Opinion
March 6, 1963 —
April 2, 1963.
APPEAL from an order of the circuit court for Milwaukee county: MICHAEL T. SULLIVAN, Circuit Judge. Affirmed.
For the appellants there were briefs by Roberts, Boardman, Suhr, Bjork Curry, attorneys, and Kenneth T. McCormick, Jr., of counsel, all of Madison, and oral argument by Mr. McCormick.
For the respondent there was a brief by Charne Tehan, and oral argument by Irvin B. Charne and Donald S. Taitelman, all of Milwaukee.
Federal Mutual Casualty Company is a mutual insurance company organized under the laws of the state of Wisconsin. Prior to November 22, 1960, the company was engaged in the health and accident insurance business in several states, including Wisconsin. On November 22, 1960, the Commissioner of Insurance of the state of Wisconsin instituted proceedings to liquidate the assets of the company. On December 6, 1960, the circuit court entered an order directing the commissioner to operate the company. The company was operated under such order until February 24, 1961, when the circuit court found it to be insolvent and, by an order dated March 3, 1961, directed the commissioner to liquidate it under the provisions of sec. 200.08, Stats.
On March, 28, 1962, the commissioner petitioned the circuit court for an order setting an assessment upon policyholders of the company. The circuit court entered an order levying an assessment in an amount equal to 20 percent of the earned premium for the years 1959 and 1960 upon all policyholders during those years; certain policyholders whose assessment would be uneconomical were exempted. The "earned premium" refers to that part of the total premium received by the insurer for the expired portion of the period for which the premium was paid. For example, an insurance company which receives $120 yearly premium in advance would earn $10 of this premium each month. At the end of the first month $10 would be earned premium, $110 unearned premium.
On November 1, 1952, the company had issued a policy of catastrophic health and accident insurance covering eligible employees of Oscar Mayer Company, Inc. On November 1, 1955, another policy was issued covering eligible employees of John Morrell Company, Inc. These policies were approved by the commissioner as required by sec. 204.321 (3), Stats.; they remained in force and effect during the years 1959 and 1960.
At the hearing on the order to show cause, Oscar Mayer Company, Inc., and John Morrell Company, Inc., appeared on behalf of their respective employees who were insured under these policies during the years in question. Harold W. Wilkie, an employee of Oscar Mayer Company, Inc., and a certificate holder under the policy issued to the employees of that company, appeared in his own right and also (by virtue of sec. 260.12, Stats.) as representative of his fellow employees. Kenneth M. Johnson, an employee of John Morrell Company, Inc., similarly appeared on his own behalf and on behalf of his fellow employees.
It was established that these policies had been negotiated by Oscar Mayer Company, Inc., and John Morrell Company, Inc., for their respective employees and that the employees had obtained coverage thereunder by paying premiums by means of payroll deductions which were collected by their employers and forwarded to the insurance company. This appeal is from the order levying an assessment in an amount equal to 20 percent of the earned premium for the years 1959 and 1960.
The articles of incorporation of the company contained the following provisions:
"Sec. 1. This company shall be a mutual insurance company without capital stock, in which the contingent mutual liability of the members is limited to one additional annual premium."
The policy issued to Oscar Mayer Company, Inc., included the following provision:
"The contingent liability of the employee is limited to the premium expressed in the policy."
The policy issued to John Morrell Company, Inc., provided:
"The contingent liability of the employee is limited to one times the premium expressed in the policy."
The certificates issued to the individual employees contained provisions providing for contingent liability which were identical to those contained in the policies under which they were issued.
Statute Involved.
Sec. 201.02, Stats., insofar as here material, provides:
"(3) Persons associating to form a mutual insurance company shall subscribe articles of incorporation which shall contain:
"(d) The condition of membership which shall provide that each policyholder have one vote and shall be liable for a pro rata share of losses and expenses incurred during the time the member has been a policyholder of the company, unless the liability of all members is limited according to law;
"(5) The articles of a mutual insurance company may limit (but to be effective the limitation must be expressed in every policy): (a) The insurance to specified kinds or classes of property, lives, individuals, or liabilities; (b) the territory within which insurance shall be granted; or (c) the liability of members, which liability shall be a specified number of times the annual premium."
Because of the wording of their health and accident policies, the appellants contend that the order of the trial court levying an assessment is illegal as to them. With regard to a mutual insurance company, such as is involved in the instant case, the statutory scheme in Wisconsin provides that a policyholder, as a condition of membership, "shall be liable for a pro rata share of losses and expenses." Sec. 201.02 (3) (d), Stats.
However, the liability of a member may be "limited according to law." Such limitation, according to sec. 201.02 (5), Stats., requires a dual recitation of the limitation. It must be set forth in the articles of the company and also expressed in every policy. If both these requirements are met, the liability of a member may be restricted to "a specified number of times the annual premium."
Under the statute the full pro rata burden falls upon a member unless the authorized limitation appears in both the articles and the policy. If the limitations expressed in the two places are basically different from each other, the statutory requirement has not been satisfied. A majority of the members of the court conclude that in the case at bar there is a material difference between the articles and the policies.
While the articles state that "the contingent mutual liability of the members is limited to one additional annual premium," the language of the policies is not the same. In the Oscar Mayer Company policies the contingent liability is limited to the "premium expressed in the policy," and in the John Morrell Company policies it is limited to "one times the premium expressed in the policy."
In the policies of both companies the premium is expressed as a monthly premium, whereas the articles of incorporation specifically provide liability for an annual premium. The appellants contend that the assessment made by the circuit court exceeds the liability stated in their policies, since an assessment of 20 percent of the annual premium for two years would in effect be an assessment of almost five times the monthly premium. They urge that the trial court erred in making an assessment which is not limited to the monthly premium asserted in the policies.
Also, the articles provide for an additional premium, whereas the policies, literally construed, purport to limit the liability to the premium itself. For example, the policy issued to the employees of John Morrell Company limits the liability "to one times the premium expressed in the policy ;" this would mean that there would be no contingent liability, since one times one equals one. Similarly, in the Oscar Mayer Company policy the so-called "contingent liability" is purportedly limited "to the premium expressed in the policy," but since this sum, by hypothesis, has been paid already, it is not a contingent liability, nor is it an additional premium.
The articles and the policy provisions are radically at odds, so that the provisions of sec. 201.02 (5) (c), Stats., have not been met, and thus there is no effective limitation on the pro rata liability of the policyholders as permitted by sec. 201.02 (3) (d).
Some members of the court are of the belief that the language of the policies is ambiguous and should be construed as conforming to the language of the articles of incorporation. Under such view, there would be no inconsistency between the policies and the articles; the policies would be deemed to express the same limitation as is asserted in the articles. While the majority of this court regards the clauses in the policies as being inconsistent with the articles for the reasons outlined above, it is to be observed that the result under either analysis would be the same. If there is consistency, the appellants would be liable for "one additional annual premium." If there is inconsistency, as the majority believes, there is no effective limitation under the statutes. In either case, the order of the trial court would be affirmed.
In our opinion, the trial court properly concluded that the appellants were liable for a pro rata share of the losses and expenses. Kennan v. Rundle (1892), 81 Wis. 212, 221, 51 N.W. 426. Further, the court's order that a member was liable in an amount equal to 20 percent of the earned premium for the years 1959 and 1960 was proper. In re Builders Mut. Casualty Co. (1938), 229 Wis. 365, 369, 282 N.W. 44. The limitation contained in the policies of the appellants was ineffective under sec. 201.02 (3) (d), Stats.
By the Court. — Judgment affirmed.
WILKIE, J., took no part.