Court Opinion

ID: 4722997
Source: CourtListenerOpinion
Date Created: 2021-08-12 02:37:57.023894+00
Date Added: 2024-06-11T08:07:42.489764
License: Public Domain

Fullerton, J.
(dissenting) — As stated by the majority, the question at issue in the present controversy turns on the construction of the state statute relating to fraternal benefit societies. It is the opinion of the majority that the respondent insurance commissioner has misconstrued the statute, and has made an order with respect to the appellant society which the statute does not warrant. With this conclusion I am unable to agree, and I shall point out, as briefly as I may, the reasons why I cannot so agree.
The statute in question is found in Remington’s Compiled Statutes at sections numbered from 7258 to 7292 [P. C. §§3145-3146], inclusive. Historically, it had its origin at a congress of representatives made up of delegates from the several fraternal benefit societies of America, held at Mobile, Alabama, in 1910. It was born of necessity. Gravestones had lined the path of fraternal benefit societies, and many of those then surviving were in the throes of dissolution. The fault of all of such societies was that they had been endeavoring to carry life insurance at less than its actual cost, and the purpose of the congress was to frame a form of an act for adoption by the legislatures of the various states which would prevent for the future the organization of societies with inadequate charges, and which would permit those then in existence to so modify their existing charges as to become gradually upon a sound financial basis. The congress also adopted a “Table of Mortality,” and prescribed “a rate of stated periodical contributions” which was thought sufficient to provide for meeting the mortuary obligations contracted for death benefits by any such society. In 1911 the legislature of this state enacted into law the bill so framed, making slight changes in its text.
*694The law so enacted is clear in its terms as to societies formed after its enactment, and as to societies organized in other jurisdictions subsequent to that time seeking to operate in this state. It preserves the fraternal and social features of the societies found so beneficial in their past history. It provides that all such societies shall be carried on solely for the benefit of their members and their beneficiaries and not for profit; that they shall have a lodge system, with a ritualistic form of work; that they shall have a representative form of government, and it goes so far as to provide that their members, whether officers, delegates or representatives, shall vote at all times individually and not by proxy. It requires that every such society “shall provide for the payment of death benefits, and may provide for payment of benefits in case of temporary or permanent physical disability, either as the result of disease, accident or old age.” To meet the obligations it thus assumes, the statute further provides that the society shall exact of each member
“ . . . stated periodical contributions which shall be sufficient to provide for meeting the mortuary obligations contracted, when valued for death benefits upon the basis of the National Fraternity Congress Table of Mortality, as adopted by the National Fraternity Congress. . . . ”
All such societies are placed under the supervision of the state insurance commissioner. Each society must, on or before the fifteenth day of February in each year, file with the commissioner, in such form as he may require, a sworn statement showing its condition and standing as of December 31 of the preceding year. It must also annually make and file the report provided for in the section of the statute quoted in the majority opinion as § 7281, Rem. Comp. Stat. [P. C. § 3110]. If the commissioner finds from these reports *695that the statute has been complied with, he is authorized to grant to the society a license to continue its business of insurance.
At the time of the passage of the act, there were existing in this state many beneficiary societies organized under its then laws, or organized under the laws of a foreign state and permitted to do business in the state. Bach of these societies had issued to its several members a beneficiary contract or certificate wherein it had agreed to pay to the beneficiary of such member a stated sum on the death of the member. Many of them, if in fact there were any exceptions, were not exacting from the member a “stated periodical contribution” sufficient to provide for meeting the mortuary obligations thus contracted, when valued for death benefits upon the basis of the table of mortality of the National Fraternity Congress before mentioned. Some of them, in fact, were not collecting stated periodical contributions at all, but were following what has become known in fraternal insurance as the assessment-as-needed plan; that is to say, the plan of assessing the surviving members in a sum sufficient to- pay the loss incurred by the death of a member. This was the plan that had caused the downfall of so many fraternal insurance societies. As said by Zartman’s Yale Readings in Insurance, p. 141:
“In the earlier days of the societies these assessments were generally alike in amount regardless of age and were collected only on the death of a member for the payment of his benefit, thus, as you observe, carrying out still further the idea of fraternity. But as the societies grew older the fallacies of this method were taught the members by a hard experience. By simply dropping his insurance which he had already enjoyed a member could escape paying his share of the death losses. As the members grew older and the death losses increased, those that were younger were *696not long in discovering that they were contributing more than their share to the death losses, which were chiefly among the old. As a result these dropped their membership and joined younger societies. New recruits to fill their places could not be obtained. The average age of those that were left continued to increase and the assessments to grow heavier. This in turn increased the withdrawals, until at last few remained except the sick and aged. Assessments for losses could no longer be collected, and the society would dissolve, leaving a body of old and infirm deprived of the benefits for which they had so long contributed. This has been the story of scores of these societies in the past, and where otherwise honestly managed has been the cause of the numerous failures in this class of insurance. In spite of all the efforts to place assessment rates on a sounder basis, their inadequacy and inequity as between the younger and older ages still continues to threaten the permanence of a large proportion of our fraternal societies.”
As to these societies the statute makes certain special provisions. In common with the subsequently organized or subsequently admitted societies, it places them under the supervision of the state insurance commissioner, and requires them to file with that officer the annual reports and mid-year valuation reports required of such subsequently organized or subsequently admitted societies, and under the sub-title of “Provisions to Insure Future Security,” contains the following :
“If the valuation of the certificates, as hereinbefore provided, on December thirty-first, nineteen hundred and seventeen, shall show that the present value of future net contributions, together with the admitted assets, is less than ninety per cent of the present value of the promised benefits and accrued liabilities, such society shall be required thereafter to reduce such deficiency not less than five per centum of the total deficiency on said December thirty-first, nineteen *697hundred and seventeen, at each succeeding triennial valuation. If at any succeeding triennial valuation such society does not show such percentage of improvement, the commissioner shall direct that it thereafter comply with the requirements herein specified. If the next succeeding triennial valuation after the receipt of such notice shall show that the society has not made the percentage of improvement required herein,' the commissioner may, in the absence of good cause shown for such failure, institute proceedings for the dissolution of such society, in accordance with the provision of section 7283, or, in the case of a foreign society, he may cancel its license to transact business in this state.
“Any such society, shown by any triennial valuation subsequent to December thirty-first, nineteen hundred and seventeen, not to have made the improvement herein specified shall, within one year thereafter, complete such deficient improvement, or thereafter, as to all new members admitted, be subject, so far as stated rates of contribution are concerned, to the provisions of section 7270, applicable in the organization of new societies: Provided, that the contributions and funds of such new members shall be kept separate and apart from the other funds of the society until the required improvement shall be shown by valuation. If such required improvement is not shown by the succeeding triennial valuation, then the said new members may be placed in a separate class and their certificate valued as an independent society in respect to contributions and funds.” Bern. Comp. Stat., §7282.
It will be observed that in these special provisions there is no positive requirement that the old societies shall change their methods of assessment, nor is there any positive requirement that they shall collect “stated periodical contributions” sufficient to meet their mortuary obligations, when valued for death benefits upon the basis of the National Fraternity Congress table of mortality. But, as I view the statute, the legislature intended to subject them to the imposition *698of certain conditions if they did not provide in some form for contributions sufficient to comply with their obligations. The legislative scheme, taken as a whole, seems to have been this: All such societies were given the time elapsing between the date the act went into effect and the end of the year 1917 to bring the then present value of their future net contributions to within ninety per centum of the then value of their promised benefits — this they were to do in their own way and by any satisfactory scheme, without let or hindrance on the part of the state insurance commissioner. If the valuation of the certificates of any society on the date fixed did not show the required per centum, the state insurance commissioner is empowered to require the society to reduce the deficiency not less than five per centum at each succeeding triennial valuation. If at any succeeding triennial valuation “such society does not show such percentage of improvement, the commissioner shall direct that it thereafter comply with the requirements herein specified;” that is to say (as I interpret the statute), shall require that the society collect stated periodical contributions sufficient in amount to provide for meeting the mortuary obligation contracted, when valued for death benefits upon the basis of the National Fraternity Congress Table of Mortality. If it does not do this, the commissioner may take one of two courses; if a local society, he may direct that proceedings be instituted for its dissolution, or, if a foreign society, may cancel its license to transact business in this state; or he may, in the alternative, require as to all new members admitted into the society that they be subjected to the stated rates of contribution applicable in the organization of new societies, and require that the contributions and funds of such new members be kept *699separate and apart from the other funds of the society.
I confess that there are certain provisions contained in the act which I have difficulty in understanding, nor do I find them satisfactorily explained in the hriefs of counsel. The first of these is the concluding sentence of the first paragraph of § 7281, supra, quoted in the majority opinion, and another is the concluding paragraph of the same section. As to the meaning of the first of these, I shall make no suggestion further than to say1 that I cannot think it means that a society, collecting inadequate premiums, may treat its insurance obligations as term insurance only. This is not only contrary to the tenor of the act as a whole, but it is to permit the society to practice deception; it is to permit it to induce a member to join the society by promising life insurance, whereas it only provides for insurance for a single year.
The second of the clauses I would interpret to be a limitation on the power of the insurance commissioner to direct the institution of dissolution proceedings— that it possibly means that he may not direct such proceedings so long as the funds in the possession of the society are sufficient to meet its matured liabilities, even though its immatured liabilities may exceed its possible assets; that in such an instance the commissioner is relegated to the second alternative the statute provides, namely, to require new members of the society to be admitted on stated rates of contributions required of members of societies organized, or admitted to transact business in the state, subsequent to the passage of the act.
The appellant society, as has been stated, was organized under the laws of the state of Oregon, and was permitted to transact business in this state prior *700to the enactment of the fraternal insurance code. It issues contracts' of insurance by which it promises to pay to the beneficiary of its individual members a stated sum on the death of the member. To meet the mortuary obligations thus contracted, its laws originally provided for the collection from each several member a stated periodical contribution, which was less than one-half sufficient for that purpose when valued for death benefits on the table of mortality adopted by the code. On this fact appearing in its 1917 report, the commissioner directed it to take the necessary steps to make up the deficiency. The society, in 1918, thereupon adopted the assessment plan shown in the by-laws set out in the majority opinion. Its annual report to the insurance commissioner for the year 1921 showed, when made in conformity with the statute, according- to its complaint, “a percentage of solvency amounting- to less than 50%, and showed no material increase in the ratio of solvency since December 3, 1917,” and, according to the valuation of the commissioner, showed “a decrease in the percentage of solvency over that” shown in the report filed as of December 31,1917. The commissioner thereupon sent to it the following order:
“This department is in receipt of your letter of February twenty-fourth together with warrant in the amount of $10.00 being fee for renewal of Certificate of Authority.
“Before accepting this fee in payment of Certificate of Authority, I wish to call your attention to the fact that it is the opinion of this Department that your society has not made the necessary improvement required under Section 229 of the Insurance Code of the State of Washington.
“You are, therefore, notified that on and after April 1, 1923, all new members admitted shall be subject, so far as stated rates of contributions are concerned, to *701the provisions of Section 217 of the Insurance Code, applicable to the organization of new societies, and the contributions and funds of such new members shall be kept separate and apart from the other funds of the society.
“This decision is based upon the valuation as submitted to this Department under date of February 7, 1923, which statement shows a decrease in the percentage of solvency over that filed as of December 31, 1917.”
It is this order the enforcement of which the society by the present action seeks to enjoin, and the order which the majority hold not warranted by the law or the facts.
It is with this conclusion that I am unable to agree. In the first place, the plan adopted does not meet the exigency of the situation. It is the old assessment-as-needed plan that has caused the downfall of all such societies as have fallen by the wayside, and the plan that the statute intended should be abandoned. I freely concede that a society which seeks by this plan to meet only one-half of its obligations will survive longer than one which seeks to meet the whole of its obligations in that manner, but it will as surely fail in the course of time as have those which have gone before. Not only has experience demonstrated this, as I have shown, but it can be aild has been demonstrated by the inexorable law of mathematics. As a concrete example, where the plan has been tried and failed, I need only point to the case of Thomas v. Knights of Maccabees, 85 Wash. 665, 149 Pac. 7, Ann. Cas. 1917B 804, L. R. A. 1916A 750. I think, moreover, that the final result is depicted in the experience of this very society. Since the year 1918 it has been compelled to levy seven special assessments to meet its current obligations. I am aware that the necessity *702for a majority of these was caused by the influenza epidemic, but I cannot think that this in any way alters the situation. Epidemics causing more than the normal loss of life for particular seasons have been constantly recurrent in the past, and will as certainly as time goes on recur in the future. These are exigencies which every insurance society must expect and prepare to meet, and this society cannot hope to prove an exception.
In the second place, I think the plan adopted is contrary to the spirit and intent of the statute. As to societies organized subsequent to the enactment of the statute, and as to foreign societies admitted subsequent to that time, the statutes require the collection of stated periodical contributions from their several members sufficient to meet the mortuary obligations assumed; which, of course, forbids an assessment-as-needed plan. As to societies previously organized, there was, it is true, no positive requirement that they change to the periodical contribution plan. But the statute gave them that opportunity, and empowered the state insurance commissioner to impose on them certain conditions if they did not do so. The commissioner, in my opinion, therefore has in this instance done nothing more than the law enjoins upon him as a duty. The reports of the society showed that its stated income was insufficient to meet its mortuary obligations. To correct this it had adopted a scheme which failed to put its finances in the condition the statute required. Since the society was actually meeting its obligations as they matured, the commissioner possibly could not cancel its license to transact business in this state, but I cannot think there is any question of his duty and authority to impose the second alternative — to require that newly admitted members into the society be put *703in a separate class, and to require that there he collected from them stated contributions sufficient to meet the mortuary obligations incurred by the contracts entered into with them.
The arguments of the majority advanced in support of their position, I shall notice but briefly. It is said that the commissioner gave undue weight to the statute relating to valuations, and not sufficient weight to the report of the actuary. But if I read the statute and the report correctly, it is the actuary and not the commissioner who is in error. The report of the actuary distinctly states that his “valuation is made on the assumption of one year term insurance,” whereas the contracts issued by the society are life and not one year term contracts, and the statute requires that in making the valuations they shall be so regarded.
Nor do I understand that it is the custom of life insurance companies generally to value their outstanding contracts on the basis of “one year renewable term protection;” but, if this be so, it is, to my mind, plainly not the intent of the statute under consideration as applied to fraternal insurance. Manifestly, I think, these are to be valued as life contracts, and if the contributions from the members will not mature them, there is not a compliance with the statute.
The thought implied in the concluding part of the opinion, I think, mistakes the purpose of the statute. I concede that the social and fraternal features of all such societies are an attractive part of their organization. Insurance, however, is their primary purpose. Failing in this, they fail in their primary purpose. Persons join such societies for the protection of those dependent upon them. They pay the required stated contributions and assessments in the belief that in the end given sums will be paid to their own beneficiaries. *704The ordinary member knows nothing of the mathematics or the probabilities of the situation. They are given assurances that the promised sums will be paid, and trust in those who give the assurances. I, therefore, think it unjust to them to say that “if the final results are disappointing, theirs is the responsibility.” At least, this was not the thought of the framers of the statute. If the purpose of the statute was not to correct this very evil, it had no purpose whatsoever.
There is a brief filed by amici curiae arguing against the constitutionality of the law, if it is to be interpreted as I have interpreted it. The brief is able and the argument persuasive, but I think the question has been decided adversely to the contention by our case of Thomas v. Knights of Maccabees, supra.
In my opinion, the judgment of this court should be an affirmance of the judgment of the court below.
Mackintosh, J., concurs with Fullerton, J.