The Seattle post-intelligencer. [volume] (Seattle, Wash. Terr. [Wash.]) 1888-1914, 1891-08-22
THE INSURANCE LAW.
Contest Over Rights of Mutual
Fire Companies.
REJoINDER TO HON. ALLEN WEIR
MI. ID. A. Spencer Holds That Assets OF
the Mutual Companies are Not
Properly Stock.

The correspondence between D. A Spencer,
Representing the board of underwriters of this
city, and Hon. Allen Weir, insurance commits
sloner, 10 extended BY the following rsioinder
rom Mr.. Spencer 10 Mr. weir's last statements:
Dear SIR: Replying to your letter of the nth
lhsl. IN re the right Of mutual FIRE insurance
companies 10 90 business in this state beg 10
say that my Letters on that subject are not in
Tended 70 imply that sll mutual insurance com
panies are lFres pDnsible, for that would be wide
o. Inc unfn, but that the law does no. now per.
NM theIn TO do business ii this state. 1t
Iact. however, thai the old and
responsible mutual FIRE insurance COM
but If they were the law would exclude them
II may De that some future legislature mag
deeIn IL advisable to permit the formation OF
mutnal hre insurance companies in this state,
ana the admission of others from other states
but wnen u does believe il will be under such
TeStrietion. as Will protect the properiy-owners
Mutual referred 70 By Mr.. Calhoun ana yourself.
according - your letter their statement, cer.i-
ma 70 by the insurance commissioner OF Mime
SOFA showed net surplus OF $35l, -a6a when they
were admitted 70 this state and vet a shor. time
afterwards they made an ignominious failure
NOW, that company either did not have the sur
pius SHOWN ia the statement furnished you or il
mad been distributed, for their debts are yet far
from being paid had the Minneapolis Mutual
Teen refused admittance some of our good citi-
zens would have saved their money.
The like showing was made by all the mutual
FIRE companies that have made bad failures
ouf1ng tie present year.
ne fact is, none of their assets are Or initial
WITHIN the meaning Of the law. The legislature
OF our state certainly did not intend that
mutual IRE insurance companies should lie
organized here for Ia section u u prescr bss the
manner in which company may organ u IL
Iea1s; ANY conn any or corporation orcasIzed
under me laws o. the territory of Wash ngton,
OF under the laws OF this state prior 20 .1e
tsklng effect OF this act, Or under the provisions
OF this aet, ior the purpose OF engaging in the
business OF IRE or marine n uranc-, must have
eaOscTtoed capital OF not less III N $1,000 o, of
which not iess than $4,000 must be paid in cash
D.. ore the issuance b SUI company or corpor-
anon OF any policy OF insurance under e pro-
Fs.ons OIL this ac;; and = s language Is too
clear TO be misunderstood. Certainly the .e,is-
IstEre did not intend 10 grant privileges TO com
cit teens.
Many other states do not admit mutual CON-
panles, aud notably the other state, of tie Pa
cific coast The provisions OF the law in these
states relating 10 the admission Of companies
from other states are similar to those of our
ate.
IT seems TO me very clear that BY capital the
le isiature old not mean sim,ly assets, although
the latter must embrace the former.
COOK on stocks and stockholders, paragraph
lgy, defines capital or capital stock as follows:
" he capital or capital stock of a corporation is
the aggregate OF the par value of all the shares
into wnlea the capital is aded upon the iHcor-
porations; II is the fund or resource with which
the corporation IS enabled to act and transact
Its business and upon the faith OF which per
sons give credit 10 the CORPORATION auC become
corporate creditors. anu Waterman on the Law
OF operations, page 10, paragraph 20S, says:
capita! STOCK o! corporation is trust
fund Tor the protection OF lis creators or those
who deal with Il, and the stock thus he'd in
uust is the h7le stock ana not merely that
percentage OF il which has been called IN and
pa d. To the community il announces the ex-
tent OF the means contributed anu forming the
OASIS OF the dealings OF he corporate body, and
enables every man 10 judge OF its ability TO meet
us engagements and perform what il under
takes.
Among cases cited Judge Story is quoted:
g" ny otherwise is any capital stock required
by charter? II the stock msy, the next day
after II IS paid in, be Withdrawn by the stock
holders without payment OF the debts 81 the
corporation, why is its amount so studiously
provided for AMI its payment b. the stockho!d-
erS go diligently IequiredT'
This Is just the point The premium notes Of
mutual tire insurance, which form the bulk OF
Its sets, may be surrendered by It's officers, or
Withdrawn By the maker, upon the surrender OF
the insurance contract, which canuot b. done
IN the case Of subscriptions 10 capital stock
The premium notes are simply guarantees that
the maker viii pay his share OF the losses and
expenses. II the company is successful the as
sessmeni is usually paid. II losses become ire
qGent the makers refuse 10 pay and the COM
pauy fails.
A stock company does not RELY alone upon its
premiums, but has a reserve fund in its cap, tai
Il honestly managed, this capital or reserve fund
VIII pay lis creditors. That Il shall be honestly
managed the legislature has created the Office OF
insurance commissioner. and given him annie
powers. one Item OF which IL haF ma
capital stock or reserve fund il kept inYio,afe
What special fund OF a mutual IRE insurance
company can he require i1s officers 10 have on
hand al any time? The company seeking ad-
mission may honestly have 10000 over its
Liabilities when making application for adnis-
sion, and may diStribu the entire amount the
next aay after receiving its certificate. II
must De borne IN mind that the entire assets of
q mutual company are the moneys or evidences
OF money received for premiums. and that the
only reserve fund il can have is the excess az
AND
TACT, only small part OF the premium is actually
paid in money, the balance be Dg premium
note. IL Is the aggregate OF these notes that
forms the assets relied upon by your Office as
capital
4 friend Of mine in this city last year insured
his property for s .03J ia one OF the now Geilnct
mutual companies, paying 4 cash premium.
Subsequent 10 the expiration o. his policy a de-
maI1 was made upon him for slg3 for his share
OF the unpaid losses and other debts OF the com
pany. This contingent Liability OF his was just
: much capital rs the premium notes OF the
other insurers in that company.
Il You will run down The eases cited by Won
from May on Iusursnce Won vi I sd "a, 49,
were either cases OF creditors Of mutual com
paIlies against The makers OF guarantee notes. or
the companies against parties OF like character
and the courts have held the notes 20 be in the
nature % capitsl. anG therefore must be Maid
notw-;EstanG NJ the defense that they were
given tor premiums, and only subject TO a pro
rata assessment 10 pay losses and exrensts IN
fact. the incorporates # mutual ire Insurance
company co not claim - have any capital, and
Smount of TIE premium notes. These premium
notes are not shares Of stock, snd the company
is not required oy law N most OF the states
where they are permitted 10 Go business 10 have
on hand any assets beyond the reinsurance re-
serve and other liabilities OF the COMPANY I
refer now 10 purely mutual companies. There
ere IN some states class OF mixed cornp6n!es
having guarantee capital, protesting 70 do
business on the mutusl plan. These latter
would stand or fall here by the condition Of
their cap tai and assets
In conclusion. / note in one OF my insurance
journals that the attorney general OF Ohio has
Instituted proceedings 70 forfeit The charter OF
the seneca County Mutual Insurance Company
OF Titfin. o. the company giving rlse = this
question OF the right Of mutual IRE companies
to DO business in his state.
Thanking YOU for so readily conserving 70 re-
fer the matter 10 the attorney general for En
opinion, ard requesting thst YOU VIII submit
this letter T. him u other papers. am, exc.