Gibbons & Reed Co. v. Standard Accident Insurance Co.

• Decision Date: 31 October 1960
• Docket Number: No. C-127-60.,C-127-60.
• Citation: 191 F. Supp. 174
• Court: U.S. District Court — District of Utah
• Parties: GIBBONS & REED COMPANY and J. A. Jones Construction Company, joint venturers, Plaintiffs, v. STANDARD ACCIDENT INSURANCE COMPANY, a corporation, Defendant.

191 F. Supp. 174

GIBBONS & REED COMPANY and J. A. Jones Construction Company, joint venturers, Plaintiffs, v. STANDARD ACCIDENT INSURANCE COMPANY, a corporation, Defendant.

No. C-127-60.

United States District Court D. Utah, Central Division.

October 31, 1960.

Bryce E. Roe, Fabian & Clendenin, Salt Lake City, Utah, for plaintiffs.

John H. Snow, Skeen, Worsley, Snow & Christensen, Salt Lake City, Utah, for defendant.

CHRISTENSON, District Judge.

This is a removed diversity suit for a declaratory judgment interpreting obligations arising by virtue of certain transactions occurring, and under a contract entered into, and performance bond issued, within the State of California. The defendant insurance company has moved to quash service of summons. The parties agree that the validity or non-validity of this service is dependent upon state law.

Plaintiffs served the Commissioner of Insurance of the State of Utah, on the theory that he had been designated by the defendant insurance company, pursuant to the state insurance code, Utah Code Annotated, 1953, §§ 31-5-16, 31-26-1, as process agent, and, against the possibility that the insurance code provisions did not apply, also served H. Duane Nichols, an adjuster for the insurance company whose telephone number and address were listed in the Salt Lake City telephone directory under "Standard Accident Ins. Co."

Questions that have been argued are, (1) whether the process agent (the Insurance Commissioner) appointed by the company pursuant to the insurance code was subject to service upon a cause of action arising without the state; if not, (2) whether Nichols was in charge of an office or place of business which was "advertised" or "held out" as defendant's office or place of business, within the meaning of Rule 4(e) (4) of the Utah Rules of Civil Procedure; and, (3) whether, in any event, a foreign insurance corporation, by otherwise valid service of process, could be required by such local service to defend within Utah a claim or cause of action arising without the state.¹

In final analysis, the latter problem appears the most serious, and the determinative one. If it is the policy of the State, as reflected in its rules of procedure, statutes, and judicial decisions, not to permit its courts to be utilized to litigate or enforce against insurance companies claims or causes of action arising in other states, the defendant must prevail in its motion, the manner of service then being immaterial. If, on the other hand, the manifest policy is to the contrary, it seems quite clear that there has been valid service.

The first two questions, concerning the validity of service as such, will be discussed first and disposed of together.

(1-2) Rule 4(e) (4) of the Utah Rules of Civil Procedure provides that personal service shall be made:

"(4) Upon any corporation, not herein otherwise provided for * * by delivering a copy thereof to an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process * * *. If no such officer or agent can be found in the county in which the action is brought, then upon any such officer or agent, or any clerk, cashier, managing agent, chief clerk, or other agent having the management, direction or control of any property of such corporation * * * within the state. If no such officer or agent can be found in the state, and the defendant has, or advertises or holds itself out as having, an office or place of business in this state, or does business in this state, then upon the person doing such business or in charge of such office or place of business."

Defendant denies that Nichols was its agent or that he maintained an office for it, asserting that the telephone listing was intended only for the convenience of its out-of-state assured. Aside from the purpose, however, no claim is made that the listing was without its authority. On the other hand, plaintiffs concede that Nichols was not an "officer" or "agent" as contemplated by the foregoing Rule. Apparently the company had none of these within the State of Utah. Plaintiffs claim that Nichols was in charge of a place of business advertised or held out as that of the defendant.

Granted that in order to justify service upon a member of an inferior class under Rule 4(e) (4), supra, it must be shown that service upon a member of the superior classes cannot be had. Reader v. District Court, 1939, 98 Utah 1, 94 P.2d 858; Boston Acme Mines Development Co. v. Clawson, 1925, 66 Utah 103, 240 P. 165. Defendant's very position assumes that service upon the insurance commissioner for the purposes of this case cannot be had. If it can, there is no problem. If the commissioner were not deemed to be an "agent authorized by appointment or by law to receive service of process", there can be no doubt that there were no other classes intervening before the last one, upon which plaintiffs rely. There can be no doubt that the defendant company intentionally held itself out as having an office or place of business within the state, and that Nichols was in fact in charge of that office.

There would therefore be a valid service upon a corporation holding itself out as having an office within the state (aside from the effect of provisions of the insurance code). Cases cited to the contrary, such as Beard v. White, Green and Addison Associates, Inc., 1959, 8 Utah 2d 423, 336 P.2d 125, and McGriff v. Charles Antell Inc., 1953, 123 Utah 166, 256 P.2d 703, are not in point, although in principle they favor plaintiffs' position, where, as here, the company in question was actually doing business in the state and not only had arrangements with an adjuster but authorized him to hold out to the public that the company was maintaining an office in the state in its own name and right but under his charge, and where, as here, at least one of the plaintiffs is a citizen of Utah. The contention persisted in by defendant's counsel at the hearing, so out of keeping with his characteristically well considered arguments, that somehow the intent or purpose of the telephone listing could be limited to servicing the policies of non-residents traveling through Utah, despite the carrier's numerous assured within the state and their more convenient and constant exposure to the listing, must be rejected as realistically unwarranted and legally impotent. Under any view, no material fact question is thereby raised which would preclude resolution of the pending motion without a further hearing. But the other legal points made in support of the motions to quash are cogent and important.

(3) If there be any established policy to preclude suits within the state against insurance companies based upon claims or causes of action arising without the state, it must be by virtue of special insurance legislation. It is authoritatively laid down that as to corporations in general, the rule in Utah is to the contrary. Bristol v. Brent, 1910, 38 Utah 58, 110 P. 356. See also related Annotation, "Service of process upon active agent of foreign corporation in action based on transactions out of State," 96 A.L.R. 366. The weight of authority is in favor of a broad construction of such statutes, 23 Am.Jur., Foreign Corporations, § 494, p. 497, but whether this be so or not is immaterial for all the authorities agree that the state decisions on the question are controlling, where there are no constitutional questions involved. See Robert Mitchell Furniture Co. v. Selden Breck Const. Co., 1921, 257 U.S. 213, 42 S.Ct. 84, 66 L.Ed. 201.

Pertinent provisions of Utah Code Annotated, 1953, relating particularly to insurance companies are:

"31-5-16. Foreign companies—Appointment of process agent—Manner of designation—Irrevocability of appointment.—(1) Each authorized other-state or foreign insurer shall appoint the commissioner as its attorney to receive, and upon whom shall be served, all legal processes issued against it in this state upon causes of action arising within this state. Service upon the commissioner as attorney shall constitute service upon the insurer, and legal service of such processes against such an insurer can be had only by service upon the commissioner.

* * * * * *

"(3) The appointment shall be irrevocable, shall bind any successor in interest or to the assets or liabilities of the insurer, and shall remain in effect as long as there is in force in this state any contract made by the insurer or liabilities or duties arising therefrom."

The foregoing provisions appear in Chapter 5 under the heading, "Insurers —General Requirements". The following section is in the chapter of the code captioned, "Provisions Relating to Foreign Companies Only."

"31-26-1. Compliance with local law.—No other state or alien insurance company shall transact any business in the state until it has the qualifications provided in chapter 5 of this code and in addition shall have filed in the office of the commissioner and in the office of the secretary of state:

* * * * * *

"(4) a power of attorney duly signed and sealed, appointing the commissioner and his successors in office to be its true and lawful attorney upon whom all legal process in any action or proceeding against it shall be served, and consenting that service of process upon the commissioner shall be taken and held as valid service upon the company, and that the authority shall continue in force so long as any liability may remain outstanding in this state against it;"

The provision in the chapter dealing with foreign insurance companies (31-26-1) was carried over into the Insurance Code revision of 1947 from the Compiled Laws of Utah, 1943. The more restrictive provision contained in the general chapter (31-5-16) had no counterpart in the 1943 compilation, but was added to the 1947 revision of the Insurance Code at the same time the other section was therein carried forward.

To complete this statutory background, we quote from...