Peerless Insurance Co. v. Manson

Citations: 27 Wis. 2d 601; 135 N.W.2d 258; 1965 Wisc. LEXIS 944

Court: Wisconsin Supreme Court; June 1, 1965; Wisconsin; State Supreme Court

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The appeal centers on whether a foreign stock insurance company, which reinsured risks with a Wisconsin mutual insurance company, qualifies as a policyholder-member liable for assessment. The reinsurance treaties did not clarify Peerless's status as a 'policyholder' or 'member,' nor did they specify any liability for assessments imposed by Federal. Any potential liability for assessment arises from chapter 201 of the 1957 statutes governing insurance companies. 

The precedent set in *Pella Farmers Mut. Ins. Co. v. Hartland Richmond Town Ins. Co.* is invoked, where the court determined that a reinsured town mutual was liable for assessment, implying membership under chapter 202 of the statutes. This chapter outlines three scenarios involving insurance relationships, with only the first two explicitly defining membership and liability for assessments. The court emphasized that while the statutes provide clarity in situations (1) and (3), situation (2) requires interpretation to establish the reinsured company's membership in the reinsurer town mutual and its consequent assessment obligations. 

The court argued that premiums collected by a town mutual serve as primary resources for covering losses, with the ultimate financial responsibility resting on its members. In cases where reinsurance exists and premiums fall short of covering losses, a question arises regarding whether property-owner members should solely bear the financial burden or if the reinsured company should also contribute. The court concluded that treating each reinsurance contract as an additional policy issued by the reinsurer town mutual, thereby making the reinsured company a member subject to assessment, aligns with the mutuality principle central to town mutuals.

In Pella, the statutory requirements necessitate that each town mutual policyholder accepts unlimited liability for assessments by their company and mandates that town mutuals become members of a reinsurance company upon reinsurance. This leads to the interpretation of ch. 202, Stats., defining a town mutual as a policyholder and member of the reinsuring mutual, thus subjecting it to assessments. However, ch. 201 states that policyholders are liable for a pro rata share of losses unless limited by law, with such limitations required to be specified in the mutual insurance company's articles and policies. Federal's articles limit member liability to an additional annual premium. The chapter does not define 'policyholder' or 'member' or explicitly categorize a reinsurance treaty as an insurance contract. Ch. 201 allows mutual insurance companies to write reinsurance treaties but does not impose assessments on reinsured stock companies or classify them as policyholder-members. Peerless argues that reinsurance differs significantly from insurance, citing legislative references and legal precedents that distinguish the two, emphasizing that reinsurance involves indemnifying the insurer rather than the original insured. It highlights operational distinctions, such as the negotiation of terms and the responsibility for claims management resting with the reinsured. Conversely, the respondent asserts that reinsurance fits the broader definition of insurance as agreements to indemnify for losses, emphasizing mutual insurance's nature where members function as both insurers and insureds.

The decision does not require a ruling on the differences between 'reinsurance' and 'insurance,' but establishes that the legislature has treated them differently under chapter 201. The legislative intent is supported by the principle of expressio unius est exclusio alterius, demonstrated by repeated references to 'reinsurance' and the specific requirement in section 201.02 (3)(d) that policyholders in mutual companies are liable for assessments. Consequently, a reinsured stock company, such as Peerless, is not considered a policyholder-member and therefore not assessable. Peerless did not receive any communications, representation, or benefits from Federal, which contrasts with the case of Hartland and Pella, where despite similar facts, Hartland was recognized as a policyholder-member due to a broader mutuality pattern present in the statute governing town mutuals. The absence of such mutuality in this case means the interpretation from chapter 202 in Pella does not apply to chapter 201 and does not necessitate a similar outcome.

A stock company that reinsures risks with a commercial mutual, such as Peerless with Federal, is not considered a policyholder-member of Federal and thus is not subject to assessments by Federal. The court's judgment was reversed, clarifying that the relevant statutes referenced pertain to the Revised Statutes of 1957, the year the reinsurance contracts were established. The Federal Mutual Casualty Company operates as a mutual insurance company with limited contingent liability for its members, which includes the stipulation that each member, including any insured party, has voting rights. The trial court's conclusion that Peerless was a member based on its ability to share in profits was deemed erroneous; the provision in the treaty regarding loss reserves and unearned premium reserves was intended solely for maintaining adequate funds to cover those reserves. Furthermore, the insurance commissioner has not implemented specific reinsurance rules, while insurance rates remain heavily regulated.