Selective Life Ins. Co. v. Equitable Life Assur. Soc. of U.S.

• Decision Date: 19 January 1967
• Docket Number: No. 8782--PR,8782--PR
• Citation: 101 Ariz. 594,422 P.2d 710
• Parties: SELECTIVE LIFE INSURANCE COMPANY, a corporation, Appellant, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, a corporation, Appellee.
• Court: Arizona Supreme Court

Page 710

422 P.2d 710

101 Ariz. 594

SELECTIVE LIFE INSURANCE COMPANY, a corporation, Appellant, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF the UNITED STATES, a corporation, Appellee.

No. 8782--PR.

Supreme Court of Arizona, In Banc.

Jan. 19, 1967.

Rehearing Denied Feb. 21, 1967.

Lewis, Roca, Scoville, Beauchamp & Linton, by John P. Frank, Jeremy E. Butler, Phoenix, for appellant.

Evans, Kitchel & Jenckes, by Edward C. LeBeau, O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, by Wilbert G. Anderson, Phoenix, for appellee.

Snell & Wilmer, by Edward Jacobson, Phoenix, for amicus curiae, Life Ins. Ass'n of America.

McFARLAND, Vice Chief Justice:

Selective Life Insurance Company, herein referred to as Selective, was the defendant in the trial court and the appellant in the Arizona Court of Appeals. Selective has asked and been granted review of the decision of the Arizona Court of Appeals in the case of Selective Life Insurance Company v. Equitable Life Assurance Society of the United States, 3 Ariz.App. 162, 412 P.2d 731.

Selective's appeal arose from a summary judgment rendered by the trial court against Selective and in favor of The Equitable Life Assurance Society of the United States, hereinafter referred to as Equitable.

The facts of the case are as follows: On May 8, 1964, both Selective and Equitable held mortgages on property owned by James J. Fain and Jeannine Y. Fain. Equitable brought an action to foreclose its mortgage, asking inter alia that its mortgage be declared a valid first mortgage and superior to that of Selective. Selective answered and defended on the ground that Equitable was not qualified to do business in the State of Arizona on the date its mortgage was executed, and that as a result Equitable's mortgage was void; therefore, Selective's mortgage and judgment lien would be superior to any interest of Equitable.

Equitable is a foreign corporation incorporated in the State of New York, and on appeal admits it was doing business in Arizona, and that it was not licensed under the general corporation law, A.R.S. § 10--481. However, Equitable was authorized to transact a life and disability insurance business under a certificate of authority issued on April 1, 1963, by George A. Bushnell, Director of Insurance, State of Arizona.

The trial court, finding no genuine issue as to any material fact, granted summary judgment in favor of Equitable, declaring Equitable's mortgage to be valid and superior to that of Selective. On appeal, the Arizona Court of Appeals affirmed the judgment of the lower court.

The question presented, as seen by this court, is: Does a certificate of authority to transact a life and disability insurance business issued by the director of insurance on April 1, 1963, authorize a foreign insurance corporation to make valid mortgage investment contracts in the State of Arizona?

To determine the answer to this question, we must first examine the constitutional provisions relating to the licensing of foreign corporations. Article 14, Section 17, of the Arizona Constitution, A.R.S., states:

'* * * No foreign corporation shall have authority to do business in this State, until it shall have obtained from the Corporation Commission a license to do business in the State, upon such terms as may be prescribed by law. * * *' A.R.S.Const. Art. 14, § 17.

Article 14, Section 8, provides:

'No domestic or foreign corporation shall do any business in this State without having filed its articles of incorporation or a certified copy thereof with the Corporation Commission, * * *' A.R.S.Const. Art. 14, § 8.

Article 15, Section 5, provides:

'The Corporation Commission shall have the sole power to issue certificates of incorporation to companies organizing under the laws of this State, and to issue licenses to foreign corporations to do business in this State, as may be prescribed by law.' A.R.S.Const. Art. 15, § 5.

The foregoing provisions are mandatory under Article 2, Section 32, of the Arizona Constitution. ¹ However, those provisions relating to issuance of licenses to do business are not self-executing, as the terms and procedure under which the corporation commission will operate are left to be prescribed by law. Miller v. Wilson, 59 Ariz. 403, 129 P.2d 668.

The legislature has enacted a statute--A.R.S. § 10--481--setting forth the procedure to be followed by a foreign corporation in order to receive a license to do business in this state. The foreign corporation acting under this statute must, among other things, file a copy of its articles of incorporation with the corporation commission, appoint a statutory agent, and pay certain fees. A.R.S. § 10--481, Subsection E, provides, however:

'This section shall not apply to insurance corporations, nor to any corporation transacting in this state only the business of lending funds to religious, social or benevolent associations.' A.R.S. § 10--481, Subsection E.

A.R.S. § 10--482 makes it clear that A.R.S. § 10--481 is to be the controlling statute in determining the validity of acts of foreign corporations doing business in this state, inasmuch as it provides that:

'No foreign corporation shall transact business in this state until it has complied with the requirements of § 10--481, and every act done prior thereto is void.' A.R.S. § 10--482.

The legislature, having excluded foreign insurance corporations from the applicability of A.R.S. § 10--481, has provided for the regulation of foreign insurance companies under the Arizona insurance code, A.R.S. §§ 20--101 to 20--1616. The insurance code requires that foreign insurance companies comply not only with requirements equal to those set forth in A.R.S. § 10--481, but imposes additional requisites not found in the general corporation statutes. See A.R.S. §§ 20--215 and 20--167. All insurance companies, foreign and domestic, are subject to regulation under the insurance code, and no insurer shall transact insurance business in this state except under authority granted by the director of insurance. A.R.S. §§ 20--107, 20--206.

Equitable contends that the certificate of authority which it holds from the director of insurance, and which it renews annually, is the constitutionally required license from the corporation commission. This contention is based on several statutory provisions, which are as follows:

' § 20--141. Director of insurance; appointment; term; qualifications; salary

'A. There shall be a director of insurance who, subject to subsection E of this section, shall be appointed by the commission, subject to approval by the state senate.

'B. The term of the director shall be six years, but he may be removed by the commission for cause.

'E. The individual holding the office of director of insurance immediately prior to January 1, 1955, as such office was constituted prior to January 1, 1955, shall be the director of insurance until expiration of the term for which last so appointed prior to January 1, 1955, but such individual shall be subject to earlier removal for cause by the commission and shall likewise be eligible for reappointment by the commission at expiration of such term.

' § 20--154. Annual report

'A. As early in the calendar year as possible the director shall annually prepare a report for delivery to the commission, the governor and the legislature * * *.'

Equitable argues that these statutes provide sufficient agency contacts, so that, when viewed in the light of the strong presumption of constitutionality of a legislative enactment, the act of the director of insurance must be considered to be the act of the corporation commission; thereby obviating the necessity for double qualification of foreign insurance corporations. Equitable cites the recent case of Osborne v. Massachusetts Bonding and Insurance Company, 229 F.Supp. 674 (D.Ariz.1964), wherein it was said:

'* * * I am in complete agreement with defendants' contention that the legislature never intended that the Director of Insurance should be viewed as anything order 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. * * *' 229 F.Supp. at 677.

There is no doubt but that under the law of Arizona prior to the adoption of the insurance code in 1954, the director of insurance was acting on behalf of the corporation commission, as the 1947 enactment, A.C.A. 61--301a(a) (Ariz.Sess.Laws 1947, Chap. 125), specifically states:

'The commission shall appoint a director of insurance who shall have supervision, Subject to the authority of the commission, of the administration of laws relating to insurance as prescribed in this chapter and regulations promulgated by the commission pursuant thereto.' 61--301a(a), A.C.A.1939 (Emphasis added.)

When the new insurance code was enacted, this provision was omitted, and the corporation commission was left only the power of appointment, subject to approval of the senate, and the power to remove for cause. In a previous discussion of the legislative history of the insurance code, in Williams v. Bankers National Insurance Company, 80 Ariz. 294, 297 P.2d 344, we said:

'In 1954 the old insurance code was repealed and a new one adopted. Under the new code the director is appointed by the corporation commission subject to approval by the senate but he now acts as exclusive head of the department of insurance, * * *

'By section 61--1404, 1954 Supp., A.C.A.1939 (A.R.S. § 20--143), he is granted the power to make necessary rules and regulations for effectuating any provision of the insurance code. 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, the function of which is that of an administrative body to control the administration of insurance matters as ...