a brief period after the acceptance of the act, and as all the policies in the second class issued after the 2d day of August 1849 must have been granted by the company and received by the parties insured in contemplation of the contingency that the necessary amount would be subscribed in that class, and on the implied condition that the statute in this particular would be complied with, we can see no good reason to doubt their legality, nor any sufficient ground for maintaining that the provision of the statute was not substantially fulfilled ; especially as it does not appear that the parties to the contracts of insurance, the plaintiffs on the one hand or the assured on the other, have ever called in question their validity. Nor is this all. It affirmatively appears that the corporation have recognized all the policies issued between August 2d 1849 and the 1st of October following as valid contracts in the second class, and have fully ratified and affirmed them by including them in their annual returns, and in the reports of their treasurer and auditing committee, as constituting risks of that description duly classified under the statute..

3. The same considerations are applicable to the further objection, that it does not appear that the sum of one hundred thousand dollars was subscribed to be insured in the second class after the acceptance of the act. If the fact be so, which does not distinctly appear by the exceptions, it is shown that this sum was subscribed between the 2d day of August, five days before the vote accepting the act was passed, and the 1st of October following. The subscriptions which preceded the vote may fairly be presumed to have been made in contemplation of the immediate acceptance of the act by the company, and they have since been fully ratified and confirmed by the acts of the plaintiffs, and are not shown to have been disapproved by the assured.

These are all the objections urged by the defendants, based on irregularities and informalities in the action of the corporation in accepting the statute authorizing a division of risks into classes, and in making such division in conformity to the requirements of law. The answers we have already given to them seem to us to be decisive, and to dispose of the grounds of defence on these points. We doubt very much, however, whether the defendants are in a position to be heard in alleging such defects as a ground of resisting the plaintiffs’ claim on the note in suit. The defects and technical errors on which they rely, if originally well founded and not subsequently cured, occurred many years ago, before tire defendants became members of the corporation, and all the contracts of insurance which were made at that time, and which might have been injuriously affected by the irregular action of the corporation, have long since terminated. Nor is it shown that the rights of the defendants as members of the corporation and holders of a policy have been practically affected in an appreciable degree by these alleged errors and informalities. Under such circumstances, a party cannot be permitted to set aside his contract, unless he is able to show that its enforcement would clearly violate the settled rules of law. It is also open to question whether, under any circumstances, some of the objections relied on by the defendants would constitute any defence to this action. See County Commissioners v. Aspinwall, 21 How. (U. S.) 545. Royal British Bank v. Turquand, 6 El. & Bl. 327. The case, however, does not require us to express a definitive opinion on these points.

5. Another objection to the maintenance of this action, of a different character, is suggested by the defendants. It is, that the contract of insurance is invalid, because the risk assumed is of a class which the company had voted not to insure. There is no evidence which supports this objection. It only appears that the directors had instructed their agents not to take risks of the kind covered by the policy issued to the defendants. But it is not shown that the directors or other officers of the corporation were prohibited or restrained, either by a by-law or vote, from issuing policies on property of such description.

Exceptions sustained.