IS THERE ANY ESCAPE FROM THE LAW OF WAIVER AS APPLIED BY COURTS ON INSURANCE CONTRACTS? (By U. A. Screechfield, Legal Adviser, Royal Neighbors of America.) Read before Law Section A. F. A., August 18, 1913, Chicago, Illinois. I approach this subject with fear and trembling, fully cognizant of its limitless bounds. Much that will be said has likely heretofore been written either in essay form or in the solemn, sordid diction of courts. But few cases now tried in courts escape some phase of waiver, either because of some conduct of the local officers or conduct or acts of supreme officers. I keep a brief of recent decisions of courts concerning insurance matters, and find the subject of waiver growing out of all proportions to that of any other subject on my list. Why should this be? Are courts going wrong or are our societies operating on a wrong basis with poorly devised laws? On advice of counsel I refuse to answer the question. I want to draw two distinctions, in considering this subject, which are being recognized by courts, and must be recognized by societies. if they ever expect relief from unauthorized acts of their agents. You observe I say "AGENTS." I use this term advisedly and premeditatedly, and shall discuss it later. A distinction is made between by-laws which limit the power of the subordinate bodies and the officers thereof in the collection and remission of dues and assessments; and those which provide that no subordinate body, or its officers or members, shall have the power or authority to waive any of the laws of the society, and which bylaws, usually, at the same time, declare that the local officers are the agents of the members, and not the agents of the supreme body. I shall discuss this latter provision or distinction first. It appears to me, in view of court holdings all over the country, we had as well admit that the local financial officer, at least, is the agent of the supreme organization, and I am frank to admit that in most instances, at least, he is, and of right ought to be, and in this connection I am reminded of the language of the court in Schlosser vs. Grand Lodge, 94 Md. 363, in which the by-laws were as follows: "In a matter pertaining to the insurance or beneficiary department, neither the subordinate lodge or the officers thereof, shall ever act as the agent or agents of the grand lodge, unless specially authorized in writing by the grand master or grand secretary and treasurer for that purpose, and without such authority any and all action which may be taken touching said matters by such subordinate lodges or officers thereof shall be absolutely void." The court commenting on aforesaid by-laws spoke as follows: "The whole scheme of organization is at variance with this provision. The grand lodge is the central body. The contract of insurance is made with it, and not with the subordinate lodges, but it is made with the grand lodge through the agency and exclusively through the agency of subordinate lodges. The officers are clothed with the duties and entrusted with the power and authority of agents, and no declaration that an agency does not exist, or that the principal shall not be answerable for the acts of the agents though done within the scope of agency, can restrict or limit the liability of the principal." In the case of McMahon vs. Maccabees of the World, 151 Mo. 522, the by-laws provide that the subordinate tent shall be the agent of its members, in making out applications for membership, admission of members, collections and transmission to the supreme tent of all dues and assessments, and that the supreme tent shall not be liable for any negligence in these matters nor be bound by any irregularity or illegal action on the part of the supreme tent. With reference to aforesaid provisions the court said: "The laws of the order declare the subordinate tent and the officers thereof to be the agents of the members in his dealing with the supreme tent. But there is no merit in the proposition. The law will determine whose agent one is, not from the mere declaration that he is the agent of the one or the other, but from the source of his appointment and the nature of the duties he is appointed to perform." In Knights of Pythias vs. Withers, 177 U. S. 260, the by-laws provided that the secretary in receiving moneys from the member was the agent of the member and not of the society. The court said: "To invest him (the secretary) with the duties of an agent and to deny his agency, is a mere juggling with words. Defendant cannot thus play fast and loose with his subordinates. Upon its theory the policy holders had absolutely no protection." The great weight of authority is in accordance with the principles announced in the foregoing cases, and the following ones tend to carry out and support the same findings: Court of Honor vs. Dinger, 221 Ill. 176. Jones vs. Supreme Lodge Knights of Honor, 236 Ill. 118. Trotter vs. Grand Lodge of Iowa Legion of Honor, 108 N. W. 1103. Supreme Lodge, Knights of Honor vs. Davis, 26 Colo. 252. Reed vs. Ancient Order of Red Cross, 8 Ida. 409. Ancient Order of Pyramids vs. Drake, 66 Kans. 538. Wagner vs. Knights of Honor, 128 Mich. 660. Royal Neighbors of America vs. Bowman, 177 Ill. 27. Many other cases could be cited along this line, but I deem it unnecessary so to do, because this shows the tendency of courts. In so far, therefore, as by-laws are concerned which try to define who our agents are, and declare that local officers are not our agents, such by-laws had as well be relegated to the land of the forgotten. I believe in some instances they have been a detriment to, the society in litigation for the reason that they have been the means of prejudicing the mind of the court. The society I represent has such a provision in its by-laws, and has had it for several years, but I attach no weight to it, and only in one case within the last two years have I pleaded it, and that was in one of the most flagrant cases that has come to my knowledge recently. The fact that local offiecrs are elected by the local lodges makes no difference in the eyes of the court. If the supreme lodge could afford it, it would be well to appoint its collecting agents, and give them explicit, written instructions concerning their duties, and pay them out of its general fund for their services. In so doing I believe we would often escape liability wherein otherwise we are compelled to pay many unjust claims. Therefore, I am of the opinion that we cannot escape liability nor the law of waiver by relying on our by-laws which declare that our local officers are the agents of the local lodge, and not the agents of the supreme lodge. If there is any escape, it must come through some other source, to-wit, such as limitations of authority placed on our local officers, which limitations must be set forth in the local by-laws. Referring now to the first distinction above referred to herein, I find it a much more fertile field than the latter has been. I am going to take the position that our by-laws should limit the authority of our local officers, and that such limitations are valid and binding on both insured and beneficiary as being part of the contract entered into. There is some conflict of authority on this proposition, but with carefully worded by-laws many cases will be won for the society which otherwise are lost. The best known case setting forth the point I desire to make in my discussion of this phase of the subject is the well known case of the Modern Woodmen of America vs. Tevis, 117 Fed. 369. It will be remembered that this decision came only as a result of the rehearing granted after the court had decided the case against the validity of the by-laws, and in FAVOR of the member, which decision is reported in Ill. Federal. As the result of the decisionn of the U. S. Supreme Court in Insurance Co. vs. Grand View Building Association, 183 U. S. 308, which latter case held that by-laws limiting the power of local officers were valid and binding, the circuit court of appeals granted a re-hearing of the Tevis case and reversed itself. In this case the by-laws provided that the clerk of the local camp was the agent of that camp, but not the agent of the head camp, and that no act or admission on his part should have the effect of creating a liability on the part of the society, or of waiving any right or immunity belonging to it, and that no officer of the society or any local camp could waive any of the provisions of the by-laws which relate to the substance of the contract, or the payment of benefits. Tevis failed to pay an assessment within the time required by the laws of the order and the local clerk received the delinquent assessment without a warrant that he (Tevis) was in good health. The society contended that it was not liable, because the local clerk violated the laws of the order. The court held that the clerk of the local camp WAS THE AGENT to collect, and among other things said: "But he was its agent to collect, receive and remit them at the time and in the manner prescribed for their payment by the by-laws and at no other times and under no other conditions. Those by-laws provide that delinquent members were ipso facto suspended; that their certificates were void; that they could be reinstated by the clerk by the receipt of arrearages only, when they were in good health, and when they furnished warrants to that effect; and that no act or omission of the clerk of the local camp could have the effect of creating any liability of the society or of waiving any right or immunity belonging to it. These limitations upon the power of this agent were known to the insured and the beneficiaries named in this certificate, because they were a part of their contract." In some jurisdictions, and in fact I will say many jurisdictions, the law as outlined in this case is adhered to; while we find some, however, that disapprove it and say the law is different in their state. If there is any merit at all in our by-laws concerning any phase of the question of agency and waiver, this particular limitation is a meritorious one. I shall refer to many other cases, which, to a greater or less degree, uphold the above principles. Coughlin vs. Knights of Columbus, 79 Conn. 218, was a case wherein the by-laws provided that the financial secretary should in no 'case receive assessments from a member after he should be ipso facto suspended and before he should be reinstated according to the laws of the order, and that no officer, agent or council of the order had the power, right or authority to waive the above condition or to change or vary any condition or law. This was a case in which the member became suspended and reinstated in violation of the terms of the by-laws of the society. The court in deciding the case for the society used, among other statements, the following language: "The officers of this defendant corporation, in dealing with Coughlin and other life insurance members, were all acting as special agents under a special authority, the precise limits of which were known to all members, and their acts alleged in the reply were in excess of this authority and cannot operate to prevent the defendant, either by way of waiver or estoppel, from maintaining its defense to this action as stated in its answer. |