Lutheran Mut. Aid Soc. v. Murphy

• Decision Date: 21 September 1937
• Docket Number: 44016.
• Citation: 274 N.W. 907,223 Iowa 1151
• Parties: LUTHERAN MUT. AID SOC. v. MURPHY, Commissioner of Insurance, et al.
• Court: Iowa Supreme Court

274 N.W. 907

223 Iowa 1151

LUTHERAN MUT. AID SOC. v. MURPHY, Commissioner of Insurance, et al.

No. 44016.

Supreme Court of Iowa.

September 21, 1937

Appeal from District Court, Polk County; Russell Jordan, Judge.

Defendants appeal from a decree enjoining them from collecting at tax from the plaintiff on its gross premiums under Code, § 7025 and from refusing a renewal of plaintiff's license to transact business in the State of Iowa on account of the failure of plaintiff to pay a tax on its gross premiums.

Affirmed.

John H. Mitchell, Atty. Gen., Don W. Burington, Asst. Atty. Gen and Lehan T. Ryan, of Des Moines, for appellants.

Hagemann, Hagemann & Hagemann, of Waverly, and Carr, Cox Evans & Riley, of Des Moines, for appellee.

STIGER, Justice.

The plaintiff was organized in 1896 as an assessment insurance company, and in 1916, the charter being about to expire, it incorporated under the provisions of chapter 402 of the Code which provides for the organization and regulation of fraternal beneficiary associations. Code, § 8777, defines a fraternal beneficiary association as follows:

" 8777. Definition. A fraternal beneficiary association is hereby declared to be a corporation, society, or voluntary association, formed or organized and carried on for the sole benefit of its members and their beneficiaries, and not for profit, and having a lodge system, with ritualistic form of work and representative form of government."

Code, § 8779, contains the following provisions:

" 8779. Exclusive religious orders. Beneficiary societies or associations, whose membership is confined to the members of any one religious denomination, shall only be required to have a branch system and a representative form of government. Such beneficiary societies or associations shall be governed by the provisions of this chapter, and shall be exempt from the provisions of the statutes of this state, relating to life insurance companies, to the same extent as fraternal beneficiary associations.

Article 3 of plaintiff's articles of incorporation provides that this corporation is organized, and its business shall be carried on for the sole benefit of its members and their beneficiaries, and not for profit, and it shall have a local branch system and representative form of government, and its membership is and shall be confined exclusively to members of one religious denomination, to-wit: The Evangelical Lutheran Church. The corporation may create, hold, and manage funds for the fulfillment of its certificates, and for such other purposes as are authorized by the Society, not in violation of any statute."

Article 8 provides " assets representing the reserves shall at all times be held for the fulfillment of promises or benefits under the certificates issued by the society."

Article 9 reads as follows: " Whenever five (5) or more members live in the same locality, they shall be organized into a local branch. Each local branch shall not less than ten (10) days prior to any regular or special meeting of the Society, elect one (1) delegate and alternate to such meeting. Each delegate shall have one vote in the meeting of the corporation, and must be a member in good standing of a Lutheran church, accepting as its Creed the Unaltered Augsburg Confession."

Article 10 requires that " regular triennial meetings of the corporation shall be held, in which said meeting each officer, director, and delegate shall have one vote."

The by-laws authorize the local branches to investigate the eligibility of applicants and to admit them to membership by a majority vote of the members present and voting in the meeting.

The evidence shows (1) that the membership in the society was confined to members of the Lutheran Church; (2) that it had a branch system comprising 1,100 branches; (3) that it had a representative form of government; (4) that it was organized and carried on for the sole benefit of its members; and (5) that it was not organized for profit. The plaintiff was a fraternal benefit association as defined by Code, §§ 8777 and 8779.

After incorporating under chapter 402 in 1916, the plaintiff paid the annual fee for a permit to transact business required by section 8808 and received annually until 1935 a permit from the commissioner of insurance to transact the business of a fraternal beneficiary association. Since 1922 the plaintiff has been collecting from its members for insurance upon a level premium legal reserve basis. Code, § 8779, does not require the plaintiff to have a lodge system nor is it required to maintain charitable and benevolent activities or institutions.

Code, § 7025, provides for the taxation of domestic insurance companies. The material part of this section is as follows:

" 7025. Domestic companies-tax on gross premiums . Every insurance corporation or association of whatever kind or character, organized under the laws of the state of Iowa, not including county mutuals or fraternal beneficiary associations, which county mutuals and fraternal beneficiary associations are not organized for pecuniary profit, shall, on or before the first day of March of each year, pay to the treasurer of state a sum equivalent to one per cent of the gross receipts from premiums, assessments, fees, and promissory obligations required by insurance contracts which are received during the next year preceding the first day of January last past."

In March, 1926, the commissioner of insurance served a tax notice on the plaintiff claiming a tax was due the state under the provisions of section 7025 in the sum of $2971.27.

Plaintiff brought this action to enjoin and restrain the defendants from the collection of the tax on gross premiums under section 7025 and for an order directing the insurance commissioner of the State of Iowa to issue a renewal of its license in due course. A decree was entered granting the plaintiff the relief for which it prayed.

The nature of the defense to the action is: " The defendants deny that the mere formal workings of the plaintiff or its name determine its true status, but alleges that the character of the business transacted by the plaintiff is the true test and that by this test the plaintiff was not being operated and carried on during the year 1935 as a fraternal beneficiary association within the meaning of chapter 402 of the Code of Iowa, and is, therefore, not entitled to the exemption from...