Moran v. State ex rel. Derryberry, 47716

• Decision Date: 02 May 1975
• Docket Number: No. 47716,47716
• Citation: 534 P.2d 1282,1975 OK 69
• Parties: John C. MORAN et al., Appellees, v. STATE of Oklahoma ex rel. Larry DERRYBERRY, Attorney General, Appellant.
• Court: Oklahoma Supreme Court

Page 1282

534 P.2d 1282

John C. MORAN et al., Appellees, v. STATE of Oklahoma ex rel. Larry DERRYBERRY, Attorney

General, Appellant.

No. 47716.

Supreme Court of Oklahoma.

May 2, 1975.

Stipe, Gossett, Stipe & Harper by Gene Stipe, John Estes and Carl Hughes, Oklahoma City, for appellees.

Larry Derryberry, Atty. Gen., James R. Barnett, Asst. Atty. Gen., William W. Gorden, Legal Intern, for appellant.

John Christopher Sturm, Commissioner, Edmund, Sam Hill and Mary Elizabeth Cox, Oklahoma City, for State Ins. Fund, amicus curiae.

DAVISON, Justice:

State of Oklahoma, ex rel. Larry Derryberry, Attorney General (Appellant), prosecutes this appeal from a judgment enjoining the State Insurance Fund Commissioner and the Board of Managers of the State Insurance Fund from proceeding, as directed by 85 O.S.Supp.1974, §§ 152 and 153 (Senate Bill No. 726, Session Laws 1974), to liquidate assets of the State Insurance Fund to the extent of $4,000,000.00 and then deposit the proceeds in the Fund's account, to be expended only upon appropriation by the Legislature.

This action was instituted in the lower court by John C. Moran, William R. Allen, Anderson Development Company, Inc., and Lawrence Drilling Company, Inc., (Appellees), as employers in business activities subject to the Workmen's Compensation Law and insurable by the 'State Insurance Fund', and currently policyholders with the State Insurance Fund. Their action was against the State Insurance Fund Commissioner (Executive Manager of the Fund) and the Board of Managers of the Fund, to enjoin the above mentioned liquidation of assets and the subjection thereof to Legislative appropriation. The Appellant, State of Oklahoma, ex rel. Larry Derryberry, Attorney General, intervened therein under authority of 12 O.S.1971, § 1653, permitting such entry when a statute is alleged to be unconstitutional. The original defendants are not parties to this appeal. However, the State Insurance Fund by its Commissioner and attorneys appear Amicus Curiae.

The Journal Entry states the judgment was rendered when plaintiffs' (Appellees') Motion for Summary Judgment was sustained. The Journal Entry of Judgment further recites:

'That based upon the pleadings of the parties on file herein, the evidence and testimony adduced at this and prior hearings, and, the announcements of all counsels of record that there is no further evidence or testimony to be offered, the court finds that there are no facts at issue or yet to be determined.'

Included in the above enumerated factors was the evidence and testimony produced by Appellees at the hearing relative to issuance of a temporary restraining order. The Appellant produced no witnesses or evidence.

The trial court found and adjudged there 'are no excess, surplus funds in the trust funds of the State Insurance Fund,' and further that said 85 O.S.Supp.1974, §§ 152 and 153, and a companion appropriation bill (Sec. 4, of Senate Bill No. 434), infra, were unconstitutional and void on several grounds, including Art. 2, § 15, Oklahoma Constitution forbidding the passage of any law impairing the obligation of contracts.

The general proposition in this appeal concerns the authority of the Legislature to take and then appropriate, for other than Workmen's Compensation purposes, the funds or alleged surplus funds of the State Insurance Fund.

In 1974 the Legislature enacted 85 O.S.Supp.1974, §§ 152 and 153, above mentioned.

§ 152 stated the purpose of the Act was to provide for disposition and use of 'existing surplus funds of the State Insurance Fund in excess of the reserves and surplus authorized to be maintained by law.'

§ 153 directed the State Insurance Fund Commissioner with the approval of the Board of Managers of the State Insurance Fund to liquidate assets in the State Insurance Fund Workmen's Compensation Account sufficient to cause $4,000,000.00 to be transferred to the State Insurance Fund, and such funds to be expended only upon appropriation by the Legislature.

§ 4, of Senate Bill No. 434, Oklahoma Session Laws, 1974, appropriated $4,000,000.00 to the State Board of Education, 'from any monies in the State Insurance Fund' for the support of the public school activities.

The State Insurance Fund is an entity first created by an Act of the Legislature in 1933 (Laws 1933, Chap. 28, p. 58). The Act of 1933, with intervening amendments and some repealed sections, now appears in our statutes as 85 O.S.1971, §§ 1 to 151, except as § 131 was amended in 1972 to permit expansion of insurance coverage to employment subject to the Longshoremen's and Harbor Workers' Compensation Act. The Fund was created during the Great Depression to satisfy the need for Workmen's Compensation insurance for companies unable to procure coverage from private insurance companies and for employers in high risk industries.

We are confronted with the proposition of, the status of the State Insurance Fund, the legal nature of its funds, including reserve funds, and the right of the State, acting through the Legislature, to take and use these funds.

Title 85 O.S.1971, § 131, provides that the Fund shall be administered 'without liability on the part of the State beyond the amount of said Fund' (Emphasis added); that it shall be a Revolving Fund consisting of premiums received, all property and securities acquired through use of its moneys, and all interest earned upon its moneys; and that 'Said Fund shall be fairly competitive with other insurance carriers and it is the intent of the Legislature that said Fund shall become neither more nor less than self-supporting.'

§ 134 thereof provides in part that the Fund shall have power and authority to enter into contracts of insurance within prescribed limits; to reinsure any risk or any part thereof; 'To produce a Reasonable surplus to cover Catastrophe hazard.' (Emphasis added).

§ 137 thereof provides in part, that ten (10%) per centum of the premiums shall be set aside for the creation of a surplus until it amounts to $250,000.00, and thereafter five (5%) per centum of the premiums until in the judgment of the State Insurance Board 'such surplus shall be sufficiently large to cover the catastrophe hazard, And all other unanticipated losses.' (Emphasis added), and further that 'Reserves shall be set up and maintained adequate to meet Anticipated losses and to Carry all claims and policies to maturity, which reserves shall be computed in accordance with such rules as approved by the State Insurance Board.' (Emphasis added).

The 'State Insurance Board' mentioned above is now the State Board for Property and Casualty Rates. (36 O.S.1971, §§ 107, 332). It is a part of the Insurance Department of the State of Oklahoma. (36 O.S.1971, § 301).

In connection with § 137, we note that in the corresponding section in the 1933 Act (§ 7) supra, it was provided that the ten (10%) per centum portion of the premiums collected should initially be set aside for repayment of the appropriation made by State out of the General Revenue Fund for the purpose of putting the State Insurance Fund Act into operation. This has reference to a $25,000.00 appropriation provided in the original 1933 Act (§ 22), supra. The only evidence in the record before us is that this appropriation was never paid or set over to the State Insurance Fund. It appears to be agreed, or conceded, that no State appropriation has ever been used by the State Insurance Fund.

Under the provisions of 85 O.S.1971, § 149, the State and all its departments are required to insure against liability for compensation with the State Insurance Fund, and all municipal corporations, including counties, cities, towns and townships, may insure with the Fund, unless rejected by the Fund, or any county, city, town or township may carry their own insurance.

At the hearing on the temporary restraining order all of the testimony was to the effect that the money reserves of the State Insurance Fund were not excessive and were in fact considerably below a safe margin when considered in connection with those of other similar State insurance funds.

The evidence supplied by Appellees (there was no contra testimony) reflected a premium income for the previous year (1973) of close to $6,000,000.00, with a pay-out of $1.04 for each $1.00 of premium income; that total reserves for losses were in the area of $8,000,000.00, to cover about 3000 open claims then pending, reserves for catastrophe losses, Longshoremen and unreported claims, and policyholders' liability reserve for about 1700 policies outstanding. In addition it was shown there was an expense reserve of about $650,000.00 required annually to operate the State Insurance Fund. It was the opinion of the State Insurance Fund Commissioner and of an expert consulting actuary in the field of Workmen's Compensation that the reserves were excessively low and inadequate; that the reserves, percentage-wise, were clearly below those maintained by the sixteen (16) other States having similar insurance funds; that the nature of the business of many of the Fund's policyholders, being high risk type or persons the private insurers would not accept, made reserve fund formulas used by private insurers not applicable in determining the amount of the Fund's reserves; that the 1972 inclusion of coverage Longshoremen and Harbor Workers was a recognized potential for large claims and expenditures; and that, considering all of the circumstances, the existing reserves should be increased by at least $4,000,000.00 or more.

In this connection, the Appellant contends that the practice of the State Insurance Fund in making refunds to policyholders (safety refunds) shows the Fund is making a 'profit' and is evidence of a surplus. The record reflects that this is not an isolated situation, but is practiced generally in writing workmen's compensation, and is considered good practice by insurers. However, in view of our conclusions in determining the legal...