Wirtz v. Sovereign Camp, W. of W.

STATEMENT OF THE CASE. The facts upon which the original action was based are so tersely and clearly stated by the Court of Civil Appeals (Vol. 254, S.W.R. 637) that we deem it unnecessary to re-state them.

The plaintiff in the Court below alleged every fact necessary to support her case, and the case was tried upon an agreed statement of facts which showed issuance of the certificate, payment of assessments, membership in good standing until the death of the insured, and the only question to be decided is whether the recovery should be for Two thousand, One hundred Dollars ($2,100.00), or for One thousand, Four hundred and Ninety-three Dollars and Ninety cents ($1,493.90).

We are of the opinion that the counsel for defendant in error correctly phrases the issues to be determined when they say there are but two:

First — Did the society have the right to increase the rate of assessment on the certificate in question? and

Second — If it had such right, does the certificate stand charged with the lien asserted by the society?

The trial Court held that it does not. That holding the Court of Civil Appeals did not agree with, and we are called upon to decide whether the latter Court reached a correct conclusion or not.

There are certain questions relating to the powers, rights and liabilities of fraternal associations concerning which the law appears to have been definitely settled:

FIRST. That the constitution and by-laws of the association become a part of the contract, and the insured is charged with notice thereof and is held to be bound and to abide by the same, as also by any prescribed rules and regulations which are not in conflict with the constitution of the United States, or the laws of the State, or the charter of the association, or are not against public policy.

This proposition is supported by the following authorities: West v. A.O.U.W., 37 S.W. 966: United Moderns v. Colligan,77 S.W. 1032; Sovereign Camp, etc. v. Hicks, 84 S.W. 425; Modern Woodmen, etc., v. Lynch, 141 S.W. 1058; Carter v. W.O.W.,220 S.W. 239; Stark v. W.O.W., 225 S.W. 1063; Miller v. National Council, etc., 76 P. 830.

The latter case holds also that the insured must examine the constitution and by-laws if such action be necessary in order for him to ascertain what the contract is, and holds also that he is bound by subsequently passed laws if they are reasonable.

SECOND. That fraternal associations have the power to change their constitutions and by-laws at will, so long as such changes do not violate the Federal Constitution or the laws of the State, and that they may also increase rates to such extent that will enable them to pay their losses.

This proposition is supported by the following authorities: Garretson v. W.O.W., 243 S.W. 257; Clarkson v. Supreme Lodge,82 S.E. 1043; Wright v. Minnesota, etc., 193 U.S. 832; Supreme Lodge, etc., v. Mims, 241 U.S. 574; Supreme Lodge, etc., v. Smyth, 245 U.S. 702.

The decision in the latter case was based on and controlled by that of the preceding case, — the Mims, — in which it was held that a provision in the certificate that payments on a certain class of policies should remain fixed was not a contract but a mere recital and a matter of regulation.

THIRD. That whether rates shall or shall not be raised is a matter to be determined by the governing body of the association having ultimate authority in that regard, and if they are reasonable the Courts will not disturb them, and that to raise rates does not violate the contract.

This proposition is supported by the Mims case and by: Clarkson v. Supreme Lodge, 82 S.E. 1043; Sealy v. Sovereign Camp, etc.,107 S.E. 417; Supreme Lodge v. Ray, 156 S.W. 47. It is said in the Mims case (supra): "The corporation is simply the medium for collection and distribution * * * * *. The essence of the arrangement was that the members took the risk of events and if the assessments levied were insufficient to pay a benefit of a certain amount, whether from diminution of members or any other cause, either they must pay more or the beneficiary take less."

FOURTH. That the judgment of the Court of ultimate resort of the parent State of the association, construing its charter and determining its power with reference to raising rates, is binding upon the Courts of all other States under the "full faith and credit" clause of the constitution, whether the party resisting the raising of rates was a party to the cause which determined the question or not. This proposition is supported by the case of Royal Arcanum Supreme Council v. Green, 237 U.S. 531, 35 Sup. Ct., 724, 59 L. Ed., 1089, L.R.A., 1916A, 771.

In that case the trial Court in New York held that the judgment of the Court of another State was not controlling in that State, the same corporation being a party to the action in both States. The Appellate Division under the New York system of procedure reversed that holding. The Court of Appeals — the Court of last resort in New York — reversed the Appellate Division. The case was carried to the Supreme Court of the United States upon the ground that the Court of Appeals of New York erred in not holding that the "full faith and credit" clause of the constitution applied, and the Supreme Court of the United States held that the Court of Appeals of New York had erred, and that the record of the Massachusetts Court, where the same association and the same question were before it, was binding on the Courts of New York. In view of the fact that this is a decision of the Supreme Court of the United States, there is no necessity to cite any other authority on the point.

FIFTH. That in benevolent societies, such as the defendant in error, the beneficiary has no vested right in the certificate until the death of the member. He has a mere expectancy which may be divested by the member changing the beneficiary.

This proposition is supported by the following authorities: Masonic, etc., v. Bunch, 19 S.W. 25; Westerman v. Supreme Lodge K.P., 94 S.W. 478; Bills v. Bills, 207 S.W. 614; Coleman v. Anderson, 98 Tex. 576.

SIXTH. So far as fixing and maintaining rates is concerned, the policy of such a corporation is not a "contract" in the ordinary sense of that term, and assessments can be increased. This proposition is supported by the case of Supreme Lodge v. Mims,241 U.S. 574; and Thomas v. Knights, etc., 149 P. 7.

SEVENTH. It may be stated, in view of the authorities, that the provision of the contract that the insured should be released from any obligation to pay any assessments after the lapse of twenty (20) years, was ultra vires the association. This proposition is supported by the case of Haner v. W.O.W., 168 N.W. (Neb.) 189, and Trapp v. W.O.W., 168 N.W. 191, both of which cases were decided by the Supreme Court of Nebraska, and under the holding of the Supreme Court of the United States in the Green case (supra), the decisions in those cases are binding upon the Courts of this State. This proposition is also supported by the case of Garretson v. W.O.W., 243 S.W. 257 (Missouri), a case very similar to this. In the Westerman case, above cited, it is said that the law applying to paid up policies is not applicable to fraternal and benevolent associations. The holding in the Haner and Trapp and Garretson and Westerman cases, above cited, appears to us to be based on sound principle if, indeed, such holding was not demanded by the necessity of the situation.

No benevolent association is an insurance company in the ordinary acceptation of that term. The relation of certificate holders — as distinguished from "policy holders " — is essentially mutual and reciprocal. Each certificate holder is an insurer of the other, and of all others who are members, and if it were permitted to exempt a certain part of the membership from the payment of dues, after they have been members a certain length of time, or after they have reached a certain age, that relationship of mutuality and reciprocity, which is the essence of the association, would be destroyed, and the burden of paying assessments sufficient to meet losses would be shifted from the whole to a part of the membership, with the inevitable result that the whole theory of organization of such associations would be violated, and the whole fabric — none too strong at best — which is built upon it, would fall into insolvency and ruin.

In Wright v. Minn., etc., (supra) the company changed from the assessment plan to the legal reserve, flat premium plan, and the contention was raised by plaintiff that there was a contract that the plan of insurance was never to be changed. Justice Day, speaking for the Supreme Court of the United States, says:

"Where the right of amendment is reserved in the statutes or articles of association, it is because the right to make changes which the business may require is recognized, and the exercise of the privilege may be vested in the controlling body of the corporation. In such case, where there is exercise of the power in good faith, which does not change the essential character of the business, but authorizes extension upon a modified plan, both reason and authority support the corporation in the exercise of that right * * * * * * The business is still that of mutual insurance, notwithstanding the changed method of operation. * * * * * * There was no contract that the plan of insurance never be changed. On the contrary, it is recognized that amendment might be necessary. There was no vested right to the continuance of a plan of insurance which experience might demonstrate might result disastrously to the Company and its members."

In the present case the readjustment of rates was made under Division "c," of Section 60, and it is held in the Garretson case that that was not such an increase of rate as to render the adjustment void.

EIGHTH. The Courts will take judicial knowledge of the fact that fraternal associations may reasonably increase their rates, because experience has demonstrated that such has been necessary for their continued existence. This proposition is supported by the case of Mims (supra), and the case of Clarkson (supra,) and Wright v. Minn. etc., (supra).

In the Clarkson case, 82 S.E. 1046, it is said in substance that assessment insurance has been the subject of much controversy. Experts have contended that it is based on unsound principles. The history of such organizations shows that increases of rates are necessary as the association grows older, and rates must be increased from time to time, because the theory on which they are established will not bear the test of time, as will that on which what are called "old line" companies are organized. Fraternal and benevolent associations which operate on an assessment basis must either increase rates or be unable to meet their obligations. (Wright v. Minn, etc., (supra). Certificate holders must take knowledge of that fact, (Clarkson case, (supra).

In this connection, it may serve a helpful purpose to quote the language of the Supreme Court of Nebraska in the Haner case: "Plaintiff, as a member of the association, was a party to the adoption of the by-laws. He does not stand in the same relation to the association as does the holder of a policy in a standard insurance company, but occupies the dual position of insurer and insured."

Referring to the question of the management of societies, it is said in the case of Wright v. Minn., etc.: "While the rights of members will be protected against arbitrary action, such organizations will ordinarily be left to their own methods of action and management. The changes under consideration are made in good faith and have been accepted by many of the old members, as well as those who have taken policies since its changes in plan have been made, and, in our view of the case, the changes in the method are not beyond the corporate powers of the company."

It is undeniably true that benevolent and fraternal organizations and life insurance companies are as subject to the operation of the law of estoppel and waiver as are individuals, and the law has in both particulars been repeatedly enforced against them in this State, but it is our opinion that neither estoppel nor waiver can be invoked against the defendant in error under the facts in this case. Waiver pre-supposes full knowledge of existing right, while estoppel arises where by fault of one, another has been induced to change his position for the worse.

There was no concealment upon the part of the defendant of any fact from the insured, nor any action upon its part which rendered the position of the defendant any worse, save and except in so far as it increased its rates. The beneficiary had no vested right under the certificate until the death of the insured, and the right to increase the rates is established beyond all question. It is not contended here that the rates were unreasonable, or at least there was no proof offered to that effect. It has been held that to give the defendant the privilege to choose between options was not a violation of the contract. (Garrettson case, 243 S.W. 257). If he had declined to pay any premiums at all all benefits would have been forfeited. The right to increase the rates existed, as must be conceded, and if the insured declined to pay the rates and elected to rest upon the knowledge that the defendant association would charge them against the policy, then we are of the opinion he was bound by such action. It was certainly more favorable to him than the result would have been had he declined to pay in any form the increased rates, which the defendant had the right to fix, and thereby have forfeited the policy.

It does not appear to us that the Batte case, 79 S.W. 629, militates against what has been said above. That case did not directly involve the question of the right to increase rates; but the association had issued a policy upon which they had agreed to pay, upon the death of the insured, Five thousand Dollars ($5,000.00), but it subsequently changed the contract so as to make it liable for only Two thousand Dollars ($2,000.00), and the Court of Civil Appeals held, — and we think properly, — that that was a repudiation of the contract. The defendant in this case does not decline to pay the certificate, but simply reduces the amount to the extent of the difference between the assessment that was due after the rates were changed, and that which the insured had before paid.

While the decisions of the Courts of other States are not binding upon us, they are at least enlightening and persuasive, and we are impressed by the holding in the case of Garretson v. Sovereign Camp, 243 S.W. On page 260 the court deals with the question of waiver — the same question of waiver that is raised in this case — and uses this language:

"Plea of waiver is based upon the fact that after the 1919 laws of the defendant went into effect, January 1st, 1920, insured continued to pay his old rate and the defendant continued to receive the payments; there was no waiver in this. Defendant received the insurance payments but it also placed a lien against the certificate. Under Section 60 of the defendant's laws 1919, insured had the right to elect under division "a" or "b", as heretofore explained. If he failed to elect, then, without action on his part, he was placed under division "c." He took no affirmative action; hence, fell under division "c." There are none of the elements of waiver involved."

As regards the contention that the defendant in error cannot be heard to plead ultra vires, it appears to us that there is a clear distinction between the case of Eastern Building, etc., v. Williams (U.S. 47, Law Ed., 122), cited by plaintiff in error on that point and the case at bar.

In that case the defendant was a building association, and sold shares under a plain and positive promise in writing that when a certain number of payments of a fixed amount had been paid for seventy-eight (78) months, it would pay One hundred Dollars (100.00) for, or, on each share.

It was essentially an organization for profit upon investment made in its share. The element of benevolence in the form of provision against sickness, disability or death was no more a part of the contract than profit is a part of the certificate which is the basis of this action.

The trial Court in the case above cited held that there was nothing in the statutes of New York, or the articles of incorporation, or the by-laws of the company, which had the effect to alter the apparent meaning of a positive, absolute promise, or change it to a conditional one, and the Supreme Court of the United States approved that holding.

No argument is necessary to point out the difference between that case and this, nor to show that the rights, powers and obligations of benevolent societies, such as plaintiff in error, must be determined by rules of law which are peculiarly, indeed, it might be said, exclusively, applicable to them, because of the very purposes of their formation and their methods of operations.

The plaintiff in error and all other kindred associations which operate along the same or similar lines, and pursue the same or similar methods of administration, are organized solely for the purposes of benevolence, in a broad and comprehensive sense of that term.

The statutes pursuant to which they are formed, and their articles of incorporation, make it clear that in the administration of their affairs the idea of profit is to be eliminated from consideration, and it would seem that logically, if not indeed necessarily, the legality of any action they may take cannot justly be tested by the same rules of law which apply to organizations, the purpose of which are wholly commercial.

The purposes and powers of benevolent societies are alike limited by statute and they are organized upon a wholly different basis from that upon which either a building association or what is commonly called an "old line" Life Insurance Company is organized, and any attempt to extend benefits beyond the limits expressly fixed by their charters is ultra vires the society.

The holdings of the Supreme Court of Kansas, in Kirk v. Fraternal, etc., 149 P. 400; and that of the Supreme Court of Nebraska, in Haner v. A.O.U.W., 168 N.W. 189, and in Trapp v. Sovereign Camp Woodmen of the World (plaintiff in error here)

(168 N.W. 191), and that of the Missouri Court of Appeals in Garretson v. W.O.W., (243 S.W. 257), were all evidently based upon the proposition first stated.

That the stipulation or promise in a contract, such as is the basis of this action, that the insured will comply with and be bound by all future regulations or by-laws of the association, does not mean that the society may interfere with the essential purpose of the contract, viz: the payment of the indemnity promised, or, in other words, cannot be construed as authorizing the society to repudiate a plain contract is clearly settled there is no doubt. Martin v. Supreme, etc. (73 S.W. 264, Mo.); American, etc., 79 S.W. 629, Supreme, etc., v. Ericson,146 S.W. 160.

Such holding is equally sound in law and in morals, but it is, however, also settled law that benevolent societies may increase their rates within reasonable limits in order to enable them to meet their obligations and in doing so they violate no contract.

The distinction between reducing by means of a by-law or an amendment the amount stipulated in the most unqualified terms to be paid, and merely increasing by a by-law dues or assessments to such extent as is necessary to meet the exigency ensuing out of the changed financial condition of the association brought about by decrease of membership by death or other causes, is obvious.

The first is a violation and repudiation of an unambiguous contract, while the other is not. This is true because, as authorities already cited show, a policy in a benevolent society is not a "contract" in the ordinary sense of that term, and to increase rates within reasonable limits does not violate the agreement expressed by the policy or certificate.

"It is recognized by the Courts of all jurisdictions that fraternal societies may reasonably increase their rates. Experience has demonstrated that such has been necessary for their continued successful existence."

(Garretson case, 243 S.W. 260, and the numerous authorities therein cited).

The right to increase rates, indeed the necessity, being universally conceded, and the exercise of that right being left to the governing body of the association without further limitation than that the increase shall not be unreasonable or disproportionate to the necessity of the situation, it follows that the manner in which the increased rate may be paid or secured is likewise left to the reasonable discretion of the governing body.

There being no proof in this case that the increase was unreasonable, that was done which it must be held was in contemplation of the parties it might be necessary to do and the doing of which did not violate any of the rights of the insured, therefore, the beneficiary has no just or legal ground of complaint.

The small amount involved in the instant case would not invest our decision with any special importance, but we felt justified in inferring that there were many certificates or policies issued by the defendant in error which are in the same condition as is the one which was the basis of the original action in this case, and for that reason we have given the question involved more than ordinarily careful investigation and study.

We are of the opinion that the conclusion reached by the Court of Civil Appeals, and phrased in the admirable opinion of Justice Graves, is correct, therefore, the judgment of that Court is affirmed.