Lawrence v. Schellstede

Decision Date19 January 1960
Docket NumberNo. 38318,38318
Citation348 P.2d 1078,1960 OK 10
PartiesA. Jackson LAWRENCE, Auditor of the City of Tulsa, Oklahoma, Plaintiff in Error, v. John E. SCHELLSTEDE, Defendant in Error. R. S. HUFFMAN, Intervener, Plaintiff in Error, v. John E. SCHELLSTEDE, A. Jackson Lawrence, City Auditor of the City of Tulsa, and The City of Tulsa, a municipal corporation, Defendants in Error.
CourtOklahoma Supreme Court

Syllabus by the Court

1. Where a municipality, acting by the through its governing board, contracts for a non-assessable mutual insurance policy insuring property owned by the municipality, mandamus will lie against an auditor of such municipality who refuses to receive the mutual insurance contract, audit and record the claim for premiums due and issue a warrant in payment thereof.

2. Purchase of a non-assessable participating insurance policy in a mutual insurance company by a municipality does not contravene Section 17, Article X, of the Oklahoma Constitution.

Appeal from District Court of Tulsa County; W. Lee Johnson, Judge.

This is an appeal from an order commanding the Auditor of the City of Tulsa to receive a mutual insurance contract, audit and record the claim for premium due thereon and issue appropriate warrant for payment of same. Auditor and Intervening taxpayer appeal. Affirmed.

G. M. Fuller, Oklahoma City, Gable, Gotwals & Hays, by Ellis Gable, Darven L. Brown, City Atty., Tulsa, for plaintiffs in error.

Bradford J. Williams, Fenelon Boesche, Richard B. McDermott, T. Hillas Eskridge, Franklin D. Hettinger, Donald E. Hammer, Tulsa, for defendant in error, John E. Schellstede.

IRWIN, Justice.

John E. Schellstede brought this action against A. Jackson Lawrence, Auditor of the City of Tulsa, Oklahoma, praying for a Writ of Mandamus commanding the auditor to accept delivery of an insurance policy and record the claim for the premium due and to execute and issue a warrant therefor. An alternative writ was issued and R. S. Huffman, a resident taxpayer, was permitted to intervene and the City of Tulsa was made a party defendant. Upon hearing the cause, the alternative writ of mandamus was sustained and made permanent and absolute and the auditor was commanded to receive the insurance contract, audit and record the claim of plaintiff and to execute and issue an appropriate warrant for payment of said claim. The defendant, A. Jackson Lawrence, and the intervener, R. S. Huffman, perfected their appeal from this order. The parties will be referred to by their trial court designation with intervener classified as defendant.

Pleadings

Plaintiff alleged he is engaged in the underwriting of insurance against casualty risks; that defendant, A. Jackson Lawrence, is the duly elected, qualified and acting Auditor of the City of Tulsa. That on December 31, 1957, the City of Tulsa, acting by and through its Mayor and Commissioners, contracted with plaintiff to buy insurance in the amount and upon the terms and conditions set forth in the insurance policy attached as exhibit 'A' and agreed to pay plaintiff the sum of $218 in premiums. That the insurer is a mutual insurance company organized and existing under the laws of Illinois and licensed to do business in Oklahoma. That it has established the reserves and surplus required by law and is authorized by its charter and by-laws of Illinois and Oklahoma to issue and make non-assessable insurance contracts. That the contract of insurance and a verified claim for $218 were tendered and presented to the Auditor who refused to accept delivery of the insurance contract and file, audit or record the claim for the premium due and draw a warrant for payment thereof.

The Auditor answered that the action of the Commissioners in accepting the policy is invalid, unenforceable, outside the authority of the Commissioners, and contrary to Sections 15 and 17, Article X, of the Constitution of the State of Oklahoma; that the contract of insurance shows on its face the City of Tulsa, as a member is part owner of the insurer and that such is contrary to the Constitution of the State of Oklahoma.

The intervening taxpayer pleaded substantially the same as the Auditor and filed a cross petition, adopting all the allegations of the Auditor's answer and prayed for an injunction against the plaintiff and the defendants from carrying out the purported contract of insurance.

The City of Tulsa filed an answer to the cross petition of the intervener in the form of a general denial.

Facts

All facts necessary to the determination of the action were stipulated by the parties, leaving only a question of law to be resolved by the trial court. However, for a better understanding of the contentions of the parties and the ultimate conclusion reached herein, it is necessary to set out certain provisions of the contract of insurance and of the by-laws of the insurer, attached to and made a part of the stipulation.

The contract of insurance contains the following provisions:

'item 3. Policy period. From noon of November 25, 1957 to noon of November 25, 1960.

* * *

* * *

'item 6. Policy premium--$218.00

* * *

* * *

'17. Mutual Policy Conditions. This is a perpetual mutual corporation owned by and operated for the benefit of its members. This is a non-assessable, participating policy under which the Board of Directors in its discretion may determine and pay unabsorbed premium deposit refunds (dividends) to the assured.'

The By-Laws of the insurance company contain the following provisions:

Article 1, Section 1.

'Each policyholder of the company * * * shall be a member of the Company, such membership to begin with the effective date of the policy and to continue until the termination date or cancellation date of the policy, whichever occurs first. * * *'

Article V, Section 2.

'Policies of insurance shall be liable to assessment or shall be non-assessable in accordance with their provisions. There shall be no liability to assessment under any policy which does not by its terms plainly state such liability, * * *'.

There was printed on the back of the policy of insurance, the following: 'To Our Policyholders: 'Lumbermens' is your company. By virtue of this policy you have become a member and owner of this mutual insurance corporation.'

Contentions

The defendants, being the Auditor and intervening taxpayer, contend the City of Tulsa may not become an owner of a foreign mutual insurance corporation; that the City, being a member of a mutual insurance corporation, would be engaged in the business of insuring risks on property, which it has no power to do; that the statutory provisions authorizing a unit of government to be a member of a mutual insurer is unconstitutional; that the money sought to be collected herein is not for a public purpose.

The plaintiff contends the City of Tulsa does not become an owner in a mutual insurance corporation and does not become an insurer of risks on property; that the Legislative enactment authorizing such insurance contracts is constitutional.

Issue

May a municipality of this state insure its property under a fixed premium, non-assessable contract of insurance with a mutual insurance association?

Conclusion

The determination of this issue depends upon the construction of the contract of insurance in light of the relationship of the parties and upon the application of certain constitutional and statutory provisions of the State of Oklahoma relating to the power and authority of a municipality to insure its property with a mutual casualty insurance company. Defendants contend that under Sections 15 and 17 of Article X, of the Constitution, a municipality is precluded from entering into such a contract.

Section 15, Article X, of the Constitution, provides:

'The credit of the State shall not be given, pledged, or loaned to any individual, company, corporation, or association, municipality, or political subdivision of the State; nor shall the State become an owner or stockholder in, nor make donation by gift, subscription to stock, by tax or otherwise, to any company, association, or corporation.'

In Fretz v. City of Edmond, 66 Okl. 262, 168 P. 800, 804, L.R.A.1918C, 405, involving the right of the City of Edmond to donate to Central State Normal School, located in said City, 2,400,000 gallons of water annually, free of charge, it was contended such donation was in violation of Section 15, supra. In this case we said:

'It is finally urged that the action of the board is in contravention of section 15 of article 10, of the Constitution. That section, however, is an inhibition upon the state, and...

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