People ex rel. Fund American Companies v. California Ins. Co.

Citation43 Cal.App.3d 423,117 Cal.Rptr. 623
CourtCalifornia Court of Appeals
Decision Date22 November 1974
PartiesThe PEOPLE of the State of California, on the Relation of the FUND AMERICAN COMPANIES, Plaintiff and Appellant, v. CALIFORNIA INSURANCE COMPANY, Defendant and Respondent. Civ. 33653.

Evelle J. Younger, Atty. Gen., Mervin R. Samuel, Deputy Atty. Gen., San Francisco, for plaintiff-appellant the People.

Orrick, Herrington, Rowley & Sutcliffe, Richard J. Lucas, W. Reece Bader, William F. Alderman, San Francisco, for plaintiff-appellant Fund American Companies.

Thelen, Marrin, Johnson & Bridges, Paul R. Haerle, Michael J. Narvid, San Francisco, for defendant-respondent.

EMERSON, Associate Justice. *

Plaintiff appeals from a judgment entered in a Quo warranto action, upholding defendant's right to its franchise as a California corporation and, in particular, defendant's right to use the name, California Insurance Company.

On September 25, 1964, Commercial Union Insurance Company of New York filed an application with the insurance commissioner of California for approval of the merging of its subsidiary, The California Insurance Company, with another of its subsidiaries. With the consent of the insurance commissioner, the merger became effective on December 31, 1964.

The relator in this action, Fund American Companies (hereafter plaintiff), acting on the above information, determined to secure the right to conduct the business of insurance in California under the name 'California Insurance Company.'

Industrial Indemnity Company (hereafter defendant), at about the same time also determined to acquire the same name for the same general purpose.

On November 24, 1964, a written request for approval of the name 'California Insurance Company' was filed with the insurance commissioner on behalf of plaintiff. On November 25, 1964, Mr. Joseph Thomas, Chief Assistant Insurance Commissioner, approved the use of said name by plaintiff acting under section 881 of the Insurance Code. In accordance with his regular practice, Mr. Thomas sent a duplicate original of his approval letter to the Secretary of State. This approval was made prior to the termination of the use of said name by the old 'The California Insurance Company.'

On December 31, 1964, the date on which the old 'The California Insurance Company' would be effectively merged and cease to exist, an attorney for defendant filed with the Secretary of State a request for reservation of the name 'California Insurance Company,' pursuant to section 310 of the Corporations Code. This request was approved by the Secretary of State and on January 5, 1965, a reservation of said name was issued to the attorney, effective for 30 days thereafter. On January 8, 1965, the attorney advised the Secretary of State that the reservation had been obtained on behalf of Industrial.

On January 22, 1965, the attorneys for defendant sent articles of incorporation for California Insurance Company to the Secretary of State for filing. They were filed by the Secretary of State on February 1, 1965. The defendant knew at the time it sent the articles, that plaintiff had secured approval of the name from the insurance commissioner. On February 1, 1965, defendant requested approval of its name by the insurance commissioner which was never granted.

Plaintiff did not request the Secretary of State to reserve the name 'California Insurance Company' for it, but proceeded exclusively through the insurance commissioner's office. Plaintiff never forwarded articles of incorporation to the Secretary of State.

After the filing of defendant's articles of incorporation, the office of the Secretary of State wrote to defendant, stating that its articles had been filed under the mistaken belief that the name reservation obtained by defendant had been from the insurance commissioner and requesting that defendant change its name in view of the commissioner's prior approval of the name for use by plaintiff.

The Attorney General also wrote to defendant, notifying it that it was using the name improperly and requesting defendant to change its name. Defendant refused the first request and ignored the second.

The Attorney General granted plaintiff's application for leave to sue in Quo warranto, stating that suit was necessary in order to establish the policies of the Secretary of State in relation to the orderly filing of corporate names in view of the 'apparent conflict between section 881 of the Insurance Code 1 and section 310 of the Corporations Code.' 2

At trial, defendant argued that it had fully complied with all the legal requirements prescribed by sections 308 and 310 of the Corporations Code for reserving the name 'California Insurance Company.' Hence, it alleged, it was entitled to the use of this name and could not be disenfranchised.

Plaintiff argued that defendant was not entitled to the name because plaintiff had previously reserved the same name pursuant to section 881 of the Insurance Code. In support of this claim, plaintiff sought to establish (1) that from November 1964 through February 1965 the office of the Secretary of State had an established administrative practice in connection with its function of reserving corporate names for California insurance companies of deferring to prior name reservations or approvals of the insurance commissioner; (2) that the office of the Secretary of State committed a mistake of fact in accepting for filing on February 1, 1965, the articles of incorporation of the defendant, California Insurance Company; and (3) that defendant's articles of incorporation should not have been accepted by the Secretary of State because they did not authorize the minimum amount of capital required of any corporation which proposes to engage in the insurance business (Ins.Code, § 700.01).

The trial judge submitted two special interrogatories to the jury. They were: 'Special Interrogatory No. 1: State whether or not, from November 1964 through February 1965 the office of the Secretary of State had any established administrative practice in connection with its function of reserving corporate names for California Insurance Companies of deferring to prior name reservations or approvals of the Insurance Commissioner.

'Special Interrogatory No. 2: If the answer to Special Interrogatory No. 1 is 'Yes,' then state whether, based upon said practice, the office of the Secretary of State committed a mistake of fact in accepting for filing on February the 1st, 1965, the Articles of Incorporation of the defendant, California Insurance Company.

'If the answer to Special Interrogatory No. 1 is 'No,' do not answer Special Interrogatory No. 2.'

The jury answered 'yes' to both inquiries. The judge, however, ultimately found in favor of defendant.

As to verdict No. 1, the judge accepted it and indeed, entered it as a finding of fact. He ruled, however, that it was merely a finding that the practice existed and that the legal effect of the finding was a question of law for the court. He then went on to hold that: 'Any administrative practice of the Secretary of State of deferring to the Insurance Commissioner concerning names to be reserved for domestic insurers is both (a) unreasonable, and (b) invalid to the extent that it purports to alter or enlarge the statutory mandate on the Secretary of State to reserve a corporate name where the statutory requirements have been met by the filing corporation.'

Having thus determined that the practice had no legal effect the judge ignored Special Verdict No. 2. He ruled that the question of mistake in this case was one of law and not of fact and need not have been submitted to the jury.

The effect of the judgment is to hold that there is no conflict between the two statutes, that the Secretary of State had no discretion except to file defendant's articles of incorporation and that had he refused to do so, he

could have been compelled to file them by writ of mandate. Is There A Conflict Between Insurance Code Section 881 and Corporations Code Section 310?

No. There is nothing in Insurance Code section 881 which requires that the name of a domestic insurer be submitted to the insurance commissioner before it is incorporated.

Plaintiff says that this conclusion is not at issue in this appeal. It argues that this case involves the rights of the parties when one of them in fact does obtain approval from the insurance commissioner before the other obtains a reservation from the Secretary of State.

Plaintiff therefore contends that the court below erred in concluding that the administrative practice found by the jury was without legal significance in that the practice is an exercise of the Secretary of State's duty to harmonize potentially conflicting statutes; it must be upheld unless it is clearly erroneous; it is not clearly erroneous; it represents the most reasonable interpretation of the statutory provisions and, in response to a point raised by defendant, the finding of the jury is supported by the evidence.

The last point is well taken. Applying the familiar rule stated in Carwford v. Southern Pacific Co., 3 Cal.2d 427, 45 P.2d 183, 3 we find that there is sufficient evidence to support the conclusion reached by the jury.

Plaintiff's other arguments, as stated above, do not go to the question of

statutory conflict. They lead us to the next question. Did The Secretary of State Have Discretion To Reject The Defendant's Articles On The Basis Of The Insurance Commissioner's Appropriation Of The Name To Plaintiff?

No. An administrative determination will be interfered with by the courts where the determination is based upon an error in law. (2 Cal.Jur.3d, Administrative Law, § 267, p. 518.) It is for the courts, not for administrative agencies, to lay down the governing principles of law. Accordingly, questions of law are reviewable. (Cooper v. State Bd. of Medical Examiners, 35...

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