Iowa Mut. Tornado Ins. Ass'n v. Timmons

• Decision Date: 20 September 1960
• Docket Number: No. 50027,50027
• Parties: IOWA MUTUAL TORNADO INSURANCE ASSOCIATION, Appellant, v. William E. TIMMONS, Commissioner of Insurance of the State of Iowa, and Farmers Mutual Reinsurance Company, Appellees.
• Court: Iowa Supreme Court

Page 209

105 N.W.2d 209

252 Iowa 163

IOWA MUTUAL TORNADO INSURANCE ASSOCIATION, Appellant, v. William E. TIMMONS, Commissioner of Insurance of the State of Iowa, and Farmers Mutual Reinsurance Company, Appellees.

No. 50027.

Supreme Court of Iowa.

Sept. 20, 1960.

Rehearing Denied Nov. 18, 1960.

Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for appellant.

Norman A. Erbe, Atty. Gen., and Leonard C. Abels, Asst. Atty. Gen., for appellee William E. Timmons.

Tomasek & Vogel, Grinnell, and Duncan, Jones, Hughes, Riley & Davis, Des Moines, for appellee Farmers Mut. Reinsurance Co.

LARSON, Chief Justice.

Although a number of questions were raised by the defendants' motion to dismiss, the three principal issues involved are, whether the state commissioner of insurance has discretion to determine when and under what circumstances a two per cent tax provided in chapter 432 of the Code, I.C.A. must be paid to the state treasurer, whether plaintiff is a proper party to prosecute this action of mandamus to compel payment of the tax, and whether plaintiff alleges facts which if proven would constitute the insurance coverage involved direct insurance and not 'reinsurance' as contemplated by our statutes. The trial court decided the first question in the affirmative, and by refusing to dismiss on the second ground apparently decided it in favor of plaintiff. It did not directly pass upon the third proposition. We disagree with the court on the first issue, agree with it on the second, and hold that under the agreement the insurance involved is not 'reinsurance.'

Plaintiff's action was commenced after the commissioner refused its request that the Farmers Mutual Reinsurance Company, hereinafter referred to as the Farmers Mutual, be required to pay a two per cent premium tax upon certain business done in Iowa, which it contended was direct insurance and not reinsurance exempt from such tax. Sections 432.1 and 515.24, Code of Iowa 1958, I.C.A.

Plaintiff's petition alleged that defendant insurance company conducts an insurance operation in Iowa in conjunction with various county mutual assessment associations writing windstorm insurance; that the Farmers Mutual enters into written contracts, terminable by either party on 90 days' notice, with county mutuals with which it expects to write windstorm insurance; that these contracts require the county mutual to cede to the Farmers Mutual all of its windstorm liability, and the company agrees automatically to reinsure these risks for the county mutual one hundred per cent immediately upon the issuance of such policies; that the Farmers Mutual collects from the county mutual a premium of $1.20 per $1,000 of insurance, and that the county mutual collects from the insured $1.50 per $1,000 of insurance per year, and retains the difference for its expenses including agents' commissions; that the county mutual issues its own five-year policy and, while it does not mention the Farmers Mutual nor reinsurance, the policy form is to be furnished by the Farmers Mutual and its use is required, together with a requirement that the windstorm policy be written in the same amount as fire insurance on the same property, and that it prohibit certain coverages and limit or restrict coverage on others; and that the Farmers Mutual disclaims all liability on forms other than those supplied by it and provides for periodic inspections by it of all risks.

It further was alleged that under the agreement the Farmers Mutual reserved the right to settle and adjust windstorm claims, that claims made to the county mutuals were to be referred to the Farmers Mutual, whose adjusters, appointed in co-operation with the county mutuals, but trained and paid by the Farmers Mutual, were to adjust and pay all losses by drafts on the Farmers Mutual kept in local mutual offices for that purpose; that no settlement or adjustment could be made except in that manner; and that the county mutuals paid nothing toward the losses.

This, we think, is sufficient to disclose the alleged operation which plaintiff claimed constituted direct insurance business, and which the Farmers Mutual claimed entitled it to exemption from the tax as bona fide 'reinsurance'. The original complaint to the commissioner also involved some arrangement by defendant insurance company to pay county mutual personnel commissions for reference of such business and payment to them of fees as adjusters, etc., which practice it was claimed fell into the category of unfair or illegal practice.

Although no hearings were set by the commissioner of insurance as provided in chapter 507B, he did conduct an investigation, and on June 19, 1958, issued a ruling which required the discontinuance of the practices of paying commissions the county mutual officers and agents for business ceded or for adjusting, the request for compulsory action by him to require payment by the Farmers Mutual of the two per cent premium tax on this insurance business was rejected. In this decision he stated he did not feel it was his duty to declare a tax due 'in the eyes of the law', and decided that on its face the transaction amounted to 'reinsurance' such as to exempt the Farmers Mutual from the tax under section 432.1, Code of 1958, I.C.A. This ruling was reaffirmed later and plaintiff's action followed.

In its amendment filed subsequent to the first dismissal, plaintiff alleged this reaffirmance amounted to an abuse of discretion and was arbitrary, capricious, and illegal. It was unsuccessful in obtaining a change in the court's decision, but in view of our holding on the other questions, this charge is not of importance here.

I. Under the well known and firmly-established rule, for the purpose of this decision all well-pleaded allegations must be taken as true. The first question to be resolved is whether the commissioner has the authority under such circumstances to determine the tax liability of the defendant insurance company.

Chapter 432, Code of 1958, I.C.A., is entitled by the code editor 'Insurance Companies Taxation', and section 432.1 provides: 'Every insurance company * * *, not including fraternal beneficiary associations county mutual associations * * * shall, at the time of making the annual statement as required by law, pay to the treasurer of state as taxes, an amount equal to the following: * * * 2. Two percent of gross amount of premiums * * * received during the preceding calendar year by every company * * * on contracts of insurance other than life for business done in this state * * *.'

Section 432.3 provides: 'At the time of paying said taxes, said companies and associations shall take duplicate receipts therefor, one of which shall be filed with the commissioner of insurance, and upon filing of said receipt, and not till then, the commissioner of insurance shall issue the annual certificate as provided by law.' (Emphasis supplied.)

On the other hand, section 515.24, Code of 1958, I.C.A., provides: 'For the purpose of determining the basis of any tax upon the 'gross amount of premiums', or 'gross receipts from premiums * * *', now or hereafter imposed upon any fire or casualty insurance company under any law of this state, such gross amount or gross receipts shall consist of the gross premiums of receipts for direct insurance, without including or deducting any amounts received or paid for reinsurance * * *.' (Emphasis supplied.)

In support of their motion to dismiss, defendants contend that discretion is vested in the commissioner to determine whether the business being conducted was direct insurance or reinsurance, and that this determination once made in good faith, and not arbitrarily, was not subject to review and direction by the courts in mandamus; that the petition shows on its face that it is an attempt to control by mandamus the exercise of a discretionary power with reference to a factual determination made by the commissioner, and that his decision was not made arbitrarily or capriciously.

Unless the statutes somehow empower the commissioner to make a final determination as to what is direct and what is reinsurance, we must hold he had no discretion, for the amount of the tax is clearly imposed by the law itself.

II. Mandamus, of course, is a special remedy and will not lie to control the discretion of an official unless by the facts alleged or shown it appears that he has acted arbitrarily or capriciously. Bankers Life & Casualty Co. v. Alexander, 242 Iowa 364, 378, 45 N.W.2d 258, 266, and cases cited therein. Section 661.1, Code of 1958, I.C.A., provides: 'The action of mandamus is one brought to obtain an order commanding an inferior tribunal, board, corporation, or person to do or not to do an act, the performance or omission of which the law enjoins as a duty resulting from an office, trust, or station.' Of course where discretion is left to the inferior tribunal or person, the mandamus can only compel it to act, but cannot control such discretion. Section 661.2, Code of 1958, I.C.A.; Bankers Life & Casualty Co. v. Alexander, supra; Woodbury County v. Talley, 147 Iowa 498, 123 N.W. 746.

The commissioner here expressed doubts as to the extent of his power, duty or discretion, in deciding whether or not the Farmers Mutual was required to pay the two per cent premium tax under its operation. In his written ruling he said: '* * * we do not feel as an administrative agency that we are authorized to make such a determination of law * * *.' (Emphasis supplied.)

On the other hand, the plaintiff insists that as the tax is provided by the statute and no power or authority is provided in the statutes for a determination of its applicability by the commissioner, mandamus is the proper remedy herein. Obviously section 432.1 of the Code, I.C.A. itself provides for the tax and also grants the exemption. We have searched the Code and find no specific language granting a discretion to anyone in this matter. We furthermore find...