
    The People, Plaintiffs, v. Edward v. Loew et al., Defendants.
    (Supreme Court, New York Special Term,
    January, 1897.)
    1. Usurpation of corporate franchise — Lloyds insurance.
    An action may be maintained under section 1948 of the Code against underwriters carrying on a Lloyds insurance.
    
      2. Same — Quo warranto.
    Section 1948 of the Code was intended as a substitute for the writ of quo warranto, which would lie in every' case where a franchise was unlawfully asserted and used.
    Motion to dismiss the complaint.
    - Theodore E. Hancock, attorney-general, and Eugene Lamb Richards', Jr., for plaintiffs. '
    Eliot Horton, Eugene Yan Schaick and Joseph H. Choate, for defendants. .
   Bussell, J.

At the opening of the trial of this action the defendants moved for a dismissal of the complaint upon the record, upon the ground that the action is not maintainable, and that no right has been conferred upon the law officers of the state to maintain an action in the name of the People for the purposes contemplated by this proceeding.

The complaint charges that the defendants, seventeen in number, are exercising franchises and privileges not allowed by law. The defendants are associated together for the purposes of effecting insurances under the name of The People’s Fire Lloyds of Hew York city, and as such solicit and transact the business of insurance with only an individual responsibility for losses, and that to an extent carefully guarded and. limited in amount and terms by the provisions of their policies.

As the decision in this action may be a precedent for the determination of many more cases, it has been deemed advisable to take the motion to dismiss under consideration, upon printed briefs submitted, in addition to the oral argument upon the trial.

The attorney-general seeks to maintain his action under the provisions of section 1948 et seq: of the Code of Civil Procedure. Section 1948 allows the attorney-general to maintain an action upon his own information, or on the complaint of a private person, against a person unlawfully claiming an office, an officer who has forfeited his office, or “ against one or more persons who act as a corporation, within the state, without being duly incorporated; or exercises, within the state, any corporate rights, privileges, or franchises not granted to them by the law of the state.” The defendants contend that this section only allows a contest over unlawful claims to corporate rights, corporate privileges or corporate franchise^. .If the position of the defendants’ counsel be correct there is no method of preventing private persons from transacting the business of insurance except by the imposition of the $500 fine imposed by section 53 of the Insurance Law, chapter 690, Laws 1892.

In the codification of the insurance laws of the state in 1892, a general prohibition was enacted against any person or association doing insurance business in the state except through corporations or persons possessed of the capital required, and under regulations established by law; but a reservation from the effect of those general provisions was made by section 67 as to the individuals or associations known as Lloyds or individual underwriters, which on the 1st day of October, 1892, were lawfully engaged in the .business of insurance. Id., § 54.. ......

As the business of insuring lives, property, credits and fidelity of conduct has become of such large public concern in connection with the business enterprises and activities of the people of the state generally, such business has essentially become one of a public character; and it has been found necessary by the legislature to guard and protect the people of the state in their dealings with the persons and corporations assuming to act as insurance companies in the same manner that it has been found essential to deal with the business of banking. The state has now for many years had a governmental department devoted to that purpose, and has placed upon the superintendent or head of that -department responsible duties in regard to the supervision of domestic and. foreign companies doing business within the state. It has thus been held repeatedly that the state has the right to regard the business of insurance as one dependent upon the exercise of a franchise which the state has the right to give and to withhold. This franchise right has grown up from a small beginning from nécessity, but is not a departure from the general rule characterizing the meaning of' the term franchise. ' It is simply a modem appEeation of the principle governing such privileges applied to new emergencies. Whatever is of large public concern, so that a want of regulation and control will injuriously affect the public in its general interests, may be the subject of a franchise.

The contention of the defendants, therefore, that the declaration of the act of 1892 forbidding unauthorized persons to exercise the privilege of insurance, with a reservation of its effect upon the Lloyds companies, was the first creation of an insurance franchise, and that, ¡therefore, the People may not maintain this action to •determine that the defendants, had no right to exercise the insurance franchise, ■ cannot he successfully maintained. Prom the original grasp by the legislature of the subject of insurance business, the framing of regulations upon the subject, the privilege of insurance became a franchise; and the sufferance of insurance by private persons till 1892 did not establish the sacredness of ■that form of action as a personal right. The power, therefore, to regulate, even to the extent of prohibition, the business of insur•ance by acts of the legislature does not depend exclusively upon the-right of the legislature to subject corporations as such to statutory control, but extends beyond, to the transaction of business recognized as such to be within the discretionary control of legislative action. Commonwealth v. Vrooman, 169 Penn. St. 306; State v. Ackerman, 51 Ohio St. 163; Thompson v. People, 23 Wend. 547; University v. People, 99 U. S. 309.

The "situation, therefore, is this: Upon a matter of public interest and of public regulation the legislature has provided the only methods by which persons or associations may transact business; and the consequences of a breach of the statutory regulations provided, or the conduct of the business without the governmental supervision, or the regulation afforded by the state, is deemed so serious as to call for the necessity of definite statutory enactments, with the expense and maintenance of a large department of the government of the state; and yet it is earnestly claimed that there is no method known by which the state can see that its regulations are enforced, and its prohibition of unlawful business maintained, against those seeking to defy its authority.

Section 1948 of the Code of Civil Procedure, by which and through which the attorney-general acts on behalf of the state in maintaining actions to prevent the unlawful transaction of business regulated by the state, is somewhat doubtful in its construetion. It is a section which was incorporated into the Code upon the abolition of the former writ of quo warranto, to serve in the place and stead of that writ. People ex rel. Hatzel v. Hall, 80 N. Y. 117; People ex rel. Judson v. Thacher, 55 id. 528. It becomes essential, therefore, in the construction of this section conferring the right of action upon the attorney-general in lieu of the writ of quo warranto-, to go back to the common law as to whát a writ of quo warranto was, and what its jurisdiction and foundation.

We are so generally accustomed to view a writ of quo warranto as effective only in cases of intrusion into public office, or action as a corporation without proper formation as such, that we associate the term with proceedings designed for such purposes. Its original scope, however, was broader. It was a writ of right maintainable in the name of the King against any person who claimed or usurped any office, franchise or liberty, to inquire by what authority he made his claim, and to determine its. right. Pinch L. 322; 2 Insts. 282. It was applied to the exercise of a franchise relating to land, and judgment might be given ousting the claimant of such franchise. 2 Chitty Practice,,367; Oo. Ent. 27 B.; Jacob’s Law Diet., title Quo Warranto. The foundation of the writ was, therefore to give a common-law right of determination in every case where. a franchise was unlawfully asserted. and used. Thompson v. People, 23 Wend. 537.

If, therefore, the provisions of the Qode of Civil Procedure are a substitute for the writ- which it -abolished, jurisdiction was designed to be coextensive, and would apply to a case where a num- - her of individuals claimed to exercise a franchise, which is the subject of gift, withholding or sufferance by the state. •

This is undoubtedly so unless the' terms of section 1948 clearly limit the scope of the common-laW writ. Such inference would not be made from the natural disposition of the courts, which broadens jurisdiction to give all possible" redress- instead of narrow^ ing even those afforded by the common-law process. Subdivision 3 of section 1948 allows the attorney-general’s action against one or more persons’ who act as a corporation within the state without being duly incorporated,, or, secondly, exercise' within the state any corporate rights, privileges or franchises not granted to them by the laws of the state. ' It may be said that anybody in the state who exercises any corporate rights necessarily acts as a corporation, and, therefore, comes within the jurisdiction of the first branch of subdivision 3, and that the second branch of that subdivision must necessarily refer, to persons - who. do not act under the "assumption of corporate- rights, which would include private individuals acting presumably as such, and such construction' would, therefore, be given to the addition of the words “ privileges or franchises ” as to includé those not acting for corporate _ purposes, which construction could easily be made by the division created by the insertion of a semicolon after the 'words “ corporate rights ” in the section.

There is another view which seems to me tó be of serious force! The defendants, while , claiming not to' be a corporation or to exercise corporate rights, still insist that they have the lawful franchise, privilege or right, by whatever name it may be called, to carry on the business of insurance with a limited personal liability, and that only to the extent of the sums advanced or pledged as indemnity to the insured. Thus, while they disclaim the name of corporation, they insist, upon the - substance- of its power. They have the advantage of combined and associated enterprise, with limited liability, distinguishing features of corporate rights, priviléges or franchises. By section 54 of the Insurance- LaW referred to, the legislature has forbidden private persons, partnerships or associations to engage in the business of insurance unless possessed of capital required of corporations and invested in the same manner, nor unless securities are deposited with the insurance superintendent of the same amount required of an insurance corporation, nor unless that officer shall have granted them a certificate that they, have complied with all the provisions of law which an insurance corporation doing business in this state is required to observe and that the business of insurance may be safely intrusted to them.

"What is the exercise of business, carried on and secured and superintended and governed by the state precisely as with corporations, but the exercise of . corporate rights, privileges and franchises within the meaning of the statutory law whose general theory is that all of this business shall be conducted by corporations, and, if not in name by them, in substance in the same way as the business is carried on by them, and, as a large amount of insurance business is transacted through corporations by statutory authority, is not the exercise of that privilege by like statutory " authority by a combination or association of persons, with limited personal liability, a franchise pertaining to a corporation, but yet one which in certain instances may be exercised without the completion of corporation identity?

Viewing, therefore, one part of the statutory law as being in harmony with the symmetry of the whole; the prohibition against private associations from transacting business seriously affecting public interest and which is generally exercised through corporations unless in case of compliance with the same requirements as those enjoined upon completed corporations; the provisions of section 1948 of the Code of Civil Procedure making a clear distinction between persons acting as a corporation without being duly incorporated and those who (without acting as a corporation) exercised corporate rights, privileges or franchises not granted to them by the law of the state; I am inclined to believe that the prohibition against unlawful insurance action is not without remedial action to enforce it, and, therefore, that this action may 'be maintained if the issue of fact yet to. be tried is sustained by proper proof offered by the attorney-general.

The objection that the attorney-general has inserted in the complaint that the action was brought upon a complaint and information of the superintendent of insurance is not of force on this motion. It is a question as to whether that objection can be taken otherwise than by preliminary motion- before answer; but whether-this is so ,or not - the Code authorizes the attorney-general to-bring an action upon his own information or the complaint-of a private person, the latter provision being essential only.-to add authority to-this officer to act upon the -complaint of a -private person in addition to his general power to act of his own-volition upon information conveyed to him from official or other sources. The insertion -in the complaint of the allusion to the information of the superintendent of insurance was entirely unnecessary and does not.’ limit the power of the attorney-general who could have brought this action without such information.

The motion -to dismiss the action is,, therefore, denied,. and"-the cause will proceed to trial.

Motion denied..  