Intermountain Lloyds v. Diefendorf

• Decision Date: 30 November 1931
• Docket Number: 5759
• Citation: 5 P.2d 730,51 Idaho 304
• Court: Idaho Supreme Court
• Parties: INTERMOUNTAIN LLOYDS, an Unincorporated Association of Individuals Engaged in Insurance Business, THE ASSOCIATED UNDERWRITERS' CORPORATION, a Utah Corporation, and R. G. ABBEY, Suing on His Own Behalf and on Behalf of All Other Members of Said INTERMOUNTAIN LLOYDS, Respondents, v. BEN DIEFENDORF, as Commissioner of Finance of the State of Idaho, and WARREN BAKES, as Director of Insurance of the State of Idaho, Appellants

5 P.2d 730

51 Idaho 304

INTERMOUNTAIN LLOYDS, an Unincorporated Association of Individuals Engaged in Insurance Business, THE ASSOCIATED UNDERWRITERS' CORPORATION, a Utah Corporation, and R. G. ABBEY, Suing on His Own Behalf and on Behalf of All Other Members of Said INTERMOUNTAIN LLOYDS, Respondents, v. BEN DIEFENDORF, as Commissioner of Finance of the State of Idaho, and WARREN BAKES, as Director of Insurance of the State of Idaho, Appellants

No. 5759

Supreme Court of Idaho

November 30, 1931

INSURANCE-UNINCORPORATED FIRE INSURANCE COMPANIES-RIGHT TO DO BUSINESS WITHIN STATE.

1. Public interest is so affected by insurance business that private right of contract must be subjected to police power of state (C. S., secs. 4942, 4950).

2. Legislature under its protective or police power may confine insurance business to corporations (C. S., secs. 4942, 4950).

3. Unincorporated fire insurance association having limited liability and other features of corporations held within Constitution prohibiting legislature from giving foreign companies greater rights than those of domestic companies (C S., sec. 4950; Laws Utah 1929, chap. 85; Const., art. 11 secs. 10, 16).

4. Statute authorizing foreign insurance companies to enter state held not to include unincorporated companies lacking ordinary incorporation articles or charter showing corporate power to write insurance (C. S., secs. 4942, 4950; Laws Utah 1929, chap. 85; Const., art. 11, secs. 10, 16).

APPEAL from the District Court of the Third Judicial District, for Ada County. Hon. Chas. F. Koelsch, Judge.

Action for a writ of mandate to compel the Commissioner of Finance and the Director of Insurance to grant a permit to engage in the business of fire insurance. Judgment for plaintiff. Reversed.

Judgment reversed, with directions. Costs to appellants. Petition for rehearing denied.

Fred J Babcock, Attorney General, and Sidman I. Barber, Assistant Attorney General, for Appellants.

The legislature may lawfully confine the business to corporations. (German Alliance Ins. Co. v. Lewis, 233 U.S. 389, 34 S.Ct. 612, 58 L.Ed. 1011, L. R. A. 1915C, 1189; National Union Fire Ins. Co. v. Wanberg, 260 U.S. 71, 43 S.Ct. 32, 67 L.Ed. 136; Commonwealth v. Vrooman, 164 Pa. 306, 44 Am. St. 603, 30 A. 217, 25 L. R. A. 250; State v. Ackerman, 51 Ohio St. 163, 37 N.E. 828, 24 L. R. A. 298; People v. Loew, 19 Misc. 248, 44 N.Y.S. 42; Weed v. Bergh, 141 Wis. 569, 124 N.W. 664, 25 L. R. A., N. S., 1217; State ex rel. Goodsill v. Woodmansee, 1 N.D. 246, 46 N.W. 970, 11 L. R. A. 420.)

If the plan of Intermountain Lloyds is not that of a corporation, as an association its members are liable as and bear the relation to third parties of partners, and cannot write insurance because of limited liability. (C. S., secs. 5757, 5784; 1 Joyce on Insurance, 788; Houghton v. Grimes, 100 Vt. 99, 135 A. 15; Stroud Motor Mfg. Co. v. Gunzer, (Tex.) 240 S.W. 644; Rodgers v. Lincoln Hospital, 239 Mich. 329, 214 N.W. 88; 20 R. C. L. 1061, sec. 306; 47 C. J. 1274; Tracy v. Tuffly, 134 U.S. 206, 10 S.Ct. 527, 33 L.Ed. 879.)

Clarence T. Ward, for Respondents.

Intermountain Lloyds is an organization which not only may be recognized as an insurance principal but is contemplated by the statutes of this state governing insurance companies doing business within this state and should be granted a certificate of authority to transact the insurance business applied for. (C. S., secs. 4939, 4944, 4946, 4950, 4977, 4978, 4980, 5021, 5023, 5024, 5025, and 5026; State ex rel. Intermountain Lloyds v. Porter, 88 Mont. 347, 294, P. 363; Hoadley v. Purifoy, 107 Ala. 276, 18 So. 220, 30 L. R. A. 351; State v. Board Ins. Commrs., 37 Fla. 564, 20 So. 772, 33 L. R. A. 288; Sun Ins. Office v. Merz, 63 N. J. 365, 43 A. 693; People v. Loew, 23 Misc. 574, 52 N.Y.S. 799; State v. Stone, 118 Mo. 388, 24 S.W. 164, 25 L. R. A. 243.)

The inherent rights possessed by the individual to establish and conduct any business not in itself unlawful cannot be destroyed or abridged. (Idaho Const., art. 1, sec. 1; sec. 1 of the Fourteenth Amendment, Const. of the United States; State v. Scougal, 3 S.D. 55, 44 Am. St. 756, 51 N.W. 858, 15 L. R. A. 477; First State Bank v. Schollenberger, 172 F. 999; Slaughterhouse Cases, 16 Wall. 36, 21 L.Ed. 394; State v. Armstrong, 38 Idaho 493, 33 A. L. R. 835, 225 P. 491; Hoadley v. Purifoy, supra.)

MCNAUGHTON, J. Lee, C. J., and Givens and Varian, JJ., concur. Budge, J., sat at the hearing but took no part in this decision.

OPINION

MCNAUGHTON J.

Intermountain Lloyds, an association of underwriters doing business as a fire insurance company in Utah seeks a certificate of authority to engage in the business of writing fire insurance in this state. The Commissioner of Finance and Director of Insurance have refused to consider the application on the ground that the plan or set-up of this association does not afford such a business entity as may lawfully do a fire insurance business in this state. Thereupon this action for a writ of mandate was begun to compel the defendant officers to consider the application.

In the lower court a demurrer was interposed which was overruled by the trial court and upon the defendants' electing to stand upon the demurrer, judgment was entered. The judgment, instead of directing the department officials to entertain the application of plaintiffs as by a lawful applicant, directs the issuance of the writ.

The defendants appeal. The main contention is that the court erred in overruling the demurrer and granting any relief. A secondary claim is that the court erred in the judgment entered because instead of requiring the officials to act in the premises, the judgment acts for them in relation to a matter not purely ministerial but involving discretion.

Intermountain Lloyds is an aggregation of individuals not incorporated, organized under chapter 85, Utah Session Laws of 1929. The Utah law expressly authorizes associations of individuals, partnerships and corporations designated as underwriters, to engage in the business of insurance in that state, as insurers on the Lloyds plan. By this plan such underwriters may deposit securities for the protection of the policy-holders and operate through an attorney-in-fact as an association of individuals not incorporated.

The powers of the association are derived solely from the power of attorney subscribed by the underwriters. Pursuant to the power of attorney each individual has deposited securities with the insurance commissioner of Utah. These securities are liable proportionately for all losses on insurance policies written on behalf of the association. The securities remain the property of the member depositing them. Liability is limited strictly to the securities deposited and this liability is several, not joint. The securities deposited by each member are security only for his proportion of any loss. The amount of loss chargeable against each member or his securities only bears the same ratio to the total loss as the amount deposited by him bears to the deposits.

On the merits, the state raises two main questions. (1) Whether the plan of association effected which constitutes Intermountain Lloyds is a business entity authorized to enter the state and do a fire insurance business within the purview of our statutes regulating fire insurance companies or principals. (2) Whether its deposit of securities pursuant to and as authorized by the power of attorney complies with our statutory requirements for the deposits of insurance companies applying to do insurance business in this state.

The question presented are of first impression in this court. The matter of the right of this same association to a certificate authorizing it to write fire insurance in Montana was before the supreme court of that state in the case of State ex rel. Intermountain Lloyds v. Porter, 88 Mont. 347, 294 P. 363, but the question raised was quite different from either question raised here. It was claimed in that case that the plaintiff could not qualify for want of capital stock as required by the insurance laws of Montana. The court held that the securities deposited by the underwriters are in reality capital stock and satisfy the requirements of the Montana statutes.

Inasmuch as the questions here arise out of the requirements of local statutes, decisions in other jurisdictions not dealing with like or similar statutes are of little or no assistance.

The right to carry on the business of insurance in this state, as in most states, is carefully regulated by statute. It is quite generally held and we hold that the public interest is so affected by the insurance business carried on in the state that private right of contract must be subjected to the police power of the state prescribing the terms and conditions on which it may be conducted and in regulating the business and all who are engaged in it. (German Alliance Ins. Co. v. Lewis, 233 U.S. 389, 34 S.Ct. 612, 58 L.Ed. 1011, L. R. A. 1915C, 1189; National Union Fire Ins. Co. v. Wanberg, 260 U.S. 71, 43 S.Ct. 32, 67 L.Ed. 136; Citizens' Ins. Co. v. Clay, 197 F. 435; State ex rel. National Mutual Ins. Co. v. Conn, 115 Ohio St. 607, 50 A. L. R. 473, 155 N.E. 138.)

Pursuant to this power the legislature has...