Opinion
Argued March 20, 1883
Decided March 30, 1883
Geo. W. Wingate for John P. O'Neill, receiver, appellant. Lucius McAdam for policy-holders, appellants.
Raphael J. Moses, Jr., for respondent. John C. Keeler for attorney-general.
The sole question raised upon this appeal is whether a person insured forfeits his policy by omitting to pay annual premiums thereon when the company issuing such policy has ceased its business, transferred all of its assets and become insolvent.
It would seem to be an inequitable rule that would require a policy-holder to continue for years in the payment of annual premiums upon a life insurance policy to a corporation utterly unable to perform its obligation, and which, by its situation, is precluded from even possibly improving its condition in the future, or forfeit all that he has previously paid in performance of his contract.
In June, 1872, the Empire Mutual Life Insurance Company, having been in business about three years, entered into a contract with the Continental Life Insurance Company, whereby the latter agreed to reinsure the outstanding risks of the former at a specified price, which amounted in the aggregate to about $656,754, and the Empire company contracted to immediately relinquish the business of life insurance, and do whatever might be necessary to wind up its affairs. The Empire Mutual Life Insurance Company, after transferring all of its assets, including its interest in a deposit of $100,000 in the State insurance department, to the Continental Insurance Company, still owed that company, on such contract, over $200,000, which it had no means of paying and never has paid.
Upon the heels of this agreement the Empire company surrendered its offices, went out of the life insurance business, notified the comptroller of that fact, and seven years thereafter was dissolved and had a receiver of its assets appointed at the suit of the attorney-general. The Continental company continued its existence until the year 1876, when it also became insolvent and was dissolved and a receiver appointed of its effects. During the period of its existence the Continental company received such of the policy-holders of the Empire as consented to come in and accept policies from it, but the respondents, on this appeal, refused or neglected to accept new policies from the Continental, and omitted to pay their annual premiums to the officers of either the Continental or the Empire companies after June, 1872.
It will be seen that policy-holders in the Empire company, after its sale to the Continental, had the option of three alternatives, either to continue paying premiums to the nominal officers of an insolvent corporation, with the certainty of making an ultimate loss, or to accept an enforced change of policies in a company not of their own selection, and concerning whose responsibility they knew nothing, or to rest on their claim for damages against the company with whom alone they had contracted, and who had voluntarily disabled itself from performing such contract. They selected the latter alternative, omitted to pay any further premiums, and now claim damages for a breach of contract by the Empire company in June, 1872, asserting the measure of damages to be the value of their policies at the time of the breach.
If the insurer has violated its contract, and voluntarily disabled itself from performance, the insured is doubtless excused from further performance or offer to perform, on his part, and may recover such damage as he can show he has suffered.
The circumstance that an insurance company is authorized by statute to effect an insurance upon its outstanding risks, or is permitted to discontinue its business, and wind up its affairs, does not release it from any of its existing obligations. There is no principle of law which permits an insurance company any more than a private individual by its own act to avoid the performance of its contracts, and the provisions of the statute in question were intended simply to empower an insurance company to protect itself by voluntary engagements with others from eventual or continued loss, and do not at all concern the persons with whom it has previously contracted.
An insurance company has no power to turn its policy-holders against their consent over to another company, and such policy-holders are under no obligation, in order to protect their legal rights, to protest against an effort to do so.
The implied contract of an insurance company with its policy-holders is that it will continue its business, keep on hand the funds required by law for the security of its patrons, and remain in a condition, so long as its contracts continue, to perform its obligations, and when it fails to do this it has broken its engagements. ( People v. Security Life Ins. Ann. Co., 78 N.Y. 125; 34 Am. Rep. 522.) It was held in the case of Shaw v. The Republic Life Ins. Co. ( 69 N.Y. 286) that when an insurance company announces that it will not perform its contract, and does not withdraw such announcement before the period for paying premiums arrives, the assured is excused from paying or tendering payment of premiums. And in Att'y-Gen'l v. Guardian Mutual Life Ins. Co. ( 82 N.Y. 339) it was held that when the further payment of premiums is excused by the insolvency of the company for the purpose of enforcement, the policies are just as effectual as if the premiums had been paid. The rules relating to the rescission of contracts have no application in this case; the claim of the respondents is based upon the validity of the contract and relates to its enforcement. By virtue of their position they are beneficiaries of the funds held by the State as security for policy-holders, and their claims follow that trust fund into the hands of the receiver, and are first entitled to be paid therefrom.
The order of the General Term should be affirmed, with costs to be paid from the fund.
All concur.
Order affirmed.