
    Bangs v. Skidmore.
    
      Mutual Insurance Companies.
    
    Where the charter of a mutual insurance company provided, that persons who should insure with the corporation should thereby become members thereof, during the period they should remain so insured, and no longer, it was held, that a person insured in such company continued liable to assessment upon his premium note, for losses incurred during the term specified in his policy, though the premises insured were destroyed by fire, long previously to its expiration.
    Bangs 8. Skidmore, 34 Barb. 39, affirmed.
    Appeal from the general term of the Supreme Court, in the seventh district, in which judgment was entered for the plaintiff, in a case tried before the court, without a jury. (Reported below, 24 Barb. 29.)
    This action was brought by the plaintiff, as receiver of the Genesee Mutual Insurance Company, to recover the amount of a premium note given by the defendant.
    On the 20th November 1847, the defendant procured his steam saw-mill to be insured by the Genesee Mutual Insurance Company, in the sum of $1500, during the term of five years; and gave his premium note to the company for $420. On the 1st-of May 1848, the premises insured were destroyed by fire, and the company, on the 1st of August 1848, paid the whole amount of the policy, deducting the defendant’s proportion of all losses and incidental expenses which had then accrued. *The plaintiff was appointed receiver of the company, on the 7th October 1851; and on the 16th June 1852, under the direction of the supreme court, made an assessment upon the premium notes held by him as receiver. The defendant was assessed upon his note, the sum of $139.78, for his proportion of the losses and expenses which accrued after the 1st August 1848; and to recover this amount, the present action was brought.
    On the trial, the defendant contended that his liability upon his premium note ceased with the destruction of his premises, and the "payment of the loss. But the learned judge decided otherwise, and directed a judgment in favor of the plaintiff for the balance of the premium note, which having been affirmed at general term, the defendant appealed to this court.
    
      Selden, for the appellant.
    
      Hatch, for the respondent.
   Welles, J.

By § 3 of the act of 1836 (c. 241), incorporating the Genesee Mutual Insurance Company, it was declared, that the corporation thereby created should possess all the powers and privileges, and be subject to all the restrictions and limitations which were granted to and imposed upon “The Jefferson County Mutual Insurance Company,” by the act incorporating that company, passed 8th March 1836. (c. 41.) By the 2d section of the last-mentioned act, all persons who should thereafter insure with the corporation should thereby become members thereof, during the period they should remain so insured, and no longer.

The 8th section of the same act provides that every member of the company shall be bound to pay for losses, &c., in proportion to the deposit note. The section then declares that the buildings insured, and the right, title and interest of the assured *to the land on which they stand, shall be pledged to the company; which shall have a lien thereon, in the nature of a mortgage, to the amount of the deposit note, which shall continue during his policy; such lien to take effect whenever the company shall file, and shall have entered, &c., a memorandum of the name of the individual insured, a description of the property, the amount oí the deposit note, and the term for. which the policy shall continue.

The position taken by the appellant, is, that upon the destruction of the insured property, and the payment by the company of the insurance, he no longer remained a member of the company, nor liable to contribute to any losses, &c., that might thereafter occur, although the time for which the policy issued had not expired. The substance of the argument is, that when the property was destroyed, the risk was at an end, and with it the relation of insurers and assured between the parties; and that upon the termination of such relation, the defendant, by force of the 2d section of the act, ceased to be a member of the corporation; and as by the 8th section, none but members of corporations are liable to pay for losses, the appellant is not liable for losses arising after he so ceased to be a member of the company.

Upon a careful examination and consideration, however, of the foregoing, with other sections of the act, I am satisfied that such was not the intention of the legislature.

In the first place, it should be remembered, that by the express terms of this contract of insurance, the liability of the party was continuous, running through five years; that of the plaintiffs was onerous upon them, in proportion to the time during which the policy, by its terms, was to continue. Upon the general principles of insurance, they could afford to take the risk for one year only, at just one-fifth of the premium that they could afford to take it for five years, and in the same proportion for a longer or shorter period. There may be considerations which would justify taking risks for long periods, at premiums less in proportion than for short periods; such, for example, as getting a larger amount of capital pledged in deposit *notes, securing the patronage of the assured for a longer period, saving the expense of new policies, &c.; but none which affect the principle stated. The actual risk, as a general rule, is increased upon-a given piece, of property, exactly in proportion to the time it is to continue; in this respect -there is no difterence between mutual insurance,and Stock companies.. It would, therefore, be manifestly unequal and inequitable, to release the defendant from his engagement, before the expiration of the time for which, by the terms of his undertaking, it was to continue, because the contingency has happened which was to render absolute the plaintiff’s liability to the utmost extent which the contract contemplated. It would be, in effect, to release the defendant from a portion of his obligation, when the whole of it was .the consideration of the plaintiffs’ engagement, because the latter have performed to the last extremity the whole obligation to which, by the terms in their contract, they could, in any event, be subjected.

The injustice of such construction is illustrated, by supposing a company to consist of one* hundred members, each of whom has an insurance of $1000 for five years, all taken at the same time, and each having given a deposit note for $1000; a total loss happens to one of the members, at the end of one week from the commencement of the five years; the .members pay this loss by a contribution of $10 each; immediately afterwards, another member sustains a total loss, which, according to the defendant’s argument, must be paid by the remaining ninety-nine members. Suppose like losses continue to occur, at short intervals, until they amount in the aggregate to a sum sufficient to exhaust the whole amount of deposit notes, which, on the principle contended for, remained in force. A computation will demonstrate that when sixty-four such losses should be paid, to say nothing of expenses, the whole capital of $100,000, being the total amount of the original deposit notes, would be used up, and the policies of the remaining thirty-six members be entirely worthless.

The case supposed is a strong and plain one, but it shows the working of the rule contended for, more or less palpably *in every case, and exhibits a scheme anything but mutual or equitable.

If it should be said, that the 11th section of'the act contains provisions for the payment of losses, after the amount collected on the deposit notes is exhausted, the answer is, in the first place, that such provisions are liable to be entirely inadequate, and would always be found less prompt and advantageous to the sufferer than a direct resort to the capital secured by the deposit notes. But in the second place, the conclusive answer is, that the assessment thereby authorized is to be on the members of the company, who, according to the defendant’s argument, are only those who remain insured, and do not include such persons as have sustained total losses. But the act under which this company was incorporated, upon a fair interpretation and a comparison of its several sections, will not be found to lead to any such unreasonable result as, it seems to me, the defendant’s position tends to establish.

By § 6, every person becoming a member of the corporation, by effecting' insurance therein, shall, before he receives his policy, deposit his promissory note for such sum as the directors shall determine; a part, not exceeding five per cent, thereof, to be immediately paid, and the remainder of the note shall be payable, in part or in whole, at any time when the directors shall deem the same requisite for the payment of losses by fire, and such incidental expenses as shall be necessary for transacting the business of the company; and at the expiration of the term of insurance, the said note, or such part of the same as shall remain unpaid, after deducting all losses and expenses occurring during said term, shall be given up to the maker thereof. The words “ term of insurance ” evidently refer to the term of time for which, by the policy, the insurance should continue. They will certainly bear such construction without violating their ordinary and popular sense, and it is what, I have no doubt, the legislature intended.

The 7th and 11th sections contain provisions by which persons insured might terminate their liability to con-*r^u*e *° ^le *Payment of losses, before the-expiration of the time for which they were insured. By § 7 it may be done by alienating the property insured, and by § 11, by payment of the -whole of the deposit note, and surrendering the policy, before any subsequent loss of expense has occurred. There is nothing else to be found in the act, providing for or contemplating the termination of the liability of a member or person who becomes insured, prior to the expiration of the time for which, by the terms of his policy, the insurance is to continue. This circumstance adds force to the argument in favour of the continued liability of a member, during the whole time for which he became insured.

In this and most, if not all, mutual insurance companies, every person insured becomes a corporator, with stock in the corporation to the amount of his deposit notes. These notes constitute the capital stock of the company, u2>on which it relies for the payinent of losses and expenses; and the members have no right to withdraw themselves, or the stock thus held by them, from the company, before the time for that purpose provided in the contract of insurance, except in the two cases 2>rovided in §§ 7 and 11,before referred to.

By the 10th section of the act under consideration, if a member neglects the payment of one assessment for thirty days after notice, the directors may sue for and recover the whole amount of his deposit note or notes, with costs; and the amount thus collected shall remain in the treasury of the companjq subject to the 23ayment of such losses and cxyienses as have or may thereafter accrue; and the balance, if any remain, shall be returned to the party from vdiom it was collected, on demand, after thirty days from the expiration of the time for which the insúrance was made. These provisions are inconsistent with the idea of a termination of the liability of the maker of a deposit note, upon a total loss being sustained by him.

By the defendant’s theory, the individual, the whole amount of whose deposit note had been collected under the above 10th section, should be entitled to have his money thus collected, or '“'such part of it as was not applicable to the payment of losses and expenses then accrued, refunded, whenever the property embraced in his policy should be totally destined. But that would be a plain-violation of the section last referred to.

The case of Wilson v. Trumbull Mutual Fire Insurance Company (19 Penn. St. 372) is cited and relied upon by the appellant’s counsel, as an authority in support of his position. That case may have been well decided, if the defendant’s charter contained a provision similar to that embraced in the 7th section of the act under which the company represented by the plaintiff was incorporated, in relation to alienating the insured property. In the case referred to, the assured had sold the property insured, before the loss happened for which he was assessed, which, the court held, dissolved his relation with the company as a member, and, consequently, terminated his responsibility on his deposit note. It will be perceived, therefore, that it is not applicable to the present case.

The foregoing are among the considerations which have led me to the conclusion, that by a fair and correct interpretation of the 2d section of the act, persons insured in the company respectively remain members of the corporation, during the time their policies, by their terms, are to continue, and that such membership is not terminated by a total loss of the property insured. Such construction-is n'a violation of the terms of the section; is necessary to avoid inconsistency with other sections, and is in harmony with the scope and spirit of the whole act. I am, therefore, of the opinion, that the judgment appealed from should be affirmed.

i

All the other judges, with tne exception of Denio, J., concurred in this opinion.

Denio, J.

(Dissenting.)—I am of opinion, that this judgment cannot be sustained, either upon general principles, or according to the provisions of the act. The theory of mutual insurance is, that the individuals who associate, and those who, from *time to time, join them, enter into an arrangement, by which each member is insured to the amount .specified in his policy, upon the property referred to in it, and becomes, at the same time, an insurer of each of the other associates, by binding himself to contribute towards making good any losses which they may sustain, in proportion to the amount of his own insurance. The relations which the members sustain towards each other is a reciprocal one, and it is that feature which creates the mutuality which distinguishes this arrangement from other contracts of insurance. It follows, that, if, for any cause, one of the persons so associating ceases to be an insured party, he from that time ceases to be a party to the mutual arrangement. When he has no longer any property to be protected by the contributions of the other members, the consideration upon which he agreed to contribute for their protection is wanting; the relations upon which tile parties associated have ceased to exist, and hence, the obligations incurred become inapplicable and inoperative; the vital principle of the arrangement is gone, and can only be revived by a new insurance, by which he shall be again made a party to the association.

. It is not material, whether he has ceased to be an insured party, on account of having disposed of the property in respect to which he was insured, or because the property has been destroyed, so that the provisions of the contract of indemnity cannot attach to it. And in case of the destruction of the property, it is of no moment, whether the loss was occasioned by the happening of the peril insured against, or by any other cause. If the property is in any way annihilated, so as not to be any longer the subject of an insurance, the contract which provided an indemnity to the owner against its destruction, has ceased to have any element to support it, and can no longer exist.

This precise point has been determined by the Supreme Court of Pennsylvania. In Wilson v. Trumbull Mutual Insurance Company (19 Penn. St. 372), that court held, that the interest in the property insured was an essential link in the relation of mutual insurance, and, therefore, that when a member of a mutual insurance company, whose stock of goods was insured, sold them, ^'several months before a loss by fire happened, he was not liable for a portion of the loss, though it happened during the time for which he was insured. The court was of opinion, that when the defendant sold his property, he ceased to be a member of the company, and that the assessment could only be upon those who were members at the time the loss happened. “ If,” the court said, “ a member perform all his duties, and pay a share of all losses occurring during his membership, no more can justly be required of him.” His premium note, they ' added, cannot be used to enforce contributions for losses occurring after he ceased to be insurer or assured.

A contrary view would lead to results entirely inconsistent with any notion of mutual insurance. Upon the plaintiff’s argument, the defendant continued liable on his note for all losses which might happen before the expiration of the time for which he was originally insured. The period would extend more than four years from the time when,, by the destruction of his buildings and the payment of his loss, he had ceased to have any interest in the company as an assured party. Thenceforward, his only connection with it would be that of a guarantor of its contracts; he would be liable not only on its engagements made while he was an assured party, for which there would be a show of reason, but to all such as it might make after he had ceased to be insured. As to such cases, he would be a guarantor of parties with whom he was in no kind of privity, and against whom he could not in any ' possible event have any resort for any purpose.

. In the opinion of the supreme court, it is suggested, that the premium notes are the capital stock of the companies, and that the makers have not, in general, any more right to withdraw them than the shareholders in a stock company have to withdraw the moheys they have invested in the stock. This argument, I think, proceeds upon an erroneous view of the nature of these associations. They have not, in fact or in theory, any capital stock. Although the engagements which the members enter into are in the form of notes, they are, in substance and effect, only guarantees that the makers will contribute to the losses of ot^er ««ciateB, and the expenses of the . business, in certain proportions. If no losses happen, nothing can be collected on the notes, except a ■ portion of the expenses, and if the expenses are met by the amounts required to be paid down, nothing whatever can be collected. They are continuing guarantees, that is, they continue to operate against the makers so long as those makers continue to hold such relations to the other associates as will enable them to resort, in the event of a loss, to the reciprocal guarantees given by the others.

It is further suggested, in the opinion of the supreme court, that the amount of the note of a person taking out a policy is proportioned to the time it has to run; the risk assumed being, it is said, proportional to the time it is to continue; and hence it is argued, that it would be inequitable, that the note should be retired, before the whole time the insurance was to run has expired, whatever may become of the property. This argument, I think, supposes that the artificial person, the corporation, represents interests other than those of the policy-holders; but there is no such interest in a mutual company. The bargain which each member makes is with the other members, and not with any other party supposed to be represented by the corporate name. It cannot be correct to apportion the amount of the premium note according to the length of time covered by the insurance. Assessments for losses are always to be in proportion to the amount of the premium note. Now, suppose A. is insured for $1000 for five years, and B. for an equal sum for one year; if B. give a note for $100, A. must give one for $500; if, during the year, a loss happen to another insured party, A. must, of course, pay five times as much as B. If B. take out a policy on his property each year, and give only the note for $100, on each occasion, which is all that could be required of him, through the five years covered by A.’s policy, the latter will have to contribute in the same proportion for all the losses during that time. This, of course, would be a very unequal arrangement, and would render it very hazardous to insure for a long period. Nor would it be quite equitable, in certain contingencies, to have the notes upon policies for long ""and short periods of the same amount; for if we again take the case of insurance from year to year for five years, and a single policy for the same length of time, and a note of equal amount given by each, if losses should occur in each year during the five years, the party holding the long policy might pay up his note, before his policy expired, while the one giving a fresh note each year might still continue liable, though the other would be wholly exempt. The onty way in which equality in this respect can be worked out, under this system, would be to have all the policies made to run for the same period, and to have the premium notes always proportioned to the amount insured and to the nature of the risk.

If we take up the charter of this company, we shall see the principles, which have been stated, very plainly laid down. In the first place, it is declared, that all persons who shall insure with the corporation, and their representatives and assigns, continuing to be insured, “shall thereby become members thereof during the time they shall remain insured, and no longer(Act, § 2.) Then, all the other provisions prescribing the relations between the parties and, the corporation and their respective rights and liabilities, refer to them as members. Thus, this company is to be managed by thirteen members, who are to constitute a board of directors (§ 3); the directors are to be chosen by the members (§ 4); the mode of becoming a member is, by taking out a policy of insurance, and there is no other way of acquiring the position of a member (§ 6); every member shall be bound to pay for losses and" necessary expenses, in proportion to the amount of his deposit note (§ 8); suits may be maintained by the corporation against the members for their notes, and by the members against the corporation for losses by fire (§ 9); assessments for losses are to be made against the members (§ 10); and after the notes are exhausted, the members may be further assessed to the amount of one per cent, on their notes. It would seem, that the legislature were very careful to determine in the outset, that none should be members who were not, at the same time, insured persons; and having in that manner given a precise idea 'x'of the nature of membership, they so arranged all the other ' provisions as to affect the members and no other parties. Unless it can be said, that a person who has insured his property in this company, and, after its total destruction by fire, has received his insurance money, still remains insured by the company on the very same property, it is impossible to hold, that the defendant was a member at the time tho loss occurred with which he is sought to be charged; and if not a member at that time, it is equally impossible to-hold him to be a contributor towards that loss.

The provisions of the 7th section, which alloivmembers, to receive back their deposit notes, upon aliening tho property insured, and surrendering the policy, is a further evidence that the nature of the system is such as I have supposed. If the notes were in'the nature of capital, as the supreme court has suggested, every member-would be interested in it, and it would be unjust, that it. should be withdrawn when the maker should choose to-dispose of the property. But this privilege of withdrawing a note, under such circumstances, is quite consistent with the idea that it is a guarantee, to continue so long as the maker shall be in a situation, which will enable-him, in the event of a loss by fire, to be benefited by the-other similar guarantees.

Again, by the provisions of § 8, a lien in the nature of a mortgage is created against any building insured and the interest of the assured in the land on which it stands,, for the amount of the deposit note, to take effect whem the company shall cause the policy to be entered in the-book of mortgages. If the plaintiff is right in his position, a lien might be established against the lot on which the defendant’s saw-mill was erected, by making an entry ’ of the policy in the clerk’s oifice, long after it had become functus officio, by the performance of every stipulation contained in it. It is said in the provision, it is true, that the lien shall continue during the policy. This does, not, I think, mean during the time mentioned in the policy as the duration of the insurance, but during the-existence of the policy as an operative instrument.

*Hy opinion is, that the judgment of the supreme court was erroneous, and that it ought to be reversed.

Judgment affirmed. 
      
       A member of a mutual insurance company remains liable for assessments on his premium note, until liis policy is vacated, either by notice, demand, surrender or cancellation: mere non-payment of a prior assessment, does not terminate his liability; for the company may waive the forfeiture. Columbia Insurance Co. v. Buckley, 83 Penn. St. 293.
     