Kelso & Irwin, PA v. State Ins. Fund

Decision Date03 March 2000
Docket NumberNo. 24814.,24814.
Citation997 P.2d 591,134 Idaho 130
CourtIdaho Supreme Court
PartiesKELSO & IRWIN, P.A. (now known as Starr Kelso Law Office, Chartered), Plaintiff-Appellant, v. STATE INSURANCE FUND; and Drew Forney, Manager of the State Insurance Fund, individually pursuant to I.C. # 72-907, Defendants-Respondents.

Starr Kelso Law Office, Chtd., Coeur d'Alene, and Ball Janik, LLP, Portland, OR, for appellant. James T. McDermott argued.

Hon. Alan G. Lance, Attorney General, Boise, for respondents. Michael S. Gilmore argued.

TROUT, Chief Justice.

Kelso & Irwin, P.A. (now known as Starr Kelso Law Office, Chartered (Kelso)) appeals from the district judge's dismissal of its complaint for failure to state a claim upon which relief could be granted pursuant to I.R.C.P. 12(b)(6). Kelso argues the judge erred in dismissing the case because Kelso has a vested contract or property interest in the monies and assets of the State Insurance Fund (SIF).


Kelso is a professional corporation that has obtained worker's compensation insurance from SIF since 1993. One of Kelso's former employees died in an on-the-job automobile accident, and that employee's minor child will be entitled to worker's compensation benefits until the age of majority. On May 9, 1996, a complaint was filed by Kelso. This complaint sought a permanent injunction prohibiting the SIF from selling worker's compensation insurance at the artificially low premiums established by the 1996 amendments to I.C. § 41-1612(2) and (3).1 The complaint also sought an award of attorney fees against Drew Forney (Forney), the manager of the SIF, under the private attorney general doctrine, or alternatively under I.C. § 12-117. SIF then filed a motion to dismiss, arguing SIF's policyholders are not shareholders, and policyholders have no contractual, property, equity, or trust interests in the SIF's surpluses or reserves. A hearing was held on July 18, 1996 before the district judge, who then ruled from the bench, granting SIF's motion to dismiss. On July 22, 1996, Kelso filed a Motion for Reconsideration and a hearing was held on that motion on August 26, 1996. On December 18, 1997, the district judge vacated his motion to dismiss and held that Kelso did have a property interest in the fund, as do policyholders similarly situated.

On May 8, 1998, Kelso filed its First Amended Complaint. The Amended Complaint included the original request for an injunction as well as (1) the return of all monies to the policy holders held by SIF under the designation of "surplus as regards policyholder" in excess of the six million dollars of "reserves and surpluses" required by I.C. § 72-911; and (2) an accounting and recovery of assets squandered by SIF through invalid and illegal use of monies in the surplus. At the hearing held on May 12, 1998, the district judge, ruling from the bench, reversed his prior reconsideration order and held "as a matter of law that the State Insurance Fund's policyholders have no vested or protected property rights or contract rights in the assets or funds held in the State Insurance Fund," and again granted SIF's Motion to Dismiss. This appeal followed.


When we review an order of the district court dismissing a case pursuant to I.R.C.P. 12(b)(6), the non-moving party is entitled to have all inferences from the record reviewed in its favor. See Miles v. Idaho Power Co., 116 Idaho 635, 637, 778 P.2d 757, 759 (1989)

. After drawing all inferences in the non-moving party's favor, we then ask whether a claim for relief has been stated. See id. We ask not whether the non-moving party will ultimately succeed in its claim, but whether it is "entitled to offer evidence to support the claims." Orthman v. Idaho Power Co., 126 Idaho 960, 962, 895 P.2d 561, 563 (1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90, 96 (1974)).


To survive SIF's motion to dismiss, Kelso must have some vested or protected property or contract right in the assets or funds of the SIF. Therefore, we will first address Kelso's arguments as to its alleged property rights in the SIF's surplus and assets.

A. Kelso Has No Vested Property Right in the Surplus and Assets of the State Insurance Fund Sufficient to Support a Claim for Relief.

Kelso first argues that when the Idaho legislature created the SIF, it intended to create a public mutual insurance company. Secondly, Kelso argues that even if the SIF is not a public mutual company, the SIF's statutory structure still provides the policyholders with a property interest in the SIF's assets. Third, Kelso argues that even if the statutes do not provide policyholders with a property interest in SIF's assets, this Court's prior cases have established the policyholders have a property interest in SIF's assets. Finally, Kelso argues the SIF is estopped from denying the policyholders have a property interest in the SIF's assets. We will address each argument in turn.

1. The SIF Is Not a Public Mutual Insurance Company.

The determination of the nature of the SIF requires this Court to interpret SIF's statutory provisions. An interpretation of a statute is a question of law over which we exercise free review. See State v. Hagerman Water Right Owners, 130 Idaho 727, 732, 947 P.2d 400, 405 (1997)

. Additionally, if it is necessary for this Court to interpret a statute, then we will attempt to ascertain legislative intent. Id. at 733, 947 P.2d at 406. Finally, in construing a statute, this Court may examine the language used, the reasonableness of the proposed interpretations, and the policy behind the statute. Id.

According to Kelso, the Idaho legislature's intent to create a mutual insurance carrier is evidenced both by the title of the Act which originally created the SIF, as well as the SIF's statutory framework. In the title of the original Act creating the SIF, it does state the Act, among other things, makes "general provisions for the administration by the State Insurance Manager of a public mutual insurance carrier." See Workmen's Compensation Act, ch. 81, 1917 Idaho Sess. Laws 252. Additionally, as noted by Kelso, the Act also uses other terminology consistent with the creation of a mutual insurance carrier. For example, the Act provides for the creation of accounts for individual employers, the payment of dividends (at the discretion of the manager), assessments of employers if the premiums do not meet the losses (although this provision was later repealed), and the continued liability for assessments of any employer who chooses to terminate its insurance with SIF. See Workmen's Compensation Act, ch. 81, §§ 91-93, 97, 1917 Idaho Sess. Laws 252, 284-87. Under I.C. §§ 41-2844 and 41-2847, a mutual insurer also may pay dividends to its policyholders and members of a mutual insurance carrier may be assessed if premiums do not cover losses. Additionally, I.C. § 41-2849 provides a mutual insurance company can exist even if its policyholders are not subject to assessment beyond their premiums. Finally, in the 1998 amendments to the SIF's statutes, I.C. § 72-901(4) was added to make it clear the SIF is subject to, and must comply with, the provisions of the Idaho insurance code. That provision also states "[f]or purposes of regulation, the state insurance fund shall be deemed to be a mutual insurer." See I.C. § 72-901(4) (1999). Therefore, in many ways SIF certainly resembles a mutual insurance carrier.

Although there are certain similarities, we find the differences between the SIF and a mutual insurance carrier far more significant. The most obvious differences are in the management of the SIF, as compared to the management of a private mutual insurance company. Originally, the management of the SIF was vested solely in the SIF manager who was appointed to that office by the Governor. In 1998, the statute was amended to provide for the creation of a board of directors of the SIF. See I.C. § 72-901 (1999). This board is appointed by the Governor and, in turn, appoints the manager. See I.C. §§ 72-901-02 (1999). This is clearly different from the management of a private mutual insurance carrier. Under I.C. §§ 41-2829 to 2835, a private mutual insurance carrier is managed by a board of directors who are elected by the policyholders. See I.C. § 41-2835 (1998). Under I.C. § 41-2832, the mutual insurance carrier is required to hold annual meetings for the election of board members and transaction of other business. See I.C. § 41-2832 (1998). Additionally, I.C. § 41-2831 states "[a] domestic mutual insurer is owned by and shall be operated in the interest of its members." I.C. § 41-2831 (1998). Finally, and perhaps most significantly, I.C. § 41-302 defines a "mutual" insurer as an "incorporated insurer without capital stock and the governing body of which is elected by its policy holders." I.C. § 41-302 (1998).

From a comparison of the two statutory schemes, we find it unlikely the Idaho legislature intended to create a mutual insurance company, despite its use of that term in the title of the original Act2 and in the amended I.C. § 72-901(4). Rather, we believe the legislature sought to create a state managed insurance fund that operated, in many ways, like a private mutual insurance company. This conclusion is supported, rather than diminished, by the fact the legislature specifically stated the SIF was to be deemed a mutual insurer for the purposes of regulation under the Idaho insurance code. See I.C. § 72-901(4) (1999). Additionally, this interpretation is much more consistent with the actual statutory structure of the SIF. The SIF is set up to operate like a mutual insurance carrier in that it covers the losses of its members through the collection of premiums and seeks to minimize the cost of worker's compensation insurance by returning dividends to...

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