Opinion ID: 2387279
Heading Depth: 1
Heading Rank: 1

Heading: Membership Dues

Text: Lee raises three points on appeal that involve the county Farm Bureau membership dues: (1) whether the dues were a condition of insurance rather than a prerequisite; (2) whether the membership transaction was a legitimate oral contract between the agents and insureds; and (3) whether collection of the dues constituted a breach of the insurance contract. Several statutes are pertinent to these inquiries. The first defines premium, as the term is used in the Insurance Code: Premium is the consideration for insurance, by whatever name called. Any assessment, or any membership, policy, survey, inspection, service, or similar fee or charge in consideration for an insurance contract is deemed part of the premium. Ark.Code Ann. § 23-79-101(2) (Repl.1992). A second statute, Ark.Code Ann. § 23-79-112(b)(5) & (8) (Repl.1992), sets out the information that must be contained in an insurance policy, including the premium amount and all conditions pertaining to the insurance. A third statute states: (a) No person shall willfully collect any sum as premium or charge for insurance, which insurance is not then provided or is not in due course to be provided, subject to acceptance of the risk by the insurer, by an insurance policy issued by an insurer as authorized by this code. (b)(1) No person shall willfully collect as premium or charge for insurance any sum in excess of the premium or charge applicable to such insurance in accordance with the applicable classifications and rates as filed and approved if necessary by the commissioner; ... . . . . (5) [This provision shall not be deemed to prohibit] the collection of membership dues by a property and casualty agent when membership of the applicant in an organization is a prerequisite of the insurer to the issuance of coverage. Ark.Code Ann. § 23-66-310(a) & (b)(1) & (5) (Repl.1994). Lee, as a result, argues that the chancery judge should have concluded that § 23-79-112(b)(8) mandates that the membership-dues requirement be stated in the policy as a condition pertaining to the insurance and that subsection (5) of the same statute requires that policies specify the dues as part of the premium. He contends that the chancery judge erred when he found that the $35 dues obligation is not required to be set forth in the insurance policy because it is not a premium or a condition of insurance. Lee further contends that the auto carriers' practice of enforcing payment of membership dues during the term of active insurance policies converts payment of the dues from a prerequisite for coverage to a condition of maintaining coverage. Thus, according to Lee, that condition had to be stated in the policy. Lee further urges that this court follow a decision by the Louisiana Court of Appeals which held that membership fees charged by State Farm Mutual Automobile Insurance Company were premiums and were required to be disclosed in the insurance policy. See State Farm Mut. Auto. Ins. Co. v. Louisiana Ins. Rating Comm'n, 79 So.2d 888 (La.1955). In that case, Louisiana had a statute similar to ours in Arkansas which specified that a membership fee is a premium if charged and received as consideration for the insurance. The Louisiana appellate court said, in concluding that the membership fee paid to State Farm was part of the premium: It is a play on words to state that the policyholder pays this membership fee for the purpose of applying for insurance and not for the purpose of obtaining the insurance. The same amount of money leaves his pocket (the membership fee and the initial premium are collected simultaneously, according to the record before the Commission) with the same identical purpose as when paid to other companies, and is used identically by State Farm as by other companies. State Farm, 79 So.2d at 895. The auto carriers counter that county Farm Bureau membership is clearly a prerequisite of the insurer to the issuance of coverage within the meaning of § 23-66-310(b)(5) and that the practice of collecting county Farm Bureau membership dues as a separate transaction at the time a person applies for Farm Bureau insurance is appropriate. They, in addition, note that if a first-time insurance applicant is rejected for coverage, that person's membership dues are not automatically refunded because that person may choose to remain a county Farm Bureau member if he or she desires. With regard to Lee's argument about the collection of membership dues during the active term of membership, the auto carriers contend that this practice only reinforces their position that Farm Bureau membership is a true prerequisite within the meaning of the statute, with the payment of dues being a first step to both the initiation of a Farm Bureau insurance policy and to any renewal of the policy. With regard to State Farm Mut. Auto Ins. Co. v. Louisiana Ins. Rating Comm'n, supra , they emphasize that the membership fees in that case were paid directly to State Farm to participate in the mutual insurance company. We agree with the auto carriers and with the chancery judge's finding that the membership fee in the instant case was a prerequisite and not a condition of insurance or a part of the premium. First, with respect to the State Farm case, the membership fee charged by State Farm went directly to the insurance company and was used in part to pay the operating expenses of the company. Here, on the other hand, membership dues charged by the county Farm Bureaus and paid by the members are divided as follows: 45% to the county Farm Bureau, 45% to the Farm Bureau Federation, and 10% to the national organization. There was no testimony at trial that any portion of the membership dues went to the auto carriers. Indeed, the testimony was to the effect that the membership dues were reflected in the income of the Arkansas Farm Bureau Federation. Furthermore, the structure of State Farm and the structure of Farm Bureau and its auto carriers vastly differ. State Farm does not have separate county agencies that represent interests apart from the insurance area. State Farm is primarily in the business of selling insurance. County Farm Bureaus, however, are not in the business of selling insurance. The stated purposes of Farm Bureau, as set out in its membership handbook, are: Farm Bureau was and is organized to unite farm and ranch families for the purpose of identifying, analyzing and solving problems. Therefore, it is only limited in what it can and should do by what its members want and are willing to do through it. Farm Bureau is a farmer's organization  financed by annual dues and run BY farmers FOR farmers. The overall objective of Farm Bureau is to improve net farm income. Finally, persons joining county Farm Bureaus are joining the county farm organization, while persons joining State Farm are joining a mutual insurance company. The State Farm case can be further distinguished by examining how State Farm planned to use the membership fee. In that case, State Farm intended to advertise a reduction in rates after instituting the membership fee. In an effort to protect the public from this misleading practice, the Insurance Commission said: The company has already demonstrated how it would take advantage of the so-called membership fee if it were granted, and the commission finds that applicant should not be allowed to advertise a 25% reduction in premiums while actually employing a unique play on words to designate a part of the premium as a membership fee. State Farm, 79 So.2d at 894. In the instant case, we find it telling that membership in a county Farm Bureau entitles that member to benefits apart from simply receiving auto insurance. A membership packet that was introduced at trial shows those benefits to include receipt of a Farm Bureau publication, free accidental death insurance on the member's entire family, estate planning clinics, the Southern Farm Bureau Cash Fund for investments, health insurance available through a special Blue Cross-Blue Shield plan, marketing advice systems to help farmers market commodities, a child safety car-seat program, and a $500 reward program to anyone furnishing information leading to the arrest and conviction of persons stealing, destroying or harming property on the farm or residential premises of members. We are mindful that the county Farm Bureaus essentially benefit members who are farmers. Moreover, it would be disingenuous not to admit that for non-farmers the availability of auto insurance at a competitive cost is a primary reason for joining the Farm Bureau organization. Yet, the point is that a Farm Bureau membership is not a mere charade for non-farmers but does provide tangible benefits. We hold that the chancery judge was correct in finding that the membership dues were not a premium. The chancery judge, moreover, was also correct in concluding that membership in the county Farm Bureau was an annual prerequisite for determining eligibility for coverage and not a condition of insurance. We further agree that the oral contracts for Farm Bureau membership were between the county Farm Bureaus and their members, and not between the auto carriers and the insureds. Under these circumstances, there could be no merger of the oral membership contracts into the insurance contract as they were separate agreements. Merger refers to the absorption of one contract into another subsequent contract and is largely a matter of intention of the parties.... Merger happens when the same parties to an earlier agreement later enter into a written integrated agreement covering the same subject matter. Fish v. Tandy Corp., 948 S.W.2d 886, 898 (Tex.App. Fort Worth 1997). In the instant case, the oral membership contract was between Lee and the county Farm Bureau. The auto insurance contract, on the other hand, was between Lee and the auto carrier. Hence, merger cannot apply because the same parties and the same subject matter are not involved. Further, absent merger of both contracts into one contract, the parol evidence rule will not apply. See Fish, 948 S.W.2d at 899. In sum, there was no breach of contract resulting from the Farm Bureau membership agreements. We affirm the chancery judge on these points.