Petition for Writ of Certiorari — Pink v. A. A. A. Highway Express, Inc.

Supreme Court brief1942

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il INDEX

Bradford Light Co. ¥. Clapper, 2S6 U.S. 145, 76 1.

Ed. i026, s2A. LL. R. 696

Broderick v. Rosner, 294 U.S. 629, 79 L. Ed. 1100

Broderick vo Stephano, 314 Pa. 408, 171 Ath 582

Carlton ve Southern Mutual Life Ins. Co., 72 Ga.

ep™=

ord

Christopher v. Norvell, 201 U.S, 216, 50 L. Fd.

Clark v. Williard, 292 U.S. 112, 78 L. Ed. 1160

Converse v. Hamilton, 224 0.8. 2438, 59 L. Ed. 749

Coombes v. Getz, 285 U.S, 434, 76 L. Ed. 866

Corning Vv. McCullough, 1 Comstock 47, 49 Am. Dee.

287

Factory Mutual Liability: Ins. Co. ve Behan, 255

N. 3. & 22

Floyd vy. Consolidated Indemnity Ins. Co., 261 NOYLS.

61, 237 Aun. Div. 190

Great American Indemnity Co, v. Vickers, 183 Ga.

933, 188 S. BE. 24

Great Western Telegraph Co, v. Purdy, 162 U.S.

337, 40 L. Ed. 986

Hadfield v. Landin, 168 Pac. 516, L. R. A. 1918(B)

at 912

Hancock National Bank v. Farnum, 176 U.S. 640,

441. Ed. 619

Hartford Life Ins. Co, v. Tbs, 237 U.S. 662, 59 LL.

Kd. 1165

Hartford Steam Boiler Co. ve Harrison, 301 U.S.

459, 81 L. Ed. 1223

liathorn ve Calef, 2 Wall. (69 U.S.) 10, 16 L. Ed.

716

Hawkins v. Glenn, 151 U.S. 319, 33 L. Ed. 184

Head v. Providence Insurance Co., 2 Cranch 126

Hicklen v. Coney, 290 U.S. 169, 78 L. Ed. 247

Iloward v. Glenn, 85 Ga. 238, 11S. E. 610

Huber v. Martin, 115 Am. St. Rep. 1054

Jolin Hancock Mutual Life Ins. Co. vo Yate , 185 Ga.

215, 185 S. KE. 268

Keeney ve Supreme Lodge of World Loyal Order of

Moose, 252 U.S. 411, 64 L. Ed. 63s

*>e)

)

INDEX il

age

Kiernan ve Cousolidated Gas and Gasoline Bing

Co., D1 N. ¥. 8. 78 1}

Marimv. Augedahl, 247 US. 142, 62 L. Ba. 108s 1S

MeClement ve Supreme Court 1. O. BF. St NL KE.

ao re |

McLaughlin v. Central Surety & Ins. Corp., 166 Ath.

621 ; 1)

Merchants Mutual Tus. Co. ve Smart, 267 U.S. 129,

69 L. Ed. 542 14

Michigan Public Utilities ve Duke, 266 U.S. S570, 69

L. Ed. 207 14

Milliken ve. Meger, No. 66, October Term, 1950,

U.S. —, 85 L. Ed. 269 21

Modern Woodmen v. Mirer, 267 U.S. 544, 69 L. Ea.

783 | 7,17

Motlow v. Southern Holding & Securities Corp., 9

F’. (2d) 721 22

Nashua Savings Bank v. Anglo-American Co., 189

U.S, 221, 47 L. Ed. 782 18, 21

National Surety Company, Inre, 7 Fed. Supp. 959 a

Peoples Banking Co. v. Sterling, 8300 UL S.175 10)

Pink v. Aaron, — S. E. — (decided Mareh 3, 1941,

S. C. Supreme Court) 9

Pink v. Georgia Stages, Tuc., 35 Fed. ey 437 9, 28

Roya! Arcanum v. Green, yt U. S. 531, 59 L. Ed.

1089, L. R. A. 1916 A, 771 9

Smathers v. Bank, 155 N.C. 283, 71S. EB. 345 24,25

Sovereign Camp Woodmen of the Worid v. Bolin,

305 U.S. 65, 83 L. Ed. 45 7

Supreme Council Royal Arcanum v. Green, 237 US

931, 59 L. Ed. 1089 * dy ay 0

Swing v. Taylor & Crate, ge S. B. 375 1S

United States Casualty Co. v. te rman, SO Atl.

631 1

University Overland Express v. Alsop, 189 Atl. 458 14

Upton v. Tribileock, 91 U.S. 45, 23 L. Ed. 208 20

Warner v. Delbridge, 34 L. R.A. 701 20

Whitman v. Oxford National Bank, 176 U.S. 559,

44 L. Ed. 587 24

iv INDEX

STATUTES CITED.

Page

Code of Georgia of 1933, Section 81-304 23

(Constitution of the United States, Article 4, See. 2,

Par. 1 8

Constitution of the United States, Fourteenth

Amendment 8, 10,11

Judicial Code, Section 237(b), as amended by the

Act of February 13, 1925, ¢. 229, 43 Stat. 936 13

New York Insurance Law, Chapter 28, See. 422(4) 20)

New York Insurance Laws, See. 404(2) : 21

New York Insurance Laws (Laws of 1939, Chapter

&S2, See. 58) 23

Orrver AUTHORITIES CITED.

Blashfield’s Automobile Laws, Vol. 1, page 151 14

Cooley's Briefs on Insurance, Vol. 1, p. 68 22

Sixth Report of Louis H. Pink, liquidator, filed in

Supreme Court of New York County, Case No,

28894, In the Matter of the Liquidation of Auto

Mutual Indemnity Conipany, January 19, 1940 26

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1940

No. 932

LOUIS H. PINK, SUPERINTENDENT OF INSURANCE OF THE STATE OF NEW

York,

Petitioner,

v8.

A. A. A. HIGHWAY EXPRESS, INC.; H. A. ADAMS, TrapiIne as ADAMS

TRANSFER ('o.; H. L. BASS, as Bass Bus Line; SERVICE COACH LINE,

INC.; EAST & WEST MOTOR LINES, ROY R. REAGIN, GEORGIA

MOTOR EXPRESS, INC., 8. 8. SALE, SALE TRANSFER CO., SOUTH

EASTERN STAGES, INC.. EVERREADY CAB COMPANY, J. H.

BOOKER, p/B/A SAVANNAH Beach LINE AND/OR ATLANTIC STAGES;

FLETCHER T. KAYLOR, b/B/A KayLoz Transrer Co.; J. F. MURRAY,

bD/E/A GEORGIA ALABAMA CoacH Line; KALER PRODUCE COMPANY,

COX BROS. UNDERTAKING CO., INC,, ATLANTA MACON MOTOR

EXPRESS, INC., SOUTHEASTERN MOTOR LINES, INC., Aanv/or

CepakTOWN Bus Ling, J. RUSSELL, D/B/A RUSSELL TRANSFER Co., CON-

TINENTAL CARRIERS, INC., BATEMAN COMPANY, INC., DOWNIE

BROTHERS CIRCUS, KINNETT ODOM COMPANY, INC., SOUTHERN

STAGES, INC., WEATHERS BROS. TRANSFER CO., INC. M. & A.

MOTOR FREIGHT LINES, INC.

PETITION FOR WRIT OF CERTIORARI TO THE

SUPREME COURT OF THE STATE OF GEORGIA

AND BRIEF IN SUPPORT THEREOF.

To the Honorable Charles Evans Hughes, Chief Justice of

the United States, and the Associate Justices of the Su-

preme Court of the United States:

Your petitioner respectfully shows:

This is a petition for a writ of certiorari to the Supreme

Court of the State of Georgia, to review a decision of the

Supreme Court of the State of Georgia, dated January 16,

1941 (adhered to on rehearing February 14, 1941), affirm-

ing a final judgment of the Superior Court of Fulton County,

Georgia, which dismissed, with opinion (R. 80-81), the bill

in equity brought by petitioner against the respondents

herein.

}

Summary Statement of Matter Involved.

Petitioner is the Superintendent of Insurance of the State

of New York and statutory successor of insolvent insurance

corporations chartered in that State. On the 13th day of

October, 1939, he filed a bill in equity in the Superior Conrt

of Fulton County, naming as defendants certain individuals

and corporations, alleging them to be members and policy

holders of Auto Mutual Indemnity Company.

He alleged that the Company, by its charter, was author-

ized to issue casualty policies on a mutual plan only; that

the applicable statutes of New York contained mandatory

provisions confining membership of the corporation to its

policyholders; that mutual insurance companies of this

character must provide in their charters and by-laws ‘or

the levy of an assessment in :ase of deficiency of assets, and

that every member is obligated to pay assessments not ex-

ceeding twice the amount of his annual premium, upon

receiving notice thereof.

He alleged further that after the Company had been taken

over for liquidation under a judgment of the New York

Supreme Court, his recommendation for the levy of a 40%

‘ssessment against all members and policyholders had been

approved by the court; that thereafter he had computed the

amounts due by each member, including the Georgia defend-

ants, also other indebtedness due for premiums.

His secona report containing a computation of the amount

due by each defendant under the assessment and other in-

debtedness due was filed in the case and on November 18,

1938 a Justice of the Supreme Court of New York entered

a decree finding that notice had been maiied to the last

known address of the members shown on the books of the

insurer and newspaper publication had also been made, all

as provided for in the statutes of New York dealing with

the liquidation of insolvent mutual insurance companies,

and approving the correctness of the reports aforesaid

(R. 38).

Relevant sections of New York law covering the liquida-

tion of insolvent insurance companies and assessments

therein were attached as exhibits to the pleadings (Amend-

ment of July 25, 1940, R. 18-44 inclusive and Amendment

of Aug. 14, 1940, R. 44-46). The charter (Article 4) pro-

vided that ‘‘the members of the corporation shall be the

polieyholders therein.’’ And in the same pleadings (Amen.l-

ment of July 25, 1940, R. 22-23) petitioner alleged the law

of New York to be:

‘It is the law of New York that every person who

accepts a policy of insurance in a mutual insurance com-

pany thereby becomes a member thereof. * * *

‘It is the law of New York that the aforesaid section

346 compels the Company to fix the contingent mutual

liability of the members; and that failure to mention

the liability to assessment in the policies or by-laws

does not release policyholders from liabitity to assess-

mert, but results in their liability being fixed in ac

cordance with Section 346 of the New York Insurance

‘Tt is the law of New York that the laws of that state

govern the rights, liabilities and duties on liquidation

of. policyholders in mutual insurance companies incor-

porated 2nd liquidated in that state.’’

And that ‘‘Every person who was a member of a mutual

insurance company at any time within the twelve months

prior to the date of the commencement of

- * * liquida-

2¢

ot is liable to assessinent in aceord-

‘on proceedings

ance ‘vith Seetion 346 of the New York Insurance Law.’

The New York proceedings are summarized in the | port

of the Special Master (14 N. Y. Supp. (2) 601). This opin-

ion is annexed to the brief (Exhibit ‘*A‘’). .

All policies contain the standard clause entitling persons

obtaining judgments against the insured to proceed against

the insurance company under the terms of the policy to the

same extent as the insured (R. 48A). The names of many

defendants indicate their business as public carriers. By

the statutes of Georgia and other States in which they did

business as well as by the provisions of the Interstate Com-

merce Act the filing of their policies was a condition to the

exercise of their certificates of public convenience. Against

these policies the public has a direct right of action.

The mutual nature of the company appears from its

name, from the profit sharing provisions in the face of the

policy, and on the back of the policy is a specifie recitation

that **The Insured is hereby notified that by virtue of this

entitied to vote * * * at

any and all meetings of said company,’’ and that ** The con-

Policy he is a member

tingent liability of the named Insured under this policy

shall be limited to one year from the expiration or cancella-

tion hereof aud shall iiot exceed the limit provided by the

Insurance Law of the State ef New York.”’

Defendants moved generally to dismiss the bill because

(a) it appeared that the policies had been delivered in

Georgia, and (b) because the policies contained no provi-

sions on their face for assessment nor reference to the

by-laws. Although these defenses challenge presently their

right to recover assessments and ‘~ferentially admitced

the liability for premiums the Court sustained the de-

murrer and dismissed the entire bill (R. 80-#1). The

Supreme Court of Georgia affirmed with opinion (R. 82-96).

‘Although the right co recover premiums was insisted upon

(R. 98) a rehearing was denied generally without opinion

(R. 107).

The Supreme Court of Georgia construed petitioner's

ullegations that the defendants were policyholders and

members as an averment that defendants were mei

bers because they were policvholders. Finding that the

policies were delivered in Georgia, the Court ruled in

applicable the statutes of New York and the orders anid

decrees in the liquidation proceedings.

It concluded that the acceptance of the policy did) not

make a polievholder a member liable te assessment in ac

cordance with the laws of the State of the company ‘=

domicile, although a reference to this liability appeared on

the back of the policy ‘‘there being in the face o° the polices

no reference to any contingent liability or assessment, or

to any law providing for such,’? and that this was true net

withstanding the charter of th | ompany “provides that

members shali be the polievhoiders, that its by-laws pre

vide that every member shall be liable to & sessment, and

that the insurance law of the State of the Comouany’s domi

cile contains a like provision."

It concluded that Georgia residents were not bound by

the liquidation proceedings in New York because they hid

not been personally served but only by mail pursuant to

the New York statutes. It deemed the service on the cor

poration insufficient, and held that the rulings of this Court.

that the rights of members of a mutual corporation uiust

be determined by the single law of the domicile of the cor

poration, were applicable only to fraternal orders havine

a lodge system and not applicable here, and that ons

Cieorgia law would be applied (R. 82).

It considered the contention advanced by petitioner that

his rights to collect a fund for the payment of creditors,

based upo.u assessments authorized by the statutes of New

York and confirmed by the judgments of its courts, were

protected by the full faith and credit clause of the Federal

Constitution (Article 4, Section 1), and denied it (R. 87-90).

Finally, it concluded that the rights of the defendants,

under the Fourteenth Amendment of the Constitution of

the United States, prevented enforcement of assessment

rights based upon the statutes of New York and a charter

vranted thereunder (R. 89-90).

Il.

Reasons Relied On for Allowance of the Writ.

The questions involved are of general public interest.

They arise in the liquidation of an insolvent mutual

casualty company, incorporated in New York under a stat-

ute and charter “hich require a contingent liability from all

policyholders as a condition to their membership. Actions

to recover these assessments have been brought in. the

States where these policvholders reside. The conflicting

decisions permitting recovery in some States while deny-

ing recovery in other States under similar policies create

an inequality of duty. Members of the public claiming

subrogation under the terms of the policies or direct lia-

bility arising out of statutes affecting defendants who are

public carriers, aie alse seriously affected by these con-

flicting views. The orderly collection of assessments and

the payment of dividends cannot proceed until the conftict

is settled.

1. The amount of premiums sued for indicate the owner-

ship by certain policyholders of fleets of trucks or busses,

the names of many defendants indicate their business as

that of public carriers. These defendants have filed

policies with tre Public Service Commissions of the various

States in which they do business and with the Meter Car-

rier Division of the Interstate Commerce Commission. The

public has a direct right of action on these policies and a

vested interest in the capital avising from the statutory

assessment. FExoneration of Georgia policyholders from

liability destroyed this vested right of ereditors.

2. The Supreme Court of Georgia held that in a suit

brought by the statutory liquidator of an insolvent iusur-

ance company for the recovery of assessinents against

pehevholders, recommended by the liquidator and approved

by the domiciliary court, the laws of the forum afford the

sole test of liability and the statutes, charter and decrees

of the domicile must be disregarded. By its decision it

nullified the previsions of the charter making assessments

mandatory. It held in effect that this corporation could

issue non-assessable policies to Georgia residents. The

business of mutual insurance is conducted on the theory

that its contracts are dependent upon the charter, as con-

strued by the laws of the domiciliary State.

Supreme Council Royal Arcanum v. Green, 237 UL S.

531, 59 L. Ed. 1089,

Modern Woodmen ve Mine r, 267 ULS. 044, 69 L. Kid. 783.

Hartford Life Ins. Co. ve Ths, 237 U.S. 662, 59 L. Ed.

1165.

Soverciaqn Camp Woodmen of the World v. Bolin, 805

U. S. 65, 83 L. Ed. 45.

McClement v. Supreme Court I. O. F., W9 N. KL at

page 101.

The intention to depart from the established rule was

deliberate.. The Supreme Court of Georgia relied on

McClement v. Supreme Court 1. O. F..152 N.Y. Supp. 126,

a trial court decision which was reversed. MeClement v.

Supreme Gourt I. O. F., W9N. BE. 99.) It chose the law of

the forum with knowledge that the principles relied on had,

by this Court, been rejected in the cases of Supreme Council

Royal Arcanum vy. Green, supra, and Soverciqn Camp

W. OL W. ov. Bolin, supra, (R. 106). This rule destroys

pro tanto the rights of all mutuai insurance companies to

enforce their charter provisions outside the State of their

incorporation.

— Decisions of thie Court dealing with this principle have

involved fraternal insurance associations and the Supreme

Court of Georgia (R. 88), justified its departure on this

eround. Whether these principles are equally applicable

fo casualty insurance companies is a question which has

not been but should be decided by this Court.

*. The Supreme Court of Ge cgia (R. 90) assumed that

the principles of statutory Uability by corporate repre-

sentation announced in Hawkins v. Glenn, WA UL S. 319) 283

L.. Md. S84, had been modified if not reversed by Great West

ern Telegraph Company vy. Purdy. 162 Ul S. 337, 40 L. Bad.

9S6. Such a construction was not justified. This Court

specifically limited its rulings to the local statute of limita

tions, properly applied.

4. While exempting residents of Georgia from lability to

assessment when sued by the Liquidator of a company char-

tered in New York, the courts have heretofore atforded re

lief to their own residents, suing as creditors to recover

assessinents under similar conditions. (Alma Gin d Milling

Co.v. Peeples, 145 Ga, 722, 89'S. BE. 820). Such discrimina

tion against a resident of New York denied to him the equal.

ity due all citizens, to which he was entitled under Article

4, Sec. 2, Paragraph 1 of the Constitution of the United

States, and alse deprived him of property without due

process of law and the equal protection of the law, contrary

to the provisions of the Fourteenth Amendment.

» Absence of service on Georgia policyholders (R. 124)

did net justify the exclusion of the statutes of New York

and the decrees entered in the domiciliary proceedings.

(In re Auto Mutual Indemnity Company, 14 N.Y. Supp.

(2) 601, Exhibit **A’..) The presence of the corporation

and service upon members by mail was sufficient. (7a re

Auto Mutual Indemnity Company, supra, at page 610.)

The Supreme Cohrt ef Georgia in a ful) bench decision,

binding as a precedent, has so held. Jloward v. Glenn, 85

Ga. 238, 11S. bE. 610.) The finding of jurisdiction was not

subject to collateral attack in the courts of the forum.

6. The judgement under review is in direct conflict with

the opinion of the Supreme Court of Seuth Carolina in

a case involving identical facets. (2k, Supt. ve Th RB.

Aaron, et al., Supreme Court of South Carolina, Case No.

2091, — S. EB. —, decided March 3, 1941.) Exhibit ‘* B*’.)

The validity of the assessment has also been recognized

by District Courts of Iinois and Kentucky. The question

was certified for opinion to the Supreme Court of Maine

by a trial court. A recovery of assessments was denied

by the District Court of Georgia (Pink, Supt. ve Georgia

Stages, Inc., 30 Fed. Supp. 437), and a Cireuit Court of

Florida.

From a practical standpoint the conflicting decisions de-

stroy the principle well established in this Court that ‘tan

assessment which was one thing in one State and another

in another, and a fund which was distributed by one rule

in one State and by a different rule somewhere else, would

in practical effect amount to no assessment and no substan

thal sum te be distributed’. lioyal Arcanum vo Green, 237

U.S. 531 at 543, 59 L. Ed. 1089, L. R. A. 1916A, 771.

An authoritative decision from this Court, settling the

conflict, is necessary.

The Hability placed upon policyholders by statute is a

substantive liability to which every policyholder subjected

himself when he accepted a policy from the company, ir-

respective of the terms of the poliey.

Behav. Weinstock, 160 N. FB. (Court of Appeals of New

York), at pages 17-18; .

Compare Peoples Banking Co. v. Sterling, 300 U.S.

175‘at 181.

The decision under review destroys the statutory lability.

It also destroys the purpose of the parties to enter into a

contract of mutual insurance that ‘teverywhere it) shall

have the same meaning and give the same protection and

that inequalities and confusion lable to result) from = ap-

plications of diverse State laws shall be avoided.”’

Bozeman ve Connecticut: General Life Ins. Co., 301

U.S. 196 at 206,

citing Royal Arcanum v. Green, supra,

III.

Federal Questions on Which Error is Assigned.

1. The statutes under which the Auto Mutual Indemnity

Company Was incorporated, its charter and by-laws. were

not accorded the full faith and credit to which they were

entitled under Article 4, Section 1 of the Constitution of

the United States.

2. The Judgement dismissing the petition and the opisiion

of the Supreme Court of Georgia denying all relief to a

statutory liquidator of an insolvent mutual insurance com-

pany, chartered under the laws of New York, who snes to

recover a balance of premiums admittedly due, and assess

ments levied in accordance with the statutes and charter

provisions, is a Violation of the rights guaranteed to him

under the full faith and eredit provision of the Constitution

of the United States, Article 4, Seetion 1, and of the Four-

teenth Amendinent.

3. Refusal to accord recognition to the orders and de-

crees of the Supreme Court of New York, entered in the

liquidation proceedings, entitled ‘*7n re Auto Mutual lu

demnity Company, 14 N.Y. Supp. (2) 601°, which adjudged

the necessity for assessment and specifically adjudicated

the liability to assessment of policyholders holding policies

identical to those of the defendants residing in Georgia, is

an denial of the full faith and credit due to the judgements

of a sister State, guaranteed by Article 4, Section 1 of the

Constitution of the United States aforesaid.

4. The orders and decrees of the domiciliary court ap

proving the assessment, dated February 7, 1988 (RLS), and

the decree overruling exceptions by residents of South

Carolina to the assessment on the ground that the policies

contained no provision for assessment (being the identical

policies involved bere), were adjudications of the lability

to assessment of policyholders of this class. (li [te ite

Mutual Indemnity Company, 14 N.Y. S. (2) GOT at G05,

Appearance for Suburban Transit Company of Columbia,

South Carolina. Also at page 607 general appearance for

Suburban Transit Company, and at page 608 (8) conten

tions ef residents of South Carolina and Ohio.)

The reference (14 N.Y. S. (2) at 605) was to hear ane

determine.

‘The decision of a referee appointed to hear and de

termine has the same effect as the decision of a justice

of this (Supreme) Court.”’

Nivrnan ve Cousolidated Gas and Gasoline Bian

Co, 201 N.Y. Supp. 78.

Wherefore, vour petitioner prays that a writ of certiorari

he issued out of and under the seal of this Honorable Court,

directed to the Supreme Court of the State of Georgia «oun.

manding said Court to certifty and send to this ©ourt a tull

and complete transcript of the record and of the proceed

ings of the said Supreme Court of Georgia had in the case

numbered and entitled on its docket No. 13,549, Louis H.

Pink, Superintendent of Insurance of the State of New York,

Piaintiff-in-Error, vs. A. A. A. Highway Express, Ine., et al.,

Defendants-in-Error, to the end that this cause may be re-

viewed and determined by this Honorable Court as provided

for by the statutes of the United States; and that the order

and judgment of said Supreme Court of Georgia be re-

versed by this Court, and for such other and further relief

as to this Court nay seem proper; and vour petitioner will

ever pray.

Dated Atlanta, Georgia, March 25th, 1941.

wouts HL. Pink,

Superintendent of Insurance

of the State of New York,

By Max F. Goupstery,

ALFRED (, BENNETT,

Exvuiorr Gouosrein,

Counsel for Petitioner.

BRIEF IN SUPPORT OF PETITION FOR WRIT OF

CERTIORARI.

Opinion of the Court Below.

The opinion of the Supreme Court of Georgia is reported

in 13 Southeastern Reporter (2nd), p. 837, and is appended

to the record (R. 82-96, inclusive).

II.

Jurisdiction.

1. The date of the order and judgment of the Supreme

Court of Georgia, afirming the dismissal of the case by the

trial court, is January 16, 1941. The date of the judgment

of the Supreme Court of Georgia denying a rehearing is

February 14, 1941.

2. The statutory provision which is believed to sustain

the Jurisdiction of this Court is Section 237(b) of the Judi

clal Code, as amended by the Act of February 13, 1925,

Chapter 229, 45 Stat. 996.

3. The Supreme Court of Georgia passed upon the con

~titutional questions asserted in the trial court and denied

them (R. 89-90),

Til.

Statement of the Case.

This has already been stated in the preceding petition

under ‘Summary Statement of Matter Involved’? 1 (pp. 2

to 6).

IV.

Authorities and Argument.

A. Reasons Reviep on FoR ALLOWANCE OF THE Writ.

1. The requirement that public carriers file imsurance

policies forthe protection of the public is of recent origin.

Michigan Public Utilities vo Duke, 266 U.S. 570, 69

L. Ed. 207;

Hicklen v. Coney, 290 U.S. 169-177, 78 L. Ed. 247.

It probably had its origin in the requirement that taxicab

operators provide some security for the public. These

operators are men of small iaeans and usually resort to

mutual insurance,

Hadfield v. Landin, 168 Pac. 516, L. R. A, 1918¢B) at

912.

In recent vears the Interstate Commerce Commission has

joined the States in requiring insurance.

University Overland Express vy. Alsop, et al., Public

Utilities Commission, 189 Atl. 458;

- Blashfield’s Automobile Laws, Vol. 1, page 131.

The validity of this requirement was recently sustained

by this Court.

Merchants Mutual Ins. Co. v. Smart, 267 U.S. 129, 69

L. Ed. 542.

The names of many of the defendants disclose the nature

of their business as public carriers and the amount of their

premiums indicates their ownership of fleets of trucks or

busses. What effect the decision in this case, relieving

policyholders from liability, will have upon the lability of

the company to the policyholders and the public is a doubt-

ful question in which many persons have an interest.

The interim report of the liquidator discloses claims of

the public arising out of policies filed with public officials

aggregating in excess of one million doliars. A large por-

tion of these claims are by residents of Georgia. An

estoppel available against the policyholder will not bar the

claims of the publie if the polievholder has operated in

intrastate or interstate commerce and has obtained his cer-

tificate by filing this policy against publie lability.

‘Then there would be a clear case of estoppel in

faver of the public represented by the commissioner

Which would prevent the company from denying the

validity of its poliey.’’

United States Casualty Co. v. Timmerman, 180

Atl. 631;

McLaughlin y. Ceutral Surety & Ins. Corp., 166 Ati.

Gi.

Bolta Rubber Co. v. Lowell Trucking Corp., 25 N. BE.

2(2d) 973, a

where the court, dealing with the recent requirement of the

Interstate Commerce Commission, held:

‘*The violation by truckers of requirement in policy

* * * would not preclude shipper from enforcing for

its own benefit the obligation of insurer to the extent

of 31000 under indorsement added to policy pursuant

to regulations of Interstate Commerce Commission, 45

U.S. C. A. See. 315.”’

And—-

Floyd v. Consolidated Indemnity Ins. Co., 261 N.YOS.

61, 237 App. Div. 190.

In Georgia, public carriers file policies with the [Public

Service Commission,

Great American Indemnity Co. v. Vickers, 183 Ga, 233

at 234, 188 S. EF. 24.

Members of the public have a direct interest ‘‘in main-

taining sufficient insurance fund to pay losses. By section

109 of the Insurance Law the company was directly liable

‘n case of insolvency of the insured to persons injured in

an accident covered by the policy’’.

Behav. Weinstock, supra, at page 18.

An unequal distribution of the burdens of assessment and

dividends on claims results from the decision compiained

of. The court has not cited any loeal policy ‘‘whereby an

insolvent foreign corporation in the hands of a liquidator

with title must submit to the sacrifice of its assets or to

their unequal distribution * * *.""

Clark v. Williard, 292 U.S. 112 at 129, 78 L. Ed. 1160

at 1170.

In the absence of such a policy or controlling statute, the

residents of Georgia should submit to assessment.

2. The Supreme Court of Georgia held (R. 93) ‘*A con-

tract of insurance is made, not where the poliey was exe-

cuted, but where it was in fact delivered. * * * as to

Where the contraet was made the petition is silent.’’

The physical facts in the record are to the contrary. A

typical policy exhibited shows execution by the principal

officers in New York City with the corporate seal attached

(R. 48A). The place where the contract was made is there-

fore certain. Its delivery in Georgia is a matter of con-

jecture, on which the record is silent.

The question raised upon demurrer for decision by the

Georgia trial court was the legal effect of a contract of

mutual casualty insurance, executed in New York, where the

record is silent as to the place of delivery. The decision of

the Georgia Supreme Court is not conclusive.

‘Whether the question be regarded as one of fact or

more preciseiy and accurately as a question of law to

be determined as are other questions of law, * * *

it is one arising under the Constitution and a statute

of the United States which commands that such faith

and credit shall be given by every court te the Cali-

fornia proceedings ‘as they have by law or usage’ of

that state. And since the existence of the federal right

turns on the meaning and effect of the California (New

York) statute, the decision of the Texas (Georgia)

court on that point, whether of law or of fact, is re-

viewable here.”’

Adam v. Saenger, 308 U.S. 59 at 64, 82 L. Ed. 649

at 652.

“It does not matter that a member joined in another

state.”’

Modern Woodmen v. Mixer, supra, 267 U.S, 544 at

91.

The place of the contract was the domicile of the company.

The Supreme Court of Georgia relied upon the principles

announced in MeClement v. Supreme Court, I. O. F., supra,

S88 Mise. 475, 152 N. Y.S. 136 (R. 93). It overlooked the fact

that the case was reversed by the Appellate Division and the

reversal affirmed by the Court of Appeals of New York.

McClement ve Supreme Court I. O. F., supra, 119 N.

K. 99.

The Supreme Court of Georgia also overlooked the fact

that the liability of the company to the insured ‘‘is entirely

separate from the liability of the polievhelder to the other

policyholders and creditors as an insurer.’’ (Motion for re-

hearing, R. 99-106).

The Court declined to follow the principles in Royal Ar

canum Vv. Green, supra, and subsequent cases cing the same

principles, on the ground that they were rendered in cases

involving fraternal orders with a ritualistic form of govern-

ment (R. 83), and hence inapplicable to the case at bar. The

error in so limiting the ruie is obvious. It has been applied

generally to stockholders and corporations of various

vlasses, and even to the rights of persons holding stock in a

foreign corporation.

Nashua Savings Bank vy. Anglo-American Co., 189 U.S.

221 at 252, 47 L. Ed. 782 at 787.

The cases are collected in In Re Auto Mutual Indemnity

Company, supra, at page 607-608 (Exhibit “*A’’). Many

other cases could be added, including Marin v. Augedahl,

247 U.S. 142, 62 L. Ed. 1038, involving stockholders in a

baking company.

The rule nas been recognized in Georgia.

lioweard v. Glenn, supra, 85 Ga, 238, 11S. EF. 610.

In Swing v. Taylor & Crate (W. Va.) 70S. E. 373, the Court

said: “a

‘* By the law of Ohio in force when these policies were

issued, a policyholder in a mutual company was made a

member of such company, and was liable for losses and

necessary expenses accruing to the company during

the period of his insurance, ‘in proportion to the orig-

inal amount of his deposit note, or contingent liability.’

The law of Ohio would, therefore, seem to make both

classes of policyholders members of the company during

the continuance of their policies. At any rate, the Court

of Ohio has so construed the law of that state, and its

construction must be accepted by this court. * * *."’

. **The existence and extent of the liability of a share-

holder for assessments or to contribute to the corpora-

tion for the payment of debts of the corporation is cde-

termined by the law of the state of incorporation. Re-

statement, Conflict of Laws, See. 203."’

Broderick vy, Stephano, 314 Pa. 408, 171 Ati. 582.

Nor may the departure from the general rule above an-

nounced be justified on the theory that only the remedy is

being passed on. Ina recent case (John Hancock Mutual

Life Ins. Co. v. Yates, 185 Ga. 2138, 185 8S. E. 268), the

Georgia Supreme Court, in passing on a defense arising

from a New York contract, deemed the solution of the

question one of remedy and excluded consideration of the

lex loct contractus. This Court reversed the judgment (299

U.S. 178 at p. 182, 81 L. Ed. 106) holding:

J ‘*No question of remedy is presented. The Company

sets up as a defense a substantive right conferred by a

statute of New York. * * * The declaration by the

statute as construed and applied by the highest court

of New York * * * determines the substantive rights

of the parties as fully as if a provisio: tu that effect

had been embodied in writing in the policy.”’

The right asserted by petitioner is of the same class.

3. The Supreme Court of Georgia justified its denial of

any force and effect to the decrees in the New York pro-

ceedings upon the authority of Great Western Telegraph

Compeny v. Purdy, 162 U.S. 329, 40 L. Ed. 986, (R-92). The

error in so doing has been previously discussed (Petition for

Certiorari, paragraph 3), and will net be repeated.

4. The Supreme Court of Georgia held the assessineit

unenforceable in Georgia because the by-laws were not niade

a part of the poliev directly or by reference (R. 94-96), and

(R. 95-96) that the terms of the policy did not put the in

sured on notice that he was accepting a policy which was

subject to assessment under the laws of New York, though

knowledge is admitted that the Company was ‘‘mutual in

character, and that the polievholders would be entitled to

participate in the profits and surplns."’

But the matual nature of the Company was sufficient to

put defendants on notice that they would be bound by the

constitution and by-laws of the association. This is the law

of Georgia (R. 101), and it is recognized by this Court as a

matter of common knowledge.

‘“‘The policyholders are the owners of the Company

and constitute its membership. ’

Hartford Steam Boiler Co, vy. Harrison, 301 U.S.

459 at 464, 81 L. Ed. 1223 at 1227.

And it is the general law. Huber v. Martin, 115 Am. St. Rep.

at page 1034 (R-102).

Indeed it has been the established law in Georgia for more

than fifty years. Carlton v. Southern Mutual Life Ins. Co.

(1884), 72 Ga. 371 at 372.

‘*A mutual insurance company is based upon the idea

that each of the assured becomes one of the insurers,

thereby becoming interested in the profits and liable

for the losses. * ° * and ina mutual insurance com-

pany the idea of mutuality involves the result that each

assured becomes interested in profits and liable for

losses.’’ (Emphasis ours).

Carlton v. Southern Mutual, supra, at page 372.

In Alma Gin and Milling Company v. Peeples, 145 Ga. 722,

89S. E. 820, policyholders in a mutual fire insurance com-

pauy resisted lability to assessment because the policies

contained no reference to the constitution and by-laws.

(Such requirement, imposed on fire insurance companies by

statute, is not applicable to casualty companies). The

Court, while recognizing the relevancy of this statute in an

uction to establish the liability of the company to the in-

sured, deemed its absence not a defense in an action brought

‘*to establish the liability of policyholders to pay assess-

ments, and to compel them to contribute to the payment of

losses sustained by another policyho!lder.”’

The discrimination against petitioner as a resident of

New York is clear.

». Decrees entered in the New York proceedings were

binding upen policyholders resident in Georgia who re-

ceived notice by mail. The New York Insurance Law,

Chapter 28, Sec. 422 (4) provides that ‘‘The Superinten-

dent shall cause a notice of such order (assessment) * * *

to be enclosed in a sealed envelope, addressed and mailed,

postage prepaid, to each of said members at his last known

address as the same appear; on the books of the insurer.”’

(R. 29). Such notice was mailed to all of the members, in-

cluding the defendants in the Georgia proceedings. (Orig-

inal petition, paragraph 10, R. 9). In cases where the cor-

poration is already a party, such service is sufficient.

Nashua Savings Bank v. Anglo-American Co. 189 U.S.

221, at 230, 47 L. Ed. 782.

It does not appear that the statutory provisions for notice

are insufficient to give actual notice of the proceedings and

an opportunity to be heard. The defendants are members

of a company domiciled in New York and the statutory

service is sufficient.

Milliken, et al. v. Meyer, et al. October Term, 1949, Case

No. 66, Advance Sheets United States Law Edition,

Vol. 85, page 269 at 272-273.

6. A conflict in the decisions of the highest courts of

Georgia and South Carolina having jurisdiction over the

question, can be reconciled only by a decision of this Court

and such eonflict affords grounds for the grant of the writ.

B. Tue Tit.e or THE LigvipaTor.

The statutes of New York provide:

‘“‘The superintendent * * * shali be vested by

operation of law with the title to all of the property,

contracts and rights of action of such insurer as of the

date of tle order so directing them to liquidate * * *.’’

Insurance Laws of New York, Sec. 404(2).

In re National Surety Company, 7 Fed. Supp. 959.

‘“‘The statutes of New York relative to the liquida-

tion of insolvent insurance companies ° * Insur-

ance Laws, Sec. 400 to 428, inclusive, are intended to

and do furnish a comprehensive, economical and effi-

cient method for the winding up of the affairs of do-

mestie insurance companges by the superintendent of

insurance of New York for the benefit of all creditors.

* * * Liquidation is effectea by an order of the

Supreme Court of the State of New York. Sections

403, 404. Upon the entry of such an order the superin-

tendent * * * as liquidator, becomes the statutory

successor of the corporation and is vested by operation

of law with title to all of its assets, including choses in

action. * * *,. The superintendent of insurance be-

‘ame in effect a receiver under the supervision of the

state court.’’

Motlow v. Southern Holding & Securities Corpo-

ration, 95 Fed. (2) 721 at 724.

An assessment made by a statutory liquidator under the

supervision of the domiciliary court is entitled to the same

force and effect as a judgment.

‘If the assessment had been made in a liquidation

proceeding conducted by a court, New Jersey would

have been obliged to enforce it, although the stockhold-

ers sued had not been made parties to the proceedings,

and, being nonresidents, could not have been personally

served with process. Converse v. Hamilton, 224 U.S.

243, 252-260, 50 L. Ed. 749. °* ° *.°

Broderick v. Rosner, 294 U. S. 629 at 644, 79 L.

Ed. 1100 at 1108.

(. Priviteces CLaIMED UNDER THE CONSTITUTION OF THE

Unirep States WERE ConsIDERED AND DeEnirep (R. 89-90).

1. Mutual Automobile Liability Insurance Companies,

chartered in New York, must issue assessable policies in

¢every State in which they transact business.’

Factory Mutual Liability Ins. Co. v. Behan, Acting

Supt. of Insurance, 253 X. Y. 8. 562.

? Mutual casualty companies require specific statutory authorization be-

fore they possess the corporate power to exempt their members from con-

tingent liability to assessment. Cooley's Briefs on Insurance, Vol. 1,

page 68.

“e ¢ © it is a distinguishing feature of 2 mutual company that

one insuring therein becomes a member of the association. * * *

“The members and stockholders of a mutual] insurance company are

therefore identically the same. * * ®* A stockholder of a mutual

The pleadings clearly allege the integration of the New

York laws into the policies of the defendants (R. 22, 23,

Paragraph 13(a) (b) (e) (d)).

Code of Georgia of 1933, Section 81-304, provides:

‘*A demurrer denies the right to the relief sought, in

whole or in part, admitting ali properly pleaded allega-

tions in the petition to be true.’’

The corporation ‘‘may correctly be said t+ be precisely

what the incorporating act has made it, to derive all its

powers from that act, and to be capable of exerting its

faculties only in the manner which that act authorizes. To

this source of its being, then, we must reeur to ascertain its

powers.”* Head vy. Providence Insurance Co., 2 Cranch

126, 167, quoted with approval in Supreme Council Royal

Arcanum vy. Green, 237 U.S. 531, supra, at 543.

The construction placed upon the statutes by the courts

of New York must prevail.

Bradford Light Co. v. Clapper, 286 U.S. 145, 76 L. Ed.

1026, 82 A. L. R. 696.

2. The judgment approving the assessment was held ap-

plicable to policies held by non-residents, which contain on

their face no provision for assessment.

In re Auto Mutual Indemnity Company, 14 N. Y. Supp.

(2) at page 607.

The credit and effect given this judgment in the courts of

New York determined the effect to which it was entitled

in the courts of Georgia.

Hlancock National Bank v. Farnum, 176 U.S. 640 at 644,

44 L. Ed. 619 at 621.

insurance company is simply ene who has paid into the capital of the

company by way of premiums, and who is responsible for its losses

4 99

to that extent.

A recent amendment of the New York Insurance Laws (Laws of 1939,

Chapter 882, Sec. 58) will permit mutual casualty companies to issue non-

assessable policies under certain conditions, but this power will not become

effective until 1942.

3. What has been said above equally applies to this

question.

4. In the report aforesaid, In re Auto Mutual Indemnity

Company, supra, at page 609, the court decreed:

‘The failure of the policy to contain a clear state-

ment as to the contingent mutual liability of the mem-

bers has as little effect upon the liability to pay an

assessment as would a provision in the policy contrary

to the provision of Section 346. Thus if any provision

in the by-laws or in the policy violates Section 346 it is

void to that extent. Beha vr. Gale, 129 Mise. 858, 225

N. ¥. 8S. 253.”’

This adjudication was binding on the members resident

in Georgia.

Modern Woodmen v. Mixer, supra.

The fact that the original right of action so decreed could

not have been maintained in the courts of Georgia is not an

answer.

Keeney v. Supreme Lodge of World Loyal Order of

Moose, 252 U.S. 411 at 415, 64 L. Ed. 638 at 640.

I. Assent Was Not NECESSARY TO CREATE LIABILITY FOR

ASSESSMENT.

The statutory iiability that follows is imposed by law as

an incident to membership in the corporation, regardless of

assent to it and even in spite of agreement to the contrary.

Broderick v. Rosner, 294 U. S. 629, 79 L. Ed. 1100,

supra;

Converse v. Hamilton, 224 U. S. 243, 59 L. Ed. 749;

Whitman v. Oxford National Bank, 176 U.S. 559, 44

L. Ed. 587;

Christopher v. Norvell, 201 U.S. 216, 50 L. Ed. 732;

Smathers v. Bank, 155 N. C. 283, 71 S. E. 345.

In the last two cases the estate of a married woman was

held liable for assessment though the laws of the domicile

made her contract void.

‘*This liability is not contractual on the part of the

stockholder, but is statutory and imposed for the bene-

fit of creditors, and hence a married woman, when she

becomes the owner of the stock, assumes the same lia-

bility as all other stoekholders.”’

Smathers v. Bank, supra, 71 8. E. at 346.

And in the Christopher case, supra,

‘The right to be a stockholder is given her by the

law of the state where she resides and her right and

liability as such are provided by the acts of Congress.”’

(Italics by the court.)

The contingent liability is part of the capital of a mutual

insurance corporation.

Warner v. Delbridge (Mich.), 34 L. R. A. 701 at 7038.

“The continvent fund * * * is a part of the

fund upen ine credit of which such contracts of insur-

ance are entered into.”’

‘* All the policvholders in the defendant (company)

knew that they were taking insurance in a mutua! com-

pany. Liability to assessment for loss is one of the

incidents to insurance of that kind.”’

An agreement releasing this contingent liability would

be veid.

Uston v. Tribilcock, 91 U.S. 45, 23 L. Ed. 203.

Creditors have a vested right in this contingent liabifity.

Corning v. McCullough, 1 Comstock 47; 49 Am. Dec.

287 at 290.

A statute or decision which destroys this contingent

liability violates the contract clause of the Constitution.

‘*A clause in the charter of a corporation which

pledges to the creditors of the.company the hability of

the stockholders to the extent of their stock, is security

to the creditors for the payment ef the debts of the com-

pany which have been contracted upon the faith of this

liability.’

‘In case of the inability or insolvency of the com-

pany, the stockholder, by such clause, becomes liable

to the creditor for its debts, to the extent of his stock.*’

“A State Act repealing this individual lability clause

of the charter is, as to debts contracted before the re-

peal, a law impairing the obligation of the contract

within the Constitution of the United States, and void."’

Hathorn vy. Josiah Calef, 2 Wall. (69 U.S.) 10, 16

L. Ed. 776.

And it is an impairment of the contract right of all other

members and creditors.

Coombes v. Getz, 285 U.S. 484 at 448, 76 L. Ed. at 866.

Conclusion.

Divergent views of the courts of the several States, in

which proceedings to recover assessmer *s are pending, have

resulted in **the application of many divergent, variable and

conflicting criteria,’ the destructive effect of which was

recognized by this Court in’ Supreme Council Royal

Arcanumy. Green, supra, 237 U.S. at page 542.

Policvholders of tiis Company reside in twenty-seven

States. The assessments levied against New York residents

total $140,742.23 and assessments levied against poliey-

holders residing outside the State of New York total

$429,200.00. Many of these assessments are for smal!

amounts. To obtain jurisdiction over them in New York is

impossible and the cost of the litigation would be prohibitive.

Compare Broderick vy. Rosner, supra, 294 U.S. 639-640.

* Sixth Report of Louis H. Pink, Liquidator, filed in the Supreme Court

ot New York County, Case No. 28894, in the matter of Liquidation of Auto

Mutual Indemnity Company, January 19, 1940.

Unless the validity of the assessment in every State in the

Union is established by a judgment of this Court requiring

recognition of the New York statutes and proceedings, the

physical difficulty sd the cost of recovering the assessments

will render the proceedings futile. All claimants, whether

policyholders or members of the public, will be left without

remedy.

Petitioner, as a public official, is charged with the duty

of liquidating this particular company, and in the discharge

of this duty he seeks to recover assessments from all poliey-

holders. As Superintendent of Insurance of the State of

New York, he is charged with the duty of examining and

supervising the business of all insurance companies char-

tered by that State.

The mutual insurance companies have no capital other

than the contingent liability provided by statute. In 1939

the premiums collected by mutual companies, chartered in

New York, approximated fifty million dollars.’ If the right

of assessment conferred by tne charter receives general

recognition, then the contingent lability is twice this

amount, a sum amply sufficient to provide reserves for any

emergency. But if this assessment is not enforceable in

some of the States in which the company did business, then

this must be given consideration in deterniining the solveney

of the company. If there is added to the loss of assessment

the burden of claims arising in States where the assessmeut

* From the 1940 New York Insurance Report the following faets appear:

In 1939 casualty companies chartered in New York—Stock -had total ad-

mitted assets of $406,000,000.00 (approximate); Casualty companies

Mutual—total admitted assets of $107,000,000.60. During this vear the

Stock Companies received premiums approximating #171,803,000.00 and

the Mutual Companies received premiums approximating $49,447,006.00.

The capital guaranty funds of the Stock Companies totalled $46,000,000,00

(approximate) and the Mutual Companies had special deposits totalling

$1,150,000.00. The balance of their capital fund is their right to assess

their members sums not exceeding twice the annua] premium.

is not collected,‘ a complicated and confused result follows.

The business of insurance cannot be properly conducted

if ‘‘divergent, variable and conflicting criteria’? arise in its

operation in States other than the domicile.

The writ should be granted and the decision of the Sun-

preine Court of Georgia should be reversed,

Respectfully submitted,

E.LiLiott GOLDSTEIN,

Max F.. GoupsTEIn,

Aurrep (. BENNETT,

Counsel for Petitioner.

M. F. GoupstErn,

Artuur G. PowkE..,

Burkett D. Murpuy,

1130 C. & S. Bank Building,

Atlanta, Georgia;

ALFRED (, BENNETT,

160 Broadway,

New York City.

*The Supreme Court of Georgia cites Pink v. Georgia Stages, Inc..

35 Fed. Supp. 437 (R. 95) as a true statement of Georgia law. Though

the right to collect assessments was denied, the claims of the policyholder

against the fund in the hands of the Liquidator were allowed in the sum

of $12,502.38. (Finding of Fact 1014, 35 Fed. Supp. 441). The vice in

this decision is in the conelusion of law No. 10 (page 445) that the Com-

pany had corporate power to issue a non-assessable policy.

EXHIBIT ‘‘A’’.

In rE Auto Mut. INvemnity Co.

SUPREME COURT, NEW YORK COUNTY.

Sept. 8 1939.

1. Appeatauce 17.

Nonresident policyholders of an insolvent mutual auto-

mobile easualty company, which was in process of liquida-

tion, who filed special appearances objecting to jurisdiction

of trial court te enter an order to show cause why superin-

tendent of insurance should not have Judgment against

them for the amount of an assessment authorized to be

levied against such policyholders, did not waive their ob-

jections to jurisdiction by simultaneously filing general

objections to the merits or cross-claims. Insurance Law,

££ 340 et seq., 400 et seq., 422, subd. 4; § 425.

2. Appearance 9(1)

Where a policyholder objecting to an assessment direcied

to be levied against polievholders of an insolvent mutual

automobile casualty company in process of liquidation filed

objections on merits to order of trial court ordering policy-

holders to show cause why superintendent of insurance

should not have judgment against them for amount of as

sessment, a general appearance resulted which was not

vitiated by polievholder’s subsequently attempted special

appearance addressed to jurisdiction of trial court. insur-

ance Law, §§ 340 ef seq., 400 et seq., 422, subd. 4; 6425.

3. Insurance 71(2)

The validity of an assessment made in connection with

the liquidation of an insolvent insurance corporation, such

as 1 mutual automobile casualty company, is governed by

laws of state where corporation has its domicile. Insurance

Law, §§ 340 et seq., 400 et seq., 422, subd. 4; 6 423.

# 30

4. Corporations 31, 592

A corporation is created by edict of Legislature, and dies

at its command.

5. Evidence 65

Knowledge is imputed to all who deal with a corporation

that when it suspends business the law takes charce of its

affairs, liquidates its debts, converts its assets and distrib-

utes the proceeds thereof among its creditors.

6. Evidence 65

Those who contract with a corporation do so with knowl-

edge of the statutory conditions pertaining to the corp. ra-

tion, and such conditions must be deemed to have permeated

the agreement and constituted elements of the obligations.

7. Corporations 391

A state may impose appropriate requirements for the

privilege of doing business under its corporate laws.

8. Insurance 71(1)

Where assessment against policvholders of insolvent mu-

tual automobile casualty company in process of liquidation

was levied in accordance with laws of the state.in which such

corporation was domiciled, the assessment created a valid

obligation in res and was binding alike on both resident and

nonresident policyholders. Insuranee Law, 66 340 et seq,

400 et seq., 422, subd. 4; § 423.

9. Insurance 138(1)

If a provision in by-laws or policies of a mutual automo-

bile casualty company violated the statute relating to assess-

ments against members of such companies, the provision

was void to extent that it violated the statute. Insurance

Law, § 346.

10. Insurance 71(1), 193(1)

That policies issued by a mutual automobile casualty com-

pany and that the by-laws of the company may have been

CLARA So a PES TPA

silent with respect to assessments against policyholders in

case of liquidation of company did not relieve policyholders

from liability to pay an assessment directed to be levied

in connection with liquidation of the company, but suet,

failure merely prevented company from fixing a higher cor.

tiigent liability than that specified by statute concerning

contingeut liability ef members of such companies. Insur-

ance Law, $$ 840 et seq., 846, 400 et seq., 422, subd. 4;

Insurance 71(3)

The statute providing that in absence of provision in

policies and by-laws of a mutual automobile casualty com

pany, the contingent lability of a member to pay assess-

ments shall not be less than an amount equ: il to twice the

amount of, in addition to, the cash premium provided for

in the policy establishes a minimum contingent liability of

members which must prevail in any event as to all eom

panies Coming Within provisions of statute concerning in-

corporation of such companies. Insuranee Law, 66 340 et

‘

seq., OF.

Judement 17(1)

Residents of New York can be bound by a judgment of

New York courts without personal service of process, and

as to such residents it is no objection to the validity of a pro-

ceeding that it does not require personal services of a notice

or process upon the party whose property is in question.

13. Constitutional law 309(1)

Where notice of court order requiring policyholders of

insolvent mutual automobile casualty company to show

cause why superintendent of insurance should net have

judgment against them for amount of an assessment was

published by superintendent and a copy sent to each poliey-

holder, in accordance with statute concerning levy of assess-

lients against members of such companies, the notice was

sufficient to satisfy constitutional requirements of due proe-

ess with respect to right of superintendent to recover judg-

ments thereon against resident policvholders. Insurance

Law, $4 340 et seq., 346, 400 et seq., 422, subd. 4; 4 423

»)

14. Judgment 17(3)

In order to obtain a valid personal judgment against a

nonresident, there must be personal service within the juris.

diction.

15. Constitutional law 309(1)

A judgment obtained without personal service within the

jurisdiction, where a nonresident is affected, constitutes a

‘taking of property without due process of law."’

16. Judement 17(3)

Where nonresidefit policyholders of insolvent mutual au-

tomobile casualty company had not veen served with process

within the jurisdiction and had not appeared generally in

filing objections to jurisdiction of trial court to order them

to show cause why an assessment should not be paid, a

personal judgment for payinent of assessment would not

be ordered aguinst such polievhelders although they were

bound by the finding of necessity for the assessment and

amount thereof. Insurance Law, $5 340 et seq., 346, 400

et seq., 422, subd. 4; § 423.

17. Insurance 71(4)

That the notice of a court order requiring policyholders

of an insolvent mutual automobile casualty company, which

Was in process of liquidation, to show cause why they should

not be held liable to pay an assessment levied against them,

failed to designate parties plaintiff or defendant, or to show,

on its face, to whom the notice was addressed, did not render

the notice insufficient to comply with statute concerning duty

of superintendent of insurance to publish such notices, since

proceeding for Judgmert upon the assessment was a ‘spe-

cial proceeding,’’ and not an ‘taction at law.’’ Insurance

Law, §§ 340 et seq., 346, 422, subd. 4; § 423.

°°

[Ed. Note.—For other definitions of ** Action; Action at

Law’’ and ‘‘Special Proceeding,’’ see Words & Phrases. |

18. Insurance 71(2, 3)

Objections filed by polievholders of an insolvent mutual

automobile casualty company complaining as to amount ane

time of levying au assessment against them and as to court

order directing them to show cause why superintendent of

insurance should not have judgment against them for the

assessment were without merit Where amount of assessment

Was within limits of contingent liability of such polices

holiers under policies and statute and method of computing

assesstnent conformed to statutory requirements and super

intendent’s report as to assets of company was filed within

one Vear as required by statute and conformed thereto. In

surance Law, 6° 340 et seq., 346, 400 et seq., 422, subd. 4;

1. Tnsurance 71(1, 2

That polievh iders of an insolvent mutual automobile cas

Galt company were not notified of an assessment miposed

upon them within one year after the expiration or cance!

lation of their policies, as provided by statute, and that thes

were not members of the company at the time liquidation

proceedings were instituted against it, did not relieve the

policevholders from liability. for assessment. Insurance

Law, 6§ 340 et seq., 846, 400 et seq., 422, subd. 4; 5 425.

20. Insurance 71(2)

The statutory provision for notice to members of mutual

automobile casualty companies with respect to assessments

is not applicable to an assessment levied in liquidation pre

ceedings involving such companies, but relates only to as

sesstuents made by the company as a going concern. In

surance Law, ¢ 346.

21. Insurance 71(1)

The date when liability of polievholders of a mutual auto

n obile casualty company to pay assessments for protection

of creditors vecrued was the date upon which a liquidation

proceeding involving such company was commenced, and

members whose policies had expired or had been canceled

within one year prior to date of commencement of liquida-

tion proceedings were to be treated as included among per-

sons liable to assessinents. Insurance Law, §{ 540 et seq.,

546, 400 et seq., $22, subd. 4; § 425.

22. Insurance 63

Policyholders of an insolvent mutual automobile casualty

company could mot offset their personal claims against the

company against an assessinent imposed in liquidation pro-

ceedings involving the company. Insurance Law, 4§ 340

et seq., 346, 400 et seq., 420, subd. 2; 422, subd. 4; § 423.

23. Insurance 63

The principle of actual set-off, often applied under bank-

ruptey or other insolvency laws, has no application where

the obligation is to pay an assessment.

O4. Insurance 71(1)

That a mutual automobile casualty company breached its

coutraect with its policyholders when it was placed in liquida-

tion did not relieve such polieyholders from liability for

assessments, although breach by company gave rise to a

provable claim against fund of the company in hands of

superintendent of insurance. Insurance Law, {§ 340 et seq.,

346, 400 et seq., 422, 423.

Proceeding in the matter of the liquidation of the Auto

Mutual Indemnity Company, whereip there was an applica-

tion for an order directing Judgments upon assessment, and

upon other indebtedness, pursuant to the Insuranee Law,

<§ $22, 423, and the case was referred to a referee to hear

and determine the issues raised by objections to the assess-

ment directed by the court to be levied agaist policvholders

of the company.

Order recommended in accordance with opinion.

Irvin Waidman, of New York City, for Louis H. Pink,

Superintendent of Insurance.

Mullen & Feller, of New York City (Samuel R. Feller and

Leo H. Hirsch, Jr., both of New York City, of counsel), for

West Penn Forwarding Co., Ine.

Simpson, Thacher & Bartlett, of New York City (Fred-

erick B. Lee, ef New York City, of counsel), for Dixie

Coaches, Ine. /

Kaufman & Weitzner, of New York City (I. W. Fenster-

stock and Max Herschaft, both of New York City, of coun-

sel), for Roadway Transit Co.

Benjamin M. Goldstein, of Monticello, for Allen Bros.

Ine., et al.

Frank A. Pfalzer, of Butfalo (Vito Cardo, of New York

City, of counsel), for New York Car Carriers, Ine.

Miehaei A. Petroecia, of Glen Cove, L. Lb. for All States

Freight, Ine.

Brown & Gutze, of Columbia, S. C., for Suburban Transit

Co. of Columbia, S.C.

Benjamin Gollay, of New York City, for Elmhurst Taxi

Corporation,

William C. Hare, of New York City, for B. H. Griggs.

Max Herschaft, of New York City, for Rupp Drug Co.

Ine., et al.

Max Herschatt, of New York City, for Mack Beverage

Co. et al.

Bose & MacCarthy, of New York City (John C. Mae-

Carthy, of New York City, of counsel), for Clayton H.

Exner and Robert H. Carr,

William G. Sheppard, in pro. per.

FRANKENTHALER, Referee:

This isa reference jo hear and determine the issues raised

by objections to an assessment directed by the Court to be

levied against the policyholders of an insolvent mutual auto-

mobile casualty insurance company im process of liquida-

tion. The levy was made pursuant to the pertinent pro-

Visions of the Insurance Law by reason of the insufficiency

of assets to pay Habilities. Objections to the levy challenge

the validity of the statute authorizing the levy, the applica-

lility thereof to non-residents, the prepriety of the pro-

cedure followed by the Superintendent and the amount of

; 36

the assessment. Rights of set-off for unearned premiums

and accrued loss claims are advanced by members and the

propriety thereof is contested.

Auto Mutual Indemnity Compaay, now in liquidation, was

incorporated on May 26, 1982, under Article 10-B of the In-

surance Law, as a mutual automobile casualty imsurance

company. It was authorized by the Insurance Department

on October 5, 1932, to transact business in the State of New

York and thereafter secured authority to do business in a

large number of other states. On February 21, 1933, its

original name **Auto Cab Mutual Indemnity Company”

was changed to ‘Auto Mutual Indemnity Company.”’

On November 10, 1987, the Superintendent of Insurance

instituted proceedings against the company pursuant. to

Article XI of the Insurance Law, and the company was

placed in liquidation on the ground of insolvency on Novem-

ber 24, 1937, by an order of this Court. The superintendent

then proceeded, within one vear thereafter, as provided by

the Insurance Law, § 422, to make a report setting forth the

reasonable value of the assets, the probable liabilities and

the probable necessary assessment to pay all allowed ciaims

in full.

Accordingly, on February 7, 1938, the Court by order

authorized a levy of 400c. This assessment applied to all

members of the company against whom the Board of Diree-

tors could levy an assessment at the time when the special

proceeding against the company was instituted.

The Superintendent of Insiranee computed the amount

against each person liabie therefor, together with a state-

ment of the liability of the policvholder for other indebted-

ness in aecordance with Section 423 of the Insuranee Law,

and made a second and supplementary report thereon.

On the basis of this second report an order to show cause

was issued on Angust 12, 1938, directing payment on or

before September 19, 1958, of the assessments and other lia

bilities of the members to the company, and ordering the

members whose assessments and other abilities remained

unpaid on that date to show cause why they should not be

held liable to pay the same and why the Superintendent

should not have judgment accordingly. Notiee of such

order, with the summary of its contents as required by the

Insurance Law, Section 422, subdivision 4, was published

and mailed to each of the members in accordance with the

said order. Objections having been filed by various palicy-

holders, hearings were had upon said objections.

Certain preliminary contentions urged by the Superin-

tendent of Insurance are to be considered. Special notices

of appearance were filed on behalf of certain polievholders

objecting to the jurisdiction of the Court, accompanied by

reneral objections going to the merits of the claim or set-

ting up cross-claims,

[1] It ts urged by the Superintendent that an objection

based upon the merits accompanying a special appearance

challenging the jurisdiction nullifies such special appear-

ance on the theory that service of an answer addressed to

the merits of a complaint is inconsistent with a special ap-

pearance interposed to contest the Jurisdiction. Section 422

of the Insurance Law provides for a method of interposing

an answer to the order to show cause, by means of appear-

ance and service of verified objections. A non-resident

policvholder objecting to the Jurisdiction might rest his

entire case upon that ground, vet he should not be deprived

of such objection by having simultaneously filed general

objections in order to save lis substantive rights in the

event his main challenge should be overruled. Accordingly,

those non-residents who have filed objections to the juris-

diction and simultaneously also filed general objections to

the merits or cross-claims, will not be deemed to have waived

their objection to the jurisdiction. If the objection to the

jurisdiction is sustained in their cases, it will be unneces-

sary to consider the objections on the merits, which wiil

then be deemed withdrawn.

[2] On the other hand, the rule should not be extended

bhevond reasonable limits. One of the objectants, Suburban

Transit Company, filed objections on the merits, and there-

atter sought to supplement them by a special objection ad-

dressed to the jurisdiction. Its motion to allow a notation

of special appearance based on lack or jurisdiction having

heen denied, reconsideration is now requested. The original

determination will be adhered to. An objection addressed

. se

solely to the merits having been filed, a general appearance

results which should not be vitiated by a subsequeiit special

appearance.

[3-6] Constitutional questions have been raised with ref-

erence to the validity of the assessment and the propriety

of the notice to members. These questions have been pre-

sented by resident and non-resident members alike. It is

well settled that the validity of an assessment made in con-

nection with the liquidation of an insolvent insurance com-

pany is governed by the laws of the state where the cor-

poration has its domicile. Modern Woodmen of America r.

Mixer, 267 U.S. 544, 551, 45 S. Ct. 389, 69 L. Ed. 783, 41

A. L. R. 1384; Supreme Council of Royal Arcanum ¢. Green,

237 U.S. 5931, 542, 35 S. Ct. 724, 59 L. Ed. 1089, L. R. A.

IDIGBA, 771; People vr. American Loan & Trust Co., 172 N.Y.

371, 60 N. BE. 200; Broderick v. Rosner, 294 U. S. 629, 55

S. Ct. 589, 79 L. Ed. 1100, 100 A. L. R. 11338. As was said

in People vr. American Loan & Trust Co., supra, 172 N.Y.

at page 377,69 N. BE. at page 201, 6A corporation is created

by the edict of the legislature, and dies at its command.

Knowledge is imputed to all who deal with it that when it

suspends business the law takes charge of its affairs, liqui-

dates its debts, converts its assets, and distributes the pro-

ceeds among its creditors. Those who contract with it de

so ‘with knowledge of the statutory conditions, and these

must be deemed to have permeated the agreement and con-

stituted elemenis of the obligation.’ People r. Globe Mut.

Life Ins. Co., 91 N.Y. 174, 179; People rv. Security Life Ins.

& Annuity Co., 78 N.Y. [114] 115, 34 Am. Rep. 522."

[7] This rule follows the principle that a state may im-

pose appropriate requirements for the privilege of doing

business under its laws. In Modern Woodmen of America

r. Mixer, 267 U.S. 544, 551, 45S. Ct. 589, 69 T. Ed. 783, 41

ALL. R. 1584, the Court said: **The act of becoming a mem-

ber is something more than a contraet, it is entering inte a

complex and abiding relation, and as marriage looks to

domicil, membership looks to and must be governed by the

law of the State granting the incorporation.*’

The rule and the reason therefor are fully stated in Su-

preme Council Royal Arcanum +r. Green, 237 U.S. 531, 25

S. Ct. 724, 728, 59 L. Ed. 1089, L. R. A. 1916A, 771, where

Mr. Chief Justice White said: *** * * an assessment

which was one thing in one state and another in another,

and a fund which was distributed by one rule in Gne state

and by a different rule somewhere else, would in practical

effect amount to no assessment and no substantial sum to

be distributed. It was doubtless not only a recognition of

the inherent unsoundness of the proposition here relied

upon, but the manifest impossibility. of its enforcement

which has led courts of last resort of so many states in pass-

ing on questions involving the general authority of fraternal

associations and their duties as to subjects of a general

character concerning all their members to recognize the

charter of the corporation and the laws of the state under

which it was granted as the test and measure to be applied.

* * * Jn addition it was by the application of the same

principle that a line of decisions in this court came to estab

lish: first, that the law of the state by which a corporation

is created governs in enforcing the liability of a stockholder

asa member of such corporation to pay the stock subserip-

tion which lie agreed to make; second, that the state law and

proceedings are binding as to the ascertaining of the fact

of insolvency and of the amount due the ereditors entitled

to be paid from the subscription when coilected; and third,

that putting out of view the right of the person against

whom a liability for a stockholder’s subseription is asserted

to show that he is not a stockholder, or is not the holder of

as many shares as is alleged, or has a claim awainst the cor

poration which at law or equity he is entitled to set off

against the corporation, or has any other defense personal

‘0 himself, a decree against the corporation ina suit brought

against it under the state law for the purpose of ascertain

ing its insolvency, compelling its liquidation, collecting sums

due by stockholders for subscriptions to steck and paving

the debts of the corporation, in so far as it determines these

general matters, binds the stockholder, although he be not

a party in a personal sense, because by virtue of his <nb

scription to stock there was conferred on the corporation

the authority to stand in judgment for the subseriber as to

such general questions. Selig vr. Hamilton, 234 U.S. 652,

34S. Ct. 926, 58 L. Ed. 1518 [ Ann. Cas. 1917.4, 104]; Con-

verse v. Hamilton, 224 U.S. 243, 52 S. Ct. 415, 56 LL. ed. 749

fAnn. Cas. 1913D, 1292]; Bernheimer +. Converse, 206 U.S.

916, 27 S. Ct. 755, 51 L. Kd. 11683; Whitman +. National

Bank, 176 U.S. 559, 20S. Ct. 477, 44 L. Ed. 587; Hawkins

r. Glenn, 131 UL S. 319, 9S. Ct. 739, 33 L. Ed. 184.°"

[S$] The assessment was duly levied in accordance with

the statutes of the State of New York where the corpora-

tion had its domicile and it follows that the validity of the

assessment as an obligation in res ts binding alike upon non

residents and residents. Even if the law were otherwise,

the contentions of those residents of South Carolina and

Ohio who proved the statutory law of their respective states

cannot be sustained because an examination of those stat

utes shows that the provisions thereof do not bar the en

forcement of the provisions of the New York statute.

Whether that liability can be converted into a personal jude

ment against a non-resident polievholder without actual

personal service upon him as distinguished from: construc

tive service is a different question.

It is urged by some caembers that the statute relating to

assessinent covers only such policies as expressly provided

for assessments. The company had issued various forme

of policies, some of which bore a reference to the contingent

liability prescribed by Scetion 346 of the Insurance Law,

in the body of the poliey and others of which referred to it

on the reverse side thereof. All of the policies, however,

referred to this contingent lability. Where such policies

were silent on the subject of assessments or had no clear

statement thereon, the obligation for an assessment. is

claimed by the objectants not to exist. This argument is

predicated on the assumption that Article 10-B of the Insur

ance Law, dealing with mutual automobile casualty insur

ance corporations, did not contemplate mandatory assess-

ents in such cases,

[9-11] Section 546 provides that the ‘tcorporation shal!

in tts by-laws and policies fix the contingent mutual lability

of the members * *; but such contingent’ liability: of

aimember shall not be less than an amount equal to twice

the amount of, and in addition to, the cash premium pro-

vided for in the policy * * *.°?) Objectants contend that

unless the assessinent plan is mentioned in the by-laws there

is no liability to pay it. The argument is not sound. The

statute compels the corporation to fix the contingent mutual

liability. Even if it has failed to comply with this manda

tory provision it could not be said that no assessment is

due. Were it held otherwise the statute would be wullitied.

The tatlure of the poliey to contain a clear statement as to

the contingent mutual liability of the members has as little

eifect upon the liability to pay an assessment as would a

provision in the poliey contrary to the provision of Section

O46. Thus if any provision in the by-laws or in the polices

Violates Section 546 it is void to that extent. Behav. Gale,

129 Mise. So8, 223 N.Y. S. 253. The statute fixes the con-

tingent ability at not less than the amount therein pre

vided. Failure to fix any other amount in the by laws amd

policy merely prevents the company fron: fixing a higher

contingent Hability. In that event the miniiium: specified in

the statute becomes also the maximum. The correctness of

this position is confirmed by the last sentence of Section

346 which provides that **AH assessments * * * shall

he for no greater amount than that specified in the poliey

and by-laws’. In the absence of such provision in the poliey

and by-laws, the provisions of the first sentence of Section

O46 that ‘such contingent ability of a member shall not

be less than an amount equal to twice the amount of, and

inaddition to, the cash premium provided for in the poliey

hecomes applicable. That iiinimeanm must prevail in any

event as to all companies coming within the provisions of

Article 10-B. Moreover, the statute provides that ‘tevers

member shall be Hable to pay and shall pay his proportion.

ate part of any assessment which may be latd by the coi po

ration in accordance with law and his contract. covering

any deficiency * * %."°

Though the provisions of that particular section are

clear, a study of Articie 10-B confirms the interpretation

above set forth. This construction is reasonable, within the

intent of the statute, and accomplishes the purpose intended

to protect polievholders, creditors and the general public.

The right of the Superintendent to recover judgments

against polievholders by proceeding tn accordance with the

provisions of Section 422 of the Insurance Law is chal-

lenged as a violation of the requirement of due process of

law.

[12] Residents of this state can be bound by the judg.

ment of its courts without personal service of process, Con.

tinental National Bank v. Thurber, 74 Hun 632, 634, 26

N.Y. S. 956, affirmed, Continental Xat. Bank cf Boston v.

United States Book Co., 143 N.Y. 648, 37 N. EB. S28: United

States Trust Co. v. United States Fire Ins. Co., 18 N.Y,

199, 215; Broderick v. Rosner, 294 U.S. 629, 646, 55 S. Ct.

as9, 79 L. Ed. 1100, 100 A. L. R. 1133; Clement v. May, 126

App. Div. 199, 120 N.Y. S. 588,591, As was said in the

ease last cited: ‘It is no objection to the validity of the

proceeding that it does not require personal services of a

notice or process upon the party whose property is in ques

tion. It is sufficient if a kind of notice is provided by which

it ix reasonably probable that the party proceeded against

will be apprised of what is going on or against him and

an opportunity is afforded him to defend. Matter of Fim-

pire City Bank, 18 N.Y. 199; Rockwell v. Nearing, 35 N.Y,

302; Happy v. Mosher, 48 N.Y, [313], 317; Hiller v. B. &

M. R. R. Co., 70 N.Y. 223; Matter of Union E.R. R. Co.

of Brooklyn, 112 N. Y. 61,19 N. EF. 664, 2 LE. RL AL 359.) The

Legislature has uniformly acted upon that understanding

of the Constitution, and has provided for the services of

process er notice upon natural persons by posting, publica

tion, by mail, by leaving the notice at the parties’ place of

residence, or by leaving it with the person in whose posses:

sion the property may be found.’

[13] Section 422 of the Insurance Law requires the

Superintendent to cause the notice to policylolders to be

published and a copy to be enclosed in a sealed envelope,

addressed and mailed, postage prepaid, to each member at

his Jast known address. Such riotice was ,published and

sent by the Superintendent to each member. It was reason-

ably calculated to inform the parties of the proceedings and

they were afforded an opportunity to be heard in defense

before an ilopartial tribunal. Under those circumstances

the notice satisfies the requirements of due process in so

far as residents of this state are concerned.

[14,15] The rule is otherwise as‘to non-residents. It is

well settled that in order to obtain a valid personal judg-

ment against a non-resident there must be personal service

within the jurisdiction. Pennoyer v. Neff, 95 U.S. 714, 24

L. Ed. 565; Pope v. Heckscher, 266 N. Y. 114, 194 N. E.

03, 97 A. L. R. 687. A judgment obtained without personal

service within the jurisdiction, where a non-resident is af-

fected, constitutes a taking of property without due process

of jaw. Riverside & Dan River Cotton Mills, Incorporated,

v. Menefee, 237 U.S. 189,55 S. Ct. 579, 59 L. Ed. 910; Mat-

ter of MeDonald, 225 App. Div. 403, 406, 233 N.Y. S. 368

McCarthy v. Culkin, 204 N. ~ Y. 328, 331, 172 N. BK. 524.

In Pope v. Heckscher, supra, a judgment was reeovered

ina Pteaae i Court against a resident of this State for the

unpaid balance of a subseription to stock of a Canadian cor-

poration after service of precess by mail directed to the

defendant at his address in this State. ‘The Court held that

had the judgment been one of another State it would not

have been entitled to full foree and effeet and that no

greater weight was to be given to a judgement of 2 foreign

country. Accordingly, the action based on the Canadian

judgment was dismissed. The Court at page 119 of 266

N. Y., 194 N. EB. at page 54, 97 A. LL. R. 687, quoted as fol-

lows from Hess v. Pawloski, 274 U.S. 352, 47 S. Ct. 632.

71 *L. Ed. 1091: ** ‘Notice sent outside the State to a non-

resident iz unavailing to give jurisdiction in an action

against dim - rsonally for money recovery. Pennover v.

Neff, 95 U. 714 (24 L. Bd. 565y. There must be actual

service within the State of notice upon him or upon some

one authorized to accept serviee for him.’ *’

In Hood v. Guaranty Trust Company, 270 N.Y. 17, 200

N. BE. 55, 58. involving an assessment against the stock

holders of a North Carolina Bank, the Court of Appeals

upheld a judgment for the North Carolina Commissioner

of Banks, but made the statement that ‘*Nothing in this

opinion is to be construed as holding that without personal

service Within the state personal judgment could be entered

against a nonresident stockholder, * * * We merely he'd

that the stockholders, having implicitly agreed that the cor-

poration represent them, are bound by a finding of the

necessity for an assessment and the amount of the assess-

ment.”

[16] These rules of law are equally applicable in the case

of policyholders in a mutus usurance company. Accord.

ingly no personal judgment will be ordered agaiast non-

resident members or poniey holders who have not appeared

generally or been served personally with process within the

State, although, as hereinabove set forth, they are bound

by the finding of the necessity for the assessment and the

amount thereof,

[17] Certain alleged defects of form of the notice are

asserted, for example, that no parties plaintiff or defendant

are designated and that the notice does not show on its face

to whom it appears to be addressed. These and other sim-

ilar objections are without substance. This being a special

proceeding and uot an action at law, it is unnecessary to

have in the notice the name of a plaintiff and of a defend-

ant. Furthermore, the notices clearly set forth the names

of the persons to whom they are addressed. The notices

complied with the statute and were reasonably caleulated

to apprise the persons to whom: they were addressed of the

pendency of the proceeding and they were afforded an op-

santana to defend. Sufficient notice was therefore given.

[1S] The objections relating to the amount of the assess-

ment and to the time of levying the same as well as the

validity of the orders made February 7, 1938, and August

12, 188, are also wholly without merit,

The amount of the assessment is well within the limit of

contingent liability under the policy and the statute, and

the method of computing the same conformed to the statu

tory requirements. The report, filed within the vear as

required by Section 422, showed the reasonable value of the

assets, the probable liabilities, the probable necessary as:

sesstnents, and an equitable levy in accordance with See-

tions 346 and 422 of the Insurance Law. The experience

of the liquidator since the submission of his original report

upon the assessment indicated an underassessment rather

than over-assessment.

[19-21] Nor can the objection of some of the polieyhold-

ers that they were not notified of the assessment within one

vear after the expiration or cancellation of their policy, as

provided by Section 346, and that they are not subject to

assessment because they were not members of the corpora-

tion at the time this proceeding against it was instituted,

he upheld. The provision for notice is not applicable to an

assessinent levied in a liquidation proceeding and relates

only to assessment made by the corporation as a going con-

cern. Beha v. Weinstock, 247 N. Y. 221, 160 N. E. 17.) The

present liquidation proceeding was commenced on Novem-

ber 10, 1%57. This was a date when the liability of the

policvholders to assessments for the protection of creditors

accrued. It was, therefore, proper for the Superintendent

to regard it as the date of constructive notice of such lia-

hilitvy,—the company having been closed on account of in-

solvency. Members whose policies had expired or been can-

celled within one vear prior to November 10, 1937, were,

therefore, to be treated as included among these persons

liable to assessments. That treatment by the Superintend

ent Is in accordance with law.

Several policyholders have attempted to extinguish the

assessment in Whole or in part by off-sets for unearned por-

tions of premiums paid by them and by other claims against

the company.

Subdivision 2 of Section 420 of the Insurance Law pro

vides that ‘*No set-off shall be allowed in favor of any such

person [meaning a person other than insurer], however,

Where * * * (¢) the obligation of such person is to Paty

an assessment levied against the members of a mutual in

surer or to pay a balance upon a subseripiion to the capital

steck of a stock corporation insurer.’

[22,25] The statute is precise on this point and even in

the absence of the statute there could be no such set off,

Lawrence v. Nelson, 21 N. Y. 198; Raegwener ve Hnbbard,

167 N.Y. 301, GO N, EF. 683; Commonwealth v. Mass. Mutual

Fire Ins. Co., 112 Mass. 1 16, 124; Standard Printine and

Publishing Co. v. Bothwell, 148 Md. 808, 122 A. 195, 51

A. L. R. 1269.) The principle of actual set-off often applied

under the bankruptcy or other insolvency laws has no appli-

cation where the obligation is to pay an assessment. The

early decision in this state on the point was Lawrence v.

Neison, 21 N. Y. 158, where the Court at page 163, refer-

ring to a situation of insolvency, said: ‘‘ When such a state

of things exists in a company of mutual insurers, whose

members have each an equal interest in its means, and are

cach creditors as well as debtors, to allow one member or

creditor to get more than his shere of the common fund

by setting off his individual claim in full, and thereby de-

creasing the shares of his associate creditors, would be un-

just and inequitable. * * * The referee therefore cor-

rectly decided that the defendants could not set off in full

their loss on the ‘Galena’, but that they were bound to pay

their premium notes, and come in, as they proposed to do

in regard to their other claims, in a pro rata division of the

assets of the company amongst all its members and credi-

tors. What, as mutual insurers, they were ratably entitled

to, could only be ascertained after all the means of this

association were called in, and the demands upon it liqui-

dated.’’ The claims on account of losses under policies, or

for damage for breach of the terms of the policies, or on

account of unearned premiums, cannot be asserted as set-

offs against the assessment.

[24] Objection by certain policyholders to the assess-

ment on the ground that the order of liquidation caused

a breach of the voliey contract which relieved them from

the payment of the assessinent, is without merit. A cas-

ualty insurance company which is placed in liquidation

simultaneously breaches its poliey contracts because the law

prevents it from defending actions and performing other

terms of the policy. Though this breach by the company

eives rise to a provable claim against the fund in the hands

of the Superintendent of Insurance (In re Finpire State

Surety Company, 214 N. Y. 553, 570, 108 N. FE. 825) it does

not relieve the polievholder from liability for assessment

under Sections 422 and 423 of the Insurance Law. To hold

otherwise would be tantamount te ruling that the institu-

tion of liquidation proceedings on the ground of insolvency,

Which is the very foundation for the levy of the assessment,

at the same time causes a breach of contract which affords

a complete defense to the collection of the assessment. This

would ‘destroy the purpose of the statute. The breach of

contract is no defense to the assessment though damage

resulting from the breach may be provable against the

fund.

The Superintendent will submit an order disposing of the

issues raised by the objections, in accordance with this

opinion. |

EXHIBIT ‘‘B’’.

THE STATE OF SOUTH CAROLINA IN THE SU-

PREME COURT.

Lovis H. Pink, Superintendent of Insurance of the State

of New York, Appellant-Respondent,

T. B. Aaron, cf al., Respoudents-Appeilants

Appeal from Richland County, KE. HL. Henderson, Judge.

Case No, 2091.

Opinton No, 16225—Filed March 3, 1941

AFFIRMED

Thomas, Cain & Black, of Columbia, for appellant-

respondent,

Colin S. Monteith, Jr, Hdwin TH. Cooper, and Frank A.

Graham, Jr. all of Columbia, for respondents-aupellants,

and R. MeC. Figg, Jr, of Cnarleston, for certain. re-

spondents.

3onHAM, ('.d.:

The Auto Mutual Indemnity Compaty is incorporated

under the laws of the State of New York; it has policy

holders in this and States other than New York. it became

financially involved. The Supreme Court of New York, by

its order, placed the Cempany in rehabilitation. to pon a

proper showing by the liquidator that an assessment

against all members (policy holders) of the Company wae-

necessary to meet the liabilities of the Company, aii order

of the Court was made directing that such assessment be

made. Thereupon, the liquidator computed the amount due

by each policy holder, including the defendants in’ this

action, and the Court ordered the members te pay to the

liquidator the amount assessed against them.

The present action was brought in the Court of Common

Pleas for Richland County against the defendants, #- resi-

49)

dents of the State of South Carolina, and certain of ther:

(named) as residents of Richland County, to collect. the

assessment levied against each of them as set forth in Ex-

hibit A attached to the complaint.

The complaint alleges that the action is in the nature of

a Creditor’s Bill instituted for the purpose of marshaling

the assets of the said Auto Mutual Indemnity Company.

Certain of the defendants demurred to the complaint on

the first, fifth and sixth grounds thereof namely :

(1) That this Court has no jurisdiction of the subject

of the action for the reason that the complaint fails to allege

and shows on its face that a petition or complaint by the

plaintiff creditor, on behalf of himself and all other such

creditors, was ever dled in a Court in the State in which

the Auto Mutual Indemnity Company was domiciled, asking

that said ¢ompany be declared insolvent and for the ap-

pomtment of a liquidator to wind up its business and af-

fairs, or that said company was ever a party defendant in

any action brought for the purpose of determining its in-

solvency and establishing the amount of the assessment

liability of its members, or that a final adjudication thereof

had been rendered and judgment entered thereon, or that

any order of Court was ever signed and filed authorizing

the plaintiff to maintain any such action as this in the

State of South Carolina; that the New York Court did not

acquire Jurisdiction over the defendant and, therefore, had

no power to render any such judgment against this defend.

ant; and that the plaintiff further fails to allege any New

York statutes authorizing such a judgement.’

**(5) That several causes of action have been inproperly

united in that the complaint alleges that the party defend.

ants hereto are lable for an assessment and in addition

thereto are liable tor other indebtedness, and further that

each separate action against each defendant arises out of

different facts and under separate contracts and to which

there are separate defenses.

(6) That the complaint does not state facts sufficient

to constitute a cause of action for the reason that the said

complaint fails to show on its face the existence of inns

contract of insurance entered into by and between the said

Auto Mutual Indemnity Company and the party defendants

hereto or that a contract of insurance issued by said Auto

Mutual Indemnity Company provides for the levying of an

issessinenl agaist its members and furthermore said cor-

plaint has failed to allege the provisions of Section S100,

1932 Code of Laws of South Carolina, which provides that

a mutual company not possessed of assets at least equal to

the unearned premium reserve, and other liabilities shail

make an assessment to provide for such deficiency upon onl;

such members as are liable in preportion to their several

liabilities as expressed in their policies and that each such

member shall be liable only on account of losses and ex

penses incurred while his policy was in force.”’

Certain other defendants demurred as follows:

‘3. That it appears on the face of the complaint that the

action is alleged to be a creditor's bill, brought by the plain-

tiff as representing and in the right of the debtor, to wit,

the defunct insurance corporation, and the plaintiff is not

a creditor of said corporation, and no cause of action in the

nature of a creditor’s bill lies either in plaintiff's favor or

in favor of the defunct corporation against the alleged

debtors of the defunct insurance corporation.’

“2. That it appears on the face of the complaint that

there is a misjoinder of the causes of action, in that the

causes of action against the several defendants are sepa-

rate and distinet, and not joint, and under the law cannot

be joined in the same complaint."’

The demurrers were heard by His Honor, Judge Hender

son, Who filed the following order.

This case comes before me on demurrers interposed bys

several of the defendants.

“The grounds of the demurrere are that the Ceurt has

no jurisdiction of the person of the defendant or the subject

of the action; that the plaintiff has not legal capacity to

sue; that there is a defect of parties plaintiff and defend.

ant; that the complaint does not state facts sufficient to

constitute a cause of action; and that several causes of

action have been improperly united.

‘T have given careful consideration to the oral argu-

ments, and the very helptul written briefs which were filed

with me, and | am of opinion that all of the grounds of the

demurrers, except the last one, should be overruled. — 1

think, though, that the demurrers should be sustained on

the ground that several causes of action have been improp-

erly united.

“The complaint alleges that Auto Mutual Indemnity

Company Was a mutual insurance company, under the laws

of the State of New York; that on November 12, 1937, an

order was made by the Supreme Court of the State of New

York, placing the company in rehabilitation; that, being

insolvent, it was later placed in liquidation by that Court ;

that the plaintiff, Louis H. Pink, is the liquidator; that

thereafter the plaintiff filed a report showing the condition

of the company’s affairs and the necessity of an assess-

ment; that the New York Supreme Court thereupon entered

an order adjudging an assessment against all members of

the company, including all of the defendants herein; that

plaintiff computed the amount due by each policy hoider

and the New York Court ordered each member during the

year prior to November 10, 1937, meluding each defendant

herein, to pay the amount assessed against him to the

plaintiff; that in addition to the asse<sments, the New York

Court ordered the members to pay tue amount of other in-

debtedness due by them, to the plaintiff; that a certain

stated sum is due by each defendant; that the action is in

the nature of a creditor's bill instituted for the purpose of

marshaling the assets of the insurance company, and that

all monies collected by this proceeding will be merged with

all other collections of liabilities, and will be distributed

ratably among all the creditors of the company.

It will thus be seen that the New York Court has already

ascertained the indebtedness of the company, and has ad

judicated the necessity for assessments against the mem-

bers, as well as definitely fixing the amount due by each

poliey holder.

The plaintiff's action is not one to determine the neces

sity for an assessment or the amount of it.

‘‘The necessity and amount of assessment having been

established in New York, the plaintiff, as statutory liqui-

dator, has a cause of action in law against each of the policy

holders for the amount due by each one upon his separate

agreement.”’

(That portion of the decree dealing with misjoinder of

causes of action is omitted because not material here. The

plaintiff’s exceptions on this ground are also omitted.)

The defendants appeal upon two exceptions as follow:

‘*1. Because the Court erred in failing to sustain the de-

murrers on the ground that the plaintiff failed to state a

cause of action, as it appears on the face of the complaint

that the statutes of New York, applicable to the case, were

not properly plead.

‘*2. Because the Court erred in not sustaining the de-

murrers on the ground that it appears on the face of the com-

plaint that the plaintiff did not acquire jurisdiction of cer-

tain of the defendants for the reason that said defendants

were not members and policyholders of the Auto Mutual

Indemnity Company at the time said company was placed

in liquidation.’’

Judge Henderson also granted two orders, dated June 15,

1940, and October 28, 1949, by which the place of trial of

this action was changed t, the counties of the residence of

the defendants named in said orders. From these orders

the plaintiff likewise appeals.

The Court is satisfied with the views expressed in the

order of Judge Henderson. He gives ‘‘full faith and

credit’’ to the orders of the New York Ceurt. The Court of

New York does not undertake to give judgment against

these members of the company resident in South Carolina.

It seeks by its agent, the liquidator of the Company, ap-

pointed by it, to collect the amounts assessed against the

policy holders resident in this State by his action in the

Courts of this State. The Cireuit Order recognizes the

liquidator’s right so to do, but it holds that plaintiff has

exceeded his right when he assumes to sue all such poliey

holders ina joint action. Tle has erred by joining all of

them in one action.

« .

The order appealed from is affirmed.

Baker and Fishburne, J... and L. D. Li le and J. Strom

Thurmond, Circuit Jndwes, AAJ. concur.

(3622)

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.