Casualty Reciprocal Exchange v. Missouri Employers Mut. Ins. Co.

• Decision Date: 25 November 1997
• Docket Number: No. 79471,79471
• Citation: 956 S.W.2d 249
• Parties: CASUALTY RECIPROCAL EXCHANGE, Appellant, v. MISSOURI EMPLOYERS MUTUAL INSURANCE COMPANY, et al., Respondents.
• Court: Missouri Supreme Court

Page 249

956 S.W.2d 249

CASUALTY RECIPROCAL EXCHANGE, Appellant, v. MISSOURI EMPLOYERS MUTUAL INSURANCE COMPANY, et al., Respondents.

No. 79471.

Supreme Court of Missouri,

En Banc.

Nov. 25, 1997.

Richard P. Hutchison, Kansas City, for Appellant.

Jeremiah W. (Jay) Nixon, Atty. Gen., John R. Munich, Deputy Atty. Gen., Michael L. Boicourt, Gary L. Gardner, Laura M. Vogel, Asst. Attys. Gen., Jefferson City, Douglas S. Laird, W. Russell Welsh, Kansas City, Thomas W. McCarthy, III, James Owen, Chersterfield, for Respondents.

John E. Bardget, Sr., James B. Deutsch, Matthew D. O'Leary, St. Louis, R. Christoper Abele, Diane A. Gibson, Kansas City, for amicus curiae.

COVINGTON, Judge.

Appellant, Casualty Reciprocal Exchange (CRE), challenges the constitutionality of the Missouri Employers Mutual Insurance Company Act (Act), which created respondent, Missouri Employers Mutual Insurance Company (MEM). Sec. 287.900 et seq. ¹ CRE claims that MEM is a private corporation that was created by a special law in violation of the Missouri Constitution. Mo. Const. art. XI, sec. 2; Mo. Const. art. III, secs. 40(28), 40(30). CRE also alleges that the Act's five million dollar loan authorization, secs. 287.919.1, 287.690.2, and its authorization of MEM's revenue bonds, sec. 287.919, violate the Missouri Constitution. Mo. Const. art. III, secs. 38(a), 39(1), 37. CRE further maintains that the Act infringes upon CRE's rights to equal protection and deprives CRE of its property without due process of law.

The trial court granted respondents' (CRE also named the Missouri Director of Insurance (Director) in the action) motion for summary judgment concluding that because MEM is a public corporation, the Act does not violate the Missouri Constitution. The trial court also determined that the Act did not violate CRE's right to equal protection or deprive it of its property without due process. The judgment is affirmed.

I.

The facts, as noted by the trial court, are presented here in detail. In 1992, the Missouri General Assembly created the Workers' Compensation Labor/Employer Advisory Committee (the Advisory Committee) to examine the workers' compensation system in Missouri and to assess the system's ability to ensure employers of stable, fair, and predictable workers' compensation costs. According to the legal file, in its majority recommendations the Advisory Committee reported the following finding:

Currently, employers may self insure their workers' compensation liability or insure such liability through a private carrier.

For those employers unable to obtain insurance in the voluntary market, they are placed in the residual market. Many times employers, especially small employers, and particularly small employers in the residual market, do not receive proper and adequate service from their insurance carriers. A competitive state fund, run like a mutual insurance company, could take a position of leadership in the provision of service to employers and injured workers in the reform and improvement of the workers' compensation system.

The Advisory Committee then made the following recommendation, as noted in the legal file:

The General Assembly should establish a state mutual insurance company (the fund), which would not be a state agency, that will provide employers a competitive source of workers' compensation insurance.

In response to the recommendations of the Advisory Committee, the general assembly enacted the legislation, in 1993, that created MEM. The Act is based on a "model" law developed by the American Association of State Compensation Insurance Funds that addresses competitive state workers' compensation funds. The stated purpose of MEM is to insure Missouri employers against liability for workers' compensation, occupational disease, and employers' liability coverage. Sec. 287.902.

The Act states that MEM is "an independent public corporation" that should be organized and operated as a domestic mutual insurance company. Sec. 287.902. MEM has the powers granted a general not for profit corporation. Id. The Act mandates that MEM give preference to employers that develop an annual premium of not greater than ten thousand dollars. Id. The Act encourages MEM to use flexibility and experimentation in the development of the types of policies and coverages offered to employers, but it makes this creativity subject to the approval of the Director. Id. The Act provides for MEM's five member board of directors, sec. 287.905.1, which is vested with the power to perform all acts necessary or convenient in the administration and business of the company. Sec. 287.907.2. The Act provides that the board is initially appointed by the governor. Sec. 287.905.1. The Act allows MEM's policy holders to appoint successor board members. Id. The board members, officers, and employees of MEM are protected by official immunity. Sec. 287.909.4. The board of MEM must submit an annual, independently audited report to the governor and general assembly. Sec. 287.920.2.

The Act aids the initial capitalization of MEM by providing that the director of the division of workers' compensation may make a start-up loan to MEM of up to five million dollars. Secs. 287.690.2, 287.919.1. The Act also authorizes MEM to issue revenue bonds, payable solely from premiums received from insurance policies and other revenues generated by the company. Sec. 287.919.2. MEM is further required by the Act to set aside from these revenues an amount of money sufficient to pay the principal and interest on such bonds as they become due each year. Sec. 287.919.9. The Act authorizes the Director to exempt MEM from laws and regulations that cover private insurance carriers. Sec. 287.920.5.

The Act designates MEM as a member of, and subject to assessments from, the Missouri Property and Casualty Insurance Guaranty Association (MIGA). Sec. 287.902. MIGA's membership consists of all insurers transacting certain types of insurance business within the state. Sec. 375.772.1., .2(4), 375.773.2. CRE is also a member of MIGA.

MIGA establishes a fund from the assessments collected from its members. Sec. 375.775.1(3). MIGA uses the proceeds from this fund to pay covered claims after an insurer becomes insolvent. Sec. 375.775.1(1). To pay MIGA's obligation after an insolvency occurs, MIGA assesses member insurers separately in proportionate amounts according to the type of insurance account in which they participate. Sec. 375.775.1(1),(3). The Act, therefore, would cause the members of MIGA, such as CRE, to bear the responsibility if MEM became insolvent. Sec. 287.902. Further details are presented below regarding the various provisions that limit the responsibility of MIGA's members should MEM become insolvent.

II.

CRE contends that the Act violates the Missouri constitutional provisions that prohibit creating corporations by special law and granting a corporation special or exclusive privileges and exemptions where a general law can be made applicable. See Mo. Const. art. XI, sec. 2; Mo. Const. art. III, secs. 40(28), 40(30). The dispositive issue for several of CRE's points on appeal is whether MEM is a public corporation. If MEM is a public corporation, then CRE's arguments that the Act violates the Missouri Constitution's special law prohibitions and CRE's constitutional challenges regarding the financing aspects of the Act are not meritorious.

The constitutional prohibitions against creating corporations by special law and against granting corporations special or exclusive privileges and exemptions where a general law can be made applicable do not apply to public corporations. See City of Webster Groves v. Smith, 340 Mo. 798, 801, 102 S.W.2d 618, 619 (1937) (holding that an act imposing a special excise tax on 'corporations' was not applicable to a municipal corporation engaged in the distribution and sale of water); State ex rel. Highway Comm'n v. Bates, 317 Mo. 696, 705, 296 S.W. 418, 422 (banc 1927) overruled on other grounds 850 S.W.2d 100 (Mo. banc 1993)(finding the State Highway Commission to be a public corporation, though possessing many attributes of a private corporation, and not in violation of the predecessor to article XI, section 2, though created by special law); In re East Park Dist. of Kansas City, 361 Mo. 829, 832, 237 S.W.2d 118, 120 (banc 1951)(interpreting the predecessor to article XI, section 2 to apply only to private or business corporations and not municipal corporations).

Because corporations can be classified generally as public or private, this Court noted in Smith, when analyzing a municipal corporation, that "where the term 'corporation' is used in our Constitution it uniformly refers to private or business organizations of individuals," not to public corporations. Smith, 340 Mo. at 801, 102 S.W.2d at 619; see also Spitcaufsky v. Hatten, 353 Mo. 94, 132, 182 S.W.2d 86, 109 (banc 1944), overruled on other grounds, 555 S.W.2d 293 (Mo. banc 1977)(finding that the term "corporation" as used in the Missouri constitution refers only to private corporations as distinguished from those that are public).

To decide if the Act violates the special law prohibitions of the Missouri Constitution, therefore, this Court must first decide whether MEM is a public corporation. The issue of whether an organization constitutes a public entity, or public corporation, is one that has not previously been directly addressed by this Court. There is substantial authority, however, to provide guidance.

According to this Court's commentary on the concept in Bates, a public corporation is an entity having the powers of a corporation, established and controlled by the state for a public purpose. Bates, 317 Mo. at 701, 296 S.W. at 420. Recently, this Court further and thoroughly developed the indicia of a public entity/public corporation in Stacy v. Truman Medical Center, 836 S.W.2d 911, 917 (Mo. banc 1992). In Stacy, this Court was asked to determine whether Truman...