Lewis v. Independent School Dist.

• Decision Date: 23 January 1941
• Docket Number: No. 3769.,3769.
• Citation: 147 S.W.2d 298
• Parties: LEWIS v. INDEPENDENT SCHOOL DIST. OF CITY OF AUSTIN et al.
• Court: Texas Court of Appeals

147 S.W.2d 298

LEWIS v. INDEPENDENT SCHOOL DIST. OF CITY OF AUSTIN et al.

No. 3769.

Court of Civil Appeals of Texas. Beaumont.

January 23, 1941.

Rehearing Denied February 5, 1941.

Appeal from Travis County Court; Geo. S. Matthews, Judge.

Action by C. H. Lewis against the Independent School District of the City of Austin and others for an injunction against purchase of a fire insurance policy by defendant district. From a judgment denying an injunction, plaintiff appeals.

Affirmed.

Hardy Hollers, of Austin, for appellant.

J. M. Patterson, Black, Graves & Stayton, and J. Harris Gardner, all of Austin, and Brown, Carlson, Kiefer & Kunke, of Chicago, Ill., for appellees.

WALKER, Chief Justice.

The simple question presented by this appeal is whether appellee, the Independent School District of the City of Austin, incorporated under the laws of this state as an independent school district, with the statutory board of trustees and other officers, can legally purchase and hold the policy of fire insurance issued to it by the Millers Mutual Fire Insurance Company, legally incorporated under the laws of Texas. The action is by appellant, C. H. Lewis, in his capacity of a tax paying citizen, a resident of the School District, to enjoin appellee from consummating the purchase of the insurance policy. The amount of the policy premium was $264; the insurance policy had been issued and delivered to the school district, but the premium had not been paid. On trial to the court without a jury, on an agreed statement of facts, judgment was rendered denying appellant's prayer, from which he prosecuted his appeal to the Austin Court of Civil Appeals. The case is on our docket by order of transfer by the Supreme Court.

Appellee, the School District, contracted for this policy of insurance under the provisions of article 4860a—8, Vernon's Ann. Civ.St.: "Any public or private corporation, board or association in this State or elsewhere may make application, enter into agreements for and hold policies in any such mutual insurance company. Any officer, stockholder, trustee, or legal representative of any such corporation, board, association or estate may be recognized as acting for or on its behalf for the purpose of such membership, but shall not be personally liable upon such contract of insurance by reason of acting in such representative capacity. The right of any corporation organized under the laws of this State to participate as a member of any such mutual insurance company is hereby declared to be incidental to the purpose for which such corporation is organized and as much granted as the rights and powers expressly conferred." Clearly, under the provisions of this statute the School District had the right to contract with the Millers Mutual Fire Insurance Company for the policy in issue. Appellant recognizes this as a proper construction of article 4860a—8, but it is his contention that this article of the statute contravenes the following provisions of our State Constitution: Vernon's Ann.St. Sec. 3 of Art. 11: "No county, city, or other municipal corporation shall hereafter become a subscriber to the capital of any private corporation or association, or make any appropriation or donation to the same, or in anywise loan its credit; but this shall not be construed to in any way affect any obligation heretofore undertaken pursuant to law." Section 52 of Art. 3: "The Legislature shall have no power to authorize any county, city, town or other political corporation or subdivision of the State to lend its credit or to grant public money or thing of value in aid of, or to any individual, association or corporation whatsoever, or to become a stockholder in such corporation, association or company."

The courts will not strike down as unconstitutional an act of the Legislature unless the Constitution, considered in the light of the facts of the case at bar, clearly forbids what the Legislature had done. Texas National Guard Armory Board v. McCraw, Attorney General, 132 Tex. 613, 126 S.W.2d 627.

We take the following summary of the controlling facts from appellees' brief:

"The management of the public free schools of the City of Austin is by law placed in its board of trustees, consisting of seven members, and under the provisions of Article 2827, R.S.1925 [Vernon's Ann. Civ.St. Art. 2827], such board is expressly authorized to pay insurance premiums out of local school funds from district taxes, tuition fees of pupils and other local sources, and it had, at the time the insurance policy here involved was written and delivered to it, ample funds from such sources to pay the premium of $264.00, which is the standard premium determined by rates fixed by the Board of Insurance Commissioners for a similar policy of fire insurance, whether issued by a mutual company or a stock company. This policy of insurance is nonassessable. No further payment can be exacted.

"The Millers Mutual Fire Insurance Company of Texas is a mutual fire insurance corporation, originally chartered as such by the State of Texas on February 28, 1898. Its charter provides that the corporation is organized for the purpose of `the insuring of the property of its members in this State and in any other State or States of the United States of America, against loss by fire,' and that the corporation `shall have no capital stock.'

"Its by-laws provide that all policies shall be issued on the participating plan; that each person, firm or corporation having a policy in the company `shall be a member thereof during the life of his policy, and no longer,' and shall be entitled to one vote regardless of the amount of insurance or the number of policies held by him; that the management of the company shall be in charge of a Board of Directors to be elected annually by a majority vote of the members present or represented by proxy; that the liability of each policyholder is limited to and determined to be the amount of deposit premium fixed and specified in his policy; that the deposit premium shall be paid by the policyholder upon the issuance of the policy, and will be returned to the policyholder, upon termination of the policy, after deducting therefrom the amount due or accrued from such policyholder, and that all policies issued should be subject to the conditions of such by-laws.

"The by-laws also provide for the creation of a permanent guaranty fund of $200,000.00 over and above all legal reserves and other liabilities, `for the greater protection of this company's policyholders,' and the directors may also create and maintain against the contingency of excessive loss in any year such surplus as they may deem expedient; but `no member, while this company continues to transact business, shall ever be entitled to receive any portion of such funds except in payment of losses.'

"The appellee mutual insurance company has a deposit of securities with the State Treasurer of Texas in the amount of $200,000.00; it is licensed by the Texas Insurance Department as a mutual fire insurance company, and under the law of this State such companies when they have a surplus in excess of $100,000.00 can issue a nonassessable policy. As of December 31, 1939, this company owned assets of $2,153,053.04 and had a net surplus, over and above all legal reserves and other liabilities, of $1,140,066.93, and since its surplus is far in excess of $100,000.00 it is legally authorized to issue nonassessable policies.

"The policy involved in this case is non-assessable and contains excerpts from the by-laws evidencing such limit of liability. It was issued for the stipulated premium of $264.00, which is the amount of premium determined by the premium rates fixed and promulgated by the Board of Insurance Commissioners, and is exactly equivalent to the premium that would be exacted and paid on the same policy if issued by a stock fire insurance company.

"The Millers Mutual Fire Insurance Company of Texas has been issuing fire insurance policies to public corporations (counties, cities, towns, independent and common school districts) for more than 20 years. At all times during such time the company has had outstanding fire insurance policies held by such corporations. It now has such policies held by more than 50 of such public corporations, and writes about 50% of all mutual fire insurance held by such Texas counties, cities, towns and schools.

"The participating plan upon which the policies of the company are issued enables its policyholders to receive insurance protection at a saving over the standard rate. The unused portion of the deposit premiums of policyholders is returned to them pro rata on the termination of their policies. The company was organized in 1898 and up to January 1, 1940, it had collected a total of $21,252,975 in deposit premiums and had returned to its policyholders $6,282,432 in unused premiums. The substantial savings in the cost of insurance carried in The Millers Mutual Fire Insurance Company is evident. The anticipation of a very probable saving in insurance costs for the school districts was one of the reasons why the school board elected to insure in the mutual company."

On the following propositions, pertinent to the facts of this case, Article 4860a—8 is not unconstitutional:

(1) By purchasing the policy of fire insurance and by contracting to pay the premium in the amount of $264, the School District did not make a loan of its credit to the Millers Mutual Fire Insurance Company. Unless prohibited by statute, mutual insurance companies may issue policies of fire insurance for a cash premium only, without contingent liability attaching to the policyholder. Union Ins. Co. v. Hoge, 1858, 21 How. 35, 62 U.S. 35, 16 L.Ed 61; McMahon v. Cooney, 1933, 95 Mont. 138, 25 P.2d 131; Spruance v. Farmers' & Merchants' Ins. Co., 1886, 9 Colo. 73, 10 P. 285; Patrons' Mut. F. Ins. Co. v. Brinker, 1926, 236 Mich. 367, 210 N.W. 329; State v. Manufacturers' Mut....