Federal Union Surety Co. v. Flemister

Hart, J. (after stating the facts). Counsel for the Federal Union Surety Company insist that its principal was a mutual fire insurance 'company organized under the laws of the State of Nebraska, and that, by virtue of the laws of that State, the articles of incorporation and the by-laws of the company, its policy holders became members of the company, and as such were not entitled to a return of the unearned premium. In making this contention learned counsel have not duly considered the effect of our statutes on foreign mutual insurance companies. It is settled that the Legislature may dictate the terms upon which such companies may do business in the State. Hartford Fire Insurance Co. v. State, 76 Ark. 303; State v. Lancashire Fire Ins. Co., 66 Ark. 466. The General Assembly of the State of Arkansas in 1905, among other conditions imposed upon foreign mutual insurance companies as a prerequisite to their doing business in the State of Arkansas, provided as follows: “Section 4. All foreign mutual fire insurance companies authorized to do business in this State shall annually give a qualified indemnity bond to the State of Arkansas, with not less than three good and sufficient sureties, or with a surety, trust or indemnity company authorized to do- business in this State, as surety, to be approved by the Auditor of State, in the sum of twenty thousand dollars, conditioned for the prompt payment of all claims arising and accruing to any person during the term of said bond by virtue of any policy issued by any such company upon any property situated in the State, and said bond shall be in full force and effect during the lifetime of any policy issued by said company.” A comparison of the provisions of the above section with those prescribing the conditions of the bond of stock insurance companies will show that in all essential particulars they are the same. Acts of Arkansas, 1905, p. 772, and Kirby’s Digest, § 4339- The effect of this statute is to make the liabilities of foreign mutual insurance companies doing business in this State under policies issued by them here the same as those of stock fire insurance companies. In the case of Minneapolis Fire & Marine Mutual Insurance Company v. Norman, 74 Ark. 190, the court held (quoting syllabus) : 1. “Where a foreign insurance company, authorized to insure property upon the assessment plan, gave the bond required of stock companies issuing standard policies, and proceeded to issue policies on the standard plan, instead of the assessment plan, it can not, after receiving the benefit of such contracts, invoke the doctrine of ultra vires to defeat an action brought against it on Such a contract.” 2. “A surety on the bond of a foreign mutual fire insurance company, executed to enable it to do a standard, and not a mutual, insurance business, can not plead as a defense that the policies issued by the company were ultra vires.” The effect of this decision is to hold that the charter powers, by-laws and the laws of the State under which the company was organized do not determine the character of the insurance issued, but that it is settled by the terms of the policy and the laws of this State. This was evidently the view taken of our statute by the National Mutual Fire Insurance Company; for it issued policies in this State in the usual form of standard policies issued by stock insurance companies. The policies provided that the insured incurred “no other or greater liability for premium or otherwise than that expressly provided in this policy.” This provision is inconsistent with the idea that the policy holder was a member of the company, and should be liable for losses sustained by other members. The policy also contained a clause providing for the cancellation of the policy by the insured and the payment’to him of the unearned premium, and, as' above stated, it conformed in all other respects to the form of standard policies issued by stock insurance companies. The policies do not refer to the articles of incorporation or the by-laws of the company. Therefore the right of the policy holder to a return of the unearned part of the premium on account of the insolvency of the insurer is the same in this case as in that of a stock company. The rule in such cases is well stated by the annotation to the case note to State v. Minnesota Title Insurance & Trust Company, 19 L. R. A. (N. S.) 639. It is as follows: “As to stock companies, the courts are in harmony in holding that the insured, upon the dissolution of the company, is a creditor to the amount of the unearned premiums.” In Franzen v. Hutchinson, 94 Iowa 95, 62 N. W. 698, it was held that local policy holders of a foreign insurance company, which had made an assignment for creditors in a different State, could avail themselves of a clause in their policies authorizing them to cancel the same and demand the unearned portions of premium which they had paid, and that they could enforce these demands against any property of the company within the State. See also 22 Cyc. 1405 and nóte 27. 2. The court erred in holding that the policy of W. H. Cajul was cancelled by operation of law at the time of the appointment of the receiver. As we have already seen, the insuranee company in question was a foreign corporation. The courts of this State had no authority to dissolve the corporation or wind up its business. The chancery court had only authority to appoint a receiver to collect and distribute its assets in this State to the creditors. Culver Lumber & Manufacturing Co. v. Culver, 81 Ark. 102. There was no adjudication of insolvency, and no decree dissolving the corporation in the present case. Moreover, no order of court had been made cancelling the policy of Cajul. As we have already held, the act of 1905 made the insurance company in effect a stock company, as far as the Arkansas policies are concerned, and the insurance contracts were not terminated by the appointment of the receiver. Insurance Commissioner v. People’s Fire Insurance Co., 44 Atl. 82, 68 N. H. 51. At the time Cajul’s property was destroyed by fire his policy had not Ibeen ordered cancelled, and his claim was provable against the estate of the insurance company. Hence the Federal Union Surety Company was liable therefor. 3. Mrs. M. B. Evans filed an intervention based upon a policy for $1,000 issued by the National Mutual Fire Insurance Company, dated May 21, 1907, on a certain hotel near Rogers, Arkansas, which was afterwards destroyed by fire. ' The chancellor found in favor of Mrs. Evans for the face of her policy, and it is conceded by counsel that the only question raised by the appeal is whether or not the finding of the chancellor that said insurance company did, at the time the policy was issued, have notice of the fact that other policies of insurance had been previously issued on said property is against the preponderance of the evidence; for it is conceded that, if McLeod had notice of the other insurance, Mrs. Evans is entitled to recover. Mrs. Evans testified that at the time she applied for the insurance in question she informed McLeod, the agent of the company, that she had a policy for $1,000 in the Citizen’s Fire Insurance Company. McLeod denies that she gave him this information, but says she told him that she had no other insurance. T. R. Smallwood testified that he went with Guy E. Thompson to the office of McLeod for the purpose of adjusting the loss of Mrs. Evans, and that, while there, Mrs. Evans stated to McLeod that she never gave him any notice of other insurance, and that McLeod stated to her that she positively did not give any notice. Thompson relates the conversation in this way. He said that McLeod stated to her that he had no knowledge of the prior insurance, and his recollection is that she made no reply at all. It appears that soon afterwards Mrs. Evans left ihe office for the purpose of consulting with friends as to whether she should sign a non-waiver agreement which had been presented her in McLeod’s office. It will be remembered that the question is whether or not Mrs. Evans gave McLeod notice of the prior insurance at the time she applied to him for the policy. Mrs. Evans claims she gave him such notice and McLeod denies it. Smallwood attempted to corroborate McLeod by testifying that Mrs. Evans admitted at McLeod’s office that she had not given him notice of the prior insurance. In this, however, he is contradicted by Thompson, who stated that she made no reply to McLeod when he stated that she had not given him ■the notice. Under the circumstances, her failure to reply might have been considered of no probative force against her. She was at the same time being pressed to sign.a non-waiver agreement, and no doubt thought it prudent to say nothing until she had consulted with friends, which the evidence shows that she did at once. Other circumstances in connection with the matter tended to corroborate her testimony, and, everything considered, we are of the opinion that the finding of the chancellor is not against the weight of the evidence.. 4. The record shows that the Federal Union Surety Company signed each of the bonds, and that each bond was for $20,000. It further shows that the liabilities that accrued for any one year did not exceed the sum of $20,000. Therefore no prejudice can result to the surety company from the failure of the chancellor to segregate the amounts found to be due on the several bonds, and it is well settled that this court only reverses for errors that are prejudicial to the rights of the appellant. Opinion delivered July 11, 1910. 5. The chancellor was of the opinion that the Federal Union Surety Company should pay the fees allowed the receiver and his attorneys, and so provided in the decree. This was error. The fees allowed them in cases like this should be taxed and paid out of the fund collected and distributed by the receiver. The costs which a successful litigant may recover do not include fees allowed to a receiver and to his attorneys. Bradshaw v. Bank of Little Rock, 76 Ark. 501. The question whether the claimants of fire losses were entitled to attorney’s fees under the act of March 29, ■ 1905, at p. 308, is not before the court, for the reason that no claim under this act was made in the court below. We find that the court erred in not allowing the claim of W. H. Cajul, and in -taxing the fees of the receiver and his attorneys against the Federal Union Surety Company, and in that respect the decree is reversed, and the cause remanded with directions to the chancellor to enter a decree in accordance with this opinion. In all other respects the decree is affirmed.