Osborne v. Massachusetts Bonding and Insurance Company

• Decision Date: 17 March 1964
• Docket Number: Civ. No. 3943.
• Citation: 229 F. Supp. 674
• Parties: J. Carl OSBORNE et al., Plaintiffs, v. MASSACHUSETTS BONDING AND INSURANCE COMPANY, a Massachusetts corporation, et al., Defendants. MASSACHUSETTS BONDING AND INSURANCE COMPANY, a Massachusetts corporation et al., Counterclaimants and Third-Party Plaintiffs, v. J. Carl OSBORNE et al., Counterdefendants and Third-Party Defendants.
• Court: U.S. District Court — District of Arizona

229 F. Supp. 674

J. Carl OSBORNE et al., Plaintiffs, v. MASSACHUSETTS BONDING AND INSURANCE COMPANY, a Massachusetts corporation, et al., Defendants.

MASSACHUSETTS BONDING AND INSURANCE COMPANY, a Massachusetts corporation et al., Counterclaimants and Third-Party Plaintiffs, v. J. Carl OSBORNE et al., Counterdefendants and Third-Party Defendants.

Civ. No. 3943.

United States District Court D. Arizona.

March 17, 1964.

Joseph E. McGarry, Lewis, Roca, Scoville, Beauchamp & Linton, Phoenix, Ariz., for plaintiffs and counterdefendants.

William F. Haug, Jennings, Strouss, Salmon & Trask, Phoenix, Ariz., for defendants and counterclaimants.

KILKENNY, District Judge.

Plaintiffs' challenge to the right of Massachusetts Bonding to maintain an action on the indemnity agreements between the parties is premised on the failure of Massachusetts to obtain a license from the Corporation Commission under Article XIV, § 17¹ of the Constitution of that State, A.R.S. Historically, the regulation of insurance corporations in the State of Arizona has been controlled by the Corporation Commission mentioned in Article XV, § 5² and in said Article XIV, § 17.

Arizona R.S.1913,³ § 3377, provided among other things, that the Corporation Commission should be vested with "sole power to issue certificates of incorporation to companies organized under the laws of this state, and to issue licenses to corporations to do business in this state." Said Corporation Commission was required by law to satisfy itself that the applicant, for a license to transact business, was qualified to do so, before issuing such applicant a certificate, A.R.S. § 3378. This certificate was made a pre-requisite to the transaction of business within the State. A.R.S. § 3381. In substantially the same form, these provisions were carried forward in the revised Code of Arizona (1928), §§ 1782, 1783, 1785 and again in the Arizona Code Annotated (1939), §§ 61-301, 61-302 and 61-304.

Provision was made for the appointment of a Director of Insurance by the Corporation Commission in Laws 1945, Chapter 100, § 2, Regular Session. The Director to have supervision, under the Commission, of the administration of all the laws relating to insurance. In 1947 the law was modified to some extent, but the Director was still in complete charge of the laws relating to insurance. Laws 1947, Chapter 125, § 2, Page 246.

In 1954 a new Insurance Code was adopted by the Arizona Legislature to take effect on January 1, 1955. Currently, A.R.S. § 20-141 et seq.⁴

Commencing with the year 1916, and throughout the years thereafter until January 1, 1955, Massachusetts filed timely applications with the insurance division of the Corporation Commission for certificates of authority to do business in the State of Arizona and received such authority. After the 1954 enactment Massachusetts Bonding filed all of its reports and paid all of its fees and performed all of the acts required of it by the Department of Insurance of the State of Arizona under certificates issued to it by the said Department. The Corporation Commission, at first, refused to accept filings or fees from foreign insurance corporations. This attitude lasted for a period of approximately one year subsequent to January 1, 1955, and since that time certain foreign insurance companies, other than Massachusetts, have made filings with, and paid fees to, both the Corporation Commission and the Department of Insurance. Since 1955 Massachusetts has made its filings, paid its fees and received an annual certificate of authority to do business in the State of Arizona, from the Department of Insurance.

To be observed is the fact that there is nothing in the Constitution, which, ipso facto, prohibits the doing of business, by insurance companies or other foreign corporations. Therefore, it must be implemented by legislation in order to be effective. This fact has been recognized by the Arizona Legislature ever since the adoption of the Constitution in 1912.

Plaintiffs' challenge is based on the claim that the 1954 legislation provided for a Department of Insurance entirely separate and distinct from, and in no manner governed by, the Corporation Commission, the licensor of all foreign corporations under the Arizona Constitution. The plaintiffs, in pursuance of this claim, find considerable comfort in the language of the Arizona Supreme Court in Williams v. Bankers National Insurance Company, 80 Ariz. 294, 297 P. 2d 344, 346 (1956), where the Court, among other things, said:

"* * * In effect, the obvious intent of the legislature in the passage of this new insurance code was the creation of a distinct department of insurance * * *."

Assuming, without deciding, that this language of the Court was appropriate and necessary to its decision, rather than dicta,⁵ as argued by Massachusetts, there is nothing in this language which even suggests that the new Department of Insurance was equal to, or entirely separate and apart from the Corporation Commission. As I read and interpret the legislation, the Director of Insurance remains an agent of the Corporation Commission. The Legislature specifically provided that the Director of Insurance was to remain subject to the control of the Corporation Commission. The Corporation Commission had the power of appointment and only the Commission could remove him from office. The only reasonable interpretation of the legislation is that the Legislature, in its wisdom, concluded that a distinct department of Insurance was necessary and intended that such Department should be an administrative branch of the Corporation Commission, with the acts of the Director of Insurance to be viewed as the acts of the Corporation Commission itself. In construing the legislation, I am bound to place thereon a construction such as will accomplish the legislative intent, and, if possible, avoid an absurd conclusion or a construction which would render the statute invalid or unconstitutional. State v. Airesearch Manufacturing Co., 68 Ariz. 342, 206 P.2d 562.

It is a cardinal rule of statutory construction that every intendment is in favor of the constitutionality of legislation, and unless its invalidity is established beyond a reasonable doubt it will be declared constitutional. Roberts v. Spray, 71 Ariz. 60, 223 P.2d 808. I am in complete agreement with defendants' contention that the legislature never intended that the Director of Insurance should be viewed as anything other than an agent of the Corporation Commission. It follows that the act of the Director of Insurance in issuing a certificate of authority to Massachusetts Bonding to transact business in the State, is, in truth and in fact, the act of the Corporation Commission. Plaintiffs, in deference to these decisions, concede that the 1954 legislation is not unconstitutional. They urge that Massachusetts was required by the 1954 legislation, to obtain a Certificate of Authority not only from the Director of Insurance, but also from the Corporation Commission. I find no legislation or decisional law to support this view. The only legislation requiring a license or a certificate of authority is that contained in the 1954 Act. If plaintiffs are correct, the constitutional provisions, with reference to a license, are without meaning, in that the legislature never implemented, with proper legislation, the constitutional requirement of: "such terms as may be prescribed by law". The practical interpretation as placed on this constitutional provision by the Legislature, over the course of the years, is entitled to great weight. Likewise, the practical construction placed on the 1954 legislation by the Corporation Commission and the Director of Insurance, is of assistance in arriving at the correct conclusion. United States v. Atlantic Refining Co., 360 U.S. 19, 79 S.Ct. 944, 3 L.Ed.2d 1054; United States v. Republic Steel Corp., 362 U.S. 482, 80 S.Ct. 884, 4 L.Ed.2d 903; Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 65...