ing of the previous award of the company by a very small amount in order to throw all expenses of arbitration upon the party which can better afford to bear them. Such action, however, is decidedly unfair to the company. The addition to the award and the expenses of arbitration may not in themselves be serious considerations, but by having its original award set aside the company's reputation for fairness in the settlement of its losses is unjustly undermined.

The damage by fire or lightning to a given piece of property often appears to the owner much more serious than it really is. For this reason a provision to the effect that the company may satisfy the claim against it by repairing or rebuilding frequently proves of value.

RESERVE.

The question of whether a farmers' mutual insurance company should aim to establish and maintain a reasonable reserve fund is closely related to the question of advance or post assessment already discussed. The reserve problem, however, leads still further into the question of how far the farmers' mutuals shall imitate the plan now imposed by law upon all capital-stock insurance companies and, in general, upon larger mutuals; namely, that of maintaining a certain reserve proportionate to the amount of business transacted. It is frequently held that to build up a reserve fund deprives the members of capital which each member might as well have in his own possession until it is needed by the company. The truth of the argument, so far as it goes, must be conceded. However, the necessary additional amount to be contributed by each member in order to build up a reasonable reserve is so small that it can not affect seriously the business operations or the prosperity of the individual members.

A reasonable reserve in the treasury of the company, on the other hand, performs a very useful function by equalizing the assessment from year to year. In case unexpectedly heavy losses should be experienced it may thus prevent dissatisfaction on the part of the members. In an extreme case it may even save the company from dissolution. The opinion appears to be growing among farmers' mutual insurance men that under a plan of annual assessments a reserve of about $3.000 per million of insurance in force is useful as a shock absorber in the loss experience of the company.

AMENDMENT OF BY-LAWS AND ARTICLES OF INCORPORATION.

The by-laws, as well as the articles of incorporation, should prescribe carefully the method of their own amendment. A reasonable permanency in the company's plans and methods doubtless requires that something more than a mere majority of favorable votes should

be necessary to bring about an amendment. The percentage of favorable votes required should not be so large, however, that a relatively small number of members, aided by mere inertia or the attitude of opposition to all change on the part of other members, can block a desirable reform. A three-fifths majority represents a suitable requirement for amendment to the by-laws. The majority required for change in the articles of association logically should be slightly higher. Even here, however, two-thirds rather than threefourths is believed to constitute a reasonable majority.

No amendment should be passed without due warning to the members that a change is contemplated. Such warning may be provided for by requiring that a notice of a proposed amendment shall be sent to every member a reasonable time before the meeting at which the amendment is to be considered. This special notice may properly be omitted only when an amendment has been formally acted upon and recommended by a majority vote at a regular or regularly called meeting of the members preceding that at which final action is contemplated.

SUGGESTIVE ORGANIZATION AND BUSINESS FORMS.

The accompanying suggestive articles of incorporation, by-laws, application, and policy embody the principles emphasized in the preceding pages. In many States it will be necessary to modify them to conform to local conditions and to comply with legal requirements. The advice of the State insurance commissioner should be freely sought in all cases of serious doubt. Especially is such consultation necessary when the question concerns the laws, or the interpretation of the laws, regulating insurance in the State. Even when changes are necessary, however, it is believed that the accompanying suggestive organization and business forms will be found useful.

1 So far as its facilities permit, the Office of Markets and Rural Organization of the United States Department of Agriculture is ready to assist individual rural communities both in the formation of new organizations and in the improvement of existing insurance companies.

ARTICLES OF INCORPORATION.

FARMERS' MUTUAL FIRE INSURANCE COMPANY.

We, the undersigned, residents of severally own property within said value of

County, having a total insurable dollars, which we desire to insure, said property consisting of separate risks, hereby associate ourselves together as a body corporate, and for that purpose subscribe to and adopt the following articles of incorporation:

ARTICLE I. The name of the corporation shall be

Insurance Company.

Farmers' Mutual Fire

ART. II. The principal office of this company shall be located in ART. III. The business of this company shall be to safeguard its members, so far as possible, against property losses by reason of fire or lightning, and to distribute among all the members, on the mutual-insurance plan, any loss by fire or lightning which may occur in spite of all reasonable precautions. ART. IV. The business territory of this company shall be confined to

ART. V. Membership in this company shall be limited to persons who own or have a substantial interest in farm or country risks or similar detached risks within the limits of cities and villages which may be insurable under the rules of the company, in compliance with the laws of the State of

ART. VI. The management of this company shall be vested in a board of nine (9) directors, who shall be elected for such term and in such manner as the by-laws shall provide.

ART. VII. These articles of incorporation may be amended by a two-thirds vote of the members present at any annual meeting or any regularly called special meeting (a quorum being present), at least thirty (30) days' notice of such proposed amendment having been given.

ART. VIII. The duration of this corporation shall be

years.

ART. IX. Until the first regular meeting of the members, the following shall act as a board of directors:

SECTION 1. Purpose.

BY-LAWS.

FARMERS' MUTUAL FIRE INSURANCE COMPANY.

The purpose or object of this company shall be to protect its members against property losses from fire or from lightning. In the accomplishment of this purpose the company shall employ the following means:

First, careful periodic inspection of the property insured, followed by advice and warnings against fire dangers, and, when necessary, by orders for the improvement of bad risks; also, so far as possible, the general enlightenment of its members on matters of safe construction and proper maintenance and care of property in order to avoid danger of loss or damage.

Second, the distribution among its members on the mutual-insurance plan of any loss caused by fire or lightning which may occur in spite of all reasonable precautions.

SEC. 2. Property that may be insured.

This company shall insure only farm or country property consisting of detached dwellings and their contents; farm buildings, including silos, and their contents; farm machinery; vehicles: grain and hay in bin, stack, or loft; and live stock; and detached risks of similar hazard within the corporate limits of cities or villages, not less than 100 feet distant from all other risks in places lacking adequate fire protection, and not less than 50 feet distant in places having efficient fire protection: Provided, That no property of any class not considered reasonably safe by the board of directors or their representatives shall be insured: And provided further, That old and dilapidated structures, buildings wherein fire is used and the flues are defective or dangerous, paintings, jewelry, money, or securities or other evidences of ownership or of credit, shall in no case be insured by this company.

SEC. 3. Membership and meetings.

(a) MEMBERSHIP.-The membership of this company shall comprise all persons who have property insured therein.

(b) ANNUAL MEETING.-The annual meeting of the company shall be held on the third Tuesday in January of each year, in the city of. The exact place and hour of meeting shall be designated by the executive committee hereinafter provided for. Notice of such meeting shall be sent by the secretary to' each member at least 15 days before the date of the meeting.

(c) SPECIAL MEETINGS.-Special meetings of the company shall be called whenever the board of directors by a two-thirds vote shall so order, or whenever one-fourth of the members shall petition for such meeting.

(d) VOTING PRIVILEGE.--Each member shall be entitled to one vote on all questions arising at the annual or special meetings of the company. No vote by proxy shall be allowed.

(e) QUORUM.-At all annual or special meetings of the company 15 members shall constitute a quorum,

SEC. 4. Directors.

(a) ELECTION AND TERM.-At the first annual meeting of the company nine directors shall be elected to succeed those designated as a temporary board in the articles of incorporation. The directors so chosen shall be divided by lot into three classes of three directors each. Those in class 1 shall hold office for one year; those in class 2 for two years; and those in class 3 for three years. At all subsequent annual meetings three directors shall be elected, to hold office for a term of three years, or until their successors are elected.

(b) METHOD OF FILLING VACANCIES.-Vacancies in the board of directors may be filled temporarily by the remaining members of the board. Persons so chosen shall hold office until the next annual meeting, when such vacancies shall be filled by election for the unexpired term.

(c) POWERS AND DUTIES.-The board of directors shall have charge of all the business of the company. They shall hold meetings at such times and places as they deem necessary. They shall elect the officers of the company. They shall direct the levying of all assessments and shall appoint, or authorize the appointment of, all inspectors, adjusters, and other employees of the company. They may divide the business territory of the company into districts and apportion among themselves the agency and supervision of these districts in such manner as will best serve the interests of the company. They shall designate depositories for the company's funds.

(d) QUORUM AT BOARD MEETING.-Five directors shall constitute a quorum at a board meeting.

SEC. 5. Officers.

(a) TITLES, ELECTION, AND TERM.--The officers of this association shall consist of a president, a vice president, a secretary, and a treasurer, and shall be elected by the board of directors from their own number: Provided, That the office of treasurer may, by a two-thirds vote of the board, be filled by any competent and trustworthy person without reference to other connection with the company. If the treasurer is not a director, he shall attend and be heard at the meetings of the board, but shall have no vote at such meetings. Each officer, unless removed by a two-thirds vote of the board, shall hold office for one year or until his successor has been elected and qualified.

(b) DUTIES OF THE PRESIDENT.-The president shall preside over all meetings of the board of directors. He shall also call to order all meetings of the company and shall preside until a temporary chairman has been elected. He shall sign all policies, vouchers, or orders issued by the company, and shall perform such other duties as are usually performed by such officer, or as the board may assign to him. It shall also be his duty to see that the auditing committee hereinafter provided for does its work, and to fill by appointment any vacancies in this committee that may occur.

(c) DUTIES OF THE VICE PRESIDENT.-The vice president, in addition to his duties as a member of the executive committee hereinafter provided for, shall perform all the duties of the president during the absence or inability of that officer.

(d) DUTIES OF THE SECRETARY.-The secretary shall keep a complete and accurate record of all transactions of the company. He shall write and sign all policies, vouchers, or orders issued by the company. He shall, under the direction of the board of directors, have charge of the levying of all assessments and the collection of these assessments and any other money due the company, and shall turn over all money so collected to the treasurer. He shall make a complete and accurate report of the year's business at each