Citations
- 58 Ohio St. 1
Full opinion text
Bradbury, J.
These two actions were brought in this court by the respective relators, against the superintendent of insurance of this state to compel him to issue to them, respectively, a certificate authorizing each of them to transact the business of life insurance within this state under section 3630 >
“In consideration of the written and printed application for this policy, and the warranties contained therein, together with the conditions and agreements, on the back hereof, which taken together in their entirety, constitute this contract, and of the payment of the premium of $-at the home office of the Association in Hartford, Connecticut, to be evidenced by the receipt of the association, and a payment of a like sum to be made at said office on or before 12 o’clock noon of the-day of--in every year during the continuance of this contract, this association does hereby insure the life of--of--county of--state of-in the amount of - dollars, (less any indebtedness due the Association by the insured or beneficiary) to be paid at the Home Office within ninety days from receipt of satisfactory evidence at the office of the Association in Hartford, Connecticut, as required by it upon blanks furnished, of a valid claim conditioned upon the death of the insured from any cause assumed under the terms of this contract to-if living; otherwise to the legal heirs or assigns of the insured.”
“In witness whereof” etc.
The “Privileges and agreements” on the back of the policy to which reference is made, so far as material are as follows :
“privileges and agreements.”
' “This policy shall participate in profits as hereinafter provided which shall be apportioned at the expiration of the accumulation period.”
“If living, and all premiums have been duly paid, the insured shall be entitled to select one of the following benefits’
First — To withdraw all surplus standing to its credit (and continue this policy in force for the original amount on payment of stipulated premiums). Either in 1, Cash; 2, Paid up insurance; 3, Annuity.
Second — To surrender this policy for its full value consisting of the entire reserve, together with all surplus accumulations then apportioned by the association. Either in 1, Cash; 2, Paid up insurance; 3, Life Annuity.
The accumulation period under this policy ends on the-day of--, 19 — , at which times the results are estimated at $-in cash, or $ — --in paid up insurance.
Should the insured elect to continue the policy beyond the accumulation period, dividends thereon shall thereafter be apportioned annually, to be used in reduction of premiums.
Provided, that in all of the preceding privileges, the amount therein referred to shall not conflict with the statutory requirements of any state in which the Association is at the, time doing business.
After this policy has been in continuous force three full years, it may be exchanged for anon-participating paid-up-policy, provided written application be made for the same while there is no default in the payment of any premium.
Paid-up insurance will in no case be given for a larger amount than the original policy, unless the insured shall furnish evidence satisfactory to the Association that he is then in an insurable condition. If at any time the proportion of funds credited to this policy (which together with the entire assets, are hereby pledged for its payment) shall not equal the reserve calculated according to the Actuaries Mortality Table with interest at 4 per cent., then this policy may be charged with its share of such deficiency, which, at the option of the Executive Committee, shall be payable in cash, or be charged as interest bearing- premiums. The expense charge on this policy during the first year shall be the installments specified, and thereafter three-fifths of one per cent, annually of its face value and the expenses incurred in protecting and investing the funds of the Association. Premiums are payable annually in advance, but if for convenience of the insured the same are paid semiannually or quarterly, the balance of any annual premium will be deducted in case this policy becomes a claim. ’ ’
An examination of sections 3604 and 3630c, Revised Statutes, before referred to show that, for the purpose of granting certificates of authority to transact the business of life insurance in this state, the general assembly has divided life insurance companies created under the laws of other states into such as insure lives on the assessment plan, and such as do not. And while, as we have seen, supra, the powers of a corporation of this kind, and the scheme of insurance it may pursue, must be ascertained by an inspection of its charter, nevertheless, when it seeks a license to transact business in this state, the question whether that scheme falls within one or the other of those two classes must be determined according to our own laws.
This division of life insurance companies, organized under the laws of other states, made for the purpose of providing for their admission in this state to transact business, distinctly appears for the first time in the statute of April 18, 1883, 80 Ohio Laws, 180. Under that statute life insurance companies created under the laws of other states, that transacted business on the assessment plan, were admitted into this state on terms that were much more liberal than those extended to "such companies as did not pursue that plan. Section 3630c, of the act of 1883, (80 Ohio Laws, 180) above referred to, which prescribed the terms under which life insurance companies of the former class might be admitted into this state,' did not require of them either fixed capital, or a deposit of any sum of money whatever as a condition to their admission, while, by the provisions of sections 3604 and 3605, Revised Statutes, all other life insurance companies organized in other states, as conditions to admission herein were required to possess a prescribed capital, and to deposit with the superintendent of insurance, for the benefit of its policy holders, securities to at least the sum of one hundred thousand dollars. Doubtless the chief consideration that lead to this classification, and consequently to granting to assessment companies admission upon more liberal terms, as to capital than were prescribed in respect of other life insurance companies of other states were; that the former, relying upon past mortem assessments to meet specific losses as they should occur, the possession of a fund accumulated for that purpose would not be necessary to the security of a policy holder, while in respect to the other class those that exacted the payment of a premium in advance, and must rely wholly upon accumulations of capital already made to pay losses, the security of their policy holders demanded that they should possess capital securely invested and exclusively devoted to that object.
Certainly these considerations are sufficient to account for the classifications made, and for the difference in the terms prescribed to the members of each class as conditions for admission to transact business in this state; and one entitled to considerable respect in construing the statute, and, in a doubtful case might be decisive. There is, however, little if any ambiguity in the statute of 1883 (80 Ohio Laws, 180) in this respect.
Section 3630c, Revised Statutes, as then passed clearly made the transaction of business “on the assessment plan ” the test of admissibility under its provisions. If a life insurance company, organized in another state, did. not insure according to that plan, it was not entitled to admission under that section (3630c) but must resort for that purpose to sections 3604 and 3605, Revised Statutes. Manifestly this phrase relates to the method by which the revenue of an insurance company is to be raisbd, or, which is the same thing, to the mode in which the company exacts from its policy holders the consideration to which it is entitled on account of the obligation or risk which it assumes on issuing a policy. In this connection it should be held to mean something specifically different from premium, for it is used in contradistinction to the latter word. Our statutes do not define the word premium, nor do they declare the meaning of the phrase “on the assessment plan.” But the general assembly should be deemed to have used these terms in the sense in which they were understood at the time the statute was enacted. If in the subsequent growth and development of life insurance the different plans on which it is transacted have lost most of their distinctive features, it would not at all affect the construction of the statute. Section 3630c of the statute of 1883 (80 Ohio Laws, 180), however, was amended in 1891 (88 Ohio Laws, 252). The section as then amended is now in force and differs from the section it superseded in a number of quite important provisions. The right to a license under the amended section depends upon specific conditions that the section it superseded did not contain. The fifth of these conditions require of a life insurance company seeking a license under it to show that it “is paying, and for the twelve months next preceding has paid the maximum amount named in its policies or certificates. ” The sixth condition is to the effect that it must show that the “liabilities of the assured or members are not limited to fixed or artificial premiums;” while the seventh condition requires that it shall have accumulated and securely invested a fund “not less in amount than the proceeds of one periodical payment by or assessment on all certificates or policy holders, ’ ’ etc.
The extent to which these conditions impliedly modify the method of raising funds as contemplated by the phrase “on the assessment plan” as originally used, is difficult to determine. The sixth condition by requiring the company to show that it does not rely solely on “fixed or artificial premiums” would indicate that it might raise part of its revenue in that way; the provision of the seventh condition that it shall maintain and invest a fund “not less in amount than the proceeds of one periodical payment by or an assessment on all certificates or policy holders” points in that same direction. These provisions seem to contemplate that a scheme of life insurance, according to which a portion of the fund designed to pay losses may be raised by fixed periodical payments, would not be incompatible with the “assessment plan” of insurance.
However, this may be, as long as the legislature retains this classification of life insurance companies for the purpose of granting to them permission to transact business in this state, the courts must regard it as substantial, and founded on some clearly understood and material features, wherein the two classes differ from each other. The retention of the classification would, otherwise be unaccountable. This difference, we have shown, relates solely to the method in which a company exacts payment from a policy holder for the hazard it assumes by issuing a policy. The one class exacts premiums, or a fixed sum payable periodically in advance without reference to any specific loss, while the distinguishing feature of the other is an assessment of a sum, usually varying in amount, according to the sum to be raised, to be ascertained and levied after the death of the insured. The reason, as we have seen, for this classification and for granting a license toamember of the “ assessment ” class, on more liberal terms than one belonging to the “premium ” class, is that the former class does not necessarily pay its losses from a fund already in existence, but may raise it by a post mortem assessment, while the latter class must resort to a fund, already accumulated, and which, for the security of policy holders, should be safely invested.
The scheme upon which the state exacts taxes from foreign insurance companies, rests also to some extent on this distinction. Section 2745, Revised Statutes.
We think, therefore, that notwithstanding the fifth, sixth and seventh requirements, or conditions found in section 3630c, Revised Statutes, as amended in 1891 (88 Ohio Laws, 252) to bring a life insurance company into the class that transact business “on the assessment ” with the purview of our statutes, its chief source of revenue should be post mortem assessments to pay specific losses.
This view of the matter was, in substance, taken by this court in State ex rel. v. Monitor Fire Association, 42 Ohio St., 555. The court held that: “An annual deposit paid in advance, based on the hazards of the risk, and without reference to an amount necessary to pay losses, that may occur during the year, is in fact a premium paid for carrying the risk and not a specific assessment authorized by the statute.”
The question there related to the transaction of fire insurance, but the reasoning by which this court reached the conclusion announced in that case would 'seem to apply equally to the question of what constitutes insurance on the assessment plan in life insurance. State ex rel. v. The W. U. M. Life Ins. Co., 47 Ohio St., 167; State v. Moore, 38 Ohio St., 7. The policy of the relator which has been recited, shows quite clearly that it exacts of its policy holders fixed sums to be paid in advance at stated periods, and based on the hazard of the risk, and without reference to any specific loss. An ingenious argument based on the “privileges and agreements” set out on the back of the policy, has been presented by counsel for relator. In substance, however, these “privileges and agreements” do not differ from those provisions found in the policies of those companies, whether old line or mutual, which allow the holder to participate in the earnings of the company. Considerable stress was laid by counsel for relator on the proviso, that appears on the back of the policy in connection with the ‘ ‘ privileges and agreements, ’ ’ to the effect “that in all the preceding privileges the amounts therein referred to shall not conflict with the statutory requirements of any state in which the association is at the time doing business.” We know of no statute of this state with which those privileges and agreements conflict. These “privileges and agreements,” however, assist in giving’ character to the plan on which the latter transacts its business. This plan falls within the reason of the statute that requires life insurance companies to deposit securities for the protection of policy holders as a condition to admission to transact business. The reason of that requirement, as' we have shown, rests upon its necessity; it constitutes the chief reliance of policy holders who may reside within the state, without such a deposit the guaranty of ultimate payment would be greatly weakened. The plan also conforms very closely to the letter of sections 3587 to 3609, inclusive, Revised Statutes, its features hear a striking resemblance to life insurance contemplated by those sections, but disclose little if any similarity to that which section 3630c, even since the amendment of 1891 (88 Ohio Laws, 252) describes.
We think the relator is not entitled to a license by virtue of section 3630c, to transact business in this state, but in order to obtain a license for that purpose must comply with sections 3604 and 3605, Revised Statutes.
2. The charter of the other relator, the Home Mutual Life Insurance Company of Detroit, omitting formal provisions immaterial to the questions before the court is as follows :
ARTICLE III.
“Section 1. The object of the incorporation of this company shall be to furnish life insurance to its members, for the benefit of the widows, widowers, heirs and relatives of deceased members and other persons having an insurable interest in the life of such members.
Section 2. There shall be one class or division of members in said company, to be known as the whole life class; the object or purpose of which shall be to furnish life insurance to each member therein by such members paying continuous premiums during life.
ARTICLE IV.
Section 1. Assessments, premiums and payments are to be paid by the members of this company periodically at such stated periods as shall be designated in the member’s policy, according to the following table of rates for each one thousand dollars insurance, based upon the age of each member at last birthday.
Age. Monthly. Bi-monthly. Annual. Quarterly. Semi-annual.
21 $0 90 $1 80 58 $2 70 $5 35 810
22 91 1 82 2 73 541 10 70
23 92 184 2 76 546 10 82
24 94 188 2 82 558 11 05
25 95 190 2 85 5 65 11 17
26 97 194 2 91 5 76 11 41
27 98 196 2 94 5 82 11 52
28 99 1 98 2 97 5 88 11 64
29 1 00 2 00 3 00 5 94 11 76
30 1 01 202 3 03 6 00 11 88
31 1 03 206 3 09 612 12 11
32 1 04 208 3 12 618 12 23
33 1 06 212 3 18 6 30 12 47
34 1 08 216 3 24 6 42 12 70
35 1 10 2 20 3 30 6 53 12 94
36 1 15 2 30 3 45 6 83 13 52
37 1 20 2 40 3 60 7 13 14 11
38 1 25 2 50 3 75 743 14 70
39 1 30 2 60 3 90 7 72 15 29
40 1 35 2 70 4 05 8 02 15 88
41 1 40 2 80 4 20 832 16 46
42 1 45 2 90 4 35 861 17 05
43 1 50 3 00 4 50 8 91 17 64
44 1 55 310 4 65 9 21 18 23
45 1 60 320 4 80 950 18 82
46 1 65 330 4 95 980 19 40
47 1 70 340 5 10 1010 20 00
48 1 80 360 5 40 10 69 21 17
49 1 90 3 80 5 70 11 29 22 34
50 2 00 4 00 6 00 11 88 23 52
51 2 10 420 6 30 12 47 24 70
52 2 25 4 50 6 75 13 37 26 46
53 2 45 4 90 7 35 14 55 28 81
54 2 65 5 30 7 95 15 74 31 16
55 2 85 5 70 8 55 16 93 33 52
56 3 05 6 10 9 15 18 12 35 87
57 3 26 6 52 9 78 19 36 38 34
58 3 47 6 94 10 41 20 61 40 81
59 3 69 7 38 11 07 21 92 43 39
60 3 95 7 90 11 85 23 46 46 16
61 4 18 8 36 12 54 24 83 49 16
62 4 44 8 88 13 32 26 37 52 51
63 4 71 9 42 14 13 27 98 55 39
64 4 99 9 98 14 97 29 64 58 68
65 5 28 10 56 15 84 31 36 62 09
Section 2. Special or extra assessments may be levied by the board of trustees, when it is necessary to meet mortuary losses. All special or extra assessments, or calls for additional premiums shall be apportioned among the members in such manner as to equitably distribute the mortality cost among’such membersinproportion each should have have contributed, since becoming a member, on the basis of the American experience table of mortality, due allowance being given for allprevious payments.
Section 4. The moneys realized from assessments, premiums and payments shall be apportioned to the general fund, mortuary fund, and emergency fund. The object of the general fund shall be to provide for the payment of general or managing expenses of the company. The object of the mortuary fund shall be to provide for the payment of death losses. The object of the emergency fund shall be to provide a trust fund for the payment of death losses or other benefits provided for in the policy of the member, and to protect the company from extra assessments in case of an extraordinary death rate. The emergency fund shall not at any time be less than, the maximum amount at risk on any one life, from and after the date of the incorporation of this company. The Board of Trustees shall apportion the money so realized from assessments, premiums and payments between the several funds named, as it may be deemed best for the interest of the company.”
These provisions of its charter, together with that section of the statutes of Michigan, which prescribes who shall be members of such corporations and their rights as members, show that the relator, the Home Mutual Life Insurance Company has neither capital stock, nor stockholders for whose benefit it was created. Its policy holders are its members, they, alone have a voice in the election of its officers and it is for their benefit, at least in theory, that its business is conducted. Therefore the objection, founded on its internal structure, which was interposed to the claim of the other relator, The National Life Association of Hartford to a license under section 3630c, Revised Statutes, does not apply to the claim of the present relator to a license under that section.
The objection interposed to granting to the present relator a license rests upon its method of transacting business, which, the superintendent of insurance contends is not conducted according to the assessment plan. In order to obtain a correct notion of the scheme of insurance that it pursues, resort must be had to its form of policy which is as follows:
“ In consideration of the payment of the first -premium hereon of--dollars, and of the representations, agreements and warrants made to it by the insured herein named, in his or her application for this policy of insurance, does hereby issue this policy of insurance to--, of--, State of--, and in consideration of the payment in advance thereafter of- premiums of---dollars, this company does promise to pay the sum of--dollars to--the beneficiary herein named, if living at the time of the death of the insured, and if not living, then to the heirs at law of said insured, at the office of said company, in the city of Detroit, Michigan, within ninety days after the acceptance and approval of satisfactory proofs of the death of said insured, provided said death shall occur while this policy is in full force. This policy is issued, delivered and accepted subject to the conditions and agreements contained herein andón the back hereof, which are made a part of this contract as fully as if recited over the signature hereto affixed.”
“In witness whereof,” etc.
The conditions on the back of the policy are in the following terms :
1st. It is expressly agreed that this policy shall not be in force until the same has been delivered to the insured and the first premium thereon shall have been paid in cash during the insured’s lifetime and good health.
2d. When this policy has been in continuous force for three years from its date it shall be incontestable except for the non-payment of premiums when due, for understatement of age or for fraud.
3d. No personal liability is incurred by becoming a member of this company. Payments are optional with the insured, to continue as long as he may desire to keep the policy in force. Payments under this policy during its first two years, after providing for its pro rata of actual death claims occurring upon policies in the first and second policy years, and thereafter quarterly, an amount limited to one-eighth of one per cent, of the face value of this policy may be used for expense purposes, the remainder thereof to be apportioned by the trustees of said company among the mortuary, reserve and emergency funds.
6th. The premiums herein required to be paid by the insured are to provide for the payment of mortuary claims and for the general fund and reserve or emergency funds of this company, and are based upon the adopted tables of rates and graded according to the age of the insured and the amount of insurance named herein, said tables of rates are based upon the American Mortality Tables and the actual experience of American life insurance companies and are deemed adequate to meet all present and future liabilities of the company without necessitating an increase in the ate with advancing age, but as an absolute protection against the possibility of the mortuary or reserve funds becoming depleted, it is agreed that should any emergency arise through epidemic or otherwise, whereby the premiums are insufficient to meet the mortuary requirements, as determined by the board of trustees, additional premiums may be levied to meet such emergency, of which special notice shall be served.
7th. It is expressly understood and agreed by and between the insured and this company that if the insured shall not pay the sum or sums stipulated to be paid in the matter aforesaid, or if any misrepresentations shall have been made or any facts omitted which should have been stated in said application, or if the insured shall violate any of the provisions of this agreement, then this contract shall cease to he binding upon said company, and all payments made shall ,be forfeited to said company.
9th. In case the insured shall fail to pay any premium at the office of the company within the time specified for the payment thereof, a delinquent charge of twenty-five cents will be added. The mem. bership of the insured in this company shall not lapse or determine until ten days after said company shall have mailed to said insured as herein above provided, a notice that said premium has not been paid; and if said insured shall not pay said premium at the office of said company by twelve o’clock noon, on the last day specified in said notice, then the insured’s membership in this company shall lapse and determine; and this policy shall becojne null and void and all payments made thereon shall be forfeited to the company, except when otherwise expressly provided herein.
10th. The application of the insured for this policy of insurance together with the articles of association and by-laws of this company now in force, or which may hereafter be legally adopted, shall constitute a part of this policy.
13th. When the insured shall reach his life expectancy, computed on his age at the date of this policy, he may, by giving the company six months’ notice in writing of his desire to do so, provided the policy is in full force and all payments have been made thereon, discontinue his payments upon the same, and apply his net contribution to the reserve or emergency fund, together with his equitable proportion of all accretions thereto, as determined by the actuary of the company, either to the maintaining of this policy in force, until such credits are exhausted, when it shall cease and determine, or, surrender this policy and withdraw the same in cash, together with any unused dividend accumulations in full settlement of all liability.
14th. Dividends to be declared shall be limited to that part of the reserve fund in excess of $100,-000 and in excess of the amount of one periodical payment from all policy holders.
15th. When the policy has been kept in force continuously for a period often years from its date the insured shall be entitled to participate in whatever dividends may be declared thereafter ; the same to be determined and apportioned by the actuary of the company, and credited on premium accounts to reduce future payments on this policy.
16th. In event the insured shall become totally and permanently physically disabled said company will pay, upon proof satisfactory to the board of trustees upon the receipt and surrender of this policy in full discharge of all claims, the sum of one-half the face value hereof, provided the insured shall so request in writing, while this policy is in full force, subject to the agreements contained herein.”
Does the scheme of insurance thus displayed coincide with that conducted on the assessment plan as that term is used in section 3630c? The obligation of the insured is to pay a fixed sum at stated periods in advance without reference to any particular death claim. Section 6 of the conditions and agreements on the back of the policy shows that the premiums to be paid by the insured, are to provide, indiscriminately for the payment of death claims, to create a general fund, and a reserve (emergency) fund, which latter fund may be increased, to at least one hundred thousand dollars. The obligation of the policy holder to pay a fixed sum periodically for three distinct purposes is subject to the right of the company to levy “additional premiums” to guard against “the possibility of the mortuary or reserve funds becoming depleted. ” Here there is no obligation or duty laid upon the company to await the exhaustion of these funds or either of them before calling upon the policy holder for additional premiums. These contributions authorized by this emergency clause though denominated “premiums” bear a close resemblance to assessments. The amount of the call is uncertain and depends upon the will of the managing body of the concern, its board of trustees. It is not, however, the chief or usual method of securing an income, and, if the affairs of the company are intelligently and honestly conducted, should never be resorted to except in the event of some widely spread and fatal epidemic. The ordinary, regular and chief source of revenue open to the relator is the fixed periodical payments named in the policy, and in our opinion, for the purpose of admission into the state, they characterize the method of insurance which the company pursues. The possibility that some grave and unforeseen calamity may call into operation, an authority vested in the trustees to call for an additional and uncertain sum, should not be regarded as sufficient to assign the company to that class which transacts the business of insurance on the assessment plan. The general assembly in classifying life insurance companies into those that transact business ontheassessment plan and those that do not, should be taken to have regarded their usual and regular mode of raising revenue rather than the exceptional or occasional methods to which resort may be had upon the happening- of some remote contingency.
We think neither of the relators transact the business of insurance on the assessment plan within the meaning- of section 3630c, Revised Statutes.
Writ refused and petitions dismissed.