Burton v. School Dist. No. 19

• Decision Date: 11 December 1934
• Docket Number: 1858
• Citation: 47 Wyo. 462,38 P.2d 610
• Parties: BURTON v. SCHOOL DIST. NO. 19, ET AL
• Court: Wyoming Supreme Court

38 P.2d 610

47 Wyo. 462

BURTON v. SCHOOL DIST. NO. 19, ET AL

No. 1858

Supreme Court of Wyoming

December 11, 1934

APPEAL from the District Court, Lincoln County; REUEL WALTON, Judge.

Suit by Heber F. Burton against School District No. 19 in the County of Lincoln and others. From a judgment for defendants plaintiff appeals.

Affirmed.

For the appellant, there was a brief by Ivan S. Jones, of Kemmerer Wyoming.

The action was against School District No. 19 in Lincoln County to restrain the district from entering into contracts for mutual fire insurance. The plaintiff alleged that the district would, unless restrained, accept a policy of insurance in a mutual company and assume a contingent liability to contribute to the fire losses of other members of the association, thus assuming an unlimited liability to pay losses and expenses of other policy holders. It is the contention of appellant that such an insurance contract is ultra vires and contrary to law; that such a contract would be the assumption of the obligations of private individuals and corporations contrary to the constitution and laws of the state, in using money raised by taxation for private purposes and lending of the credit of a school district to a private corporation and becoming a stockholder in such private corporation. The Constitution of Wyoming prohibits school districts and other political subdivisions from loaning their credit or making donations, except for the support of the poor, and also prohibits school districts and other public sub-divisions from becoming owners of the capital stock of private associations or corporations. Article 16, Section 6 Constitution. Similar provisions have been construed in other states. Gherna v. State, (Ariz.) 146 P. 494; Wren v. Dixon, (Nev.) 161 P. 722. The provision applies to all municipal corporations. New Decatur v. Telephone Company, (Ala.) 58 So. 613. Such provisions are also considered self-executing. 6 R. C. L. 62. The interests of policy holders in such mutual insurance companies are two-fold: They are both insurers and insured. Huber v. Martin, 3 L. R. A. (N. S.) 652. The contract of insurance being voidable but not void, it follows that the policy is not protection to the school district. District v. County, (Ida.) 164 P. 1174; Corbitt v. Salem Company, (Ore.) 25 Am. Rep. 541; Hamilton Company v. Townsend, 13 Ont. App. Rep. 534; re Globe M. B. A., 17 L. R. A. 547; District v. Twin Falls M. F. I. Co., (Idaho) 164 P. 1174; Tyler v. Insurance Ass'n. , (Texas) 288 S.W. 409; Opinion Attorney General, (Cal.) October 3, 1933, re Ripon High School. The judgment below should be reversed.

For the respondents there was a brief by H. R. Christmas, of Kemmerer, Wyoming, and Eugene Quay, of Chicago, Illinois; both parties submitting cause without oral argument.

Municipal corporations have the right to take insurance in mutual companies, under constitutions containing all of the relevant restrictive clauses found in that of Wyoming. French v. Mayor, (N. J.) 49 A. 465, 67 N.J.L. 349; Downing v. School District, (Pa.) 147 A. 239; Cooley on Const. Lim. 469; Dillon on Mun. Corp. (5th Ed.), Sec. 976; McQuillan on Mun. Corp. (2d Ed.), Sec. 2171; 1 Cooley Briefs on Ins. (2d Ed.), 104; 1 Joyce on Ins. (2d Ed.), 708. Policyholders do not assume an unlimited liability as to assessments. Davis v. Parcher, 82 Wis. 488; Swing v. Humbird, (Minn.) 101 N.W. 77; Insurance Co. v. Hoge, 21 How. (62 U.S.) 35, 64; Insurance Company v. Brinker, (Mich.) 210 N.W. 329; Lyons v. Rathbone, (N. Y.) 58 N.E. 29; State v. Matthews, (Ohio) 49 N.E. 1034; Johnson v. School District, (Ore.) 270 P. 764; Schimpf v. Insurance Company, 86 P. 373; Continental Ass'n. v. Company, 62 S.W. 930. The law of the domicile controls the contract. Union Company v. Hoge, supra; Warner v. Company, (Mich.) 68 N.W. 283. The contingent liability of a mutual policyholder rests on contract. Dwinnell v. Felt, (Minn.) 95 N.W. 579; Federal Union Company v. Flemister, (Ark.) 130 S.W. 574; Burke v. Scheer, (Nebr.) 130 N.W. 962; Detroit Company v. Merrill, (Mich.) 59 N.W. 661; Coombes v. Getz, 285 U.S. 434. The premium is not left to the arbitrary determination of the company. 3 Joyce Insurance, 1305. The insurance contract involves no lending of public credit. Jacobs v. Smallwood, 63 N.C. 112; City of Tyler v. Ass'n., (Texas) 268 S.W. 909. Policyholders are not stockholders in mutual company. Vance on Ins., Section 36; Penn. Mut. L. Ins. Co. v. Lederer, 252 U.S. 523; Mut. Ben. L. Ins. Co. v. Herold, 201 F. 1918; Grobe v. Insurance Company, (N. Y.) 62 N.E. 1096; Dillon Mun. Corp., Sec. 976; McQuillan Mun. Corp., Section 217. Appellant's assignments of error are without merit and the judgment should be affirmed.

BLUME, Justice. KIMBALL, Ch. J., and RINER, J., concur.

OPINION

BLUME, Justice.

In this case, the defendant school district undertook to insure its buildings with the defendant fire insurance companies, which were mutual companies. It agreed to pay an annual cash premium of $ 48.50, for a policy of $ 5000, and assumed a contingent liability of an assessment for an equal and additional amount, the policy providing, among other things, that:

"The contingent mutual liability of each member of this company for the payment of losses and expenses not provided for by the cash fund shall be a sum equal to and in addition to the amount of one annual premium."

The sole question argued herein is as to whether or not the contract in question is in violation of Section 6 of Article 16 of the Constitution of this state, which, in so far as applicable here, reads as follows:

"Neither the state nor any county, city, township, town, school district, or any other political subdivision shall loan or give its credit or make donations to or in aid of any individual, association or corporation, except for necessary support of the poor, nor subscribe to or become the owner of the capital stock of any association or corporation."

The trial court held that this provision was not violated in the case at bar.

It may be inadvisable for a school district to insure its property in a mutual company when it is subject to an assessment in addition to the fixed premium provided for in the policy. But that point is not in controversy here. And it may be conceded that, when the contingent liability of the district is in an unlimited amount under a contract of insurance, the constitutional provision above quoted is violated. It has been so held. School District No. 8 v. Twin Falls County Mutual Fire Insurance Company, 30 Idaho 400, 164 P. 1174. In this case, however, the contingent liability is limited to an amount equivalent to the fixed cash premium of $ 48.50. Insurance contracts of that character have been held not to be violative of a constitutional provision similar to that above quoted. Downing v. Erie School District, 297 Pa. 474, 147 A. 239; French v. Mayor, 66 N.J.L. 392, 49 A. 465; 67 N.J.L. 349, 51 A. 1109; 1 Cooley, Constitutional Limitations, 469, note; McQuillan on Municipal Corporations, 2nd Ed., Sec. 2171; 1 Cooley, Briefs on Insurance, 2nd Ed., 104; 1 Joyce on Insurance, 2nd Ed., 708. In Cooley, Constitutional Limitations, supra, it is said:

"By becoming a member of a mutual insurance company a municipality does not become the owner of any stock or bonds of the company in violation of a constitutional provision prohibiting any municipality from owning any stock or bonds of any association or corporation; and by giving premium notes for the payment of assessments to meet losses incurred by such an insurance company, the municipality does not loan its credit to the company in violation of a constitutional provision against doing so."

In Downing v. Erie School District, supra, it appears that the contingent liability of the insured was limited to five times the initial payment. The question before us was discussed at great length, the court, among other things, saying:

"Our constitutional provision was designed to prevent municipal corporations from joining as stockholders in hazardous business ventures, loaning its credit for such purposes, or granting gratuities to persons or associations where not in pursuit of some governmental purpose. Taking of insurance in a mutual company with limited liability is not within the inhibition, for the district does not become strictly a stockholder, nor is it loaning its credit. It agrees to pay a fixed sum, and can be called upon for the total only in case of some unusual...