
    Issuance of Insurance by Beneficial Societies
    October 16, 1933.
   Saylor, Deputy Attorney General,

You have asked to be advised whether beneficial societies may issue certificates or policies of insurance other than for sickness, accident, and death benefits, as defined by the Act of April 26, 1929, P. L. 805, and whether certificates or policies of such societies must be approved by your department.

Section 1 of that act provides as follows:

“That any corporation organized prior to the twentieth day of May, one thousand nine hundred twenty-one, under the provisions of Paragraph IX, section two, relating to corporations of the first class, as amended of the act, approved the twenty-ninth day of April, one thousand eight hundred and seventy-four (Pamphlet Laws, seventy-three), entitled ‘An act to provide for the incorporation and regulation of certain corporations,’ namely the maintenance of a society for beneficial or protective purposes to its members from funds collected therein, may pay or enter into contracts to pay money or benefits, not exceeding ten dollars per week, in the event of sickness, accident, or disability, and not exceeding two hundred and fifty dollars in the event of death.”

Section 2 of the act makes it unlawful for such corporations to pay more than $10 per week in the event of sickness, accident, or disability, or more than $250 in the event of death.

Section 4 of the act, as amended by the Act of June 22, 1931, P. L. 624, reads as follows:

“Any corporation paying or entering into contracts to pay money or benefits in excess of the limitations prescribed by the provisions of this act shall be guilty of a misdemeanor, and, upon conviction thereof, shall be sentenced to pay a fine of not less than one hundred dollars nor more than five hundred dollars for each payment or contract so made or entered into; or, upon satisfactory evidence of the violation of this section by any such corporation, the Insurance Commissioner may, in his discretion, pursue any one or more of the following courses of action: (1) Suspend or revoke the license of such offending corporation; (2) refuse, for a period of not to exceed one year thereafter, to issue a new license to such corporation; (3) impose a penalty of not more than one thousand dollars for each and every act in violation of this act. Before the Insurance Commissioner shall take any action as above set forth, he shall give written notice to the person, company, association, or exchange, accused of violating the law, stating specifically the nature of such alleged violation and fixing a time and place, at least ten (10) days thereafter, when a hearing of the matter shall be held. After such hearing or upon failure of the accused to appear at such hearing, the Insurance Commissioner shall impose such of the above penalties as he deems advisable. When the Insurance Commissioner shall take action in any of the ways above recited, the corporation aggrieved may appeal therefrom to the court of common pleas of Dauphin County.”

Only beneficial societies organized prior to May 20, 1921, may issue and sell certificates or policies for sickness, accident, disability, and death benefits as provided in that act. Beneficial societies incorporated after May 20, 1921, are not permitted to exercise these privileges. They are restricted to such activities as the legislature intended should be performed by corporations of the first class created under section 2 of the Act of April 29, 1874, P. L. 73, for the purpose of:

“IX. The maintenance of a society for beneficial or protective purposes to its members from funds collected therein.”

The powers of such nonprofit corporations were enlarged by the Act of May 23, 1891, P. L. 107, which authorized corporations so incorporated:

“. . . to pay, and to enter into contracts to pay, to each member thereof, money or benefits not exceeding ten dollars per week in the event of sickness, accident or disability, or to pay not exceeding the sum of two hundred and fifty dollars in the event of death, or to pay money or benefits in the event of any or all of such contingencies: . . .”

This act was repealed by the Act of April 28, 1929, P. L. 805.

That it was the intention of the legislature to limit the privileges granted by the Act of 1891 and continued by the Act of 1929 to beneficial societies created before May 20, 1921, is clear from the phraseology of the latter act. Furthermore, subsequent to May 20, 1921, no beneficial society could be legally incorporated for the purpose of exercising these privileges. Section 31 of the Act of May 20, 1921, P. L. 916, sometimes known as the Fraternal Benefit Society Act, repealed, among other acts, the following:

“. . . paragraph nine of corporations of the first class of section two of the act, approved April twenty-ninth, one thousand eight hundred and seventy-four, entitled ‘An act to provide for the incorporation and regulation of certain corporations’, in so far as it applies to the incorporation of societies for the purpose of transacting any class of insurance; . . .”

. A society chartered after May 20,1921, must restrict its activities to assisting its members in need with funds collected from the membership. It cannot sell certificates or policies of insurance to the public under the guise of making purchasers members of the society. It does not possess and cannot legally exercise any of the powers granted by the Act of 1929. It cannot do an insurance business.

Societies chartered prior to May 20,1921, are limited to the powers designated in the Act of 1929. They cannot enlarge upon them and enter the general field of life or casualty insurance.

It was not the purpose of the legislature to permit such beneficial societies to issue and sell endowment certificates, or to provide for endowment privileges on sickness and accident or death certificates, or to pay one half of the face of the certificate in the event of permanent or total disability. Disability payments must be limited to $10 or less per week. The full amount of the policy may be paid only in the event of death.

Furthermore, beneficial societies may not guarantee members forfeiture values, nor provide for cash surrender values, nor issue certificates or policies affording any privileges or providing any insurance other than as designated in the Act of April 26, 1929, referred to.

In our opinion, a beneficial society may not issue a certificate or policy until the form thereof has been approved by your department. Section 354 of the Insurance Company Law of 1921, as added by section 2 of the Act of June 23, 1931, P. L. 904, provides as follows:

“It shall be unlawful for any insurance company, association, or exchange, doing business in this Commonwealth, to issue, sell, or dispose of any policy, contract, or certificate, covering life, health, accident, personal liability, and casualty insurance, or use applications, riders, or endorsements, in connection therewith, until the forms of the same have been submitted to and approved by the Insurance Commissioner, and copies filed in the Insurance Department, except riders or endorsements relating to the manner of distribution of benefits, and to the reservation of rights and benefits under any such policy, and used at the request of individual policyholders.
“Any person, corporation, insurance company, exchange, order, or society that shall, either as principal or agent, issue, or cause to be issued, any policy or contract of insurance within this Commonwealth, contrary to this section, shall be guilty of a misdemeanor, and, upon conviction thereof, shall be sentenced to pay a fine not exceeding five hundred dollars ($500.00)

We interpret this language as applying to beneficial societies engaged in the insurance business, as contemplated by the Act of April 26,1929, P. L. 805. Consequently, you should require all societies entitled to and doing business under that act to file with you copies of all policy forms or certificates used. You should refuse to approve and permit the issue and sale of any certificates or policies which provide for benefits other than those permitted by the Act of 1929.

Therefore, you are advised that only beneficial societies incorporated prior to May 20, 1921, may issue certificates or policies of insurance for sickness, accident, and death benefits, and such contracts may be issued only as provided by the Act of April 26,1929, P. L. 805. The forms of such certificates or policies should be filed with the Insurance Department 'and approved by you before they are issued.

From C. P. Addams, Harrisburg, Pa.  