Lawrence v. Nelson

The act incorporating the General Mutual Insurance Company provided that every person' on obtaining a policy and paying the premium became a corporator interested in the premiums paid by all the-other corporators; and in section 6 (Laws of 1841, p. 229), provides that “every per*251son who shall become a member of this corporation by effecting, insurance therein, shall, the first time he effects insurance and before he receives his policy pay the "rates that shall be fixed upon and decided by the trustees; and no premium so paid shall ever be withdrawn from said Company, but shall be liable to all losses and expenses incurred by this Company during the continuance of its charter.”

Each dealer was therefore a corporator and interested in all the premiums paid by others. The earnings of" the Company were the premiums paid in by all the dealers and the income derived from the investment of these premiums, which was all placed in a common fund, and after paying the annual losses and expenses, á dividend of the balance was declared to each dealer pro rata, according to the earned premiums paid by him.

. It appears by a stipulation or admission found in the case, “that the General Mutual Insurance Company, in making the yearly estimate of1 net profits, under the provisions of their charter, credited each dealer with such proportion of the net, as the amount of earned premiums received from him was of the whole amount of earned premiums received by the Company during the year, without regard to the fact that the business of such dealer with the Company, for the year, had resulted in a loss to them; and further, that in making such estimate, the premiums and premium notes were in all case's placed and credited to the Company, as earnings, and the return premiums were placed with".the losses and expenses, and deducted therefrom to ascertain the net profits for the year.”

Under this charter, a dealer with this Company might receive a large annual profit though the Company made nothing by dealing with him: for example, the earned premium of A. is $>1,000 and the loss under his policy is $1,000, the Company thus receive no more of A. than they pay him for his losses, and of course nothing is made by the dealing with- him; but the total earned premiums for the year are-$100,000 and the losses are but $10,-000, leaving a surplus of $90,000 of profits. A. is entitled to such part of this $90,000 as the premium he paid bears to $100,000 —that is, A. receives $900 of these profits toward which he has contributed nothing; thus each dealer was interested in the earned premiums of every other dealer, and the corporators were *252mutual guarantors of each other. In fact, a kind of partnership firm was formed, under an act of incorporation by which each member, being bound to pay his premium, was entitled to profits realized in proportion to his premium paid. Before the notes upon which this action is brought went into the Receiver’s hands, the Company owed the defendants, for loss on the ship Galena, $3,083.45, -which the defendants seek to offset. Ordinarily, if an insurance company holds a person’s note, and at the same time owes the maker for a loss, an offset can be made, and the Receiver stands in no better position than the corporation whose assets he received. But the corporation, in this case, is not like an ordinary chartered company dealing with strangers; the peculiar relations of the corporators towards each other- aré voluntary, and the obligations are mutual, and. it is entirely equitable that each should share losses when they happen in the same proportion' as he was entitled to profits when made, and such is the fair interpretation of -this contract. Each member must pay what he owes the corporation, and each will be entitled to his pro rata dividend of the assets. (Hillier v. Alleghany Co. Mut. Ins. Co., 3 Barr., 470; Long v. Mut. Ins. Co., 6 id., 421; White v. Haight, 16 N. Y., 310; Bangs v. Gray, 2 Kern., 477.)

The policies for which the notes were.given were canceled by written agreement, and it- was stipulated by the defendants that the return premiums were to" be paid ratably out of the assets of the Company when divided, and we see no reason why the defendant should not be held to that agreement.

The judgment should be affirmed,- with costs.

I regret that I am not able to concur in the decision made in this case, - except as to the amount due to the defendants for return premiums.

It was conceded by the plaintiff’s counsel, that, in respect to the defendants’ claim to setoff the' amount of his loss by the ship Galena, (which. was adjusted before the proceedings- were taken- by which the Insurance Company was adjudged insolvent,) the plaintiff, as Receiver; stood in -the same situation as the Company itself would, had this action been prosecuted by them, (being in fact insolvent,) to recover the amount of the notes for which the action is brought. (2 R. S., 464, § 42; id., 469, §§ 68-*25374; id., 41, § 7, and 47, § 39 [§ 36;] Holbrook v. Receivers, &c., 6 Paige, 220; Lindsay v. Jackson, 2 id., 581.)

I cannot concur in the conclusion, that the insolvency of the Company defeats the defendants’ right to set off his claim for this loss, or that the defendants have to go into any calculation with the other corporators, in the nature of an accounting between copartners. If by making a set-off he gains any advantage over others having claims against the Company, so as to have his claim paid in full, he gains just what always happens when any other corporation, or an individual, becomes insolvent; those who are both debtors and creditors of the insolvent can make the setoff, while other creditors take such dividend as they can get.

The reasoning which is supposed to exclude this set-off will apply equally to all Mutual Insurance Companies, and embraces all who effect insurance with them upon the mutual plan. It is recognizing a new species of partnership heretofore not known in this State, and it involves this result. To-day a dealer sustains a loss, and the Company holding his notes to a corresponding amount, the right of set off is clear; to-morrow the Company becomes insolvent and the right of set off is gone; the note must be paid in full, and the dealer must take his chance of payment for his loss by awaiting the dividends which may be made of the assets of the Company.

In my judgment the Company in respect to its right to collect the note, and its obligation to pay the loss, is to be regarded as an artificial person to whom the same rules would apply as to an insolvent natural person.

Besides, if this idea of copartnership is to prevail, it is conceded that this 'peculiar result does not arise until insolvency happens, and if the reasoning is carried out to its legitimate result, it should follow that the rights of the parties should await the final accounting, and be then adjusted. It would then appear how much, and how much only, the defendants should be required to pay. Surely they ought not to be required to pay their notes in full when they are clearly entitled to something in return. The rule should be applied equally in favor of both parties, if applied for the benefit of one. The mutual accounting, if it is to be had, ought to embrace claims against the defendants as weH as claims in their favor.. To make the defendants pay their note in full, *254and compel them to await the final accounting before their clnim for a loss is paid, is to treat the parties as partners in respect to the Company’s liability to them, and not as partners in respect to their liability to the Company.

I think the judgment should be reversed and a new trial .ordered.

Judgment affirmed, with.costs.1