Public Housing Administration v. Housing Authority of City of Bogalusa

• Decision Date: 11 December 1961
• Docket Number: 45723,Nos. 45722,s. 45722
• Citation: 242 La. 519,137 So.2d 315
• Parties: PUBLIC HOUSING ADMINISTRATION v. HOUSING AUTHORITY OF the CITY OF BOGALUSA et al.
• Court: Louisiana Supreme Court

Page 315

137 So.2d 315

242 La. 519

PUBLIC HOUSING ADMINISTRATION v. HOUSING AUTHORITY OF the CITY OF BOGALUSA et al.

Nos. 45722, 45723.

Supreme Court of Louisiana.

Dec. 11, 1961.

Rehearing Denied Feb. 19, 1962.

A. J. Waechter, Jr., Charles W. Lane, III (of Jones, Walker, Waechter, Poitevent, Carrere & Denegre), M. Hepburn Many, New Orleans, for defendants, appellees-relators.

Rivet & Rivet, New Orleans, amicus curiae.

William McM. King (of Ellis, Lancaster & King), New Orleans, James T. Burns, Covington, Jack P. F. Gremillion, Atty. Gen., Carroll Buck, First Asst. Atty. Gen., Dan W. Graves, Jr., Bogalusa, for defendants-respondents and intervenors-respondents.

McCALEB, Justice.

This action for a declaratory judgment was brought by Public Housing Administration (hereinafter called Administration) in order to have a determination respecting certain rights under an Annual Contribution Contract (42 U.S.C.A. § 1410) with defendant local Housing Authority. By supplemental petition, Liberty Mutual Fire Insurance Company (hereinafter called Liberty) and Reliance Insurance Company (hereinafter called Reliance) were made parties defendant.

Plaintiff is an agency of the United States authorized to sue and be sued (42 U.S.C.A. § 1404a). Defendant, Housing Authority, is a public corporation of this State, created pursuant to R.S. 40:381, et seq. Liberty is a Massachusetts corporation and Reliance is a Pennsylvania corporation. Both are qualified to do business and are doing business in Louisiana. Liberty is a mutual company and Reliance is a stock company.

Housing Authority is authorized by the Legislature to enter into contracts with the federal government in order to receive loans and subsidies for the construction and maintenance of low-rent housing (see R.S. 40:451). Pursuant thereto, Housing Authority entered into a contract with Administration in connection with the construction of projects Nos. La--24--1 and La--24--2 in the city of Bogalusa. The agreement provided that Housing Authority carry fire and extended coverage insurance to protect its buildings against loss, it being required that Housing Authority advertise for bids on the insurance contract and that the insurance policy should be purchased from the lowest responsible bidder. In computing the lowest bid, Housing Authority was obliged by the contract to give consideration to the history of dividend payments by the insurer for the past ten years.

The facts of the case have been stipulated by the parties and are substantially as follows:

Housing Authority advertised for bids and bids were received. Only the bids of Liberty and Reliance conformed to the requirements of the State Rating and Fire Prevention Bureau. See R.S. 22:1405. In order to conform with the aforementioned Bureau's rates, the bids were, of necessity, identical in amount. ¹ The only difference in the bids of Liberty and Reliance lay in the fact that Liberty, as a mutual insurance company, had a history of dividend payments which Housing Authority, by the terms of its contract, was required to consider in determining the lowest bidder.

Administration demanded that Housing Authority contract with Liberty for the insurance but Housing Authority awarded the contract to the stock company, Reliance. The reason for this decision was that it was advised by its attorney that the purchase of insurance from a mutual company by a State agency would contravene Article IV, Section 12 of the Louisiana Constitution. This advice was based upon opinions of the Attorney General, there being no judicial pronouncement in this State on the issue.

Housing Authority is authorized by R.S. 40:474(11) to 'insure or provide for the insurance in stock and mutual companies of any movable or immovable property * * *'. However, it is contended by Housing Authority and by Reliance that this statute is unconstitutional.

The constitutional prohibition in question reads:

'The funds, credit, property or things of value of the State, or of any political corporation thereof, shall not be loaned, pledged or granted to or for any person or persons, associations or corporations, public or private; nor shall the State, nor any political corporation, purchase or subscribe to the capital stock or stock of any corporation or association whatever, or for any private enterprise. Nor shall the State, nor any political corporation thereof assume the liabilities of any political, municipal, parochial, private or other corporation or association whatsoever, except as otherwise provided in this Constitution; nor shall the State undertake to carry on the business of any such corporation or association, or become a part owner therein; * * *'. Article IV, Sec. 12, Louisiana Constitution of 1921.

The insurance contract offered by Liberty was a single premium non-assessable policy. Hence, Housing Authority's liability to the mutual company could not exceed the full three-year premium for the policy, which would have provided the same coverage for the same price as the stock company's policy, and additionally, by virtue of mutual membership, would have provided to Housing Authority the advantage of sharing in any profits of the Company which might be distributed as dividends.

In view of this, it was stipulated that Liberty was the lowest bidder if Housing Authority could acquire the coverage provided by its policy without contravening the Constitution. Therefore, the sole question is whether membership of a State agency in a mutual insurance company as a necessary incident to the purchase of insurance on the mutual plan is consistent with Article IV, Section 12 of the Constitution which, as shown above, forbids private investment by the State, its subdivisions and agencies.

The district judge adopted the position taken by plaintiff that a policyholder in a mutual insurance company does not, by reason of his membership in the company, either subscribe to the stock or become a part owner of the company's assets while his policy is in effect. It was accordingly concluded that such membership by a state agency did not violate Section 12 of Article 4 of the Constitution.

On appeal, the Court of Appeal, First Circuit, reversed the decision and held the statute unconstitutional. It declared that:

'A mutual insurance company is a private enterprise engaged in the insurance business. The sole source of capital for its operation is the payment by its members of assessments, whether same be limited or unlimited. The board of directors of the company, charged with its management and operation, are elected solely by its members. No one other than a member may procure a policy of insurance from a mutual insurance company. The whole is composed of its component parts. Without specifically naming it, the Constitution of this State clearly bans any participation by the State or its political subdivision in the ownership and operation of a private enterprise engaged in the insurance business and in gauging such activity does not place a yard-stick of degree of participation in forbidding same. The participants in a mutual insurance company are the sole owners and it matters not what connotation is utilized to designate the owners--whether it be stockholders, associates or members.' See Public Housing Administration v. Housing Authority of City of Bogalusa, 129 So.2d 871 at page 877.

On application of Administration and Liberty, writs of certiorari were granted which, after consolidation and argument here, have been submitted for our decision.

The specifications of error contained in the briefs of Administration and Liberty are substantially the same, save in one respect. They are, in essence, (1) that the Court of Appeal erred in applying to this case the fourth clause contained in Article 4, Section 12, of the Constitution as that clause, which prohibits the State from undertaking to carry on the business of any corporation or association or from becoming a part owner therein, is a limitation directed against the State alone and not its political corporations; (2) that the Court of Appeal erred in not considering the history, which prompted the adoption of the constitutional restraints contained in Section 12 of Article 4, as this would show that it was never designed or intended to ban the purchase of non-assessable single premium fire and extended coverage insurance issued by a company organized on the mutual plan, and (3) that, in view of the great weight of authority in this country, it was error for the Court of Appeal to conclude that, in the purchase of a mutual policy, the State or its political subdivisions lends or pledges it credit, grants its funds, assumes the liabilities of any person, association or corporation, becomes a stockholder or undertakes to carry on or engage in the insurance business, or becomes a part owner thereof.

In support of this last contention, counsel cite cases from eleven of our sister States wherein it has been held, in construing constitutional provisions somewhat similar to those of Section 12 of Article 4 of our Constitution, that state agencies did not violate the respective restraints in purchasing policies issued by mutual companies, thereby becoming members in such corporations. See State v. Northwestern Mutual Life Ins. Co., 86 Ariz. 50, 340 P.2d 200 (1959); Clifton v. School District No. 14 of Russellville, 192 Ark. 140, 90 S.W.2d 508 (1936); Miller v. Johnson County Auditor et al., 4 Cal.2d 265, 48 P.2d 956 (1935); Louisville Board of Insurance Agents v. Jefferson County Board of Education, Ky., 309 S.W.2d 40 (1958); McMahon v. Cooney, 95 Mont. 138, 25 P.2d 131 (1933); French v. Mayor of Millville, 66 N.J.L. 392, 49 A. 465 (1901); Fuller v. Lockhart et al., 209 N.C. 61, 182 S.E. 733 (1935); Huffman et al. v. Schellstede et al., 348 P.2d 1078, (Okl.S.Ct.1960); Johnson v. School District No. 1 of Multnomah County, 128 Or. 9, 270 P. 764, 273 P. 386 (1928); Downing et al. v. School...