Farmers' & Breeders' Mutual Reserve Fund Live Stock Ins. v. Beck , 66 Pa. Super. 528 ( 1917 )

Opinion by

Kephart, J.,

The policy of live stock insurance, under which the defendant’s horses were insured, required the defendant to pay a quarterly sum' of money during the lifetime of the contract, which read for five years, subject to the conditions named. One of the conditions was that, “this policy shall be void------if the assured parts with, alienates, or sells his interest in the insured animal or animals.” The insured paid his'first premium when the policies were received, and the animals were insured dor three months. During that period he sold this stock and is relieved from liability for future premiums.

The insurance company urges that the defendant is a member of a mutual insurance company, and though the provision in question declares that the policy is void, it relates only to the agreement of indemnity contained in the policy and in no way affects the promise of the insured to pay premiums, upon which the agreement was originally founded; and while his own act may defeat his right to recover on the policy, it does not furnish him with a legal defense to the action upon the liability for premiums which he assumed when he became a member of this mutual company.

We learn from the plaintiff’s policy of insurance that its business was not conducted on an assessment basis, but on a cash premium basis, and while the application seeks admission to membership, and'the rule of law may be that each person insured in a mutual company becomes a member by the fact of insurance (Susquehanna Ins. Co. v. Perrine, 7 W. & S. 348,) it is not true that every member is liable to an assessment for losses sustained by the company. Those ¡who are insured upon a cash plan have already made their full contribution to the common fund, and cannot be further burdened: Schimpf & Son v. Lehigh Val., Etc., Ins. Co., 86 Pa. 373; Lycoming Ins. Co. v. Com., 10 W. N. C. 228. This company had the power to issue cash policies, but the mere fact of membership engaged by such policies'does not necessarily imply a liability to assessment: Given v. Rettew, 162 Pa. 638. And while there is a distinction between a policy issued upon the credit of the capital stock of the company, and one issued upon the reciprocal obligations of members,'nevertheless if there is nothing in the insurance contract of a mutual company which makes a cash premium member liable for loss beyond the amount of his quarterly premiums, the law governing members so insured should be more analogous to that governing the insured in a stock company. As stated in Moore v. Lichtenberger, 26 Pa. Superior Ct. 268-272, “a premium is the compensation paid a company for the indemnity furnished; when the insurance is upon a stock principle, the premium is usually a sum certain or capable of being made certain.” Inasmuch as the losses to be borne in mutual companies are usually an indefinite and uncertain amount, it would appear that where a cash premium was paid it embraces all of the policyholder’s liability for losses of the company, unless the statute or by-laws provided otherwise. The policy as issued was taken subject to termination for alienation or for any cause. Subsequent policies were necessarily issued with the knowledge of the existence of cash premium policies and the possible termination of these policies. It is difficult to see what rights of the members are injuriously prejudiced (and it does not appear that any have been), or in what manner the credit of the company is impaired; the failure to pay the premiums after the animals were sold was sufficient notice to put the company on inquiry. It has been held that notwithstanding the alienation provision in the policy, interest in . the property insured is an essential link in the relation of insurance. Where a company is authorized to do business both on a cash and assessment basis, when one insures on a cash basis he is not a member but simply an insured : 22 Cyc. 1416. In a mutual company, with due regard to the members composing it, in Wilson v. Trumbull Mut. Fire Ins. Co., 19 Pa. 372, where a member sold a stock of goods, that was insured, several months before the company incurred a loss by fire, it was held that the member was not liable for any portion of this loss; that when he sells his property “he excludes himself from membership, and from all liability thereafter accruing. He is no longer an insurer or insured. He can claim no benefits, nor is he bound for subsequent losses.” This doctrine is reaffirmed in Prospect Dye Works v. Federal Insurance Co., 33 Pa. Superior Ct. 223, and Bannister v. Spring Garden Mut. F. Insurance Co., 50 Pa. Superior Ct. 45. While the rule thus stated may be modified by contract, in the instance now before us this does not appear. And while animals subsequently purchased might have been insured under the same policy, to affect such insurance, action was necessary by the company which amounted to .a reinsurance under the same policy. It is our conclusion that the sale of the property, during the lifetime of a cash premium policy, where the premiums had been paid, causes the policy to be void both as to the company and to the insured.

Clause 10 of the policy, which requires it to be surrendered for cancellation, does not affect the proposition, and has reference to policies that are alive. This policy was void, and' the company admit that had the policy been sent to the home office at the time the horses were sold, there would be no further liability on the policy for premiums. This being true, the mere fact that it was not sent would not cause the insured to be liable on a void policy for future premiums. There was nothing in the policy requiring it to be returned. The company was in no way injured by this failure to return, and the insured did nothing to mislead them.

The cases cited by appellant do not conflict with the principle here stated, as applied to the facts in this case. In Thropp v. Susq. Mut. Fire Insurance Co., 125 Pa. 427, the contract was essentially different and in event of alienation the insured had the privilege of presenting his contract for cancellation. And in State Mut. F. Insurance Co. v. Keefer, 9 Pa. Superior Ct. 186, the by-laws provided that if the policy became void from any cause, the directors had the right to retain and assess the premium note for losses until the policy was surrendered and cancelled. This suspended the effect of alienation upon the premium note until this clause was complied with. It was an action on the premium note, not on the policy to recover cash premiums as in this case. Nor are we impressed with the argument that the word “void” should be taken to mean “void” when the company is called upon to meet a loss, and “voidable” when the company so desired it to have that meaning.

After a careful review of the first affidavit of defense, we are satisfied that the court did not commit error in refusing judgment on the plaintiff’s rule. It contains an express allegation that at the time the defendant accepted the application and the policy, the company’s agent misrepresented its contents; that the application was procured by fraudulent conduct; that the policy did not represent the policy the defendant understood and believed he was getting. The statements, if true, were sufficient to put him off his guard, and induce him not to look into and inquire more particularly concerning the contents of the application and policy. A man should not be relieved from a written contract upon the ground of mutual mistake or fraud practiced upon him in the making and acceptance of a paper without specifically alleging facts from which the mistake or fraud maybe clearly and indubitably inferred. Mor do we think that his holding the policy for the period of time mentioned was such a lack of diligence as to charge him with laches in asserting his rights; while he must act promptly, we are not prepared to say that he did not. It becomes a matter of proof. Under the act allowing an appeal in these cases, it was said that the act was intended to reach only clear cases of law, and in doubtful cases, especially those requiring broad inquiry into facts, the matter in controversy should go to the jury: Horvitch v. Eaton, 51 Pa. Superior Ct. 251. On this phase of the affidavit, this rule is applicable.

The order of the court below is affirmed, and a procedendo awarded.