In a suit against a life insurance company by its certificate
holders, it was adjudged by a court of the the company's domicile
and in which were its funds that, subject to a limitation as to
amount, the company might keep up as theretofore a mortuary fund
which it had been its custom to replenish and maintain through
assessments made by the executive officers under supervision and
control of the board of directors. In a later action in a court of
another state, such an assessment was held void, in spite of the
judgment, upon the grounds, first, that the assessment exceeded the
power of the company and the limit fixed by the judgment, and,
second, that it was not made by the board of directors, as required
by the company's charter.
Held, that the second ground of
the decision, even if it did not itself deny full faith and credit
to the judgment and the charter, was at most a mere makeweight,
which could not be treated as an independent local basis of
decision, and that this Court was therefore at liberty to review
and reverse the decision upon the first ground, as one denying full
faith and credit to the judgment with respect to the amount of the
assessment.
The Connecticut judgment considered in
Hartford Life
Insurance Co. v. Ibs, 237 U. S. 662,
providing that any excess in the mortuary fund above the average
amount of the four preceding quarterly assessments, in the Men's
Division of the Insurance Company's Safety Fund Department, must be
distributed to certificate holders by crediting such excess on
account of the next succeeding assessment, authorized the company,
in assessing for a given quarter, to levy an amount sufficient not
only to reimburse the fund for losses accrued at the time of levy,
but also sufficient, when added to the balance on hand, to maintain
the fund up to the average amount of the last four quarterly
assessments, for the purpose of meeting future losses promptly, as
they occurred. In holding that an assessment was void because it
exceeded the difference between such average amount and the amount
remaining in the fund after deducting
Page 245 U. S. 147
death losses up to the time of levy only, the Supreme Court of
Missouri failed to accord the judgment full faith and credit.
269 Mo. 21 reversed.
The cases are stated in the opinion.
Page 245 U. S. 148
MR. JUSTICE HOLMES delivered the opinion of the court.
These are suits upon two certificates of qualified life
insurance issued to Frank Barber and payable at his death to his
wife, the plaintiff -- defendant in error here. The defense in both
suits was the same -- that Barber failed to pay a mortuary
assessment levied on January 29, 1910, known as quarterly call No.
126, and that the failure avoided the policies by their terms. It
set up further that, in a suit brought by one Dresser on behalf of
himself and all certificate holders, including the plaintiff, in
the Connecticut court having jurisdiction over the defendant and
the mortuary fund from which alone, by the contract, death losses
were payable, it was adjudicated on March 23, 1910, that, if a
certificate holder failed to pay a mortuary assessment, the company
could not pay the insurance in case of his death.
At the trial, the Connecticut judgment was offered and excluded
and the jury were instructed that the defendant must prove that an
assessment was made by the directors of the company, and that it
was not for a larger amount than was necessary to pay death losses
up to that time after giving Barber credit for his
pro
rata share in the mortuary fund; that, if there was money on
hand in that fund, and unless the defendant had "so proved," it
could not declare the insurance forfeited on that account. This
instruction was in the teeth of the Connecticut adjudication
Page 245 U. S. 149
which held that it was proper and reasonable for the company to
hold a fund collected in advance in order to enable it to pay
losses promptly. The plaintiff recovered judgments, and these were
sustained by the Supreme court of Missouri. 269 Mo. 21. The
defendant says that it was denied its constitutional rights by a
failure to give due faith and credit to the judgment of the
Connecticut court.
The transactions were of the class before this Court in
Hartford Life Ins. Co. v. Ibs, 237 U.
S. 662, which arose on a similar contract and a failure
to pay the call next after the one in question here. In that case,
the character of the business arrangements was explained, and it
was decided that the Dresser judgment binds all certificate holders
of the class to which Barber belonged. The Missouri court,
indicating some dissatisfaction with the company and the judgments
in Connecticut and here, sought to justify a different result by
distinctions that seem to us unreal. The first is that, at the end
of the quarter for which the assessment was levied -- that is, on
December 31, 1909 -- after deducting all losses in respect of which
the assessment was laid, there was still left, of the fund out of
which the losses were paid, over $50,000, which the assessment
would increase to over $375,000; that $300,000 was all that was
allowed by the contract "as modified by the [Connecticut]
judgment," and that the assessment therefore was excessive and
void. The other distinction attempted is that the charter requires
all of the affairs of the company to be managed and controlled by a
board of not less than seven directors, and that the assessment was
not levied by the board.
It is obvious on the evidence that this assessment was levied in
the usual way adopted by the company and tacitly sanctioned by the
Connecticut judgment . Quarterly mortality calls were provided for
and were regularly made in this way for the appointed dates. A jury
would
Page 245 U. S. 150
have been justified at least in finding that the call was made
by the directors within the meaning of the instructions, although
it did not appear that the directors went over the figures of the
officers who made it up, and voted it specifically. It clearly was
made under the directors' management and control. The verdicts for
the plaintiff hardly could have been rendered except upon the other
ground opened by the instructions -- that the assessment was for a
larger amount than was necessary to pay death losses up to that
time. Upon that ground, the verdicts were a matter of course, and
we regard the reference to the directors' part in the assessment as
a makeweight which adds nothing to the substantial basis for the
decision below.
See Terre Haute & Indianapolis R. Co. v.
Indiana, 194 U. S. 579,
194 U. S. 589.
The powers given by the Connecticut charter are entitled to the
same credit elsewhere as the judgment of the Connecticut court.
Supreme Council of the Royal Arcanum v. Green,
237 U. S. 531,
237 U. S.
542.
As we have said, the instruction was in the teeth of the
Connecticut judgment by which, under the
Ibs case, the
plaintiff was bound. The verdicts were based upon fundamental
error, and the only real question in the case is whether it appears
as matter of law that, under correct instructions, the same result
must have been reached. The Connecticut judgment was that any
excess in the mortuary fund above the average of the four preceding
quarterly assessments in the Men's Division of the Safety Fund
Department (taken for the purposes of these cases to be $300,000)
shall be distributed to certificate holders in diminution of
assessments by crediting the excess on account of the next
succeeding assessment. This contemplates a possible excess, and
does not limit the assessment to a sum equal to the difference
between $300,000 and the fund on hand after deducting the deaths
that had occurred at the time when the assessment was levied,
Page 245 U. S. 151
as was assumed by the Missouri court. Deaths were occurring
between the time of the levy and the time when so much of it as
might be paid would be paid in. The assessment was for the purpose
of keeping up a fund of $300,000 to meet deaths promptly, as they
occurred. Without giving the figures in detail, it is enough to say
that it clearly appears that the amount of the assessment,
$322,378.48, was not in excess of what the subsequently rendered
Connecticut judgment allowed. It necessarily was levied as an
estimate. There was no probability that it would lead to even a
temporary excess over $300,000, to be applied to the next
assessment laid. We are of opinion that full faith and credit was
not given to the Connecticut record, and that, for that reason, the
present judgments must be reversed.
Judgments reversed.
