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SMITH v. SCHWARTZ (03/15/60)

March 15, 1960

SMITH
v.
SCHWARTZ, APPELLANT.



Appeals, Nos. 8 and 9, Jan. T., 1960, from orders of Court of Common Pleas of Delaware County, June T., 1956, No. 1301, in case of Francis R. Smith, Insurance Commissioner of the Commonwealth of Pennsylvania, v. Morris Schwartz, individually trading and doing business as Yellow Cab Company of Chester, et al. Order affirmed; reargument refused April 19, 1960. Assumpsit. Opinion filed sustaining plaintiff's preliminary objections to defendants' new matter and counterclaim, and order entered, opinion by DIGGINS, J. Defendants appealed.

COUNSEL

John W. Wellman, with him Frank I. Ginsburg, and Chadwick, Curran, Petrikin and Smithers, for appellant.

John T. Curtin, Special Assistant Attorney General, with him Max W. Gibbs, for Commissioner, appellee.

Before Jones, C. J., Bell, Musmanno, Jones, Cohen, Bok and Eagen, JJ.

Author: Musmanno

[ 398 Pa. Page 556]

OPINION BY MR. JUSTICE MUSMANNO

On December 20, 1951, the Seaboard Mutual Casualty Company of Philadelphia was ordered dissolved by the Commonwealth Court in Dauphin County because an examination of its affairs by the Insurance Department of the Commonwealth of Pennsylvania disclosed it to be in a state of insolvency. The Insurance Commissioner took possession of the company's assets in order to liquidate its business and affairs. In the capacity of statutory liquidator, the commissioner petitioned the Court of Common Pleas of Dauphin County for an order directing the company's members and policyholders possessing policies from February 3, 1939 to December 29, 1951, to pay a needed assessment since, under mutual insurance policies, each policyholder is both an insured and insurer. He holds the umbrella of protection over the heads of his fellow-policyholders when they are pelted with losses, and has the right to have the umbrella raised over his head when losses rain down on him.

The assessments were justified because during the periods in question the company's coffers never held a surplus which exceeded the amount of capital required of domestic stock insurance companies transacting the same kind of insurance business, in accordance with the Act of May 17, 1921, P.L. 682, 40 PS ยง 916. Two hearings followed the petition, notice of which appeared in the newspapers and went by first class mail to all members and policyholders. Many members and policyholders appeared at the hearings and contested the proposed additional assessments. On May 11, 1953, the court entered an order granting the liquidator's petition.

Under this order, the Insurance Commissioner brought an action in assumpsit in the Court of Common Pleas of Delaware County, against Morris Schwartz,

[ 398 Pa. Page 557]

    individually trading and doing business as Yellow Cab Company of Chester and Blue Cab Company, asking for $4,152.22 additional assessment and against the Yellow Cab Company of Delaware for assessment in the sum of $31,240.35, these assessments being predicated on policies held by these firms from November 17, 1943 to August 15, 1951, and computed in accordance with the formula set forth in the decision of the Court of Common Pleas of Dauphin County.

The defendants filed an answer, setting up new matter and a counterclaim, averring that the officers and directors of the Seaboard Mutual Casualty Company knew in the years 1948, 1949, and 1950, that the company was insolvent and that neither the officers nor the Insurance Commissioner notified them (the defendants) of the insolvency at the time they applied for renewal of their policies, and that, because of this neglectful and culpable silence, the defendants were misled into paying to the insolvent company the total sum of $98,173.54 in premiums. The defendants, therefore, counterclaimed in that sum.

The plaintiff liquidator filed preliminary objections averring that the defendants were attempting to attack collaterally the decision of the Commonwealth Court which had granted the plaintiff's petition for additional assessments; that the defense of prior insolvency and fraud of officers and agents of a dissolved mutual insurance policy is not available in a suit to collect assessments after the dissolution; and that policyholders cannot assert a counterclaim after a company has been dissolved and other policyholders have been ordered to pay additional assessments. Also, that whatever claim the defendants might have against the ...


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