Hayden v. Franklin Life Ins.

PHILIPS, District Judge, after stating the case as above, delivered the opinion of the court. The first error assigned by the plaintiff is predicated on the action of the trial court in admitting in evidence the articles of association and by-laws of the Merchants’ Life Association. The objections to the former are that they are not parts of the contract of insurance, and the defendant’s liability is to be determined by the terms of the original — 290 — policy, which does not refer to the charter. A like objection was interposed to the admission in evidence of the by-laws. The principal cases cited in support of these objections are McDonald v. Life Ass’n, 154 Mo. 628, 55 S. W. 999, Elliott v. Life Ass’n, 76 Mo. App. 566, and Taylor v. Ætna Insurance Company, 13 Gray (Mass.) 438. In the McDonald Case the insurance company, an Iowa corporation, being authorized to do business on the “assessment plan” in the state of Missouri, in order to show that the policy in suit was issued on the assessment plan, offered in evidence its articles of incorporation and bylaws. Of this the court said: “The policy did not refer in any manner to the articles of incorporation or to the by-laws, and hence they constitute no part of the contract. Elliott v. Ins. Co., 76 Mo. App. 566. Nor were they pleaded in any manner, and therefore they were inadmissible.” The case of Elliott v. Insurance Company, cited by the Supreme Court, does not set out in detail the policy in question. It is inferable, however, from the recitations in the opinion, that there was nothing on the face of the policy or the reverse side thereof to indicate that it was other than an ordinary life insurance policy. The articles of association and by-laws were excluded on the ground that the contract of insurance did not make them a part of the contract, and they were not referred to therein. This ruling, evidently, was based upon what was said by Metcalf, J., in Taylor v. Ætna Life Insurance Company, 13 Gray, 434, 438. The policy in question in that case was an ordinary life insurance contract. On the question of proofs of loss, in order to show that the contract of insurance had not been complied with, the defendant put in evidence a pamphlet issued by the insurance company, usually delivered to its policy holders, which required that a certificate of death should be furnished from the attending physician. This was excluded, on the ground that the policy did not embody or refer to any by-law, requisition, or understanding of the defendant’s as to the character of proof required of the death of the assured. “He is bound only by the policy itself; that is, to furnish ‘due proof’ of the death. If the defendants would have bound the plaintiff by their by-laws, etc., they should have made the policy, in terms, subject to those by-laws, or in some way have made them a part of the contract contained in the policy.” Citing Kingsley v. New England Mutual Fire Insurance Company, 8 Cush. 393, 403. The policy under review here, after referring on the reverse side to the mortuary call, payable quarterly or annually, to provide a mortuary fund for the payment of death claims, etc., expressly provides that “should the Emergency Reserve Fund, or any part thereof, be used as aforesaid, its impairment shall be made good by an assessment in addition to the regular Mortuary Call.” This of itself was sufficient to advise the policy holder that he was amenable to an assessment in addition to the regular mortuary call, which characterized its policy as being on the “assessment plan.” As the manner of making such assessments was not pointed out on the face of the policy, and such assessments in their very nature being mutual among the associated members, — 291 — the law refers the policy holder to the articles of association and bylaws as incident to such policy contracts. It is the generally recognized rule of law in respect of all mutual insurance companies that the charter and by-laws are a part of the insurance contract, and as binding upon the assured as the conditions of the policy itself. To them the constituent members must measurably look to discover their duties and obligations. 3 Am. & Eng. Enc. of Law (2d Ed.) 1081; 16 Am. & Eng. Enc. of Law, 867. Hence it has come to be regarded as the general American rule that the provisions of the stipulated articles and by-laws ■of such associations are elements of the contract of insurance. As said by the Supreme Court of Indiana, in Supreme Lodge v. Knight, 117 Ind. 489, 20 N. E. 479, 3 L. R. A. 409: “They are factors that cannot be disregarded. That they have this effect, all who become members of the association must know. A person who enters an association must acquaint himself with its laws, for they contribute to the admeasurement of his rights, his duties, and his liabilities. . It is not one by-law or some by-laws of which the member must take notice, for he must take notice of all which affect his rights or interests.” In Simeral v. Dubuque Mutual, etc., 18 Iowa, 319-322, the court said: “This policy was issued by a ‘mutual insurance company,’ and the assured, becoming a member by virtue of his insurance, was bound to know the articles of association and by-laws thereof.” The Supreme Court of Georgia, in Barbot v. Mutual Reserve Fund Life Association (Ga.) 28 S. E. 498, 503, said: “This being a mutual association controlled by its members, and each bearing his share of the burdens for the benefit of the whole membership, the contract of a member is different from an ordinary life insurance policy. The latter is held to be the contract which determines the rights of the company and the insured, and to be the whole of the contract; but inasmuch as both the benefits and the burdens in a mutual society are to be equal and bearing on all its members alike, it is well settled that the certificate of membership is only a part of the written evidence of the contract, and that in such a society the charter or constitution and by-laws in force at the time of the admission of a member are terms of an executory contract, and that by entering the society the member assents to all such terms, and that they each become a part of the contract of insurance, whether they are incorporated in or referred to by the certificate of membership or not.” See, also, May on Insurance, § 552; Supreme Commandery v. Ainsworth, 71 Ala. 436, 443, 46 Am. Rep. 332; Bliss on Life Insurance, § 426, et seq.; May v. New York Safety Reserve Fund Soc., 13 N. Y. St. Rep. 66; In re Equitable Reserve Fund Life Association, 131 N. Y. 354, 368, 30 N. E. 114; Sulz v. Mutual Reserve Fund Life Association, 145 N. Y. 563-568, 40 N. E. 242, 28 L. R. A. 379; Woodfin v. Insurance Company, 51 N. C. 558. Counsel for plaintiff in error in their brief say: “The original contract of insurance, while providing for fixed and level premiums, also provided for future assessments at uncertain times and in uncertain amounts.” This of itself is a concession, in contemplation of law, that the insurance company was a mutual association on the “assessment plan.” The next contention on behalf of plaintiff in error is that the stipulat — 292 — ed quarterly payments, under the head of “Insurance Plan” on the policy, were intended to remain at the level amount specified opposite the age of the assured at the time he entered the association, and that they were so different from assessments the association was authorized to make when any deficiency existed rendering them necessary as to-bring the policy within what is known as the “Nonforfeiture Law” of the state of Missouri. On the other hand, the contention of defendant’s counsel is that the specified quarterly payments aforesaid “might be increased, as the member’s age increased, to the amount shown in the table opposite each succeeding age”; in other words, that the association was authorized to collect from the assured payments varying- and increasing in amount from year to year. It is not deemed essential to a correct determination of this case to decide the relative force of these contentions. The policy itself, as already stated, provides that-“should the Emergency Reserve Fund, or any part thereof, be used .as aforesaid, its impairment shall be made good by an assessment in addition to the regular Mortuary Call.” And counsel for plaintiff in error in his argument, in effect, concedes that, under the policy issued by the Merchants’ Life Association, the company had the right, conditioned upon any impairment of the fund, or if the experience of the association justified it, to levy any assessment upon the policy holders for such amounts as its mortuary experience demonstrated to be requisite^ Such is the express provision of the charter. All this being conceded, as it must be, the stipulated payments at definite divisional age periods-do not have the effect to designate it as an ordinary life policy on the level premium plan, and to destroy its quality as a policy on the “assessment plan.” The statute itself, under which the insurance company was organized, so speaks. It declares (section 7901) that every contract whereby a benefit is to accrue to a person upon the death of the person named therein, “the payment of which said benefit is in-any manner or degree dependent upon the collection of an assessment upon persons holding similar contracts, shall be deemed a contract of insurance upon the assessment plan.” This view of such a policy was taken by Judge Adams in Haydel v-Mutual Reserve Fund Life Association (C. C.) 98 Fed. 200. While-the policy under consideration there was not wholly similar to this, it was sufficiently so to present, in terms, the like contention made respecting the effect of a definitely reserved premium payable at specified' age designations. In determining whether or not the policy was on. the assessment plan, he said: “It is assessment insurance where the benefit to be'paid is dependent upon the collection of such assessments as may be necessary for paying the amounts-insured. In other words, it is assessment insurance if payments to be made by the insured are not fixed — unalterably fixed — by the contract. On the contrary, an old-line policy is a contract where the amount to be paid by the insured is fixed, the premiums to be paid are unalterable, and the liability incurred by the defendant company is also fixed, definite, and unchangeable.” On review of this case (104 Fed. 718, 44 C. C. A. 169), JudgeThayer, speaking for the court, said: “While the premium at first reserved is a definite sum, yet by further provisions the executive committee of the company can require the holders of such policies to pay a greater or less sum than that stipulated to be paid on< — 293 — the face of the policies, if the condition of the defendant company at any time renders such action necessary. * * * When all the provisions of the contract are considered, it seems to retain all the essential features of assessment insurance.” This ruling has been approved and followed by the New York Court of Appeals in Crosby v. Mutual Reserve (Sup.) 78 N. Y. Supp. 237. In Hanford v. Massachusetts Benefit Association, 122 Mo. 50, 26 S. W. 680, the late Judge Black expressed for the court the same view of the policy contract. Speaking of the contention that the policy was a regular old-line premium policy, and therefore not within the plan marked out by the statute, he said: “According to the first clause of the seventh condition of the policy, the member must make a bimonthly payment at fixed and definite dates during his life, and the amount to be paid bimonthly is also fixed by the table of rates. Thus far these policies are premium policies, for it does not make these fixed rates, payable at specified dates, assessments, to call them by that name. But it is also provided in and by the policies that the board of directors may call for and require the payment of a different amount by giving special notice, and the amount called for may be based upon the current age of the member and the mortality experience of the association. The statute is broad enough to allow assessments to be based on the age of the member, and, for frequency of the calls, on the mortality experience of the particular association. Our statute calls for an emergency fund, and so do these policies. We think these contracts come within the statute, and are contracts of insurance on the assessment plan, as that plan is defined by the statute. The articles of association and the by-laws of the defendant are not before us, and, from the facts disclosed by this record, we can only say these policies are assessment-plan contracts.” In the later case of Elliott v. The Des Moines Life Association, 163 Mo. 132, 63 S. W. 400, Judge Gantt, discussing the policy certificate, which required certain definite, estimated amounts to be paid, but which further provided that in case the death rate exceeds the estimated rates the association would pay the deficiency from the emergency or reserve fund until exhausted, when additional premiums might be levied pro rata by the executive board to meet such deficiency, held that it brought the policy within the language and meaning of the statute— ■''‘Wliick provides that, if the payment of the benefit is in any manner or degree dependent upon the collection of an assessment upon persons holding similar contracts, it shall be deemed a contract of insurance upon the assessment plan. While the amount of the benefit is absolutely fixed, and the assessments are definite sums estimated to be sufficient to realize the amount promised, yet it is obvious that in this safety clause is a provision by which an extra assessment or assessments may be made. * * * It seems to us this policy meets every requirement of the statute as to insurance on the assessment plan.” The same rule of construction is announced in the still later case of Williams v. St. Louis Life Insurance Company, 97 Mo. App. 449, 71 S. W. 377. It is therefore little less than academic to follow the refinement of learned counsel in his contention that the stipulated payments by the contract became fixed and level at the amount he paid when he entered the association, for the controlling authority is that the right, having been reserved by the insurer to levy assessments on — 294 — policy holders to meet any impairment of its mortuary fund, and its mortuary experience, rendered variable the payments due by the assured. They were therefore subject to change at the will of the governing board of the association. This fixed the character of the contract as an assessment contract. Such being the contract when entered into between the Merchants’ Life Association and the assured, it continued to be such to the time of the reinsurance by the defendant in error. Counsel for plaintiff in error is therefore forced into the position of insisting that the reinsurance contract transformed the relation between the assured and the reinsurer into that of a simple life policy on the level premium plan. To warrant such a complete metamorphosis of the contract, we should-naturally expect to find outright spoken terms in the transforming instrument. Instead of this, the position is sought to be maintained by subtle reasoning — a strained construction of a disjected member of the contract of reinsurance. And, what is still more revolutionary, this assumption involves the assertion that this new contract acts retrospectively, so as to give to the policy, which up to the moment of the reinsurance had no value whatever, a net value of $761.70, a sum much in excess of what the assured paid by way of premiums or assessments covering the entire seven years the policy was in force. This result can only be worked out by giving to the reinsurance contract relation, back to the inception of the original insurance contract, a position which refutes the idea of any legal difference between the two contracts. The contention that the assessment feature of the original policy contract was entirely eliminated by the reinsurance contract is based on the opening clause of the proposition submitted by the Franklin Life Insurance Company to the Merchants’ Life Association, in which the word “assessments” was not included among the considerations; that, as it did recite “all the premiums due or to become due,” the intendment was that the Franklin Life Insurance Company should take only as an ordinary life insurance company on the level premium plan. It is of minor consideration in determining this question what were the enumerated considerations as between the two insurance companies for the transfer. The obligatory part of the contract expressly required that the Franklin Life Insurance Company should “assume the outstanding policy contracts as shown by the two exhibits of the policies in force, of date May 13, 1899, hereto attached, and all obligations to policy holders and beneficiaries thereunder.” More than this, after according to the policy holders 20 days after notice in which to determine whether or not they would accept or insure in other companies, on June 12, 1899, the company made its written assumption of said Hayden policy, as follows: “Franklin Life Insurance Company of Springfield, 111., hereby assumes, under and according to the terms and conditions thereof, policy, etc., issued by the Merchants’ Life Association of the United States Nov. 22nd, 1892, to David J. Hayden.” By every legal intendment the reinsuring company took over the existing contractual obligations and rights of the Merchants’ Life Association inhering in the outstanding poli — 295 — cies as they existed at the time of the consummation of the reinsurance agreement, no more and 'no less. The assured thereafter recognized the reinsurance agreement by paying to the reinsurer specified quarterly mortuary funds as theretofore. The mutual obligations and rights of the reinsurer and the assured being measured and controlled “according to the terms and conditions of policy No. 1140, issued to said David J. Hayden,” which was concededly on the assessment plan, the statute relating to assessment insurance companies exempted it from “any other provisions or requirements of the general insurance laws of this state.” Section 7910. As the nonforfeiture law of Missouri (section 7897) is a part of the general insurance law of the state, it does not apply to this policy. Mutual Reserve Life Ins. Co. v. Roth, 122 Fed. 853, 59 C. C. A. 63; Hanford v. Mass. Ben. Ass’n, 122 Mo. 50, 26 S. W. 680; Whitmore v. Supreme Dodge, 100 Mo. 36-47, 13 S. W. 495; Haynie v. Knights Templars, 139 Mo. 416, 41 S. W. 461. This policy lapsed a year and more before the assured died, at which time it had no net value under the assessment plan. The policy having expressly provided “that if any premium or any assessment called in accordance with said Insurance Plan, shall not be paid on or before the day named in the notice for the payment thereof, this contract shall be null and void and of no effect,” and such default having been made by the assured, the Circuit Court did not err in directing a verdict for the defendant. Its judgment, therefore, must be affirmed.