Wright v. Minnesota Mut. Life Ins. Co., 193 U.S. 657 (1904)

Wright v. Minnesota Mutual Life Insurance Company

No. 178

Argued March 15, 1904
Decided April 4, 1904
193 U.S. 657

APPEAL FROM THE CIRCUIT COURT OF THE

UNITED STATES FOR THE DISTRICT OF MINNESOTA

Syllabus

An insurance association organized on the assessment plan, with the consent of a majority of the policyholders and the approval of the state superintendent of insurance changed its business from the assessment to the regular premium basis under a state law permitting the change, and providing that nothing in it should impair the obligation of any contract; the original articles provided for their amendment except as to one article which was not altered or affected by the change. In an action brought by two dissatisfied holders of policies issued on the assessment basis to have the company wound up and its assets distributed on the ground that their original contract was impaired by reason of the change permitted by the state statute,

Held that it is not every change in the charter of a corporation that will work such a departure from the purposes of its creation as to forfeit obligations incurred to it, or prevent its carrying on the modified business.

Held that there was no vested right in a policyholder to have the original plan continued that constituted a contract, nor did the state statute impair or operate to impair the obligation of any contract, within the meaning of the impairment clause of the constitution.

This case originated in a bill filed in the circuit court seeking to declare a dissolution of the insurance company, the sequestration of its assets, and have a receiver appointed with a view to winding up the affairs of the association. On the sixth of August, 1880, an insurance association was organized under the laws of Minnesota, known as the Bankers’ Association; afterwards, in 1884, its name was changed to the Bankers’ Life Association of Minnesota. The general purposes of the association were to secure benevolent and fraternal cooperation between its members, and pecuniary assistance to the families of its deceased members and other designated beneficiaries. Its general plan of operation was declared to be to assess and collect from its members and to pay over to the beneficiaries certain stipulated sums, to be secured to them by sufficient pledges of money, which should be kept invested in United States registered bonds. Male persons not less than eighteen years nor over fifty-five years of age, approved by the medical director, were eligible to membership upon a deposit of as many dollars as such person was years of age, as a part of the "guaranty trust fund," which fund was to be a pledge to secure payment to be made by the association upon the death of members, and was to belong to the association; also a membership fee equal to half the guaranty deposit, and the proportion of the annual expense assessment for the year was required. It was provided:

Each member of this corporation shall pay thereto, on the last secular day of September, in each year, an assessment equal to fifteen percent on his contribution to the "guaranty trust fund," to meet the operating expenses, and to be known as his "annual dues," and upon the death of any member, each surviving member shall also pay to said corporation, on demand, an assessment equal to two percent on his contribution to said "guaranty trust fund," and out of this sum, obtained from said last-named assessment, which shall be known as the "mortuary assessment," there shall be paid to such beneficiary as is designated in the membership certificate the sum of money in the said certificate named.

All assessments upon members of this corporation shall be apportioned among all members thereof pro rata -- that is to say, in proportion to the amount that each member has paid into said guaranty trust fund. All assessments due or to be paid to this corporation shall be paid to such officers or persons and at such places as the said board of trustees shall name and specify. In order to secure prompt payment of all losses occasioned by death of its members, and to avoid unreasonable expense incident to the making and collection of assessments, and to promote the convenience of all parties, said assessments need not be made on account of such death loss separately, but may be made at stated intervals as said board of trustees may direct, to provide for all or any death losses of said corporation that have taken place prior to the making of any such assessment or assessments. Any assessment for the purpose of paying any death losses shall uniformly be two percent of each surviving member’s contribution to said "guaranty trust fund" for each such death loss, and, in case any such assessment, shall produce a gross amount in excess of the amount needed to pay such death losses, then such excess may be used to discharge death losses subsequently occurring.

Article X provides as follows:

All amounts pledged to this company to secure payment of assessments occasioned by death of the members shall be used only for that purpose, and meanwhile the same shall be and remain invested in United States registered bonds, and shall constitute and be known as "the guaranty trust fund." Such bonds shall be made payable to this company, and shall be transferable or convertible only upon resolution of its board of trustees, and such board shall have the exclusive charge and control thereof.

All interest realized from such bonds shall meanwhile be used to defray the company’s operating expenses.

This article shall never be amended, or in any way at all changed, without the consent of every member of this company, to be given in writing signed by him, and filed with the company’s secretary, and reciting in full the proposed amendment or change.

It was provided that amounts payable to beneficiaries should be collected by the company from its members, and in case of death or default on the part of any member in payment of his assessments, the association might use his deposit in the guarantee fund to pay death losses in such manner as it might deem best, such use not to work a payment of any assessment as against the defaulting member.

Upon the death of a member, the beneficiary was to receive a sum equal to two percent of the then subsisting guaranty trust fund, not exceeding, however, $2,000 upon each full membership, and not exceeding in any case $6,000. Power to amend the articles was vested in the trustees (except as therein otherwise provided), and they were to direct, manage, and control the business of the company.

Wright became a member of the company on December 10, 1892, and Truby on March 13, 1893. On December 24, 1898, the board of trustees adopted amended articles of association and bylaws. The amended articles declared that the bylaws shall contain provisions which shall operate to preserve, continue, guard, and protect all of the existing rights and privileges of, and promises and pledges to, persons who were members at the time the amended articles became operative.

Under the new articles, a form of policy was issued known as the "guaranteed option policy." These policies were issued to new holders, and members under the assessment plan were permitted to transfer their membership so as to receive such policies, which required the payment by the insured of a stipulated annual premium in advance. The premiums were figured upon certain tables of mortality, and approximate those which would have been charged by an old line company on the legal reserve basis. This form of policy contained a condition providing that, if the fund derived from such policies shall be reduced below the amount of the reserve, the company may require the insured to pay his just proportion of the deficiency within sixty days after written request therefor; or at the option of the company, such proportion, with compound interest thereon at the rate of four percent per annum, may be charged as a lien against the policy and any sum which may become payable thereunder. And, in another form of policy, it was stipulated that, if unexpected losses and expenses shall be found to have reduced the funds derived from such policies below the amount of the reserve, the company shall have the right to apportion the deficiency ratably against it and each similar policy in proportion to its reserve, and the amount so proportioned against each policy to be an indebtedness thereon, bearing interest at four percent per annum thereon until paid by dividends or otherwise.

Afterwards, at a regular meeting and as provided in the laws of Minnesota, General Laws of Minnesota of 1901, chapter 143, the company, on August 5, 1901, accepted the provisions of the statute making the company a regular reserve company, with a policy on which a stated premium is paid and a fixed sum is payable at death to the beneficiaries of the insured. The name of the company was changed to the Minnesota Life Insurance Company.

Section 21 of the act provides, among other things,

Any insurance company, not excepting companies transacting life or casualty business on the mortuary assessment or stipulated premium plan or either thereof, may qualify and be governed by this chapter, anything in its special charter to the contrary notwithstanding. Provided, that nothing herein contained shall impair or operate to impair the obligation of any contract, and provided further that, after such qualification, the company qualifying shall be governed solely by the act, and provided further that nothing in this act contained shall apply to any town insurance, mortuary assessment, or stipulated premium company unless and until it shall accept and qualify under the provisions hereof, and provided further that notice of the acceptance of said act be filed with the insurance commissioner.

Section 1 of the bylaws of the reorganized company provides:

SEC. 1. To the extent necessary to protect and continue the rights and privileges of any member holding a mortuary assessment certificate, and to preserve and secure the fulfillment of all contract obligations to him, and to continue and perpetuate in the company the power and authority to levy assessments and to do and perform all and everything necessary or expedient to enable it to carry out the mortuary assessment contracts in accordance with the terms thereof and with the law and present bylaws in such case made and provided, the present and existing bylaws shall continue in full force and effect.

A large amount of business has been done on the new plan, and the record discloses that the company has kept its contracts, is solvent, and doing business in many states.