Northwestern Nat. Life Ins. Co. v. Gray

ADAMS, Circuit Judge (after stating the facts as above). Gray had a contract, made in 1883, consisting of a certificate of membership with the Wisconsin company,.whereby he was obligated to pay certain assessments which might be made by the company on the occasion of the death of his associate members, and to continue doing so until the maturity of his certificate. The company on its part obligated itself to pay Gray in 1906 80 per cent, of an assessment that might be levied and collected upon its members, not exceeding, however, $4,000. To say nothing of the reorganization of the Wisconsin company in 1899, whereby it abandoned the principle upon which its business had theretofore been conducted, by entering into the reinsuring contract with the Minnesota, company in 1901 and transferring its assets to the latter company, it thereby disabled itself to perform its part of the executory contract with Gray and renounced its obligation. A cause of action at once accrued to Gray for breach of the contract. Lovell v. St. Louis Mutual Life Ins. Co., 111 U. S. 264, 4 Sup. Ct. 390, 28 L. Ed. 423; Roehm v. Horst, 178 U. S. 1, 20 Sup. Ct. 780, 44 L. Ed. 953. What his remedies were for the breach need not be dwelt upon. Suffice it to say he did not avail himself of any of them. However binding and obligatory the contract of reinsurance was as between the two insurance companies, it could not and did not obligate any of the original certificate holders of the Wisconsin company to accept'contracts of reinsurance from the Minnesota company. Whether they should do so, or whether they should resort to other remedies for securing relief occasioned by the breach of their contracts, was optional with them. Lovell v. St. Louis Mutual Life Ins. Co., supra. Gray, on September 2, 1901, shortly after the reinsurance contract was executed, was advised by the Minnesota company of its assumption of his certificate, and the hope was expressed that he would deem it desirable to maintain his policy or certificate with the Minnesota company. Fie was also'at the same timé advised that a certificate, of reinsurance would soon be issued to him. To these announcements he made no objection. Soon thereafter the Minnesota company executed and delivered to him its own certificate, reciting therein its execution of the reinsurance contract, the fact that Gray was a member in good standing in the reinsured company, and obligating itself to reinsure him on the terms and conditions of the contract of reinsurance and subject to the by-laws and articles of incorporation of the reinsuring company as they then or thereafter might exist. This certificate, also, was received by Gray without objection, and he counts on it in [493] tliis action. Soon thereafter the Minnesota company adopted the resolution of December 31, 1901, fixing the single premium to be paid by holders of assessment certificates, or to be charged as liens against their certificates, and also fixing the bimonthly installments to be paid thereon by the insured; and finally, on January 2, 1902, the defendant company notified Gray that the amount of such single premium on his certificate was $698.98 for each $1,000, or $2,096.64 on the $3,000 certificate as scaled down; and that the amount of bimonthly installments to be paid by him on account of that fixed single premium was $14.10. To this he made no objection, but complied with its requirement, and made the bimonthly payments regularly, beginning February 10, 1902, and continuing until May 17, 1906, when his certificate matured. His contention now is that the by-law (section 6 of article 10), and-the proceedings taken thereunder, fixing the single premium and charging the same as a lien against his certificate, were unauthorized and void. A lengthy argument is made in support of this contention, but we find it unnecessary to consider its merits. The case is solvable on simpler grounds. No advantage appears to have been taken of Gray by any one. Notwithstanding the reinsuring company had no power to do new business on the assessment plan, it seems to have made provision by which the rights of members of the reinsured company, who continued to hold assessment certificates, should be respected, if they concluded not to accept new certificates. It provided, in substance, that all money received by the reinsuring company, constituting the mortuary fund of the reinsured company, and all money thereafter to be collected from members of the old company for account of such a fund, should be set aside and used to pay death, disability, or maturing claims, until they should be all paid, settled, or discharged in full; but with a view of bringing about a novation of the old contracts, which obviously was the general purpose of the reinsuring contract, it devised a scheme for doing it. New assessment certificates only of those which had originally been issued by the old company had not been converted into stipulated premium policies before the reinsuring contract was made. To secure an adjustment of them to the new business methods of the reinsuring company it devised a scheme providing for a fixed premium for the entire term of the certificate and payment of the same in cash by bimonthly installments, or to make the payment thereof a- charge against the policy at its maturity, and submitted this scheme as a proposition to the members of the reinsured company for their consideration, acceptance, or rejection. Without hesitation, so far as this record discloses, and presumably with full knowledge of the provision made for him in the event he concluded not to accept the proposition, and with like full knowledge of the remedies available to him for the breach of his contract, Gray elected to .accept and did accept the terms offered to him by the new company. He entered upon the performance and continued in the performance of the terms agreed upon for a period of 4y¿ years, until his certificate matured. This amounted to a novation, a new contract voluntarily entered into by Gray, and he cannot now repudiate it. His election was final and conclusive. Iversen v. Minnesota Mut. Life Ins. Co. [494] (C. C.) 137 Fed. 268; Supreme Council A. L. H. v. Lippincott, 134 Fed. 824, 67 C. C. A. 650, 69 L. R. A. 803; Davitt v. National Life Ass’n, 36 App. Div. 632, 56 N. Y. Supp. 839. We have carefully examined and considered the case of Smith v. Northwestern Nat. Life Ins. Co. of Minneapolis, Minn., 123 Wis. 586, 102 N. W. 57, in which the reinsuring contract involved in this case was considered by the Supreme Court of Wisconsin, but it affords us no aid. The proof must have been different from that before us. The court there said: “In this instance the consolidation agreement expressly assumes all the liabilities of the Madison company, subject only to the articles and by-laws of the defendant; but no such articles or by-laws were offered in evidence, except a statute of Minnesota which, perhaps, enters into them, and which provides that in case of consolidation the new company shall be liable for the payment of all obligations of the consolidated companies. Hence there is no.proof to limit the complete assumption by defendant of the Madison company’s liability to plaintiff. Any such question is, however, foreclosed by the finding of fact that such assumption was made, since defendant reserved no exception thereto.” With such a record the conclusion in that case was inevitable. Gray originally had a certificate of membership in the old assessment company, depending for its value upon changeable and uncertain facts. An assessment company, unlike an old line company, organized on the stipulated premium plan, does not agree to pay a definite sum on the occasion of the death of a member or maturity of his certificate, but only to make an assessment' of a certain amount upon all the members and to pay the beneficiary a certain percentage of that aggregate sum. As membership diminishes necessarily the amount to be realized by an assessment diminishes accordingly, and the cost' of insurance secured increases correspondingly. With the loss of members in the old Wisconsin company, occasioned by the abandonment of its assessment feature and adoption of the old line stipulated premium feature, Gray’s certificate became comparatively of small value. Only 74 of- the old assessment members actually remained at the time the reinsurance contract was entered into. Under no theory advanced by learned cohnsel for Gray would he have been entitled, apart from the provisions of the contract of reinsurance, to any such sum as $4,000, or $3,157 as allowed by the trial court. In the letter of defendant’s president to Gray of date January 2, 1902, the value of his policy was stated to be $414.60. ' Whatever its value may have been, the fact was (and it doubtless was well known to Gray) that his rights under the old assessment certificate were small and uncertain. Accordingly, when the defendant company offered him a policy of $3,000 maturing in 1906, subject' to a lien of $2,096.94 for a single premium, representing the cost of. insurance for one of Gray’s attained age of 68 years for the period of four years, or a policy of $4,000 subject to a like lien of $2,795.92, as an inducement for him to reinsure with it, it certainly made no unfair proposition. It practically offered to him approximately $1,000 for what was then not considered of half that value. Moreover, it offered him what, according to the facts stipulated to be true in this case, was insurance! at the usual and accepted cost thereof. [495] Treating the certificate in suit to be for $4,000 according to the concession of counsel for the defendant company, the single premium to carry that amount of insurance until the maturity of the certificate in May, 1906, was $698.98 per $1,000, or a total of $2,795.92. ^Gray paid between 1902 and 1906 in bimonthly installments a total sum of $108.92. Charging him with interest on the amount of the single premium, and crediting him with the payments made and interest thereon, a net balance of $2,997.77 is found to have been due the defendant company, at the time the certificate matured, as unpaid premium thereon. This amount, therefore, being deducted from the face of the certificate, leaves a net balance due Gray of $1,002.23. This, with interest from May 17, 1906, to the date of judgment in the court below, April 18, 1907, makes the total sum of $1,057.35 which the plaintiff was entitled to recover, instead of $3,157, for which judgicnt was rendered. In other words, plaintiff was allowed to recover $2,099.65 too much. Our conclusion, therefore, is that the judgment must be reversed unless wi'thin 40 days after the filing of this opinion the plaintiff files in the clerk's office of the court below a remittitur of $2,099.65, and within 10 days thereafter files with the clerk of this court a certified copy of the record showing the filing of such remittitur. If such remittitur and certified copy thereof be filed, a judgment will then be entered affirming the judgment below to the extent of $1,057.35. If such remittitur and certified copy be not filed within the times aforesaid, the judgment will be reversed, with directions to grant a new trial.