Ely v. Oakland Circuit Judge

Stone, J. The petition for mandamus against the circuit judge in this case is made by Francis G. Ely, receiver, and represents: (1) That he was appointed receiver of the Citizens’ Mutual Fire Insurance Company of Holly, Mich., by the circuit court of Oakland county on December 28, 1908, and gave the required bond. (2) That said company is a corporation organized under Act No. 82 of the Laws of 1873, as amended in 1895 (2 Comp. Laws, chap. 195). That said company, availing itself of the provisions of said amendment, amended its charter January 8, 1896, and that said company has been engaged in the business of insuring property against loss by fire since its incorporation in April, 1874. (3) That said company did a general fire insurance business in the State of Michigan, having at risk at the date of suspension insurance amounting to $5,064,139, with approximately 6,000 policy holders, scattered throughout the State of Michigan. — 468 — (4) That three forms of policies were written by said company; the usual mutual policy providing for assessments, and written on application made to the company, in writing by the insured. The second class of policies known as 51 cash premium policies,” were written for one, two, and three years, for which in every instance a cash premium was paid in advance; the premium charged varying according to the character of the property insured. The policies of this class were labeled “ Michigan standard form,” and were in fact Michigan standard form, except that at the bottom of the policy was printed a clause in the following language, which is worded differently from the language in the ordinary Michigan standard form policy: “This policy is subject to the conditions of the charter of this company, and of the act under which the company is organized, as to liability of members to assessment for losses incurred.” The third class of policies were also cash premium policies, written for one, two, and three years, for which in every instance a cash premium was paid in advance; which were in language and form exactly like those in the second class above described, except the assessment clause above quoted was wholly omitted from the policy. (8) That said company is a mutual company entirely, and carried no reserve fund to meet extraordinary losses or liabilities. (6) That during the month of October, 1908, serious fires occurred in the northeastern part of the State of Michigan, burning whole areas of territory, and some towns entirely. (7) That claims for losses amounting to $19,589.90, or thereabouts, are outstanding and unpaid against said company. (8) That of said claims outstanding and unpaid against said company for fire losses, $12,071.13 are due on farm risks, which it appears by the terms of the statute, under which said company was doing business, were prohibited, and which the said company, in consequence, had no legal right to take. (9) That claims for unearned premiums amounting to $20,000, or thereabouts, largely on policies terminated on the appointment of receiver, have been filed for allowance. (10) That there were no funds available with which to-meet the outstanding and unpaid obligations of said com — 469 — pany, on account of said fire losses, unearned premiums claimed, if the latter could be legally allowed, or to meet the usual necessary expense incident to the receivership and winding up of said corporation, and neither will there be unless an assessment on the members and persons insured in said company can be made to meet the same. (11) That soon after the appointment of the receiver, as aforesaid, he petitioned the said circuit court for instructions, as to whether an assessment could lawfully be made against all of the policy holders irrespective of the particular form of the policy held in said company, and as to the amount of the proposed assessment, the manner of levying the same, whether upon both the cash premium and mutual holders alike, or otherwise, and for such further instruction, direction, and authority as the court might deem necessary and proper to grant. (12) That petitioner, at the time of filing his said petition, also filed another petition praying for the instruction of said court whether, as receiver, he should allow unearned premiums in offset to the assessment by him proposed to be made on the members and persons insured in said company; that the court determine whether the members and persons insured in said company were entitled to unearned premiums on the cancellation of their policies, either before or after said appointment of receiver, and, if to be allowed in either or both cases, how, and in what manner the same ought to be paid; what proceedings, if any, said receiver should take with reference to the premiums due on policies returned as “refused,” “canceled,” etc., after his said appointment; also praying for such further instruction, direction, and authority in the premises as to said court might seem proper. (13) That orders were made by said court on the filing of said petitions, requiring notices to be given to all members and persons insured, fixing a time within which objections might be filed by persons interested therein, and a time for hearing said objections. (14) That proof of service of notice in accordance with said orders was made and filed by petitioner; numerous objections to said proposed assessment were filed by members, and persons insured in said company; certain of the cash premium policy holders objecting to an assessment, yet claiming unearned premiums. (15) Testimony was taken and hearing had on said objections, in said court, disclosing the character and mum — 470 — ber of the policies issued, the losses suffered, and the necessity for the appointment of a receiver for said company, a transcript of which, with the findings of the court, are attached to said petition. (16) That, after said hearing, a further petition was filed in said circuit court by certain mutual policy holders, praying for a further disclosure on the part of said receiver, as to the nature and character of the property insured by said company, on which losses occurred, and on account of which said receiver desired to levy an assessment. Hearing on said petition was also had, which disclosed that losses aggregating the sum stated in the eighth paragraph were on farm risks; objection being made to any assessment to cover those losses for the reasons above stated. (17) That on June 36, 1909, orders were made by said circuit court as follows: (a) The prayer of the first petition was denied, and the receiver was instructed to make no assessment for any purpose whatsoever; said order being made in anticipation of these proceedings to obtain a ruling of this court as to the status of the policy holders in each class, as to the question of membership in said company. (b) That no assessment for return premiums be made. That the members and persons insured are not entitled thereto in the opinion of said circuit court. (c) That no assessment be made to pay losses on risks on farm property, declaring said risks void. Said receiver prays for mandamus directing said circuit court to order: (1) An assessment on all members and persons insured in said company, excepting those only who held, or now hold, policies on farm property, to pay losses and expenses. (3) That the order of the circuit court, holding that no assessment for return premiums be made, be affirmed. (3) That the order of said circuit court holding that policies issued on farm property are void, and that no assessment for the payment of losses on such risks be made, be affirmed. (4) And for such further relief by mandamus as justice may require. The answer of the respondent, the circuit judge, shows that the facts stated in said petition are true. — 471 — Section 17 of the act under which said company was organized provides for the appointment of a receiver, and it is made his duty to ascertain the amount due from said company on property insured, and to at once proceed to assess upon all of the members and persons insured in .such company such sums of money as will in the aggregate be sufficient to pay all the losses and liabilities of said company, together with the services and expenses of such receiver, according and in proportion to the amount of their insurance or interest in such company. The charter of the company clearly contemplates the issuing of cash premium policies. It provides that no risk, except dwelling house risks, shall be written on the straight mutual plan; that all cash premium business .shall be written at the full tariff rate, as adopted by the State board of underwriters; the percentage of the tariff rate the company shall be netted, etc.; that the company may take cash premiums, or notes from the assured, which shall also be the basis for future assessments; that premium notes shall not be transferable, and shall not exceed five times the cash premium paid in one year; that once in each year the directors shall, if deemed necessary, make an assessment on all policies insured in the company, to raise money to liquidate the losses and incidental expenses of the company; that each member insured on the .assessment plan shall be notified of any assessment made against his policy, etc. This clearly implies that there may be members who are not insured on the assessment plan. We think there is both by the statute and the charter of the company a recognition of the intention and right of the company to insure on the cash premium plan. The doctrine of ultra vires cannot be applied to contracts not prohibited, either expressly or by necessary implication in the statute. Day v. Buggy Co., 57 Mich. 147 (23 N. W. 628, 58 Am. Rep. 352); Carson City Sav. Bank v. Elevator Co., 90 Mich. 550 (51 N. W. 641, 30 Am. St. Rep. 454); Dewey v. Railway Co., 91 Mich. 351 (51 N. W. 1063); Coit v. — 472 — City of Grand Rapids, 115 Mich. 493 (73 N. W. 811); Rehberg v. Surety Co., 131 Mich. 135 (91 N. W. 132); Spier v. City of Kalamazoo, 138 Mich. 653 (101 N. W. 846); Peterson v. City of Ionia, 152 Mich. 678 (116 N. W. 562). So while the cash premium policy plan is not expressly authorized by the statute, it is not prohibited, and this fact, coupled with the fact that it is authorized by the charter and by-laws of the company, makes it a valid and binding obligation upon the company. This brings us to an important question in the case: Is the cash premium policy subject to assessment ? It is urged that this question is answered in the negative, and the question foreclosed, by the decision of this court in Osius v. O'Dwyer, 127 Mich. 244 (86 N. W. 831). That was a case where the receiver of a mutual fire insurance company sued a policy holder for an assessment. It was objected that defendants never became members of the company, and that objection was sustained. We have examined with care the record in that case. The company was organized under the same statute as was this company. The charter differed in many essential respects from the charter of this company. The contract or policy in that company differed from the cash premium policy containing the assessment liability clause, issued by this company, in the following particulars: It appears clearly that the policy in this case was issued by a mutual company (a point upon which we do not lay much stress). The policy referred to issued by this company contained the following clause, the substance of which did not appear in the policy in that case, viz.: “Thispolicy is subject to the conditions of the charter of this company, and of the act under which the company is organized as to liability of members to assessments for losses incurred.” The following clause contained in the policy in the Osius Case, viz.: — 473 — “ If this policy be made by a mutual or other company having special regulations lawfully applicable to its organization, * * * such regulations shall apply to and form a part of this policy, as the same may be written or printed upon, attached, or appended hereto ” —is no longer a necessary clause in a policy issued by a mutual company. The standard form policy act in force when the Osius Case was decided was declared unconstitutional in King v. Insurance Co., 140 Mich. 258 (103 N. W. 616), and mutual fire insurance companies . organized under the act of 1873 (Act No. 82, Laws 1873), as amended, are now expressly relieved from having attached to policies the charter and by-laws. See Act No. 277, Pub. Acts 1905, § 5. So we think that nothing can be claimed for that part of the decision in the Osius Case. We are not disposed to extend the doctrine of the case of Osius v. O’Dwyer beyond its language, and, had the policy in that case contained the assessment liability clause found in the class of policies issued by this company, which we are now considering, we do not think that this court would have held that the assured was not a member of the company, in that case. We conclude that persons who accepted the cash premium policies containing the clause above named should be held to have become members of the company, and subject to assessment by the receiver to cover all losses and expenses. The Wisconsin supreme court held cash premium policies issued under a statute somewhat similar to ours liable to assessment. Rundle v. Kennan, 79 Wis. 492 (48 N. W. 516). The statute in that case authorized an assessment on all “the property insured,” while the Michigan statute authorizes the receiver to assess all “ members and persons insured.” We do not, however, in view of Osius v. O’ Dwyer, supra, feel authorized to hold that the cash premium policies issued by this company which did not contain the assessment liability clause are liable to assessment, or constituted the policy holders members of the company. We — 474 — think that there is a clear distinction between these policies, and that such distinction should be recognized. The next important question to be answered is: Should the assessment cover unearned premiums due the holders of the cash premium policies ? That there is such a liability is clear from the language of the policies. They provide as follows: “ This policy shall be canceled at any time at the request of the insured; or by the company by giving five days’ notice of such cancellation. If this policy shall be canceled as hereinbefore provided, or become void or ■cease, the premium having been actually paid, the unearned portion shall be returned on surrender of this policy, or last renewal, this company retaining the customary short rate; except that when this policy is canceled by this company by giving notice it shall retain only the pro rata premium.” We think that common honesty would dictate that, in case of insolvency, the unearned premiums paid on the stock policies are a part of the “liabilities” of the company. The contract creates the liability. They are just claims against the company. Fayette Mutual Fire Ins. Co. v. Fuller, 8 Allen (Mass.), 27; Clark v. Insurance Co., 130 Ind. 332 (30 N. E. 212); Warner v. Delbridge & Cameron Co., 110 Mich. 590 (68 N. W. 283, 34 L. R. A. 701, 64 Am. St. Rep. 367). Unlike the case of Detroit Manufacturers’ Mut. Fire Ins. Co. v. Merrill, 101 Mich. 393 (59 N. W. 661), there was here a contract to pay unearned premiums on all cash premium policies. The logical view is that the company .has received under the contract more money than it has earned, and justice requires it, in a case like this, to make ;a refund. Nor can such a holding be deemed unjust. In the light of this record, the mutual members had knowledge and notice of the issuing of cash premium policies. The reports of the company showed the amount received from cash premiums, and the amounts received from assessments annually. And the same may be said of the cash premium policy holders. — 475 — The last matter to be considered is the one relating to farm policies. Section 7285, 2 Comp. Laws, expressly prohibits the insurance of farm property by such companies. It may be said, therefore, that the farm policies were issued and accepted in violation of the statute. They were void for illegality, and the issuing of them was ultra vires. The holders of these policies should be left where they are found, and they are not entitled to the return of unearned premiums. 25 Cyc. p. 759; Smith v. Barstow, 2 Doug. (Mich.) 155; Bagg v. Jerome, 7 Mich. 145; Niagara Falls Brewing Co. v. Wall, 98 Mich. 158 (57 N. W. 99). From the foregoing considerations, we reach the following conclusions: (1) The said company was authorized to write and issue cash premium stock plan policies, and the holders of such said policies as contain the assessment liability clause must be considered members of the company, with all the rights and subject to all the liabilities of membership, and are liable to assessment. (2) The holders of such cash premium stock plan polices as did not contain the assessment liability clause will not be considered members of said company, and are not liable to assessment. (3) That the holders of both classes of the cash premium stock plan policies are entitled to unearned premiums, in accordance with the terms of the policies. (4) That an assessment upon the mutual policy holders, and also upon the cash premium stock plan policy holders, which contain the assessment liability clause, be made, not only to pay valid loss claims, but also to pay unearned premiums on cash premium stock plan policies of both classes, and also all necessary expenses. (5) That farm risk policies being in violation of the statute are void and ultra vires, and the holders thereof are not entitled to unearned premiums, nor to any relief. It logically follows that such of the cash premium stock plan policy holders as are liable to assessment should be allowed to offset the unearned premium. The unearned premium due policy holders by reason of the appointment of the receiver should be prorated. It will be the duty of the receiver to ascertain and re — 476 — port to the circuit court the number of each class, of cash, premium stock plan policies, and the amount of unearned premiums due thereon, as well as the amount required to pay losses upon the basis of this opinion, together with the cost of services, and the expenses of the receiver. Whereupon an assessment shall be ordered by said court upon the basis of this opinion. The order of the circuit court relating to policies issued on farm property is affirmed. The costs of this proceeding will be borne by the fund of the said company, to be provided for in the assessment. The writ will issue accordingly. Montgomery, C. J., and McAlvay, Brooke, and Blair, JJ., concurred.