Swing v. Cameron

Hooker, J.

The questions in this case are two:

1. May an action brought by a receiver or trustee of a ■foreign mutual insurance company, which has never obtained authority to do business in Michigan, upon a policy issued to a resident of this State by said company in. Cincinnati, upon an application sent by mail from Chicago, upon a sawmill situate in this State, to recover an assessment, as provided in its policy, to pay losses, be defeated upon the ground that the plaintiff has no right to prosecute in the courts of this State ?

2. Can such defense be made under a plea of the general issue and without special notice ?

It is contended that this contract of insurance was; valid under the case of Allgeyer v. Louisiana, 165 U. S. 585, being made in Ohio, and, being valid there, is valid everywhere. That case was a prosecution for a penalty against a resident of Louisiana who made a contract for insurance in New York upon property temporarily in Louisiana. The act supposed to be a violation of the law was the mailing to the insurance company of a notice of the shipment of certain cotton, in accordance with the terms of the policy. The court held that sending this notice through the mail, notifying the company of the property to be covered by the policy already delivered, did not constitute a contract made or entered into in Louisiana, and that it was but the performance of an act rendered necessary by the provisions of the contract already made between the parties outside of the State, which contract was to be performed outside of the State and in New York, where the premiums were to be paid and losses, if any, adjusted. The act (Act No. 66, Acts of 1894) alleged to be violated was as follows:

“An act to prevent persons, corporations or firms from dealing with marine insurance companies that have not complied with law.”

The act reads as follows:

“Be it enacted by the general assembly of the State of Louisiana, that any person, firm or corporation who shall fill up, sign or issue in this State any certificate of insurance under an open marine policy, or who in any manner whatever does any act in this State to effect, for himself or for another, insurance on property, then in this State, in any marine insurance company which has not complied in all respects with the laws of this State, shall be subject to a fine of one thousand dollars.”

The court held that the sending of such notice was not within the terms of the statute. Whatever may be thought of the question whether the sending of the notice was not an act effecting insurance upon the 100 bales of cotton, which might not otherwise have been covered by the existing policy, the determination that the contract was valid is not conclusive of the question before us.

If it be conceded that the policy before us was valid between the parties, the question still remains, Must the courts of this State enforce it at the suit of the insurance company, which has defied its authority by insuring property within this State without having complied with the conditions which our statute imposes? The legislature has attempted to restrict the issue of insurance policies upon property in this. State to companies that have, after compliance with conditions imposed, obtained a certificate of authority from the State insurance commissioner, and this applies to domestic as well as foreign companies. See Seamans v. Temple Co., 105 Mich. 404 (28 L. R. A. 430); Swing v. Lumber Co., 140 Mich. 344; 2 Comp. Laws, §§ 5157, 5162; Hartford Fire-Ins. Co. v. Raymond, 70 Mich. 501. If it be said that this statute applies to cases where the contract is made within the State, we reply that the evident intent, as shown by the entire scheme of our insurance laws, was to protect the owners of property in this State from questionable insurance, and whether the law is effective in making contracts made elsewhere invalid or not, and whether or not it can collect a penalty in such a case, there can be no doubt of its right to withhold a certificate from offending companies until the penalties are paid under section 5162. See cases cited in Hartford Fire-Ins. Co. v. Raymond, supra. In dealing with property within its jurisdiction, it has seen fit to provide restrictions upon insurance, and when insurance companies disregard and disobey such laws, relying upon their rights to do such business elsewhere, though in violation of and contrary to the expressed policy of the State, their right to enforce the same here may be denied by the State. 3 Comp. Laws, § 10467, provides:

“(10467) Sec. 2. But when, by the laws of this State, any act is forbidden to be done by any corporation, or by any association of individuals, without express authority by law, and such act shall have been done by a foreign corporation, it shall not be authorized to maintain any action founded upon such act, or upon any liability or obligation, express or implied, arising out of, or made or entered into in consideration of such act.”

We have passed upon this section in the case of People's Mut. Ben. Society v. Lester, 105 Mich. 716, and held it applicable to foreign companies. It would be difficult for the legislature to state more plainly than is there stated that if a foreign insurance company sees fit to make contracts upon property in this State, without express authority of law, it must go elsewhere to enforce such contracts. This doctrine is supported by cases elsewhere, and the question was not passed on in the case of Allgeyer v. Louisiana, supra, unless the contrary rule must necessarily follow from the determination of the validity of the contract in that case.

In a case decided in Wisconsin, practically simultaneously with the decision of our own case of Seamans v. Temple Co., supra, a similar decision was made. See Rose v. Kimberly & Clark Co., 89 Wis. 545 (27 L. R. A. 556). Recognizing the propriety of enforcing in Wisconsin a contract made by a Wisconsin company insuring property in Missouri in violation of a Missouri statute (Seamans v. Knapp, etc., Co., 89 Wis. 177 [27 L. R. A. 362]), the court said:

“But it is obvious that that decision does not reach or control this case. The question here presented is whether the courts of this State will enforce a contract plainly and squarely opposed to the public policy and laws of the State.

‘ ‘ Doubtless the general rule of law is that a contract valid where made is valid everywhere, but this rule is not without exception. The provisions of our statutes which prescribe the conditions upon which alone foreign insurance companies may do business within this State are very stringent and sweeping. Sanborn & B. Stat. §§ 1915-1919. They provide, in substance, that no foreign fire-insurance company shall, directly or indirectly, take risks or transact any business of insurance in this State, except upon compliance with certain specified requirements. It is unnecessary to state what these requirements are in detail, but it is sufficient to say that they include, among other things, the filing of verified statements showing investments of capital in certain specified securities, and to certain amounts, or, in lieu thereof, a deposit with the State treasurer of a certain amount of United States bonds, also the payment of certain license fees, and the filing of various documents intended for the benefit and protection of policy holders within the State, and only upon compliance with all these requirements is the commissioner of insurance authorized to issue the license which authorizes the doing of business within this State. The object of this statute is so plain that it cannot be mistaken. It is to protect our citizens against irresponsible and worthless foreign companies of the very kind which we have now before us. The evil to be corrected is, not the writing of a policy by an unlicensed company within this State alone, but the writing of such a policy at all. Bearing in mind the object of the statute and the evil to be corrected, it is very plain that the object will be largely defeated, and the evil will flourish as before, if it be held that companies without license can establish their agencies just outside of the State line and conduct their business by mail.

“ Now, it will be observed that the legislature was not content with providing that no unlicensed company should make a contract of insurance within this State, but provided that no such company should, directly or indirectly, take risks or transact any business of insurance in this State. The writing of a policy of insurance upon property situated within this State would seem pretty clearly to be, in some degree at least, the transaction of insurance business in this State, whether the policy be written just within or just without the State line. In was said in Stanhilber v. Insurance Co., 76 Wis. 285, on page 291:

“ ‘ A contract insuring property in this State necessarily involves the doing of business in this State, and hence is subject to the laws of this State.’

“We regard the remark as entirely correct, and fully as applicable to the present case as to the Stanhilber Case. It is not meant by this that the legislation in question has extraterritorial effect, or that it will invalidate a contract made in Illinois, but simply that, when that contract is a contract insuring property within this State, it is against the policy of our law, and will not be enforced by the courts of Wisconsin unless the conditions prescribed by our laws have been complied with. In no other way can the manifest purpose and intent of the statute be reached. Any different construction would render the law of little effect.

“ These views necessitate reversal of the judgment.”

Again, in Seamans v. Zimmerman, 91 Iowa, 366, after citing and commenting upoD cases where contracts valid, because made out of the State, were enforced, the court said:

“ In none of the cases cited, so far as we have observed, were the statutes construed the same, in legal effect, as that of this State, and in several of the caaes stress was laid upon provisions which are wanting in that statute. The prohibition of section 1144 is directed, not merely to the agents as such, but to the companies themselves. They are forbidden to take any risks in this State, either directly or indirectly. The general assembly intended the prohibition to reach as far as its jurisdiction extends. The power of the legislature of a State to make contracts like those under consideration void is not questioned. It was recognized in Columbia Fire- Ins. Co. v. Kinyon, 37 N. J. Law, 33. Comity does not require the enforcement of a contract valid where made but in violation of the law of the State where it is sought to be enforced. The provision of the statute under consideration was designed to protect the property owners of this State from irresponsible insurance companies, and the contracts in question belong to the class which the general assembly intended to prohibit. To hold that the company may recover the assessments would be to give it all the benefits which it ever expected to derive from the contracts, and would be an evident violation of the spirit and intention of the statute. The contracts are contrary to the policy of this State as expressed in the statute, and the courts of this State will not aid the company to enforce them. Our conclusion finds support in the following authorities: Cincinnati Mut. Health Assurance Co. v. Rosenthal, 55 Ill. 86; American Ins. Co. v. Stoy, 41 Mich. 401; Ætna Insurance Co. v. Harvey, 11 Wis. 394. The certificate of the trial judge does not show where the policies make the assessments in question payable; but we have, for the purposes of this appeal, assumed that the policies are Wisconsin contracts, designed to be performed there.”

A similar holding will be found in Swing v. Munson, 191 Pa. 582 (58 L. R. A. 223). In that case this plaintiff was trying to collect assessments in Pennsylvania. Upon the assumption that the contract was made in Ohio the court said:

“ It is argued that the contract was made in the State of Ohio. It being valid there, under the Constitution of the United States, it is enforceable in Pennsylvania. The evidence does not show that the contract was made in Ohio. To our minds, it shows quite the contrary. The attempt by a pretense to shift the place of the contract to Ohio, to evade the prohibitions of our statutes, is so manifest that it would, perhaps, have warranted a peremptory instruction to the jury to find for defendant on the evidence. But that we may meet a more important question, because it affects the interests of all foreign insurance companies that seek to do business in this State, we prefer to assume that the contract was made in Ohio, and is lawful there. It was a contract, however, in direct violation of the laws of this State. It was the indemnification of a citizen of Pennsylvania against loss by fire on property wholly within Pennsylvania. Without regard to where the contract was made, the subject of it was property within this State. It is the attempt of a foreign insurance company to do business in this State in violation of the laws of this State. * * *

“ All these acts were violated by this appellant corporation. It made no pretense of observing the provisions of any of them. Assume that the contract, because made in Ohio, could have been enforced in the courts of that State, it does not follow that the courts of this State will lend their aid to the enforcement of a contract in violation of' its own policy as declared in its laws. If these laws contravene the Constitution of the United States, or that of Pennsylvania, our courts would enforce the contract, because it would then be lawful here, as in Ohio. But if our statute be constitutional, then the contract is directly opposed to our declared law. * * *

“ Our legislature had the constitutional power to enact these statutes. Under them this contract is unlawful in. this State. Shall our courts by enforcing it declare it lawful ? This would be subversive of the very policy our State had adopted. It would, as to results, repeal all the statutes regulating contracts with foreign insurance companies.”

We think the question has been passed upon and is foreclosed in this State, and see no reason for asserting a contrary doctrine.

Is the absence of notice of this defense prohibitive ? In the case of Heffron v. Daly, 133 Mich. 613, we held that it is the duty of the court to take notice of an illegality in a contract, although not pleaded. Richardson v. Buhl, 77 Mich. 632 (6 L. R. A. 457); Oscanyanv. Arms Co., 103 U. S. 261. Although it be conceded that the contract was valid, because made in Ohio, it is so far in contravention of our law as to justify the application of that rule.

, The judgment should be affirmed.

Carpenter, C. J., and McAlvay, Montgomery, and Moore, JJ., concurred with Hooker, J.