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-how return to normal ascer

(143 Md. 303, 122 Atl. 195.) we have suggested should be em- the loss sustained by the policyhold

ployed in estimat- er under its policy, if such loss exing the

average

ceeds the amount owing by the poltained.

daily net profits icyholder upon the assessment; or, during the same period; the period if not, shall the policyholder be alof comparison to be the same.

lowed to set off such loss against the The next question asked is, How amount owing by it upon the assessmay it be ascertained when the ment. average daily production, at any It is said in 22 Cyc. page 1425: time during the strike, amounts to "The member [of a mutual insur80 per cent of the average normal ance company] cannot set off as daily production?

against his liability on a premium The liability of the insurer under note any claim he may have against the policy does not end when the the company for a loss under his daily production reaches 80 per cent policy.” of the average normal daily produc- In support of this declaration of tion, but when the average daily the law, the author cites Lawrence production reaches that point. Con- v. Nelson, 21 N. Y. 158. In that sequently the liability of the insurer case, as in this, the question was, does not end until a period is reached Could the defendants, policyholders where the average daily production of a mutual company, set off their of that period is equal to 80 per cent loss under the policy against their of the average daily normal produc- premium note? The court said if tion. The period should be of suf- they could, it was because it was ficient duration to indicate that the equitable and just to do so, and no strike in effect .was abating, and rights of third persons had interthat the business of the company vened. The court then proceeded to would not again be diminished be- say: "The party has entered voluncause of it.

tarily into engagements with others, The policy does not state the modifying, or entirely changing, as length of the period to be used in between themselves, the effect or ascertaining the average, but the application of the general rules of court below, as we understand its law or equity in regard to set-off. opinion, fixes the period at thirty In a company of mutual insurers, days. This, we think, upon the facts each sufferer is bound to make combefore us, was long enough to indi- pensation, as well as to receive it.

cate that there was, He occupies the double relation of -average daily production.

more or less, a per- debtor and creditor, and it would be

nianent revival of inequitable to allow him, when the business, and that in all probability funds of the company are not adethe average daily production would quate to pay all losses, to set off his not thereafter be diminished be- entire demand; thereby getting cause of the strike.

more than his share of, and decreasThe third question presented by ing, a common fund to which all the this appeal relates to the unpaid as- creditors, pro rata, are entitled. sessments made upon the policy. Each member is interested in the holder.

premiums, as well as losses, of all As stated by the parties, no ques- the others; and the premium paid tion is raised as to the validity of by each is saddled, as it were, with the assessments which were made its proportionate share of the claims pursuant to the policy, nor as to the of all others. The premium, whethinsured's liability for their payment. er paid or secured to be paid, is with

The only question relating there- drawn from his control in contemto is whether the policyholder shall plation of law, and placed in a combe permitted to pay and satisfy the mon fund, not subject to his claims amount owing upon the assessment, only, but those of all others in the by deducting the amount of it from company; he in turn, having a similar claim on the premiums of his ty Mut. Ins. Co. 3 Pa. St. 470, 45 associates. The members of the as- Am. Dec. 656; North Carolina Mut. sociation virtually agree to insure L. Ins. Co. v. Powell, 71 N. C. 389; each other, and provide a common Stone v. New Jersey & H. River R. fund to indemnify in case of loss. & Ferry Co. 75 N. J. L. 172, 66 Atl. As all have contributed to this fund 1072; Stone v. Old Colony Street R. they have a community of interest Co. 212 Mass. 459, 99 N. E. 218, and in it; and each member, having his other cases. proportionate share of the losses, is In Stone v. Old Colony Street R. entitled to his proportionate share Co. supra, the court said: “The of the profits, if any are realized. assessments, when collected, form a It may be that one member may fund for the benefit of all the policydraw from the premiums paid by holders, including the defendant, other members into the common

whose demands comprise a part of fund, if the association be prosper- the indebtedness which made the ous, not only the amount of his loss- assessment necessary. The defendes, but as large a proportional share ant received the benefit of the insurof profits as those whose transac- ance of the subsidiary companies as tions with the company created no a party insured, while it also became loss at all. In such a case, if insol- an insurer for the protection and vency eventually overtakes the as- benefit of the other members. A sociation, it would be highly unjust set-off would confer upon it a prefto allow him to set off a loss against erence to the disadvantage of othpremiums that happened to be un- er creditors and policyholders, and paid and that should be placed in permit it to appropriate exclusivethe common fund. Indeed, when the ly the amount claimed in partial assets of the company are inade- payment of its own demands against quate to the payment of the losses the insolvent, and to this extent the of all its members, the effect of per- defendant would be relieved from mitting a sufferer to set off his loss the obligations of an insurer." in full against his premium notes The policyholder's right of set-off (which are his contribution to the in cases against mutual companies means of the company) is not only has never been considered by this to confer a benefit without making court, so far as we are able to recompensation, but to take from the call. But the claimant contends that shares of his associate sufferers in this question has been practically the common fund; to which fund settled favorably to its contention he and they are ratably entitled. by this court in the two cases of ColUndoubtedly, a premium paid, or ton v. Drovers' Perpetual Bldg. & agreed to be paid, by a member of a L. Asso. 90 Md. 91, 46 L.R.A. 388, company formed on the mutual prin- 78 Am. St. Rep. 431, 45 Atl. 23, and ciple, must bear its proportionate Cahill v. Original Big Gun Beneficial share of the losses of the company, & Pleasure Asso. 94 Md. 353, 89 Am. and cannot be applied exclusively to St. Rep. 434, 50 Atl. 1044. the individual debt of the party ow- In the first of these cases in which ing or paying it. So long as the the opinion of the court was delivcompany be solvent no practical in- ered by Chief Judge Boyd, the apjury would result from setting off pellants were appointed receivers of a loss against the premium, as no the South Baltimore Bank. At the preference would be given to one time the bill asking for the appointmember or creditor over the others, ment of receivers was filed, the bank for all would be paid in full. But if held the appellee's promissory note the association were insolvent, to for $1,000, and the appellee had a permit the set-off to be made would deposit with the bank, amounting be to give an unjust preference to to $457.25. At the maturity of the one creditor over the others.”

note, the appellee tendered the reSee also Hillier v. Allegheny Coun- ceivers $642.75, the difference be(143 Md. 303, 122 Atl. 195.) tween the amount of the note and no valid reason, it seems to us, why the amount of its deposit, and de- a stockholder who is also a creditor manded the note; but the receivers should not be entitled as a matter of refused to receive the money and to equity to set up as an equitable desurrender the note, claiming that

fense the debt of the bank to him the appellee could not set off the against his own liability. Mr. Cook, amount of its deposits against the in his book on Corporations, vol. 1, note owed by it to the receivers. $ 225 (c), says that it has been held

The court held that the ordinary that where the statute creates a relation of debtor and creditor ex- fund out of which the creditors are isted between the appellant and the to be paid ratably, then the stockappellee. The appellee was indebted holder cannot set off an indebtedto the receivers of the insolvent ness of the corporation to him. He bank in the sum of $1,000 upon the must pay in what the statute renote, and the receivers were indebt- quires, and then prove his claim ed to the appellee to the extent of against the corpor

against the corporation like any othits deposit. The rights of others er creditor. But where the sharewere in no wise involved therein. holder's liability by statute is im

In Cahill v. Original Big Gun mediate and personal and several, Beneficial & Pleasure Asso. supra, and any creditor may sue any sharethe suit was brought by the appellee, holder, then the shareholder may a creditor of the South Baltimore set off a debt owing to him from the Bank (the bank involved in Colton corporation, when he is sued by a v. Drovers' Perpetual Bldg. & L. corporate creditor. In 1 Beach on Asso. supra), against the appellant, Private Corporations, § 727, it is who was both a stockholder and said: “But if the statute imposes creditor of that bank. The charter upon shareholders a personal liabilof the bank contained a provision ity to creditors, immediate and sevthat its stockholders and directors eral, so that any creditor may instishould be liable to the amount of tute an independent action against their respective shares of stock of any shareholder for the enforcethe bank, for its debts and liabil- ment of corporate debts, then a deities.

fendant shareholder may set off The question presented in that debts due from the company to himcase was whether the stockholder self.'" of the insolvent corporation could In the case just cited, Cahill was set off the indebtedness of the cor- not indebted to the bank, but to the poration to him against his liability creditors of the bank, of whom he under the charter. The court, was one; and it was because of that speaking through Judge Briscoe, fact that this court there held the said: “In the recent case of Colton defendant entitled “as a matter of v. Mayer, 90 Md. 711, 47 L.R.A. 617, equity to set up as an equitable de78 Am. St. Rep. 456, 45 Atl. 874, fense the debt of the bank to him this court held, in construing the against his own liability." provisions of the charter of the That this was the reason for the South Baltimore Bank, that the court so holding is shown by its statutory liability of its stockhold- quoting with approval what is said ers was directly to the creditors, and in Cook on Corporations: "That not to the receivers for the benefit where the statute for the policy, as of creditors, and that the fund aris- in the case before us] creates a fund ing from such liability is in no sense out of which the creditors are to be a corporate asset of the corporation, paid ratably, then the stockholders and the receivers have no interest in [or policyholders in a mutual comit. The liability of the stockholders, pany] cannot set off an indebtedness then, under the statute, having been of the corporation." settled as a debt due from the stock- The two cases in this court, relied holder to the creditor, there can be upon by the claimant in support of

ance loss on

its contention, differ widely from would apply only where the company the case now under consideration. was solvent when the policy was

The fund, of which the assess- canceled. ment against the claimant, when col- As was said in the case from iected, will form a part, is a common which we have just quoted, the fund fund, in which the claimant has only is "pledged to satisfy and make a qualified interest in common with good the losses that have occurred. other policyholders.

Each one in turn who suffers loss is Neither the fund, nor any part of entitled to the full benefit of this it, is subject to its control, but is to pledge, according to the state of be paid ratably to those policyhold- those funds when his loss occurs; ers who have suffered loss within this forbids any reduction of the the meaning of their policies. To fund, when the whole is required to

allow the claimant Set-of-of insur

cover losses, either by apportionto set off a loss ment, set-off, or otherwise." Vanpremium note.

against what it is atta v. New Jersey Mut. L. Ins. Co. owing upon its assessment, when 31 N. J. Eq. 15; Raegener v. Hubothers have wholly or partially paid bard, 167 N. Y. 301, 60 N. E. 633; theirs into a fund which in part will Com. v. Massachusetts Mut. F. Ins. be applied to the payment of the Co. 112 Mass. 116; Hillier v. Alleclaimant's claim, in whole or in part, gheny County Mut. Ins. Co. 3 Pa. St. would not only be very unjust to 470, 45 Am. Dec. 656. other policyholders, but it would be The court below held that the regiving him an unwarranted prefer- turned premiums, as it called them, ence. We therefore agree with the could be added to the claim under court below that such set-off should the policy. In this finding we think not be allowed the claimant.

the court was in er

Insurance The fourth and last question for ror, as, in our opin- right to anpaid our consideration is, Shall the un- ion, they should re

premium. earned or returned premiums, as re- main in the fund, and be applied to ferred to in the opinion of the court the payment of the claims of the and the briefs of counsel, “be added policyholders suffering loss under to the claim under the policy," or their policies. shall they remain in the fund in The appeal in this case is from an which they were placed, and be ap- order passed by the court below, by plied to the payment of the losses which the exceptions filed to the ausuffered by the policyholders? ditor's report in the matter of the

The court in Com. v. Massachu- Fleet-McGinley Company were sussetts Mut. F. Ins. Co. 112 Mass. 124, tained, and the report referred in speaking upon the subject said, "back to the auditor, with instrucquoting from the syllabus: "When tions to allow. it and other claims of the losses

suffered by a mu- the policyholders for loss under tual insurance company

other policies, in accordance with render it insolvent, and require an the rules set out in the above opinassessment to the full amount, .. ion.” the holder of an unexpired policy, It will be observed that the name the cancelation of which has been of the claimant in the above order is rendered necessary by such insol- that of the Fleet-McGinley Comvency, has no right of set-off, or of

pany, when it should have been the recoupment, or claim for return of Standard Printing & Publishing premium, or for damages on account Company. This we have assumed of the unexpired term of his policy." was a typographical error, and have

And this seems to be the law, so treated it, as did the appellant in even though the policy contain the its order for an appeal. provision entitling its holder to a Though neither the audit to which return premium upon the cancela- exceptions were taken and sustion of the policy, as such provision tained, nor the items allowed there

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(143 Md. 303, 122 Atl. 195.) in to the plaintiff, are found in the that because of the large amount to record, we think we may assume

be distributed, and the great numfrom the state of the record, and ber of policyholders, he had apthe directions given by the court, pointed counsel to represent the that it acted properly in sustaining claimant, and had directed them to the exceptions, and remanding the enter a cross appeal “to save excepcase to the auditor for restatement tions of separate policyholders.” A of the audit or account; but as we cross appeal was therefore taken in differ with the court in at least one

this case. of the rules laid down by it, the or- The order appealed from will be der will have to be affirmed in part, affirmed in part, and reversed in and reversed in part, and the case part, and the case remanded for the remanded, that the auditor may be purpose stated above. directed to distribute the funds as Order affirmed in part, and reherein stated.

versed in part, and case remanded. The court in its opinion stated The costs to be paid out of the fund.

ANNOTATION.

Right to set off loss under mutual insurance policy against premium or assess

ment.

It is generally held that a policy- South Carolina. Ex parte Banks holder in an insolvent mutual insur- (1910) 85 S. C. 37, 67 S. E. 19. ance company will not be permitted to In Traer v. Consolidated Coal Co. set off a loss under his policy against (Ill.) supra, an action brought by the his liability to pay a premium or an receiver of a mutual insurance comassessment.

pany on notes given by the appellant Illinois. Traer V. Consolidated in payment of assessments, the court Coal Co. (1921) 221 Ill. App. 576. said: “Appellant further claims the

Maryland. See the reported case right to set off $12,188.06 losses sus(STANDARD PRINTING & PUB. Co. v. tained. The same claims now interBOTHWELL, ante, 1269).

posed as a set-off, by appellant, were Massachusetts, Stone v. Old Col- proved by it as a claim against the reony Street R. Co. (1912) 212 Mass. ceiver in a chancery proceeding in the 459, 99 N. E. 218.

circuit court of Sangamon county. New Jersey.-Stone v. New Jersey Appellant cannot prove these claims & H. River R. & Ferry Co. (1907) 75 as a basis to collect its pro rata share N. J. L. 172, 66 Atl. 1072.

in the chancery proceedings and at New York. Lawrence V. Nelson the same time interpose them as a set(1860) 21 N. Y. 158, affirming (1859) off in order to avoid paying its share 4 Bosw. 240. See also Berry v. Brett of the losses for which it gave its (1860) 6 Bosw. 627.

notes. Further, a policyholder in a Pennsylvania.—Hillier v. Allegheny mutual company cannot set off his County Mut. Ins. Co. (1846) 3 Pa. St. losses against his liability for losses. 470, 45 Am. Dec. 656; Care v. Brown, Lawrence v. Nelson (1860) 21 N. Y. (1893) 31 W. N. C. 501; Standard Mut. 158." Live Stock Ins. Co. v. Crawford (1893) A similar conclusion is reached in 2 Pa. Dist. R. 601, 13 Pa. Co. Ct. 556; ! the reported case (STANDARD PRINTDettra v. Lock (1895) 5 Pa. Dist. R. ING & PUB. Co. v. BOTHWELL, ante, 200, 18 Pa. Co. Ct. 12; Dettra v. Spiel- 1269), involving assessments on berger (1896) 5 Pa. Dist. R. 262, 18 mutual policy of so-called "strike inPa. Co. Ct. 13; Gain's Estate (1896). surance” and the question whether a 5 Pa. Dist. R. 350, 18 Pa. Co. Ct. 206; policyholder may set off a loss under Schofield v. Lafferty (1901) 17 Pa. the policy against the amount owing Super. Ct. 8. See also Long v. Penn on the assessment. It is pointed out Ins. Co. (1847) 6 Pa. 421.

that to allow such a set-off when 31 A.L.R.-81.

a

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