Greeff v. Equitable Life Assurance Society of United States

In 1882 the plaintiff in this action took out a policy of insurance upon his life, the defendant company writing the policy. The defendant company was organized in 1859 under the provisions of the general act for the incorporation of life and health insurance companies passed June 24, 1853. The policy written was what is known as an “endowment policy,” and was to mature in 15 years, or in May, 1897. Under the. provisions of the law of 1853 (chapter 463), any number of persons, not less than 13, were authorized to organize themselves into a body corporate for the purpose of insuring the lives or the health of its policy holders. The method provided for the organization of these companies was by filing a certificate with the comptroller—

“Which declaration shall comprise a copy of the charter they propose to adopt, and the said charter shall set forth the name of the company; the place where it is to be located; the kind of business to be undertaken by referring to and repeating the department of the first section of this act to which they refer; the mode and manner in which the corporate powers of the company are to be exercised; the manner of electing the trustees or directors and officers, a majority of whom shall be citizens of this state, and the time of such election; the manner of filling vacancies: the amount of capital to be employed; and such other particulars as may be necessary to explain and make manifest the objects and purposes of the company, and the manner in which it is to be conducted.” Section 3.

“The officers of the company, within sixty days from the expiration of the first five years, from December 31, 1859, and within the first sixty days of every subsequent period of five years, shall cause a balance to be struck of the affairs of the company, which shall exhibit its assets and liabilities, both present and contingent, and also the net surplus, after deducting a sufficient amount to cover all outstanding risks and other obligations. Bach policy holder shall be credited with an equitable share of the said surplus. Such ■equitable share, after being ascertained, shall be applied to the purchase^ of an additional amount of insurance (payable at death or with the policy itself), expressing the reversionary value of such equitable share, at such interest as the directors may designate, or if any policy holder so direct, such equitable share of surplus shall be applied to the purchase of an annuity, at such rate •of interest as the directors shall designate, to be applied in the reduction of his or her future premiums. * * * In case of the death of any party insured prior to passing any period for striking of balance, as aforesaid, the board of directors may provide what (if any) share of such surplus shall be paid t.o such person.”

In 1868 (chapter 118) and in 1872 (chapter 100) the laws affecting this class of insurance companies were amended so as to change the dividend periods, and the periods at which balances should be struck; but these provisions are not material to be considered in the disposition of the question to be determined on this appeal.

The policy under which the plaintiff claims was written for $20,000, and it contains a provision (No. 7 of provisions and requirements) that:

“This policy, during its continuance, shall be entitled to participate in the •distribution of the surplus of this society, by way of increase to the amount insured, according to such principles and methods as may from time to time be adopted by this society for such distribution, which principles and methods are hereby ratified and accepted by and for every person who shall have •or claim any interest under this contract.”

When this policy became due, in 1897, the company paid the face of the policy, together with $3,932 increase, due to a division of the surplus of the society, and entered into an agreement with the plaintiff that this should not prejudice the plaintiff in his right to claim that he is entitled to a larger sum by way of surplus or profits. The plaintiff now brings an action to recover the sum of $7,087.38, which sum he claims is due him under the provision of his contract that he shall participate in the net surplus of the defendant. In addition to the formal averments, the plaintiff sets forth in his complaint that he has made all of the payments required under the conditions of his policy, and that the defendant annually “caused a balance to be struck of the affairs of the society, exhibiting its assets and liabilities, both present and contingent, and also the net surplus after deducting a sufficient amount to cover all outstanding risks and obligations”; and he then gives the amount of the surplus announced by the defendant in each of the years from 1882 to 1896, both inclusive, showing a net surplus in the year 1896 of $43,277,179. He then sets forth the amount of surplus which has been apportioned to him in each of the several years, aggregating $3,932. It is then averred that:

“The said several divisions of surplus distributed to plaintiff have been from sums received in excess of the several amounts set forth as the balance of surplus each year,' so that each distribution of surplus has been from profits accruing during the year, without diminishing the surplus on hand at the end of the preceding calendar year; and this plaintiff has received no portion of the net surplus of $43,277,179, ascertained and declared by the defendant as the amount on hand on December 31, 1896.”

The plaintiff then continues that:

“According to the principles and methods adopted by the defendant for the distribution of surplus, there was distributed in the year 1895 to the plaintiff $328 as his proportion of a distribution of a surplus amounting to $2,002,954.23, and that the proportion due this plaintiff of the $43,277,179, net surplus ascertained on December 81, 1896, according to the same principles and methods which were the principles and methods in force during the life of plaintiff's policy, is $7,087.38, in addition to the amount of surplus actually awarded, of $3,932; making a total amount of $11,019.38 of surplus, and $20,000 of principal.”

It is further alleged that the $20,000, with the $3,932 of surplus, has been paid, and that the plaintiff is not to be prejudiced thereby in his effort to secure a further sum, and that there is due and unpaid to the plaintiff the sum of $7,087.38, and interest thereon from the 2d day of May, 1897, and that payment was demanded before the commencement of this action, which payment was refused.

The defendant demurs to this complaint on the single ground that it does not state facts sufficient to constitute a cause of action, and from the interlocutory judgment entered in behalf of the defendant an appeal comes to this court.

All of the facts stated must, for the purposes of this appeal, be deemed to be admitted by the demurrer; and a careful examination of the pleadings fails to disclose to this court any lack of facts necessary to constitute a cause of action. It is conceded that the plaintiff stands in a contractual relation to the defendant, and that the defendant has stipulated in its contract that the plaintiff, during the continuance of the policy, shall be entitled to participate in the distribution of the surplus of this society; but it is urged on behalf of the defendant that the plaintiff has forfeited his right to insist upon an equitable distribution of all of the surplus, by the provision in the policy that the distribution shall be made “according to such principles and methods as may from time to time be adopted by this society for such distribution, which principles and methods are hereby ratified and accepted,” etc. The learned trial court has adopted this view of the question, but we are unable to concur in the conclusion that the minds of the parties ever met .in an agreement that the defendant should have the arbitrary power, in distributing this surplus of the society, to take out two-thirds of the surplus, and to divide the remainder. The contract was drawn by the defendant, and is therefore to be construed most favorably to the plaintiff, where this construction does no violence to the letter of the contract. It is not within reason to suppose that the plaintiff, who was paying $1,457 per year for this insurance, with the inducement held out to him that he was to participate in the distribution of the surplus of the society, had any other idea than that he was to participate in the distribution of all of the surplus declared by the defendant; and the waiver or ratification

The charter of the company, which is made a public record by the provisions of the statute under which it is organized, may properly be appealed to, at least for the purpose of aiding us in the proper construction to put upon the agreements contained in the policy; and in this it is provided that the officers of the company shall “cause a balance to be struck of the affairs of the company, which shall exhibit its assets and liabilities, both present and contingent, and also the net surplus, after deducting a sufficient amount to cover all outstanding risks and other obligations. Each policy holder shall be credited with an equitable share of the said surplus.” The affairs of the company were to be conducted upon the mutual plan. The stockholders were limited by law to semiannual dividends of per cent., and each policy holder was to be credited with an equitable share of the profits of the company, after the deduction of an amount sufficient to meet all of the obligations of the company. This was the understanding which the company had of its duties and obligations in accepting premiums. It, in effect, stipulated with the state, as a condition of its being, that it would place in the hands of its policy holders a contract embracing these provisions; and it cannot now be heard to say that it has, by a mere jugglery of words, kept this promise in form, only to defeat it in substance. The substance of the contract, as set forth in the policy, construed, as it should be, in connection with the charter, is that the plaintiff shall be entitled to an “equitable share of the said surplus.” If a grocer entered into a contract with his customers to give them an equitable share of the net profits of his business, after deducting enough to pay all of his outstanding or contingent obligations, with 1 per cent, interest, no one would contend that he was fulfilling that contract if he put two-thirds of the net profits into a fund for his own use, and then divided the remainder. There would be nothing equitable about that, and there is nothing equitable about the plan of apportioning the net surplus of the defendant. Equity suggests the highest practicable form of justice, and its use in connection with a division of the surplus of the defendant is a pledge that the funds of the society, after meeting all of its obligations, shall be distributed among those who have contributed their premiums on the basis of the amount which they have paid; and the only exception which-the company has laid down for itself is that, “in case of the death of any party insured prior to passing any period for striking of balance, as aforesaid, the board of directors may provide what (if any) share of such surplus shall be paid to such person.” Article 6. If we confine ourselves to the letter of the policy,' it will not bear the construction sought to be put upon it by the defendant. The contract is that “this policy, during its continuance, shall be entitled to participate in the distribution of the surplus of this society.” It is not a part of the surplus, but “the surplus” in which the policy is to share. The society could not share in the distribution of the surplus. It could take only the necessary

But it is urged that, to determine the exact amount due to the plaintiff, an accounting will be necessary, and that the plaintiff has no standing in court; the legislature having enacted (chapter 400, Laws 1890; section 56, Insurance Law 1892) that “proceedings for-accounting, injunction or a receiver, must be upon application of the attorney-general,” and that “no order, judgment or decree providing for an accounting or enjoining, restraining or interfering with the prosecution of the business of any domestic insurance corporation or appointing a temporary or permanent receiver thereof shall be made or granted otherwise than upon the application of the attorney-general, on his own motion or after his approval of a request in writing therefor of the superintendent of insurance, except in an action by a judgment-creditor or in proceedings supplementary to execution.” These provisions of law were under consideration in the case of Swan v. Association, 155 N. Y. 9 , 49 N. E. 258 , where it was assumed by the court that the legislature had enacted into the statutory law of the state its decision in the case of Uhlman v. Insurance Co., 109 N. Y. 421 , 17 N. E. 363 ; but we do not find, either in the statute or in the TJhlman Case, anything to indicate that it was- ever the policy of this state to deny to any individual the right to bring an action to recover upon a contract, even against an insurance company. In the TJhlman Case the plaintiff alleged that the defendant had, during the term of the policy, wrongfully appropriated the surplus and profits, or a large portion thereof, belonging to the plaintiff under the policy, and demanded judgment that the defendant be compelled to render a detailed account of its business during the life of plaintiff’s policy. The court refused to grant the relief demanded, but based its refusal largely upon the proposition that the plaintiff had an action at law upon his contract, and that he had practically the same opportunity to secure an accounting in his action at law as in equity. After discussing the opinion of Finch, J., in the case of Marvin v. Brooks, 94 N. Y. 71 , the court in the TJhlman Case say:

“Considering the fact as stated by Finch, X, in the case above alluded to, that the plaintiff has now all the facilities for examining a complicated account in an action at law that he would have in equity, if there are other reasons—important and material ones—existing against the assumption of jurisdiction by a court of equity of an action of this nature-, those reasons should have their full weight; and if, after giving due effect to- all the circumstances, it appear that there would be a balance of very great inconvenience and possible oppression to the defendant, the plaintiff should be remitted to his action at law to recover his damages, in which action, if the taking of an account becomes necessary, it may be easily taken.”

If thé court in Swan v. Association, supra, is right in assuming, that the legislature followed its ruling in the TJhlman Case in the legislation of 189.0 and 1892, then it may fairly be contended that the-

“From these authorities—and many more might be cited—it may be fairly concluded that the. obligation of the contract consists in the power and effica•cy of the law which applies to, and enforces performance of, the contracts,

or the payment of an equivalent for nonperformance. The obligation does not inhere and subsist in the contract itself, proprio vigore, but in the law applicable to the contract. This is the sense, I think, in which the constitution uses the term ‘obligation.’ ”

If this is the construction to be put upon the constitution,—and we find no authorities running counter,—then it is obvious that the legis. ature could not deprive the plaintiff in this action of the rights which he had under the law of his contract at the time it was made. He then had a right to bring an action upon his contract without the intervention of any third party, and the obligation of his contract is unquestionably impaired if his right to bring this action must now depend upon the will or caprice of the attorney general of the state. We do not believe, however, that the legislature ever intended to interfere in this class of actions, but merely in those actions which were brought for the purpose of an inquiry into the business methods of the corporation, and which affected all of the policy holders of a given class. The fact that this action may compel a different method of business, if the corporation is to possess itself of the surplus, is of no consequence. That is merely an incident. This action is brought upon the contract which the plaintiff has entered into with the defendant, and the plaintiff has a right to have the question heard upon its merits.

The pleadings clearly indicate that the defendant owes the plaintiff an amount equal to that which is claimed, and, if it does not, the matter may be determined upon the trial of the action. Rowell v. Janvrin, supra.

Conceding the facts stated in the pleadings, the plaintiff is entitled to judgment, and we conclude, therefore, that the interlocutory judgment appealed from should be reversed, and the demurrer overruled, with costs. All concur, except GOODRICH, P. J., dissenting, and BARTLETT, J., not voting.

(dissenting). I cannot agree in the prevailing opinion with my associates. The charter and the policy form one contract, and resort must be had to both in order to ascertain what the contract of the policy really is. The charter (article 6) provides that the officers of the corporation shall cause a balance to be struck of the affairs of the corporation, which shall exhibit its assets and liabilities, both present and contingent, “and also the net surplus after deducting a sufficient amount to cover all outstanding risks and other obligations. Each policy holder shall be credited with an equitable share of the said surplus. Such equitable share after being ascertained shall be applied,” etc. It will be observed that three things are recognized in this article, viz.: A “net surplus,” “an equitable share of the said surplus,” and the application of such “equitable share after being ascertained.” The act of 1872 (chapter 100) provided that the corporation might ascertain “the proportion of surplus accruing to each policy holder, * * * to distribute the proportion found to be equitable.” This seems to contemplate something more than a mere mathematical calculation of the proportion of the surplus to be devoted to the policies upon