Case Name: Hill v. The Nautilus Insurance Company
Court: New York Court of Chancery
Jurisdiction: New York
Decision Date: 1847-05-18
Citations: 4 Sarat. Ch. Sent. 577
Docket Number: 
Parties: Hill v. The Nautilus Insurance Company.
Judges: 
Reporter: Sandford's Chancery Reports
Volume: 4
Pages: 577–581

Head Matter:
Hill v. The Nautilus Insurance Company.
March 26, April 5, 12 ;
May 18, 1847.
In an insurance company on the mutual plan, having no capital stock, and as a substitute receiving notes for premiums in advance, given in large sums, for the security of dealers, and to be reduced by taking policies from time to time, and paying premiums; on which notes the charter authorized the company to allow a compensation of not more than five per cent, yearly, but the makers of the notes were not in respect thereof, members of the company entitled to vote. Held, 1. That the makers of such premium notes, in advance, were not stoclcholders of the corporation.
2. That they were not such creditors of the company, for any compensation which ought to have been, but has not been awarded to them in respect of such notes, as to enable them to proceed as creditors under the statute relative to the proceedings against corporations in equity.
Motion for an injunction and receiver ; which was opposed upon the answer, and affidavits of the vice-president and the actuary of the company. The complainant claimed to be a creditor of the company, in respect of his note given to them for premiums in advance, for the security of dealers, under their charter; on which note, as he alleged, he was entitled to a compensation out of the profits earned in their business. He also claimed to be a stockholder of the corporation, by means of the same premium note. In support of his application, he alleged several matters, as constituting violations of the charter of the company, of such a character that as a creditor or stockholder, he was at liberty to proceed for a dissolution of the corporation under the act, 2 R. S. 463, § 39.
The Nautilus Insurance Company was incorporated May 21 st, 1841; but on the 18th of April, 1843, assumed a new form by an amendment to its charter. (Laws of 1843, ch. 207, page 275.) it was thereby authorized to organize and do business under the plan of mutual insurance. It had the power to insure lives, marine and inland risks, and against fire. Whenever applications for insurance to the amount of three hundred thousand dollars, were made to the commissioners named in the act, the company might be organized and proceed to make insurances. Every person who during the preceding year had taken a policy, and every one who held the company’s certificate for earned premiums, (being profits presumptively earned, but retained in the company as a fund to meet unexpected losses, &c.,) were to be deemed members of the company, and entitled to vote for trustees, and at all elections. There was no capital stock; but as a substitute in some measure, and to form a basis for giving the company credit in the community, notes were given by numerous persons and firms, under a section of the charter which was in these words, viz.
“The company, for the better security of its dealers, may receive notes for premiums in advance, of persons intending to receive its policies, and may negotiate such notes for the purpose of paying claims or otherwise, in the course of its business ; and on such portions of said notes as may exceed the amount of premiums paid by the respective signers thereof, at the successive periods when the company shall make up its annual statement as hereinafter provided for; and on new notes taken in advance thereafter, a compensation to the signers thereof, at a rate to be determined by the trustees, but not exceeding five per cent, per annum, may be allowed and paid from time to time.”
The company proceeded to organize, pursuant to the act of 1843, and conducted the business of insurance in the city of New York. Among those who gave their promissory notes for the security of dealers, under the section quoted, the complainant in this suit gave his for five thousand dollars. After the lapse of a year, an annual statement was made up and published by the company, pursuant to its charter, by which it appeared that on the earnings of the company to that time, there was a net surplus of more than five thousand dollars. Out of this surplus, a dividend was declared, among those who were members by insuring in the company, and certificates were issued to them respectively, for the amount of such dividend. But no compensation was directed to be made to the persons who had given their notes for the security of dealers, and none was ever specifically declared or resolved upon by the trustees of the company. The complainant insisted that his note ought to be given up to him, unless compensation was made to him, as was implied from the charter, and the transaction in giving it. The bill was filed, to wind up the company, because of the alleged violations of its charter, and the laws governing monied corporations.
P. J. Joachimssen, for the complainant.
W. Bliss, for the defendant.

Opinion:
The Vice-Chancellor.
The bill states numerous facts as constituting violations of the charter of this company, or of statutes binding upon it, which it is claimed, entitle the complainant to proceed in this court for the appointment of a receiver and a dissolution of the corporation. Both the facts and the law of this part of the case were very fully and ably discussed ; but it will be unnecessary for me to examine either, until I have ascertained that the complainant is in a position to require their adjudication at this time.
To sustain his application, it must appear that he is a creditor, or a stockholder of the corporation.
1. Is he a creditor 1
He gave his premium note to the company for $5000, pursuant to the provision in the amended act of incorporation. The company has made up its annual statement, and has declared a dividend, (as it is called,) of the premiums earned during the preceding year, to and among its members. But the trustees have not made any compensation to the complainant upon his premium note, which the company then held, and still holds.
It is contended, that the trustees were bound to fix the rate of compensation to the complainant, upon making up the annual statement; that the fact of their making a division of the un earned premiums, is conclusive that a compensation ought to have been allowed and paid; the rate of the dividend shows?, that the whole five per cent, ought to have been allowed to the makers of the premium notes; and therefore the complainant is a creditor of the company, for five per cent on his note, equal to $250.
It may be true, that the complainant is entitled to some compensation, and that on the neglect or refusal of the trustees to act, he may, by a suit in this court, obtain a decree directing them to determine its rate, or referring it to a master to ascertain the rate in their behalf. I do not consider it incumbent on me to decide that question in this stage of the cause.
But after mature reflection, I am perfectly satisfied that the complainant is not such a creditor of the corporation as was intended by the fortieth section of the statute relative to proceedings in equity against corporations. (2 R. S. 464.)
The dividend from the earned premiums furnishes no reliable evidence that the company is in a condition to make the com1 pensation claimed. The dividend is no more than a certificate that the company has earned a certain amount beyond its expenses and losses ; which amount is to remain in its possession as a fund liable for future losses. It is precisely thefund, which a prudently managed insurance company keeps, for the liquidation of losses, as they from time to time occur. (See De Peyster v. The American Insurance Company, 6 Paige, 486.)
Again, if the court were induced to believe that a case for some compensation had arisen ; there is certainly no proof that the amount of the compensation justly due will exceed $100 ; and there is besides, the furtherand difficult question, whetherthe discretion vested in the trustees can be controlled by this court) unless upon proof that their action or their refusal to act, is mala fide, which cannot be averred on the bill and answer before me.
' It would be an unwise and improvident exercise of the vast power conferred upon courts of equity by the statute before cited, to suspend the business of an insurance company in full operation, upon the claim presented in this bill: A claim which may ripen into a debt, but which in its present state can scarce ly warrant me in treating its holder as a creditor.
2. Is the complainant a stockholder of the corporation in question!?
This point was argued in his favor, with great ingenuity, but without success. The corporation has no capital stock. The circumstance that the officers of the company have denominated the premium notes, as " guaranty capital," does not alter the fact that there is no capital stock in the ordinary sense of the term. The nearest representative of capital, is the interest acquired by insuring in the company. Those who insure, are members of the corporation, entitled to vote at its elections, to be credited with their rateable shares of the surplus premiums earned, and to receive a similar share of the profits derived from investments. Those who give premium notes, do not participate in any of these privileges. They may become creditors of the corporation for the compensation on their notes whenever the trustees award a compensation ; and they may also become debtors to the corporation, when its misfortunes compel a resort to their notes to liquidate claims for losses on its policies. But they do not, as such makers of the notes, have any voice in the control of the institution or any participation in its profits as such.
Without pursuing the contrast, it i s sufficient to say that it is clear they are not stockholders of the corporation.
Thus the complainant has failed to establish his standing under the statute, either as a creditor or a stockholder ; and his motion for an injunction and receiver must be denied. The defendant's costs of opposing the motion, are to be costs in the cause.
Since this decision, the subject of these premium notes, and the liabilities of the makers to pay them, has been very much litigated; and the law relating to them fully settled in the New York Superior Court. See Brouwer v. Appleby, 1 Sandford's R. (Superior Court,) 158, and note to same, page 173 ; the several cases next succeeding in the same book; and Brouwer v. Hill, 1 ibid. 629, and the charge of the judge at page 640, and at page 644. The decision of the superior court, in Brouwer v. Appleby, was affirmed by the court of appeals.