Taggart v. Wachter, Hoskins & Russel, Inc.

Bond, C. J., delivered the opinion of the Court. Wachter, Hoskins & Russell, Inc., is one of 4,818 residents of the state against whom assessments have been made to meet the obligations of a dissolved reciprocal or inter-insurance exchange of Pennsylvania, and this suit against it is brought in advance of others in order that questions of law presented may be settled now for all. The plaintiff, who is the insurance commissioner. of Pennsylvania, is the statutory liquidator of such organizations upon their dissolution; the defendant is a subscriber to this exchange and member of it; and the assessment has been levied under the order of a court of Pennsylvania. The Baltimore City Court rendering its verdict on a stipulation of the parties to the facts, accompanied by exhibits, allowed the plaintiff the amount of the assessment recoverable on three policies, and allowed a set-off claimed by the defendant, which gave the net verdict for the defendant for §165.12. ⁶¹¹ After pleas had been filed to the declaration, the parties agreed upon a case stated, under the provisions of section 133 of article 75 of the Code of 1939, for the settlement of questions of law in dispute, and drew up a stipulation of facts to be taken as proved except as otherwise indicated, and accompained it by numerous exhibits agreed upon.

After delivery of the court’s opinion on the questions, the pleadings were completed, and the case brought to an issue. The court, by agreement, then rendered its verdict on the stipulated facts, and extended judgment for the amount allowed. On cross-appeals the principal questions are of the nature and domicil of the Exchange and the bearing of the foreign laws, the effect of the judicial proceedings in Pennsylvania, the right of the liquidator to bring suit in this state, the proper period of limitations, and the right to set off in this liquidator’s suit a claim of the defendant on a loss covered by its insurance in the Exchange. There are some subordinate questions.

The Keystone Indemnity Exchange, organized under the laws of Pennsylvania (Act of June 27, 1913, P. L. 634), was a reciprocal automobile insurance exchange composed of subscribers who undertook to pay each other’s losses by premium deposits made according to the contract of membership, or by additional amounts paid under assessment for the purpose by a corporation of Pennsylvania, the Keystone Indemnity Company, designated attorney in fact for the membership and for the Exchange as well. Upon application by the attorney in fact this Exchange secured from the Insurance Commissioner of Maryland authority to transact business in this state, first on February 3rd, 1922, and in each succeeding year until dissolution. It was listed by the Commissioner as a reciprocal or inter-insurance exchange of Pennsylvania, with its home office in Philadelphia, also the place of the home office of the attorney in fact. A branch office, denominated the “Maryland Main Office,” was maintained in Baltimore City.

All policies were accepted, written and executed at the home office, and fre ⁶¹² quently mailed from it to a branch office and then physically delivered to the policy holder, but no employee at a branch office had authority to accept applications or to write or execute policies. Whether the particular policies concerned in this case were delivered to the defendent by mail from Philadelphia or by mail from the Baltimore office, the parties were unable to prove, and hence have not stipulated. First applications for the insurance were regularly aecompained by written powers of attorney making the Indemnity Company attorney in fact for the subscriber, but as the first application of the defendant has not been found it cannot be said that it executed one. It was not customary to execute and file others upon renewals or extensions of the insurance.

However, as the policies to the defendant all recited that the Indemnity Company had power to execute contracts with other subscribers as attorney for the holder of these indemnity contracts, and was authorized “to do any act with reference to the subscriber’s liability under said indemnity contracts which the subscriber could do, with power of substitution,” the possible lack of a separate written power is taken by both parties to be immaterial in the case. The first policy of the defendant, in 1928, contained a contractual limitation of one year upon liability to assessment, and the trial court held that in an extension of the insurance for the succeeding year, executed on April 8th, 1929, this limitation was still effective, and only the assessment on policies of the three following years was allowed in the verdict. Each of the policies was to run one year from April 24th. There is a difference in provisions for contributions to losses or assessments in these several policies.

Earlier policies issued by the Exchange or company had provided for a contingent liability,- over and above the premium deposits, of the same amount, but in the form used from 1924 to 1929 this provision had been omitted and a provision inserted to relieve subscribers of any payment beyond the first premium deposits. A dispute ⁶¹³ of the power of such an organization so to limit payments, begun in 1926, resulted in an opinion of the Attorney General of Pennsylvania in 1928 that it was unlawful, and a statute of the state passed on April 9th, 1929, required that subscribers should make provision for contingent liability equal to not less than the one additional premium. In 1929, a certificate of extensión of the defendant’s previous policy recited that the contingent liability of the subscriber for the additional amount was insured against by the Indemnity Company as attorney in fact for the subscribers; in 1930 policy, however, written on an older form, provided only that the original premium amount should be applied to payment of losses and adjustment payments. The 1931 and 1932 policies conformed to the requirement with a provision that: “In the event that the premium herein provided for, together with the premium deposits of other subscribers, and the reserve and surplus funds maintained by the Keystone Indemnity Exchange shall be insufficient to pay the losses incurred, Assured shall be contingently liable for an additional amount, not to exceed, however, the annual premium or deposit charged herein.” The recited insurance against payment of the additional contingent liability, was lost by the insolvency of the insurer.

In March of 1933, the Exchange was found to be insolvent because of depreciation in values of securities and defalcations, and at the instance of the Insurance Commissioner of Pennsylvania, and after a hearing, insolvency was adjudged by the Court of Common Pleas of Dauphin County, Pennsylvania, and the property of the Exchange and the Indemnity Company was placed in the hands of the commissioner for liquidation of its business and affairs because of the insolvency. A subsequent order on motion of the Attorney General of that state declared the Exchange to be dissolved; and notices of the dissolution and discontinuance of the business were sent by mail to all policy holders and claimants, including the defendant, directing that claims be filed by August 10th, 1936. ⁶¹⁴ These proceedings were in accord with the statute of Pennsylvania, Act May 17th, 1921, 40 P. S. Pa. Sec. 206, which provided that liquidation in such case should be made by and under the direction of the Insurance Commissioner, and that he should “be vested by operation of law with title to all of the property, contracts, and rights of action” of such an exchange. The liquidator filed in court his report of the condition of the Exchange, and upon his petition, and after a hearing of some intervening members and subscribers other than the defendant here, the Court of Common Pleas on September 12th, 1938, ordered that each subscriber holding policies between April 9th, 1929, the date of the statute of Pennsylvania on contingent liability, and May 18th, 1933, the date of institutoin óf proceedings for winding up, should pay an assessment equal to one deposit premium.

This was the whole amount of the contingent liability specified in the later policies, and the minimum prescribed in the statute. The total of claims thus far allowed or pending in the liquidation proceeding is approximately $300,000, of which $50,000 represents claims of persons or corporations in Maryland. The total assessments under the decree of the Pennsylvania court would be $2,843,233.23, and this total amount is ordered to provide for failures in collections, and for expenses. Members assessed number altogether 25,182, and of those 4818, as stated, reside in Maryland; and among them are the members with claims amounting to approximately $50,000.

The defendant claims the right to set off $750 because of a judgment against it for damages caused by its truck in a collision prior to the beginning of the liquidation proceedings. The- full amount of the judgment was $1450, but a compromise agreement with the liquidator reduced the claim to set off to the $750; it was allowed by the court in that amount, against the amount of the assessment recovery of which was allowed: $584.88; and this gave the defendant the net verdict of $165.12. On the first appeal the plaintiff contests the disallowance of ⁶¹⁵ the assessment on the policy of 1929, and allowance of any set-off in this suit, and on the second the defendant contests any recovery on the assessment. Some of the questions which are raised now have been decided by the Supreme Court of Pennsylvania on appeals in that state.

In two cases of Commonwealth v. Keystone Indemnity Exchange, 335 Pa. 333 , 6 A. 2nd 821, and Id., 338 Pa. 405 , 11 A. 2nd 887, it was decided that the assessment after insolvency was properly made upon policies effective after April 9th, 1929, because the statute of that date formed part of all contracts thereafter in force, that subscribers might properly be assessed to their maximum liability although the sum total of assessments would greatly exceed the claims to be paid, in order to provide for failures of some members to pay, that the expenses of liquidation must come out of the distributable assets, which include the obligations on the assessments, that the subscriber must pay the full amount of his assessment if necessary to make the assessments collected cover the claims and expenses; and that the contingent liability for the assessment is to cover as well the claims of creditors who are also members chargeable with the defalcations of the common attorney in fact. The Court of Common Pleas had previously authorized the assessment, and ordered that the policies effective after passage of the statute of April 9th, 1929, 40 P. S. Pa. sec. 964, were liable to assessments to pay twenty-five losses aggregating 817,423.51, which had occurred previously. The defendant in this suit did not appear and was not personally represented in the Pennsylvania proceedings. This court concurs with the trial court in the opinion that no assessment could be made on the defendant’s extended policy of 1929 to 1930.

While the insurance under it was not to become effective until April 24th, 1929, the contract, having been completed on April 8th, a day before passage of the statute requiring provision for the additional, contingent obligation, was not affected by that statute. 2 Cooley, Briefs on Insurance, 1102 to 1105; Archer v. Equitable Life Assur. Soc., 218 N. Y. 18 , 112 ⁶¹⁶ N. E. 433; Lindemann v. American Ins. Co., 217 Mich. 698 , 187 N. W. 331 . The subscriber can fix his own undertaking.

Wysong v. Automobile Underwriters, 204 Ind. 493 , 184 N. E. 783 , 94 A. L. R. 826. And he cannot be subjected to an obligation in excess of that for which he has voluntarily contracted before the passage of the statute. 2 Cooley, supra, and cases cited. It cannot be held that the opinion of the Attorney General that such a contractual limitation was unlawful entered into the contract actually made, and extended its obligation, nor did this effect follow the endorsement on the 1928 policy that the additional obligation in the contract — which was an error, as it was not mentioned in the contract — was insured: The opinion could not on any ground be said to have come to the notice of the subscriber in Maryland, and neither that nor the endorsement could have been part of its actual undertaking. The subscriber was in the position of one who had a contract not in strict accord with the plan, like one who had a straight life policy issued . by a mutual organization.

Dwinnell v. Kramer, 87 Minn. 392 , 92 N. W. 227 ; Marin v. Augedahl, 247 U. S. 142, 147 , 38 S. Ct. 452 , 62 L. Ed. 1038 . The relevant statutes of the state of creation of the organization did enter into and form part of contracts after their passage, and therefore the contract of 1930, notwithstanding the omission of any reference in it to an obligation for any payment beyond that of the original premium, must be construed to embody the provision for it in the statute of-1929. Broderick v. Rosner, 294 U. S. 629 , 55 S. Ct. 589 , 79 L. Ed. 1100 , 100 A. L. R. 1133; Breakstone v. Appleton Co., 149 Wis. 303 , 135 N., W. 853; Cogliano v. Ferguson, 245 Mass. 364 , 139 N. E. 527 ; 2 Cooley, Briefs, 1104 etc. and cases cited. The policy of 1930 affords the defendant no individual ground for objecting to the assessment based upon it, and the three policies of 1930, 1931 and 1932 were correctly taken as the basis of allowance. ⁶¹⁷ For several reasons, we think, the proceedings in Pennsylvania on the need of the assessment and its amount, and the propriety of making it when made, are conclusive in this suit in Maryland.

Without reference to the nature or proper description of the organization of the Exchange and its relationships, the facts that the subscribers had set up in Pennsylvania resources for meeting certain demands, that those resources had become inadequate, and equal treatment of the demands therefore impossible without additions, provided a case for administration and distribution by law in that state. “It matters not whether the Reciprocal was an entity separate and distinct from its members, whether it could sue or be sued in its own name, or whether the attorney in fact could speak authoritatively for it in a court of equity. The fact remains that a large fund existed, that 10,000 members were interested therein, and a court of equity having jurisdiction of the parties would see that this fund was equitably distributed.”, Irwin v. Missouri Valley Co., 7 Cir., 19 Fed. 2nd 300, 304. Further, the Exchange, whatever its exact description, being a creature of the statute law of Pennsylvania, had its domicil in that state. Baltimore & O. R. R. Co. v. Glenn, 28 Md. 287, 319 , 92 Am.

Dec. 688 ; 1 Cooley, Briefs on Insurance, 853. It is true that it differed in form from a corporation of which this consequence is ordinarily stated, but it has nevertheless existed by virtue of that law, and that is the essential fact. It issued policies by the authority of that law, and it is now dissolved under a statute of that state. It could be dissolved in no other jurisdiction than that of its creation.

Wilkins v. Thorne, 60 Md. 253, 258 ; Restatement, Conflict of Laws, sec. 157. There is an entity sufficient to have a domicil. The description of a mere association of individuals exchanging contracts among themselves does not indeed, exactly fit the reality; and courts which have had to deal with similar organizations have recognized the necessity of treating them to an extent as ⁶¹⁸ entities. In Pennsylvania, it seems, they are classed as “quasi corporations.” Barford v. Becmer Co., 11 Pa.

Dist. & Co. R. 51. They have been held to be properly made parties in judicial proceedings. Walker Co. v. National Underwriters' Co., 7 Cir., 3 Fed. 2nd 102; Mountain Timber Co. v. Manufacturing Underwriters, 98 Wash. 167 , 167 P. 93 ; Warfield-Pratt-Howell Co. v. Williamson, 233 Ill. 487 , 84 N. E. 706 ; Cook Motors Co. v. Casualty Assoc., 239 Mich. 362 , 214 N. W. 212 . Some of the policies now concerned were signed in the name of the Exchange; by their terms they regulated the time of possible suits against the Exchange, and provided for subrogation of the Exchange to claims against third persons causing losses to subscribers.

The co-operative insurance effected through the corporation as attorney in fact differs to no appreciable extent from the same sort of insurance by a department of a corporation. Hartford Life Co. v. Ibs, 237 U. S. 662 , 35 S. Ct. 692 , 59 L. Ed. 1165 , L. R. A. 1916 A. 765 . It would seem inevitable that the device by either method should be taken in ordinary affairs as setting up substantially the same business unit, and at least would alike have a domicil. We find in the statute laws of Maryland recognition of a distinction between domestic and foreign reciprocal exchanges.

Act 1941, ch. 640. And as a foreign organization this one was given the formal permission to do business in this state. See Yoe v. Howard Benevolent Assoc., 63 Md. 86, 91, 92 . From this fact of domicil in Pennsylvania it follows that the laws of that state controlled the powers of the Exchange and its internal management, and all steps included in its dissolution and winding up.

Fidelity Mutual Co. v. Ficklin, 74 Md. 172, 180 , 21 A. 680 , 23 A. 197 . The same' result would seem to follow from the requirement arising from the reciprocal, co-operative nature of the enterprise, that all policy holders be affected alike. Royal Arcanum v. Brashears, 89 Md. 624, 631 , 43 A. 866 . This, which could be assured only by the application of the laws of one jurisdiction would be an implied undertaking of subscribers,