Case ID: mass_2/html/0291-01.html
Source: Caselaw Access Project
Author: {"author": "Parsons, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John L. Sullivan versus Massachusetts Mutual Fire Insurance Company.
    A member of the Massachusetts Mutual Fire Insurance Company may surrender hia policy at his own discretion, after alienating the building insured; and may demand his proportion of the funds at the time of the surrender; until which time the policy does not expire.
    This was an action of covenant broken., grounded on a policy of insurance, under the seal of the company. A case was stated, at the last March term, for the opinion of the Court; of which the following is the substance.
    The company were incorporated by an act of the legislature, passed March 2, 1798. By the first section of the act, certain persons therein named, and their associates, being owners of buildings within this commonwealth, are made a corporation, &c. By the fourth section, they are authorized to insure, for the term of seven years, any mansion-house or other building, within this com monwealth, against damage arising to the same by fire. By the fifth section it is provided, that each of the insured shall, at the expiration of his policy or policies, have a right to demand and receive from the corporation his share of the remaining funds, in proportion to the sum or sums by him actually paid.
    On the 12th of June, 1798, the company made and established certain rules and articles, — by the second of which, each person insured shall be considered a member of the company. By the fourth, the president and directors shall have power, and it is made their duty (among other things) to determine upon, and pay, all losses which may happen within thirty days after notice * being duly given to the secretary respecting the same; [ * 319 J to declare all policies mill and void, issued to cover property previously insured, or that may hereafter be insured at any other office, unless such transaction be endorsed upon the policy ; and to nullify all transfers of policies which shall not bo entered in the books within thirty days after such transfer. By the eleventh article, each person shall pay such a premium as the trustees may agree upon, and four times the .amount thereof as deposit money — which sums, with others accruing from other sources, shall be denominated the absolute fund of the society. Each member shall be held to pay, by way of assessment, in case losses should happen so as to consume the absolute fund, a sum not exceeding two dollars for each dollar paid as premium and deposit money. By the twelfth article it is agreed that each policy shall be for the period of seven years, and shall expire at 12 o’clock at noon on the last day of the said seven years; to be computed from and after the day on which the policy is dated. By the seventeenth, the absolute fund of the society shall be appropriated, 1st, to pay all charges: 2d, to pay all losses: 3d, to form a reserved capital of 10,000 dollars : 4th, to be refunded. The deposit money, or such part of it as may not be' applied to pay the above appropriations, shall be refunded to each member, his, her, or their heirs, at the expiration of his, her, or their policy or policies. By the eighteenth, when buildings insured shall be alienated by death, sale, or any other means, the insured, his, her, or their representative, may surrender his, her, or their policy or policies, and receive a sum not exceeding his deposit money. By the nineteenth, all deposit money, not demanded, within one year from the expiration of the policy or policies, shall be deemed as forfeited, and shall become the property of the company.
    On the 1st day of March, 1799, the plaintiff insured his dwelling-house, according to the said act of incorporation, and according to the rules and regulations aforesaid. The sum insured was 6000 dollars, the premium paid was 24 dollars, and the deposit money 96 dollars. He was liable to be assessed to the amount of 240 dollars. On the 14th of May, 1800, he sold the dwelling-house to one J. R.; and on the same day the said J. R. [ * 320 J * executed a mortgage of the same to the plaintiff. On ■ the 29th of October, 1800, the plaintiff assigned and transferred his right in the mortgage, which was discharged on the 1st of January, 1802. On the 25th of April, 1802, the plaintiff applied to the company to surrender his policy, and demanded of them to pay him the sum of ninety-six dollars, being the amount oi the deposit money. The company refused to pay, alleging that the policy had expired more than one year previous to that time, and that therefore the money was forfeited, according to the nineteenth article.
    This suit is instituted to recover the amount of the said deposit money. If the Court are of opinion, that the plaintiff was entitled to his deposit money, on the day when he demanded it, judgment is to be entered for him for the sum of ninety-six dollars, with interest and costs. If the Court are of a contrary opinion, the plaintiff is to become nonsuit, and the defendants to recover costs.
    Upon these facts the cause was argued at the last March term, by the Attorney-General and W. Sullivan for the plaintiff, and Amory and Dexter for the defendants ; and at this term by the same counsel for the defendants, and W. Sullivan for the plaintiff.
    
      On the part of the plaintiff, it was contended that by the terms of the policy, and by the roles and articles of the company, the policy continued to operate on the property insured for the term of seven years, unless the property should, in the mean time, be burnt, alienated, or altered, or unless from other causes, partaking of fraud, it was originally void, or became so during the term. Though by alienation the policy ceased to operate as an insurance, yet the insured for other purposes continued a member of the company, entitled to benefits, and liable to burdens, in proportion to the share of the fund advanced by him ; and without a surrender of the policy, he would so continue for the whole seven years. He has nevertheless a right, under the 18th article of the association, at any time after the alienation, to surrender his policy, and to receive the amount of his deposit money, or so much thereof as shall not have been otherwise * appropriated agreea- [ * 321 ] bly to the regulations of the company. The policy expired at the time of the surrender, and not at the time of the alienation. The fund was the subject-matter on which the corporation operated ; it was this, and this' only, which connected them together. When the plaintiff subscribed to their articles, and paid the sum agreed on, he became thereby a member of the corporation, and would have continued such during the seven years, if he had not thought fit to alienate his estate, and surrender his policy. The surrender of the policy is such an act as indicates the intention of the assured to withdraw from the association. Having made the surrender, the policy expires, and within one year from the time of the surrender he must demand the return of his deposit money, or he forfeits his claim to it.
    If the policy expires, and the assured ceases to be a member, upon the alienation, it must be because the assured, ceasing to be owner of the property insured, has lost that which was a necessary qualification of a member ; but if the house be burnt he has also lost that qualification ; yet it would be absurd to say that the policy expires and ceases to operate at the very instant the only event takes place which was to call it into operation, in any manner, for the benefit of the assured.
    
      For the defendants,
    
    it was insisted that the policy expired upon the alienation, and that the deposit money, not being demanded within the year, was forfeited to the company. Expiration in this case is synonymous with termination. If the insurance terminated on the alienation of the property insured, the policy expired, and with it all the rights of the assured under it, except that of receiving back so much of his deposit money as shall remain unappropriated, and this upon the express condition that it be demanded within a year. The sole object and design of the act of incorporation, and of the institution, is to insure mutually the buildings of the members of the company ; and a man by insuring his building becomes ipso facto a member of the corporation.
    Further, the act, sect. 1, describes the persons incorporated as “owners of buildings within this commonwealth ; ” and [ * 322 ] in *sect. 4, provides that the amount to be insured shall not exceed “ four fifths of the value of any buildings.” It appears, then, that the subject-matter, of the contract, and the qualification of the insured to be a member of the corporation, are both lost and gone when an alienation of the property insured takes place. From the nature of things, then, the policy must expire, unless it can exist in the abstract, without an object insured, and unless a man can continue a member after the qualification ceases which was necessary to constitute him such. It is admitted, on the other side, that, after alienation, the insured cannot recover for a loss; but it is said that he continues liable to assessments for the losses of other members, and that this is no hardship to the company. A sufficient answer to this is, that, if one may alienate and yet continue a member, all may do the same, in which case there could be no losses, and consequently no assessments. The whole effect of the policy, and the whole object of the incorporation, are gone. But a hardship to the company does grow out of the plain tiff’s principle : for it gives the insured a right to choose his own time for alienating and surrendering. He may know that fires have happened, or that a hostile fleet is intending to destroy a town, whereby the fund will be injured or annihilated, and he will surrender his policy, and leave his former associates to shift for themselves. If no such events transpire, or are apprehended, he will not surrender at all, but take his dividend at the close of the seven years. On the other hand, the company have no power to interfere.
    It is said by the plaintiff that, according to our principle, if the house be burned, the policy expires. If this be true, it does not disprove our position ; but there is a great difference in the two cases. In case of burning and rebuilding on the same site, the law considers it only as a repair, and the house is the same. Besides, alienation is a voluntary act of the insured.
    But we contend that the insured cannot surrender his policy and receive his deposit money, without the assent of the company. If it be said, that by this we render void the 18th article, which gives the assured a right to demand his deposit money, we answer, that he may have a right to surrender, and yet not [ .*323 ] *be entitled to his deposit money. This article says he may surrender the policy, and may receive — what? his deposit money? no, but a sum not exceeding it: plainly leaving it to the discretion and good pleasure of the company to return him the whole, or any, or no part of it.
    There is no principle of the common law more known or established, than that contracts cannot be waived or annulled without the consent of all the parties to them.
    But allowing that the policy does not expire upon the alienation until a formal surrender by the assured, it is still necessary that it should be surrendered within a reasonable time. The 18th article, under which the plaintiff claims, authorizes the assured to surrender when the buildings insured shall be alienated ; that is, at the time when the alienation takes place, then, at that time, excluding all continuance of time. By the construction contended for on the other side, a door is opened for the assured to speculate on the condition of the fund, and for the other mischievous consequences which have been mentioned.
    There is on this point an analogy to the right of abandonment in marine insurance, where a loss, which is technically a total one, has taken place. Would it be allowed, in that case, that the assured should lie by, after receiving advice of the misfortune, until he sees whether there is a prospect of making a better voyage without, than with, an abandonment ? If he determines to abandon, he must do it in a reasonable time; and any unnecessary delay is considered as a waiver of his right. Indeed, it is a general principle of the law, that all notices of acts affecting the interests of third persons shall be given within a reasonable time. 
    
    
      For the plaintiff, in reply,
    
    it was observed that it was easy to comprehend that a corporation may be originally constituted of persons having a certain qualification, without which they could not become members, who would nevertheless continue members after they had lost that qualification. A mutual marine * insurance company would, at first, consist of persons [ *324 ] who associated for the purpose of insuring each other’s vessels. At the time of associating, each member deposits a certain sum to form a fund, to meet losses, &.c. A member may transfer his vessel, so that the assurance would cease to operate upon it, and yet he will continue to hold an interest in the fund : he may continue to pay assessments and be entitled to his dividend of the profits of the association. So, in the present case, though the policy ceased, on the alienation, to operate on the building, it still remained with the plaintiff, as evidence of his property in the funds, and of his liability to assessments, until the end of the seven years, unless he thought fit sooner to surrender it and claim his share.
    
      The company sustains no injury from the surrender not being made at one certain period. On the contrary, there is a mutual benefit; the company has the use of the money in aid of their fund in case of a loss, and the assured receives his share. of the profits, if any accrue. As to the objection that the plaintiff’s construction gives opportunity for speculating upon the condition of the fund, the plaintiff is bound to bear his proportion of any losses that have taken place at the time of his surrender; and that, for the sake of gaining or losing the trifling amount to which he is in any event liable, he would alienate his house, is too extravagant a supposition to be treated gravely.
    However correct the general principle may be, that the consent of all the parties to a contract is necessary to its dissolution, in this case there is an express provision, in the original agreement, that the assured may surrender his policy in certain events, and thus dissolve all the obligations between himself and the company. One of these events, viz., alienation, did take place, and the plaintiff had a right to avail himself of it.
    The objection, that this surrender was not made in a reasonable time, has been in part answered by showing that the company suffered nothing by the delay. Perhaps, too, the plaintiff, immediately upon the alienation receiving a reconveyance, might rea- [ * 325 J sonably suppose that the property was still insured by * the policy. When, according to the explanation given to it on the other side, excludes all time, and it would be necessary that the alienation and surrender should be absolutely simultaneous. If any time may intervene, there is no limitation in the articles.
    
      
       Marshall, 508
    
   The opinion of the Court was afterwards delivered by

Parsons, C. J.

This is an action of covenant broken, brought upon a policy of insurance which was issued under the seal of the company, and it comes before the Court on a case stated by the parties.

It appears from the case that, after the company were incorporated, and had established their rules and articles, the plaintiff, in March, 1799, caused his house in Boston to be insured by them for the term of seven years, and paid the premium and deposit agreed upon. Afterwards, in May, 1800, he sold his house, and took back a mortgage of it. In October, 1800, he assigned the mortgage, which was discharged in January, 1802. In April following, he offered to surrender his policy to the company, and also demanded the repayment of his deposit, which the Court must, from the case, consider as not having been then appropriated by the defendants. They refused to accept the surrender, or to repay the deposit.

If the plaintiff can recover, his right must be dented from the act of incorporation of the company, and from their articles, both of which make a part of the case. He relies on the 18th article, in which it is agreed that, when any building insured shall be alienated by sale, the insured may surrender the policy, and receive a sum not exceeding his deposit money. An offer to surrender, and a refusal to accept it, having the same effect in this cause as an actual surrender, the facts agreed in the case bring the plaintiff prima facie within that article, and he must recover, unless some of the objections made on the part of the defendant should prevail.

The first objection is, that the 18th article does not give the assured an option to surrender on alienation, without the assent * of the company, who may withhold their assent, [ * 326 ] or grant it on such terms as may be agreed by the parties, so that a sum exceeding the deposit shall not be repaid. This objection they rest on a principle of the common law, that contracts cannot be dissolved but by the mutual consent of the parties; and also on the indefinite description of the sum to be repaid on surrender. The principle is correct", when the contract does not secure to one of the parties a right to dissolve it without a mutual consent; and from the nature of this contract, there may exist rules for ascertaining the sum to be repaid on surrender, independent of the will of either party.

We must therefore look into the incorporating act, and the articles, to determine the intent of the contracting parties. By the act, any person insuring his building, situate within the commonwealth, becomes, ipso facto, a member of the company. On his insurance he must advance the requisite premium and deposit money ; and the sums so advanced are to be appropriated to defray the expenses of the company; to pay the losses that may happen during the existence of his policy; and to raise a reserved fund of 10,000 dollars. If, from the extent of the losses, the fund should be inadequate to the payment, he may be assessed, to supply the deficiency, in a sum- not exceeding twice the amount of premium and deposit he has advanced; and at the expiration of his policy he will be entitled to receive his proportion of the fund remaining. When we look into the articles, there appear to be several that relate to this action. The 12th limits the company to the making of any insurances but for the term of seven years, on the last day of which the policy is to expire. The 11th defines the absolute fund more particularly. The 17th directs the appropriation to the payment of losses, for raising the reserved fund, and for refund ing to the insured such part of his deposit as may remain not so ippropriated at the expiration of his policy. The articles are silent as to his share of forfeits, premiums, interest, and profits, which constitute part of the absolute fund, while the act gives him his share in all the funds remaining at that time. From a view of these articles, as connected with the act of incorpora- [ * 327 ] tian, * it appears that the insured must continue a member of the company for seven years, subject to all the burdens to which a member is liable, and at the expiration of that time he will be entitled to receive his proportion of the re maining fund, if any ; and no alienation of his property, although by it the company are discharged from all risk, could dissolve his connection. A provision of this nature and extent, it is to be presumed, would have prevented insurances by those whose sole object was indemnity; and this effect would have been inconvenient to the corporation. The 18th article is designed to prevent this inconvenience, by authorizing the insured to surrender his policy upon alienation. If this authority could not be exercised but with the consent of the company, this object of the article would be defeated; also, the introduction of the article would be nugatory, for without the article the parties might at any time have annulled the policy by mutual consent. We are therefore satisfied, that the construction of this article must be according to the natural import of the words ; and the right to surrender the policy by the insured, on alienation, may be exercised by him at his election. Nor does the uncertainty in describing the part of the deposit to be refunded on surrender, militate with this construction. Until the offer by the insured to surrender, his deposit is subject to the appropriation of the company for the payment of all losses that have happened before that time, and for the other purposes mentioned in the act and articles. He is therefore to receive so much of his deposit as remains not liable to the legal appropriation by the company. If no part is thus liable, he will receive the whole; if the whole is thus liable, he will receive nothing.

Another objection is, that the alienation was made in May, 1800, and the plaintiff did not offer to surrender until more than a year after the alienation. To support this objection, the defendants rely on the 19th article, which provides that all deposit money not demanded within one year from the expiration of the policy shall be deemed forfeited, and become the property of the society. The validity of this objection must depend on the construction given to the expression, “ from, the expiration of the policyIf [ * 328 ] it means from the expiration of the time *for which the policy was effected, the objection is without weight. But if it is to be extended to cases where the risk is terminated by alienation, the objection will prevail, unless the taking back the: mortgage was a continuance of the risk. Whether the risk was thus continued, it is not necessary to give an opinion, as we are satisfied the former is the true construction The phrase is used in the act of incorporation, where it must necessarily mean the expiration of the policy by the efflux of time; for the termination of the risk in any other way is not there contemplated. The corporation, in the 12th article, speak of the policy as expiring at the end of the time for which it was effected. The expression is also used in the 17th article, where it must have the construction we give it, or the 18th article is rendered superfluous. The 17th article secures to the insured the return of so much of his deposit as is not applied at the expiration of his policy ; but if the policy expire by alienation, it is a case within the 17th article ; for the surrender of an expired policy is a preposterous and futile act. Indeed, were we to admit the construction insisted on by the defendants’ counsel, it would be less beneficial to the corporation. Then every alienation of a. building insured would not only dissolve the contract of insurance, but would discharge the insured from his liability to assessments for losses happening before the surrender, and by the express words of the act of incorporation he would be entitled to his share of the remaining funds.

The last objection admits the right of the insured to surrender at his election, but the defendants insist that he should make his election in a reasonable time, which they say was not done in the present case. And they compare it to the obligation to abandon on a constructive total loss in a marine insurance.

This objection, when made, seemed to deserve attention ; but on consideration we think it oughjt not to prevail. There is no reasonable analogy between the two cases. Abandonment, in a marine policy, is supposed to vest a beneficial interest in the insurers. A surrender in this case is merely a discharge of a contract. A delay to abandon may materially injure the underwriters; but a delay to surrender must be for the benefit of * the [ * 329 ] company, as they have the use of the deposit, and hold the insured liable for assessments for losses which may happen before the surrender.

But it is supposed that the insured, after alienation, may, in contemplation of a future loss, offer to surrender. This supposition is very natural, for we know no motive to induce him to surrender at any time, but to guard against the consequences of future losses. For this purpose was the right to surrender at his election vested in him ; and he gives the company what they consider as an equivaent for the exercise of it, by extinguishing his claim to any share of the funds remaining at the expiration of the time for which his policy was effected.

Judgment must be for the plaintiff, according to the agreement of the parties in the case.