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MUTUAL ASSURANCE , SOCIETIES , No . I . LIABILITIES OF THEIR POLICY HOLDERS . In the contest which has been carried on for many years , as to the relative claims to public support of Mutual and Proprietary Assurance Companies , it has been often urged that the members of mutual oflices could . be regarded in the eyes of the law in no other lig ht than a copartnery of shareholders , Avho are individually liable for the fulfilment of the Society ' s engagements . So fully reco < mise ( l has this doctrine been , and so uniformly it has
assented to . that for at least forty years been a stock commodity in the advertisements of nearly all proprietary companies . There are many precedents for this view of the question . It has been lung since ruled that in all mutual societies tho parties assured are both individually and collectively liable for . any losses which may happen . In the case ot \ Ca ? -le ? i v . Di-ury ( 1 yes and B . 154 ) , the Lord Chancellor says , "I hold it quite clear that each individual'is at law answerable for the amount of the whole debts of the concern . " This is certainly distinct and unmistakable ,
and more recently the liability of policy-holders ( O'Brien y . Lord ivenyon , G Exch : . 403 ) is held to attach , cm- ' the ground of participating in the profits of the society . : It is ' ' affirmed by an able legal and practical authority , that the risk thus incurred-by the assured is of importance only , when the funds are small and the society is grossly mismanaged . Fortunately this is quite true , hi so far as respects the general experience of recent years , and yet the law is , if possible , hi a more seriously unsatisfactory state , as it affects the prospective liability , of the assured in tlie older and wealthier mutual societies .
Old companies , like old machinery , become rusty , worn-out , and incapable of performing the services it did in its pristine condition ; and those familial' with the more venerable assurance institutions of the kingdom can point to various examples fully illustrative of the truth of this . Symptoms , which , are to many of an alarming nature , "have for a lengthened period manifested themselves amongst the members of one of the
wealthiest and . most respected institutions of the day . And although that particular society may be protected by special legal securities against any serious consequences in the event of its dissolution , still there arc many others not similarly privileged . It is impossible to over-rate the benefits which hnvo " boon' conferred on the public b y mutual socioties , and it is , therefore , to be lamented that the state of the law is not more satisfactory in regard to the liability of their members .
These institutions have grown into national importance , and should the principle of limited liability not be shortly extended to all joint-stock undertakings , special legislation should certainly be applied to at least these provident societies . There exist four mutual companies , whose present accumulated funds amount to little short of twenty-millions } sterling , and having in the a £ ffi'Cgatean annual revenue of upwards , of one million . It may be said that with such immense resources the danger of pci ; sonal liability to the assured is reduced to a shadow . This would , no doubt , bo
the ease wcru thu same energy , tact , and talent , as heretofore ,
affairs , but in a long established society \( s real nositkm oan only bo understood by the il' - \ v who aro permitted and are capable of performing a laborious scries of highly technical and difficult calculations . It is on this account tlmt full grown societies , although apparently plothorio with wealth , may yet enjoy public confidence for a protracted period , and eventually find that its affairs have becouxo involved in unexpected complications . It is during Buch a critical juncture that the present state of the law might , if permitted to remain
unaltered , be found to- seriously affect the interests of the individual members . A most remarkable instance of the danger and liability to which the assured in mutual societies are subject , when tlie institutions become involved , has just been furnished- by our courts of Iaw ^ and although it has arisen in connexion with a new and obviously misconducted , if not a disreputable , undertaking , similar results would , in the present state of the law , follow any other mutual society , howeA'er respectably managed , in the event of its affairs becoming , embarrassed ; mid its members would in like manner suffer . Hence the reason of
our giving so niitch prominence to the subject , and be «< nn « - that such of our readers who may have a pecuniary interest in the question , may not overlook and remain indifferent to their legal position . The following is the notice of the case to which we refer , and on Monday last , tlie I 4 tli inst ,, the "Vice-Chancellor made the call without any objections or notice of appeal being lodged , showing tlmt his decision vras held to be indisputable by the various contributories , and that there h practically no hope of escape for the unfortunate persons who had been deluded into the false step of joining the " Security Mutual , " as policy-holders .
"In Chancery . —Iri the mat tor of the Joint-stock Companies "Winding-up Acts , 184 S and 1849 , and in the matter of the Security Mutual Life Assurance '¦ Society . —By ' . direction of his Honour yiee-. Chaneellor Sir liicliard Torin Kindersley , the judge to wliose court this matter is attached , notice is hereby given that the " said judge purposes , on Monday , the 14 th day of - ilarc ' h .-nextj- at 12 o ' clock at noon , at his chambers ; No . . 3 , Stone-building-s , Lincoln ' s Inn , in the county of Middlesex , to proceed to make a call
on all the contributories of the said society , who have been settled by his Honour upon the list of contributories thereof , and that Ms Honour purposes that such call shall be at the rate of 30 / . for every 1 / ., arid so in proportion for every fractional part of 11 . paid . by each contributory by way of premium or consideration in respect of the assurance effected by him or her in or with the said society . All persons interested are entitled to attend at such day , hour , and place to offer objections to such call . "
The calls made on shareholders of the Western Bank of Scotland , were , in relation to the interest they held in the concern , comparatively nothing to the calls in this instance . 3 OZ . pro-rata for every 1 Z . paid to the " Security" to provide a life assurance payable only at death s is a fearful legal retribution and penalty on the want of caution evinced by those who became . member ' s . It follows that every person who , . it must be admitted motive
through the operation of a prudential , effected a policy which , under the . most favourable circumstances , could only beuxjnthis survivors , on the average at a period of thirty years hence , must now relinquish all prospective claims , and pay down immediately about the full amount he looked forward to being handed over to his children a generation hence . This is truly a bitter cup , and sympathy ; must be universally felt for the unfortunate contributories .
It is not bur object to dwell on their individual lo $ scs , however great , for we believe they will , in common with many other commercial disasters which have ¦ recently gained notoriety , and which , although entailing ruin on thousands of families , be the immediate moans , oi' leading to important legal reforms in the laws affect ing Joint-Stock Companies of all descriptions , but more particularly Assurance Institutions . " Wo have formerly directed attention to the question of Limited Liability , and we now propose , in a short scries of articles , to consider the various reasons which maybe adduced for and ngainst bringing the most important of all our great financial undertakings within the operation of that law . Limited liability , have
cheap and expeditious legal proceedings long been granted and conferred oix one class of Provident Institutions , Friendly SmHotien ,. which embrace between two anil three millions of the most prudential of our working chinos ; and in those times of popular progress , an <\ when all claps distinctions are most rupklly disappearing , there is no sound or valid reason , that while ti ' . o upper and middle classes arc conceding their political rights to tho working portion of the community , tlniA thu legal acilitics enjoyed by the latter should not also bo extended to mo ibnuur . All tho possible combinations and diversified interests' which can ever arise in assurance companies , and in tho legal 'Contracts in which they engage , or arc peculiar to them , although of greater absolute value , arc neither of so much
relative value to the members , nor of nearly- so complicated a nature in their legal eontingjenees as those entered into by the ordinary benefit and friendly societies . There is * therefore , rib proper and really good reason why legal redress and legal responsibility . should not be , as much facilitated and as well defined in the more aristocratic institution as in that wliich is the more plebeian . The great power of this kingdom consists in its immense and wonderful commercial enterprise , which has been the harbinger of its provident societies , unequalled in their . pecuniary importance by those of all the otlier nations of the world . We
intend toshow in a subsequent article that legal restrictions of the most ill-devised nature ami wliich are closely interwoven with our commercial code of laws , have not only here , but _ in other States , greatly hindered and interfered with Our commercial successes , as well as the full development of those provident institutions which have naturally arisen out of that commercial greatness , in order to protect the population of the State against the evils of the ' pecuniary vicissitudes " winch are inevitable to a people almost wholly enjrrossed in a commerce -which , is necessarily " greatly affected , not only by the natural . bourse of the seasons , variations of climate , but by the ¦ caprice of statesmen , the conflict of partypolitics , dip lomatic misunderstandings ,, and the fortunes of war . _ ' ¦ '
On the present occasion , we have only further to remark , thai : while , we-have drawn attention to the most unpleasant legal position in which the policy holders , in the older of our mutual societies are placed , " it is by no means to be . inferred that we regard those insured in younger companies more secure ; ' on ' ¦ ¦ the' contrary , however safely placed may be the members of a few . of the newer societies , it is to be feared there are several in anything but a comfortable condition .
If it were always certain that the management of a . society , whether mutual or otherwise , were so watchful of its progress , that they would transfer its . business and its engagements to a better established one , prior to any serious liabilities possibly attaching to its policy-holders , the risk of joining a young society would be oreatly lessened ; but the last ten years' experience shows how little reliance is to be placed on this , even in societies when , under the direction of gentlemen of the highest commercial reputation . mber of societies established
Of the vast nu since the passing of , and registered under , the 7 & 8 Viet . c . 110 , it will be found that more than four - fifths of them wore promoted , conducted , and managed by persons who , either as leading officers or directors , have had no previous experience in the management of Assurance Companies . To any one , therefore , well acquainted vith the practical difficulties , the experience necessary , and the technical knowledge , in many instances , required to regulate their affairs , it must appear more surprising that more have not failed than that so few have succeeded . Indeed , so usual
has it been for inexperienced persons to become promoters of assurance companies , that we well recollect an experienced , and one of our most laborious actuaries , Mr . Neison , incurring , a high d'QOTco of obloquy from the officials of new institutions , from having declared before Mr . Wilson ' s Committee of 3 853 , that instead of their promoters being enabled to job , or effect beneficial arrangements for thomselv os , asf usually supposed , they were generally soon turned adrift for their incompetence , and forced to push their fortunes elsewhere . . All careful observers of ouv economic institutions are fully
alive to this fact . To be enabled to manage a life assurance company well , tho principal officer , as a rule , must have natural aptitude for the particular studies , which , when persevered in , qualify him for the duties which devolve on him ; hiid fow can master those studies without tuo previous aid of ¦ practical experience m a well conducted society . , Tlioro are , no doubt , startling and patent exceptions to this nila , us to every other ; but ^ wo cannot reca single instance , within the last fifteen years , of a person of previous fair experience Lving failed to make successful an institution with tfie management of which ho has been entrusted . This is a eircumstanco of much more significance than a more oursory observer will consider it to bo 5 hut with the numerous lntolli-
Untitled Article
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Citation
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Leader (1850-1860), March 19, 1859, page 371, in the Nineteenth-Century Serials Edition (2008; 2018) ncse2.kdl.kcl.ac.uk/periodicals/l/issues/vm2-ncseproduct2286/page/19/
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