Case Name: State, ex rel. Richards, Att'y Gen. v. The Manufacturers' Mutual Fire Association
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1893-01
Citations: 50 Ohio St. 145
Docket Number: 
Parties: State, ex rel. Richards, Att’y Gen. v. The Manufacturers’ Mutual Fire Association.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 50
Pages: 145–151

Head Matter:
State, ex rel. Richards, Att’y Gen. v. The Manufacturers’ Mutual Fire Association.
Mutual Fire Insurance Associations— Who may become members— Who may be directors of—Manner in which may insure property —Sections 3686, 3687, 3688, 3689 and 3690, Revised Statutes, construed.
1. Assocations organized under sections 3686, 3687, 3688, 3689 and 3690, Revised Statutes, are not authorized to receive into their membership, persons who are non-residents of this state.
2. Persons who are not members of such association, can not lawfully fill the office of director thereof.
3. Such association is not authorized to do insurance business on what is known as the “joint stock” plan, nor on the “contingent liability” plan, as defined in - section 3634 of the statutes; but it is confined to insurance business in which its members insure each other against loss by fire and other casualties, and agree to-be assessed specifically, for payment of losses, and for incidental purposes.
Quo Warranto.
This is a proceeding seeking to oust the said Mutual Fire Association, from exercising the franchise of a corporation under the laws of Ohio.
The petition avers that .the said defendant is a corporation, duly incorporated under the laws of the state of Ohio, and that said defendant ought not to be permitted, longer to exercise the franchise of a corporation, for the following causes, to-wit:
1. Said association has written, and has now in force, policies of insurance on property located in thirty-six states and territories outside of Ohio, issued to non-residents of this state, contrary to the laws of Ohio.
2. While incorporated as an assessment fire association, said defendant has transacted regular fire insurance business on the cash, or joint stock plan.
3. Said association, contrary to law, has operated as a regular mutual fire insurance company, doing business on the contingent liability plan.
4. The majority of the board of directors, are not members of said association.
5. Said association is hopelessly insolvent; its total cash assets, consisting of cash deposited in the Akron Savings Bank, to the amount of $72.42; while its total liabilities amount to $27,936.17.
Prayer for ouster apd other proper relief.
The defendent, by its answer, admits that it is incorporated under the laws of Ohio; that it has issued policies, or certificates of membership, to such of its members as were non-residents of the state of Ohio, on their application therefor, and on property situated outside of the state of Ohio; and avers that it has a legal right so to do; that such has been the custom and method of doing business, by mutual fire associations incorporated under the laws of this state, ever since the passage of the act of March 30, 1877, entitled, “an act to incorporate associations for the mutual protection of its members against loss by fire.”
Said defendant further avers, that such has been the custom and method of doing business by such associations, to the knowledge of, and with the consent of, the Commissioner of Insurance of the state of Ohio, up to, and until about the 15th of September, 1891; at which date defendant received instructions from said insurance commissioner, together with the written opinion of the attorney-general, to the effect, that such mutual fire associations could not lawfully include in their membership non-residents of Ohio, and could not lawfully issue to such non-residents, policies, or certificates of membership, on their property located outside of this state.
The defendant further avers that upon receipt of said instructions and opinion, it immediately ceased to issue policies or certificates to members non-resident of this state, insuring their property outside of Ohio, and recalled all certificates issued to such non-residents, and did all in its power to bring itself within said instructions and opinion, and to abide thereby.
Defendant denies that it has transacted a regular fire insurance business on the cash or joint stock plan, and avers, that by its by-laws and contracts with its members, each and all members agree to pay a first assessment in cash, at the time the indemnity takes effect, and to pay such further sums thereafter, as may from time to time be assessed against such members, for the payment of all losses, and for incidental purposes, which shall accrue during the time such persons are members.
Defendant’ denies that it has operated as a regular mutual fire insurance company, doing business on the contingent liability plan, and avers that all members, in their certificates of membership, agree to pay such sums from time to time, as may be assessed against them by the association, to pay all losses occuring to co-members, during the time that such persons are members.
Defendant denies its insolvency, and generally denies the averments of the petition, not in its answer admitted to be true, or qualified.
The reply of plaintiff denies the averments of the answer, and avers that policies were issued by defendant, in which it was expressly stipulated, that there should be no assessments after the payment of the first assessment in cash; that such policies were issued on the joint stock, or cash plan, and were made non-assessable; that in many policies, the liability of the member was limited to five times the amount of the first, or cash assessment; thus constituting such policies, the. same as the policies of a mutual insurance company, doing business on the contingent liability plan.
It appears from the admissions in the answer, and from the evidence, that the facts charged in the petition are substantially true as therein stated.
J. K. Richards, Attorney-General, for plaintiff.
U. S. Marvin, Tinker & Waters, and Tibbals & Franks, for defendant.

Opinion:
Burkft, J.
A construction was placed by this court upon some of the provisions of sections 3686 to 3690, both inclusive, Revised Statutes, in the case of The State ex rel. Attorney-General v. Monitor Fire Association, 42 Ohio St. 555; but the question as to whether or not such an association is authorized by law to receive into its membership non-residents of Ohio, was not decided in that case; and we are now requested, by both parties in this case, to pass upon and settle that question.
Section 3686 provides that, "Any number of persons of lawful age, residents of this state, not less then ten in number, may associate themselves together for the purpose of insuring each other against loss by fire and lightning, cyclones, tornadoes, or wind storms; and may make, assess and collect, upon and from each other, such sums of money, from time to time, as may be necessary to pay losses which occur by fire and lightning, cyclones, tornadoes, or wind storms, to any member of such association, and the assess ment and collection of such sums of money shall be regulated by the constitution and by-laws of the association. "
Section 3687 provides that, "The object of the association, shall only be to enable its members to insure each other against loss by fire and other casualties, and to enforce any contract which may be by them entered into, by which those entering therein shall agree to be assessed specifically for incidental purposes and for the payment of losses which occur to its members."
Section 3689 provides that the persons named in the certificate shall elect directors and other officers to serve for one year|; and such association, so organized, shall be a body corporate for all the purposes aforesaid; but in no instance shall the-power to insure against losses by fire, be exercised to others than members of the association.
By section 3690 it is provided that all persons who sign the constitution of the association shall be considered and held to be members thereof, and shall be held in law to comply with all the. provisions and requirements of the association.
It will thus be seen that the association is required, by the statute, to begin its existence with members who are residents of Ohio; and the object of the association is to insure its members only, against loss by fire, etc. To become a member the person must sign his name to the constitution. The officers are elected by the members, and the whole scheme contemplated by the statute seems to be an association of rather a local nature, one in which the members are likely to be more or less acquainted with the standing 'of each other, and not scattered all over the country or the world. The success and solvency of such an association depends in a large measure upon the standing and responsibility of its members, the promptness with which they pay their assessments, and the confidence which each has that all the others will in the future continue to comply with the requirements of the association.
This can best be done by limiting the membership to a small territory, and we think, and so hold, that it ¿safe the intention of the legislature, by the statute in queBBKn. to limit the membership of the association to our own state,, and not to permit it to accept members who are non-residents of the state, and not to insure property for such nonresidents situate outside of this state.
Sections 3686 to 3690, both inclusive, form a part of Title two, of part second, of Revised Statutes; and section 3248 provides, that in all " corporations formed under this title, all directors and all' the executive officers must be holders of stock in an amount to be fixed by the by-laws, and trustees of corporations must be members thereof."
So that it was the evident intention-of the General Assembly that in associations of the character in question, the directors should be members of the association, and that persons who are not members of the association, are not legally qualified to fill the office of director in such association.
An association organized under said sections 3686 to 3690, is not authorized to transact insurance buisness upon the "joint stock" plan, nor upon the " contingent liability " plan provided for in section 3634, Revised Statutes. It is expressly provided at the close of said section 3634, that, "nothing in this section shall apply to associations for the mutual protection of their members against loss by fire heretofore or hereafter organized as provided in section 3686 of' theRevisedStatutes." And section3687confines the business of an association for the mutual protection of its members, to insurance in which the agreement among the members is, " to be assessed specifically for incidental purposes, and for the payment of losses which occur to its members." The only assessments which such an association has the lawful power to make, are assessments for specific incidental purposes, and for specific losses sustained by its members.- The idea upon which such associations are founded is, that whenever a loss occurs to a member, the amount thereof being first ascertained and adjusted, a specific assessment is made upon all the members to pay such loss. But in practice, the method pursued is not to-make and collect an assessment for each loss as it occurs, but to make and collect assessments At stated periods for all losses which have occured up
' In such an association the liability of the members is limited only by the amounts of the losses. And an attempt to limit the annual liability, either to the amount of the cash premium paid when the policy is issued, or to the amount of three or five annual cash premiums, is not sanctioned by law, but is expressly prohibited by said sections 3634 and 3687, of the Revised Statutes.
The evidence shows that the defendant has violated the statute in this regard.
It is therefore clear that the defendant has been exercising powers and franchises not authorized by statute.
But defendant pleads that what it has thus done, has been the custom of such associations for years past, with the knowledge and consent of Commissioner of Insurance of the state of Ohio. The evidence fails to show such knowledge and consent on part of the Commissioner of Insurance, and even if it did, his knowledge and consent would not make the acts lawful. Nor would the fact that all such associations have had a custom among themselves to do their business in an unlawful manner, add any legal sanction to such illegal methods.
We therefore conclude that the course of business as transacted by said defendant, is not only illegal, but inexcusable, and that the prayer of the petition should be granted.
fudgmejit of ouster.