Insurance Commissioner v. People's Fire Insurance

1. The insurance contract entered into by the company and each of its policy-holders provides that it may be terminated at the request of the insured. It does not require the insured to give the company a previous notice of his election to have the policy terminated. The right to a cancellation upon request, and without limitation, is a material part of the contract. The insured might desire to obtain other insurance at once and might be prevented from protecting himself in this way, if he could not terminate his contract with this company without giving a previous notice of his intention to do so. In the absence of any stipulation in the contract requiring such notice to be given, the reasonable construction of the insured's contractual right to terminate the policy is, that he may do so by delivering it to an agent of the company with a request that it be cancelled, or with notice that he surrenders it for cancellation, or with any direct manifestation of his purpose to terminate it at that time. By such action the policy is terminated. Crown Point Iron Co. v. AEtna Ins. Co., 127 N.Y. 608, 614-616. The appointment of the receiver did not change the right of policy-holders to terminate their contracts or make the manner of its exercise more difficult. Having the right under their policies to surrender them for cancellation before the decree appointing the receiver, they retained it afterward. The decree did not amount to a repudiation of the legal contracts made by the corporation. Hyde v. Lynde, 4 N.Y. 387, 392; High Rec., s. 204.

2. The question whether the amount to be repaid by the company on the cancellation of a policy is to be pro rata or "short rates" is determined by the contract, as it would have been if receivership proceedings had not been begun. Those proceedings introduced no new element into the contract, and did not deprive a policy-holder of his right to be repaid a pro rata part of the premium when his policy was cancelled by the company, or to an amount determined on the basis of "short rates" when he surrendered his policy for cancellation.

3. As the insurance contracts were not terminated by the appointment of the receiver, losses happening after his appointment are provable claims against the estate. Whatever may be the relation of policy-holders to one another in a mutual insurance company (Commonwealth v. Mass. Ins. Co.,119 Mass. 45, 51), in a stock company they are not partners. With reference to the company, they are its creditors for the amount of the return premiums that may be due or for the losses that may have accrued under their policies. People v. Security Life Ins. Co., 78 N.Y. 114, 122,129. The objection that in this view of the rights of the policy-holders no distribution of the assets can be made until all existing policies have expired, does not seem to be important, since the receiver, representing the company, may terminate all policies upon notice, as provided in the contract.

4. The rights of agents of the company to compensation are to be determined according to the contracts, express or implied, under which they were employed. The course of business adopted by the company in its dealings with the agents may be competent evidence upon that question. The mere fact that the company, as a matter of expediency, has been accustomed under some circumstances to allow them the full premiums on policies returned, which had been paid for in previous accounts, does not enable the court to find as a matter of law that all the agents were, or were not, to be credited with the premiums they voluntarily advanced. The question presented is one of fact, which evidently may be determined differently in different cases according to their varying circumstances.

5. The motive that has induced policy-holders to terminate their contracts is immaterial. The substance of the policies on this point, as stated in the case, is that the company could terminate the contracts "on giving reasonable notice and paying a pro rata amount," and that the insured could terminate them by request. The insolvency of the company, or a fear of its insolvency, or the appointment of a receiver, might be a reason which the insured would consider sufficient to act upon in exercising their right of terminating the contracts. But they could terminate them without any reason. The insolvency or financial embarrassment of the company, operating as a moral compulsion upon the insured and forcing them to surrender their policies for the protection of their interests, would not alter the fact that the contracts were terminated by them and not by the company.

Case discharged.

WALLACE, J., did not sit: the others concurred.