Gontrum v. Union Liberty Life Insurance

Offutt, J., delivered the opinion of the Court. The Union Liberty Life Insurance Company, appellee, was incorporated on April 7th, 1938, to continue an industrial life insurance business theretofore carried on by the Royal Life Insurance Company of America, which will herein be called the Royal Company, which appears to have been in business prior to 1914 A. D. The. Royal Company was placed in the hands of a receiver in 1936 in a proceeding instituted by the Attorney General on behalf of the Insurance Commissioner of Maryland and, while it was in process of liquidation, oh March 23rd, 1938, the receiver received from R. F. Holman and D. W. Darden, an offer of $2000 for its “Charter,” subject to the condition that the “Charter shall be put in full force and effect in the State of Maryland.” To that offer, on March 24th, 1938, the Insurance Commissioner replied: —“After due consideration, the above offer is accepted. After the sale of this charter shall have been reported to and ratified by the Court, it will be duly assigned and ⁶²⁷ delivered to your clients.

As Insurance Commissioner, license will be duly granted to a newly organized company under this charter to transact an Industrial life, health and accident insurance business in Maryland when applied for, provided said newly organized company shall be found to be possessed of the capital and assets required of such company under its charter, and shall otherwise comply with the requirements of its charter under the statutes of this State.” Prior to that, on February 18th, 1938, the Circuit Court of Baltimore City, in which the receivership proceedings were pending, authorized the receiver to sell “the Charter” of the Royal Company for such sum “as may be procurable.” On April 5th, 1938, that order was amended so as to authorize the receiver to sell “the Charter of the Royal Life Insurance Company of America with all rights, privileges and franchises existing thereunder, to such person, persons or body corporate as he may deem proper, for such sum or sums of money as may be procurable, and the proceeds deposited in bank, subject to the further order of this Court. Otherwise said original order is hereby confirmed.” The receiver, on April 7th, 1938, reported that he had sold the “Charter” of the Royal Company “with all rights, privileges and franchises existing thereunder, unto Roland F. Holman, David W. Darden and Carl J. Kirby” for $2000, and on the same day the sale was confirmed. The purchase price was paid and the purchasers thereupon caused the Union Liberty Life Insurance Company, Inc., herein called the Union Company, to be incorporated, and thereafter they attempted to transfer to it the charter, rights, privileges and franchises of the Royal Company which they had bought from the receiver. The Union Company then deposited with the Insurance Commissioner $10,000 in U. S. Government bonds and applied for a certificate authorizing it to operate an industrial life insurance business in Maryland, and was informed by the State Insurance Department of Maryland that, as soon as its policy forms were approved by ⁶²⁸ W. S. Hanna, the Insurance Commissioner, a license to sell insurance in accordance with the provisions of "the “Charter of the Royal Life Insurance Company of America” would be issued to it.

The forms were filed and approved, but Mr. John B. Gontrum, who had succeeded Mr. Hanna as Insurance Commissioner, would not issue the certificate unless the Union Company deposited with him $50,000, as required by Code, art. 48A, sec. 98. The matter was then referred to the Attorney General, who advised the Insurance Commissioner that no certificate to do business should be issued to the Union Company until it had complied with the requirements of Code, art. 48A, sec. 98. The Union Company thereupon brought this action for a mandamus to compel the Insurance Commissioner to issue the certificate. The case was submitted to the court on pleadings embodying the facts stated, and the court, after a hearing, ordered the Insurance Commissioner to issue to the Union Company a license or certificate authorizing it to do 'an industrial insurance business in the State of Maryland.

The appeal is from that order. The question presented by the appeal is a narrow one, and is, had the receiver the power to transfer to the appellee the privilege of the Royal Company to do an industrial life insurance business in Maryland upon depositing $10,000 with the Insurance Commissioner, as required by Code, art. 48A, sec. 100, or was it required, as a condition precedent to doing such a business, to deposit $50,000 with the Commissioner, as provided in Code, art. 48A, sec. 98? That question turns upon whether the power which the Royal Company had and exercised of doing such a business under Code, art. 48A, sec. 100, rather than under Code, art. 48A, sec. 98, could be transferred to a new corporation under the provisions of Code, art. 23, sec. 134. In considering the meaning and significance of these statutes', reference to the evolution and history of the statutory law affecting the business of industrial life insurance in this state may be helpful. ⁶²⁹ Industrial insurance, or as it is sometimes called, people’s insurance, prudential insurance, or family insurance, is said to have originated in the early guilds, friendly societies, and burial societies.

Couch, Encyc. Insurance Law, sec. 32; 17 Halsbury’s Laws of England (Hailsham’s Ed.) sec. 431 et seq., 509; 31 C. J. 966; 18 Halsbury’s Laws of England (Hailsham’s Ed.) 574. It is a form of insurance written for a small limited amount payable at death, in consideration of a premium collected at short, fixed, intervals, and is not unlike burial insurance, or death benefits, since its benefits ordinarily accrue to the insured rather than to another. Because of the small amounts for which it is written, it is ordinarily sold to persons of limited means and thin resources, and in the beginning was issued by guilds and friendly societies for the mutual protection of their members, and payments accruing under it were made from dues and assessments imposed upon the members, and its purpose was protection and not profit.

But its nature and character began early to be affected by the motive of profit, and that change so influenced its development that today the business is largely done by stock companies operating for profit, although in other respects it retains the characteristics which gave it its name. Coincident with that change in its nature came also the necessity of regulating it by statute, in order that the poor and needy, who often look to it as their only assurance of a decent burial or help in time of sickness, might receive the benefit for which they paid. Chapter 106 of the Acts of 1878 established for the first time in this state a State Insurance Department, created the office of Insurance Commissioner, and prohibited any person from acting as agent or solicitor for any insurance company until it obtained a license from the commissioner and satisfied the insurance department that it maintained reserves adequate for the protection of its policy holders. Chapter 387 of the Acts of 1880, section 32, amended the Act of 1878 so as to define “insurance company,” and in that definition it excluded from ⁶³⁰ the term religious, charitable, benevolent societies, and orders or associations having ritualistic work.

Chapter 424, of the Acts of 1888 again amended section 32, chapter 106, Acts of 1878, by adding to the definition the following proviso: “Provided, also, that the business commonly known as industrial insurance, or on the weekly-payment plan, shall not be permitted to operate under the guise or privileges of the orders as exempted in this act,” so that inferentially such organizations were brought within the scope of existing insurance legislation. Sub-section A of section 32 also provided “that weekly collection or industrial benefit societies of this state, granting insurance of five hundred dollars or less, may only be required to have and maintain the sum of five hundred dollars,” and sub-section G required such organizations to require their agents to give a bond for not less than fifty dollars. It may be inferred also from that act that such companies had not theretofore been regarded, or at least treated, as within the insurance laws of the state, but beginning with its passage they were subjected to those laws and dealt with accordingly. Chapter 488 of the Acts of 1892 carried the regulation of such companies a step farther, and provided that they might be formed on the “mutual, corporative assessment or stock plan,” but that if formed on the stock plan they must have a paid up capital of $10,000, and must deposit with the Commissioner $10,000 in cash or its equivalent, but it further provided that weekly or monthly collection or industrial benefit societies incorporated prior to 1892, and which had reported to the Commissioner for 1891, need only deposit “the sum of five hundred dollars ($500), before the first day of January, 1893, and to deposit as aforesaid an additional sum of five hundred dollars ($500), before the first day of January in every year thereafter until they shall have each deposited as aforesaid the full sum of ten thousand dollars ($10,000),” The law was again amended by chapter 256 of the Acts of 1894, which provided that weekly or monthly collection or industrial benefit societies, incorporated prior to 1892 ⁶³¹ and which made a report to the Commissioner for the year 1891, would only be required to deposit with the Commissioner $500 annually until the accumulated deposits equaled $10,000, but that if any such company failed to make the deposit it should be subject to the penalty and process imposed by Code 1888, art. 23, sec. 122.

So much of chapter 338, Acts of 1902, as relates to industrial insurance companies, is ambiguous, but its apparent purpose was to continue the policy of permitting industrial insurance companies, which were incorporated and doing business prior to 1898, to continue in business upon compliance with the milder terms of what is now Code, art. 48A, sec. 100, rather than with the more stringent provisions of what is now section 98 of that article. Chapter 813 of the Acts of 1914 again amended the law, then codified as sections 175 and 176, Code, article 23, and provided that no such company issuing policies or contracts of insurance for the payment of no more than $1000, if formed on the stock plan, might operate unless it had a paid up capital of a least $50,000, and if formed on the mutual, co-operative assessment, or stock plan, until it had deposited with the Commissioner $50,000, but that mutual or co-operative assessment companies,