Under a general act of the Legislature of New York passed on the
10th of April, 1849, which authorized the incorporation of
insurance companies in the state under it,
held that the
eighth section in the charter of a mutual insurance company formed
under the general act, which provided for the payment of cash
premiums at the election of the insured, as well as premiums
secured by notes, was authorized by the general act, and that a
policy issued upon a payment of the premium in cash was legal and
valid.
This was an action brought by Hoge upon a policy of insurance
upon a paper mill in Virginia. The insurance company was
Page 62 U. S. 36
incorporated by the Legislature of New York, and its place of
doing business was in that state. The law of New York and charter
of the company are set forth in the opinion of the Court.
The declaration stated that the policy of insurance was made in
November, 1851, for the consideration of fifty-six dollars, and
that for that sum the company agreed to insure the mill for one
year to the amount of $2,500. The plea was that the business of the
company was to be conducted on the plan of mutual insurance, and
that the receiving of a definite sum of money, in lieu of a premium
note for the policy of insurance, was not warranted by the act of
1849, and that the policy was void, as made without authority, and
in violation of the statute.
To this plea there was a demurrer.
The circuit court decided that the policy was a valid policy,
and the company brought the case up to this Court.
Page 62 U. S. 60
MR. JUSTICE NELSON delivered the opinion of the Court.
The suit was brought against the defendants on a policy of
insurance against fire, in the sum of $2,500, upon a paper mill,
machinery, and stock, of one R. K. Kounsler, of the State of
Virginia, the property situate in that state. The defendants are
incorporated under the laws of the State of New York, and the place
of business at the Village of Fort Plain, an interior town of that
state. The policy and all interest under the same have been duly
assigned to the plaintiff.
There is no question in the case upon the loss or upon the
preliminary proofs, the defense being placed exclusively upon a
defect of authority in the defendants to issue the policy. The Act
of the Legislature of New York, passed April 10, 1849, under which
they were incorporated, provided, section 1, that any number of
persons, not less than thirteen, might associate and form an
incorporated company, among other things to
Page 62 U. S. 61
make insurance on dwellings, houses &c., against loss or
damage by fire; section 3, that these persons should file in the
office of the secretary of the state a declaration, signed by them,
expressing their intention to form a company for transacting the
business of insurance, which declaration should comprise a copy of
the charter proposed to be adopted by them, and requiring notice of
their intention to be published in a newspaper a given number of
weeks. Section 4 provides for opening books of subscription to the
capital stock, and that in case the business of the company was to
be conducted on the plan of mutual insurance, then to open books to
receive propositions and enter into agreements in the manner
afterwards specified, which in substance is that the company shall
not commence business until agreements shall have been entered into
for insurance, the premiums on which shall amount to one hundred
thousand dollars, and notes have been received in advance for the
premiums on such risks, payable at the end of or within twelve
months from date, which notes shall be considered a part of the
capital stock, and shall be deemed valid, negotiable, and
collectable, for the purpose of paying losses or otherwise. Section
11, that the charter of the company should be examined by the
attorney general of the state, and if found in accordance with the
requirements of the act and not inconsistent with the constitution
or laws of the state, he should certify the same to the comptroller
of the state, and thereupon the comptroller should institute an
examination to ascertain if the company had received and had in its
actual possession the capital, premiums &c., to the full extent
required by the act, and upon a certificate to this effect by the
comptroller, filed in the office of the secretary of state, this
officer should furnish the company with a certified copy of the
charter and certificates, which, upon being filed in the office of
the clerk of the county in which the company is located, shall be
its authority to commence business and issue policies.
By section 10 it is made the duty of the corporators to declare
in the charter the mode and manner in which the corporate powers
conferred by the general act are to be exercised, and by section 12
the corporators, trustees, or directors, as the case
Page 62 U. S. 62
may be, shall have power to make such bylaws, not inconsistent
with the constitution or laws of the state, as may be deemed
necessary for the government of its officers and the conduct of its
affairs.
By the fifth section of the charter formed under this general
act, it is provided that the rights, powers &c., conferred by
law on the company shall be vested in and exercised by a board of
directors, to consist of thirteen persons, to be elected by persons
holding the policies of insurance in the company or their proxies,
and one vote shall be allowed on everyone hundred dollars insured.
The eighth section of the charter provides that the rates of
insurance shall be fixed and regulated by the company, and premium
notes therefor shall be received from the insured, and shall be
paid at such time or times and in such sum or sums as the company
shall from time to time require, and any person applying for
insurance, so electing, may pay a cash premium, in addition to a
premium note, or a definite sum in money, to be fixed by the
company, in full of said insurance and in lieu of a premium
note.
The policy in question was issued on the payment of a cash
premium, under this eighth section of the charter, the insured
paying a gross sum of fifty-six dollars and twenty-five cents for
the insurance of his paper mill and stock to the amount of $2,500
for one year.
The ground taken in the defense is that, according to the
general act under which the defendants were organized, they were
empowered to make contracts and issue policies of insurance to such
persons only as became members of the company by giving premium
notes, and that the eighth section of the charter, providing for
the payment of the premium in cash, was without authority, and the
policy therefore void.
It is stated in the plea upon which the question in the case is
raised that from the time the company began business August, 1850
till June, 1853, when it became insolvent, over two thousand
policies were issued, founded upon premium notes, and over two
thousand five hundred founded upon cash premiums, and that the
amount of forty-three thousand dollars was received by the company
for policies issued upon cash premiums.
Page 62 U. S. 63
The general act, conferring the power upon companies organized
under it to make contracts of insurance against fire and issue
policies, provides for a certain amount of capital, $100,000,
secured by premium notes upon engagements of insurance entered into
by the companies, as a condition to the right of commencing the
business of insurance. This capital, thus obtained, is essential to
a complete organization under the act, for without it the
corporation is forbidden to enter upon the business of
insurance.
These preliminary engagements and the giving of premium notes
were designed as an immediate security to persons who, confiding in
the responsibility of the company, should make application for
insurance on its going into operation.
The notes thus constituting capital are to be made payable at or
within a year from their date; they may be made payable, therefore,
within the terms of the act, on demand, or at any short period; and
they are made negotiable and collectable for the payment of any
losses which may accrue in the business of insurance or otherwise.
And it has been held in the Court of Appeals, in New York, that
they are collectable by the company, irrespective of losses, or
assessments to pay losses. 16 N.Y. 310; 2 Smith R.
Now although the general act provides for premium notes upon
these preliminary engagements of insurance to be consummated on the
organization of the company, and with a view to capital upon which
to begin the business of insurance, there is no provision to be
found in it prescribing the mode or manner in which premiums shall
be paid or secured after the company has become organized and
commenced operations. That seems to have been left to be regulated
in the charter formed under the act.
The provision prescribing the giving of notes in advance for
premiums, with a view to create capital, has no necessary relation
to the subject of premiums to be received by the company after its
organization, and in the course of conducting its ordinary
business. The act had in view a different object in requiring the
giving these notes, and provided specially for their disposition
and use with reference thereto. They
Page 62 U. S. 64
are made a part of the capital stock of the company, and
negotiable and collectable for the payment of losses or otherwise,
and, as we have seen, collectable as such capital, irrespective of
loss or assessment for losses; and as they may be made payable on
demand, or at a short day, are convertible into money, according to
the decision in the Court of Appeals of New York immediately on the
company's becoming organized and ready for business.
Even if this provision could be regarded as bearing upon the
subject of premiums after the organization of the company, it would
furnish but feeble support to the argument against cash premiums,
the difference being simply between cash and a note payable and
collectable immediately. According to the act, and construction
given to it in the case referred to, these notes have no necessary
existence after the organization of the company. They may then be
converted into money. They seem to have been made necessary under
this system of insurance while the company was in the process of
organization, by way of furnishing the incipient amount of capital
required by the act.
It is argued, however, that the company in question is a mutual
insurance company, as declared by the act; that, according to this
system, the insured must be a member of it, and that a person
insured upon a cash premium, without any further liability, cannot
be a member. This argument is not well founded, either upon
principle or authority. Admitting that the insured must be a member
of the company, he is made so by the payment of the cash premium.
The theory of a mutual insurance company is that the premiums paid
by each member for the insurance of his property constitute a
common fund, devoted to the payment of any losses that may occur.
Now the cash premium may as well represent the insured in the
common fund as the premium note, and this class of companies has
been so long engaged in the business of insurance, it may well be
that they can determine, with sufficient certainty for all
practical purposes, the just difference in the rates of premium
between cash and notes. These mutual companies, possessing the
authority contained in the eighth section
Page 62 U. S. 65
of this charter, namely, to take cash premiums or premium notes,
are, at the present day, in operation in several of the states, and
it has never been supposed that the mutual principle has been
thereby abrogated.
3 Ohio 348, N.S.
It has also been argued, that inasmuch as the defendants have
been organized upon the principle of a mutual insurance company,
its business must be conducted, as it respects the premiums to be
received, according to the plan of mutual companies previously
chartered in the State of New York. If the previous companies were
required by their charters to receive premium notes, and not cash,
then this requirement distinguishes them from the one before us. If
their charters contained no such provision, then they were left,
like the present one, to regulate the mode of payment at
discretion. Besides, mutual companies upon both plans had been
chartered by the Legislature of New York previous to the act of
1849, and hence no inference can be drawn, as it respects the
charters of previous companies, from the unexpressed intent of the
legislature in this act, if otherwise admissible.
The true answer, however, to this argument, we think, is that in
the absence of any reference to previous charters, by which the
provisions of the same might have been incorporated in the present
one, the court must look to the law itself for the purpose of
expounding its provisions and ascertaining the intent of the
legislature.
The general act prescribed the outlines of the system, and all
the conditions and guards that were deemed essential to the
security of persons applying for insurance, leaving the details and
interior regulations to be arranged and determined by the company
in their charter. Large powers were conferred, in general terms, as
in the 10th section, "to declare in the charters" "the mode and
manner in which the corporate powers given under and by virtue of
this act are to be exercised;" and again, in the 12th section, the
company "shall have power to make such bylaws" "as may be deemed
necessary for the government of its officers and the conduct of its
affairs." And besides these general powers, inasmuch as the
company
Page 62 U. S. 66
is incorporated for the express purpose of insurance of property
against fire, in the absence of any prescribed mode of payment of
premiums, the power to prescribe it by the company is necessarily
implied; otherwise, the object for which it was created would be
defeated.
This question has been indirectly before several of the courts
of New York, and in all of them, so far as any opinion has been
expressed, as I understand, it has been in favor of the validity of
these policies.
The practical construction of this act of 1849 by the public
officers of the state, including the attorney general, who were
required to supervise the preliminary steps made necessary to the
organization of the company, and to certify that it had conformed
to the provisions of the act, and the latter officers especially,
that the charter was in accordance with it, is deserving of
consideration. Under the construction thus given, numerous
companies have been organized with charters like the present,
providing for cash premiums, or premium notes, at the election of
the insured, and an extensive business of insurance carried on in
New York and several of the sister states, and although this
practical construction cannot be admitted as controlling, it is not
to be overlooked, and perhaps should be regarded as decisive in a
case of doubt, or where the error is not plain.
The judgment of the court below is affirmed.
MR. JUSTICE DANIEL dissents on the ground of want of
jurisdiction.