Fireman's Fund Ins. Co. v. Arizona Ins. Guaranty Ass'n, 1

• Decision Date: 21 November 1974
• Docket Number: No. 1,CA-CIV,1
• Citation: 22 Ariz.App. 453,528 P.2d 839
• Parties: FIREMAN'S FUND INSURANCE COMPANY, a corporation, et al., Appellants, v. ARIZONA INSURANCE GUARANTY ASSOCIATION, a non-profit corporation, et al., Appellees. 2038.
• Court: Arizona Court of Appeals

Page 839

528 P.2d 839

22 Ariz.App. 453

FIREMAN'S FUND INSURANCE COMPANY, a corporation, et al., Appellants, v. ARIZONA INSURANCE GUARANTY ASSOCIATION, a non-profit corporation, et al., Appellees.

No. 1 CA-CIV 2038.

Court of Appeals of Arizona, Division 1, Department A.

Nov. 21, 1974.

Rehearing Denied Jan. 13, 1975.

Snell & Wilmer, by Mark Wilmer, Bruce Norton, Thomas J. Reilly, Phoenix, for appellants

Stockton & Hing, by Robert Ong Hing, Phoenix, for appellee Arizona, Ins. Guaranty Ass'n.

N. Warner Lee, Atty. Gen., by Fred W. Stork, III, Nicholas C. Guttilla, Phoenix, for appellee Arizona Department of Insurance.

OPINION

DONOFRIO, Presiding Judge.

Plaintiffs-appellants have instituted this action to challenge the constitutionality of Article VI, Chapter III, Title 20, Arizona Revised Statutes, known as the 'Arizona Insurance Guaranty Act', herein referred to as the 'Act'. The trial court found the Act to be constitutional.

The Act is based upon the National Association of Insurance Commissioners State Post Assessment Insurers Guaranty Association Model Bill adopted by the National Association of Insurance Commissioners (N.A.I.C.). Appoximately 40 states have enacted the N.A.I.C. model bill into law. ¹ Prior to the enactment of the legislation there was a nationwide and statewise call for protective legislation to prevent hardship on individuals who were insured by companies which became insolvent. The problem was most prevalent in the area of fire and casualty insurance which includes automobile liability insurance. Policyholders were left with unpaid claims and no protection was provided to policyholders of said companies against third-party claims. The principal aim as stated in the Act itself under the heading Purpose of Act is to '. . . avoid financial loss to claimants or policyholders because of the insolvency of an insurer.' The general format of the legislation was the creation of a statutory association consisting of all insurers authorized to transact business in the state in the designated insurance lines. Assessments on said member insurers under the Act are made after the occurrence of an insolvency and after a determination as to the amount of losses or claims anticipated.

Appellant challenges the Act on four constitutional grounds.

I. DOES THE ACT CONTRAVENE ARTICLE XIV, SECTION II OF THE ARIZONA CONSTITUTION, A.R.S.?

Article XIV, Section II provides:

'Corporations may be formed under general laws, but shall not be created by special Acts . . .'

Article XIV, Section I provides:

'The term 'corporation,' as used in this Article, shall be construed to include all associations and joint stock companies having any powers or privileges of corporations not possessed by individuals or co-partnerships.'

Appellants argue that the Act creates a corporation which falls within this constitutional prohibition of creating corporations by special acts. Only one pertinent case in Arizona has been found interpreting this provision. In Board of Regents of University of Arizona v. Sullivan, 45 Ariz. 245, 42 P.2d 619 (1935), the Arizona Supreme Court discussed whether the Legislature could confer certain corporate powers upon the Board of Regents of the University of Arizona without violating Article XIV, Section II of the Arizona Constitution. Appellants argue that the court in upholding the power of the Legislature to clothe institutions of higher education with certain corporate powers, interpreted Article XI of the Arizona Constitution as containing a special mandate to the Legislature to enact laws for these educational institutions. Conversely, appellees argue that Board of Regents, supra, does not hold that only educational institutions are excepted from Article XIII and Article XIV, but that other exceptions exist as well. Without referring to any specific language within the opinion itself, our reading of the case cannot yield conclusively a finding that appellants' or appellees' interpretation is correct under the present circumstances. We thus find it necessary to interpret the constitutional prohibition in light of the policy meant to be served by it in connection with the purposes of the Act under consideration.

The constitutional provision prohibiting the creation of corporations by special acts is based in part on the policy of removing the danger of favoritism and corruption in the creation of corporations. Others have argued that these prohibitions are aimed at uniformity and convenience. See Fletcher, Cyclopedia of the Law of Corporations, Vol. I, §§ 169--170, pp. 663--667. The question then becomes, will the policy behind this constitutional constraint be weakened by allowing the statute to stand? We think no damage will occur.

The intent of the Legislature in passing the Act cannot be said to be granting a privilege to any group. Whether the organization be classified as an association or corporation need not be decided at this point, for the crucial inquiry is the purpose of the Act, in that the classification is unimportant if the Act has been created out of a public purpose. Whether a law is general or special is to be determined from the law itself. It is the substance of the act which determines its character. City and County of San Francisco v. Spring Valley Water Works, 48 Cal. 493 (1874).

It is stated in 82 C.J.S. Statutes § 179 at p. 296 that constitutional prohibitions against the creation of corporations or the grant of corporate powers are generally applied exclusively to private corporations, although in some jurisdictions municipal corporations are included within such provisions. See State ex rel. W. Va. Housing Development Fund v. Copenhaver, 153 W.Va. 636, 171 S.E.2d 545 (1969) where the court construed their constitutional provision prohibiting creation of a corporation by special act to apply only to private corporations and not to public corporations created for public purposes. In O'Malley v. Florida Insurance Guaranty Association, 257 So.2d 9 (Fla.1971), the Florida Supreme Court ruled that their insurance association modeled after the N.A.I.C. bill was not a psecial private corporation under their constitutional prohibition. The Florida constitutional provisions, Art. 3, Sec. 11(a)(12) reads:

'There shall be no special law or general law of local application pertaining to: . . . private incorporation or grant of privilege to a private corporation; . . .'

This similar constitutional provision, coupled with the similarity of the statutes in both Arizona and Florida, is authority for finding the creation of the association by our Legislature to be within the bounds of its authority. The Guaranty Association serves the function of fulfilling a public need without private profit. It promotes the public welfare which is within the state's police power, by protecting those who have suffered loss of insurance protection through the insolvency of their insurers. In short, it is created for the benefit of the public. Thus, it must be found that the Act because of its manifest intent does not abridge our constitutional prohibition in that it fulfills a necessary public purpose.

II. DOES THE ACT CONSTITUTE AN UNCONSTITUTIONAL DELEGATION OF LEGISLATIVE AUTHORITY?

Appellants, recognizing that the line is dim between what is a constitutional and what is an unconstitutional delegation of legislative power, State v. Phelps, 12 Ariz.App. 83, 467 P.2d 923 (1970), urges this Court to shed the light on the Act as an improper delegation. In examining the constitutionality of a statute the court follows certain guidelines. There is a presumption in favor of the constitutionality of a legislative enactment. State v. Krug, 96 Ariz. 225, 393 P.2d 916 (1964). The court must be satisfied beyond a reasonable doubt that the statute is unconstitutional, Shaw v. State, 8 Ariz.App. 447, 447 P.2d 262 (1968), and a liberal construction be utilized in construing the legislation to uphold its constitutionality. Shaw v. State, supra. Also see New Times, Inc. v. Arizona Board of Regents, 110 Ariz. 367, 519 P.2d 169 (1974). Thus, our examination begins from this basis.

We do not believe that the Act delegates unlimited regulatory power to the Association with no prescribed restraint. However, because the Association is not a state administrative agency, it is argued that the law of delegation as it applies to state administrative agencies is inappropriate as the Association is not an agency of the state. Yet, it is important to note that the Association as origanized is solely interested in pursuing a governmental purpose under the control of the Director, i.e., insuring the insurance of the public in the specified areas of the Act. ² Therefore, it can be argued that the Association is akin to an administrative agency and should be analyzed in that context. Appellants believe that such an application is inappropriate because state agencies are directly responsible and answerable to the Legislature and dependent upon the Legislature for funding; in other words, that the Association by not being an agency is absolved of accountability and therefore the issue of improper delegation should be evaluated with greater scrutiny. We do not agree.

Appellants, although arguing that the law of delegation as it applies to state administrative agencies is inappropriate, offer no alternatives for analysis. In part they rely upon State v. Marana Plantations, 75 Ariz. 111, 252 P.2d 87 (1953) for this proposition. Yet, this case defines the standards of delegation necessary for a state administrative agency. The basis of appellants' argument that a stricter test be applied as to analyzing the question of delegation is the Association's lack of accountability to the Legislature. On its face this might appear to be so, but in practical application it is not. The Legislature retains the power to terminate the Association by repealing the Act as it was formed by legislative enactment. If abuse was evident,...