Where there is a reserved power in the legislature to alter,
amend, or repeal charters, a law permitting mutual life
associations to reincorporate as regular life insurance companies
is not unconstitutional as impairing the obligation of the
contracts existing between such associations and their
policyholders, or as depriving such policyholders of their property
without due process of law.
Wright v. Minnesota Mutual Life
Insurance Co., 193 U. S. 657.
The legislative power to alter, amend and repeal charters is
equally effectual whether it be reserved in the original act of
incorporation, the articles of association under a general law, or
in the constitution of the state in force when the incorporation
under a general law is made.
Under the power to alter, amend, and repeal charters reserved in
the Constitution of 1846 of New York, Chapter 72 of the Laws of
1901 does not impair the obligation of contracts existing between
mutual life associations and their policyholders, nor in this case
did the reincorporation of such an association as a regular life
insurance company deprive its policyholders of their property
without due process of law.
In this case, the Circuit Court of Appeals for the Second
Circuit certified certain questions of law upon which it desired
instruction. Such part of the statement accompanying the questions
as we find material and the questions themselves follow:
The above-named appellants filed their bill in equity in the
United States Circuit Court for the Southern District of New York,
praying for the appointment of a receiver of both defendants, the
winding up of both defendants, an accounting to ascertain the
interest of complainants and all other policy holders of Mutual
Reserve Fund Life Association in the assets of Mutual Reserve Life
Insurance Company, and the marshaling
Page 207 U. S. 311
and distribution of said assets. A final decree was entered by
the circuit court sustaining a demurrer of the defendant to the
amended bill of complaint and dismissing the bill. From that decree
the complainants have appealed to this Court.
The amended bill of complaint alleges the existence of the
following facts:
The complainants became members and policyholders of the said
association respectively on various dates from 1886 to 1900. The
policy of each complainant is made a part of the bill and also the
application for insurance of two of the complainants. The material
provisions of the policies and applications are hereto annexed as
Exhibits 1 and 2. Said association became a corporation organized
and existing under the laws of the State of New York. It was
originally organized in 1881 under the corporate name of Mutual
Reserve Fund Life Association of New York, under Chapter 267, Laws
of 1875, entitled "An Act for the Incorporation of Societies and
Clubs for Certain Lawful Purposes." The original certificate of
incorporation stated the objects and business of the company to
be
"the mutual benefit of ourselves and all others who may become
members of the society, by providing benefits for families and
others dependent upon such members by means of voluntary
contributions to meet exigencies occurring from time to time, and
to provide a fund for the common and exclusive benefit of all
members."
In 1883, the association reincorporated under Chapter 175, Laws
of 1883, entitled "An Act to Provide for the Incorporation and
Regulation of Cooperative or Assessment Life and Casualty Insurance
Associations and Societies." Its amended charter or certificate of
incorporation, filed in 1883, after reciting the desire of the
corporation to reincorporate under said act of 1883, provided:
" First. We do hereby express our intention to form an
organization for the transaction of life insurance upon the
cooperative or assessment plan."
"
* * * *"
" Fourth. The mode and manner in which the corporate
Page 207 U. S. 312
powers granted are to be exercised are by issuing certificate of
membership, policy, or other evidence of interest to, and promise
or agreement with, its members, whereby, upon the decease of
member, money or other benefit, charity, relief, or aid is to be
paid, provided, or rendered by said corporation or association to
the legal representative of such member, or to the beneficiary
designated by such member, which money, benefit, charity, relief,
or aid are derived from voluntary donations, or from admission
fees, dues, and assessments, or some of them, collected or to be
collected from the members thereof or members of a class therein,
and interest and accretions thereon, or rebates from amounts
payable to beneficiaries or heirs, and wherein the paying,
providing, or rendering of such money or other benefit, charity,
relief, or aid is conditioned upon the same being realized in the
manner aforesaid, and wherein the money or other benefit, charity,
relief, or aid so realized is applied to the uses and purposes of
said corporation or association, and the expenses of the management
and prosecution of its said business."
"The existence and corporate powers of the association under the
name of Mutual Reserve Fund Life Association of New York continued
from that time unchanged until April 17th, 1902. On that date, a
declaration and amended charter of the said association was filed
under and pursuant to the provisions of Chapter 722, Laws of 1901,
which act was an amendment of § 52 of Chapter 690, Laws of
1892, known as The Insurance Law of the State of New York. This
amended charter of 1902 was adopted and filed pursuant to a
resolution of the board of directors of the said association,
adopted by more than a majority of said board. The declaration and
amended charter was duly certified by the Attorney General of the
state to be in accordance with the requirements of law, and the
state Superintendent of Insurance issued his certificate of the
filing of such declaration and amended charter, and consented to
the transaction of the business of insurance by the said Mutual
Reserve Fund Life Insurance Company as
Page 207 U. S. 313
in said amended charter provided. The material provisions of
said declaration and amended charter are as follows:"
" This is to certify that the Mutual Reserve Fund Life
Association, a corporation originally organized under and by virtue
of Chapter 267 of the laws of 1875, and reincorporated and
transacting business under Chapter 175 of the Laws of 1883 of the
State of New York, and the laws amendatory thereof and
supplementary thereto, has duly accepted the provisions of the act
of the legislature of the State of New York, being Chapter 690 of
the Laws of 1892, known as 'The Insurance Law,' and the amendments
thereto, and in conformity with the same has duly adopted the
following amended charter:"
"
Article I"
" The name of the corporation shall be 'Mutual Reserve Life
Insurance Company.'"
"
* * * *"
"
Article III"
" The business of the company shall be insurance upon the lives
or the health of persons and all and every insurance appertaining
thereto, the making of endowments, and the granting, purchasing,
and dispensing of annuities, such kind of insurance being
authorized under subdivision of section 70 of 'The Insurance
Law.'"
"
Article IV"
"
* * * *"
" SEC. 4. The present bylaws of the corporation, which form part
of its contracts with its members, shall continue to be the bylaws
of the company unless or until the same shall be revised or amended
in the manner therein provided."
"
* * * *"
"
Article VI"
" SEC. 1. The company shall have no capital stock, but shall be
a mutual company."
"
* * * *"
"
Article VIII"
" The company shall be entitled to have and enjoy all the
Page 207 U. S. 314
rights, privileges, and provisions of existing laws which might
be included in the charter and enjoyed by it, if it were originally
incorporated under 'The Insurance Law' of this state."
"The consent of the policyholders to this amendment of the
defendant's charter was not obtained, and no meeting of
policyholders was called for that purpose. The complainants had no
notice of said amendment until June 2nd, 1902, on which date
complainants received the following notice:"
"
Note Change of Name"
" Make checks and money orders payable to Mutual Reserve Life
Insurance Company."
" On April 17, 1902, Mutual Reserve Fund Life Association
reincorporated as a mutual level premium company, under the title
of Mutual Reserve Life Insurance Company. Attention is called to
this change of name and to the accompanying report of the recent
examination of the corporation by the Superintendent of Insurance
of the State of New York, which shows a surplus over liabilities of
$466,885.48."
" This reincorporation, while insuring the stability of the
company, makes no change in your policy."
"Charles W. Camp,
Secretary"
"The bill suggests no irregularity or defect in the procedure by
which the amendment of the charter in 1902 was affected other than
that the consent of the policyholders was not obtained."
"It is further alleged that said company was organized about the
17th of April, 1902, by the then officers and directors of the
respondent Mutual Reserve Fund Life Association, without authority
from and without the knowledge or consent of complainants or the
other members and policyholders of said association, and without
corporate action by said members and policyholders, and that
complainants and the other members of the association were not
advised of the organization of the company until on or about June
2, 1902, when they received a printed slip notifying them that the
said association
Page 207 U. S. 315
had reincorporated under the name 'Mutual Reserve Life Insurance
Company.'"
"The amended bill then alleges that, at the time of the
organization of said company, the association was, and for a
considerable time had been, insolvent, its liabilities being in
excess of the value of its assets by a large amount, and that the
insolvency of the association was known to the officers and
directors thereof, and that the officers and directors, headed by
Frederick A. Burnham, president of the association, well knowing
the insolvency of the association, devised the scheme for the
incorporation of the respondent Mutual Reserve Life Insurance
Company, and procured legislation intended to authorize the same
with the object and for the purpose of secretly and
fraudulently"
"depriving complainants and the other members and policyholders
of respondent association of their membership rights and
privileges, and of abridging the same, and that, by their said
course in the premises said officers and directors sought and
intended to defraud the complainants and the members and
policyholders of said association generally, and sought and
intended to deprive them of their rights as members and
policyholders, or cause a forfeiture of the same."
"Complainants in their amended bill allege"
"that said law, Chapter 722 of the Laws of New York of 1901, if
its effect and meaning be such as to authorize the pretended
reorganization and reincorporation of the respondent association by
the officers and directors thereof without due notice to and
without the knowledge and consent of complainants or any of the
members and policyholders of respondent association . . . , is in
contravention and violation of section 10, Article I, of the
Constitution of the United States, which prohibits any state from
enacting a law 'impairing the obligation of contracts,' and
complainants invoke and rely upon said provision of the
Constitution of the United States, and say that, under said
provision of the Constitution of the United States said law is
unconstitutional, invalid, and void."
"And complainants further
Page 207 U. S. 316
allege that said law of the State of New York, if given the
construction, meaning, and effect aforesaid, is in contravention
and violation of those provisions of the Constitution of the United
States and of the State of New York which provide that 'no person
shall be deprived of his property without due process of law,' in
this -- that they deprive the complainants and the other members
and policyholders of respondent association of their vested rights
and privileges and of their property rights under their contracts
and agreements with respondent association without due process of
law, and complainants, as citizens and residents of the State of
Tennessee and nonresidents of the State of New York, invoke the
provisions of Article XIV of the Amendments to the Constitution of
the United States, and, upon advice of counsel, allege and charge
that said law of the State of New York, if given the force,
meaning, and effect aforesaid, is in violation of those clauses of
the Fourteenth Amendment to the Constitution of the United States,
which provide that"
"no state shall make or enforce any law which shall abridge the
privileges or immunities of citizens of the United States, nor
shall any state deprive any person of life, liberty, or property
without due process of law, nor deny to any person within its
jurisdiction the equal protection of the laws."
The circuit court of appeals desires instruction upon the
following:
"
Questions"
"1. Does the amended bill of complaint disclose that any
contract obligations between complainants and the defendant Mutual
Reserve Fund Life Association were impaired by the incorporation of
the Mutual Reserve Life Insurance Company in 1902, pursuant to the
provisions of Chapter 722, Laws 1901, of the State of New York, and
the transfer to said company of the assets, properties, and
membership of the Mutual Reserve Fund Life Association?"
"2. Does the amended bill of complaint disclose and show that
Chapter 722, Laws of 1901, of the State of New York, was
Page 207 U. S. 317
in violation of Article I, section 10, of the Constitution of
the United States, as impairing the obligations of a contract
between the defendant Mutual Reserve Fund Life Association and
complainants, insofar as it authorized the reincorporation of said
association as the Mutual Reserve Life Insurance Company?"
"3. Does the amended bill of complainant disclose that Chapter
722, Laws of 1901, of the State of New York, is in violation of the
provisions of Article XIV of the Amendments to the Constitution of
the United States in this -- that the reincorporation of the Mutual
Reserve Fund Life Association as the Mutual Reserve Life Insurance
Company, and the changes in the charter powers and franchises of
the corporation, have the effect of depriving complainants of their
property without due process of law, and of their vested contract
rights and privileges, and of their property rights under their
contracts and agreements with respondent association?"
"4. Does the amended bill of complaint disclose that Chapter
722, Laws of 1901, of the State of New York, was in violation of
those provisions of Article XIV of the Amendments to the
Constitution of the United States, which provides that no state
shall make or enforce any law which shall abridge the privileges or
immunities of the citizens of the United States, nor shall any
state deprive any person of life, liberty, or property without due
process of law, nor deny to any person within its jurisdiction the
equal protection of the laws? "
Page 207 U. S. 320
MR. JUSTICE MOODY delivered the opinion of the Court.
The Mutual Reserve Fund Life Association of New York
(hereinafter called the "association") was originally incorporated
under Chapter 267 of the Laws of New York of 1875. The
certificate
Page 207 U. S. 321
of incorporation stated the purposes of the association to be to
provide
"benefits for families and others dependent . . . by means of
voluntary contributions . . . and to provide a fund for the common
and exclusive benefit of all members."
In 1883, the Association reincorporated under Chapter 175, Laws
of 1883, and while this charter was in existence, the complainants
became members and policyholders. That law provided for the
incorporation and regulation of cooperative and assessment life and
casualty insurance associations, and the charter of the Association
stated the business to be conducted as "the transaction of life
insurance upon the cooperative or assessment plan." The law, as
will presently be shown, was subject to alteration or repeal. In
1892, an act known as The Insurance Law (Chap. 38 of the General
Laws) was passed, repealing previous laws upon the subject of
insurance, and expressed to be "applicable to all corporations
authorized by law to make insurances." Section 52 of this act, as
amended by Chap. 722 of the Laws of 1901, is as follows:
"SEC. 52. Reorganizations of Existing Corporations and Amendment
of Certificates. -- Any domestic corporation existing or doing
business at the time this chapter takes effect may, by a vote of a
majority of its directors or trustees, accept provisions of this
chapter and amend its charter to conform with the same, upon
obtaining the consent of the Superintendent of Insurance thereto in
writing, and thereafter it shall be deemed to have been
incorporated under this chapter, and every such corporation, in
reincorporating under this provision, may, for that purpose, so
adopt, in whole or in part, a new charter, in conformity herewith,
and include therein any or all provisions of its existing charter,
and any or all changes from its existing charter, to cover and
enjoy any or all the privileges and provisions of existing laws
which might be so included and enjoyed if it were originally
incorporated thereunder, and it shall, upon such adoption of and
after obtaining the consent, as in this section before provided, to
such charter, and filing the same and the record of adoption and
consent in the office of the Superintendent
Page 207 U. S. 322
of Insurance, perpetually enjoy the same as and be such
corporation, and which is declared to be a continuation of such
corporation which existed prior to such reincorporation, and the
offices therein, which shall be continued, shall be filled by the
respective incumbents for the periods for which they were elected,
and all others shall be filled in the same manner by such amended
charter provided. Every domestic insurance corporation may amend
its charter or certificate of incorporation by inserting therein
any statement or matter which might have been originally inserted
therein, and the same proceedings shall be taken upon the
presentation of such amended charter or certificate to the
Superintendent of Insurance, as are required by this chapter to be
taken with respect to an original charter or certificate, and if
approved by the Superintendent of Insurance and his certificate of
authority to do business thereunder is granted, the corporation
shall thereafter be deemed to possess the same powers and be
subject to the same liabilities as if such amended charter or
certificate had been its original charter or certificate of
incorporation, but without prejudice to any pending action or
proceeding or any rights previously accrued. This section shall
apply to insurance corporation organized under or subject to
article six of the insurance law as well as to insurance
corporations organized under special charters or articles two and
ten of the insurance law; all contracts, policies, and certificates
issued by such corporations prior to accepting the provisions of
this chapter shall be valued as one-year term insurance at the ages
attained, excepting when such contracts, policies, or certificates
shall provide for a limited number of specified premiums or for
specified surrender values, in which case they shall be valued as
provided in article 2, section eighty-four, of the insurance
law."
Following strictly the provisions of this section, the
Association accepted the provisions of the insurance law, amended
its charter, and became entitled to all the privileges of the law
as if it had been originally incorporated thereunder. In the
amendments to the charter, the name of the Association was
Page 207 U. S. 323
changed to "Mutual Reserve Life Insurance Company" (hereinafter
called the "company"), and the business of the company was stated
to be
"insurance upon the lives or the health of persons, and all and
every insurance appertaining thereto, the making of endowments, and
the granting, purchasing, and dispensing of annuities."
The effect of this was to broaden the business from that of
merely cooperative and assessment life insurance to life insurance
of every kind. It is conceded that what was done was within the
authority conferred by the statute, and the subject for our
consideration is whether any of the rights secured to the
complainants by the Constitution of the United States have been
impaired.
The first question certified is whether the incorporation of the
company and the transfer to it of the assets, property, and
membership of the Association impaired any contract obligations
between the Association and the complainants. This question
possibly implies that, by the reincorporation, an entirely new
corporation was created to which the property of the old
corporation was transferred. But the question must be interpreted
with the aid of the statement of facts which accompanies it. An
examination of the facts and of the statute shows that there was
simply a reorganization of an existing corporation, and not the
creation of a new one. The title of the section is "Reorganizations
of existing corporations and amendment of certificates." It
authorizes an existing corporation by vote of its directors to
accept the provisions of the chapter and amend its charter. It
provides expressly that the corporation, with its added powers and
revised charter, shall be a "continuation of such corporation which
existed prior to such reincorporation." This perhaps makes
superfluous the saving of "pending action or proceeding or any
rights previously accrued" which the section cautiously insures.
The declaration filed by the directors, and certified by the
Attorney General to be in conformity with law, recites that the
Association "has duly accepted the provisions" of the insurance
law, and "duly adopted the following amended charter." The
corporation
Page 207 U. S. 324
was not changed to a stock, but continued as a mutual, company.
The change of name cannot control the significance of these facts.
We answer this and the other questions upon the assumption,
therefore, that the old corporation was still in existence, under a
new name and with added powers, but with unchanged membership and
bound to perform all its existing obligations. Upon this view it is
impossible to say that any of the contract obligations of the
Association to the complainants have been impaired by the
reorganization. This was the view apparently accepted by the
company, who, in its notice to its members, said: "This
reincorporation, while insuring the stability of the company, makes
no change in your policy." It is contended, however, that the last
clause of the section, which is applicable to Associations for
insurance under the cooperative or assessment plan, affects the
contracts of the old members by converting them into one-year term
insurances at the ages attained. But, as we understand this clause,
it has no effect upon the contracts of insurance, but is designed
for a totally different purpose. It simply prescribes a standard by
which the liabilities on the assessment contracts must be
appraised. The Superintendent of Insurance is charged with the duty
of deciding whether the assets of insurance companies bear such a
relation to their liabilities that it is safe to allow them to
continue in business. A very large part of the liabilities of any
insurance company is upon outstanding contracts of insurance not
due, and therefore not capable of exact measurement. Such
liabilities can only be estimated or "valued." Section 84 of the
insurance law provides for the method of estimating or valuing the
liability on ordinary life policies, but that method seems
inapplicable to assessment policies. In any event, the legislature
determined that, when an assessment company was allowed to engage
in other kinds of life insurance, its outstanding policies should
be appraised as liabilities as if they were "one-year-term
insurance at the ages attained." This does not make them such in
fact, or authorize the company, in its dealings with the
policyholder, to
Page 207 U. S. 325
treat them as such. The statutory appraisement of the policies
for bookkeeping purposes no more affects the rights of the members
under their contracts than the account of stock of a merchant would
affect the rights of his creditors. The first question must be
answered in the negative.
The second question certified is whether the law of 1901, so far
as it authorized the reincorporation of the Association, was in
violation of the clause of the Constitution forbidding a state from
passing a law impairing the obligation of contracts. A similar
question was before the court in
Wright v. Minnesota Mutual
Life Ins. Co., 193 U. S. 657,
where it was held that a law of Minnesota authorizing an assessment
insurance company to change its business to that of insurance upon
a regular premium basis was not in violation of this provision of
the Constitution. The reasoning of the Court in that case need not
be repeated. It is conclusive upon this question unless the case at
bar can be distinguished from it. The complainants seek to
distinguish the case in several respects, which must be noticed.
First, it is said that, in the
Wright, case the power of
amendment of the articles of association was reserved in the
articles of association, while no such reservation exists here. But
the Constitution of New York, in force since 1846, contains this
provision:
"Corporations may be formed under general laws, but shall not be
created by special act except for municipal purposes and in cases
where, in the judgment of the legislature, the objects of the
corporation cannot be attained under general laws.
All general
laws and special acts passed pursuant to this section may be
altered from time to time or repealed."
A constitutional provision of the State of Michigan in
substantially the same words was held to authorize important
changes in the articles of association of an insurance company
incorporated under a general law.
Looker v. Maynard,
179 U. S. 46. There
it was said, page
179 U. S.
52:
"The effect of such a provision, whether contained in an
original act of incorporation or in a constitution or general law
subject to which a charter is accepted, is, at the least, to
reserve to the legislature the power
Page 207 U. S. 326
to make any alteration or amendment of a charter subject to it
which will not defeat or substantially impair the object of the
grant or any right vested under the grant and which the legislature
may deem necessary to carry into effect the purpose of the grant or
to protect the rights of the public or of the corporation, its
stockholders, or creditors, or to promote the due administration of
its affairs."
This case shows that it is immaterial whether the power to alter
the charter is reserved in the original act of incorporation, or in
the articles of association under a general law, or in a
constitution in force when the incorporation under a general law is
made, as in the case at bar. Second, it is said that, in the
Wright case, the change was made by the majority of the
members of the Association, while in the case at bar, it was made
by a majority of the directors without the consent of the members.
But in each case, the change was made in conformity with the
provisions of the law authorizing it, and, if the legislature has
the constitutional power to authorize the change by the vote of a
majority of the members, it has the power to authorize the change
by a vote of a majority of the directors. The rights of a
protesting member are no more impaired in one case than in the
other. Next it is said that distinctions may be based upon the
allegations in this case that the Association was insolvent, and
that, knowing this, its officers devised the scheme of
reincorporation and procured legislation authorizing it, with the
intent to defraud the members. That the corporation was solvent was
emphasized by the court in the
Wright case, but nothing in
the decision of the constitutional question turned upon that. It
would introduce a new uncertainty into the law if the
constitutionality of statutes were to be judged by the motives and
purposes of those who persuaded the legislature to enact them. We
are unable to conceive of any possible bearing that these
allegations, if accepted as true, could have on the constitutional
questions certified to us, or to regard them as creating any real
and substantial distinction between the case before us and the
Wright case. On the authority of that case,
Page 207 U. S. 327
therefore, the second question must be answered in the
negative.
The other two questions certified inquire whether the law under
which the reincorporation was made, or the reincorporation and
changes in power made under its provisions, are in violation of the
Fourteenth Amendment to the Constitution of the United States.
These questions do not require separate or detailed consideration.
As applied to the facts of this case, they are practically dealt
with in the discussion which has preceded. It is not suggested that
any rights secured to the complainants by the Fourteenth Amendment
were violated in any other manner than by the reincorporation of
the Association without the consent of its members, the change in
and addition to its powers, and the consequent effect upon the
contract rights of the complainants and upon their relation to the
corporation. But it has been shown that the contract rights of the
complainants have not been affected by the reincorporation, and the
same reasoning that leads to the conclusion that the changes in the
charter powers, made under the reserved powers of the state, do not
violate the contract clause of the Constitution is apt to show that
they do not violate the Fourteenth Amendment. In fact, the only
suggestion of a violation of the Fourteenth Amendment made to us is
that the reincorporation, under the circumstances of this case,
deprived the complainants of their vested rights and privileges and
property rights under their contracts without due process of law.
Since the incorporation has deprived the complainants of no vested
rights, privileges, or property, the contention fails.
The whole argument of the complainants upon these constitutional
questions, though enveloped in many words and presented in divers
forms, rests upon a single proposition. That proposition is that
they, having become members of an Association insuring lives upon
the cooperative and assessment plan, and being therefore, in a
sense, both insurers and insured, have a vested right that the
Association shall not, without their consent, engage in other kinds
of insurance, which may and
Page 207 U. S. 328
probably will indirectly affect, for better or worse, their
relations to it. The trouble with this proposition is that it was
made and denied in the
Wright case.
We have confined our consideration strictly to the
constitutional questions certified. It may be that the
complainants' rights under their contracts have not been observed
by the company, or that they have otherwise been unlawfully
injured. These questions are not before us.
The questions are severally answered in the
negative.
