California State Auto. Ass'n Inter-Insurance Bureau v. Downey

• Decision Date: 10 April 1950
• Docket Number: INTER-INSURANCE
• Citation: 96 Cal.App.2d 876,216 P.2d 882
• Parties: CALIFORNIA STATE AUTOMOBILE ASS'NBUREAU v. DOWNEY, Insurance Commissioner. Civ. 14078.
• Court: California Court of Appeals Court of Appeals

Page 882

216 P.2d 882

96 Cal.App.2d 876

CALIFORNIA STATE AUTOMOBILE ASS'N INTER-INSURANCE BUREAU v. DOWNEY, Insurance Commissioner.

Civ. 14078.

District Court of Appeal, First District, Division 1, California.

April 10, 1950.

Hearing Denied June 8, 1950.

Brobeck, Phleger & Harrison, San Francisco, attorneys for appellant.

Fred N. Howser, Attorney General of the State of California, T. A. Westphal, Jr., Deputy Attorney General of the State of California, Harold B. Haas, Deputy Attorney General of the State of California, attorneys for respondent.

John Adams, Jr., R. J. Reynolds, San Francisco, attorneys for the National Association for the Advancement of Colored People, Sidney L. Weinstock, San Francisco, attorney for California Association of Insurance Agents, Insurance Brokers Society of Southern California, and The Society of Insurance Brokers; Leland B. Groezinger, San Francisco, attorney for American Mutual Alliance; Perry H. Taft, San Francisco, attorney for Association of Casualty and Surety Companies; Don R. Sessions, Los Angeles, attorney for American Automobile Insurance Company and Associated Indemnity Corporation; Alexander, Bacon & Mundhenk, San Francisco, attorneys for American Motorists Insurance Company and Ohio Casualty Company; T. Parker Lowe, Oakland, attorney for Anchor Casualty Company; Keith, Creede & Sedgwick, San Francisco, attorneys for California Compensation Insurance Company, Hardware Indemnity Insurance Company, and United Pacific Insurance Company; W. M. Scott, San Francisco, attorney for Canadian Indemnity Company; Arthur Park, San Francisco, attorney for Central Surety and Insurance Corporation; Hadsell, Sweet, Ingalls & Murman, San Francisco, attorneys for Continental Casualty Company, and Northwest Casualty Company; Albert J. Morrissey, San Francisco, attorney for Employers Casualty Company; Edwin A. Heafey, Oakland, attorney for Farmers Automobile Insurance Exchange; Charles H. Goebel, Los Angeles, attorney for Pacific Automobile Insurance Company; Hagar, Crosby & Crosby, Oakland, attorneys for Pacific Indemnity Company; and Richard E. Reese, San Francisco, attorney for Trinity Universal Insurance Company, Amici Curiae in support of respondent.

PETERS, Presiding Justice.

The Insurance Commissioner of California suspended the right of the California State Automobile Association Inter-Insurance Bureau to transact the automobile liability insurance business in this state because of the refusal of the Bureau to subscribe to or participate in the California Automobile Assigned Risk Plan. Cal. admin. Code, Title 10, §§ 2400-2498. This plan had been approved and promulgated by the Commissioner under the claimed authority of the Assigned Risk Law. Stats. of 1947, Chap. 1205, p. 2714, §§ 11620-11627 of the Insurance Code. Pursuant to section 11523 of the Government Code as amended in 1947, the Bureau sought, by mandate, to compel the Commissioner to restore its right to do business. From a judgment denying the petition for this writ the Bureau appeals.

There are no substantial controverted factual issues presented on this appeal. The basic contentions of appellant are that the Assigned Risk Law is unconstitutional and that, as applied to appellant, the Assigned Risk Plan is invalid.

The issues presented are of vital importance to those engaged in the automobile insurance industry, and to various segments of the public. This interest is partially reflected in the fact that amici curiae briefs have been filed, all in support of respondent, by 81 companies writing automobile insurance in California, another by an attorney representing the California Association of Insurance Agents, the Insurance Brokers Society of Soutern California, and The Society of Insurance Brokers, while still another on behalf of The National Association for the Advancement of Colored People. These briefs, as well as the excellent briefs prepared by counsel for both litigants, and the two oral arguments, have been of great assistance to the court in deciding the somewhat complex questions presented.

Background of Appellant.

The California State Automobile Association was organized and incorporated in 1907 as a motor club for the purpose of advancing the interests of the motoring public. By the year 1914, many of its members requested that the Association care for their automobile insurance needs. Many members felt that the rates charged by the private companies were high and unsatisfactory. The Association, in the year mentioned, created appellant, the California State Automobile Association Inter-Insurance Bureau, in order to offer to its membership a plan of automobile insurance at a lower cost than the then prevailing rates.

The Bureau is somewhat difficult to classify. It is a reciprocal or inter-insurance exchange. It is open only to members of the Association. Its executive body, called the 'Insurance Board' is elected by the Board of Directors of the Association, and is composed of the same number of members as the board of directors of the Association. Participation by the members of the Association is voluntary. Each member desiring to join the Bureau executes a power of attorney to the same agent, authorizing him or it to enter into agreements of insurance. The members act as insurers of one another. No premiums, as such, are paid. Each member makes an annual deposit which is credited to him. The deposit fund is used to pay losses and expenses, for which purposes a proportionate amount is deducted from the deposit of each member. The operations of such organizations are regulated by sections 1280 to 1530 of the Insurance Code.

In many ways such an organization resembles a mutual insurance corporation. Its basic differences from such an organization are in mechanics of operation and in legal theory, rather than in substance. Appellant asserts that it is not a legal entity, which is undoubtedly it is not a legal entity, Obviously, it provides for a form of cooperative insurance by means of a joint venture or limited partnership. For various purposes, the law has treated such an organization as if it were a separate entity. Thus, persons, natural or corporate, holding the powers of attorney must procure a certificate of authority from the Insurance Commissioner, § 1350, Ins.Code; its finances are minutely regulated, 1370-1375, Ins. Code; it can sue or be sued in its own name, § 1450, Ins.Code; a member or subscriber cannot be sued on any obligation contained in the power of attorney until a final judgment against the inter-insurance bureau has been unsatisfied for 30 days, § 1451, Ins.Code; all moneys received from members and not returned are subject to the gross premium tax placed on insurance companies, § 1530, Ins.Code; Industrial Indem. Exchange v. State Board of Equalization, 26 Cal.2d 772, 161 P.2d 222; and for purposes of liquidation it is an entity. Mitchell v. Pacific Greyhound Lines, 33 Cal.App.2d 53, 91 P.2d 176. History of the Assigned Risk Law.

The tremendous increase in the number of motor vehicles in recent years, the great number of automobile accidents, the enormous loss to the persons injured where the person at fault is uninsured and unable to respond in damages, and the natural desire of the automobile insurance companies to keep their losses down by limiting their policies to selected risks, have created many problems which the legislatures of many states have studied and attempted to solve. Nearly every state provides for the licensing of drivers, and many for their careful examination to weed out the unfit. Some states have provided for compulsory insurance as a prerequisite to the issuance of a driver's license, while others have provided a form of limited compulsory insurance by requiring certain persons to give proof of financial responsibility before they may secure a license to drive.

The California Legislature has given much thought to this problem. As early as 1929, it adopted a statute providing for the suspension of the license to operate a motor vehicle of certain persons for various reasons, including the failure of a driver or owner to pay a final judgment of $100 or more for personal or property damage arising out of the operation of a motor vehicle. Stats. of 1929, Chap. 258, § 4, p. 560. This portion of the statute has been several times amended and has been codified in the Vehicle Code as section 410. The entire act is now found in sections 410 to 420 of the Vehicle Code. The act provides that one against whom such a judgment has been secured can lift the suspension only by paying the judgment and establishing his ability to pay claims that may arise from future accidents. Such ability to pay may be established by proof that the person involved is now insured, or he may post a surety bond, or he may deposit $11,000 in cash with the State Treasurer.

Another step in the same direction was taken in 1935. In that year, the City Carriers' Act was adopted. Stats. of 1935, Chap. 312, p. 1057, Gen.Laws, Act 5134. That act applies to highway carriers operating in any city of the state, and requires such operators to secure liability insurance or give other evidence of financial responsibility, as a condition prerequisite to securing a permit to operate trucks for hire.

These statutes had one effect that was perhaps not foreseen by the Legislature, and that was that many competent drivers, many of whom depended for a living upon driving a motor vehicle, were prevented from operating motor vehicles because of their inability to secure an insurance policy or to give other proof oftheir financial responsibility. This was particularly true of a large number of small truck operators to whom insurance companies were reluctant to issue policies and who could not make the $15,000 cash deposit required. Mahy of these operators were refused insurance not because they were bad drivers, or not because they had a bad accident history or criminal record, but...